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The “Progressive” Give-Up Formula Is Alive and Well In the Latest Deficit Reduction Plans

Self-styled “progressive organizations” and commentators have been releasing their own deficit reduction plans in reply to the plans released by Erskine Bowles and Alan Simpson, Alice Rivlin and Pete Domenici, and The Peterson-Pew Commission. These new plans, were released by the Institute for America’s Future, Citizens Commission on Jobs, Deficits, and America’s Economic Future and Our Fiscal Security, a collaboration of Demos, the Economic Policy Institute, and The Century Foundation (TCF). The first, “Report and Recommendations of Citizens Commission on Jobs, Deficits, and America’s Economic Future” was written by Jeff Madrick with contributions from Roger Hickey, R. J. Eskow, Robert Borosage, Dean Baker, Robert Kuttner, Robert Pollin, and other unnamed Commission members. The second, “Investing in America’s Economy: A Budget Blueprint for Economic Recovery and Fiscal Responsibility” was written by Becky Thiess and Andrew Fieldhouse, both of EPI, with contributions from Heather McGhee (Demos, Defense Spending), Maggie Mahar (TCF, Health Care), and Josh Bivens (EPI and relating public investments to economic growth). The report was also written under the guidance of Greg Anrig (TCF), Tamara Draut (Demos), and John Irons (EPI).

Of course, the two new “progressive” deficit reduction plans are better for working people than the three plans offered by Bowles and Simpson, by Rivlin and Domenici, and by Peterson-Pew. For one thing they prioritize jobs and lower unemployment ahead of short-term spending cuts. For another, they raise income caps on Social Security contributions in order to strengthen projections about social security solvency. For yet another they address increasing health care costs much more “seriously” than the Bowles-Simpson plan, which just makes assumptions about cost-cutting without beginning to indicate how these cuts would be achieved. Still, the bottom line of these progressive plans is that they have chosen to play the President’s game, and to offer plans for deficit reduction, rather than saying directly as Jamie Galbraith did that there is no deficit/national debt/debt-to-GDP ratio problem, and that in place of a deficit reduction plan they would offer a fiscal plan for returning to full employment and re-building America for the 21st century instead.

It is this acceptance of the President’s game, this agreement to look at Government fiscal policy through the lens of deficits, the national debt, and the debt-to-GDP ratio that is the “give-up” aspect of the progressive plans. To uncritically accept the problem framing of the opposition (and yes, this President, is the opposition as much as the Republicans) is to “give-up” the fight. It is not necessarily to accept full defeat, but it is to ensure at least partial defeat. And in this case, accepting the President’s and the deficit hawk’s framing of the problem is to accept, for the indefinite future, the idea that every progressive Government spending initiative must be evaluated from the viewpoint of whether “we can afford it” or not, or whether it de-stabilizes the debt-to-GDP ratio, regardless of the benefit it will deliver to Americans.

Government fiscal policy, and the ideas of fiscal sustainability and fiscal responsibility need to be viewed from the broad viewpoint of the employment of Government spending to fulfill America’s public purposes, and not from the narrow one of how Government fiscal activity will impact deficits, debts, and debt-to-GDP ratios. The reason for this is that for a nation like the United States with a fiat non-convertible currency, a floating exchange rate, and no debt denominated in any foreign currency, there is no solvency risk, however high the deficit, debt, or debt-to-GDP ratio may have grown in the past. Whatever the level of these statistics are, the constitutional authority of the Government to spend on public purposes, remains unimpaired and undiminished.

Given the lack of solvency risk, issues of fiscal sustainability and fiscal responsibility are always about the extent to which Government fiscal activity can or have helped the real economy to achieve public purposes like full employment, elimination of poverty, economic sustainability, economic transformation, universal health care, and so on. Management of Government fiscal activity by looking at the extent to which it succeeds in holding down debt, or stabilizing debt-to-GDP ratios is not about real fiscal sustainability, because these numbers are not about the real economy, but are only statistics about Government’s nominal economic activity. Nor is successful stabilization of the debt-to-GDP ratio a mark of fiscal responsibility. In fact, if unemployment, or lack of economic transformation, or poverty, or failing educational and health care systems, continue to exist, then a successful effort to maintain a particular debt-to-GDP, or success in producing a fiscal surplus, are marks of fiscal irresponsibility, not fiscal responsibility.

So, in aiming towards stabilization of debt-to-GDP ratios the progressive plans fall into the fiscal irresponsibility every bit as much as the conservative plans do. They may not be as fiscally irresponsible, since they give more weight to economic needs than the conservative plans do in the course of seeking stabilization of the national debt. But the fact remains that they still do prioritize stabilization as a goal that Government fiscal activity should seek, even at the expense of real economic needs.

In a previous post, I offered the following questions for authors of ALL deficit reduction plans to consider:

— First, do you understand that a Federal Government deficit ADDS financial assets dollar-for-dollar to the non-Government, including the private, sector?

— Second, do you understand that a Federal Government surplus SUBTRACTS financial assets from the non-Government sector?

— Third, do you understand that any long-term program of deficit cutting will decrease the amount of additional financial assets flowing into the non-Government sector over time, barring an increase in the current trade balance at least equivalent to the reduction in the deficit cuts?

— Fourth, if you understand these three accounting facts, then do you really think we should be adopting a long-term deficit reduction policy aimed eventually at running surpluses, regardless of developments in the economy providing the backdrop for Government fiscal policy? What if, contrary to what you now expect there is no recovery in the economy greater than we have now in 2011, 2012, 2013, 2014, 2015, etc.? Do you think that in those circumstances a long-term deficit reduction policy requiring scheduled cuts in various programs would be helpful or harmful to the financial assets of the non-Government sector?

— Fifth, what if the mortgage foreclosure fraud mess results in another banking crisis and plunges us once again into an accelerating recession? Would it then be helpful or harmful for the financial assets of the non-Government sector if the Government were implementing a long-term deficit reduction plan?

— Sixth, If the answers to the last two questions are harmful, then why does it make any sense to have a long-term deficit reduction plan? Would you really be willing to make the private sector poorer than it would otherwise be under worsening economic conditions by reducing the amount of the deficit or even running a surplus? That is, are you really willing to put the goal of deficit reduction ahead of the goal of recovery in a worsening economy?

— Seventh, all of the deficit reduction plans being offered now don’t schedule cuts or tax rises until some time in the future when, it is assumed, the recovery is likely to have occurred. The Schakowsky and Rivlin/Domenici plans even include stimulus measures to hasten the recovery. But what if there is no recovery? Or what if there is a brief recovery, followed by a plunge into another recession in late 2012 or 2013, or in 2015, then are you willing to go ahead with planned deficit reductions, even though people are losing their jobs left and right and deficits are rising rapidly due to the effects of the automatic stabilizers?

— Eighth, what if your deficit reduction plan did not pass the Congress and the debt-to-GDP ratio in the United States increased from its present value to 125% in 2020? Would this mean that the Government had any less ability to continue deficit spending than it has now? Wouldn’t Congress still have the same power to appropriate spending? Wouldn’t the Treasury still have the same power to spend, and in the spending create money by marking up private accounts? In answering these questions please keep in mind the experience of Japan which is that it is possible for a major industrial nation with a non-convertible fiat currency system and a floating exchange rate to have a public debt-to-GDP ratio of nearly 200% and still maintain near zero interest rates for Government bonds.

— Ninth, so, keeping all the above in mind, can you explain why it is you still think, if you do, that the US Government faces a debt, deficit, or public debt-to-GDP ratio problem, and that this problem is so serious that we need a long-term deficit reduction plan that will prevent the Government from spending enough to ADD the financial assets to the private sector needed to enable recoveries when we experience recessions?

— Tenth, all of you are responding to a call for fiscal responsibility and reform and are offering plans that assume that fiscal responsibility means cutting deficits, stabilizing and decreasing the level of the public debt-to-GDP ratio, and in some instances working towards and even running budget surpluses. But what makes you think that such plans are fiscally responsible?

The two new “progressive” plans, like the conservative ones, and Congressman Jan Schakowsky’s plan, don’t give any evidence of consideration of these or similar questions. That’s important because a failure to answer them in a satisfactory way means that the progressive plans, along with the conservative ones have no clothes. That is, they address a non-existent problem, and in its name prescribe courses of action that will have damaging effects on the US economy sooner or later.

Just today, Jamie Galbraith, in a post on the Catfood Commission’s report, called “Casting Light on ‘The Moment of Truth,” takes the Commission’s Report to task for its intellectual confusion, persistent lack of attention to evidence, lack of economic analysis, and use of the household analogy in describing the fiscal limits of the Government, Among other remarks he says:

”The only other effort at economic analysis in the report is the section entitled ‘The Looming Fiscal Crisis.’ This begins with the claim that, ‘Our nation is on an unsustainable fiscal path.’ No evidence is presented. . . . “

However, the Bowles/Simpson Report isn’t the only one that declares that the United States “. . . is on an unsustainable fiscal path . . . “ All of the conservative and “progressive” Reports mentioned earlier do exactly the same thing. They all declare the current Peterson/Obama “gospel” that we are “. . . on an unsustainable fiscal path . . . “ And they do that without any analysis or evidence, but take as self-evident long-term fiscal projections that are pure science fiction and will never materialize in reality. On the basis of this gospel, all of the reports agree that we have fiscal sustainability, fiscal responsibility, and deficit reduction problems. But there is no deficit reduction problem for a nation like the United States and the only fiscal sustainability and fiscal responsibility problem we have are the ones they are making by inventing a non-economic problem and diverting attention from the real economic and social problems of Americans and American society.

Jamie Galbraith also points out:

”The old Soviet Union had two newspapers, Pravda and Izvestia — Truth and Light — and the saying in Moscow was, “Where there is Truth, there’s no Light. And where there is Light, there’s no Truth.” It’s clear now that the Soviet Union didn’t really end.

The walls came down, and we became them.”

It often feels like that to me, as well. One of the places I blog at is There WaPo is referred to as “Pravda” and the New York Times as “Izvestia.” I’ve always thought this was not quite right, and that WaPo since it’s based in Washington, DC was Izvestia, while the NYT was “Pravda.” But this is just nitpicking.

The important point is that there exists a village in the United States sometimes called “Versailles.” The denizens of this village have settled on a paradigm that excludes both light and truth in many areas of political/economic discourse. This paradigm is neo-liberalism and those who use it reason in only narrow acceptable ways, even when they disagree on specifics, even while claiming that their thinking is non-ideological. Nothing appears in the media outlets of Versailles that disagrees fundamentally with the neo-liberal paradigm, and according to that paradigm, all Governments, however constituted, can run out of money, and are subject to bond markets.

Any writings that contend otherwise, or offer another financial paradigm, are simply to be ignored, especially if they suggest that some Governments, in fact, have all the financial resources they need to enable full employment, and that doing so is therefore one of the responsibilities of a legitimate Government. These writings, indeed, are never to be engaged by Versailles. They are never to be confronted. They are never to be given the respect of any recognition, not even the respect of criticism. They are only to be ignored by Pravda and Izvestia, while these and myriad other “official” organs constantly repeat variants of the deficit reduction gospel worshiped in and by the village.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

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Joseph M. Firestone, Ph.D. is Managing Director, CEO of the Knowledge Management Consortium International (KMCI), and Director and co-Instructor of KMCI’s CKIM Certificate program, as well as Director of KMCI’s synchronous, real-time Distance Learning Program. He is also CKO of Executive Information Systems, Inc. a Knowledge and Information Management Consultancy.

Joe is author or co-author of more than 150 articles, white papers, and reports, as well as the following book-length publications: Knowledge Management and Risk Management; A Business Fable, UK: Ark Group, 2008, Risk Intelligence Metrics: An Adaptive Metrics Center Industry Report, Wilmington, DE: KMCI Online Press, 2006, “Has Knowledge management been Done,” Special Issue of The Learning Organization: An International Journal, 12, no. 2, April, 2005, Enterprise Information Portals and Knowledge Management, Burlington, MA: KMCI Press/Butterworth-Heinemann, 2003; Key Issues in The New Knowledge Management, Burlington, MA: KMCI Press/Butterworth-Heinemann, 2003, and Excerpt # 1 from The Open Enterprise, Wilmington, DE: KMCI Online Press, 2003.

Joe is also developer of the web sites,,, and the blog “All Life is Problem Solving” at, and He has taught Political Science at the Graduate and Undergraduate Levels, and has a BA from Cornell University in Government, and MA and Ph.D. degrees in Comparative Politics and International Relations from Michigan State University.