A False Premise Automatically Dooms American Economics.
The false premise; right wing, deficit hawk success in spreading the lie that America has or will soon run out of money.
This indefensible dissembling frightened Americans, including the President and his party. The President and Speaker Pelosi told Americans what their "crack economic and financial advisers" told them to say, "We're out of money now", "Everyone must tighten their belts." Neither being economists nor finance experts, President Obama and Speaker Pelosi had every reason to believe their "expert's" version of what was wrong with deficit spending.
Afterall, these mavens of economic policy lied, government would have to borrow, print, or cut existing programs to "afford" funding safety net needs occasioned by Wall St's fraud.
There is every reason to believe that those who funded the Obama presidency wanted to narrow his policy space to eliminate any chance of a resurgent, vocal Middle Class. Ergo, get him to believe that debt is bad and suffering of the masses is a natural consequence of recession. The only cure is "free market" growth through private sector initiatives.
However, his "advisers" didn't tell him the rest of the story.
What is at issue is the failure of the Obama Administration to respond to near Great Depression level suffering by tens of millions of Americans. He referenced FDR and Reagan. What he didn't refer to was the fact that both of these President's understood what it meant to be the Executive of a nation enjoying Monetary Sovereignty. Namely, the ability to spend without revenue especially during an emergency or exigent situation. The very essence of being monetarily sovereign includes the fact that the Federal government never needs income from any source. This state was especially true after Nixon, in 1971, abandoned the gold standard.
Policy Timidity & Failure
The Administration's compassion was half hearted since the dark cloud of the deficit terrorists hung relentless, constraining the White House and Congress from a fulsome stimulus proposed by Prof Romer but slammed by the arrogant Dr. Summers for political rather than economic reasons. While the WH had a supportive Congress it feared the deficit hawks in and outside of the party. A relative pittance was appropriated and failed to slow the slide of millions of Americans out of the middle class into a world of 'hand-to-mouth" penury.
Deficit Hawks Win
Critical to this failure of Government, which continues today, is that the fundamental premise of the deficit hawks was then and is now, a lie. They relentlessly plied the media with the bald faced lies about our nation running out of money and leaving mountains of debt for our grandchildren.
No one in the media, academia, or any really public voice stopped to ask, "How can a nation issuing its own non-convertible, fiat currency with a flexible exchange rate run out of its own currency?" The government makes the laws requiring the creation and terms for issuance and spending of its own fiat money. How can it, involuntarily, run out of that "thin air money?"
The rest of the story that should have been part of the budget briefing for the President is that a nation enjoying the status of monetary sovereignty never runs out of its own currency, can't involuntarily go broke and neither can any of its programs. All President Obama needs to complete the act of spending is an appropriation. Not revenue per se from taxation or borrowing. Why would it need revenue as the sole issuer of its own currency.
Other than the absence of an appropriation (a political call if denied) the only constraint on spending would be inflation. Then as today, inflation is not a threat, despite the deficit hawk's rabid and financially illiterate prognostications of doom and hyperinflation following the announcement of stimulus and then QE.
The fundamental premises of monetary sovereignty give this President and Congress the economic, social and political rational to deficit spend until we reach full employment. Doing so generates economic growth. Every dime of deficit spending becomes a net financial asset in the private sector. Deficit spending is the fundamental stimulus needed when the private sector, rationally withholds its capital due to inadequate demand for its products and services.
The failure to use the fact of monetary sovereignty as a premise for national budget formulation betrays today's Americans and the future for their grandchildren.