You are browsing the archive for CAF.

Does the Debt Ceiling Have to Be Raised?

7:03 pm in Uncategorized by letsgetitdone

Lately, the word out of Washington, DC from the plugged in people is that there will be no debt ceiling crisis coming up before the election. Politico says so, and so does the National Journal. MSNBC also agrees.

But not so fast, says the Washington Post, echoing the Wall Street Journal provided the House Republicans can agree on “. . . an extortion demand.” If they can, then we wll have another debt ceiling crisis.

Here’s a statement from Dave Johnson at the Center for the American Future (CAF) characterizing the possible crisis from a “progressive” point of view.

“Republicans voted for a budget that caved in to many of their economy-sabotaging, hostage-ransom austerity demands. Now the “debt ceiling” has to be raised in February so the government can pay for that budget that Republicans voted for. Republicans are saying no way without a new ransom. Or they’ll blow up the economy. Even hinting at this is economic sabotage.

This is a false statement. The false part of it is the flat unqualified claim that the debt limit must “. . . be raised in February so the Government can pay for that budget the Republicans voted for.”

By now it’s common knowledge that the President can order the Treasury to mint platinum coins with very high face values to fill the Treasury’s spending account with seigniorage. It’s also somewhat less well-known that the Treasury can use consols, a type of security whose principal never needs to be paid back by the Government to generate revenue violating the debt limit. There are other probably less effective options the President might use to avoid breaching the debt ceiling too. Seven options are evaluated in this series and one or more of these options are proposed in many other places and have been discussed for a few years now. There’s no excuse for Dave Johnson not to know about these alternatives. Yet he’s characterizing the crisis falsely, unless we think he can show that none of these other options can work, and certainly he didn’t even attempt to do that in his post, and has never considered them anywhere else.

Johnson goes on:

Treasury Secretary Jack Lew has announced that Congress must increase the debt ceiling by late February. Extreme measures that the Treasury takes to put off the need to sell some bonds to pay bills (authorized by Congress) will be used up and the country will no longer be able to honor its obligations.”

And this is another, at least misleading, statement, since there are other “extreme measures” left for the Treasury to use, including the previously mentioned platinum coin seigniorage and consols. Treasury has not used these measures, but an analysis of the situation that ignores them and leaves the impression that ALL “extreme measures” will shortly be used up is at best incomplete; at worst, misleading; and also lets the Administration off the hook when they do have alternatives to either letting the Republicans push the Government into default; or giving in to or compromising with them on their demands.

Over my last few posts, I’ve focused on “progressives” mis-characterizing fiscal issues rather than on Republicans or conservatives doing so. Why is this important? Because the only chance for change that helps the 99% is for people who care about them to get the education right and tell them the truth. I don’t know if Washington villagers aren’t doing that because they’re ignorant, or bought, or are afraid they’ll look silly if they tell the truth, or are just trying to put forward short statements about issues that they think must inevitably oversimplify the landscape of thought about issues. But whatever the motivation is for their very filtered communication, its systematic nature, with all the denizens of DC, with the exception of Chris Hayes avoiding certain subjects since the President declared them “off the table”, even at the cost of factual errors in their statements, is unacceptable because it damages democracy by unduly limiting the frames and alternatives that they “broadcast” to people; damaging their ability to learn and to make their own personal choices about what they will think.

It’s one thing for conservatives to do this, because they believe in Plato’s noble lie anyway. But for progressives it’s simply a travesty and must stop now. Bloggers at CAF must know by now that there are such things as platinum coins and consols and governments that, even without further debt issuance, cannot run out of money unless they deliberately choose to do so. To believe otherwise is to believe that they live under a rock. They need to begin recognizing these possibilities in their writing, because the progressives they are writing for need to go beyond taxing, borrowing, and spending, when they think about fiscal policy and our spending limits.

(Cross-posted from New Economic Perspectives.)

Read the rest of this entry →

The New Populism Needs to Get This Straight

11:12 am in Uncategorized by letsgetitdone

Let’s look again at the new populism through the lens provided by Robert Borosage in his recent attempt to tell us what it is about. He says:

The apostles of the new inequality have unrelenting sought to starve the public sector. President Reagan opened the offensive against domestic investments. Perhaps the hinge moment was in the final years of the Clinton administration when the budget went into surplus, and Clinton, the finest public educator of his time, pushed for paying down the national debt rather than making the case for public investment. He left the field open for George W. Bush to give the projected surpluses away in tax cuts skewed to the top end.

Pop!Tech 2008 - Juan Enriquez
The hinge moment wasn’t then. It was when he decided, either early in his first term, or even before he took office, to rely on deficit reduction coupled with low interest rates from Alan Greenspan, on the advice of Robert Rubin and Larry Summers, rather than on deficit spending on human capital investments as advocated by Robert Eisner and Robert Reich. Rubin’s victory in the internal debates within the Administration was well-known at the time (1993), and set the deficit reduction course that played along with the Fed’s bubbles to create the private sector debt-fueled “goldilocks” prosperity, and surpluses of his second term. By the time Clinton faced the choice Borosage refers to, the die had already been cast. It was very unlikely that Clinton would turn away from further Government austerity policy, and turn instead toward investments in infrastructure, public facilities and “human capital.” Read the rest of this entry →

Who Needs a Balanced Trade Policy?

3:12 am in Uncategorized by letsgetitdone

Do we need balanced trade?

It’s easy to recognize that after many years of trade deficits accompanying implementation of trade agreements beginning with NAFTA the US needs to change what it’s doing. Many, including Robert Borosage of the Campaign for the American Future (CAF), advocate for balanced trade and they contrast that with the so-called “free trade” policies we have now. The case for balance trade policy is summarized by Borosage this way during his discussion of the policies favored by the New Populism:

Our global trade policies have been defined by and for multinational banks and companies. They have shipped good jobs abroad and driven wages down at home, while racking up unprecedented and unsustainable trade deficits. Those imbalances, as the International Monetary Fund and former Federal Reserve Chair Ben Bernanke have noted, contributed directly to blowing up the global economy.

The new populists demand balanced trade policies. . . .

So, we need “a balanced trade policy” meaning one that reduces trade deficits because it will support lower unemployment by keeping “good jobs” here, drive wages up rather than down, be more sustainable, and won’t contribute to a collapse of the global economy. But, is that the only or the best way to get these outcomes?

I raise that question because there is an important truth of macroeconomics to take account of. That truth is that: “Exports are real costs; and Imports are real benefits.”

This notion is based on the distinction between real wealth measured in accumulated products and services and nominal wealth measured in accumulated financial credits. Exports add to real wealth being sent to other nations; in return for nominal wealth received from them (financial credits). Imports add to real wealth being received from other nations; in return for nominal wealth we send to them.

So, would we rather send fiat money to other nations and add to real wealth in return, or would we rather add to their real wealth to and get their fiat money or our old fiat money back in return? My answer is that other things being equal, we’d prefer the first alternative rather than the second, meaning that trade deficits are better than trade surpluses, at least in the short run.

The problem with this answer is that other things are not equal, in the sense that if the Government does nothing to compensate for their shorter and longer-term effects, then the problems highlighted above do result from continuous “free trade” policy supporting continuous trade deficits. On the other hand, these effects of trade deficits can be avoided without implementing balanced trade as a continuous policy. How?

First, trade deficits cause aggregate demand leakages, which is what causes higher unemployment and lower wages. But, we don’t have to accept that outcome. We can implement a Job Guarantee program, along with other Government spending such as State Revenue Sharing, infrastructure spending, and Social Security payroll tax holidays to replace the demand lost to trade deficits.

Of course, we’d have to pass those measures. But what’s better, from a progressive point of view, doing these things or preventing Americans from buying goods and services (acquiring real wealth) from other nations that they would like to buy?

What about the lost jobs themselves? If they were “good jobs” would the new jobs produced by Government spending and SS payroll tax cuts be “good jobs” too? That depends on how the Government implements its Job Guarantee (JG) program. If the JG pays a living wage and provides Medicare access and good fringe benefits to those in the JG, then private sector people will have to better what the JG offers to get employees, and the wage floor will be raised radically over current levels and that will raise wages all along the line.

So, from the standpoint of adequacy of pay, there will be many more “good jobs” then there are today. The quality of the jobs will also improve if the JG is implemented to allow local non-profits to define jobs that will produce socially valuable outcomes for people. The role of the Federal Government would be the funder of the JG program; but local non-profits, communities, and the JG participants themselves would define the jobs in the program, exerting pressure on the private sector to increase the quality of the jobs offered in that sector.

One way to look at the situation is that trade deficits and the demand leakage they create, also provide an opportunity for the Government to employ people on social entrepreneurial projects producing public good and commons improvements of significant value; filling needs that cannot be filled by the private profit-motivated market. The purpose of the JG jobs provided is to provide a transition for displaced former employees of dying industries.

This opportunity is a good thing provided the Government takes advantage of it, because it provides not only transition jobs for individuals, but also a transition period for the private sector to develop new industries and new jobs based on new technologies while the potential labor force continues working at other jobs having social value.

Of course, the US Government hasn’t been doing that, preferring instead to leave people in an unemployed buffer stock that depresses wages and increases inequality. But the truly progressive remedy for that is to implement the Job Guarantee and other Government deficit spending and middle class tax cut programs, not to pursue a policy of balanced trade.

Second, it’s very popular today to say that x, or y, or z is “unsustainable” without saying what they mean by that term. From my point of view, policy unsustainability means that a policy cannot be followed forever without undermining the capacity to follow that policy sooner or later. The important thing here is to notice that the Government’s policy isn’t to run trade deficits forever. But just to allow trade to flow freely and let the trade deficit float. So, the issue here is whether that policy is sustainable. With exceptions to be noted below, I think it is.

The reason why it is sustainable, is that it is, in the end, self-correcting. Eventually, other nations will tire of selling the real wealth they produce in return for our nominal wealth, the electronic bits of information that eventually end up in their accounts at our Federal Reserve Banks and they will sell them instead to their own consumers. At that time, the Government’s policy of letting the trade balance float will produce smaller trade deficits or even surpluses, if the US Dollar becomes sufficiently unattractive. Until that time however, having trade deficits resulting from a trade policy that allows the trade balance to float is perfectly sustainable with some exceptions I’ll now consider.

Third, Robert Borosage refers to the view of the IMF and Ben Bernanke that continuous trade deficits of the United States contributed to the Great Crash. The chain of causation, according to Bernanke, is that the accumulation of US Dollar credits by Asian nations led to their investing in US and mortgage-based securities, causing a bubble in MBSs which then, in the crash of 2008 spread the US financial crisis around the world contributing a potent feedback loop to the crash. The general idea is that continuing trade deficits would, over time, concentrate the dollar assets of foreign nations in risky securities vulnerable to financial downward spirals.

This mechanism may or may not be a factor whose importance is great enough to render running continuous deficits unsustainable. But, if it is, then the remedy is easy. Pass legislation banning speculation in financial instruments that carry any systemic risk by entities with large dollar holdings. End of story and of this possible factor in promoting unsustainability.

Fourth, the remaining problem with letting trade happen and allowing the trade balance to float is that there may be industries or areas of endeavor that are vital to the defense of the United States, and/or its further economic development. Free trade in these areas cannot be allowed, since it risks destroying vital US skills and capabilities or potential for innovations. We need a US industrial policy to identify these areas, to decide how to subsidize them, and to ensure that they are maintained or developed. Once we have that, along with the other policies mentioned earlier, a policy of letting the trade balance float, even if it results in continuous trade deficits will be sustainable without causing unemployment, reduced wages, financial crashes, or making the United States dangerously dependent on other nations for political and economic sustainability.

Finally, let’s review the bidding again. The new populists and writers like Borosage think that progressive trade policy is balanced trade. In contrast, I think that a policy of unrestricted trade, taking advantage of the willingness of other nations to send their real wealth to the US is better for us and also seems be what our trading partners want right now.

However, to make that work for the US, we need full employment policies including a Job Guarantee program at a living wage with full fringe benefits, as well as other policies designed to compensate for demand leakages from trade deficits and private sector savings. In addition, we need to prevent investment of dollar savings in risky financial instruments such as Mortgage-Backed Securities (MBSs) and derivatives, and lastly, we need an industrial policy.

So, which is more “progressive” and also “populist”: balanced trade policy, or unrestricted trade, modified by full employment at a living wage, strict regulation of investments in financial instruments, and industrial, policies? I think it’s the second alternative and that progressives and populists ought to forget balanced trade and embrace it.

(Cross-posted from New Economic Perspectives.)

Read the rest of this entry →