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It’s Us or Them

The Former Fed Chair and secret Communist Beardsley Ruml.

The Paul Ryan budget, happily accepted by the Senator Patty Murray on behalf of the Vichy party, frees up vast sums for war, while imposing new burdens on the 99% who don’t benefit from wars. It cuts the pay of federal workers by making them pay more for their pensions, deletes unemployment insurance for 1.3 million long-term unemployed, and hikes user fees on air travel. It doesn’t raise taxes on the filthy rich, and it certainly doesn’t raise taxes on their corporations, trusts, endowments, foundations and other tax dodges designed to push the burden of taxation onto what’s left of the middle class. In other words, it’s a total win for the rage-filled Republicans and their Democratic allies, who happily embrace the suck.

We now have a bipartisan agreement that we shouldn’t raise taxes on the filthy rich, now, or ever. How did we get to the point that the idea of taxing the oligarchy is so disgusting we can’t even mention it in public? We know the Republicans are controlled by the rich, but Democrats used to favor taxation as a proper tool of good government. And the Establishment used to see it the same way.

At the end of the Second World War, then Fed Chairman Beardsley Ruml gave a speech to the American Bar Association, which was turned into an article in American Affairs in 1946 under the title Taxes for Revenue are Obsolete. Ruml begins with the observation that sovereign nations eliminated conversion of currency into gold. As long as nations had to borrow to finance debts, they were dependent on lenders, who were free to jack up interest rates and impose conditions on loans. By refusing to lend, they could force nations to finance themselves solely with taxes. Once a nation goes off the gold standard, it is free from the constraints of the domestic money market. It can just print the money that it needs. This has direct implications for tax policy.

… [O]ur Federal Government has final freedom from the money market in meeting its financial requirements. Accordingly, the inevitable social and economic consequences of any and all taxes have now become the prime consideration in the imposition of taxes.

Ben Bernanke and Janet Yellen can’t talk like their Commie predecessor. Can you imagine the howls of outrage from the crazy right wing if they were to say this? And even worse, what would the spineless democrats do? They would rise up more in sorrow than in anger and throw the miscreant out of power faster than Barack Obama backtracking on a progressive idea.

Well, it only gets worse. Ruml continues:

Federal taxes can be made to serve four principal purposes of a social and economic character. These purposes are:

1. As an instrument of fiscal policy to help stabilize the purchasing power of the dollar;

2. To express public policy in the distribution of wealth and of income, as in the case of the progressive income and estate taxes;

3. To express public policy in subsidizing or in penalizing various industries and economic groups;

4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.

The Fed Chair asserts that it is a legitimate goal of taxation to change the distribution of wealth and income to suit public purposes. Public purposes are the subject of politics. They are not axioms of economics. The economy doesn’t dictate them. There is no economic bible that lays out public purposes, no stone tablets, no 230 year old Constitution of economics. They are proper subjects for argument in the public square. In fact, Ruml goes on to argue that we shouldn’t tax corporations at all, because it is bad policy; it is an “evil tax, and it should be abolished”.*

Somehow, that insight got transformed in the public sphere to handbag economics: the idea just as individuals can’t spend more than they earn, neither can sovereign nations. This idea is turned into a parable by Mary Mellor:

According to handbag economics there is only one breadwinner in the economy, the private sector. Only the private sector can determine the size of the public household budget. In this gendered analogy, the public-housewife must not ask for more house-keeping, or borrow more, to make ends meet. Most emphatically, the public-housewife must not set up a printing press in the back room to create her own money.

There is a shed, though, at the end of the garden beyond her reach. This shed has a printing press and every time the private sector-breadwinner runs out of funds he asks the gardener-central banker to crank it up. Despite this, handbag economics denies that the public household should have any access to this money, even though it has a monopoly on producing coin and its garden shed has the monopoly on producing banknotes.

This piece is brilliant, and I hope it is widely read, especially by liberal economists, who continue to argue from frameworks that will only hurt the 99%. For example, Krugman and Bernstein flog the idea that we need more inflation to solve our current problems. Perhaps they prefer fiscal solutions, but they would finance those fiscal solutions with more debt, leading to more interest burdens on society in the future. You can be sure the rich won’t be paying taxes to cover those interest payments, you will.

The fantastically rich with their $90 million pied-a-terres, and their servants are in the public square arguing that taxes should be used to benefit them at the expense of everyone else. Krugman, DeLong, Bernstein and other economists will not publicly say that the goal of the oligarchs is to grab all the money and limit government spending to things that they like. There is no one, no economist, no liberal politician, no think tank, no advocacy group, saying loudly and forcefully that we should tax the rich at levels that will make this a decent society.

The hyper-rich intend to screw the 99%. It’s us or them.

* In fairness, Ruml says that we can’t get rid of the corporate income tax until “…some method is found to keep the corporate form from being used as a refuge from the individual income tax and as a means of accumulating unneeded, uninvested surpluses. Some way must be devised whereby the corporation earnings, which inure to the individual stockholders, are adequately taxed as income of these individuals.”

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