Posts Tagged ‘Fiscal Policy’

Reposted from Daily Kos 6 August 2014

This is the second bite-sized installment in my series on why monetary policy matters to progressives, why it’s worth your time to learn and why it isn’t as hard or as boring as you think.*

Having said that I’m going to start this diary by talking about fiscal policy. When I say “fiscal policy” one of three things will come to mind: a) the spending and taxation policy of Congress, b) that thing you vaguely remember from your macroeconomics class fifteen years ago which may or may not have to do with something-or-other or c) a really excellent abs workout. Actually, as I see it, this is a trick question because in practice none of these things are the case.

Fiscal policy is supposed to be the macroeconomic (I’ll explain this term below) effect on the economy of the taxing and spending policies of Congress and technically this is the case. Practically, however, no fuzzy dice. This would be because the word “policy” implies that Congress is making spending and taxation decisions based upon something other than how it effects their individual re-election campaigns and the associated campaign coffers. I’m not talking about the infamous Bridge to Nowhere or, my personal favorite, the Teapot Museum. I’m talking about reducing the funding for Head Start and unemployment benefits in favor of funding a missile system which the Pentagon has specifically said it does not need or want.

In Congress, in accordance with the Constitution, spending bills must originate in the House. This is called “the power of the purse” and by that the current House means the power of the purse to beat you down until they can wipe you off the bottom of their shoe on the nearest patch of grass. This is also called the “Paul Ryan Budget” and the clear objective is to destroy the middle class and the poor while pouring money down the throats of the top 1% until they choke our economy to death.

Congress is supposed to be using the power of the purse to spend money into the economy when it is needed and pull it out, via taxation, when the economy starts to overheat. THAT would be “fiscal policy” and there are two essential things you need to know about it.

1. Congress does not need to tax ANYONE on order to have money to spend. Congress owns this thing called a printing press and can direct the Treasury to put that press to work any time it likes. (I will cover this in much greater detail in a later installment.)

2. Inflation is not a threat when unemployment and underemployment are high and while Republicans and many elected Dems cannot understand this the concept will make perfect sense to you if you take a kale break and think about it. Inflation happens when demand exceeds supply and more can be charged for things that are suddenly in short supply. (Think Cabbage Patch dolls in 1983 or the gold iPhone 5s.) For that to be the case an economy would have to be working at full capacity both in industrial capacity and, more importantly, in labor capacity. Does anyone, anywhere on this planet think there is any way this economy is in danger of inflation? Ok, I’ll grant you, Alan Greenspan and Michelle Bachman, but I’m talking about people who might actually be in touch with reality. Anyone…anyone? Yeah, I thought not.

Congress is supposed to be thinking about the whole vegetable garden when they are making their spending and taxation decisions but they are not so the result is that annual spending, while continuing to have macroeconomic effect, is much more correctly seen as having microeconomic effect in that it is directed at specific individuals (the 1%), specific businesses (big business not Main Street) and specific (conservative) social agendas. If you want to understand the single biggest reason why the economy is still soft, this is it. The House has abrogated their fiscal responsibility completely. Period. Ffft!

It is worth saying that while “austerity” and “fix the debt” sound like macroeconomic policy they are tissue-paper thin lies used to disguise moving the wealth of the economy from the pockets of the many into the greedy hands of a few. Again, later in this series I will describe this process and how we can put an end to it so stick with me, baby. It’s going to be fun and besides, we rabbit Americans really know how to party.

Macroeconomics and microeconomics may be courses you took in college or they may be courses you avoided like the plague. Certainly, college is not necessary in order to understand the most important basics. For now, all you need to know is that macroeconomics is the big stuff: unemployment, inflation and the currency exchange rate. Functionally, monetary policy is the purview of the Federal Reserve Bank of the United States of America (the Fed.) Everyone except elected officials will immediately note that unemployment can be much more easily and directly improved by Congressional spending (fiscal policy) but, as we all know, John Bohener is much too busy regulating his level of orange to pay attention to the decimation of the middle class.

Microeconomics is, as you will have guessed, the little stuff: individuals, specific businesses or industry sectors, specific social classes. Microeconomics is how all the big stuff, macroeconomics, thumps down hard on your kitchen table and mine.  Microeconomics is personal and it’s the part that hurts but never, ever, EVER let yourself be mislead. Microeconomics flows from macroeconomics. The big stuff drives the little stuff. If Congress is only spending into the economic sectors that are the exclusive territory of the 1% and if the Fed is only spending in a manner which serves to sequester money out of the economy AND is refusing to regulate banks and investment institutions then things can only get worse. Which explains a lot.

But this doesn’t have to be the case. Progressives have formed coalitions and created memes that have moved mountains before. We must and can do it again. The first step is understanding the vocabulary and the mission. Then we do what we are best at, we raise some H-E-double-carrots. We won’t get everything we want but it is entirely within our power to get a lot more than we have now. Tune in to Netroots Radio The After Show every Thursday at 11AM EDT/8AMPDT for more. If you can’t join us for the live stream then catch the podcast available on Stitcher Radio and iTunes.

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