...with the potential to make history.
There was an optimistic tone to the Brookings Institution’s invitation to an “honest and informed debate about the pros and cons of various fiscally responsible choices” concerning our national debt. According to their book, Restoring Fiscal Sanity: How to Balance the Budget, this invitation was made “in the hopes that others will offer their own detailed proposals for achieving fiscal balance” (Executive Summary, page 3, italics added). But that invitation was made 10 years ago. As seen below, optimism has waned. How likely is it that something significant could come from such a discussion today? With the right level of institutional engagement, now is the time for a pivotal paradigm shift. The old ways have been tried by many and decisively failed during these last 10 years. Around the world and in DC, there is a current “tide in the affairs of men” to break out of the box that has held us for too long.
Congress will do nothing new without the blessings of one of a small group of think tanks, led by the Brookings Institution. The “new” thing on which we want to have an “honest and informed debate” (as per the Brookings’ invitation) is the use of a limited amount of debt free government-issued money…like our longest-lasting form of currency, United States Notes, and like monetary policies used in countries like Canada, Germany and others. This “new” idea of learning about and re-introducing old ideas that have worked could be employed to eliminate our current deficit at the time when it needs to be eliminated – now. It could allow us to make headway on reducing the national debt starting when we should start – now. These things can be done with no economy-sapping austerity cuts to our already pared-down budget. And which party is going to vote for increased debt for the sake of debt when reduced debt with no downside is presented, after proper review, as an alternative?
Is the way we are going now good enough? Is it actually true that “nothing good can be expected in the current political climate”? Will we be content to say “that’s not my specialty” or that “we are too busy with funded studies” to take a look at something vital and current? There is a need for focused, institutional involvement at the right level. That is why we are raising this matter in a public forum.
Ten years ago there was hope for a consensus, and offers to engage in dialogue seemed the natural thing. Most recently hope seems to have turned into despair. That’s not necessarily a harbinger of something bad. It can, in fact, signal a moment of opportunity to look at things anew. Let’s flesh out the case that momentum has already been gained at the top levels within Brookings and elsewhere toward an “out with the old, in with the new” stance – a momentum that can be built upon, and that other institutions can follow.
The above-cited Brookings book, Restoring Fiscal Sanity – How to Balance the Budget, was written in 2004. A decade later, on the 9-9-2014 Brookings Institution web site, one of the contributors to that book wrote an article titled, The Budget Crisis Could End In one of Two Ways. Here are the rumblings of discontent with the old. The two ways are described below in less-than-enthusiastic terms:
“The Banana Republic Doomsday Scenario” … “A financial crisis of some sort could occur. One possibility, in an economic event not unlike a classic bank panic, is that investors who own the nation’s debt, about half of whom are foreigners, could lose faith in America’s ability to control its deficit, ramp up its evaluation of the risk involved in loaning their money to such an undisciplined nation, and demand higher interest payments before loaning the federal government more of their money. So great is the nation’s borrowing that even moderate rises in interest rates could precipitate a crisis because the nation would face three choices, all bad. The treasury could: borrow more money to finance the money it had already borrowed, thereby entering a death spiral; cut spending; or raise taxes.”
“The Chinese Water Torture Slow Crisis” … “Spending on programs vital to the nation’s future are gradually starved. In this scenario, two additional villains accompany interest rates to produce the slow crisis. So much has been written about spending on Social Security and especially Medicare that most American must realize that these programs lie at the center of our debt problem. According to CBO, spending on Social Security, the major health programs, and net interest as a percentage of GDP will rise from 10.8 percent to 14.8 percent between 2013 and 2024. After that, the share of the nation’s economy consumed by the Big Three will continue to rise. And here’s an amazing fact: none of the Big Three even have a budget and the spending they entail almost never receives a direct vote in congress. If the federal budget where an airplane, the Big Three would be on automatic pilot as they head inexorably toward a mountain side at full speed.”
The polls do indicate pessimism about our economic future in general. But at this time, upon what specific cures is there consensus? The national debt has gotten much worse since the 2004 book. Is there consensus about the rate at which and about the amount by which we should now cut Social Security, Medicare and Medicaid? The public wants some say in this. Where Restoring Fiscal Sanity cites cuts we can make in order to further invest in things like social services (for younger Americans), education, infrastructure, etc., do the numbers still work a decade later with the national debt now doubled? As long as we stay all-fiscal, it’s all dismal business. We must introduce the monetary dimension into the analysis in order to see what things look like in 3-D. That is just what Brookings has recently done.
There is now a large and growing number of economists in the US (and other countries) who have looked at the issue from outside the box of assuming that cuts to things like Social Security, Medicare and Medicaid are the low-hanging fruit to which we must first turn. The government is presently issuing Treasury bonds to private banks and investors to the tune of $550 billion to $600 billion per year - the full amount of our annual deficits – to borrow money such as the government has issued and could again issue just as easily for itself with no debt cost. We are referring to the long-standing practice of the United States, Canada, Germany and other countries of using government-issued currency like the United States Notes that were issued between 1862 and 1971 – circulating side-by-side with Federal Reserve Notes for more than a century, with no negative effects on the Federal Reserve System and private bank money creation.
There is presently a confluence of factors that compels a serious discussion of this issue. Events have shown that the course of our debt increase is unsustainable, even now that we are out of our recession and have been, for several years at least, in peacetime. We are not prepared to cope with a host of possible emergencies of which we now have a heightened awareness. We all know that years of deferred maintenance of our infrastructure cannot be sustained indefinitely. There is a broad consensus that some investments do need to be made to keep us competitive, just as they were made by Republican and Democratic administrations when our economy was growing more healthfully.
It would appear to be with a sense that a fundamental change is needed that the leadership of the Brookings Institution recently established its Hutchins Center on Fiscal and Monetary Policy. The 12/4/13 announcement found on the Brookings website reads: “The Brookings Institution today announced the establishment of the Hutchins Center on Fiscal and Monetary Policy, which will focus on the important roles and interplay between fiscal and monetary policy and will bring together the best new evidence and analysis from the research community with the informed, practical perspectives of the business community and policy makers.”
The announcement went on to note: “the Center was funded by a grant from the Hutchins Family Foundation, that of Brookings Trustee Glenn Hutchins, who stated: ‘We hope to create a center of
excellence which will foster world-class research and analysis of monetary and fiscal policy – as well as the interaction between the two. The next decade of economic policy-making will be dominated by
these questions and our goal is for the Center to be at the heart of the discussion. I can think of no one better qualified to lead this effort than David Wessel’ (the Center’s Director)”.
Strobe Talbot, President of the Brookings Institution, added: “Fiscal and monetary policy has never been more important than it is today and will be for years to come. With Glenn’s counsel, leadership and support, Brookings will be able to make high-impact, independent contributions to the public debate and the policy process”.
The Center is within the Economic Studies Department, headed by Director Ted Gayer. In the announcement, he stated: “Good policy starts with a rigorous understanding of the economic issues at hand, paired with a thorough examination of how policy affects outcomes.”
David Wessel, the Center’s Director, stated: “It’s time to try something new. [Policy Winners: AMEN!]. The opportunity to work closely with Glenn Hutchins, Ted Gayer and the distinguished Brookings team to build a new non-partisan center that sheds light on the crucial fiscal and monetary policy changes of our time is exciting”
We have previously (in our May issue) received comments from experts to our question: “Under ANY set of limitations or conditions, should the U.S. consider re-introducing United States Notes, issued without debt cost to the government, to ease our debt–and–austerity crisis?” Our responses have generally fallen into two categories: those who are enthusiastically in favor, and those who haven’t any idea what we are talking about.
We have proposed a pilot step of a one-time, one-year authorization of United States Notes in an amount of up to 5% of the money supply, to eliminate the current deficit and make a start on reducing the national debt. There would be no changes to the authorities or the workings of the Federal Reserve and no increase in spending; thus, no inflationary effect. There would be a reduction of hundreds of billions of dollars in the current federal raid on the capital markets, enhancing credit availability where it is most needed. Both under-served private businesses and states would greatly benefit. It should be emphasized that this monetary solution is not a new idea, but a very readily researched historical practice in this country and around the world. It is the monetary system described in the Constitution (Article I, Section viii).
We propose to bring to the Brookings Institution a group of nationally-known and distinguished scholars in the subjects of economic history, monetary reform in the US and contemporary monetary reform movements throughout the world. If the Brookings Institution does indeed seek an “honest and informed debate”, arranged “in the hopes that “others will offer their proposals”, then we will soon be able to report that meaningful conversation has occurred or will occur.
There was an optimistic tone to the Brookings Institution’s invitation to an “honest and informed debate about the pros and cons of various fiscally responsible choices” concerning our national debt. According to their book, Restoring Fiscal Sanity: How to Balance the Budget, this invitation was made “in the hopes that others will offer their own detailed proposals for achieving fiscal balance” (Executive Summary, page 3, italics added). But that invitation was made 10 years ago. As seen below, optimism has waned. How likely is it that something significant could come from such a discussion today? With the right level of institutional engagement, now is the time for a pivotal paradigm shift. The old ways have been tried by many and decisively failed during these last 10 years. Around the world and in DC, there is a current “tide in the affairs of men” to break out of the box that has held us for too long.
Congress will do nothing new without the blessings of one of a small group of think tanks, led by the Brookings Institution. The “new” thing on which we want to have an “honest and informed debate” (as per the Brookings’ invitation) is the use of a limited amount of debt free government-issued money…like our longest-lasting form of currency, United States Notes, and like monetary policies used in countries like Canada, Germany and others. This “new” idea of learning about and re-introducing old ideas that have worked could be employed to eliminate our current deficit at the time when it needs to be eliminated – now. It could allow us to make headway on reducing the national debt starting when we should start – now. These things can be done with no economy-sapping austerity cuts to our already pared-down budget. And which party is going to vote for increased debt for the sake of debt when reduced debt with no downside is presented, after proper review, as an alternative?
Is the way we are going now good enough? Is it actually true that “nothing good can be expected in the current political climate”? Will we be content to say “that’s not my specialty” or that “we are too busy with funded studies” to take a look at something vital and current? There is a need for focused, institutional involvement at the right level. That is why we are raising this matter in a public forum.
Ten years ago there was hope for a consensus, and offers to engage in dialogue seemed the natural thing. Most recently hope seems to have turned into despair. That’s not necessarily a harbinger of something bad. It can, in fact, signal a moment of opportunity to look at things anew. Let’s flesh out the case that momentum has already been gained at the top levels within Brookings and elsewhere toward an “out with the old, in with the new” stance – a momentum that can be built upon, and that other institutions can follow.
The above-cited Brookings book, Restoring Fiscal Sanity – How to Balance the Budget, was written in 2004. A decade later, on the 9-9-2014 Brookings Institution web site, one of the contributors to that book wrote an article titled, The Budget Crisis Could End In one of Two Ways. Here are the rumblings of discontent with the old. The two ways are described below in less-than-enthusiastic terms:
“The Banana Republic Doomsday Scenario” … “A financial crisis of some sort could occur. One possibility, in an economic event not unlike a classic bank panic, is that investors who own the nation’s debt, about half of whom are foreigners, could lose faith in America’s ability to control its deficit, ramp up its evaluation of the risk involved in loaning their money to such an undisciplined nation, and demand higher interest payments before loaning the federal government more of their money. So great is the nation’s borrowing that even moderate rises in interest rates could precipitate a crisis because the nation would face three choices, all bad. The treasury could: borrow more money to finance the money it had already borrowed, thereby entering a death spiral; cut spending; or raise taxes.”
“The Chinese Water Torture Slow Crisis” … “Spending on programs vital to the nation’s future are gradually starved. In this scenario, two additional villains accompany interest rates to produce the slow crisis. So much has been written about spending on Social Security and especially Medicare that most American must realize that these programs lie at the center of our debt problem. According to CBO, spending on Social Security, the major health programs, and net interest as a percentage of GDP will rise from 10.8 percent to 14.8 percent between 2013 and 2024. After that, the share of the nation’s economy consumed by the Big Three will continue to rise. And here’s an amazing fact: none of the Big Three even have a budget and the spending they entail almost never receives a direct vote in congress. If the federal budget where an airplane, the Big Three would be on automatic pilot as they head inexorably toward a mountain side at full speed.”
The polls do indicate pessimism about our economic future in general. But at this time, upon what specific cures is there consensus? The national debt has gotten much worse since the 2004 book. Is there consensus about the rate at which and about the amount by which we should now cut Social Security, Medicare and Medicaid? The public wants some say in this. Where Restoring Fiscal Sanity cites cuts we can make in order to further invest in things like social services (for younger Americans), education, infrastructure, etc., do the numbers still work a decade later with the national debt now doubled? As long as we stay all-fiscal, it’s all dismal business. We must introduce the monetary dimension into the analysis in order to see what things look like in 3-D. That is just what Brookings has recently done.
There is now a large and growing number of economists in the US (and other countries) who have looked at the issue from outside the box of assuming that cuts to things like Social Security, Medicare and Medicaid are the low-hanging fruit to which we must first turn. The government is presently issuing Treasury bonds to private banks and investors to the tune of $550 billion to $600 billion per year - the full amount of our annual deficits – to borrow money such as the government has issued and could again issue just as easily for itself with no debt cost. We are referring to the long-standing practice of the United States, Canada, Germany and other countries of using government-issued currency like the United States Notes that were issued between 1862 and 1971 – circulating side-by-side with Federal Reserve Notes for more than a century, with no negative effects on the Federal Reserve System and private bank money creation.
There is presently a confluence of factors that compels a serious discussion of this issue. Events have shown that the course of our debt increase is unsustainable, even now that we are out of our recession and have been, for several years at least, in peacetime. We are not prepared to cope with a host of possible emergencies of which we now have a heightened awareness. We all know that years of deferred maintenance of our infrastructure cannot be sustained indefinitely. There is a broad consensus that some investments do need to be made to keep us competitive, just as they were made by Republican and Democratic administrations when our economy was growing more healthfully.
It would appear to be with a sense that a fundamental change is needed that the leadership of the Brookings Institution recently established its Hutchins Center on Fiscal and Monetary Policy. The 12/4/13 announcement found on the Brookings website reads: “The Brookings Institution today announced the establishment of the Hutchins Center on Fiscal and Monetary Policy, which will focus on the important roles and interplay between fiscal and monetary policy and will bring together the best new evidence and analysis from the research community with the informed, practical perspectives of the business community and policy makers.”
The announcement went on to note: “the Center was funded by a grant from the Hutchins Family Foundation, that of Brookings Trustee Glenn Hutchins, who stated: ‘We hope to create a center of
excellence which will foster world-class research and analysis of monetary and fiscal policy – as well as the interaction between the two. The next decade of economic policy-making will be dominated by
these questions and our goal is for the Center to be at the heart of the discussion. I can think of no one better qualified to lead this effort than David Wessel’ (the Center’s Director)”.
Strobe Talbot, President of the Brookings Institution, added: “Fiscal and monetary policy has never been more important than it is today and will be for years to come. With Glenn’s counsel, leadership and support, Brookings will be able to make high-impact, independent contributions to the public debate and the policy process”.
The Center is within the Economic Studies Department, headed by Director Ted Gayer. In the announcement, he stated: “Good policy starts with a rigorous understanding of the economic issues at hand, paired with a thorough examination of how policy affects outcomes.”
David Wessel, the Center’s Director, stated: “It’s time to try something new. [Policy Winners: AMEN!]. The opportunity to work closely with Glenn Hutchins, Ted Gayer and the distinguished Brookings team to build a new non-partisan center that sheds light on the crucial fiscal and monetary policy changes of our time is exciting”
We have previously (in our May issue) received comments from experts to our question: “Under ANY set of limitations or conditions, should the U.S. consider re-introducing United States Notes, issued without debt cost to the government, to ease our debt–and–austerity crisis?” Our responses have generally fallen into two categories: those who are enthusiastically in favor, and those who haven’t any idea what we are talking about.
We have proposed a pilot step of a one-time, one-year authorization of United States Notes in an amount of up to 5% of the money supply, to eliminate the current deficit and make a start on reducing the national debt. There would be no changes to the authorities or the workings of the Federal Reserve and no increase in spending; thus, no inflationary effect. There would be a reduction of hundreds of billions of dollars in the current federal raid on the capital markets, enhancing credit availability where it is most needed. Both under-served private businesses and states would greatly benefit. It should be emphasized that this monetary solution is not a new idea, but a very readily researched historical practice in this country and around the world. It is the monetary system described in the Constitution (Article I, Section viii).
We propose to bring to the Brookings Institution a group of nationally-known and distinguished scholars in the subjects of economic history, monetary reform in the US and contemporary monetary reform movements throughout the world. If the Brookings Institution does indeed seek an “honest and informed debate”, arranged “in the hopes that “others will offer their proposals”, then we will soon be able to report that meaningful conversation has occurred or will occur.
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