#4 The Real Enemy: Austerity

Just as vultures profit from the demise of roadkill, so vulture capitalists profit by picking up foreclosed and forfeited assets cheaply. The difference is that, unlike birds, humans are willing to sabotage the population’s livelihoods for their own profit by spreading misinformation about the financial system and money technology itself. Among others, Pete Peterson’s efforts to “fix the debt” and his many foundations put that misinformation out, pretending “Fiscal Responsibility™,” but spreading misinformation.

Despite the obvious-in-retrospect difference between them, it takes very little effort for these deceivers to make the public believe that currency creators and currency users are the same because the public seldom experiences this distinction in the ordinary course of their economic lives. Even the idea that a bank’s liability is a household’s asset, or that national debt is the savings of the population does not appear often in mainstream economics, or the narratives promoted by media and pundits.

So...the idea that the Federal government, like a household, must “pay as it goes” is a commonplace, but the mixed economy that “Made America Great” is disappearing. Why? Government spending on research, the environment, and health and social services declines as a consequence of this false narrative. (For historical perspective about the mixed economy in recent times, see Hacker and Pierson’s American Amnesia: How the War on Government Led Us to Forget What Made America Prosper.)

Examples of how essential government is to social justice (courts, the NLRB), environmental preservation (parks, the EPA), health care (the CDC, vaccines and an estimated 75% of pharmaceutical innovation) or even technology (GPS, the internet, transistors, integrated circuits, touch screens, etc.) are difficult to ignore. Nevertheless, it’s common to hear that taxes are theft and government is useless, and far more corrupt and incompetent than the private sector. (But what about all those private scandals: Equifax, Enron, Adelphia, Silverado Savings & Loan, Credit Mobilier, etc?)

Unfortunately, even the promoters of government innovation like economist Marianne Mazzucato don’t always understand money technology. Mazzucato, for one, wants government to be reimbursed for its investments in research and development. Not a terrible idea, but certainly unnecessary. This misperception of government’s role in the economy leads even “lefties” like  Dilma Rousseff in Brazil to adopt austerity, ultimately leading to their own demise (Rousseff is out of power).

Given the narrative that taxes are theft and government is a bunch of incompetents--heard even from government employees by this author--it’s not difficult to understand why austerity, cutting back taxes, and cutting back programs, has occurred. For just one example, federal spending on higher education has diminished 55% since 1972. I’ve heard from educators themselves that states have cut higher education funding even more than the federal government. As a consequence college tuition rose, and generations of students graduate to decades of debt peonage.

The current situation echoes the post-civil war “Gilded Age.” The Confederate South was particularly hard hit. Not only did Washington encourage deflation by withdrawing its fiat currency (“greenbacks”) from circulation, the South lost their biggest asset (slaves), all their banks failed, and Confederate currency was invalid. Lawrence Goodman’s The Populist Moment says that the state of Connecticut had as much currency as the entire Confederate South.

So...Southerners bought necessities on credit from the “furnishing man” (shortened later to “the man”) at interest rates that would be familiar to payday lenders now. As security, farmers had to pledge the “crop lien”--an obligation denominated in dollars that was still owed if prices fell, or crops failed. What happened as a result? Debt peonage supplanted slavery.

The U.S. can still become a nation of debt peons now, funneling all the economy’s surplus to the one percent (the creditors), privatizing what used to be free (roads, schools), making an entire economy navigable only through a series of tollbooths, while a small cohort of plutocrats gets to enjoy the fruits of the debt peons’ labor. (Actually, the plutocrats are miserable too. See The Spirit Level). There are indications we’ve already begun this process. See the Princeton study declaring the U.S. is no longer a democracy, it’s an oligarchy. The answering narrative: all the wealthy earned their fortunes; no wealthy person stole their money, so pay no attention to the man behind the curtain.

Look for austerity locally as governments excuse their inability to fund essential programs--never mind how wasteful or subsidized are the current programs for plutocrats--like sports teams, and land speculation. Boards of Supervisors and City Councils will say “Our pension obligations are too big!” and begin to squeeze essential programs, and try to persuade pensioners to reduce COLAs, health insurance payments, etc. This is all clothed in “Fiscal Responsibility™,” but completely unnecessary, given the covert subsidies to land speculators, builders and finance that could more than fund what they plan to “bravely” cut.

Public banks could recycle infrastructure dollars locally--and nearly half of the cost of infrastructure is typically financing. Public banks also offer high yields as investments, and the bulk of California’s pensions (for CalPERS, 62%) come from investment earnings. Do public banks suggest an alternative to Wall Street’s lower-earning investment offerings?

Locally, Sacramento County Supervisor Sue Frost has repeatedly informed her constituents that they must be “brave” in anticipation of service cuts, because we’re running out of money (“Our reserves are low”). When I sent her several solutions to budget shortfalls, including the suggestion that the County use a public bank to fund money-saving solutions like a line of credit to deal with temporary revenue shortfalls, her response was...silence.

The public--you and I--and the environment will suffer if we continue down the path of austerity. Assuming humanity survives, you and I--and our children and grandchildren--will be at the service of the monied interests if we ignore what can solve our problems.

I say let’s have the money serve us rather than vice versa.

• For more about austerity, see Mark Blyth’s Austerity: The History of a Dangerous Idea. Here are some excerpts:

[p.179] “There are … cases where austerity as policy reached its limits and either broke down or broke the society it was being imposed upon. The natural histories of these episodes demonstrate quite clearly that economies do not ‘self-heal’ once ‘the bust’ has run its course. Austerity was tried, and tried again--its application was not wanting--and it simply didn’t work. In fact, its repeated application made things worse, not better, and it was only when states stopped pursuing austerity that they began to recover.”

[p.196-7] “...repeated rounds of austerity policy, plus the ideological intransigence of the Social Democrats, helped to bring Hitler to power far more than any memory of inflation a decade earlier. … By 1933 the lesson should have been clear. You can’t run a gold standard [i.e. austerity policies] in a democracy. Eventually people will vote against it. They did so in Sweden and they did so in Germany. Austerity gave interwar Europe both social democracy and genocidal fascism.” [Blyth goes on to explain how Japan suffered similarly]

Blyth (4:17) explains Brexit and “Trumpism” as a consequence of austerity too. The short video is an explanation of why global “Trumpism” exists (from a European perspective) as clear and concise as can be. Or try his interview with Chris Hedges about Austerity (Blyth starts at about 4:15. 26 minutes for the entire thing.)