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The Counter-narrative To the Catfood Commisson: More on “Our Guiding Principles and Values”

letsgetitdone's picture

A few days ago I began a critique of the Catfood Commission Co-Chair Proposals draft, by focusing on a single slide of their presentation stating “our guiding principles and values.” There was enough objectionable material on that slide to justify a post. But there's much more worth commenting on in the succeeding slides on the same subject. Slide 2 says:

2. The Problem Is Real –the Solution Is Painful –There’s No Easy Way Out –Everything Must Be On the Table –and Washington Must Lead

  • We must stabilize then reduce the national debt, or we could spend $1 trillion a year in interest alone by 2020.
  • A sensible, real plan requires shared sacrifice –and Washington should lead the way and tighten its belt.

There are many problems in America. Perhaps the biggest is the extent of economic inequality which has now led to extreme political inequality that had developed over the past 4 decades. This problem now threatens the existence of our democracy and open society. The solution to it also will be painful if we want to save democracy; but the ones who should and must bear the pain are people who have benefited over the past four decades, so that a greater measure of equality and with it equality of opportunity can be restored. That this should happen is only simple justice, and it is time in this country for justice.

The Co-chairs of the Commission are telling us that this threat to democracy is not the primary problem we face, but that, instead, the primary problem is Government insolvency arising from excessive, irresponsible, and unsustainable public spending that has resulted in unsustainable deficits, debts, and accelerating debt-to-GDP ratios. In my last post, and many others I've questioned whether this problem is real. Co-chairs Bowles and Simpson, and the President who appointed them and their Commission, as well as the Peter G. Peterson Foundation which has been supporting much of its staff, tell many horror stories about what will happen if we don't constrain Government spending, lower deficits, and reduce the level of the debt-to-GDP ratio over time.

However, these “wise men” have failed to explain how a Government that owes no debt in a currency not its own, that has an unlimited constitutional authority to create money, and that has a floating exchange rate, and a non-convertible currency can ever have solvency problems. The deficit hawks claim that when the debt-to-GDP ratio reaches a certain level which they do not and apparently can't specify in any evidence-based way, we will no longer be able to sell Federal debt instruments at reasonable interest rates, so that our interest costs will become unsustainable, and we will become insolvent, because we won't be able to 'fund" our deficits with further debt.

But this argument is, I'm afraid, itself unsustainable, since 1) it doesn't take into account that no matter how high interest costs rise, the US can always just pay them by marking up accounts at the Federal Reserve; 2) the Government sector, by which I mean the Congress, the Executive Branch, and the Federal Reserve, can control the interest rates paid by the Federal Government, by targeting the interest rate levels the Government wants to pay, and by managing the supply of reserves made available to member banks so that short-term rates are driven as low as the Government desires; and 3) by the Government deciding to cease issuing debt entirely.

So, since the argument about unsustainability due to rising interest costs doesn't work, where is the problem with the US continuing deficit spending as necessary to do the things we need to do? Either we can go ahead and let the debt grow and just pay the interest, or we can just regulate interest costs, or put a stop to them and the debt entirely, if the Government chooses to do so.

So, again where is the solvency problem? Unless the Co-Chairs, the Administration, and all the other deficit hawks can show where solvency risks come into the picture, sensible people must conclude that the Catfood Commission is addressing a non-existent problem, with a “solution” that will be very damaging for perhaps 95% of our population.

Even if readers of this post aren't prepared to concede that solvency is never a problem or a risk, it's easy to see they're NOT following their own statement of principles by putting every good spending cut alternative “on the table.” Right now, the Government issues debt because the Congress requires that it do so; a hangover from gold standard days before 1971. If the Commission were to recommend it and Congress were to drop this requirement, the Government would be free to deficit spend without incurring debt. Eventually, all of the national debt would be paid for as it came due, with newly created money, and, of course, there would be no interest costs at all.

In these earlier posts, here, and here , I pointed out that if the Government managed interest rates on Treasury Securities to maintain a low target level, it could save $11.8 Trillion relative to CBO baseline projections, supplemented by AmericaSpeaks, between now and 2025. I also pointed out that $11.8 Trillion in spending reductions over this period dwarfs any possible savings we might get from cutting Social Security, or any other cut the deficit hawks propose. In fact, the Co-Chair's proposal calls for nearly $4 Trillion in cuts between now and 2020. But if interest costs were cut, that alone would save $5.6 Trillion over this period.

So, the point is that even if one believed that the Government might have a solvency problem and that we ought to engage in deficit cutting over the long term, it's perfectly clear that we have a choice between entitlement cuts and interest cost cuts. So, I say to Messrs Bowles and Simpson, and all the other deficit hawks as well: Whose side are you on — the side of the American people who need their social safety net programs to remain in place for themselves, their children, and their grandchildren, or the side of the wealthy, and the foreign nations who want us to continue to pay them interest?

I don't think I can emphasize this last point too much, the Commission talks about “Guiding Principles and Values.” Well, what kinds of values and principles does one have to have to recommend cutting entitlements for most Americans, instead of what amounts to cutting welfare payments for wealthy nations and the rich? And are these the kinds of principles and values we want to endorse as a nation?

I don't think so. I think we need to strengthen our social safety net because 1) there is really no solvency problem, and 2) even if one won't accept that conclusion, it's still true that the biggest expense blowing a hole in CBO's projections, even bigger than health care costs and far bigger than Social Security costs, is interest on the national debt. Why isn't that “on the table” in the Co-Chair “everything is on the table” proposals? Is it because it would involve too much sacrifice from people like Bowles and Simpson and their friends, associates, and clients.

Bowles and Simpson go on to say:

3. It Is Cruelly Wrong to Make Promises We Can’t Keep

  • Our country has tough choices to make. Without regard to party, we need to be willing to tell Americans the truth.

Of course, none of us would disagree with this last statement, but where we are likely to disagree is on the specific promises Bowles and Simpson claim "we" can't keep. Since our Government has no solvency problems, I think it can keep all its entitlement promises and even strengthen the entitlement safety net without risk of insolvency. I think it also keep all sorts of other explicit and implicit promises that Congressional and presidential candidates make every time there is a Federal election. Evidently, however, Bowles and Simpson and the new austerians think that very few of those promises can be kept.

Also, there are tough choices to make involving telling Americans the truth. These choices are particularly tough for Bowles, Simpson, and many of the other very, very wealthy people who “serve” on the Commission. Specifically, these choices include:

-- Deciding to begin to pay one's fair share of taxes as citizens of the United States, something the top 5 – 10 % of wealth holders in the United States have not done for many years.

-- Deciding to stop seeking short-term profits at any cost and start investing in the United States and its people as supposedly patriotic Americans ought to be doing.

-- Deciding to support Government programs that guarantee federal Jobs to people as a last resort when the private sector has no demand for their services.

-- Deciding to support Government programs that recognize the right for everyone to get health care when they need it, even if those programs involve removing the health insurance companies from the domain of funding basic health care services for people.

-- Deciding to come clean with the American people and tell them that the single biggest step that can be taken to cut deficits is to stop issuing debt instruments and paying interest to “fund” deficit spending, because that would save $5.6 Trillion by itself between now and 2020. And finally:

-- Deciding to come clean with the American people about the fact that the US Government is not like their Household when it comes to fiscal issues. Specifically, it needs to come clean about the fact that the Government has no solvency risk, because unlike them, it doesn't use scarce money that has been created by someone else; but spends by creating money when it marks up private sector accounts.

It needs also to explain to them that since there is no solvency problem, there is also is no debt, deficit, or debt-to-GDP ratio problem, because the Federal Government can spend as much as it needs to help solve America's problems, and that includes paying the principal and interest on all the debts it has previously incurred, or will choose to incur in the future. In view of this, it should also say, even though this is the hardest truth of all to tell the American people, that the charge of the Commission was based on a misunderstanding by the President and his advisers about the nature of Federal Government fiscal sustainability and fiscal responsibility.

(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability).

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letsgetitdone's picture
Submitted by letsgetitdone on

not to let them forget their failures. Remind them everyday.

nihil obstet's picture
Submitted by nihil obstet on

on January 25, 2001, should be thrown back in his face, and highlighted for anyone else who wants to watch a hack at work. He was so-o-o-o worried about surpluses as far as the eye could see, so that government wouldn't have any debt and thoroughly confident that Social Security was well funded so that the only reasonable option was to cut taxes.

So, his prescription was followed, and here not ten years later we're having a CRISIS, CRISIS, CRISIS, NOW, NOW, NOW about what he can see 40 years in the future?

We need to hit these guys with all the force that the right works up for false patriotism..

Submitted by MontanaMaven on

And can someone explain to me why the media has on these programs the very people who were dead wrong about how to run an economy like this old sock, Alan Greenspan? Oh wait, they are propagandists, not news people. Why would they have on James Galbriath or Bill Black or Naomi Klein or Matt Taibbi? They are not part of the Court. It is the media lackeys' job to spread trusisms aka weasel words.

In Gregory's case, he's just kind of simple. He is also being coached to be aggressive and cool. The coach must be tearing his/her hair out. Gregory jumps in his seat and his shoulders go up and down, but still it just looks manufactured. "Manufactured Consent" is what Walter Lippmann called it. Who buys this crap? More people than should.

Submitted by MontanaMaven on

but isn't this the same old game. Republicans run up huge deficits then Democrats balance the budget instead of fixing infrastructure both physical and human? Clinton was told by Robert Rubin to balance the budget which he dutifully did. So nothing for health care or education or fixing bridges. The bubbles kept everything looking good.

Smoke and mirrors.

letsgetitdone's picture
Submitted by letsgetitdone on

We need people in who don't give a shit about deficits, debts, and debt-to-GDP ratios. We really can't compromise on that. There are many good progressives who believe in balanced budgets. They are no good to us. They will leave everything in the hands of the plutocrats.

beowulf's picture
Submitted by beowulf on

Frankly the Republicans are the only ones who know how to play the game. When they have control of the government they don't believe for a second that they need to have a bipartisan consensus or, God forbid, a supermajority to pass legislation. Their philosophy, which makes perfect sense, is that not only was it pointless to bargain for any votes more than a simple majority, but it was actually counterproductive, since any compromised required to secure the (unnecessary) extra votes would simply water down their legislation. And of course they didn't give a good God-damn about the deficit or paygo rules.

When the Democrats take power, well its another story all together. I used to think the GOP simply tricked the Democrats into being such saps, but I think Charles Ferguson (director of "Inside Job") has a better explanation----

far from being in an era of brutal partisan warfare, as conventional wisdom holds and as watching the nightly television news might suggest, the United States is now in the grip of a political duopoly in which both parties are thoroughly complicit. They play a game: they agree to fight viciously over certain things to retain the allegiance of their respective bases, while agreeing not to fight about anything that seriously endangers the privileges of America's new financial elites. Whether this duopoly will endure, and what to do about it, are perhaps the most important questions facing Americans. The current arrangement all but guarantees the continuing decline of the United States as a nation, and of the welfare of the bottom 90% of its citizens.

letsgetitdone's picture
Submitted by letsgetitdone on

That's why I've been helping Nancy Bordier get the IVCS going. I really think it may be the way out. It will shift control from the money-party nexus to the voting bloc-party nexus. The influence of money will be greatly reduced compared to today.

More blogs on this coming up.

letsgetitdone's picture
Submitted by letsgetitdone on

Schakowsky's plan is typical "prog." Take a bad idea, put forward a "progressive" version of it, and then be reasonable by compromising with the rightist version of the bad idea so that the worst features of the "prog" version and the "right" version get enacted into law.

Sorry to be so negative, but at this point "progs" should be trying to slay the dragon of running Gov economic policy based on the size of deficit/debt numbers. The truth is they never have to matter, and we need to run economic policy based on its consequences for people. the whole frame is wrong. Progs need to be rejecting the frame.

coyotecreek's picture
Submitted by coyotecreek on

They are hailing Schakowsky's plan as the best thing since sliced bread.

But, of course, that means accepting the frame which was bent and crooked to begin with.

Thanks for your input.

letsgetitdone's picture
Submitted by letsgetitdone on

Get the progs to buy into the premise and join the fight about wonky details. Then you've got 'em where you want in. heaven forbid schmucks like Bowers should just say no!