Financing the Deficit
In “How to Pay for What We Need” (Winter 2012) Richard Striner presents as innovative a system for financing government deficits that is essentially the same as the present method.
In Striner’s world, Congress would appropriate nonexistent money though direct deposit to employee or vendor accounts. The accounts thus created would generate new bank reserves capable of multiple-deposit creation (i.e., when the Federal Reserve Bank supplies the banking system with an additional $1 in reserves, deposits increase by more than a multiple of $1), as is the case with any excess reserves. In the present system the U.S. Treasury has to issue additional government securities to generate funds to pay for deficits. These funds are obtained through sale of securities to investors, with the proceeds paid to the Treasury’s accounts at the Fed. Thus the initial drain on bank reserves is instantly restored, but the public is left with the additional government securities that were sold to finance the deficit.
Suppose now that the public does not wish to hold the additional securities it has been asked to buy—a very likely story as the deficits and financing needs accumulate. Here is the rub: the Federal Reserve is likely to have to purchase the securities unloaded by the public so as to mitigate the rise in interest rates that might ensue and conflict with the Fed’s interest rate objectives. Thus, excess reserves are regenerated, exactly as they would be if Congress created fiat money as per Striner.
Excess reserves and money supply have increased vastly since the recession and trillion-dollar deficits made their appearance, or roughly since 2008. The danger of inflation exists, exactly as in Striner’s scheme. The danger is dormant for the time being because of the mutually reinforcing factors of weak business conditions and the banks’ liquidity and balance sheet concern. Yet, a second recession has been averted.
Let Mr. Striner explain how his substantively identical scheme could have done better.
Francis H. Schott
retired officer, Federal Reserve Bank of New York
Ridgewood, New Jersey
Richard Striner replies: I recommend that Mr. Schott reread my article and think beyond the limits of his orthodox presuppositions. I am not, as he believes, suggesting a different method of financing deficit spending.
It’s true that the Federal Reserve has expanded our “excess reserves” considerably in recent years, as Schott observes. But the situation now is comparable to the Great Depression, when the Fed augmented the money supply and the money sat idle. As economic historians Lester S. Levy and Roy J. Sampson observed years ago, though “large amounts of reserves were pumped into the banking system, the reserves remained unused. So severe was the depression that sound business people were reluctant to borrow and banks were hesitant about lending.”
One merit of my proposal is that the new money to be created by Congress would go to work and not sit idle: it would be spent—and spent immediately—on job-creating projects. Another merit is that the money would be spent, and not lent: it would add not a particle of debt-drag to our struggling economy.
The Fed has been allowed to be autonomous for far too long. It’s time to construct a new monetary system that would link our fiscal and monetary policies and make them work in tandem for us.
No “respectable” journal has in recent times published such economic heresy as Richard Striner’s article, in spite of its obvious intellectual merits. As implied by Striner, this has been a taboo topic for any serious economic discussion since the 1930s. It is no surprise, however, that the author is not an economist. That profession, with tragic consequences, is so mired in leftwing or rightwing ideological certitude that it is incapable of applying anything remotely resembling scientific objectivity to its studies.
Wavell Cowan
Moretown, Vermont
Oy Vey
One aspect of Northwest life that William Deresiewicz does not discuss in “A Jew in the Northwest” is the passive-aggressive core of the niceness he describes. People here avoid conflict so assiduously because they are ultra-sensitive to any criticism whatsoever of their little nirvana. Some of the commenters on the Scholar website are so smug they probably think the essay was about them. No! It’s about what it’s like to move from a place where conflict and interesting personalities are part of everyday life to a place where they are buried by niceness.
Rudy Lefkowicz
from our website
As one of those excessively polite Portlanders Deresiewicz describes, I hate to say this, but his commentary paints him as a walking cliché of the Eastern Innocent Abroad. It’s a type instantly recognizable to us literate hicks out here in the territories, upon whom literary New York periodically drops a roving correspondent to gather glib, retail-able anecdotes.
Tim McCormick
from our website
Portland’s mayor is openly gay. Before him our mayor (Vera Katz) was openly Jewish. You might not get your bagel here with a schmeer, but you can get a bagel. The downtown area has two large temples, and if you want to kibitz with others there are plenty of opportunities.
But as far as someone asking if you’re Jewish so as to bask in your Hebrewness, I find that highly unlikely. We have plenty of ethnic groups to bask with, from Albanian to Zoroastrianism. Stop acting like Bwana bringing civilization to a bunch of coonskin-hat wearing savages.
More than half of all Portlanders were born in a different state. If you can’t find a group of New Yawkers to hang out with, then you ain’t looking.
Bea Forni
from our website
Listen, go back to Manhattan. The people whom you mock, who love the hiking and deserts and whatnot, will never, ever begrudge you your MetroCard. I’ll be teaching a 200-level course on Judaism in the spring, and I will be certain to include this in some of the readings. I doubt that my students will take away from the essay anything other than the racist smugness the essay oozes.
Alan Deresiewicz
from our website
Kesey, Kerouac, and Caen
Sterling Lord, literary agent to authors Ken Kesey and Jack Kerouac, wrote in “When Kerouac Met Kesey” (Autumn 2011) that prior to the publication of Kesey’s novel One Flew Over the Cuckoo’s Nest Kerouac turned down a request from the Viking Press to write a blurb for Kesey’s book jacket. (Kerouac and Kesey were both Viking writers at the time.) On this detail Lord appears to be mistaken. The book jacket of the 1962 first edition of Cuckoo’s Nest quotes Kerouac as referring to Kesey as: “A great new American novelist.” This quote very likely came from a Kerouac letter, dated October 1961, to Tom Guinzburg at Viking, a letter now in the Kesey Collection at the University of Oregon Library in Eugene.
I am familiar with that letter because Kesey showed it to me in 1961 when we, both from Oregon, were Stanford University graduate students and friends. I asked Ken to make a copy so that I could take it to Herb Caen, the San Francisco Chronicle columnist. Told that Caen didn’t accept appointments or entertain visitors, I went to his office and gave the copy to his assistant. Soon a direct quote from Kerouac praising Kesey and Cuckoo’s Nest appeared in “Baghdad by the Bay,” Caen’s column. It was apparent that the Kerouac quote came from his letter to Viking, and I am sure this was Caen’s first mention of Kesey, someone Caen continued to write about until he retired more than 20 years later.
Johan R. Gustafson
Bethesda, Maryland
When Veterans Come Home
Regarding James Gibney’s review of Robert Jay Lifton’s memoir Witness to an Extreme Century (Summer 2011), I take exception to Gibney’s remark that “[s]ome analysts argue that the Vietnam veteran population as a whole was much less damaged than [Lofton’s] book suggested.” Who are those analysts, and where do they practice?
Lifton’s Home from the War: Vietnam Veterans—Neither Victims nor Executioners along with Gloria Emerson’s Winners & Losers: Battles, Retreats, Gains, Losses, and Ruins from the Vietnam War were two of the most important books that helped to bring me (and many other Vietnam veterans I knew) all the way home to a real understanding of how our longest war was deliberate, prolonged, and damaging. The psychic wounding from Vietnam still lingers and has only deepened in the wake of two Iraq wars and now Afghanistan.
The returning veteran is society’s problem, a problem novelist Erich Maria Remarque wrote about in The Road Back 80 years ago. As philosopher Karl Jaspers noted, a nation cannot escape its metaphysical guilt. Lifton knows this, and his fine memoir chronicles his inability to turn away from the victims of war and its aftermath.
Gerald McCarthy
Nyack, New York
Lost in Translation
In Jessica Love’s interesting comment on grammar (“The Grammarian Was a He,” Point of Departure, Winter 2012) she fails to point out that the problem she discusses—the correct possessive to use when the referent is an indefinite pronoun—does not exist in many other languages.
French, Italian, and Latin (is, ea, id, ejus, ejus, ejus, as we learned in high school), for example, do not distinguish gender in their possessives (although German does), and while I’m not very familiar with Spanish, I don’t think it distinguishes either. Well, as the French don’t say, Chacun a leur goût.
Paul F. Zweifel
Radford, Virginia
