Republicans run public deficits because that increases private wealth.

(10 am. – promoted by ek hornbeck)

Burning the Midnight Oil for Progressive Populism

Suppose that you were a political party devoted to the interests of the top 1% wealthiest in the country. And suppose that either you or your puppeteers knew that public debt is private wealth. And suppose that it was politically convenient to attack programs that provide no benefit to the top 1% as generating public debt. What would you do?

(1) Pretend that you are opposed to generating public debt whenever there is a risk that government money will get spent on the 99ers ~ that is, the bottom 99%, though the 99ers in terms of running out of unemployment benefits are obviously one part of the broader 99ers.

(2) Take actions to run deficits whenever you have the opportunity to set fiscal policy.

(3) Take action to get the 99ers into debt to your paymasters, so get all of the private wealth created into your paymaster’s hands.

(4) Collect your 5% tip from your paymasters, and live high off the hog.

Sectoral Balances Made Easy

Suppose that there is an economy made up of two households ~ two extended family type households ~ Jack’s Household and Jill’s Household.

Jack’s household spends $20,000 a year buying stuff from other members of their household and $20,000 a year buying stuff from Jill’s household. Jill’s household does the same.

Total spending, $80,000, total income $80,000. They have to be the same because the income comes from the spending.

Now Jack, the head of Jack’s Household, makes a deal with Jill, to buy $10,000 worth of stuff on credit. Jill ends up with an IOU. So, what is the total spending and income?

Well, Jack’s household spend $50,000, Jill’s spends $40,000, that’s $90,000 in spending altogether, so $90,000 in income.

And Jack has $10,000 in debt, which has increased Jill’s wealth by $10,000.

That’s it. That’s how sectoral balances work. The total spending and the total income are the same. If there is a balance in one place, then “everywhere else” is also in balance. If one sector goes into debt, that is an equal amount of wealth “everywhere else” ~ as long as the IOU is “good”.

Of course, if the households are countries, we are Jack and China is Jill, and altogether we are losing total financial wealth to the exact same extent that China is accumulating it in granting us loans to let us buy stuff on credit. (And, of course, that is not China’s “fault” ~ nor is it China’s “fault” that we are buying so much useless crap with that credit, instead of getting an equal or greater amount of physical wealth in exchange for the financial wealth destruction).

Now, split up our country into two sectors, public and private, and the change in the total wealth balance has to be negative. If the government budget is in balance, that wealth destruction will take place in the private sector.

Do you honestly think that the paymasters of the Republicans really want hundreds of billions of private financial wealth destruction every year? Of course they don’t.

If the government budget is in deficit by the same amount as the trade deficit, the entire private sector is in balance. In that case, the OnePercenters can only create wealth by getting us 99ers into debt. Which they would normally be happy to do, but it did almost destroy the financial system in 2008, so there needs to be some other way to create new private financial wealth.

Creating wealth by investing in industrial development and building industries that will produce so many things so many people overseas want to buy so we have a trade surplus ~ well, that’s one strategy. But it means consuming wealth in the short term to get more back in the long term, and they want their extra wealth now.

So having the government go into debt by more than the trade deficit means there will be private wealth creation inside the US at the same time as there is overseas wealth creation.

It is no accident that Reagan, HW Bush, and W Bush created massive increases in public debt ~ they were creating private financial wealth in the process. Just as its no accident that they pursued policies to get the 99ers to go further into debt, because that ensured that the OnePercenters got an even bigger increase in financial wealth than the private sector as a whole.

Of course, in the process of lying about the need to pursue deficit reduction, they may have duped too many people, and if we really do end up pursuing a Balanced Budget based on their cover stories, that will not end up well.

Which is what John T. Harvey explains in his Pragmatic Economics column at Forbes, Obama + Ryan = Catastrophe. I stole John’s simplified sectoral balance explanation, so I guess I owe it to him to send a reader or two his way.

Midnight Oil ~ Read About It