The first two Parts in this series began answering the question “what would u have him do?” It arose in the context of a Post at Naked Capitalism by Michael Hudson with some additions by Yves Smith. A commenter, objecting to the criticism of the President’s Knox College speech, issued the challenge in connection with the President’s promised effort to restore prosperity to the middle class and the poor.
In Part I, “Necessary First Moves,” I offered and described two of these: ending the filibuster, and using High Value Platinum Coin Seigniorage (HVPCS) to fill the Treasury General Account (TGA) with $60 Trillion in reserves. In Part II, I offered a number of proposals aimed at getting to full employment.
These included: a full payroll tax holiday; a guarantee of annual entitlement spending without regard to “trust fund” balances; State revenue sharing grants of roughly $1600 per person; and a Federal Job Guarantee program establishing jobs in local communities at a living wage with full fringe benefits. This third and last part will offer proposals for doing some economic and social justice to begin to right the wrongs the neoliberal globalizing political/economic/ideological system has inflicted on the American middle class and those living in poverty. Here are the proposals.
Fix the Health Insurance System
I want the President to ask Congress to pass John Conyers’s HR 676, enhanced Medicare for All bill, a full coverage, no co-pay health care insurance program. A simple, direct, 35 page piece of legislation, Conyers builds in a tax to fund this program; but the decision about whether it falls into deficit spending, or is “paid for”, ought to depend on whether full employment is reached or not. If it hasn’t, then this tax should be used as an automatic stabilizer, reduced according to a rule when the private sector is shedding jobs, increased as the private sector adds jobs, until the tax is fully re-imposed at full private sector employment, to prevent the economy from overheating.
Increase the minimum Social Security benefit
A simple idea, due to Warren Mosler, is to increase the SS benefit minimum to $2,000 per month for every retiree. This will be a positive boost to the economy, and it will provide a decent standard of living to middle class and poor retirees. But, in addition, it will provide redress for years of SS cost of living increases that didn’t take into account the rapid rise of medical care spending by retirees. Health care costs escalated much more rapidly than the CPI over the past few decades, but SS COLAs haven’t taken account of this increasingly disproportionate spending by older people on medical care and insurance.
Redeem all outstanding student loan debt and provide for Federal funding of free tuition at State Universities, Colleges and Community Colleges
Student loan debt has become an appreciable drag on our economy, and its existence is not fair, because college isn’t optional for middle class prosperity, and student loan interest rates are much too high given that banks have such low interest rates on their own loans. So, if we’re really committed to middle class prosperity, and to equality of opportunity, we have to do what many other nations are doing increasingly, and provide free or very low cost college educations for those wanting them who have graduated from high school.
TINA applies to this issue if it applies to anything. If we want to avoid plutocracy, then this is something we must do. HVPCS allows us to do it.
Put a stop to Too Big To Fail by ending, investigating, and penalizing control fraud
— After monitoring the big banks for control fraud, investigate them, find it, and then take them into resolution ending the existence of current Systematically Dangerous Institutions (SDIs); in the American banking system.
— Then proceed to investigate individuals responsible for control fraud in these institutions, prosecute offenders, and apply appropriate criminal penalties.
It’s hard to over-emphasize the importance of doing these two things. Apart from removing risks to the banking system and to the economy, the issue of moral hazard is an over-riding one here. I don’t know about you, but whenever I hear someone saying that we’re a nation of laws these days, I feel nauseated by the obvious dishonesty in such a statement.
Most of the nation may be subject to laws, but obviously the likes of Jamie Dimon, Lloyd Blankfein, Brian Moynihan, other big banksters, mortgage companies, MERS, loan officers, appraisers, and loan servicers are not. And neither are various high office holders and people in the intelligence community who have routinely violated the Geneva conventions, perjured themselves before Congress, performed surveillance in clear violation of the limits established in the Patriot Act, and who, in doing so, violated their oaths of office.
The existence of a system of laws that applies only to some of us and not to all of us and that is sometimes secret is simply repugnant, and corrosive to the legitimacy of government and to all laws. Anti-government feelings and cynicism about the legitimacy of government are already widespread in the United States. If the present failures to enforce the law continue to exist, we will see increasing mistrust in the government and rejection of it as an institution. I don’t think very many of us care to travel to the end of that particular road.
End the household debt and housing crises and the possibility of new SDIs arising again to corrupt the banking system
This will require a number of inter-related policies:
— Have the Federally run big banks take big write-downs on mortgage principal to 90% of the current market value of homes;
— Have them lower credit card interest rates to a few points over prime;
— Assuming Medicare for All, HR 676, is passed first as specified above, then:
— pass legislation allowing the Government to buy up the debts owed by consumers to the health insurance industry, and to providers, and to then cancel these debts;
— pass legislation allowing previous owners of foreclosed homes involving MERS to take them back, while providing grants to the previous owners for fixing up the homes the big banks allowed to deteriorate; if the foreclosed homes have already been sold, provide government compensation to the previous owners equal to the equity existing before the housing crisis began.
— pass legislation nationalizing the regional Federal Reserve Banks and requiring that their bank managers be Federal Senior Executive Service employees, and their employees be civil servants;
— pass legislation prohibiting member banks of the Federal Reserve System from trading in derivatives or novel financial instruments, or from engaging in investment banking.
This policy proposal is both a “debt jubilee” for homeowners, and those threatened with financial hardship by our health insurance and provider systems and their financial practices, and also a restructuring of the banking system, so that SDIs cannot emerge again. In addition, it takes into account the wholesale mortgage fraud leading to the housing crisis; restitution to those victimized by the housing and economic crashes, and also provides for finding the people who committed the frauds and seeing that they are subject to the law. This last is necessary to eliminate the moral hazard in today’s still existing “To Big To Fail” policies, and to help us to restore the rule of law to all, and not just to people the government finds worthy of prosecution and punishment.
Fix U.S. Infrastructure
Pass legislation to fix it over five years at $440 B per year. Do it with deficit spending if there’s still unemployment; do it without such spending if there’s full employment.
An “orwellian” speech?
The policies mentioned in this post and in Part II, among others in the areas of reinventing energy foundations, educational reform, creating a sustainable environment, and ending climate change, can all be implemented once we have austerity politics and the filibuster out of the picture (See Part I). Their effects will solve the problems mentioned, and, just as importantly, will reverse the growth of inequality in America by shoring up the economic security of the middle class and the poor, and restoring economic opportunity. In addition, the JG and infrastructure programs will enrich our stock of public goods and our supply of public and community services.
The policies that we can implement once “How we gonna pay for it” and austerity politics are gone, due to using High Value Platinum Coin Seigniorage, can create a Green New Deal. They can restore the promise of American Democracy to our children and Grandchildren, and bring the prosperity to the middle class and poor people that President Obama says he wants.
But two questions remain. First, does President Obama really want to create middle class prosperity as he says, or was his speech orwellian as Yves Smith and Michael Hudson suggest? And second, if by some small chance the President is sincere in his intention to pursue increased prosperity for the middle class and the poor, then how can a program like the one I’ve outlined be passed with the House of Representatives in the hands of the Republicans?
My answer to the first question is that the President did give an orwellian speech and that his speech and his current tour is for the purpose of building support to get the Republicans to accept a settlement including the President’s much sought after “grand bargain” providing for major entitlement cuts in Social Security and Medicare. But assuming the President were to attempt to implement the kind of program I propose, then I think that simply proposing the program, and campaigning on it, in the context of a full public purse created by HVPCS, would place great pressure on the Republicans to pass at least a few of its elements.
If they did not, then only meanness would account for their failure to do so, when the money is there. The President and the Democrats could then run and win on the rejected part of the program in 2014, and implement it in 2015, whether or not the Republicans continued to oppose it.
So, all this and more too, is what I would have the President do. I blame him for not doing it. I blame him for not acting like one of the inheritors of FDR. And I also blame him for his constant mere lip service to Democratic ideals, accompanied by actions which continuously conflict with these ideals.
President Obama is a walking chasm between his rhetoric and his actions. And there is no way that those who ask: “What would u have him do?” can bridge that chasm. So, they need to stop asking that question, and also stop pointing out that “He can’t do it alone.”
No one’s asking him to do anything alone. He’ll need the help of the Democratic Party, some Republicans, and many aroused American voters to get this done. What I’m pointing out however, is that he’s not doing what he can be doing given the powers of his office, coupled with the possibilities for action and mobilization of his party and the American people. This situation has existed for the four-and-a-half years he’s been in office. He’s due plenty of blame for that, as well as our opprobrium.
He is not due sympathy from us because life is so tough for him. Life has been tough for many, many Americans since the crash of 2008, and for many others for decades before that. But for him, and in recent years, at least, it is a charmed play on a grand stage living in a bubble, and he has done very little as yet to help those who elected him in a state of national crisis.
So, I think he is not due sympathy, but a time of accountability for his actual performance. That’s what we owe him, accountability, not rationalizations and excuses for his failure to perform in our interests, rather than in those of the rising plutocracy.
The most important thing to change IMO is how the monetary system operates. We should modify the fed so policy is conducted directly with the public and not banks. Banks Lend to unproductive areas, deny productive investment and just have t0o much influence over the economy instead of playing a more positive role within the system.
We can create a system where the central bank just conducts policy directly with the people and banks are forced to source funds from lenders, investors or their own capital before lending onwards. cmamonetary.org
Sorry, please clarify:
We could modify how monetary policy is conducted so that the people instead of banks are counter parties to monetary policy operations. All citizens could have a nominated account or accounts held at the fed in order to interact with the fed. The fed would monitor the economy, inflation or whatever indicator and if it deemed that stimulus is required funds are directly transferred into citizens accounts in an even an measured manner. A better explanation in the following link: cmamonetary.org
Thanks. I guess my problem with this is that the Fed isn’t an agency accountable to the President and is one that is barely accountable to the Congress. I’d find this a much more attractive idea if the Fed were re-organized into the Treasury Department, but that seems further away, than the proposals I’ve made.
I wholeheartedly support you program, Joe. I would just add a couple of items to increase popularity of the student loan jubilee and mortgage write down that would simultaneously stimulate the economy. I would have the government reimburse any student loans (or the parts thereof) that have already been repaid. This could be done either in a lump sum discounted somewhat or fully over a period of years, perhaps the same number of years that it took the former student to repay the loan. Similarly, the government should make a reverse mortgage type payment to any homeowner who has paid off his home mortgage. This could again be either a lump sum payment, or extended over a number of years like the original mortgage. The lump sum could be the principle of the original mortgage, and the reverse mortgage payments could include at least part of the interest paid. Perhaps the repayments could be rolled into Social Security payments with a premium allowed for delaying their starting date. These two additions would eliminate almost all complaints of unfairness forf only helping current students and underwater home owners.
Reverse mortgages should include any down payment amount.
Sun, I’m not sure how your proposals would work and where the cutoff point would be in terms of far back the government would go in reimbursing either homeowners or students. I think it’s hard to decide on what’s fair in this situation; but if you can come up with a way of doing that, then I’m 1) sympathetic to the idea but, also, 2) mindful that the means of making the judgment about who’s eligible for help and who’s not needs to be simple enough for people to understand, otherwise the proposal won’t get political support.
Federally subsidized student loans only go back to the sixties, I believe, and they were not all that big at that time. After inflation, they look puny compare to today’s loans. I would make all federal student loans eligible for reimbursement. Housing payments are another matter, however. Thinking about the difficulties, I would probably just scrap that idea since the underwater homeowners are only getting a write down to 90% of current market value but still have to make their new mortgage payments. They are not getting off the hook, just getting the hook set a little shallower.
Sun, the hook wouldn’t be just a little shallower. For example, if someone bought into my development at the height of the real estate boom, they might have had a mortgage of 450,000. Now the value of the same Condo is down to about $330,000 if that. Assuming a reduction to 90% of current market value, they would have gained $153,000 dollars and would have monthly payments based on $297,000 dollars, that’s a huge difference.
Sorry, Joe, my comment was not clear. I was talking about scrapping my idea of including all home owners in a mortgage write down program. You are right that a write down to 90% of current market value would be a big help to underwater and arrears mortgage holders, especially since many of the loans made during the last years of the housing boom were so inflated, as per your example. My comment was in support of a write down, without including all homeowners, because those benefiting from the reduced mortgages would still be making payments (on the hook) and would not be getting a free ride. A free ride would be much harder to sell to the general public who would not directly benefit from a write down program, although there would be indirect benefits for everyone in the community.
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All great ideas to be sure, but the day thus happens via legislation in our current system is the day Jamie Dimon and co. become Buddhist monks and renounce their possessions, the Pentagon decides to spread peace and love not war, brutality, and murder, the NSA burns down the new data center in Utah and decides to stop spying on Americans en masse, and unicorns fly out my butt whistling yankee-doodle dandy. Actually that last part is more likely. Not to criticize the post, I’m with you 100%. Just, unless and until Americans wake up and demand these things, remove money from politics, remove the two-headed beast known as Democrats and Republicans, understand the depth of corruption, the deaths caused by our foreign policy, and the injustice of neoliberal global economics, while getting larlgely off oil/coal/gas at the same time (suppressed energy tech can achieve this i believe), chances are near-nil of any of these great and awesome world-changing ideas can happen. Here’s to hoping it does.
Of course, I have to agree with most of this. We have a lot of work to do politically; but the President can do a lot to move this along, by doing the things I proposed in Part I
One possible way to get the votes using HVPCS is to create a omnibus bill that would provide 100M +/- to each congressman, for them to oversee the dispersement of in their districts. Write the bill loosely, so that some congressmen would be tempted to “feather their nest”. I would provide 1 billion for each senator to disperse in their state. Any congressman or senator not willing to accept the money would of course have people run against him in the next primary. Is it possible to write an omnibus bill with all of your changes that you mentioned, and more, plus a clause stating that none of these changes can be reversed or amended for at least two years +/-, except by 2/3 majority. What this proposes is that congress can be bought, and “we” have more money than any corporation, via HVPCS, (I like round numbers, so mint 100 Trillion for the TGA.
I’m OK with the $100 T. My own $60 T figure was based on an estimate of how much deficit spending I thought might be needed over a period of time. Others have also proposed rounding it off at $100 T. One person proposed a $1 Quad coin. I have no objection there either. On the specifics of your plan, I don’t think it could pass the Congress and the role of Senators isn’t to directly distribute money in their states, even though they seek and get pork for those states. Actually managing money is for bureaucracies to do and they are in the Executive Branch.
What we really have to do is find a way to convince people that all the propaganda they hear about how a sovereign state can “run out of money” is a lie. Until people (or at least their leaders, those who have the guts to implement what is needed if there are any) understand how money actually works none of this is going to be possible. The president won’t do these things because he (in my opinion) is really and truly convinced of the neoconservative false understanding of money. The same is true of the leaders of every country in the world that I can think of. And this understanding is backed by a formidable propaganda machine.
Until we figure out a way to do that, to pop the bubble of illusory ideas about money, we aren’t going to get anywhere. The only way I can see that that might happen is if we find a billionaire who understands money and is willing to fund a massive counter propaganda campaign to wake people up to the truth.
Maybe it will slowly percolate upward from the “blogosphere”, but it doesn’t seem likely to happen in time to prevent the next big disaster. Sorry to be so pessimistic.
Well, I agree with this. That’s why I keep proposing the platinum coin. If it ever gets tried it will demonstrate to people the points you are making.
Can we perhaps persuade someone with enough resources and an understanding of MMT to run for President? I doubt he’d win but it might just get the ideas out where they can have some real influence.
Some pretty well off people are MMTers, but none can afford to drop a billion on a Presidential campaign, or even $30-40 million on a campaign for the Senate.
The President, more than anyone, has the power to change the conversation. Only he has the bully pulpit. The most effective thing he can do is focus on just ONE simple & understandable goal & stay on it until the conversation changes. IMHO the best thing he can do is travel multiple times to Scandinavia to openly advocate for nordic capitalism in the Homeland, as the remedy for inequity & the shrinking middle class. Simple, understandable, and totally unacceptable to Wall Street. He will never do it.
Wouldn’t work anyway unless he completed the two steps in Part I.
Joe Firestone for President or Chairman. US or Fed. I am not choosy.
But you are kidding . . . I’m a little long in the tooth for a Presidential campaign. On the other hand, Warren Mosler’s still young enough, and would make a tremendous impact if he could ever get to The White House.
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There is a crucial piece missing.
90% marginal tax is crucial in reducingg and preventing inequality and it pushes money circulation faster.
It provides for sound corporate financing, share of employee’s wages higher, and capturing political process is reduced. It also prevents replacing agregate demand with debt instead of by wages.
The record prosperity and economic growth in history happened under 90% marginal tax rate and higher.
The 90% was only effective for a relatively few years. By the time of the Eisenhower Administration, there were loopholes in the Tax law so that the effective rates were much less than the posted rates. Nevertheless, I’ve always believed that a highly progressive tax system does work well to reduce inequality and is compatible with high growth. So, I agree with your basic argument. However, MMTers argue powerfully, that from a political point of view one is much better off trying to use our fiat currency system to lift the poor and the middle class to reduce inequality that way, rather than engaging in leveling using progressive taxation. It does seem to me that doing that is the best way to start increasing equality.
I have a business experience. From such experience High Marginal Personal Tax (HMPT)( i am concentrating on HMPT not as much on progressive taxation) works on multiple levels; it raises corporate equity which then gets distributed to employees more and into more investments. Equity is very important in downturn, it can distinguish between bankrupcy and closure. That in turn affects employment and makes slower downturn.
HMPT is the reason european fall and rise in recessions is much more slower then in USA.
From the political standpoint, which you raised, once political environment becomes receptive to MMT and its implications, there would be no more resistance to HMPT then to using fiat money to reduce inequality. Once politicians become able to comprehend circkuit theory of money, store of value vs. exchange value, ther would be the same understanding of HMPT importance.
On the other hand, using fiat currency to reduce inequality alone could include high levels of inflation as that how inequality of debtor would be reduced. Inflations higher then 20% could easily become runaway inflation which then would have to be reduced by inducing higher taxes, or temporary higher unemployment whcih we need to avoid. Yes, even MMT recomends higher unemployment to fight high inflation.
Also yes on loopholes that reduced impact of HMPT, they were necessery for central planing in order to help particular industries catch up with more succesfull ones, but if those loopholes were introduced with time limit then it would reduce its minimizing effects. Some sectors need occassional help due to global pricing or due to some other sectors having bigger political influence, hence were more profitable. Tax and subsidy regimes would even that between sectors.
PETOLETKA or tax regime had the same purpose, to help even out free market. Soviet style was wery rapid and highly disruptive while US used more gradual way causing less resistance. But it was necessery, it could be done with time limit.
Without HMPT you better change economic system from capitalism, since it will always return to this stage.
HMPT reduces the speed by which it cycles to this stage.
Both, fiat use and tax regime should be used for reducing inequality and keeping it there.
I agree with some of this, but, when have you seen an MMT writer recommend this?
“Yes, even MMT recomends higher unemployment to fight high inflation.”
That would be a consequence of reduced state spending or higher taxation to combat high inflation. Mosler recomends higher taxes to fight inflation if needed.
No, it wouldn’t because Warren also proposes a Job Guarantee program which would produce full employment.
Joe, this is a good list, but let’s consider some of the politics involved. The new fiscal year begins in October. If Congress does not authorize funding, the government will shut down. Between now and then, if President Obama runs the platinum coin play to prevent a shutdown, there is a high probability that the House of Representatives would start work to impeach him. Ignoring the niceties of their justification, Republicans have the votes to send a bill of impeachment to the Senate. From that point on, his impeachment would be Topic A all around the country and neither his program or the rest of your proposals would have a chance for months.
In states like Virginia, that have elections this November, the impeachment could dominate or cast a shadow that affects those elections. The Tea Party would have a field day.
Today, too few respected economists or political leaders will gamble their reputations and futures on the platinum coin idea for it to advance. Regardless of how good the idea is, politically it is not ready for prime time. But advocating it prematurely can result in Congress inserting language that removes the authorization in a bill that the President must sign. If that happens, it will no longer be an option.
Again, I urge MMT advocates to back off some of their sharper rhetoric and concentrate on developing a strategic plan with accompanying educational materials to prepare the country for using its money system wisely. For example, the revenue sharing idea is good. To promote it, there should be a concerted approach to the Democratic Governor’s Association and similar organizations of state and local officials to get them to demand it — pull-through rather than push-through. The plan should involve many organizations that represent people or causes that need federal funding.
It seems to me that political selling is needed, but for that to work, there must be simple explanations of MMT that millions of citizens and their leaders can understand. MMT is waiting for those explanations.
Joe has addressed the possible impeachment issue in some of his earlier posts about HVPCS. I don’t see a specific charge that could be brought that would hold up under scrutiny, and I don’t think cooler heads would see one either. If the tea party Republicans want to go off on another blue dress hunt, I say let them go.
Hi TP, We have to distinguish the debt ceiling fight from the budget battle even though they are related. If the President were to mint the coin now, then the debt ceiling would be over, moot. The Rs in the House would be very angry, but they would still have to approve funds for the next fiscal year, or they would certainly have the blame for shutting down the Government. What they’d probably do is to issue a continuing resolution as a placeholder while they negotiate and while they express their anger through an impeachment attempt.
Now imagine the situation. Here’s the President paying off all the intra-governmental and Fed debt and all the 3 month Treasuries. Off the top of my head, that’s about $8.5 T, or half the debt subject to the limit this fall. Meanwhile the President’s getting impeached by the House. But what happens then? The Senate just tables the measure as ridiculous, and ends the disorder right then and there. It wouldn’t even take a day of day of Senate business to do that. What then do the Republicans do?
Do they stomp their feet and refuse to issue another continuing resolution, or refuse to offer a budget, and so be solely responsible for a shutdown when the Treasury still has $51.5 T in the TGA?
If they did that, they’d get lynched, when they went back home because they’d be seen as shutting down the government out of pure spite, because they were outmaneuvered by Obama. So, they won’t do that.
What they’ll do is pass a continuing resolution. Then the Senate will amend that or offer a budget of their own in response. The budget will incorporate something like the measures I’ve proposed, because there’s now $51.5 T in the TGA, and there’s no reason to hold down deficit spending and maintain high unemployment anymore.
So now the House and Senate go to Conference. What do the Rs in the House do? If they refuse to agree with the Senate about expanding the economy and strengthening the social safety net, and stick with their austerity ideas, then the Conference breaks up and the Government shuts down. Who, then gets the blame?
The Rs will say it’s the Ds fault because they wanted to engage in profligate spending we can’t afford. But the problem with that rationale is that we CAN now afford it because we have the $51.5 T in the bank, which fact Dems can just endlessly repeat.
The Dems will then go on to say that the Rs are to blame for shutting down the Government because they are refusing to pass good programs that will help the economy and restore prosperity to the middle class, because they are only interested in helping the wealthy rather than the American people, even though the US can now amply afford to spend what it takes to end unemployment and restore prosperity.
I think the Republicans have the bad side of this argument and that the situation will get ugly very fast, and more and more ugly as time passes and the President pays off more and more of the debt subject to the limit. No one, including Wall Street will understand why the Rs are being so damned stubborn and why they won’t agree to a compromise in accord with the new fiscal realities. The longer they delay, the more likely it is that people will remember what they did in 2013-2014 and throw them out, gerrymander and all in the 2014 elections.
On the other hand, if they do compromise and vote in the programs I specified in Part II, then by election time of 2014, we will be near full employment. So, then the Democrats will certainly maintain their hold over the Senate, and the Republicans will have their margin cut in the House, even if they don’t lose it outright.
Also, the new political climate will help “moderate” R candidates win primaries and retain their seats. So even if they retain the House, its new composition will be much more favorable to the changes I called for in Part III, and the political dynamic backed by plenty of money still in the TGA will just be a more forthcoming version of the dynamic that caused them to come to agreement in the Fall of 2013 and the Spring of 2014.
So, that’s the way I see things happening. The key moves are getting rid of the filibuster to free up the Senate, and minting that $60 T platinum coin and forcing the Fed to credit it if necessary. After that the political background is fundamentally changed, and the President has the upper hand, as long as he just goes with the progressive flow, and, assuming he has made the first two moves, there’s no reason to believe he wouldn’t go ahead with a progressive program, because why would he make the first two moves if he didn’t intend to create the political and fiscal background to pass a progressive economic agenda?
Joe, I hope you are right. But I am reminded of the following observation by Gregory Bateson in Steps To An Ecology of Mind: “They say what they hope will happen and then I tell them it won’t happen because there are so many other things that might happen. And I know that it is more likely that one of the many other things will happen, not one of the few. ”
I like Bateson’s work too, and I’ve used his conception of “information,” which I greatly prefer to Claude Shannon’s in my work. I also agree with the above statement; but the only way to not collapse into a conservative bias in everything do, is to do our best to think things through so that we become aware of the many other things that might happen, that are alternatives to what we think will happen. At this point, I think far too many people think that the future in our politics will be like the past, and the power of the austerity forces to win over the public mind will continue into the future. But, I really think that this is less and less likely. There is no magic wand here the austerians can wave to get people to believe in austerity once that $60 T coin is minted and credited. Many alternatives branch out from there. But that particular branching point heavily weights the future against the austerians. They simply will not be able to put the genie back into the bottle, and will have to argue against progressive fiscal policy on the merits.
Well stated, Joe. I have a hunch that the trick is to build President Obama’s confidence that MMT makes sense and the platinum coin is politically feasible. I think that one of his most fundamental, long term goals is to reduce the level of divisiveness in the country. He is more of a mediator than a designer or originator. I don’t think he comes down hard on specific solutions very often as opposed to general directions. We saw this in his pragmatic “whatever works” approach to medical care. Many liberals and progressives are unhappy because he has not fought for their specific agendas or proposals. But if my sense is correct, he primarily wants to reduce the fighting, which is why he has put up with so much from Republicans. He sees himself as their president too.
If this is right, then he needs strong support from the ground up to make fundamental changes in how the government appears to be financed. Today, only one explanation is widely accepted. There is no generally perceived gap that needs to be filled. I think he would see, and maybe even does see, that going out on his own to implement a different explanation would just add to the national divisions, not reduce them.
We need an explanation that is as simple and easy to understand as the “government is like a family” theme. Those most likely to take the time to understand the new theme are those who stand to benefit by applying it. This is why I keep pushing for a demand-pull, marketing strategy that shows how organizations that can be among the first to benefit from a major change can start pushing.
Please understand, Joe, that I am not arguing with you. Rather, I am suggesting what I think should be done to get what you want. Today, I know of no major organization such as those supporting Social Security and Medicare, higher education funding, assistance for lower levels of government and the unemployed, or infrastructure investment that is pushing for anything like MMT. Until they come on stream and demand what MMT can do, I don’t see how President Obama can be expected to accept and apply it.
What we are talking about is not either/or, it is and.
Keep up the good work,
Thanks, Tip. I like some of your ideas on how to do things. But sometimes you get less conflict by winning a war decisively than you do by always looking for compromises. The golden days of bipartisanship in this country occurred after the Democrats became the heavily dominant party and Republicans accepted the New Deal reforms and later Medicare. The conflict with Germany and Japan ended in friendship after the Axis powers were beaten so badly that they could only cooperate with the Allied occupations.
What Obama should have done in 2009 was to pulled out all the stops to ram through everything in the Democrats platofrm making sure that everything was implemented before the elections of 2010. Obama was not sufficiently ruthless at that, and the result was the Republican sweep of 2010 and the quagmire we see today.
Hoorah. Thanks for putting together this list as a good quick reference for an MMT-informed “what should Obama have done”. A year ago, before I encountered MMT (first at Naked Capitalism, and then on this blog), I would have been puzzled by the many or most of your proposals and convinced of their infeasibility. But the education I’ve gotten from this blog, Mosler’s mandatory readings, and from the Modern Money Public Purpose series on YouTube have convinced me on every last point.
“The existence of a system of laws that applies only to some of us and not to all of us and that is sometimes secret is simply repugnant, and corrosive to the legitimacy of government and to all laws… If the present failures to enforce the law continue to exist, we will see increasing mistrust in the government and rejection of it as an institution.” Yes, yes, and YES. If it wasn’t clear from my comments on another post, this resonates very strongly with me, and needs to be said over and over again to the Obots. I blame a significant part of “Tea Party” right-libertarian popularity on the failure by Democrats (and Republicans) to honor and protect the legitimacy of our government. We’ve gotta stop making excuses for politicians who are on “our side”.
“college isn’t optional for middle class prosperity” — As a well paid university educated knowledge worker, of course I’d love to see anyone with the propensity for academics be given the resources they need to succeed. So I agree that we as a society need to kill the absurd student debt issues and start treating higher education like the investment in our society’s future that it is. However, it doesn’t seem right to me that college should be required for middle class prosperity. It’s my hope and understanding that the Jobs Guarantee (as well as your other initiatives, especially those focused on full employment or debt jubilee) should allow everyone, including lesser educated (and lower income) wage earners, to more fairly share in the raised standard of living that comes with technological and economic progress. Does that make sense? Is that a reasonable understanding?
And one last thing: you divided your 13 points (I’m counting “End the household debt and housing crises and the possibility of new SDIs arising again to corrupt the banking system” as two separate initiatives: “debt jubilee initiatives” and “banking system reforms”) into three good categories: changing the game, full employment, and social justice. But, since the instigating comment was “what would u have him do?”, here’s another useful way to break them down: things Obama (i.e. the executive branch) could do now (without new legislation) and things that require Congressional action (which could be further subdivided into things that could probably pass with just a little work, things that would pass if it weren’t for the filibuster, and things that will probably take a lot of political footwork and persuasion). By my count there are only two points Obama could have (and should have) taken action on long ago, with the authority already vested in the executive branch: 1) HVPCS, 2) investigate and prosecute financial sector control frauds. Do you have any guesses on how your other points would be sorted (from simplest to do to hardest)?
Hi Nick, I agree with a lot of what you say, and certainly think your understanding is good and that your view that people who don’t go to college should be part of the new prosperity is the right one. On the different division of my various parts, I know I could have started with what Obama can do by himself and then moved into other categories. However, I preferred to divide things according to a first and later moves specification because I wanted to emphasize that no legislative success could be expected until key parts of the political background were changed. That’s what the first two moves do. They make Obama much stronger politically than he is now. After that, I sequence moving on the jobs front first. Why? Because as people quickly go back to work confidence in Obama quickly grows and his poll ratings go up. At that point he can take the initiatives he needs to take to end the too big to fail banks while facing the inevitable uproar he will get from this, and also move ahead simultaneously with the other popular measures of Part III.
Hiding Economic Depression With Spin
By Paul Craig Roberts
August 01, 2013
Time is running out for the US economy and the American people. The financial press and economic commentators, with few exceptions, do a good job of keeping this fact from the public.
Consider for example the spin put on the “advance estimate” of the real GDP growth rate for the second quarter announced on July 31. The annual rate of 1.7 percent real GDP growth for the second quarter of 2013 was presented optimistically as an acceleration in real GDP from the first quarter’s 1.1 percent growth rate. However, the reason for the “acceleration” in growth is that the first quarter’s estimate was revised down from 1.8 percent to 1.1 percent. The second quarter GDP growth rate is also subject to revised estimates. Most likely, the final number will be lower.
Consider also that the reason that real GDP is positive is that nominal GDP is deflated with an understated measure of inflation. The measure of inflation has been manipulated in order to deny Social Security recipients cost of living adjustments. Statistician John Williams (shadowstats.com) reports that if deflated by previous official methodology, GDP growth has been negative since the downturn in 2007. In other words, the “recovery” is just another government hoax.
Another failure of the financial press and economic commentators is the interpretation of the Federal Reserve’s policy of Quantitative Easing. The Fed is said to be keeping interest rates low in order to stimulate business investment and the housing market. This explanation is nothing but cover for the real purpose of QE, which is to drive up and keep high the debt related derivatives on the books of the banks too big too fail. Low interest rates pull up the prices of all debt instruments, and the higher prices raise the values on the banks’ balance sheets, making the banks look more solvent or less insolvent.
The Fed has continued QE for years, despite the policy’s failure to revive the economy, in order to hold the banks’ collapse at bay in the hopes that the banks would succeed in boosting their earnings sufficiently to get out of trouble.
The Fed’s QE policy has been costly for important areas of the economy. Retirees have been denied interest income. This has reduced consumer expenditures and, thereby, GDP growth, and it has forced retirees to draw down their savings in order to pay their bills.
The Fed’s QE policy has also jeopardized the US dollar because of the several-fold increase in the number of dollars over the last few years. In order to support bond prices, the Fed has created 1,000 billion new dollars annually over the last several years. The supply of dollars has out grown the demand for dollars, putting the dollar’s exchange value under pressure. To protect the dollar from QE, the Fed and its dependent bullion banks have engaged in ruthless shorting of gold in order to suppress the price of gold. The rapidly rising gold price indicated falling confidence in the dollar, and the Fed feared that this lack of confidence would spread into the currency markets.
By printing dollars to support the banks, the Fed has created a bond market bubble, a stock market bubble, and a dollar bubble. If the Fed stops printing money, not only will the banks’ balance sheets take a hit, but so will the bond, stock, and real estate markets. Wealth would be wiped out. No one could any longer pretend that there is an economic recovery.
The impact on the dollar is less clear. On the one hand, curtailment of the dollar’s rapid increase in supply would help the currency. On the other hand, the drop in values of dollar-denominated assets, such as stocks, bonds, and real estate could cause the demand for dollars to decrease. Foreigners for example who sell dollar-based assets might also convert their dollar proceeds into their domestic currencies.
The failures of the financial press require the explanation that I have provided of QE, the bubble economy, and the manipulated measures of real GDP, inflation, and unemployment. However, although these explanations are necessary, they are themselves a diversion.
The real reason that the US economy cannot recover is that it has been moved offshore. Millions of US manufacturing and tradable professional service jobs such as software engineering have been moved to China, India and other countries where wages and salaries are a fraction of those in the US. Using “free trade” as a cloak, corporations have turned labor costs into a profits center. The drop in labor costs raises profits, which are then distributed to executives as “performance bonuses” and to shareholders as capital gains. The impact on US employment can be seen from the BLS monthly payroll jobs data and from the declining US labor force participation rate. The participation rate is not falling because consumer incomes are rising and fewer family members are needed in the work force. The rate is falling because discouraged workers have given up looking for employment and have left the work force.
The use of foreign labor in place of US labor is beneficial to executives and shareholders in the short-run, but it is detrimental in the longer-run. The long-run effect is to destroy the US consumer market.
When jobs offshoring halted the rise in US consumer income, in order to keep the economy going the Federal Reserve substituted a growth in consumer debt for the missing growth in consumer income. For example, the housing bubble created by Federal Reserve chairman Alan Greenspan allowed home owners to spend the inflated equity in their homes by refinancing their mortgages. The substitution of consumer debt for the missing growth in real wages and salaries is limited by the burden of debt on households. Unlike the government, American citizens cannot print the money with which to pay their bills. Once consumers were unable to take on more debt, the consumer economy ceased to expand.
The government can print money with which to pay its bills, but if history is a guide, governments cannot forever print money without serious consequences. The real economic crisis will hit when the bubble economy can no longer be supported by the printing press.
It should be obvious to economists, but apparently is not, that Walmart-type jobs of the “New Economy” do not pay sufficiently to support a consumer-dependent economy. As Obamacare is phased in, consumer purchasing power will suffer another blow. Even the subsidized premiums are expensive, and the cost of using the policies in terms of deductions and co-pays will be prohibitive for most. As employer-provided benefits and Medicare are cut back, the health care crisis will worsen in the midst of an economic crisis.
The scary part of the pending economic crisis occurs when the federal budget deficit widens as the economy contracts and the Fed finds itself in a situation where it cannot print yet more dollars without causing a loss in confidence in the dollar and US Treasury bonds. What does a desperate government do in such a situation? It confiscates what remains of private pensions, piles on taxes, and drives the people and the economy deeper into the ground.
This is the path that US economic policy is on. What is the solution?
Capitalism could be allowed to work and the banks to fail. It is cheaper to bail out depositors than to bail out the banks.
Corporations could be taxed on the basis of the geographical location at which value is added to their product. If corporations create the goods abroad that they market to Americans, they would have a high tax rate. If they create value domestically with US labor, they would have a low tax rate. The tax difference could be used to offset the labor cost advantage of offshored production.
It would take time, but jobs would come back to the US. Cities, states, and the federal government would slowly see their tax bases rebuilt. Consumer incomes would again rise with productivity, and the economy could be put back together.
As for the federal deficit, it could be significantly reduced by ending Washington’s wars. As various experts have established, these wars are extremely expensive, adding trillions of dollars to the financing needs of the US government. As other experts have shown, the wars do not benefit anyone but a narrow clique of military/security industries. Obviously, it is not democratic to destroy a people’s future for the sake of special interests.
Can these solutions be implemented or are the entrenched special interests too strong and too short-sighted?
There is no prospect of finding out as long as the financial press and economic commentators are immune to reality. Until the real situation is understood, nothing can be done. It is difficult to sell a solution when the problem is not recognized and understood. That is why I focus on explaining the problems.
Paul Craig Roberts was Assistant Secretary of the Treasury for Economic Policy and associate editor of the Wall Street Journal. He was columnist for Business Week, Scripps Howard News Service, and Creators Syndicate. He has had many university appointments. His internet columns have attracted a worldwide following. His latest book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is now available.
I agree with a lot of what Roberts says. But I also think his analysis of QE is way off, and his views about printing money, shadowstats, and the pressure on the dollar are all in contradiction with the facts. And while I empathize with Roberts’s policy proposals I think that most of them are based on a false assumptions about the problems we have. For example, or deficits are not a problem as long we have an output gap. Our public debt is only a political problem, not an economic one. Since shadowstats are wrong, they don’t show we have an inflation problem. On bringing manufacturing back, that may be good in certain industries because those are vital to our future; but it may be foolish to bring other industries back because their products may be things we can easily get through trade, or if cut off through war, aren’t absolutely essential for us.
Roberts and I agree on letting the banks fail. I think the big ones should have been taken into resolution during the Fall of 2009, and certainly at the start of the Obama Administration. And I think they should have been kept in resolution indefinitely pending either socialization, or breakup into very small banks doing very boring banking business.
–pass legislation nationalizing the regional Federal Reserve Banks —
This recommendation seems to be suggesting a socialistic way of economy by eliminating private involement!
Don’t be silly. It only nationalizes the Fed and gives it a chance of getting out from under Wall Street control. That’s way far from socializing the economy.
But don’t worry, even if we did this, there’ll still be plenty of private involvement as Wall Street tries to bribe politicians to maintain its control.
Sorry I’m late to the party- a few questions on taxes as a means of controlling inflation. 1) would universal healthcare not be an automatic control? One of the benefits is decreasing healthcare costs, currently 17% gdp; if Medicare/-caid portion of FICA were equal to SS portion, it’d equal 4% of GDP, more if the payroll cap were removed. Most Western nations have health/GDP of 7-9%, and Singapore’s is at 4%. Would it not present an immediate boost in employment while becoming more balanced as costs drop?
Also, would a LVT not work better as a stabilizer than tweeking payroll taxes? Land Values rise w/ economic prosperity and fall in downturns, automatically increasing deficits in downturns by shrinking tax receipts and reducing deficits in upswings by raising them. Particularly, w/ out land speculation (or limited land speculation) from such a move, returns might ebb and flow more concurrently w/ expendable income.
As for a payroll tax holiday, how is that fundementally different from GOP proposals that favor reducing taxes (which people are reluctant to have raised again), as compared to raising and fixing minimum wage or increasing spending? Wouldn’t an increase in government spending, particularly on railways, clean energy, net-positive housing, smartgrids, etc., be more effective in raising GDP as well as increase employment be more effective than an equivalent tax break that does not increas government spending (and therefore GDP) and, once achieving it’s primary purpose, people would be reluctant to part w/? It makes little sense to me to use social insurance policies as employment stabilizers precisely because people are the least resistant to part w/ either expenditures or such extra income. If, on the other hand, minimum wage was doubled or more, there would be a greater effect in expendable income and circulation; to the effect it’d be limited by M2 and increased circulation rates wouldn’t ease the supply of currency, spending increases would be more beneficial in doing do… I’m sorry if this paragraph comes off preachey, I meant to explain my thought process and realize I can come across less amicable or curious than I intend.
I realized I shorthanded a few things- when I say spending increases, I mean on physical capital specifically. You do have a number of proposals for spending on financial instruments, such as student debts.
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