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Beowulf and Diehl Embrace Trillion Dollar Coin Incrementalism!

11:34 am in Uncategorized by letsgetitdone

A wonderful discussion thread has been going on at Monetary Realism (MR) after a very good new post by beowulf (Carlos Mucha), who first brought forward the proposal for the Executive Branch to use the authority provided in the 1996 Platinum Coin Seigniorage (PCS) legislation to fill the public purse, on whether the Fed had a legal basis for turning down PCS in the form of the Trillion Dollar Coin (TDC). I’ll leave the legal discussion for another blog post, since I agree with beo on these, and also need to review some legal arguments against the TDC by some George Washington University Professors. Here I want to write about some of the MR discussion relating to High Value Platinum Coin Seigniorage (HVPCS) vs. incremental PCS options.

Why the $60 T Coin Is Needed

Beowulf addresses himself to my call for High Value Platinum Coin Seigniorage (HVPCS) using a $60 T coin in this way:

Once you blow past the size of the public debt is there a reason to go right to $60T? You need to ease into something that’s such a break from current practices. Even a trillion dollar coin is too big to be practical (of course, like Mike said, once you think it, you can’t un-think). IIRC it was Philip who suggested minting $25B coins would be a good place to start.

“Philip” is Philip N. Diehl, former Director of the US Mint in the Clinton Administration and Co-author with Mike Castle, (Rep. DE) of the PCS legislation. In comments of the post, Philip joined beo in advocating for an incremental process of PCS introduction.

An important reason for using a $60 T coin, isn’t because we need all that money right away. In fact, we can spend very little of it because the spending hasn’t been appropriated by Congress, and most of the outstanding debt subject to the limit, will have to be paid as it falls due rather than immediately.

Still we need the $60 T coin to be minted because:

– a) the coin legislation may be repealed at any time by people who don’t want seigniorage to be an alternative to taxing or borrowing; but once the $60 T coin is minted, the cow would be out of the barn, and the proceeds would last 15-25 years, by which time we’d have a chance to get political acceptance for reorganizing the Fed under Treasury and ending its existence as a politically unaccountable agency dominated by private banks and Wall Street;

– b) the seigniorage from a $60 T coin would serve as a potent symbol of the truth that the Federal Government can never involuntarily run out of money. This is one of the central ideas of MMT that the public needs to accept routinely to understand that the Government’s budget isn’t like their household budget;

– c) the mere presence of the $60 T in the public purse makes clear that the claim of those favoring austerity that we can’t afford to enable full employment; or to pass Medicare for All, or to rebuild our infrastructure or do 101 other things that need doing are false, and to oppose them the austerians would then have to argue on the merits of the policy proposals and not almost solely on grounds that we just can’t afford it because of all the debt we’re going to leave to our grandchildren; and

d) the presence of the $60 T in the public purse would be a positive enabler of progressive legislation creating benefits that people want now but austerians say we can’t pass because “we can’t afford it.”.

Easing Into PCS and Being Practical

Beo also says we have to ease into something that is such a break with current practices. But, I ask, why?

Are current practices so beneficial to us that we want to preserve them as much as possible? Haven’t they been a critical part of a public financing system that’s been failing us for a long time now in enabling us to do what must be done to create full employment and various other elements of public purpose that would create a better life for Americans? Haven’t they failed us in a very critical way by creating such complexity in public financing that the public can’t see that Federal “debt is not debt,” and instead are easily fooled into believing that we can “run out of money,” and can’t afford to pass progressive economic legislation?

Beo knows what the answers to these questions are. And he must also know that our current procedures for financing deficit spending are poison to progressives, to the need to fulfill public purpose and to the American people. The only people who really like them are people who directly benefit from the system of issuing debt instruments. These procedures are not something we should want to conserve for another moment; because they do not benefit the 99%.

Beo. also says that the TDC is ‘too big to be practical . . . ” But what’s “impractical” about it? Assuming it’s legal, which he and Philip both believe, it strikes me that in its $60 T version it’s both efficient and effective in ridding us of austerity politics. Beo goes on to talk about the fear of inflation:

Considering that the fear of inflation is the biggest political hurdle to “printing money” (and needs to be addressed when it comes up), a shock and awe $60 megaton coin strategy will lose more political support than it gains. Besides, there’s no point to creating a Strategic Petroleum Reserve-like buffer stock of something the govt has the ability to create at will, especially if its just going to scare the hell out of people (and that it certainly would).

I can’t see how beo can possibly know that, due to inflation fears, a $60 T coin strategy will lose more political support than it gains. Maybe, he’ll oblige me by doing a political analysis showing the transmission mechanisms involved. Here’s mine.

The $60 T in seigniorage would allow the President to pay off all the debt instruments held by the regional Federal Reserve banks and by Federal Agencies. Since the reserves used to redeem these instruments would not be spent into the economy, they can’t possibly cause inflation without a causal transmission mechanism. That’s a pay off of nearly 40% of the debt subject to the limit. If the Treasury pays that off in the week following minting and depositing of the coin, the most likely reaction on the part of the public will be very strong approval of this action.

When the Treasury then pays off $1.7 T in Treasury Bills over the next year, and the Administration points out that debt subject to the limit has been reduced by 50% overall, people will be even happier. When, next, people see that no more debt subject to the limit is issued over the first year to cover deficit spending, I think they will be happier still.

When, finally, they see that there is no inflationary impact from paying off half of the national debt, they will be ecstatic and conclude that Obama is a genius for coming up with this great new platinum coin trick that has stopped both spending cuts and further tax increases, and yet still allows the debt that their grandchildren might have inherited, to be paid off as it falls due, with NO NEW DEBT ISSUANCE needed!

The proof of the pudding is always in the eating. We, including beo, and maybe Philip too, know now that paying off that first $8.2 T in debt will not cause demand-pull inflation during the first year after minting the coin. The public will know that too when they experience it.

During that first year, inflation fears will gradually recede from the first day the money is used to pay off debt. By the end of the year those fears will be largely gone among most people, except for those for whom that fear is part of a “religious belief,” leaving inflation hysteria to “the gold bugs,” and Austrian school economists.

I would have done the $60 T coin in May of 2011; or most recently the day after the election. And, then I would have given a speech like the one in this post followed by a mobilization of Organizing For America (OFA) behind the initiative.

The Senate, then, never would pass a House bill to repeal PCS, because everything would have become so visible that sticking with the coin would be a litmus test for any Democratic candidate want to run with Party support. Then, if Obama got a high percentage of the debt paid by November 2014, I doubt there’d be any trouble in the mid-terms in either keeping control of the Senate or winning back the House. After all, what’s not to like: 1) debt rapidly disappearing; 2) the end of any need for austerity and no entitlement cuts; 3) no battles with Congress over debt ceilings or fiscal cliffs or austerity budgets; 4) Congress still controls the purse strings; and 5) attention turned to real issues about how to create good times here in America.

So, the brouhaha over the $60 T coin would pass. The Rs wouldn’t be able to repeal the coin capability until they got hold of both Houses of Congress, and if Obama played his cards right, actually doing things for people rather than the banks, and Wall Street, I don’t think we’d see Republican control of both Houses again for some time; in spite of wholesale gerrymandering. Their earliest opportunity to get the Senate again might not be until 2018, when there will probably be many more D Senate seats than R Senate seats at risk. As for the House, if the Democrats win in 2014, and don’t screw up (a big assumption I know), then they’ll win in 2016, and again the Republicans will have to wait until 2018, provided their party doesn’t split apart before then.

On beo’s buffer stock of reserves in the public purse point, of course there would be no point in creating one if the Treasury always had the power to create Trillions to pay off that national debt; or to deficit spend Congressional Appropriations; but the authority to do that is dependent on a Congress that has little understanding of fiat currency, and that may repeal that authority at any time. So, the “buffer stock” of reserves in the public purse is needed for that reason and the other three reasons I gave earlier.

The Incremental Approach

Philip Diehl, and beo joined together in an exchange advocating an incremental approach to introducing PCS which would feature a step-by-step approach to gradually increasing the amount of PCS annually. Beo suggested starting out with a $25 B coin, and said this:

On first day of fiscal year, Tsy deposits coinage equal to net interest paid the previous year. I like plays that end in the first act. . .

If you’re looking for a more incremental strategy, perhaps the way to ride the TDC wave while also defusing opposition is to propose a “responsible alternative.” Say, Tsy and the Fed should cooperate on a pilot program using $25 billion coins to see what effects positive or negative the use of debt-free money would have on our financial system, which is swimming in debt. If it’s negative, that should quiet critics who are pushing for a trillion dollar coin. If it’s positive, then it will be worthwhile to slowly expand the program, to gauge its impact in larger amounts. The only time we should ever mint a trillion dollar coin is sometime after the evidence is clear to everyone the $500 billion coin, the $100 billion coin and the $25 billion coin worked just fine (a red herring of course, the Mint can strike 40 $25 billion coins almost as easily as a single $1 trillion).

I guess it’d be worth stressing that it’s not a transfer of power from Tsy to the Fed since it is the Fed who orders coins from the Mint. You could call the article, “Beating trillion dollar coins into plowshares: Can a political weapon be converted into a useful monetary policy tool?”

I think beo meant to say a transfer of power from the Fed to the Treasury, just above.

Philip Diehl added this to the case for the incremental approach:

Beo, I like the step by step approach but I’d go faster and with a specific target in mind–like increments of at least $50 billion a year to reach the goal of covering the annual carrying cost of the debt. I figure that with the debt continuing to rise and interest rates also rising, it would take, say, ten years before HVCS is covering the full annual interest on the debt. Let’s say that’s $500 billion a year. At that point, we’d be minting a half trillion dollar coin every year to continue covering the annual interest on the debt, is that correct?

A slow ramp up like this would not only alleviate fears over the inflationary effect of HVCS (assuming we’re right that there won’t be any), it would also make plain its significance as a way of relieving the zero sum game of budgetary politics. A constituency will form inside and outside Congress to continue or even accelerate the pace HVCS is ramped up in order to ease the squeeze on the rest of the budget as entitlement and other spending increases.

Also, wouldn’t we expect interest rates to fall from what they would otherwise have been if Treasury was no longer longer competing in credit markets? And wouldn’t we expect tax revenue to rise if there were fewer tax free bonds in the marketplace? If I’m correct on this, it seems like HVCS would develop a powerful public constituency for the lower interest rates it would bring.

What’s wrong with this picture? It seems to good to be true. Where’s the downside, the tradeoffs?

The HVCS acronym means High Value Coin Seigniorage, and is intended to refer to all coins with face values in the millions, billions, or trillions. Here’s another contribution from beo, supporting the incremental approach in the context of a comparison with HVPCS (which refers to platinum coins with face values of $30 Trillion or more), using this scenario:

. . . Philip was once Chief of Staff to Tsy Sec. Lloyd Bentsen, imagine if Philip presented him as policy options:

1. a trillion dollar coin (against the Fed’s wishes)
2. a $60 trillion coin (against the Fed’s wishes)
3. a joint Tsy-Fed pilot program beginning with a $25 billion coin ( or whatever face value the Secretary was comfortable with, maybe it starts with a $1 billion coin).

Does anyone really think Lloyd Bentsen (or any Tsy Secretary) would take a “screw the flight simulator, lets see us try this in a real plane” attitude?”

So, that’s the case for the incremental approach, which I’ve tried to present fairly, and in its strongest possible light. So, now we can get to answering Philip’s question about the downside.

The Downside of the Incremental Approach

First, if an upside of the $60 T option is that its implementation through a “lightening strike,” to quote Philip, eliminates the chance for its opponents to mobilize against it until after it’s a fait accompli, and also removes the efficacy of any move towards repeal, before repeal no longer matters; then the opposite is true of the incremental option. Beo and Philip envision years, perhaps a decade, of ramping up until coin seigniorage is making an appreciable impact on the conditions underlying the drive towards austerity.

During that time, surely a very well-funded and powerful opposition to deficit spending and debt instrument payoff will form and do everything it can to repeal the platinum coin. And they will be able to mobilize and work against the coin before it has had a chance to solve any problems, or do any good; before, in other words, the coin can get enough love from the broader public, to ensure that the capability won’t be repealed.

Philip points out, correctly I think, that during the PCS rampup, the coin, if left in place as a capability, would develop a powerful constituency of its own, both in an out of Congress. This is true. But at $25 or $50 B per year in PCS value, can enough people grow to love its impact to counter-balance an all-out propaganda and political campaign by Wall Street, the Fed, and right-wing austerians like the Koch brothers? I seriously doubt it.

They will see the threat from the coin, probably have already seen it, judging from the reaction to it at AEI. And they will try to get rid of it soon; at the very first opportunity. I’m sorry to say that I think an incremental strategy is not just impractical, but even feckless, given that they are now, or shortly will, come after the coin with everything they have, in much the same way that the health insurance has come after any serious health care reform. So, incrementalism in applying coin seigniorage, will only lead to its repeal before its own constituency is powerful enough to protect it.

And what do beo and Philip hope to accomplish by this incrementalism? They hope a) their proposal will be viewed as “reasonable,” compared to HVPCS options like the $60 T or even the TDC; b) to calm inflation fears by minting coins with values low enough that they cannot possibly trigger inflation, and then increase face values gradually until over a period of years the fear of inflation is calmed and people are ready to consider really serious uses of PCS; and 3) to show people more and more positive impacts of the coin, so that they build a more and more powerful constituency as time goes on.

So, when it comes down to it, they want incrementalism to mollify people against the coin enough that they will be allowed “a seat at the table” and taken seriously by their opponents. They also want it because they care a lot about calming inflation fears, and they also care about having a general consensus about using it, before they “go big” with the coin.

The problem with this approach is that people who want the FIRE sector defended from the coin, and its lessons about fiat money, will never give them a seat at the table, have no incentive to do anything but discredit and ridicule them, and won’t be convinced about the low likelihood of inflation from PCS because they have a vested interest in continuing to claim and/or believe that the coin is inflationary. Even those among them who come to believe it isn’t inflationary will still oppose it on grounds that it is, because they won’t consider the advantages and disadvantages of the coin in good faith.

But in addition to these problems, there is the still more serious problem that an incremental approach taking a decade to implement has very serious likely costs. Apart from the possibility of losing the capability for PCS, there are also unemployed, partly employed, uninsured sick people, ill-educated young people, and people whose careers and social mobility are heavily impacted by the refusal to use the full power and potential of HVPCS when it is available for use.

Beo and Philip are, in effect, suggesting that the underlying condition supporting austerity politics remain out there for perhaps a decade or more, when the President has the power to eliminate it now, because they want to calm fears, get a seat at the table, and have consensus before they go ahead with PCS in a big way. Is this really a serious proposal when we look at the full political context we face? Is it actually “practical,” or does it just avoid facing the most important problem we need PCS to solve for more than a decade?

“First, Do No Harm,” is a great maxim; but when excessive caution and waiting have the very high costs just mentioned; then we have to weigh those already experienced and continuing costs of not minting a $60 T coin, against the potential cost and very low likelihood of inflation resulting from it filling the public purse, and getting used only to pay down debt and cover Congressional deficit appropriations. I’ve done the inflation analysis, and I’ve been unable to find any causal transmission mechanism directly from PCS to demand-pull inflation. I invite beo, Philip or anyone else to critique my analysis and show me where I’ve made a mistake.

Of course, demand-pull inflation can result if Congress appropriates too much deficit spending; but that would happen whether seigniorage, or Treasury Securities or both, are used alongside deficit spending. So, before we so easily propose and decide to follow an incremental PCS strategy, perhaps its proponents ought to make clear the causal mechanisms they see that are at least minimally likely to cause inflation, beyond the inflation from deficit spending accompanied by debt issuance? Until that’s done, I don’t think the incremental PCS proposal can be considered a serious one.

Second, let’s look at beo’s three options in the Lloyd Bentsen type of scenario. I think the President does 1) or 2) if he wants to start a long political struggle that he may very well lose, or if he wants to engage in kabuki. But if he wants to destroy the foundation of austerity politics, then he will select 3) or maybe a $100 T coin (because it’s more powerful as a meme), because those alternatives will actually do the job.

So, what coin seigniorage option should be pursued depends on what the goals of the President are, and his/her perception of the problem. Beo, Philip, and other incrementalists seem to think that the problem is how to get everyone used to fiat money, so it can be introduced on a large scale, fairly non-controversially, and with a good deal of consensus support. They think we can afford to wait for that result for a decade, and that it will be worth waiting for.

I, on the other hand, think the problem is how to destroy the political power of the austerians, now, so we can build a more equal and prosperous economy and society. The incremental approach could well leave us with austerity, a stagnant economy, and growing inequality, for a decade or more.

I don’t think we have that much time left, before our society sees its democracy extinguished by a soft, but, nevertheless, totalitarian plutocracy. That is much too high a price to pay for the benefits of the patient, careful, and experimental introduction of platinum coin seigniorage that beowulf, Philip Diehl, and others who like the incremental approach have in mind. Incrementalism is always favored by the Very Serious People (VSP), as the “practical” alternative; but all too often it is “impractical” in the highest sense of the term, because it simply will not work!

(Cross-posted from New Economic Perspectives.)

Avoiding A Debt Ceiling Election Sellout!

11:16 am in Uncategorized by letsgetitdone

Wonderful Scrollwork In Library Of Congress Jefferson Building

(photo: paul_houle/flickr)

During the past few months the results of polling suggest that Barack Obama will be re-elected. But they also show that his support is shallow and could be shaken easily by an economic downturn during the next 6 months.

A few more months of very small or negative job growth, a rise in the unemployment rate to 9%, a blizzard of super-Pac propaganda, a lot of schmoozing by Ann Romney, some press coverage of the Obama Administration’s coddling of the mortgage fraudsters, the usual distractions from the most serious issues facing the United States, and who knows? People may well decide that they can overlook the robotics, the Mormonism, and the blatant lying of “the Mittster,” and take a chance that he can get them those jobs, even at at the price of scaling back their social safety net including their access to health care for the sake of providing a few more hundreds of thousands or millions of bucks per year to his good ball club and race car-owning cronies.

But, what are the chances that there will be that economic downturn that will suddenly result in a new ball game for our ever-hopeful and persistent corporate acquisitions star pander-bear? Well they’ve gotten a little better lately, I think.

Straws in the Wind

First, the BLS reports that only 120,000 full time jobs were gained in March, perhaps 100,000 less than anticipated. The news is also worse than that, if you look carefully at the numbers.

Second, Federal Government spending this year is down $433 Billion compared to last year at this time. That’s about a 3% of GDP drop, discounting any fiscal multipliers that might have been generated by spending at the same level as last year, and is about half the amount of spending appropriated in the ARRA fiscal stimulus bill of 2009.

Third, Federal Government tax revenues are running $45 Billion ahead of least year. Adding that amount to the $433 Billion in spending reductions, the Federal Government’s net spending input into the non-Government sector is nearly $500 Billion less than it was at this time a year ago.

Now that is fiscal drag. It is going to be reflected in economic growth; and it is going to be reflected in declining levels of employment growth, and perhaps in a growing unemployment rate or faux shrinkage of the work force, caused by BLS definitions of the labor force defining people out of it.

Fourth, now, into this mess comes the expectation that the debt ceiling may once again be reached by this Fall, just before the election. The Administration won’t want a debt ceiling fight disturbing its re-election campaign and giving Romney the chance to charge the President with fiscal irresponsibility.

The President’s campaign may well be able to manage that charge and turn it around on the Republicans. But the fight would be messy and risky, and if the President is ahead in the polls at the time it might well provide an opportunity for Romney to get level with him.

This President doesn’t seem like much of a risk taker to me. Others may disagree with that. But I think he likes to avoid uncertainty if he can, and that he will work hard to avoid a fight with the House Republicans until after the election.

In addition, as the debt ceiling approaches, the Administration may try to ensure that there is no messy fight over it by cutting back on Federal deficit spending to avoid reaching the debt ceiling before the election. In fact, it may have already started to cut back, which may be the explanation for Federal spending already lagging behind its pace of a year ago.

If this analysis is right, then we can expect Federal spending to lag behind last year over the coming months as well, with the results showing up in lower GDP and employment numbers. The Administration will probably play a game where it tries to balance Federal spending against economic results in such a way that after some time of letting the economy live with fiscal drag, it spends very fast to get it to build a head of steam in the last four months before the election, with a peak coming in September, but without breaching the debt ceiling. It may then try to make sure that the BLS results for October are available only after November 6th, at least if they don’t continue the downward unemployment trend planned for the four months just before October.

But what if games like this don’t work well for the Administration, what if it can’t balance things well enough, and spends too slowly to show that the economy is “moving in the right direction” near election day? Or what if it spends too fast and hits the debt ceiling on October 15th and there is a confrontation in the final weeks of the campaign?
The likely game the Administration will play may be successful in persuading the public that unemployment is improving, but it is, clearly, another risky course, which the President and his Party will want to avoid if they can. So, what will they do? Read the rest of this entry →

(MMT − JG) + Medicare for All ≠ MMT

10:24 pm in Uncategorized by letsgetitdone

In my last post, I discussed the first part of Beowulf’s post entitled: “(MMT − JG) + Medicare for All = MMT,” and also some dialogues between Jamie Galbraith and both TomThumb and Beowulf related to the MMT Job Guarantee at one of FiredogLake’s Book Salon’s featuring Jamie’s new book Inequality and Instability: A Study of the World Economy Just Before the Great Crisis.

In Beowulf’s post, he highlights replies by Jamie to a question about the JG including this point:

“. . . the federal government handles *insurance* extremely well. Social Security and Medicare are functional, efficient programs. That is why they are so hated by some people – and prized by others.”

Beowulf then remarks:

“I rather agree with his last point. As I’ve suggested before, Congress should dump universal healthcare funding onto the Fed’s lap. This would have the side benefit of providing the Fed with a fiscal policy tool; they could periodically adjust the rebate’s ratio of seigniorage vs transaction fee revenue depending on economic conditions.”

Beowulf then follows with more details of one of his way out-of-box proposals illustrating an unequaled talent (and I mean this in the best possible way) for policy wonkery, that puts the likes of the unjustly celebrated Ezra Klein to shame. Before I get to these details however, I’ll note that the general idea would require Congressional legislation and also legislation that gives the undemocratic Fed more authority than it has now.

In my view it would reinforce the Fed’s position in the Government, and since I think that position both violates constitutional separation of powers and also provides the financial industry with undue influence over the operations and policies of the Central Bank, my first reaction to Beowulf’s proposal is that it incorporates a big negative to begin with.

Beo goes on with the details:

“To take a few minutes to unpack my last paragraph (you can punch out if you don’t want to go into the weeds)… While Obamacare was being debated in 2009, Anthony Weiner went on the Morning Joe show to make a ridiculously strong case for a single payer system (Part I, Part II). Congressman Weiner was promised a floor vote on a Medicare for All bill he drafted but Pelosi and/or the White House pressured him to drop it so people would pay less attention to how flawed Obamacare really was (but I digress). Unlike the HR 676 Medicare for All bill that you often see touted, Weiner’s bill was actually vetted by the CBO so its additional expenditures were matched by additional taxes… A LOT of new taxes (approx $1 trillion a year, that’s over and above current govt health spending that’d roll over into the new system). Raising taxes seems rather unnecessary since Congress could accrue this revenue without taxes or inflation simply by mandating the Fed deposit an equivalent amount in TGA every year.”

So, there’s the Congressional action necessary for universal health care. Congress has to legislate Medicare for All, and then has to mandate that the Fed deposit an equivalent amount without either taxing or borrowing. So, where would the money come from? Beo goes on:

“The Federal Reserve Act was amended in 1980 to give the Fed governors (and NOT the FOMC) the authority to levy and adjust bank transaction fees. Of course this is completely different from bank transaction taxes, after all, only Congress can levy taxes! In 2005, UW-Madison Econ professor Edgar Feige proposed to President Bush’s tax reform panel a bank transaction tax (of approx. half of one percent) that would generate $1.8T in revenue (in 2002 dollars). My reading of the FRA is that the Fed could enact Feige’s plan on its own (though Congress can always push them if they won’t jump). In perhaps the most wonderful example ever of “its a feature, not a bug”, economist Bruce Barlett complained of Feige’s plan,

“Since GDP equals the money supply times the turnover of money—what economists call velocity—a fully effective transactions tax will presumably reduce velocity. Consequently, it would be severely deflationary unless the Federal Reserve substantially increased the money supply to compensate. It also means that the tax base will shrink as soon as the tax is imposed.”

“So this is the plan, the unstoppable force of $1 trillion in inflationary Medicare spending would meet the immovable object of $1 trillion in deflationary transaction fees. Of course we only need spending and revenue to match at full employment (and even that assumes no trade deficit demand leakage). At other times, The Fed could use this as an adjustable fiscal policy tool (the Board of Governors can amend their fee schedule at any time). When the economy falls short of full employment with balanced trade, the Fed could fund Medicare by cutting transaction fees and filling the deficit by way of the Mint with coin seigniorage (I’ll just note in passing that ordering, say, a $1 billion platinum coin seems less wasteful than a billion $1 coins, reasonable minds can differ).”

So, Beo has advanced an ingenious proposal for passing Medicare for All with perpetually mandated Fed funding coming from 1) bank fee revenue collected by the Fed and then deposited in the TGA, and 2) US Mint coin seigniorage profits generated by high face-value platinum coins during those years when recessions make it desirable for the Fed to back off some portion of its fee revenue for covering Medicare for All spending. Funding health care this way would not come up against the debt ceiling problem, and it would likely save the non-Government sector at least $800 B per year, or $8 Trillion over a decade, which it could use for other things besides health insurance/out of pocket spending, by putting the private health care insurers out of business and by disciplining the providers through cost negotiations with the Government, now acting as the single-payer.

An elegant proposal, right? But there are a few problems with it.

First, it makes the Fed always very subject to bank influence in the position of deciding what the bank fees will be. No doubt the banks will continuously push for reductions in the fee revenue and more reliance on seigniorage for Medicare funding.

Second, as indicated earlier, it increases the authority of an undemocratic institution that is already too powerful.

Third, why would Congress agree to mandate the Fed to go this way? The fees involved will be viewed as taxes by the banks, whatever they are called, so they will oppose them and will require their allies in both parties to defeat such a proposal.

Fourth, isn’t the fiscal tool given to the Fed in the proposal relatively ineffective and also unnecessarily generous to the financial sector in hard times? That is, backing off the transaction fee revenue will feed bank gross profits which will be transmitted disproportionately to wealthy executives and stockholders. So, isn’t the fiscal multiplier associated with backing off fee revenue and using coin seigniorage to fund Medicare for All likely to be relatively ineffective since we know that multiplier is likely to be similar to the one associated with tax cuts for the wealthy, which is roughly 30 cents on every dollar cut?

Fifth, isn’t this proposal unnecessarily complex from a political point of view? That is, if Proof Platinum Coin Seigniorage (PPCS) (the method of getting around the debt ceiling originally suggested by Beo some time ago) is going to be used anyway, and the Executive is going to be brought into the picture, then why start with the Congress to try to get this done?

Why not do what I suggested in this recent post and earlier? Namely let the President start with a $60 T coin, pay down all the intra-governmental debt within a week, have the executive pay off all the debt subject to the limit held by the non-Government sector as it comes due, and then have roughly $45 Trillion in unappropriated funds sitting in the TGA, waiting for Congress to target them at specific programs.

The $45 T sitting there would serve as a very visible reminder that the Government has the money to do whatever it needs to do to help solve America’s many problems; and certainly much more than enough needed to fund the full cost of Medicare for All for many years to come, in addition to State revenue sharing, payroll tax holidays, and a Job Guarantee program to entirely end the Great Recession and enable full employment at a living wage. I think this plan is much simpler than Beowulf’s new proposal, and it has the advantage that it can generate unremitting pressure on the Congress to create Medicare for All, which it could no longer easily turn aside by pleading that the US is running out of money with $45 T sitting in the bank, and the capability to generate still more money at will if needed. No one would be able to tell the lie that the US was running out of money ever again.

Finally, it should be obvious that “(MMT − JG) + Medicare for All = MMT” is false, because even if PPCS is used for Medicare for All, its substitution for the JG still falls short of MMT objectives. Adding Medicare for All to other MMT initiatives, without implementing the JG will bring the economy closer to FE, than would have been the case without Medicare for All, but that wouldn’t change the fact that we would still be relying on a buffer stock of unemployed persons to contain inflation. That’s not an MMT prescription, because it is less in conformance with public purpose than relying on a buffer stock of employed persons for a host of reasons reviewed in many posts here.

But, in addition, and just as important, the JG program in its MMT context makes real for the first time FDR’s proposed economic right to a job for all who are willing and physically and/or mentally able to work. I think that right is an essential aspect of the idea of public purpose, and that’s why the JG program ought to be, and is, so closely tied to MMT.

In short, (MMT − JG) + Medicare for All ≠ MMT, and the only way someone can believe that it does, is if they either don’t believe that the goal of economic policy in a democracy is to fulfill public purpose; or alternatively, if their ideas about public purpose don’t include the right to a job offer at a living wage. Do all who call themselves MMTers believe in this right? I don’t know.

But I do think that in the future, as more people in economics come to recognize that there are no value-free economic systems, and that MMT cannot be free of values and normative commitments, MMTers will come to recognize that they can’t avoid making their normative commitments explicit. And when that day arrives, I think most MMT supporters and practitioners will decide that the normative commitments to real Full employment and FDR’s right to full-time work are part and parcel of MMT, as is the JG itself, because it is the best method yet devised for fulfilling these aspects of public purpose.

And also because if MMT is anything at all, then it is surely the Economics for the Public Purpose that John Kenneth Galbraith wrote about in the 1970s. MMT is the modern embodiment of the tradition named by Galbraith in that fine book. Many of us still, and will always, revere the vision expressed in that book. To those who feel this way, Economics for the Public Purpose is the only economics we will practice, because it is the only economics worthy of the name.

(Cross-posted from Correntewire.com)

Dialogues with Jamie Galbraith and the MMT Job Guarantee

10:40 am in Uncategorized by letsgetitdone

A few days ago my friend Beowulf decided to exercise his wry sense of humor with this title of a post he offered for our consideration: “(MMT − JG) + Medicare for All = MMT.” Beo then goes on to talk about some details of a comment exchange with Jamie Galbraith at one of FiredogLake’s Book Salon’s featuring Jamie’s new book Inequality and Instability: A Study of the World Economy Just Before the Great Crisis.

Dialogue 1, Jamie Galbraith/TomThumb

Beo points out that Jamie has been closely associated with the approach to economics called Modern Monetary Theory (MMT), most recently in a pretty good Washington Post article by Dylan Matthews, someone who clearly has little familiarity with who’s who in MMT world. After setting the stage by pointing out that association, Beo goes on to quote part of Jamie’s comment giving his reply to a previous question about what he thinks of the MMT Job Guarantee (JG) proposal.

Here’s that reply:

“. . . To come back to the job-guarantee approach, I think asking the government to create jobs directly is not a robust solution. The problem is that the program goes right into the budget firing line, where it will get chopped up. That was the experience with CETA, the Comprehensive Employment and Training Act, back in the 1970s.

“So I prefer to think in terms of how to get decentralized institutions doing useful things, with their own funding streams, so that you can create jobs that endure. Education, health care, social services, home care, neighborhood conservation.”

Later FDL commenter TomThumb replied this way to Jamie:

“I worked under CETA as a Social Worker Assistant and then went right to Social Work graduate school when that ended in 1977. CETA works!

“Seems like you are giving up without a fight.”

To which Jamie replied:

“Good for you. I was on the congressional staff at that time so I still have some scars from the previous fight.

“But I think there are ways to get jobs funded — you just have to put a few degrees of separation between the program and the budget-cutters.”

TT quickly shot back:

“No. I disagree. I enjoyed it when you used to call for a direct frontal attack on their weasel words about creating jobs. Anything else is caving. In my opinion. Call them out for being do nothings. That is better than watching people get hurt every day and not making any changes.”

To which Jamie replied:

“Point taken. It’s a tactical issue and there are mornings when I agree with you.”

This exchange with TomThumb shows that Jamie is of two minds about direct Government job creation, and suggests the possibility that he might well prefer it if a Job Guarantee program could be structured as “. . . . a robust solution.”

I think it can be, but that discussion will have to wait for later in the post.

Dialogue 2, Jamie Galbraith/Beowulf

At this point Beowulf entered the discussion asking Jamie what he meant by the idea of getting jobs funded by putting “. . . a few degrees of separation between the program and the budget-cutters.”

To which Jamie replied:

“Well, I like the non-profit sector in this country a lot. Health care, education — these are useful things. Paul Samuelson once said to me “Health care is 15 percent of GDP, and it’s the best 15 percent of GDP.

“The thing about these sectors is, they have multiple funding streams. Higher ed has state money, federal money, tuition, philanthropy… This buffers the institution from cuts.

“If you go to (say) France, and look at what happens when you rely entirely on state funding for universities, you’ll see what I mean.

“That said, the federal government handles *insurance* extremely well. Social Security and Medicare are functional, efficient programs. That is why they are so hated by some people – and prized by others.”

To which Beo replies:

“That’s an interesting point, from a political standpoint, multiple sources of funding makes it more difficult to starve the beast (to say nothing of the politically powerful stakeholders in education and healthcare who won’t take losing their funding lightly).”

This dialogue is really interesting from an MMT point of view. Here’s Jamie Galbraith and Beowulf, both of whom have more than a passing familiarity with MMT, talking about job creation in the non-profit sector through funding that doesn’t derive from Government deficit spending.

Now, that kind of job creation isn’t impossible provided the fiscal multiplier trades involved are favorable, but both Jamie and Beowulf know very well that, assuming multiplier trade-offs are equal, without deficit spending by the Government sector, or the non-Government sector decreasing its total savings and perhaps increasing its debt, raising funding for non-profit sector jobs is likely to cost jobs elsewhere in the non-Government sector. They also both know that from a purely economic/fiscal point of view there’s no problem in funding a JG program. The problem with it is political. Namely, that in the current political climate a JG program, however structured, is very difficult to legislate (a point all three of us agree on).

Apart from that shared judgment of political difficulty, Jamie and Beowulf appear to diverge. Jamie says that not proposing a JG program is the best tactical choice right now. But Beowulf, who now favors the Modern Monetary Realism (MMR) approach, is opposed to the JG on strategic grounds because the MMR position is that the JG will not work as advertised by MMT, specifically, MMR believes that it will not produce full employment at a living wage with price stability, even if implemented as part of a broader MMT-like program including full payroll tax holidays and State revenue sharing.

The Upshot of the Dialogues

So, the upshot of these two contrasting dialogues is that both Jamie and Beowulf are talking outside of the MMT paradigm. And they are not acknowledging, or evaluating the implied MMT view that more “robust” job creation done in the non-profit sector without Federal deficit spending backing it, will in the end, either not be robust at all, or, alternatively will decrease the robustness of other non-Government sector employment.

Put another way, the lack of robustness critique of the JG policy idea based on the notion that JG funding will always be in the line of fire from deficit hawks and Republicans applies equally well to funding job creation in the non-profit sector, because ultimately that funding too, just like JG funding, can only be based on Federal deficit spending if it is to create new jobs, at least if we assume that imports will exceed exports, and that the non-Government sector will want to increase total savings during the period when new jobs are to be created.

Also, it looks like TomThumb, has it right. Jamie is giving up on the Job Guarantee idea too fast, because his view of its ultimate political fragility applies equally well to his proposal that the non-profit sector ought to do the job creation with non-Federal deficit funding. So, where do we go from here with the Job Guarantee proposal for direct job creation? Here are a few comments that contrast with Jamie’s doubts and his views on the lack of robustness of JG job creation.

First, from my point of view, none of the MMT recovery proposals are likely to be accepted in today’s political climate. So, the political feasibility criticism of MMT’s JG proposal isn’t any more weighty right now than similar criticisms of its payroll tax cut, and State revenue sharing proposals.

If any of them are to be passed, it will be necessary to overcome the ideology of austerity and get people in Washington to accept the fact that the American Government can’t have solvency problems. Doing that is job no. 1.

When and if that is done, and people really believe that the Federal Government can afford the social safety net and all sorts of other spending too, then we can consider whether the whole MMT program including the JG is politically feasible or not. My last post outlines some things the President can do to take austerity off the table and bring the day when we can do this with a real feel for feasibility closer.

But these are not to the point here. The point, instead, is that when it is off the table, then there will be no compelling reason why permanent automatic annual Federal funding of FDR’s right to a full-time job offer at a living wage, for every person if she/he wants to work, could not be funded through Federal spending, whether deficit or otherwise.

Second, Jamie says he prefers that the non-profit sector create the new jobs. However, the current MMT JG proposals are formulated so that even though the Government is the funder JG jobs, the work itself is actually defined, structured and supervised by the non-profit sector with the participation of local stakeholders who would define jobs that produce societally valued outcomes. Pavlina Tcherneva has been doing a lot of writing about this lately, (See also recent posts) as has Randy Wray. (See posts 38, 42-45 and also the response posts following each one.)

So, even though, the funding for an MMT JG program would come from the Federal Government, the non-profit sector would be heavily involved in specifying the jobs for the JG program. The result should be a program incorporating many of Jamie’s ideas about non-profit capabilities, based on Federal funding that might have no robustness problems at all, provided that the ideology of fiscal austerity is politically defeated by the time the MMT program, including the JG passed.

Third, Golfer1John, a commenter on one of Randy Wray’s recent JG posts suggested that the JG be renamed as The “Employment Insurance” program. I think this is a good name for it, because it describes what it offers to individuals who have been caught up by economic forces beyond their control, and it can also be marketed as part of an economic bill of rights.

In an environment where austerity has been defeated and the government is revealed as being able to fund anything that isn’t so expansive that it will cause inflation, it ought to be no problem to justify both an employment insurance program to guarantee a job offer to people who want to work, and also a universal health care program based on the idea of Medicare for All. So, we can have recovery, Job Guarantees, Universal Health Care, and Reconstruction of our severely damaged economy and society without having to worry about “running of of money.”

Beowulf’s Proposal

After highlighting Jamie’s view on the JG, but failing to review Jamie’s exchange with TomThumb, Beowulf goes on to offer a proposal of his own about Medicare for All, playing off Jamie’s remark that the Federal Government “handles ‘insurance’ very well. I’ll discuss that brilliant, but ultimately undesirable, proposal in a future post. And that’s when we’ll get into the humor reflected in the title: “(MMT − JG) + Medicare for All = MMT.”

(Cross-posted from Correntewire.com)

That’s Not All!

9:35 pm in Uncategorized by letsgetitdone

After opposing the Job Guarantee proposal as part of the broader MMT policy program in service of the goals of public purpose, full employment with a living wage and price stability, and for many weeks now, combining with Mike Sankowski and Carlos Mucha to found “Monetary Realism” and also saying:

“You guys see no need for unemployment. I do. I think it serves an incredibly important psychological component to any healthy economy. I’ve feared for my job and been unemployed. Those moments shaped who I am and what I’ve become. They were invaluable in retrospect. If I’d been able to apply for a JG job I might not be half the man I am today. Maybe it’s just personal entrepreneurial experience speaking here, but I know what it means to hunt and kill for ones dinner. Very little, aside from great parenting and education, was handed to me in life. My psychological development through having to earn things has been a building block that no govt program can ever provide. Ever.”

And then later saying that he’s for: “prosperity, increasing living standards,” and says that subsidiary goals are innovation, increasing productivity, and a “real goal” of “full productivity.” And also saying that:

“. . . . massive increases in living standards come from increases in innovation and productivity (which are MOSTLY pvt sector and profit driven). So my thinking is rather basic. Why obsess over FE (I am referring to low unemployment here) when the real goal is full productivity (which is a vague concept I know)?”

Cullen Roche, in a post entitled “I Am For Full Employment” says today:

“That’s All.”

To which I say: that can’t be all because:

The MMT normative structure is: JG in the context of payroll tax cuts, State Revenue Sharing, and selected anti-inflation measures such as higher taxes → Full Employment at a living wage with price stability → Public Purpose

while MR’s normative structure based on Cullen’s various posts appears to be:

Payroll tax cuts, State Revenue Sharing, other as yet undefined productivity enhancing measures, along with selected anti-inflation such as higher taxes and interest rate targeting by the Fed → Innovation → Full Productivity with Price Stability → Full Employment → Increased Prosperity, which appears to be MR’s top-level goal.

I think the MMT normative structure posits a much more direct connection between policy and FE with PS than the MR normative structure does. Also, the quotes above seem to indicate that MR values FP, Innovation, and Increased “Prosperity” much more than FE which we should not “obsess over.”

So, with all due respect I’d have to say:

That’s not all!

Update: After I posted this Cullen replied, in part by pointing out that he had “rescinded” the first quote I provided above in reply to a comment of mine saying:

“I shouldn’t have even bothered with the anecdotal. Lesson learned. It totally distracted from my main point which was not to say that we don’t need full employment, but that we should seek full productivity (and hence FE). The personal experience doesn’t prove anything….”

And he went on to claim that I was taking him out of context by not noting his reply. My response was and is:

I’m happy to have your amplification above and to acknowledge your further reply.

However, your reply doesn’t say that your previous comment about the virtues of unemployment is wrong, or that you prioritize FE over FP and are not advocating a variant of MMT that will not maintain an unemployed buffer stock rather than a full employment buffer stock. Nor do you question my characterization of the MR normative structure above. As I’ve already said to you in correspondence:

So, here’s a challenge. I say that your goal structure as so far stated is as I represented it in my post above. If you think I’m wrong then state what your goal structure is explicitly. Locate FE within it and prioritize FE relative to FP. I’d be very interested in seeing that and if you prioritize FE over FP then I’ll be happy tp admit I’m wrong, and agree with you that you favor FE even if you don’t favor the JG. Then I’ll further admit that you and I have very similar goal structures but only disagree on the means of achieving it.

Then we can go on to argue about means. In making such an argument however, I recommend that you tell us all what you mean by “full productivity.” As i said in another post to you:

So far, at least, I’ve not even seen a definition of FP from you. So how can I possibly tell whether FP will lead to FE, let alone whether it would be more effective than the JG at accomplishing that.

Finally on this bit:

“I am really stunned that you keep using that comment to try to prove your argument. It proves nothing and was rescinded in direct response to you because you and others kept taking it out of context.”

Readers can judge above whether your comment above “rescinded” your previous comment or not. I do not consider it taking back your previous comment that:

“You guys see no need for unemployment. I do. I think it serves an incredibly important psychological component to any healthy economy. . . . “

That part of your comment says that unemployment is needed, and implies that an unemployed buffer stock is more valuable than an employed one. I see your reply comment as saying that your anecdotal statement was a tactical error which distracted from your main point that we “should seek FP (and hence FE).” You have not shown us in anything you’ve written that FP implies FE either logically or empirically. That, right there, is a main point of the disagreement between us.

At this writing, Cullen and his new MR group have not clarified the goal structure of their MR knowledge claim network (KCN) nor have they explained why they think that FP leads to FE either logically or empirically.

The Job Guarantee and the MMT Core Series: An Introduction

9:42 pm in Uncategorized by letsgetitdone

This is an introduction to a series of 16 posts I wrote in reply to a number of posts by John Carney at the CNBC blog and Cullen Roche at Pragmatic Capitalism, and comments replying to them. The posts by Carney and Roche criticized the MMT Job Guarantee (JG) proposal. They did so by calling into question whether the JG would be effective in achieving Full Employment (FE) and Price Stability (PS), and also by calling into question the MMT goals of “Public Purpose”, and “FE with a living wage” as appropriate. The critics proposed that “Full Productivity” (FP) and PS be goals of MMT, and that “prosperity” be the higher level goal. They also proposed that MMT concentrate on description and avoid policy prescriptions, and that it deal only with “facts” and not with “theory.”

The first 13 posts in this series refute these proposals, and also discuss the question of the appropriate hourly rate for the JG program. They also discuss various fallacies of composition inherent in many of the objections made to the MMT JG program, the issue of whether an FE or an unemployed “buffer stock” is more in line with public purpose, and also the issue of whether it’s possible to deal only with “facts” and not with “theories.” In the 14th post, I introduce the idea of the MMT Knowledge Claim Network (KCN) consisting of Social/Value Gaps, Knowledge Gaps (problems), Descriptive Knowledge Claims, Prescriptions, and Narratives. I also argue that the MMT KCN is a fused fact-value network with important value commitments, that it was developed holistically by its originators. that it is not focused on descriptive aspects of economics alone, that it offers explicit value claims, and that it’s normative aspect is clear.

I also argue that many of its practitioners, offer policy prescriptions rather than simply concentrating on the way the world is right now. I note further that the social/value gap, problems, and prescriptive aspects of the MMT KCN are progressive and Second New Deal oriented, and that is why many people who are persuaded by parts of the descriptive aspect of MMT want to do what they can to place these aspects into a secondary role and drive them out of the KCN altogether.

In the 15th post, I offer my view of the current components of MMT in its five categories of knowledge claims as preparation for the concluding 16th post in the series, which answers the questions I posed at the beginning of the series; namely:

– What is part of the MMT core right now? and

– how ought we to change it in the future?

Since I finished the series, its importance as a resource was underlined by new posts from Cullen Roche and Mike Sankowski (Trader’s Crucible), and by Cullen’s revision of his earlier paper on MMT which is now an introduction to a new approach called “Monetary Realism.” Here’s Cullen on MMT and MR.

”As many of you now know, the divide within some of the MMT thinkers has grown fairly substantial. The schism over the Job Guarantee revealed several points of disagreement that lead to vastly different conclusions than those espoused by the primary MMT thinkers. Several commenters and vocal proponents of MMT have made it clear that my positions are not those of the MMT economists and founders and are in fact something different. I won’t do the developers of MMT the disservice of pretending that my ideas are completely in-line with theirs. That would only serve to confuse those learning MMT and could undermine the efforts of the MMT developers.

I feel that the core operational aspects of MMT are among the most important ideas in the world and my goal here has always been to help promote those ideas. Because I believe in those ideas I will not stop promoting them. So I’ve been working with Michael Sankowski, Carlos Mucha (who most of you probably know as reader Beowulf) and several others to help formulate our thinking. I’ve also been in detailed talks with Warren Mosler over the last several weeks hashing out some differences. It’s safe to say that we have his blessing even though he’s not 100% in agreement with all we’ve concluded.”

I’m not sure I agree with the claim that Cullen, Mike, and Carlos have “Warren’s blessing” beyond his wishing them luck in pursuing their orientation, which I also have done. Certainly, Part Seven of my series doesn’t indicate to me that they have his blessing in the normal sense of this term, and I also think that no group that departs from the core value of “public purpose” as the goal of Government economic policy would ever have his full blessing.

”Importantly, I want to be clear that I do not view Monetary Realism as a competing idea to MMT. Rather, it is merely the form of Mosler Monetary Theory that I wish to promote (without confusing readers into thinking that I am promoting the exact MMT ideas and prescriptions). After all, Warren is still the father of the theory and it’s incredibly important to note that he is, by far, the most influential thinker in this offshoot of MMT. If anything, I hope that by focusing on the operational realities of MMT via Monetary Realism that I will bring even greater credibility to MMT and its operational realities. The fact that we have differences regarding prescriptive uses, in my opinion, gives the idea even greater credibility. But in the end, it should be clear who gets the credit for these ideas – Warren and the other developers. Monetary Realism is merely standing on their shoulders.”

And Cullen also goes on to state that he has revised his introduction to MMT, so that it is now an introduction to MR. In that paper, he also has added “innovation” and “growth” to the goal structure of MR, and also stated that: “The core value of Monetary Reality is transparency of the global monetary system.” He also states that a new web site is being created to promote MR. Two posts have also appeared at the Trader’s Crucible web site here and here, announcing the new development.

My take on MR is that even though it tries to minimize the differences between MMT and its “offshoot,” these are at the core of the two systems and that if they were not there would be no MR. If MR proponents still accepted ‘public purpose” as the highest level goal in their KCN, and had not replaced it with “prosperity,” if they had not replaced FE with FP as a key second-level goal, then there would have been no split.

The replacement of FE as a goal indicates that MR doesn’t consider a job at a living wage as a right of every individual. That is a huge difference between the two approaches that cannot be minimized, as the MR adherents are trying to do.

Beyond these explicit differences there is the further implicit difference that the MMT commitments to public purpose and to FE are commitments to greater equality in American and global society. The abandonment of FE and the JG suggest that the MR proponents are much less concerned about social and economic justice than are the MMT founders and others who practice the MMT approach. In a time when democracy is threatened by plutocracy throughout the world, that difference between the two approaches is fundamental and will shape their future development.

In the future, I’ll try to clarify further the differences between MMT and MR and illuminate some of the foundational problems of MR that are already apparent.

The various posts in the series have been previously published on this blog. In addition, the series is available in blog book form with convenient sequential links among the various parts of the series.