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 19^th 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.

stone savages

We checked out Oliver Stone's new movie. It reminds me how raw the drug war is for me. For some people, it's child abuse, others clean water, others the rainforest. My thing is the drug war. Who knows what makes us drawn to our particular pet causes. A form of specialization of labor, so to speak.

That powerful men can so mercilessly implement such terrible policy is nothing short of sociopathy. That we have so aggressively prosecuted this war will confuse future generations just as much as we are confused about how racial and gender equality could be anything other than obvious.

happy father's day

Hope your dad lives somewhere safe from our nation's freedom producing bombs and liberty promoting prisons! And if you're a dad, hope your kids aren't locked up or six feet under.

Oh wait, sorry, that's not a Hallmark-approved Father's Day Card. Let's return to our regular programming:

Yay for dads, they're awesome, and we as a society are totally supportive of healthy families! We believe in promoting our values all over the world, from the halls of Montezuma to the shores of Tripoli...in the air, on land, and sea.

further down the rabbit hole

I've had a wide range of reactions to a Supreme Court ruling this week. The Court overturned a decision by Kentucky's Supreme Court that had determined that police busting down a door without a warrant violated the 4th amendment.

I mean, obviously, that's unconstitutional. You have to create an entire theory of Constitutional Law out of thin air to justify something as ridiculous as that. The text is clear. The intent is clear. The application to modern times is clear.

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated

Because the issue is so straightforward, there's really nothing of substance to add to the background at places like NORML's blog.

But two thoughts I will share for intertube posterity.

First, an issue like this is a good reminder to make sure you know what you believe. Times change, social acceptabilities change, do you know what you believe is right and wrong, or do you float with the wind? If you're an American citizen, is the Constitution your basis of political economy, or do you hold some other idea as being more important?

Second, I think this fits into a broader theme of the shifting sands of power as more and more Americans alive today have grown up without a connection to, or even understanding of, the politics of fear and hate and divisiveness that have characterized so much of our myopic focus on wedge issues at the expense of things that really matter. Like many systems of power that are crumbling, it is doubling down on what worked in the past instead of seeking to maintain leadership in the transition to the future.

It's not just the Fed that has some problems, shall we say, with the concept of exigent circumstances.

drug test corporate criminals

(P) So Missouri Republicans want to drug test poor people.

Might I suggest they look in the mirror? The corporatist wing of the GOP are the biggest druggies on the planet.

And they snort waaay more federal dollars.

remind me again

Why are marijuana users more dangerous to society than the financial fraudsters that wrecked our economy?

I mean, don't get me wrong, I think drugs are awful. I'm 'old school' on that, a good little Baptist boy. Heck, I watch my consumption of caffeine and acetaminophen, never mind alcohol and THC.

But this joint LA Times op-ed by our current and past drug czars (heads of the Office of National Drug Control Policy) cracks me up. I know those are English words following English grammar, but I don't understand what they're saying.

I think they might have been stoned when they wrote that. That's my most charitable explanation.

i want my money back

(P, R) Well, my checks to the Department of the Treasury and the Missouri Department of Revenue cleared the bank yesterday. I'm passionate year round about responsible uses of public dollars, but tax time does serve as a nice reminder as it puts the specific numbers in front of you in a way that can't be ignored.

For fun, I thought I'd break out rough estimates of spending categories exceeding $1,000 in 2008. I realize not everybody gets worked up by numbers, but these kinds of things really make me mad.

What's my top expense? Rent? Car insurance? Utilities? My Roth IRA? Nope. Federal income taxes.

1. Federal income taxes: $5,600
2. Roth IRA: $5,000
3. Rent: $4,900
4. Europe/Other travel: $4,000
5. Payroll taxes: $3,500
6. Groceries/Eating out: $2,500
7. Missouri income taxes: $1,800
8. Other taxes: $1,600
9. Car insurance: $1,300
10. Utilities: $1,300

In case you're keeping score, my rough estimate of my total tax burden last year (income, property, sales, OASDI, and medicare) is approximately $12,500.

Now, what separates me from the conservatives like Grover Norquist is that I'm not opposed to taxation per se. I recognize that programs require resources, and the purpose of taxation is to raise revenue to pay for those programs. I happen to like courts and armies and fire departments and schools and roads and subways and sewers and parks and so forth. Indeed, most people understand that in order to have these popular services, we have to be taxed.

What's aggravating, what gets me ranting around tax time, is the unnecessary expenses, the waste, the programs that do nothing to invest in the safety and prosperity of our country. The Republican Party has taken an interesting strategic course, which is to talk about fiscal responsibility while doing the opposite. The enormous disconnect between rhetoric and reality from the GOP leadership has done much to put them in an amazingly restrictive demographic situation looking forward. And the Democratic Party has certainly shown progress. But what stands out is how little has changed since the Democrats took control of Congress over two years ago now. It's like celebrating cutting an alcoholic back from 10 drinks a day to 9. Well, that's great and all, but it's only progress if much more noticeable changes are around the corner.

From corporate subsidies to war profiteering to the costs of inaction on things like mass transit, energy, and healthcare, there is enormous waste and outright theft going on in our system. We devote massive resources to law enforcement efforts against petty criminals, and yet these master thieves walk around freely enjoying the spoils of their endeavors. Maybe it's one of those cases where being mugged personally makes it easier for you to get angry about the more impersonal kinds of muggings going on.

AIG has been mugging me every month since last September. The broader financial bailouts, from Goldman to Citi and on, will be mugging me for years to come. The Iraq war has been mugging me every month since 2003. The drug war mugs me a couple times a year. Farm subsidies, wealthy tax cheats, on and on, these are greater thefts than any petty criminal who steals a hundred bucks from your wallet. Over six million Americans are incarcerated or on probation or parole. We've done God knows awful things to 'high value' detainees all over the world. And yet the very people who have caused massive suffering and looting still walk around in charge of our government and the financial industry they wrecked.

And then that doesn't even cover the opportunity costs, the extra expenses we pay because we don't have good mass transit systems, passenger rail lines, freight rail lines, wind and solar energy, single payer health insurance, universal unemployment insurance, and all the other investments that actually make us better off.

It's probably unrealistic to ask the rich to play by the same rules as the rest of us. The Bernie Madoffs of the financial world will be the Lynndie Englands of the war crimes world, people who did bad stuff, but who can serve to be scapegoats for the larger perpetrators rather than compasses pointing to the larger perpetrators. But at least, stop taking my tax dollars. If you want me to bail out Goldman Sachs, sell me as an investor, not a taxpayer. If you want me to fund a trillion dollar defense industry, fund everything else that lavishly, too, from education to healthcare to employment services to affordable housing to energy to transportation to the environment to every other sector that produces a bigger return than another Reaper flying over Pakistan.

basketball and bailouts

(P) When the girlfriend's out of town and there's the NCAA tourny on TV, what else is there to think about besides our current economic situation?

The message that I keep coming back to is to not panic. We have a variety of policy options before us, and we don't have to do whatever Fed or Treasury plan happens to be the focus du jour. It's really pretty remarkable the scale of the dollars we've put on the line for these actions, trillions upon trillions of dollars, and yet getting money for much more reasonable activities that have a higher bang for the buck is like pulling teeth. And asking who should pay for this seems to be out of the question entirely. Democrats seem happy to raise the debt ceiling or just flat out print money, while Republicans scream their hypocrisy scream when you point out that spending requires taxation to pay for it. When wealth is so concentrated, the rich are the only people with meaningful amounts of money sitting around to tax.

One of the key methods for persuading people to accept bad options is to convince them the situation is urgent and that better options do not exist, or more subtlely, that there's not time to implement better options. This is a universal principle, whether trying to sell the invasion of a foreign country or something right here at home. And, this is a nonpartisan principle. In our recent times, the GOP has certainly exercised the bulk of this activity, but Democratic officials have not been immune from abandoning calm, rational, thorough analysis to embrace a position that conveniently happens to benefit a major donor.

The dialogue around the AIG bonuses has been particularly interesting this week. The public outcry managed to happen in a way that overwhelmed the corporate messaging system. Talking points didn't get out fast enough, or consistently enough, to control the message. And it really created some fascinating consequences. Are bonuses a distraction, or do they focus attention on the problems? Is executive compensation a rounding error, or a core issue? When public officials talk about transparency and the public knowing where their money is going, what do they mean? Does the public not understand that AIG has been given an amount 1,000 times the recent bonus amount, or does the public get that and the bonuses are precisely the lightning rod for articulating anger at the whole situation? Does the public think AIG is a lone wolf, or part of a larger pattern of corporate abuses, a systemic failure that should be addressed? What was interesting about the pushback against the public anger was that the scale of the dissatisfaction was so widespread that the defenders of AIG couldn't get on the same page about their justifications. That is a tell tale sign that many of the justifications were simply excuses after the fact.

Now, I personally think the outrage is valuable. I think the public has been consistently upset about executive compensation in particular and corporate bailouts more generally. They were pushed on the people, not by the people. But, I do appreciate the truth in some of the positions concerned about the bonus story as a distraction. One of the legitimate observations is that just saying no to something isn't enough. You have to have alternatives. Ranting and raving can be emotionally healing, but you need to do more than just complain, otherwise, you're just being obstructionist. You've got to have something you advocate, something you believe, something you will defend against criticism.

What is not legitimate is claiming we don't have such alternatives. Alternatives are precisely what we have been advocating, whether the time frame is the past month, or past six months, or past year, or past two years, or past 8 years, or even farther back along the ascension of movement conservatism. We do not lack for alternatives. Indeed, people from all sorts of disciplines have all kinds of ideas about how to make a better system.

Last summer, I made the following observation about corporate bailouts

Taxpayers can bail out the losses. This should be an extreme example, but my guess is, this is the 'conventional wisdom' among the people who have influence in DC and what will end up happening.

Indeed, that's pretty much what we've done. We're transferring losses from management and shareholders to taxpayers. That governing philosophy so far has not changed.

But what could we be doing instead? Lots of things. They could have been in ARRA '09. They could have been in EESA '08. (Indeed, bits and pieces of these solutions have made their way into legislation.) They could have been implemented when we first started having problems that reached national attention in 2007. They could have been implemented before our economic problems became a national issue, back when the 'fundamentals' were sound, nevermind tens of millions of Americans looking on from outside the American dream.

One of the most sinister and malicious memes is that our problems are technical in nature, or that the 'experts' don't know what to do. I think one of the most important ways of being vigilant is to educate ourselves of the actual situation. An educated citizenry is an important bulwark of democracy, and it's an important component in combatting the narrative that we shouldn't trust lay opinions, or that Americans are too dumb; we should just leave decision-making in the hands of the deciders. The kernel of truth that makes this lie so powerful is that of course, we can't be certain about outcomes in the future. It wasn't impossible that Saddam Hussein had nuclear weapons in 2002. Rather, it was highly improbable. We don't know for sure that allowing homeowners to stay in their homes as renters would help the situation, but we have good reason to find it highly probable that would help. We can't be certain that the government can use its experience nationalizing smaller failed banks to handle the nationalization of larger failed banks, but we can reasonably infer a high probability of this being a better course of action for society.

Here are some things that various economists, architects, engineers, doctors, lawyers, teachers, custodians, plumbers, trash collectors, writers, and so forth suggest would earn a greater return on our investment than bailing out failed management teams at large corporations. And I think it's very telling that the specifics of these kinds of recommendations are never refuted. People calling for tax cuts or corporate bailouts simply don't respond when it's pointed out to them that things like unemployment insurance and food stamps have a bigger bang-for-the-buck. This doesn't mean we're all going to agree on every one of these points, or that we would all prioritize them similarly. Reality simply is messier than that. The point of evidence-based analysis is to replace ideology with focus on the core question of what works. For if the purpose of action is to solve the problem, then the best course of action is the best means of solving the problem. Opposition to what works is a direct sign of motives other than attempting to solve the problem purported to exist to justify the preferred solution. This recognition alone is not enough to create the political will for evidence-based policy, but I do believe strongly it's a necessary component.

In the immediate term, we should do things like this

1. Take over failed firms that are 'too big to fail'. After all, that's why we created the FDIC in the first place, because temporary nationalization is the most efficient means when normal bankruptcy proceedings are not an option. This applies to investment banks and insurance companies just as much as commercial banks.

2. Break up non-failed firms that are 'too big to fail'. It was a Republican president, Teddy Roosevelt, that we usually think of as 'trustbusting'. This is a nonpartisan, no-nonsense, proactive response. If a company is too big to fail, it is too big to exist.

3. Provide direct assistance to stimulate the economy, rather than provide direct assistance to stimulate financial transactions. This means, in particular, universal unemployment insurance, single payer health insurance, expanded TANF and Food Stamps, and so forth. By far, the two biggest causes of mortgage defaults are job losses and medical bills. You don't give banks money so they can afford to write off defaults, or give money to hedge funds to buy the financial instruments tied to the defaults. You give people money so they don't default in the first place. This concept is so basic that it calls into question the motives of people who distract from this core economic reality. Our economic problems, caused by wage stagnation, are causing our financial problems, not the other way around. The short-term solution is to provide a safety net for those out of work.

4. Make the legislative jump from a minimum wage to a living wage. We're already set to increase the minimum wage. Let's make that increase substantially larger. Will a tiny, marginal number of jobs be lost? Probably. That's why we're funding universal unemployment insurance and single payer health insurance. We need to transition away from the concept of a whole class of working poor. In other words, we are experiencing a wage crisis; that's what causes a credit crunch or housing crisis or liquidity trap or other terms floating around in our lexicon these past couple years. While most wage issues are more medium and long-term solutions, the minimum wage is something that could increase quickly to affect workers in the short-term.

5. Use our public policy to save communities, not companies; industries, not particular firms. Tools from changing bankruptcy laws to allow homeowners to stay as renters to using eminent domain to seize properties that banks are not maintaining are quite workable in a short timeframe within our legal framework. We already have bankruptcy judges and city inspectors and police doing evictions and so forth. Let's change some of the parameters of their work.

After these initial coping mechanisms, we can start addressing some of the broader challenges we face

1. Re-connect wages and productivity. This encompasses a variety of reforms like reducing exemptions to FLSA wage and hour guidelines, universal paid time off, meaningful progressive income taxation, increased worker protections (like EFCA for unions and whistleblower protections with substantive rewards for whistleblowers and fines for retaliatory action), and so forth.

2. Re-regulate industries like financial services. Obama has great rhetoric about 21st century financial regulation. Back when Clinton was building the bridge to the 21st century, the Congressional Republicans and his Administration successfully destroyed the old bridge from the New Deal era. But they purposefully never replaced it. From financial services to media to pharmaceuticals to telecommunications and on, we have a number of industries that need a new set of comprehensive regulations and oversight. These are industries that should be in private hands over the long-term, but they should play by public rules. Either the economic system is governed by democracy, or it owns democracy.

3. Re-invest in our public commons. Movement conservatism has been very successful at convincing some people that massive public works projects are un-American. And yet, the opposite is true. It's the abandonment of deferred maintenance and new investment that neither conserves our history nor builds our future. This is the bulk of Obama's budget outline, and it appears much of this might come to pass reasonably soon. These are the various infrastructure things like transportation (crumbling roads and bridges, subways, light rail, freight rail, passenger rail, etc), energy (wind, solar, etc), water and sewer systems, education, computers and broadband, parks, etc. There are countless professionals who have written detailed observations about how we can be bigger and bolder in our investments precisely to ensure a safer, healthier, more prosperous future.

4. Re-write our tax code, in particular, the Internal Revenue Code. Our tax code doesn't make any sense because it's written explicitly for the benefit of special interests. It no longer represents a roughly fair sharing of the national burden of paying for valuable programs. This is unfortunate because it is both inefficient (you really should be able to do your taxes on a postcard) and inequitable (we have basically destroyed progressive taxation with death by a thousand cuts). The vast majority of taxpayers should simply have to report their financial intake for the year, subtract a standard deduction, then calculate the taxes due. That's all filing income taxes should be for about 95% of natural persons filing taxes. Complexity should be the exception, not the rule. The various deductions, at base, are merely methods of shifting the tax burden from its progressive core philosophy to a more regressive reality. Even widely used deductions, like IRAs and home mortgage interest deduction, are still regressive, and they have interesting unintended consequences, too, like subsidizing the buying of bigger houses, which require more land and energy to utilize. With all the talk about McMansions and transportation and energy and suburbia and so forth, the National Association of Realtors works very hard to make sure we don't connect the dots between sprawl and the tax code.

5. Re-think our social and military policies. I separate this category because I understand things like ending the drug war (or more generally being 'soft' on crime) or substantially reducing farm subsidies or making meaningful cuts to defense budgets are somewhat controversial even outside of the religious and business right. They are some of the most difficult areas to get people to apply evidence-based reasoning. But it's really important to our peace and prosperity to reclaim the limited part of limited government, to end the racial and economic injustices that are inextricably caught up in these kinds of policies. I am a big advocate of reading the summary at the Drug Policy Alliance if you think the problem isn't that bad, or you think that criminalization is the correct policy response. I understand that it's politically quite difficult to change the madness of militarism, but I don't think that lessons the importance of trying.

We have the same options today we had last fall or last summer or last spring, or in 2007, and despite trillions of dollars more put on the line for corporate bailouts, we're still in the same boat. Indeed, if anything, people think our situation today is worse than any time in the past two years. We are a rich country, and we do not have to panic. We have good options available to us looking forward.

Let's try putting some real resources behind them.

P.S. I forgot to mention. Go Bears! Back to back D-III champions.

illicit markets are the coolest

Jodi and I are watching a show on PBS about illicit markets. Aside from the exaggeration of the uniqueness of now (as if black markets haven't always existed) it's pretty cool. I find illegal markets a lot more intellectually stimulating than legal ones. There's just so much going on, so much innovation, you always have to be a step ahead of the people chasing you. The power of people's individual choices to overwhelm the best laid plans of governments and corporations. The reminder that criminal is a label of one's relation to arbitrary laws (and the arbitrary enforcement of those laws), not a statement on one's abilities in sales, marketing, operations, strategy, entrepreneurship, interpersonal relations, or other valuable, marketable, productive skills.

And of course, the overwhelming economic, human, and national security case for ending crime as we know it by decriminalizing much of what we call crime. Consumers get inferior products when pushed into gray and black markets, taxpayers get screwed by the massive bills which don't do anything, and organized crime and terrorist organizations have access to massive revenue and transportation networks.

But hey, it's hard to compromise on good public policy when it comes to issues like this. After all, the GOP is all about big government, and they hate free markets.