the treatment of Jeffrey Sterling

Jeffrey Sterling has been in the news recently due to the completion of the trial phase of his prosecution by the Obama Administration under the Espionage Act. That in itself is noteworthy since so few Americans have ever been tried under that particular piece of legislation born out of the war preparations for what was supposed to have been the great war. But like the Selective Service System and the USA PATRIOT Act and the FISA Amendments Act and all the rest of the national security state, these things have a tendency of becoming permanent.

A typical headline and lede goes something like this:

C.I.A. Officer Is Found Guilty in Leak Tied to Times Reporter

WASHINGTON — Jeffrey A. Sterling, a former Central Intelligence Agency officer, was convicted of espionage Monday on charges that he told a reporter for The New York Times about a secret operation to disrupt Iran’s nuclear program.

Now, that's from the paper whose reporter himself published the information in question. Sterling wasn't found guilty of espionage. He was found guilty of whistleblowing. And of course, even that is circumstantial. Remember how hard it is to prosecute the financial fraudsters and war criminals because we don't have airtight cases against them? Well, when the government actually wants to, it prosecutes people on rather flimsy evidence. If you're interested in the details of the proceedings, Marcy Wheeler has been following this in depth.

What I want to do is tell a little more about him and government employment. Something I haven't seen in the corporate media at all is anything that would humanize him or tell an actual story about him other than ooh, spy convicted. (In fact, if an American really was spying on America for America's Enemies, why hasn't he been tried and hanged for treason?).

You see, Sterling is a graduate of Washington University in Saint Louis, my alma mater. He grew up in Missouri, Cape Girardeau, not Virginia, where he's being tried. He received a law degree in 1992. He worked for the public defenders office. And he had a respected career in government service until something happened. Was it incompetence? Nope. Did he steal something? Nope. Did he sexually harass a colleague? Nope.

Sterling is a black man. Now that shouldn't matter. But it does still matter in our society. When he filed a discrimination suit against the CIA, all of a sudden, the government started not liking him. That's the real story here. An employee tried to exercise their right to anti-discrimination, and the government responded by pursuing that employee aggressively for alleged leaking of classified information - a pursuit not sought with the same vigor against others who might also have been the source of the leak.

And, oh, what was this leak? Yeah, well, the government doesn't want you to ask. See, they classified materials in the discrimination proceedings and the leak proceedings. Because, you know, public information doesn't belong to the public. It belongs to the Fearless Leaders of our great country.

This is where we are at. The US commits acts of war against Iran. Dedicated public servants are denied their right to pursue nondiscrimination in employment. When someone leaks information that was improperly classified in the first place, the obvious solution is to go after the guy making waves.

That's called retaliation when a private sector employee does it. But when the government does it, it's called national security. Literally, it is a secret of the state. Just another tidbit for MMTers to consider. How, exactly, will employee rights be guaranteed by a government that is so secretive, vindictive, and authoritarian that it prosecutes someone like Jeffrey Sterling?

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Current Limits of Modern Money (MMT)

Two years where nothing has happened.

That's sort of what it feels like, a brief microcosm of Francis Fukuyama's End of History. What was silly about that was the permanence of the sentiment, this notion that This Time Is Different, but there's a lot of truth to temporary periods of stagnation. It's not that there aren't things happening at an individual level, it's just that the details are all that differ. The same soup warmed over just keeps happening, like we're stuck in a holding pattern waiting for reality to do its thing to unsustainable arrangements.

I haven't even logged into the blog in a while, and I was surprised to find that according to Google's analytics, they send traffic here from time to time, my little personal journal that hasn't seen a new article since before Stephen Colbert decided to go get a real job. 145 links last month? Wow.

So you're reading a bit of an intro or disclaimer I normally don't provide on my thoughts here just in case my little ramblings get picked up by the Google Magic Machine and transported across spacetime. Especially given the recent case study of Marco Ament whereby legitimate and thoughtful criticism was twisted into a variety of things it was not. I don't embrace the conservative takeover of America, the radical right, whatever we want to call it. I believe in market-based economics, not fascism (or communism, for that matter). I'm centrist for a Millennial, but I'm pretty far to the 'left' as far as the general American public goes.

However, I disagree with some of the ways that leftist thought leaders, we might say, have been trying to counter the changes in American political economy over the past half century generally and the past couple decades in particular. What I see is a blindness, an ignorance, almost willfully so, to cast aside or under appreciate how some ideas can be so easily twisted to serve the authoritarian purposes that have been undermining Constitutional governance and creating a dangerously high level of concentration of wealth and power. MLK laid out the clear connection of class that still hasn't fully permeated upper middle class, educated thinking, in tying together racism, militarism, and economic injustice. It's one of the reasons I think of this on MLK weekend. Selma - seriously, go see the movie if you at all have any interest in movies - is so far away, yet so close to home. The two-tiered justice system isn't a relic of the past. Young black men are victims of systemic targeting by our legal system today.

If anything, things are trending worse again, not better, since the advances of the 1950s and 1960s. Highly educated liberals - with the fancy degrees and certifications of higher education serving as impressive gate keepers - in the Democratic party control our nation's major cities, and that is ground zero of much of the oppression and injustice and preventable suffering in contemporary America. It should be neither controversial nor shocking to express such a sentiment, but yet, sometimes it is. The Republicans are not the problem. Conservatives are not the problem. Racists are not the problem. Evangelical Christians are not the problem. Libertarians are not the problem. Gold bugs are not the problem.

We all are the problem. It is an American problem we face, a time to answer again for our era what exactly we mean by created equal, by a more perfect union, by liberty and justice for all.

There's also an interesting personal angle to me for MMT. Growing up in KC, where UMKC hosts the Center for Full Employment and Price Stability, MMT has a bit of a home town feel to it. And there's the interesting related but different approach between business and economics. The business student is interested in what works, in implementation, in how to put things in practice. It is focused and driven by results, by outcomes, by the meaning of what is accomplished. But MMT comes out of the more academic side of theorizing and a bit of the math and physics envy that plagues the social sciences generally and economics in particular. That's a personal connection for me especially since one of Professor Randy Wray's major influences was Professor Hyman Minsky, a long time academic in the economics department at Washington University in St. Louis. One of my most memorable interactions with econ professors was at Washington University when Professor Murray Weidenbaum, who passed away this spring, spoke in our Honors in Management seminar about government regulation and so forth. A business student asked him what he thought of one of the big contemporary issues of the day - Enron - and the gist of his answer was that mistakes probably were made but it didn't amount to fraud. That unwillingness to call a spade a spade, to name crime as such, caught my attention then and I continue to see it today, across a wide swath of political rhetoric and intellectual frameworks. It's almost like explaining the past couple decades as a pedestrian crime wave committed by a bunch of run-of-the-mill criminals rather than some complicated phenomenon by SuperSmart People implicates everyone whose reputation is tied up in our system, from corporate executives to Democratic politicians to tenured professors to police chiefs to prosecutors to judges.

Saint Louis County Prosecutor Bob McCulloch isn't some outstate Republican with no education beyond high school, nor is he some crazy right-wing economist or pundit. He's a white upper middle class Democrat with an advanced degree. And what is notable about his conduct is not that it was outside the mainstream. Rather, what is notable is that he is very representative of the two-tiered justice system. Hard prosecution of petty crimes allegedly committed by people in poverty combined with light prosecution of serious crimes allegedly committed by armed government employees, big time financial fraudsters, and so forth. And lest anyone in the heart of the problem, the NYC-DC nexus, think this is a flyover state problem, that canard is unfortunately put to rest quite easily.

What follows is very specifically my perspective on current limitations in modern money. It is very specifically framed that way because I don't think the whole thing is simply bunk, nor do I think it is impossible to address these matters. Rather, what I am pointing out is that this perspective is currently limited, as if admiring a beautiful landscape by holding a hand over one eye. So far I have been rather personal and vague. One of the core challenges of discussing modern money in detail for critical analysis is that the details differ from one proponent to the next. There is no periodic table of the elements or constant speed of light to serve as base and reference point.

So I'm going to summarize four key points of MMT as I would describe and synthesize them:

1) MMT observes that good monetary policy must utilize a buffer stock policy. In other words, there must be some price anchor attached to a fiat currency issued by a sovereign government. The government can of course create as many currency units as it wants, but this must be checked by that price anchor. Some of the most common such buffer stocks are gold, unemployment, and full employment (AKA ELR, AKA JG - a job guarantee, the acronym I'll use from here on out for simplicity sake). But the key here is that just about anything can be argued to serve this purpose in theory, from silver and copper to wheat and soybeans.

2) MMT observes that, since we have to choose a buffer stock, we should choose the best one. The best one is full employment (JG).

3) MMT observes that not only does JG serve a monetary function, it also solves non-monetary problems. Unemployment, homelessness, poverty, inadequate healthcare, skill deficiencies, etc. Giving people a job gives people access to overcoming these barriers. In short, work in the formal economy is valuable in and of itself, not just for the income such employment provides.

4) MMT observes, at least in some circles, that balanced budgets are inherently bad. In other words, it's not just that the government can run a deficit, but more than that, that the government ought to run a deficit. Not over short or temporary periods of time, but forever. I will generally refer to this as net deficit spending (i.e., where spending - the creation of currency units - exceeds taxation - the destruction of currency units).

What is immediately obvious and troublesome to me is that points 1 and 2 are closely linked. There is a clear line of thought connecting those two claims. But 3 and 4 are independent. This is not an abstract or theoretical problem. One of the major issues in the labor market is that there are millions upon millions of jobs that have low wages and poor working conditions. We also know that Americans work far more than our peers in other industrialized nations. And finally, we know that single-income households (breadwinners) are more stable than households where all adults must work. Meanwhile on item 4, one of the major issues in government budgeting is that we are already running massive deficits, right now. The Reagan-Bush-Obama era, in fact, is defined in some ways by consistently spending far more dollars than are raised through taxation. In a very real sense, MMT seems easily used to augment the authoritarianism, not reject it.

This post is also titled current limits because it is not that MMT provides poor responses to critiques of the JG so much as it refuses to consider some kinds of criticism at all. For example, Professor Wray explained his thinking in the following manner:

“I’m not going to say more about these final two arguments against full employment as I’m convinced both are fallacious, and because neither of these critiques offers a price-stabilizing anchor for the currency in place of the JG/ELR.”

In other words, MMT does not explain why philosophical and practical objections to JG are incorrect. Rather, the theory handles disagreement by defining it as fallacious and lacking a price anchor. In other words, MMT is aimed at people operating within the mainstream of economics, those that accept point 1 above. So far, it does not appear interested in perspectives that are outside of this mainstream view.

Below, I present three Ps, if you will, that offer different perspectives or insights into the problems posed by JG. In summary, they are philosophical, practical, and political.

On the philosophical front, JG theorizes that idleness is bad. It asserts, by definition, that time spent employed in the formal economy is necessarily better than time spent doing something else. On the practical front, I present a comparison between the actual functioning of two parts of the government – the Social Security Administration and the National Security State. If one views the situation from a different perspective, it appears clear that social insurance, in practice, works much better than direct employment. Finally, there is a political point worth considering that social insurance has proven its staying power within the confines of the acceptable range of policy options available in US culture. A JG, in contrast, has never been tried. The most expansive programs we have, like the WPA or the Vietnam War, have either been temporary or controversial (or both).

For me, the unwillingness to defend philosophical objections to JG is the most powerful indictment of the current limitations of theory built around modern money. It demonstrates either a tremendous lack of understanding about the core assumptions and values that one brings to political economy, or, a lack of intellectual seriousness and rigor. Formal employment is inherently authoritarian. That’s the point – one person hires another person to do what he or she says to do. This can work very well in a system of equality and rule of law where employees and employers form consenting agreements to produce a valuable outcome.

However, the inherent dangers of centralized power should not be taken lightly. Slavery, indentured servitude, physically abusive working conditions (“sweatshop labor”), theft, discrimination, harassment, and child labor are some of the more commonly understood problems of too much unchecked authority. It is easy to rationalize away the oppressive nature of work as something that is in the past. But it’s not. More human beings are enslaved today than in the 19th century, from domestic servants to children caught up in sex trafficking.

The authoritarianism of the workplace is prevalent in less extreme cases, too. There is a direct link between stress of overworked employees and mental and physical health problems. Indeed, the trauma inflicted by workplaces where employees have little power is eerily reminiscent of the description that Wray himself offers of the problems of unemployment:

“…divorce, deteriorating physical and mental health, abuse of children and spouses, gang activity, and crime.”

How the JG works isn’t the only issue. There is also the matter of what the JG will accomplish. It is a rather dull and depressing view of humanity to posit that human beings are only properly motivated and organized when employed. Formal employment can be good. That does not mean it is necessarily good.

Indeed, the exact opposite approach would seem most in line with human progress and civilization. It is the productivity of agriculture and commerce and so forth over the years that allowed people to pursue higher callings in the arts and sciences. Our curiosity and creativity as a species requires rest and idleness and leisure and spontaneity and failure; the very opposite traits maximized by employment-based resource allocation. It is better for the government to pay someone to pursue their own hobby than for the government to pay someone to do work that is of little interest or value. The range of activities that humans engage in outside of formal employment is as vast as the imagination, from very obvious pursuits like parenting and volunteering and civic engagement to more particular passions such as a faith community or visiting relatives or painting or singing in a choir or going hiking or running for school board or coaching a little league team or exploring the stars or writing a novel or any other myriad of such activities.

Finally, JG inherently sidesteps the issue of inequality. Excessive inequality is one of the core problems facing our society. JG entrenches inequality in a system where some people have ‘good’ jobs that pay much more than the compensation earned by the less fortunate workers stuck in the JG positions. The trick is that the higher one sets the minimum bar of wages, the more employment then shifts from the private sector to the government. It is a dynamic variable, not a static constant. It’s not just the 10 million people who are unemployed.

80 million workers make less than $30,000 a year(!). Does MMT really propose that the government hire that many people? How about the 100 million workers who earn less than $40,000? And what about the other 90 million adult Americans who aren’t in the labor force at all? Why not just increase the minimum wage and taxes on the wealthy instead of all the effort involved in being an employer of last resort?

The government's own data shows quite clearly that some workers make far more than even $40K a year. The 'mean annualized wages' for an economics professor is $100K! Health profs make $106K. For legal profs, it's $122K. These are massive wage differentials amongst workers whose jobs are based upon government policy, not private sector employment.

That doesn’t mean that critiques of how and what the JG accomplishes are necessarily right. But it certainly demonstrates that JG proponents must defend it on these grounds if they wish for those of a different perspective to take the JG seriously.

If the above discussion is too heady or vague for your taste, then let’s turn our attention to practical concerns. I will characterize these in two ways – first, concern about the efficiency of the price anchor, and second, concern about the projects a JG would pursue.

I fundamentally reject point 1 above, the MMT notion that a system of political economy must choose some sort of buffer stock to serve as a price anchor for the state’s currency. Quite simply, I would suggest that price anchors don’t work. Thus, they are irrelevant. Whether it’s hard money like gold, silver, copper, iron, wheat, corn, or some other physical commodity, or fixed foreign exchange rates, or unemployment, or full employment, there is simply no theoretical or historical record of price anchors actually preventing a political system from spending whatever currency units it desires. After all, that’s the point of fiat currency – issuance is dictated by the government. This is what makes freely floating exchange rates so valuable! What matters is not the price of resources. Rather, what matters is the distribution of those resources. In other words, inflation is managed by the denominator (the productive wealth of society) not the numerator (the currency supply). Taxation, rule of law, floating exchange rates, in short, the checks and balances of Constitutional government, is what serves as the 'buffer stock'. That these are external constraints to the monetary system is a feature, not a bug.

But for the sake of argument, let’s say that you do have to choose some specific mechanism to buffer currency issuance. Once we actually analyze government employment, it becomes painfully obvious that direct employment is a very inefficient mechanism for handling money.

The Social Security Administration employs about 65,000 people. In contrast, the National Security State employs about 4 million people (exact numbers here are of course difficult since the thing is so big and secretive that no one knows exactly how big and secretive it is). Why compare two parts of the government that have such wildly different employment levels? Because they spend almost the same number of dollars into the economy.

Think about that for a second.

The OASI and DI trust funds of the Social Security Act together accounted for about $823 billion in spending last year. The actual direct costs of the National Security State (discretionary security plus war on terror) were about $811 billion in 2012. That’s a remarkably similar amount of monetary impact for two very different employment levels.

In other words, each Social Security employee generated about $12 million of “monetary work”. A National Security State employee, however, only generated about $200,000! To say that differently, one social insurance employee generated the same price anchor effect of 60 direct employees. If we truly want a system with an effective price anchor, social insurance is the way to go. Benefit payments are much easier to tweak than employment levels.

But the problems with the National Security State are not confined to it being an inefficient spender of dollars (ha, think about that one for a second!). There are a whole range of indirect costs incurred by the National Security State that do not happen with social insurance that I will cover below in the third part about politics. But before getting to that, the other practical problem is how many more projects of the same size we will have to create and manage. This gives us a handy unit of measure in our ballpark estimate: 4 million jobs = 1 NSS.

So in order to implement JG, we would have to create 5 new projects of the size of the National Security State if 20 million people signed up. If 40 million people signed up, we’d have to create 10 new projects. If 80 million people signed up, that would be 20 NSS! Our system has trouble managing 1 NSS project. How exactly could it manage even 2 or 3 of them, let alone 5 or 10? Those details are critically important to any serious policy proposal that the government guarantee a job to everyone who wants one.

Lastly, we come to the political problem with JG. Quite simply, JG is untested. Sure, there have been specific instances where the government has hired a bunch of people. But such systems have never been guaranteed employment, they have never been local employment, and they have never been permanent employment.

This is perhaps the biggest elephant in the room when MMT discusses government employment projects. These projects are only successful when the political process desires to use workers to invest in the public commons, to produce an output that increases the productive wealth of the nation. When the political process has other motives, then we see the terrible consequences that manifest themselves, from waste and corruption to environmental destruction to sexual harassment and discrimination to prisoner abuse to undermining of Constitutional rights. The extreme growth of the National Security State poses a direct threat to the Republic. Constitutional governance is withering away, especially in the “post-9/11” era. MMT assumes good political stewardship when it is precisely a political crisis that confronts us.

In short, we have a management problem, not a monetary problem. That’s the sound bite version for what is currently lacking with MMT analysis – it is a set of policy prescriptions chasing the wrong problem. The solution is not to further entrench the employer-based monopoly on living a comfortable and meaningful life. The employment monopoly itself is part of the problem.

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