Biden's “Build Back Better” plan purports to be the most ambitious government project since Obamacare. Details remain scarce, but the plan would spend big on infrastructure, green energy, and childcare. But the Washington Post reports that some on the White House's team of economic advisors are giving Biden the worst possible advice about the legislative package: "[t]he plan could jeopardize the nation’s long-term financial stability."
What this means (according to the balanced budget folks) is fiscal spending will greatly expand the deficit, and this would do nasty things to interest rates and make government debt very dear. This dire vision of the economy's deficit-burdened future was nowhere to be heard when Donald Trump signed the costly, in social terms, "2017 Tax Cut and Jobs Act (TCJA) into law." This silence continued even as the tax cuts contributed little to the already growing economy and instead generated what Forbes' Christian Weller described as "trillion-dollar deficits in an expanding economy."
The money the GOP handed to corporations went directly to the stock market, often in the form of share buybacks, because they "were already profitable and [sitting] on piles of cash in 2017." Now that Biden is the president, and his big-spending plan includes reducing American poverty (among other socially significant things), suddenly this silence about deficits has been broken.
You’ve got to be kidding me. pic.twitter.com/9CxkBA69BY
— Stephanie Kelton (@StephanieKelton) March 30, 2021
The heterodox economist Stephanie Kelton is famous for attacking, at every opportunity, balanced budget advocates and their dreary/fairy reasoning. Her excellent 2020 book The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy identified six myths about fiscal spending and its consequent debts, the main one being that governments are not like households or firms, because the latter two are supplied money while the former supplies it (an important element of state power that Greece longed for during its post-2010 euro debt crisis).
Another known myth is that deficits harm or drag down the economy. But history, the greatest Marxist ever, shows the opposite is the case: deficits reduce inequality by expanding the side of the economy that generates income for 80% of American households. Although growth without limit is proving to be a disaster for the environment, an economy directed by supply-side logic increases inequality while destroying public goods like clean ear, fresh water, and biosphere diversity.
Another myth that Kelton attacks is that deficits are just deficits and nothing more. But the wonder is that so many of us only see this one side of government spending and not the other, which is the obvious formation of surpluses in corresponding sections within the home economy. The same cannot be said of stock markets, which tend to suck up and lock up money from the conventional economy (some call it the real economy) or from tax cuts.
This last myth-buster is hard for many to appreciate because of one of the many economic fairy tales that top journalists and professors (read the last page of The General Theory of Employment, Interest and Money) daily pump into the minds of millions of Americans. This fairy tale says budget surpluses are the best thing ever for capitalist economic expansion and long-term prosperity. But this thinking is wrong-headed. Budget surpluses direct money out of the economy and into the government, where it can only help balance a budget.
Indeed, some economists have shown that the slump of 2001 was triggered not by the dot-com bust but by Bill Clinton's large and consecutive budget surplus (when government spending is below its revenue). Many Dems will not stop talking about those golden Clinton surplus years, even to this day.
It doesn't matter who had the largest deficit if you inherited the problem that caused it. It matters what you did about it.
Both Obama and Clinton shrunk the federal deficit massively; Clinton even ran a surplus.
The problem is the unfunded tax cuts. pic.twitter.com/NdTCb86SKk
— Monty 🇺🇸Lincoln's Speeches🇺🇸 Boa (@MontyBoa99) July 12, 2019
But this passage in a book, Why Minsky Matters: An Introduction to the Work of a Maverick Economist, by a heterodox economist L. Randall Wray, describes the negative consequences of the Clinton surplus in a straight-forward way:
The mostly unrecognized flip side to a government sector surplus is a private sector deficit (holding the foreign balance constant), so “improvement” of government balances must mean by identity that nongovernment balances become more precarious.
Followers of the work of [Hyman] Minsky and [Wynne] Godley were thus amused by positive reactions to the Clinton-era budget surpluses and the predictions that all federal government debt would be eliminated over the coming decade and a half. It was no surprise to the followers of Minsky that the Clinton surpluses killed the boom and morphed into budget deficits, since the budget automatically moves toward larger deficits in a slump, maintaining profit flows and strengthening private balance sheets that accumulate net wealth in the form of safe government bonds.
(Wray and Kelton are associated with Modern Money Theory movement in contemporary heterodox economics.)
The question to ask, then, is why is there so much noise about the badness of deficits and the goodness of tax cuts? Because capitalism is in essence a class-structuring system. It is not concerned about the economy as a whole (that's the state's problem), but instead about the part of it that maintains and sends social power (represented by money) to those at the top. A fully functioning capitalist system will produce fewer and fewer Musks, Gateses, Buffets, and Bezoses. The realization of extreme concentrations of social power is not a consequence of the system's irrationality. It is as rational to capitalism as a flower is to a plant. Deficits (the fiscal kind) are despised because (obviously) they weaken the grip capitalist class organization has on our society. Tax cuts only strengthen it.