There were varying reactions to the President’s recent speech at Knox College this week. My reaction was that the speech was deeply dishonest in light of the President’s previous policies, actions, and results, and I intended to do a critique, but Michael Hudson and Yves Smith beat me to it. In a fine post at Naked Capitalism, entitled “Michael Hudson Shreds Obama’s Orwellian Speech On Middle Class Prosperity,” Michael Hudson, with occasional added comments from Yves, deconstructs the speech paragraph by paragraph, and sometimes line-by-line, pointing out disingenuous assertions and outright dishonesty. In her introduction Yves remarks on the context:
The worst is that Obama apparently plans a series of Big Lie speeches on his “vision for rebuilding an economy that puts the middle class — and those fighting to join it – front and center.” That’s at best an afterthought, since he’s given the economy over to an at best indifferent and at worst predatory elite that have no interest in giving it back.
The reaction to the post was vigorous with most of the discussion supporting and amplifying the views presented. However, there was one comment which said:
Have you mentioned the fact that he’s right on every issue mentioned?
Would you rather have a FDR, or Truman or Johnson as our president? These men, while great, are not that much different from the current President.
What would u have him do? Enact single-payer health care, small class sizes and the best teachers imaginable, a minimum wage at $21.00 an hour and an average wage at $40 (where it should be), and a lower private debt burden across the board with a wave of one of his “Hope and Change” wands?
I am proud to have voted for this man. He can’t do it alone. And going after him while offering no positive alternatives yourself to me is the height of contemptibility.
Of course, that persistent rationalization offered by the world’s Obamabots is my cue. What I want him to do falls into two major categories. First, there are necessary first moves he can probably get done which will facilitate passing all the other policies I propose. Second, there are the policies that will restore prosperity to poor and middle class over time.
Get rid of the filibuster
He can start by convening Congressional Democrats: House and Senate, and telling them that the middle class and American Democracy are simultaneously threatened and that he can’t save the situation and ensure a Democratic victory in 2014, unless, as a first step, the Democrats in the Senate agree to get rid of the filibuster entirely, and immediately, and accept majority rule in the Senate on all matters not explicitly mentioned in the Constitution.
Of course, the House Democrats have nothing formally to say about what the Senate does. But their presence is important for impressing upon the Senators the importance to the national party of doing this, and then going on offense against the Republicans, so that the Democrats can retain control of the Senate and enable them to once again get something to run on, so they can get a majority in the House. In saying this, I’m not saying that returning Democrats to power will get us to Democracy. Far from it. But I do think that it will slow the evolution toward plutocratic fascism, and create opportunities for enacting new and helpful policies provided the right Democrats are elected. I know, I know. That’s an awfully big qualification. But people certainly can work for that result.
And naturally, it would be much better if we could have a Green Party majority in the House in 2014, or a Democratic/Green party majority coalition than just electing a Democratic majority. But getting that outcome would be an even taller order, and is more unlikely to happen if we see a Democratic Party turn toward a Green New Deal.
Use High Value Platinum Coin Seigniorage (HVPCS) to Change the Political Environment and Remove Any Possible Rationale for Federal Government Austerity
Next, I would have the President use HVPCS. Under authority provided by Congress in 1996, the Treasury can have the US Mint issue platinum coins with face values specified by the Secretary. So, for example, the Mint should issue a $60 Trillion coin; deposit it at the Fed, where the reserves credited to the Mint’s account for this legal tender would eventually wind up in the Treasury General Account (TGA).
The immediate promise of HVPCS for America, of course, is the end of austerity politics, periodic debt ceiling crises, fiscal cliffs, sequesters, and budget crises. HVPCS directly ends debt ceiling crises, because the debt is no longer relevant except as a constantly shrinking obligation that will be paid off as it falls due.
As for fiscal cliffs, sequesters, and budget crises, their justification is primarily in the false claim that the US is running out of money, and must slow the growth of the national debt enough to allow the debt-to-GDP ratio to shrink, so that we can’t afford to implement the deficit spending that may be necessary to create full employment, pass Medicare for All, and do other things that a majority of the population supports heavily, but does not insist upon in the face of supposed budget problems. But it’s hard to make a credible claim that “we’re running out of money” when we 1) have between $50 Trillion and $60 Trillion in the TGA, and 2) when the President has just demonstrated that the Federal Government can create reserves to fill the public purse at will.
I’ve discussed the technicalities, history, economic, legal, and political aspects of HVPCS, and the many objections to it, inmy recent e-book, and will leave the details for you to read there. But it’s very important to emphasize the essential role of the President in getting over the initial hysterical reaction that would ensue if he uses HVPCS. After using it and getting immediate credit for the face value of the platinum coin from the Federal Reserve, he must then make a crisis speechinforming the country about the action he’s taken to fill the public purse and why he found it necessary to do that and change the American of debt repayment and deficit spending.
Following that crisis speech he must go on tour, carrying his message to the people and emphasizing the new freedom of the Government to pay down and eventually pay off the public debt, while, at the same time being able to “pay for” any deficit spending Congress might choose to enact for a long time to come. He needs to explain that using HVPCS is fiscal responsibility since it ends the Government’s borrowing back its own currency and eliminates any possible justification for “austerity” as long as we have less than a full employment economy. He also needs to emphasize that HVPCS will not cause any more inflation than present policies and why he thinks that is true.
In conveying this message, repetition and mobilization of all Administration resources is essential. He must not give any ground to austerians and Republicans who, while constantly complaining about the public debt, will hate the HVPCS solution to the problem. In other words he must not compromise on this at all, but must implement HVPCS, make filling the public purse a fait accompli, and then go on with the more positive politics of using the policy space created by a full TGA to decrease inequality in the US and create the greater prosperity for the middle class and the poor that he says he wants.
Remember, there would be no fiscal cliffs, sequesters, or budget crises, without the claim that there is a Government Budget Constraint (GBC). Once we dispel that claim with HVPCS, these things will be gone with the wind, and the policy space will be there for the President and others in Congress to propose a range of policies to restore middle class prosperity without the inevitable objections that such policies will either increase the debt, or lead to higher taxes.
The House won’t want to pass these policies. But House members who want to vote against them won’t be able to plead Federal Government poverty, or “fiscal responsibility,” not with between $50 Trillion and $60 Trillion in the Treasury’s bank account at the time of the new policy proposals. So, when they employ obstructionism without any perceived good reason for it, they will open the way for Democrats to retain the Senate and regain the House, which, without the filibuster, will cut the legs off obstructionism, and make it possible to pass the policies I want the President to propose, anyway.
Full payroll tax holiday
The full payroll tax holiday for both employers and employees would give a couple, each earning $50,000 in wages, about $650.00 per month in increased consumption power. It would last until full employment in the private sector is reached, when the tax would be fully or partly re-imposed, provided that demand leakages to domestic savings and the trade deficit were small enough to warrant such a re-imposition.
This measure would be an enormous immediate augmentation to consumption power, would be felt immediately, and would have a fiscal multiplier of at least 1.3 for every Federal Dollar expended. It would be implemented through the Government crediting SS trust fund accounts with the amount of the forgiven FICA taxes, and would directly add about $650 B of GDP to the private sector, provided it took a year to reach full employment. If it took less time than that, then, of course, the addition to the private sector would be less than that amount.
Guarantee annual entitlement spending without regard to “trust fund” balances
The President should get legislation introduced to do this. With HVPCS, there is no reason not to, since it would be clear that the Government can always generate the reserves to pay for SS regardless of the balance in the so-called “trust fund.”
We can’t look at SS and our other entitlements in isolation. I want the President to get Congress to pass legislation implementing FDR’s economic bill of rights, and expanding all the ENTITLEMENTS in the American social safety net; now the stingiest, most inadequate safety net among modern industrial nations!
FDR’s strategy for justifying SS was great for the 1930s, when we were still on the gold standard. But nearly 80 years later it’s time to move on to his economic bill of rights as our justification for entitlements, and stop reinforcing the idea that it’s only an entitlement if one pays for it.
It’s time to stand on the over-riding moral argument! It’s time to say that when a nation like the United States can afford to implement these rights, as the United States has been able to do at least since 1971, they then are human rights that must be implemented as part of the public purpose. Let us have a Green New Deal with a stronger social safety net including greatly increased payments for SS, and Medicare for All, and a Job Guarantee (see below) emphasizing Green Jobs!
State revenue sharing
The Government would provide a one-time grant of $1,600 per person to the States for re-hiring laid off State Government employees. The fiscal multiplier from this isn’t clear; but since most State employees are middle class; it will probably be in the range of 1.2, provided it is funded through deficit spending using HVPCS. This program, after filtering through the State Governments, would add about $500 Billion to the private sector before the effect of the multiplier is felt.
Pass a Job Guarantee (JG) program
The JG Program should guarantee a job offer at a living wage, with standard high quality fringe benefits including access to Medicare for those in the program, to those who want to work full time, but haven’t found such work available in the private sector. It should NOT replace Unemployment Insurance, or other programs currently in place. It should NOT offer jobs in Federal programs already legislated. It SHOULD employ people at jobs of great public and social value.
The jobs should be defined by local governments, community non-profits, and the participants themselves. To the extent possible, they should be “Green Jobs” aimed at healing the environment, or jobs enriching the cultural life of local communities, or jobs enhancing the commons of local communities. But the more general rule is that they should be jobs that produce socially valuable outcomes to the local communities creating the jobs with Federal funds.
MMT economists are not agreed on the size of the living wage which would be offered. I’ve seen JG wage rate proposals varying from $8.00 to $15.00 per hour. Differences seem to be based in relative degrees of caution about administering too big a shock to retail businesses dependent on relatively low wage workers. All MMT economists, however, are agreed on the need for JG jobs to offer vacations, holidays, Medicare-based health insurance, and other quality fringe benefits, other than unemployment insurance.
My own view on the JG wage is that it should begin at $10 per hour in the lowest CPI indexed SMSA area in the United and then be adjusted upward based on the ratio of the CPI in an area to the lowest CPI area. That would mean that the living wage in the New York SMSA and other comparable high cost areas might be as much as $24.00 per hour.
I know this would have a heavy impact on retail businesses; but I think that businesses who need to pay less than a living wage to their employees to stay in business aren’t viable private sector organizations, and should not survive. If some businesses in this category have great social value; then they can survive by using that social value to seek help from non-profit, community organizations, who can assign employees in the JG program to help those businesses.
The JG would be implemented as a “mop-up” and full employment maintenance operation most probably at about $45,000 annually per job including fringe benefits and Administrative costs. It would probably apply initially to 10 million people still not fully employed as a result of the impact of the first two measures. It would be a deficit spending program.
Since the private sector would be hiring off the JG rolls and shrinking the size of the JG as the economy heated up, I estimate that it would inject about $225 Billion into the private sector over a year’s time. The program would produce and maintain full employment, defined as everyone who wants a full time job at a living wage can get such a job offer and accept it or not as they wish.
Fix the Health Insurance System
I want the President to ask Congress to pass John Conyers’s HR 676, enhanced Medicare for All bill, a full coverage, no co-pay health care insurance program. A simple, direct, 35 page piece of legislation, Conyers builds in a tax to fund this program; but the decision about whether it falls into deficit spending, or is “paid for”, ought to depend on whether full employment is reached or not. If it hasn’t, then this tax should be used as an automatic stabilizer, reduced according to a rule when the private sector is shedding jobs, increased as the private sector adds jobs, until the tax is fully re-imposed at full private sector employment, to prevent the economy from overheating.
Increase the minimum Social Security benefit
A simple idea, due to Warren Mosler, is to increase the SS benefit minimum to $2,000 per month for every retiree. This will be a positive boost to the economy, and it will provide a decent standard of living to middle class and poor retirees. But, in addition, it will provide redress for years of SS cost of living increases that didn’t take into account the rapid rise of medical care spending by retirees. Health care costs escalated much more rapidly than the CPI over the past few decades, but SS COLAs haven’t taken account of this increasingly disproportionate spending by older people on medical care and insurance.
Redeem all outstanding student loan debt and provide for Federal funding of free tuition at State Universities, Colleges and Community Colleges
Student loan debt has become an appreciable drag on our economy, and its existence is not fair, because college isn’t optional for middle class prosperity, and student loan interest rates are much too high given that banks have such low interest rates on their own loans. So, if we’re really committed to middle class prosperity, and to equality of opportunity, we have to do what many other nations are doing increasingly, and provide free or very low cost college educations for those wanting them who have graduated from high school.
TINA applies to this issue if it applies to anything. If we want to avoid plutocracy, then this is something we must do. HVPCS allows us to do it.
Put a stop to Too Big To Fail by ending, investigating, and penalizing control fraud
– After monitoring the big banks for control fraud, investigate them, find it, and then take them into resolution ending the existence of current Systematically Dangerous Institutions (SDIs); in the American banking system.
– Then proceed to investigate individuals responsible for control fraud in these institutions, prosecute offenders, and apply appropriate criminal penalties.
It’s hard to over-emphasize the importance of doing these two things. Apart from removing risks to the banking system and to the economy, the issue of moral hazard is an over-riding one here. I don’t know about you, but whenever I hear someone saying that we’re a nation of laws these days, I feel nauseated by the obvious dishonesty in such a statement.
Most of the nation may be subject to laws, but obviously the likes of Jamie Dimon, Lloyd Blankfein, Brian Moynihan, other big banksters, mortgage companies, MERS, loan officers, appraisers, and loan servicers are not. And neither are various high office holders and people in the intelligence community who have routinely violated the Geneva conventions, perjured themselves before Congress, performed surveillance in clear violation of the limits established in the Patriot Act, and who, in doing so, violated their oaths of office.
The existence of a system of laws that applies only to some of us and not to all of us and that is sometimes secret is simply repugnant, and corrosive to the legitimacy of government and to all laws. Anti-government feelings and cynicism about the legitimacy of government are already widespread in the United States. If the present failures to enforce the law continue to exist, we will see increasing mistrust in the government and rejection of it as an institution. I don’t think very many of us care to travel to the end of that particular road.
End the household debt and housing crises and the possibility of new SDIs arising again to corrupt the banking system
This will require a number of inter-related policies:
– Have the Federally run big banks take big write-downs on mortgage principal to 90% of the current market value of homes;
– Have them lower credit card interest rates to a few points over prime;
– Assuming Medicare for All, HR 676, is passed first as specified above, then:
– pass legislation allowing the Government to buy up the debts owed by consumers to the health insurance industry, and to providers, and to then cancel these debts;
– pass legislation allowing previous owners of foreclosed homes involving MERS to take them back, while providing grants to the previous owners for fixing up the homes the big banks allowed to deteriorate; if the foreclosed homes have already been sold, provide government compensation to the previous owners equal to the equity existing before the housing crisis began.
– pass legislation nationalizing the regional Federal Reserve Banks and requiring that their bank managers be Federal Senior Executive Service employees, and their employees be civil servants;
– pass legislation prohibiting member banks of the Federal Reserve System from trading in derivatives or novel financial instruments, or from engaging in investment banking.
This policy proposal is both a “debt jubilee” for homeowners, and those threatened with financial hardship by our health insurance and provider systems and their financial practices, and also a restructuring of the banking system, so that SDIs cannot emerge again. In addition, it takes into account the wholesale mortgage fraud leading to the housing crisis; restitution to those victimized by the housing and economic crashes, and also provides for finding the people who committed the frauds and seeing that they are subject to the law. This last is necessary to eliminate the moral hazard in today’s still existing “To Big To Fail” policies, and to help us to restore the rule of law to all, and not just to people the government finds worthy of prosecution and punishment.
Fix U.S. Infrastructure
Pass legislation to fix it over five years at $440 B per year. Do it with deficit spending if there’s still unemployment; do it without such spending if there’s full employment.
An “orwellian” speech?
The policies mentioned in this post and in Part II, among others in the areas of reinventing energy foundations, educational reform, creating a sustainable environment, and ending climate change, can all be implemented once we have austerity politics and the filibuster out of the picture (See Part I). Their effects will solve the problems mentioned, and, just as importantly, will reverse the growth of inequality in America by shoring up the economic security of the middle class and the poor, and restoring economic opportunity. In addition, the JG and infrastructure programs will enrich our stock of public goods and our supply of public and community services.
The policies that we can implement once “How we gonna pay for it” and austerity politics are gone, due to using High Value Platinum Coin Seigniorage, can create a Green New Deal. They can restore the promise of American Democracy to our children and Grandchildren, and bring the prosperity to the middle class and poor people that President Obama says he wants.
But two questions remain. First, does President Obama really want to create middle class prosperity as he says, or was his speech orwellian as Yves Smith and Michael Hudson suggest? And second, if by some small chance the President is sincere in his intention to pursue increased prosperity for the middle class and the poor, then how can a program like the one I’ve outlined be passed with the House of Representatives in the hands of the Republicans?
My answer to the first question is that the President did give an orwellian speech and that his speech and his current tour is for the purpose of building support to get the Republicans to accept a settlement including the President’s much sought after “grand bargain” providing for major entitlement cuts in Social Security and Medicare. But assuming the President were to attempt to implement the kind of program I propose, then I think that simply proposing the program, and campaigning on it, in the context of a full public purse created by HVPCS, would place great pressure on the Republicans to pass at least a few of its elements.
If they did not, then only meanness would account for their failure to do so, when the money is there. The President and the Democrats could then run and win on the rejected part of the program in 2014, and implement it in 2015, whether or not the Republicans continued to oppose it.
So, all this and more too, is what I would have the President do. I blame him for not doing it. I blame him for not acting like one of the inheritors of FDR. And I also blame him for his constant mere lip service to Democratic ideals, accompanied by actions which continuously conflict with these ideals.
President Obama is a walking chasm between his rhetoric and his actions. And there is no way that those who ask: “What would u have him do?” can bridge that chasm. So, they need to stop asking that question, and also stop pointing out that “He can’t do it alone.”
No one’s asking him to do anything alone. He’ll need the help of the Democratic Party, some Republicans, and many aroused American voters to get this done. What I’m pointing out however, is that he’s not doing what he can be doing given the powers of his office, coupled with the possibilities for action and mobilization of his party and the American people. This situation has existed for the four-and-a-half years he’s been in office. He’s due plenty of blame for that, as well as our opprobrium.
He is not due sympathy from us because life is so tough for him. Life has been tough for many, many Americans since the crash of 2008, and for many others for decades before that. But for him, and in recent years, at least, it is a charmed play on a grand stage living in a bubble, and he has done very little as yet to help those who elected him in a state of national crisis.
So, I think he is not due sympathy, but a time of accountability for his actual performance. That’s what we owe him, accountability, not rationalizations and excuses for his failure to perform in our interests, rather than in those of the rising plutocracy.
This article originally appears as a three-part series on New Economic Perspectives.