Progressives have been winning some battles lately. There is strong momentum for the rights of the LGBT community and for changes to immigration law; and women’s issues should be moving forward after the decisive losses of the rape candidates Todd Akin and Richard Mourdock. Progressives can feel good about that, and Congressional progressives can feel especially good, because they fought the good fight. A big part of that win is that on cultural issues, progressives have better ideas. We are as a group more inclusive. Our goals are easily explained in the long sweep of American political history as we try to form a more perfect union. It doesn’t hurt that on these issues, it doesn’t cost the hyper-rich any status or money to stand aside.
None of this is true of economic theory. As the Trillion Dollar Coin issue showed, it isn’t easy to explain why new ideas are so much better than the terrible ideas that dominate economic policy-making. The long sweep of American history is an up and down battle with the oligarchy, but no one really understands that history. And most important, truly progressive ideas will cost the oligarchy in money and power.
Congressional progressives do not lead on economic issues. They accept the economic ideas of the right wing. They force-fit their ideas into the existing market structure. One piece of evidence for this view is the budget prepared by the Progressive Caucus. It contains a lot of good ideas, but, its main selling point is that it reduces the deficit and produces a surplus in 10 years. Tax hikes are a big part of their budget, which fills the square marked Tax and Spend on the hard right electoral scorecard. It isn’t going anywhere.
The fact is that progressives do not have an economic theory that justifies this budget in the eyes of the American people. For decades, the right wing, under the control of the hyper-rich, has dominated in all aspects of economic theory. They own the academics, and the pundits and the policy-makers, and despite the utter failure of the policies those people are pushing, and the horrible damage they inflicted on the world, they aren’t going to change. They are deeply invested in proving that they were right all along. There are battles along the edges, where Paul Krugman, Joseph Stiglitz and Dean Baker are fighting the good fight against the Old Guard. But they have no place in the policy apparatus in the White House or in Congress.
There are thoughtful people working towards a better understanding of what happened and how to fix it, even if they don’t get a lot of attention. Atrios points us to Martin Wolf at the Financial Times, a British writer with a long list of honours.
Some are sure that the troubled western economies suffer from a surfeit of money. Meanwhile, orthodox policy makers believe that the right way to revive economies is by forcing private spending back up. Almost everybody agrees that monetary financing of governments is lethal. These beliefs are all false.
The surfeit of money issue is the massive dumping of money into the economy by central banks, through direct injections, low interest rates, and Quantitative Easing. Conservatives bellow that this will produce hyper-inflation. Here is a chart showing M2 since 2004:
It looks bad, doesn’t it? The problem, according to Wolf, is that we have an utterly inadequate measure of money supplies. The evidence comes from the Center for Financial Stability. Currently the Fed provides two measures of the money supply, M1 and M2. M1 is notes and coins in circulation, traveler’s checks of non-bank issuers, and demand deposits not including money market funds. M2 includes M1, savings accounts, some time deposits, and money-market deposit accounts for individuals. The Center for Financial Stability offers a broader measure of money supply, Divisia M4:
It is a broad aggregate, including negotiable money-market securities, such as commercial paper, negotiable CDs, and T-bills. M4’s components are similar to those of the monetary aggregate once called L, but modernized to be consistent with current market realities.
Here is a chart provided by the CFS showing their measures:
As you can see, Martin Wolf is right to say that the money supply with this measure is too low, which means we don’t have to worry about inflation right now. The demonstration is elegant. One chart based on observable market data destroys the theoretical basis for the worry about deficits and Fed actions intended to help the economy.
It won’t be easy to overcome the millions spent by the CEOs of @FixTheDebt, and Peter Peterson and his crew of deficit hawks. It won’t be easy to overcome the terror felt by Congressional progressives, and maybe some of the rest of us, that we will have to venture into seemingly new ideas to get out of this mess. We need leadership from the Progressive Caucus on this front, just as much as we need it in the culture wars. Nothing will change without that leadership.
Update WMD1961 in comments pointed out that the first chart, M2, is in real dollars while the second chart, Divisia M4, is in log scale, so the two are not the same. Here is a revised version of M2, on a log scale.
This chart shows a somewhat flatter rise, as you would expect in log scale. It is, however, a steady rise as opposed to the dip in the M4 chart, so the lesson remains.