#paygo

As compras por cartões de crédito e débito têm sido as principais formas de pagamento utilizadas pelos consumidores. A praticidade e segurança de não carregar dinheiro, a possibilidade de parcelamento e os benefícios oferecidos pelas operadoras, como milhas e promoções, são alguns dos motivos para isso.

Nancy Pelosi’s rule package is an attack on progressive reforms before they’ve even been introduced.

IN THESE TIMES

There is nothing more crippling to a bold policy agenda than the myth that the government can run out of money. This myth is behind every But how will you pay for it? objection to proposals such as a Green New Deal and Medicare for All. New House Majority Leader Nancy Pelosi (D-Calif.) has even proposed instituting self-defeating PAYGO (pay as you go) rules, which would require all new government spending to be matched with increased revenue, wrongly prioritizing the balancing of the budget over the well-being of the public.

Dispelling this myth is at the heart of an economic approach that is rapidly gaining a global following, known as modern monetary theory (MMT). MMT stresses that, in the modern world, where government-backed currencies are no longer backed by gold or other commodities, federal governments can’t run out of financial resources. Unlike states and municipalities (which have hard constraints on spending), for the federal government, all funding shortages are artificially created. Understanding this changes everything—from the economic possibilities before us to what the public can demand from our government.

Everyone knows that only governments can issue currencies (dollars, yen, pesos). If households tried to do it, we’d be called counterfeiters. It should be obvious, then, that the sole issuer of a currency cannot possibly run out of it. But, as Sherlock Holmes once observed, “There is nothing more deceptive than an obvious fact.”

The public understanding of government spending is a classic case of cognitive dissonance. We regularly witness how the government immediately “finds the money” when the policy priority is an endless war, financial bailouts, billionaire tax cuts. And yet the public is generally convinced that, like a household, the government can go broke, if not today maybe tomorrow, if it does not raise enough tax revenue to pay its bills.

Debt limits set by Congress create the appearance that taxes and bonds finance the government. But if we “follow the money,” as MMT economists have done, we find that the federal government does not spend tax revenue (just listen to Federal Reserve officials here, here and here) and it cannot possibly default.

So where does the money come from? In practice, government funding is voted into existence every time Congress appropriates a budget for a given program. Afterward, the Federal Reserve (the monopoly issuer of dollar reserves) and the Treasury (the monopoly issuer of coins and bonds) coordinate to clear all payments. No government checks bounce. Ever.

What this also means is that when the government runs a deficit and spends more than it takes in through taxes, it is adding dollars to the economy.

And while politicians vilify the deficits (when politically convenient), the public fails to spot that all the money spent by government—except for that which is later taxed—lives in some person or firm’s bank account or wallet. If we balanced the budget, we would also remove those funds.

House passage of the Republican tax overhaul bill on Thursday creates a new problem for the GOP — preventing hundreds of billions of dollars in cuts to federal spending under a 2010 law.

The Pay-As-You-Go Act, enacted when Democrats were in the majority on Capitol Hill, requires automatic cuts if the total effect of legislation passed by Congress in one session adds to the federal deficit. This week the nonpartisan Congressional Budget Office said enacting legislation that adds $1.5 trillion to the deficit over 10 years would trigger automatic PAYGO cuts in fiscal year 2018 that could total $136 billion. That would include around $25 billion in cuts to Medicare providers.

via Morning Consult.

Related Reading:

Letter Opposing PAYGO Cut to Medicare in GOP Tax Bill.

I am writing to urge you to vote against H.R. 1, legislation that would result in cuts to Medicare, Medicaid and Social Security – all to pay for massive tax breaks for the very wealthy and profitable corporations.

Trump/GOP Tax Bill Would Trigger Devastating Cut to Medicare.

Last year, House Republicans voted to add $1.5 trillion to the deficit, for the sake of delivering enormous tax breaks to the wealthy and corporations. Now, as one of their first acts upon taking power, House Democrats are preparing to prohibit themselves from adding a penny to the deficit for any purpose — including investments in things like climate preparedness, which could plausibly pay for themselves in the long run. This plan has outraged the party’s far-left flank, seeding a (small-scale) rebellion against Nancy Pelosi’s leadership before she’s even taken the Speaker’s gavel.

And all of this constitutes a welcome sign of progress.

But before we examine why this particular episode of “Dems in Disarray” is a happy one, let’s take a more detailed look at the plot. The WashingtonPost’s Mike DeBonis and Jeff Stein offer a succinct synopsis:

House Democratic leaders faced the prospect of a liberal rebellion on their first day in charge after prominent Democrats said they would oppose a package of rules changes endorsed by Nancy Pelosi, the incoming speaker.

Rep. Ro Khanna (Calif.) and Rep.-elect Alexandria Ocasio-Cortez (N.Y.) said they would vote against the rules changes on Thursday — in the second vote Democrats will take in the majority, after electing Pelosi (D-Calif.) — because of the inclusion of a fiscal measure known as “pay as you go,” or PAYGO. That rule, echoing a provision in federal law and in the Senate’s rules, would require the House to offset any spending so as not to increase the budget deficit … Liberals such as Khanna and Ocasio-Cortez — and activists on the political left — argue that PAYGO amounts to a legislative straitjacket that could impede their efforts to pass ambitious social programs.

The PAYGO rule is substantively indefensible. It rests on the economically illiterate premise that balanced budgets are forever and always desirable. In truth, deficit spending is the only responsible means of combating severe recessions, and a perfectly sound means of financing worthwhile public investments in a context of low inflation and chronically low labor-force participation — which is to say, in our current context. As a political matter, it is true that voters generally evince a fondness for the phrases “fiscal responsibility” and “balanced budgets.” But it defies credulity to suggest that there is a significant contingent of single-issue, deficit-reduction swing voters who plan to carefully study the Democratic Party’s changes to House procedure before going to the ballot box in 2020. Therefore, even swing-district Democrats have no excuse for backing PAYGO, and their attachment to the rule is maddening.

All that said, it doesn’t really matter, in a concrete sense, whether the House adopts a PAYGO rule or not. Even if the House establishes a rule that all new spending must be paid for, it can waive that rule for any individual piece of legislation with a simple majority. Many Democratic opponents of PAYGO have signaled that they intend to vote for the package of rule changes, regardless, citing assurances that the rule will be waived if doing so is necessary for “advancing key progressive priorities.”

IN THESE TIMES

This piece is a response to “PAYGO Is Based on a Fallacy” and “The Best Way to Argue Against PAYGO.”

The rising popularity of modern monetary theory (MMT) has inevitably brought misconceptions. Critics across the political spectrum often claim that MMTers want sovereign governments to “just print money” with no concern for the national debt or, as Max B. Sawicky suggests, inflation. Some, especially on the Right, point to Venezuela and Zimbabwe as classic cases of hyperinflation.

But MMT points to a different primary cause of inflation in developing countries: not domestic spending, but foreign debt and a resulting lack of “monetary sovereignty.”

A country has full monetary sovereignty when it has its own national currency that is not fixed to the value of gold or another nation’s currency; it uses that currency to impose taxes, fees and fines; and all its debt is payable in that currency. Countries that meet these criteria, like the United States and Japan, face no external constraints on government spending, as Pavlina R. Tcherneva explains. The risk of inflation remains under control so long as government spending does not outpace the economy’s real productive capacity—the availability of physical resources, skilled labor, equipment and technical know-how.

For developing countries, the problem begins with trade deficits and resulting debt owed in foreign currencies.

Those deficits are the product of fundamental economic shortcomings, themselves often a legacy of colonial rule. Postcolonial countries are typically unable to produce enough food and energy to meet domestic need, and they face structural industrial and technological deficiencies. Because of this, they must import food and energy, along with essential manufacturing inputs. For example, Venezuela lacks refining capacity, so—while it exports crude oil—it must import more expensive refined oil, contributing to trade deficits.

Importing more than they export causes these countries’ currencies to depreciate relative to major currencies. With a weaker currency, new imports (like food, fuel and medicine) become relatively more expensive. This imbalance is the real driver of inflation, and often of social and political unrest.

The International Monetary Fund (IMF) historically steps in at this point with emergency loans coupled with painful austerity measures. To get out of IMF conditions, even progressive policymakers typically prioritize acquiring foreign currency reserves in order to honor external debt payments. They promote tourism (tourists bring foreign currency) and design agricultural and manufacturing policies to support export industries. Meanwhile, industries that would build self-sufficiency (and thus fix the trade imbalance), like food crops for domestic consumption, receive little government support. All of this decreases self-sufficiency and reinforces the dependence on foreign goods that caused the debt in the first place.