For the blog Law and Political Economy, Melinda Cooper writes a piece to kick off the first part of a symposium on her recent book Counterrevolution: Extravagance and Austerity in Public Finance. Four responses to the book will follow, to be posted once a week for the next month. Click here to learn more about the book. Click here to read the full piece. An excerpt appears below:

“How did the American state come to be so extravagant in its recourse to fiat money creation and public debt issuance, yet so selectively austere in its public spending choices? This question, which lies at the heart of my recent book, could have been posed at any point after 1971, when the Nixon administration abandoned its commitment to the gold standard. At this point, the US government no longer had to balance its budgets nor raise interest rates whenever foreign investors tried to redeem their dollars for gold. Instead, as many neoliberal economists, including Milton Friedman, recognized and celebrated, the United States was now free to pursue its economic policies with a newfound independence.

Yet they also understood the move to floating exchange rates as a double-edged sword: too much freedom would allow legislators to pursue an overly generous domestic spending agenda that would empower labor and increase wages. To combat this possibility, neoliberal reformers immediately set to work erecting ring fences around the newfound fiscal and monetary powers of the American state. They embraced central bank independence and institutional limits on money creation, which could serve as a substitute for the discipline of hard money or gold. They also advocated for supermajority voting requirements on taxation, along with constitutional limits to tax and spending at the state and local level. At the federal level, the mere threat of a balanced budget amendment was often sufficient to curb the spending ambitions of wayward legislators. Thus, we arrive at the paradoxical arrangement I attempt to unpack in this book: the power of the United States to issue public debt and create fiat money ad infinitum is reined in by the mandate to combat (wage and price) inflation, which in turn dictates a permanent dampener on redistributive public spending.”