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Hey Patriotic Billionaires, You Can Do Better Than the Buffett Rule, Anyway!

7:05 am in Uncategorized by letsgetitdone

Well, the legislation implementing “The Buffett Rule” has been voted down in Congress as we all knew it would be. But so what? The Federal Government doesn’t really need your money, since it can generate all the money it needs to pay off the national debt and also close any gap between tax revenues and Federal spending that Congress may want to legislate for the foreseeable future.

There’s no problem of Federal solvency. There hasn’t been since 1971, when the US went off the Gold Standard! The idea that we risk insolvency is just a fantasy of people who won’t acknowledge that the US Government is the monopoly supplier of fiat currency to the non-Government sector of the economy, including all of the private sector.

However, even though your money isn’t needed by the Government, it is very badly needed to help fund two things, I’ll describe below. But, before I do that, since your patriotism has moved you to advocate for higher taxes for yourselves, I hope and expect that you will be motivated to spend the same amount in the two areas of activity where your money is most needed and would be much more effective in bringing the United States back to the state of a healthy democracy, than it would be if you and and other similarly situated patriots paid it to the Government in taxes.

I know you’ve frequently heard the Republican response to your proposals for higher taxes on very wealthy people like yourselves, namely that if you’re so sure that higher taxes on the very wealthy are the right thing to do, then you can always contribute the additional money to the government, if you really want to. Well, my view is that you can equally well, and with much greater effect on restoring fair and effective functioning to our democracy, contribute that money directly to activities that will change key background conditions that are driving our democracy towards plutocracy right now. Here are the two areas of activity.

Countering Economic Myths Standing In the Way of Change By Spreading the Economic Approach Called Modern Monetary Theory (MMT)

The old neo-liberal economic ideology neither explains nor predicts events or outcomes in the economy. Its failures are routine and legion. They are now to be expected, and one of neo-liberalisms greatest failures is its theories about what “fiscal sustainability” and “fiscal responsibility” mean. For neo-liberalism, fiscal sustainability is a budget that is not too deeply in deficit, a public debt-to-GDP ratio that is stable over time, and a gap between the projected revenues and expenditures of the National Government that is closing. Fiscal responsibility, on the other hand is legislating budgets that provide for fiscal sustainability.

These ideas however, assume that National Governments are necessarily constrained by their debt-to-GDP ratios, absolute levels of public debt, whether or not the projected gap between revenues and spending is closing over time, whether or not they can borrow back their own currency from the private sector, and, ultimately by their need to fund spending by either taxing or borrowing to avoid becoming insolvent. These assumptions however, are flat-out wrong when one is talking about a government with its own non-convertible fiat currency, a floating exchange rate, and no debts in a currency it can’t create.

That kind of Government isn’t limited by its ability to tax or borrow. It has the constitutional and legal authority to create whatever money it needs, and since it does “fiscal sustainability” and “fiscal responsibility” mean different things for that sort of Government than for a Government that’s on the gold standard, or is subject to some other currency standard it doesn’t control.

”Fiscal sustainability” is the extent to which patterns of Government spending do not undermine the capability of the Government to continue to spend to achieve its public purposes. “Fiscal responsibility” is fiscal policy intended to achieve public purposes while also maintaining or increasing fiscal sustainability.

So, the REAL Government fiscal responsibility problem for the United States, or other nations with sovereign fiat currency systems is not the problem of everyone “sucking it up” and responsibly accepting austerity. It is not targeting the debt-to-GDP ratio and managing Government spending to try to stabilize it.

Instead, for the US, it is the problem of people facing up to the need to use fiscal policy to stop our out of control economy from ruining the lives of any more Americans. This means that the REAL solution to the REAL fiscal responsibility problem is for Congress and the Executive Branch, to remove fiscal constraints and use the fiscal powers of the Government to fund solutions to the many national problems we face, starting with creating full employment, and a real universal health care system in which no one is shut out, or forced into foreclosure or bankruptcy by medical bills, and then moving on to all the other serious problems we face, but now will not handle because all our mainstream politicians and media voices claim a non-existent fiscal incapacity of the Federal Government.

But, there is no incapacity! We have not run out of money! We have only run out of will and courage and new ideas about economics! We need to get those back, and do what must be done to reclaim the future. But before we can get to that we need to get beyond neo-liberalism and its views on fiscal sustainability and fiscal responsibility because the dominance of these views in our political system means that every discussion about what we can do to solve our problems begins and ends with the question of whether we have the money to implement the solution, and, if not, how are we going to pay for it?

That question and its answer with reference to neo-liberal ideas about fiscal sustainability and fiscal responsibility limits and constrains the policy options we consider. It is a lens through which we see the world of policy options, and it is a lens that forces us to look at the world through a glass darkly. We need to replace that lens because it prevents us from seeing the world as it really is, and acting upon our real options.

So, we need to teach people what fiscal sustainability and responsibility mean for a 21st century America with a sovereign fiat currency. Millions of people are going to have to learn the point of view and basic ideas of the economic approach called Modern Monetary Theory (MMT), and more broadly the more general outlook of Post-Keynesian Economics (PKE). Once they learn these ideas, they then will be a position to give up on the austerity programs being advocated both by the Romney candidacy and the Obama Administration. This is critical because unless we abandon austerity and the neo-liberal view of the need for long-term deficit reduction to achieve their notions of fiscal sustainability/responsibility, we’re sure to slip into another recession or depression, that will probably be even deeper than the one we’ve been slowly recovering from.

Don’t believe me? Look at what’s happening all over Europe. Governments tightening up, trying for austerity-led growth, and what’s the result? Collapsing economies, ruined lives, civil unrest, increasing emigration from nations mired in poverty, and the spectre of threats to democracy. In the US, Canada, Australia, and New Zealand, the economies aren’t in a total funk, but the retreat from short-lived fiscal stimulus and increasing emphasis on the fairy story of “fiscal sustainability” is resulting in flat or only very slowly recovering economies, still far away from full employment. In Japan, in spite of continuing near-zero interest rates, passive fiscal policy continues to result in a long-term “balance sheet” recession.

In short, the continuing failure of neo-liberal economic policy all over the globe, is telling us that the world as well as the United States has to change course. That change is to move to post-Keynesian economics and specifically to the MMT approach, because policies based on that approach are most likely to restore full employment and sustainable economies operating at full capacity.

However, a major barrier to the spread of MMT is funding comparable to that available to think tanks, policy advocacy organizations, research institutes, and university centers devoted to the neoliberal approach to economics. But there are only a handful of university research centers heavily involved in MMT work; not a single policy advocacy organization, no think tanks, and no non-university research institutes. There are also very few conferences devoted to spreading the MMT approach.

So, patriotic billionaires, I think this is one area where the money you won’t pay in taxes can do much more for the United States than if it had been paid in taxes. Part of it can fund the network of think tanks, policy advocacy organizations, research institutes, and university centers needed to support MMT economics in its challenge to failed neo-liberalism. With that funding we can greatly speed up the process of economic and political paradigm change, and we can avoid the worst of the neo-liberal failures that otherwise are very likely to come over the next decade. Use your patriotism here! Help spread ideas about economics that can give the 99% a share and that can help move the US away from plutocracy and back towards democracy and open society. I know you value democracy and think it has an economic and social justice aspect to it. Otherwise, why would you have supported the idea of higher taxes for yourselves in the first place?

So, here, here, here, here, and here are the web sites that are at the heart of the MMT movement. They’re the place to start if you want to learn more about it and to contact people who can help you to plan the MMT network needed to change economic thinking in the United States and around the world.

The MMT support effort may require in the neighborhood of $500 million of support annually because the entrenched neo-liberal paradigm that MMT has to overturn is supported by literally billions of dollars annually. This funding is not trivial. But, along with the second area I’ll discuss just below it will change everything in American politics and make us capable of becoming a nation that can solve its problems in a way that serves both freedom and equality of opportunity: the two main values that are the reason for being of our nation.

A Meta-layer for Restoring Democracy and Open Society

(Parts of this section were written with the help of my friend Henk Hadders)

The second area in which the patriotic billionaires can have the most impact in revitalizing democracy in the United States is in funding a meta-layer for restoring democracy and open society in the form of bottom-up e-participation platforms that enable people to self-organize at little or no cost into extremely large voting blocs and political coalitions around political agendas and then to monitor, evaluate, and hold office holders accountable to these agendas, while neutralizing the influence of big money on politics. Efforts to create such platforms and some existing platforms don’t envision or provide the functions necessary to create such a meta-layer and some of them also fall short because they’re aimed at mobilizing people in the service of specific policies in a top-down fashion.

They don’t provide an environment for letting voting blocs self-organize as much as they provide one for supporting a pre-conceived voting bloc being created to support a particular kind of agenda and particular kinds of candidates. Other e-participation platforms may be bottom-up oriented, but the business plans of their creators include anticipated revenue from selling data and information to all comers including groups representing existing political parties and other interests representing oligarchical elites for their use in astro-turfing the users of these platforms for purposes of the oligarchy. To help in understanding what’s at issue in creating the right kind of e-participation platform, here’s some background on the context and requirements for the kind of platform we need to strengthen and restore American democracy.

The movement toward oligarchy in human-based systems happens because powerful people and institutions don’t like continuous bottom-up self-organization, and the appearance of new ideas, ideologies, and power structures that come along with it. So, they intervene to stop or regulate it, and, in doing so, destroy the essence of democracy; the ability of people to always organize anew and disturb and even displace the policies, power structures, elites, and institutions of the past with new ones, more adaptive in solving the problems of the present and future.

That is what is happening in the world and in the United States today. A globalizing corporate and financial multi-national elite has emerged, and in nation after nation is nullifying the will of the majority and placing national governments, even formally democratic ones under its control.

The task of any Complex Adaptive System (CAS), like the United States, is to maintain itself at “the edge of chaos.” This is difficult enough in the face of environmental influences that tend to transition CASs either to chaotic dynamics, or to closed systems inexorably driven toward a sterile mechanical equilibrium. It is even more difficult in the context of continuing political or management interventions that frequently may amplify the strength of tendencies toward one extreme or another by changing the internal environment affecting self-organization. management, leadership, and politics.

In nations that want to maintain open democratic societies, the task is about implementing policies and programs that will support self-organization in distributed knowledge processing and problem-solving by maintaining openness in problem recognition, developing alternative solutions, and error elimination, as well as openness in communicating and diffusing new solutions across the enterprise or across society. Conversely leadership, management, and politics in such systems that undermines self-organization by repressing or otherwise manipulating it, will transition human CASs away from openness and democracy, and towards extreme conflict systems, or authoritarian or totalitarian oligarchies.

But that’s exactly what is not happening in the United States today. Instead, we see very well-funded political parties and corporate and financial front groups astro-turfing anger and rage into channels acceptable to the elites doing the funding. It’s all “top-down,” with funding coming from an oligarchy. This isn’t just what’s happening with the tea party. We see it throughout politics with front groups of all kinds trying to mobilize discontent into petitions, protest demonstrations and organizations whose program and policy advocacy is formulated from the top-down with input from elite major contributors.

The elites decide which policy proposals and agendas are beneficial to, or at least okay with, them. The organizations representing their interests are expert at using idealistic slogans and rhetoric to get support for proposals that do very little to solve the problems they call out.

Ever notice the hyperbole in e-mail appeals for contributions coming across your computer screen these days? Ever notice the disconnect between that hyperbole and what you’re being asked to support or the contribution you’re being asked to make?

We’re being told that if x or y or z occurs then the results will be catastrophic. But what we’re often being asked to do will either not stop x, or y, or z or some slight variation of these things from occurring, or even if what we’re being asked to support would be effective by itself, it would do nothing to solve the underlying problem that is really responsible for the proposals we’re seeing and are being asked to support or oppose. It’s as though the elite is keeping millions busy with trivia so that they can’t organize a comprehensive effort to break the emergent oligarchy that is originating a steady stream of attacks on the public interest.

So, for democratic societies today, including the United States, an important question hangs in the balance. How can we counter tendencies toward oligarchy in our democracies by restoring self-organization and distributed knowledge processing to their proper place in reinforcing open society, democracy, and adaptiveness to environmental and societal change?

Many are looking to web-based e-participation platform innovations to provide an answer to this question. But if e-participation is to serve that purpose, rather than the purpose of elite astro-turfing, and manufacturing consent within a totalitarian oligarchy, then e-participation platforms have to fulfill certain requirements. We won’t be able to stop the movement toward oligarchy unless we can create a new institutional framework that allows us to change those aspects of our present situation supporting oligarchy and undermining open society. We need a framework that will operate within the context of existing rules and laws to create changes supporting increased self-organization and distributed knowledge processing shifting our formally democratic CAS back towards an open state.

The new institutional framework must provide a meta-layer of political interaction and networking that places new ecological constraints on the current political system, driving it back towards a condition in which the ability of individuals to both arrive at more accurate constructions of reality, and act on them, through increased self-organization and distributed knowledge processing, is dominant. The meta-layer can be provided by a web-based platform eventually incorporating most of the eligible voters in a political system, and providing capabilities for political organization that can overcome the impact of big money and media on political parties, legislators, legislatures, and politics generally.

Here are the requirements for such a framework. It must provide or enable:

– social contexts and milieus within which people can organize themselves and others around public policy agendas, comprised of policy options and policy priorities, into voting blocs and electoral coalitions ranging from very small to blocs of millions of voters without needing sizable financial resources from sources external to these social milieus, and without being subject to external mass media communications influenced by financial oligarchs and other special interests;

– social contexts and milieus offering the possibility of informal group and social network formation around these policy agendas;

– social contexts and milieus that are transparent and inclusive in providing participants with previously developed data, information, and knowledge, and in allowing them freedom to participate in communicating, organizing, collaborating, critically evaluating, problem solving, and decision making within voting blocs and electoral coalitions;

– social contexts and milieus in which participants have a modicum of trust in other participants and the highest level of trust in the neutrality of the web-based platform, its administrators and management, in: 1) maintaining the absolute privacy of information about individuals gathered in the context of the platform, except for information necessary to allow participants to contact and communicate with one another to form voting blocs and electoral coalitions and information individuals choose to disclose themselves in accordance with rules existing in voting blocs they choose to join; and 2) supporting all voting blocs wanting to self-organize, grow, and create electoral coalitions with other voting blocs.

– participants and voting blocs to communicate their policy agendas to candidates for public office and office holders, and also securing either commitments to these agendas, or clear refusals to support them;

– participants and voting blocs to continuously monitor and rate performance of office holders against agendas and to decide whether to continue to support them after performance ratings are arrived at;

– tools for voting blocs and electoral coalitions to organize efforts to get both major party and third party candidates and initiatives onto ballots, and to get people to the polls to vote. Simply, it must provide tools to enable voting blocs to do all the things political parties now do to support candidates they want to elect and ballot initiatives they want to pass.

In short, the new institutional framework must provide an alternative network of social and political relations to the contemporary world of political parties, established interest groups, and astro-turfing organizations. This alternative world must embody the key attributes of open society, which means it must provide an informal communications and knowledge network that is very much independent of the mass media, and also capable of enabling creating highly cohesive voting blocs and electoral coalitions of many millions of people, and even new political parties, which can offer decisive support to candidates and office holders in return for their continuing support of voting bloc agendas. The alternative world will then work as a meta-layer constraining the prior political world, and preventing it from concentrating power in oligarchies, by subjecting them and their representatives to continuous self-organization, critical evaluation, new emergent candidates for office independent of the oligarchy, and a cultural background of new knowledge arising from distributed knowledge processing.

Aristotle pointed out that monarchies were subject to transformation to tyrannies, aristocracies to oligarchies, and constitutional governments to democracies (mob rule). He had no way of knowing that such transformations may have something to do with whether the processes of self-organization decay to such a degree that lack of adaptive success in each of these systems drives their transformation to their perverted forms.

He also had no way of envisioning the need for modern constitutional liberal democracies to continuously renew themselves with new distributed ‘wicked’ problem-solving capabilities and accountability mechanisms that can only be produced through openness and self-organization supported through modern IT web-based e-participation platforms. These platforms can provide a meta-layer of new knowledge, cultural norms, and self-organization, for democratic political systems, unconstrained by and not open to, manipulation by emergent globalizing elites.

Without these new e-participation platforms, and the continuous self-organization they will bring, the iron law of oligarchy will continue to dominate representative democracies, and they will travel further along the real road to serfdom. With them, we can create the meta-layer necessary to strengthen self-organization into voting blocs, electoral coalitions, and web-based social networks in such a way, that new policy solutions can be continuously introduced, along with new mechanisms of accountability. That meta-layer can ensure that policy elites either become representative, or are quickly replaced by new officeholders who won’t rely on the financial and organizational resources now co-opting self-organizing movements, the heart and soul modern democracies. With it we can repeal the Iron Law!

So, the second area in which funding from patriotic billionaires is needed is in getting the right kind of e-participation platform working as quickly as possible. The amount of funding needed is much less than in the area of supporting the new MMT approach. Rather than $500 million annually to set-up and maintain a powerful network supporting economic paradigm change; e-platforms enabling creating the meta-layer for revitalizing democracy would take about $5 million to get off the ground, if done right, and might well be self-supporting during the second year of their operation.

Funding in this area won’t require nearly as much of a commitment from patriotic billionaires as paying higher taxes would. But the returns from this funding would be way out of proportion to the size of the investment, since it could well mean the survival of American democracy itself. A very good place to find out about some of the things going on in e-participation, and some available tools is Demo-net. Another with some interesting perspectives and tools is here. In addition, elsewhere, Henk Hadders and I have discussed an e-participation platform under development — a case study fulfilling the meta-layer requirements I laid out earlier. The platform is called the Interactive Voter Choice System (IVCS) and is based on a US patent.

(Time for Full Disclosure: I’m part of a community of MMT bloggers attempting to educate people about the MMT approach, but I’m not a regular contributor at any of the cites mentioned above. Nor do I receive any support from any of the universities or MMT research centers I’ve linked to.

I blog in the e-participation area too, and have written a good deal about IVCS. I’m also part of a team of advisors, all volunteers, helping Nancy Bordier, the inventor of IVCS, to implement the platform. I am not an employee of IVCS however, nor do I sit on the Board of Directors of any entities associated with it.)

Conclusion

I know, I know, there’s one big and obvious issue I’ve yet to consider. Here I am calling for patriotic billionaires who’ve been advocating for paying higher taxes themselves, to spend a sizable proportion of what they would have been willing to pay, on two things that I think are important: educating people about MMT, and implementing an e-participation web-based platform enabling a meta-layer for revitalizing democracy in the United States and eventually everywhere. But, the truth is, there are so many worthwhile things the patriotic billionaires could do with that money, and may already be planning to do with it. So, what makes me think that these two activities are so important that they are the two out of many worthwhile activities that should be supported at the levels I’ve suggested?

I think it comes down to a question of leverage. Replacing neo-liberalism with MMT and overturning the iron law of oligarchy by creating a meta-layer for revitalizing democracy are the two most important things we can do to create the America of our dreams.

The first will allow us to formulate fiscal policies that can produce full employment, sustainable growth, and reduce economic inequality. The second will allow people to make their elected representatives accountable to them, rather than the oligarchs, once again. The two together will allow us to fix the long list of problems that still remain unsolved because solving them isn’t in the interest of the oligarchy. That’s why these two are the critical things we need to get done, and are also the best use of the funds the patriotic billionaires were willing to give up to the tax man. Hopefully, they’ll agree with this analysis, and help make an MMT network of organizations, and a meta-layer for strengthening democracy both vibrant realities over the next year.

(Cross-posted from Correntewire.com)

Once Again, the National Debt Is Congress’s Fault

6:38 pm in Uncategorized by letsgetitdone

(Author’s note: I’ve offered this idea a couple of times over the past few months here, with surprisingly little reaction. I’m trying once again, because I’m persuaded that much of the leverage that conservatives and Republicans have over our fate is due to the belief that most people hold that federal deficits, the national debt, and the GDP ratio are important, and that we must bring them under control to avoid Government insolvency. In addition every one seems to believe that the existence of the debt is due the to the profligacy of the Government, its monumental waste, and the lack of courage of its politicians who spend too freely to please constituents, gain campaign contributions, and help themselves to stay in office. None of this is true. The current existence of the National Debt, and also of a non-zero public debt-to-GDP ratio is the inevitable result of a technical decision that Congress has made about how the Treasury should finance its spending. This post talks about that decision, points out that its consequence is the National Debt, and also points out that the very existence of the National Debt is the fault of Congress.)

It is Congress’s fault that we have a national debt at this point in our history. And also Congress can largely get rid of this debt over a 10 year period any time it wants to.

The national debt exists today because when the nation went off the Gold Standard in 1971 and adopted its fiat currency system, Congress did not repeal its mandate, very appropriate when our currency was convertible to Gold on demand, in least in theory, requiring that the Government back all its deficit spending with already existing borrowed dollars whose convertibility was covered by our holdings of Gold. This Congressional mandate to borrow funds by issuing debt instruments when the Government deficit spends, is what has caused the national debt to persist.

Had Congress repealed it when President Nixon took the country off the Gold Standard, and had we ceased to issue debt at that time, then the Government would have re-paid all of our 1971 debts as they came due, and our national debt today would be zero and our debt-to-GDP would now be at 0%.

The Congressional mandate to issue debt when the Government deficit spends has no useful function today, and the interest income it provides for mostly wealthy investors and foreign Governments who buy Treasury Securities is simply a form of welfare for the rich. In fact, it is welfare that will cost the Treasury almost $12 Trillion over the next 15 years if we continue the policy of issuing debt instruments.

Any positive effects this policy produces are vastly outweighed by the bad effects of having to cope politically and economically with the concerns of people who believe that the increases in the debt, and the debt-to-GDP ratio give us a fiscal sustainability problem whose priority outweighs everything else. Even though the national debt has no effect on national solvency; it is a political problem. It magnifies the political strength of conservatives and weakens progressives because it makes people afraid to deficit spend since then the country will be “going into debt.”

Congress needs to repeal the mandate forcing the Government to issue debt instruments on a dollar for dollar basis with deficit spending, right now. If it does so it will:

– cease to provide welfare payments in the many Trillions of Dollars over the next 15 years mainly for the rich and foreign nations,
– gradually pay off the $14 plus Trillion Federal debt entirely,
– have rapidly decreasing Federal interest costs over the next decade until they entirely disappear,
– have no further need to take difficult votes about increasing the Federal debt limit,
– have no further need to worry about borrowing money from the Chinese, or the oil rich states, or the Japanese, that our grandchildren will one day have to re-pay,
– have no further need to worry about what the bond markets think or are going to do, or
– to worry about our debt or deficit spending being “fiscally unsustainable” when we want the Government to spend money to sustain the unemployed, help us end unemployment altogether, provide a more generous Social Security system for aging Americans rather than cutting the inadequate benefits we have now, fulfill American needs for new infrastructure, develop a re-invented first class educational system, and provide Medicare for All, among our other needs.

If Congress refuses to remove its requirement to issue debt, when it can easily do so at any time, then it’s habitual complaints about its size should cease at once and no longer pollute our political debates.

My earlier posts on this subject were met with anticipated responses claiming that ceasing debt issuance would inevitably lead to inflation because of the increase in the money supply caused by merely “printing money.” People who believe this, do so because they think that dollar for dollar debt issuance associated with deficit spending removes as much currency from the non-Government sector as the Government spends, and because of this damps down any inflation that may result from the Government spending.

This reasoning is faulty on two counts. First, increases in the money supply caused by Government spending do not result in demand-pull inflation until the point of full employment is reached because the increased demand produced by the Government is met by the private sector with supply increases rather than price increases. We have known that since Keynes. A very good recent account of the consequences of just creating money through deficit spending unaccompanied by debt issuance is this post by Professor Bill Mitchell. Yet another is this very good one by Professor Scott Fullwiler.

In addition, Professor Stephanie Kelton, shows that while Government debt issuance may transfer money back to the Government, it still leaves a net financial asset in the private sector, specifically, the Government debt instrument. As Scott Fullwiler points out in a comment on Stephanie Kelton’s post, it is highly debatable that the net addition of a debt instrument to the private sector is less inflationary than just leaving additional cash would have been, and very likely that the debt instrument is actually more inflationary because 1) one can get more financial leverage from it than one can get from money, and 2) it adds more interest to the private sector than a cash deposit would.

The United States has many very real problems which it can help to address with Government programs. The deficit spending required to solve our problems shouldn’t be constrained by the non-existent problem of that national debt, or the fantasy of stabilizing a debt-to-GDP ratio that also represents a non-existent problem, or the misguided notion that the issuance of debt makes deficit spending less inflationary than it otherwise would be. To make sure that deficit spending is not so constrained, Congress needs to repeal its debt issuance mandate now before the American people learn the truth that Congress, itself, is responsible for all the angst we hear about the deficit, the debt, and the debt-to-GDP ratio.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

The National Debt Is Congress’s Fault! Redux

11:10 am in Uncategorized by letsgetitdone

The national debt exists today because when the nation went off the Gold Standard in 1971 and adopted its present non-convertible fiat currency system, Congress did not repeal its mandate requiring that the Government back all its deficit spending with already existing borrowed dollars whose convertibility was covered by our holdings of Gold. This Congressional mandate to borrow funds by issuing debt instruments, has caused the national debt to persist. Had Congress repealed it when President Nixon took the country off the Gold Standard, and had we ceased to issue debt at that time, then the Government would have re-paid all of our 1971 debts as they came due, and our national debt today, as well as our debt-to-GDP would both now be at Zero. So, the existence of the National Debt today is Congress’s fault! Read the rest of this entry →

The National Debt Is Congress’s Fault!

6:07 pm in Uncategorized by letsgetitdone

I’m sick and tired of hearing progressive icons like Bernie Sanders, Keith Olbermann, Ed Schultz, and many, many others, talking about the evil of leaving an enormous national debt, now at $13 Trillion plus to our Grandchildren. And I’m especially tired of hearing Congresspeople and Senators complaining about this. The reason why I’m tried of hearing it is that it is Congress’s fault that we have a national debt at this point in our history. And also Congress can largely get rid of this debt over a 10 year period any time it wants to.

The national debt exists today because when the nation went off the Gold Standard in 1971 and adopted its fiat currency system, Congress did not repeal its mandate, very appropriate when our currency was convertible to Gold on demand, in least in theory, requiring that the Government back all its deficit spending with already existing borrowed dollars whose convertibility was covered by our holdings of Gold. This Congressional mandate to borrow funds by issuing debt instruments, is what has caused the national debt to persist. Had Congress repealed it when President Nixon took the country off the Gold Standard, and had we ceased to issue debt at that time, then the Government would have re-paid all of our 1971 debts as they came due, and our national debt today would be zero and our debt-to-GDP would now be at 0%.

The Congressional mandate to issue debt when the Government deficit spends has no useful function today, and the interest income it provides for mostly wealthy investors and foreign Governments who buy Treasury Securities is simply a form of welfare for the rich. Any positive effects it produces are vastly outweighed by the bad effects of having to cope politically and economically with the concerns of people who believe that the increases in the debt, and the debt-to-GDP ratio give us a fiscal sustainability problem whose priority outweighs everything else. The national debt is a political problem. It magnifies the political strength of conservatives and weakens progressives because it makes people afraid to deficit spend since then the country will be “going into debt.”

Congress needs to repeal the mandate forcing the Government to issue debt instruments on a dollar for dollar basis with deficit spending, right now. If it does so it will:

– cease to provide welfare payments mainly for the rich and foreign nations,
– gradually pay off the $13 plus Trillion Federal debt entirely,
– have rapidly decreasing Federal interest costs over the next decade until they entirely disappear,
– have no further need to take difficult votes about increasing the Federal debt limit,
– have no further need to worry about borrowing money from the Chinese, or the oil rich states, or the Japanese, that our grandchildren will one day have to re-pay,
– have no further need to worry about what the bond markets think or are going to do, or
– to worry about our debt or deficit spending being “fiscally unsustainable” when we want the Government to spend money to sustain the unemployed, help us end unemployment altogether, fulfill American needs for new infrastructure, develop a re-invented first class educational system, and provide Medicare for All, among our other needs.

If Congress refuses to remove its requirement to issue debt, when it can easily do so at any time, then it’s habitual complaints about its size should cease at once and no longer pollute our political debates. The United States has many very real problems which it can help to address with Government programs. The deficit spending required to solve our problems shouldn’t be constrained by the non-existent problem of that national debt, or the fantasy of stabilizing a debt-to-GDP ratio that also represents a non-existent problem. To make sure that it’s not, Congress needs to repeal its debt issuance mandate now before the American people learn the truth that Congress, itself, is responsible for all the angst we hear about the deficit, the debt, and the debt-to-GDP ratio.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

Congressional Progressives: Make ‘Em End Debt Issuance!

8:37 pm in Uncategorized by letsgetitdone

There’s a flood of reaction out there among Progressives and other Democrats criticizing the recent “tax deal” on grounds that President Obama was rolled again and got far too little for his agreement to extend the Bush Tax Cuts for the wealthy, and agree to Estate tax rates of 35%. I share that opinion. But since a) the Democrats have steadfastly refused to use the constitutional option to get rid of the filibuster, b) the Republicans in the Senate will certainly prevent any legislation from being passed this month without a tax cut deal, and c) the unlikelihood that a Republican House will pass an extension of the middle class tax cuts without also passing the tax cuts for the wealthy, the Democrats still need a deal this month if they want to get unemployment insurance extended and other legislation passed.

So what should they to do? Well, for starters, the House and Senate Democrats could send the Republicans and the President back to the negotiating table with some instructions about what else they want in order to make a deal. The most important price they can make them pay in return for the tax cuts for the wealthy they want so much is an end to debt issuance. Why is an end to debt issuance so important? Here’s why?

Almost everyone, in talking about our so-called fiscal crisis, says that the Government can only fund its spending by either taxing to raise revenue or borrowing to fund deficit spending, and that if too much is borrowed too fast, so that the debt-to-GDP ratio grows too rapidly, this will result in the bond markets losing confidence in the Government’s ability to repay its debt, which, in turn, will cause these markets to demand higher interest rates on Treasury Securities, increasing the cost of interest on the debt over time, until, eventually, the interest payments on Federal Debt are so high that they squeeze out other Federal expenditures and programs leave no space for spending we need to do to solve vital problems.

The concern about the bond markets and the pressure on the dollar they can bring to bear is so great that some think that President Obama’s primary reason for creating the National Commission on Fiscal Responsibility and Reform was to try to get a long-term deficit reduction plan through Congress in order to convince them that the United States is serious about bringing its debt problems under control.

There are many things wrong with this reasoning I’ve just laid out about deficits, debts, and the bond markets, and in past months I’ve blogged about its various flaws. But let’s put that aside for this post. Let’s assume that the narrative is correct. If so, then the problem of rising interest costs is caused not simply by deficit spending, but by our need to borrow “to fund it.”

If we didn’t need to do that anymore, then we’d be able to avoid increasing the national debt, and the debt-to-GDP ratio, we wouldn’t have to raise the debt limit, and, eventually, there’d be no Federal Debt and no interest costs at all, since we’d be gradually paying down the Federal debt as it came due. And soon people would stop talking about the debts we are leaving to our grandchildren, and the money we are borrowing from China and others “whose values are not our own.” By 2025, the date when current projections suggest that our debt-to-GDP ratio will reach 120%, we’d actually have a debt-to-GDP ratio of nearly zero, because we’d have nearly paid off the national debt.

So, the simplest and most direct solution to the so-called “fiscal crisis” is simply not to issue any more debt when the Federal Government deficit spends. Why can’t the Government do that now? The answer is that when the nation went off the Gold Standard in 1971 and adopted its fiat currency system, Congress didn’t repeal its mandate, very appropriate when our currency was convertible to Gold on demand, in least in theory, requiring that the Government back all its deficit spending with already existing borrowed dollars whose convertibility was covered by our holdings of Gold.

The mandate to borrow funds, however, has no useful function today, and the interest income it provides for mostly wealthy investors and foreign Governments who buy Treasury Securities is simply a form of welfare for the rich. Any positive effects it produces are vastly outweighed by the bad effects of having to cope politically and economically with the concerns of people who believe that the increases in the debt, and the debt-to-GDP ratio give us a fiscal sustainability problem whose priority outweighs everything else. So, let’s make the “hysterical” deficit hawks like Alan Simpson and Erskine Bowles, and occasionally, the President, and the “responsible” doves like Paul Krugman, Brad DeLong, Jeff Madrick, and occasionally, the President, happy and remove all their debt, and debt ratio worries with the following solution. Why even Ed Schultz would have to stop talking about the need for “sacrifice” so that we can avoid borrowing hundreds of Billions from the Chinese in order to “finance” the “tax cuts for the rich.”

Congress: repeal the mandate forcing the Government to issue debt instruments on a dollar for dollar basis with deficit spending. The mandate has no useful function now, other than to provide welfare for the rich and foreign nations, which isn’t useful for most of us. If Progressives can make a deal including repeal of the mandate, on the other hand, Congress will:

– cease to provide that welfare,
– gradually pay off the $13.8 Trillion Federal debt entirely,
– have rapidly decreasing Federal interest costs over the next decade until they entirely disappear,
– have no further need to take difficult votes about increasing the Federal debt limit,
– have no further need to worry about borrowing money from the Chinese, or the oil rich states, or the Japanese, that our grandchildren will one day have to re-pay,
– have no further need to worry about what the bond markets think or are going to do, or
– to worry about our debt or deficit spending being “fiscally unsustainable” when we want the Government to spend money to sustain the unemployed, help us end unemployment altogether, fulfill American needs for new infrastructure, develop a re-invented first class educational system, and provide Medicare for All, among our other needs.

C’mon Progressives, if you can get this repeal measure into the tax deal, you can solve the fiscal responsibility and reform/fiscal sustainability problem very, very easily, and also quit having to worry about those difficult votes on increasing the debt limit. All you have to do is get rid of that mandate to issue debt, and the whole political/economic mess these deficit reduction Commissions and interest groups are bent on making making goes away.

You won’t have to worry about raising the Social Security Retirement age and getting young people angry at you, or having to cope with millions of angry Seniors because you’re committing to cut their Medicare, or get people frosted because you’re going to cut the heart out of a program they really, really like. You know that neither progressives, nor really anyone else in Congress wants to take that vote that the President, Bowles and Simpson, Alice Rivlin, and Pete Peterson are setting you up for, sometime during 2011.

So don’t! Make a deal that gets rid of the mandate to issue Federal Debt, and with it the whole issue of whether the Federal Government can afford to do what we need it to do. Get on with the real problems facing our country, and tell the bond markets, the deficit hawks, the Republicans and the blue dog Democrats who are forever saying that the Government can’t do this or that important thing, because it’s running out of money, to go to hell!

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

What Is “A Government Sovereign In Its Own Currency”?

4:37 pm in Uncategorized by letsgetitdone

Deficit hawks in the United States envision a day when the United States Government will go broke, unless we curb government spending on entitlements. Well, governments can go broke in the sense that they can run out of money they need to pay their debts. But not all governments. Only governments whose monetary systems are commodity-based, such as those on the gold standard; those using fiat money, whose official fiat currency is issued by supra-ordinate authorities, and those who owe debts in a fiat currency issued by another governmental authority, can go broke.

But governments issuing their own fiat currency, subordinate to no higher authority, and owing no debt to anyone else in a currency other than its own can never go broke, or put another way, become insolvent. Because all they need to do to spend money is to issue credits to non-governmental sector accounts in banks, and all they need to do to pay back other Governments who have lent them their own currency, is to credit the accounts of the lender Governments in that currency, an action which they have full authority to do, absent any political constraint they have placed on themselves. We call such Governments “sovereign” in their own currency. And because they have this kind of sovereignty, they also have flexibility to facilitate economic activity to accomplish public purposes that Governments without that kind of sovereignty don’t have. But with that fiscal flexibility also comes fiscal responsibility – the responsibility to use the operationally unlimited spending power of an economically sovereign government to use that spending power for public purpose and not for private gain.

One of the Governments that fit these criteria and so can never go broke is the US Federal Government. Other common examples are Japan, Australia, New Zealand, Canada, Brazil, Argentina (though it was not always so), and the UK. Governments that don’t fit these criteria and that can go broke include the nations of the EU, such as Greece, Portugal, Spain, and Italy. Even France and Germany can go broke, since they no longer issue their own currency. Other examples include all those developing nations with loans from the IMF, the World Bank, and other international authorities that must be paid back in US Dollars, a currency they cannot issue; as well as state, local, provincial, and other governments subordinate to a super-ordinate currency-issuing authority such as California.

Most governments that are sovereign in their own currency haven’t been fiscally responsible in a very long time. While some have performed better than others in seeking and achieving public purposes, most have continued to act as if they are constrained by the gold standard, and have attempted to either reduce spending at the expense of the less well off, or to fail to pursue programs for full employment, or to fail to make enough investments that will fulfill other pubic purposes. In most of these cases, deficit hawkism and specifically the desire to either reduce deficits, or to balance budgets, has trumped the desire to fulfill public purposes.

In short, governments sovereign in their own currencies have been acting like governments on the gold standard, or those who owe debts in currencies they don’t issue. They have been acting in a fiscally irresponsible way given their fiat monetary systems, while at the same time claiming to be fiscally responsible. They can get away with this, because very few people make the distinction between governments sovereign in their own currency and governments that are not. And even fewer go on to recognize that what may be fiscally responsible for gold standard governments, or governments that are not economically sovereign, is most certainly fiscally irresponsible for economically sovereign Governments.

In systems where governments are economically sovereign like the United States, it is a big mistake to measure how the nation is doing by using deficit, the national debt, or debt-to-GDP ratios. Those measures, in fact, are the wrong things to measure, since the government is a scorekeeper that can always credit accounts when it needs to spend or pay what it owes or even set interest rates by flooding the market with reserves and driving short-term interest rates down to zero. In such systems, the money is always there for the non-governmental sector, not in the sense that the government has accumulated some physical stock of it, but in the sense that the Government can always spend or pay back by crediting accounts, regardless of any physical stock it may have.

In such systems, fiscal responsibility is not about what the Government has accumulated either in debt or in surpluses, what it is about, however, is the Government’s success in spending on worthwhile things that produce actual value, rather than spending on worthless outcomes.

Issues about governments sovereign in their own currencies, as well as many others will be addressed, and answered at the Fiscal Sustainability Teach-In Counter-Conference. It will be the answer to the Administration’s latest attempt to orchestrate a political process that will result in transferring more wealth from the middle class and the poor to the very well-off and the corporations.

Bloggers are picking this event up all over the netroots as are PR services. There’s also quite a twitter buzz about this. Search on "fiscal sustainability" and you’ll see it.

On Sunday night or Monday, perhaps before, a front page post at The Huffington Post by Lynn Parramore, will contain brief common sense statements by 8 economists, 7 of whom are speakers at the Conference on the primary myths in fiscal sustainability. Don’t miss that post. Don’t miss the Teach-In Counter-Conference. Help if you can. Follow-up afterwards by watching the youtubes and the documentary therealnews.com will be making about the event.

Carry the anti-deficit hawk message of the event. Since the United States Government is sovereign in its own currency: We. Are. Not. Running. Out. Of. Money. The. Money. Was. There. All. Along. The. Money. Is. There. Now. The. Money. Will. Be. There. Tomorrow.

Let’s make this the start of a movement that sweeps The Peterson Foundation, and the deficit hawks aside, and that forces this Administration to end this recession and rebuild our nation. Here’s the event web site with all kinds of information about it, our speakers, the issues being addressed, press releases, schedules, location, associated blogs and so on.

(Cross-posted at All Life Is Problem Solving and Correntewire).