Mark Schmitt: Reinvent Government So Americans See the Benefits

Oct 4, 2011

FDR and his New Deal programs may best be remembered for how they transformed the way the American people related to their government. He himself reminded them, "Let us never forget that government is ourselves and not an alien power over us."

FDR and his New Deal programs may best be remembered for how they transformed the way the American people related to their government. He himself reminded them, "Let us never forget that government is ourselves and not an alien power over us."

But times have certainly changed. A much-circulated graph in an article by Suzanne Mettler showed that half of Americans who have been the recipients of a social program say they have "not used a government program." This is on full display when Tea Partiers demand government get its hands off their Medicare. And as Roosevelt Institute Senior Fellow Mark Schmitt draws out in his fantastic review out today of Mettler's new book, The Submerged State, this is a feature of our current governmental system, not a bug.

Want some recent evidence? As Mark points out, in one poll only 12 percent of voters said their taxes had gone down under the Obama administration, even though they received a tax credit that was more likely to be spent than even the Bush tax cut we all received in the mail. This is because the tax credit, while delivered efficiently, was invisible to those whom it benefitted. As Mark puts it:

Countless federal benefits are delivered so unobtrusively, through the tax system or through public-private partnerships, that their beneficiaries hardly know government played any role. It is difficult to have a real democratic debate about the role of government, Mettler argues, when so much of what government does is unknown and unseen.

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The answer to this problem isn't just a better PR machine spreading the gospel of all the good government does for its people, though. As Mark points out, "Mettler is not calling for a change in the public image of government; she wants to change government itself." He wants to take this even further by sparking a totally new era of government:

[I] is not just a matter of "revealing" submerged policies or replacing them with more visible ones. It is time for a new era of reinventing government, in which the goal is to establish certain clear, unambiguous public functions, and put energy and resources behind them... Responsibilities should be clearly delineated between the public and private sectors, and between governments at different levels. If providing affordable housing is a public responsibility, for example, agencies such as Fannie Mae should be fully public and fully accountable to the public, and to the extent that it's not a public function, they should be private. Such a radical rethinking of government would not only make it more efficient and more effective, but possibly better respected. It would also allow a level of public engagement that is impossible in the current world of half-seen and little understood programs. And instead of making small gestures to show government cares about problems, this approach might actually solve them.

FDR couldn't have put it better himself. Read his full review here -- it's definitely worth reading in its entirety.

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Economic Arguments Progressives Could Be Making

Aug 22, 2011Adam Gluck

idea-100A recent Roosevelt Institute summer intern gets inspired by early progressives on how to make a winning economic argument.

idea-100A recent Roosevelt Institute summer intern gets inspired by early progressives on how to make a winning economic argument.

Recently, my libertarian friend and I had a debate. We found ourselves circling around the classic libertarian argument that the state should stay out of economic affairs, except to affirm a fair backdrop for people to enter into voluntary (economic) exchanges.

For a starter, I argued, how voluntary is "voluntary?" If I need a job to eat and stay alive, I could certainly choose to not accept an offer because the wages were too low. But the alternative would be starving, which is not really a choice. This situation, to me at least, really resembles a mugging rather than a voluntary exchange. There was something morally troubling for me here, but I couldn't put my finger on it.

My friend countered that my argument was "old, boring, and wrong." I returned that his idea that the only coercion in our lives comes from the state is at least equally old and boring, but much, much more wrong. Yet, having just read The Progressive Assault on Laissez Faire by Barbara H. Fried, I realized he was right about one thing. Both of our arguments are old, and I was right that his ideas were older! Score one for the progressive. Almost one 150 years ago, conservatives were arguing much the same things that they are arguing now. And, I think more importantly for progressives, 80 years ago our side was making the arguments that we should be making now but aren't.

Here's the crux of the problem. Conservatives tend to argue morals and assume policy, whereas we progressives tend to argue policy and assume morals. When you read an article that suggests a liberal policy, you'll often notice an assumed moral framework that isn't justified. Conservatives, on the other hand, constantly justify their views in terms of rights and values that answer the question of "why" we should view a policy issue in a certain light. For example, most progressives feel like income inequality is wrong and will assert as much. But why is it wrong? Probably the answer has something to do with equality -- that we should be equal, but how equal? And how do we balance liberty with equality? And how do we affect that change? Often the answer is, "Umm...taxes and social programs."

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Conservatives, particularly libertarians, often have an immediate and developed moral response. Their hero Milton Friedman often made his arguments within explicit moral frames that highlighted how we should look at his more functional arguments. A typical conservative argument about inequality, for example, would insist that it is a result of choices (voluntary exchanges) people make. Any government interaction to change it is coercive, like putting a gun to someone's head and taking her money. By interfering with our choices, the government is hurting us, rather than protecting us, they say. And this is morally wrong.

Meanwhile, progressives continue to argue policy rather than morals. We fail to affect the change we want because we don't answer the essentially moral question of "why" we should act in a certain way. Maybe we assume that our moral arguments are understood because at one point we won them, as Fried's book illustrates. Utilitarianism, for example, helped earlier progressives provide a moral frame for economic issues. This theory focuses on "the greatest good for the greatest number of people." Many of its great proponents were laissez-faire economists on the face, but they justified government intervention where it would help the largest number of people. Progressives of the early 1900s took this position over and over again, insisting that the best way to help the most is through progressive policy. So if we apply this thinking to current debates about the tax code, we can argue that it is not good for the greatest number of people to let the rich get richer while the poor get poorer. We can say plainly that it is not moral to let poor people starve while rich people become increasingly gluttonous.

On the issue of coercion, early progressives developed a framework of "positive liberty" in which people have the right to be free of the coercion of others. This, they argued, requires a degree of state intervention. Here's an argument we could use far more frequently today. We can press for using the strength of the state to defend people who are getting horribly coerced by others, for example. Instead of the state being a bully, it becomes a protector of those who can't defend themselves. This re-framing gives moral justification to state action. The powerful cannot exploit the powerless, and unequal deals between capitalists and laborers are a form of exploitation. It is the role of the state in a democracy to defend and represent the interests of all its constituents. That is how we establish the greatest good for the greatest number of people, and in so doing, create the greatest good for society as a whole.

For progressives, the more we explain our moral assumptions and re-define them for current debates, the more we can make headway with conservatives who have been refining their values message for decades.

Adam Gluck is formerly a communications intern at the Roosevelt Institute New York office and is a rising sophomore at the University of Chicago.

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Can Social Impact Bonds Solve the Problems Government Won't?

Aug 9, 2011Tracy Palandjian

spending-money-150In a week-long series, prominent thinkers will look at ways to harness the private sector or extract more from a recalcitrant public sector in order to combat poverty and inequality.

spending-money-150In a week-long series, prominent thinkers will look at ways to harness the private sector or extract more from a recalcitrant public sector in order to combat poverty and inequality. In the second post, Tracy Palandjian, CEO of Social Finance Inc., looks at the promise and challenges of using Social Impact Bonds to address deep issues.

Across the United States, community groups, government agencies, and nonprofit organizations are working to tackle the root causes of poverty, crime, and other disabling economic and social conditions. There are successes, to be sure, but these are exceptionally difficult days for disadvantaged individuals and communities, in part because of the current fiscal crisis, but also because multifaceted problems have become too complex for one-dimensional, prescriptive solutions. At the same time, state and local governments too often address problems only after they occur. Poor outcomes are frequently repeated, requiring the public sector to spend ever increasing amounts on crisis interventions.

Fortunately, there are encouraging signs that access to private capital markets can reverse this cycle and drive more capital toward preventive programs that can create better outcomes, lessen the need for remediation, and reduce overall costs. A new impact investment product, the Social Impact Bond (SIB), was recently launched in the UK -- the first one in the world -- to finance effective social programs.  It represents an innovative financing mechanism and a new form of cross-sector collaboration to drive systemic change.

SIBs tap a significant new funding source for evidence-based nonprofit programs. An SIB is a financial instrument in which investors front working capital to nonprofit organizations to implement preventive programs aimed at achieving specified social outcomes. If an independent evaluator determines that predefined metrics have been achieved, the government repays investors their principal and a rate of return; otherwise, investors lose their capital.

Ben Franklin's adage that "an ounce of prevention is worth a pound of cure" provides the motivation for SIBs. The savings that SIBs produce enable activities that generate social progress to be monetized into an investable asset. SIB-funded programs include preventive interventions (such as supportive housing for chronically homeless individuals) that produce better social outcomes (increased residential stability and better health) and deter costlier crisis responses (repeated emergency room visits, hospital admissions, incarceration, and use of shelters).

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Everyone benefits under a successful SIB program. The public sector sees better results for less upfront investment and only pays if social outcomes and cost savings are produced. Investors put capital to work while achieving robust financial returns and meaningful social impact. Nonprofit service providers get stability and predictability in their revenue model, which frees them up to do what they do best -- deliver critical services to populations in need. Disadvantaged individuals and their communities benefit from both increased and improved social goods and services.

Massachusetts recently became the first state in the nation to formally pursue SIBs by issuing a Request for Information (RFI). Social Finance Inc., the nonprofit sister organization of the UK firm that launched the world's first SIB, responded to the RFI, announcing its intention to develop, finance, launch, and manage high-quality SIBs over the life of the instrument. Social Finance identified a number of promising SIB applications, including permanent supportive housing for chronically homeless individuals; housing-based support for homeless families; home- and community-based aging-in-place programs for elders; community-based alternatives to juvenile detention; and alternative community corrections for adult offenders.

Developing detailed business cases for specific SIBs will be challenging, however, given the inherent uncertainties involved in producing and measuring social outcomes. Social Finance has been conducting extensive research around various evidence-based interventions, growth-ready nonprofits with strong track records of successful delivery, and the costs and outcomes of existing and proposed services, all of which must be presented in credible financial models. We know that investors will also conduct demanding due diligence in a number of areas, including nonprofit capacity, the ability of chosen interventions to increase social impact, decision-making and control, outcomes, metrics and evaluation.

Some of our current social challenges are too widespread, deep-rooted and costly to be addressed by traditional sources of private philanthropy and government funding. SIBs draw from a new pool of capital that can enable proven models of intervention to expand. In addition, SIBs advance Stephen Goldsmith's "governing by network" model, a form of shared collaboration among the public, private, and nonprofit sectors, facilitating cooperation across governmental silos, to address pervasive economic and social problems.

Tracy Palandjian is the CEO of Social Finance, Inc., a nonprofit organization dedicated to connecting the social sector to the capital markets. It is the sister organization to Social Finance, Ltd. which launched the world's first Social Impact Bond in September 2010.

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How Can We Fight Poverty in This Age of Austerity?

Aug 8, 2011Georgia Levenson Keohane


In a week-long series, prominent thinkers will look at ways to harness the private sector or extract more from a recalcitrant public sector in order to combat poverty and inequality. In the first post, Roosevelt Institute Fellow Georgia Levenson Keohane reminds us that while the government should be tackling these problems, there are practical and potentially exciting ways to get things done without it.


In a week-long series, prominent thinkers will look at ways to harness the private sector or extract more from a recalcitrant public sector in order to combat poverty and inequality. In the first post, Roosevelt Institute Fellow Georgia Levenson Keohane reminds us that while the government should be tackling these problems, there are practical and potentially exciting ways to get things done without it.

If there is any silver lining to the debt ceiling fiasco, it is that it has reshaped the contours of our national debate. No longer are we simply concerned with fiscal, economic or credit rating calamity; the crisis has gone existential.

Facts, it turns out, are stubborn and occasionally inconvenient. A budget deal that shreds the fabric of our social contract cannot ignore the following: that the recession has severely exacerbated poverty in the U.S.; child poverty remains shamefully high; inequality soldiers on; record and persistent unemployment -- either by official or more sobering measures -- has made life for millions of Americans scrambling to stay out of poverty cruelly hard and stressful. And all this before an unprecedented round of cuts to basic programs and services that comprise our safety net that will worsen, rather than improve, matters. The best route out of this mess, to say nothing of long-term prosperity, is jobs. Full stop.

On the question of employment, one does not need to be a student of history, Keynes, or a host of recent examples to face up to reality. Just take a look at the current British experiment in slash and burn austerity, the successes of the U.S. stimulus package (and in particular the tax credits, food stamps, unemployment insurance, and other social welfare provisions) that kept poverty from getting a whole lot worse, the basics of cost benefit (investments in things like early childhood education or healthcare for everyone, and for poor people especially, yield positive returns) or the basic levers of public policy (budgets have two sides, expenses and revenues). Job creation will require government spending. Full stop number two.

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When it comes to fighting poverty, it is critical that we continue to wage these ideological and political battles. Yet at the same time, we must also embrace a pragmatic approach to policy formulation that recognizes the harsh realities of austerity: government sorely lacks the resources -- cash and political will -- to meet the surge in human needs. In the coming days, a series of posts will address issues of poverty and equality of opportunity in exactly these terms, illustrating important 'social innovations' that allow us to do more with less. Broadly speaking, we will hear about two kinds of approaches: initiatives that enable us to do a better job with the government funds we already have, and those that help attract new sources of capital to bear on social problems. Topics will include recent efforts to improve measurement and evaluation of critical social services, new programs designed to help poor people access benefits for which they are already eligible, experiments in designing 'social finance' instruments that aim to monetize the value of raising people out of poverty, and others. These are collaborations between non-profit organizations and their allies in local, state and the federal government to harness new sources of philanthropic or other private investment in improving social welfare.

The progressive project would be wise to remember that these social innovations are in no way a capitulation to our current and fractured tail-wagging-the-dog politics. Rather, they represent a forward looking recognition that economic recovery and sustained, shared prosperity will require practical, cross-sector and creative solutions to our most pressing problems.

Georgia Levenson Keohane is a Fellow at the Roosevelt Institute.

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Thomas Paine's 'Common Sense' is the Cure for Cynical Citizens

Jul 27, 2011Harvey J. Kaye

american_colonial_flagPaine's pamphlet is portable and jam-packed with potent messages.

american_colonial_flagPaine's pamphlet is portable and jam-packed with potent messages.

Need refreshment from the summer heat? A respite from the debt-ceiling debacle? A break from the sense that all the hope was for naught? Read the book that turned America's colonial rebellion into a revolution, the work that transformed British subjects into American citizens, the pamphlet that imbued American life with democratic imperative and impulse. Read Thomas Paine's Common Sense.

Paine's first great work not only inspired the founding generation to make history. It also encouraged generations of progressives from freethinkers, abolitionists, and suffragists to labor unionists, populists, and socialists to redeem America's exceptional purpose and promise and carry on the fight to extend and deepen freedom, equality, and democracy.

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Common Sense will remind you of what it means to be an American. Lines such as "The sun never shined on a cause of greater worth" and "We have it in our power to begin the world over again" will give you the strength to deal with both rightwing rants and "creeping cynicism." Plus, at just under fifty pages it is not only guaranteed to be low priced in these trying economic times, it is also easy to take along to the beach...

Of course, then you'll want to read more of Paine's words. So, you might want to pick up an anthology of his writings. That way you can also read:

The Crisis: "These are the times that try men's souls..."

Rights of Man: Paine's attack on Britain's political and social order that outlines a pioneering plan for a social security system.

The Age of Reason: A devastating critique of the power of clerics and organized religion.

Agrarian Justice: Avisionary plan for taxing the propertied rich to provide stakes for young people starting out and pensions for the elderly.

The more you think about it, Paine's work should be read not only by vacationers and beach-goers, but year-round by citizens, students, and especially the folks in the White House and up on Capitol Hill.

Harvey J. Kaye is the Ben & Joyce Rosenberg Professor of Democracy and Justice Studies at the University of Wisconsin-Green Bay and the author of Thomas Paine and the Promise of America. He is currently writing The Four Freedoms and the Promise of America: FDR, the Greatest Generation, and Us. Follow him on Twitter:

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What Conservatives Don't Want You to Know About Government's Role in the Economy

Jun 28, 2011Jon Rynn

fdr-we-need-you-200If we don't learn the lessons from the Great Depression, our infrastructure will crumble, the recovery will stagnate, and our economy will be left behind.

fdr-we-need-you-200If we don't learn the lessons from the Great Depression, our infrastructure will crumble, the recovery will stagnate, and our economy will be left behind.

The current conventional wisdom for many in the U.S. is that the less government is involved with the economy the better. But this is precisely the moment in history when more government is needed. Without government intervention, the recovery will continue to stagnate, the economy as a whole will remain off balance, and we won't be able to meet the challenges facing the country.

I have been proposing a different way of looking at an economy than the traditional, neoclassic one. In my view, each industry fits into a wider system, as say trees or deer or bears fit into a wider forest ecosystem. In the same way, goods manufacturing, machinery industries, service industries, infrastructure, and the myriad other parts of a functioning society -- including the health and education systems -- have to work properly in order for the economy as a whole to function, with manufacturing functioning as the central sector. All industries are co-evolving, dynamically growing, concentrated within discrete geographical regions. And it is the responsibility of government to help orchestrate this interaction, or else it can turn into an ugly riot.

But at the root of the neoclassical world view is the idea that the economic system is self-regulating, that is, if the economy is pushed off course by "external" forces, then it will become stable by itself -- without government interference. And yet we know that economies are constantly growing and changing -- that is, they are not stable -- and they are often under threat of recession and depression. That is why governments always have to be part of the solution. They are needed in order to support economic growth, maintain the right structure of the economy, and intervene when the economy goes bad.

FDR's presidency is the perfect example of this. When he became president, Herbert Hoover had just spent several years trying to reverse the Great Depression with market-based solutions, but FDR championed a set of governmental policies that turned the country around. To deal with unemployment, FDR established the Works Progress Administration, or WPA, which was not only designed to employ one fully able member of each household in which no one could find work, but also to build up the country's physical infrastructure. Building infrastructure is what governments do best. In fact, one could say that civilization started when the first governments constructed the irrigation and drainage systems that enabled agriculture to flourish. The United States, like every successful country, has a long and rich history of infrastructure building, without which the country would have very likely stayed poor. From canals like the Erie Canal before the Civil War, to the railroads after, from the dams that even conservative Republicans like Calvin Coolidge initiated, to the WPA that built libraries, schools, airports, roads, and other structures in virtually every town, to the Interstate Highway System championed by a Republican president, the United States has kept itself at the forefront of the global economy by making the building of transportation, energy, communications, water, education, and other systems the foundation of prosperity.

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Partly as a result of his interventions into the economy, FDR was able to lead the nation into World War II by fundamentally transforming the economy to produce military equipment. At its height, one third of the country's GDP was devoted to the war effort, with millions fighting overseas. That's five trillion dollars in today's economy. In other words, even assuming the continuation of a one trillion dollar military budget in the face of no wars of necessity, the economy has four trillion dollars left over to remake itself while providing for a comfortable standard of living for its inhabitants.

Instead of learning this lesson of history, however, our current political class seems determined to follow Herbert Hoover, not FDR. Meanwhile, the long-term domestic problems we face are worse than what FDR confronted. In the 1930s, the US was by far the leading manufacturing power and the top producer of oil; now the manufacturing sector is sinking fast, and not only do we import almost two-thirds of the crude oil we process, the global supply of oil is becoming harder to produce and is shrinking. In addition, we desperately need to eliminate the use of fossil fuels and transform agriculture and forest management in order to avoid the worst of global warming. The path forward is clear: we need an electric transportation system based on high-speed rail for long-distance travel, electric rail for freight, transit and small electric cars for intra-city movement, wind and solar power for electricity generation, recycling on a serious and massive scale, a densification of urban areas, and a more labor-intensive, localized, organic agricultural system. And these could provide the market for a revived manufacturing sector.

Only the government can build all of these systems in the time needed to both save the economy and save the environment. Incentives can go part of the way, but not fast or far enough. Taxing carbon or trading rights to carbon won't solve global warming or decrease the use of oil as quickly as we need them to; lowering taxes or reducing the deficit won't bring the manufacturing sector back. Government-as-builder does not mean government-as-warrior or government-as-Big-Brother. It is possible to have a strong government that is peaceful, democratic, and not beholden to our economic royalists, as we currently are. But maintaining democracy is never easy; the political system is no more a self-regulating system than is the economy. At least we can have a clear vision of where we are heading.

History doesn't care if the political conversation of the United States won't allow for talk about large-scale government intervention into the economy. The path to economic and ecological collapse is paved with "realistic" intentions. If the conservatives can be audacious enough to threaten policies that will further destroy the middle class and poor for the sake of the superwealthy, why can't progressives draw on a rich American history, from before FDR and after, to rebuild a once mighty nation and help the rest of the planet move toward a sustainable future?

Jon Rynn is the author of the book Manufacturing Green Prosperity: The power to rebuild the American middle class, available from Praeger Press. He holds a Ph.D. in political science and is a Visiting Scholar at the CUNY Institute for Urban Systems.

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Goolsbee's Gone: Another Top Obama Econ Advisor Exits

Jun 7, 2011

A Monday night announcement has shaken things up in Obama's economic team. Austan Goolsbee, chairman of the Council of Economic Advisers, is packing his bags, heading back to Chicago to resume his teaching gig. What does the exit of a man central to the crafting of Obama's economic policies for the past two-and-a-half years really mean? Roosevelt Institute fellows weigh in.

A Monday night announcement has shaken things up in Obama's economic team. Austan Goolsbee, chairman of the Council of Economic Advisers, is packing his bags, heading back to Chicago to resume his teaching gig. What does the exit of a man central to the crafting of Obama's economic policies for the past two-and-a-half years really mean? Roosevelt Institute fellows weigh in.

"Anyone who is a good economist does not want to be associated with the policies of this Administration that has turned a blind eye to idle resources and tragic levels of unemployment."
-Robert Johnson, Senior Fellow, Roosevelt Institute

"There shouldn't be a wet eye in the place. Goolsbee's legacy is wretched: He approved of bailing out the banks, insisted that prosperity was just around the corner, and recently kept repeating that the private sector must drive recovery, in the face of overwhelming evidence that recoveries from financial crashes take years if the government does not move vigorously to offset private sector deleveraging and caution. But it's an ill wind that blows no one any good: Now the President has yet another vacancy to fill; at least there is a chance that somebody who takes to heart the great lesson of the New Deal -- that government can stimulate the economy if it doesn't lose its nerve (as in 1937 and, it appears, now) -- can find a place in the White House."
-Thomas Ferguson, Senior Fellow, Roosevelt Institute and Professor of Political Science, U Mass, Boston

"Goolsbee is another champion of the 'fiscal austerity lite' ideology that continues to wreak havoc on the US economy. As one of the President's main economic spokesmen, he has championed the Administration's Wall Street-centric approach, notably in regard to the bailouts. These programs have fostered the impression that there is already plenty of fiscal related stimulus, though virtually all employment measures indicate that full recovery is far from accomplished and many needs that are more pressing remain unaddressed. He won't be missed."
-Marshall Auerback, Senior Fellow, Roosevelt Institute

"Austan Goolsbee is a well-trained and by all accounts affable economist. But these have been unusual times and he seemed unequal to them. The current administration policy is a wish and prayer that GDP will grow at 3 to 4 percent a year. It is construed that this will be sufficient to get the president elected as the unemployment rate, if high, starts to fall consistently.

As I have noted before, the risks to that forecast are very high. This seems lost on an administration, and perhaps on Goolsbee. They are unwilling to take the action needed, despite the political obstacles, to keep the economy growing. To the extent Goolsbee contributed to this, he wil not be well-remembered and his leaving may be useful. This of course depends on his replacement, about which there is no reason to be optimistic.

But the main issue is that this Administration has never evinced a passion about the loss of jobs in this economy and the suffering and confusion of tens of millions of Americans. Goolsbee was in a position to make this clear to the president. Apparently, he did not. There is no jobs program, no outrage about levels of unemployment, no anger at nonsense written about structural unemployment. Goolsbee seemed to be one of those people who didn't want to rock the boat much. We need a boat rocker."
-Jeff Madrick, Senior Fellow, Roosevelt Institute

"I hope he has a few million apologies ready for the foreclosure victims he did nothing to help."
-Matt Stoller, Fellow, Roosevelt Institute

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Why Liberals Need to Take a Page from (Classical) Republicanism

Apr 28, 2011Ned Resnikoff

flag-150Progressives need a unified set of principles when reclaiming the politics of freedom.

flag-150Progressives need a unified set of principles when reclaiming the politics of freedom.

America's founders baptized her in the rhetoric of personal liberty. Jefferson, when listing the rights of all people in the Declaration of Independence, put liberty second only to life. Nathan Hale and the state of New Hampshire declared that liberty was actually worth more than life. And ever since, freedom and liberty have been central concerns in American public discourse.

That might help explain why, as Professor Corey Robin writes in the most recent issue of The Nation, "conservative ideas have dominated American politics for thirty years." The right has virtually monopolized the rhetoric of freedom, and the left has failed to offer up a single competing vision.

Robin's article, called "Reclaiming the Politics of Freedom," is a proposal on how best to correct this. And the left-wing schematic of liberty he offers up isn't a bad start. He writes:

We must develop an argument that the market is a source of constraint and government an instrument of freedom. Without a strong government hand in the economy, men and women are at the mercy of their employer, who has the power to determine not only their wages, benefits and hours but also their lives and those of their families, on and off the job.

It is, as I said, a start. The challenge for left-leaning political philosophers and theorists is to convert Robin's rhetoric into a fully fleshed out theory of freedom and governance. On the face of it, this would seem to be a daunting task, because Robin's conception of freedom represents a clean break from the tradition of classical liberalism that looms so large in modern philosophy.

Classical liberalism, a distinct entity from American political liberalism, most often defines liberty as non-intervention, which would seem to make its closest political ally libertarianism. (The Republican Party, and especially those Republicans who identity as members of the Tea Party, tend to talk about freedom in a way that makes them sound superficially like classical liberals. But on social issues in particular they apply the classical liberal's standard of freedom as non-intervention inconsistently at best.) Not even the forms of classical liberalism more closely associated with the left, like Rawlsianism, truly satisfy Robin's demands. Whereas Rawlsian liberalism conditions freedom as non-intervention with certain restraints, Robin insists that government intervention can actually promote freedom.

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Lucky for us, there is a philosophical tradition -- less fashionable than classical liberalism -- that supports Robin's claims. It is called republicanism. (No relation to the philosophy of the modern Republican Party.)

The best introduction to modern republicanism is likely "Republicanism: A Theory of Freedom and Government" by the Australian philosopher Philip Pettit. The book largely consists of the sort of academic philosophizing that laypeople might find hopelessly esoteric, but it also contains some thoughts on the intellectual history of republicanism that help explain most of the key concepts. Pettit writes that the fundamental principle of over two millennia of republican thought is this: no citizen is a slave, either of the state or any other entity. (Of course, many republics have had slaves. But they were not considered citizens in the formal sense.) Putting this principle in modern analytic terms, he describes it as the conviction that freedom constitutes non-domination, not non-intervention. A slave is still a slave, even if his master is benevolent and does not interfere with him. The point is that the master still has the right to reverse his policy without warning and arbitrarily project his own interests onto the slave. This, Pettit says, is domination: the ability to arbitrarily interfere in the affairs of others without being constrained by their interests or stated preferences.

Already we can see how closely this idea of freedom as non-domination tracks with the vision of freedom laid out by Robin. When he argues that a "strong government hand" is needed to ensure that employees are not put "at the mercy" of their employers, he is actually saying that the state must promote freedom by encouraging non-domination. This is, in fact, the sole aim of the ideal republican state, and Pettit strenuously encourages a "strong government hand" when he thinks it will serve that end. Whereas, in strictly classical liberal terms, any sort of government interference represents a constraint on liberty, Robin and Pettit both agree with the republican notion that, in Pettit's words, "the properly constituted law is constitutive of liberty." He takes that logic further than even many orthodox republicans, arguing that the state must "seek to reduce the influence of factors like handicap and poverty and ignorance," which condition freedom.

But republicanism, at least as articulated by Pettit, is also a relatively conservative doctrine. After all, he argues, America was founded on republican principles. And indeed, Pettit ends up building on those republican principles to advocate for a lot of things we already have: separation of powers, for example. Thus do we find that republicanism has exactly that "deep immersion in a wellspring of American political thought" that Robin wishes for.

I've only had the room here to give a crude schematic of republicanism, but hopefully it's enough to pique the interest of some fellow lefties. For too long now, the American left has had very little in the way of an articulated set of unifying first principles. Republicanism could be what we have been missing; not only does it satisfy the policy intuitions of most liberals, but it integrates them into a system that is logical, humane, and deeply American.

Ned Resnikoff is a researcher at Media Matters and a freelance writer. The above piece is not intended to represent the views of his employers.

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Happy Tax Day, Alexander Hamilton!

Apr 18, 2011William Hogeland

american_colonial_flagHamilton is revered for putting America on sound financial footing, but he couldn't have done it without federal taxation.

american_colonial_flagHamilton is revered for putting America on sound financial footing, but he couldn't have done it without federal taxation.

The annual drop-dead moment when Americans must file tax returns or face unpleasant consequences has become an opportunity for the Tea Party, protesting what it sees as crippling taxation and overactive federal government, to rally its supporters. Extending this year's filing deadline from April 15 to today, April 18, the IRS gave Tea Partiers a big weekend, and all over the country, tax-day events hymned unregulated markets, excoriated federal programs like the health-insurance reform bill, and defended anti-labor governors. Anti-Obama leaders from Sarah Palin to Donald Trump urged the faithful to oppose evils summed up for them in the annual requirement to file federal tax returns. For the Tea Party, "Tax Day" represents all that's gone wrong with America since the founding.

So as we stand on long lines at the post office hoping to avoid the midnight axe, we might spare a moment to consider the father of federal taxes, Alexander Hamilton. Our first Secretary of the Treasury, Hamilton is celebrated by both establishment liberals and establishment conservatives: The Hamilton Project is an economic effort of the liberal Brookings Institution, and former Obama budget director Peter Orszag hung a Hamilton portrait in his office; on the right, the writer David Brooks and former Bush Treasury Secretary Henry Paulson are two of Hamilton's biggest fans. It's not surprising. Hamilton is rightly said to have put the new nation on sound financial footing and secured its creditworthiness. He gave us our first comprehensive national finance policy.

That policy depended on exercising certain economic powers that finance nationalists like Hamilton and his mentor the rich financier Robert Morris, as well as planter nationalists like James Madison, had been striving to achieve for the federal government throughout the 1780's, and which came to fruition at the Constitutional convention in 1787. While Hamilton and Madison would arrive at dire odds over whether the Constitution gives the federal government the right to form a central bank (Hamilton yes, Madison no), all nationalists had long agreed that a national government, unlike a confederation of states, would have a right to tax its citizens directly, throughout the states. And unlike what they saw as state governments' susceptibility to the American popular-finance movement's riot and noncompliance, a national government, nationalists hoped, would have both the will and the police resources to enforce and collect taxes.

So whereas Tea Partiers sometimes associate their objections to federal taxes with a desire to "get back to the Constitution," federal taxation is one of the Constitution's central purposes. And we can thank the wunderkind Alexander Hamilton for proposing the legislation by which the first U.S. Congress imposed the first federal tax ever on an American product.

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Hamilton wasn't messing around. Empowered by the new government to do what he and Morris had long been frustrated in trying to do, the young, charismatic, brilliant, diligent Secretary worked up a full-blown plan for connecting national wealth, and even more importantly national credit, to ambitious national aims. Like Morris, though to a far more sophisticated degree, Hamilton wanted the United States to become an economic powerhouse and financial empire to compete with England. And he'd been tireless in figuring out how to do it.

The key, as Morris had always suggested, was to combine a big public debt with vigorously enforced taxes earmarked for funding that debt. That is: sell U.S. bonds to the small, rich merchant lending class and, as Morris had put it, "open the purses of the people," collecting taxes from the American people, in metal, not paper, and earmarking revenues for paying the bondholders their 6% interest in hard, cold cash -- 6% untaxed interest, that is. Federal power would thus shift national wealth upward and consolidate it. Yoking national credit to national interest, government would serve as an economic pivot between the creditors and the people and thus be in a position to finance roads, canals, wars, and other national projects.

Morris had fought hard during the confederation period for a simple federal tariff on imports, known as an "impost," and opposition even to that measure had always been stiff: states wanted to retain their sovereign power to tax. But he'd also schooled his supporters in what a real federal tax slate would look like. Once people had become inured to paying a federal tariff, Morris had predicted, the federal government would be able to impose taxes on domestic products too, taxes known as "excises." Continuing to expand tariffs alone would hit too hard the very people Morris and Hamilton wanted to encourage: the merchant financiers, who also engaged in international trade (that's where they got the gold). Fully consolidating wealth, and fully connecting it to high national aims, meant collecting revenue for finding bonds from people who would never own a bond. Hence the importance, to Hamilton, of imposing domestic taxes.

And Hamilton pulled his whole plan off, pretty much on his own. He is often portrayed as having faced down and tamed a huge public debt that had been run up, somehow, to unfortunate proportions during the war and now needed to be paid off. Nothing could be farther from how Hamilton himself saw the situation. Swelling the public debt had been a project of his and Morris's for many years -- for all the cogent reasons of national credit described above -- and now as Secretary, his plan was hardly to pay the debt down (many of his biographers to the contrary) but to fund it. Which as those of us with credit cards know, is another thing altogether.

In that context, Hamilton further persuaded Congress to assume all the states' debts in the national one, swelling the public debt to the nth degree at last and placing it all in federal hands. That took a tough political fight. Hamilton won it in part because his Madisonian opponents were nowhere near as finance-savvy as he, and partly because empowering the federal government to enact a top-down national finance plan had all along been a chief purpose of the Constitution under which Hamilton acted.

So state debts were nationalized, and a law for funding the domestic public debt was passed. Hamilton couldn't get his bondholders their full 6%, but they were happy enough. Investing in the U.S. looked safe and lucrative.

Funding and assumption: those were Hamilton's great twin achievements, and they did secure the credit of the nation in just the way he and Morris had always wanted. But they depended on a third leg of the finance program, rarely discussed but utterly essential: federal taxation of the American people, with a full-fledged collection service, inexorably spreading federal power to collect, audit, and prosecute throughout the country, from state to state, town to town, and village to village. To Hamilton, taxes weren't an unfortunate necessity. They created a nation, pulling the country together through a network of federal officers opening offices and banging on doors. Running every last detail of that widespread, growing, and powerful federal agency, Hamilton came into his own.

Next week: How Hamilton constructed and calibrated his first federal tax -- the excise on American distilled spirits -- to achieve his and Morris's longstanding goal of quelling the popular finance movement. Also: How the finance populists fought back. In the meantime: Happy Tax Day!

William Hogeland is the author of the narrative histories Declaration and The Whiskey Rebellion and a collection of essays, Inventing American History. He has spoken on unexpected connections between history and politics at the National Archives, the Kansas City Public Library, and various corporate and organization events. He blogs at

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What Actually Happens When the Government Shuts Down (And Other Things You Don't Know About the Budget Fight)

Apr 6, 2011Bryce CovertBo Cutter

Bryce Covert sat down with Roosevelt Institute Senior Fellow Bo Cutter, who was Director of the National Economic Council and Deputy Assistant to the President from 1992-1996 during the Clinton Presidency and the last government shutdown. He explains why the current shutdown is small potatoes compared to the looming battle over the debt ceiling and other things you need to know.

Bryce Covert: What are the odds of a total government shutdown?

Bryce Covert sat down with Roosevelt Institute Senior Fellow Bo Cutter, who was Director of the National Economic Council and Deputy Assistant to the President from 1992-1996 during the Clinton Presidency and the last government shutdown. He explains why the current shutdown is small potatoes compared to the looming battle over the debt ceiling and other things you need to know.

Bryce Covert: What are the odds of a total government shutdown?

Bo Cutter: It looks like we'll have one but it isn't clear yet what kind it will be. It may be that we have one that's purely procedural in the following way: The House Republicans have put in a requirement that a piece of legislation be available for public view on the internet for 72 hours. So if they come to a deal say on Wednesday, they can't meet that commitment and they've made an avoidable showdown. And I think they said three working days, so weekends don't count. Let's say they came to a deal on Wednesday afternoon and the resolution has to be voted and in place, signed by the President, by close of business on Friday. They couldn't make it unless they waive that requirement, and they don't want to waive it. So you would in fact be shut down Saturday, Sunday and Monday. But it wouldn't have much effect because there would already be a deal in place. It looks to me like the highest odds are that's what it's going to be. So going down that track, the results wouldn't be particularly substantial.

But there's every possibility that it could be real. There are a whole series of riders attached to the resolution that Democrats and the President have said not only no but hell no, and the tea party has said they won't accept anything that doesn't have them. I don't believe the tea party, so we'll see. As I understand it and as friends at the White House have said to me, all of the discussions to date between the members of Congress have been about the numbers and they've kind of put the riders to the end. If the riders wind up being the sticking point, you could have a real shutdown.

Bryce Covert: If it shuts down over the weekend, what effects will we feel?

Bo Cutter: The obvious public things that aren't matters of life and death, if there's no money to run the government then you have to shut them down. One of the things that governs this is something called the Anti-Deficiency Act that says there are actually personal, criminal penalties to officials who consciously direct that work be done when there's no money to do it. So one of the things we found when I was there during the last shutdown was that in the absence of legal authorization to do work, people in the civil service are very reluctant to expose themselves and the people who work for them to penalties. And it's not that they're trying to avoid work. As I said previously, I think that one of the real strengths of the American system is our civil service. In both my times in government I've had lots of civil servants who worked with me and for me and I thought they were incredibly good. So I'm not saying civil servants are lazy or trying to avoid work, I'm simply saying that they face legal sanctions. Once the hammer goes down and there is officially no money, while it may sound like a funny formality, they can't work. So you begin to see some of the obvious things close down like the Washington Monument, the Air and Space Museum, the Smithsonian. Which, if you have the bad luck to have taking your three kids and your wife to Washington for that weekend, is not going to be a good thing.

Bryce Covert: What else happens in a real shutdown?

Bo Cutter: Let me take it the other way around and say what doesn't happen. There is an agreement, and it's legal, that life and death stuff continues. So the military continues to function, although there are functions of the military and the civilian side of the defense department that have to begin to stop. The veteran's hospitals continue. Walter Reed, that has the wounded from Afghanistan and Iraq and now maybe Libya, continues to function. Social Security checks do get mailed out. A lot of the stuff that is really immediate and involves immediate transfers of critical services like health or income will continue.

Every agency has a plan. Employees are distinguished between those who are critical and essential and those who are not, and there's a process that involves the legal counsel of each agency. The distinction is people who are required to keep the basic infrastructure of government going and people who aren't. The critical people work without pay. If I were running a part of the White House, which I was, and I had people that had officially been deemed critical and essential, I could then ask those people to come to work. Now, they could say no because they're not being paid. It's forced volunteerism. I was in that status. But I wouldn't be subject to legal sanctions for doing it. On the other hand, I would be for those people who aren't deemed critical and essential -- I can't ask them and they can't come. And the reason for that is the lawyers and court cases decided that it could be too easily a subterfuge -- you could tell somebody I know you're not critical but you better damn well volunteer or I'm going to be unhappy when the government's back in force.

Bryce Covert: How is it decided who is critical and who is not?

I remember one of the big fusses, and it is a very awkward problem, is how do you draw the line between who is and who isn't critical. We have about 1,300,000 civilian employees. Let's say 60,000 to 70,000 of them are critical. You have around 1,200,000 people who suddenly aren't working. And the people who aren't considered critical, how is it you explain to them they aren't critical? The State Department had a terrible problem. Let's say it has 160, 170 ambassadors. They're not all critical, and they had to determine which were the 50 or 60 where you absolutely had to keep country operations going and which were the ones that weren't. People had hurt feelings and were angry and friendships were disrupted because there were ambassadors who were told they weren't critical. In a much smaller way I had the exact same problem. Everybody kind of does.

On the civilian side of the government, domestic side, a skeleton force is immediately put in place in the forests and the parks. You can't visit. But maintenance also stops. In the granting operations of the government, whether it's HUD or HHS, their grants all stop. The part of HHS that oversees Social Security checks will continue, but that's all it'll do. There isn't going to be anybody there to answer questions. If you have a question you're not going to get an answer while the government's shut down. Places like the Department of Education basically shut down entirely because it's hard to argue that it's critical in the sense that I mean the word. The Department of Commerce, which has the National Oceanic and Atmospheric Administration, shuts down, so you're not getting the temperature of the ocean monitored. On the other hand, the Coast Guard will stay in operation. Almost all regulation will shut down, so there isn't anybody doing meat inspection during those periods. Ultimately most of the EPA would shut down. I was in the discussions that were occurring in the White House every night with the members of Congress, and every day there are pleas coming in saying, "Well you couldn't possibly mean we have to close down this," and the thing is legally yeah we do mean it. If you're having a trade negotiation, the negotiators have to go home because it's not crucial immediately. Congress shuts down. I don't know what they do but they can't come, and they can't get paid and their staffs can't get paid and they go through the same thing about who's critical and who's not.

If you think of the things I've been talking about, time matters. Yeah you can close down inspection for a day, but do you really want to close down mine safety inspection for a month? No. And you wouldn't, you'd still have a critical infrastructure. But most of the mine inspectors would be told they're not critical, not for this moment.

Bryce Covert: Are shutdowns just political theater?

The shutdowns are real. People think that this is all a subterfuge sometimes. And particularly I always thought that the Republican Congress basically thought none of this was real and therefore they could have it both ways. They could politically posture by saying that by god they were going to shut the government down and they were rough and tough and all of that, but in their hearts they kind of knew nothing would happen. So some of them were the most surprised people of all when actual things actually happened and when their constituents suddenly didn't get services because the government was shut down. It is quite real.

When we were there during the shut down, President Clinton had done a superb job of positioning before the fact, of saying to people, "I'm not going to give in to outrageous requests just because people think that I'm unwilling to go through this. But I will warn you in advance that it has effects and you won't like them. And this is not the way adults should negotiate." So by midway through the shutdown, the polling had shifted to being very, very substantially in the favor of Clinton, and I think the same thing would happen here.

Bryce Covert: What does the average American feel when the government shuts down?

Bo Cutter: First of all, there's the disappearance of all of the things that are really visible like forests and parks. I don't mean the forests disappear, obviously. But people who'd planned trips are the ones who get hit first. The TSA will be there, but that proverbial family that is in Washington really can't go to the Air and Space Museum and they don't believe it. They think this is crazy, why would anybody close down the Air and Space Museum? So they yell and scream, and they're right, they should be mad.

The second thing you notice is a real slowdown in everything. There's no place to call and find out what's happening to a particular grant. If you're Caterpillar and you sell heavy earth moving equipment and you had a contract in competition with others being considered by the Department of Transportation, your contract isn't going to get looked at. So the people whose jobs depended on that work lose their jobs.

So the first effect is on the people who were planning to do something that depended quite directly on the provision of government services.

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Bryce Covert: Will there be job losses?

Yes, the second effect is people beginning to lose their jobs. And that surprises people. It happens in two ways. One is the federal employees. People are very funny about that. The vast majority of federal employees don't work in Washington. They work out in the real world. When people yell and scream about government in Washington, they don't really think that about Joe who lives next door and works for the Department of Transportation's regional office. What Joe is frequently in the business of doing is providing services to his neighbors, providing information about grants and contracts and all of that. They don't really think that Joe's one of those people in Washington that they don't like, Joe's a neighbor who's got a job like everybody else and suddenly he's out of work. Then all the people whose contracts, grants, etc. suddenly can't get done, they feel it. It's a progressive thing that you first feel the direct absence of things, then you see people aren't working, then everything starts to slow down and stop.

Bryce Covert: Given the unemployment crisis, do you think that people losing their jobs from a shutdown will have greater reverberations this time around?

Bo Cutter: A bit. There are a couple of ways of answering the question. One is just numerically. People will be out of work and they will be counted as such, so the unemployment rate will bump up. But it's presumably pretty short. The labor force as a whole is 142 million people, and at 9% unemployment that means that we have 128/129 million Americans working. Having 1 million and a couple hundred thousand not working is less than 1% of that. So you don't see it big in the numbers because by the time you look at its year effect it's less than that. But there is some effect there. I don't think there is a lost GDP effect, therefore a bigger unemployment effect, if the shutdown is relatively short, because then you have a down month and then that just means you have a catch up.

But I do think the politics of the unemployment rate will be sharper because it feels different at 9% unemployment. When we did it, when we had to go through it, the unemployment rate was at around 4.5% so the world was in a different place. Maybe slightly higher, but it was lots less.

Bryce Covert: Which Americans are the biggest losers of a government shutdown?

Bo Cutter: Well obviously the biggest losers are people who actually lose jobs, whether it's short or long, because of it. And probably the biggest losers in terms of actual money at least at the start are all the federal employees who are furloughed. But much more broadly than that, the losers are going to tend to be the American middle class because Social Security checks get continued, so the elderly don't see as much of an immediate problem, the defense operations keep working, so it's really people outside of Washington who in their daily life depend on the government functioning. And that's contracts and grants. A second big area to feel it is probably cities because there's a lot of granting that goes directly and indirectly to cities and that stuff stops.

Bryce Covert: Does the government take a monetary hit because of a shutdown?

Bo Cutter: It does and I don't know what it is. We made an effort to figure it out but you had to make so many assumptions that your range of error was going to be so great that if you said a number you were certainly going to be wrong. The people who would argue you've way overestimated this or the people who said you way underestimated this were all going to beat on you and you wouldn't have a number you could defend. So we didn't do it.

But there are certainly real costs, not just deferred costs. We were trying to look at a couple of different sorts of things. Whenever you start something and then start it again, there is a cost of the wind down and a cost of the start up. If you think of it in terms of a factory, to bring a factory line down to a close and ensure that the equipment will stay in shape and is maintainable so that you can in fact then walk away from it involves costs you wouldn't be incurring if you didn't have to shut it down. So they're lost costs. Exactly the same is in reverse when you have to start something that you shut down. You have to go through all kinds of procedures, both safety and operational, to get to start it up again. Now the world isn't a factory, but the same kinds of things occur. If you tell people to shut down a grant making organization you have to make certain that you can start back up again at some point. You can't just walk away with a memorandum half written in Word and come back three weeks later. You have to close it down. It's hard, as you can see, to figure out what those costs are, but you know they're there. It is a vast loss of efficiency.

And then there's also the effort to figure out the real GDP loss. You know there is one, it's just kind of very hard to figure out how you go about counting it.

Bryce Covert: Are there other differences between the last shutdown and now that you foresee making this one better, worse, or different?

Bo Cutter: It's more the politics of controlling it. When we went through it, Newt Gingrich had come in with the Contract with America. The new Republicans believed, and the evidence was pretty good, that the reason they were elected was that Gingrich had managed to nationalize a whole set of local elections and it was sort of the power of his thinking that created their election opportunity. So they were with him lock stock and barrel and he had real control over his caucus. No one ever has complete control over everything and the control began to ebb, but he had it. Today the circumstances are really different in that Boehner does not have control over the Republican caucus. Large numbers of the tea party members don't have any interest whatsoever in figuring out the rational answer to all of this. So you have a really fundamentally different condition of political management. Clinton was reasonably certain, and at our lower levels in the conversations we were reasonably certain, that if the Republicans committed to do something when we finally began negotiations about how to end it, they could follow through on whatever it was they committed to. It's not clear here.

If it happens, this phenomenon could extend the shutdown. The problem is that when you get into a shutdown, like everything else you better have thought through your way out of something difficult before you kind of jump into something difficult. They rarely do. Once you're in a shutdown all kinds of motivations come into play. There is the "by god we're not going to lose to President Obama, whom we don't like anyway, so we're going to stick" thinking. On the other hand, the members who weren't terribly enthusiastic to begin with are beginning to hear from their constituents, and that happens pretty fast. There were a lot of frank conversations when I was part of it last time and Republican members were saying, you know the people back home don't really like this. And the members who weren't enthusiastic about doing it to begin with and are also being whacked by their own voters get madder and madder. So the internal dynamics of the Republican side get more and more complicated. Meanwhile, if as I suspect the polls begin to swing in President Obama's direction, his position is even harder because he doesn't want to have presided over a loss, he doesn't control the votes of the diehard tea party members, but he's got to get himself out of an untenable situation or he could easily lose the House again. So he's feeling (this is all surmise) that he's got big problems.

And all of this is occurring in real time. It's not as if it's occurring in a calm, deliberate atmosphere. It's all occurring with people shouting at each other. Exactly how you begin to move to the end game is much harder for the Congress than it is for the executive. We could meet around a table and we had a boss, the President. So our messaging was better, and Obama's messaging is and will be better than Congress', and when you have the cacophony that occurs during the shutdown it's even more so. We could think through what's the nature of the negotiations we want to have, what do we think will happen, we could role play. They can't because they have 200 plus people around the table. It's much more helter skelter for the Congress.

Bryce Covert: What's the longer term outcome of all of this?

Bo Cutter: I think for a political situation to get to the point where you shut the government down is a failure of governance and it's absolutely wrong as an outcome. I also think somewhat paradoxically that from the politics of it, shutdown would help Obama enormously. Obama does not have anything to fear from this. They have a competent White House. I think they will manage this well and will manage it with a single message. The polling already says that the public thinks the Congress looks like squabbling children. The President looks pretty good and I don't think he has any reason to give in very much. So if I were the President and I had to have one, I'd want one.

I also think that from the point of view of the management of the next fights, both the country and President Obama will be better off if there's one now. This is small potatoes. But we are about to see the debt limit debate. And there are people on the Republican side who actually believe that risking a default isn't a bad thing. I think it's an awful thing. I think it's really, really reckless. And I don't have any confidence that the Republican tea party members are going to come to that realization soon enough and they could play a real game of chicken. That's different than the shutdown stuff. The shutdown occurs gradually and it would have to last quite a while before the results really, really hit.

If you are running a deficit, and we're running a 1.6 trillion dollar deficit, and you refuse to extend the debt limit today, tomorrow you can't issue any more debt and you can't even roll over your debt. The next morning at 9:01, if you're running a deficit, in theory and in fact the deficit increases somewhat in that first minute. So you can't do anything. In that case you can't send out the Social Security checks. Since you are instantly above the debt limit and you have no money if it isn't extended, everything else about a shutdown comes into place. Instantly all of those workers can't be paid because it's against the law to pay them. They have to go home. So it's a shutdown raised to the nth degree. Now there are a couple of things a Secretary of Treasury can do that give you a little room, but it's like a week. I remember when Robert Rubin was Secretary of the Treasury, I knew him very well and I had worked for him and he and I talked about it, he said I've had all the experts, I've had everybody in on debt management, I've had all the lawyers in and we've looked at it every way around, there is some legal room but there isn't very much.

If your debt limit is 1.6 trillion, people think, okay, well as long as that's occurring it's kind of beyond that in some way. But anything above zero you've broken the debt limit if they won't raise it. It hits you broadly and it hits you fast. The other thing is the Treasury is involved in debt management all the time that is in concept unrelated to an increasing deficit. You may not like the term structure of the debt, you may want to make it a little longer or a little shorter. In the bowels of the Treasury there are constant operations that are occurring by financial technicians who aren't trying to do anything with the deficit. But you can't separate that from the deficit, so you can't do those things either. In terms of the operation of the debt it begins to hit you right away.

Bryce Covert: What does it mean to the markets?

It has big money market consequences. If people begin to think that the governance of this country is so irresponsible and reckless that we would actually risk the credit standing of the country, they're going to have a little less faith in our money. Let's say it's just trivial, it's only 10-15 basis points, you multiply 10-15 basis points all across government debt and you've paid one hell of a lot of money for a symbolic act.

That's coming up right down the road pretty soon. My theory is that it's always better if you think a hit's going to come to take it early rather than late. My own view is that the President will win a shutdown hands over, the Republican tea party will look awful, and they aren't going to have the appetite to really be reckless. But on the other hand if we don't, and this is one of the reasons I think we should have one, their view is going to be that they didn't get all they wanted but by their tactics they forced something out of the administration. So why not try again? And the next time you try is the debt limit.

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