Tag Archives: government debt

Minting a trillion dollar platinum coin: the easy fake solution, so we can avoid fixing our problems

Summary:  The current crisis is one of governance: how our leaders work together combine with structural flaws to produce bad outcomes. Today we look at this from a legal perspective, which describes both the problem and an easy solution. Such situations show a society its problems, and provide the pressure for successful societies to fix them. Our unwillingness to confront our structural problems and interest in quick fixes suggests we are not one of those. This is part five of a series.

Trillion Dollar Platinum coin

Trillion Dollar Platinum coin

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Contents

  1. The problem is a trilemma
  2. The Trillion Dollar Platinum Coin
  3. Legal and Operational Difficulties
  4. For More Information

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(1)  The problem is a trilemma

The structure of every government accumulates becomes weaker over time as its people discover and exploit flaws in its design. Successful regimes fix, even improve, themselves. As America has done with Amendments during the past two centuries. A regime “ages” or ossifies in the sense that it loses this vitality, as its people venerate the Founders and lose the willingness for the always difficult task of reform. That might be happening now to America.

Our “rotten boroughs” in the Senate, increased use of filibusters to block normal legislation and holds to block appointments — these and other things (see here for details) are the political equivalent of arteriosclerosis. Instead of working to fix them, we either live with them or seek quick fixes (often dysfunctional fixes). Today we examine one such problem, and a proposed fix. First, the problem …

(a) The Constitution“, Neil H. Buchanan (Prof Law, George Washington U), New York Times, 15 January 2013 — Excerpt:

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About the crisis: The GOP is right. So is Obama. That’s why it’s a crisis.

Summary:  We can learn lost lessons about our government from the debt crisis. Much of what’s said in the media is wrong, chaff thrown to confuse us. Here are some simple facts about the crisis. Both sides are right. If they cannot agree, there is a simple but perilous solution. It has worked before and will work again — but must not be overused. This is the third in a four part series.
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Traitor

Let’s not overreact

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Contents

  1. Introduction: our problem
  2. The Republicans are correct
  3. The President’s Options
  4. The 14th Amendment
  5. Other posts in this series
  6. For More Information

(1)  Introduction: our problem

The Republicans in Congress are using their leverage to change ObamaCare, entitlement spending, and tax policy. They are holding government spending hostage, and threatening to force the government to default on its debt.  The slowdown (not a shutdown) is depressing the economy and harming a large number of Americans.  Unless Congress acts, sometime after October 17 the Federal government will default on its bonds.

(2)  The Republicans are correct

Many of us have forgotten the basics of our system.

  • Congress and Presidents have equal legitimacy as elected representatives of the people.
  • Control of spending is among the greatest powers of the legislature, and has been a powerful tool to shift power from Kings to the people.
  • Therefore the House has both history and law on their side in this battle with President Obama.

Democrats argue that Washington’s rules of polite conduct trump law and logic, as if conflicts about high public policy should be run like Sunday afternoon monopoly games — where consulting the actual rules is a no-no.

For details see this excerpt from “Government shutdowns are the worst kind of budgetary reversion, except for all the rest“, Gary Cox (Professor of Political Science, Stanford), blog of the Washington Post, 3 October 2013:

Who came up with the idea that budgets should be delayed as a means to force the executive to adopt policies it doesn’t want to?

The idea goes back to England’s Glorious Revolution, where MPs fought hard to put the Crown on a short financial leash, so that they could control Crown officials’ actions. Although they did not use the term, English arguments about what would give Parliament bargaining leverage vis-à-vis the Crown hinged on the budgetary reversion.  Because expenditure authority would lapse every year, forcing portions of the government to “shut down” in contemporary American parlance, parliamentarians were assured the Crown would seek a new budget every year — whereupon they could bargain for attainment of their various goals.

As James Madison put it, “This power over the purse may…be regarded as the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people, for obtaining a redress of every grievance, and for carrying into effect every just and salutary measure.”

… when given the power a shutdown reversion confers, the “immediate representatives of the people” have, in country after country, done precisely the sort of thing that the House Republicans are now doing. They have sought to force the executive to adopt “just and salutary” measures, using the threat of a government shutdown. Examples include the Australian episode noted by Max Fisher, Chile before and after its civil war of 1891, and various European countries that subsequently sought to create what was dubbed parliamentarisme rationalisé in the interwar period.

… There are two and only two institutional reforms that can reliably avoid the bargaining failures that lead to shutdowns. … {see the article for more}

(3) The President’s options

President Obama’s actions to protect the United States in response to Congress must conform to the following three laws:

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Most of what Democrats say is wrong about the Republicans’ recent actions in Congress

Summary: The media are alight with denunciations of the Republican Party’s stance in Congress. They say that negotiating using the threat of shutting down the government, or even forcing a default, is irrational or even mad. It is unprecedented in American history! None of these things are correct. This is the first in a four part series.

“Your purpose, then, plainly stated, is that you will destroy the Government, unless you be allowed to construe and enforce the Constitution as you please, on all points in dispute between you and us. You will rule or ruin in all events.”
— Lincoln’s Cooper Union Address, 27 February 1860. Not an exact parallel, but worth reading today.

Chess Board

Deftly moving the pawns is a key to victory

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Contents

  1. Logic
  2. History
  3. No matter how bad is today,
    tomorrow might be worse
  4. Other posts in this series
  5. For More Information

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(1)  Logic

Seeing the actions of mainstream political actors as irrational usually results from an Orientation failure, the combination a lack of empathy plus an unwillingness to see the world as they do. The GOP is acting logically according to their values and worldview. Short version: the GOP has worked for decades to set up this situation. They have sown; now they expect to reap the harvest. Let’s examine how the world looks to Republicans.

(a)  About the value of government services

The Federal government is wasteful and inefficient, often doing things of little or no value — sometimes even harmful to the nation. The real America needs little of it, and most of that will be funded during the shutdown (e.g., pay the troops)

This has always been a strain in American thought, as explained in “The Myth of Rugged American Individualism“, Charles A. Beard, Harper’s, December 1931. But this belief coexisted with support for the government’s large infrastructure projects — from the transcontinental railroad to the Internet — and since the progressive era for government regulatory and civil rights programs.

During the past few decades our plutocrats have spent vast sums to change American’s views about government. They have succeeded on a scale seldom seen in American history. Even people who greatly benefit from government programs (my favorite: farmers) will deny the government does much good. For more about this see Undercutting people’s trust in the Republic: another step to destroying the Republic and Gallup sounds an alarm, again, about our lack of confidence in ourselves.

(b)  Legitimacy

Obama is the foreigner, secret Muslim, elected by the fraudulent actions of ACORN and other traitorous groups.

Quite delusional, but widely believed. Well-funded propaganda works; almost 1 in 5 Americans believe Obama is Muslim (see the PEW poll and AP poll).

In Congress, few Democrats explicitly ran on a pro-ObamaCare platform. Whereas many (most?) Republicans did. So the GOP representatives do their constituents bidding by opposing ObamaCare to the max.

Correct.

For more about this subject see Is the US government illegitimate? If so, does that justify violent revolution?

(c)  Public Service

ObamaCare is the first step away from our wonderful healthcare system to the horrific European systems.

Yes, propaganda works — no matter how false. Here’s one example (about wrong-site surgery) of the barrage which has so warped American’s perceptions; here’s data comparing our system to those of our peers (spoiler: many nations provide similar outcomes with 1/2 to 2/3 of the cost).

(d)  About the finances of the Federal government

  American’s deficit and tax burden are high and growing, so the spending must be stopped

Not correct.

  • The Federal deficit is shrinking fast.
  • Federal taxes for most Americans are near mutigenerational lows (although higher than during the special tax breaks following the crash).

(e)  The stars have aligned for the GOP: now is the time to act

Perhaps correct. Several factors favor the GOP now.

  • Their white boomer base is at the peak of its political power (older, organized, peak income, not yet senile). It’s use it or lose it for the GOP, as demographic change might be the their foe.
  • Obama has a history of folding in negotiations. He and many of the Democrats in Congress share the GOP’s deficit obsession (e.g., see Obama’s and the Democrat’s support for Simpson-Bowles proposal.
  • The economy is weak enough to arouse fear (as the GOP daftly blames this on the debt and deficits), but not so weak as to empower Obama to take bold actions.
John C. Calhoun, by Mathew Brady (March 1849)

John C. Calhoun, by Mathew Brady (March 1849)

(2)  History

Is this an unusual event in US history? “Unprecedented” is the word most often used.  That is not correct, looking at our history. This is what our system looks like when it works very well: filibusters, extreme rhetoric, policy gridlock — but eventual resolution.

The most obvious precedents are conflicts that the political system was unable to resolve for a long time, often with some degree of violence:

  • the antebellum era, when the southern “fire-eaters” worked for expansion of slavery in the frontier and its support in the North (e.g., return of fugitive slaves);
  • the often-violent conflicts over unionization begun in the late 19th C, raging until the New Deal legislation (for example, see Today in Labor History).
  • the often-violent conflicts from the oppression of Blacks in the South from the Civil War until the 1960s civil rights legislation.

The first of these great crises was different. It was the least violent, led by brilliant statesmen like John C. Calhoun (1782-1850; see Wikipedia). They patched and stitched solutions that held the union together. The next generation failed to continue their work, leading to war. Even that river of blood failed to achieve a real solution. That came only a century later with the great civil rights legislation of the 1960s, whose political reverberations still echo. Perhaps it would have been better if the Nullification Crisis of 1832 had run to a final conclusion, with President Jackson hanging Calhoun as a rebel.

Now we have another conflict, this time about the very nature of government in America. The Republic-that-once-was has been dying for decades, with the New America being erected on its corpse.  This might be the start of a slow but definitive battle between the past and one possible new future, fought in Congress and at the ballot box for years or decades.

(3) No matter how bad is today, tomorrow might be worse

Obama and flag

One of the milder posters about Obama

Let’s hope this conflict does not become violent.

One key to the large number of successful predictions (see the Predictions Page) on the FM website is a willingness to state the unspeakable but obvious possibilities. It is an effective way to make bitter enemies. Why stop now? Here is another harsh observation:

  • Gun sales are increasing (see here for a rough indicator of recent growth).
  • The people with guns are largely conservatives.
  • Many of them are right-wing extremists.
  • Many see a nation of “real Americans” and others.
  • For decades right-wing media increasingly have been saturated with claims that our freedoms are in danger from the coming wave of Sharia-immigrants-communism-anarchy (see these posts).
  • Many believe that citizens using guns are the ultimate defense of liberty from threats domestic as well as foreign.

The time might come when they use their guns. On us.  As a right-wing adaptation of the socialist maxim “Production For Use” (see Wikipedia). For a warning see the Homeland Security Assessment “Rightwing Extremism“, April 2009.

If so it wouldn’t be the first time such a thing happened. If it does, future generations will see our surprise as the only odd aspect of this chapter in history.

“If there is a gun hung on the wall in Act One, it should be used in Act Two.”
— The dramatic principle of Chekov’s Gun, by Anton Chekhov

(4)  Other posts in this series

  1. Most of what Democrats say is wrong about the Republicans’ recent actions in Congress
  2. Let’s learn from this inevitable crisis, which results from flaws in our system
  3. About the crisis: The GOP is right. So is Obama. That’s why it’s a crisis.
  4. A new political party for a New America: the Tea Party GOP

(5)  For More Information

(a)  About American politics:

  1. Posts about politics in America
  2. Posts about the Democratic Party
  3. Posts about Obama, his administration and policies
  4. The world of wonders: Democratic Party takes center, pushes GOP right to madness

(b)  Posts about the Republican Party:

  1. Whose values do Dick and Liz Cheney share? Those of America? Or those of our enemies, in the past and today?, 14 March 2010
  2. The evolution of the Republican Party has shaped America during the past fifty years, 8 May 2010
  3. Conservatives oppose the new START treaty, as they opposed even the earlier version negotiated by Ronald Reagan, 24 July 2010
  4. A modern conservative dresses up Mr. Potter to suit our libertarian fashions, 17 November 2011
  5. The key to modern American politics:  the Right-Wing Id Unzipped, 15 February 2012
  6. Why Republicans Need Remedial Math: Their Budget Plans Explode the Deficit, 16 March 2012
  7. Let’s list the GOP’s problems. They’re all easily solvable, 12 November 2012
  8. The Republican Party is like America, and can quickly recover it strength, 14 November 2012
  9. The world of wonders: Democratic Party takes center, pushes GOP right to madness, 19 February 2013
  10. A harsh clear look at the history of the Republican Party, 22 September 2013
  11. Recommended: The Atheist Conservative shows why secular conservatism continues to be an irrelevant and impotent force in American politics, 26 September 2013
  12. Conservatives show us their thinking, not well glued to reality, 30 September 2013

What do many conservatives see when they look at Obama?
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HitlerOBAMA

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The June jobs report: continued slow growth, bought at a high cost

Summary: The news media focuses on the month-to-month changes in the jobs report, which consist mostly of noise. Strong months confirm the optimists; weak months confirm the pessimists. In fact the trend of growth remains the real story, with the US economy near stall speed — supported only (like the other developed nations) by massive multi-year fiscal and monetary stimulus. Slow growth from programs we cannot long continue. Worst we have squandered much of the money borrowed, which could be rebuilding America. Just as Japan has done since 1989.

Economy

Contents

  1. The big picture
  2. About the recovery
  3. Household survey
  4. Establishment survey
  5. Unemployment
  6. Other important metrics
  7. Other posts in this series
  8. For more information about US economy

(1) The big picture

Here we examine the June employment report from the Bureau of Labor Statistics. They conduct two surveys: one of households, one of businesses. They are not directly comparable, each giving different perspectives on the US economy. This report paints a picture consistent with the many other streams of information about the economy: slow growth, slightly above the average of the past 12 months.

How well has the recovery run? There is no “best” metric. The most commonly used by economists is the ratio of civilian employment to the population. It paints a grim picture. The red line shows the trend from the pre-crash high, adjusted for demographics (boomers retiring).

June Jobs

(2) About the recovery

To understand the jobs report one must first put it in a larger context: during this period the government’s public debt increased $901 billion — 5.7% of GDP (see debt here and GDP here), one of the higher fiscal deficits in the world. Our shiny recovery results from massive borrowing and spending — plus large and unconventional monetary policy. Organic growth has not yet resumed.

The US economy slowly improves only due to the massive “drugs” of monetary and fiscal stimulus (the former boosted with QE3 as the latter winds down). Drugs administered by experts are good; the US slow growth is better than Europe’s suffering under austerity. But fiscal and monetary policy, like powerful drugs, have severe side-effects which at some unknown point in the future will become problematic or even untenable. And the withdrawal has begun: the sequester, still taking effect, and the future “tapiring” of Fed stimulus.

The worst side effects were unexpected:

  • Years of deficit spending left little improvement in our infrastructure. Like Japan, we spent trillions with little to show for it.
  • Years of extreme monetary stimulus have distorted the economy, in ways perhaps difficult to unwind.
  • The stimulus eliminated pressure for reform. We have had the New Deal stimulus without the New Deal reforms (some of which failed, but the others laid the foundation for the great post-war boom).

(3) The Household survey

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The April jobs report shows continued slow growth, bought at great cost

Summary:  The news media focuses on the month-to-month changes in the jobs report, which consist mostly of noise. Strong months confirm the optimists; weak months confirm the pessimists. In fact the trend of growth remains the real story, with the US economy near stall speed — supported only (like the other developed nations) by massive multi-year fiscal and monetary stimulus. Slow growth bought at great cost. A cost we cannot long continue to pay, borrowing and squandering the money ($ which instead could be rebuilding America). Just like Japan since 1989.

Contents

  1. Conclusions
  2. About the recovery
  3. Household survey
  4. Establishment survey
  5. Unemployment
  6. Other important metrics
  7. Other posts in this series
  8. For more information about US economy

(1)  Conclusions

Here we examine the April employment report from the Bureau of Labor Statistics.  They conduct two surveys: one of households, one of businesses.  They are not directly comparable, each giving different perspectives on the US economy.  This report paints a picture consistent with the many other streams of information about the economy: slow growth. Slowing slow growth, as shown by this from ECRI — through March. The April numbers (1.6%, 1.2%) are small ticks up in these lines.

From ECRI, 5 April 2013

From ECRI, 5 April 2013

(2)  About the recovery

To understand the jobs report one must first understand the recovery of which it is one aspect:  during this period the government’s public debt increased $1.03 trillion — 6.5% of GDP (see debt here and GDP here), one of the higher fiscal deficits in the world.  Our shiny recovery results from massive borrowing and spending — plus increasingly unconventional monetary policy.

In other words, organic growth has not yet resumed.  The US economy has stabilized and slowly improves only due to the massive “drugs”  of monetary and fiscal stimulus (the former boosted with QE3 as the latter winds down).  Both have severe side-effects, which at some unknown point in the future will become problematic or untenable.  But the worst side effect was unexpected:  the stimulus eliminated pressure for reform.  We have had the New Deal stimulus without the New Deal reforms (some of which failed, but the others laid the foundation for the great post-war boom).

(3)  The Household survey

The Current Population survey is a simple survey of households, with large error bars but no revisions.  It’s worth watching because it’s the basis for the headline unemployment rate, it gives some useful data not in the more-accurate business (establishment) survey, and because some research suggests that the household report shows inflection points before the establishment survey.

Here are the numbers, in thousands, not seasonally adjusted.  Note that 1/3 of the new jobs during the past year are part-time jobs. {That’s from the March report; appears here in error}

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The March jobs report shows continued slow growth, bought at great cost

Summary:  The news media focuses on the month-to-month changes in the jobs report, which consist mostly of noise. Strong months confirm the optimists; weak months confirm the pessimists. The trend of growth remains the real story, with the US economy near stall speed — supported only (like the other developed nations) by massive multi-year fiscal and monetary stimulus. Slow growth bought at great cost. A cost we cannot long continue to pay, borrowing and squandering the money ($ which instead could be rebuilding America). Just like Japan since 1989.

Contents

  1. Conclusions
  2. About the recovery
  3. Household survey
  4. Establishment survey
  5. Unemployment
  6. Other important metrics
  7. For more information about US economy

(1)  Conclusions

Here we examine the March employment report from the Bureau of Labor Statistics.  They conduct two surveys: one of households, one of businesses.  They are not directly comparable, each giving different perspectives on the US economy.  This report paints a picture consistent with the many other streams of information about the economy: slow growth. Slowing slow growth, as shown by this from ECRI:

From ECRI, 5 April 2013

From ECRI, 5 April 2013

(2)  About the recovery

To understand the jobs report one must first understand the recovery of which it is one aspect:  during this period the government’s public debt increased $1.1 trillion — 6.8% of GDP (see debt here and GDP here), one of the higher fiscal deficits in the world.  Our shiny recovery results from massive borrowing and spending.

In other words, organic growth has not yet resumed.  The US economy has stabilized and slowly improves only due to the massive “drugs”  of monetary and fiscal stimulus (the former boosted with QE3 as the latter winds down).  Both have severe side-effects, which at some unknown point in the future will become problematic or untenable.  But the worst side effect was unexpected:  the stimulus eliminated pressure for reform.  We have had the New Deal stimulus without the New Deal reforms (some of which failed, but the others laid the foundation for the great post-war boom).

(3)  The Household survey

The Current Population survey is a simple survey of households, with large error bars but no revisions.  It’s worth watching because it’s the basis for the headline unemployment rate, it gives some useful data not in the more-accurate business (establishment) survey, and because some research suggests that the household report shows inflection points before the establishment survey.

Here are the numbers, in thousands, not seasonally adjusted. Note that 1/3 of the new jobs during the past year are part-time jobs.

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Cacophony about Social Security shows our real political dysfunctionality

Summary: Here we have a wonderful example of the cacophony that takes the place of political debate in the New America, in this case about Social Security. It’s one of the simpler issues facing us: a moderately predictable and fully controllable stream of benefits vs. government revenue — mostly income taxes; some graduated (“income taxes”) and some flat (FICA tax on wage income). Our difficulty understanding it provides a dark omen of our ability to handle our larger problems.  This post complements yesterday’s post about our difficulty seeing how the jobs picture has changed.

Cacophony, from Necromancer

Cacophony, from Necromancer

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Contents

  1. Cacophony on ABC about SS
  2. Senator Johnson was quite right
  3. Paul Krugman explains
  4. Simple Facts about SS
  5. For More Information

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(1)  Typical cacophony on ABC about Social Security

Excerpt from transcript of This Week With George Stephanopoulos, ABC, 10 March 2013

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PAUL KRUGMAN: Is it a condition of any Republican support that you have to go for really terrible policies? Because raising the Medicare age is a terrible policy. It raises medical costs, it does very little to improve the budget. It introduces a lot of hardship. Means testing in Medicare is a better policy. I don’t particularly like it, but it’s a better policy. There are other things you can do, other ways you can cut. Even I don’t like the business about changing the price index for Social Security, but that’s not as bad …  (CROSSTALK)

RON JOHNSON (R-WI): To say that the Republicans haven’t done anything is just false. The House has actually passed budgets. With bipartisan proposals to try and save Medicare. The Senate hasn’t passed a budget in over 4 years. Listen, unless we do something, these programs are going broke. It drives me nuts. When I hear people say that Social Security is solvent to the year 2035, it’s not.  (CROSSTALK) In the next 20 years we’ll be $5.1 trillion more in debt than …  (CROSSTALK)

STEPHANOPOULOS: Let me put a version to George Will’s question to you then. If the president went along with either means testing of Medicare beneficiaries, more far reaching, he’s done a little bit already, and also adjusting consumer pricing index for Social Security recipients, would you as a Senator be open to more revenues?

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