” . . . it could move a step closer to cutting the U.S. Aaa rating if President Barack Obama’s tax and unemployment benefit package becomes law. . . .

“The plan agreed to by Obama and Republican leaders last week could push up debt levels, increasing the likelihood of a negative outlook on the United States rating in the coming two years . . .

“A negative outlook, if adopted, would make a rating cut more likely over the following 12-to-18 months.

“For the United States, a loss of the top Aaa rating, reduce the appeal of U.S. Treasurys, which currently rank as among the world’s safest investments.

“From a credit perspective, the negative effects on government finance are likely to outweigh the positive effects of higher economic growth,” Moody’s analyst Steven Hess said in a report sent late on Sunday.”

Here Moody’s is referring to the increase in the debt, and the debt-to-GDP ratio caused by the tax deal, and also to the predicted lesser value of Treasuries which will presumably lead to the US paying higher interest rates and having greater interest costs on the national debt than it otherwise would have had. In addition, Moody’s believes that the likely $900 billion cost of the tax deal will make the US more likely to default on the national debt.

I found this a laughing matter for a number of reasons. First, as Jane Hamsher points, out only 5 days earlier Moody’s had said there was no prospect of a ratings cut if the tax deal passed. Their sudden change of opinion greatly undercuts their credibility.

Second, as is widely known, all the ratings agencies including Moody’s gave the CDOs and CDSs that led to the collapse of AIG their highest ratings. In addition they downgraded Japan’s credit ratings a long time ago, with no measurable impact on its bond interest rates or costs, even though Japan’s debt-to-GDP ratio has continued to increase over time and is now in the neighborhood of 200%. So, one may be forgiven for wondering why anyone should listen to the ratings ravings of Moody’s and the other agencies at all. In fact, one may begin to suspect that their ratings have little influence on the bond markets, and also, given the Japanese case, that the bond markets don’t control the interest rates that Governments sovereign in their own currency must pay.

Third, since the United States is a nation with a fiat non-convertible currency system, with a floating exchange rate, and no debt denominated in any foreign currency, it is impossible for the United States to be forced into a default by any external party, simply because its ability to create the money it owes its obligations in is unlimited. Voluntary default could be caused by a Congress which acts stupidly, and in a manner contrary to the Constitution, to constrain the Treasury from paying its obligations when they come due, coupled with a Treasury that accepts Congress’s constraint in conflict with the clear admonition of the Constitution that the debts of the United State shall not be questioned.

The objective risk of default by the US Government is not increased by the increased size of the deficit, debt, or debt-to-GDP ratio. And Moody’s view that the risk of default is increased by such increases, only shows that Moody’s doesn’t understand the monetary operations of nations sovereign in their own currencies. Increases in these numbers don’t in any way lessen the constitutional authority of the Government (including the Congress) to spend or make money. It’s basic solvency, in other words is untouched by the tax deal, and if Congress allows the Executive to use its currency powers, then the risk of default as a result of the deal is exactly zero. Whatever additional risk exists as a result of the deal, comes only from the increased likelihood that Congress, mistakenly thinking that the Government is like a household, or, or ideological reasons, determined to “starve the beast” might constrain the Executive from meeting its obligations, and declare a US default of its obligations when there is no reason to do so.

Fourth, my biggest laugh came at the underlying assumption of Moody’s report, namely that its ratings and the bond market itself actually control the interest rates that Governments like the United States must pay. Sure, they will determine interest rates if the Government sits idly by and lets them drive the market. However, the Federal Reserve and the Treasury, can target bond interest rates and set these for the bond markets by manipulating bank reserves. Specifically, one way to do this, is that the Treasury can cease issuing long-term bonds, and sell only three-month bonds. Three-month bond interest rates are generally controlled by overnight rates for bank reserves, and overnight rates can be driven down to near zero by flooding the banks with excess reserves. That’s basically how the Japanese keep their bond interest near zero, and that’s how we can do the same.

Alternatively, another move we can make to remove the effects of the bond markets and the ratings agencies upon public finances, is for Congress to stop requiring new debt issuance in coordination with deficit spending, and for the Treasury to stop issuing debt. If we did this the credit rating agencies and the interest rates in the bond market would be irrelevant from that day forward.

In short, the bond markets and the ratings agencies aren’t in control of US public finances. They are not in a position to influence what our taxing or spending policies ought to be, or whether we will default on our obligations. In fact, at this point in our history, Congress is mandating that we have a national debt. It is forcing us to have one.

Congress mandates that we borrow our own previously created money from the Chinese, Japanese, and Middle Eastern nations and pay them interest on a commodity (our money), that we have an unlimited ability to create, while they also complain about the very same national debt they are always re-creating and increasing, and then tell us that we can’t afford unemployment insurance, enough Federal Spending to create full employment, Social Security, Medicare for All, good educations for our kids and grandkids, and emergency programs to create new energy foundations for our economy.

Forget about Moody’s! They’re part of the great distraction preventing us from focusing on our real problems. There’s nothing that Moody’s and the bond markets can do to hurt us, unless we let them. Let’s not let them. Tell them to bring it on! And, if they do, tell them to keep in mind Beowulf’s admonition:

”I don’t think we’ll see Moody’s or any other rating service based in the US ever downgrade US Treasuries. It would cause a tremendous amount of financial loss and would leave Moody’s and its executives exposed to criminal prosecution. If I were Moody’s general counsel, I’d tell the CEO in no uncertain terms, Do Not Tug On Superman’s Cape.

14th Amendment, Sect. 5

”. . . .the validity of the public debt of the United States, authorized by law… shall not be questioned”

Criminal Mischief statute

18 US 1361. Government property or contracts

“Whoever willfully injures or commits any depredation against any property of the United States, or of any department or agency thereof, or any property which has been or is being manufactured or constructed for the United States, or any department or agency thereof, or attempts to commit any of the foregoing offenses, shall be punished as follows:

If the damage or attempted damage to such property exceeds the sum of $1,000, by a fine under this title or imprisonment for not more than ten years, or both; if the damage or attempted damage to such property does not exceed the sum of $1,000, by a fine under this title or by imprisonment for not more than one year, or both.”

And Bill Michell’s Conclusion in his post on outlawing the credit rating agencies:

“The real question that I always ask is why governments allow these undemocratic criminal organisations to exist. They can just outlaw them. This would force the corporate players to create better ways of informing the markets about their risk characteristics and leave governments alone to do what they are democratically elected to do – advance public purpose.

Further. as part of my preferred financial market reforms I would render illegal a whole swag of derivative assets which would lessen the problem of pricing risk.

It is time to wean the private financial markets off these agencies. The best way would be to declare them illegal.

The last thing that a sovereign government should be doing right now is cutting back on its fiscal stimulus.”

Which, of course, is exactly what Moody’s wants us to do.

(Cross-posted at FireDogLake and Fiscal Sustainability).

The national debt is a political problem created by Congress’s inaction. It magnifies the political strength of conservatives and weakens progressives because it makes people afraid to deficit spend, since then the country will be “increasing its debt,” and increasing “the burden on our grandchildren.”

Congress needs to repeal the mandate forcing the Government to issue debt instruments on a dollar for dollar basis with deficit spending, right now.

Both Congressmen and Senators should quit their whining and grousing about deficits and the national debt, since it is their lack of action that is translating deficit spending into more public debt. It doesn’t have to be that way. As the creator of its own currency, the United States can just spend without issuing debt, and that new spending can include paying off its outstanding Treasury Bonds as they come due until that national debt is gone.

The United States has many very real problems. But the national debt is not one of them. The deficit spending required to solve our problems shouldn’t be constrained by that fantasy problem, or the fantasy solution of stabilizing a debt-to-GDP ratio. To make sure that it’s not, Congress needs to repeal its debt issuance mandate now, before the American people learn that Congress, itself, is responsible for its existence, and that they are the ones to blame for both the debt and their own phony deficit hysteria.

(Cross-posted at FireDogLake and Fiscal Sustainability).

The national debt exists today because when the nation went off the Gold Standard in 1971 and adopted its fiat currency system, Congress did not repeal its mandate, very appropriate when our currency was convertible to Gold on demand, in least in theory, requiring that the Government back all its deficit spending with already existing borrowed dollars whose convertibility was covered by our holdings of Gold. This Congressional mandate to borrow funds by issuing debt instruments, is what has caused the national debt to persist. Had Congress repealed it when President Nixon took the country off the Gold Standard, and had we ceased to issue debt at that time, then the Government would have re-paid all of our 1971 debts as they came due, and our national debt today would be zero and our debt-to-GDP would now be at 0%.

The Congressional mandate to issue debt when the Government deficit spends has no useful function today, and the interest income it provides for mostly wealthy investors and foreign Governments who buy Treasury Securities is simply a form of welfare for the rich. Any positive effects it produces are vastly outweighed by the bad effects of having to cope politically and economically with the concerns of people who believe that the increases in the debt, and the debt-to-GDP ratio give us a fiscal sustainability problem whose priority outweighs everything else. The national debt is a political problem. It magnifies the political strength of conservatives and weakens progressives because it makes people afraid to deficit spend since then the country will be “going into debt.”

Congress needs to repeal the mandate forcing the Government to issue debt instruments on a dollar for dollar basis with deficit spending, right now. If it does so it will:

– cease to provide welfare payments mainly for the rich and foreign nations,
– gradually pay off the $13 plus Trillion Federal debt entirely,
– have rapidly decreasing Federal interest costs over the next decade until they entirely disappear,
– have no further need to take difficult votes about increasing the Federal debt limit,
– have no further need to worry about borrowing money from the Chinese, or the oil rich states, or the Japanese, that our grandchildren will one day have to re-pay,
– have no further need to worry about what the bond markets think or are going to do, or
– to worry about our debt or deficit spending being “fiscally unsustainable” when we want the Government to spend money to sustain the unemployed, help us end unemployment altogether, fulfill American needs for new infrastructure, develop a re-invented first class educational system, and provide Medicare for All, among our other needs.

If Congress refuses to remove its requirement to issue debt, when it can easily do so at any time, then it’s habitual complaints about its size should cease at once and no longer pollute our political debates. The United States has many very real problems which it can help to address with Government programs. The deficit spending required to solve our problems shouldn’t be constrained by the non-existent problem of that national debt, or the fantasy of stabilizing a debt-to-GDP ratio that also represents a non-existent problem. To make sure that it’s not, Congress needs to repeal its debt issuance mandate now before the American people learn the truth that Congress, itself, is responsible for all the angst we hear about the deficit, the debt, and the debt-to-GDP ratio.

(Cross-posted at FireDogLake and Fiscal Sustainability).

So what should they to do? Well, for starters, the House and Senate Democrats could send the Republicans and the President back to the negotiating table with some instructions about what else they want in order to make a deal. The most important price they can make them pay in return for the tax cuts for the wealthy they want so much is an end to debt issuance. Why is an end to debt issuance so important? Here’s why:

Almost everyone, in talking about our so-called fiscal crisis, says that the Government can only fund its spending by either taxing to raise revenue or borrowing to fund deficit spending, and that if too much is borrowed too fast, so that the debt-to-GDP ratio grows too rapidly, this will result in the bond markets losing confidence in the Government’s ability to repay its debt, which, in turn, will cause these markets to demand higher interest rates on Treasury Securities, increasing the cost of interest on the debt over time, until, eventually, the interest payments on Federal Debt are so high that they squeeze out other Federal expenditures and programs leave no space for spending we need to do to solve vital problems.

The concern about the bond markets and the pressure on the dollar they can bring to bear is so great that some think that President Obama’s primary reason for creating the National Commission on Fiscal Responsibility and Reform was to try to get a long-term deficit reduction plan through Congress in order to convince them that the United States is serious about bringing its debt problems under control.

There are many things wrong with this reasoning I’ve just laid out about deficits, debts, and the bond markets, and in past months I’ve blogged about its various flaws. But let’s put that aside for this post. Let’s assume that the narrative is correct. If so, then the problem of rising interest costs is caused not simply by deficit spending, but by our need to borrow “to fund it.”

If we didn’t need to do that anymore, then we’d be able to avoid increasing the national debt, and the debt-to-GDP ratio, we wouldn’t have to raise the debt limit, and, eventually, there’d be no Federal Debt and no interest costs at all, since we’d be gradually paying down the Federal debt as it came due. And soon people would stop talking about the debts we are leaving to our grandchildren, and the money we are borrowing from China and others “whose values are not our own.” By 2025, the date when current projections suggest that our debt-to-GDP ratio will reach 120%, we’d actually have a debt-to-GDP ratio of nearly zero, because we’d have nearly paid off the national debt.

So, the simplest and most direct solution to the so-called “fiscal crisis” is simply not to issue any more debt when the Federal Government deficit spends. Why can’t the Government do that now? The answer is that when the nation went off the Gold Standard in 1971 and adopted its fiat currency system, Congress didn’t repeal its mandate, very appropriate when our currency was convertible to Gold on demand, in least in theory, requiring that the Government back all its deficit spending with already existing borrowed dollars whose convertibility was covered by our holdings of Gold.

The mandate to borrow funds, however, has no useful function today, and the interest income it provides for mostly wealthy investors and foreign Governments who buy Treasury Securities is simply a form of welfare for the rich. Any positive effects it produces are vastly outweighed by the bad effects of having to cope politically and economically with the concerns of people who believe that the increases in the debt, and the debt-to-GDP ratio give us a fiscal sustainability problem whose priority outweighs everything else. So, let’s make the “hysterical” deficit hawks like Alan Simpson and Erskine Bowles, and occasionally, the President, and the “responsible” doves like Paul Krugman, Brad DeLong, Jeff Madrick, and occasionally, the President, happy and remove all their debt, and debt ratio worries with the following solution. Why even Ed Schultz would have to stop talking about the need for “sacrifice” so that we can avoid borrowing hundreds of Billions from the Chinese in order to “finance” the “tax cuts for the rich.”

Congress: repeal the mandate forcing the Government to issue debt instruments on a dollar for dollar basis with deficit spending. The mandate has no useful function now, other than to provide welfare for the rich and foreign nations, which isn’t useful for most of us. If Progressives can make a deal including repeal of the mandate, on the other hand, Congress will:

– cease to provide that welfare,
– gradually pay off the $13.8 Trillion Federal debt entirely,
– have rapidly decreasing Federal interest costs over the next decade until they entirely disappear,
– have no further need to take difficult votes about increasing the Federal debt limit,
– have no further need to worry about borrowing money from the Chinese, or the oil rich states, or the Japanese, that our grandchildren will one day have to re-pay,
– have no further need to worry about what the bond markets think or are going to do, or
– to worry about our debt or deficit spending being “fiscally unsustainable” when we want the Government to spend money to sustain the unemployed, help us end unemployment altogether, fulfill American needs for new infrastructure, develop a re-invented first class educational system, and provide Medicare for All, among our other needs.

C’mon Progressives, if you can get this repeal measure into the tax deal, you can solve the fiscal responsibility and reform/fiscal sustainability problem very, very easily, and also quit having to worry about those difficult votes on increasing the debt limit. All you have to do is get rid of that mandate to issue debt, and the whole political/economic mess these deficit reduction Commissions and interest groups are bent on making making goes away.

You won’t have to worry about raising the Social Security Retirement age and getting young people angry at you, or having to cope with millions of angry Seniors because you’re committing to cut their Medicare, or get people frosted because you’re going to cut the heart out of a program they really, really like. You know that neither progressives, nor really anyone else in Congress wants to take that vote that the President, Bowles and Simpson, Alice Rivlin, and Pete Peterson are setting you up for, sometime during 2011.

So don’t! Make a deal that gets rid of the mandate to issue Federal Debt, and with it the whole issue of whether the Federal Government can afford to do what we need it to do. Get on with the real problems facing our country, and tell the bond markets, the deficit hawks, the Republicans and the blue dog Democrats who are forever saying that the Government can’t do this or that important thing, because it’s running out of money, to go to hell!

(Cross-posted at FireDogLake and Fiscal Sustainability).

The OFA message asked me to share my thoughts after I listened to the President. So, I did this and also thought I would share them with you. Here they are.

I’m really not interested in process. I’m interested in results. Your results are bad on jobs and the economy. They’re bad on finreg and on getting rid of very large too big to fail banks with hidden toxic assets. They’re bad on credit card reform. They’re terrible on health care reform They’re terrible on torture and accountability, and ending the wars. They’re terrible on mortgage foreclosure fraud. And now they’re terrible on tax cuts for the wealthy. In light of all these results, I have only one thing to say to you at this point.

“You have sat too long here for any good you have been doing. Depart, I say, and let us have done with you. In the name of God, go!”

That is, Obama Resign!

(Cross-posted at FireDogLake and Fiscal Sustainability).

I think good answers to concerns like these about the Government limiting or ceasing to issue debt involve highlighting what other uses there are for the $11.8 Trillion we would save off CBO-based projections. Here’s one argument based on what else we would do with that money.

Not many worker or middle class retirees or savers buy Treasury Bonds, and most dollars borrowed using Treasury Bonds are not lent by working or middle class retirees.

Most of the dollars lent are provided by foreign Governments and wealthy individuals. For them T-Bonds are a safe harbor for some of their money, because there is no risk of loss in buying them. The interest they earn amounts overwhelmingly to unneeded welfare for the rich and foreign Governments who would otherwise have to let their USD sit in their reserve accounts at the Fed.

Since the Government really doesn’t need to borrow to remain solvent, the truth is that forcing it do so, which is what Congress is doing, is deciding that the Government ought to subsidize foreign Governments and wealthy individuals. As I’ve pointed out, this subsidy will cost the Government $11.8 Trillion over the next 15 years.

Alternatively, rather than subsidizing wealthy people and foreign Governments Congress could:

use the average of $787 Billion freed up to pay for HR 676 Medicare for All which provides virtually free health care for all Americans, and they could do that w/o raising taxes.

This move would also immediately reduce Medical expenditures to $1.7 Trillion per year from the current $2.5 – 2.6 Trillion, saving Americans $800 – 900 Billion in medical costs.

It would also end bankruptcies and foreclosures due to lack of health insurance for all Americans. It would also save (most probably) 57,000 fatalities per year experience by Americans who don’t have health insurance. It would also directly create an additional 2.2 million net jobs as estimated by an Econometric Study originally published by the California Nurses Association. It would also create additional yet-to-be-estimated jobs by freeing up private sector money for spending in areas other than medical expenditures. Finally, based on the experience of other nations, and also the fact that even in the US the escalation of Medicare costs is less than the escalation we’re experiencing in private sector insurance, it would also stabilize the increase in the cost of insurance and medical care that deficit hawks and doves think is the primary cause of alarming deficit/debt projections after 2020.

This is only one of the trade-offs the US making by continuing to pay interest when it doesn’t have to pay any. The average $786 Billion per year freed up from the CBO projections can also be applied to converting quickly to an economy fueled by alternative energy sources. We could use the money to subsidize alternative energy development to make energy from alternative sources immediately competitive with oil. Of course, if we were to do that the $700 Billion in oil imports saved would immediately give us a positive balance of trade, cutting our current need for Government deficit spending by roughly 4.8% of GDP.

The more general point here, going beyond this argument is that debt issuance is just another instance of enormous Federal spending for the benefit of the wealthy and foreign nations, while crying poverty when it comes to expenditures for public purposes including benefiting most working Americans. We $11.8 T for interest payments, but we can’t afford Social Security without cutting it. Health Care Reform programs, of course, have to be paid for with tax increases because we have no money. We can’t afford to re-build our infrastructure because we have no money. We can’t afford a Federal Jobs Guarantee Program because we have no money. We have to cut the Food Stamps program to pay for the Child Nutrition program because we have no money. On the other hand, we have an average of $786 Billion per year over the next 15 years to pay for interest on the national debt, and we also have $1.05 Trillion dollars in tax cuts for the rich to give them over the next 15 years.

The argument about crushing savers and retirees is just another convenient trope people use to justify a program that is overwhelmingly one for the rich and powerful. We need to be very wary about these kinds of tropes, recognize them for what they are and immediately call bullshit. Every Federal program needs to evaluated in relation to its public purposes. Every program that is primarily there to benefit the wealthy and the powerful needs to be ended and the money put to other purposes. We have gone on long enough paying “taxes” to the plutocrats. We need now to protect the public purposes of Government fiscal activity and question every expenditure relative to possible trade-off. This is especially true in cases where a particular program is projected to cost 11.8 Trillion over the next 15 years, and make no mistake, our debt issuance activity is a Government program that we can choose to retain or end, every bit as much as Medicare, or Social Security, or HeadStart, or any of our agricultural aid programs. Do we really need this program designed to pay interest to foreign Governments and rich people? Is the amount of money that goes to middle class savers and working and middle class retirees enough to justify the projected 11.8 Trillion cost over 15 years? Does the benefit from that really stack up against the benefit of having Medicare for All?

One of the biggest advantages for people interested in solving national problems through Federal spending is that ceasing to issue debt, would result in paying off our current debt instruments almost entirely within a few years. This would stop all the blustering and chest-beating about the overwhelming financial burden we are leaving for our grandchildren in the form of the national debt. That notion is nonsense, of course, but Government spending without debt issuance would not only save 11.8T in interest costs, but would also shut up all the misplaced bleating about our grandchildren.

The real problem we are leaving for our grandchildren right now is that our unnecessary concern about the size of the national debt is preventing us from spending what we need to spend to solve our national problems. What this foolish concern is doing is stopping us from producing goods and services and leaving a much richer nation for our grandchildren.

(Cross-posted at FireDogLake and Fiscal Sustainability).

The third change will flatten the steep projected increase in health care costs and bring that increase down to the rate of inflation. This result will come from the fact that the provider industry will have only one customer, the Federal Government to negotiate cost increases with. If Congress is really interested in holding down the deficit, it can do so by mandating that provider costs cannot increase at a rate greater than the annual rate of inflation.

How can we ensure that the economy will grow at a rate more in keeping with the historical average of 1.072 nominal GDP increase annually? The first thing we need to do is end the “recession,” as fast as we can, where “recession” means less than a full employment economy, and “full employment” means a U6 unemployment rate of 3%. Here are the measures needed to do that:

– Increase the minimum wage to $10.00 per hour;

– Decrease the standard work week to 35 hours;

– Provide a one-time $500.00 per person grant to each State Government for the purpose of maintaining local and State employment;

– Implement a payroll tax holiday for employers and employees until full employment is reached with the Government making payroll tax payments in lieu of employers and employees;

– Implement a Federal Job Guarantee (FJG) program with a $10.00 per hour wage and standard fringe benefits, including Medicare coverage within six months to guarantee full employment into the future. FJG jobs should focus on public needs like infrastructure re-building, re-inventing the energy foundations of economy, environmental protection etc.

These measures would create full employment within 6 months, would increase the deficit to roughly 12% of GDP in 2011, but in 2012 the automatic stabilizers and the end of the payroll tax holiday would raise tax revenues sufficiently to end large deficits entirely, and leave us with the possibility of demand-pull inflation. Inflation may not happen because of demand leakages to imports, and also because the motivation of Americans to save and repair their balance sheets is very high right now. But, if this occurs, marginal tax rates for the wealthy and estate tax rates should immediately be substantially increased to pre-Reagan levels to begin to restore a wealth distribution that is healthier for American Democracy, and also to cool the overheated economy. Heavy tax increases may be necessary to accomplish this because the low multipliers associated with consumption activity of the wealthy mean that their taxes must grow proportionately more to remove the necessary aggregate demand from the economic system to contain possible inflation.

An objection that will be raised to this program is a claim that the Government doesn’t control the interest rates it pays on bonds, and that the rates are controlled by the bond markets. But that happens by our choice. If the Congress would let the Government deficit spend without issuing debt instruments dollar-for-dollar (something not required by the constitution), the Treasury and the Fed could target whatever interest rate they wanted for Treasury Bonds. Japan has already shown that this is the case and has only a 0.0025 average interest rate on its debt.

In addition, one can argue that all debt issuance on Federal deficit spending should stop because it only 1) keeps interest rates materially above zero; provides “welfare” for the rich and foreign Governments; and also keeps the national debt issue alive when it can easily be laid to rest (since if we don’t issue anymore debt, all of our current debts would be paid off in a few years as hey come due). If we did this it would save roughly $11.8 Trillion in interest payments between now and 2025 relative to CBO-based projections.

Other objections to my plan will focus around items 2) and 3). Some will claim that it’s “socialist” because of the level of Government activity involved. But, taking up the measures designed to restore growth, I think it’s pretty clear that all measures except for the payroll tax holiday and the Federal Job Guarantee have precedents in similar measures enacted by the New Deal or previous Democratic Administrations. Also, no one can possibly think that a payroll TAX CUT is “socialist.”

And as for the FJG program, FJG jobs are, by their nature, temporary, but set the minimum wage at $10.00 per hour and establish Medicare as a health care standard for everyone. As the private sector recovers, the FJG job rolls will decrease, as will Government spending on it. The FJG will expand and contract with the fortunes of the private sector. It’s size will be driven by private sector spending or lack of it, not by the Government. It’s a pure safety net program, a buffer stock that maintains the employability of workers who have lost their jobs so that their long-term viability for private jobs is maintained. What’s “socialist” about that?

Of course, some will claim that my Medicare for All proposal is “socialized medicine.” But this kind of claim is an old and discredited story. No one who has Medicare now thinks that it’s socialist. How can it be when all the Doctors, hospitals, and pharmaceutical companies we deal with are private and most of them are for-profit institutions. We can see with our own eyes and from our own “socialized medicine.”

The most it is is socialized insurance, since the Government becomes the sole insurer for all necessary health services. Even if Medicare is socialized insurance however, in considering it we have to be practical. The private insurance companies have not done the job for Americans. The high cost of insurance today in the United States makes that apparent. The millions of bankruptcies and foreclosures resulting from medical bills also make it apparent. The more than 50,000 fatalities per year Americans experience due to lack of insurance define the bottom line of failure of the private insurance system. That system is a killing field. We need to plow it under!

Americans need a system that will work for them. The private insurance system doesn’t. The recent health care reform doesn’t affect the health care cost projections enough to remove the long-term deficit problem caused by increasing health care costs. We need to end the failure of the private insurance market in giving us what we need by ending that market, and putting the companies out of our misery. The sooner we do that, the sooner our long-term deficit problem, if you believe there is one, will also disappear.

Finally, people looking at this “deficit reduction” plan may say that this isn’t a deficit reduction plan, but an economic stimulus plan which assumes that a return to full employment will get rid of deficits. To some extent, that’s true. I believe that the deficit problem is really not a problem because Government solvency isn’t a problem for the United States, so I focus largely on creating full employment.

However, for those who continue to think that there is a long-term deficit problem, my proposals on containing interest costs and Federal medical costs will result in reducing nominal Federal spending by a greater amount than any of of the other “deficit reduction” plans I’ve seen these past few weeks. So, if you still believe that deficit/debt reduction is a major US problem, you ought to be all for this plan because it will really do the job.

(Cross-posted at FireDogLake and Fiscal Sustainability).

Of course, the two new “progressive” deficit reduction plans are better for working people than the three plans offered by Bowles and Simpson, by Rivlin and Domenici, and by Peterson-Pew. For one thing they prioritize jobs and lower unemployment ahead of short-term spending cuts. For another, they raise income caps on Social Security contributions in order to strengthen projections about social security solvency. For yet another they address increasing health care costs much more “seriously” than the Bowles-Simpson plan, which just makes assumptions about cost-cutting without beginning to indicate how these cuts would be achieved. Still, the bottom line of these progressive plans is that they have chosen to play the President’s game, and to offer plans for deficit reduction, rather than saying directly as Jamie Galbraith did that there is no deficit/national debt/debt-to-GDP ratio problem, and that in place of a deficit reduction plan they would offer a fiscal plan for returning to full employment and re-building America for the 21st century instead.

It is this acceptance of the President’s game, this agreement to look at Government fiscal policy through the lens of deficits, the national debt, and the debt-to-GDP ratio that is the “give-up” aspect of the progressive plans. To uncritically accept the problem framing of the opposition (and yes, this President, is the opposition as much as the Republicans) is to “give-up” the fight. It is not necessarily to accept full defeat, but it is to ensure at least partial defeat. And in this case, accepting the President’s and the deficit hawk’s framing of the problem is to accept, for the indefinite future, the idea that every progressive Government spending initiative must be evaluated from the viewpoint of whether “we can afford it” or not, or whether it de-stabilizes the debt-to-GDP ratio, regardless of the benefit it will deliver to Americans.

Government fiscal policy, and the ideas of fiscal sustainability and fiscal responsibility need to be viewed from the broad viewpoint of the employment of Government spending to fulfill America’s public purposes, and not from the narrow one of how Government fiscal activity will impact deficits, debts, and debt-to-GDP ratios. The reason for this is that for a nation like the United States with a fiat non-convertible currency, a floating exchange rate, and no debt denominated in any foreign currency, there is no solvency risk, however high the deficit, debt, or debt-to-GDP ratio may have grown in the past. Whatever the level of these statistics are, the constitutional authority of the Government to spend on public purposes, remains unimpaired and undiminished.

Given the lack of solvency risk, issues of fiscal sustainability and fiscal responsibility are always about the extent to which Government fiscal activity can or have helped the real economy to achieve public purposes like full employment, elimination of poverty, economic sustainability, economic transformation, universal health care, and so on. Management of Government fiscal activity by looking at the extent to which it succeeds in holding down debt, or stabilizing debt-to-GDP ratios is not about real fiscal sustainability, because these numbers are not about the real economy, but are only statistics about Government’s nominal economic activity. Nor is successful stabilization of the debt-to-GDP ratio a mark of fiscal responsibility. In fact, if unemployment, or lack of economic transformation, or poverty, or failing educational and health care systems, continue to exist, then a successful effort to maintain a particular debt-to-GDP, or success in producing a fiscal surplus, are marks of fiscal irresponsibility, not fiscal responsibility.

So, in aiming towards stabilization of debt-to-GDP ratios the progressive plans fall into the fiscal irresponsibility every bit as much as the conservative plans do. They may not be as fiscally irresponsible, since they give more weight to economic needs than the conservative plans do in the course of seeking stabilization of the national debt. But the fact remains that they still do prioritize stabilization as a goal that Government fiscal activity should seek, even at the expense of real economic needs.

In a previous post, I offered the following questions for authors of ALL deficit reduction plans to consider:

– First, do you understand that a Federal Government deficit ADDS financial assets dollar-for-dollar to the non-Government, including the private, sector?

– Second, do you understand that a Federal Government surplus SUBTRACTS financial assets from the non-Government sector?

– Third, do you understand that any long-term program of deficit cutting will decrease the amount of additional financial assets flowing into the non-Government sector over time, barring an increase in the current trade balance at least equivalent to the reduction in the deficit cuts?

– Fourth, if you understand these three accounting facts, then do you really think we should be adopting a long-term deficit reduction policy aimed eventually at running surpluses, regardless of developments in the economy providing the backdrop for Government fiscal policy? What if, contrary to what you now expect there is no recovery in the economy greater than we have now in 2011, 2012, 2013, 2014, 2015, etc.? Do you think that in those circumstances a long-term deficit reduction policy requiring scheduled cuts in various programs would be helpful or harmful to the financial assets of the non-Government sector?

– Fifth, what if the mortgage foreclosure fraud mess results in another banking crisis and plunges us once again into an accelerating recession? Would it then be helpful or harmful for the financial assets of the non-Government sector if the Government were implementing a long-term deficit reduction plan?

– Sixth, If the answers to the last two questions are harmful, then why does it make any sense to have a long-term deficit reduction plan? Would you really be willing to make the private sector poorer than it would otherwise be under worsening economic conditions by reducing the amount of the deficit or even running a surplus? That is, are you really willing to put the goal of deficit reduction ahead of the goal of recovery in a worsening economy?

– Seventh, all of the deficit reduction plans being offered now don’t schedule cuts or tax rises until some time in the future when, it is assumed, the recovery is likely to have occurred. The Schakowsky and Rivlin/Domenici plans even include stimulus measures to hasten the recovery. But what if there is no recovery? Or what if there is a brief recovery, followed by a plunge into another recession in late 2012 or 2013, or in 2015, then are you willing to go ahead with planned deficit reductions, even though people are losing their jobs left and right and deficits are rising rapidly due to the effects of the automatic stabilizers?

– Eighth, what if your deficit reduction plan did not pass the Congress and the debt-to-GDP ratio in the United States increased from its present value to 125% in 2020? Would this mean that the Government had any less ability to continue deficit spending than it has now? Wouldn’t Congress still have the same power to appropriate spending? Wouldn’t the Treasury still have the same power to spend, and in the spending create money by marking up private accounts? In answering these questions please keep in mind the experience of Japan which is that it is possible for a major industrial nation with a non-convertible fiat currency system and a floating exchange rate to have a public debt-to-GDP ratio of nearly 200% and still maintain near zero interest rates for Government bonds.

– Ninth, so, keeping all the above in mind, can you explain why it is you still think, if you do, that the US Government faces a debt, deficit, or public debt-to-GDP ratio problem, and that this problem is so serious that we need a long-term deficit reduction plan that will prevent the Government from spending enough to ADD the financial assets to the private sector needed to enable recoveries when we experience recessions?

– Tenth, all of you are responding to a call for fiscal responsibility and reform and are offering plans that assume that fiscal responsibility means cutting deficits, stabilizing and decreasing the level of the public debt-to-GDP ratio, and in some instances working towards and even running budget surpluses. But what makes you think that such plans are fiscally responsible?

The two new “progressive” plans, like the conservative ones, and Congressman Jan Schakowsky’s plan, don’t give any evidence of consideration of these or similar questions. That’s important because a failure to answer them in a satisfactory way means that the progressive plans, along with the conservative ones have no clothes. That is, they address a non-existent problem, and in its name prescribe courses of action that will have damaging effects on the US economy sooner or later.

Just today, Jamie Galbraith, in a post on the Catfood Commission’s report, called “Casting Light on ‘The Moment of Truth,” takes the Commission’s Report to task for its intellectual confusion, persistent lack of attention to evidence, lack of economic analysis, and use of the household analogy in describing the fiscal limits of the Government, Among other remarks he says:

”The only other effort at economic analysis in the report is the section entitled ‘The Looming Fiscal Crisis.’ This begins with the claim that, ‘Our nation is on an unsustainable fiscal path.’ No evidence is presented. . . . “

However, the Bowles/Simpson Report isn’t the only one that declares that the United States “. . . is on an unsustainable fiscal path . . . “ All of the conservative and “progressive” Reports mentioned earlier do exactly the same thing. They all declare the current Peterson/Obama “gospel” that we are “. . . on an unsustainable fiscal path . . . “ And they do that without any analysis or evidence, but take as self-evident long-term fiscal projections that are pure science fiction and will never materialize in reality. On the basis of this gospel, all of the reports agree that we have fiscal sustainability, fiscal responsibility, and deficit reduction problems. But there is no deficit reduction problem for a nation like the United States and the only fiscal sustainability and fiscal responsibility problem we have are the ones they are making by inventing a non-economic problem and diverting attention from the real economic and social problems of Americans and American society.

Jamie Galbraith also points out:

”The old Soviet Union had two newspapers, Pravda and Izvestia — Truth and Light — and the saying in Moscow was, “Where there is Truth, there’s no Light. And where there is Light, there’s no Truth.” It’s clear now that the Soviet Union didn’t really end.

The walls came down, and we became them.”

It often feels like that to me, as well. One of the places I blog at is Correntewire.com. There WaPo is referred to as “Pravda” and the New York Times as “Izvestia.” I’ve always thought this was not quite right, and that WaPo since it’s based in Washington, DC was Izvestia, while the NYT was “Pravda.” But this is just nitpicking.

The important point is that there exists a village in the United States sometimes called “Versailles.” The denizens of this village have settled on a paradigm that excludes both light and truth in many areas of political/economic discourse. This paradigm is neo-liberalism and those who use it reason in only narrow acceptable ways, even when they disagree on specifics, even while claiming that their thinking is non-ideological. Nothing appears in the media outlets of Versailles that disagrees fundamentally with the neo-liberal paradigm, and according to that paradigm, all Governments, however constituted, can run out of money, and are subject to bond markets.

Any writings that contend otherwise, or offer another financial paradigm, are simply to be ignored, especially if they suggest that some Governments, in fact, have all the financial resources they need to enable full employment, and that doing so is therefore one of the responsibilities of a legitimate Government. These writings, indeed, are never to be engaged by Versailles. They are never to be confronted. They are never to be given the respect of any recognition, not even the respect of criticism. They are only to be ignored by Pravda and Izvestia, while these and myriad other “official” organs constantly repeat variants of the deficit reduction gospel worshiped in and by the village.

(Cross-posted at FireDoglake and Fiscal Sustainability).

the extent to which patterns of Government spending do not undermine the capability of the Government to continue to spend to achieve its public purposes.

If you don’t agree with that definition, then propose another; but it seems clear to me that when people say that Federal spending is unsustainable, they’re saying that there’s something about that spending or its impact that undermines the future capability of the Federal Government to keep spending. If they’re saying something else, I’d be happy to learn what that is if someone will enlighten me. As for including “public purposes” in that definition, I did that just to emphasize that Government spending is always supposed to be aimed at purposes that the public endorses and/or thinks is valuable, and at nothing else.

So, if you can accept this or a similar definition of fiscal sustainability, then please note that it can be consistent with worries about debts, and debt-to-GDP ratios; but only if the Government’s ability to spend is operationally limited by its ability to tax or to borrow. If it could not tax or could not borrow any additional money to use to increase spending to accomplish its public purposes, it would be true that any short-term increase in spending that outran its ability to gather revenues over time would be “fiscally unsustainable.”

On the other hand, however, if a Government’s ability to spend is not dependent only on its ability to borrow or tax, then these debt-related indicators of fiscal sustainability aren’t valid any more, because they no longer measure rise or fall in that ability. We then need new measures.

So, in the United States today, is the Government’s ability to spend dependent on its ability to tax, or to borrow? If not, what is it dependent upon? If not, are the Administration and the various deficit commissions, hawks, and doves who believe in long-term debt problems making much ado about nothing? Are they focused on a non-problem, a distraction? Are they preparing legislation to cut Social Security and Medicare, entitlements, as they call them, out of a mere confusion, an error in their understanding about how the Government actually spends money? Is their reluctance to support the new stimulus spending that is clearly needed to restore full employment based on a horrible mistake? More generally, is their whole orientation to any new legislation that involves considerable Government spending based on a misunderstanding about the ability of the Government to spend?

The answer to the first two of these questions is that the Government’s ability to spend is based on its unlimited constitutional authority and monopoly powers to create currency and bank reserves. Pavlina Tcherneva puts this very well in the context of discussing whether the Government can continue to run deficits. She says:

“. . . how long can the government keep running deficits and what if it goes bankrupt?” Here, too, we have to remember that government deficits are unlike those of the private sector. This is because the private sector cannot pay by issuing its own currency or create reserves at the stroke of a pen, but the federal government can. By constitutional right, it has monopoly powers over its currency and bank reserves and, therefore, always pays by creating such reserves when it credits the private bank accounts of its payees (see how the Fed and Treasury interact to make payments). The US government has a Central Bank that never bounces government checks and always makes good on government commitments.

In other words, there are no technical reasons why a nation with sovereign control over its currency, like the U.S., should ever go bankrupt—unless of course a misguided Congress places arbitrary political restrictions on the government to meet its financial obligations.”

And, as matter of fact, a misguided Congress is placing arbitrary restrictions on the Government’s ability to meet its financial obligations. There are two very important ones. The first is the mandate to issue debt when the Government is anticipating deficit spending. And the second is the limit on the amount of debt the Government can have outstanding. Neither is sufficient to create a fiscal sustainability problem, but both, taken together, constitute the REAL fiscal sustainability problem of the United States currently.

As I explained in my previous post, if the mandate were removed and the Government could use its constitutional authority to spend/create money without issuing any more debt, it would be impossible for its current spending to preclude its future spending and full fiscal sustainability would exist. Or, alternatively, if Congress ceased to impose debt limits, then, also, no current spending could preclude future spending and we would also have full sustainability, since no matter how much debt was incurred there would be no limits on the US meeting its obligations.

So, to summarize, if the United States has a fiscal sustainability problem, then it is one that is wholly due to two Congressional restrictions on the Government’s full constitutional currency power. Its fiscal sustainability problem is not due to defense spending, or entitlements, or interest expenditures, or any other category of Government expenditures. And there is no need to cut such expenditures for fiscal sustainability reasons, though there may be a need to cut many Government programs because they don’t fulfill any public purposes. All that’s needed to ensure fiscal sustainability, is to repeal either of these two Congressional restrictions on Government spending, preferably the mandate to issue Federal debt, because that would also solve the false sustainability problem of too high national debt, and debt-to-GDP ratios.

So, the answers to all questions after the first two above are yes. The hawks are making much ado about nothing, or at least very little. They are creating a distraction over a non-problem. They are confused about the need to cut entitlements. In fact, there is no need to do that. They are confused about how the Government spends money, and also have a misunderstanding about the Government’s ability to spend. Finally, they are making a horrible mistake in not supporting enough Government spending to create full employment and to maintain it.

And this brings us to fiscal responsibility. It is not the same as fiscal sustainability. Of course, the deficit hawks and doves, including this President, believe that fiscal sustainability and fiscal responsibility are related because the only fiscally responsible fiscal polices are those intended to stabilize and eventually reduce the debt-to-GDP ratio. So, for them fiscal responsibility becomes a policy of fiscal austerity and a structure of constraints on Government spending that will destroy the future of our children and grandchildren.

But, as I’ve shown, Congress has only to lift one of two restrictions on the Government’s authority to spend in order to achieve the full fiscal sustainability originally granted to the Federal Government by the constitution. The first and most fiscally responsible thing for the Obama Administration to do is to call for lifting of one or both of the two Congressional restrictions. The coming and completely avoidable crisis over the debt limit provides the perfect backdrop for such a request.

Why should Obama wait for the Republicans in the new Congress to refuse to extend the size of the debt limit? Why not ask the lame duck Congress to remove the debt limit entirely, and, while they’re at it, give the Treasury the freedom to issue or not issue debt at its discretion? If the President appeals to the Public and makes it clear that the two Congressional restrictions are a) the source of the national debt they’re so worried about, and b) create the possibility of periodic crises that threaten to shut down the Government, and that he really needs these two restrictions removed to prevent financial crises in the future, he may be able to get one or both repeals through Congress.

The Republicans won’t want to along, of course. But does Mitch McConnell really want Rand Paul to be able to precipitate a Government shut-down crisis in March or April of 2011? Everything’s going his way, and he doesn’t need to risk the cries of outrage that will come down on him from his Wall Street friends, if the Government gets shut down and the bond markets are in a tizzy about irresponsible Republican behavior.

Whether or not full fiscal sustainability is immediately achieved, it’s clear that a fiscally responsible fiscal policy is to seek that full fiscal sustainability and, at the same time to implement fiscal policies that will fulfill public purposes. As Pavlina Tcherneva also says:

But just because government deficits can always be financed and just because government deficits create private sector surpluses, does it mean that all kinds of government spending are equally responsible? And the answer is clearly, NO.

A responsible government spending policy is not measured by some arbitrary accounting result called the deficit, but by the impact it has had on the real economy.

In other words, fiscal responsibility is fiscal policy intended to achieve public purposes while also maintaining or increasing fiscal sustainability. So, the REAL Government fiscal responsibility problem is not the problem of everyone “sucking it up” and responsibly accepting austerity. It is not targeting the debt-to-GDP ratio and managing Government spending to try to stabilize it.

Instead, it is the problem of people facing up to the need to use fiscal policy to stop our out of control economy from ruining the lives of any more Americans. This means that the REAL solution to the REAL fiscal responsibility problem is for our leaders in Congress and the Executive Branch, to remove fiscal constraints and use the fiscal powers of the Federal Government to fund solutions to the many national problems we face, starting with creating full employment, and a real universal health care system in which no one is shut out, or forced into foreclosure or bankruptcy by medical bills, and then all the other serious problems we face, but now will not handle because we claim a non-existent fiscal incapacity of the Federal Government. There is no incapacity! We have not run out of money! We have only run out of will and courage! We need to get those back, and do what must be done to reclaim the future for working Americans.

(Cross-posted at FireDogLake and Correntewire).

The biggest problem for Americans in our time is the increasingly dangerous threat to open society posed by the trend toward plutocracy and its effects on the political system. George Soros described the antecedents of these threats in The Age of Fallibility (pp. 100-101):

“Gradually, the methods developed for commercial purposes found a market in politics. This changed the character of politics. The original idea of elections was that candidates would come forward and announce what they stood for; and the electorate would decide whom they liked best. The supply of candidates and the preferences of the electorate were supposed to be independently given, just as in the theory of perfect competition. But the process was corrupted by the methods adopted from commercial life: focus groups and framing the messages. Politicians learned to cater to the desires of the electorate instead of propounding policies they believed in. The electorate did not remain unaffected. They chose the candidate who told them what they wanted to hear, but at the same time they could not avoid noticing that they were being manipulated; they were not surprised when their elected leaders deceived them. But there was no escape. The increasing sophistication of communication methods was built into the system. That is how America became a feel-good society. It was fostered by politicians seeking to be elected.”

One of the most damaging effects of the “feel-good society” is that the people are unable to keep politicians in check (p.96):

“In a democracy, it is the electorate that has to keep the politicians and the political operatives honest. That is where America is failing. A feel-good society, far from being committed to the pursuit of truth, cannot face harsh realities. This leaves it vulnerable to all kinds of false ideologies, Orwellian newspeak, and other deceptions.”

In the years since The Age of Fallibility appeared, we’ve seen dramatic increases in the amount of money spent on elections. Money is used to shape and distort the public’s view of reality, and the problem of its influence has been exacerbated by the Citizens United decision. Elected officials of both parties are influenced by campaign contributions, and a media bought by corporate money, to such an extent that there is no prospect of solving America’s many problems in ways that serve the public interest and benefit most people. Some even think that we now live in a plutocracy, and not in a democracy, and that both parties are corrupt, and now represent only the financial oligarchy. So, the central issue of our time is how we can overcome the influence of money on politics and make our political system more responsive once again.

This problem threatens open society in two ways. First, because the ability of the people to change leaders is now illusory, since the new elites are just as much influenced by a financial oligarchy, as the elites previously “in control” were. And second, because the ability for voters to see the truth is severely compromised by the influence over messaging and communications of the financial oligarchy. More and more, elite-dominated communications creates ‘reality’ for Americans. The actual reality of elite performance and the causes and cures of poor outcomes are viewed through a glass darkly, only.

For open society to function well, the truth about the reality of elite performance must be much more available and accessible to the efforts of citizens to arrive at it. But, increasingly, it is not. So, the two most important underlying conditions of open society, the ability for people to arrive at the truth (their cognitive function), and their ability to act on the truth to change elites (their participative function) are both undermined increasingly over time. As Soros rightly asks (p.110), “Who will enlighten the public” when these functions are compromised? And if the public cannot become enlightened, how will it keep the politicians and political operatives honest and focused on protecting the common good and the public trust? If nothing is done to stop this process of reality construction in the interests of the rulers, the end will certainly be the transformation of open society in America to a closed plutocracy. And given the speed of that transformation, its end may well come sooner rather than later.

Requirements for a solution

We won’t be able to stop the march toward plutocracy unless we can create a new institutional framework that allows us to change those aspects of our present situation that support plutocracy and undermine open society. It’s no good proposing or wishing for changes in the present legal system where such changes require the consent of the elites, because they have no incentives other than self-interest, except very occasional and intermittent altruism, and perhaps a low level of fear of mass movement-induced violence to motivate them to provide their consent for such changes. So, we need a framework that will operate within the context of existing rules and laws to create changes that will swing the dynamics of change away from plutocracy and toward open society.

The new institutional framework must provide a meta-level of political interaction and networking that places ecological constraints on the current system, driving it back towards a condition in which the ability of individuals to both arrive at more accurate constructions of reality, and act on these constructions, is dominant. Here are the requirements for such a framework.

– It must provide social contexts and milieus within which people can organize themselves and others around public policy agendas, comprised of policy options and policy priorities, into voting blocs and electoral coalitions ranging from very small to very large blocs of millions of voters without needing sizable financial resources from sources external to these social milieus, and without being subject to external mass media communications influenced by the financial oligarchs and other special interests.

– These social contexts and milieus must provide the possibility of informal group and social network formation around these policy agendas.

– These social contexts and milieus must be largely transparent and inclusive in providing participants with previously developed data, information, and knowledge, and in allowing them the freedom to participate in communicating, organizing, collaborating, critically evaluating, problem solving, and decision making within voting blocs and electoral coalitions.

– The social contexts and milieus must provide a modicum of trust for participants, in contrast to the two political parties, both of which are widely distrusted by a majority of Americans.

– The new institutional framework must enable participants and voting blocs to communicate their policy agendas (comprised of policy options and priorities) to candidates for public office and office holders, and also secure either commitments to these agendas or clear refusals to support the policy agendas from them.

– The framework must also enable participants and voting blocs to continuously monitor and rate performance of office holders against the agendas and to decide whether to continue to support office holders after performance ratings are arrived at.

– The framework must also provide enabling tools for voting blocs and electoral coalitions to organize efforts to get both major party and third party candidates and initiatives onto ballots, and to get people to the polls to vote. In other words, it must provide tools to enable voting blocs to do all the things political parties and factions now do to support candidates they want to elect and ballot initiatives they want to pass.

In short, the new institutional framework must provide an alternative to the contemporary world of political parties and established interest groups for analyzing political situations and issues, and for organizing people for political action. The alternative world must embody the key attributes of open society, which means it must provide an informal communications and knowledge network that is very much independent of the mass media, and also capable of enabling the creation of highly cohesive voting blocs and electoral coalitions of many millions of people, and even new political parties, which can offer decisive support to candidates and office holders in return for their continuing support of voting bloc agendas.

The Solution

We can use the Internet and the Interactive Voter Choice System (IVCS), to create the alternative world I’ve just outlined, a network of voter-driven political organizations to counter the influence of money in politics, including the cognitive distortions created by using big money to frame debates and constantly introduce distractions from key issues. The collective action power of the Internet when combined with IVCS will make the creation of such organizations feasible. When fully developed IVCS will provide voters free policy agenda-setting and consensus-building tools to:

– Define their own policy options and prioritize them to create policy agendas,

– Social network with others who have similar agendas to their own,

– Collaborate and solve problems with others to create collective policy agendas, voting blocs, and electoral coalitions that work within existing parties or build new political parties, and

– Hold elected representatives accountable by monitoring and evaluating how well their performance matches the policy agendas of the voting blocs that have elected them to office.

The result of using IVCS will be voting blocs of various sizes and influence, formed by voters across the political spectrum. People will use the system to formulate common policy agendas, and then create self-organizing transpartisan voting blocs, electoral coalitions, and political parties around those agendas. They can use the system’s search/data mining tools to locate others whose policy agendas are most like their own, and join with them.

From the viewpoint of an individual, it may not be easy at first to organize voting blocs that develop cohesiveness and staying power, because people will have to negotiate out their differences to join together. But negotiating common agendas, and crafting winning electoral strategies at the grassroots, gives voters a lot more power than being hamstrung by the two major parties. The system will support such negotiations, and create the potential for so many policy agendas and voting bloc coalitions to form that it is virtually certain that new and powerful blocs, and even political parties, will emerge, grow rapidly, and begin to acquire national influence.

Voting blocs will at first have only a virtual identity in the IVCS. But the social ties formed in these self-organizing blocs will be real, and much stronger than the ties between political interest groups and the members they communicate with using marketing e-mails and other top-down methods of mobilization. When bloc members start to take their blocs into political party organizations and primaries, the transition will be made from virtual to full social reality. The system and the website built around the system will support agenda formation and political organization better than the legacy political parties because its Policy Options Database enables voters to formulate written policy agendas, and use their agendas as legislative mandates to select candidates and oversee those they elect. (Prototypes of the Policy Options Database and the website can be viewed by clicking here and here.)

In addition, it will provide consensus-building and collaborative tools that legacy parties have never sought to provide their supporters. The content management tools will be better than any political party’s. The social networking tools will be far superior. The problem solving and knowledge processing tools supplied will also be better than those of any existing political party’s, and will support people informing each other about critical issues during the problem solving process. In the context of the IVCS, the answer to the question “Who Will enlighten the public?” is that people will tell one another as part of their everyday interaction. Finally, state-of-the-art campaign organizing tools (and services) will be provided by third party service providers with proven track records.

The IVCS application will supply a richer virtual environment for new voting blocs to emerge from than anything now available. It will also support transparency, and political inclusiveness within its voting blocs, as well as whatever degree of privacy and security a voting bloc wants. Voting blocs will make decisions and resolve conflicts either by consensus or by using the IVCS Voting Utility.

They can also use the Utility to vote on proposed political alliances and coalitions. Since voting bloc members can always “vote with their feet,” by forming new blocs or joining other already existing blocs, and since new voting blocs will always be coming into existence, the dynamic environment of the IVCS will always be biased toward bottom-up organization, problem solving, and influence, rather than top-down control. Since problem solving in the system will be distributed and not centralized, blocs will be able to adapt to their environments better than traditional voting blocs, transcend the awkward stages of initial growth, and develop into new political organizations that can successfully challenge the legacy parties and the special interests as the driving force in the American political system.

The likelihood that national voting blocs will form and maintain themselves is great, because the yearning in America for change is great, as is the potential for many, many groups to form and fail, while giving up their members to those that survive. Most Americans want to do something about the mess we’re in. They want the political system to be responsive to the people. They’ll take advantage of IVCS because it will be the only practical way, in this time of corporate dominance of the mass media and the major political parties, that they can build winning voting blocs, electoral coalitions and political parties they control; select candidates for office on the basis of their own criteria (their written policy agendas); evaluate those they elect; influence them; and, finally, hold them accountable.

Since it will cost little more than time to organize and get one’s messages out by using it, the system will eliminate the need for voting blocs, political parties, and candidates to rely on contributions and special interest campaigns to get support. They’ll be able to spread their message using the facilities of the IVCS alone. The system will de-fang the Citizens United decision, and the influence of special interests more generally, because mass media-based propaganda campaigns will conflict with, and be critically evaluated by IVCS-based interactions and messaging within informal social networks and voting blocs.

Since the social ties within IVCS will be much stronger and more intense than the ties between individuals and organizations in mass media campaigns, such propaganda campaigns will become less and less effective in framing debates and influencing the cognitive functioning of individuals. Their role will diminish over time because spending a fortune on them won’t work to influence elections, once the IVCS is available and widely used. In the longer run, the transparency, inclusiveness, self-organizing tendencies, and intense political and social interaction within IVCS-enabled voting blocs, parties and coalitions will revitalize open society and assert open society controls over the electoral, legislative, and political processes.

Implementation

The IVCS can be implemented by integrating already developed and commercially available software using Web-Oriented Architecture (WOA). The systems integration work will deliver functionality that fulfills the above requirements, and provides content management and integration capabilities that people can use to track how well knowledge claims about policy options and impacts have survived criticism and evaluation in the past. IVCS will also include a security architecture to prevent its penetration by people who want to disrupt, take over, or manipulate the way it works.

A continuing worry is the ability of people in politics to avoid reality by framing their own narratives for interpreting both it and their own performance. There’s no way to stop attempts at that sort of thing from going on. But IVCS will allow people to incorporate counter-narratives and evaluations against the interpretations by the wealthy and powerful of their own performance on an equal footing. This sort of capability to expose everyone’s views to critical evaluation in the context of a neutral exchange platform is essential to restoring the effectiveness of the cognitive function in open society.

IVCS will also possess strong viral marketing and “political strategizing” capabilities, since its tools and services will be made available via a social networking platform. These will enable it to grow very quickly in membership and participation after its launch, both to influence the 2012 elections, and to defend itself against attempts to marginalize or neutralize it. The combination of systems integration and software work, strategizing, and marketing needing to be accomplished in a short time means that IVCS’s development and implementation must proceed at top speed in the coming months.

Conclusion

The IVCS web site can be developed as a host for a network of inter-connected voter-driven political organizations (voting blocs and electoral coalitions) to counter the influence of money in politics, including the cognitive distortions created by special interests using big money to frame debates and constantly introduce distractions from key issues. The network will provide a meta-level of political interaction that places ecological constraints on the current system so that it is driven back towards a condition in which the ability of individuals to both arrive at more accurate constructions of reality, and act on these constructions is dominant.

In the first quote above from The Age of Fallibility, George Soros identifies what is probably the most important cause of the movement away from open society and towards plutocracy, namely the deliberate manipulation of voters’ perceptions of reality. IVCS will be a powerful counter to this technology of political manipulation. By introducing a transparent, inclusive layer of networked social interaction, insulated from mass media manipulation, emphasizing problem solving and critical evaluation, and giving rise to legislative mandates backed by very large and powerful voting blocs and electoral coalitions, we can introduce open society epistemological and political controls into our electoral and political processes and make our representatives accountable once again. We can enable voters themselves to reverse the movement of the United States toward plutocracy, and move it in the direction of open society once more.

(Cross-posted at FireDogLake and Correntewire).