Modern Constitutional Convention and its Ramifications

[peter grimes]

I heard a guy talking about the 1 single thing that Obama should have done upon entering office that would have perhaps made the biggest impact on the future.

Campaign Finance reform.

Rewrite the rules so that companies had to disclose all political expenditures, bolster public financing, and so on. There was political will at the time, and the populace supported reform. But he didn't, and the superPac era was born.

Campaign Finance has to be reworked. It's a real trainwreck (unless you're a giant corporation or a multi-millionaire)

 

[JollyRoger]

I think the Supreme Court has tasked itself with legislating on campaign finance reform.

 

[IAM]

I heard a guy talking about the 1 single thing that Obama should have done upon entering office that would have perhaps made the biggest impact on the future.

Campaign Finance reform.

Rewrite the rules so that companies had to disclose all political expenditures, bolster public financing, and so on. There was political will at the time, and the populace supported reform. But he didn't, and the superPac era was born.

Campaign Finance has to be reworked. It's a real trainwreck (unless you're a giant corporation or a multi-millionaire)

Any improvements would at best be small. There are just too many ways to influence politicians. For instance hire their spouse.

 

[peter grimes]

Clarence Thomas doesn't think that's a conflict of interest, so it must be fine!

 

[Cutlass]

I think I understand that point in the abstract (that debt doesn't mean the same to a government as to a household) but can someone like Cutlass explain (or direct me to an explanation) of precisely how and why it differs?

Many ways, really. But before we go on, do remember that most people that say the government should balance it's budget like a household really don't understand household budgets either. As I wrote before:

The thing about this is, all debt is not created equal. Most businesses carry a load of debt. Including nearly every large and successful business. Why? Because what they buy with that debt is worth more than the cost of that debt. Most households carry a mortgage. Why? Because the value of what people get for that mortgage exceeds the cost of paying that mortgage. And most governments carry debt. Why? Because the value of what is bought with that debt exceeds the cost of carrying that debt.

That doesn't mean all debt is good. Just that it is necessary to understand that not all debt is bad.

So the first thing to understand is that the 'balance the budget' people really don't understand what debt is, what it does, or how it's used.

Moving on from there, the government budget is large enough so that it actually has a notable effect on the economy as a whole. The US government is over 20% of the US economy. That is a power to move the economy itself. Individual household budgets don't. The next thing to understand, and this refers to any nation which has it's own independent money supply, is that there is no such thing as the nation being unable to pay it's debt. Worst case scenario, we'll just print the damned money. So default cannot happen except through political incompetence and stupidity, like the Republicans have tried to do a few times in recent years.

The next important point is that there is a real big difference in debt based on what it is used for. If you take on debt to buy something with will generate revenue or savings in the future, then the debt pays for itself. Only when you are taking on debt over the long term which is just consumption spending will paying it back be a real problem. And only then if you're doing it for a very long time.

So for the government, it is natural that when the economy goes into recession, tax revenue falls, and more people apply for financial assistance. This naturally causes deficit spending. Government can either borrow the money and spend it, and that cushions the economy and makes the recession shorter and milder than it would otherwise have been. Or they can cut the budget to balance it. This makes the recession deeper and longer than it would otherwise have been. So deficit spending is the fiscally responsible thing to do. Because once the economy is back to normal fewer people will be on welfare and more people will be paying taxes, and the debt has in fact paid for itself.

 

[Antilogic]

*cough* Occupy *cough*

I think Occupy was very early for a convention-type event like I'm thinking. Occupy might have brought some of the concerns to primetime news to raise public consciousness.

Even for serious problems you are only patching very reluctantly. For most things the Supreme court has to create a workaround.

Just about.

That would mean that it would be theoretically possible to pass amendments with 21% of the vote. If you're going to have a vote on constitutional changes you should add a population quota, like 66% (or whatever) of the states and 66% of the total vote.

(Side note: Part of the confusion here is that we are talking about different thresholds--it's 2/3rds of the Congress or national convention delegates to propose an amendment for formal ratification, but 3/4ths necessary to ratify it.)

I think I understand that point in the abstract (that debt doesn't mean the same to a government as to a household) but can someone like Cutlass explain (or direct me to an explanation) of precisely how and why it differs?

I see Cutlass has already responded, but I'll give one (fun) way to tackle this by pushing the analogy. If the national government operated like a household budget, then you would expect to have an outside income stream (your wages) that you have to use to provide for the family (including the children, who do not directly generate revenue).

But the government's revenue stream is mostly internal taxation and selling bonds, which would kinda be analogous to you making sure all your kids are running their own businesses and selling commodities to each other, out of which you take your cut, or you are selling some form of debt securities to your kids or the neighbors next door.

 

[Flying Pig]

. Worst case scenario, we'll just print the damned money.

Surely that would create inflation and thereby mean that the money was actually worth rather little, thereby making people unlikely to lend to that country again?

 

[Hygro]

A budget amendment would force the government to balance it's budget. No more uncontrolled spending. Of course honestly it's already to late for that. The trillions we are in debt and unfunded mandates like Social Security. Not only is the ship sinking but the water is already over the deck.

Ok that is a colorful metaphor but that doesn't actually mean anything. I'm literally asking you how.

I am not interested in ships and water, I am interested in what the money does any why a balanced budget will help.

It's okay if you don't actually know how money works, even on a simple level. Most people don't. It's even okay if you don't know how money works but a gut feeling moves you to vote a certain way--that's just a function of crowd wisdom as crazy as that sounds.

What's not okay though, is if you don't understand how something works and yet its your foremost constitutional political goal. You gotta put your gut-feeling votes at the bottom of your list of policies you wish to implement otherwise you're the victim of someone else's propaganda.

So, what's it gonna be? How would a balanced budget amendment possibly make this country better?


@FlyingPig, I'll answer your question when I get mine answered by IAM

 

[JollyRoger]

I think some Tea Partier/birther types had a Constitutional convention in Chicago in 2009 or 2010. Of course the liberal media suppressed the changes that were made.

 

[IAM]

Ok that is a colorful metaphor but that doesn't actually mean anything. I'm literally asking you how.

I am not interested in ships and water, I am interested in what the money does any why a balanced budget will help.

It's okay if you don't actually know how money works, even on a simple level. Most people don't. It's even okay if you don't know how money works but a gut feeling moves you to vote a certain way--that's just a function of crowd wisdom as crazy as that sounds.

What's not okay though, is if you don't understand how something works and yet its your foremost constitutional political goal. You gotta put your gut-feeling votes at the bottom of your list of policies you wish to implement otherwise you're the victim of someone else's propaganda.

So, what's it gonna be? How would a balanced budget amendment possibly make this country better?


@FlyingPig, I'll answer your question when I get mine answered by IAM

Well like I said it's already too late for a balanced budget amendment to fix current issues but I believe it would be a good place to start at some future point. In other words I believe the American economy will collapse. As the pressure of increase cost of programs increases the State can either cut programs, increase taxes or print more money. It is unlikely there will be any meaningful cuts to programs like Social Security because of the size of the voting block. The State can not increase taxes enough to pay for the debt we have and the programs we have promised to fund. So politicians will likely essentially print more money which will lead to hyper inflation.

So if a budget amendment will not help why suggest it as being of primary importance? In the USA our religion is Capitalism. Our currency is a matter of faith. A dollar is only as valuable as people perceive it to be. It has no more value than monopoly money other than people's belief that they can get x amount of goods and services for it.

USA is the largest economy in the world and the only superpower so we can and have push the limits of debt further than anyone else but there are limits. But who will buy our bonds as our ability to pay debt decreases? If printing money is the answer then why not just print some currency in Billion dollar denominations and pay all debts.

 

[Cutlass]

Surely that would create inflation and thereby mean that the money was actually worth rather little, thereby making people unlikely to lend to that country again?

Sure. But that's worst case. And the US hasn't resorted to that.

 

[Gucumatz]

There are a lot of little things hidden into federal works, like the Constitutional Convention which have never really been used. IE the President was initially meant to work out with the Senate treaties, but after the Senate couldn't get its act together Washington stormed out on them. Procedural technicalities can be incredibly useful, but dangerous in the wrong hands (see the history of Southern blocking of Civil Rights bills). While some things are technically written...

[IE the annexation of Texas has a clause that if the people choose to do so, it can split itself into 5 separate states. The clause was a bargaining chip in the old slave vs. free states competition]

...most of these hidden procedural stuff was never meant to be used - but like the Constitutional convention, all it takes is an organized movement for technicalities to be real threats.

 

[IAM]

Sure. But that's worst case. And the US hasn't resorted to that.

I think it is the most likely scenario. If taxes can not be raised enough to pay the debt and programs will not be cut enough to reduce cost then politicians will decide to print more money (sell bonds) until inflation devours the dollar. And the less value the money has the more the government will print.

 

[Cutlass]

I think it is the most likely scenario. If taxes can not be raised enough to pay the debt and programs will not be cut enough to reduce cost then politicians will decide to print more money (sell bonds) until inflation devours the dollar. And the less value the money has the more the government will print.

You have to keep in mind that 90+% of all US federal debt only exists because Republican presidents and members of Congress want to drown the country in debt as a strategy to destroy the American Dream. And that the whole concept of a balanced budget amendment is also a strategy to destroy the American dream. A heavy bout of inflation at this point is exactly what the country needs. There is nothing preventing the US from balancing the budget in the long run except Republican politicians. The debt is all a choice. Raise taxes and it ceases to exist.

 

[Hygro]

Well like I said it's already too late for a balanced budget amendment to fix current issues but I believe it would be a good place to start at some future point. In other words I believe the American economy will collapse. As the pressure of increase cost of programs increases the State can either cut programs, increase taxes or print more money. It is unlikely there will be any meaningful cuts to programs like Social Security because of the size of the voting block. The State can not increase taxes enough to pay for the debt we have and the programs we have promised to fund. So politicians will likely essentially print more money which will lead to hyper inflation.

So if a budget amendment will not help why suggest it as being of primary importance? In the USA our religion is Capitalism. Our currency is a matter of faith. A dollar is only as valuable as people perceive it to be. It has no more value than monopoly money other than people's belief that they can get x amount of goods and services for it.

USA is the largest economy in the world and the only superpower so we can and have push the limits of debt further than anyone else but there are limits. But who will buy our bonds as our ability to pay debt decreases? If printing money is the answer then why not just print some currency in Billion dollar denominations and pay all debts.

Let me understand this. You believe the following things are why a balanced budget amendment is necessary for our economic health:
1) A currency's value is only a matter of psychology and faith (not one of economics)
2) Printing new money automatically causes hyperinflation
3) Bond buyers might stop buying bonds if our ability to pay decreases

While I wait for your reply to understand if these are your positions, I also ask the following two questions:

1. When you refer to our "decreased ability to pay" bond holders, what do you mean by our decreased ability to pay? What is the cause for us being less able to pay bonds, say, in five years, than today? What is the thing that changes?

2. All cash and all treasuries are equally debt instruments of the United States. With that in mind, what's the difference between a private citizen holding "debt" in the form of a printed treasury and debt in the form of printed cash?

 

[Hygro]

Raise taxes and it ceases to exist.

That's not an option. Running a budget/public sector surplus tanks the economy because it means the money comes out of the private sector which reduces output causing revenues tax revenues to decrease and automatic stabilizers to increase the deficit. Follow that with how private sector deficits cause credit crises which also causes a private/bank money negative demand shock which further exacerbates the problem. Running a private sector deficit causes banks to raise interest rates dramatically.

Good luck finding 17.5 trillion in cash from private citizens to just arbitrarily evaporate that money forever.

The easiest solution is to just keep interest rates below growth and the debt as % of GDP will keep falling, falling, falling as it had the first couple decades after the war. And mostly this is to hold back a debt holding rentier class from gaining too much money anyway, otherwise who cares.

 

[Cutlass]

That's not an option. Running a budget/public sector surplus tanks the economy because it means the money comes out of the private sector which reduces output causing revenues tax revenues to decrease and automatic stabilizers to increase the deficit. Follow that with how private sector deficits cause credit crises which also causes a private/bank money negative demand shock which further exacerbates the problem. Running a private sector deficit causes banks to raise interest rates dramatically.

Good luck finding 17.5 trillion in cash from private citizens to just arbitrarily evaporate that money forever.

The easiest solution is to just keep interest rates below growth and the debt as % of GDP will keep falling, falling, falling as it had the first couple decades after the war. And mostly this is to hold back a debt holding rentier class from gaining too much money anyway, otherwise who cares.

That really depends on how strong the economy is. Keep the economy running at full for a decade or 2 and there'd be no harm from running down the debt. The problem is that the economy hasn't been in top gear since Carter was in office.

 

[Hygro]

That really depends on how strong the economy is. Keep the economy running at full for a decade or 2 and there'd be no harm from running down the debt. The problem is that the economy hasn't been in top gear since Carter was in office.

Okay so we get 20 years of good economic growth at full output... only to cause a major depression at the end by springing a huge tax on everyone? And then to get out of that recession we issue new debt to replace the old debt...

Meanwhile we had 20 years of growth proving how irrelevant the debt was is stopping growth and employment?

I'm not sure I understand the value in this.

 

[Cutlass]

Okay so we get 20 years of good economic growth at full output... only to cause a major depression at the end by springing a huge tax on everyone? And then to get out of that recession we issue new debt to replace the old debt...

Meanwhile we had 20 years of growth proving how irrelevant the debt was is stopping growth and employment?

I'm not sure I understand the value in this.

Because you're making assumptions that I'm not. Paying off debt does not require a slowing of the economy. Just do it a bit at a time. If investment and growth is high, then there's no real harm done. And then we grow out from beneath the burden of it as a percentage, but at the same time it is possible to shrink the nominal debt. While it's not really necessary to pay off all of it. And may not even be desirable, that should not be taken to implying that we need to keep as much as we have.

 

[Hygro]

Because you're making assumptions that I'm not. Paying off debt does not require a slowing of the economy. Just do it a bit at a time. If investment and growth is high, then there's no real harm done. And then we grow out from beneath the burden of it as a percentage, but at the same time it is possible to shrink the nominal debt. While it's not really necessary to pay off all of it. And may not even be desirable, that should not be taken to implying that we need to keep as much as we have.

My "assumptions" involve this 6000 year old technology called double entry bookkeeping.

• Prices are sticky, particularly downward.
• We both agree that deflationary economic growth is self-undermining because it results in cascading output loss instead of price reductions (sticky prices). Growth itself is inherently deflationary because there's a greater total economy chasing the same number of dollars.
• Taxes > Spending means that the supply of unleveraged money shrinks that year, and it comes out of the private sector
• You know have even more growth chasing even less money, except prices are sticky downward

So in your slow surplus scenario, pray tell how do you achieve full employment, high rates of growth, and a constant drain of private sector assets into the paper shredder we call taxes?

There's only one method I can think of and that's massively expanding private sector debt relative to the ever shrinking unleveraged money. That's exactly what happened in the late 90s and, once accounting for the trade deficit, what was limply happening in the mid 2000s.

Not exactly a recipe for this 10-20 years of growth is it?