With debt ceiling lifted, will America move to non-fiction on economic issues?

Published on Real-Worls Economics Review Blog, by Mark Weisbrot, Oct 22, 2013.

… As expected, the Republicans were defeated and got nothing for their efforts other than a record-low approval rating.  The New Yorker’s satirist Andy Borowitz summed up their “noble cause” with a fictional quote from Ted Cruz:  “The dream of keeping poor people from seeing a doctor must never die.”

The outcome was never much in doubt. The Tea Party and its friends do not control the majority of the Congress, nor could anyone expect House majority leader John Boehner to defy the Chamber of Commerce, the Business Roundtable, and the rest of America’s most powerful business lobbies after they made it clear that they would not stomach even a temporary, technical default on U.S. Treasury obligations. Indeed, it is testimony to the extremists’ base of support within their party – and their own stubbornness – that they made it as far as they did.  

If only the Democratic leadership had this kind of pressure to respond to its voters – including the fear of losing primary elections that plagues so many Republicans – now there would be some democracy.  This is because the majority of Democratic voters, unlike the Tea Party and its allies, have demands that are in line with the majority of the country:  they want jobs for the more than 21 million Americans who cannot find full-time work;  they believe that everyone, not just the 1 percent who have gotten 95 percent of the income gains since 2009, should share in the benefits of economic growth.  And they decidedly don’t want any cuts in Social Security, Medicare, or the social safety net in general in order to strike a “Grand Bargain” with the Republicans.  In all of these views they have the majority of the country on their side.  “Majority rule” in the Democratic party would actually strengthen it – unlike the disruptive influence that the Tea Party and its allies have had on the Republicans.

Yet there is a huge disconnect between what passes for political debate in this country and what most Americans want, not to mention basic arithmetic and accounting.  Why are we even talking about the national debt, when the net interest payments on the debt are about 1 percent of GDP – as low as they have been for the past 60 years?  This is the real burden of the debt:  the cost of servicing it.  This is what matters — not the meaningless numbers like $16.7 trillion that are thrown around to scare people and distract them from the real problems that the country is facing.

How is it that our Democratic president, whose opponents have been utterly defeated in their efforts to prevent Congress from raising the debt ceiling, now feels that he has to negotiate with them over a fictional problem – instead of taking up the legitimate concerns of not only his own base but the majority of Americans whose real income has stagnated or fallen for the past 30 years?  Not to mention (and they are in fact not often mentioned) the 46 million Americans living below the poverty line?

This shows how much of our problem is one of public education.  The Federal Reserve has created more than $3 trillion since 2008, and contrary to popular misconceptions this has not caused any problems with inflation, which is running at just 1.5 percent annually.  This demonstrates that when the economy has so much slack and unemployment, we can finance public investment and job creation without adding to the net interest burden of the debt at all.  Federal Reserve Chairman Ben Bernanke appears to understand this and has done his part, perhaps hoping that Congress and the executive would do theirs.  Instead we have had fiscal consolidation since 2010 (about 2.9 percent of GDP) and therefore inadequate growth to bring us back to the levels of employment that we had before the Great Recession … //

… (full text).

Links:

The innocent eye test? on Real-Worls Economics Review Blog, by David Ruccio, Oct 22, 2013: I’ve been around economics long enough now that, upon reading the latest defense of economics as a science, I just have to chuckle. Or I would, if the implications were not so devastating …;

Exchange rate regimes do matter: some European facts.10 graphs, on Real-Worls Economics Review Blog, by merijnknibbe, Oct 22, 2013: There is a discussion going on about differences (or not) in economic performance between countries with more flexible and countries with more rigid exchange rate regimes, the Euro being the most rigid regime and floating rates, like those of the UK and the USA, the most flexible one. Look here for an article by Andy Rose which states that differences do not matter: here for comments from Krugman and here for comments from Matthew O’Brien …;

(see also: Welcome to our new blog: politics for the 99%).

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