By James Stuart
This post is not about the TDC, although I am a big fan. This is about putting into the MMT conversation a different point of view about Obama. Most MMTers seem to think that the President is a Trojan Horse – attractive on the outside; dangerous, even lethal on the inside. I have a different perspective. What I often do now, when I disagree with someone, instead of arguing, I make one penny bets. The bets need to be about something definite and measurable. If I win, my position on the issue may not be proven, but it is at least partially vindicated.
Here are a few of the things I have come to think about Obama:
1. He is beatable, but on balance he is a superb negotiator.
2. He plays the long game, organizing his efforts around clear principles and guidelines, not preset plans. He will lose a battle or two to win the war.
3. He does not love austerity, but knows Republicans do. He also knows he cannot work with or defeat Republicans if he denies the validity of their argument that we have a long term budget problem.
4. He is deeply committed to maintaining the integrity of Social Security, Medicare and Medicaid. He will entertain what he considers modest changes, but no wholesale structural overhaul.
5. He is a pragmatist and will be very interested in MMT when Dr. K gets a chance to present the case to him (which event I firmly believe will happen).
So here are my one penny bets, designed to support, if not to actually prove my arguments:
1. Republicans will cave on the debt ceiling and allow a clean increase. This will happen before the default witching hour.
2. The sequester will either be triggered or replaced with a Bargain trading new tax revenues (tax reform) for some of the $1.2Trillion spending cuts (say $600B new revenue/$600B spending cuts over 10 years). Bargain could be broader: entitlement tweaks (chained CPI on Social Security, Medicare age change) in return for giving President permanent ability to raise debt ceiling.
3. If Bargain made, no Government shutdown over Continuing Budget Resolution. If sequester triggered, possible shutdown.Obama will say $4Trillion in 10 year deficit reduction has been achieved, so the conversation is over. Any shutdown will be brief, and will further hurt GOP.
4. Beyond chained CPI, possible Medicare age change, and benefit means testing affecting the wealthy, there will be no structural change to entitlements during Obama’s second term.
5. To GOP and most of the country’s amazement, healthcare costs will moderate over the next five years, due mostly to system productivity enhancements called for and rewarded by ACA. As this becomes apparent, the long term budget crisis argument, disappears, even before MMT is broadly understood and accepted.
The fun thing about these bets is that we should know the answers to three of them by the end of March. If I am right, the Republicans will have been truly hammered, and like taxes after the cliff deal, deficit reduction will be off the table as a credible issue. $4Trillion in 10 year deficit reduction will have been accomplished, the original Simpson-Bowles goal, delivered December 1, 2010, with significantly fewer “tweaks” to entitlements than called for by Simpson-Bowles. Obama may have gotten the $1.2Trillion in new tax revenues he asked Boehner for in August 2011 (and that Boehner walked away from), with an important difference: tax rates on the wealthy have gone up, whereas if the August 2011 deal had been accepted by the GOP, they would not have.
If I am right, the extent of the Republican rout will be complete: taxes and tax rates up; significant deficit reduction achieved by a Democratic President with him calling most of the shots in what was cut; and very few reductions in long term entitlement benefits for the middle class.
And if I am right, we will have been privileged to observe probably the finest example of long term negotiating we will ever see. Why did Obama “unilaterally disarm” by saying no to the 14th Amendment and the TDC options? The answer to this is the same as why Gandhi and King’s non-violent methods were so powerful: “I/We are unarmed. We have no defense. Hurt us, and our brothers and sisters as well, if you choose. But remember: the responsibility is yours and the world is watching.”
As MMTers, we know the US economy did not/does not need $4Trillion in deficit reductions over 10 years. But for Obama, a young, African American President from the “big-spending liberal side of the aisle” to have tried to make this case after the giant GOP/Tea Party win in the November, 2010, midterms, would have been suicidal. Obama chose to engage the GOP beast on its own terms, in its own idiom and campaign language, and I think he’s going to win.
Obama has already proven himself a transformational President. First he transformed the War on Terror (that existential, deep fear-inducing Evil, capable of destroying America) into the War in Iraq (ended), the War in Afghanistan (ending) and the Fight Against Al Qaeda (continuing). Do you remember how afraid many were (some, but fewer, still are), how many knew we had to torture because the danger was so great?? And, if I am right, by the end of March, he will have taken all of us out of what too many have been calling the soon-to-snap-shut jaws of the debt and deficit monster. Could he have done any of this without entering the Belly of the Beast? In my opinion, no. Has he been affected, tainted even by this encounter? Yes, indeed.
So let me know at [email protected] if you want to take one or more of the bets. I will try to keep and to give a faithful accounting of my winnings and losses.
A final word: Why does it matter how we view Obama? Because I think it is a singular moment for MMT. The Coin has brought a new, magical image into our midst. As Joel Palmer said in his post on January 13, the “ground has shifted.” MMT will get a hearing, I believe, in the highest places of policy and power. And we will not have to wait that long. The person who needs to hear the message is President Obama. And in sometimes mysterious ways, they way we hold someone in our minds affects whether we can connect with that person and begin useful, generative conversations.
Maybe we should thank Harry Reid for throwing Obama’s cave in proposals to burn in his fireplace.
Obama is no progressive, he is a right wing authoritarian, just to the left of Romney.
I’ll take 1,2, and 5, and I’ll give you 2-1 odds on 5, unless there is tort reform and then the bet is off.
Tort reform? With a lawyer in the White House?
Yeah, well just covering all the bases. You never know, the R’s may throw it in to a debt ceiling deal or something.
Concerning “4. Beyond chained CPI, possible Medicare age change, and benefit means testing affecting the wealthy, there will be no structural change to entitlements during Obama’s second term. ”
The ethical position is affordable health care for ages birth to death , a cost of living increase index that measures actual real time life experience , and taxes on social security based on tax fairness. If you are fortunate to be rich you pay more payroll taxes going in . And when collecting Soc. Security we need to pay fair income taxes rates on all earnings including the sum of retirement, capital gains, rent and social security. We do no need a separate and unequal means test for social security.
Unbelievable blog post. I guess everyone deserves their say, but the level of enablement hiding behind a veneer of politics is astounding in this blog post.
First and foremost Chained CPI for Social Security, raising the Medicare age and any type of Austerity Policy are bad ideas. Any support for them is just plain wrong. These types of ideas are destroying the middle class of this country. These types of ideas are bad economic policies according to every intelligent, fair-minded economist. Over the next two decades, what makes the author of this blog post think that policy makers in Washington will stop at just the ideas suggested in this post?
Whether or not policy makers in Washington can get their act together is largely out of our hands. Yet that does not mean we should be making frivolous bets over the appearance of pragmatism and compromise that will truly hurt the people of this country.
You had stated: ‘…Over the next two decades, what makes the author of this blog post think that policy makers in Washington will stop at just the ideas suggested in this post?…’
I would think your optimistic ‘two decades’ should have read ‘next few years’. If we don’t remember that ‘camel with the cold nose’, we are now being reminded of it, as ‘proposed’ 67 years, should really, really be 70 years for retirement. Reuter’s headline:
U.S. business executives call for raising retirement age to 70
And so, it will continue. Current unemployment rate, no, the real unemployment rate is? And what programs are in place to address this? And the level of student indebtedness with many students struggling to find appropriate or any employment? Not even the wildest imagination can beat this.
I understand your point of view.
My use of the phrase “over the next two decades” could be telling of my age.
Remember, we’re MMTers, so $4 T in deficit reduction over 10 years is an average of $400 B per year; that’s an amount greater than the deficit spending in the ARRA. So over the next two years the reduction will remove the ARRA stimulus from the economy. And this removal will multiply by 5 times over 10 years. If the plan is followed through, that means recession and probably depression. I just don’t know how you can get away from that conclusion.
I also point out that none of this is necessary, Obama can mint a $60 T coin start rapidly paying down the debt, and take the debt issue off the table within two months all by himself. There’ll be an uproar about it. But, who cares, once he pays down a large portion of the debt, the visible need for austerity will be gone, and most of the $60 T can be used to cover deficit spending over 15 – 25 years. Within a year it will be plain to everyone that we can make our own money without inflation. So why isn’t Obama following this course if his intentions are as good as you say?
I agree. No need for a $4T spending reduction or those cuts to SS or Medicare, including raising the ages. It could very will come to that, but I would take no solace in saying “I won the bet”. This is nuts, just nuts. Our job is to convince Obama not to go down that path, not to pave the way for him. Unemployment is still far too high and this kind of cut will increase it, perhaps seriously, unless you have a ready made bubble to get the whole thing going!?
I am distressed that he did not use the so called magic coin. I’ve read most of the arguments for and against it. It may be a bold move but that is what we need. I will go further. If the coin is used we can do away with debt forever, no more treasury bonds to fill the fat man’s pockets.
The US Treasury could easily pay down the Federal debt by issuing $8 trillion in US Treasury notes. US Treasury Bond holders could be paid off with these notes when the bonds mature.
These notes would look and feel just like Federal Reserve notes, the only difference being instead of “Federal Reserve Note” being printed on the front would be “US Treasury Note” They would be good for all debts public and private.
I say $8 trillion, because the other $8 trillion making up the debt is intergovernmental.
Oh and for good measure, could we leave off “In God We Trust” ?
The platinum coin deposited at the Federal Reserve Bank would have been a non interest bearing IOU and would have no effect on the yearly deficit in revenue. It would have merely sidestepped the debt ceiling issue.
If the concern is about the Treasury’s liabilities and the taxpayers’ being technically on the hook for those, then you have to concede that what matters for us the people is only and only intergovernmental debt, specifically the Treasury’s liabilities to the Fed (T-securities held by the Fed). This is because private holders of T-securities had at the time of purchase exchanged their (balance of) Federal Reserve Notes for these instruments, and therefore, at maturity, they can go to the Fed, and get their (balance of) Federal Reserve Notes back and surrender their T-securities to the Fed. Not a concern to the Treasury or the taxpayers at all (except for the interest expense).
So it seems to me that, at the end of the day, it’s always between the Fed and the Treasury. I suppose the Treasury can issue however many trillions of US T-notes are necessary to clear the Fed’s portfolio of mature US T-securities, and let the Fed worry about the logistics of putting this new type of currency into circulation. What would the Fed do?
I do not think that the US Treasury’s liabilities to the Federal Reserve bank count as intergovernmental, since the Federal Reserve is not owned by the US government, but by a consortium of private banking interests.
When a US Treasury Bill matures, the holder usually presents it to his bank and is paid with Federal reserve Notes, either in notes (aka dollar bills) or his account is credited with the face value of the US Treasury Bill.
Thus Treasury money is equal to and fungible with Federal Reserve money, which supports my view that the US Treasury should ignore the Federal Reserve when it needs to create money for the government to spend.
I think those bills went out of use in 1971. I also think the amount the Treasury can print is greatly limited. If not so then it,would be a good option.
I recall buying T Bills in the eighties, since the embedded interest was free of Federal income tax. I had no trouble cashing them in.
When I say print, I not only mean on paper with ink. but also with keystrokes on the Treasury’s computer. I think the idea is worth looking into, since the US government certainly has the Constitutional right to create money. Or was the Federal Reserve Bank granted a monopoly in 1913?
If so, it could be repealed.
There’s a wiki article on US Notes.
Frank, formally, you may be right about what counts as intergovernmental. But that’s kind of immaterial. The final settlement is still between the Fed and the Treasury. In the absence of a debt ceiling, the Treasury has infinite capacity to issue T-securities to settle any outstanding liability to the Fed (and then some). So far as I can see, the only original aspect about your US Treasury note proposal is, these notes are non-interest-bearing and circulable as cash and as electronic funds. I am not convinced that the interest paid on T-securities is pernicious. As far as circulation goes, that may well be a more troublesome and unnecessary exercise, but I digress.
I’ll wager a penny we will not have a recession in the next three years. The possible $1.2Trillion in new tax revenues will mostly hit the wealthy, who will not reduce consumption much, if at all. $.4Trillion is interest savings, with little real economy impact. The $2.4Trillion in other Defense and Discretionary budget cuts exclude transfer/benefit programs for the needy and are reductions from a CBO Baseline Forecast. They are not YOY reductions from actual real economy spending. Obama protected the middle class tax cuts, which otherwise would have taken serious consumption money right out of the economy. I am not saying that I like these cuts, rather that the post 2010 midterm politics made a serious deficit reduction program politically unavoidable. I am betting that by June, the game will be over, that the Republicans will be in disarray, that their efforts to gut entitlements and other mandatory social spending will have failed, that austerity will be mostly off the table, and we can then get to the job of growing our economy and rebuilding the middle class.
Good points about the effect of the income tax hike on spending, and the “cuts” that aren’t really cuts, but spending has been more or less level for two years, while taxes are rising rapidly. Receipts are now $470B a year more than at the bottom in 2009. This is due solely to growth of the economy, feeble as it is. If the trend in receipts continues at the same pace (call it $150B a year) it would come to $8.25T over 10 years, and the budget would go into surplus in the 6th year. Obviously this is unsustainable, so a recession is inevitable unless taxes are cut or spending increased. Instead, they are talking about doing the opposite.
I think a recession this year is very likely (due to the FICA hike) unless there is first a sudden mass conversion to MMT.
Austerity will not be “off the table” until the recession is recognized (usually well after the fact).
And I think the one thing that will not happen is a clean raising of the debt ceiling, unless it is only for a month or two, and even then I think there would be strings attached.
I agree with Golfer’s critique of your views. In addition, this:
I don’t agree that Obama had to support deficit reduction after the 2010 election. All the polls at the time of the election indicated that people cared much more about unemployment than deficit reduction, and that they still do even today. In addition, Obama had made noises about deficit reduction from the beginning of his Administration, and limited both his stimulus bill to $800 B when Christine Romer had recommended $1.8 T, and his ACA to a revenue neutral bill, while torpedoing Medicare for All, which certainly would not have been revenue neutral, since it would have “cost” the Government an additional 900B per year in deficit financing, which Medicare for All would have added to the economy while also saving consumers about $800 B per year in out of pocket payments to the health care industry.
Also, please remember that at the beginning of 2010, it was the President who created the “Catfood Commission” in the Executive Branch, after Congress had failed to constitute a commission. The President even accepted money from Pete Peterson and friends to fund the Commission, clearly creating the appearance of a conflict of interest by having a lobby group fund an Executive Branch activity in an attempt to get a result of that activity that would support the interests of the lobbying group. Can you get any more corrupt than that? Oh, wait, I guess you could also see to it that the participants in the Commission are mostly people known to want to cut entitlements.
No, the evidence is that Obama’s been for deficit reduction, from the beginning of his term in office, and that the Democratic losses in 2010, which were a result of Obama’s own failures in his first two years, more than anything else, only reinforced his preference for deficit reduction by seeming to make it more politically expedient to pursue deficit reduction because he thought he might find greater Republican support for that than before.
Of course, the Republicans aren’t really looking for deficit reduction; they are instead committed to lower taxes on their supporters and lower spending that benefits most of the rest of us, and most of them really care little about deficit reduction, as opposed to just “starving the beast.” Obama in contrast would like to see a “more balanced” approach, boiling us frogs more slowly. He may succeed in breaking the tea party fever for highly extreme measures by June, as you say, but, in the process he is likely to “compromise” on an irrational long-term deficit reduction plan that the sectoral financial balances model says will throw us into a deeper recession, and also to cuts in entitlements which will further alienate seniors from the Democratic Party.
It remains to be seen, whether after the current deals are made, the President will retain his purpose of deficit reduction. If the elites of the Europe, and the UK, are any guide, when deficit reduction falls short of goals because the economy turns downwards, then he is likely to just double down on cuts next year, in order to protect his legacy of “fiscal responsibility” rather that change his mind about it. Obama has shown a particularly strong tendency, since coming into office, to fail to learn from experience. We can see this in his failure to double down on stimulus when it was clear that the ARRA was working, but was inadequate. We can also see it in his failure to push anything meaningful in the way of jobs programs since the early days of his administration. We can see it in his failure to learn about austerity from the experience of Europe, and to use that experience to run an aggressive 2012 campaign taking austerity off the table, while advocating deficit spending to create full employment. Finally, we can see it in his failure by 2011 to act as if he were in a war with Republicans and prepare for the debt ceiling fight. The evidence is that the President had no “Plan B” for the debt ceiling fight of 2011. One can’t be sure if this was due to his slowness to learn that if he wanted to get the Republicans to cooperate, he had to beat them up pretty bad first to discredit the extremists and give power to the cooperative types; or whether it was due to his deliberate desire to give way to austerity measures so he find some cover for the cuts he wanted, coupled with his failure to learn that austerity doesn’t work; a fact amply demonstrated by the Summer of 2011.
Btw, on the failure to learn of this Administration, they didn’t pick up very early on the Platinum Coin. Blogging on it started in earnest in January of 2011, and it hit the mainstream in the middle of July 2011. Yet his insular WH had apparently never heard of it until sometime this past December. So what does this say about their external radar function; and how can you have an effective ability to learn if you can’t gather information, sift through it effectively, and catch new ideas early enough to do you any good?
Since the Clinton surplus, the Dems have been locked in to a partisan-inspired position on spending and deficits. They could see no alternative, in the Bush years, to complaining about “high” deficits and debt, because growth was good and unemployment and inflation low. Because of that, they think they cannot now advocate for anything but deficit reduction, even if in name only, without looking completely foolish. Senator Obama was totally on board with that stance, despite having the most liberal voting record of 100 senators. It is not something new for him after running for, or becoming President.
They’ve painted themselves into a corner. If they were honorable people, they could possibly admit to themselves that their views were wrong, and then perhaps MMT, or at least a Krugman, could get a foothold. But it won’t happen.
The good news is that there will be no real, immediate spending cuts in any deal. Spending will continue to grow YoY. Any real cuts will be years off, and give us time to say “see, I told you austerity would cause the recession of 2013”.
Since the Clinton surplus, the Dems have been locked in to a partisan-inspired position on spending and deficits. Really since the early Reagan years. The Dems were the first to pull the debt ceiling BS in 1989, IIRC. The early Reagan years saw an epochal shift of the fiscal position of the two parties. Both spout budget balancing BS, but the Repubs didn’t do anything about it unless there was a Dem in office, and unlike the Dems, tended to spend when in office. To attack Reagan, the Dems crucially changed the big-spender “deficits don’t matter” position they had had since FDR ( the beginnings of the change to extolling thrift were under Carter, but that itself somewhat reversed in Carter’s last year.) Robert Eisner and Noam Chomsky then and James Galbraith more recently delineate what happened.
There was some of it back then, but not like lately. Both parties complain about whatever they can find to complain about when the other is in the White House. Democrats complained about Reagan and Bush 41’s deficits, but when Clinton was elected he was ready to do HillaryCare. Only after 1994 did Clinton become an austerian, and made deals with Gingrich, but without the Dems in Congress, to reduce spending and deficits. It was going to happen with or without him, so he got on board. Only lately is most of the party locked into this mode. Even when Obama had both Houses of Congress, and could have done anything he wanted, he and Nancy Pelosi and Harry Reid had to pretend to be anti-deficit. Look what they did to ObamaCare to make it not increase the deficit. It wasn’t that they wanted to cut Medicare, they had to just to seem a little bit consistent.
Golfer, From what you say, the debt ceiling has been used as a political weapon by both major political parties.
What the real argument is really about, is what are the priorities of the country, when it comes to deploying the available resources. It seems that progressive Democrats wish to have the social safety net maintained and expanded and military expenditure and corporate welfare cut. The opposite seems to be true for the Republicans. However, it seems to me that fully half of the Democrats in Congress can usually be relied upon to vote in lockstep with the Republicans. These we recognize as DINOs or Blue Dogs.
There used to be a fair number of Blue Dogs, but I can’t think of any still in office. Even so, they did not vote “in lockstep” with Republicans. They were given a pass to vote their conscience, or their constituents’ wishes, when their votes were not needed, but when it came down to it, party loyalty trumped everything. The ranks of the RINOs are thinning, too. There used to be a “liberal wing” of the Republican party (remember Lowell Weicker, and Nelson Rockefeller?), gone now, just a few left in very blue states. I think the centralization of the money in politics has done that. The parties control the money, and can fund and run their more loyal members in primaries against the RINOs and DINOs.
I’ve heard, too, lately, that the debt ceiling was used by both parties in the past, but I don’t recall it being used like this. In fact, I think I wasn’t aware that there was one until Obama. I recall filibusters and continuing resolutions, and government shutdowns for lack of appropriations, but not the debt ceiling.
And the Tea Party purged quite a number of RINOs from office.
Both major political parties have been moving further to the right in the last few decades.
There seem to be fewer progressives around these days even though many Democrats claim to be.
The only real progressives seem to be Bernie Saunders, Dennis Kucinich, Alan Grayson and maybe Elizabeth Warren. There are probably some others, but not many.
Pray tell where the fundamental basis of Obama’s bargaining position actually lies when he’s publicly declared the country is in danger of running out of money?
Obama’s bargaining position lies 100% in refusing to bargain. Republicans believe their pressure will bring him to the table. If he comes, he loses and he gives up this “power”. My prediction is he will not give it up. At some point, probably one week out from the default date, Republicans will realize, most likely with horror, that they have underestimated their opponent, that he will stick to his word and not come to the table, that if the drop dead date passes without a debt ceiling increase, the country is screwed, and it will be 100% the GOP’s fault, and they will cave, and pass a clean debt ceiling increase. I certainly could be wrong. I am simply betting that I am not.
I agree this might happen. he may not “cave” this time on the debt ceiling. But doing it this way is very risky for the country. On the other hand, minting the $60 T, isn’t risky at all for teh country. It may be a bit risky for Obama; but that’s a different thing.
The US government is currently restrained by the Debt ceiling imposed by Congress. The Republicans will not raise it unless Obama caves in and makes cuts to Social Security, Medicare and Medicaid. There is no mention of the $1 trillion per year military spending. as you might expect.
Oh my. You just clothed the Grand Bargain in the Emperor’s new clothes.
Indeed, but I would call it the Grand Betrayal.
“And if I am right, we will have been privileged to observe probably the finest example of long term negotiating we will ever see.”
When I read this I had to laugh out of incredulity. Obama could have minted a $30 T Platinum coin to end the debt ceiling crisis of the Summer of 2011. He didn’t have to make the deal that set up the fiscal cliff. He didn’t have to cut spending to get the limit raised. he could have negotiated sufficient deficit spending to create full employment had he done that. When this Fall rolled around he didn’t have to make any deals with the Republicans to avoid the FC, nor postpone the sequester for two months. he didn’t have to have the debt ceiling, or the sequester facing him now. He didn’t have to talk about or offer Chained CPI to the Rs. He didn’t have to do any of it. The $30 T coin proposal was out in the last 10 days of July before he settled with the Rs on August 1. But he was ignorant of it. By all accounts the Wh was ignorant of it or even the TDC during July of 2011, because they weren’t paying attention.
In any event, the best negotiation srategy would have been to mint a very big coin, pay down all the intragovernmental and Fed debt during the first week and a few Trillion more in short term debt over the next three months. There would have been no need to extend the debt ceiling, no compromises with the Republicans, and he could have entered the election season negotiating with the Republicans over job programs, investments in the economy, and payroll tax cuts. That would have been a much better “long game” than the one you think he played.
In fact, I think the only real basis for saying that he’s a skilled negotiator, is if you assume that his long game is to get the Democratic Party to vote for entitlement cuts and the Rs to vote for tax increases, while placing us all in danger of default, an austerity result that is harmful to the economy if he wins and disastrous for it if he loses.
A good negotiator carefully prepares the ground for negotiation before she/he negotiates. Obama was warned about the upcoming fights on the debt ceiling during the Fall of 2010, right after the election. And continuously through the first 6 months of 20111. He did nothing to prepare. He had no Plan B. He left himself “naked before the enemy,” during the July 2011 bargaining with the Rs. What kind of “negotiation” is that?
Even now he and his WH would benefit from reading the linked post. But I expect the full-blooded ignorance and arrogance of their “not-invented-here” syndrome to hold
Insular comes to mind too.
Sorry, you seem to be ignoring BHO’s extreme consistency in his choices of cabinet members. To the extent that he actually does admire both Reagan Inc and Clinton, and that he has chosen Lew to follow Geithner, his admiration demonstrates a form of institutionalism similar to Clarence Thomas. The liberal assumption that African/American minorities will be progressive is ill informed. Although, they tend to be “progressive” on affirmative action on many issues they show up toward “conservative.” Dr. K is a great speaker when she is given the chance, even under the clock and when she is not constantly interrupted by trolls. He has shown no aptitude for alternative fiscal policies at all, and further has created a neo-liberal echo chamber around without much diversity where it actually matters. It seems that wealth is being translated as success and intelligence. If anyone remembers Pete Seeger’s parable of the two maggots, it fits to a tee. No disrespect to any attorneys present, and argumentation without a sufficient knowledge base, is merely argumentation for position, not toward results.
This echoes my views most closely. The neo-liberal echo chamber is deafening.
“Dr. K” meant Kelton? When I read it I assumed it meant Krugman. (he seems to be warming up to MMT and supports the coin.) Econ wonks really need to slow down and spell things out if they want regular folks to be able to follow.
This piece went wrong right here:
“… He also knows he cannot work with or defeat Republicans if he denies the validity of their argument that we have a long term budget problem….”
Obama obviously cannot work with the GOP right now—and he accepts the terms, rhetoric and validity of their argument absolutely. He only differs in how revenue should be “raised”.
And if he defeats the Republicans, who cares about the validity of their argument?
So here we have it, this boundless confidence in this President Obama because:
‘…4. He is deeply committed to maintaining the integrity of Social Security, Medicare and Medicaid. He will entertain what he considers modest changes, but no wholesale structural overhaul…’
Some estimates have it that there would be an annual decline in SS benefits of 0.03%. Ever check on the cost of Medicare and its share of that SS income on which so many are solely dependent? ‘(D)eeply commited’? ‘(M)odest changes’? Inconceivable.
In The Bet, ‘Le Pari’, we have:
‘…4. Beyond chained CPI, possible Medicare age change, and benefit means testing affecting the wealthy, there will be no structural change to entitlements during Obama’s second term…’
The question is why is such a change needed and what is so non-structural about these changes? Why, if any such change is needed, can’t any such change, e.g., CPI linkage, flow from any recommended and agreed CPI specifically focused on the elderly? To quote one point from Dean Baker:
‘…Finally, it is worth commenting on the idea of tampering with statistical measures to achieve budgetary goals. The United States has been fortunate in having independent statistical agencies that have fiercely resisted efforts to manipulate data for political ends…’
And if we look at this CPI thing from another viewpoint:
‘…To avert this threat, the usual suspects insist that we must gradually reduce the program’s generosity. That is, in order to guard against cuts in future benefits we must … cut future benefits. Huh?…’
All this stuff leads to those ‘unaskable’ questions: What is so sacrosanct, intimidating about this defense budget on which there is such deafening silence? What have been the returns to the US and to humanity at large on the Iraq misadventure? Obama entertaining ‘modest changes’ on matters of the safety net? This same Obama? Inconceivable.
Correction: ‘…Some estimates have it that there would be an annual decline in SS benefits of 0.03%…’ Annual decline should be 0.3 percentage points, not ‘0.03%,’ quite a difference.
Gaubain: “Finally, it is worth commenting on the idea of tampering with statistical measures to achieve budgetary goals.”
You might want to consider the fudgery on the unemployment numbers. The Obama administration claims 7.8 % unemployment, but the US Bureau of Labor Statistics tell us a different story. The actual rate is 18% of the workforce.
Number of jobs November 2012 =143.06 million
Official unemployment rate 7.8% (The BLS no longer considers as “unemployed” those workers without jobs who have not looked for work in the past year because they feel no jobs are available.)
The actual unemployment rate is 18.7%
Analysing the US government figures:
Total US population = 315.11 million
Number of Men over 16 yrs old employed = 75.686 million
Number of Women over 16 years old employed = 67.373 million
Total =143.06 million jobs
Therefore number of stay at home women = 8.31 million
Calculating size of potential workforce:
33 million over age 65, but 21.5 % are still working = 25.9 million retired
20 million under 5 years old
75 million at school/college
8.31 million stay at home wives/Moms
8 million are on SSI disability
Total 137.21 million not in the workforce
(1.4 million are in the military and are technically employed, but not counted by BLS, but I will add them to the number of employed)
Therefore potential workforce = 315.11 – 137.21 = 177.90 million
Number of jobs = 143.06 + 1.4 military = 144.46 million
Therefore number unemployed = 177.90 – 144.46 = 33.44 million
% unemployed = 33.44 /177.90*100 = 18.77 %
This also underestimates unemployment in that about 10 million people are involuntarily working part time
Agreed. That 7.8% is the ‘happy news’ aspect of the U3 definition of the BLS, with the U6 now quite short of persuasive. Your 18.77% seems the more acceptable level – especially if we ‘match’ quality of employment and benefits with the qualifications of the employed. As I had suggested in a post above, one of the irksome tragedies is the set of graduates yet to find meaningful or even menial employment and with student loans to pay off, and who have to deal with, ‘Why have you been unemployed for so long?’ And here we could ponder the rationale of wanting to apply a chained CPI specifically to the Social Security payments of folk with little or no employment flexibility, and not a measure specific to the group. As we see such issues are irrelevant to the urgent need to address the crises created and promoted by the MSM. And, yes, the power of the MSM to guide the debate is no more evident than in the summary dismissal of the TDC. Hope and Change may yet come with more visitors to blogs as this.
I like an optimist.
The man is the President. When /If he spoke people would listen. He’s not even speaking, nevermind doing.
“2. He plays the long game, organizing his efforts around clear principles and guidelines, not preset plans. He will lose a battle or two to win the war.”
How long is this game? Thinking of Keynes’s most famous quotation here.
“And if he defeats the Republicans, who cares about the validity of their argument?”
We should all care because it will continue to be used by them in electoral campaigns as the Big Stick to beat any party around the head including the Democratic Party that attempts to engage in, or move closer, to Abba Lerner’s Functional Finance now developed as MMT. In their great ignorance the Republican Party will do this whilst China, unknowingly to the Republican Party, uses MMT to takeover the United State’s superpower status and as a Red Fascist state will use this power to dictate economic terms to the rest of the world including the United States.
Talking of the Republican Party’s Big Stick, or Cudgel, reminded of the following exchange between Abba Lerner and John Maynard Keynes:-
Abba Lerner, of Functional Finance fame, said that, once the national debt built up big enough, it would no longer be necessary to borrow to enhance purchasing power—that the interest on existing debt would provide the necessary injection. Indeed in 1946 Abba Lerner said to John Maynard Keynes:-
“Mr. Keynes, why don’t we forget all this business of fiscal policy, public debt, and all those things and have some printing presses?”
To which a cynical John Maynard Keynes replied:-
“Mr. Lerner, how many times do I have to remind you that you cannot run a government on ‘transparent’ humbug?”
What are Mr. Stuart’s unstated (and, as with all of us, likely unconscious) assumptions? To me they are the fundamental problem with this post.
For a small but, I hope, revealing example, consider what assumption lies behind Stuart’s comment that [President Obama] “does not love austerity, but knows Republicans do. He also knows he cannot work with or defeat Republicans if he denies the validity of their argument that we have a long term budget problem.”
To surface Mr. Stuart’s assumption, compare his comment with this admonition from cognitive scientist George Lakoff:
“Effective political speech uses language based on one’s own frames and avoids language based on the opponent’s frames. The opponent’s language, even if negated and argued against, activates his frames in the brains of the public.”
In short, use your opponents’ frames and you lose!
(On a much larger scale, consider what Stuart’s assumptions are about the politically possible.)
See _Don’t Think of an Elephant!_ or other works by Lakoff.
Lakoff tells us not to use our opponents frames when we make our case. He does not tell us not to understand those frames and what’s behind them. He is brilliant in advising us to enter deeply into the frame our adversaries use, so we understand its width and breadth, its very texture. The voice, the metaphor, the specific language arising from the 2010 midterms was “long term budget crisis” and “government overreach”. When Obama concluded that this is what the electorate was saying and that he had to respond to the people’s call for “getting our economic house in order,” this is not accepting your opponents frame. This is reading election results and drawing conclusions.
The Right calls it “our long term budget crisis, America’s imminent economic collapse”, etc. Obama called it “our long term budget problem”. I argue that accepting the existence of a long term budget problem, and then picking his strategy and putting his own frame around the problem, is not using the Elephant’s frame. Had the President tried to argue in December 2010, when the Bowles-Simpson report was delivered, that the country had no long term budget problem, he would have been ridiculed. As it was, he was hammered by many left of center moderates (Andrew Sullivan) for not embracing the Report. He waited. He put out a growth-framed budget that was very much laughed at, and was rejected by the Senate unanimously. In April, he gave his first big speech about long term deficit reduction, and the possibility of a large bargain. Then the August, 2011, debt ceiling deal, right on up to where we are today.
In the course of this, he made one huge mistake, where instead of using the GOP frame, he projected the Nurturant Family Progressive frame onto his adversaries: he assumed in the late 2010 Tax Extension deal that the GOP would not hold him up on the debt ceiling. As he found out in the summer of 2011, he was wrong. And everything since then has been to take the long term deficit crisis frame off the political table. If my first three bets are right, by June, he will have largely succeeded.
Generals Rommel and Patton spent many, many hours entering into each others’ head, in an effort to completely understand who his adversary was, and how they thought, and how they might react in certain varying circumstances. I argue Obama did this, noir the hapless acceptance of his opponents frameing of the budget issues. He listened to the people. They said they were concerned. He acknowledged the problem, developed his own strategy and framing, and moved forward. I also argue he could not emerge a winner unless he acknowledged the issue, and embraced the engagement. Do you truly think he could have succeeded by declaring that the US, as a sovereign currency issuing country, does not have, and cannot ever have a solvency problem, and that he was ordering the minting of a $60Trillion coin to allow the Fed to print enough money to put into the Treasury’s General Account, allowing Treasury to pay off the national debt and avoid any need to cut long term budgets? I think he would have been impeached. What I tried to say in my post was that he had no choice but to enter the field of battle over the long term budget, define the fight as much as possible in a Progressive frame, and beat the GOP at their own game. By June we will know if he has succeeded.
A 4 Trillin dollar cut in the deficit and the SS and Medicare reductions you noted are not exactly “winning” anything. It is capitulation. And it could lead us directly into another recession. I certainly would not think that outcome a victory.
It’s called a victor a la King Pyrrhus of Epirus.
First, polling data backing this up? I don’t think there is any. Also, that wording may well elicit responses reflecting concern about unemployment or a down economy more than it reflects concern about th deficit and the debt.
Second, the election results of 2010 were ambiguous when it comes to interpretation of them as most elections are. Of course, Republicans won, but you think this was due to the deficit/debt thing I don’t agree. The Rs promised jobs and the repeal of Obamacare. Those were there two big things in the campaign that drew people.
Thits, the ACA was far less popular than it is now, and was the cause celebre for the emergence of the tea party during the summer of 2010. What caused this eruption? It was Obama’s and the Democrats’ stupidity in arriving at legislation that was very difficult to understand, wasn’t clearly beneficial to people, had something called “a mandate,” and. above all, wasn’t going to impact most people in 2013 – 2014.
In fact, the ACA’s primary implementation was postponed until 2013, instead of rammed through in time to be effective for the 2010 and 2012 elections for one reason and one only; that doing that was necessary to get a good CBO score for the decade 2011 – 2020. And why did the Ds pass such a bill that, apart from its shortcomings, which will shortly become apparent along with its few advantages, rather than pass Medicare for All?
Why, it was Obama’s overweening concern about teh deficit; teh debt! Rather than arising after the 2010 elections, that concern also torpedoed the Ds chances to win the election of 2010 because they could not run on the ACA due to their submission to the deficit bogeyman. Nancy Pelosi lost her speakership over this political malpractice; and it serves her right!
What a beautiful target for the tea party. They could say anything they wanted about the bill, and there was little if any experience the Ds could point to make liars out of them. It was a perfect situation for myth-making, and they took full advantage of that.
So, bottom line. I don’t know whether Obama interpreted the loss in 2010 in the way you say he did, but, if he did, he was very much mistaken about the concerns of the American people by over-emphasizing their concern about the deficit. Looking back on it we can see that his tendency to over-emphasize the importance of that has hut his presidency from the beginning. It made the impact of his too small ARRA a matter of dispute. It made his health care reform the basis for the rise of the tea party. It paralyzed any efforts at job creation for the rest of his first term, and then led to the catastrophic loss in 2010 which not only led to the Republican takeover in the House; but also to their domination of the State Legislatures and the Governorships in the critical period of redistricting. The loss of 2010 will reverberate for a decade because of redistricting. And at the Federal level the loss of 2010 has already led to two years of fights and stagnation in Washington, which ruined the second two years of his presidency.
“What caused this eruption? It was Obama’s and the Democrats’ stupidity in arriving at legislation that was very difficult to understand, wasn’t clearly beneficial to people, had something called “a mandate,” and. above all, wasn’t going to impact most people in 2013 – 2014.”
I think it was the way they went about it, more than the content and terms of it. They had a filibuster-proof majority in the Senate and a large majority in the House, and they overplayed their hand. Nancy backed out on her promise to have the bill on the Internet for 72 hours before the first vote, even said out loud in public they’d have to pass the bill before she would allow anyone to read it*, and then when some of the gross abuses (e.g., the Nebraska bribery) became public and she didn’t even have the votes in the House to pass the Senate bill, she “deemed” it to be passed in the House.
I would say the Tea Party owes their popularity almost totally to her arrogance.
*Ranks up there with George Stephanopoulos’ statement, when he was President Clinton’s Press Secretary, that Clinton “kept every campaign promise he ever intended to keep”.
Jim, Obama did not have to work things this way. he chose to and it was a bad choice. He did not have to appoint the “Catfood Commission” in 2010. Had he not done so, then he would have had to contend with any report of theirs. He did not have to accept any Peterson money to implement the Commission. He did not have to appoint deficit hawks to head it. He could have firmly rejected austerity when the European results came in. He could then have rejected the whole frame. he could have attributed the deficit to the recession alone and blamed the banksters and fraudsters for causing it made the case for a bailout of people who were burned by the recession and the frauds. So, no his commitment to deficit reduction was wholly his choice and it was done over the opposition of much of the Democratic Party and without any compelling reason in the polling data for a need to respond to popular sentiment for deficit reduction.
You also said:
What I think about this is that he could have succeeded by following the strategy outlined in my $60 T plan in July of 20111. Notice that it doesn’t involve telling people that he was ordering the $60 T coin; but that he had ordered it. He might have told people:
In other words, he wouldn’t announce it until it was a fait accompli. Then he would proceed to make it even more of a fiat accompli by paying off the all the intragovernmental debt and Fed debt during the first week so as to go $6. 5 Trillion inder the debt ceiling, And then even more by paying off all the short-term debt due over the next 3 months w/o further debt issuance.
While this was going on, he could have shifted gears completely away from austerity, always reminding people that there was no shortage of Federal money anymore due to his actions, and then run a mobilization campaign to implement a full employment and recovery program and Medicare for All at the same time to replace the ACA. He could have said that he didn’t do that before because he only just learned that PCS was available to fund the government, and so did not realize that the Government’s financial resources were unlimited because Treasury could freely create the money needed to repay our debts and implement Congressional appropriations and then he could have asked for those appropriations from the Republican House; and if they didn’t comply but still insisted on austerity with $43.6 T of unearmarked dollars still in the TGA, then he could have skewered them for that in the election of 2012. He would have won that battle and he would be on the cusp of fixing much of what is wrong with America.
Why do I disagree with you and think this would have worked, Simply because, all the polling we have indicates that people are very much want both full employment and Medicare for All, but they believe that Federal funds to bring these about would require increased taxation and/or increased borrowing and they are against that. But, a highly visible DEMONSTRATION that the Federal Government is not so limited is worth many years of education driving to drive home the lesson that their is no solvency problem. People will ignore that; but they won’t ignore news reports that the Treasury has $60 T in the bank. That’s a new reality, allowing a new politics.
Now, about impeachment. Yes, if the President did that he would have been impeached in the House. But why should he care about that. Once the first week was over and he had paid down the debt-subject-to-the-limit by 40%; good luck with getting an impeachment action past the House, and good luck with getting it beyond the R crazies. There would be no political traction. All the people would see is that the debt is going away and that the President wanted to pass legislation sure to create full employment and other legislation to create Medicare for All. So, the storm would have blown over within 6 months, and in the Spring of 2012, the Republicans would have been under great pressure to either put up or shut up with respect to jobs at least.
Please tell me why I’m wrong about the above. Please tell me how a political campaign can be sustained against a President who was paying off all “the national debt,” without either raising taxes or cutting spending favored by the public, while advocating for a guaranteed full employment program, supplemented with Medicare for All. And please remember that Medicare isn’t socialized medicine; it’s just an extension of that nice friendly health insurance program our lucky parents and grandparents have been able to rely on while we had to fend for ourselves.
Frankly, I don’t see how nay sych campaign could possibly succeed it’s slam dunk for the President.
Too bad you can’t edit your on replies here. My last sentence should read:
“Frankly, I don’t see how any such campaign could possibly succeed. It’s a slam dunk for the President.”
From personal experience I can tell you that few things are as liberatory as giving up on Barrack Obama. It is truly exhausting to keep making excuses for him. Constantly defending him when he refuses to defend core principles will cause you to abandon your principles or construct an elaborate system of double-think.
You say that Obama has,
Sorry, there was a fatal formatting error in my comment. I misunderstood how to use block quotes. The paragraph I had intended to quote disappeared and the rest of my post was converted to block quotes. With corrections but without italics, my post can be found below.
I very much like this post — not because I agree with it, but because it is a reasonable thought experiment of practical significance. It’s helping me to frame some important economic and political issues.
Specifically, I have long been anticipating disarray in the Republican ranks. However, my take has been that they will bring the economy down with them, as opposed to the author’s view that the Republicans are now on the verge of being dispatched with minimal economic harm done. My opinions were forged in the furnace of the early 2000’s, when the country (U.S.) seemed to take leave of its collective senses, reelecting Bush in 2004 and sending a bunch of crazies to take control of Congress in 2010.
Along with some others who have commented above, my disagreement with Stuart’s assessment is centered upon the current state of the economy. Stuart seems to believe that if we can get away with negotiated agreements as described in his post (cut $4T in 10 years), then the economy will be good to go. However, I see a middle class that is struggling as real incomes have stagnated and benefits (pensions, private health insurance) have collapsed.
As Dani Rodrik put it:
In other words, while Obama’s been playing the long game of addressing phantom problems, real problems have gone unaddressed. Obamacare is the exception in that it addressed a very real problem. But the Obamacare solution may take years to play out effectively. In the meantime, I will bet a penny that we sink into recession this year…
From personal experience I can tell you that few things are as liberatory as giving up on Barrack Obama. It is truly exhausting to keep making excuses for him. Constantly defending him when he refuses to defend core principles will cause you to abandon your principles or construct an elaborate system of double-think.
You say that Obama has,
“transformed the War on Terror (that existential, deep fear-inducing Evil, capable of destroying America) into the War in Iraq (ended), the War in Afghanistan (ending) and the Fight Against Al Qaeda (continuing). Do you remember how afraid many were (some, but fewer, still are), how many knew we had to torture because the danger was so great?? And, if I am right, by the end of March, he will have taken all of us out of what too many have been calling the soon-to-snap-shut jaws of the debt and deficit monster. Could he have done any of this without entering the Belly of the Beast? In my opinion, no. Has he been affected, tainted even by this encounter? Yes, indeed.”
The problem with your interpretation is that both of these “transformational” rescues of the American people from fear (of evil terrorists, or double entry book keeping) can only be described as successes in an Orwellian sense. Just to deal with the messy reality of facts, the War on Iraq was not transformed by Obama, rather he finished it on the schedule set by Bush. The War in Afghanistan, when it ends (if it ends), will be the longest war in the history of the United States. The vast majority of Americans have favored ending the war throughout all of Obama’s term (~70%), but well, Oceana has always been at war with Eastasia. But those mistakes pale in comparison to the myth that Obama has soothed the American people’s fear of terror so that we no longer support torture. Torture is illegal as well as wrong, but none of the people who ordered, carried out, and covered up after the CIA’s program of it were ever prosecuted by Obama. Instead he continued rendering detainees to countries that tortured. He made nice speeches about torture, but he did nothing to investigate or punish the CIA officers who promoted a narrative of its usefulness to film makers (0 dark 30). This wasn’t out of some affection for whistle blowers and leakers: the very same president imprisoned Bradly Manning in conditions that amounted to torture (no human contact for months, no exercise allowed, forced nudity, detained without charge, the W.H. Press Secretary at the time even called it torture and was then fired). But, well some Animals are more equal. I will grant you this, Obama transformed the human rights abuses of the Bush era: from extra-judicial imprisonment to extra-judicial killings. You can ask the villagers in Pakistan and Yemen, who live in constant fear of air strikes from low-flying drones, whether America is no longer paranoid of all things Muslim. Obama’s middle name mitigates this not one bit.
Why do I bring up all of that unpleasantness that’s wholly unrelated to the deficit? Well, it’s your analogy. Obama may, as you suggest, “solve” our fear of deficits in the same way he “solved” our islamaphobia. But, you’ll have to forgive me as I find that prospect terrifying. You cant win by giving in. Maybe you can’t win by convincing people that deficits are good and that money is an idea. But “enter[ing] deeply into the frame our adversaries use, so we understand its width and breadth, its very texture” is just a gleeful surrender. What will we win in this budget fight? How will the world be better? Taxes will be a bit higher on the rich stupid enough to have income rather than gains? When we embrace this framework it sends a message to my generation that the New Deal will not be here for us when we retire. That message has gotten through, all my friends express some, or a great deal of, skepticism about the solvency of the Social Security. I try to reassure them on this, but there is little I can do when Obama keeps “embracing the breadth” of the senseless ideology known as public thrift. I worry, along with the informed part of my generation, about climate change. We are destroying the earth’s capacity to provide for our species. The effects are being felt now and will be intolerable 30 years from now. I have seen nothing out of this president that will do more than a penny’s worth of good on that issue.
That’s my bet. All of your proposals are not really worth betting on. You made good predictions and I’m uninterested in the stakes. So, how about 100 dollars on the future of comprehensive climate legislation? I’ll give you good odds, say 100:1. If, in 2013, Obama signs legislation that either taxes emissions (more than or equal to 25 dollars a ton) or implements cap and trade (but all permits/credits are auctioned), I will pay you a hundred dollars. If he doesn’t, you pay me 1 dollar. I’ll give similar odds on rejecting assassination and prosecuting the Bush torture regime. If he prosecutes torturers or resigns out of shame for murdering American citizens and women and children, I’ll pay you a thousand dollars. I can take these profitable risks because I have given up on Obama. It’s painful at first, I suggest a lot of ice cream and rom coms, but it only gets easier. Take the first step: just leave the party.
I would also mention Obama’s continuation of the odious Patriot Act, which he signed in absentia and also his signing of the NDAA, which allows the arrest and indefinite incarceration without legal representation of US citizens without formal charges on the mere suspicion of terrorist activities.
I think that supporting or enabling any degree of an austerity policy is “tilting at windmills” in such a way that the federal deficit is the imaginary enemy.
Yes, it is another fake crisis.
Reminds me of those orange alerts.