beowulf

Ezra Klein Chooses Fear Mongering the Big Coin, I Choose Ending Austerity!

Joseph M. Firestone — Fri, 11 Jan 2013 19:50:15 -0500

(H/t to Lambert Strether for the title!)

Here's a commentary on Ezra Klein's recent diatribe against Platinum Coin Seigniorage (PCS).

But there’s nothing benign about the platinum coin. It is a breakdown in the American system of governance, a symbol that we have become a banana republic. And perhaps we have. But the platinum coin is not the first cousin of cleanly raising the debt ceiling. It is the first cousin of defaulting on our debts. As with true default, it proves to the financial markets that we can no longer be trusted to manage our economic affairs predictably and rationally. It’s evidence that American politics has transitioned from dysfunctional to broken and that all manner of once-ludicrous outcomes have muscled their way into the realm of possibility. As with default, it will mean our borrowing costs rise and financial markets gradually lose trust in our system, though perhaps not with the disruptive panic that default would bring.

Name calling, labeling, and fear mongering aside, does Ezra understand the first thing about PCS? Does he know that if a $60 T coin were minted, and the Treasury General Account (TGA) filled with $60 T in electronic credits, the US would be able to just say goodbye to the international markets? If we were paying off the national debt as it fell due, we would not only not be defaulting, but would be paying all our creditors on time and in full, and without benefit of further debt instrument issuance. Nor would we care whether the markets trusted us or not; since we would not be borrowing money from them for the foreseeable future. So, how could our borrowing costs rise?

And, as far as predictability is concerned, what would then be predictable is that we would be paying all our obligations to everyone whether Wall Streeters, denizens of the global markets, pensioners, Medicare, and Medicaid recipients, and everyone else we have obligations too without anyone getting the short end of the stick. Now, I'd like to see that kind of predictability from this Government, without any drama, histrionics, deficit terrorism, or whining about how our moral character is too weak to endure the Washington Post's favorite meme, “shared sacrifice.”

The argument against minting the platinum coin is simply this: It makes it harder to solve the actual problem facing our country. That problem is not the debt ceiling, per se, though it manifests itself most dangerously through the debt ceiling. It’s a Republican Party that has grown extreme enough to persuade itself that stratagems like threatening default are reasonable. It’s that our two-party political system breaks down when one of the two parties comes unmoored. Minting the coin doesn’t so much solve that problem as surrender to it.

Well, Ezra, that's your notion of the worst problem we face. My notion of a problem is that our national debt is hopelessly misconstrued by people, and that its existence is being used by radical “free market” extremists who want to sharply cut the social safety net, and who also want to block the passage of other Government programs that would benefit most Americans. So, I want to get rid of “the national debt” as a political issue. The best way to do that is to get rid of that national debt. That can be done by using PCS, and in a way that will not drive the economy into depression, or working people into even deeper poverty.

The platinum coin is an attempt to delay a reckoning that we unfortunately need to have. It takes a debate that will properly focus on the GOP’s reckless threat to force the United States into default and refocuses it on a seemingly absurd power grab by the executive branch. It is of no solace that many of the intuitive arguments against the platinum coin can be calmly rebutted. It’s the wrong debate to be having.

Only your version of the platinum coin. You clearly have in mind the Trillion Dollar Coin (TDC) PCS option. I agree that it would only delay a reckoning, and that a debate over its legality is not the debate to have. But a $60 T coin, would eliminate the debt ceiling as a factor, make the debate about getting rid of austerity irrelevant, and also make it impossible to use any of following to oppose progressive legislation:

-- “The Government is running out of money.” (Not with a $60 T coin in the bank.)

-- “The Government can only raise money to spend by taxing and borrowing” (Not with PCS)

-- “We can't keep adding debt to our national credit card.” (We won't be using any of the money on the credit card.)

-- “We need to cut Government spending and make do with no more money.” (Only if more spending would definitely cause inflation.)

-- “if the Government borrows more money, then the bond markets will raise our interest rates.” (The Government won't be borrowing anymore.)

-- “If we continue to issue more debt, our main creditors: the Chinese, the Japanese, and our oil suppliers, may cease to buy our debt, making it impossible for us to raise money through borrowing which, in turn, would force us into radical austerity, or perhaps even into insolvency, which would then be followed by radical austerity and repudiation of our national obligations." (Again, the Government won't be borrowing anymore, so who cares if they no longer want to buy our debt)

-- "Our grandchildren must have the burden of repaying our national debt." (There won't be any debt or any burden.)

-- “Now, the final step – a critical step – in winning the future is to make sure we aren’t buried under a mountain of debt.” (Again, no debt; either mountain or molehill.)

-- “Our government spends more than it takes in. That is not sustainable. Every day, families sacrifice to live within their means. They deserve a government that does the same.” (But it is sustainable. If we use PCS, then we can have gaps between taxes and spending every year.)

-- “We need to cut entitlements like Social Security and Medicare, because we are running out of money and they are not fiscally sustainable.” (But they are with PCS, because we won't be running out of money!)

-- “If we make the hard choices now to rein in our deficits, we can make the investments we need to win the future.” (Given PCS, what we do now about deficits has nothing to do with our capability to make the investments we will need)

-- “We need to reduce our deficits to be fiscally sustainable.” (Deficits have nothing to do with fiscal sustainability in the sense of continued capability to spend, which will be very plain to people if $60 Trillion is sitting in the TGA.)

-- “We face a crushing burden of debt. The debt will soon eclipse our entire economy, and grow to catastrophic levels in the years ahead.“ (Can't say that if most of the debt is about to be paid off.)

-- “Our debt is out of control. What was a fiscal challenge is now a fiscal crisis. We cannot deny it; instead we must, as Americans, confront it responsibly.” (PCS can confront it responsibly, but the bipartisan horror just enacted can't.)

-- “We believe the days of business as usual must come to an end. We hold to a couple of simple convictions: Endless borrowing is not a strategy; spending cuts have to come first.” (Right! So let's stop borrowing and use PCS.)

-- “Everyone knows that the U.S. budget is being devoured by entitlements. Everyone also knows that of the Big Three - Medicare, Medicaid and Social Security - Social Security is the most solvable. . . . “ (The budget can be as big as we need it to be with PCS.)

-- “The Social Security Trust fund is a fiction, a mere bookkeeping device.. . . There is no free lunch. There is nothing in the lockbox.” (There will be if we pay back the trust fund through PPCS.)

-- “There is a deficit/debt reduction problem for the Federal Government that is not self-imposed.” (What's the problem? We can't run out of money with PCS!)

-- “The Federal Government is like a household and that since households sacrifice to live within their means, Government ought to do that too.” (What nonsense! As PPCS shows very well; the Government is not like a household. Households can't create unlimited funds through PCS; but the Federal Government can.)

-- “The only way to tackle our deficit is to cut excessive spending wherever we find it.” (It's always good to cut spending that's not in the public interest. But if spending is having good results, and we're using PCS, then there's no reason to cut it, whether taxes cover the spending or not.)

-- “We should also find a bipartisan solution to strengthen Social Security for future generations.” (With PCS, we can easily strengthen SS by extending benefits, and we don't need to do it through a bipartisan Rube Goldberg contraption.

-- “The United States is in danger of becoming the next Greece or Ireland.” (Even without PCS it can't become Greece or Ireland, only the next Japan. But with PCS it can become the United States again.)

-- “Fiscal Responsibility means stabilizing and then reducing the debt-to-GDP ratio and achieving a Federal Government surplus” (With PCS, the debt-to-GDP ratio will be stabilized and reduced, but no "surplus," in the sense of more tax revenue than spending, will ever be necessary for revenue purposes.)

Ezra goes on to say that using the Platinum Coin will trigger a debate within the Republican Party, that will strengthen its worst factions, because its extremists will be able to argue against:

. . . a wild, unprecedented, inflationary power grab by an overreaching president. Making matters more difficult, it will become impossible for more cautious Republicans to break ranks. It’s one thing to argue, as many are already doing, that inducing default risks destroying the Republican Party for a generation. It’s another to abet such a blatantly unconstitutional, dangerous move from the executive branch.

Well, it's not blatantly unconstitutional at all Harvard Law Professor Laurence Tribe thinks it's legal. Yale Law Professor Jack Balkin thinks it's legal. The lawyer who came up with the idea, beowulf (Carlos Mucha), thinks it's legal. Philip Diehl, former Director of the US Mint thinks it's legal. And, I, a Ph.D. political scientist with some background in Constitutional Law, also think it's legal.

Even Ezra says it's legal earlier in this very column. So, who are the Republicans to label it “blatantly unconstitutional”? What evidence would they have that it's “blatantly illegal? If the President uses it he will have legal opinions supporting its legality. In addition, the plain language of the law says it's legal. Arguments that it's not are more complex and detailed than the plain language of the law. So, how will this play in the court of public opinion?

Ezra goes on to suggest that using the coin won't end the conflict; but will cause the Republicans to work even harder and in a united fashion to get what they want. Well, isn't that too bad, they're just going to work harder at being even more nasty, so the rest of us shouldn't do anything that will get them really ticked off. What kind of advice is that, the advice of a columnist who works for a newspaper with a deficit hawk editorial director, and a financial deal with the world's most prominent deficit hawk: Peter G. Peterson?

Can't you just picture it? Ezra gets called into a meeting with Fred Hiatt who asks him whether he can't do anything to dampen this platinum coin wave that everyone is riding, and Ezra replying says: well, maybe I can write something that will make people very, very afraid of the tea partiers fomenting a new American Revolution.

Of course, Ezra may be right about a big coin making Republicans even more determined to destroy the US economy than they are now. Things could happen that way; but if a very high face value coin, like a $60 T coin, is minted; then the mere presence of the $60 T in the Treasury General Account (TGA), and its use to pay down debt, will change the political context, and make Republican propaganda look much more fanciful, than it does in an imagination that assumes the political context and the future won't be changed by minting a big enough coin and using it to fill the public purse.

So, Ezra, notice what happens to the memes Iisted above. They're just not going to work anymore, if a $60 T coin gets used. If the Republicans remain stiff-necked, what justification would they then have for austerity? Now, they have the debt, and no apparent means of paying it off except lowering spending and raising taxes. But what would they have after that coined filled the public purse? The answer is ZIP!

It is likelier that the platinum coin would drive the Republican Party towards a much more dangerous and enduring standoff. If Republicans never permitted another debt increase, would we just keep minting platinum coins? Would the Federal Reserve abet the strategy and work to hold down inflation, effectively putting itself in the middle of a titanic political fight? Would the market eventually begin to panic because American governance has entered into unknown territory?

If the Administration minted a $60 T coin, then it would probably never have to mint one again, since the first one would lead people to understand that the world won't come to an end if Treasury can print money to fill the public purse to spend Congressional appropriations. Would the Fed help hold down inflation? Of course, it's their mandate. It's not about politics. They'd have to act that way. If they didn't; there'd be immediate talk of folding them into Treasury! Finally, minting and using a $60 T coin to pay for debt and deficit spending won't be inflationary.

There are two ways to truly resolve the debt-ceiling standoff. One is that the Republican Party needs to break, proving to itself and to the country that the adults remain in charge. The other is that America is pushed into default and voters — and the world — reckon with what we’ve become, and what needs to be done about it. Sadly, there’s no easy way out. It’s heads America wins, tails America loses.

Well, rule out the platinum coin, and sure, these may be one's only two choices. But Ezra hasn't shown that using a really BIG coin would elicit real problems, other than getting the Republicans and the right wing really, really, mad (maybe they won't have lunch with him anymore), and there are compelling arguments suggesting the contrary. So, I think that Ezra's gone off the deep end in this column, especially when you consider the cost of default to people, and also the cost of the austerity alternative. Both default-induced austerity; and major party-induced austerity by compromise are both utterly unacceptable.

We must find a third way! Ezra can't just assume that there is no way out of his Hobson's choice. He and we need to consider game-changing PCS before condemning the nation to default.

(Cross-posted from New Economic Perspectives.)

Trillion Dollar Coin: Posts on Legality and Constitutionality

Joseph M. Firestone — Sat, 05 Jan 2013 13:18:25 -0500

Enthusiasm for using Platinum Coin Seigniorage (PCS) to produce a Trillion Dollar Coin, or coins totaling a few trillion dollars continues to increase. The twitterverse went mad two nights ago around #mintthecoin, a hashtag originated by MMT's Stephanie Kelton, which by yesterday morning had become the 5th most highly trending topic on twitter.

Meanwhile, the blogosphere continued to produce more points of view on the Platinum Coin. The points of view divide into those that are very negative; either claiming that 1) using Platinum Coins would be illegal or unconstitutional, or 2) using them would be just ridiculous and financially irresponsible, and so should be avoided; and others that favor using PCS 3) either in a limited way to avoid the debt ceiling crisis, or 4) in a much more robust way, that would change the procedures underlying Federal spending, so that fiscal policies advocating austerity no longer have a political foundation in a visible and rising national debt that austerity advocates can constantly talk about fixing through “shared sacrifice.” In this post I'll review new posts on legality and constitutionality.

Kevin Drum on legality

Kevin Drum of Mother Jones filed his second recent post claiming that the trillion dollar coin is illegal and will be subject to challenge in Court on grounds of intent. He repeats exactly the same reasoning he used in his first post. I've already critiqued that reasoning saying that the Courts generally don't try to interpret laws based on theories about Congressional intent. The Justices aren't collective psychologists who are expert at divining the intent of the Congress. They are expert, however, at interpreting what the text of a law says, and so that is what they stick to almost all the time. A challenge to PCS based on intent isn't something any Court is likely to take up. Drum then adds:

There is, apparently, a widespread belief that courts will uphold a literal, hypertechnical reading of legislative language regardless of its obvious intent, but I'm quite certain this isn't true. Courts are expected to rule based on the most sensible interpretation of a law, not its most tortured possible construction. I don't think there's even a remote chance that any court in the country would uphold a Treasury reading of this law that used it as a pretense for minting a $1 trillion coin.

I am, obviously, not a lawyer. So if someone with actual legal training in the appropriate area of the law says I'm wrong, then I guess I'm wrong.

Well,, the language of 31USC5112(k) doesn't look very tortured or “hypertechnical” either to myself or many others who have looked at this including lawyers Jack Balkin and Carlos Mucha (beowulf); but seems very plain and unambiguous. Drum is entitled to his opinion, but as he keeps saying, he's no lawyer, and his judgment about what the Courts will do based on the problem of intent isn't very plausible.

What if a trillion dollar coin is used to avoid the debt ceiling, and this saves the United States from defaulting on its debts, and the world financial system from collapsing? Is it then likely that the Supreme Court will entertain any challenges to the plain language of the law based on an interpretation of intent, which would then place the Treasury in the position of having to return that trillion dollars in Fed credits, and again look default in the face? Can you see John Roberts ever voting for this? Please Kevin, give us a break!

John Carney on Unconstitutionality

John Carney believes that Platinum Coin Seigniorage (PCS) and the Trillion Dollar Coin are unconstitutional. The core of his argument is:

There are limits to how far Congress can stretch its powers under the necessary and proper clause. Of particular interest to us here is the non-delegation doctrine, which holds that the Constitution's requirement that laws be passed by both houses of Congress and signed into law by the government constrains the ability of Congress to delegate its lawmaking authority to other bodies. . . .

The Supreme Court . . . . went out of its way to affirm the basic principle of non-delegation . . .

Article I, Section 1, of the Constitution vests "[a]ll legislative Powers herein granted... in a Congress of the United States." This text permits no delegation of those powers, and so we repeatedly have said that when Congress confers decision making authority upon agencies Congress must "lay down by legislative act an intelligible principle to which the person or body authorized to [act] is directed to conform."

So the question that is relevant for us here is whether or not the law that authorizes the creation of platinum coins by the U.S. Treasury lays down an "intelligible principle" to which the Treasury is directed to conform.

He then quotes the law authorizing PCS:

"The Secretary may mint and issue bullion and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary's discretion, may prescribe from time to time."

You see the problem here, right? There's no intelligible principle whatsoever. The law gives the Secretary complete discretion over everything having to do with the minting of platinum coins. This is very likely an unconstitutional delegation of the legislative power to coin money and regulate the value thereof.

Carney goes on to talk about issues of standing recognizing that standing may be very difficult to get from the Courts and that therefore it may not be possible to challenge the law. But he still thinks that the above argument is a decisive one and that the coin seigniorage law is unconstitutional. You see the problems here, right?

First, the power to physically mint coins is not a law making power, per se. In delegating this power to the Treasury and the Mint, no law making is involved. So, the principle of non-delegation of legislative power may not apply even if “intelligible principles” didn't exist. But, as we'll see they do exist anyway.

Second, Congress delegated the Treasury the power to mint platinum bullion and proof coins having a variety of properties to be specified by the Secretary; but it did not delegate to the Secretary that power with respect to coins made out of other materials; or even with respect to platinum coins that are neither bullion or proof coins. So, Congress did limit the authority of the Treasury according to intelligible principles. And in the area of platinum coins what Congress has done is to delegate its authority according to “the intelligible principle” that the Secretary is to mint such coins with face values he/she deems necessary and proper. That seems like an intelligible principle to me, even though John Carney may not like the principle.

Beowulf goes much further in pointing out that the Treasury Secretary's broad coin minting authority is, in fact, highly constrained by Congress. He says:

Now here’s where John is wrong, the Secretary has no legal discretion in this matter whatsoever. His path is laid out by Congress like he’s the mechanical rabbit at a dog race.

1. Congress tells the Secretary (as supervisor of the IRS) how much to collect in tax receipts and (with somewhat less effort) in miscellaneous receipts.

2. Congress tells the Secretary as signatory of every single appropriation warrant how much money to transfer to federal agency sub-accounts (called “appropriation symbols” for some obscure reason).

3. Congress tells the Secretary he MAY borrow on the credit of the United State to fund expenditures but not for one penny more than the debt ceiling.

4. Congress tells the Secretary he SHALL mint coins such coins as he decides are necessary to meet the needs of the United States.

When Congress orders the Secretary to spend appropriations in excess of the receipts they’ve ordered him to collect, the unavoidable budget deficit must be filled by the combination of the Secretary’s powers to borrow (debt limit-constrained) money and to mint (debt-free) money. If Congress refuses to increase receipts or cut appropriations or extend the debt limit, the Secretary has only one and only one path to comply with all of his legal duties. Maybe I’m naive, but I’m confident the path to salvation will never be ruled unconstitutional by any United States Court.

This is a pretty decisive argument about "intelligible principles" governing Treasury's responsibility to coin, isn't it?

Third, Carney's using his non-delegation argument to apply against the PCS legislation is remarkably devoid of the legal context of Congress's delegation of its money power. If the Court were willing to consider such a theory in relation to PCS, then how would it avoid applying the same theory, when someone comes along who wants to challenge the constitutionality of the Fed?

In creating the Fed Congress not only delegated very, very broad money creating powers without specifying intelligible principles to guide the delegation; but in addition, it created an executive institution which is independent of the Executive Branch. Surely, this is an unconstitutional delegation of its power that infringes on the rights of the Executive Branch of Government. But it is an unconstitutional delegation that no one except the President has obvious standing to challenge, as Senator Phil Hart (D-Mich) and Congressman Henry Reuss (D-WI) found during the 1970s when they were denied standing to pursue their suit against the Fed on its constitutionality.

In a second post yesterday John Carney replies to the criticism that the non-delegation principle, if applicable to PCS, should apply equally well to the Fed. He says:

The Federal Reserve Act, which establishes and empowers the Fed, is a long bill full of instructions from Congress about what the Fed may and may not do. (In fact, the Fed's powers were changed recently, under the Dodd-Frank Act.) Most importantly, the Act directs the Fed to implement monetary policy to meet some very specific goals.

And Carney goes on to quote the mandate of the Fed under the Federal Reserve Act following that with the conclusion:

That's an extremely explicit "intelligible principle." The Fed cannot make policy willy-nilly.It must conform its policy to increase production while promoting maximum employment, stable prices and moderate long-term interest rates. The Fed has a lot of latitude when it comes to how best to pursue those goals but the goals are very clear.

All that is true, but, this very explicit instruction of the Fed in the Act makes it quite clear that the Fed performs Executive functions, and the question immediately arises about whether Congress has the constitutional authority to create and maintain it as independent from the Executive Branch, especially since there is no clearer principle in the Constitution than separation of powers and the establishment of only three branches of Government. In addition, the Act establishing the Fed isn't very explicit in regulating and guiding its money creation powers. Surely it doesn't explicitly give the Fed the authority to create money out of thin air, or limit this power in any coherent way.

Apart from this however, Carney's comparison between the Fed legislation and the coin seigniorage legislation is an unfair comparison, because the Fed as an institution with delegated powers should surely be compared to the Treasury as an institution with delegated powers, and then the question should be asked whether Congress has specified “intelligible principles” for both. I think the answer is clearly yes, and also that there is little to distinguish between them on these grounds.

Also, the relevant and fair comparison between the Fed and the Treasury Carney should have made is in the area of money creation powers,

rather than comparing the Fed as an institution with the narrow Treasury function of platinum coin minting and seigniorage authority. Once one does that; it's plain that the authority of the Fed with respect to respect to reserve and currency creation is lavish, and much less regulated and governed by the Congress in the form of “intelligible principles”, than is the coinage authority of the Treasury.

In fact, it is only in the area of PCS that the Treasury has anywhere near the freedom and authority that the Fed routinely exercises over reserves. So, with respect to money creation powers it seems that a much greater delegation problem, if there is one, exists between Congress and the Fed than between Congress and the Treasury.

Of course, no one can be sure about what strange decisions may ensue from this Supreme Court. But the same problem exists with Carney's theory about what the Courts might do as with Drum's. That is, if the President uses PCS, cites the legislation, and then prevents a default, will the Courts really then declare the PCS legislation unconstitutional based on a vague doctrine like non-delegation which has had limited previous applicability, which would be questionable in this application, and which might have the consequence of crashing the global financial system? Somehow I doubt that John Roberts and Anthony Kennedy would join in such a ruling; and Justices Kagan, Ginsberg, Briar, and Sotomayor are even less likely to decide that way. In other words, John Carney, if it ever gets to the Supreme Court, which is highly doubtful due to standing problems, I think there's a 6-3, or perhaps even a 7-2 vote in favor of constitutionality coming up on this one.

Conclusion

Summing up, I think the efforts of Drum and Carney to put forward legal theories about the coin seigniorage legislation are both questionable. Drum really offers a tough argument to make stick, because the kinds of intent considerations he brings forward could be used to challenge any Act that had unintended consequences. When we realize that almost every piece of legislation has unintended consequences, it's clear that an attack based on intent would really be a difficult one to sustain in the face of the plain language of 31USC5112(k).

And with respect to Carney's legal theory, that the non-delegation doctrine can be applied to coin seigniorage, it is very hard to take his theory seriously. Sure, legislation that assigns legislative powers to other branches of the Government is unconstitutional. It's also true that legislation assigning executive functions to agencies outside the Executive Branch is also unconstitutional.

But what is a legislative function and what is an executive function? The boundaries between the two are often not so sharp, and some deference must be and has been given by the courts to Congress's own decisions in delegating both its own and executive functions (like the Fed's) to other agencies. So, the application of the non-delegation doctrine is a very subjective matter, and is very unlikely to be relied upon by Courts to check the coinage authority delegated to the Executive by the Congress in the clear language of the law.

(Cross-posted from New Economic Perspectives.)

Origin and Early History of Platinum Coin Seigniorage In the Blogosphere

Joseph M. Firestone — Sun, 09 Dec 2012 11:30:35 -0500

This post records the history of platinum coin seigniorage in the blogosphere through the debt ceiling agreement on August 2, 2011. Its purpose is to correct errors in the record about the history of this idea appearing on mainstream blog posts by Joe Wiesenthal,, John Carney, and Brad Plumer, during the past week. The idea of using coin seigniorage, the profits made from minting proof platinum coins, depositing them at the Fed, and receiving electronic credits in return, to remove the need for issuing debt, and so to always stay under the debt ceiling is due to a commenter (and occasional blogger) on economics and politics blogs whose screen name is beowulf (Carlos Mucha, Attorney). The first comment of beowulf's I noticed on coin seigniorage was at New Deal 2.0. Unfortunately, when The Roosevelt Institute redid its New Deal 2.0 site, it wiped out the record of beo's comment. However, I quoted his ND 2.0 proposal in a post on November 12, 2010 discussing a possible Government shutdown due to the debt ceiling. I cross-posted this at Correntewire too where beowulf commented further on the platinum coin option.

Beowulf continued his work on the coin seigniorage proposal as the weeks went by in various comments made at blog posts such as this one at FDL, and this one, also at FDL. Then on 12/15/2010 there was an exchange between beo and I about platinum coin seigniorage.

Following that beo wrote me and we corresponded by e-mail from 12/15/10, roughly until the Christmas break, exchanging views about PPCS, with me urging beo to blog it, and telling him that I would blog in support of him soon after he did. On January 3, 2011, he posted the seminal blog on coin seigniorage. I followed two days later, raising the question of whether President Obama would use it to forestall an attempt to use the debt ceiling to extract cuts in the social safety net or not.

These posts were noticed by Warren Mosler, one of the originators of the Modern Monetary Theory (MMT) approach to economics, who sponsored what turned out to be a wide-ranging and very high quality discussion of the coin seigniorage option at his site. Beowulf contributed extensively and very creatively to this discussion, which remains one of the most important resources on the coin seigniorage option.

Throughout the next six months, I pushed platinum coin seigniorage in blog posts at Correntewire, FDL, and DailyKos from time-to-time and in comments at various sites. Then, in late June and July a spate of posts on platinum coin seigniorage appeared, beginning, I think, with wigwam's at FDL and DailyKos.

He's followed up since with a number of other posts including this one with a variation on how coin seigniorage might be applied by buying $2 Trillion in debt from the Fed to create “head room” relative to the debt limit.

Other important posts appeared in the first two weeks of July 2011 by Mahilena, DC Blogger, ubetchaiam, Cullen Roche, and Scott Fullwiler.

Accompanying the last two are extensive discussions of coin seigniorage and constitutionality of the debt ceiling with contributions from beowulf. Scott's post also received extensive discussion with beowulf contributing at Cullen's site. Trader's Crucible, presented a post on the unconstitutionality of the debt ceiling. Its comment thread however, focused very much on platinum coin seigniorage with beowulf and myself making contributions.

In addition, I added a couple of my own posts, one on constitutionality of the debt ceiling and coin seigniorage (06/29/2011), and another on the President's obligation, if no agreement on the debt ceiling is forthcoming (07/11/11).

At this point, the platinum coin seigniorage debate began to hit the mainstream blogosphere. Felix Salmon at Reuters provided the opening blog post (07/14/11) and he was followed a day later by Matty Yglesias at Think Progress. I replied to Salmon and Yglesias in this post, presenting a fairly comprehensive view of platinum coin seigniorage up to that time, with critiques of their posts (07/17/11).

My post appeared in an abbreviated form at Naked Capitalism, and was also cross-posted at MyFDL, New Economic Perspectives and Global Economic Intersection. It appeared amidst an explosion of blogosphere posts on the subject, including posts on the subject by many mainstream bloggers and others including: Tom Hickey: “Coin Seignorage Breaks into Mainstream,” (07/18/11) Scott Sumner: “Is coin seignorage Obama's magic bullet?” (07/19/11) Joshua Holland: “There's a Solution to the Debt Fight That Could Avert Catastrophe -- Why Is Everyone Ignoring It?” (07/20/11) Darrell Delamaide: ”Smoke and mirrors with the federal deficit,” (07/20/11) Mark Kleiman: "Phony problem, phony solution," (07/20/11) wigwam: "Mark Kleiman calls Coin Seigniorage a phony solution; to a phony problem," (07/23/11) Yves Smith: "We Discuss the manufactured UD Debt Crisis at the Real News Network." (07/25/11)

These posts were an immediate wave, so to speak, of responses to the Salmon and Yglesias posts. But there was more to come in July. I posted again, presenting a variety of platinum coin seigniorage face value options, along with differing political and inflation implications of the options (07/20/11).

Then I followed with an open letter to Congress and the President on getting around the debt ceiling (07/25/11), and a post on the President's apparent views on the debt ceiling. (07/26/11)

Meanwhile, Jack Balkin, a Constitutional Law Professor at Yale, had blogged about coin seigniorage telling a good story in an important post (07/18/11).

And Balkin next did a post at CNN, where he reviewed a number of options for getting around the debt ceiling (07/28/11). And, in doing so, brought the platinum coin seigniorage idea into the mainstream discussion.

Balkin's efforts seemed to fuel another wave of the July 2011 platinum coin seigniorage explosion. These include:

”Capt. Fogg: Billion Dollar Coins and Exploding Options -- oh my!” (07/28/11)

Logan Penza: “(Platinum) Pennies From Heaven (UPDATED);” (07/28/11)

Jonathan Chait: “The Coin That Will Save The World;” (07/28/11)

Matthew Yglesias: “The Platinum Coin Option;” (07/28/11)

Brad DeLong: ”The President's Obligation to Take Care That the Laws Be Faithfully Executed Requires Him to Start Minting Large Denomination Platinum Coins” (07/28/11)

upyernoz: “platinum, baby, platinum” (07/28/11)

Master of Interesting Links: “The meme that will not die!”; (07/28/11)

Tyler Cowen: “Crank up the mint for the platinum coin!” (07/28/11)

Edward Harrison: “The #trilliondollarcoin meme”; (07/28/11)

The Economist: “The trillion dollar coin solution;” (07/29/11)

Eric Hayden: “A $1 Trillion Coin Seems Like a Nice Idea” (07/29/11)

Paul Krugman: “Lawyers, Coins, and Money” (07/29/11)

Annie Lowery: “The $5 Trillion Coin” (07/29/11)

Johnsonville: “Debt Watch/Coin Trick: the Trillion Dollar Coin” (07/29/11)

Seneca Doane: “Cut the Gordian Knot with the Platinum Sword;” (07/30/11)

Laurence Lewis: "The Debt Ceiling Dance and the Trilion Dollar Coin." (07/31/11)

David Weigel: “The Platinum Coin Hysteria of 2011;” (07/31/11)

So, that was the second wave of responses by mainstream bloggers, and others, to the Platinum Coin Seigniorage idea. In addition, I added two posts on 07/31/11:

Progessives In Congress: Vote for The President To Do It!” (07/31/11)

Also, the last notable post on Platinum Coin Seigniorage (08/01/11) before the debt ceiling settlement of 08/02/11 was Scott Fullwiler's Coin Seigniorage and Inflation. It's still the most comprehensive and rigorous discussion available of the relationship between the two.

But then, and lastly, there was Beowulf responds to Dave Weigel of Slate.” (07/31/11) I think this reply is worth quoting, because, in a way, Weigel's reaction is pretty typical of most mainstream posts, reacting to the idea in what only can be described as a superficial way, part brush-off; part poking fun, almost as if mainstream bloggers were afraid of discussing the idea without an obligatory heaping slice of skepticism accompanying their mention of it. Obviously beo's reply doesn't apply to everyone, so I don't want to over-generalize it. But if you read all the posts, I think you'll see that Weigel's reaction is pretty common, so beo's reply is pretty broadly applicable.

There’s nothing fanciful about it. The strange thing is that the USG is constrained by debt ceiling but a part of the USG (The Fed describes itself as “an independent government agency”) is unconstrained by a debt ceiling. Even more anomalously, Fed-held Treasuries are counted against the USG debt ceiling.

This isn’t about selling drilling rights on the moon but a practice almost as old as the Republic. The US Mint has used coin seigniorage continuously since the Coinage Act of 1792 (in a legal sense, a single $1 trillion platinum coin is the same as trillion $1 coins but with far less expense and effort). It violates no laws nor federal regulations nor prior obligations for the USG to transfer debts from the constrained whole to an unconstrained part (that is violates all logic is the fault of Congress).

The idea actually originated in a note I sent the Department of the Treasury on a collateral issue (as it happened, I had “buried the lede”). I posted about this on Firedoglake (and Correntewire) only after discussing the issue at Warren Mosler’s blog (Incidentally, I’m hardly a lefty. I voted for Romney in the 2008 GOP primaries, will probably do so again next year).

Writer Joe Firestone suggested to me that the platinum coin seigniorage issue was something worth posting a blog about and bugged me until I did (after which, Joe took the leading oar on developing the idea). I’d point out that Warren Mosler also picked up on the economic ramifications very early. But I trust that every reader here with an interest in economics has already read his book The Seven Deadly Innocent Frauds (you can download for free from his site if you haven’t), so that should come as no surprise.

http://moslereconomics.com/2011/01/20/joe-firestone-post-on-sidestepping...

Of course, there is historical precedence for using coinage to pay the national debt, the Legal Tender Act of 1862 authorized the issuance of fiat currency, US Notes or “Greenbacks” (the predecessor of today’s Federal Reserve Notes) required that Tsy pay debt service only with US Mint-issued coins. Of course Nixon freeing us from the gold standard changed everything, but if our politicians understood that, we wouldn’t have a debt ceiling now would we?

And finally, I should note, that once the debt ceiling compromise was agreed to on 08/02/11, the sudden explosion of posts on platinum coin seigniorage quickly faded away, as I predicted it would then. I've blogged a lot about it, since, trying to develop the political context further and to make people aware of the policy variations available in the platinum coin seigniorage toolbox. But bloggers doing posts on it were few until just this past week.

Now people are starting to see that there may be a fiscal cliff settlement and immediately afterward a new debt ceiling crisis for us to cope with. So, suddenly the mainstream has taken up where it left off with platinum coin seigniorage in early August 2011. It's again in a frenzy about it, and it's again making errors in its analysis of it and in the information it's spreading about the history of the platinum coin seigniorage idea.

In future posts of mine, I'll look at the new wave of blog posts and discuss the issues they raise. But for now I want to correct one immediate thing. Joe Wiesenthal, Brad Plumer, and John Carney have been saying that the platinum coin seigniorage idea originates with Cullen Roche's blog post of 07/07/11 cited earlier with a commenter on that post. Plumer even says:

*Update: Cullen Roche appears to have been one of the first people to discuss the platinum coin idea in 2011 ― it came from one of his readers. See also here.

If Plumer had read the first of his references with the accompanying comment thread, he would have found a host of links to earlier work on PCS. And if he had read the 07/17/11 post of mine he references (also linked to in the review above), he would have found that the first statement of the PCS idea by beowulf, Cullen Roche's commenter, was on November 4, 2010, more than 8 months before Cullen's own post.

Also the first full blog post on PCS, as you can see from both Plumer's reference and the account above is on January 3, 2011. And after that, there are numerous blog posts on the subject before Cullen's post on 07/07/11. So, I think that Wiesenthal, Plumer, and Carney, all got it wrong. Probably because they relied on each other, rather than on reading their own links, or on using "the google."

(Cross-posted from New Economic Perspectives.)

Beyond Debt/Deficit Politics: The $60 Trillion Plan

Joseph M. Firestone — Thu, 02 Aug 2012 00:05:45 -0400

Well, here we are again, House leaders have agreed on a compromise continuing spending resolution at the same level as before from October 2012 through January 2013. It's likely now that the President(s?) will probably try to make the money available for deficit spending as of today, last through the time period of the continuing resolution so that one deal including both the budget and raising the debt limit can be made by March of 2013. According to the July 31, Daily Treasury Statement, there's $499,424,000,000 left until the debt ceiling. That's an average of $62,428,000,000 deficit spending per month for the next 8 months, ending March 31, 2013.

For the past 10 months, average deficit spending was at $114,802.3 Billion per month, and that amount was not enough stimulus for a full recovery. So, the likely 46% reduction in average deficit spending over the next 8 months is unlikely to be any more effective in pulling us out of the extended employment recession we are experiencing, than the deficits in the preceding 10 months were. On the contrary, deficit spending over the next 8 months is unlikely even to allow us to maintain the unemployment levels we have now. So, what ought to be done?

The most important thing that can be done is to change the fiscal context of politics from one of apparent scarcity "justifying" austerity to one where spending capacity is so plentiful, that Congress will be hard-pressed to impose austerity, because its justification in the form of apparent limitations on spending capacity will just seem silly. In the summer of 2011 I proposed a solution to the debt ceiling crisis calling for the minting of a $30 T platinum coin to overcome the problem and also improve the fiscal context for progressive legislation. Now, I want to update that post and apply it to the present political situation, where based on the above events, the next serious fiscal crisis is likely to happen in February and/or March of 2013. So, here's the update.

The Law and Proof Platinum Coin Seigniorage

Congress provided the authority, in legislation passed in 1996, for the US Mint to create platinum bullion or proof platinum coins with arbitrary fiat face value having no relationship to the value of the platinum used in these coins. These coins are legal tender. So, when the Mint deposits them in its Public Enterprise Fund account at the Fed, the Fed must credit that account with the face value of these coins. This difference between the Mint's costs in producing the coins and the credit provided by the Fed is the US Mint's profit. The US code also provides for the Treasury to periodically “sweep” the Mint's account at the Federal Reserve Bank for profits earned from these coins. Coin seigniorage is just the profits from these coins, which are then booked as miscellaneous receipts (revenue) to the Treasury and go into the Treasury General Account (TGA), narrowing or eliminating the revenue gap between spending and tax revenues. Platinum coins with huge face values, here $1, $2, and $3 Trillion coins have been mentioned, could close the revenue gap entirely in ant fiscal year, and, if used often enough, technically end deficit spending, while still retaining the gap between tax revenues and spending that can produce full employment in an economy like the US's, with private sector savings and a current account deficit.

Proof Platinum Coin Seigniorage (PPCS) is now frequently and increasingly being mentioned on popular blogs as a possible solution to the debt ceiling crisis. It is one of the two solutions currently being suggested that requires no further legislation from Congress and also no challenge to either the debt ceiling law itself, or to the Congressional prohibition on the Fed extending credit to the Treasury.

However, PPCS is not only a solution to avoid a debt ceiling crisis. It also has the potential to take off the legislative/fiscal table the whole austerity mind set that bedevils our current budgetary process and provides it with a constraining conservative cast focused on narrow monetary costs considerations, rather than a broader progressive framework that weighs the real costs and benefits of proposed fiscal activities of the Federal Government.

PPCS can free the Government from narrow green eye shade concerns and force both Congress and the Executive to evaluate the substance of legislative proposals based on their likely direct impacts and side effects on the lives of Americans, rather than their impact on Federal deficits and surpluses.

Government deficits and surpluses are important in themselves when the supply of Treasury funds is restricted to the amount that can be taxed or borrowed; but they are not intrinsically important when, through using PPCS, the supply of Federal funds is limited only by the President's or the Treasury Secretary's orders to the US Mint to use PPCS to fill the public purse without either taxing or borrowing

The PPCS alternative comes in more than one flavor. It's actually a class of alternatives. Here are some different coin seigniorage proposals.

PPCS Alternatives

First, mint a $1.6 Trillion coin and have Treasury use the profits from it to buy all the outstanding debt instruments held by the Fed. This would retire a substantial part of the national debt and immediately create $1.6 T in “headroom” relative to the debt ceiling. This alternative involves the least amount of change in current procedures. The coin, once deposited at the Fed, would remain in a Fed vault, and would not go into circulation.

The Government would then go right back to issuing debt in order to meet its debt obligations and spend previous Congressional appropriations. With this alternative it is hard for critics to raise the inflation issue, since the new credits created by the coin are never spent into the economy, but are only used to buy back the debt held by the Fed because that debt counts against the debt ceiling. Of course, this proposal is a solution to the debt ceiling problem alone. It would prevent a default crisis caused by anti-government tea party Republicans. But, it wouldn't do very much to defeat the austerity/deficit hawk mind set in politics.

One objection made to coin seigniorage proposals is that the high face values of the coins would drive up the market price of platinum. However, the Mint is already scheduled to produce 15,000 platinum coins having relatively small arbitrary face value. There would be no conceivable need for more than enough material for 100 very high face value proof platinum coins, and at least one alternative PPCS proposal would require only two coins to implement. So there really is no platinum supply/market price issue.

Having said that, every time the Mint creates a high value coin for deposit at the Fed, it would have to create a duplicate coin, so that it had the means to swap with the Fed if it ever decided to redeem the coin for currency of equal value. This is not a likely event; but it is possible. So, it would be necessary to create duplicate coins. The Fed would place one of the coins in its vault after deposit and the Mint would place the other coin in one of its vaults.

A second proposal is to mint a $6.7 T coin to pay back all debt held by the Fed, and all Intra-governmental debt, including that owed to Social Security, Medicare, and a host of other other agencies. That would create $6.7 T in headroom relative to the debt ceiling, that's more than enough to carry us through the 2014 elections without breaching the ceiling. Again, this wouldn't result in any “money” immediately going into circulation, but over time SS and Medicare payments to individuals and organizations would be adding to bank reserves without any reserves being withdrawn from the private sector due to debt issuance. But this isn't a change from the present situation so it would not add to inflation.

This alternative would render the debt ceiling problem a dead letter for some time to come, and it also might take some of the austerity pressure off. But it probably wouldn't end the austerity drive, because the deficit hawks would still point to long-term problems in entitlements that would be projected as running up the public debt in future years.

Some might think this alternative would be inflationary, because they believe that net reserves added to the private sector are more inflationary than debt instruments added would be. However, there's plenty of evidence that debt instruments provide much higher leverage than added reserves, and, in addition, they lead to greater interest payments than reserves do, even if the Fed decides it wants to pay interest on reserves, which it doesn't always do.

A third proposal for applying coin seigniorage is to mint a coin with face value large enough to cover the $6.7 T intra-governmental and Fed debt repayment, plus all private debt coming to maturity, and all Congressional Appropriations expected to require deficit spending. I'll estimate, roughly, that a $20 T coin is enough for that, including about $4.0 T to more than close the expected gap between tax revenues and Government spending through the 2014 elections, and the rest for paying down the national debt further. Issuing a coin that large, using the profits from seigniorage, and assuming that Congressional appropriations continue the pattern of the past 2 years or so, that would result in a remaining public debt outstanding of roughly a few trillion dollars in long term debt, which would please the bond markets except for the fact that the US wasn't issuing any more debt instruments, which would probably make the bond vigilantes scream for those safe harbor debt instruments again.

Again, would this coin seigniorage proposal be inflationary? Well, the intra-governmental and Fed debt repayments won't be, for reasons already stated. Also, there's no reason to believe that the repayment of further debt will be, unless one believes, that reserves swapped for bonds, and not swapped again for more bonds, is inflationary. But, other than the interest payments which certainly add to private sector assets somewhat, payback of debt instruments is just an asset swap, followed by destruction of securities. There's no addition of Net Financial Assets (NFA) to the private sector.

How about the seigniorage profits of $4.0 T set aside for closing the gap between tax revenues and spending during the next two years? Will that be inflationary? Actually, I don't know if Congress will appropriate a $4.0 T spending/tax revenue gap over the next two years or so, but if such a gap is needed to move towards full employment, and if it does, then the coin profits will cover it without new Federal borrowing. And as long as Congress does the right kind of spending and creates a large enough gap to add sufficiently to private sector assets to support full employment, their appropriations, backed by PPCS won't be inflationary.

If, also, Congress does the right kind of spending to bring full employment inside a year, then tax revenues will come back as they did during the Clinton Administration, and then there will be no need for all the profits from the proof platinum coin to be used completely between now and 2014. In fact, if the right jobs creating program is immediately enacted, as much as $2T could be left before the President might want the US Mint to strike another proof platinum coin.

So far, I've discussed three alternative coin seigniorage proposals ranging in scale from a minimal proposal to handle the current crisis to one that would provide enough funds to both pay down debt, and support a gap between spending and taxes that might be sufficient to enable full employment. Now here's a fourth, enough to handle even generous Congressional appropriations and deficit spending for at least 15 years, until 2025 and beyond.

Why not mint a $60 T coin and then another one in case the Fed gets obstreperous sometime down the road and presents the $60 T coin, that was deposited in the Mint PEF account, for redemption?

I favor this fourth alternative above all, because it institutionalizes the idea that there is a distinction between appropriations, the Congressional mandate to spend particular amounts on particular goods and services, and the capability to spend the mandated accounts by having the funds (electronic credits) in the public purse (the TGA). In a fiat currency system, the capability always exists if the legislature provides for it under the Constitution. But the value of the $60 T coin, and the profits derived from it, is that it is a concrete reminder of the Government's continuing ability to buy whatever it needs to meet public purposes. It demonstrates very concretely that the Government cannot run out of money, and that the claim that it can is not a valid reason for rejecting spending that is in accordance with public purpose.

So, in reading what follows, please keep in mind the distinction between the capability to spend more than government collects in taxes, and the appropriations that mandate such spending. The capability is what's in the public purse, and it is unlimited as long as the Government doesn't constrain itself from creating credits in its own accounts. With coin seigniorage its capability could be and should be publicly demonstrated by minting the $60 T coin, and getting the profits from depositing it at the Fed transferred to the TGA.

On the other hand, Congressional appropriations, not the size or contents of the purse, but whether the purse strings are open or not, determines what will be spent and what will simply sit in the purse for use at a later time. So there is a very important distinction between the purse and the purse strings. The President can legally use coin seigniorage to fill the purse, but only Congress can open the purse strings through its appropriations.

This fourth alternative is the one that best solves both the debt ceiling problem and the problem of taking austerity, justified by “we're running out of money,” off the table. The debt ceiling would no longer be an issue if the Treasury immediately paid off $6.7 T in Fed and intra-governmental debt, and was poised, with the money in its account, to pay off the rest of the debt subject to the limit as it falls due. Nor would there be any justification for austerity policies if the Treasury had a public purse with $44 T of unearmarked funds in it to cover future deficit spending.

At that point we'd be free to seriously debate: 1) full payroll tax cuts for both employers and employees until full employment is reached; 2) revenue sharing payments to the States of $1,000 per person to save and restore State government employment to pre-crisis levels; 3) creating a Federal Job Guarantee program which would guarantee a job offer at a living wage with full fringe benefits to anyone seeking full time work; 4) passing HR 676, John Conyers enhanced Medicare for All bill; 5) public education reforms to create a world class educational system open to all, from preschool to graduate school; 6) passing an infrastructure program re-creating the energy foundations of the United States and rapidly eliminating dependence on fossil fuels; 7) passing new legislation stopping human-created climate change; and passing a $3 Trillion infrastructure program for renewing the US's infrastructure.

This brings us again to inflation. I've already pointed out that repaying the debt won't be inflationary. So, the inflation issue then focuses on the $44 T in seigniorage profits in the TGA that would be used to cover gaps between Federal spending and tax revenues in the years following minting the $60 T coin. How much of that is spent ,and when, will depend on what Congress appropriates. To avoid demand-pull inflation, the kind caused by Government deficit spending, Congress must not spend more than is needed to create the aggregate demand necessary for full employment.

How much that is will depend on the savings and import desires of the American people. Right now, desired savings seems to be at the level of 6% of GDP, while import desires greater than export amounts seem to be at roughly 4% of GDP. So, roughly speaking that tells us that a full employment budget should involve a deficit of $1.6 T or 10% of GDP, give or take a few hundred billion depending on the fiscal multipliers associated with the specific government spending involved. As long as deficit spending is within those limits demand-pull inflation will not occur.

This doesn't mean that cost-push inflation caused by supply problems, or monopolistic activities, or other supply bottlenecks won't happen. But these won't be caused by excessive government deficit spending, and can't be cured by backing off such spending or by raising taxes. They have to be treated in other ways. The best discussion of the relationship between coin seigniorage and inflation has been provided by Scott Fullwiler.

The Speech

If the President decided to rise above the debt ceiling controversy, safeguard the social safety net, and do something really, really important from the perspective of history by using $60 T coin seigniorage to short circuit the upcoming fights over the debt ceiling and the budget, say in January, or better still during the lame duck, then there would be a spectacular uproar in the Congress and the Press over what he had done. All kinds of overblown and downright crazy claims would be made because the President's action would shock people, everyone would have a tough time getting their minds around it, and the media would report on what was going on in a very sensationalist way using stereotypes created by the neo-liberal perspective that journalist at places like the WaPo, NYT, and CNN are superficially well-schooled in. Places like CNBC and Fox would be absolutely foaming at the mouth in response to something like this, and Timmy Geithner might very well resign over it, as might Ben Bernanke, since he'd be forced to have the Fed credit the coin.

There would also be an immediate move in Congress to repeal the 1996 law that enabled the President's action. This would fail however, because even if it got through the Congress, the President would simply veto it. The opposition couldn't possibly get the 2/3 vote necessary to override the veto. Even if by some miracle, repeal got through, however, it would be too late. The coin would have done its work and the $60 T would be in the TGA, a fait accompli, and a vivid demonstration that the government can create as much money as it wants, and can only run out of money by choice.

However, the President would then have to defend himself with a political campaign aimed at persuading the public that his move was a bold and liberating move and the first step in finally getting out of this protracted economic depression. And yes, he should use the D-word, whatever the Republicans and the so-called “fact-checkers” say about it in that campaign. And he should also begin the campaign by explaining to the public the issuance and deposit of the first $60 T coin in a high profile TV address, this way (the second coin just stays at the Mint for safekeeping. Its existence to be kept secret). Here's the speech.

My Fellow Americans:

1) Until now the Treasury has been borrowing the money the Government created back from the private sector, in order to cover our deficit spending, so the national debt has been steadily growing.

2) That’s silly! According to the Constitution, this Government, of the people, by the people, and for the people, is the ultimate source of all US money. So why should we ever borrow US money back and pay interest on it, since we can create it any time by the authority of the Constitution and Congress?

3) Congress has also imposed a debt ceiling, so, if and when we reach it, we can’t borrow back our own money without Congressional approval, anyway, and lately Congress has been using the need to raise the debt ceiling as an excuse to extort cuts in safety net and discretionary programs that the majority of Americans oppose.

4) So, on my order, and in accordance with legislation passed by Congress in 1996, and with the US Code, the US Mint has issued $60 Trillion using a single 1 oz. platinum coin, and deposited it at the NY Fed. It’s legal tender, so the Fed credited the Mint's Public Enterprise Fund (PEF) account with $60 Trillion in USD credits using its unlimited authority from Congress to create US Dollars.

5) This is not inflationary because the Fed will put our coin into its vault, and keep it there permanently out of circulation, and the Treasury will use the $60 T in USD credits only to pay back debt and to spend what Congress has already approved, which is only a small fraction of these credits and far from the amount needed to cause inflation.

6) My action ends any possibility of a debt ceiling crisis in February or March, because we have no further need to borrow our own money back in the markets, and that's why we don’t need the tea party or other Republicans, or even my fellow Democrats to agree to raise the debt ceiling any more.

7) Now the Treasury, has plenty of money, much more than we need, in fact, to pay for all appropriations Congress has already approved for 2013, and may approve in March, including all deficit spending and, again, we won’t have to borrow our own money back, either to repay debts or to implement future deficit spending.

8) So we will pay all Government debts which will come due in 2012 and 2013. Treasury securities and all other debts included. We will also pay back all debts held by other agencies of Government and the Federal Reserve. When we do this we will lower the national debt by about $12 T, reducing the “debt burden” by about 75% by the end of 2013, and creating an actual Social Security trust fund with 2.7 T in cash reserves in it; and again, to do this we don’t have to borrow our own money back, and we will also reduce our interest costs on the outstanding national debt all through the remainder of 2012, continuing through 2013, 2014, and beyond until it is all paid off.

9) None of the $60 T in new credits created by our actions is “money” in the private sector economy until the Treasury spends it. For now it is just capability to spend awaiting the appropriations of Congress to mandate deficit spending, should it need to compensate for the reduction in demand, probably close to 10% of GDP right now, caused by your own desire to save (which we want to do our best to facilitate), and your desire to import goods from foreign nations.

10) We have created $60 Trillion in new credits even though we probably needed less than that to cover anticipated deficit spending and debt repayment until 2027. The reason for this, is that I wanted to have enough capability created in the Treasury account, so that the national debt could be completely paid off (except for a small amount in very long-term Treasury debt still not mature by 2027), and all projected Federal deficits covered over the next 15 years, even extraordinary deficit spending needed to be performed without further borrowing over this period.

11) Of course, we can always make new coins if our projections about future deficits turn out to be wrong; but I thought it would be best to ensure that all $16 T plus of the “debt burden” can be completely eliminated from our political concerns; and also to provide enough funds in our spending account at the Fed, so that it would be very clear to Congress and all newly elected Representatives and Senators, that even though they, as required by the Constitution, continue to control the purse strings, the national purse is very, very full, and that we would be able to cover from the Treasury Account whatever deficit spending for the public purpose, including for full employment, Medicare for All, infrastructure, education, and other things, that Congress, in its wisdom, chooses to appropriate now, before the next election, and for some elections to come.

Good night, my fellow Americans! Rest well knowing that our beloved country won't be defaulting on any of its debts when the debt ceiling is reached in February or March, and that I've prevented this without going over the legal debt ceiling or borrowing any more, by providing money for spending mandated appropriations, in compliance with the laws authorizing coin seigniorage, while supporting the Constitution's prohibition against our Government ever defaulting on its debts. I hope that in the future everyone will obey the 14th Amendment's prohibition against questioning the validity of Federal Government debts, and think twice before they indulge themselves in loose talk about the possibility of the Federal Government defaulting on its obligations.

America will always pay its debts in US Dollars according to the terms of the contracts it has concluded, and in line with the pension payments and other obligations that it owes. Neither you, nor the rest of the world need ever doubt that again! Nor need you ever think that our Government is running out of money for the things we must do. We can never run short of money unless Congress refuses voluntarily, to use its unlimited constitutional authority to make more of it. But as long as it delegates to me the authority to create high value bullion and proof platinum coins to cover our needs, you can be sure that running out of US money will never happen!

(Cross-posted from Correntewire.com.

A Reply to the President About Real Choices

Joseph M. Firestone — Sat, 14 Apr 2012 21:14:45 -0400

A few days back, the President had some remarks on taxes, fairness, "The Buffett Rule," “fiscal responsibility,” and making real choices with real consequences. From my point of view, informed, in part, by the Modern Monetary Theory (MMT) approach to economics, these remarks were so wrong-headed, that I'm afraid I can't let them pass without a rebuttal. Below is a paragraph-by-paragraph commentary on some of his remarks.

The President:

“Now it’s not that these folks are excited about the idea of paying more taxes, this is something I’ve always made clear, I have yet to meet people who just love taxes. Nobody loves paying taxes. In a perfect world, none of us would have to pay any taxes. We’d have no deficits to pay down and schools and bridges and roads and national defense and caring for our veterans would all happen magically.”

Reply:

We have no need to pay down deficit-associated debts, since the Treasury can always roll over such debts by issuing and selling new debt instruments. But if the Government does want to pay down the Federal debt subject to the limit, it can certainly do that, under current law, by using the Trillion Dollar coin solution, also known as Proof Platinum Coin Seigniorage (PPCS). Using PPCS is perfectly legal at this time. And if a $60 Trillion coin were minted tomorrow, then that would allow all the debt subject to the limit outstanding right now to be paid as it comes due, and all the debt (about $6.2 Trillion) owed by the Treasury to other agencies of Government including the Federal Reserve within a week.

In addition, it would probably also cover 15 – 20 years of deficit spending yet to be appropriated by Congress. This process of using PPCS can be thought as filling the public purse. And there's no magic involved in it, just the Mint creating a coin according to law, and then the Fed as the Mint's bank, crediting the deposit on the coin to the US Mint Public Enterprise Fund (PEF) account. Then, also according to law, the Treasury may “sweep” the Mint's PEF account for its coin seigniorage profits, by transferring the seigniorage to the Treasury General Account (TGA).

The President:

“We’d all have money we’d need to make investments in the things that help us grow; investments, by the way, that have always been essential to the private sector success as well. They’re not just important in terms of the people that directly benefit from these programs; but historically those investments that we’ve made in infrastructure and education and science and technology and transportation, that’s part of what has made us an economic superpower.”

Reply:

Again, we already have the capability to generate as much money as we need to use for whatever public investments we need to make to secure the future of the United States. The easiest currently legal way to generate that money is to use PPCS. But, since the constitution allows Congress to create as much money as the US needs to make any investments it deems necessary, Congress can also delegate its constitutional power to create money to the Treasury, by simply moving the Fed under the supervisory authority of the Treasury Department. Of course, doing this won't affect the exclusive Congressional power over the purse under the Constitution, since the Treasury won't be able to spend any money it creates unless the spending involved has been appropriated by Congress.

The President:

“And it’d be nice if we didn’t have to pay for them. But this is the real world that we live in. We have real choices and real consequences. Right now we’ve got significant deficits that are going to have to be closed. Right now we have significant needs if we want to continue to grow this economy and compete in this 21st century hypercompetitive, technologically integrated economy.”

Reply:

Well, Mr. President, in the real world, Governments like the United States with non-convertible currencies, floating exchange rates, and no debts in currencies they can't create and control, aren't like individual households, States, Eurozone nations dependent on a foreign currency or corporations. Governments like these can create reserves at will. So, they can never become insolvent, and they can always buy anything that is for sale in their own currency.

Because the US Government can't become insolvent, it can always pay its debts on time, and it can choose whether to roll over these debts by issuing new debt instruments, or, alternatively, to pay off these debts with newly created reserves. So, whether we “close” our deficits or not is the Government's choice. From a solvency standpoint it doesn't matter either way.

That's the US Government's real world. That real world does require real choices that have real consequences as the President says. But those choices are about whether the President will acknowledge the real world and use fiscal policy to end the recession, create full employment, Medicare for All, a first class educational system, new energy foundations, a re-invented infrastructure, accelerate technological innovation, and expand and enhance the social safety net to update it for a 21st Century World of unprecedented productivity, or whether he will continue to believe the precepts of deficit hawkism and insist that a Government with a capability to produce as much money as it can possibly need, really needs to get back its own money by taxing or borrowing only.

The real consequences of these alternative choices are not something this President has been willing to face. One choice leads to lost decades and the de-evolution of the US into a third world nation dominated by a small group of kleptocratic oligarchs. The other one leads to the reconstruction of the United States and to the fulfillment of its goal values of liberty and equality of opportunity. The President may be OK with this first choice; but I'm not!

Unless and until the President escapes from his austerity fantasy and sees the reality of our modern money system he will continue to make very bad fiscal choices and to sacrifice the futures of hundreds of millions of Americans on the altar of his neo-liberal old time religion. He needs to end his adherence to the old-time religion, and start learning some post-Keynesian economics, and particularly MMT, with its commitment to full employment at a living wage with price stability.

The President:

“That means we can’t afford to keep spending more money on tax cuts for wealthy Americans who don’t need them and weren’t even asking for them. It’s time we did something about it. I want to emphasize this is not simply an issue of redistributing wealth; that’s what you’ll hear from those who object to a tax plan that is fair.”

Reply:

There is no problem about affording the tax cuts. We can afford them because we can always make new money for the programs people need.

But there is another and much more important reason why we should end the Bush tax cuts for the rich and even raise marginal tax rates way beyond the rates under the Clinton Administration. That reason is that a democracy needs to re-distribute wealth when it reaches a state of extreme inequality.

Extreme inequality is a critical issue! It is not about envy! It is about justice, fairness, and above all the future of American democracy! In the end, extreme inequality of the kind we have now is a threat to political democracy that we cannot live with for very long.

It gives the few too much say over politics, too much influence over office holders. It undermines one-person one-vote. It makes democracy unstable and threatens its very existence. We. Just. Can't. Have. That. Extreme wealth and income inequality must end. “A House Divided Cannot Stand!” People must become economically more equal, if our way of life is to survive!

The President:

“This is not just about fairness, this is also about growth. This is also about being able to make the investments that we need to succeed; and it’s about we as a country being willing to pay for those investments and closing our deficits."

Reply:

No, Mr. President, the “fiscal responsibility” through austerity you are calling for is really “fiscal irresponsibility.” It is not about growth! (See the results all over Europe.) It is not about the future! It is not about investments! It is about your failure to look at the Government and its impact on the world as it really is, and to see it instead as just another household or business. It is not that, and so we need no austerity!

Instead, we need leaders who are willing to use the fiscal power of the Government to enable the economy to create real wealth. But, right now, you and the other austerity mongers in Congress and among the emerging elite are standing in the way of healing our economy and building our individual and collective futures. Please stop it!

(Cross-posted from Correntewire.com)

Avoiding A Debt Ceiling Election Sellout!

Joseph M. Firestone — Thu, 12 Apr 2012 16:06:18 -0400

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

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

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

Straws in the Wind

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

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

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

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

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

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

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

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

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

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

Alternatives

1) Well, maybe they won't do anything that's proactive. Maybe the President will just play the game I outlined above, and just cope with the mess if he hits the debt ceiling. This would be stupid, I think, and especially so for his Party, since many Democratic incumbents may suffer if Washington is in a mess at election time. Many Republican incumbents may suffer too, but this won't make things better for the losing Democratic incumbents.

The President may not care about losses Democrats would suffer in 2012, if he still wins, because that might make it easier for him to give in to extreme Republican demands shredding the social safety net. He's talked often enough about the need to bring entitlements under control, and recently a number of stories have confirmed that heavy cuts in the safety net were placed on the table in previous negotiations with Republicans over the debt ceiling and the budget.

Still, manipulations of this kind are tricky, and he may not want to risk making the Republicans too powerful by adding to their seats in Congress and losing control of the political situation. After all, if they do get too powerful, it's not beyond the tea party to seek impeachment and make him a dead letter in his second term. That wouldn't be good for his "legacy," I'm afraid.

2) The President could use the 14th Amendment defense to breach the debt ceiling. I've outlined this possibility here. But it's another risky, messy move, especially with elections coming soon, which would again risk his re-election and Democratic seats in Congress.

3) A third class of options is something I've written extensively about. It's the option of using Proof Platinum Coin Seigniorage (PPCS) (the method of getting around the debt ceiling originally suggested by Beowulf some time ago). There are any number of PPCS options the President can use to get around the debt ceiling by generating coin seigniorage profits. I've outlined some of them here. Some of them stop with $1/2 Trillion coins, some go over $1 Trillion up to $5 Trillion, and still others envision very high face value coins ranging up to $60 Trillion and up.

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

So, issuing a $60T coin, removes the issue (excuse) of whether the Government of the United States can afford to pay for employment programs, educational programs, infrastructure, new energy foundations, a Medicare for All program, new R & D programs, or expansion of the social safety net from the political table. Issuing that coin can and would create a new political climate moving American politics much further to the left within the space of a few months. It is what the President ought to do. It is what he would do, if he were really committed to the well-being of most Americans. But since his behavior in his first term indicates that he is not, I don't expect him to exercise this option.

On the other hand, more modest PPCS options such as minting a $1 Trillion coin would get the President past any debt ceiling crisis in the period approaching the election. There'd be some squawking by the Republicans, alright, if he used a PPCS option to get by the debt ceiling. But his action would be entirely legal, and the public would be happy that he found a way to avoid another threatened hostage-taking by the Republicans. Using an option like this could well clinch a close election for him.

4) Beowulf, the blogger/commenter, who first proposed using high face-value PPCS to get by the debt ceiling, just came up with a new option to avoid breaking the debt ceiling. That option follows:

"Another way to sidestep the debt ceiling is to go the opposite extreme from one-day maturities, issue perpetual T-bonds with no maturity date (what the Brits call consols). Look at the debt ceiling law, the public debt adds up, for all outstanding debt, the face amount of the guaranteed principal. The future interest payments to be paid aren't counted. ("The face amount of obligations issued under this chapter and the face amount of obligations whose principal and interest are guaranteed by the United States Government").
http://www.law.cornell.edu/uscode/text/3...

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

Beowulf has more on consols here.

So, the Treasury could also legally issue consols in amounts substantial enough to avoid breaching the debt ceiling before the election, and also to avoid the threat of a Government shutdown with its accompanying political fallout. My hunch is that the President will probably either just play the balancing game, or at most issue consols to put off a day of reckoning.

I don't think he'll either use the 14th amendment challenge or any of the PPCS options, because he will view them all as too disruptive to the status quo of financial sector control over the economic and political systems, especially the PPCS options which rip the mask off his oft- stated but false view that the Federal Government can only raise revenue by either taxing or borrowing.

Using consols also reveals that the "either taxing or borrowing" meme is wrong. But the idea of consols is more resistant to easy widespread public understanding than the idea of a Trillion dollar platinum coin. And it also still looks like it's about borrowing, so it doesn't flatly contradict the "taxing or borrowing" myth. So, of course, given the President's evident dislike for dispelling right-wing myths, if push comes to shove, this is likely to be the Administration's preferred tactic.

What About A Post-Election Sellout?

Between PPCS or consols, I think the President will be able to avoid a debt ceiling crisis before the election. If he avails himself of one of those alternatives sooner rather than later, he won't even have to play the game of trying to ration spending Congressional Appropriations to avoid getting to the debt ceiling before October or November. This means he can end the fiscal drag on the economy we're seeing from lagging Federal spending, and probably win the election easily. However, after the election what will happen?

Will the President admit that his ability to avoid the debt ceiling through using PPCS or consols illustrates (and depending on what exactly he does), even demonstrates, that the Government can never run out of money unless Congress and/or the Executive wants it to; or will he go on with the charade of telling people that the Federal Government's capability to acquire financial resources is limited to taxing and/or borrowing and move on from there to insist that a deal must be struck with the Republicans to sharply cut Federal spending including funds for the social safety net in in order to reach his mythical goal of fiscal sustainability? One guess!

Our elections for Federal office have, for many years now, exhibited a failure of democracy. Officeholders, including the President, are elected by persuading the public that they will seek certain changes and support certain values. But for the most part, they behave very differently once they take office. There is a big problem of day-to-day accountability. The lobbyists work 24/7 to get what they want, and they persist in working the system day after day and week after week. They are professionals at getting what their clients want.

But for working people, politics is a passing occasional interest. They don't have the time or resources to track the influence relations between corporations and other interests on the one hand, and the public, on the other hand. Nor do they have the resources to constantly register their opposition to pending or newly introduced bills written by the lobbyists to reward their clients at the expense of the public interest.

How many bills have now been introduced to restrict the interchange of content over the internet to protect the intellectual property rights of large companies? One bill, like SOPA, for example is defeated, and the very next week another bill is introduced, that has to be fought. Bill after bill is introduced that violates privacy rights in the name of national security. If one is defeated or amended, then another bill suddenly appears that may well be worse, but that carries great benefits for the military-industrial complex or other clusters of big business.

One initiative is formulated to support cuts in the social safety net. It falls flat, like the Catfood Commission did, and suddenly an initiative that is even worse is brought up again by a political party that claims it is dedicated to the social safety net. A bill is formulated whose purpose is supposedly to provide universal health care to Americans, but before that bill gets through the Congressional gauntlet it becomes primarily a bailout for the insurance companies and even if it works as advertised, will still leave more than 20 million people uncovered by health insurance in 2019, nearly ten years after it was passed.

A credit card reform bill passes, but it allows 9 months for the credit card companies to raise interest rates on consumers before the bill becomes effective, which they all do, so that passage of the bill actually hurts most credit card users and pads bank profits at their expense. And even apart from that, the so-called reform contains no maximum credit card interest rates to prevent the companies from charging what used to be recognized as usurious interest rates. A Finreg bill is passed with great fanfare and almost no effect on the financial sector more than 1.5 years after its passage.

Very little of this was anticipated by those who so enthusiastically elected Barack Obama. He simply has not done the things he was elected to do, and in many cases he has done the opposite of what he said he would do. Nor did the Democrats elected along with him. Nor did the Republicans elected in 2010.

In most states, the pattern is the same. People are elected to do certain things, and then they do things that are completely different and that only small minorities of the electorate want to have done.

Barack Obama will not be re-elected if he runs on a platform of cutting social safety net programs in the service of creating long-term "fiscal sustainability." That goal of his will not be front-and-center in this campaign. His wish to "save the safety net" will be trumpeted.

Yet the chances are very good that after the election, and regardless of the condition of the economy, that he will use the lame duck session to put through a deficit reduction program that does much to shred the safety net in the name of a fiscal sustainability goal, that if he has used consols or PPCS, will have already been shown to be a moral fantasy whose implementation will make people suffer for no good reason at all. If America were really a democracy, this kind of open flouting of the public will would not be possible, and the politician who attempted such actions would have to resign immediately over the public uproar.

But that is just not America today. We are not a democracy, we are a kleptocracy, a kleptocratic oligarchy, in which the rule of law has failed, and a President who works against the public will, as measured by numerous issue polls, for his whole term, can nevertheless run a populist campaign for re-election, based on fairness, and be re-elected because his primary opponent is likely to be even less concerned about fairness and justice than he is.

So yes, President Obama has the means to short-circuit a debt ceiling crisis at election time, and should be able to get re-elected easily. But before anyone celebrates this likely result, they need to ask the age-old question "Quo Vadis?" Because even if we re-elect him, we evidently have no way of making him accountable and preventing him from doing things that are the opposite of what we want. Kleptocracy is here, now, and the history of Barack Obama's first term suggests that we can do nothing to stop him from nurturing and consolidating it during his second.

(Cross-posted from Correntewire.com)

(MMT − JG) + Medicare for All ≠ MMT

Joseph M. Firestone — Wed, 11 Apr 2012 02:35:00 -0400

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

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

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

Beowulf then remarks:

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

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

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

Beo goes on with the details:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(Cross-posted from Correntewire.com)

Dialogues with Jamie Galbraith and the MMT Job Guarantee

Joseph M. Firestone — Tue, 10 Apr 2012 14:54:10 -0400

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

Dialogue 1, Jamie Galbraith/TomThumb

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

Here's that reply:

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

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

Later FDL commenter TomThumb replied this way to Jamie:

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

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

To which Jamie replied:

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

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

TT quickly shot back:

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

To which Jamie replied:

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

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

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

Dialogue 2, Jamie Galbraith/Beowulf

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

To which Jamie replied:

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

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

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

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

To which Beo replies:

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

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

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

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

The Upshot of the Dialogues

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

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

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

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

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

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

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

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

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

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

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

Beowulf's Proposal

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

(Cross-posted from Correntewire.com)

Ending Austerity: Getting Free of Debt Subject To the Limit

Joseph M. Firestone — Sun, 08 Apr 2012 23:53:05 -0400

It's hard to listen to the doomsday rhetoric of Austerians like Paul Ryan and intermittently the less hysterical, but equally mythical narratives of the President when he talks about deficit/debt reduction, when you know better; when you know that both are talking about a bogeyman that doesn't exist. Here's Ryan, the Republican wunderkind:

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

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

Why? Because the burden of public debt payback will too heavy for the next generation to bear. This is ridiculous, of course, because we can always roll over previous debt and pay interest on it as it comes due. In fact, during the past 11 years as Ben Strubel shows, we've rolled over $437 Trillions in debt. And as Mike Norman says, we've rolled over $32 Trillions thus far in Fiscal 2012 alone.

We’ll always be able to roll over our public debt if that's what we choose to do because a debt instrument is the functional equivalent of a savings account, and frequently those who hold USD including foreign nations have the effective choice of keeping their USD in a reserve account or buying a debt instrument. They’d rather buy the debt instruments because they earn interest. However, low the rate of interest is, it’s better than the rate they’ll get if they keep their USD in their reserve account, unless the Fed decides to pay Interest-On-Reserves (IOR).

Can our national debt increase indefinitely? The short answer is: yes it can. The reason is that a Government like the United States with a fiat non-convertible currency, a floating exchange rate, and no debts in any other nation”s currency, has no solvency risk because it can always create money to pay its obligations. Its debt instruments therefore are nearly risk-free. They’re a safe harbor for investors who’d rather earn a return on the USD they hold, then content themselves with keeping it in a reserve account, that typically earns no interest.

The real problem with the debt subject to the limit is political

Even though there's no real fiscal sustainability problem with the public debt, good luck trying to persuade the public that there is none, by using an argument like the one I just offered. The view that the Federal Government is like a giant household has been drummed into people for years. Also, everyone knows that local and State governments, as well as even very large corporations have real debt constraints (so long as the Government doesn't bail them out). So, to persuade people that the Federal Government is different than other institutions isn't easy, especially when the economic mainstream still contends that the Government has fiscal sustainability problems.

Proponents of Modern Monetary Theory (MMT) like myself often point out that Congress can always allow deficit spending without issuing debt instruments if it wants to, and has always had that power. Since it doesn't do that it follows that the very existence of the “national debt” is Congress's fault in the sense that the Government has issued debt instruments to close the gap between spending and tax revenues only because of the voluntary constraints Congress has placed on the Executive Branch.

This argument is also correct. But the prescription that the problem should be solved by getting Congress to get rid of these constraints and allow “pure” deficit spending with no debt issuance requires convincing Congress to do this. In the near term that's not a practical prescription. Republicans and most Democrats have a vested interest in not recognizing that the debt is Congress's fault, because they want to claim the mantle of “fiscal responsibility” by advocating for balanced budgets or long-term debt reduction, or reduced spending on the programs they don't like.

So, neither Party will support “pure” deficit spending without a radical change in political understanding of what is possible for the Government brought about by a demonstration,within the limits of the current legal structure, that we can get free of the public debt subject to the limit any time the President wants to, without a by-your-leave from Congress.

The easiest way to get free of debt subject to the limit

The easiest way under current law to get to the point where there are no debt instruments outstanding is to persuade The President, or his successor, to use Proof Platinum Coin Seigniorage (PPCS), provided for under existing law, to generate the revenue needed to pay off the debt. Any other course to remove current constraints on “pure” deficit spending, will need Congress's approval, which probably means it will also require overcoming the filibuster. The filibuster can be overcome for certain things, but not for major changes like the moving the Fed to the Treasury, or explicitly allowing “pure” deficit spending when it appropriates. In fact, to enact such a major change, it may be easier to get rid of the filibuster itself, since that requires only 50 + 1 votes, on the way to getting the major change.

So, from a political point of view, it is much easier to do PPCS for awhile than to get other alternatives done to overcome the “political debt problem.” Also, in effect, PPCS would subordinate the Fed to the Treasury anyway, since allowing the gap between tax revenues and spending to be closed through seigniorage would dictate the Fed's actions in using IOR to hit its target interest rates.

In this post, I proposed minting a $30 Trillion proof platinum coin to accomplish getting rid of debt instruments and filling the public purse sufficiently to change the fiscal background so no one could use the argument that we don't have the funds to spend on x, or y, or z, if these fulfilled aspects of public purpose. I also argued that minting that coin wouldn't be inflationary in itself. Scott Fullwiler amplified that argument very thoroughly in a later post.

Later, I changed my proposal to minting a $60 T coin to increase the time horizon we would have to change public understanding, bring the Fed inside Treasury, and end the charade that the Government can't create as much money as it needs to solve problems. That was done in three posts here, here, and here. There were also other posts in the same time frame using the $60 T assumption.

That level of PPCS hasn't been met with great enthusiasm from my MMT compatriots. I suspect it's because most think that the $30 T and $60 T proposals makes us sound crazy. Well, maybe it does, but that part of it is about messaging, and I think an eloquent President could sell it as a stop gap to get us out of our self-imposed fiscal constraints until Congress sees the wisdom of moving the Fed inside Treasury. The President could begin selling the $60 T coin with a speech like the one envisioned here.

Many people would be heartened and persuaded by a speech like that; but the President involved would certainly get charged with insanity for using PPCS in the way I've proposed. Rush Limbaugh, Laura Ingraham, and much of the mainstream press would probably join them along with other organs echoing the outrage of Peter G. Peterson's deficit hawk/"fiscal responsibility" minions. But I think most of the firestorm would be ended within a week, if the President retires all the Intra-governmental debt, including debt held by the Fed within that time.

A news conference held immediately after that could announce that the debt subject to the limit was reduced by 40% in a week. Then at the end of every quarter the President could announce further reductions. The posts linked to above by Ben Strubel and Mike Norman suggest that over 4 quarters the President could report elimination of nearly all the debt subject to the limit other than a relatively small amount exceeding one year in duration. I haven't tried to locate the precise number involved, but say it's $2T. Then after a year, the President would be able to report that most (about 87%) of the public debt was gone, and he could also provide a schedule for fully paying the rest of it off, without either cutting spending or raising taxes.

If Scott Fullwiler and I are right and that no inflation would result from using PPCS, then no one would call he/she crazy because they used PPCS after that year of payback. It will have been demonstrated that the debt subject to the limit is a faux problem that can always be solved at will, and that the Government's capacity to deficit spend with no solvency concerns is unlimited.

Deficit hawkism justified by solvency fears would be dead by demonstration, and a new era of deficit hawkism justified by a new round of inflation hysteria would dawn. We would be swamped by Weimar and Zimbabwe cautionary, Calvinist fairy stories told by the defenders of the 1%. This, however, is an improvement over their present insolvency fairy tales, because fiscal policy could be guided by actual, observable measures of impact, rather than by indicators that have only a tenuous connection to inflation or hyper-inflation at best.

Conclusion

So, summing up. I think progressives, including MMT economists, ought to support use of massive PPCS by the Executive Branch to pay off the debt, and change the political situation. We must fight to persuade the White House.

We can say that “the perfect” policy to get rid of the debt is to change the law and bring the Fed under the Treasury; but failing that, a “good” policy is to end any talk of fiscal solvency problems caused by the faux debt subject to the limit, by using massive PPCS. Since the President knows that “the perfect is the enemy of the good,” perhaps he'll appreciate our practicality in being willing to accept PPCS in place of “the perfect.”

But regardless of whether he does so or not, at least we will be making the clear point to the White House and to everyone, that any “debt” problem we have from then on, will be, and for that matter is now, due only to the President's unwillingness to use his legal powers to solve it. So, if everyone is as concerned about the debt, as they purport to be -- concerned enough that they prioritize it above the social safety net for the poor, the middle class, working people who have lost their jobs and homes due to speculation by our feckless and fraud-committing financiers, the elderly, and the ill, and also prioritize it ahead of education for the young, reconstruction of the energy and infrastructure foundations of this country, and growing climate-change crisis, then why don't they direct their concerns and place their blame where they both belong -- namely at a President who will not use the powers Congress has given him to get rid of that public debt that is evidently so noxious to them? And, in the process, to take this silly faux issue, that has harmed so many people for so long, off the political table forever.

(Cross-posted from Correntewire.com)

That's Not All!

Joseph M. Firestone — Tue, 31 Jan 2012 00:58:21 -0500

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

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

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

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

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

“That's All.”

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

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

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

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

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

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

That's not all!

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

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

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

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

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

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

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

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

Finally on this bit:

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

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

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

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

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