A Guide to the Deficit Aviary
UT professor James Galbraith is drawing attention for his unconventional position on the U.S. deficit. Galbraith and his fellow “deficit owls” stand apart from the better-known deficit hawks and deficit doves. Hawks think we should act now to reduce the deficit; doves think we should act later. Owls, by contrast, think the deficit isn’t a problem, now or later; it’s just a natural part of growth.
The Alcalde is introducing the concept on its “Big Idea” page of the May|June issue. Here Galbraith explains in more depth what it means to be a deficit owl.
The Alcalde: What is a deficit owl?
Galbraith: A deficit owl believes that the deficit is a result, not a cause, of economic difficulty, and that it’s not something policy should work on directly. In my opinion, the deficit is a symptom, not a disease in itself.
This position is nothing new—it’s only the terminology that is new. The hawks vs. dove language has dominated the conversation for years now, but in reality it has always been a more complex, less black-and-white debate than that. So I’m pleased that this owl terminology has cropped up, because it may be able to help broaden the conversation. This is a question of who’s up and who’s down in various economics departments. The owls go back to a long tradition, starting with John Maynard Keynes.
The Alcalde: What’s the difference between a deficit dove and a deficit owl? Both groups advocate a hands-off approach.
Galbraith: The difference is that the doves say although the deficit is not a problem now, it’s certainly going to be a problem in the future. So they say we should have a stimulus policy now and prepare by cutting back long-term programs.
The Alcalde: Why do you disagree with the doves?
Galbraith: There are two problems with the doves’ approach. One, there’s no evidence that the world is going to have a major problem caused by this question of the deficit. That’s a supposition based on highly unreliable computer programs. And two, if you wanted to do something today about the future budget, the only way to do that is cut vital programs like Social Security and Medicare. You can’t cut things like the defense budget, because that’s decided in the future. So the doves’ formula is one that leaves Social Security and similar programs at great risk.
The Alcalde: What’s the most common misconception about the economy?
Galbraith: The fear that we will go bankrupt. The concept of bankruptcy doesn’t apply to a country like us; the U.S. is going to be just fine, long-term. Europe is another story, because the coordinating mechanisms between countries there are dreadful. The U.S. is more resilient than it may look.
My message is the financial position of the U.S. government is far stronger than a great many people think it is. Recently we’ve been seeing this notion that we’re heading toward some unprecedented, apocalyptic territory. You saw that with the panic over the debt-ceiling issue last summer. But the people who were actually buying and selling treasury bonds weren’t flustered in the least. In fact, bond rates went down.
The Alcalde: What’s your five-step plan for economic growth?
Galbraith: Good question, because I do actually have a five-step plan:
1. Concentrate on restructuring and reforming the financial sector, which was a major source of the crisis. It’s still not fixed.
2. Reduce our reliance on oil. This is a tough one to fix, and I don’t believe in miracle cures, but we have to find alternatives.
3. This step has three components—all relatively small changes that would affect many people. One, let’s recognize that a lot of unemployed people—older people—will not get new jobs. Offering them early retirement would open up jobs for younger workers.
4. Next, let’s raise minimum wage, which discourages undocumented workers.
5. And finally, a right-to-rent law. This would say, if your house is in foreclosure, you can stay in the house and pay rent set by a neutral party and then buy it back in a few years if you wanted, if you could. That would change the incentives facing the banks, which are dragging out this process. They would have a much stronger incentive to renegotiate than they do now.
Think Galbraith is onto something? Vehemently disagree? Share your take on deficits and the economy in our comments section.
Photo by Eduardo Deboni
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11 Comments
I’m not in total agreement. I do believe that this cycle is natural in the economic cycles. But piling on debt is not a valid response to this cycle. I do believe that cuts must be made but if each department was cut by say, 10% what would that do? Do you really think that services would be cut first? Of course they would and not because it’s what needs to be cut but because no department wants to have to find their own waste and fraud.
Also, we must ask ourselves; is this a debt that will ever be repaid or is it merely on paper? If it must be repaid, then is is “fair” to leave our children and our grandchildren this debt?
Finally, is it not worth the effort to at least look at restructuring certain entities such as social security to be more efficient and self-funding?
I came away from this article thiking. . this professor knows the next step, historically, has been to raise revenue (taxes) to offset the differences. In the real world, one can only demand so much revenue from the bosses before they’re told, no. . .you need to go look elsewhere, we can’t afford your demands. They can not simply not pay for their supplies and their overhead and give you what you want.
The American people are telling their employees ( the federal, state and local governments) that the answer to their demands are NO. We can’t afford your demands. Learn to live within your means or find the money elsewhere. . that elsewhere is by cutting the spending. . This is not rocket science.
I have an issue with #3: “This step has three components—all relatively small changes that would affect many people. One, let’s recognize that a lot of unemployed people—older people—will not get new jobs. Offering them early retirement would open up jobs for younger workers.” I am a senior who is unemployed. I have been underemployed my entire working life. I do not have an employer who is going to give me an early retirement. I have to have an income. I am totally competent. I need to get a job or some meaningful source of income.
How exactly will raising the minimum wage discourage undocumented workers? As long as there are no real disincentives for unscrupulous employers to offer slave wages to whoever will accept them there will continue to be an incentive for undocumented economic refugees from other countries. The newspapers are filled with stories about raids and roundups of undocumented workers but only trivial fines are ever imposed on employers. I’m all for raising the minimum wage but I question its relevant to the serious need for a realistic path toward legal work status.
The burrowing owl is a good caricature for Galbraith. Hide in your hole when things don’t look good. He and others who follow his reasoning are quick to say cut social security and medicare. They forget people,and employers have paid into the system all their working life with the exception of the blood suckers the government has added to the rolls. Go to a state social security office and look around at who is there–a heavy majority of young people who should be out working. And a higher minimum wage will attract undocumented workers rather than turn them away. They are the ones who can live on the wage because they have all the free benefits.
Wow, this dummy has a doctorate in economics? I believe he is living in the USA of yester-year. The Age of America is ending. I do not want it to be this way, but our public policies are forcing it on us. We have not been paying for our spending for 4 decades now. Strength is not built this way. Let’s talk about his five-step “plan” for economic growth.
1. Financial sector does need reform. Re-instating Glass-Steagall would go a long way here.
2. The miracle cure is already here, it’s called natural gas. Fracking technologies have made it super cheap to get this abundant natural resource right here in the USA. Did you know that ALL of our storage capacity for gas will be FULL before the end of this year at current consumption/production rates? Producers will literally have to throw it away unless new uses come online…and they will.
3. Huh? What kind of wonk-speak is this? Offer early retirement to someone who doesn’t have a job? Huh? I only have a bachelors degree so I do not understand how you retire w/o a job. The problem is more people need to work, not retire. Of course, you have to have a job to work…
4. Hello, Mr Economist! Higher wages attract more workers. I think it’s called supply and demand. (I might need to doctorate to fully understand this) Undocumented or not is not relevant, higher wages will attract more foreign workers, and probably more domestic workers too.
5. Earth to Dr. Galbraith. You can do whatever you want with your house, including rent it out. We do not need a law to distort the housing market. We have enough of them, thank you. If you cannot make the payments, you lose it. Let the banks take them back and sell them. If the banks do not have enough capital, they can go under too. Home prices will find a bottom this way…they called it free markets when I was at UT.
Provocative article. The only way to fix what is broken is to pay for what you buy and work for what you are paid. It is true on a micro level, and it is true on a macro level.
This is such a loony article, I’m not even going to give it the dignity of specific responses. It’s scary that people like this are teaching our kids!
This isn’t just loony, it’s dangerous. I’m saddened that UT would employ someone so clearly incompetent. The Alcalde needs to repudiate this or offer up the opposing side.
I have always been proud to be a life alumni member of The University. I am embarrassed that one of our professors could have such a lack of understanding of basic economics. What he is suggesting is that we can just print money and there will be no world wide consequences. His comment about oil dependency is correct but his lack of knowledge about natural gas alternatives is humorous for a UT professor. If our government would quit funding the commercially impractical solar, wind, etc. and focus on natural gas we can be energy self sufficent within 10 years.
Has The University lost so much touch with reality that it really believes this is a “Big Idea”. It is this type of thinking in Washington that has compounded the problem in the last three and a half years.
Dr.Galbraith is coming from the Modern Monetary Theory perspective. Read into it and you wont think he’s so crazy anymore.
Even if you don’t agree after understanding it, you’ll at least know where he’s coming from.
I actually rather like the theory because it makes more sense than neoliberalism.
[...] James Galbraith was recently interviewed in the University of Texas Alumni magazine and offered an opinion on the “most common misconception about the economy” (via The Alcalde): [...]
People who think this is “loony” should learn the profound difference between a currency user than can go bankrupt and a currency issuer that cannot. Yes, there can be inflation, once you print so much you go past full employment, but is is a no brainer to stop printing then and the only consequence would be full employment.
It is people who don’t understand that the government doesn’t really spent borrowed money (that it creates money out of thin air) that don’t understand economics.
See where the government money comes from (spoiler: not from China): http://tinyurl.com/3pmseq8