PayGo is bad economics and bad politics, but naturally it was the first order of business for the newly elected Democratic Speaker of the House–Nancy Pelosi.
Despite resistance from progressive Democrats, the House rules package for the 116th Congress will include the PayGo provision, requiring all new spending to be offset with either budget cuts or tax increases, a conservative policy aimed at tying the hands of government.
We’ll get to the bad economics in a moment but in terms of politics, the rule would make it more difficult for Democrats to pass a host of progressive policies popular with the American public, like: Medicare for All; a Green-New-Deal; or tuition-free public college. Meanwhile PayGo creates an unlevel political playing field, where Republicans get to blow giant holes in the tax code, as they did with the 2017 tax cuts, while Democrats must pay fealty to the deficit.
Going further, PayGo symbolizes the Democratic role in the kayfabe we call politics here in America. I’ve come to believe that the modern Democrat’s role is to stymie progressive change by posing as the “liberal” political party arrayed against the “conservative” party role played by the Republicans. And, of course, Trump, who’s a member of the World Wrestling Hall of Fame, is the master of ceremonies.
You can observe this with Hillary Clinton and now Nancy Pelosi admonishing progressives like Bernie and AOC that we can’t possibly afford a Green New Deal, or Medicare for All, or free college education. We saw it when progressive hero, Barak Obama, lied about government spending when he stated that–“small businesses and families are tightening their belts. Their government should, too.” in response to the Wall Street crash. That this scolding was subsequent to his providing the banks with a trillion dollar bail-out only added to the irony.
I used to refer to the Democrats as the Washington Generals, but now, with PayGo, I believe a crude sexual metaphor is infinitely more appropriate. Laugh all you want, but it’s clear that the Democrats are cock-blocking progressive policies.
Once you understand the Democratic role, American politics makes a lot more sense. It’s all a big-fucking morality play with the actors playing his or her assigned role, while the media breathlessly provides a thrilling narrative of strife and drama. In the meantime, the real power in America–the interlocking financial corporations, trusts, and hedge funds–laugh all the way to the bank.
As far as the economics, it’s imperative to understand that PayGo is an artificial constraint on US spending. The US maintains a fiat currency, where we are able to spend money into existence. The US Treasury could spend this money into existence, but allows the banks to maintain this privilege. (You, dear reader, probably have never been made aware of such arrangement.)
This financial slight-of-hand demonstrates the power of Wall Street bankers, in that we have changed our financial dependency from being self-reliant and printing our own debt-free money to being indentured to international bankers who charge us as they print money out of thin air and charge future generations for it. Indeed, for the financial sector, the most important privatization is that of money creation. The aim is for economies to become dependent on bank credit rather than government spending to provide the money and credit to grow the economy. As Amschell Rothschild is claimed to have declared–“Give me control of a nations money supply, and I care not who makes it’s laws.”
To make sense of all of this it’s imperative to understand a bit of economic history. Classical political/economists such as Adam Smith and John Stuart Mill, made a distinction between earned and unearned income and attempted to tax unearned income to provide a low-cost, free-market, where small businesses could flourish. The aim of classical economics was to tax unearned income, not wages and profits. The tax burden was to fall on the landlord class first and foremost, then on monopolists and bankers. The result was to be a circular flow in which taxes would be paid mainly out of rent and other unearned income. The government would spend this revenue on infrastructure, schools and other productive investment to help make the economy more competitive.
As you might imagine, banks and other financial interests were not amused by such developments and an epic struggle ensued. In his book, Killing the Host, heterodox economist Michael Hudson says that “an economic fight ensued and the parasites won. The first thing rentiers – the financial class and monopolists, a.k.a. the 1% – did was to say, ‘We’ve got to stop teaching the history of economic thought so that people don’t even have a memory that there is any such a thing as economic rent as unearned income or the various policies proposed to minimize it.”
Indeed, neoliberals, most notoriously the University of Chicago’s Milton Friedman, insist that there’s no distinction between earned and unearned income. And, since most of the wealth and income of the richest 1% and the banks and interlocking financial corporations they own is unearned income or rent, guess which version of accounting won out?
We have the opposite of a free market. Instead, we confront a new form of capitalist order: the merger between the finciancial interests and the state. Financialization is the major dynamic polarizing the US economy. It’s aim is to appropriate the means of production and rent-extracting privileges for a creditor class to load labor, industry, agriculture and governments down with debt.
The same power operates on the global stage through international institutions and regulatory bodies that do not even pretend to be democratic such as WTO, IMF, and World Bank.
Make no mistake, PayGo represents another variant of the response our leaders have for such rebellion–There is no Alternative.