Putting the Pains in their Place

By Dan Kervick

As part of his Tuesday night statement on the fiscal cliff deal he had just concluded with Congress, President Obama boldly affirmed that he would not negotiate over the debt ceiling, implicitly raising the dire specter of government default to defend his position:

Now, one last point I want to make — while I will negotiate over many things, I will not have another debate with this Congress over whether or not they should pay the bills that they’ve already racked up through the laws that they passed. Let me repeat: We can’t not pay bills that we’ve already incurred. If Congress refuses to give the United States government the ability to pay these bills on time, the consequences for the entire global economy would be catastrophic — far worse than the impact of a fiscal cliff. 

Now this is the kind of thing that tends to make star-struck Democrats weak in the knees.  Partisan Democrats are always extraordinarily impressed by ejaculations of tough talk from President Obama.  But they often have difficulty distinguishing the stagy theatrics of tough talk from the drab backstage reality of tough action.  And unfortunately, every time Obama succeeds in turning some policy debate into a theatrical tilt with Republican leaders, progressives lose.  They lose because Obama’s Democratic supporters will usually follow him almost anywhere – so long as he gives them an emotionally gratifying “win” in the end.  Of course, they will allow Obama himself to define the rules and objectives of the games he is playing, and thus to implicitly define what constitutes winning.

As an example of this phenomenon, consider the outcome of the recent fiscal cliff debate.  The White House and Congress just agreed on a tax package that Goldman Sachs has estimated will create a fiscal drag on our economy amounting to 1.5% of GDP.   The vast majority of American households – many of them struggling from paycheck to paycheck – will pay higher taxes in 2013.  And while the scheduled sequestration cuts were delayed for two months, we can be fairly sure that when the smoke has cleared on the upcoming debate over those cuts, we will all be socked with an even tougher economic blow than the one we just received.   Some combination of reduced government spending and additional tax increases will extract a substantial amount of much-needed spending power out of an already fragile economy.  In the name of budget sobriety, out political leaders are steering us back toward recession.

Many Democrats, however, are convinced that Obama “won” this policy round because he temporarily saved us from the brutal body blow we would have experienced if we had fallen off the fiscal cliff and the full draconian provisions of the Budget Control Act of 2011 had taken effect.   But the fiscal cliff was created by both Congress and Obama last year!  Barack Obama negotiated the Budget Control Act with Congress, and then signed it, after failing to obtain the massive “grand bargain” austerity package he was seeking.  Obama’s fans have a terribly difficult time remembering these facts.  Maybe the new haze blowing in from Colorado and Washington is damaging their memories.  In any case, they think Obama gets to take a bow for blunting the sword that he himself dangled over our necks.

The new Congress that was sworn in yesterday will have to negotiate with the White House on what to do about the still-scheduled cuts, and that negotiation will take place in the context of an argument over the debt ceiling.  The government borrowing limit was reached this week, and within two months the US Treasury will run out of the accounting tricks it is using to forestall the impact of the debt ceiling on scheduled government spending.  Mitch McConnell has already signaled he intends to use the leverage of the debt ceiling to extract deep spending cuts from the White House.

Ah, but the President has already promised that he will not negotiate with Republicans over the debt ceiling.  So all is well, is it not?  Entitlement cuts will not be traded in for a permanent modification of the debt ceiling law, right?

Don’t bet on it.  Here is how it’s likely to go down:

OBAMA (glowering forcefully): “I will not negotiate over the spending Congress has already approved. If Congress passes a permanent extension of the debt ceiling first, I will then be willing to talk to them about reasonable plans for entitlement cuts.”

HOUSE: “OK, here is your permanent debt ceiling extension.”

OBAMA: “OK, here is my signature on entitlement cuts.”

HOUSE: “Thank you for negotiating with us.”

OBAMA: (wagging finger aggressively) “That wasn’t a negotiation. You passed the debt ceiling extension first.”

HOUSE: “Um … OK. Whatever”

OBAMA: (standing firmly) “Let that be a lesson to you.  Just don’t say I negotiated!”

HOUSE: “You’ve got it Mr. President.  Thank you for whatever it is you just did.”

Now this is the kind of thing that will make a lot Democratic partisans cheer, because many of them don’t care what Obama actually does.  They only care that he looks cool and tough in the doing of it, and delivers his lines with the right measure of haughty aplomb.

There certainly are things Obama can do if he wants to take the debt ceiling out of the negotiating equation entirely.  One involves directing the Secretary of the Treasury to issue a trillion dollar (or more) platinum coin to finance all scheduled government spending.  My blogging colleague Joe Firestone is the expert on the platinum coin option, and so I will direct the reader to Joe’s many informative posts on that topic.

But I am afraid that if people are looking for Barack Obama to use the platinum coin option or any other tough guy alternative to hold the line against entitlement cuts, they are going to be disappointed.   The fact is that Obama wants to cut entitlements.  He has signaled this over and over since he took office.  Toughness for Obama means finding some way to stand up to the very people who elected him, not to Republicans, and to force his followers to swallow the medicine he has decided they must take.

We all need to recover some sense of perspective on the debt ceiling debate.   The debt ceiling ploy is pure demagoguery on Congress’s part.  Congress possesses the power of the purse in our system, and the President and the US Treasury can’t spend one single dime more than Congress has approved.  The debt ceiling law allows Congress to authorize a given quantity of spending, and then to complain melodramatically about the high volume of spending later, all while creating the impression that it is the White House that is doing the extra spending.  It’s a rhetorical scam.

But progressives should not allow the debt ceiling to be turned into a cause in itself, while losing sight of the needed public spending that is the real substance of the matter.  The point is not to defend the principle that the White House must be permitted to spend everything that Congress has previously authorized.  The point is to defend the spending itself.   If Obama “wins” the debt ceiling battle, and makes a deal that successfully defends the principle that the executive branch should have the means of financing and carrying out any spending that Congress has previously authorized, but gives away a good deal of the actual spending America needs in the process of reaching this deal, ordinary Americans will lose and plutocrats will win – again.

The point is not to force Obama simply to defend the principle of debt issuance, and be satisfied if Obama stands tough on the stage while acting out that piece of political theater.  We must force Obama to defend Social Security; force him to defend Medicare; force him to defend a jobs program; force him to defend expanded and enhanced public education; force him to defend public works investments; force him to defend an overhaul of our energy system.  Obama is, of course, very uncomfortable defending these things in a loud voice.  He prefers the public role of conservative bean-counter and purveyor of fiscal sobriety and modest austerity.   That’s where he wants to be in the political scene.  So progressives have to speak up, speak out and prevent him from turning the upcoming negotiations into a crowd-pleasing melodrama about the debt ceiling rather than a weighty debate about public policy substance.

As we transition from Obama’s first term into his second term, progressives need to take stock of the situation.  Where are we?   What are our prospects?   Truth be told, the situation does not look good.  The leaderships of both parties, in different ways, have pushed us into a permanent austerity mindset, where it is now taken for granted by almost everyone that we can’t afford any new public initiatives unless we axe some existing initiative at the same time, or suck more tax revenue out of the private sector to pay for the things we need to do.  Apparently we now can’t afford any of the things we desperately need.  As a country we’re dead in the water, save for whatever consumerist cleverness the private sector manages to come up with. If the political atmosphere doesn’t change, we’re on track for a long period of national stagnation and high unemployment.

Now the IMF is calling for even more US austerity and trying to worry the world about the US budget. They say we haven’t gone far enough on budget repair.  I had hoped that with the lesson of the double-dipping David Cameron and the UK, and the companion lesson of the struggling Eurozone, we had gotten past this business of austerity-mongering by the globe’s financial elites.  But now the austerity rhetoric appears to be getting even worse, as the global austerity crew have seized on the US fiscal cliff resolution as proof that the world’s largest economy shares their philosophy.  We are all commanded to follow the model of Latvia now.   Latvia!

All the rhetoric I have heard from Obama in recent days suggests to me he has totally bought into the austerity framework of budget discipline, “expansionary contraction” and growth via confidence fairies.  And Obama is egged on by a variety of mainstream politicos who have mustered under the banner of shared pain: fiscal contraction consisting of equal parts spending cuts and higher taxes in the cause of Fixing the Debt.  The Shared Painers – I like to call them just “Pains” for short – were out in full force following the debt ceiling deal, bemoaning the fact that the negotiated fiscal contraction was neither deep enough nor painful enough.  Obama is now the dour leader of this somber party of pain, along with his patrons Peterson, Bowles and Simpson.

With liberal Shared Painers and conservative Laissez Fairers running both sides of the debate right now, it is up to progressives to lead the charge on behalf of prosperity, progress, justice and can-do government activism.  The ongoing economic stagnation in much of the “developed world” is grounded in the reality that neoliberal political leaders and elites in those countries are convinced that (i) we can’t afford to grow until we have fixed government budgets, and (ii) growth is mainly something that just happens so long as the government doesn’t get in the way.  This is all backwards.  As the experience of China has been showing – along with the parallel experiences of the US, Europe, Japan and other developed countries during the more dynamic and more progressive earlier stages of their economic existence – growth is mainly a choice, a choice made by well-organized governments to mobilize the latent industry of their societies. If a country makes that choice, budget questions take care of themselves in pretty obvious, less painful and fairly natural ways.  If countries choose stagnation instead, the national budget becomes the scene of a bitter, permanent struggle over shares of diminishing turf.  In the current economic circumstances we should be expanding our deficits to power our economies and take charge of our national destinies.  This is a message almost nobody wants to hear, no mainstream media figures will touch and no politicians want to defend in debate.  But it is true nonetheless.

Ordinary Americans have taken it in the neck for several years now as plutocrats have robbed, looted, wrecked and ravaged the economy.  Obama needs to hear this message loud and clear: not one penny more in cuts to the social insurance programs that serve the forgotten American people.  But simply holding the line on further cuts is not enough.  Both Democrats and Republicans are leading this country backwards, destroying the prospects of the next generation, and embracing a regressive and unpatriotic national ethos of cowardly failure, social insecurity, neglected public investment and penny-pinching decline.

Americans and others have to stop thinking of their countries as developed countries, and realize that even though some modern countries have had strong periods of growth and economic leadership in the recent past, we are all still developing countries. We in the United States can have a “US miracle” if we choose to have one.   We can choose social progress and justice, national dynamism and broad, expanded prosperity – and we can shrug off our recent choice in favor of stagnation.  But first we have to say “no” to the Pains, and put them in their place.

20 Responses to Putting the Pains in their Place

  1. Scott Hedlin

    It’s one,two,three strikes your out, at the old ball game. It’s not like Bruce Springstein is on the mound with Cornell West catching, a “dream team” is an appealing fantasy. Perhaps I have no right to assume that the electorate which regained the White House is further to the left than the mainstream would like to admit, but I do. We’ve heard talk of the emerging minorities and their swing power,what isn’t spoken of in polite circles is the majority, the backbone of the democratic victory binding this diverse coalition which is progressive identity. What if we, just decided ‘alright we have 4 weeks to mobilize this massive expression of public purpose and identity’ how would we go about it? The political option has always been used to diffuse progressive movements, the apathy of business as usual is leading to a bleak future. I wonder though, if it’s true that our interpersonal connections are of such expotential proportions in making us all related that maybe a small number of people let’s say 12 could initiate this. It would be fun to try, what have you got to lose, 4 weeks. Next Four Weeks , good name eh. How far could surfing, networking and suggesting publicly for a temporary commitment to publicly turn out go. The White Castle of blogging is like a whisper if it doesn’t manifest on the ground. Occupying the time before the coming inauguration, may be critical. I think people pretty much know the drill if they aren’t alone. Oh,well it’s late and I’m rambling, guess I’ll close my eyes and work on that dream team.

  2. Gary Goodman

    I hope this is helpful. New source material in the middle. Although the author is not in paradigm with MMT, the article on the BIS paper highlights the fact that “Govt Debt” is a SERVICE for “rich people”, not Uncle Sam taking out a loan.

    ——————–

    When a growing number of families in the 60′s couldn’t earn enough working full time to pay for the cost of living within the bounds of our Global Corporate-State System that *protects* high-profile corporate profits against “innovation” and “competition” (i.e. against actual free markets) since the 1800s (at least) ….

    … and constructs policies to push wages down and cause unemployment …

    …. at one point Milton Friedman advocated for a Negative Income Tax to provide a floor on poverty and Nixon agreed.

    Instead, prior to that Lyndon Johnson got a weak welfare program with intrusive meddling by People Managers, coupled with additions to Soc Security.

    Then Republicans — the Family Values types — insisted on tough new Breaking Up Families rules for women and children to remain qualified for federal income subsidies.

    Then Republicans said: Look, Liberal policies break up families.

    Truth be told, FULL EMPLOYMENT is better than a welfare check —- at least so long as Robots have not taken over every kind of job that humans can do, as some top Financial websites are discussing about the future of human life —- but the Party of “get a job” stands firmly opposed to full employment and even opposes the idea that the Fed should even *pretend* to care about employment, instead only focus on propping up Wall Street profits.
    ——————–

    to the financial world, the real economy is simply a source of resources to support financial trading and investment. If the BIS (Bank of International Settlements) paper is anything to go by, so are governments.

    On the one hand, government MUST produce unlimited amounts of DEBT to meet the financial system’s demand for “safe assets” [Treasury Securities aka "national debt"], and allow the central bank to exchange this debt freely for new money.

    But on the other hand, they must maintain strict control of inflation and government spending so that the safe assets they are producing remain safe.

    the financial system is a looking-glass world. In the financial world, the purpose of government debt is not to fund government spending. It is to provide safe assets.

    http://coppolacomment.blogspot

    [full employment DOES support the safety of those assets, by increasing the GNP]

    ——————–

    Bill Mitchell said the same thing about Australia — the bankers demanded MORE DEBT … more Govt “Borrowing” … simultaneous with cuts in spending that produced a budget surplus.

    How can any govt run a tax-vs-spending SURPLUS and still increase “borrowing”. Because it ain’t really “borrowing” or debt”. It’s a SERVICE of creating safe assets that pay interest, for rich people to purchase.

  3. Jeff Madrick:

    President Obama may have been able to make a better deal, but the Republicans are formidable enemies thanks to their numbers and their refusal to compromise. Obama made a mistake when he joined the deficit hawks so enthusiastically back in 2009. It is probably too late to change course — the great social programs inspired by the New Deal are now at stake.

    http://harpers.org/blog/2013/01/america-is-having-the-wrong-fiscal-argument/

  4. Obama is not stupid. I’m sure he’s aware ,at least partially, of MMT. He certainly is familiar with Paul Krugman, who echos enough MMT truths to resonate with White House wonks who have Obama’s ear. I suppose where the rubber hits the road is just how progressive is Obama given what he must know is available to him in the monetary tool bag? I think the verdict is getting clearer by the day: Obama isn’t really progressive at all. He’s what Chris Matthews would label as a politician who operates metaphorically between the 45 yard lines. In other words he’s a centrist, just like the men whose shoulders he seems to want to stand on, Alan Simpson and Erskine Bowles. Thus, if you want to know where the president stands on progressive policies then look no further than those two. The only potential force that might stop him are the real progressives on Capitol Hill. Sadly, Obama will likely throw them under the bus. There just aren’t enough of them to overcome the forces that this fear mongering has produced. As Michael Hudson has lamented, ironically Obama will accomplish what no Republican could have dreamed of in this political environment. There will be no US miracle under this regime, only greater pain and suffering. That’s simply unconscionable.

    • The guy just seems to have a massively tiny imagination. He still thinks like a state legislator, with no plans beyond tidying up the state budget.

      • I’ve lived in Chicago for over 35 years. Democrats here are generally more corrupt than they are progressive. They are machine politicians, and Obama certainly was part of that tradition. I don’t think intellectual curiosity is a prerequisite for office around these part. In fact it’s probably an albatross. I’m beginning to think Obama is every bit as thick -skulled as GW Bush, outer appearances notwithstanding. They do agree on far more than they disagree, that’s for sure.

  5. The Progressive position is that government should do more for people, right? Provide a livable retirement income for everyone, so that people don’t have to save so much while working, or depend on corporate good will for their pensions; provide health insurance for everyone, so they don’t get “stuck” in a job they don’t want; provide a “safety net”, a panoply of programs providing education, food, housing, health care, disability insurance, and whatever else people need and can’t afford for themselves. (California is giving free cell phones to the homeless now, so they can talk to their families.) Is that a wrong impression? Even a job itself, via MMT’s JG. Indeed, not only a job, but a job “of their choice” has been stated by the UN as a basic human right. That’s a Progressive point of view, no?

    So, how has Obama done at advancing those goals? There are lots more people on food stamps, lots more coming onto Medicaid, lots more student loans, lots more going to get government health insurance under Obamacare, more foreign citizens without work visas going to keep their jobs and stay in government-funded schools. It seems to me that the Progressive agenda has taken great leaps forward under Obama.

    He’s a smart guy. Is it possible that he could be Leader of the Free World for 4 years and have completely failed at his goals? He took office at the depths of the Great Recession, with a bullet-proof majority in both houses of Congress, which would have passed any legislation he wanted. What legislation did he want? Not tax cuts and spending programs to end the recession. Obamacare is what he wanted, and he got it.

    Maybe the strategy is to expand the number and scope of government programs, rather than simply maintaining the ones that are already in place. Take a little bit out of SS and Medicare, to free up some money for new programs, or to expand the number of recipients of other programs, so as to gather more of the people into the government-subsidized Progressive shelter. Once enough people are dependent on government for one or more of their important needs, then will be the time to expand the amount of each benefit, when a majority vote for it will be assured.

    Some Progressives berate Obama (not to mention the Republicans) for knowing the economics of it, but deliberately choosing bad economic policies so as to maintain the income gap between the 1% or the 0.1% and the rest of us. I have always thought that it was ignorance, not malice; that once MMT economics was widely known, proper economic policies would be pursued by Obama and Republicans alike. And I don’t buy the “gap” theory. I think greedy people just want more for themselves, and don’t care about others. They don’t see it as a zero-sum game, because their really big riches have always come from expanding the pie, and they see that having 12 out of 16 slices is better than 7 out of 8.

    But maybe you are correct that it is not possible for Obama to NOT understand the workings of modern fiat money, and MMT economics. So if he does understand, and still pursues policies that he knows are harmful, and it’s not to expand the gap, then I think the most likely reason is that he is expanding the scope and reach of those Progressive programs.

    And he is succeeding. He has duped the Republicans (again) into advancing his agenda, YOUR agenda! Progressives are winning! And doing it without MMT. You should be happy.

  6. Jerry Miller

    HOW? I am a recent ‘convert’ from a ‘shared pain liberal’ to understanding the true options available to the Federal government. I’m reassured that those writing believe the administration to be ‘aware’ of MMT, etc. But I find the forecast of the effect of that very disturbing. The solution pointed to is something like APPEALS by “true progressives” of which there seem to be “too few”.
    REALLY? Who are these folks? How can whatever power they have be exercised? What can I do? (A letter to my senator? Ms Boxer or Fienstein? Don’t think so). Or must I be resigned back to my “faith in the goodness of Obama” and some thought that this drama is all a part of his/their grand plan to make a real difference? Appreciate your thoughts. And thanks, y’all, for getting us this far :-)

  7. The minimum wage has remained static at $7.25 per hour since Obama took office, despite significant increases in the cost of living. Even George Bush did better than that. An increase in the minimum wage would inject more money into the economy and perhaps lift some people out of poverty, so that they do not need food stamps nor Medicaid.

  8. Student Debt

    Student debt, which now totals $956 billion in outstanding loans, according to the New York Fed. The federal Consumer Financial Protection Bureau, using different methodologies, says student loan debt passed the $1 trillion mark sometime last winter.

    For the first time on record, the delinquency rate on student loans has jumped above the rate for credit cards, car loans, or any other kind of consumer loan. The tragedy? Many of those loans will default, with stunningly harsh consequences.

    The federal government can garnish up to 15 percent of a borrower’s wages, Social Security disability, and Social Security retirement income without a court order. Unlike other debt, student loans can’t be discharged in bankruptcy. Collection charges of up to 20 percent can be skimmed off the top of payments—enough to turn a 10-year loan into a 19-year loan. To say nothing of the lasting damage to a borrower’s credit score, which will make it hard or impossible to get a credit card, auto loan, or mortgage.

    The default rate is around 13%

  9. The Long Slope Down

    http://blogs.reuters.com/david-cay-johnston/2012/06/20/americas-long-slope-down/

    Internal Revenue Service data show that average adjusted gross income fell $2,699 through 2010 or 9 percent, compared to 2000.

    Had average incomes just stayed at the level in 2000, Americans through 2009 would have earned $3.5 trillion more income, the equivalent of $26,000 per taxpayer over a decade. Preliminary 2010 data show a partial rebound, reducing the shortfall by a fifth to $2.8 trillion or $21,000 per taxpayer.

    Wages per capita in 2010 were 4.3 percent less than in 2000, effectively reducing to 50 weeks the pay for 52 weeks of work. The median wage in 2010 fell back to the level of 1999, with half of workers grossing less than $507 a week, half more, Social Security tax data show. The bottom third, 50 million workers, averaged just $116 a week in 2010.

    Social Security and Census data show that the number of people with any work increased just 1.5 percent from 2000 to 2010 while population grew 6.4 times faster. That’s why millions of people cannot find work no matter how hard they try.

    In May, nearly 23 million workers, 14.8 percent, were jobless or underemployed, the Bureau of Labor Statistics reported. At shadowstats.com, a website dedicated to exposing and analyzing flaws in government economic data, economist John Williams also counts people who have given up hope of finding work. His figure for May brings the total to almost 30 million people, one in five.

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