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by selise

Social Security: The Real and The Unreal

7:07 am in Uncategorized by selise

Stephanie Kelton

YouTube clips and transcript quotes are from last year’s Fiscal Sustainability Teach-In and Counter-Conference. Complete audio, video, transcription and presentation materials are available at the link.

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Q: Why is there even a debate about “fixing” Social Security when it’s not broken?

A: Because the focus of the debate is on problems that are unreal.

Focusing on unreal problems makes no sense. Unreal problems are NOT REAL!

Let me explain what I mean here by real as opposed to unreal problems with an example of each:

  • Unreal = “We can’t afford to pay for Social Security because the Trustee’s report says that costs will exceed payroll tax receipts”
  • Real = “We can’t produce the goods and services needed by our nation’s seniors to keep them fed and housed”

The unreal problem is about the availability of dollars. Our federal government is the monopoly issuer of the nation’s currency. We’ve been off the gold standard for almost 40 years and we have floating exchange rates. Therefore, the availability of dollars is a political issue. Tax revenue is not required, borrowing is not required — unless Congress chooses to impose those constraints.

The real problem is actually not a problem. It could be, but it’s not. As Warren Mosler said during his Teach-In presentation, “The Deficit, the Debt, the Debt-To-GDP ratio, the Grandchildren and Government Economic Policy”:

We’re producing 8000 calories per person per day; there’s no reason to limit the intake of our seniors.

We have a housing problem, which is vacant homes in record numbers; there’s no reason to have them out on the streets.

Worse, by focusing on unreal problems, we come up with unreal solutions! “Solutions” that are no solution and will, in fact, make matters worse, as Bill Mitchell explains in this YouTube clip from his Teach-In presentation, “What Is Fiscal Sustainability?

From Bill Mitchell’s presentation:

slide 26 (typos and bold are mine):

  • The concept of fiscal sustainability is intrinsic to the ageing population — intergenerational debate.
  • But not in the way that the public things about it.
  • There is no financial crisis ahead with respect to increasing health care and pension entitlements.
  • The government will always be able to afford to pay these bills
  • The actual issue is about real resource availability
  • By focusing on the financial we are undermining the real capacity to deliver these goods and services.
  • … the intergenerational debate is the sort of long-term attack on fiscal policy. So even though we were quiet for a little while, while the governments were bailing the economy out and putting a floor into the collapse of spending, what’s emerging out of that – and this is sort of the way in which the mainstream work – they were so discredited by this crisis.

    It’s absolutely amazing that for the first few months, right-wing colleagues that I know just wouldn’t talk, they just went and hid in their rooms, so discredited and embarrassed by it. But the reasonable ones come out now and say, “Oh yeah, we really did have to have a bit of fiscal intervention, we understand that now, but the problem’s worse than you think, because we’ve got these long-term structural pressures that are going to blow the budget out of the water and make it unsustainable.”

    What are they talking about? Providing pensions to our elderly, providing a bit of health care to people who might need a few hip replacements. And what I tell them is, “Look, the only issue is whether there’s enough titanium available to put in our hips and our knees. And if there is, the government’s going to be able to buy it no matter what. And if the government wants people to have a pension, then all they need to do is type a few numbers into a computer and that’ll send some money to the bank. And the only issue is whether the pension check that the pensioners get will be able to buy anything.”

    And the irony of this whole debate about the – we call it the intergenerational debate in Australia, it’s more generally known as demographic debate – the irony of it is that everything that the mainstream wants us to do now about it will actually undermine our capacity to deal with it in the future. So the absolute irony is that the way in which fiscal austerity plans are implemented is – in our country and elsewhere – is to attack higher education and secondary schooling, and not realizing that investing in education is the way you get productivity growth and the way you deal with rising dependency ratios in real terms. It’s moronic.

    So, what are we going to do? Should we fire teachers and increase class sizes? Cut Social Security? Increase taxes? If we do it will be only because our politicians — and we — don’t understand the meaning of some numbers on a spreadsheet. Or are we going to invest in the kinds of things that will increase the real productive capability of our economy for the future: education, the environment, health and R&D?

    **********

    My favorite solution is to abolish the payroll tax altogether and have Social Security benefits paid out of general revenue…. just like we pay for wars. No more fear-mongering or worries about projected shortfalls in Social Security revenue. Abolishing the payroll tax has additional benefits: the payroll tax is regressive, unfair (only payroll, not all income) and is a large tax burden on both workers and employers that makes it more expensive to employ Americans.

    However, when a partial payroll tax cut was announced last year as part of the tax bill compromise, progressives were not cheering… and I’m not sure exactly why that is, other than, perhaps, it is feared that it would somehow undermine support for Social Security. But is that even true?

    One argument is that Social Security is an earned right — money is owed to the people who have paid in and that benefits are tied to the amount that has been paid in — and that is a necessary source of political support for the program as a whole because it is seen as a retirement program and not a welfare program.

    But, if this is true, why then is it that no one (to my knowledge) has suggested that the approximately quarter of Social Security beneficiaries who are non-worker (have been collecting payments not tied to having paid in) should stop receiving benefits? (Please, don’t anyone start advocating that!). It seems to me that such a large number of non-worker beneficiaries undermines that argument entirely.

    Another argument is that the payroll tax holiday will give Peterson and all the deficit hawks more ammunition to weaken Social Security. Is this true? We have some evidence it may not be from Stephanie Kelton (see YouTube at the top of the post):

    Stephanie Kelton: 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. [Trustee's report -- selise]

    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.

    I don’t see Peterson et al. making a big deal about Medicare Parts B and D.

    If a compromise “fix” is needed, let’s go with this one from beowulf:

    There is hereby appropriated to the Federal Old-Age and Survivors Insurance Trust Fund for the fiscal year ending June 30, 1941, and for each fiscal year thereafter, out of any moneys in the Treasury not otherwise appropriated, amounts equivalent to 100 per centum of:
    the taxes imposed by subchapter A of chapter 9 of such Code with respect to wages (as defined in section 1426 of such Code), and by chapter 21 …as determined by the Secretary of the Treasury by applying the applicable rates of tax under such subchapter or chapter 21.

    http://www.law.cornell.edu/uscode/42/usc_sec_42_00000401—-000-.html

    … the simplest fix for the expected 20% shortfall in 2043 and thereafter is for Congress sometime between now and 2042 (no rush), to amend the above code section to read, “amounts equivalent to 100 120 per centum of”. Problem solved.

    And then let’s move on so we can focus on dealing with our real problems.

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    UPDATE: for anyone who’s read this far and is game for more, i highly recommend lets’ new diary, The Fake Social Security Solvency Crisis Is Congress’s Fault!

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    Further Reading:

    Social Security: Truth or Useful Fictions? by L. Randall Wray

    If You Really Care About Social Security, Stop Capitulating to the Left by Stephanie Kelton

    Reality Check: Why Truth Will Protect Social Security by Marshall Auerback and Randall Wray

    Cut the Payroll Tax to Save Social Security by Marshall Auerback and Randall Wray

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    x-posted from my blog — selise

    by selise

    Pavlina Tcherneva: ‘Modern Monetary Theory and Mr. Paul Krugman: a way forward’

    10:17 pm in Uncategorized by selise

    [x-posted with kind permission of the author -selise]

    By Pavlina Tcherneva

    There is nothing more deceptive than an obvious fact.”
    — Arthur Conan Doyle (The Adventures of Sherlock Holmes)

    The fact that the U.S. government is a monopoly issuer of the U.S. currency is an obvious fact. The fact that an issuer of a currency doesn’t need to borrow its own currency from anyone else in order to spend is also an obvious fact. So is the fact that a sovereign currency nation that issues two government liabilities—government bonds and central bank reserves—can always issue such liabilities and convert one into the other ad infinitum. And yet there is nothing more deceptive than the significance of these obvious facts.

    Mr. Krugman in his Friday NYT blog engaged Modern Monetary Theory on these facts and received considerable flack from MMT economists and supporters for misrepresenting MMT’s assertions. Frankly, I was pleased to see Mr. Krugman address our work and was really not surprised by some of his objections. After all, he is making the same arguments we’ve been addressing for the last two decades, since the very early days of MMT. I am surprised, however, that he has relied on hearsay or critics of MMT, rather than our own writings to do them justice. Over those decades we have elucidated our position in great detail in various books, journal articles, blogs and papers (probably the most systematic responses to MMT critiques that are accessible to non-academic audiences can be found on this blog [New Economics Perspectives from UMKC -- selise], Bill Mitchell’s, and Warren Mosler’s). Many more amazing and intellectually curious people have engaged with these ideas, and have started their own blogs (see links on this blog). There are plenty of primary sources on MMT not to mischaracterize it!

    But this is an opportunity for dialogue because we are all on the same side here. We are all convinced that poor understanding of the economy leads to bad policy. For MMT, poor understanding of the monetary system leads to especially bad policies. So if we do anything together, Mr. Krugman, let’s build one bridge and let that be a bridge of understanding of what the possibilities are under sovereign currency regimes.

    Here I want to make the simple point that it is not sufficient (although it is necessary) to just recognize these obvious facts; indeed we must have a framework for thinking about these facts to move economics and policy forward. Yes, you recognize that we are a sovereign currency nation, but nevertheless conclude in your second piece on MMT that we can (at some point) become insolvent. Your argument looks at bond vigilantes’ behavior to which I will turn in a second.

    It is an obvious fact that the U.S. government’s liability is unlike those of the private sector, because only the government pays by using its own liability and there is no limit to which it can issue those. This has been an important point of departure for MMT, but it has been recognized by some of your saltwater colleagues as well. And yet, they have not been able to provide the intellectual leadership to move us forward.

    Let’s take Mr. Woodford, for example — a saltwater star economist, who developed the Fiscal Theory of the Price Level (FTPL), which I must admit I have criticized considerably. Problems with FTPL and DSGE models, notwithstanding, Woodford has recognized the obvious fact that sovereign currency nations cannot default on their obligations:

    “A subtler question is whether it makes sense to suppose that actual market institutions do not actually impose a constraint … upon governments (whether logically necessary or not), given that we believe that they impose such borrowing limits upon households and firms. The best answer to this question, I believe, is to note that a government that issues debt denominated in its own currency is in a different situation than from that of private borrowers, in that its debt is a promise only to deliver more of its own liabilities. (A Treasury bond is simply a promise to pay dollars at various future dates, but these dollars are simply additional government liabilities, that happen to be non-interest-earning.) There is thus no possible doubt about the government’s technical ability to deliver what it has promised…” (Woodford 2000, p. 32)

    Even more surprisingly, Woodford has used this logic to make the point that:

    “it is possible for a government to finance transfers to an initial old generation by issuing debt that it then ‘rolls over’ forever, without ever raising taxes” (2000, p. 30).

    In other words, programs like Social Security are forever sustainable! Some may wonder why an economist of Mr. Woodford’s standing would make such a claim and yet remain silent at a time when Social Security, the most popular American social safety-net, is under attack by deficit hawks. The reason is because recognizing a simple and obvious fact does not provide the tools for intellectual leadership.

    Does the recognition that sovereign governments like the U.S. (he calls these Non-Ricardian Regimes) cannot possibly default on their obligations tell us anything about what fiscal policy should look like? NO, it does not. Does it give guidance on what stabilization policy must look like? Absolutely not. There is nothing in this work of use for economic policy. The reason is that the recognition of this obvious fact has been coupled with a whole series of flawed assumptions, problematic models, and dubious transmission mechanisms, which lead him to conclude that government spending is inherently inflationary.

    You too made this logical leap and argued that in normal circumstances when:

    “we’re no longer in a liquidity trap, running large deficits without access to bond markets is a recipe for very high inflation, perhaps even hyperinflation”. (NYT, March 25, 2011)

    There is a problem with this claim. As MMT has demonstrated through the use of double-entry book-keeping, in reality, the government always spends by crediting bank accounts, i.e., by creating ‘money’. Yet, considering the inflation data, we’d be hard pressed to make the case that government spending in the postwar era has set unsustainable inflationary processes in motion, much less hyperinflation. Inflation is not a function of too many liabilities in circulation. But both you and Mr. Woodford are assuming that this is the case.

    There is another problem with your arguments. You are saying that because government spending has to be financed by the private sector, it can be held hostage by the bond vigilantes. In other words, you argue, the government still needs someone to buy its debt before it can spend. This is not the case as we have explained in detail in our blogs. But even if we assume for a moment that this were the case, how are these bond vigilantes going to finance the government debt? What will they use to buy these bonds? The answer, of course, is reserves. The next logical question would be: how did these reserves get into the hands of the vigilantes in the first place? And since we know that reserves come from one place only – the government – they have to be spent into existence first before they can be used to buy bonds. In other words, government spending is financed through reserve creation by the Fed, not through borrowing from the private sector. We know of course that the Fed cannot force reserves on the banking system (Post Keynesians have made this point for decades, but mainstream economists have come around to understand this too). When the federal government spends, however, be that on military aircraft, Collateralized Debt Obligations, or Social Security, the Fed clears all government spending by crediting the bank accounts of Boeing, Goldman Sachs, or grandma (or anyone else for that matter who gets payments from the government, be they in the form of contracts, bailouts, or income assistance). This is how government spending creates reserves. Bond sales only drain any excess reserves from the system, to allow the Fed to hit its interest rate target, sales which are no longer needed since the Fed started paying interest on reserves (see here).

    Now, many saltwater economists use Woodford’s idea that if the government injected bonds into the hands of the population without committing to raising taxes in the future to ‘repay’ these bonds, this bond injection will create net wealth in the hands of the private sector that would produce a wealth effect to stimulate the economy. The logic of this argument is completely upside down. There are two main problems: 1) ‘A bond injection’ does not increase net wealth, because households/investors give up reserves in order to buy Treasuries. Their net wealth position remains unchanged since they lose one asset (reserves) and gain another (a Treasury)—both of which are liabilities and a monopoly of the government. 2) It is a huge leap of faith to argue that more reserves or bond holdings would create a wealth effect. It might, but the transmission mechanism is highly problematic—the banking sector is bursting with reserves as we speak, yet bank lending to consumers and investors continues to be sluggish. The textbook money multiplier is completely wrongheaded and the transmission mechanism from reserves to deposits is fundamentally flawed. Putting aside Milton Friedman’s famous mea culpa and admission that the Central Bank cannot control the money aggregates (Financial Times, June 9, 2003), MMT has always said that it is loans which create deposits, and loan creation is never reserve constrained. Bank lending is based on the credit worthiness of borrowers, bank liquidity preference, capital requirements, regulation, but not on the availability of reserves. Reserves are provided by an accommodating Central Bank after the banking sector has made its loans, which have created the deposits that are subject to reserve requirements.

    Note, however, that when a commercial bank makes a loan and creates a deposit, it can get reserves from the Fed (in order to meet its reserve requirement) in two ways: 1) it can borrow them (either at the discount window or through repos, i.e., through temporary OMOs) or 2) it can sell securities outright to the Fed (permanent OMOs) in exchange for reserves. When commercial banks borrow, they acquire an asset (the reserves) and a liability (borrowing from the Fed) so the net wealth position of the private sector does not change! When they sell securities to the Fed to get reserves, they lose one asset (a Treasury security) and gain another (reserves). Again the net wealth position remains unchanged.

    Fed direct lending and temporary or permanent OMOs do not change the net financial wealth of the private sector. However, government spending does! When the government spends, private agents get reserves in their bank accounts. The banking sector will then convert these excess reserves into interest bearing assets—Treasuries. Bond sales are only undertaken by the Fed to drain reserves from the banking system and hit its interest rate target. Reserves come first and borrowing comes later. It is government spending that adds net new financial assets to the private sector. If you prefer to use Friedman’s analogy, helicopter drops of money are fiscal operations.

    Another saltwater economist seems to get this. That is Mr. Bernanke who knows that the Fed cannot rain reserves unilaterally on the population or that the government cannot technically go broke. But he too has not provided much intellectual leadership even though he has a unique responsibility to do so.

    Now, Mr. Krugman, you argue in your blog that “the rapid growth in monetary base since 2007 has taken place because the Fed is trying to rescue the economy, not because it’s trying to finance the government.” This statement is not quite correct because the Fed cannot adequately rescue the economy without financing its government’s purchases, like those of toxic financial assets. Note, the Fed has been lending to the private sector too, but this does not increase the net financial assets (NFA) in the hands of the private sector (a requirement for the saltwater economists’ presumed wealth effect). But according to Bernanke, a wealth effect can be generated, when the Fed finances government spending, (which as MMT’ers have been saying, it always does).

    As I have explained in detail elsewhere Bernanke’s recipe for fighting crises and deflationary forces depends on fiscal policy (forthcoming in the Journal of Post Keynesian Economics, Spring 2011). Bernanke clearly recognizes that the Fed cannot increase the holdings of net financial assets (NFA) of the population without the Treasury. Only when monetary policy finances government spending are NFA created into existence. This is what he calls the fiscal components of monetary policy. When the Fed buys toxic financial assets from private banks, it buys worthless (or almost worthless) private sector assets on behalf of the Treasury and replaces them with reserves. Because a private sector asset is also a private sector liability, there is no net wealth created by the private sector as a whole when, for example, one private sector entity issues a CDO and another one buys it. But when the government (or the Fed on behalf of the Treasury) buys the CDO, it provides an asset – a reserve (in exchange for the nonperforming asset), while the issuer of the CDO is no longer liable for his payment. In other words a private sector liability has been extinguished whereas the toxic asset has been replaced by a default risk free asset—the government’s liability. Some private sector entity doesn’t have to pay up anymore, because the Treasury just did. So NFA in the private sector as a whole have indeed increased.

    Also, when the government sends everyone a check in the mail (think of the Clinton or Bush Jr. tax cuts), the Fed clears them and creates what Bernanke has called ‘money financed tax cuts’. Bernanke has clearly stated that there is no limit to which the government can finance these.

    “Under a fiat (that is, paper) money system, a government (in practice, the central bank in cooperation with other agencies) should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero… The U.S. government has a technology, called a printing press (or, today, its electronic equivalent) that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” (Bernanke 2002)

    In fact, Bernanke prefers money financed tax cuts to any other type of ‘alternative monetary policy measure’ (see Bernanke 1999). He prefers fiscal policy as a stabilization policy (or to use his vernacular he prefers these types of fiscal components, see here for details). Bernanke has also stated that we are not using taxpayer money to finance these fiscal components, just like we are not using taxpayer money when we lend to banks. The way the government spends or lends is by crediting bank accounts to private agents.

    Scott Pelley: “Is that tax money that the Fed is spending?”

    Chairman Bernanke: “It’s not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.”

    (60 minutes interview, June 7, 2009)

    Why then is the Chairman appearing before Congress arguing that we have a long-term deficit problem and that Social Security and Medicare must be scaled back? Where is the intellectual leadership from this saltwater economist on issues of policy?

    Mr. Krugman, you have also made this claim, namely that the government will eventually run into difficulty meeting its long-term obligations. My question is, if the Fed can clear any tax cut check that we get in the mail today, it can certainly clear the social security checks we will get in the future. If the government faced no technical limits to buying toxic financial assets, it clearly can pay for grandma’s social security today and mine in the future. More than that, the government can buy the labor of the unemployed today and put them to work on useful projects. The important question is what can we buy with these checks? MMT has always argued that we have to get past the illusion of financial constraints to start asking the meaningful questions of what the real resource constraints of our economy are and how to employ the idle resources to overcome these constraints in order to provide for the young, poor, unemployed and elderly and to increase the standard of living for all.

    There are many economists who still don’t ‘get’ these obvious facts, but a number of saltwater economists do. Yet, ‘getting’ these obvious facts is not enough. We have to, indeed we must, engage in a conversation about the kind of spending we should be financing. Clearly we can finance any kind, but different types of spending will produce different real outcomes. Spending on anything politicians want without limit is absolutely the wrong conclusion to draw from recognizing the obvious fact that sovereign governments do not go bankrupt without self imposed political constraints (e.g., debt limits). Instead, we must ask the question: should the government be buying the junk of the financial sector or should it be buying the productive services of the unemployed? What type of government spending would pose greater risk of inflation than others, when would that happen, and in which sectors?

    I’ve already argued that the mainstream cannot offer intellectual leadership on this last question because it assumes inflationary effects from government spending, all evidence to the contrary. MMT can and does fill this intellectual void. We have explained the problems with the traditional view of inflation and have ourselves offered policies for price stability. This work has also been concerned with true inflation beyond full employment and has offered a recipe to address it. We are worried about hyperinflation, and have carefully explained why Zimbabwe and Weimar Germany are extreme and unlikely special cases. From inception, we have been concerned with real economic problems like unemployment, and have argued that we can and must put the unemployed resources to work. We have objected to the inhumane notion economists hold that we can use unemployment to fight inflation and have provided alternatives. We have spelled out the key ingredients of what responsible fiscal policy would look like. We have offered specific policy proposals for addressing this crisis and our long term real economic challenges – policies, such as a payroll tax holiday and the job guarantee. We have argued that Social Security is not broken and that we can always make payments to the retired, but we have been very concerned with what the elderly can buy with these payments. We have always focused on the real productive capacity of the economy and whether it can generate the goods and services that the elderly will need. We have worried about the environment and have suggested specific policies for environmental renewal and sustainability. And on and on and on…..

    So Mr. Krugman, let’s get past the obvious fact that sovereign currency nations are not financially constrained in their spending and start thinking about the genuine economic possibilities such systems can provide. Only then can we engage in the dialogue that we so desperately need. As I have argued before if we keep confusing solvency with sustainability, we will remain hostage to dated notions of insolvency, and will never get to ask the meaningful questions of what the government should do and how it should do it? But if we start this dialogue, I am sure that we will find a lot of common ground—and you will see that MMT has very specific proposals to prevent the government from running amuck and spending irresponsibly. We can and indeed we must challenge the current state of economic thinking and propel a new generation of economists forward—economists of the real world, not of the archaic textbooks.

    by selise

    Why Paul Krugman, and we, need to take MMT economists seriously.

    10:03 pm in Uncategorized by selise

    Everything I’m going to try to say in this diary, save the last bit, can probably be summed up by this comment from masaccio on Sunday:

    …thinking is hard, and teaching yourself to think away from the formal structures you learned in school is especially hard, because following the trail of learning to the point of departure for further thought was a lot of work, creating a real psychic investment.

    The first step is admitting that those structures aren’t working.

    Hope you’ll read on anyway….

    In Sept 2009, one year after the Lehman Brothers failure, the money market run and commercial paper market freeze, Paul Krugman wrote what he called his “big state-of-economics piece,” “How Did Economists Get It So Wrong?” for the Sunday NYT Magazine. Here is a bit:

    Few economists saw our current crisis coming, but this predictive failure was the least of the field’s problems. More important was the profession’s blindness to the very possibility of catastrophic failures in a market economy. During the golden years, financial economists came to believe that markets were inherently stable — indeed, that stocks and other assets were always priced just right. There was nothing in the prevailing models suggesting the possibility of the kind of collapse that happened last year. Meanwhile, macroeconomists were divided in their views. But the main division was between those who insisted that free-market economies never go astray and those who believed that economies may stray now and then but that any major deviations from the path of prosperity could and would be corrected by the all-powerful Fed. Neither side was prepared to cope with an economy that went off the rails despite the Fed’s best efforts.

    What Krugman left out was the division that really mattered, the one between the economists who “got it so wrong” and the economists who got it right.

    Indeed, Dirk Bezemer, a name far less familiar than Paul Krugman, had already, with his June 2009 paper, “‘No One Saw This Coming’: Understanding Financial Crisis Through Accounting Models” (and followed by his September 2009 Financial Times piece, “Why some economists could see the crisis coming“), approached Krugman’s question from the opposite direction. Instead of asking why economists got it so wrong, Bezemer studied economists who got it right.

    The credit crisis and ensuing recession may be viewed as a ‘natural experiment’ in the validity of economic models. Those models that failed to foresee something this momentous may need changing in one way or another. And the change is likely to come from those models (if they exist) which did lead their users to anticipate instability. The plan of this paper, therefore, is to document such anticipations, to identify the underlying models, to compare them to models in use by official forecasters and policy makers, and to draw out the implications.

    There is an immediate link to accounting, organizations and society. Previewing the results, it will be found that ‘accounting’ (or flow-of-funds) models of the economy are the shared mindset of those analysts who worried about a credit-cum-debt crisis followed by recession, before the policy and academic establishment did. They are ‘accounting’ models in the sense that they represent households’, firms’ and governments’ balance sheets and their interrelations. If society’s wealth and debt levels reflected in balance sheets are among the determinants of its growth sustainability and its financial stability, such models are likely to timely signal threats of instability.

    In response to Krugmam’s NYT Sunday Magazine article, James K. Galbraith, (“Who Are These Economists, Anyway?“) pointed out what Krugmam had missed:

    Of course, there were exceptions to these trends: a few economists challenged the assumption of rational behavior, questioned the belief that financial markets can be trusted and pointed to the long history of financial crises that had devastating economic consequences. But they were swimming against the tide, unable to make much headway against a per vasive and, in retrospect, foolish complacency.
    —Paul Krugman, New York Times Magazine, September 6, 2009

    Amen.

    While normal ecclesiastic practice places this word at the end of the prayer, on this occasion it seems right to put it up front. In two sentences, Professor Paul Krugman, Nobel Laureate in Economics for 2008 and in some ways the leading economist of our time, has summed up the failure of an entire era in economic thought, practice, and policy discussion.

    And yet, there is something odd about the role of this short paragraph in an essay of over 6,500 words. It’s a throwaway. It leads nowhere. Apart from one other half-sentence, and three passing mentions of one person, it’s the only discussion—the one mention in the entire essay—of those economists who got it right. They are not named. Their work is not cited. Their story remains untold. Despite having been right on the greatest economic question of a generation—they are unpersons in the tale.

    Krugman’s entire essay is about two groups, both deeply entrenched at (what they believe to be) the top of academic economics. Both are deeply preoccupied with their status and with a struggle for influence and for academic power and prestige—against the other group. Krugman calls them “saltwater” and “freshwater” economists; they tend to call themselves “new classicals” and the “new Keynesians”—although one is not classical and the other is not Keynesian. One might speak of a “Chicago School” and an “MIT School”—after the graduate programs through which so many passed. In truth, there are no precise labels, because the differences between them are both secondary and obscure.

    The two groups share a common perspective, a preference for thinking along similar lines. Krugman describes this well, as a “desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess.” Exactly so. It was in part about elegance—and in part about showing off. It was not about … the economy. It was not a discussion of problems, risks, dangers, and policies. In consequence, the failure was shared by both groups. This is the extraordinary thing. Economics was not riven by a feud between Pangloss and Cassandra. It was all a chummy conversation between Tweedledum and Tweedledee. And if you didn’t think either Tweedle was worth much—well then, you weren’t really an economist, were you?

    Short excerpts can’t do justice to Galbraith’s survey of some of those who were right “on the greatest economic question of a generation.” I highly recommend the piece be read in its entirety (don’t let the publication date fool you — it’s very relevant). I’ll include one more short excerpt that is especially relevant and should, in my opinion, be part of all our discussions of government spending, deficits, taxes and non-government saving and debt:

    The work of John Maynard Keynes is linked closely to the accounting framework that we call the National Income and Product Accounts. Total product is the flow of expenditures in the economy; the change in that flow is what we call economic growth. The flow of expenditures is broken into major components: consumption, investment, government and net exports, each of them subject to somewhat separable theories about what exactly determines their behavior.

    Accounting relationships state definite facts about the world in relational terms. In particular, the national income identity (which simply states that total expenditure is the sum of its components)8 implies, without need for further proof, that there is a reciprocal, offsetting relationship between public deficits and private savings. To be precise, the financial balance of the private sector (the excess of domestic saving over domestic investment) must always just equal the sum of the government budget deficit and the net export surplus. Thus increasing the public budget deficit increases net private savings (for an unchanged trade balance), and conversely: increasing net private savings increases the budget deficit.

    The Cambridge (UK) economist Wynne Godley and a team at the Levy Economics Institute have built a series of strategic analyses of the U.S. economy on this insight, warning repeatedly of unsustainable trends in the current account and (most of all) in the deterioration of the private financial balance. They showed that the budget surpluses of the late 1990s (and relatively small deficits in the late 2000s) corresponded to debt accumulation (investment greater than savings) in the private sector. They argued that the eventual cost of servicing those liabilities would force private households into financial retrenchment, which would in turn drive down activity, collapse the corresponding asset prices, and cut tax revenues. The result would drive the public budget deficits through the roof. And thus—so far as the economics are concerned—more or less precisely these events came to pass.

    Here are a couple of examples of this kind of analysis by Wynne Godley and L. Randall Wray:

    Can Goldilocks Survive? (1999):

    Growing government budget surpluses combined with growing trade deficits have generated record private sector deficits. Unless households continue to reduce their saving—creating an increasingly unsustainable debt burden—the impetus that has driven the expansion will evaporate.

    Is Goldilocks Doomed? (2000):

    …the notion that a federal budget surplus is sustainable, and that it promotes economic growth, must be abandoned. Given the realities of the U.S. trade imbalance, public sector surpluses are consistent with economic growth only so long as the private sector’s financial situation deteriorates at an accelerating pace.

    Part of the reason this may be so hard for progressives to wrap our minds around is that not only does it upend conventional wisdom about the role of money, government spending and taxes — it also requires that we rethink our views regarding the economic “success” of the Clinton administration.

    Getting back to the quote from masaccio at the top of the post… The old structures (policy prescriptions from orthodox economists, either saltwater and freshwater) haven’t worked and aren’t working. Recognizing that is step one. Step two is learning to think away from the formal structures learned in school. Yes, it may be hard… but we are lucky: We have a community of heterodox economists who are in the business of developing a new macroeconomics, who have a track record unmatched by orthodox economists and who want to teach us, all of us — from Paul Krugman to a random pseudonym on the web — what they know.

    We ordinary citizens have no standing to complain about the blindered and ignorant ideology of our country’s economists and politicians if we are unwilling to take off our own blinders and consider, with a genuinely open mind, these new ideas…

    Too much is at stake not to try.

    **************

    The experts respond to Krugman:

    Warren Mosler: comments here.

    James Galbraith: comments here.

    Rob Parenteau: comments here.

    Marshall Auerback comments here and here.

    Bill Mitchell comments here and here.

    Scott Fullwiler: Paul Krugman—The Conscience of a Neo-Liberal?

    Bill Mitchell: Letter to Paul Krugman

    (more comments here and please see note below)

    **************

    Final word from commenter Tom Hickey:

    Paul, you didn’t cite Jamie’s second response back in July.

    http://community.nytimes.com/comments/krugman.blogs.nytimes.com/2010/07/17/more-on-deficit-limits/?permid=54#comment54

    Jamie concludes: “Paul, I challenge you to drop the long-term deficit argument entirely — it will be used in a few months, in a dishonest way by unscrupulous people, to support cuts in Social Security and Medicare that cannot be justified by economic logic. These are cuts which, I am sure, you will oppose when they are proposed. Don’t set yourself up.”

    That was was prescient, since it’s exactly what is happening now. The deficit doves are struggling against the onslaught of the deficit doves because they are agreeing that the deficit needs to be cut. MMT shows why their argument is bullocks.

    **************

    NOTE: This diary is a follow up from my previous, Paul Krugman gets it wrong…. Again.. Next up is MMTer and speaker at last year’s Fiscal Sustainability Teach-In, Pavlina Tcherneva’s response, “Modern Monetary Theory and Mr. Paul Krugman: a way forward

    x-posted from my blog — selise

    by selise

    Paul Krugman gets it wrong…. Again.

    1:26 pm in Uncategorized by selise

    I’d say the deficit debates were heating up again, but I don’t think they’ve let up since before last year’s Peterson Foundation Fiscal Summit (orthodoxy for neoliberal deficit hawks) and the grass roots Fiscal Sustainability Teach-In and Counter-Conference, both held on April 28, 2010. The Teach-In provided an important corrective, known as Modern Monetary Theory (MMT), to the false narratives of both deficit hawks and deficit doves.

    Yesterday, Paul Krugman’s blog post Deficits and the Printing Press (Somewhat Wonkish), once again showed his ignorance of MMT, and in the process misinformed his readers (my emphasis):

    Right now, deficits don’t matter — a point borne out by all the evidence. But there’s a school of thought — the modern monetary theory people — who say that deficits never matter, as long as you have your own currency.

    I wish I could agree with that view — and it’s not a fight I especially want, since the clear and present policy danger is from the deficit peacocks of the right. But for the record, it’s just not right.

    The bolded statement, as I’ll show below, is completely false. Fortunately, there are a couple of decades of scholarship available on the web (for example at: Levy Economics Institute of Bard College, Centre of Full Employment and Equity (CofFEE), Center for Full Employment and Price Stability, and EPIC), several specialist blogs (for example Warren Mosler, Bill Mitchell, New Economic Perspectives from UMKC and winterspeak) as well as naked capitalism and new deal 2.0 which publish posts by Marshall Auerback, Rob Parenteau, L. Randall Wray, Scott Fullwiler and James Galbraith for those of us who want to read and decide for ourselves (In my haste, I’m probably forgetting few names and links. But the above list should be enough to demonstrate the extent of information readily available).

    What makes Paul Krugman’s error yesterday doubly frustrating is that it’s one he’s made before — in his July 17, 2010 post, I Would Do Anything For Stimulus, But I Won’t Do That (Wonkish) (my bold):

    It’s really not relevant to current policy debates, but there’s an issue that’s been nagging at me, so I thought I’d write it up.

    Right now, the real policy debate is whether we need fiscal austerity even with the economy deeply depressed. Obviously, I’m very much opposed — my view is that running deficits now is entirely appropriate.

    But here’s the thing: there’s a school of thought which says that deficits are never a problem, as long as a country can issue its own currency. The most prominent advocate of this view is probably Jamie Galbraith, but he’s not alone.

    Wrong in July and wrong again yesterday. Did Paul Krugman not read the responses, even in his own comments thread, correcting his false statement when he made the same mistake last year?

    Here is James Galbraith’s reply:

    I wrote — correctly and deliberately — that bankruptcy, insolvency and high real interest rates were not risks. Inflation *is* a risk.

    By this, to be clear, I mean an ordinary garden-variety increase in the inflation rate is a risk — not the *infinite-inflation* scenario.

    Inflation, though unattractive, is not remotely comparable to bankruptcy or insolvency, unless you get to Paul’s *infinite* inflation scenario. So what about that?

    In his model, it is driven by his monetarist (quantity-theory) simplification, that the increase in money flows directly into prices. But this is just a modeling error. In the real world, especially in broadly deflationary conditions, people — and banks — simply hang on to cash. There is a Paul Krugman who understands this, from close study over many years of the Japanese stagnation.

    Here is Scott Fullwiler’s reply:

    Paul Krugman just showed his lack of understanding of the theory he is critiquing. That theory says solvency isn’t an issue, but inflation IS. That is, inflation is the constraint, not solvency. So, Krugman’s critique here is a complete straw man. That theory doesn’t say what he says it does.

    neweconomicperspectives.blogspot.com/
    moslereconomics.com
    bilbo.economicoutlook.net/blog/

    And Paul Davidson takes Krugman to task for his model:

    Dear Paul; Given all your assumptions, no wonder you reach your conclusion. For example you assume the quantity theory of money. But the quantity theory requires an assumption of neutral money in both the short run and the long run. But Keynes, in hisarticle for the Spiethoff festschrift specifically argued that in a monetary economy , money is never neutral — in eiher the short run or the long run. For Keynes, the neutral money axiom was like the “axiom of parallels in a non-Euclidean world [ See page 16 of THE GENERAL THEORY.]

    And if you employ axioms that are not characteristic of our entrepreneurial economy, then the teaching will be, as Keynes noted, “misleading and disasterous”

    If you load the argumen with biased assumptions then your conclusions willbe biased.

    L. Randall Wray replied at length in Deficits Do Matter, But Not the Way You Think, posted at new deal 2.0 (and cross posted at naked capitalism, creditwritedowns). Here are three key paragraphs:

    There is an alternative view propounded by economists following what has been called “Modern Money Theory”, which emphasizes the difference between a currency-issuing sovereign government and currency users (households, firms, and nonsovereign governments) (See here and here). They insist that the notion of “fiscal sustainability” or “solvency” is not applicable to a sovereign government — which cannot be forced into involuntary default on debts denominated in its own currency. Such a government spends by crediting bank accounts or issuing paper currency. It can never run out of the “keystrokes” it uses to credit bank accounts, and so long as it can find paper and ink, it can issue paper currency. These, we believe, are simple statements that should be completely noncontroversial. And this is not a policy proposal — it is an accurate description of the spending process used by all currency-issuing sovereign governments.

    The strangest criticism of all is that we MMT-ers argue that “deficits do not matter”. In a recent exchange in the New York Times, Paul Krugman put it this way: “But here’s the thing: there’s a school of thought which says that deficits are never a problem, as long as a country can issue its own currency.” In that piece he took Jamie Galbraith to task for arguing that “Insolvency, bankruptcy, or even higher real interest rates are not among the actual risks” facing a sovereign government. I won’t go into the details, but Krugman produced a simple model in which ever-larger budget deficits generate ever-rising prices. You can see the rest of that back-and-forth here. But the strange thing is that Krugman never actually addressed Galbraith’s points that insolvency, bankruptcy, or higher interest rates are non-issues for a sovereign government. Nor did Krugman even try to justify his claim that MMT-ers “say that deficits are never a problem”.

    In fact, MMT-ers NEVER have said any such thing. Our claim is that a sovereign government cannot be forced into involuntary default. We have never claimed that sovereign currencies are free from inflation. We have never claimed that currencies on a floating exchange rate regime are free from exchange rate fluctuations. Indeed, we have always said that if government tries to increase its spending beyond full employment, this can be inflationary; we have also discussed ways in which government can cause inflation even before full employment. We have always advocated floating exchange rates — in which exchange rates will, well, “float”. While we have rejected any simple relation between budget deficits and exchange rate depreciation, we have admitted that currency depreciation is a possible outcome of using government policy to stimulate the economy.

    This should have been the end of the story (although a correction by Krugman would have been nice). But, as Krugman’s post yesterday demonstrates, this apparently was not the end of the story. The misinformation continues….. and by a political ally!

    Below are a few quotes from last year’s Fiscal Sustainability Teach-In and Counter-Conference, which I encourage interested readers to investigate further (Transcripts, presentation material, audio and video are available at the link).

    Stephanie Kelton:

    There is no revenue constraint for governments that control the money that sits at the top of the hierarchy. Does that mean that we should spend without limit? No. No. Emphatically no. As the economy recovers, spending will need to be regulated to prevent inflation. But I would argue, and I think what we’re all here to argue today is that it’s time to stop allowing the monetary system to limit our range of policy options. It is causing unnecessary human suffering and it’s time for us to begin to recognize the advantages of a Modern Monetary System.

    Warren Mosler:

    Spending is not constrained by revenues. Spending is changing numbers up; putting numbers into our checking accounts. Taxing is changing numbers down, taking numbers out of our checking accounts. Borrowing is moving numbers from our checking account to our savings account. There is no numerical limit to any of this. Paying interest is changing the number up in our savings account. The government can always make any payment of dollars it wants to make. This is all we’re talking about; it’s a nominal system; we’re talking about there are no nominal constraints.

    The risk is inflation, and not insolvency or not-solvency; there’s no solvency risk.

    Marshall Auerback:

    The constraint as we’ve said is inflation.

    *****

    I’d add that there are two additional constraints: ignorance and politics.

    Dear Professor Krugman, Please read your own comments threads… or better yet, read Randy Wray’s book, Understanding Modern Money: The Key to Full Employment and Price Stability, and inform yourself before you misinform your readers any further. Thank you.

    *****

    x-posted from my blog — selise

    by selise

    James K. Galbraith: We Need to Make an Honorable Fight… the Fate of the Entire Country is at Stake

    11:47 am in Uncategorized by selise

    Closing Remarks by Dr. James K. Galbraith, ADAEdFund at Harvard 2010 from ADAction on Vimeo.

    *********************

    Posted below, with kind permission of the author, are James Galbraith’s closing remarks as delivered (see note below) on the 2010 election results to the ADA Education Fund on November 20, 2010. Please see the source link for audio and video, which I highly recommend. — selise

    *********************

    Thanks for the opportunity to make these closing remarks. I want to use my time this afternoon to raise a hard question—a question on which the people in this room today, I believe, are divided and I’m sure the people who are watching and listening via the webcast and podcast are also divided. It is a question which has been raised obliquely in some of today’s interactions, but not one which has been discussed in full or thoroughly. It seems to me though we will get nowhere unless we recognize where we are, what has actually happened, and what the future most likely holds.

    Recovery begins with realism and there is nothing to be gained by kidding ourselves. On the topics that I know most about, the administration is beyond being a disappointment. It’s beyond inept, unprepared, weak, and ineffective. Four and again two years ago, the people demanded change. As a candidate, the President promised change. In foreign policy and the core economic policies, he delivered continuity instead. That was true on Afghanistan and it was and is true in economic policy, and especially with respect to the banks. What we got was George W. Bush’s policies without Bush’s toughness, without his in-your-face refusal to compromise prematurely, without what he himself called his understanding that you do not negotiate with yourself.

    It’s a measure of where we are, I think, that at a meeting of Americans for Democratic Action, you find me comparing President Obama unfavorably to President Bush.

    In economic policy it was said earlier today that we had a lack of narrative. This afternoon Gregory King asked why the people didn’t know that the Republican Party has uniformly and massively opposed job programs, state and local assistance, and every legislative measure that might aid and promote economic recovery from the worst crisis and recession of modern times. Why is that that they didn’t know? Could it have anything to do with the fact that the White House didn’t tell them?

    And why was that?

    The president deprived himself of any chance to develop a narrative from the beginning by surrounding himself with holdover appointments from the Bush and even the Clinton administrations: Secretary Geither, Chairman Bernanke, and, since we’re here at Harvard I’ll call him by his highest title, President Summers. These men have no commitment to the base, no commitment to the Democratic Party as a whole, no particular commitment to Barack Obama, and none to the broad objective of national economic recovery that can be detected from their actions.

    With this team the President also chose to cover up economic crime. Not only has the greatest wave of financial fraud in human history gone largely uninvestigated and unpunished, the government and this administration with its stress tests (which were fakes), with its relaxation of accounting standards which permitted banks to hold toxic assets on their books at far higher prices than any investor would ever pay for them, with its failure to make criminal referrals where these were clearly warranted, with its continuation in office—sometimes in acting capacities—of some of the leading non-regulators of the earlier period, has continued an ongoing active complicity in financial fraud. And the perpetrators, of course, prospered as never before: reporting profits that they would not have been able to report under honest accounting standards, converting tax payer support into bonuses; while at the same time cutting back savagely on loans to businesses and individuals, and ramping up foreclosures, much of that accomplished with forged documents and perjured affidavits.

    Could the President and his administration have done something? Yes, they could have. Where was the Federal Deposit Insurance Corporation? Why did they choose not to implement the law, the Prompt Corrective Action law, which requires the federal government to take into receivership financial institutions when there is a significant risk of large taxpayer losses to the insurance fund? Where were the FBI and the Department of Justice? Did he do anything? No. Is he doing anything now? No. Why not? The most likely answer is that he did not want to. My understanding in fact is that there was one meeting where this issue was raised, and the President stated that his economic team had assured him they had the situation under control.

    On the larger economic policy front, the White House gave away the game from the beginning. How? First by guessing at the scale of the disaster. When leading economic advisers (I believe it was, in fact, it was President Summers) announced that the unemployment rate would peak at 8%, not only guessed wrong, but he gave away the right to assign responsibility to the previous administration when things got worse. This was either elementary bad politics or deliberate self-sabotage. But, it gets worse. The optimistic forecast helped to justify a weak program. A useful sop really. I mean, useful things were done, but not nearly enough to convey the impression of a forceful policy to the broader public. Then once the banks were taken care of and the stock market took off again it seems clear that the team at the White House didn’t care anymore.

    Again, could they have done differently? Of course. The President could have told the truth, which is that we faced a historic meltdown, a collapse of the core financial institutions of our economy, and that we had really no way of knowing how bad economic conditions might get or how long this would endure and that therefore the situation would require a full mobilization: all resources, all hands on deck, major departures of policy, no holding back, and the responsibility for trouble and failure falling plainly on those who would obstruct the course. None of the people he chose to advise him on economic policy was remotely capable of thinking in those terms.

    We’ve learned this morning from Vic Fingerhut and Mike Lux that the administration went down in public esteem when people realized it was working for the banks and not for them. Why did they think this? Why they go, and here is a quote, from “blaming Bush and Wall Street to blaming Obama and Wall Street”? Because plainly they could see what was in front of their faces. Except for one thing, President Bush never really pretended to be a President for ordinary folks; President Obama did. Bush was who he was; Obama held out, fostered, and promoted vast hopes, mobilizing the American population behind his leadership on that basis. And he disappointed those hopes–to use a very harsh word, one could say he has betrayed those hopes. How can one therefore blame the voters for acting as they have acted?

    What happens next? Let’s again not kid ourselves, we have lost a great many seats in the House of Representatives and the House of Representatives isn’t coming back into a Democratic majority in the near future. Simply because of the balance of exposures – the larger numbers of Democratic Senators exposed to reelection in the next cycle, the greatest likelihood is that the Senate will also go Republican in two years time. President Obama has set his course. He has surrounded himself with the advisers of his choice and as he moves to replace President Summers we hear in the press, we read, that the priority is, and this is an approximate quote, to “repair the rift with his investors on Wall Street.” What does that tell you? It tells me that he does not have President Clinton’s fighting and survival instincts. I’ve not heard one good reason all day to believe that we are going to see from this White House the fight that we want, that he could win if he made in two years, or any reason why we should be backing him now.

    The Democratic Party has become too associated with Wall Street. This is a fact. It is a structural problem. It seems to me that we as progressives need to draw the line, that we need to face—this is my personal position—that we would be better off to have an under-funded, fighting progressive minority party than a party marked by obvious duplicity and constant losses on every policy front as a result of the reversals in our own leadership.

    What is at stake in the long-run? Two things, mainly, in my view. First, it seems to me that we as progressives need to make an honorable defense of the great legacies of the New Deal and Great Society—programs and institutions that brought America out of the Great Depression and bought us through the Second World War, brought us to our period of greatest prosperity, and the greatest advances in social justice. Social Security, Medicare, housing finance—the front-line right now is the foreclosure crisis, the crisis, I should say, of foreclosure fraud—the progressive tax code, anti-poverty policy, public investment, public safety, and human and civil rights. And the environment. We are going to lose these battles—let’s get used to it. But we need to make an honorable fight, to state clearly what our principles are and to lay down a record that is trustworthy for the future.

    Beyond this, bold proposals are what we should be advancing now; even when they lose, they have their value. We can talk about job programs; we can talk about an infrastructure bank; we can talk about Juliet Schor’s idea of a four-day work week; we can talk about my idea of expanding Social Security and creating an early retirement option so that people who are older and unemployed or anxious to get out of the labor force can leave on comfortable terms, and so create job openings for younger people who, as we’ve heard today, are facing very long periods of extremely aggravating and frustrating unemployment; we can talk about establishing a systematic program of general revenue sharing to support state and local governments, we can talk about the financial restructuring we so desperately need and that we’ll have to have if we are going to have a country which has a viable private credit system and in which large financial power is not constantly dictating the terms of every political debate.

    We are not going to get these things, but we should begin to have a clearly defined program so that people know what they are. And then frankly, as was also said earlier today, I think most eloquently by Jeff Madrick, in the long run we need to recognize that the fate of the entire country is at stake. Running a large country isn’t easy work and it can’t be done indefinitely by incompetents, hacks, and lobbyists. Large countries can and do fail, they have done so in our own time. And the consequences are very grave: drastic declines in services, in living standards, in life expectancies, huge increases in social tension, in repression, and in violence. These are the consequences of following through with crackpot ideas such as those embodied in the Bowles-Simpson deficit reduction commission, as Jeff Madrick again outlined, the notion that we should as put arbitrary limits on the scale of government, or arbitrary limits on the top tax rate affecting the wealthiest Americans.

    This isn’t a parlor game. The outcome isn’t destined to be all right. It will not necessarily end in progress whatever happens. What we do, how we proceed, and how we effectively resist what is plainly about to happen, matters very greatly for the future of our country, of our children, and of every generation to come. We need to lose our fear, our hesitation, and our unwillingness to face the facts. If we thereby lose some of our hopes, let’s remember the dictum of William of Orange that “it is not necessary to hope in order to persevere.”

    The President should know that, as Lincoln said to the Congress in the dark winter of 1862, he “cannot escape history.” And we are heading now into a very dark time, so let’s face it with eyes open. And if we must, let’s seek leadership that shares our values, fights for our principles, and deserves our trust.

    *********************

    NOTE: Remarks above are as delivered and vary slightly from the prepared remarks (source link for pdf) and as posted at new deal 2.0 (I transcribed the changes from the audio). Any errors are mine. — selise

    *********************

    x-posted from my blog — selise

    by selise

    Fiscal Sustainability Teach-In and Counter-Conference presentations and The Deficit: Nine Myths We Can’t Afford from ND20

    12:38 pm in Uncategorized by selise

    For everyone who wasn’t able to attend Wednesday’s Fiscal Sustainability Teach-In and Counter-Conference at GWU, with help from the volunteers who made the recordings, I’ve posted each session’s audio along with speaker slideshows for viewing (here). Hopefully transcripts will be added soon. And for anyone who is willing to make a contribution but has not yet done so, donations are still most welcome.

    The following is Lynn Parramore’s provocative article from earlier this week, x-posted from new deal 2.0 with her kind permission. I hope it will tempt you to give a listen to the Teach-In audio files.

    The Deficit: Nine Myths We Can’t Afford

    By Lynn Parramore

    Has the federal government run out of money? Will we have to slash Social Security? Will we have to borrow dollars from China for our children to pay back?

    The national debate over fiscal responsibility and sustainability is entering a new, critical phase. Today, an 18-member bipartisan commission to examine the government’s fiscal problem will meet for the first time. Everything is on the table, including Social Security and Medicare.

    With so much at stake, the time has come to examine our fundamental assumptions about government deficits and debt. The danger of accepting oft-repeated orthodoxies has been clearly demonstrated in the recent financial crisis. For decades, free market fundamentalism went virtually unquestioned, and we’ve all seen the result – an epic economic catastrophe. We can’t afford to make the same mistake on fiscal responsibility. It’s time to consider alternatives perspectives before we rush down potentially destructive policy paths that could compromise our future.

    The Roosevelt Institute’s New Deal 2.0 asked seven economic thinkers to address what they see as the most dangerous myths currently circulating on the deficit. Several of these experts will be on hand to educate the public on April 28, 2010 at George Washington University in Washington, D.C. at a “Fiscal Sustainability Teach-In.”

    Myth #1: The government should balance its books like a private household.
    Reality: Our federal government is the issuer of the currency, which makes its budget fundamentally different than the average citizen’s.

    Discussion of government budget deficits often begins with an analogy to a household’s budget. People say: “No household can continually spend more than its income, and neither can the federal government”. But there are big differences between a household and the federal government. You don’t have the ability to print money in your living room, do you? Well, the government does. So how it finances its own debt and spending is different from the way you do.

    A government is the issuer of the currency. The household, on the other hand, is the user. Households are restricted by the need to somehow get money into their bank accounts, or their checks will bounce. The federal government, by contrast, doesn’t “have” or “not have” dollars. There is no vault or lock box where it “keeps” its money. In fact, it makes all of its payments simply by electronically crediting private bank accounts and there is no practical limit to which it can change those numbers up. Spending by the federal government always creates new money in the system, while taxation destroys it. When households and firms pay taxes, the money does not go anywhere; the government simply debits those private bank accounts by electronically reducing the amount of reserves they hold, i.e., by changing the numbers in those bank accounts down.

    Government is constrained only by the inflation it can create by over-spending, but its ability to spend is numerically unlimited. Households are constrained by their ability to get dollars from some form income and from borrowing, and both of those have real limits.

    ~Pavlina R. Tcherneva, Assistant Professor, Franklin and Marshall College

    Myth #2: Fixing Social Security and Medicare will require “tough choices”.
    Reality: Social Security and Medicare are not facing a financial crisis.

    A new poll by the Pew Research Center suggests that nearly 80% of Americans don’t trust the federal government. Unfortunately, we appear all-too-willing to trust the government when it tells us that Social Security and Medicare are heading for bankruptcy. Indeed, the same poll shows that fewer than half of us now hold a favorable opinion of the Social Security Administration (down 13% from a decade ago). No wonder. The drumbeat over the so-called “crisis” facing Social Security and Medicare has reached a fever pitch.

    The government’s message is clear: Both programs face significant trouble ahead, due primarily to the aging of our population. In order to deal with the looming problems, we will have to make “tough choices.” Not everyone can have the money they were promised.

    If you’ve been around a while, you’ve heard this all before. Remember the Greenspan Commission? This is the group that President Reagan appointed to “fix” Social Security in the early 1980s, the last time the system was on the brink of “collapse.” Thanks to the “reforms” that were enacted in 1983, Americans are working longer (they raised the retirement age) and paying more (they accelerated increases in the payroll tax rate). And now we’re being told it was all for nothing — the system is broken again?

    The truth is, the system was never broken in the first place, because the government’s ability to pay benefits does not in any way depend on the balance in the Social Security or Medicare Trust Funds. Benefit checks come directly from the Treasury, and, as Alan Greenspan has admitted, “[A] government cannot become insolvent with respect to obligations in its own currency.”

    And so the question is not whether the government needs to make “tough choices” in order to keep these vital programs afloat. The question is, will politicians make the toughest choice of all and tell the American people the truth: Social Security and Medicare face no financial crisis now or in the future.

    ~Stephanie Kelton, Associate Professor, University of Missouri-Kansas City, Missouri

    Myth #3: We are passing on debt to our grandchildren.
    Reality: Payments on Treasury securities are a matter of data entry, not a financial burden.

    Most people don’t realize that government debt — Treasury securities — are nothing more than savings accounts at the Federal Reserve Bank in Washington.

    There are about 13 trillion dollars in Treasury securities at the Fed. Collectively, these savings accounts are known as the national debt. The national debt represents a portion of the combined savings of US residents, corporations, banks, and foreign governments. And most folks probably don’t know that when a person buys them, the Fed simply transfers the dollars from her checking account to a savings account at the Fed called a “Treasury security.”

    Tens of billions of dollars of these Treasury securities come due every week. When that happens, the Fed pays off that “debt” simply by transferring the dollars, plus interest, out of these savings accounts and back to the holders’ checking accounts.

    In the future, when our grandkids make payments on Treasury securities, they will simply credit accounts at the Fed-just as we do today, and as our grandparents did before us. It is a simple matter of data entry, and not a financial burden.

    If the government spends and taxes wisely today, our grandchildren inherit roads, dams, parks, public buildings, and, most importantly, an educated and healthier workforce. These things are admittedly hard to value precisely-but there can be no doubt that our grandkids will be much better off having been born into a society that has modern infrastructure and services that our government policies can help to provide.

    ~Randall Wray, Professor of Economics, University of Missouri-Kansas City, Missouri

    MYTH #4: What we don’t tax we have to borrow from the likes of China for our children to pay back.
    Reality: Paying our debt holders back consists of transferring funds between accounts.

    One constantly hears that the Chinese (and other external creditors) “fund” our deficit. The folklore is that when China finally sells off its US bond holdings, those yields will sky-rocket. The dollar will then crash, no one else will want the debt, and it will be the end of America as we know it.

    To debunk this myth, you need to know two things. First, all foreign governments have checking accounts at the Federal Reserve Bank called “reserve accounts.” Second, US Treasury securities are nothing more than savings accounts at the same Federal Reserve Bank.

    How does China get its dollars? It sells things to us. And when China gets paid, those dollars go into China’s checking account at the Federal Reserve Bank.

    And when China buys US Treasury securities, what happens? The Fed transfers China’s dollars in its checking account at the Fed to its savings account at the Fed. We call that “borrowing from China” and “going into debt to China.” But it’s not really “borrowing” in the sense of creating an external constraint whereby we have to defer spending to “pay back” China. The Fed simply pays off China’s “debt” by transferring the dollars, plus interest, back to the holder’s checking account, which it can create at the stroke of a keyboard as the monopoly issuer of dollars.

    The dollars are nothing more than data entry on the Fed’s computer. They have no other existence. And it has no impact on the government’s ability to spend as to whether China’s dollars are in their checking account or savings account.

    All we owe China is a bank statement that shows them where their dollars are. Sadly, they know this. But they also know that we think we are dependent on them, and take advantage of our error.

    ~Marshall Auerback, Senior Fellow at the Roosevelt Institute and Warren Mosler, President, Valance Co.

    Myth #5: The government must tax or borrow to get money to spend.
    Reality: Government spending is not constrained by revenue.

    As explained above, the Federal government neither “has” nor “doesn’t have” dollars. The government spends by creating new money and taxes by destroying money, which simply involves changing numbers in bank accounts. Suppose the government pays Social Security benefits to a retired teacher, Mrs. Jones, in the amount of $1,500 a month. At the end of the month, the checking account of Mrs. Jones is credited by $1,500. Did the government need your tax revenue to pay Mrs. Jones? No! It simply changed the numbers up in Mrs. Jones’s bank account, basically creating new money. On April 15 Mrs. Jones sends a check to the IRS to pay her taxes. When the government gets the check, what does it do? It simply changes numbers down in Mrs. Jones’s bank account, destroying the money.

    What about selling government bonds, which is mistakenly called borrowing? These are simply interest-earning assets, similar to a savings account. Suppose Mrs. Jones has $1,000 dollars in her checking account on which she would rather earn interest. So she buys a Treasury security. What happens? Basically a bond sale involves moving funds from checking accounts to savings accounts (Treasuries) at the Federal Reserve Bank.

    So if the government doesn’t need to tax to be able to spend, why does it tax at all? There are two reasons. First, the government creates demand for its currency through taxation. If the public didn’t need the dollars to pay its taxes, it wouldn’t be willing to sell goods and services to the government in return for pieces of paper (or numbers in a checking account). Taxes, then, are what give value to money. Second, the government uses taxes to control the public’s spending power. When the public has too much spending power, government taxes some of it away to avoid inflation. When there is too little spending so that unemployment results, it lowers taxes to boost private spending.

    Any and all financial constraints on government spending such as issuing government bonds dollar for dollar against deficit spending, debt ceilings, and restrictions on the Fed’s ability to buy treasury securities are purely political and necessarily self imposed, because they are imposed on us by our chosen institutional arrangements and not by something inherent in our economic system.

    ~Yeva Nersisyan, Doctoral candidate in economics, University of Missouri-Kansas City, Missouri

    Myth #6: Deficits and government borrowing takes away savings.
    Reality: Deficits add to income and savings.

    The truth is that deficits add to the total monetary savings held outside of government. To the penny. That’s right, if the government deficit was 1 trillion dollars last year, then total net savings of everyone outside of government went up by 1 trillion. Not a penny more or a penny less.

    Let’s look at a simple transaction where the government deficit spends $100. Say the government sells US $100 of new treasury securities. We buy them and our bank account goes down by $100 when we pay for them, but we have the $100 of treasury securities we bought. Are we any poorer? Of course not! In fact, since we bought the securities voluntarily, we probably did it because we think that purchase made us richer. All we did was exchange $100 that was in our checking account for a $100 Treasury security.

    After we pay the $100 for the Treasury securities, the next thing that happens is the government then spends $100 by buying something from us. So we now have both the $100 the government just spent and the $100 of Treasury securities we just bought.

    So because of the $100 of deficit spending, we got our $100 back in our checking account, and we also have $100 in Treasury securities. Our monetary wealth is now $100 more than it was before.

    The deficit spending of $100 added $100 to our savings. Yet all of our leaders insist that deficits take away from our savings.

    You can now understand the reason our savings went up so much last year. It was because the government deficit was so much higher. Now you know more about that than anyone on TV.

    ~Warren Mosler, President, Valance Co.

    Myth #7: We’ll end up just like Weimar Germany or Zimbabwe.
    Reality: Hyperinflation in both countries was caused by circumstances far different than ours.

    The minute you challenge the assumption that the government should not spend when it has a large deficit, out comes the charge that we’ll get some horrible hyperinflationary outcome like Weimar Germany or Zimbabwe.

    Yes, once the economy gets to full employment, then extra government deficit spending can start driving up prices. But what happened in Weimar Germany was very different. During that time, the government was forced to pay extremely large war reparations in foreign currencies which it didn’t have. So it had to aggressively sell its own currency and buy the foreign currency in the financial markets. This relentless selling continuously drove down the value of its currency, causing prices of goods and services to go ever higher in what became one of the most famous inflations of all time. By 1919, the German budget deficit was equal to half of GDP, and by 1921, war reparation payments represented one third of government spending. And guess what? On the very day that government stopped paying the war reparations and selling its own currency to buy foreign currency, the hyperinflation stopped.

    In Zimbabwe, the situation is also very different from ours. There, the conditions for hyperinflation were caused by the destruction of nearly half of the country’s domestic food production via misguided land reforms, plus a civil war which eliminated much of the economy’s productive manufacturing capacity. In response to food shortages, the Bank of Zimbabwe used valuable foreign exchange reserves to buy imported food, leading to a lack of foreign currency to purchase essential raw materials. Manufacturing output collapsed, but the government used much of the remaining foreign exchange to dole out political favors, rather than adding to the country’s productive capacity. The end result was inflation and then hyperinflation.

    In the US, hyperinflation will not be an issue if the government spends while it has a large deficit because with high unemployment and unused yet functioning factories all across the country, there is plenty of room to cut taxes and/or increase spending to get us to full employment. This is true no matter what the size of the federal deficit. Ultimately, inflation (and then hyperinflation) is about competing distributive claims over real resources, such as oil, gas, water, etc. A “sustainable” fiscal policy, especially with respect to hyperinflationary risks, then, is really about both the establishment of full employment and the implementation of well-crafted policies which deal with the constraints created by, for example, depleting natural resources.

    ~Marshall Auerback, Senior Fellow at the Roosevelt Institute and Rob Parenteau, sole proprietor of MacroStrategy Edge

    MYTH #8: Government spending increases interest rates and ‘crowds out’ valuable private sector investment.
    Reality: Banks can lend essentially without limit, and the Fed can hit any interest rate target it chooses.

    Ask an economist what determines the interest rate, and she’ll probably mutter something about supply and demand or “market forces.” Ask the same economist what determines the level of saving and investment, and the answer probably won’t change very much. This is because most economists were trained using textbooks that have not been rewritten since the United States went off the gold standard after WWII.

    Back then, we had a monetary system that really did limit the growth of the money supply, and too much government spending really could force rates higher and crowd out other forms of spending. It is all based on something economists know as Loanable Funds Theory, which describes a market in which there is some limited pool of savings available to satisfy the demand for credit. Thus, deficit spending required the government to compete (with private borrowers) for a portion of these limited resources. Because the capacity to lend was constrained under the gold standard, the added competition could drive borrowing costs (i.e. the interest rate) higher.

    Decades later, the monetary system looks completely different. But economists continue to treat governments as if they are the users of the currency (as opposed to the issuers) and to treat banks as passive money lenders — there simply to broker deals between savers and borrowers. In truth, banks can lend essentially without limit, regardless of what the federal government is doing, and the Federal Reserve can hit any interest rate target it chooses.

    ~Stephanie Kelton, Associate Professor, University of Missouri-Kansas City, Missouri

    Myth #9: The money spent paying interest on the national debt could be spent elsewhere.
    Reality: Interest rates can easily be brought to zero and are not an obstacle to federal spending.

    Government spending is not operationally constrained by revenues (as outlined above). So interest payments are not an obstacle to any other payments. Further, the Fed (a branch of government) sets the overnight rate-thus, it is a policy variable and can be set wherever policy wants to set it. Right now short term rates are set near 0%, and the Fed could leave them there permanently, which would bring down interest on Treasury securities to near 0%. Finally, Treasury can elect to issue only 3 month bills, which would bring government interest payments towards 0 over time.

    Conclusion: Interest on the debt is not currently an obstacle to increased federal spending and/or tax cuts. And it’s a very simple matter to bring interest payments down to 0 in any case.

    ~Randall Wray, Professor of Economics, University of Missouri-Kansas City, Missouri

    ________________

    x-posted from nmr

    by selise

    April 28: ND20 Bloggers Ready to Take On Deficit Hawks at D.C. Counter-Conference

    1:52 pm in Uncategorized by selise

    [x-posted from new deal 2.0 with kind permission. - selise]

    By Justin Lutz

    ND2.0 bloggers Marshall Auerback and L. Randall Wray prepare to confront neoliberal propaganda and deficit hysteria at this D.C. teach-in.

    The deafening screams of deficit hawks have reached a fever pitch as the Peter G. Peterson Foundation announces that it will hold a special summit “to launch a national bipartisan dialogue on America’s fiscal challenges.” The list of featured speakers reads like a FCIC subpoena, with Alan Greenspan and Robert Rubin set to stoke populist fear and proclaim the evils of government spending; other speakers include Judd Gregg, John Podesta, Paul Volcker, and former President Clinton. This motley crew of Washington and Wall St. insiders will undoubtedly disguise itself as a bipartisan effort to control the federal deficit and spearhead economic recover, but this means nothing coming from the very people who planted the seeds of the economic catastrophe they are perched to condemn.

    There is pushback, however, and the Peterson Summit–along with the cronyism it represents–is being challenged. The Fiscal Sustainability Teach-In Counter-Conference, as it is being called, will be held the same day as the Peterson Summit — April 28th — at George Washington University in D.C. The purpose of the teach-in is to offer a counter-narrative to the recycled neoliberal arguments sure to be spouted at the Peterson Conference. Unlike the Peterson Conference, the teach-in is free and open to the public, with the goal of expanding economic debate, not constricting it to the status quo.

    James K. Galbraith says the counter-conference “will be the important event in Washington on April 28. Unlike the other meeting, this one will feature important work by honest scholars. It deserves at least equal attention, and very much more respect.

    NewDeal2.0 bloggers have been remapping the debate over the deficit for some time now. Marshall Auerback and L. Randall Wray will be at the forefront of the teach-in, leading discussions on inflation and fiscal sustainability.

    The Fiscal Sustainability Teach-In Counter-Conference will be held April 28th at George Washington University’s Marvin Center, Room 310, The Elliot Room from 8am – 4pm.

    You can find the tentative schedule for the teach-in right here, and you can also help with the cost of the conference here.

    ——————

    [Donations can be made here, and for more information on why I support this effort, please see my previous diary, Time to Sweep the Vampire Squid Off Our Faces and Make Room for the Real Change. Thank you for anything you can do to help - selise]

    by selise

    Time to Sweep the Vampire Squid Off Our Faces and Make Room for the Real Change

    12:54 pm in Uncategorized by selise

    Warning: At the end of this diary, I’m going to be asking for your support. Your financial support. Please consider making a donation today.

    ________________

    I remember the fall of 2008 not as the time of an historic election but as a time of astonishment at the massive amounts of money our government, a Republican administration and a Democratic Congress, was willing to throw at the financial elites while demonstrating, for the most part, their utter cluelessness about why the money was needed or what would be done with it. At first is was $700 billion, then $850 billion and then trillions. All within the space of a few weeks.

    Chris Floyd captured the moment perfectly (from Oct, 13, 2008 via x-post):

    Perhaps the most striking fact revealed by the global financial crash — or rather, by the reaction to it — is the staggering, astonishing, gargantuan amount of money that the governments of the world have at their command. In just a matter of days, we have seen literally trillions of dollars offered to the financial services sector by national treasuries and central banks across the globe.

    The effectiveness of this unprecedented transfer of wealth from ordinary citizens to the top tiers of the business world remains to be seen. It will certainly insulate the very rich from the consequences of their own greed and folly and fraud; but it is not at all clear how much these measures will shield the vast majority of people from the catastrophe that has been visited upon them by the elite.

    But putting aside for a moment the actual intent, details and results of the global bailout offers, it is their very extent that shocks, and shows — in a stark, harsh, all-revealing light — the brutal disdain with which the national governments of the world’s "leading democracies" have treated their own citizens for decades.

    Year after year, the ordinary citizens were told by their governments: we have no money to spend on your needs, on your communities, on your infrastructure, on your health, on your children, on your environment, on your quality of life. We can’t do those kinds of things any more.

    Of course, when talking amongst themselves, or with the believers in the think tanks, boardrooms — and editorial offices — the cultists would speak more plainly: we don’t do those things anymore because we shouldn’t do them, we don’t want to do them, they are wrong, they are evil, they are outside the faith. But for the hoi polloi, the line was usually something like this: Budgets are tight, we must balance them (for a "balanced budget" is a core doctrine of the cult), we just can’t afford all these luxuries.

    But now, as the emptiness and falsity of the Chicago cargo cult stands nakedly revealed, even to some of its most faithful and fanatical adherents, we can see that this 30-year mantra by our governments has been a deliberate and outright lie. The money was there — billions and billions and billions of dollars of it, trillions of dollars of it. We can see it before our very eyes today — being whisked away from our public treasuries and showered upon the banks and the brokerages.

    Let’s say it again: The money was there all along.

    A deliberate and outright lie. The money was there all along.

    And now, just a year and a half later, the deficit hawks at the Peterson Foundation are at it again: attacking Social Security and Medicare, this time with a "National Fiscal Summit" including such notable "experts" as Robert Rubin and Alan Greenspan, among others "to Discuss Nation’s Rising Deficits and Debt."

    We have a massive need for a counter-narrative to their lies: that Federal deficit spending is bad, that it is a burden to the next generation, that deficit spending risks insolvency — basically that the Federal Government Budget is some how analogous to a household budget when, in fact, it is no such thing.

    The Fiscal Sustainability Teach-In Counter-Conference on April 28th, 2010 in Washington, DC (At the George Washington University’s Marvin Center, Room 310, The Elliot Room, venue info here.) — the same day as the Peterson Foundation’s "Fiscal Summit" — aims to do just that. Here’s what Jamie Galbraith said about the Teach-In:

    ________________

    "The Fiscal Sustainability Teach-In Counter Conference will be the important event in Washington on April 28. Unlike the other meeting, this one will feature important work by honest scholars. It deserves at least equal attention, and very much more respect."

    — James K. Galbraith, The University of Texas at Austin. [April 19, 2010 via email with permission]

    ________________

    We can move beyond the false economic orthodoxy that got us into the current economic mess and that now is being promoted to attack Social Security and Medicare — and harming our Nation and its People in so many ways. But our help is needed (I warned you this was coming) to raise the money needed for speaker travel, venue, and other related expenses. No money is going to the organizers or to anything other than the conference. The Teach-In is being organized, at the last minute, with no charge for attendance and on a shoe-string budget, because the people involved believe in what they are doing.

    Here is the program (see here and here in case of updates).

    Time Period Topic Team Leaders
    8:00–8:15 AM Welcoming Remarks
    8:15–9:45 AM What Is Fiscal Sustainability? Bill Mitchell, Research Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, NSW Australia, and blogger at billy blog
    9:45–10:00 AM BREAK
    10:00 AM–11:15 Are There Spending Constraints on Governments Sovereign in their Currency? Stephanie Kelton, Associate Professor of Macroeconomics, Finance, and Money and Banking, Senior Scholar at The Center for Full Employment and Price Stability (CFEPS), University of Missouri – Kansas City, Research Associate at The Levy Economics Institute of Bard College, and blogger at New Economics Perspectives
    11:15–11:30 BREAK
    11:30–12:45 The Deficit, the Debt, the Debt-To-GDP ratio, the Grandchildren and Government Economic Policy Warren Mosler, International Consulting Economist and blogger at moslereconomics.com
    12:45–1:00 PM BREAK
    1:00–2:15 PM Inflation and Hyper-inflation Marshall Auerback, International Consulting Economist, blogger at New Deal 2.0 and New Economic Perspectives;
    Mat Forstater, Professor of Economics, Director of CFEPS, Department of Economics, University of Missouri — Kansas City, Research Associate at The Levy Economics Institute of Bard College, and blogger at New Economic Perspectives
    2:15–2:30 PM BREAK
    2:30–4:00 PM Policy Proposals for Fiscal Sustainability L. Randall Wray, Professor of Economics, Research Director of CFEPS at the University of Missouri – Kansas City, and Senior Scholar at The Levy Economics Institute of Bard College;
    Pavlina Tcherneva, Assistant Professor of Economics at Franklin and Marshall College, Senior Research Associate at CFEPS and Research Associate at The Levy Economics Institute of Bard College and bloggers at New Economic Perspectives

    Please help by contributing to the cost of the Teach-In today. Donate Here. Every little bit helps.

    Some other things you can do:

    1. Ask your friends to donate too
    2. Attend the Teach-In
    3. Spread the word — write a blog post, tell your family, friends, neighbors and co-workers
    4. Educate yourself — some great introductory resources are:

    Finally, here is a bit of inspiration from Rob Parenteau, who also gave me the title of this post (both via email and used with permission):

    Of course, there is a need to reconstruct the way economics is taught in academia. But this is not the highest priority at the moment. We have many average people and citizens walking around looking for answers. We need to learn to speak to them and persuade the entrepreneurs, the unionists, the teachers, the housewives, the priests, the cab drivers, etc. They are hungry for answers and vulnerable to demagogues.

    We have demonstrated some capacity to finally forge our way through the last mile problem on MMT, functional finance, and the financial balance approach in the blog world and elsewhere. Some like Marshall, Bill Black, and Jamie are even able to get the message across through more mainstream media channels. The tenured academics will surely be the last to follow, and of course, that is their perogative. We should let Rob Johnson and INET continue to work on that contigent while we take our case to the misinformed and extremely frustrated public. They are desperate to make sense of what has happened and to figure out how to find a plausible way forward to a more sensible and satisfying world. We can do that. We can completely engage them, and get the ball rolling.

    Marshall and I have dialogued with pure blooded Austrian Schoolers on blog sites and actually gotten some traction with them. It is possible to help people find new perspectives or at least question and possibly move beyond limited old ones. I unfortunately cannot attend this one because I have other commitments I cannot break that day, but I have a funny feeling it will not be the last one either and I wish you all the greatest success and effectiveness with this inaugural teach-in. I am certain you will be making history. Feel the power of this moment and wield it wisely.

    x-posted from my website

    by selise

    Senate Filibusters and the Two-Speech Rule [a third working thread about forcing the (real) filibuster]

    2:38 pm in Uncategorized by selise

    This is the third in a series of working threads with powwow, and anyone else who wishes to join in the fun, on the Senate filibuster rules and precedents (for links to prior working threads and other background and reference material, see the working threads section of my Senate Filibuster Reference List).

    Some of our latest discussions have centered on the two-speech rule in Senate Rule XIX. The authoritative reference for this Rule is in the Debate section of Riddick’s Senate Procedure, under the heading of "Speeches Allowed in Same Legislative Day" (pp 781-5).

    Below is a key portion from Riddick’s and selections of the Congressional Record from citation 561 (Sept. 25, 1986, 99-2, Record, pp. 26136-54) for discussion. Unfortunately this portion of the Record is not yet online, so we have to make due with a pdf (12MB) from a scan of a microfiche photo copy or the typed text (subject to my typos). For a more complete non-pdf version of the relevant Congressional Record, please see my original post (of which this diary is an abbreviated version).

    —– —– —–

    From Riddick’s Senate Procedure: section Debate, pages 782-3 in the subsection on "Speeches Allowed in Same Legislative Day":

    A Senator may make two speeches upon the same question in the same legislative day, and if he yields for a speech by another Senator he will lose the floor upon a point of order being made, and his speech will thereby be terminated.557

    Under Rule XIX, a Senator is not entitled to speak more than twice in the same legislative day on the same question and when called to order during his third speech will lose his right to the floor.558

    A Senator who has spoken twice on the same question may be recognized to make a motion,559 and by leave of the Senate or the adoption of a motion to that effect, to be determined without debate, a Senator may speak more than twice upon the same question on the same legislative day.560

    When a Senator called for the regular order, the Senator who had the floor was directed to take his seat, since it was determined that he had already spoken twice on the question before the Senate on that legislative day, the Chair holding that recognition for any purpose constituted a speech. On appeal this ruling was not sustained as the judgment of the Senate. By this vote of the Senate, it was determined that standing alone, the following procedural motions and requests were examples of actions that did not constitute speeches for purposes of the two speech rule: parliamentary inquiries, appeals from rulings of the Chair, points of order, suggesting the absence of a quorum, withdrawal of appeals, requests for the yeas and nays, requests for a division vote, requests for reading of amendments, and requests for division of amendments. Therefore, the two speech rule requires not a mechanical test, but the application of the rule of reason.561

    —– —– —–

    From the Congressional Record, beginning on page 26136 (typos are mine):

    The PRESIDING OFFICER (Mr. STEVENS). A quorum is present.

    The question is, Is it the sense of the Senate that debate on the motion to proceed to the consideration of S. 2760, the Product Liability Reform Act, shall be brought to a close? The yeas and nays are automatic under the rule, and the clerk will call the roll.

    [...]

    The PRESIDING OFFICER. On this vote there are 97 yeas and 1 nay. Three-fifths of the Senators duly chosen and sworn having voted in the affirmative, the motion is agreed to.

    Mr. KASTEN. Mr. President, when I spoke to the delegates at the White House Conference on Small Business, many of whom had businesses that were literally on the edge of survival, many of whom had businesses whose very existence depended upon the needed reforms of the product liability system, I promised them that this legislation, this bill, would be on the floor of the Senate.

    [...]

    Mr. HART. [...] Mr. President, at a time when the Senate ought to be very seriously considering trade legislation, a true deficit reduction measure such as an oil import fee, or overdue revisions of the farm bill–measures to help the American people–we are considering something else: an unjust and unwise measure to injure people who have already been hurt.

    I cannot support legislation to make it more difficult for victims of dangerous and defective products to be compensated for their injuries. Most of the provisions of the product liability bill would undercompensate the injured or insulate the guilty. The consumers of this Nation and the firms which conscientiously apply the highest standards in manufacturing both deserve better.

    [...]

    I congratulate the distinguished Senator from South Carolina [Mr. Hollings], who has been this Chamber’s conscience on product liability legislation. I commend him for his leadership in opposition to this flawed bill.

    [...]

    Mr. HOLLINGS. Mr. President, I suggest the absence of a quorum.

    The PRESIDING OFFICER. Business has not intervened since the last quorum call; therefore—

    Mr. HOLLINGS. No business has intervened, Mr. President?

    The PRESIDING OFFICER. That is the rule, that during a cloture period, there cannot be another quorum call unless business has intervened in the interim since the last rollcall.

    Mr. HOLLINGS. Mr. President, may I inquire of the Chair–we have had some talk. What constitutes business?

    The PRESIDING OFFICER. The Chair states that that is a very technical question. There are a series of things that constitute business. Ordering the yeas and nays on a motion would be business.

    Mr. HOLLINGS. But not debate?

    The PRESIDING OFFICER. Not debate. There must be action by the Senate disposing of pending business before another quorum call is in order.

    Mr. HOLLINGS. I appeal the ruling of the Chair and ask for the yeas and nays.

    The PRESIDING OFFICER. Is there a sufficient second for that purpose? There is not a sufficient second for that purpose.

    Mr. HOLLINGS. Mr. President, I suggest the absence of a quorum.

    The PRESIDING OFFICER. A quorum is not in order.

    Mr. HOLLINGS. Oh, yes, Mr. President; now business has occurred.

    The PRESIDING OFFICER. The Chair is corrected by the Parliamentarian. The Senator having appealed the ruling of the Chair, it is now in order to have a quorum call to get sufficient time to get seconders for the request. The clerk will call the roll.

    The legislative clerk proceeded to call the roll.

    [...]

    Mr. KASTEN. Madam President, I ask for regular order.

    The PRESIDING OFFICER. Regular order is the motion to proceed.

    Mr. HOLLINGS addressed the Chair.

    The PRESIDING OFFICER. The Senator from South Carolina.

    Mr. HOLLINGS. The distinguished Senator from Wisconsin Madam President, has referred to trial lawyers.

    Mr. KASTEN. Madam President, a parliamentary inquiry.

    The PRESIDING OFFICER. Does the Senator yield for a parliamentary inquiry?

    Mr. HOLLINGS. No, I do not. I would like to make this thought. I have not spoken today on this particular matter, I would like to be heard because there have been some misleading statements made.

    [... continues by reading into the record a letter from the ABA - s]

    Mr. KASTEN. Madam President, I ask for regular order. The Senator fro South Carolina has already spoken twice on this issue. Under the rules, he cannot speak again on this issue.

    Mr. HOLLINGS. I have not yielded the floor Madam President.

    The PRESIDING OFFICER. Regular order has been requested.

    Mr. HOLLINGS. I am in regular order, having been recognized. How can he be recognized? He has already made five motions. I have not made one talk. I am trying to complete it.

    The PRESIDING OFFICER. The Senator from Wisconsin does have to be recognized. He made a call for regular order. Under regular order, The Senator from South Carolina has already delivered two speeches on the same subject. A third speech would be our of order.

    Mr. HOLLINGS. As you were. I respectfully–I disrespectfully, I should say–object to that ruling, Madam President. That is babble from the Parliamentarian. You cannot rule in the U.S. Senate that when I made a request for a quorum, that is a speech. The only other thing I made was an appeal from the ruling of the Chair. If that is a case of being recognized, he has already been recognized, made six talks this morning. I make the point of order that he is out of order, has been recognized because he made two speeches so you could not recognize him. That is utter nonsense. I never heard of such a thing in my life–there is no precedent. The Parliamentarian referred to page 625. I have read it. I say he is wrong. I respect you, Madam President. I know you take that nonsense from him. I am going to appeal it, if you please.

    If a motion in the U.S. Senate is a speech, if an absence of a quorum is a speech, if an appeal is a speech, we are in sad shape if we are going to take the majority or minority leader and rule him out of order because that is two speeches. He knows that. He has been recognized for three unanimous consent requests and four others so on a point of order, he was not in order to be recognized. Therefore, he could not call for regular order under that nonsensical ruling.

    I still have the floor. I thank distinguished chairman.

    The PRESIDING OFFICER. The Senator from South Carolina knows a ruling of the Chair is not debatable. An appeal is not debatable.

    Mr. METZENBAUM. Madam President, I suggest the absence of a quorum.

    The PRESIDING OFFICER. The clerk will call the roll

    The assistant legislative clerk called the roll.

    [...]

    Mr. KASTEN. Madam President, I ask unanimous consent that the order for the quorum call be rescinded.

    Mr. HOLLINGS. I object.

    Mr. METZENBAUM. I object.

    The PRESIDING OFFICER. Objection is heard.

    Mr. KASTEN. Madam President, I move that the Sergeant at Arms call for the return of the absent Senators.

    Mr. HOLLINGS. Madam President, I object. A rollcall is in progress and he has not taken off the quorum.

    Mr. METZENBAUM. Madam President, I invoke the two-speech rule. I invoke the two-speech rule.

    Mr. HOLLINGS. That is right. He is out of order.

    Mr. METZENBAUM. For that and seven other reason why I object.

    Mr. KASTEN. Madam President, I ask for the yeas and nays.

    Mr. HOLLINGS. We are still in a quorum call.

    The PRESIDING OFFICER. The Quorum has been completed. The clerk just announced a quorum is not present.

    Mr. METZENBAUM. I invoke the two-speech rule.

    Mr. KASTEN. I ask for the yeas and nays.

    The PRESIDING OFFICER. Is there a sufficient second?

    Mr. HOLLINGS. I raise a point of order that he not be recognized because this is his seventh speech.

    [...]

    Mr. BYRD. I understand that some problem has risen with respect to the rule XIX, involving two speeches in the same legislative day on the same subject, the contention being that Senator HOLLINGS, on the suggestion of the absence of a quorum, was being charget with one of his two speeches to which he is entitled under the rule.

    I was not on the floor at the time. I have asked for a transcript and it is quite lengthy, as I see here. I would like to have an opportunity to read this transcript and I shall shortly complete my one speech on the same subject during the same legislative day.

    But, before I do so, I shall record the pertinent provision of rule XIX:

    … and no Senator shall speak more than twice upon any one question in debate on the same legislative day without leave of the Senate, which shall be determined without debate.

    Mr. President, if I am correct in the understanding that Mr. Hollings got recognition, suggested the absence of a quorum, and that that action on his constituted a speech. I would ask the Chair if I am correct in that the Chair has rendered such an opinion.

    The PRESIDING OFFICER. It is the interpretation of the Parliamentarian that any recognition is considered in this context as a speech and, of course, the reading of the transcript would give full evidence of the exact request of the Senator from South Carolina.

    Mr. BYRD. I will read the transcript in a moment to ascertain in facts in that regard.

    But we are told by the Chair, upon the advice of the Parliamentarian, that any recognition for any purpose when the Senate is proceeding under the cloture rule, the Senate having voted cloture, that such recognition constitutes a speech; am I correct?

    The PRESIDING OFFICER. That is correct.

    Mr. BYRD. If I might ask the Chair to inquire of the Parliamentarian: What is the basis for the Parliamentarian’s recommendation or advice on that point?

    The PRESIDING OFFICER. The precedent is set by the debate on June 12, 1935. During consideration of an amendment from the House, the President pro tempore, in reply to a parliamentary inquiry by Mr. Huey P. Long, from Louisiana, held that he would lose the floor if he made a motion for a recess. In reply, then, to a parliamentary inquiry of Mr. Pat McCarran, of Nevada, if any other Member than the Senator who occupied the floor could move a recess without the other Senator losing the floor, the President pro tempore said:

    If there is any business intervening, then the Senator is construed as starting another speech. If any business intervenes and the Senator allows it to intervene, having the power to prevent the intervention of any business, then if he is recognized it will be regarded as the beginning of a second speech.

    And then, in reply to a parliamentary inquiry by Mr. Alben Barkley, of Kentucky, the President pro tempore held that where a Senator yielded to another Senator to make a motion to recess or adjourn or for any other motion, that constituted business, and if such Senator was again recognized, it would be for a second speech.

    There is more to that precedent that I call share with the Democratic leader.

    Mr. BYRD. I thank the Chair.

    Would the Chair, with the advice of the Parliamentarian, indicate where in the footnotes that such precedent is referred to?

    The PRESIDING OFFICER. It is on page 626 of Senate Procedure, footnote No. 487.

    Mr. BYRD. [...] All Senators have the book titled Senate Procedure. It may be in their desks or may be in their offices.

    Let me read to Senators therefrom.

    The Chair has cited a so-called precedent on page 626 of the book on Senate Procedure. We find a footnote, 487; "See June 12, 1935, the 74th Congress, 1st Session, RECORD pages 4495, 4496.

    If each Senator will also look at the preface in this book, which is on page small Roman numerals xi, I will read this paragraph.

    It will be observed that the footnotes divide themselves into two classes: those without, and those with the word "See" and "See also." Those without

    Meaning those without the word "See" or See also,"

    are rulings by the Presiding Officer or decisions by the Senate.

    Those are precedents. Whether they are "rulings" by the Presiding Officer or "decisions" by the Senate, that is what we mean when we refer to a "precedent." The Senate guards zealously its rules and precedents because, like the common law of England which is based on precedents from time immemorial rules and precedents are what we depend on here in this body, in addition to unwritten rules of courtesy, comity, and mutual respect.

    Reading further:

    Those with "See" are responses by the Chair are responses by the to parliamentary inquiries in cases where the opinions expressed are in keeping with the practices of the Senate, even though in such cases an appeal from an opinion expressed by the Presiding Officer in reply to a parliamentary inquiry is not in order.

    Where the Chair, therefore, expresses an opinion in response to a parliamentary inquiry, that opinion is not a precedent and, therefore, not subject to appeal. The Chair expressed opinions in only the footnote cited.

    The footnote cited says "See", and "See" is in italics which means that it was a response by the Chair to a parliamentary inquiry.

    A response by the Chair to a parliamentary inquiry is not a precedent. I have already indicated that a precedent is a "decision", by the Senate or a "ruling" by the Chair. The Chair rules on a question of order.

    If the Chair’s ruling is not contested by the Senate, the ruling stands as a precedent of the Senate. If the ruling is appealed, the Senate decides. Whatever the Senate decides, whether it is in support of the Chair or opposes the Chair, that is a precedent of the Senate. A decision by the Senate is the stronger of the two precedents.

    A ruling by the Chair, uncontested by the Senate, is a precedent, but not as strong as a decision by the Senate.

    But in this footnote, we are being referred to responses by the Chair in answer to a parliamentary inquiry.

    The Presiding Officer has already read the responses. The Chair was not asked to rule. A Senator simply arose and asked a parliamentary inquiry. The Chair responded that it was the Chair’s opinion thus and so. It may be the Chair’s opinion based on a past precedent set by the Senate, but if there is such a precedent established by a Senate decision or a ruling by the Chair that would back up the Chair’s opinion, it ought to be in the footnote also and we ought to see what it is, but none is indicated.

    So the Chair’s ruling today is not based on precedent. It is against all commonsense it seems to me; it is against logic, to maintain that simply because a Senator rises and suggests the absence of a quorum, that that in itself constitutes a speech.

    [...]

    I hope the Senate will not allow that ruling, if the ruling has indeed been made, to stand unchallenged. I hope the Senate will not allow that to become a precedent.

    [...]

    Mr. HART. Will the Senator yield for a question?

    Mr. BYRD. Yes. I am happy to yield.

    Mr. HART. Is it the contention of the Senator from West Virginia that the precedent cited by the Chair is incorrect or that the interpretation placed upon that precedent by the Chair is incorrect?

    Mr. BYRD. I am saying that, No.1, it is not a precedent.

    The Chair is referring not to precedents. The Chair is referring, rather, to an opinion expressed by a previous Chair in response to a parliamentary inquiry. That is not a precedent. I am saying, furthermore, that the interpretation based upon the nonprecedent is incorrect, and illogical.

    I shall read this paragraph on page 626 which the Chair has cited:

    If a Senator in possession of the floor yields to another Senator to make a motion to recess or makes such a motion himself he would lose the floor, and would have no prior right to recognition, and if recognized again, it would be his second speech.

    If Senator HOLLINGS had had the floor and had spoken, let us say, for 2 minutes. 3 minutes, 10 minutes or 15 minutes–whatever it was–and he yields to another Senator to make a motion to recess, or makes the motion himself, he would indeed lose the floor, and he would have indeed made a speech, but the motion to recess, standing alone, would not, in and only of itself, constitute a speech. It he has the floor and speaks for an hour and a half and then puts in a quorum, of course, he has made a speech.

    Or he speaks for 20 minutes and yields to me on another matter and I put in a quorum call, of course he has made a speech. No one would argue that he has not done so.

    But for the Senator simply to stand and say, "Mr. President, I ask for the yeas and nays on this question," who in the name of common sense would maintain that that request for the yeas and nays–which he has a right to make under the Constitution of the United States, the organic law which created this Senate–constitutes a speech?

    I hope the Senators will think about this carefully. because–

    Mr. METZENBAUM. Will the minority leader yield for a question?

    [...]

    Mr. METZENBAUM. If we follow this procedure, that any kind of recognition is tantamount to a speech. is it not the fact that the majority leader, as well as the minority leader, in their responsibilites are called upon day in and day out to seek recognition not only 2 times but 22 times in connection with a matter? And that any Senator seeing fit to do so could totally tie the Senate up in knots and tie up the leadership, preclude them from accepting their responsibilities? Does not the minority leader believe that would be the case?

    Mr. BYRD. Mr. President there is no question in my mind that this ruling would be a ball and chain around both hands and both feet of any leader, in addition to having a gag thrust in his throat. No leader could lead the Senate if this ruling is going to stand. If what is being maintained by the Chair, and I say this with all respect to the Chair–and the distinguished Senator in the Chair at the moment is there by reason of having answered the call to preside, I answer by simply saying, yes, that would be a serious impairment to the leaders and to managers of bills, and to any Senator who wishes to offer an amendment and is required repeatedly to explain or defend his amendment.

    Mr. METZENBAUM. Another question I would then pose to the minority leader is, so far as the Chair’s ruling as based upon the Parliamentarian’s advice would put the Senate in a very tight bind and one that I believe would totally frustrate the ability to run this body in an orderly fashion, does the minority leader have an opinion as to how the Senate might act in order to make it clear that recognition for the yeas and nays, or for a quorum call, or for any one of number of other issues, might be resolved and make it clear that that is not the position of this body? I am wondering if the minority leader, who is unquestionably the most renowned authority on the Senate rules we have in this body, could suggest how we might clarify the situation?

    Mr. BYRD. Yes, by appealing the Chair’s ruling. In a few minutes I am going to suggest the absence of a quorum so that I can read the transcript. I want to see what the facts are. I was not on the floor when the situation developed. I want to see if the distinguished Senator from South Carolina was indeed making a speech. He has indicated he was not. I will take his word for it. But the transcript I want to read. Was he indeed making a speech, after which he put in a quorum. That is one thing. But he says he was not malting a speech. He got recognition and suggested the absence of a quorum and then at a later time he was speaking and someone in the middle of the speech called for the regular order. It is appropriate for another Senator to ask for the regular order even in the middle of a Senators’ speech, If then he is charged with having made a second speech and therefore he cannot proceed because the Chair rules that he has already made two speeches, why then, I want to see by the transcript just what it was all about.

    But it will have to be challenged if it is the ruling by the Chair that the Senators’ call for a quorum, in and of itself and standing alone constituted a speech. That cannot be allowed to remain unchallenged.

    [...]

    Mr. EXON. Mr. President, will the Senator yield for a question?

    Mr. BYRD. I yield.

    Mr. EXON. I appreciate the Democratic leader yielding for a question. I hesitate, as a nonlawyer, even to speak on the floor of the U.S. Senate on this subject because I do not want to bring any commonsense into this argument or discussion. [Laughter.]

    Mr. HOLLINGS. Don’t worry.

    Mr. EXON. [...] I cannot imagine any Senator, regardless of how he feels about this issue, backing up the ruling of the Parliamentarian, through the Chair, in this instance.

    I simply ask the question: Aside from the immediate consideration of whether the Senator from South Carolina has given one, two, or no speeches, how does the minority leader suggest, with his skill and expertise in this area, that we extricate ourselves from the position we are presently in? What suggestion would he have in that area? I think he agrees with me that, aside from the rights of the Senator from South Carolma, the overriding issue is going to be the rights of all of us in postcloture situations in the future. What do we have to do? Do we overrule the Chair; and if we do, would that set the precedent that would keep this from happening in the future?

    [...] How do we get out of it?

    Mr. BYRD. How do we get out of it? By appealing the ruling. First of all, I said I was not in here when this all happened.

    I will have to ask whether or not the Chair has actually ruled. If the Chair has ruled, then I will appeal that ruling. If a Senator wants to move to table the appeal, he can move to table it, and I will ask for the yeas and nays, and the Senate will decide.

    If the Senate refuses to table my appeal or if the Senate sustains my appeal, then the Chair’s ruling is overturned, and we then have a real precedent, not just an opinion expressed by different occupants of the chair, as referred to in the footnote involving the June 12, 1935 date.

    Mr. HARKIN. Mr, President. will the minority leader yield on that?

    Mr. BYRD. Yes.

    Mr. HARKIN. I am intrigued by what the leader has said earlier in reading the preface to the Senate rules, trying to understand the difference between the word "without" and the words "see" and "see also." Then I referred back to page 785 of the Senate rules where it discusses a parliamentary inquiry. I could direct the leader’s attention to page 785.

    Mr. BYRD. I am looking on that page. Yes.

    Mr. HARKIN. And where it speaks of the parliamentary inquiry on that third paragraph from the top it said:

    Unlike rulings of the Chair, the responses to parliamentary inquires do not create precedents for the Senate; if there are a series of responses to parliamentary inquiries over a long period of time on which nothing to the contrary has occurred, such responses are used as guidelines for decisions.

    I emphasize that–"guidelines for decisions" but not rulings.

    The reason that a response to a parliamentary inquiry is not considered as a precedent is due to the fact that a Senator may not take an appeal from the Chair on the response to a parliamentary inquiry.

    Mr. BYRD. That is right.

    [...]

    Mr. BYRD. Mr. President, before I appeal the ruling of the Chair, I yield to the distinguished Senator from South Carolina for a question.

    Mr. HOLLINGS. Will the distinguished Senator from West Virginia, since I am not allowed to talk. Ask unanimous consent to include the authority that the Parliamentarian relies upon because, as the book says, it says "See" and when you see it that means read it and understand it and if you read it and understand it a fifth grader will tell you this is no authority, no precedent, no basis for the point we are talking about. absolutely none. He has no precedent; he has no authority.

    So I would ask the distinguished Senator from West Virginia as a personal favor to me please include by, unanimous consent his so-called authority in the Record so anyone can read the full Record and look at his authority and understand the nonsensical nature of this particular rule.

    [...]

    Mr. BYRD. Yes.

    Mr. President. I shall appeal the ruling of the Chair just in a moment but before doing so I shall ask unanimous consent, first of all, so that Senators in a future day may have the whole matter before them, in a future day.

    I ask unanimous consent that beginning on page 624 of the book on Senate Procedure by Floyd M. Reddick, the Parliamentarian Emeritus, copyright 1981, beginning on page 624 paragraph titled "Speeches Allowed in Same Legislative Day" page 625 through page 626 and down to the close of the paragraph on 627 be printed in the RECORD.

    There being no objection, the material was ordered to be printed in the RECORD, as follows:

    SPEECHES ALLOWED IN SAME LEGISLATIVE DAY

    "No Senator shall speak more than twice upon any one question in debate on the same legislative day without leave of the Senate, which shall be determined without debate."470 and "day" as used in Rule XIX means a legislative day,471 but the rule is not self enforcing.471a

    A Senator has a right to speak twice only in the same legislatlve day on the same questlon,472 for example, on a conference report,473 on a bill or on any amendment thereto.474

    If a Senator has spoken twice on an amendment in the same day, he is entitled to make two additional speeches on an amendment proposed to that amendment,475 or any different question brought…

    [...]

    [The 1981 version of this section of Riddick's is included in the Record, but for the sake of space, and my typing, skipped here. To read the 1981 version, see the pdf. To read the current version, see pages 781-5 of Riddicks, or my Senate Filibuster Reference List page. -s]

    Mr. BYRD. Mr. President. I ask unanimous consent that paragraph 3 on page 626 be printed in the RECORD together with the footnote citation.

    There being no objection, the paragraph was ordered to be printed in the RECORD, as follows:

    If a Senator in possession of the floor yields to another Senator to make a motion to recess or makes such a motion himself he would lose the floor, and would have no prior rlght to recognition, and if recognized again, it would be his second speech.

    Mr. BYRD. I ask unanimous consent to have printed in the RECORD the actual opinions expressed by the Chair referred to in that footnote which says "See June 12, 1935, RECORD page 9127."

    There being no objection, the material was ordered to be printed in the RECORD, as follows:

    A Senator, in the course of an address, would loss the floor if be made a motion to recess, or yielded to another Senator to make such motion.

    If a Senator is again recognized after yielding for such a motion, it would be a second speech.

    A Senator yielding for such a purpose would have no prior right of recognition.

    On June 12, 1935 (in 74th Congress, 1st session, Record p. 9127), during the consideration of an amendment of the House of Representatives to S.J. Res 114, extending certain provisions of the National Recovery Act, the President pro tempore (Mr. Kay Pittman, of Nevada), in reply to a parliamentary inquiry by Mr. Huey P. Long, of Louisiana, held that he would lose the floor if he made a motion for a recess. In reply to a parliamentary inquiry by Mr. Pat McCarran, of Nevada, if any other Member than the Senator who occupied the floor could move a recess with out the other Senator losing the floor, the President pro tempore said:

    If there is any business intervening, then the Senator is construed as starting another speech. If any business intervenes and the Senator allows it to intervene, having the power to prevent the intervention of any business, then if he is recognized it will be regarded as the beginning of a second speech.

    In reply, to a parliamentary inquiry by Mr. Alben W. Barkley, of Kentucky, the President pro tempore held that where a Senator yielded to another Senator to make a motion to recess or adjourn or for any other motion, that constituted business and if such Senator was again recognized, it would be for second speech.

    The President pro tempore further held that a Senator losing the floor under such circumstances had no prior right of recognition upon the disposition of the motion, but that if he rose and addressed the Chair first, then it was the duty of the Chair to recognize him.

    Mr. BYRD. Mr. President, I will not make my appeal at the moment because two Senators wish first to speak. As I understand it, the distinguished majority leader wishes to speak and the distinguished Senator from Wisconsin wishes to speak.

    I will not at this moment make my appeal. I do not waive my right to make such an appeal and will make such an appeal.

    I ask unanimous consent that I be recognized for that purpose if I so seek recognition following the speeches by Mr. Dole and by Mr. Kasten.

    [...]

    The PRESIDING OFFICER (Mr. Chafee). The majority leader.

    Mr. DOLE. Mr. President I listened with great interest to most of wbat the distinguished minority leader had to say earlier about the two-speech rule. As I understand, he is now framing an arpeal to the ruling of the Chair. The Chair ruled that Senator HOLLINGS had already spoken twice on the same issue during the same legislative day and therefore cannot speak again on the Product Liability Act during this same day.

    I have visited at some length with the Parliamentartian, Mr. Dove.

    I must say in reading the transcript I could not find anything but one speech. But I also have gone over the transcript with the Parliamentarian.

    [...]

    Mr. LONG. [...] Mr. President, the precedent to which the Senator addresses himself is the precedent made by the father of the Senator speaking. My father was standing right there at that chair. At that time, the National Recovery Act had been declared unconstitutional when Franklin Delano Roosevelt was President. My father knew the public was overwhelmingly disgusted with the whole thing and he tried to make a revised National Recovery Act. My father was joined by a minority of the Senate–they were Democrats, by the way. They undertook to speak against the National Recovery Act, that the public was disgusted with the whole thing. It should be declared a lousy idea and forgotten and dispensed with. But the administration was trying to save what it could of an act that had been declared unconstitutional under the Constitution of the United States by the Supreme Court.

    I recall my father standing there and going on at great length about what fine, courageous justices they were, to have the courage to stand up against a powerful President of the United States and the rest of it. I was about 15 years old at that time, sitting right over there on that side of the family gallery that we are looking at from here.

    So, as his speech went on and on, he suggested the absence of a quorum. Now, prior to that time, the record for a filibuster was set by Senator Robert La Follette of Wisconsin. He spoke for about 18 hours, but he had about a dozen quorum calls in the course of all that. In the tradition of the La Follette speech, the great Senator from Wisconsin, Huey Long suggested the absence of a quorum. So someone made the point of order that by suggesting the absence of a quorum, he had terminated his first speech and commenced a second speech.

    John Nance Garner, in loyalty to the White House, sitting there in the chair, proceeded to rule that that was correct, and in doing so he overruled all the precedents prior to that time. How could Bob La Follette get away with it a dozen times and Huey Long not get away with it once? Well, it was because, I assume, the powers that be decided Huey Long should not be accorded the same courtesy as accorded Bob La Follette so such a ruling was handed down, and he proceeded to go on from there notwithstanding that ruling.

    Now, at the conclusion of that speech, there was a Senator from one of the other States–either Senator Gore or Senator Schall–who was in total agreement. There were two blind Senators, it turned out at that time, both of them strong supporters of my father’s position, so one of these blind men got up and submitted a transcript that would stand about a foot just in the written pages. He sent it to the desk and asked under usual courtesy that the speech might be read. The clerk proceeded to rifle through that speech about five pages at a turn. He would lower his voice and turn about five pages; lower his yolce and turn about five pages and disposed of a 150-page speech in about 5 minutes. And those who where on my father’s side thought that was not fair at all. I recall that the man who was then my father’s assistant clerk, who today is described as administrative assistant–his name was Bob Christianberry–was outraged about that and he said, "How dare you do something like that? That speech would have taken at least 2 hours to read, maybe 5 houn." And I recall one speaking from the other side said. "Well, now, let me ask you fellows how long it would have taken that gentleman when you were Governor?" And Mr. Christianberry said, "Well, we probably would have gotten through it in about half that time."

    But, it is best to recognize practicality on occasion. The practical matter was that rule was set. It was something of a usurpation at the time.

    Now, to suggest that a mere parliamentary inquiry, for example, would be a speech, in my judgment is an outrage. At some point we ought to be willing to be fair about a matter like this and to recognize that a speech means more than just making a point of order or to ask a parliamentary inquiry or something of that sort. Now, as one who has been in many filibusters in years gone by, if it is a crime–and a filibuster by definition is an act of piracy–then I would assume that one could have a very tight rulebook on anyone who is filibustering in the Senate, if that is what it be. But what would it gain one to deny a Senator his rights to speak on the motion to proceed when you look at what lies just beyond that? For example, when you get the bill before the Senate, a Senator can offer an amendment–he can offer any number of them–so that one can still speak at great length even when the motion to proceed has been agreed to.

    So my thought about the matter is we should be reasonable and tolerant about this matter. And I say that as one who voted for the bill and one who intends to vote for it.

    [...]

    Mr. BYRD. Mr. President, I appeal the ruling of the Chair, to wit, that the Senator from South Carolina had already delivered two speeches on the same subject. I appeal the ruling of the Chair and I make my appeal to the Senate and base it upon the fact that procedural motions or requests, such as, for example, parliamentary inquiries, appeals from the ruling of the Chair, points of order, suggesting the absence of a quorum, the withdrawal of appeals, requests for the yeas and nays, do not, in and of themselves, constitute a speech within the context of the two speech rule. And I ask for the yeas and nays on this motion.

    [...]

    Mr. DOLE. Mr. President. I do this just to make–and I am certain the distinguished minority leader has given this a lot of thought and with a lot of experience.

    I guess the question of the Chair would be: If the Chair is overruled, then what would be the consequences?

    The PRESIDING OFFICER. If the Chair is overruled, then the Senator from South Carolina would still be making his first speech and would be recognized.

    Mr. DOLE. And then, any additional speaker, or from this time on then, in addition to the impact it would have on the distinguished Senator from South Carolina, any of the requests that the distinguished minority leader pointed out at a future time would not, in any event, constitute a speech?

    The PRESIDING OFFICER. That is correct.

    Mr. DOLE. Are there any others that come to mind of the Chair that should be included?

    The PRESIDING OFFICER. The only additional element that comes to mind is a request to divide an amendment as a procedural request.

    Mr. DOLE. In addition, there were, I think-–

    Mr. BYRD. Would that not be included within the verbiage of the appeal that I made? I said any procedural motion-–

    The PRESIDING OFFICER. The Senator is correct.

    Mr. BYRD. Or request.

    And besides, I did not phrase my appeal in such a way that it is the alph and omega; it is not all inclusive. But these specifics were all set out only as examples.

    The PRESIDING OFFICER. The Senator’s statement was not all-inclusive. It was by example.

    Mr. BYRD. Exactly.

    Mr. DOLE. In this case the Senator from Wisconsin, Senator KASTEN, made a unanimous-consent request that committees be allowed to meet. Would that be covered by the distinguished minority leader’s request?

    Mr. BYRD. That would be in the language I included.

    The PRESIDING OFFICER. The Chair understands it would tend to include all unanimous-consent requests as being within the purview of this motion and not counted as intervening material.

    Mr. BYRD. I said they were procedural. That is in the appeal language now, and we can have the official reporter read it back. It is there.

    Mr. DOLE. As I understand the unanimous-consent request itself would be covered by the distinguished minority leader’s appeal.

    Mr. BYRD. Yes, and not counted as a speech, standing alone.

    The PRESIDING OFFICER. The Chair believes that since the motion is intended to become precedent [of] the Senate, the motion should be available in printed form so that everyone clearly understands precisely what the request is.

    Mr. BYRD. The Chair is correct. I would like to prepare it in written form.

    Mr. BYRD. Mr. President. I ask unanimous consent that the order of the quorum call be rescinded.

    The PRESIDING OFFICER. There is no quorum call in progress.

    Mr. BYRD. Mr. President, in response to the Chair’s request that the appeal be made in writing, which the Chair has a right to make and any Senator has a right to make, I have prepared the following appeal in writing:

    I appeal the ruling of the Chair, and I make the appeal to the Senate on the basis that, standing alone, procedural motions or requests such as, but not limited to, the following shall not constitute a speech within the context of the two-speech rule: Parliamentary inquiries, appeals from the ruling of the Chair, points of order, suggesting the absence of a quorum, withdrawal of appeals, request for the yeas and nays, requests for a division vote requests for reading of amendments, requests for division of amendments.

    The PRESIDING OFFICER. Can the Chair ask for a clarification on the term “standing alone”? Is it the Democratic leader’s intention that if a motion of the sort he has mentioned is preceded by as little as two or three sentences of explanation, that would constitute a speech?

    Mr. BRYD. I am attempting to avoid a situation in which a Senator in making a motion to the table, for example, or making a point of order, or making an appeal, stands and lays the predicate for his point of order and speaks thereon; the motion itself would not be standing alone. It would have been preceded by a speech. What I am trying to say is that the motion itself, standing alone, in and of itself, does not constitute a speech.

    The PRESIDING OFFICER. For further clarification, the Senator is really speaking of the words that constitute the motion itself?

    Mr. BRYD. Yes, the procedural motion.

    The PRESIDING OFFICER. Yes.

    Mr. BRYD. Or request. And we should keep in mind what we are talking about is the two-speech rule, and that the two-speech rule refers to two speeches on the same question in the same legislative day.

    In the case that brought all this colloquy about, the Senator from South Carolina was speaking–he began one speech–and it was on the motion to proceed to the product liability bill.

    We are speaking now on an appeal. I am not speaking on the motion to proceed to the product liability bill right now. I am speaking about the Chair’s ruling. So what I am saying is in explanation of the appeal.

    There may be those who say, "Well, if he makes a point of order, he has to state why he makes the point of order." Is that going to constitute a speech? Well, it might very well. It will constitute a speech on that point of order. But, the point of order without the speech, does not, in itself, constitute a speech.

    The PRESIDING OFFICER. The Chair says to the Democratic leader that the motion is not debatable.

    Mr. BYRD. I understand that. I was only trying to respond to the Chair’s appropriate inquiry.

    Mr. DOLE. Mr. President. I ask unanimous consent that I may proceed for 5 minutes.

    The PRESIDING OFPICER. Is there objection? The Chair hears none, and it is so ordered.

    Mr. DOLE. Mr. President, earlier, I made an inquiry. I think the word "request" was used in the earlier appeal, and I asked whether or not that would cover unanimous-consent requests. Would that be covered in this appeal?

    The PRESIDING OFFICER. The latest statement, as put by the Democratic leader, did not include unanimous-consent requests.

    Mr. BYRD. May I clarify that? It did include unanimous-consent requests. I said: "I make the appeal of the Senate on the basis that, standing alone, procedural motions or requests…

    Mr DOLE. The reason I am concerned about that particular one is that I can envision somebody making a unanimous-consent request that might take a couple of hours. It seems to me that we, in effect, invoke cloture and then permit somebody to speak for hours propounding some unanimous-consent request.

    He could get up and say, "I ask that the Committee on Agriculture be permitted to meet." and then read the bill.

    I know that the distinguished minority leader does not intend that.

    So I hope it did not include unanimous-consent requests, unless we had some way to circumscribe the request.

    The PRESIDING OFFICER. The term "unanimous-consent request" was not in the written version, but the term "request" was in there, and presumably it could be concluded that unanimous consent requests are requests.

    Mr. BYRD. Mr. President, I ask unanimous consent that I may respond to the distinguished Senator’s question, which is an appropriate question, and that the time not be charged against him.

    The PRESIDING OFFICER. With out objection. It is so ordered.

    Mr. BYRD. Mr. President, the predicate itself is the appeal. The examples I have set forth are for explanatory purposes. That is precisely what they are–they are specific examples, and they are not all-inclusive, because I used the verbiage "not limited to." The appeal is all one sentence.

    If I wanted to take out the "such as" and the providing of examples, I would simply say: "on the basis that, standing alone, procedural motions or requests shall not constitute a speech within the context of the two-speech rule."

    So I have used tne words "requests" and "procedural motions."

    Parenthetically, as it were, I am saying, "such as, but not limited to, the following." That is the parenthetical, explanatory material: parliamentary inquiries, appeals from the ruling of the Chair, points of order, and so on. But it is clear from the verbiage that unanimous-consent requests are included; so that if the leader rises and makes a straight forward unanimous-consent request–nothing more–that does not constitute a speech within the context of the two-speech rule. If the Chair’s ruling were to be upheld, the leaders unanimous-consent request would constitute a speech.

    Besides, we have the legislative history, so certainly the readers of the RECORD 100 years from now will understand what we are talklng about, especially now that the majority leader has asked specific the question.

    I thank the distinguished majority leader.

    Mr. DOLE. I thank the distinguished minority leader.

    Mr. President, I will suggest the absence of a quorum, and I would like to discuss the appeal with two of my colleagues who have just come to the door.

    I suggest the absence of a quorum.

    The PRESIDING OFFICER (Mr. McConnell). The clerk will call the roll.

    [... Several other unrelated matters are addressed while Mr. Dole consults with his colleagues -s]

    Mr. DOLE addressed the Chair.

    The PRESIDING OFFICER. The majority leader.

    Mr. DOLE. I ask that I may proceed for 2 minutes.

    The PRESIDING OFFICER. Without objection, it is so ordered.

    Mr. DOLE. I think we are ready to proceed, I want to thank the minority leader for his having been ready to proceed for a couple of hours. We have bean having discussions. There are some differences of opinion. I have discussed with Parliamentarian and I think that the Senator from Wyoming has a couple of questions to ask.

    We have to keep in mind that this a postcloture situation. As I understand, any of these things could be ruled dilatory. Is that correct?

    The PRESIDING OFFICER. The Senator is correct.

    [...]

    Mr. SIMPSON. [...] The final question, Mr. President is that I am assured then, and I think any of us in the legislative body would want to be assured, that this presentation, this procedure, this rule change, does not have any deleterious or lessening effect upon the essence or the effectiveness of the two-speech rule under our present procedure?

    Mr. BYRD. May I say it is not the intent of this Senator to in any way impair the two-apeech rule. I would prefer–I think the question is a good question and should be answered on the record, not only by the offerer of the appeal, the’ mover of the appeal. But I would like it if the distinguished majority whip would propound this question to the Chair so we can an answer from the Chair through the advice of the Parliamentarian, aside from the answer by the mover of the appeal.

    Mr. SIMPSON. I do direct that to the Chair of the Chair’s determination of that.

    The PRESIDING OPPICER. This appeal will certainly change the interpretation of the two-speech rule from a mechanical interpretation to a rule of reason.

    Mr. SIMPSON. I thank the Chair. I thank the distinguished Democratic leader.

    The PRESIDING OFFICER. The yeas and nays have been ordered on the appeal. The question is, shall the decision of the Chair stand as the judgment of the Senate?

    The clerk will call the roll.

    [...]

    The result was announced–yeas 5, nays 92…

    by selise

    Reply to FDL Statement on Health Care Reform from MA voter

    8:20 am in Uncategorized by selise

    This was my reply (slightly edited) to Jane’s FDL Statement on Health Care Reform:

    …….

    As a Massachusetts voter, I can say that my lack of enthusiasm for yesterday’s election was certainly due to the behind the scenes corporate deal making and bailouts for the banking and insurance industries as well as big pharma and others at the expense of real reform for ordinary Americans.

    The Obama administration, with help from Congress, has made the biggest transfer of wealth up from ordinary people to the wealthy and powerful in the history of the planet. This is not the change we hoped for.

    What happened to the fierce urgency of now? Or is that only for banksters and insurance executives?

    What the country needs now are real solutions to our very real problems. It is beyond frustrating that there are obvious solutions to benefit the vast majority of Americans and my own party refuses to even consider them — apparently because they might anger some corporate donors.

    Healthcare reform is a perfect example of this.

    For years we, as a country, have been paying for comprehensive universal healthcare and not getting it. A single payer system, such as in H.R. 676 or S.703, is the obvious solution and it should be a no brainer to everyone not intent on protecting the insurance industry over the well being and security of Americans.