And Now, the Counterargument « James Kwak at The Baseline Scenario
James Kwak paraphrases Willem Buiter: "William Buiter at the FT argues that the U.S. cannot afford a major fiscal stimulus because the government (by which I think he means the entire political system, not just the Obama Administration) has no deficit-fighting credibility. . . Buiter’s argument is essentially a tipping-point argument. Yes, the markets seem unconcerned about U.S. government debt, but pass that stimulus bill and all of a sudden - or shortly thereafter - they will panic."
Buiter, a Dutchman posing as an English Tory, is convenient for this role as a Cassandra, because his alien status does not call into question the central absurdity of so-called conservatives and centrists opposing the stimulus spending as "too large", but, at the same time, favoring tax cuts that would blow a huge permanent hole in the government's finances. Because let's be clear about this: the "entire political system" does not lack deficit-fighting credibility; the conservative partisans and self-styled "responsible" centrists, who, traditionally, would be arguing for fiscal responsibility, have abandoned that role, to advocate for tax-cuts-for-the-rich as a panacea, and increased military spending as a necessity regardless of circumstance. The "conservatives", in short, are mad for Empire, however, short-lived Empire must be, when their patrons are termites munching on the imperial superstructure.
Buiter's argument is NOT a "tipping-point argument". It is a piece of demagoguery -- a "Be Afraid, Be Very Afraid!" argument, designed to keep people huddling under their blankets upstairs, while Buiter's thieving friends make off with the silver downstairs. Kwak appears to see this, but doesn't say it, though he hints. Until the U.S. government starts borrowing in foreign currencies, the financial structure doesn't exist for the kind of "tipping-point" Buiter conjures. (Buiter knows this, of course. Which makes him a liar.)
That doesn't mean that Buiter is wrong to worry about the political struggle over deficits and taxes. Deficits matter. But, a more realistic assessment would highlight a far more realistic scenario: Republicans and centrists will favor stealing the Social Security trust fund over taxing the Rich, and they will call it "Entitlement Reform" and congratulate themselves on their political courage. It does take courage of a kind to break into someone's house and steal.
There's an on-going political struggle in the U.S., as in every democratic country, and, in the main, as in every country, it is a struggle over the distribution of income, wealth and power. Who gets what, where and when. Duh.
The U.S. has no particular, global political fiscal disability, but it does have an on-going political struggle over the distribution of income and wealth, in which the Federal deficit is a weapon and Federal solvency is hostage.
The choice -- pro and con -- is whether to turn on the lights, and go downstairs, and chase the thieves until they drop the loot, or, as Buiter would have it, huddle afraid upstairs, until all is lost.