In an earlier missive about the degree to which a government can raise
the ratio of its debt to GDP, I suggested that the real limit is the
confidence of its creditors (rentiers), including their political
attitudes. What this suggests is that to the extent that government
deficits are run (and debts accumulated) in a way that is clearly
pro-business (e.g., for tax cuts for the rich or a war that they favor
or don't object to) the government can stimulate the economy using
Keynesian stimulus.
This means that Dubya's deficits were less likely than Obama's to
evoke bond-holder ire and thus higher risk premia and interest rates
(which press on budgetary constraints). Dubya was providing instant
gratification to the rich (especially his cronies like those in the
oil industry), so risk premium imposed by the bond-holders would be
low (all else constant). Much of Obama's programs are about
re-regulating business in a way that serves capitalist long-term
collective interest, which should keep bond-holders happy. But since
capitalists are so impatient for immediate results (especially these
days after three decades of neoliberal "give business what it wants"
policies), we can see higher risk premia even though Obama is trying
to serve their longer-term interests.[*] Luckily for him, Europe is in
crisis so that the move to safe havens keeps treasury rates down.
(Unluckily for him, the European crisis hurts both the value of the
euro and the world market and thus US exports.) But Obama has make a
big effort to convince business that he's on their side.
This role of bond-holders also means that a social-democratic or
socialist government shouldn't run deficits at all (and thus shouldn't
"do" classical Keynesian fiscal stimulus), since it would immediately
scare the bond-holders, raising interest rates and budgetary interest
costs. There are two exceptions that I can think of. First, once a
social-democratic government has proven its worth to the capitalists
(stabilizing society, etc.) it can run deficits and Keynesian fiscal
stimulus. Second, even a socialist government might follow a "balanced
budget expansion," i.e., raising taxes and expenditures in step, which
would keep the budget balanced but still stimulate the economy. The
problem, of course, is that raising taxes (along with all of the
socialist elements of the government's program) might offend
industrial capitalists, hurting expected profitability of productive
enterprises and thus _real_ investment, encouraging a recession. A
socialist government would have to move to finding alternative ways to
organize production and investment besides capitalism.
--
Jim Devine
"Those who take the most from the table
Teach contentment.
Those for whom the taxes are destined
Demand sacrifice.
Those who eat their fill speak to the hungry
of wonderful times to come.
Those who lead the country into the abyss
Call ruling too difficult
For ordinary folk." – Bertolt Brecht.
[*] As I've said before, the financiers are a like a bunch of
toddlers, continually testing boundaries (hey, let's stick this fork
in the electrical outlet!). What's needed is adult supervision (Obama
or someone like him). But that doesn't mean that the toddlers like the
imposition of discipline. Eventually, even toddlers learn to live with
and even like limits, but we're not there yet.
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