Bernie Sanders: Self-shackled Champion of the People

I gotta love Bernie Sanders, because he seems so much like people I grew up with and like myself too, and he also seems to have that passion for equality and democracy that is so important for the future of America. Sometimes I think Bernie is one of the few champions of the people left in Congress. But I also think that along with other progressives he has constructed chains for himself that prevent him from being as effective a champion of the people as he otherwise might be.

His chains are the chains of either false beliefs or a decision not to speak the truth about fiscal matters for fear that the “very serious people” in the Washington village will marginalize him even more than they do right now. I can’t say which of these is true, but I think whichever reason is operative, his self-shackling hurts his effectiveness.

Bernie’s shackles were illustrated recently in an article he did for Truthdig called “For a Budget That Is Both Morally and Economically Sound.” This post is an extended paragraph by paragraph commentary on his article, which I hope will make the nature of the chains he’s forged for himself very clear. Here’s Bernie:

As a member of the U.S. Senate Budget Committee, I am more than aware that a $17 trillion dollar national debt and a $700 billion deficit are serious problems that must be addressed.

Why does Bernie Sanders continually reinforce the message of the austerian debt hawks by recognizing that the debt subject to the limit and the amount of the deficit are serious problems? He should be saying that they are political and messaging problems, but not economic problems. He should be beginning to educate progressives about the fact that sovereign fiat currency issuers can’t have involuntary solvency problems no matter what the level of their public debt or public debt-to-GDP ratio is, and that the size of the deficit ought to be determined by the savings and import desires of the private sector, and be ought not to impacted by arbitrary deficit targets set by Government policy.

By constantly making obeisance to the first premise of the austerians, he sets up progressives to target deficit reduction as a requirement of fiscal policy, with other goals, such as full employment, as subject first to deficit reduction needs. This blunts the force of progressive advocacy, because even as they protest their primary devotion to jobs, greater economic equality, ending poverty, education, managing climate change, repairing and modernizing infrastructure, and other important policy goals, they act to approach these goals within the deficit/debt reduction framework that is the home ground of the austerians.

But I am also aware that real unemployment is close to 14 percent, that tens of millions of Americans are working for horrendously low wages, that more Americans are now living in poverty than ever before and that wealth and income inequality in the United States is now greater than in any other major country—with the gap between the very rich and everyone else growing wider and wider.

Yes, but before he does anything about these things, he has to make sure that the fiscal policy he proposes is politically correct in that it projects deficit and debt reduction over time, and the projections he frequently bases his policies on are ones related to CBO projections, which are incoherent in that they don’t take into account sectoral financial balances and their implications for future economic outcomes.

Further, when we talk about the national budget, it is vitally important that we remember how we got into this fiscal crisis in the first place and who was responsible for it. Let us never forget that when Bill Clinton left office in January of 2001, the U.S. had a budget surplus of $236 billion with projected budget surpluses as far as the eye could see. During that time, the non-partisan Congressional Budget Office projected a 10-year budget surplus of $5.6 trillion, enough to erase the entire national debt by the end of 2011.

Is Bernie serious about this? In October 2011, he announced formation of an “expert advisory panel” with 19 economists on it. At least four of those economists: Jamie Galbraith, Bill Black, Randy Wray, and Stephanie Kelton, believe that the Clinton budget surpluses were only achieved at the cost of an equivalent increase in total private sector debt, and also that the CBO budget projections were unsustainable regardless of the fiscal policy implemented following their occurrence.

They believe, in addition, that these surpluses plunged the nation into the recession of 2000 – 2002. They also believe that CBO budget projections are incoherent and invalid, and have said so at various times. If Senator Sanders has spent any time talking to the members of his panel at all, he should have heard plenty about their views on this and also the views on debts and deficits I expressed earlier.

What happened? How did we, in a few short years, go from a large budget surplus into horrendous debt? The answer is not that complicated. Under President Bush we went to wars in Afghanistan and Iraq—and didn’t pay for them. We just put them on the credit card. The cost of those wars is estimated to be between $4 trillion to $6 trillion. Further, Bush and Congress passed an expensive prescription drug program that was unpaid for. They also reduced revenue by giving huge tax breaks to the wealthy and large corporations. On top of all that, the Wall Street collapse and ensuing recession significantly reduced tax receipts and increased spending for unemployment compensation and food stamps, further exacerbating the deficit situation.

Both wars were very bad policy. The prescription drug benefit was both inadequate and far too expensive because it was a giveaway to the pharmaceutical companies. Also, the tax cuts for the wealthy did very little for the economy and certainly exacerbated the situation of increasing inequality in the United States. And additionally, these Bush programs certainly did create deficit spending and end the surpluses.

But, I also think that Bernie Sanders also ought to realize that the surpluses would have disappeared anyway, in a very short time, because they were draining net financial assets from the private economy, and it was only a matter of time before the increasing private debt accompanying those surpluses would have led to a severe demand contraction and accompanying recession. Knowing this is important, because without that recognition policy makers will, in a situation like the one in the years before 2000, continue targeting surpluses until the inevitable increasing private debt bubble produces a crash.

Interestingly, the so-called congressional “deficit hawks”—Congressman Paul Ryan, Senator Jeff Sessions and other conservative Republicans—all voted for those measures that increased the deficit. These are the same folks who now want to dismantle virtually every social program designed to protect working families, the elderly, the children, the sick and the poor. In other words, it’s okay to spend trillions on a war we should never have waged and large defense budgets, and provide huge tax breaks for billionaires and multi-national corporations. It’s just not okay when, in very difficult economic times, we try to protect the most vulnerable people in our country.

Senator Sanders is right to point to deficit hawk/austerian inconsistency and hypocrisy when it comes to deficit spending. Clearly they are austerian when it comes to programs that benefit the poor and the middle class, but fight very hard for government spending or tax cuts that benefit them.

Where do we go from here? How do we now draft a federal budget which creates jobs, makes our country more productive, protects working families and lowers the deficit?

For a start, we have to understand that, from both a moral and economic perspective, we cannot impose more austerity on the people of our country who are already suffering. The time is now for the wealthy and multi-national corporations who are doing phenomenally well to help us rebuild America and lower our deficit.

First, how we get the results Bernie Sanders calls for is outlined in any number of papers, books, and blogs by MMT economists and writers including this recent blog series of mine. Can we do it in a way that lowers the deficit? I doubt it, as long as we maintain the kind of foreign sector trade balance accompanying our role in the international economic system we have now, and as long as we want our private sector to increase its net financial assets year after year.

If we intend to run trade deficits in the neighborhood of 3 – 6% of GDP, while also having private sector aggregate savings of say, 6%, then we must have Government deficits of 9 – 12% of GDP every year we want to accommodate these targets. This isn’t a conjecture. It is an accounting identity.

We can lower the government deficit if we want to, but we’d have to either save less in the private sector or have smaller trade deficits, or even trade surpluses, or all three over a number of years. Government can force such a change by cutting budgets, and this will work as long as private credit sources step up and maintain demand by allowing consumers to increase private debts. But again, this is unsustainable in the longer run, and also it means that both private sector net financial assets and real benefits from trade will grow more slowly over time than people would like.

Second, for a start we have to realize that from an economic and moral perspective it is not so much about realizing that we can’t impose austerity on people who are already suffering, but more that we don’t need to impose it, and it is therefore immoral to do so, because we cannot involuntarily run out of money, and therefore the levels of our debt and debt-to-GDP ratio are of no economic concern, but are only a political and messaging problem. In short, we can create all the money we need to cover the whole of our safety net, and to expand it if we wish, without any help from the wealthy and the multi-nationals.

At a time when the richest 1 percent own 38 percent of the financial wealth of America, while the bottom 60 percent own a mere 2.3 percent—we cannot balance the budget on the backs of people who have virtually nothing. When 95 percent of all new income during 2009 through 2012 went to the top 1 percent, while tens of millions of working Americans saw a decline in their income, we cannot cut programs that these workers depend upon.

Well, actually, and unfortunately, we can do all of these things if we are mean enough, immoral enough, and stupid enough, all of which many of our representatives appear to be. But, again, it would be both economically stupid and also immoral to make these cuts, since we can create the money to pay for the programs on the chopping block without difficulty, and also if we do not do so we will hurt both the people benefiting directly from these programs, and also the larger economy by depriving it of much needed consumption and fiscal multiplier effects.

Instead of talking about cuts in Social Security, Medicare and Medicaid, we must end the absurdity of one out of four corporations in America not paying a nickel in federal income taxes. At a time when multi-national corporations and the wealthy are avoiding more than $100 billion a year in taxes by stashing money in tax havens like the Cayman Islands and Bermuda, we need to make them pay taxes just like middle-class Americans. The truth of the matter is that according to the most recent information available profitable corporations are only paying 13 percent of their income in federal taxes which is near a 40-year low.

While in January 2013, we successfully ended Bush’s tax breaks for the richest 1 percent, the truth is that they continue to exist for the top 2 percent, those households earning between $250,000 and $450,000 a year. That must end.

There’s no question that for the sake of our government’s legitimacy we desperately need progressive tax justice. Those who can afford the tax burden must be made to shoulder it. However, we also need to be clear about some fundamentals. First, some level of taxation is needed to maintain the value of one’s fiat currency. People must at least need to acquire the dollar, pound, or yen of account to pay taxes and settle legal disputes in order for the currency to continue to be valuable.

But, second, there is no reason why it is necessary to match government spending dollar for dollar with tax revenues or credits from the sale of debt instruments. In order for the government to spend enough to lift the economy out of the stagnation produced by the crash of 2008 and our rather pitiable response to it, the government doesn’t need to raise the money it spends through taxing and or borrowing. In fact, it can tax less than it does now, and also not borrow money at all to do that spending.

To make this happen, the Government (i.e. Congress) may want to change the rules of Government financing to mandate the Federal Reserve to create any dollars the Treasury needs to deficit spend Congressional appropriations. But, it is within Congress’s constitutional authority to do that, and politicians like Bernie Sanders ought to be advocating for that change, so that the mere existence of deficits and debts is no longer a political barrier to doing what we need to have done to create full employment at a living wage, and all the other things we so desperately need.

Failing that change, however, it’s possible and perfectly legal right now to cause the Federal Reserve to create the dollars needed to pay off “the national debt” when it falls due, issue no more debt instruments, and also cover all deficit spending by having the Treasury order the US Mint to issue and deposit in its Federal Reserve account High Value Platinum Coins (HVPCs), and then for Treasury to use the seigniorage fulfill all its obligations without either increasing taxes or borrowing back dollars previously created by the Government.

Why isn’t Bernie Sanders and other progressives advocating for the President to use this method of government finance? Surely it’s better to do this than to have repeated debt ceiling crises, or to cut entitlements using the false justification that “we’re running out of money,” or continuing to wallow in economic stagnation, because we can’t get Congress to raise taxes on the wealthy.

So far, only one progressive Congressperson, Jerrold Nadler (D-NY) has called for the President to use Platinum Coin Seigniorage (PCS) to fund spending or repayment of debts, and he quickly backed off when the President took that alternative off the table. So, the question is, why are all these defenders of the people so silent on this subject? Why aren’t they responding to every call by the Administration and its supporters and opponents to legislate entitlement cuts with the reply “We don’t need entitlement or safety net cuts, because you can use PCS to cover the cost of entitlements and other safety net programs forever any time you want to”?

C’mon Bernie, where are you and the progressive caucus in the House on this one? Where are headline progressives like Alan Grayson, Elizabeth Warren, Sherrod Brown, and Keith Ellison? The problems of funding entitlements, the safety net, and deficit spending to create jobs are separate from the problem of creating tax justice. There’s no need to conflate the two.

Also, you need to realize that even if you were able to get increased taxes on the wealthy at this point, that increase in tax equity would need to be accompanied by increased federal deficit spending to avoid economic contraction. Yes, it’s true that the multiplier from federal tax cuts for the wealthy and presumably for federal tax increases on them is only $.30 for each dollar involved. However, that $.30 is $.30 in lost economic activity per dollar taxed, and if we are to raise those taxes, then that loss in economic activity needs to be replaced through passing additional Government deficit spending, or tax cuts on non-wealthy people to increase the deficit.

Bernie and other progressives need to realize this, and never never advocate either tax increases in isolation, or tax increases in return for spending cuts. This last kind of deal is the worst of both worlds from the standpoint of lifting us out of the stagnation we are now experiencing because it destroys net financial assets in the private economy from two directions.

At a time when we now spend almost as much as the rest of the world combined on defense, we can afford to make judicious cuts in our military without compromising our military capabilities.

We certainly can “afford” to cut military spending. But, please, can we forget the meme about spending almost as much as the rest of the world combined?

First, that’s not relevant, because we should be planning our military programs based on real and specific threats, and not based on what the rest of the world is doing. Second, we don’t need to cut military spending out of economic need, because we have all the capability we need to create the money we need for it. Third, by all means cut it to the level appropriate to the real threats we face, but when we do, we also must replace that spending with equal or greater fiscal multiplier federal spending or tax cuts or credits for the middle class and the poor, else we will be hurting the economy by making these cuts. And fourth, very good replacements would be expanding Social Security benefits and expanding the food stamp program.

Frankly, it is time that Congress started listening to the ordinary people. Recently, the Republican Party learned a hard lesson when the American people stated loudly and clearly that it was wrong to shut down the government and not pay our bills because some extreme right-wing members of Congress do not like the Affordable Care Act. Well, there’s another lesson that my Republican colleagues are going to have to absorb. Poll after poll make it very clear that the American people overwhelmingly do not want to cut Social Security, Medicare and Medicaid. In fact, according to a recent National Journal poll, 81 percent of the American people do not want to cut Medicare at all; 76 percent of the American people do not want to cut Social Security at all; and 60 percent of the American people do not want to cut Medicaid at all. Meanwhile, other polls have made it very clear that at a time of growing income and wealth inequality, Americans believe that the wealthiest among us and large corporations must pay their fair share in taxes.

It is about time that Congress started paying serious attention to what people want as reflected in the polls. But the problem here is that they do, in part, but they pay attention to the wrong results in polls. Specifically, they pay attention to polls measuring their own chances for re-election, above all else. What people say they want in other polls is not as important to them as what people say they intend to do about them.

So, somehow, what people want more generally, must be connected to their evaluation of their Congressperson in a very concrete way. Until people themselves decide to vote against their Congressperson because he or she won’t support Medicare for All, or because they’re expressing an intention to vote for entitlement and safety net cuts, or because they won’t do anything about reducing unemployment, things will not change. Bernie and other progressives need to figure out a way to create that kind of coupling so that representatives are exposed to the consequences of their legislative decisions.

It is time to develop a federal budget which is moral and which makes good economic sense. It is time to develop a budget which invests in our future by creating jobs rebuilding our crumbling infrastructure improvement and expanding educational opportunities. It is time for those who have so much to help us with deficit reduction. It is time that we listen to what the American people want, and not just respond to the billionaire class and major campaign contributors.

It is time to do all this, except for worrying about deficit reduction. In fact, it is a great mistake to worry about deficit reduction for its own sake, because: 1) we can afford whatever deficits we need to run, 2) the debts we incur are of no fiscal importance in themselves, 3) we need not even incur additional public debt even if we do run deficits, and 4) we need continuous deficit spending as long we want the private sector to rebuild its balance sheets and acquire real net wealth from abroad in return for dollar credits. So, it is “loser liberalism” to worry about deficit reduction and condition all of one’s fiscal policy legislation to that criterion. Concerns about deficit/debt reduction and all that implies are the chains with which Bernie and other progressives bind themselves in the political fight for social and economic justice. Bernie, please talk to your economic advisers and free yourself from these shackles!

As for tax justice and equity, we badly need that too. But let’s not hold ending economic stagnation, and attaining full employment at a living wage, and all the other problems we need to solve, hostage to creating tax justice. People are suffering out there. Let’s end the suffering first, and then create tax justice.

The opportunity to do that will come soon enough, when economic reasons for raising taxes eventually align with the need for tax justice. That will happen once we get to full employment.

42 responses to “Bernie Sanders: Self-shackled Champion of the People

  1. The chains that are binding our progressive representatives are made of paper, but if the progressives won’t listen to their own economic advisers they may as well be forged of steel. I suspect Bernie’s economic team is meant to show and not to pull. We all lose in that.

    • I agree, talk is cheap, and where the rubber meets the road, Bernie comes down on the rightwingers who dare to call themselves Democrats, strictly partisan and supporting the latest Wall Street stooge, President Obama!

    • Joe Firestone

      I think that’s right. I suspect, he’s never really called them together or asked them to develop policies to advocate.

  2. I assume you’ve written him. No reply?

    • Joe Firestone

      I haven’t written him. I prefer to deliver my messages through blog posts that many people will see, rather than through e-mails or telephones that officeholders will ignore.

  3. I like Bernie, too, even though I disagree with his politics. He is one of a very few politicians on the left side of the aisle who will give a straight answer to whatever simple question you ask him. And he does honestly care about his constituents, not just the ones who donate to him, and not just the ones who voted for him.

    There is a way to get what he says he wants, though: reduced deficits along with increased growth. It would occur, as you say, at the expense of private sector savings. As you know, “the rich” do most (or maybe more than all) of the saving. All you have to do is tax away the money they would have saved, without taxing away money that would have been spent. Voila, saving goes down and the deficit goes down, but if the tax is designed not to come from middle and lower incomes, incomes that would have been spent if not taxed, then social programs can be funded without increasing deficits.

    Perhaps MMT is missing something when it says that the deficit is largely endogenous. If by tax policy the savings of the rich can be reduced without reducing anyone’s spending, then by the sectoral balance equation the deficit will also be reduced. It is not exactly that the government can change its budget to achieve any deficit it wishes, but it can by tax policy effect changes to the economy that influence the (still endogenous) deficit.

    It may even be possible that without the positive savings of the rich, the non-bank private sector savings rate (households and businesses) can go negative and stay that way for a while, without ill effect. The non-rich as a group may already have a negative savings rate. Every year more houses are built and most of them are bought with mortgages, and every time that happens a household has a horrendously negative savings rate in the year the loan is taken. Businesses, similarly, can have negative savings in the year they make large investments, and by the magic of accounting they can even still report profits.

    Maybe what we need in the tax code is some incentives for lower income people to save, and incentives for higher income people to spend. Maybe the first $500 of interest income should be tax-free, and any spending of income over $1,000,000 a year should be tax-deductible from a 90% marginal rate.

    • Joe Firestone

      Unfortunately, in today’s climate it’s very difficult to tax only from those whose money is sitting idle anyway, and to spend a corresponding amount on those whose spending will have a very high fiscal multiplier. But even if you could it is questionable whether this would be as effective as just increasing spending without a tax increase. Some time ago Bill Mitchell wrote about this in a piece on “the balanced budget multiplier,” here:

      • Obviously, increasing spending (or cutting taxes) is better than increasing spending and increasing taxes. But neither increasing spending alone nor cutting taxes alone is not an acceptable policy to either side. They both want deficit reduction, as scored by CBO static analysis.

        Mitchell’s analysis assumes the increased taxes would be paid by the same people whose incomes were increased by the increased government spending. The tax is assumed to be a lump sum at the same average tax rate, because taking the progressive income tax schedule into account is too complex, and any other assumed composition of the tax increase is even worse. My “solution” (I don’t propose it, it would never pass the House anyway, but it is something Bernie could support and might even have had in mind) might be similar to the recent income tax change affecting only the top bracket. It could be even more savings-concentrated by instituting another tax bracket, maybe at $1M, with a higher rate, maybe 50%. Increase spending (or cut FICA) by some lesser amount than they figure the new tax bracket would bring in – so that the deficit reduction would be detectable by static analysis.

        That sort of thing would likely have a positive balanced-budget multiplier, too. But even if it doesn’t, you’d get better growth and deficit reduction.

        And maybe the most appealing feature to Bernie and friends would be a reduction in inequality.

        • But neither increasing spending alone nor cutting taxes alone is not an acceptable policy to either side.

  4. “At least four of those economists… believe that the Clinton budget surpluses were only achieved at the cost of an equivalent increase in total private sector debt”

    What was the source of private sector debt during the Clinton boom/surpluses, can’t use tech stocks as collateral for a loan can you?

  5. charles fasola

    The pot calling the kettle black again and again. Mr. Sanders and MMT start from misconceptions. Mr. Sanders is a fraud because he would be reelected in the most progressive state in the union even if he spoke the real truth. At the same time, many of the premises the MMT group base their theories, or rather prescriptions upon stem from a failure to accept that in this world there exist constraints upon the sovereign, whether the straight jacket is self applied or not. Reality is not as MMT states it is.

    • Joe Firestone

      “At the same time, many of the premises the MMT group base their theories, or rather prescriptions upon stem from a failure to accept that in this world there exist constraints upon the sovereign, whether the straight jacket is self applied or not.:

      This is false, Charles. MMT recognizes all sorts of constraints on sovereigns. It just says that for those with sovereign fiat currencies, there are no solvency constraints, other than voluntary ones created by parts of the Government. Do you doubt that? If so, prove it!

  6. charles fasola

    Furthermore, MMT seems willing to accept an economic system that fetishises GDP growth above all else, regardless of the human or ecological consequences, and in which the neoliberal political class has utterly abdicated its responsibility to manage anything (since the market is the invisible genius to which everything must be entrusted). MMT seems to believe tweaking the current system is all it will take. Never mind that the system is cruel and inhumane and has been since its inception. The entire system is based upon extraction, dehumanization, exploitation, greed and the delusion that we can grow and grow so long as the sovereign spends money into the economy; no matter its purpose.

  7. I think Sanders is a perfect example of the larger issue.

    As I think Professor Bill Mitchell once noted — “with friends like these” …..

    So the age old question arises — So What is to be Done?

  8. We should tell him in a soundbite:
    Government Deficit is the wrong name for Government Investment.

  9. Mark Robertson

    Thank you very much for this post. I have long had the same complaint about Bernie Sanders. (And also about John Conyers).

    I realize that no politician can get away with speaking the truth, but must politicians so eagerly reinforce the lies?

    “A $17 trillion dollar national debt and a $700 billion deficit are serious problems that must be addressed.”

    Why does Sanders mention this at all? Why not ignore it, and focus on the need for jobs? Why do “progressives” give away everything before they even start to negotiate?

    It’s like the faux-anti-war people who say, “I agree that he is a dictator whose nation we must urgently bomb, but…”

    And speaking of war, Sanders says, “Under President Bush we went to wars in Afghanistan and Iraq—and didn’t pay for them. We just put them on the credit card.”

    Wrong! Spending for the wars was not put on any “credit card.” For the purpose of spending, the US government borrows from no one. The only “borrowing” is the money that investors pay to buy T-securities, which has no effect on government spending.

    As Joe Firestone says, “The government doesn’t need to raise the money it spends through taxing and or borrowing. In fact, it can tax less than it does now, and also not borrow money at all to do that spending.”

    Correct! If all federal taxes were reduced to zero, and all T-security sales were ended, it would have no effect on the US government’s ability to spend.

    Perhaps Bernie Sanders intentionally shoots himself in the foot, in order to posture as a “man of the people.” After all, if the US Congress ever became progressive, and stopped lying about US government finances, then Sanders might fade to obscurity.

    On a different note, reader Charles Fasola says, “Reality is not as MMT states it is.”

    I disagree. MMT explains how money operates in the real world. MMT shows that there is enough money for everyone. What we do with that money is a separate matter.

    Besides, if we want to “save the planet,” then we can’t do it by cutting our own throats via austerity. We can’t do it via deficit reduction, which worsens inequality. We can’t do it via reduced funding for research in solar power, recycling, alternative fuels, sustainable economies, etc.

    • Charles Fasola

      Sorry, sir, you are completely wrong on the point. Money does not operate in the real world as MMT states. You obviously have not read or are completely unaware of the very valid criticisms of MMT. MMT is for the most part prescriptive rather than descriptive. I suggest you avail yourself of the writings of Michael Hudson a colleague of the folks at UMKC. There are reasons quite separate from those you seem to believe for the issuance of US Treasuries and for taxation. Also, I have never disputed that there is adequate money available for all things beneficial to public purpose. In fact, my opinion in this regard is simply it is not the quantity of money but what it is spent/used for that matters. You also fail to understand the concept of “bank money” and the pernicious effects it has upon the real, productive economy. I believe you should widen your horizons beyond blog posts.

      • You obviously have not read or are completely unaware of the very valid criticisms of MMT. I’ve read criticisms. None that are “valid” in comparison to MMT. You haven’t brought up or cited any criticisms at all, which makes it hard to argue. Money does operate in the real world as MMT states, both bank money and state money, which are fundamentally the same – except banks issue one, and states the other.

        Michael Hudson, while he can express himself a bit differently, is basically an MMTer. MMT has nothing particularly to do with perpetual growth or even deficits – that is perhaps mistaking it as 1960s “Keynesianism”.

    • Joe Firestone

      “After all, if the US Congress ever became progressive, and stopped lying about US government finances, then Sanders might fade to obscurity.”

      Or, he might really come into his own, because there’d be no reason why he couldn’t use his star-filled economics panel to come up with the most bang-up economic reconstruction that’s ever been seen in the United States.

  10. Question for Stephanie – – I’ve often wondered about that panel that Bernie formed that you and Randy were on. Did you guys ever get the chance to discuss MMT with the Senator? I think Bernie is great but, as Joe Firestone points out, he is out of paradigm.

  11. “A $17 trillion dollar national debt and a $700 billion deficit are serious problems that must be addressed.”

    There is a sense in which such issues become a problem. The debt can be looked upon as a social program distributing large sums in interest payments to whoever happens to have a claim on it. Those payments represent purchasing power of real goods and services for their recipients. Who are those recipients? Of course, the Fed can set the size of those payments to anything it wants. Such an adjustment by the Fed is the real power of QE.

  12. But even Stephanie says, the deficit isn’t meaningless. So how do you expect Sanders to act?

    • Joe Firestone

      Hey Mike, I’m sure Stephanie never told Bernie that the $17 Trillion national debt was a fiscal problem, or a problem of any kind other than a political and messaging one. And if she told him that the $700 Billion (actually, $680 Billion) deficit in 2013 was a problem, then she probably said it was far too small relative to the leakages of demand to private sector savings and and to the foreign sector. So, if Bernie has ever talked to the four MMTers on his panel, then my hunch is that he received no comfort from them about sticking to his “with friends like these” position on deficits and debts. Don’t you agree?

  13. I’ve read and heard at a couple of news sites and podcasts (like Slate) that Obama’s advisors gave him arguments against the platinum coin option (HVPCs). What I’m curious about is what specifically were those arguments and can they be knocked down on this web site?

    • Joe Firestone

      I’m not certain what they were. What we hear is that he was told that the Fed wouldn’t cooperate, that HVPCS would be challenged in Court on grounds of intent and would not survive, that it was a gimmick that would make the US look like “a banana republic,” and that it would cause a crisis of confidence for the US dollar that would damage our credit in the bond markets. Of course, I’ve already considered all of these arguments in these pages previously, and have also discussed these and a number of other anti-PCS arguments in my e-book here:

  14. One somewhat tangential question:

    If the Fed were required to keystroke whatever dollars were necessary for the Treasury to spend beyond tax revenues, should the Treasury still handle issuing sovereign debt instruments? That might be the wrong term because if bonds are not used to finance deficits then all sovereign bonds become savings bonds. Would the Fed be the issuer of sovereign savings bonds according to whatever rules or policy goals those bonds would facilitate? Or, is that better left to the Treasury or a more integrated Treasury Central Bank organization.

    • charles fasola

      ” is that better left to the Treasury or a more integrated Treasury Central Bank organization.”

      What a great idea! A combined Treasury and Central bank. A fourth branch of government. Which sets the parameters for quantity of money necessary to serve public purpose. Unencumbered by the legislature. Rather than a Treasury fully captured by finance capitalists and a Central Bank in league with the trappers who are private banking.

      • Joe Firestone

        “What a great idea! A combined Treasury and Central bank. A fourth branch of government.”

        The Fed already acts like a 4th Branch. The point of the suggestion is to get the Central banks under the Treasury so that the Constitution, which provides for three branches of Government, is finally served.

        Also, the consolidated Treasury would still be unencumbered by the legislature which is the sole of source of spending authority through its appropriations.

    • Joe Firestone

      One thing at a time I think.

      In my view the best arrangement would just be to move the Fed under Treasury and make it more accountable to the people.

      But failing that, “if the Fed were required to keystroke whatever dollars were necessary for the Treasury to spend beyond tax revenue. . . ” then I think that the debt issuance function should be shifted to the Fed. The Treasury would no longer need it to get the credits to fulfill Congressional mandates, and since its function is to drain reserves, the Fed would havefull discretion to use either debt or Interest on Reserves (IOR) for that purpose.

  15. What it the plus side to draining reserves?

    • Draining excess reserves is necessary to maintain a non-zero overnight rate, unless interest is paid on reserves. It there are excess reserves, the rate goes to zero. The level of reserves is irrelevant to anything else. It doesn’t help or prevent banks to make commercial loans, for instance.

  16. Why doesn’t Stephanie set up a meeting with Bernie now that he is on the budget conference committee? Also find out if there is an economics – savvy person on his staff that he listens to and if so meet with that person.