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Real Fiscal Responsibility 3; Carter: Inflation and Health Care

6:36 am in Uncategorized by letsgetitdone

Here’s the third post in my series evaluating the fiscal responsibility/irresponsibility of the Governments of the United States (mostly the Congress, the Executive Branch, and the Federal Reserve) by Administration periods beginning in 1977 with the Jimmy Carter period. My first post explained why I chose to start my evaluation with the Carter period, and also laid out my related definitions of fiscal sustainability, and fiscal responsibility.

It explained why fiscal responsibility is closely connected to the idea of public purpose, which I’ve laid out here. I also claimed that the Government of the United States has been fiscally irresponsible in every Administration period since 1977.

In my second post, I began by examining the problems of ending economic stagnation, and providing full employment at a living wage, and, I hope, by showing that the Government, during the Carter period, failed to solve either problem because of its commitment to deficit reduction, and budget balancing, in the service of hoped for inflation moderation. The remaining posts in this series will continue to document the claim that all the US Governments since 1977 have been fiscally irresponsible. This, one, the third in the series, will examine how the US Government failed in its efforts to create and maintain price stability, and also failed to provide a solution to the problem of providing the right of receiving health care to every American in need.

Creating and Maintaining Price stability

The Carter Administration sought price stability, and was convinced, mistakenly, that reducing the deficit and eventually balancing the budget would also bring the cost-push inflation in oil prices under control. In the pursuit of price stability, the President used his veto power (p. 40) on a heavily Democratic Congress of supposed allies when he vetoed a public works bill providing for $5 Billion in water projects in 1978, because be thought it was inflationary and full of pork. In addition, he vetoed or pocket vetoed a number of other bills passed by the Democratic Congress in pursuit of smaller Federal deficits and Government frugality.

Not that the Government ran very large deficits in those days in light of current ideas about large deficit spending. In fact, Congress, the President, and the Federal Reserve combined to reduce deficits very quickly after the Ford Administration. After 8 quarters when the Federal Government deficit ranged from 2.88%* of GDP to 6.50%, with 7 quarters exceeding 3% of GDP, the deficit was reduced during the Carter Administration to under 3% of GDP in the first quarter of 1977 and remained in the 0% to less than 3% range, with a low of 0.47%, for the rest of President Carter’s term.

These small Federal deficits were accompanied by small trade deficits by contemporary standards, ranging from a high of 1.21% of GDP to a low of 0.10%. In addition, there were five quarters of small trade surpluses during the Carter Administration, as well. In spite of this generally favorable context, the Government could not achieve price stability because its leaders in all branches were ideologically biased against using the right methods to control the cost-push oil inflation being caused by the spike in oil prices due to Saudi policy during these years. In fact, the Government mostly executed a textbook case of what not to do.

Cost-push inflation cannot be eliminated without killing the economy if one relies on increased taxes, reduced Government spending and high interest rates, which is the deficit hawk prescription. All that will and did do is to move toward macroeconomic and microeconomic austerity. The way cost-push inflation has to be fixed is through bringing alternative sources of supply, wage and price controls, and rationing online.

We know these last two measures are hard to take for Americans and hard to enforce. But they worked during WWII (pp. 95 – 120) even in a time of full employment, and would have worked again if the Congress and the Carter Administration would have employed them sufficiently vigorously. But even though the Administration and Congress did implement wage and price “guidelines” in 1978, and then moved on to tighter controls later, implemented by a Council of Wage and Price Stability, the prices affected were limited in scope, amounting to about half the prices in the economy, and the enforcement of standards wasn’t thoroughgoing, in part because the regulatory staff implementing the program was only 10% of the size of a comparable staff during the Nixon Administration.

As for bringing new supplies online, that is the best cure for cost-push inflation, but the problem with it is that it can take a good deal of time to work. Ironically, Jimmy Carter did initiate this cure for Saudi-induced oil inflation during his Administration, when he de-regulated natural gas production. The problem was that the new supplies did not begin to have an impact for some time. Eventually they did, but only after President Carter was defeated by Ronald Reagan, and only after the availability of more natural gas created an international oil glut, the primary reason for the fall of inflation in the Reagan Administration.

The secondary reason for the fall of inflation was Volcker backing off the Federal Funds rate. The Reagan recovery couldn’t have occurred without that; but, on the other hand, Volcker’s move wouldn’t have been effective if the oil price hadn’t already fallen.

So, the bottom line here, is that the Government did mostly fiscally irresponsible things in seeking price stability during the Carter Administration, while wrapping itself in the moral sanctimony of preaching the necessity for sacrifice. The one clearly good thing it did was to de-regulate natural gas. That eventually worked, and if Congress and the President had combined that with oil rationing and strict enforcement of price controls on domestic supplies, export controls on domestic oil, application of price controls on oil imports, and perhaps limited wage controls, then the economy could have survived without Paul Volcker’s Fed drying up the credit flow and producing a prolonged recession.

Implementing the right of health care for everyone

Carter promised passage of a national health insurance plan during his campaign, but when he was elected he backed off that idea as soon he was warned about the perceived likely inflationary impact of such legislation. This fear dogged his Administration and was a major factor in his inability to come to agreement with Teddy Kennedy and Russell Long on a bill that all three could support.

As his term passed, hesitation and delay resulted in his chance of passing a Medicare for All or other national health insurance bill slipping away, even though he had enormous Democratic majorities in both Houses during his first two years, and healthy majorities in his last two. His fear of inflation and concerns for fiscal responsibility as he defined it, prevented him from making a deal with Democrats supporting a single-payer system. He also insisted that any health reform bill had to safeguard a role for the private insurers.

At the time spending on health care amounted to 9% of GDP. Now that figure is at 18%. In retrospect, it is clear that the same beliefs about fiscal responsibility bothered him in this area as in the economic stagnation, full employment, and price stability issue areas. And also that his insistence on his mistaken fiscal responsibility notion, led to fiscally irresponsible policies, that, in turn, eventually led to the health care sector doubling the proportion of GDP it consumes on an annual basis, and also to many years of unnecessary fatalities, bankruptcies, foreclosures, and family breakups due to lack of universal health insurance.

In retrospect, this is one of areas of the Government’s biggest failures during the Carter Administration. The President was reluctant to make changes that excluded private interests, and to use the Government’s recently acquired greater policy space existing because the Government was now a sovereign fiat currency issuer to spend for the public purpose. His lack of faith in the ability of the Government to do things well, and his ideological faith in the superiority of the private sector to the Government as an agent of change, undermined his effectiveness in this as well as the other areas discussed thus far. It also has bestowed a very high cost on most Americans since 1981.

The Government, led by Carter during this period, could not even conceive of just letting the twin deficits (Trade and Budget) float, and accommodating the trade and import desires of the private sector. Had he been able to do so, he might have been been able to overcome stagflation, create prosperity, and produce low-cost universal health insurance for everyone.

Watch for my next post on the Government’s failure to legislate enduring educational reform during the period 1977 – 1981.

*My thanks are due to Professors Scott Fullwiler and Stephanie Kelton for kindly providing me with their quarterly time series data on Sectoral Financial Balances which I’ve drawn upon for the deficit, and GDP numbers I’ve used in this post.

(Cross-posted from New Economic Perspectives.)

The Small Ball Trillion Dollar Coin Seigniorage Exception

12:07 pm in Uncategorized by letsgetitdone

The exception to the general pattern focusing on the Trillion Dollar Coin (TDC) as the solution to the debt ceiling problem I outlined and critiqued in my last post, is in Joe Wiesenthal ‘s posts here and here. Wiesenthal alone criticizes, rather than ignores, other options than the TDC, namely the $16 T and $100 T options, on grounds that they are no more effective at meeting the debt ceiling crisis than the TDC. He says that the issue is not a lack money but the debt ceiling law, and also that if a coin that large were minted and used to pay back the debt, then the result would be inflation or hyperinflation because of the flow of the large quantity of reserves into the economy, and the ensuing great expansion in the money supply.

I think that Joe Wiesenthal is both showing his bias towards solving the smaller, more immediate (debt ceiling), rather than the larger (austerity) problem, and also that he’s dead wrong about the impact of a $100 T coin on inflation. On his bias: I can only say, that I don’t agree that “we” are talking about a legal problem rather than a money problem.

If all “we” are concerned with is the debt ceiling, then Wiesenthal is right; we need only consider the TDC option, which the President can use either once, or until the House gets tired of his minting TDCs, and raises the debt ceiling. But I think that most Americans, if they understood Platinum Coin Seigniorage (PCS) and its possible meaning for fiscal politics would go beyond debt ceiling concerns to the issue of austerity. And they would also realize that the face value of the PCS option chosen by the Secretary of the Treasury is of enormous importance for removing any perceived need for austerity arising from the level of the national debt or the debt-to-GDP ratio.

Wiesenthal’s main additional stated objection to extremely high value PCS on the order of $50 – $100 Trillion is the inflationary impact he expects it to have. I’ve already analyzed the likely impact of a $60 T coin on inflation in a fair amount of detail in an earlier post, based on Scott Fullwiler’s comprehensive framework. My analysis shows that there would be no inflation due to the effect of $60 T PCS itself on the economy. I can summarize the argument this way.

The credits in the Treasury General Account (TGA) ultimately resulting from using $60 T PCS aren’t immediately spent. So, they don’t all enter the economy immediately, but over a very long period of time from 15 – 25 years in duration. So, to gauge the inflationary impact, you have to analyze when and how the credits would be entering the economy. At the end of the last fiscal year, $6.4 Trillion in debt subject to the limit was owed by the Treasury to other agencies and to the Fed itself. That debt could be redeemed in the same week after minting a $60 T coin. But the payments wouldn’t be inflationary because they would not enter the non-government economy. Nevertheless, these payments would cut back debt subject to the limit by close to 40%, because of the ridiculous quirk in the law that counts intra-governmental debt toward the debt ceiling.

Next, the 10 T or so of debt held by private corporations, individuals, and foreign governments would only be paid as it falls due. Much of it would be paid over the first three years. But as I’ve argued above, the additional reserves placed in the system by paying the debt, and not issuing new debt instruments would be less inflationary than bonds would be.

Also, their presence in the banking system, would clearly flood it with reserves and drive overnight interest rates down to zero, rather than raising them. For the Fed to hit any non-zero rate targets it would have to support them either paying IOR, or issuing debt instruments of its own to drain the excess reserves. In either case, there’s no inflationary impact from repaying debt instruments as they fall due by adding reserves to the banking system.

That leaves deficit spending. In the case of a $60 T coin, and a national debt of $16.4 Trillion, we’ll assume that $43.6 Trillion would be left in the TGA for future deficit spending. However, the fact that the credits are in the TGA doesn’t mean that the Treasury could spend them. In fact, it can only spend them if Congress appropriates deficit spending. So, the bottom line is that the $43.6 T doesn’t go into the economy until it’s appropriated. Then some portion of it can be inflationary if Congress deficit spends past the point of full employment; but if it doesn’t, then there won’t be demand-pull inflation. And, if it does, then the inflation will be due to unwise Congressional appropriations and not to using PCS.

In short, there’s no way that PCS in itself can have an inflationary impact, no matter how high the value of the platinum coin is. That’s because repayment of already held debt is less inflationary than continuous rollover of and gradual increase of debt, repayment of debt to government agencies including the Fed doesn’t enter the economy, and using PCS-generated funds to cover deficits is not in itself inflationary unless deficit spending is so large that it continues past full employment.

So, that’s the true narrative about PCS and inflation. Not, ZOMG “Weimar, Zimbabwe.” That’s nonsense! Let’s hope that Joe Wiesenthal, and other MSM bloggers who have jumped into the PCS pool in the past few weeks read it and cease to spread “the silly idea” that PCS, in whatever denomination greater than say a few Trillion Dollars may be used, is inherently inflationary. It is nothing of the kind! Inflation, due to Government spending, is always and everywhere, in the rare instances that it occurs, a Congressional phenomenon!

(Cross-posted from New Economic Perspectives.)

Photo in the public domain.

Beyond the MSM: the New Wave of Brief Blog Posts on Platinum Coin Seigniorage

9:58 am in Uncategorized by letsgetitdone

Introduction

A Platinum Coin

A round up of blog posts about Platinum Coin Seigniorage

MSM bloggers and cable hosts weren’t alone in creating the new wave of posts and video segments on Platinum Coin Seigniorage (PCS) at the beginning of December. The blogosphere also produced brief posts from a number of bloggers, as well as a few more substantial ones. I’ll review the brief ones in this post, and the more substantial ones in future posts, but won’t include my own recent posts on PCS during December.

Reviewing the Posts

First off the mark on December 3, was David Dayen at FireDogLake who mentioned the “trillion dollar coin” as something thee President could do to strengthen his hand in dealing with the Republicans. His mentioned was quickly followed by Atrios, later in the morning, who wrote a very short post saying:

I really don’t know why the administration doesn’t take the “mint the trillion dollar platinum coin” option seriously. It is, as far as I can tell, perfectly legal.

This triggered a post by Michael Sankowski at Monetary Realism announcing that the “Trillion Dollar Coin Goes Mainstream” which says that if Atrios knows about the coin that everyone on “the smart left” knows about it!

Mike Sankowski then blogged again on December 6, wondering out loud where Zerohedge’s rant on the Trillion Dollar Coin (TDC) was? In that one Mike refers to the mainstream blogs by Yglesias, Drum, and Carney all on the TDC and then makes fun of Zerohedge for not picking up on the subject.

Cullen Roche at Pragmatic Capitalism, then blogged on the TDC on December 7, in a piece called “Platinum Coin Easing,” which draws its title from some views of JKH’s I’ll be reviewing in a future post. Cullen railed against the debt ceiling conflict calling it “stupid,” and also says that while PCS may look “Zimbabwean” it does solve the debt ceiling problem. Cullen points to JKH’s post and says:

“The coin would replace some of the bonds that the Fed currently holds solving three issues:
1) A non-inflationary way for the US Government to spend.
2) It circumvents the debt ceiling by effectively reducing the debt balance by $1T.
3) It’s a completely legal workaround.”

Donald McClarey at The American Catholic blog also posted on December 7, on “Of Trillion Dollar Coins and Fiscal Lunacy.” calls it a lunatic nostrum, quotes the WaPo article by Plumer, and refers to the “wacked out left.” That’s right, he offers no reasoning at all. Just name-calling and this:

“The country is in debt sixteen trillion dollars. By the time Obama finally leaves office we will probably be at least 20 trillion in debt. Of course this does not take into account dozens of trillions of debt in entitlement obligations coming due over the next few decades. We are rapidly reaching the point where it is mathematically impossible to ever pay off this debt without currency depreciation and/or hyper inflation. This scheme is basically currency depreciation as the US currency swells by two trillion dollars in a year’s time. If attempted I think it would lead ultimately to hyperinflation. The left are not all loons. Something like this will eventually be done by people who realize it is economic poison, but who are willing to do it anyway to get out of dealing with an unpayable debt. The impact on our economy would be likely catastrophic.“

Of course, McClarey, was in too much of a hurry ranting against the coin to notice that the first nearly $6.5 trillion of debt paid off using PCS couldn’t cause currency depreciation because it would not enter the economy at all, since it would be used to pay interagency debt and Fed-held debt. Nor does any other seigniorage spending need to be happen except when debt instruments fall due, and Congress appropriates deficit spending. So, to back his hyperinflation currency depreciation rant, McClarey has to show that PCS-based spending would be more inflationary than normal spending after debt issuance, along with normal scheduled repayment of debt. Of course, he does not, and, I think, cannot show this.

Next, brief mention needs to be made of a post at “Twitchy – Tweet on the Platinum coin.” This post also happened on December 7. The tweets are entertaining but contribute little, if anything to the debate. On the other hand, they do make more sense than McClarey’s post on PCS.

On December 8, James Hamilton at Econobrowser offered a post objecting to using the coin “from an institutional perspective:”

Read the rest of this entry →

Platinum Coin Seigniorage, Issuing Debt, Keystroking Deficit Spending, and Inflation

9:05 pm in Uncategorized by letsgetitdone

The most frequent objections to proposals that we use Platinum Coin Seigniorage (PCS) to create reserves for debt repayment and deficit spending, frequently come back to inflation. Perhaps people can’t get over the association they learned in high school Social Studies, or perhaps in American History, or Economics 101, that when Governments create money and then just spend it without any compensating deflationary action, inflation or hyperinflation happens. Maybe they can’t forget those cartoons about people in Weimar Republic days pushing wheelbarrows full of money to the market to buy some bread. So, I’ve been promising for about a week now, to blog about the likely expected relationship between the different PCS options and inflation using the framework laid out by Scott Fullwiler!

Types of Spending, Methods of Filling the Public Purse and Inflation/Deflation

That framework is reflected in the first column of the table where all but the top row names the categories in Scott’s framework. The table also expands the framework a bit, however. Scott’s post compares using PCS to using debt instruments to add reserves to the Treasury General Account (TGA), the Treasury’s spending account, to make the case that PCS, in, and of itself, won’t add to inflation. I want to expand the perspective a bit by adding a comparison of both these alternatives with the alternative of allowing Treasury to close any gap between the tax credits it receives and the spending appropriated by Congress by creating in its own reserves in the TGA, either directly, or by sending an instruction to the Fed to credit the TGA with the particular amount of reserves necessary to do the deficit spending. So, here’s the table.

Table – Likely Inflationary or Deflationary Impact of Debt Repayment and Government Deficit Spending By Type of Method Used To Credit the Treasury’s Spending Account

Inflationary Impact of Spending

The conclusions in this table are based on only a few ideas:

1. There’s no way reserves paid by the Treasury to redeem old debt can be inflationary unless it is spent into the economy, because there’s no channel for causal impact at all.

2. So, debt repaid to other Government agencies and to the Federal Reserve Banks cannot be inflationary beyond inflation tendencies already built into the regularly scheduled spending into the economy of the agencies involved.

At the end of the 2012 fiscal year the total of Federal Reserve and Federal Agency held debt including Trust Funds was $6.4 Trillion (p. 51). So immediate redemption of that debt would reduce the debt subject to the limit by just under 40%.

3. Debt instruments in the private sector are a form of financial asset that is more inflationary than reserves in checking or savings accounts.

The classical Quantity Theory of Money (QTM) says that increasing the amount of money in circulation is inflationary. But, much empirical evidence shows that this is wrong, and that the expansionary factor in modern economies is increasing Net Financial Assets leading to increased demand beyond the productive capacity of the economy to absorb. NFAs can include income in the form money; but when money is exchanged for an asset of equal value as happens when a security is redeemed, then that’s not inflationary, and may even be deflationary because of the ending of interest payments and securities leveraging that follows if no compensating debt issuance happens.

Here’s Scott Fullwiler’s reasoning on why this is so:

As I previously explained, this is the operational equivalent of quantitative easing (QE). The purchase of Treasury securities by the Treasury would retire the securities and leave banks holding reserve balances. But, as I explained in the previous post, “Banks can’t ‘do’ anything with all the extra reserve balances. Loans create deposits—reserve balances don’t finance lending or add any ‘fuel’ to the economy. Banks don’t lend reserve balances except in the federal funds market, and in that case the Fed always provides sufficient quantities to keep the federal funds rate at its target—that’s what it means to set an interest rate target.

And on the subject of the deposits created by the debt redemptions he goes on to quote his previous post on QE3: linked just above:

“First, sellers of bonds were always able to sell their securities for deposits with or without the Treasury’s intervention given that there are around 20 dealers posting bids at all times. Anyone holding a Treasury Security and desiring to sell it in order to spend more out of current income can do so easily; holders of Treasury Securities are never constrained in spending by the fact that they hold the security instead of a deposit. Further, dealers finance purchases of securities from both the private sector and the Treasury by borrowing in the repo market—that is, via credit creation using securities as collateral. This means there is no ‘taking money from one person to give it to another’ zero sum game when bonds are issued (banks can similarly purchase securities by taking an overdraft in reserve accounts and clearing it at the end of the day in the federal funds market), as what in fact happens is that the existence of the security actually enables more credit creation and is known to regularly facilitate credit creation in money markets that are a multiple of face value. Removing the security from circulation eliminates the ability for it to be leveraged many times over in money markets.

“Second, the seller of the security now holding a deposit is earning less interest and can convert the deposit to an interest earning balance. Just as one holding a Treasury can easily sell, one holding a deposit can easily find interest earning alternatives. Some make the argument that the security can decline in value and so this is not the same as holding a deposit, but this unwittingly supports my point that holders of deposits aren’t necessarily doing so to spend. Deposits don’t spend themselves, after all.

“Third, these operations by the Treasury create no new net financial assets for the non-government sector (and can in fact reduce its net saving by reducing interest paid on the national debt as bonds are replaced by reserve balances earning 0.25%). Any increase in aggregate spending would thereby require the private sector to spend more out of existing income, or to dis-save, as opposed to doing additional spending out of additional income. The commonly held view that ‘more money’ necessarily creates spending confuses ‘more money’ with ‘more income.’ QE—whether ‘Fed style’ or ‘Treasury style’—creates the former via an asset swap; on the other hand, a true helicopter drop would create the latter as it raises the net financial assets of the private sector. Again, ‘money’ doesn’t spend itself. . . .

4. Demand-pull inflation cannot be caused by Government deficit spending, unless Congress appropriates and the Treasury spends, past the point of full employment. Whether inflation or hyperinflation happens generally has nothing to do with the method used to add electronic reserves to the TGA; but as one approaches full employment Federal interest payments and private leveraging of Federal securities resulting from debt instruments are more likely to initiate inflation than using either of the other two methods.

5. Using PCS to fill the TGA with reserves is very similar to the third method of giving the Treasury the authority to mandate the Fed to add reserves to the TGA upon instruction from the Treasury. In fact, functionally, depositing a high value platinum coin into the US Mint’s Public Enterprise Fund Account, and then “sweeping” the seigniorage into the TGA is virtually equivalent to instructing the Fed to add reserves to the TGA. The “big coins” are just a different form of message than a Treasury instruction would be. But the functional financial content of the different kinds of messages is virtually the same. They both mandate the Fed to create the amount reserves specified in the message.

At Bottom A Political Choice

Some readers may look at this argument and agree with everything I’ve said and still prefer to deficit spend only after issuing and selling debt, rather than using either PCS or direct Treasury instructions. They might argue that even if it is true that the other methods are less inflationary, the method of debt issuance 1) is not so inflationary as to create a problem and 2) creates a political climate among the public and in Congress, that restricts government deficit spending, and keeps it sufficiently in check, that we almost always have a good deal less than full employment, and therefore never risk serious demand-pull inflation. And that’s just the way they like it!

That, of course, is a political choice, and the people who make it, knowing that the Administration can use PCS to fill the public purse now, and also that Congress can authorize the third method of direct Treasury instruction if it wants to, are saying that they choose inflation control through using a method that fools most Americans into thinking that we are running out of nominal financial resources, even at the expense of having 28.5 million Americans who want full-time jobs not being able to get them, and even at the expense of having more than 50,000 fatalities per year due to lack of health insurance, and even at the expense of blighted futures for a generation of American young people, and the prospect of increasing poverty for many old people, and even at the expense of : and on and on.

Then I have an answer for them. And I’ll begin by quoting Bruce Springsteen and Randy Wray.

We take care of our own
We take care of our own
Wherever this flag’s flown
We take care of our own

That’s Springsteen; and here’s Wray:

. . . We don’t let old folks sleep on the street. We take care of our own. We don’t let children go hungry. We take care of our own. We don’t exclude the 47%. We take care of our own.

We’re all stakeholders in this great nation. We take care of our own. White, black, brown, yellow and red, we take care of our own. Young or old, healthy or sick, we take care of our own. . . .

We need a good government to help us take care of our own. We need good public services and infrastructure to keep our country strong so that we can take care of our own. Our government spends to keep our country strong so that we can take care of our own. . . .

Sovereign government cannot be forced into involuntary insolvency. It can always afford to make all payments as they come due. It can always afford to buy anything that is for sale for its own currency. It can always financially afford any spending that is in the public interest. It can always afford to take care of its own.

Anything that is technologically feasible is financially affordable for the sovereign issuer of the currency. It comes down to technology, resources, and political will. We’ve got the technology to take care of our own. We’ve got the resources to take care of our own. All that is missing is the political will.

And then I’d go on to say this.

Your method of filling the public purse through selling debt to accumulate credits in the TGA, may provide an extra hedge against inflation by fooling people into thinking we are running out of money and that unemployment and austerity are just the price we have to pay for insuring ourselves against inflation, but that method is anathema to me because it creates a political barrier to taking care of own, and undermines our political will to take care of our own and one another.

The 28.5 million who want full-time jobs at a living wage are our own, as much as you. And they have a right to a Federal Government that will use its full power to see to it that they have full time job offers at a living wage that they can be proud of. And that, in the final analysis is why PCS, and direct Treasury instruction of the Fed, are better methods of filling the public purse than your method of using debt instruments.

The method of direct Treasury instruction of the Fed, isn’t open to us without legislation. But PCS is available now to fill the public purse. We ought to fill it, the TGA, using PCS, with $60 T in electronic credits immediately, so no one can be fooled again by people saying that we can’t afford something for sale in our own currency.

We don’t need to have any public debt subject to the limit if we don’t want it. And we always can have enough money in the public purse to afford to take care of our own, if Congress will only represent most Americans and legislate the necessary programs, while appropriating the necessary funds to open the purse strings of that full purse the Treasury will have! At bottom, it’s a political choice; and, if we want to be real Americans, then we must choose to take care of our own!

(Cross-posted from New Economic Perspectives.)

A Counter Narrative to Peterson’s

4:54 pm in Uncategorized by letsgetitdone

Stephanie Kelton writes:

The US is broke. Government deficits are de facto evidence of a government gone wild. We’re careening toward Greece. Entitlements are the root cause of our fiscal woes, and the Chinese are coming for our grandchildren. How many Americans believe this garbage? My guess? Most of them.

Pete Peterson has won and the American people have lost. There is no effective counter narrative, not even from the left. Nearly all “progressives” have accepted the fundamental premise that the federal government is like a great big household. That it faces the same kinds of constraints that you and I face. That it should spend only what it takes in and that deficits are morally and/or fiscally irresponsible. President Obama told the nation, “We’re out of money.” . . .

Stephanie knows that there is a counter-narrative out there to Peter Peterson’s take on fiscal responsibility, because she’s one of the people who best expresses it. But she thinks it can’t be called “effective,” because we’ve been unsuccessful so far in getting the fiscal responsibility counter-narrative developed by Modern Money Theory (MMT) economists communicated broadly enough to create a break in the Washington/New York political consensus, which insists that now our most urgent need is for austerity to bring the deficits and the public debt under control. I agree with Stephanie, of course. We’ve not been successful in persuading enough people yet.

So, in this Post, I’ll make yet another effort to counter the neoliberal austerian fiscal responsibility ideology by juxtaposing the primary claims underlying the narrative, with my construction of the MMT answers to them. The austerian claims below all link to MMT-based posts that critique them. And they are all juxtaposed against an MMT-based claim that refute them. The paragraphs following each pair of claims, summarize my version of MMT answers, and together provide a counter-narrative.

The Government is running out of money

MMT answer: The Government cannot involuntarily run out of money

The US Government has the Constitutional Authority to create an unlimited amount of money provided Congress appropriates the spending, and places no constraints on spending, such as a need to issue debt instruments when the Government deficit spends, or debt ceiling limits. So, all constraints on spending appropriations are purely voluntary in the sense that they are due to Congressional mandates that Congress can repeal at any time, and not to financial limits inherent in the Government’s authority.

Having said that, the constraints mentioned are now in place, and, so, it’s important to emphasize that even with them, and without legislative changes, the Executive can always create enough money to pay for whatever spending Congress has appropriated and also repay debt, so that even with a Congress willfully maneuvering for default, or brandishing the threat of it, the Executive can still ensure that the Government doesn’t run out of money even without more taxing and borrowing, because the Executive can use the option of Proof Platinum Coin Seigniorage (PPCS) as one method of getting around the debt ceiling. Originally suggested by Beowulf some time ago, there are any number of PPCS options the President can use to generate coin seigniorage profits to use for a variety of purposes. I’ve outlined some of them here. Some PPCS options stop with $1/2 Trillion coins, some go over $1 Trillion up to $5 Trillion, and still others envision very high face value coins ranging to $60 Trillion and up.

For getting around the debt ceiling, coins with face-values up to $5 Trillion will certainly remove the need to issue further debt subject to the limit and break the debt ceiling. However, minting a platinum coin with a face-value of say, $60 Trillion is also a political game-changer, because it results in filling the Treasury General Account with enough in credits to make it obvious to the most concrete thinker that the Government has the capacity to pay all the debt subject to the limit, issue no more such debt if it so chooses, and also spend whatever Congress chooses to appropriate in the way of new programs to solve current problems.

So, issuing a $60T coin, removes the issue (excuse) of whether the Government of the United States can afford to pay for employment programs, educational programs, infrastructure, new energy foundations, a Medicare for All program, new R & D programs, or expansion of the social safety net from the political table. Issuing that coin can and would create a new political climate moving American politics much further to the left within the space of a few months. In short, it would dramatically illustrate the MMT counter to the austerian deficit hawks, namely that the US Government is not running out of money and cannot do so as long as it has the intention to use its authority to create more of it.

The Government can only raise money by taxing or borrowing

MMT answer: The Government can create money; so it can never involuntarily run out

The austerian claim is false. First, the Federal Reserve, a Government agency can create unlimited money “out of thin air,” as the saying goes, though not for purposes of deficit spending, or directly liquidating Treasury debt. But second, I’ve just pointed out that PPCS can be used in the present legal framework to create money other than by taxing or borrowing. And third, if Congress doesn’t want to use PPCS, it can authorize the Treasury to spend appropriations without issuing debt instruments any time it wants to take an afternoon off to get that done. So, plainly the Government can “raise money” without taxing or borrowing it by just creating the necessary money while spending.

We can’t keep adding debt to the national credit card.

MMT answer: We can if we want to. There’s no limit on the credit card except the one imposed arbitrarily by Congress.

Congress has placed a debt ceiling on the Government, and it has also mandated debt issuance when the Government deficit spends, by prohibiting the Fed from lending the Treasury money. So, it’s only the self-imposed constraint of Congress that prevents the Government from continuing to add “debt to the national credit card.” There is nothing inherent in the international economic system, or our own Constitution that prevents us from adding debt as needed.

And even if current constraints on debt ceiling constraints remained in place, Treasury can still issue debt without breaching the debt ceiling. Beowulf, the blogger/commenter, who first proposed using high face-value PPCS to get by the debt ceiling, recently came up with a new option to avoid breaking the debt ceiling. That option follows:

Another way to sidestep the debt ceiling is to go the opposite extreme from one-day maturities, issue perpetual T-bonds with no maturity date (what the Brits call consols). Look at the debt ceiling law, the public debt adds up, for all outstanding debt, the face amount of the guaranteed principal. The future interest payments to be paid aren’t counted. (“The face amount of obligations issued under this chapter and the face amount of obligations whose principal and interest are guaranteed by the United States Government“).

If there’s no maturity date, then there’s no promise to repay principal and thus there’s nothing to add to the public debt total. Tsy could issue an unlimited amount of consols without tripping over the debt ceiling.”

Beowulf has more on consols here. But the possibility of consols is enough to show that the Treasury has an unlimited credit card under current legal arrangements, and can use it without breaching the debt ceiling, though of course, it can’t spend more than Congress has appropriated, and is also required to repay debt and interest that is coming due.

If the Government borrows more money, the bond markets will raise our interest rates

MMT answer: The bond markets don’t control US interest rates.

The Treasury can flood overnight bank reserves and float short-term debt to meet its targeted interest rates, however low they may be. The Government, if Congress would let it, can even stop issuing debt subject to the limit when it deficit spends (using PPCS or consols, or by Congress moving the Fed into Treasury where it belongs) in which case the bond market interest rates would become entirely irrelevant to the United States.

If we continue to issue more debt, then our main creditors may refuse to buy it, an event that would lead us to insolvency and severe austerity

MMT answer: They’ll most probably buy it for the foreseeable future; but if they don’t we won’t be forced into solvency because we can always create the money we need to meet our obligations

Our creditors all want export-led economies. This means that they must accumulate dollars, because the US is where the consumption power is, and if they want to keep exporting they must keep the American consumers’ business. Their dollar surpluses can sit idle in their Federal Reserve accounts or be used in a way that makes them money. Buying our debt makes them some money, however little it may be at current interest rates. Buying our goods and services reduces their trade surpluses with us, and goes against their export-led policies. Selling our currency, weakens the value of the USD holdings they retain. In short, they have little choice other than to buy our debt, unless they want to gradually adjust trade balances with us over time.

Even more importantly, as I keep repeating, we don’t need to raise money by borrowing USD from them or anyone else. We can simply spend/create it ourselves if Congress repeals its constraints prohibiting the Fed from “monetizing” the debt, or if the President decides to use PPCS or consols. The result of no more debt issuance, along with use of these other methods, would be paying off the national debt over time, without austerity. So, if we care so much about the high debt levels, then why don’t we do that? Could it be that the austerians want austerity for political rather than economic reasons, and that the fiscal sustainability/responsibility justifications they give are just part of a complex fairy story they tell to avoid being candid about why they want austerity?

Our grandchildren must have the heavy burden of repaying our national debt

MMT answer: We’re obligated to pay all US debts as they come due. But since we have an unlimited credit card to incur new debt at interest rates of our choosing, or, alternatively can create all the money we need to pay off debt subject to the limit, without incurring any more debt, our national debt cannot be a burden for our grandchildren unless they wish to make it make it so by stupidly taxing more than they spend. So, let’s educate them well in MMT-based economics, so that they never make that mistake

No US generation except one has ever repaid the national debt by running budget surpluses. After the debt was paid off in 1835, that generation was rewarded with the depression of 1837. Moreover, each time the nation ran substantial surpluses for a period of time, the country fell into depression or recession, most recently the recession of 2001, following Clinton’s four years of running a surplus. It’s a bad idea to repay the national debt by running surpluses, because taxing more than a Government spends destroys net financial assets in the private sector, unless one also exports more than one imports.

So, provided we continue to run a trade deficit, our grandchildren won’t run surpluses. They may not issue debt subject to the limit while “deficit” spending. But that’s possible, only if the Congress repeals the mandate to issue debt when the Government deficit spends, or alternatively, the Government freely uses its PPCS power. In both cases the national debt can then be repaid without requiring that tax revenues match or exceed Government spending.

In any event, our grandchildren will not have the burden of repaying the national debt, if they are wise enough not to run surpluses. But if we are silly enough to attempt to pay it down, or pay it off, by running surpluses and practicing austerity, then they will have the burden of growing up in poor families, attending very poor schools, living in mal-integrated communities where they’ll be subject to crime and violence, and living in a class-ridden nation run by a kleptocratic elite that monopolizes both the artificially constricted supply of financial wealth, and the increasingly scarce real wealth produced by a stagnant, broken economy. That’s not what any of us want; but that’s what the austerian/deficit hawk policies are producing.

I can’t emphasize this last point enough. Austerity isn’t moral. It’s immoral! It kills, and it eventually impoverishes most people including our grandchildren, both those who are now living and growing up in difficult economic circumstances, and those yet unborn, who will be born and will grow up in a stagnant economy crippled by attempts to reduce the national debt, at the expense of full employment, and lost output for years on end.

There is a deficit/debt reduction problem for the Federal Government that is not self-imposed.

MMT answer: All together now, there is no such problem. Since the US Government has no limits other than self-imposed ones on spending or borrowing, the level of the national debt, or the debt-to-GDP ratio don’t affect the Government’s capacity to spend Congressional Appropriations at all.

These numbers aren’t related to fiscal sustainability or responsibility in nations like the US with a non-convertible fiat currency, a floating exchange rate, and no debts denominated in a currency it doesn’t issue. Such nations can’t become involuntarily insolvent because they always create more currency to pay debts denominated in that currency.

If the debt-to-GDP ratio were 300% and there were no other changes in current policy, the US would still have the same ability to deficit spend it has now. Conversely, if the debt-to-GDP ratio were 10%, the same would apply. To put this simply, the size of the public debt subject to the limit, and the size of the debt-to-GDP ratio have no impact at all on our capability to deficit spend, because we can always make the money we need, if need be, through PPCS. So there is no need for a long-term deficit reduction plan to lower the debt-to-GDP ratio. There is also no need to run surpluses to decrease the size of the debt, since we can always use profits from PPCS to do that without either borrowing more or raising taxes.

Even though neither the level of the national debt, nor the level of the debt-to-GDP ratio creates a sustainability problem for the US, depending on conditions, the deficit itself can be “too high.” But the question of when a deficit is too high isn’t an issue of fiscal sustainability in the sense that we can run out of money, but instead is an issue of the negative consequences of an excessively high deficit. The most important of these consequences is demand-pull inflation, and when that is observed, Federal spending should be reduced to control or eliminate it. However, there are two questions arising here. First, which spending, if cut, will produce the most overall benefit. And second, what’s the impact of cutting spending vs. the impact of doing nothing, vs. the impact of raising taxes.

The Federal Government is like a household and that since households sacrifice to live within their means, Government ought to do that too.

MMT answer: No, the Federal Government is not like a household! Households can’t make their own currency and require that people use that currency to pay taxes.

Households can’t make their own currency and require that people use that currency to pay taxes. Households can run out of money; but the US can’t ever run out of money as long as Congress decides to appropriate spending and gives the Executive the authority to implement that spending. So, the Federal Government doesn’t have to sacrifice to live within its means, since its “means” to create new currency is limited only by its own decisions and not by any factors external to it. Put simply, Federal spending including deficit spending doesn’t cost anything in the doing. The only relevant question is its real effects on the economy.

We should also find a bipartisan solution to strengthen Social Security for future generations

MMT answer: Social Security has no fiscal problems. The SS crisis is a phoney one. So, no solution to this nonexistent fiscal crisis, bipartisan or partisan is needed. What is needed is a solution to the political problem of getting SS’s funding guaranteed in perpetuity

Again, this austerian claim assumes that Social Security funding is a fiscal problem and that the program needs to be strengthened by making the program “fiscally sustainable.” But that claim is at issue. Apart from the fact, that it isn’t obvious that a bi-partisan solution to a fiscal problem would produce a real solution, it’s also true that this is a fake fiscal problem.

Social Security should be strengthened alright. But the way to strengthen it is to guarantee its funding in perpetuity, and to greatly increase benefits for many seniors whose current benefits leave them scraping the poverty line. Try doubling SS benefits while providing full payroll tax cuts. That will strengthen SS and the economy as well.

We face a crushing burden of Federal debt. The debt will soon eclipse our entire economy, and grow to catastrophic levels in the years ahead

MMT answer: This is total nonsense, because federal spending is costless to the Government

If the debt subject to the limit bothers the neoliberal austerians so much, they ought to be supporting full payoff of the debt using PPCS profits. Doing that won’t harm the economy, and it won’t cause inflation either, since the bonds retired are more inflationary then the money paid to redeem them.

The United States is in danger of becoming the next Greece or Ireland

MMT answer: Greece and Ireland are users of the Euro, not issuers of it. So, their supply is always limited and that’s why they can run out of Euros. The US is the issuer of Dollars; so it’s supply of dollars is limited only by its desire to create them, and that’s why it can’t become Greece, Ireland, or any other Eurozone nation.

This one is a real laugher. Greece and Ireland can run out of Euros. California can run out of dollars. But the United States can’t run out of Dollars. Japan can’t run out of Yen. The UK can’t run out of Pounds, and Canada and Australia can’t run out of Canadian or Australian Dollars. So, governments like California, Michigan, Wisconsin, etc. can become the next Greece or Ireland if the Federal Government allows that to happen by refusing to bailout States if they need it, but the US can’t become the next Greece or Ireland, because it can always bail itself out if it chooses to do so.

The real danger for the US is in becoming the next Japan and losing a decade of economic progress by following neoliberal deficit reduction doctrines. The US is now four years into the decade we are losing. Why are we losing it? Because, as Warren Mosler is fond of saying: “. . . we fear becoming the next Greece, we continue to turn ourselves into the next Japan.” That is, we’re making ourselves a stagnant economy by imposing fiscal austerity, rather than creating/spending the money we need to solve our increasingly serious national problems.

Fiscal Responsibility means stabilizing and then reducing the debt-to-GDP ratio and achieving a Federal Government surplus.

MMT answer: No! REAL Fiscal Responsibility is fiscal policy intended to achieve public purposes while also maintaining or increasing fiscal sustainability viewed as 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.

So, the REAL Government fiscal responsibility problem 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, 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 our leaders in Congress and the Executive Branch, to remove fiscal constraints and use the fiscal powers of the Federal 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 all the other serious problems we face, but now will not handle because we claim a non-existent fiscal incapacity of the Federal Government. There is no incapacity! We have not run out of money! We have only run out of smarts, morals, will, and courage! We need to get those back, and do what must be done to reclaim the future for working Americans.

Federal Government austerity will create jobs

MMT answer: Right! Show us one case where austerity is working

Well, let’s see. We’ve got austerity now in Ireland, Spain, Portugal, Italy, the Baltics, and, of course, Greece, among nations in the Eurozone, and also in the UK. Is it creating jobs anywhere? Is there even one case, in which the “austerity will create jobs” theory isn’t being refuted by events? Some may think that Latvia is beginning to recover because it’s unemployment rate has now fallen to 15%; but that’s because 200,000 Latvians (10% of the population) have chosen to emigrate, a particularly effective way of both leaving the labor force, and lowering the rate of unemployment. Bet we could lower unemployment here too, if we first ran the economy down by 30%, drove U-3 up to the 20% level, and then had 31,000,000 people leave the United States for parts unknown. Oh austerity, will thy wonders never cease?

Conclusion: Saying No to Neoliberal Austerity

So, the importance of continuing to counter austerian propaganda coming out of the Peterson Foundation and the organizations it allies with, and funds, remains. We must continue to try to break through the screen of the Petersonian closed system, the Washington/New York consensus. One of the popular slogans for the austerians this year is “Debate the Debt.” There’s a petition web site urging politicians to debate the debt. There was even a proposal demanding that the presidential candidates devote a whole presidential debate to the debt and deficit issues.

But, what is it the austerians want us to debate? They want us to debate how we should reduce deficits over the medium and long-term by spending less and taxing more. But they most emphatically don’t want to debate whether the debt, deficit, and debt-to-GDP ratio, represent real problems relating to fiscal sustainability or fiscal responsibility. Put simply, they don’t want us to debate whether their deficit/debt “problem” is really a problem either for our capacity to spend in the future, or for government solvency, or for our grandchildren.

They say there’s a government solvency problem and that all of us must and should suffer to solve it. MMT says that there is no solvency problem and there’s no reason for people to suffer any more than they have already due to the crash of 2008. That’s the debate about the debt we badly need right now, When they say debate the debt, they mean debate how we should all suffer to get rid of it. When I say “debate the debt,” I mean debate whether the public debt subject to the limit is a real problem, or a just a massive distraction from coming to grips with our real problems. I think that my debate question is clearly prior to the austerians’ because it doesn’t assume what it should prove, namely that there is a problem and that focusing on it isn’t a distraction.

But, I think it is a massive distraction; and the President can prove it! Just mint that $60 T platinum coin and the debt problem will go away. Then the Peterson Foundation and other agents of the emerging plutocratic elite, will need to invent a new fairy tale to distract us with; or maybe they’ll do all of us a favor and just go out of business, so we can re-build our country without having to deal with their insolvency fantasy first!

(Cross-posted from New Economic Perspectives.)

Debating the Debt!

2:07 pm in Uncategorized by letsgetitdone

Maya MacGuineas urges America to debate the debt. She even wants the presidential candidates to devote a whole presidential debate to it. But she’s not interested in debating the private sector’s debt and how we might reduce that, which is very, very strange, especially since middle class Americans have lost 40% of their net worth since 2007, and the private sector debt burden has been a key factor in depressing consumption and preventing the economy from fully recovering and creating full employment. However, in spite of this private debt crisis which has placed the United States more than 3.5 years into a lost decade, now, she and her cohorts at the various Peter G. Peterson Foundation-supported organizations, whether ‘left,” “right,” or “center” in the Washington, DC area, are hot for everyone to debate the “national debt problem” rather than the “private debt problem.”

Well, far be it for me to turn down such a reasonable request from such a wise lady and all her friends and supporters in the Washington, DC “village” community. I will happily proceed to debate the national debt by analyzing what Maya had to say in her piece for CNN at the end of April. I’ll begin by debating a question that Maya seems to have overlooked as a desirable one for debate. Specifically, “whether the national debt is really a “problem” or not, and if so, what kind of a problem is it?”

A Daunting Challenge Or Just “Shock Doctrine”

Maya starts off her article this way:

“It’s not news that the national debt presents a daunting challenge. The public debt is growing faster than the economy, a trend that cannot be sustained.”

It’s not news that all sorts of people are saying that the size of the national debt is a daunting challenge, but that doesn’t make it one. Nor does the fact that the national debt has been growing faster than the economy, necessarily make its growth unsustainable. In fact, to claim that its growth is unsustainable, you have to assume that the growth of the debt reduces the future capacity of the government to spend. There are at least three reasons why the national debt isn’t a daunting challenge, including one that denies that growing public debt reduces the US government’s capacity to spend.

First, the “debt problem” can be solved in a few afternoons with some simple legislation by the Congress, if only they were willing to pass it. That alone, makes it not very “daunting.”

Second, even if Congress won’t pass new legislation, it already has passed legislation that allows the Executive branch to solve the “debt problem,” by forcing the Federal Reserve to create money out of thin air and deposit that money into Executive Branch accounts at the Fed.

And third, continuing to issue debt, even at a rate faster than the economy is growing, doesn’t reduce the future capacity of the government to spend. In fact, it has no effect on that capacity at all. Let’s explore the first reason in more detail and then move on to the others.

Ours is a Government with a non-convertible fiat currency, a floating exchange rate, and no debt to foreigners in a currency our government can’t freely create. That means our government can always pay any and all of the debt instruments it issues and the interest on them, when payments on them fall due, by simply marking up the reserve accounts of its creditors to repay its debts.

At this point, Maya or some other deficit hawk might ask, “where’s it going to get the money to do that marking up? Treasury can’t freely create its own reserves, or borrow from the Fed, the government agency that can create reserves “out of thin air.” Treasury can only get reserves credited to its accounts by taxing or borrowing!”

This sound like a good question and a fair one; but actually, it’s neither good nor fair, because it dodges a still more basic question that she and other Petersonians like David Walker must be aware of, but don’t want to talk about, because it’s very inconvenient for them. That question is: since the Congress has unlimited constitutional authority to create money, and has delegated that authority to the Federal Reserve, then why doesn’t it also delegate the Treasury the same authority to freely create reserves when it needs to pay bills?

Indeed, why doesn’t it just pass legislation re-locating the Fed to the Treasury Department, so that 1) Treasury would have that authority, 2) the Fed would be more accountable to the people, and 3) the extra-constitutional existence of the Fed as an obviously executive function being performed outside of the Executive Branch in violation of the separation of powers clause of the Constitution, would be ended?

In other words, if the national debt is a problem; then it’s only one because of money creation constraints, including the debt ceiling, that Congress has placed on the Executive Branch over and above the normal constraints of the appropriations process. So, if there is a national debt problem, it’s clearly Congress’s fault, and the solution to “the problem” is for Congress to legislate the constraints away, and let the Executive Branch freely meet all its debt and appropriations obligations at will, rather than to pretend that the debt is dangerous, unless we all engage in extraordinary efforts to have the government spend less, borrow less, and raise more money in taxes.

Put simply, Congress can authorize the Executive Branch to create whatever money it needs to pay all debts as they come due, and to spend future appropriations without borrowing, ensuring that the debt will eventually disappear. So, what kind of problem is it that Congress can solve by passing a simple bill in one afternoon in each house? A false problem, I think, or at least a political problem, rather than an economic or financial problem that requires “shared sacrifice” to solve.

In fact, the claim that there is a government debt crisis, is so easy to solve with Congressional action that it is very hard not to think that all the noise about its being a monumentally difficult problem to solve that requires extraordinary courage is really about delivering more “shock doctrine” to Americans. Why? So that there is an excuse to legislate their already inadequate safety net away, while more nominal wealth is delivered into the hands of the already wealthy.

After all, why else would Maya McGuineas and the think tanks she works with, go to such extraordinary lengths and expense as they have been doing to suggest a “shared sacrifice” solution to this “problem” lasting many years, when all it would really take to solve it would be some Congressional action? If they’re so worried about the national debt why aren’t they circulating petitions asking Congress to place the Fed within Treasury, rather than petitions telling people that the fiscal sky is falling and only a long-term deficit reduction plan will prevent an eventual fiscal collapse?

The second reason why one should doubt that the national debt is a daunting problem, is that there’s a 1996 law that allows the US Mint to create proof platinum coins with arbitrary face values and deposit them in the Mint’s Public Enterprise Fund (PEF) at the Fed. Since the coins are legal tender, the Fed MUST accept the deposits and credit the PEF with the face value of any coins, however large those face values are. The Treasury is then allowed to periodically “sweep” the Mint’s PEF profits from “coin seigniorage” into the Treasury General Account (TGA).

For example, if the Mint created a proof platinum coin with a $60 Trillion face value and deposited it into the PEF account, the Fed would have to credit the PEF with $60 T in its account, while taking the coin and transferring it to one of its vaults, where it would sit, permanently. The Treasury could then transfer the sum of $60 T – about $3500.00 (the cost of producing a 1 oz. proof platinum coin), or nearly $60 T into the TGA. The credits in the TGA could then be used to pay down the national debt plus interest as various debt instruments come due. They could also be used to deficit spend appropriations used by Congress.

Essentially, the profits from the coin would fill the public purse (the TGA) in the form of electronic credits generated using the Fed’s power to create money out of thin air. But they couldn’t be spent except to repay debt obligations, unless Congress opened the purse strings by appropriating deficit spending.

In short, within a few days after minting such a coin, the Treasury would be able to begin paying down the debt subject to the limit without further taxing or borrowing, if it chose to do so. It could pay the $6.7 T or so of debt held by the Fed and other agencies within a week, and then it could continue to pay the remainder of the debt as it falls due. As of June 27th the Treasury had redeemed $4.9 Trillion in debt instruments in June of 2012. So, had it begun paying down the public debt on June 1, and also paid off its debt obligations to other agencies and the Fed as well. By this time it would have paid off 74% of the total debt subject to the limit. Only 4.1 T or 26% of the debt would have remained. So, if this is all we need to do to pay down the national debt, then I think it is no problem at all for the Treasury, and certainly not the great crisis depicted by folks like Maya MacGuineas who are calling for shared sacrifice and austerity.

So, again, I have to ask a question. Since by now, the idea that the President can cause the Mint to create very high value proof platinum coins has hit such mainstream blogs as CNN’s (Jack Balkin post), Reuter’s (Felix Salmon), Think Progress (Matthew Yglesias), and Naked Capitalism (a post of mine), and a number of others, how is it that Maya MacGuineas won’t discuss it as a possible solution to the debt problem, and won’t call on the President to solve this very, very, serious problem by minting one or more platinum coins with face values great enough to end this oh so serious crisis by paying down the national debt by 74% in 6 weeks?

The third reason why there’s no debt problem follows from the first two. If either Congress or the Executive can so easily fix “the debt problem” by either re-organizing the Government, or creating platinum coins, then why would our continuing to issue debt at a faster rate than the economy is growing reduce the future capacity of the government to spend? Let’s say the national debt owed to parties external to the Government grew to 91% by 2025, from its present level. Would it be any more difficult to continue to spend by creating money out of thin air, or by minting platinum coins, or even by borrowing more, if those buying our debt instruments knew that, come what may, we can always pay our debts by creating fiat money?

Somehow, I don’t think so. I think Governments controlling a non-convertible fiat currency with a floating exchange rate and no debts in currencies not their own have no spending capacity limits in their fiat currency, at any particular point. It doesn’t matter how much debt they’ve issued in the past, because neither the size of that debt, nor the size of the debt-to-GDP ratio associated with it, affects their capacity to create new fiat money. That capacity is a matter of the political survival and functioning of such a government, in the context of its constitutional authority to create money, it has nothing to do with economic or so-called “fiscal sustainability” considerations.

In brief, the United States Government (including Congress, the Executive, and the Fed) can’t have any involuntary solvency problems, because it has no involuntary limits on its capacity to spend except those implicit in Congressional Appropriations. It may want to limit deficit spending in any fiscal year to prevent demand — pull inflation. But the repayment of debt doesn’t add any net financial assets to the private economy. It’s just a swap of debt instruments for money; and that’s not inflationary. So, there’s no “daunting debt challenge” for the United States. It’s all just “a deadly innocent fraud” as Warren Mosler would say. What about the “fiscal cliff,” vs. “the debt tsunami” that the austerians like to talk about?

The Fiscal Cliff vs. The Debt Tsunami

Maya MacGuineas says:

“Even more immediately, at years’ end we will face a $7 trillion fiscal cliff—a series of policies will kick in, from the blunt, across the board spending cuts (or sequester) to the expiration of the tax cuts that would reduce spending and raise taxes so abruptly and mindlessly it would put us back into recession. But ignoring and waiving the policies instead would add additional trillions to the debt and set us up for a fiscal crisis.”

Since, I’ve just pointed out that the US has no real debt/solvency ‘problem,” it’s pretty clear that this choice is no dilemma at all. When the debt ceiling crisis during the lame duck comes, just mint that $60 Trillion coin, start paying off the national debt, and refuse to make any spending cuts or support any tax increases on the middle class. Since the debt’s getting paid off, there’s no down side to that course.

”A fiscal cliff or a mountain of debt. It will require presidential leadership to avoid either threat. While the likely approach will be to replace the slated policies with a gradual debt reduction plan that would bring the deficit down and leave the debt so that it is no longer growing faster than the economy, there are many different ways to achieve this — all with pros and cons — and many specifics that need to be filled in.”

None of this is necessary. The mountain of debt isn’t a problem. The fiscal cliff can be safely destroyed by a Congress and President unwilling to drive the country off of it, and there’s no need for a long-term deficit reduction plan to flatten that cliff. In fact, having one is a bad idea because the deficits we run need to be determined by spending programs directed toward public purpose in the context of current economic conditions.

Whether there’s a deficit or not and how large it or the debt is should not be forced by fiscal policy aimed at reducing either one or both; but should be determined by policies designed to improve both the economy and the society it serves. When you can run out of money and become insolvent, then you have to make sure that debts and deficits don’t impair your future capacity to spend.

But when solvency isn’t an issue, all that counts is the economic and societal impacts of fiscal policies, not their impact on the abstract debt or deficit numbers. It’s not that deficits don’t matter. They may matter very much if they’re large enough to cause demand – pull inflation. But if fiscal policies are evaluated from the viewpoint of their impact, then inflation becomes one of the possible impacts of policy, to be assessed against other outcomes as necessary in estimating and planning for a fiscal policy that will achieve public purpose.

The Debates and the Debt

Maya continues:

”However, the tendency during campaigns, of course, is for politicians to talk about what they promise not to do, rather than own up to the tougher decisions their stewardship would require.

Instead of allowing the presidential candidates to duck and bob to avoid specifically saying how they would stem the flow of red ink, what if voters insisted that all presidential candidates directly answer the question, “how would you fix the debt?””

If voters insisted on that, then it would be a very big distraction from real issues. As I’ve already said, the idea that there is a debt crisis is “a deadly innocent fraud”; and part of its deadliness is that people become preoccupied with this false fiscal, but real but minor political problem, and spend far too little time on the myriad of real economic and societal problems we face as a nation. Everyone knows the litany of these problems well enough. I needn’t repeat it here. But I can’t emphasize heavily enough that voters ought to insist that presidential candidates directly answer questions about how they would handle real problems, and the question “How would you fix the debt?” is not directed toward one of these.

But questions like: “How would you help to create full employment?” “How would you create a health care reform bill that covered everyone and cut total health care expenditures as a percent of GDP by 1/3?” “How would you reduce economic inequality in the United States?” “How would you expand the social safety net to implement FDR’s economic bill of rights?” ‘How would you rebuild the energy foundations of the United States to create an economy no longer based on fossil fuels?” “How would would you rebuild the public education system in the United States, so that we are among the top few nations in the world in educational quality?” And, of course, “How would you stop and reverse the trend towards plutocracy in the United States to save our democracy?” All of these are questions that are targeted on real problems.

So, I think that these are the kinds of questions that presidential candidates ought to debate. But, under no circumstances should they waste another moment of time debating how to meet the non-existent “debt problem.” And as for detailed deficit reduction plans and scoring candidates performance on these is concerned, forget it! It’s just a waste of time, a diversion for people who’d rather play games than solve real problems.

(Cross-posted from Correntewire.com)

The Fiscal Summit Counter-Narrative: Part Eight, Narrative and Counter-Narrative For Fiscal Sustainability

6:29 am in Uncategorized by letsgetitdone

(Author’s Note: This is the concluding post in an eight part series on the counter-narrative to the austerian/deficit hawk/long-term deficit reduction approach to fiscal policy that is dominant in Washington, DC today. At the end of this post I list and link the seven earlier posts in the series. I think the eight posts are important because they give the only progressive counter-narrative to the austerians, including the President, that doesn’t share their basic paradigmatic framing; namely that there is a Government Budgetary Constraint on the United States flowing from a danger of forced Government insolvency.)

I started this lengthy series by saying:

Well, it’s Springtime in DC. Time for the Peter G. Peterson Foundation’s annual event. The Fiscal Summit, to be held on May 15, better named the Fiscal Cesspool of distortions, half-truths and lies, is a propaganda extravaganza designed to maintain and strengthen the Washington and national elite consensuses on the existence of a debt crisis, the long-term ravages of entitlement spending on America’s fiscal well-being, and the need for long-term deficit reductions plans to combat this truly phantom menace. The purpose of maintaining that consensus is to keep an impenetrable screen of fantasy intact in order to justify policies of economic austerity. that have been impoverishing people and transferring financial and real wealth to the globalizing elite comprised of the 1% or far less of the population, depending on which nation one is talking about.

I then pointed to the first two Fiscal Summit Conferences in 2010 and 2011, identified some of the featured participants in both of these, and the then pending 2012 conference, and identified the primary myths used to form the neoliberal-based deficit hawk/austerian “fiscal sustainability”/”fiscal responsibility” narrative driving the politics of fiscal policy towards debate, discussion and passage of a long-term fiscal policy plan focused primarily on deficit reduction and long-term “fiscal responsibility” and “fiscal sustainability.” I then set out to present a detailed account of the five sessions of the April 2010 Fiscal Sustainability Teach-In Counter-Conference along with comments and references (links) to posts appearing since the Teach-In. The five sessions and accompanying Q & A, covered in posts 2-7 of this series, supplemented by additional post-conference work provide a fiscal sustainability/fiscal responsibility counter-narrative based on the Modern Monetary Theory (MMT) approach to economics.

In this final post of the series, I’ll juxtapose the primary claims underlying the neoliberal austerian fiscal sustainability/fiscal responsibility narrative, and the MMT answers to them. The austerian claims all link to MMT-based posts that critique them. The paragraphs following each austerian claim summarize the MMT answers, and the counter-narrative.

The Government is running out of money

The US Government has the Constitutional Authority to create an unlimited amount of money provided Congress appropriates the spending, and places no constraints on spending such as a need to issue debt instruments when the Government deficit spends, or debt ceiling limits. So, all constraints on spending appropriations are purely voluntary in the sense that they are due to Congressional mandates that Congress can repeal at any time.

Having said that, the constraints mentioned are now in place, and the Teach-In didn’t deal with ways of getting around the constraints within the framework of current law. It didn’t show that without legislative changes, the Executive can always create enough money to pay for whatever spending Congress has appropriated and also repay debt, so that even with a Congress willfully maneuvering for default, the Executive can ensure that the Government doesn’t run out of money even without more taxing and borrowing.

Since the Teach-In in April 2010, the option of using Proof Platinum Coin Seigniorage (PPCS) as one method of getting around the debt ceiling has received a lot of attention. Originally suggested by Beowulf some time ago, there are any number of PPCS options the President can use to generate coin seigniorage profits to use for a variety of purposes. I’ve outlined some of them here. Some PPCS options stop with $1/2 Trillion coins, some go over $1 Trillion up to $5 Trillion, and still others envision very high face value coins ranging to $60 Trillion and up.

For getting around the debt ceiling, coins with face-values up to $5 Trillion will certainly remove the need to issue further debt subject to the limit and break the debt ceiling. However, minting a platinum coin with a face-value of say, $60 Trillion is also a political game-changer, because it results in filling the Treasury General Account with enough in credits to make it obvious to the most concrete thinker that the Government has the capacity to pay all the debt subject to the limit, issue no more such debt if it so chooses, and also spend whatever Congress chooses to appropriate in the way of new programs to solve current problems.

So, issuing a $60T coin, removes the issue (excuse) of whether the Government of the United States can afford to pay for employment programs, educational programs, infrastructure, new energy foundations, a Medicare for All program, new R & D programs, or expansion of the social safety net from the political table. Issuing that coin can and would create a new political climate moving American politics much further to the left within the space of a few months. In short, it would dramatically illustrate the MMT counter to the austerian deficit hawks, namely that the US Government is not running out of money and cannot do so as long as it has the intention to use its authority to create more of it.

The Government can only raise money by taxing or borrowing

Clearly this isn’t true. First, the Federal Reserve, a Government agency can create unlimited money “out of thin air,” as the saying goes, though not for purposes of deficit spending, or directly liquidating Treasury debt. But second, I’ve just pointed out that PPCS can be used in the present legal framework to create money other than by taxing or borrowing.

We can’t keep adding debt to the national credit card.

Again this is false. Congress has placed a debt ceiling on the Government, and it has also mandated debt issuance when the Government deficit spends, by prohibiting the Fed from lending the Treasury money. So, it’s only the self-imposed constraint of Congress that prevents the Government from continuing to add “debt to the national credit card.” There is nothing inherent in the international economic system, or our own Constitution that prevents us from adding debt as needed.

And even if current constraints on debt ceiling constraints remained in place, Treasury can still issue debt without breaching the debt ceiling. Beowulf, the blogger/commenter, who first proposed using high face-value PPCS to get by the debt ceiling, just came up with a new option to avoid breaking the debt ceiling. That option follows:

“Another way to sidestep the debt ceiling is to go the opposite extreme from one-day maturities, issue perpetual T-bonds with no maturity date (what the Brits call consols). Look at the debt ceiling law, the public debt adds up, for all outstanding debt, the face amount of the guaranteed principal. The future interest payments to be paid aren’t counted. (“The face amount of obligations issued under this chapter and the face amount of obligations whose principal and interest are guaranteed by the United States Government“).

“If there’s no maturity date, then there’s no promise to repay principal and thus there’s nothing to add to the public debt total. Tsy could issue an unlimited amount of consols without tripping over the debt ceiling.”

Beowulf has more on consols here. But the possibility of consols is enough to show that the Treasury has an unlimited credit card under current legal arrangements, and can use it without breaching the debt ceiling, though of course, it can’t spend more than Congress has appropriated, and is also required to repay debt and interest that is coming due.

Btw, few public discussion on the size of Treasury’s credit card hardly ever recognizes just how much Federal debt is repaid every year as it falls due. This fiscal year alone, through June 20, $47.6 Trillion in Federal debt was repaid, while $48.6 Trillion in new debt was issued. This isn’t what you’d expect to find if the national credit card was limited by anything other than an arbitrary debt ceiling imposed by a Congress that can remove that ceiling in one hour.

We need to cut Federal Government spending and make do with no more money.

This conclusion follows from the ideas that we’re running out of money and also out of space on “the national credit card.” Since these notions are just not true, why should we cut either Federal Government spending, or Federal deficit spending on grounds of scarcity of money? The austerians have other reasons for wanting to do that; but in the fiscal summit narrative, the reasons given are these two.

If they’re false justifications then the fiscal sustainability/responsibility narrative is both unsustainable and irresponsible, since it leads to unnecessary cuts in Federal spending that will hurt many millions and also the economy for no good reason at all. Austerity is a solution to a problem that doesn’t exist, or to put it a bit more kindly, it’s a solution looking for a problem. Or to put it less kindly, perhaps it’s the solution to the kleptocrats’ problem of how to create an impoverished underclass that will accept its looting without complaint.

In any event, MMT says that we don’t need to make-do with no more money as long as the economy is operating below its full productive capacity and full employment. Since the Government can always make more money, there is no need to make do with less, until there are concrete negative consequences of more spending. In fact, the Government must spend more to lift private sector aggregate demand and enable the Economy to get to full employment. Demand-pull inflation will not occur as a result of Government spending as long as the economy is operating at less than full employment.

If the Government borrows more money, the bond markets will raise our interest rates

The bond markets don’t control US interest rates. The Treasury can flood overnight bank reserves and float short-term debt to meet its targeted interest rates, however low they may be. The Government, if Congress would let it, can even stop issuing debt when it deficit spends (by using PPCS or consols, or by Congress moving the Fed into Treasury where it belongs) in which case the bond market interest rates would become entirely irrelevant.

If we continue to issue more debt, then our main creditors may refuse to buy it, an event that would lead us to insolvency and severe austerity

Our creditors all want export-led economies. This means that they must accumulate dollars, because the US is where the consumption power is, and if they want to keep exporting they must keep the American consumers’ business. Their dollar surpluses can sit idle in their Federal Reserve accounts or be used in a way that makes them money. Buying our debt makes them some money, however little it may be at current interest rates. Buying our goods and services reduces their trade surpluses with us, and goes against their export-led policies. Selling our currency, weakens the value of the USD holdings they retain. In short, they have little choice other than to buy our debt, unless they want to gradually adjust trade balances with us over time.

Even more importantly, as I keep repeating, we don’t need to raise money by borrowing USD from them or anyone else. We can simply spend/create it ourselves if Congress repeals its constraints prohibiting the Fed from “monetizing” the debt, or if the President decides to use PPCS or consols. The result of no more debt issuance, along with use of these other methods, would be paying off the national debt over time, without austerity. So, why don’t we do that? Could it be that the austerians want austerity for political rather than economic reasons, and that the fiscal sustainability/responsibility justifications they give are just part of a complex fairy story they tell to avoid being candid about why they want austerity?

Our grandchildren must have the heavy burden of repaying our national debt

No US generation except one has ever repaid the national debt by running budget surpluses. That generation was rewarded with the depression of 1837. Moreover, each time the nation ran substantial surpluses for a period of time, the country fell into depression or recession, most recently the recession of 2001, following Clinton’s four years of running a surplus. It’s a bad idea to repay the national debt by running surpluses, so our grandchildren won’t do it unless they can do it without discontinuing “deficit” spending. That’s possible, but only if the Congress repeals the mandate to issue debt when the Government deficit spends, or alternatively, the Government freely uses its PPCS power. In both cases the national debt can then be repaid without requiring that tax revenues match or exceed Government spending.

In any event, our grandchildren will not have the burden of repaying the national debt, but if we are so stupid as to attempt to pay it by running surpluses and practicing austerity, then they will have the burden of growing up in poor families, attending very poor schools, living in mal-integrated communities where they’ll be subject to crime and violence, and living in a class-ridden nation run by a kleptocratic elite that monopolizes both the artificially constricted supply of financial wealth, and the increasingly scarce real wealth produced by a stagnant, broken economy. That’s not what any of us want; but that’s what the austerian/deficit hawk policies will produce.

There is a deficit/debt reduction problem for the Federal Government that is not self-imposed.

All together now, there is no such problem. Since the US Government has no limits other than self-imposed ones on spending or borrowing, the level of the national debt or debt-to-GDP ratio doesn’t affect the Government’s capacity to spend Congressional Appropriations at all. These numbers aren’t related to fiscal sustainability in nations like the US with a non-convertible fiat currency, a floating exchange rate, and no debts denominated in a currency it doesn’t issue. Such nations can’t become involuntarily insolvent because they always create more currency to pay debts denominated in that currency.

If the debt-to-GDP ratio were 300% and there were no other changes in current the US would still have the same ability to deficit spend it has now. Conversely, if the debt-to-GDP ratio were 10%, the same would apply. To put this simply, the size of the public debt subject to the limit, and the size of the debt-to-GDP ratio have no impact at all on our capability to deficit spend, because we can always make the money we need, if need be, through PPCS. So there is no need for a long-term deficit reduction plan to lower the debt-to-GDP ratio. There is also no need to run surpluses to decrease the size of the debt, since we can always use profits from PPCS to do that without either borrowing more or raising taxes.

Even though neither the level of the national debt, nor the level of the debt-to-GDP ratio creates a sustainability problem for the US, depending on conditions, the deficit can be too high. But the question of when a deficit is too high isn’t an issue of fiscal sustainability in the sense that we can run out of money, but instead is an issue of the negative consequences of an excessively high deficit. The most important of these consequences is demand-pull inflation, and when that is observed, Federal spending should be reduced to control or eliminate it. However, there are two questions arising here. First, which spending, if cut, will produce the most overall benefit. And second, what’s the impact of cutting spending vs. the impact of doing nothing, vs. the impact of raising taxes.

The Federal Government is like a household and that since households sacrifice to live within their means, Government ought to do that too.

No, the Federal Government is not like a household! Households can’t make their own currency and require that people use that currency to pay taxes. Households can run out of money; but the US can’t ever run out of money as long as Congress decides to appropriate spending and gives the Executive the authority to implement that spending. So, the Federal Government doesn’t have to sacrifice to live within its means, since its “means” to create new currency is limited only by its own decisions and not by any factors external to it. Put simply, Federal spending including deficit spending doesn’t cost anything in the doing. The only relevant question is its real effects on the economy.

The only way to tackle our deficit is to cut excessive spending wherever we find it.

The problem with this claim is that it assumes that deficit spending is a problem that we must “tackle.” But, there is no “excessive spending” per se. And I’ve said enough already to show that whether this is a problem or not needs to be debated. Whether spending is excessive can only be evaluated in context.

The issue is always the effects or impact of Federal spending. Spending is “excessive” when it fuels inflation, or when it provides financial benefits to already wealthy people who don’t need such benefits, or when it funds programs that impose real costs on people and society like negative environmental effects, locking-in dependence on fossil fuels, imposing environmental risks, increasing economic, social, and political inequality, undermining civil liberties, civil rights, privacy, etc. Also, “excessive spending” shouldn’t be cut to lower deficit spending, It should only be cut because of its negative impacts, including inflation.

We should also find a bipartisan solution to strengthen Social Security for future generations

Again, this claim assumes that Social Security funding is a problem and that the program needs to be strengthened by fixing its funding. But that claim is at issue. In parts Three and Four, Warren Mosler and Stephanie Kelton, both argued that Social Security solvency is a fake problem from the MMT point of view and posts since the Teach-In have reinforced this argument.

Apart from the fact, that it isn’t obvious that a bi-partisan solution to a fiscal problem would produce the a real solution, it’s also true that this is a fake fiscal problem. Social Security should be strengthened alright. But the way to strengthen it is to guarantee its funding in perpetuity, and to greatly increase benefits for many seniors whose current benefits leave them scraping the poverty line. Try doubling SS benefits while providing full payroll tax cuts. That will strengthen SS and the economy as well.

We face a crushing burden of Federal debt. The debt will soon eclipse our entire economy, and grow to catastrophic levels in the years ahead

As I’ve indicated above, this view is total nonsense, because federal spending is costless in the spending. If the debt subject to the limit bothers the neoliberal austerians so much, they ought to be supporting full payoff of the debt using PPCS profits. Doing that won’t harm the economy, and it won’t cause inflation either, since the bonds retired are more inflationary then the money paid to redeem them.

The next generation will inherit a stagnant economy and a diminished country

I certainly agree with this claim if the Congress legislates and the Government implements Paul Ryan’s or other austerian budgets and long-term deficit reduction plans. On the other hand, if MMT proposals providing for responsible fiscal policy ending unemployment while providing price stability were adopted, then the next generation will inherit a much more dynamic, growing, yet more sustainable economy and a much happier and freer nation, no longer run by the 1%.

The United States is in danger of becoming the next Greece or Ireland

This one is a real laugher. Greece and Ireland can run out of Euros. California can run out of dollars. But the United States can’t run out of Dollars. Japan can’t run out of Yen. The UK can’t run out of Pounds, and Canada and Australia can’t run out of Canadian or Australian Dollars. So, governments like California, Michigan, Wisconsin, etc. can become the next Greece or Ireland if the Federal Government allows that to happen by refusing to bailout States if they need it, but the US can’t become the next Greece or ireland, because it can always bail itself out if it chooses to do so.

The real danger for the US is in becoming the next Japan and losing a decade of economic progress by following neoliberal deficit reduction doctrines. The US is now approaching four years of the decade we are losing. Why are we losing it? Because, as Warren Mosler is fond of saying: “Because we fear becoming the next Greece, we continue to turn ourselves into the next Japan.” That is, we’re making ourselves a stagnant economy by imposing unnecessary fiscal constraints, rather than creating/spending the money we need to solve our increasingly serious national problems.

Fiscal Responsibility means stabilizing and then reducing the debt-to-GDP ratio and achieving a Federal Government surplus.

No! REAL Fiscal Responsibility is fiscal policy intended to achieve public purposes while also maintaining or increasing fiscal sustainability viewed as 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. So, the REAL Government fiscal responsibility problem 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, 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 our leaders in Congress and the Executive Branch, to remove fiscal constraints and use the fiscal powers of the Federal 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 all the other serious problems we face, but now will not handle because we claim a non-existent fiscal incapacity of the Federal Government. There is no incapacity! We have not run out of money! We have only run out of smarts, will, and courage! We need to get those back, and do what must be done to reclaim the future for working Americans.

Federal Government austerity will create jobs.

Well, let’s see. We’ve got austerity now in Ireland, Spain, Portugal, Italy, the Baltics, and, of course, Greece, among nations in the Eurozone, and also in the UK. Is it creating jobs anywhere? Is there even one case, in which the “austerity will create jobs” theory isn’t being refuted by events? Some may think that Latvia is beginning to recover because it’s unemployment rate has now fallen to 15%; but that’s because 200,000 Latvians (10% of the population) have chosen to emigrate, a particularly effective way of both leaving the labor force, and lowering the rate of unemployment. Bet we could lower unemployment here too, if we first ran the economy down by 30%, drove U-3 up to the 20% level, and then had 31,000,000 people leave the United States for parts unknown. Oh austerity, will thy wonders never cease?

Conclusion: Saying No to Neoliberal Austerity

This post marks the end of a lengthy journey through the proceedings of the Fiscal Sustainability Teach-In Counter-Conference I’ve offered to you. I wrote this series because I think an answer was needed to this Spring’s lobbying for austerity and long-term deficit reduction by the Peterson Foundation-associated politicians, lobbyists, and intellectuals who are still, even after three years of the Obama Administration, dominating the Washington conversation about fiscal responsibility and fiscal sustainability, and still pushing these issues to the center of our concerns, even after years of high unemployment, and the destruction of 40% of the accumulated wealth of middle class Americans, the continuing decline in the quality of our schools, our collapsing infrastructure, the continuing decline in social and economic mobility in the United States, the continuing subversion of the political system by monied elites, both personal and corporate, the continued failure of our health care system to deliver health care to all Americans that works, and doesn’t economically devastate those who enter the health care system, and the continued exacerbation of many of our other problems. Why do the partisans of austerity and long-term deficit reduction say that the fiscal sustainability problem is a more important problem than all of the others, or even a problem at all?

It’s because they say that the US Government is constrained in its spending by its need to raise revenue from taxing and borrowing, and its dependence on the bond markets for reasonable interest rates when it borrows. This is the Government Budget Constraint (GBC) which is at the very center of their story, and which drives their reasoning to the conclusion that unless we get the national debt under control so that the debt-to-GDP ratio stops growing and stabilizes at some reasonable level, our financing from the bond markets well carry prohibitive interest rates. And that if we continue borrowing beyond that our credit will finally collapse preventing us from funding many of of our essential programs and even our common defense.

All the claims, I’ve reviewed here, except perhaps for the last, are based on the idea that this GBC exists. There’s plenty of evidence that it exists, they say. Look at households, look at private businesses, look at non-profit organizations, look at state Governments, look at Greece, Ireland, Spain, etc. They all have GBCs don’t they, and since the Government is just like an enormous household, it has a GBC too, right? Wrong!

MMT says that for a Government with a non-convertible fiat currency, a floating exchange rate, and no debts in a currency not its own, there is no GBC. That claim is at the heart of the counter-narrative asserting that the US has no budget constraint except for self-imposed ones.

Some rightly point out that even though the Constitution allows creation of financial wealth without limit, a GBC does exist in the US because Congress has imposed it, by locating the power to create money “out of thin air” in the Fed, and by requiring that the Fed not extend credit to the Treasury, by either allowing it run a negative balance in its accounts, or by monetizing Treasury debt by buying it directly. However, these claims don’t hold up because 1) Congress can always remove these constraints since they are political rather thah economic, and 2) they ignore the 1996 legislation allowing the Secretary of the Treasury to mint proof platinum coins of arbitrarily high face value, e.g. $60 Trillion.

Treasury can use that law to fill the public purse, pay off all debt subject to the limit, and cease to issue any new debt. Since this capability exists, even without Congress removing its constraints on Treasury money creation, Treasury can still create whatever it needs to close any gap that might appear between tax revenues and federal spending.

So, here we are, a Government without a GBC that can never run out of money involuntarily, and we’re facing a persistent, well-funded and powerful consensus in Washington that wants to impose austerity on all of us in the name of a non-existent GBC that it passionately asserts will cause the nation to “go broke,” if we give priority to all of our major problems while forgetting about their fantasy that we are doomed if we don’t reach some entirely arbitrary level of debt-to-GDP ratio, that they have no way of even deriving in any rigorous way from their neoliberal theory.

With increasingly grave warnings of doom they try to make us believe that we are facing a national crisis that must be met with a bipartisan solution that will be impervious to the inevitable protests that will arise from most people when their solution causes suffering — as it inevitably will since as MMT shows, deficit reduction and government surpluses will inevitably cause destruction of private sector financial assets in the private sector.

Since the elites are in a better position to protect their financial assets than other Americans, the burden of austerity will inevitably fall on most of us. We will be sharing the sacrifices, while they will be getting richer from their efforts in the international gambling casino, and from seizing everyone else’s property when austerity renders debtors unable to pay their debts.

Negotiation of that “bipartisan agreement” they are seeking will probably use Bowles-Simpson as a framework, even though that framework was never adopted by the “Catfood Commission,” and even though it has received great resistance in Congress since it was published, by the two Chairs in the absence of agreement needed to make it a commission product. In any event, the main thrust of the austerians/deficit hawks: that fiscal policy should focus on a long-term deficit reduction plan cutting back the social safety net, is still very much alive politically in Washington, DC and another attempt to implement it is likely in the lame duck session, barring an implosion in Europe before then, that could change the priorities of the deficit hawks.

So, the importance of continuing to counter austerian propaganda like The Fiscal Summit of 2012, and other non-partisan organizations allied with the Peterson Foundation remains. We, who believe in the MMT counter-narrative must continue to fight to try to break through the screen of their closed system. One of the popular slogans for the austerians this year is “Debate the Debt.” There’s a petition web site urging politicians to debate the debt. There’s a proposal demanding that the presidential candidates devote a whole presidential debate to the debt and deficit issues.

What is it the austerians want us to debate? They want us to debate how we should reduce deficits over the medium and long-terms by spending less and taxing more. But they most emphatically don’t want to debate whether the debt, deficit, and debt-to-GDP ratio, represent real problems relating to fiscal sustainability or fiscal responsibility. Put simply, they don’t want us to debate whether there problem is really a problem for our capacity to spend in the future or for government solvency.

They say there’s a government solvency problem and that all of us must and should suffer to solve it. MMT says that there is no solvency problem and there’s no reason for people to suffer any more than they have already due to the crash of 2008. That’s the debate about the debt we badly need right now, When they say debate the debt, they mean debate how we should all suffer to get rid of it. When I say “debate the debt,” I mean debate whether the public debt subject to the limit is a real problem, or a just a massive distraction from coming to grips with our real problems. I think that my debate question is clearly prior to the austerians’ because it doesn’t assume the conclusion that there is a problem and that focusing on it isn’t a distraction.

But, I think it is a massive distraction; and I can prove it! Just mint that $60 T platinum coin and the debt problem will go away. Then the Peterson Foundation will need to invent a new fairy tale to distract us with; or maybe they’ll do all of us a favor and just go out of business, so we can re-build our country without having to deal with their insolvency fantasy first!

The Fiscal Summit Counter-Narrative: Part One

The Fiscal Summit Counter-Narrative: Part Two, Defining Fiscal Sustainability

The Fiscal Summit Counter-Narrative: Part Three, Are There Spending Constraints On Governments Sovereign in Their Currencies?

The Fiscal Summit Counter-Narrative: Part Four, The Deficit, the Debt, the Debt-To-GDP Ratio, the Grandchildren, and Government Economic Policy

The Fiscal Summit Counter-Narrative: Part Five, Inflation and Hyper-inflation

The Fiscal Summit Counter-Narrative: Part Six, Policy Proposals for Fiscal Sustainability

The Fiscal Summit Counter-Narrative: Part Seven, Policy Proposals for Fiscal Sustainability, the Q & A

(Cross-posted from Correntewire.com)

Election Politics and the Trillion Dollar Coin

1:30 pm in Uncategorized by letsgetitdone

Sometimes people object to the idea of the President ordering minting a $1 Trillion proof platinum coin on political grounds, even though they believe it’s: legal to mint such a coin, won’t be inflationary, and will allow the President to avoid the debt ceiling crisis. Robert Rice offered the following as part of a longer comment on a post of Beowulf’s:

“Given a large portion of the country regards any form of money creation as inherently inflationary, coining the billion, trillion, or infinity coin will be fought tooth and nail in the name of preserving the value of the dollar. While this position is of course grossly mistaken, do you really think the Obama administration is going to want an argument a few weeks before the election on whether money creation is inherently inflationary?”

I think that’s right. I don’t think the Administration is going to want a big fuss over the inflation bogeyman a few weeks before the election. However, It won’t happen before the election because the President still has almost $800 B in headroom before the debt ceiling is reached (See Daily Treasury Statement, June 20, 2012). It will happen after the election. My hunch is November, though there’ll enough money to last until the new Congress starts in January, if Obama wants to continue deficit spending at the $109 B per month rate he has been running this fiscal year.

In any event, during the lame duck, and the succeeding months after he mints a jumbo coin, the President could have that debate about money creation being inflationary. He could take plenty of time to educate people about his initiative. But I think he’d be a fool to try that after minting only a $1 Trillion coin, because that coin won’t solve the problem of persuading people that there are no solvency or inflation problems to worry about. It’s just a half-measure, and it won’t pay off the debt that many people are so freaked out about.

Let’s say, however, that he creates a $60 T coin and uses it to repay other Government agencies and buy the Treasury debt from the Fed on November 15. That will reduce the debt by 6.4 T bringing it down to $9.3 T or so. Since none of that money will be spent into the private economy, beyond normal entitlement spending, there won’t be any inflationary impact.

The Treasury has been rolling over close to $4 T in debt instruments every month; meaning that most of that is probably short-term debt. So, by the end of the year our debt subject to the limit will be down to $5 T or so, and we will find out by the first quarter of next year whether paying down the debt using seigniorage is inflationary or not.

If it isn’t, as Modern Monetary Theory (MMT) predicts, then the fight over “printing money” will be over, won by MMT and reality. We’ll probably be down to about $3 T remaining longer term debt to be paid off as it comes due, and both the debt terrorists and the inflationistas will have to fall silent. Obama will have won the political fight and he will still have more than $45 T left to cover remaining debt subject to the limit, and future spending for 20 years, at least.

In short, I think the political argument against huge value Proof Platinum Coin Seigniorage (PPCS) will fall to the ground, since people will love the idea of no more national debt, especially those who, not knowing about MMT, believe that our national debt is fiscally unsustainable and fiscally irresponsible.

(Cross-posted from Correntewire.com)

The Fiscal Summit Counter-Narrative: Part Seven, Policy Proposals for Fiscal Sustainability, the Q & A

5:26 pm in Uncategorized by letsgetitdone

My last post covered the Session 5 presentations of Professors L. Randall Wray and Pavlina Tcherneva to the Fiscal Sustainability Teach-In Counter-Conference. The subject of both presentations was the MMT Job Guarantee a policy proposal at the core of out developing Fiscal Sustainability/Responsibility Counter-narrative to the story told by Peter G. Peterson’s Fiscal Summits and the neoliberal ideology they exemplify. This post will cover the Q & A Session following the presentations.

SESSION 5: “Policy Proposals for Fiscal Sustainability” – Q&A

Dennis Kelleher, Rebel Capitalist, kicked off the Q & A by asking whether the Job Guarantee (JG) wage would eliminate the need for minimum wage laws because the government was setting the minimum wage. He also asked whether the minimum wage could be regionalized by basing it on a HUD index measuring the cost of housing.

Warren Mosler replied that if the political will was there the JG wage could certainly be indexed according to regional variations. Warren also added something to Pavlina’s presentation. “The size of this employed buffer stock, we’d expect it to be much smaller than the pool of unemployed for a given level of price stability. So for right now, if maybe the mainstream would think maybe we needed maybe 4 or 5 percent unemployed for price stability under normal circumstances, this might be only 2 or 3 percent because it’s a much better buffer stock than unemployed because labor can actually flow back and forth and so it becomes more of a transitional job between unemployment and private sector employment than it does…there still would be elements of just a career public service job.” He then goes on to point out that benefits can be introduced from the bottom up by the Government through the JG. For example, two weeks vacation, child care, health care. If you did that then competitive markets would move those benefits up the scale. The JG “. . . . gives us a tool for that which is the American approach to things so it is a hybrid type of approach that gets rid of the moral hazard aspects of other approaches.”

Bill Mitchell added that in the South African case he used poverty lines and nutrition rates to design a minimum wage framework “. . . which would embed in the public works program we’ve been working on.” And he goes on:

”And, of course, then you find out that there’s objections from the government: 30% of private employers are paying well below what you’ve suggested as your minimum wage. And, I said this to the Treasurer of the country, that what you’ve got to decide in any nation is that aims to be a civilized, sophisticated country is what is the minimum price you want people to be able to do business at? And that minimum price has to be a wage that provides people with an inclusive capacity to interact in society, and if your private sector are paying below that then you don’t want them in your country.”

LetsGetItDone Comment: I like to say that insofar as workers are being a paid less than a living wage, the businesses paying them are getting subsidized by the workers so that those businesses can stay in business. I think it should be illegal for workers to pay such subsidies and that businesses that, in effect, ask them to do so, don’t deserve to exist because they don’t produce a net gain for society. I’d rather see those businesses fail, and see their workers employed in a JG program any day in the week. We don’t need, and should not have such businesses in the United States.

”That’s the reality. Otherwise, you’ve got no aspirations to be a sophisticated, civilized country. And so the job guarantee wage is, you don’t do away with the minimum wage, it becomes the minimum wage. And then you can add on whatever, like Warren says in political terms, you can add on whatever, in Australia we call them social wage benefits: child care and access to all sorts of other benefits that are outside the direct employment contract. But it is the minimum wage and you have got to set it at a level that you aspire to be the actual living minimum, not some penurious sort of penalty rate.”

Roger Erickson remarked that we’ve described options here, but not how we can get people to explore or take up these options. “. . . The problem is scaling up to large populations. The only thing we’ve learned, I’ve learned today, is how we address this is we either have a war or a severe depression. We have to find a mechanism where a population can become self-aware enough to address this kind of…what it’s leaving on the table, short of having a major depression or a war, and the only example I can think of, of groups that have done this very large scale, are large military groups and they do what you would expect from any systems theory, they drive interaction and awareness through absolutely political or operational decisions.”

Bill Mitchell: “I mean, as Pavlina said, India’s got a bigger population than the U.S. and India has introduced the rural Job Guarantee, as a national employment guarantee, it’s employed millions of people, already . . . They did it because the growth in the Indian economy, which was urban-based in technology and construction. . . . They were faced, the motivation was that they were faced with an urban crisis because the rural poor had no option but to try to flood into the cities to enjoy the growth that was occurring there and they knew that wasn’t sustainable for housing and other reasons and so they suddenly realized that the reason this migration is occurring is the lack of jobs in the rural sector. . . . Solution: Create jobs. Who’s going to do it? The private sector isn’t going to do it, we’ve got to do it and they did it. Millions of jobs have been created in the second largest population in the world.”

Roger Erickson: ”So the hundred dollar question is what do we have to do to make the existing Congress aware of things that it has taken them years to become aware of?”

Bill Mitchell: “That’s a good question.”

Unidentified: “Well that’s a serious political question and I…it’s going to take a grass roots effort. It’s going to have to come from the grass roots because of, we’re talking about, our political system is seriously dysfunctional. To get anything, something like this out of our current political system is just unrealistic. So it will be an incredibly difficult endeavor to do something like this but it doesn’t mean we don’t undertake the effort to do it and to start advocating this on several needs, several levels.” He goes on to talk about the difficulty of breaking through media and other political screens.

Marshall Auerback: says he disagrees because when he’s presented this idea in speeches and conferences it “. . . actually got a lot of bipartisan support.”

“Funnily enough, a lot of times I get, I’ve had objections from unions rather than from on the Right because what the unions think is that you’re trying to create a slave class of labor that’s going to undercut their wages and you have to try to explain you’re trying to fill the gap and create a full employment pool which ultimately enhances their pricing power. So, in the first instance it can be a little bit deflationary because if you have someone who’s been paid, say, $40 an hour and all of a sudden he’s lost his job and he has to go to $8 there is a once off adjustment but then the adjustment mechanism the other way which is much easier. So I actually think this is one of our winning ideas which actually could get much greater political acceptance than you think.”

Jeff Baum says that this sounds like a socialist idea, so when it’s proposed all we get is a lot of noise. But if this becomes the minimum wage why won’t every minimum wage worker go to work for the government because they can’t be fired and why won’t “private industry” charge that the JG is competing with them and will either drive wages up or private industry won’t be competitive with government?

Warren Mosler replies saying:

“Look, we’re going to have active fiscal policy that keeps, for a given size government, keeps taxes low enough so that the private sector will be able to have the means to hire everybody which means they’re going to have to still have the means to pay a higher wage. So if we start off at an $8 an hour, first of all that’s not going to be disruptive. I don’t think anyone quits their private sector job for that or very few people.

“Well yeah. It’s full-time work. There are still people who are going to work baby-sitting and whatever. So — you’ll get a few and then we conduct discretionary fiscal policy so that this pool, the private sector hires these people away and maybe they’ll have to pay ten or eleven or twelve dollars so it will be some spread but then that spread will stabilize and then that will be the stabilized private sector wage, let’s say, unless we over stimulate…we have too much aggregate demand, we allow too much aggregate demand and then our pool of buffer stock workers shrinks to zero then, of course, it’s no longer a buffer stock and then you lose control of prices on the upside just like with any other buffer stock.

“But if we conduct policy to keep it at two or three percent, whereas before we had unemployment at four or five percent we’ve actually reduced the public sector because the unemployed are in the public sector. Look the thing is, and don’t forget when I told you about my cards in creating, if there’s a tax to get out of this room and of, whatever, and then I don’t hire enough, I don’t offer enough jobs so you can get the money to get out of this room, why did I do it? Something’s really wrong with my policy, I should be lowering the tax or giving you more work. Right? I should be increasing my spending or cutting my taxes. We got to get discretionary fiscal policy to the point where these people we’ve taken out of the private sector and not used in the public sector because either we don’t want them, we don’t want to spend, whatever, has got to be minimized.

“We want to minimize it but we also want to have a buffer stock as a price anchor. Now, every monetary system uses a buffer stock policy, a gold standard is a gold buffer stock, unemployment is an unemployed buffer stock. What we’re saying is an employed buffer stock is far superior to an unemployed buffer stock and far superior to a gold buffer stock. It’s larger, deeper more flexible, and most important, whatever your buffer stock is, it’s always fully employed. There’s always a bid for the buffer stock. On a gold standard, gold is always fully employed, you can always take an ounce of gold and sell it to the government and get money for it, you can always monetize it.

“In a wool buffer stock, where Bill started, there’s always a bid for wool. Sheep are fully employed. [Laughter] No, it’s true. So, right now, we use unemployment as a buffer stock, this clearly shows we don’t have any idea what we’re doing. Not only do we not understand the monetary system we don’t understand that, well that’s part of it. We don’t understand a buffer stock always anchors a monetary system. We should be using an employed buffer stock.”

LetsGetItDone Comment: The point that there’s always some “buffer stock” in an economy, and that it’s a matter of choosing the best one, rather than not having one became a critical point later in the debate between mainstream MMT and a group of bloggers who argued that the JG wasn’t part of the MMT core. Warren argued cogently, I think, that the best “buffer stock” from the standpoint of public purpose is a fully employed one. See here for the best summary of the argument.

L. Randall Wray:

”I wanted to correct a misunderstanding because a lot of people do jump to this. We’re going to guarantee a job offer for anyone who is ready and willing to work. And then they say, oh, well then they’ll never get fired. No. We never said that.

“They don’t show up, they show up drunk, they don’t do their work, they are fired. Anything that the private employer can do, legally do to their employees, the employers in this program will do. And socialist, I think if you tell most Americans what we’re going to do, we’re going to require that people who ought to be working, define disabilities I think very narrowly, they’re going to have to work instead of welfare. And you ask them, “What would you call that system?” All Americans are going to call that, “Oh, that’s capitalism.” They wouldn’t call it socialism.”

LetsGetItDone Comment: This point also is very important. People objecting to the JG proposal often come up with the objection that it is a guaranteed job and that people who can’t or won’t perform still get the pay check. But, again, the JG provides a guaranteed job offer, not a guaranteed job. So, the objection is just false, provided that the JG program is well-run.

Having said that, it is important that if a JG program is passed, that it’s Administration not be placed in the hands of its political enemies, because they will destroy it first, by turning JG jobs into “featherbeds” with lax performance standards and little social value, and second, by attacking the program as providing sinecures for people who are producing nothing of value.

So, if we ever do get enough support to get the JG passed, everyone supporting it must realize that its passage will not be the end of the fight for the JG, but will only be the beginning of an unending effort to make the JG a Federal program that works as advertised, and that contradicts the lies that those who want to return to an unemployed buffer stock so that they can pay lower wages will tell about it. They will be unremitting in their efforts to destroy a program like this because it gives the lie to everything they believe in. So, we must be unremitting in our efforts to make sure that the JG becomes an exemplar of what we can do collectively to secure the economic bill of rights that FDR envisioned for us all.

Warren Mosler also points out that the JG is not the government owning the means of production, but only providing for public infrastructure. “Public infrastructure is all the things you hire people for and then you’ve got this transition pool where you facilitate the transition from…back to the private sector and that’s what this does.” In Argentina, more than half of the people among the 2 million employed by Jefes went to private sector employment within two years, allowing the economy to expand rapidly without labor bottlenecks, unlike the normal situation in which “it takes a lot of demand pull to get that done.”

Bill Mitchell replies:

“Well as Warren said, I got the idea sitting in my fourth year at Melbourne University and I was sitting in an agricultural economics class and at that time the Australian government was running what’s called the wool price stabilization scheme. And it worked by the federal government when the private market didn’t want to buy as much wool as was put onto the market the government bought it up and stored it in big sheds. And when the markets were strong the government wanted to stabilize the price, it just released the wool out of the sheds and back into the market. And it was very successful, it was used to satisfy the rural lobby to stabilize their income so they weren’t fluctuating. It was very successful. And I remember sitting in this very cold winter day in Melbourne, in Victoria, where I grew up, thinking well I didn’t really care about…it seemed like a full employment of wool scheme. Every bit of wool that was produced was employed, either in the shed or in the private sector somewhere. And at that time Australia was just going into very high unemployment, it was 1978, and I said I don’t really care about wool so much but I care about labor and we could use a buffer stock to do that for workers.

“But the point about business is, I often give talks to the business community and they’re as right wing in Australia as they are here and I’ve given talks in the Netherlands where they are as right wing as they are in South Africa and elsewhere and its more to Warren’s point. I ask them the question, they’re all in suits and what have you, and I say where are the unemployed now? And its a question they’d never really asked I don’t think and eventually I get them to admit or understand that the unemployed are all ready in the public sector. Now you are having debates in Congress somewhere down there or up there, I’m not sure of the direction, about extending unemployment benefits. Well, that’s a recognition, and you’ll obviously do that again, given the skull and the crosses I would imagine, but in Australia we have the unemployment benefits guaranteed. But that tells you where the unemployed are, they’re in the public sector. So then I say to the assembled businessmen, typically men, I say, “Well what are they doing in the public sector?” And I can get them to chant, “Nothing.” And then I say, “Well are you happy about that?” And I can get them to say, “No. The bastards.” [Laughter]

“And I say, “Well wouldn’t you rather they’d be doing something productive in the public sector?” And they say, “Yes.” And once you go through this logic you can sneak up on them. [Laughter] And in the end they become supporters of the job guarantee doing community-based development work, doing environmental care services, doing aged care services, because they would rather, their ideologies and their prejudices would rather see them doing something than nothing. It’s very easy to persuade them.”

Unidentified: Reports his right wing friends confirm Marshall’s view. They’d like people put to work so they can pay taxes.

Marshall Auerback: “By the way work-fare, work-fare with the state-administered program and one of the reasons why it didn’t work goes back to the old argument that states don’t create currency so it creates, there was an external constraint. But even at that it did reduce the welfare rolls for a time when you had employment being created, but it can be administered on the local and state level but it has to be funded at the federal level. That’s a key point.”

LetsGetItDone Comment: So there also is an argument from conservative values for the JG, as Bill, unidentified, and Marshall indicate. It wouldn’t be the argument I’d find attractive. But it is important to recognize that insistence on an unemployed buffer stock and opposition to the JG, may not be based on conservative values at all, but only on the naked self-interest of people who want to keep their costs low and their profits high.

Bill Mitchell adds:

“I meant to say something about work-fare, in Australia, we call it “work for the dole.” And its nothing like a job guarantee because it’s… a job guarantee is an unconditional offer, the government sets the price and says we’ll take anybody. Work-fare and “work for the dole” are compliance programs to force people to do sort of like Shylock in the Merchant of Venice. The government wants you to do something for the pittance of welfare they offer. It’s typically not anything like a living wage. It’s a program, not an entitlement. It’s usually short term projects not doing very much at all. Whereas a job guarantee is an ongoing guarantee and people say to me, “Well what if someone wanted, liked working in the job guarantee?” And I say, “Well, what’s wrong with liking your job? It sounds to me like a good thing if you actually settled into the job guarantee for life and made it a career move. What’s wrong with that?

“Most people won’t do that but some people might. And then it’s up to the private sector to restructure their jobs, and their wages and conditions offered to make themselves competitive. What’s wrong with that, that’s going to increase productivity.”

Pavlina Tcherneva adds: “Just one final note on the work-fare. It was considered a success only because of the reduction in welfare rolls but when you look at the actual conditions of the recipients, poverty did not change and, in fact the income they received was less than if they had remained… The income through jobs was less than what they would have gotten on welfare. So it was considered a great success through the Clinton Goldilocks years, right? But now it is a whole different ballgame. And so you have also these additional issues if you would like to facilitate this transition from the public to the private sector as well, you also have to provide certain protective services if you will. You gotta provide some sort of transportation, day care services that will facilitate this transition into the private sector so there are things to do.”

Unidentified said: “Yes. I want to ask, well not a job guarantee related question. I have a friend, an Australian economist, and he told me he had to give up on his academic career because he had not mainstream views. So I want to ask did you have to hide your true views in order to advance in your, obviously you’re professors so you teach students? Did you have to initially hide your true vision in economics in order to get the jobs?”

L. Randall Wray: “I don’t think anyone here did, but we were special cases. Let’s say that our goal was to get a position at Harvard, Yale yes, you absolutely would have to hide this and wait until you had tenure and then you could finally promote this and write the kinds of things, I mean the things related to this. But none of us made that choice.

“But we know lots of people who have suffered the slings and arrows, these kinds of things. We’ve seen university departments, economics departments implode over differences between those who hold these kinds of views and those who hold the more conventional views. And I think we all know people…yeah at Notre Dame.”

Unidentified then said:

“This is more of an idea than a question but just on the question of how do we kind of implement getting this idea on to the mainstream, I think everyone knows the President’s debt commission is going on right now, I don’t know if everyone knows that since they have no budget they’re actually outsourcing their roles to the Pete Peterson Foundation, including the listening tour is actually going to be the listening tour that AmericaSpeaks is putting together that the Pete Peterson Foundation is paying for. The Foundation went to AmericaSpeaks with a bag of money to do it all themselves and they said they wouldn’t do it if it were just the Peterson so they got MacArthur to lend their name but it’s all Peterson money. We know what Peterson wants to do with it. There are twenty hearings around the country on June 26 and the thing is they’re all open to the public.

“So this is the exact type of thing that if there is a coordinated effort, if we can get people into those meetings then we can raise this and at least pull the discussion to a more balanced place than where Pete Peterson wants it and he paid millions of dollars to make sure they end up with the recommendations that he wants. So, again, the organization is AmericaSpeaks and I feel like this is something that this group could do by email and try to get folks into as many of those meetings as possible with this idea offered up as something that the people want.”

Warren Mosler: “Any bloggers in here?”

Unidentified: “One or two.”

Joe Firestone: “We got all kinds of bloggers. Not everyone is raising their hands.”

Warren Mosler: “Can’t hurt, can’t hurt.”

LetsGetItDone Comment: As it happens there were quite a few bloggers or future bloggers at the teach-In. Outside of the panelists themselves, they included: Dennis Kelleher, Darrell Dellameade, Lynn Parramore, Bryce Covert, Jason Rosenbaum, Alex Lawson, Lambert, DC Blogger, Roger Erickson, Joe Bongiovanni, Matt Franko, Ed Harrison, one fairly well-known blogger who wanted to remain anonymous, and myself.

Stephanie Kelton: “I understand, and Randy and I heard yesterday some things like you’re talking about but I understand these are very difficult to penetrate, that the groups are pre-screened. It may be even an invitation-only although it may have the appearance of being open to the public and a mix of everyday common Americans. But my impression is there is a gatekeeper and it might be pretty difficult to penetrate those meetings.

LetsGetItDone Comment: Actually, it wasn’t. Later I penetrated those meetings and wrote a blog series critically evaluating the AmericaSpeaks process and content from an MMT point of view.

Joe Firestone: “Just a question. You focused really, wholly on the job guarantee with respect to the policy implications or policy considerations. Could you comment some on the health care issues and the environmental issues and some of the other policy issues where we are not attempting to meet any of our problems due to budgetary considerations? Those considerations always come in first and seem to control the agenda, they’re kind of in the background but, this is off the table because it costs too much or that is off the table because it costs too much.”

Warren Mosler: “I think you just said it all.” [Laughter]

Stephanie Kelton: “I was…”

Joe Firestone: “I’d like to hear you say it. I say it all the time but I don’t hear you say it” [inaudible].

Stephanie Kelton replies:

“I think this comes back to what we’ve been hammering at all day long which is that there are all kinds of self-imposed constraints. If you say that you’re only going to fund Social Security out of the payroll tax and you use, you establish these Trust Funds and you say the Trust Fund must have a positive balance or else we’re not going to clear the checks at the level that’s been promised then we’re only going to be able to meet 77 percent, or so, of promised benefits after some date. I was rereading, I was telling Warren yesterday, I was looking at the Trustees Report from 2009 for Social Security and Medicare and what the Trustees are projecting for the Old Age Survivors Insurance Trust Fund OASI, the Disability Insurance Trust Fund DI and you put them together and you get OASDI and you get what everyone commonly refers to in everyday language as the Social Security Trust Fund.

“Those are both projected to go bankrupt at some future date. In the 2009 Report, the day of doom is now 2037 on those two programs. Health Insurance Trust Fund, the Medicare care side is also projected to blow up. That’s supposed to go bankrupt. The Supplementary Medical Insurance Trust Fund (SMI) is projected to be solvent into the indefinite future. As far as the Trustees can see, 75 years and beyond, there is no problem with the SMI Trust Fund which is Medicare Part D and Medicare Part B. Why is there this difference? Why are the other three going broke but this one is perfectly fine? And it happens to be that the government has guaranteed to make all payments for Medicare Part D and Medicare Part B out of General Revenue and tied the payment of benefits for other Medicare payments, hospital benefits, and Social Security to the availability of the funds in the Trust Funds. And so, I mean it’s crazy, it’s right there in the Trustees Report and they say it very clearly that the reason Supplementary Medical Insurance plan is solvent as far as the eye can see is because the government says so. It’s as simple as that.”

LetsGetItDone Comment: Stephanie blogged a good bit about this later, and so did I. But thus far to no avail. The Petersonians and the whole establishment of Washington career progressives seem to be having a great deal of difficulty in grasping the idea that a government like the United States, sovereign in its own fiat currency, can’t run out of money involuntarily whatever the level of its national debt or debt-to-GDP ratio. Occasionally some members of these groups will get an inkling that this is the case. But from there, to the idea that entitlement reform need not involve any cuts in entitlement spending at all, seems to be a leap that either their preconceptions, or their self-interest will not allow them to make.

Joe Firestone: “So the whole problem with respect to Social Security and also Medicare is just to have the government say so?”

Warren Mosler: “Yes.”

Stephanie Kelton: “Exactly, it is an accounting problem, it’s not a financial problem.”

Warren Mosler: “So look, I think we also tend to agree that unemployment is a large cause of the environmental degradation. Nobody cuts the trees down when they don’t need the money and don’t need the jobs. So, so many of these things that go on are in the name of creating jobs when that shouldn’t be the case, we should be at full employment anyway, and then the pressure for that would go away.”

Bill Mitchell then added a long comment on policy:

“Here’s a snippet of policies that are current and that I’ve written about and that are on my blog. Health care, America has a crazy health care system. It’s a dysfunctional health care system and you could be very well advised to look at the Australian system, Universal Health Care. The poorest person in Australia has immediate access to first class health care whenever they want it. And nobody suffers from lack of income in relation to health care. So I think Universal Health Care is something you should aim for. The government will always be able to afford that if there’s enough real health care resources available and if there’s not, then you could redeploy people who I’m just about to be put out of jobs in the financial sector as doctors and health care professionals.

“Environment, I’ve written that, and your government is toying with the same sort of nonsense as my government. Emissions trading schemes, market-based trading schemes are ridiculous. You need rules-based schemes. That is you need to identify, in say Australia’s case, it’s the biggest coal exporter. Coal is not a viable long term industry in environmental terms. Give it twenty years and then close it down. It’s a rules-based approach. The sort of emissions trading systems that Europe has been implementing are dysfunctional and will create a worse problem.

“Financial sector, we need radical reform of the banks. Banks need to go back to being financial intermediaries, not speculators. And I would immediately outlaw almost all OTC trading and redirect those workers into other jobs that might help us solve cancer and create environmental care solutions and things like that. The only speculation I would allow is that there can be readily attached to the real sector, for example, forward markets provide a counter-party for a manufacturer who wants to hedge exchange-rate exposure on some manufacturing contract that crosses borders, that’s fine. That’s speculation that serves a real purpose. Any speculation that doesn’t should be outlawed and I would create public sector jobs to provide gambling advice to those that I’ve outlawed. [Laughter]

“So there’s some policy initiatives. I would…The future to our inter-generational challenge dependency ratio challenge is first class education at all levels and public education in my country services, by far, the greatest majority of people and I’m not so sure here but probably secondary school still does here. And I would have massive injections of public spending into education to increase their productivity. As our dependency ratios will surely rise we will be able to get more output per unit of worker and not have to worry about the real resource shortages that might arise. But as we said this morning the irony is the solution we’ve adopted is to trash our education systems and therefore we are undermining our future when we think we’re actually supporting it. So there’s a few snippet policies.”

LetsGetItDone Comment: So, Bill added a whole range of policy options to the Job Guarantee focused on by Randy and Pavlina. That provided much needed perspective, because up until that point full SS payroll tax cuts, State revenue sharing, and the JG had been the MMT policies mentioned. However, the focus of MMT on public purpose, along with its guiding notion that fiscally responsible economic policy is the kind that we think will enhance public purpose, implies that the range of MMT policies goes far beyond the three main policies discussed at the Teach-In. Again, Bill recognizes that in his comment, and more generally in his work. I’ve written about a bit about the range of MMT policies here, and Warren has developed policies in various areas of concern at his site.

Also, since the Teach-In Counter-Conference; MMT writers have focused to a much greater extent on the importance of policies designed to remove control and mortgage frauds from our economy. Randy has written quite a few very trenchant posts in this area, including some co-written with Bill Black. Also, Bill Black is now one of the most active bloggers at the NEP site, which is MMT central for, at least, the US. So, it’s pretty clear that the pure financial, modern money, and economic aspects of MMT have now been supplemented by the idea that for the economy to respond to MMT-inspired policies as we expect, and specifically to achieve public purpose, its criminogenic aspects need to be purged to the extent possible.

Unidentified continues asking about the difficulty of spreading the MMT message: “This should be a short question. We’ve added now three countries as examples of that social unrest provided the impetus to get policy makers’ minds focused on this. We all know, most of this audience knows about different parts of the United States so, at least I’m very curious to know, is there any significant difference in the resistance of people to discussing these ideas in Australia as compared to the United States?”

Bill Mitchell: “No. With all due respect, the dialog is more civilized in Australia. Fox News couldn’t exist in Australia.”

Unidentified: “What do you mean? He came that way.”

Bill Mitchell: “The boss exists, that’s why we got rid of him. [Laughter] But the type of journalism wouldn’t survive in Australia, we would think it was a joke. Even the, what I would call the extreme right in Australia is more civilized than Fox News. And one of, we were having a conversation with someone this morning, one of the differences might be I sense there is much more of a religious zeal here than there is in Australia. We don’t have the fundamental sort of puritanical origins. We were criminals after all. [Laughter] And I think you’ve commented, Randy, when you’ve come across, when you’ve been interviewed by our press, that you were surprised by the sort of questions the press and the way in which the public discourse and policy discourses is played out. It’s more civilized.”

L. Randall Wray: “It’s more intelligent.”

Bill Mitchell adds:

“It’s more intelligent Randy’s saying. Well I wasn’t going to sort of say it [Laughter]. But at the end of the day the neo-liberals invited us too. But our welfare state has been degraded but not destroyed. And I think that they haven’t been successful in getting rid of Universal Health Care, they haven’t been successful in getting rid of a decent minimum wage system, they haven’t been able to completely trash public education. They’ve tried all of those things, they haven’t succeeded in doing that and they never will. It’s too culturally embedded in us, in our, we’re a more collective society than the U.S., we have a more, we have this concept called mate-ship, and everybody’s a mate, even your enemy is a mate in Australia. And that’s a very strong collective tradition, goes back to the settlement, goes back to our war efforts, and our ANZAC tradition and all of that stuff. At the end of the day we will not allow a fellow worker to go without health care if they don’t have income, we won’t allow them to go without housing if they haven’t got income, it just wouldn’t happen.”

Joe Firestone: “There is one last question.”

Unidentified: “Just one. Just to follow-up on that. All my life I’ve seen the right-wingers arguing for things that are plainly destructive and you just said they were trying it in Australia and they couldn’t succeed but what are they doing it for? Why do we have so many people trying to do this kind of stuff?”

Marshall Auerback: “You know I’m Canadian and just a little anecdote. One of the reasons we almost didn’t avoid the sub-prime bubble was because AIG came up to Canada when the Harper Tory government come into power in 2006 and they argued for us to liberalize our insurance markets so they could offer programs like Credit Default Swaps that was AIG’s doing. And the Tories were no more ideologically predisposed to do this than the previous Liberal government was. Maybe they just wanted to expand their money-making machine across the world and maybe they always want to do that.”

Unidentified: “So is it just like when you have a two year old who can crawl all over you and do terrible things but the reason he does that is because he doesn’t know he can hurt you. I mean, are these guys like just children trying to get what they can and do what they want and not know that it has consequences?”

Bill Mitchell: “I don’t think there are any psychologists on the panel.” [Laughter]

Warren Mosler: “I think they do it for the funding.”

Unidentified: “It seems to me it’s somewhat for the fun. To make it more exciting, to make life more interesting.”

L. Randall Wray: “But a big part of it is, so you can step back and look at the big picture but there are little stories about each one of these, so each individual firm, each individual sector is trying to get a bigger share. And so, they’re advocating for things they see as in their own individual interest and then we can step back and we can say, “When you add all these things together it’s a disaster.” I think that’s part of it. Now, I do believe in conspiracies, too — but I don’t think you have to go there to explain why, if you’re Goldman Sachs and you’re going to be peddling Credit Default Swaps and you’re betting against your customers, you would like to see that allowed.”

Unidentified: “There used to be moral, there used to be things you wouldn’t do. . . . . Yeah, and there used to be regulation too.”

Warren Mosler: “But the other thing is you have a lot of successful people who think that it was because of their own doing and then fund organizations that support self-reliance and all these things we consider right-wing types of things, less government and that type of thing. And you’re not going to stop that, it’s just human ego.”

And then Bill Mitchell ended the conference with a great comment:

“Yeah, I think the question about regulations is important. I mean the big difference between Australia to here in the financial sector is we really kept the regulations on the banks. And not one bank went close to failing in Australia. I mean we didn’t even have a recession because the financial implications were very muted in Australia. And that’s because we still maintained most of the regulations. Like you ditched your 80/20 rule, we didn’t have an 80/20 rule we had a 75/25 rule, we didn’t ditch it. The modification we had was anybody who wanted to go without a 25 percent deposit had to insure. And the banks had to insure them. And that’s a fundamental difference.

“And the other big difference, of course, was that, and I think you’ve made this point sometimes too, Warren, is that when did the sub-prime crisis become a crisis? When did we get this sort of debt melt down? We got it when we, there was no doubt at the margin that people who should never have got loans. But when did good debt become toxic debt? When people lost their jobs. You could have avoided a whole lot of the bad debt problems if you had an earlier and more substantial fiscal intervention. Whereas in Australia we had a very early fiscal intervention and a relatively large fiscal intervention. And the deficit terrorists were saying, “This is ridiculous. What are you doing? You’re going to kill us.” But it saved us. And it stopped a lot of the good debt becoming bad debt. You didn’t do that here. And that’s cultural and, whoa, intelligence, as Randy says, I didn’t say it.

LetsGetItDone Comment: And we would have been saved too, if President Obama hadn’t turned fiscal policy over to neoliberals like Geithner and Summers and instead had followed MMT policies. A few days ago, the Fed announced that “. . . the median net worth of families plunged by 39 percent in just three years, from $126,400 in 2007 to $77,300 in 2010.” Most of this loss could have been headed off if the Government had taken the banks into resolution, investigated and prosecuted the control frauds, written down the principals on homes to their real market value, and put through the MMT economic programs dicussed above. Instead, the Government decided to implement neo-liberal fairy tales and then play footsy with austerity when the US needed an MMT-based Green New Deal.

In my next post I’ll end this series with a summary of the Petersonian narrative and the MMT counter-narrative, and with more discussion of where policy ought to go now.

(Cross-posted from Correntewire.com)

The Fiscal Summit Counter-Narrative: Part Six, Policy Proposals for Fiscal Sustainability

8:20 pm in Uncategorized by letsgetitdone

The way we designed the program of the Fiscal Sustainability Teach-In Counter-Conference, was to introduce the fundamental ideas of Modern Monetary Theory (MMT) in the first three presentations on defining fiscal sustainability, whether or not there are spending constraints on governments sovereign in their currency, and whether deficits, debts, and debt-to-GDP ratios are really a problem for entitlement programs and our grandchildren. Then Presentation Four, by Marshall Auerback, was given to consider the main critique of MMT’s stance on deficit spending, the possibility of inflation or hyperinflation.

Finally, Presentation Five, which we’ll cover in this post was designed to highlight the proposals for full recovery favored by the MMT economists. These proposals are the counter to the austerity proposals of Paul Ryan, Pete Peterson, Erskine Bowles and Alan Simpson, David Walker, Barack Obama, and the rest of those convinced that the US Government has solvency/debt/deficit problems that must be solved by some combination of spending cuts and tax increases.

Of course, there are disagreements in details among the people named above, and even more variations and nuanced disagreements among them and many of the Washington DC think tank career progressives. But all of them share the Peterson neoliberal worldview that eventual deficit/debt reduction is essential for fiscal sustainability. So, all of the above spend their time devising budgets that plan for deficit reduction “over the long-term.” Naturally, “the long-term” varies greatly among them, with their appetites for subjecting the mass of Americans to governmental austerity. But all who share this Government Budget Constraint (GBC) perspective want to implement austerity eventually, because they believe, or say that they believe, that austerity is central to fiscal sustainability and responsibility.

In contrast, the MMT counter-narrative, emphasizes that indicators like the size of the national debt, or the debt-to-GDP ratio have nothing to do with the spending capacity of a government sovereign in its own currency, and that even the deficit can’t be evaluated as too large or too small in the abstract, but only relative to its impact on the economy. Given this orientation, MMT economists, don’t spend time formulating long-term plans for either deficit reductions or deficit increases; but instead propose fiscal sustainability policies based on their anticipated impact. This is the orientation underlying the final presentations by Professors L. Randall Wray and Pavlina Tcherneva which I’ll review in this post.

Audios, videos, presentation slides, and transcripts for the presentations are available at selise’s site and a slightly different version of the transcripts is available from Corrente as well.

Presentation by Professor L. Randall Wray

Randy Wray begins his presentation with this overview:

“. . . I’ll talk about the causes of unemployment; the appropriate goals for a sovereign government – and by that we mean what we’ve been talking about all day, one with a sovereign floating exchange rate, non-convertible currency; cause of unemployment – Bill was getting into this in his last comment; some lessons from the New Deal – which we gradually forgot; and then abandoning the commitment to full employment – and this is almost the exact title of a book written by Bill Mitchell that is very good talking about this period. And then Pavlina will take over and talk about the Job Guarantee program in both theory and practice and how this can be used to achieve what we think are the appropriate goals of a sovereign government and contrast that with the view that growth alone is an appropriate goal, and then conclude.”

He then outlines the causes of unemployment, which he initially divides into short-run causes of unemployment and long-run causes. In the long-run he mentions two problems: demand gaps and structural unemployment.

Short-run causes: Randy points to the Great Recession and approaching losses of 9 million jobs by April 2010. He also says there would be continuing losses for “many years,” and mentions that even official projections and experts predict a best case that unemployment would remain high for years. We are two years now into that prediction with no end in sight, given the government austerity policies we are seeing.

Randy then mentions the lost opportunities both for people, and for young people just coming into the labor force, including for college graduates, who had been having a very difficult time finding jobs. Randy then points out that if one does a careful assessment of the number of jobs needed one would find that the number is “well above 20 million jobs.”

LetsGetItDone Comment: This is probably a conservative estimate for today (2012). We are probably closer to needing 27 or 28 million jobs.

Randy says people are thinking about creating jobs on far too small a scale. He mentions Obama’s 2 – 3 million, but that nobody in Washington was thinking in terms more than “. . . tens or maybe hundreds of thousands of jobs.” So nobody was thinking big enough about the problem. More than two years later, that’s still the case, and we still need programs that will create “. . . a massive number of jobs.” The problem is that Washington wasn’t focused on Main Street, but on saving Wall Street.

“Maybe it needed to do that; we probably have different opinions over whether that was necessary or not. But in any case the problem is that right now both the politicians and the population at large believe we’ve already spent so much money, how can we possibly afford to create 20 million jobs now. It’s too late. We’re not going to be able to save Main Street because we spent too much on Wall Street.

The confusion that more government spending isn’t affordable is the “major barrier,” now to a job creation. There’s always resistance to the idea to be discussed later “. . . that the government should be responsible for ensuring full employment. But the affordability/deficit hysteria issue is the main barrier to getting out of the deep recession, likely to continue for years. That’s the source of our major short-run employment problem.

LetsGetItDone Comment: And two years later, the politicians are still saying we can’t afford jobs programs, while they entirely ignore the much heavier both real and financial costs of not having a full employment program.

Randy then moves on to the long-run employment problem. First, unemployment has come to be used as a policy tool to deal with inflation. Governments have deliberately tried to keep unemployment high enough to either prevent inflation, or prevent its acceleration. The unemployed are being used as “a buffer stock,” Marx’s “reserve army of the unemployed” to hold down wages and consequently keep prices from rising.

Then there’s structural unemployment. The ILO claimed that at the peak of the business cycle in 2007, there were still “200 million unemployed people around the world.” Randy says that’s “a vast under count,” but even so it’s a very large number. So, in spite of strong economic growth, the world has no solution to the unemployment problem which continues to exist. Why?

It’s because economic “. . . growth fuels productivity growth. . . ” but not necessarily employment growth at the same rate. In the past decade productivity grew 26%, but employment by 16.6%, which isn’t keeping pace with population growth. So, productivity growth, along with population growth are causing higher unemployment, because we don’t need as many workers to have economic growth.

Randy then turns to the question of the goals of a sovereign government. He cites John Kenneth Galbraith’s idea of “public purpose, and mentions some aspects of it: “. . . decent social security for the aged . . . full use of domestic resources.” Government “. . . has the fiscal capacity to do this. Economic growth and promoting economic growth alone is not going to give us full capacity use.”

“So, we think that government ought to be focusing on full employment because it is much more important to have labor fully employed than it is to have, say, our agricultural resources fully employed — although we ought to aim for that too. But let’s make full employment a primary goal. And, as Warren keeps emphasizing, for political reasons, not really for economic reasons, we need to make price stability also a goal. The problem is that for a very long time orthodoxy has thought these two goals are completely in conflict. You cannot have both of these at the same time. You either can have full employment and then you’re going to have inflation, or you can have price stability but you’re going to have to have a lot of unemployment. Okay, so, what we’re trying to do is to promote a program that can give you full employment with price stability, okay, and that this should be the goal of sovereign government. And our argument is that it has the capacity to do this.”

Randy then points again to the economic costs of unemployment in terms of tremendous net income and GDP losses, and continues to other losses mentioned by political scientists and sociologists: poverty, social isolation, crime, regional deterioration; health issues, family breakdown, school dropouts, violence, ethnic hostility, homelessness, even terrorism, “the loss of human capital, because when people are unemployed for long periods of time they become unemployable”.

So, the benefits of full employment aren’t just adding to GDP and producing more goods and services, there will also be more job training and skill development and increase in human capital, poverty alleviation, community building and social networking.

LetsGetItDone Comment: This is a very important point. When debating economic policy people focus on unemployment and GDP statistics. They also spend a lot of time talking about the dangers of inflation and the “fiscal responsibility” issue focused on the national debt, the deficit, and the debt-to-GDP ratio; but there is very little discussion among economists of the human, and social costs of high unemployment, or of the possible longer-term political costs of developing political instability, increasing political authoritarianism, and potential civil violence at the end of a long road of economic and national or international decline. The MMT focus on the costs of unemployment is a much more holistic one than most of what we see today in the discussion of economic policy and its impacts.

Randy continues:

“. . . . Pavlina will talk very briefly about Argentina. We went down there and we saw the benefits to communities of creating jobs in areas that had had no jobs before a jobs program was created. Social, political, and economic stability are all promoted by full employment. And then finally there’s this notion that our colleague Mat Forstater has written about — and unfortunately he was going to be here, but he couldn’t. There are positive feedbacks, reinforcing dynamics, so in a sense there is a multiplier effect of all these things. So, if you just add up the benefits, we get more GDP, we get poverty alleviation, and so on. There also is a multiplied impact greater than the sum of these individual benefits from achieving full employment.”

Randy next points to the experience we had post-Great Depression and during the Post WW II period and to two major reforms. The first was downsizing and constraining the financial sector of the economy, and most of that was done by the market. This time around the Government prevented the markets from downsizing finance by bailing out the banks and Wall Street. But during the New Deal and the Post-war period the Government let that happen and passed regulations constraining finance which worked for a very long time.

The second class of reforms was in direct job creation. The New Deal created 13 million jobs (See Randy’s slide 10) which greatly reduced the unemployment rate, even though many now claim this is not true because they refuse to count the Government jobs provided by the New Deal as “real jobs,” and so continued to count those employed by them as “unemployed.” This is just ideological bias however, intended “to understate the true impact of the New Deal.”

LetsGetItDone Comment: I couldn’t agree more with this point. The idea that a job you have to work at everyday and that produces a paycheck should not be counted as a job, simply because it was provided by the public sector is both silly and inconsistent with the idea that permanent civil servants, consultants, and State civil service employees, are all considered part of the employed work force.

Back to my summary of Randy’s narrative. Since the de-regulation started in the 1970s and accelerated in the 1980s, the first reforms constraining financial institutions eroded or were repealed. So, now the financial sector is huge and the old New Deal constraints on it are gone. The second reform of direct job creation programs was abandoned during the post– WWII period of rapid economic growth, when people came to believe that growth could create full employment and that we didn’t need these programs.

Randy says this about the very successful post-War period:

”In the post-war period, for the first two decades or so, we had the golden age of capitalism, the highest sustained growth rate. We had no financial crises in a twenty year period. Normally in US history, every 20 years we had a depression. We not only didn’t have a depression, we had no financial crises. We had minor recessions, but we recovered quickly. But It wasn’t true just for the US, and Bill could tell you the same story about Australia. And it wasn’t just true for the developed nations. The developing world also had the highest sustained growth it had ever experienced. In fact, it was better than our Industrial Revolution. The developing world was growing faster than the UK did during the Industrial Revolution. So, in a sense, it was a golden age of capitalism.

“We had a commitment to high employment. Now Bill would talk about a commitment to full employment in Australia and they probably came close to achieving that. In the US, we never really embrace that, but we did embrace high employment. We achieved unemployment rates for white males of 3%, almost as good as Australia. But it was only white males. We were not really committed to full employment, including women and especially African Americans, and so their unemployment rates were much higher than this. We had the… A lot of people misname the 1946 act, they say the Full Employment Act, but it wasn’t the Full Employment Act, it was the Employment Act. But it did commit the government to trying to maintain a low unemployment for most groups, if not full employment.

“We had the creation of the US middle class over this period that was sustained by jobs and decent wages. The problem is — Minsky started writing in 1957, arguing that, yes, we have created the conditions for economic stability, a generally high-wage economy, a high-consumption economy, a constrained-finance economy, and all of these things are conducive to rapid economic growth with financial and economic stability — the problem is stability is destabilizing.”

Randy also says that Minsky predicted that the financial institutions would get rid of the constraints on them and then engage in “riskier” activity and also that inflationary pressures would build before full employment is reached given our type of economy. Meanwhile the US rediscovered that poverty still existed by way of Michael Harrington’s The Other America, leading the “War on Poverty” which Minsky participated in.

Minsky wrote many letters to Sargent Shriver and Hubert Humphrey, and also papers and books warning that attempts to stimulate economic growth, coupled with training, programs designed to get rid of “the culture of poverty,” an idea popularized by anthropologists Oscar Lewis, and Daniel Patrick Moynihan (who was part of the Kennedys’ “Irish mafia,” and still later helped shape Nixon’s policy of ‘benign neglect” of the poor, and also greatly helped to advance the emergence of the “New Democrats” and their fiscal responsibility/sustainability orientation), and finally welfare payments for people who aren’t able to work, would NOT work to solve the problem of poverty.

Why? Because 1) it’s demoralizing since you’re telling people to remake themselves, but aren’t supplying a job at the end of the process; and 2) he calculated that providing one minimum wage job to each poor family “. . . would lift two thirds of all poor families out of poverty.” So, Minsky said, give ‘em jobs, not the War on Poverty. Randy and Stephanie, using data from the Clinton boom got a similar result. “One minimum wage job per family would eliminate two thirds of poverty.” And 3) Minsky also objected to the War on Poverty’s welfare component on political grounds: “The problem is that Americans are not going to support a generous enough welfare safety net in order to lift people out of poverty. And of course that prediction turned out to be true.”

So, Minsky believed that Americans will support giving people jobs to get them out of poverty, but won’t support giving welfare to end it. The poverty rate did fall from 1962 to 1973, almost in half. But as it turns out, that wasn’t due to the War on Poverty, but to Social Security payments to the elderly, and the civil rights movement which “. . . . increased the labor market outcomes, mostly for African Americans.” The rate continued to fall until Reagan for African Americans, but the US as a whole “. . . . it stopped falling in 1973.” So, Minsky was right, the War on Poverty failed.

LetsGetItDone Comment: I thought this was a great short summary of what was wrong with the War on Poverty; but, as I remember it, it’s failure was also due to something else, and that was LBJ’s insistence that Americans could have both guns and butter and his continuing increasing expenditures on the Vietnam War. War spending did compete with “War On Poverty” spending during much of Johnson’s tenure, and, I think that a reluctance to spend more on eradicating poverty has to be counted as part of the reason why the poverty program was unsuccessful. In the end, the motivation and commitment to make the program successful wasn’t strong enough in the Democratic Party, especially since much of its vitality was sapped by the split among its supporters over the Administration’s commitment to the Vietnam War.

Randy goes on:

“From ‘73 forward, the US, and — Bill argues in his book, most — or is it Bill — all other developed nations abandoned the commitment to high employment and full employment outside the US. And this was associated with the rise of free market ideology. We can all remember Reagan’s campaign against welfare queens who supposedly drive Cadillacs, government is the problem, supply-side/trickle-down economics is all we need, Clinton arguing that we need to end welfare as we know it — and I actually think there was a very good aspect to Clinton’s agenda here. He said we need to change the way Americans look at poor people. We need to make them see them as deserving poor, and the only way to do that is to get them off welfare and into jobs. I think that was completely correct. The problem is Clinton didn’t give them any jobs. He said we’re going to take away welfare, now you go get a job. But he didn’t provide the jobs. If he had provided the jobs it would have been, I think, a successful policy.

“Bush, of course, talking about the ownership society — If you’re interested, you can go to the Levy Institute. I wrote a paper in 2005 that said this promotion of the ownership society, for most Americans the only thing they own is their house, and what we have got going on in the United States, writing this in 2005, is a way that is going ensure that Americans are just going to lose their homes. Okay, so it’s actually going to reduce ownership in society.

“And, then, finally, under Clinton, the Democrats sort of very strangely and ironically became the party of fiscal responsibility, which has always been the role of the Republicans. Now it became the primary policy of the Democrats: We’ve got to balance the budget. And they learned the wrong lesson from the Clinton years, when we ran a budget surplus, because the economy performed very well in terms of growth. Of course, it was a debt, household debt, fueled boom which was absolutely destined to eventually collapse. But the lesson they learned was, oh, budget surpluses lead to rapid growth, when actually it was the rapid growth that created the budget surpluses. So, anyway, the Democrats become the party that’s always advocating tightening fiscal policy.

“And finally we had the rise of something that takes a variety of names. Jamie Galbraith called it the predator state, many people call it financialization, or neoconservatism, or neoliberalism. Minsky actually called it the rise of money manager capitalism, and that that over the past decade — well, longer period than that — but over the past decade has built up the conditions which finally led to this crisis. This is my last sentence.”

LetsGetItDone Comment: One of the great ironies of modern times is that the Party of FDR became the party of fiscal responsibility. Randy, implies above that this happened during the time of Clinton. But I think that Clinton’s administration was the culmination of a transformation that had been going on for a long time. The Carter Administration was rather fixated on fiscal responsibility and tried but failed to achieve budget balance during its four years. Also, Alice Rivlin rose to prominence as the first Director of the CBO in 1975, and had great influence at least since the early 1980s in spreading the doctrine of fiscal responsibility. Also, prominent Democrats like Bill Bradley, Dick Gephardt, Paul Simon, Bob Kerrey, Max Baucus, Tom Daschle. Al Gore, Harry Reid, Kent Conrad, Chuck Robb, Lloyd Bentsen, Sam Nunn, and John Glenn, were all supporters of deficit reduction, if not balanced budgets, during the 1980s.

During the Reagan/Bush41 Administrations, Democrats used fiscal responsibility rhetoric against the Republicans. In doing so they began to commit the party to the priority of fiscal responsibility. During the Clinton Administration, Democrats had these tendencies reinforced by the Administration and its success in achieving budget surpluses. By the time, the Party lost to Bush43 in 2000, a majority of its members in both Houses of Congress were “fiscal responsibility” fixated. The Bush43 Administration’s deficits and Cheney’s statement that “deficits don’t matter” only confirmed that orientation. So, by the time Obama took the White House, the Democrats as a party were confirmed fiscal responsibility advocates, if not deficit hawks.

Presentation by Professor Pavlina Tcherneva

Now, with Randy’s outline of the sorry history of the failure to provide full employment and eradicate poverty, especially since the War on Poverty, in mind, we come to Pavlina Tcherneva’s half of the counter-narrative policy presentation.

”So, now we get to the vision. How do we utilize this operational understanding of government expenditures to get past the obsession with the financial ratios, with these numerical measures of government success, and actually get to the real thing? Talk about financial ratios in context of what is happening to the real economy. So our vision is, I’d say a Smithian vision, Adam Smith’s vision. Adam Smith said that the wealth of a nation rests within its people. This is what Bill was talking about, not wasting human resources. So how do we do that?

“So this is what we think of features of responsible fiscal policy. We don’t use unemployment and human livelihoods as means to check inflation. This whole idea that Randy was addressing that somehow unemployment is a necessary evil, and we have to put up with it in order to maintain price stability. The empirical evidence first of all, is very spotty on this. Economists constantly redefine their NAIRU or their inflationary barriers and you look at the data and its very difficult to find this particular level. So let’s just measure fiscal policy in terms of employment creation effects. This is how we tend to see things. And so long as we are living in a monetary production economy, where the access to livelihood is a wage-paying job, then that should be the criteria for responsible fiscal policy.

“But we can debate that. These are the questions that sort of emerge from the historical perspective that Randy provided, and also you will see how we believe that this kind of approach utilizes this operational knowledge that we’ve just built to build a very sustainable system. So we are redefining sustainability in terms of employment creation, price stability, as opposed to certain debt/GDP ratios.

“We have to switch the conversation, we really need to re-orient our thinking about fiscal policy. . . .

“We have no sense of the sort of dynamic forces that are determining output. So we would like to measure potential output in terms of men and women put to work. So the way to flip fiscal policy is not to target a demand gap, because that’s not very clear what that means, but instead to target a labor demand gap.

“And you know we’re arguing that this delivers more bang for the buck. We do not know today how much more, even if we agreed that maybe deficit spending is sustainable, even in the most sympathetic, I would say, commentators to the deficits I would say ‘look we need to push further, we’ve got to deficit spend. We still don’t know how much we need to spend, how large deficit spending is large enough to produce the real outcomes that we are aiming for. So what we are proposing is that we actually tie deficit spending directly to the objective and you know exactly how much you need to spend.”

LetsGetItDone Comment: So, this is that important MMT point again. Deficit spending isn’t bad or good in itself. It has to be judged by its outcomes and impacts. It’s fiscally responsible and sustainable if those outcomes lead to full employment, price stability, and/or other benefits. It’s less responsible when it leads to bad outcomes. This, the standard that MMT would use to evaluate any Government fiscal policy, can be used to evaluate the fiscal policies advocated by the austerians who agree with The Peterson Fiscal Responsibility narrative.

Put simply, whether or not their idea of fiscal responsibility is a valid one, isn’t just a matter of definition. You can tell whether austerian policies are fiscally responsible by their fruits. We see these all over the the industrialized world these days, and clearly we have to conclude that their notion of fiscal responsibility isn’t fiscally responsible. Or, to put this another way (h/t Mandy Patinkin playing Inigo Montoya in The Princess Bride): “You keep using that word, but I do not think it means what you think it means.”

Pavlina continues:

”How many people do you want to put to work? Obama wants to save and create 3 to 4 million people, OK, put them to work, you know exactly what your wage bill is going to be, you’re going to find out your materials and your costs. If you want to create ten million jobs you know what your budget is going to be and you have directly achieved the goal as opposed to going backwards through this vision of producing growth and hoping that somehow the growth will lift up all boats and trickle down to the economy and produce the kind of job growth.

“So we see a responsible fiscal policy as an employment stabilization via direct job creation, and we see direct job creation as a permanent feature of policy making, because the objectives are to guarantee full employment, not for the short run but also for the long run. In other words this is very different from depression economics, which is Paul Krugman’s euphemism, finally the return to Keynesianism is because we’re in a depression. No, we would like to achieve sustainable fiscal policy throughout the short and the long run.”

LetsGetItDone Comment: In election after election Democrats criticize Republicans by pointing out that the Rs keep advocating “trickle down” economics, which they certainly do. But the truth is that when it comes to stimulus programs as a cure for unemployment, Democrats and progressives also advocate and practice “trickle down” as well. Pavlina is saying that if you want to create 4 million or whatever number of jobs, then use deficit spending to create those jobs directly; don’t just use various measures to put more money in the private sector that may or may not stimulate people with money in the private sector to invest and “trickle down” some jobs to people. So, we need a real end to “trickle down” economics when it comes to job creation, and that means spending that directly create jobs, not spending that will “encourage” or incentivize private parties to create them. Why can’t Democrats and progressives see that? Why have they bought so strongly into the fable that the only real jobs are those created by private businessmen? Now on to Pavlina’s treatment of the theory of buffer stocks, and the superiority of a Full Employment buffer stock:

”Okay, so what is the job guarantee in theory? Let me just synthesize some of these ideas very quickly. There is an alternative to the NAIRU, that is, we can use an employable, or employed pool of labor as the buffer stock, not the reserve army of the unemployed. So I’ll explain a little bit about what that means. This is the job guarantee Bill refers to. This program is a job guarantee, there are various other – public service employment, direct job creation, you name it. But what that basically means is that you provide an unconditional offer of a public sector job at a minimum wage to anyone who wants to work. This way, as a permanent program, and an unconditional program it attains and maintains full employment.

“Okay, so essentially the features of the job guarantee is that this is a bubble up policy, this is not trickle down economics. It is a policy that hires off the bottom. It deals precisely with those that are either never employed or the ones that are last into a job and first out of a job. So, it’s a bottom up approach. It operates with flexible markets via a buffer stock mechanism, so this is the part that we need to explain how the job guarantee serves as this buffer stock. And I’m using Bill Mitchell’s terminology here, who basically made the case a number of years ago that, just like any other commodity buffer stock, you can stabilize the price of that stock by simply selling it when the price is too high, and buying it when the price starts falling. So you can envision labor as being a kind of a buffer stock where you offer employment to all those who want a job at a base wage. And that would be your stimulus, essentially, that produces growth.”

”As that demand trickles up to the economy and the private sector rejuvenates and starts demanding labor, then the private sector will be able to hire from the public sector pool, by bidding up the wage. Once the private sector has been saturated, or has hired as much as they desire, if you observe sort of an overheating economy, inflationary pressures, the private sector decides that it needs to downsize, then those workers will be laid off and instead of moving into unemployment they move into the public sector buffer stock. So essentially what this program does is it establishes a wage floor to labor. Today the wage floor of labor is essentially zero, because you can hire somebody that is willing to work at a premium above the zero wage that they are earning at the very moment.”

LetsGetItDone Comment: So, that’s the full employment buffer stock idea. It establishes wage and benefit floors for labor, and indirectly for prices in an economy and for aggregate demand. With the JG in place, and provided it pays a living wage, it is impossible for the bottom to drop out of an economy. Recessions can still occur, collapses like the Great Depression, and the Great Recession cannot. Also, price stability has two sides to it; and upside and a down side. The JG limits the downside and so contributes to price stability. The JG limits the upside too in a way explained in a bit.

Other benefits of the JG are that it deals with any kind of unemployment: cyclical, structural, seasonal, and entrance into the labor market, and also that it maintains and enhances human capital. The JG provides jobs, but also an opportunity maintain and improve skills. Also, the JG is targeted to local areas where the workers are. It also takes them as they are, no training in hopes of finding a job later on. “So this program can be seen as a transitional employment program. It’s a safety net that captures the unemployed and prepares them for private sector work if they so desire. Of course the projects have to be useful and valuable. . . . .”

Firms also benefit from the JG, because they can always recruit from a stock of employable labor whose work experience is clear. In addition, the JG contributes to solving the economic inequality problem, because it improves the economic distribution by lifting the wage floor, provided of course the JG wage rate is set at a living wage lifting people out of poverty.

The JG also has a built-in inflation control mechanism dealing with the up-side of price srability. Specifically, “when the economy decelerates the budget expands as those workers enter the public sector, so it has an expansionary effect. When the economy grows the JG budget automatically contracts as workers move out into private sector jobs. So that’s the counter-cyclical mechanism.” That is, the former public deficit spending stimulus provided by the JG goes away, and assuming taxes remain at the same level, that will have a net effect of removing net financial assets from the private sector.

“So full employment and price stability also promotes currency stability. And the idea here is that we are establishing better anchors than the current system. We use labor as that anchor. This is not a solution for all labor market problems. We can use this program as an institutional vehicle, as a program to address specific goals. We may want urban inner city renewal, maybe you want green infrastructure investment, you can use those resources then to direct them to the specific things you want to do. There will be other things that you might want to deal with, labor market discrimination, and other things. This is not a panacea for all labor market problems, but it’s definitely better than the unemployment buffer stock.”

Then Pavlina turns to Argentina as a case relevant to the JG proposal. Its program isn’t a JG program, but it “mimics” one. It is a limited program, but was large-scale, and Randy, Pavlina, and other MMT economists have been looking at its project impacts and macro effects. The Jefes program in Argentina was implemented after people took to the streets to protest austerity measures. The government then got the jefes program up and running in a few months and gave them government jobs. The jobs were part time, offering “. . . 4 hours of community work to the unemployed heads of households at a minimum hourly wage . . . “ About 13% of the labor force, or 2 million people accepted the jobs offered. The level of unemployment was similar to the level of actual US unemployment, not just our U-3 or U-6 levels. Women and minorities in particular benefited from the Jefes program.

”It was counter-cyclical, it stabilized output, prices, and currency. You look at the data and you find all of those indicators stabilize. GDP growth was between 8 and 12% between from 2003 to 2007 and only in the last year it dipped to 5%. So it’s job creation that produces growth as opposed to the other way around. The government budget moved into surplus. There were a variety of things going on there; but of course you’re generating large amount of incomes which are being taxed. The multiplier effect of this program, I’ve looked at some of the measures and some of the more conservative measures is 2.57. Meaning that for every dollar spent on the program you’re creating 2.6 dollars of output.

“Now, and what happened? Did people get stuck in the public sector? No. Actually what happened was that as the economy recovered, many workers transitioned into private sector jobs. It was organized in a very interesting way. I can tell you about all those institutional details, how it was administered, how the resources were mobilized, but suffice to say it was federally funded, locally administered, the government actually maintained a database of skill and experience of the unemployed, helped them to transition to private sector jobs as well, and from our visits as well it was obvious what kind of impact this program had on the poor, it empowered, it provided on-the-job training, every project that we went to see had an adjacent room with literacy education, with training, with various other courses that they could take. I like to see this as a new form of microfinance, as opposed to lending to people you just give them a grant for the wages and for the materials, get them on their feet, get them to produce something, and pretty much every project that we saw was some people that set up shops, carpentry shops or baby clothes tailoring shops or toy shops, or something that they could then sell on the market. But they were also products that were freely distributed to the poor. Lots of food kitchens, daycare center, public libraries, elder care, centers for the abused etc.

“Again, the employers hired from the pool. The economy, the economy stabilized very quickly. One benefit of this was that it formalized the informal sector. In Argentina actually there’s a very large share of the economy that is a gray economy. Those that used to work under the table were issued social security tax cards, they would be– when they transitioned to private sector jobs, now they were working under contract. The program established a wage floor. From all the people that transitioned … sort of a wage floor, because it was a limited program. But from all the people that transitioned from the public sector job to the private sector, they were all hired at a premium, 97% of those were hired at a premium.

“And communities were transformed. I can give you lots of examples, but what was interesting was the unemployed themselves proposed a lot of these projects, they were the ones that actually invented the kinds of things that they did. They did massive landfill cleanups, and recycling initiatives, and on and on and on. So these are some pictures of projects that we visited, and lots of food kitchens. There were lots of poor communities, but there were things like health promotion programs, subsistence farming, there were a lot of projects outside of the greater Buenos Aires area which we visited that dealt with agricultural projects, water irrigation, clay pits, etc.”

LetsGetItDone Comment: Since the Teach-In Counter-Conference there’s been a lot more discussion of the JG program eliciting both supportive and critical comments. But I think it’s fair to say that these previous quotations and summaries from her presentation anticipate and do much to address and answer many of the critical comments that have been made on various blogs. For some reason, the presentations of the Teach-In Counter-Conference have been largely ignored in recent discussions of MMT and the JG program. That should end, right now, and the points made by Pavlina here ought to be addressed by JG critics.

After this discussion of the impact of Jefes, Pavlina sums up:

“So again, growth itself is not the appropriate target, you have to wed it to job creation. It can promote inequality, this sort of pro-growth, or growth at all costs approach can promote inequality, it can harm the environment. We haven’t really said anything about the environment yet. So we are really looking at a bottom up approach that looks at full employment through direct job creation, a job guarantee. We view this as a program for shared prosperity. You can set an environmentally sustainable growth path and maintain price and currency stability.

“We can do it, we have done it once in the past, as have other countries in one form or another. It’s the right thing to do. I think we could debate this, but you know I want to get back to the point about having access to a job as a basic human right. And in my opinion I think Obama just needs a Rooseveltian resolve. We can talk more about this later, but just the wage bill, just the wage bill of hiring 20 million people at a – I think Warren has proposed $8 an hour – where you could do a living wage of $10-$12 an hour, we’re looking at 350-500 billion dollars. Compare this to the other expenditures.”

LetsGetItDone Comment: Compare it to the ARRA of 2009. The $787 Billion stimulus bill has reduced U3 unemployment from a high of 10.2% to the current 8.2% and left U6 unemployment at 14.8%. But for $750 Billion spent on a JG program we could have provided JG jobs at an average of $12.00 per hour with full fringe benefits for the 17.6% of the work force, or 28.598 million people, Hugh estimates are “dis-employed,” leaving pretty close to zero percent of people wanting full-time employment either unemployed according to the U-3 and U-6 measures or “dis-employed” using Hugh’s measure, and the Great Recession would have been over by the end of 2009. This is the difference between a “trickle down” stimulus and direct job creation program in effectiveness and economy.

I should add here that the standard MMT policy recommendation is NOT to use the JG alone to facilitate full recovery, but to use a full payroll tax cut for employers and employees and say, $1000 per person in revenue sharing grants, to stop State and local Government lay-offs, as well as the JG. In that scenario, and assuming a JG wage rate of $12 per hour, I estimate that deficit spending would have been about $500 B for the payroll tax holiday, $310 B for the revenue sharing, and about $250 B for the JG to “mop up” the remaining “dis-employed.” So, for less than $1.1 Trillion, or a little more than $300 B more than was spent on the ARRA, we could have had all this over and done with.

In this scenario, it might have taken 6 months to get to full employment at the outside, so that by October of 2009, the Great Recession could have ended in the US. I should add that Warren Mosler, more than anyone else my mentor in MMT, thinks the period of recovery would have taken only 90 days. Whether one estimates 3, 6, or 9 months, however, it’s fair to say that if an MMT fiscal policy had been followed to implement the recovery, then many of the bankruptcies, foreclosures, and homelessness, that led to the 40% reductions of median wealth experienced in the United States, would have been avoided. Such is the cost of bad, timid, and just plain stupid economic policy in a time of crisis.

And Pavlina ends:

“But I want to emphasize, costs here are not in terms of financial costs, it’s not necessarily the problem. I just want to show you that in perspective you get, you deliver so much more bang for the buck in real, in real terms, if you target your programs. So we have a deficit in convictions, I think, a deficit in cleverness, not necessarily in the ability to fund. And let me end with a couple of quotes. One is by FDR that says that

”. . . the liberty of a democracy is not safe if its business system does not provide employment, and produces and delivers goods in such a way as to sustain an acceptable standard of living.”

“And the last quote is a quote from Keynes. This is something we as academics constantly run against, and that’s this idea that we have to keep 5% or 10% of the population in idleness,

“The Conservative belief that there is some law of nature which prevents men from being employed, that it is rash to employ men (or women) and that it is financially ’sound’ to maintain a tenth of the population in idleness is crazily improbable, the sort of thing which no man could believe who had not had his head fuddled with nonsense for years and years.”

LetsGetItDone Comment: Those are good quotes from Pavlina to end her presentation, but to my mind, the most powerful quote would have been FDR’s Economic Bill of Rights:

“This Republic had its beginning, and grew to its present strength, under the protection of certain inalienable political rights—among them the right of free speech, free press, free worship, trial by jury, freedom from unreasonable searches and seizures. They were our rights to life and liberty.

“As our Nation has grown in size and stature, however—as our industrial economy expanded—these political rights proved inadequate to assure us equality in the pursuit of happiness.

“We have come to a clear realization of the fact that true individual freedom cannot exist without economic security and independence.”Necessitous men are not free men.” People who are hungry and out of a job are the stuff of which dictatorships are made.

“In our day these economic truths have become accepted as self-evident. We have accepted, so to speak, a second Bill of Rights under which a new basis of security and prosperity can be established for all regardless of station, race, or creed.

“Among these are:

“The right to a useful and remunerative job in the industries or shops or farms or mines of the Nation;

“The right to earn enough to provide adequate food and clothing and recreation;

‘The right of every farmer to raise and sell his products at a return, which will give him and his family a decent living;

The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;

“The rightof every family to a decent home;

“The right to adequate medical care and the opportunity to achieve and enjoy good health;

“The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;

“The right to a good education.

“All of these rights spell security. And after this war is won we must be prepared to move forward, in the implementation of these rights, to new goals of human happiness and well-being.”

The over-riding importance of the Job Guarantee, apart from its economic advantages, is that it implements many of these rights. And one of the great strengths of the MMT counter-narrative is that in its advocacy of the Job Guarantee it connects once again to the best of America, and to making real the hopes and dreams that underlie FDR’s vision. We have, over the years forgotten or given up on that vision. But, MMT brings it to us again, highlights it, and tells us how to implement it. And, once again, when the Petersonians, whether they go by the name of Hoover, Ryan, Romney, Clinton, or Obama, talk to us about “fiscal sustainability” and “fiscal responsibility,” we have to say to them:

You keep saying those words, but we don’t think they mean what you think they mean! Instead, what they mean is that the fiscal policy of the United States is sustainable when it does not compromise the future ability of the United States Government to deficit spend by destroying US productive capacity and human capital, and it is responsible when it is directed at the goal of public purpose as this is expressed in FDR’s Second Bill of Rights. So, when you advocate or practice budgetary austerity for its own sake and without regard to its likely impact then it is you who are advocating and/or practicing fiscal policy that is fiscally irresponsible and fiscally unsustainable, and that will lead to the decline and destruction of the United States and its proud democracy. So, we say to you stop confusing public sector austerity with private sector discipline and morality. What you’re advocating is destructive and immoral. Just stop, and do it now!

The presentations by Randy and Pavlina were followed by a Q and A session. I’ll go through it and add comments in my next post. And, I’ll end this one by providing some follow-up references on the subjects treated in their presentation appearing since the Fiscal Sustainability Teach-In. Recently, Randy completed a lengthy blog series comprised of 16 posts on the JG. The series begins here, and all its posts are accessible from here (Posts 42 – 50 including Randy’s responses to the comments on each post). Pavlina also continued her work on the JG with a number of outstanding efforts including posts, papers, and interviews: here, here, here, here, here, and here.

Bill Mitchell also had a number of characteristically carefully reasoned and very illuminating posts here, here, here, here, here, here, and here. Warren also has some contributions here and here. And I’ve also written extensively on JG issues; links here, here, and here.

There have also been a number of critical treatments of the JG. You can find references to these in the links I’ve already given, and can see the full range of arguments over the JG if you follow those references. Many of the posts I’ve linked to above include answers to these critical efforts.

(Cross-posted from Correntewire.com)