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Edited on Mon Apr-04-11 01:07 PM by mqbush
Technically, much of what is identified as Conservative or Republican economic orthodoxy is more properly termed neoliberalism. There’s no liberal element to neoliberalism, despite strained attempts to ascribe social benefits to some of the economic effects of neoliberalism. Neoliberal language uses a familiar emotive vocabulary: individual autonomy, choice, personal responsibility, and the like. Their use has the intent of shifting responsibility and risk from government and corporations onto individuals. The resulting defunding of public agencies transfers control of the economy from public to private sectors, with private sector corporations relieved of responsibility and risk. There’s a surprising reason for neoliberals’ minimization of government, as you’ll see in a minute.
Republicans were hot to bring into their tent the conservative southern states that fled the Democrats after LBJ’s civil rights legislation. Republicans then became the party of conservative “social values”. The overlap between neoliberal social values and conservative social values made an alliance between Republicans and neoliberals mutually beneficial. Since there is no neoliberal party, neoliberals don’t mind being invisible while Republican Conservatives do the heavy lifting for them. Those intensely principled Tea Party Republicans are the co-opted zombies of neoliberals and Conservatives. But wait, don’t leave yet.
In 1971, President Nixon took US currency off the gold standard, and most western nations followed suit. Before that time, budget shortfalls had to be made up for by raising taxes and/or borrowing, usually from the private sector, which gave the private sector a serious measure of control over the government. Replacing regulated asset-backed currencies with fiat currencies meant that governments no longer had to fund their spending. This sounds intuitively wrong,-wrong not only as in incorrect, but also wrong as in immoral, or at least unwholesome. But more about this in a bit.
The onset of WWII forced western nations (well, Japan, too) into massive deficit spending. The result was full employment for the first time since the crash of 1929. The tax revenue realizable with full employment could go so far toward paying off deficits that allowing some net deficit became acceptable. During private sector busts, direct employment by the government provides a buffer to maintain full employment, and public welfare systems for those who can’t work but still consume allow production and consumption and consequent tax revenues that pretty well pay for these welfare systems.
But as long as currencies are asset-backed, deficits are costly debts. With fiat currencies, there needn’t be any borrowing, so there needn’t be any national debt. Why, oh why, then, do western nations with fiat currencies impose unnecessary debt obligations on themselves? (Can’t count EU countries; they gave up their monetary sovereignty when they joined the Union.) I’ll get to this eventually.
Fiscal conservatives are philosophically committed to balanced budgets. As long as we had to balance our budgets or borrow, their argument stood on merit. The financial drain of the Vietnam War during the 1960s rallied them in their efforts, particularly within the sect of fiscal conservatism called neoliberalism. With the 1971 creation of fiat currency, if it became widely understood that deficits no longer mattered, it would discredit core tenets of fiscal conservatism and, by association, conservatism in general, as well as discredit one of neoliberalism’s essential premises, and hence all of neoliberalism’s ideas. To preserve their philosophy, conservatives- and neoliberals through conservatives- seized on the OPEC inflation of the mid-1970s, and its rise in unemployment, to discredit deficit spending, as though its decades-long success could be deemed a failure because it could not stand up to a historic, externally-sourced inflationary shock.
And, cleverly, rather than argue economic theory in their effort to discredit deficit spending, conservatives launched a blitz of emotive talking points: Unemployment, conservatives scolded, was not a temporary glitch in a system under extraordinary circumstances, but was the result of welfare-spoiled low-lifes with no work ethic. Part of the prescribed tough-love schema was fiscal toughness that focused on the effort to falsely equate the budgets of sovereign nations with family budgets. Now, you and I ARE beholden to balance our budgets; sovereign nations with fiat monetary systems are NOT. But since families only know the realities that apply to beholden family budgets, people simply cannot believe, refuse to accept, out of pique, that nations do not have to balance their budgets by some means or another. So without even having to sell the base premise conservatives could build on it and say, without fear of contradiction, that we can’t afford public sector spending because it will bust the budget. This contrived story makes sense to millions of people, here and all over the world, and so this conservative narrative packs lots of political clout. So much so that national leaders have to at least give lip service to it, as though it were not a lot of hooey. And so every president for the past forty years, regardless of party, has, with much gravitas, enunciated this conventional wisdom,-and then ran a deficit (with the notable exception of Bill Clinton).
So governments run deficits because on the one hand they can. But then, on the other hand, they take on debt and ruin the benefit of not having to pay interest, and, as well, ruin the premise that deficits don’t matter. Why do they take on debt when they don’t have to? Well figure it out. Think about it. If sovereign nations with fiat currencies can just print money, so to speak, they could just give it away to their citizens, and no one would have to work. But if no one had to work, who would build factories, work in them, be nurses or teachers or farmers or senators or CEOs? Who would build houses for people who don’t have to work, or run power plants or produce TV shows or make laptops?
And so governments pretend that government budgets are the same as household budgets. They tax us to make the shared sacrifice for the greater good personal and real and meaningful, because there’s no need to raise revenue through taxation. We get up in the dark to go to work and argue over the water cooler about healthcare bills, what else can we do? Because otherwise there wouldn’t be anything for us to buy with our free money. And if money is free, why even bother with it? Trying to imagine what civic life, our personal lives, the existence of nations and governments would be like, may be beyond us. Transitioning to this new paradigm would be the most dangerous gamble mankind has ever tried. And so we’ll stay stuck on the edge, afraid to take the leap of faith, and stick with all those anachronistic ideologies, arguing them as if they made sense or mattered in the least.
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