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17 USC 102

The strangely sensible economics of Alexandria Ocasio-Cortez

July 30, 2018

 

Over the last couple of weeks, I’ve been absorbed by the head-spinning political rise of Alexandria Ocasio-Cortez, a 28-year-old former bartender who, just this year, won a primary in her home district over senior Democratic incumbent Joe Crowley. Impressive as that feat is, I was particularly interested in her self-identification of democratic socialist, despite having an economics degree from Boston University. (As it happens, I almost attended Boston University majoring in economics—I took an offer for a guaranteed transfer but then declined it after my first semester at AU.)

 

My go-to rationale against Bernie Sanders-brand policies is based on economics, so it confuses me when Ocasio-Cortez — trained in economics — comes out, guns blazing, in support of policies that I believe to be economically infeasible. Her academic success has led me to question my own personal conceptions about what democratic socialism and its implications really mean for America’s working class and small businesses.

 

Of course, having only recently been exposed to the political scene, Ocasio-Cortez has had her share of televised gaffes — all of which, including and especially her recent dialogue on unemployment, have been blown out of proportion by conservative opponents who’ve all but reduced her strawman to a pile of burnt reeds. Read a National Review op-ed headline by Michelle Malkin, obviously one of the most respected experts in her field, “Boston University’s Fake-o-Nomics Darling.” Her lede: “It costs a pretty penny to earn a diploma in stupid.”

 

As mean-spirited as the article sounds, and as terrible of a person Malkin is, the backlash is a statement more against Ocasio-Cortez’s persona than her actual arguments, which may sound unrefined on camera as she’s quite new to this political scene. Therefore, I’ve elected to do what many Trump supporters wish dissenters would do for their darling: ignore public rhetorical scandals and instead focus on policy proposals. Like her former boss and mentor Bernie Sanders, Ocasio-Cortez has some great aspirations. She believes in an America where the poverty class doesn’t exist, where nobody dies from not being to afford food, water, or shelter. How she plans to go about doing that is where controversy begins.

 

I don’t know why, but conservatives, when riled up against things like single-payer healthcare, immediately attack caricatures of what is actually in front of them, relying heavily on blanket statements and gut-punch claims. They talk about the dysfunctional state of Venezuela and blame it on the failures of socialism as a political system rather than the economic stupidity of the Maduro regime. They cite tyrannical regimes like that of Cuba and the Soviet Union, both of which were a result of insidious political, not necessarily economic, institutions. There’s this deep-rooted fear that somehow expanding government spending — not government oversight over the economy — will lead to government overreach, that somehow clamping down on business practices and implementing “workable” (not the word I would use) wages could plant the seeds for the downfall of American democracy.

 

And then there are the more reasonable conservatives and moderates who understand the needs of and potential benefits for the blue collar worker, but hold the national economic interest in mind when it comes to debating policies bordering on that of a very flimsily-defined concept of socialism. When presented with a pro-single-payer healthcare argument, their first thought is, “Aren’t we already in a fat deficit and trillions of dollars in debt? What’s the use adding more and more to Uncle Sam’s tab, especially if we borrow and spend like we have no limit, when we’re already stuck with a thousand-ton monstrosity, a large portion of which is owned by a geopolitical opponent?”

 

For the longest time, without realizing it, I have been one of these people. What’s weird is that, despite the efforts of my economics professors and my love of Paul Krugman’s New York Times column, I still taste salt whenever someone mentions the national debt. I think we all do—we’re all somewhat saddled in debt (I’m several thousand dollars in) and it’s a knee-jerk reaction for us to consider the U.S. national debt as a form of household debt, with the same burdensome implications as, say, a hefty mortgage or a savage volume of credit card debt. Not to mention, Democrats and especially Republicans — who always manage to increase the deficit while in office — are constantly railing on having to balance the budget.

 

My first thought hearing about the New York primary was basically, “Ocasio-Cortez has a degree in economics. She of all people should know that democratic socialist policies are too spendy during our time of large debt.” But she touted policy proposals like a jobs guarantee program and universal healthcare. And to me, that was incredibly strange; economics experts usually don’t support such policies.

 

That’s how I got to writing this article; this idea of economically feasible socialism got to me. It was only then that I suddenly understood the fiduciary disposition of the democratic socialists: it’s their (understandable and reasonable) disregard for the universally touted danger of the budget deficit. In various recent interviews, Ocasio-Cortez has peddled to various skeptics the idea of a bottomless debt barrel, a claim that, as an economics major myself, somehow makes sense in a way that I’ve never really thought about before. It turns out, all I had to do was hold my nose from the rhetoric of deficit hawks in Washington. Essentially, she pushed the proposal that as long as inflation isn’t visible as a direct result of government manipulation of the market, the U.S. can borrow indefinitely—as long as the market doesn’t suffer from macroeconomic contusion, we can expand the deficit as much as we want. Let me explain further.

 

Budget deficits are believed to be directly correlated with currency devaluation. If a country’s currency has a floating exchange rate, reckless borrowing by that country’s government will lead to value depreciation in its currency. However, the U.S. dollar is special. Although the gold standard was abandoned with the death of Bretton Woods in 1970 and the dollar is no longer fixed, a number of foreign fixed currencies are pegged to it, which means that a large number of other nations — especially developing economies whose currencies are vulnerable to volatility — base the value of their own money around ours. The Panamanian balboa, the Saudi riyal, and the Cuban peso are examples. As a result, the dollar is what is known as a “global reserve currency,” meaning that it is the most widely accepted for international trade. As of February, 64 percent of the world’s central bank foreign exchange reserves are made up of U.S. dollars. Coming in second is the euro, which makes up only 19.9 percent of foreign exchange reserves.

 

The demand for juicy U.S. dollars abroad more than thoroughly cushions the potential for spending and borrowing to significantly affect the value of currency and result in price inflation in the country. Therefore, American treasury bonds are immensely valuable at home and abroad. If you were to buy debt from the American government, you’d get paid back, very close to guaranteed; the U.S. government has never made a late debt payment, ever.

 

As an analogy, imagine this: you have a mortgage payment each month, except a) you never die so you’ll never be saddled with an amount at one time that will destroy your financial state, b) every bank in town wants to buy your money and relies on it to survive, oftentimes providing you with the means to pay back your own loan, c) your entire neighborhood can’t afford to have you fail on a payment, and d) you don’t have a due date (unless someone overthrows the federal government).

 

Pedro Nicolaci da Costa, an economics writer and correspondent for Business Insider, wrote specifically about this supposition in regards to a jobs-guarantee program presented to voters by Bernie Sanders earlier this year. Costa, like Ocasio-Cortez, focuses specifically on Democrats who are too afraid to shy away from crying about the spending deficit. “Democrats often allow themselves to be straitjacketed by unwarranted fears of rising budget deficits while they are in power,” he writes.

 

Frequently throughout history, it is our contempt and subsequent reactions to deficit spending, not the spending itself, that trigger economic crises. (Almost) every time a significant chunk is taken out of American debt, a depression follows. The economy thrives when the federal government spends and borrows, because money that is spent and borrowed and then spent again flows between firms and households and provides for growth, especially if money flows to the individuals (expansion of entitlements) and the businesses (jobs-guarantee program) who need it the most.

 

Ocasio-Cortez isn’t advocating for mindless spending. Rather, she is combining a number of the factors I’ve listed above to spearhead a much larger and, in my opinion, more beneficial bundle of policies. She doesn’t want tax cuts to favor the rich, not because they will increase the deficit, but rather because, well, the rich don’t need tax cuts. Her issue isn’t with the scale of spending; it’s with the quality of said spending. Costa writes in another article published last year in anticipation of the Republicans’ tax plan, “Democrats are opposing Republican tax cuts partly on the basis that they will expand the US budget deficit. That's the wrong argument to make—not just now but in any low-inflation environment. The right argument against the plan is that it's skewed toward the wealthy and includes changes that won't benefit the economy.”

 

By taking up the disposition of deficit hawks, Democrats are essentially shooting themselves in the foot because all the programs they advocate for involve a broad expansion of governmental social programs—they are literally setting up the argument that will be used against them on the floor. Rather than shying away from Ocasio-Cortez's economics and playing it safe with voters, Democrats should just stand up and present evidence supporting the claim that, as long as the dollar isn’t pushed on too forcefully, there’s no reason deficit spending is detrimental to the U.S. economy—in fact, history shows that it is quite the contrary. Long story short, our economy functions nothing like a household’s and therefore it shouldn’t be run like one; the U.S. isn’t burdened by deficit spending, it’s enlivened by it.

 

I’m a student who loves economics, and even if Ocasio-Cortez’s ideas are new and somewhat alien to the average voter, I believe that she deserves her time of day to present them. We all, on one level or another, care about the health of the American economy, and if someone competent, using economic arguments as rationale, truly believes that a certain policy is good for American workers, businesses, and the disadvantaged, then I’m all ears.

 

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