The Way Out of Shutdown Shenanigans
Today, I received an e-mail from the Friends of (the very popular with progressives) Senator Bernie Sanders. In it the Senator says:
I’m joining with the members of Progressives United to send a clear message to President Obama that we will stand with him when he vetoes Republican legislation that attacks the well-being of the struggling middle class.
Join me and members of Progressives United to urge the president to VETO any Republican legislation that attacks working families.
NO to cuts in Social Security. NO to cuts in Medicaid. NO to converting Medicare into a voucher program. NO to new trade legislation that sends our jobs overseas and hammers our middle-class workers. NO to cuts to nutrition programs, education or environmental protection.
YES to raising the minimum wage. YES to a massive jobs program rebuilding our crumbling infrastructure. YES to transforming our energy system away from fossil fuels. YES to pay equity for women workers. YES to overturning Citizens United.
We already know what “compromise” will mean from a Republican Congress: their way or the highway. In order to win in the future, President Obama must stand strong for the American middle class, and we must support him.
Tell President Obama: Standing firm is the only option, and that means committing to VETO legislation that attacks working families, and fighting for legislation that defends their needs.
This is a fine message for progressives, and we know that the President can say NO to the things the Senator wants him to say NO to. But how can he say YES to the things the Senator lists, when the new Republican Congress is sure not to even seriously consider, much less pass, the things Bernie wants him to say YES to? The answer is that he can’t unless these things somehow get through the Congress.
But what are the prospects of that? Just about nil for the rest of the President’s term, and just about nil for the four years after that if either a Republican or Hillary Clinton is elected in 2016, and the Republicans retain control of one House of Congress, which is a pretty good bet right now. This outlook could be changed, of course, but only if there’s a major economic catastrophe that can be pinned on the Republicans or a major change in the background of political expectations, and only if Hillary loses the nomination to a much more progressive candidate who has the stomach to follow through on her/his commitments. Also the third eventuality may be dependent on a major change in the background of politics.
In the absence of such a major change in the background of political expectations, there’s more than a fair likelihood that the next two-plus years of national politics will again be punctuated by periodic threats of shutdowns, and/or debt ceiling/default crises followed by negotiations in which the President will not say no as Bernie advises, but will see a compromise of some sort hurting middle class and poor people as the lesser of evils compared to financial default of the US, or a long-term government shutdown.
The expectation in Washington right now, is that Republicans will not shutdown the Government when December 11th arrives, and instead the House will pass a new continuing resolution without further cuts in spending, which the Democrats will then agree to. However, what the Republicans will try to do in March 2015, after they’ve taken over both houses of Congress is a different matter. I think the debt ceiling negotiations then will be difficult for progressives, and that the President will agree to a damaging compromise if he sees himself as without options other than to say NO to the Republicans.
There is a way out of this blackmail and compromise pattern which Senator Sanders hasn’t called upon the President to use, which would strengthen his positioning to say NO, and also change the political context enough that it may be much harder for the Republicans to say NO by way of blocking proposals in Congress that the President may say YES to. From time to time I offer the way out of this pattern, though always to deaf ears. Nevertheless, I will propose it again here, because the President can use it, and also because the progressives and Senator Sanders ought to be urging him to do so.
The Way Out
The way out is for the President to use High Value Platinum Coin Seigniorage (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 $100 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 and Senator Sanders 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 $90 Trillion and $100 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, in my e-book on the platinum coin solution for “fixing the debt”, 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 speech informing 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 way 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 very long time to come. He needs to explain that using HVPCS is fiscally responsible 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 Republican Congress won’t want to pass these policies, so the President may still not have a chance to say YES to the measures Senator Sanders calls for. But Congresspersons and Senators who want to vote against them won’t be able to plead Federal Government poverty, or “fiscal responsibility,” not with between $90 Trillion and $100 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 regain the Congress, which, if the Democrats will only get rid of the the filibuster, will cut the legs off obstructionism, and make it possible to pass the policies the American people and Senator Sanders want the President to say YES to, anyway.
Alternatively, assuming the coin is minted, the Republicans may, over the next two years, buckle to the pressure imposed by the rapidly decreasing debt obligations of the United States, and the collapse of their debt-based austerity rationale. Then, they will, perhaps consider giving the President a chance to say YES to at least the minimum wage increase, and a substantial infrastructure-based jobs program, as well. After all, they will have seats to protect in 2016 and without their debt terrorist weapon it will be hard for them to show that there is any good reason for them to stonewall all progressive economic measures when the Treasury has $90 Trillion or so sitting in its spending account.
(Cross-posted from New Economic Perspectives.)