Is a Deficit Really a Strength?
In “Red Ink. The New Black?” [December 2/9], Marshall Auerback advocates extremism on federal deficit spending. But it is not clear to me what his attitude is on the progressive presidential candidates’ proposals for increased taxes on the wealthy. Would he advocate making huge new expenditures on Medicare for All and the Green New Deal with no offsetting revenue increases? He demonstrates that tax cuts for the rich have little positive effect on the economy. Would he agree that, conversely, more taxes on them would have little negative effect?
My inclination is toward prudence, which I am sure is a word that Auerback hates even more than “moderation.” I am old enough to remember the inflation that resulted from the quadrupling of oil prices by OPEC in the late 1970s, the skyrocketing interest rates that the Federal Reserve used to try to quell that inflation, and the economic recession those interest rates caused. Fortunately, the federal debt was then at its lowest point relative to GDP since before the Great Depression. Today the federal debt is slightly higher than the GDP. If that had been the case in 1980, the interest rate burden on the federal budget would have been significantly higher than it was. Does Auerback’s extremism mean increasing the current debt again?
We should not ignore the possibility that external shocks in the future might produce a similar situation. The budgetary dilemma it would create would itself be extreme. Should we cut back on all other federal expenditures to pay the interest on the national debt? That would mean withdrawing the social supports that people depend upon in a recession. Should we borrow more money to pay the interest, increasing the debt burden that is already more than we can bear? Should we default on “the full faith and credit of the United States”?
Homer Edward Price
Keynes did not teach us that running a deficit is always OK. He taught us that in a severe depression, when there is (a) monetary hoarding or (b) insufficient investment even at a zero rate of interest, then deficit spending will be needed. Pseudo-Keynesians claim that deficit spending is always needed, period. Thus Keynes’s prescription, valid for the 1930s and the 2008 crisis, is said by expenditure devotees to justify unbalanced spending, always.
Sorry. Check The General Theory of Employment, Interest, and Money.
In normal, nondepression times, here’s what happens. The government runs a deficit. It has to borrow. The Fed provides the money to the government, which buys the investment goods or services it wants. This cuts the goods available to the private sector, and prices rise (inflation). People are suckered by the inflation, ending up with a lower real wage. Keep using the trick, and you’ll generate rising inflation, because at each iteration, people anticipate the last inflation rate, so you have to go even higher.
Exactly this happened from 1965 to 1980. Lyndon Johnson financed the Vietnam War on the cheap with deficits. Nobody slammed on the brakes. In 15 years, inflation climbed from 1 percent to 13 percent. At this rate, only a man on horseback could break the inflation. And so we got Cowboy Reagan.
Note the pattern: Massive deficit spending implies surging inflation, which calls forth a nasty rightist to discipline the workers.
Marshall Auerback Replies
In answer to the many questions raised, let me start by saying I would support increased taxes on the wealthy on distributional grounds as opposed to revenue-raising grounds. There are good reasons for decreasing the spending capacity of the rich (via taxes, etc.), but none of those reasons relate to whether the government has the financial capacity to provide first-class public services to the poor (or the rest of the population). Trickle-down is a neoliberal myth. We can agree on that. Putting spending power into the hands of those who will only save it does nothing for growth, which is a point I made in the article.
For more growth to occur, spending power has to be in the hands of those who spend, so I would probably adjust tax policy accordingly and impose higher taxes on the wealthy and lower them on working- and middle-class Americans.
I also pointed out that inequality is a constraint on economic growth, as more and more of the gains are concentrated in the hands of those with the highest savings propensities. Prior to the 1970s, when neoliberal ideas started to gain prominence, real wage growth largely tracked productivity growth, which meant that as the productive capacity of the system expanded, the capacity of the workers to maintain consumption standards out of wages also grew in proportion.
Some high incomes were produced, but these typically came from success in building things and spreading the gains (somewhat) to workers.
Now high incomes come from the financial sector, capturing an increasing share of national income and using it to shuffle financial assets in the financial markets casino, which adds about zero to productive output. So yes, I have no problems taxing the wealthy under those circumstances.
Also, I never suggested that deficits don’t matter, which is a common mischaracterization. What matters are the real resource constraints, as opposed to some arbitrary number that people try to equate with sound finance. In other words, if the economy is at full capacity, then a government has to divert resources from other uses into a specific service that it wishes to expand. In such situations, clearly some moderation of deficit spending is required.
I would do that via taxation. But the taxation is freeing up real resources to be used in the desired way by depriving the nongovernment sector of their use. It is not giving the government extra money, which enables it to spend.
More generally, taxing the rich is part of a progressive agenda because it reduces the power of the rich to exploit the political process for their purposes. It is mostly true that a government can spend more if its tax revenue is higher and the economy is operating at full employment. For a currency-issuing government, this has nothing to do with the tax revenue providing more money to the government, which would allow it to spend more.
The point is that the higher tax revenue implies that the nongovernment sector has less spending capacity and that more real resources are left idle so the government can bring them into productive use by spending more. That is the essence of the sectoral-balances approach that I discussed. The qualification is if the higher tax revenue comes only from unspent nongovernment income or other tax bases and there is no impact on nongovernment spending.
Donna Minkowitz’s piece “Why Racists (and Liberals) Keep Writing for ‘Quillette’” [Dec. 5] totally mischaracterizes the excerpt from my latest book, A Politically Incorrect Feminist, as “a long piece on her anger at the women’s movement.” In addition to loving and soulful obituaries for beloved friends Barbara Seaman, Jill Johnson, and Kate Millett (no anger there), here are the allegedly “angry” paragraphs:
I recant none of the visionary ideals of Second Wave abolitionist feminism. Rather, as a feminist—not an antifeminist—I feel obliged to say that something has gone terribly wrong among our thinking classes. The multicultural canon has not led to independent, tolerant, diverse, or objective ways of thinking. On the contrary; it has led to conformity, incivility, and totalitarian herd thinking.
World events have made feminist ideas far more important—yet, at the same time, Western feminism has lost some of its power. It’s now a diversionary feminism that is also far more invested in blaming the West for the world’s misery than in defending Western values, which have inspired countless liberation movements, including our own feminist revolution.
Many feminist academics and journalists now believe that speaking out against head scarves, face veils, the burqa, forced marriage, female genital mutilation, and polygamy is somehow racist. I did not foresee the extent to which feminists who, philosophically, are universalists would paradoxically become isolationists. Such timidity (presumably in the service of opposing racism) is perhaps the greatest failing of the feminist establishment. Postmodern ways of thinking have also led feminists to believe that confronting narratives on social media or signing petitions are as important and world shattering as rescuing living beings from captivity.
That the “good-old bad-old times” didn’t last, that illusions were shattered and people were betrayed is hardly unique. Perhaps, if the world keeps spinning on its axis, another great opening in history may come round, and if our best work is preserved, and preserved accurately, future generations may be able to stand on our shoulders.
I do not think this can objectively be described as “anger” so much as a critique of institutionalized contemporary feminism. Nor can my 21st century work about female genital mutilation; polygamy; the burqa; honor-based violence, including honor killing; child marriage; the public gang-rape of girls and women in war zones; the rise of commercial surrogacy; and the increase in sex slavery/trafficking be described as “Islamophobic” or racist. Islam is not a race; it is a religious, political, and social ideology whose followers belong to all races.
I view my 21st century academic studies and journalism as purely feminist work. Perhaps Minkowitz, who interviewed me but who did not quote me, was assigned a “hit” job on Quillette and is holding myself and Cass Sunstein liable for publishing in Quillette, given some of their other pieces. Really: Is my publishing a letter in the pages of The Nation proof that I agree with or am responsible for every article published in their pages, especially those that concern anti-Semitism, Israel, Palestine, Islam, Jihad, terrorism, and the sins of the post-Enlightenment West?
Quillette often publishes cutting-edge pieces that require independent thinking and are not “politically correct.” They do not publish propaganda.
Professor emerita of psychology and women’s studies
City University of New York
Donna Minkowitz Replies
With regard to Phyllis Chesler’s latest book, I think I’ll let the paragraphs she cites speak for themselves. With regard to her thoughts on publishing in Quillette, when I asked Chesler over e-mail how she felt about Quillette‘s publication of numerous articles arguing that there are empirical racial differences in intelligence, Chesler responded, “The exhaustively virtuous focus on racism among feminists has trumped our concern with sexism, classism, and homophobia.” She also said, when I sent her links to these articles, “Thanks for sending these links… But oh dear! There are so many.… I do not have the time to read all these pieces, go to the books or the studies cited and then read them (I am an academic and routinely do this but cannot do so at this time). As a sister writer, I’m sure you are sympathetic to the reality that The Nation is not paying me for my time.”