Washington Is Not Listening -- Let's Give Them Two Reasons to Do So

The Boehner Plan . . . The Reid Plan . . . both of them scarcely distinguishable from each other, yet they fill up and dominate the news from Washington these days. The reason they differ so little is that they are products of the same nursery, or (during these summer days, at any rate) hothouse. Washington is not listening to people outside the beltway, who have actually been there before, and have done this. (That's what happens when you become too accustomed to spending other people's money -- including money that pays for your salary and all your perks -- instead of your own.)

Herewith are two sensible proposals from outside the Beltway, both of which would introduce a novel element of self-interested feedback into trimming wasteful government spending. The first is a short-term one, tailored to the current crisis. The second is a longer-term one, which we could start to implement once we resolve the immediate crisis.

The short-term plan (kudos to Morgan Worstler, at Big Government blog):

No one understands “what” is going to be cut. Saying discretionary spending is going to be cut over ten years sounds like a Nigerian email scam.

So please Boehner, for the love of god, listen to your buddy Morgan…. Just cut federal employee pay.

Give Obama three choices:

1. Cut Federal Employee Pay in every department except Military by $30B per year (off baseline) starting 2012: Ten-year savings $300B

2. Cut Federal Employee Pay in every department except Military by $60B per year (off baseline) starting in 2012: Ten-year savings $600B+

3. Cut Federal Employee Pay in every department except Military by $90B per year (off baseline) starting in 2012: Ten-year savings $1T+.

Make Obama choose. He can’t win.

Tell him that if he chooses low, when the credit card is maxed out again, he is getting the same deal next time. Suddenly, ALL Federal public employees are with our program.

Do you see how simple this is, and how brilliant? Let's let Morgan spell it out:

Overnight, the entire Federal workforce will be desperate to help Republicans make real cuts. Overnight, our “servants” will be finally pushing out the deadwood, over the howls of their union bosses. Let’s get public employee interests aligned with the public.

To give you an idea of how easy these cuts would be, if we cut the full $90B off baseline, Federal Employees would be earning what they last received in 2008. A $30B cut is just paying them what they received this year.

Mr. Speaker, put Federal Employee pay on the chopping block, Americans will be grateful to know where it is coming from… and that is not coming from them. And the Tea Party Freshman will see you know which hostage to take.

The hero takes the bad guy as a “hostage,” and he chooses the bad guy who can actually DIFFUSE THE BOMB.

If we can’t trust Federal Employees to really help Republicans cut spending, they are the bad guys.

Given the overwhelming recent growth in Federal pay, I'd say this cuts right to the source of our current problem, and could be implemented in a heartbeat. Plus, it would teach a very valuable lesson: there is no free lunch on the People's Money. If the People start to hurt as a result of your bozo policies, then you, who devised and implemented those policies, will have to suffer some of that hurt, as well. (Incidentally, as an aside: did anyone else notice the name of the Standard & Poor's executive in charge of reviewing the grade for the government's debt? It's David T. Beers -- no known relation to the PB's Chancellor.)

The long-term plan builds on the same idea, but is even more permanent and fail-proof. I no longer know whom to credit for it; it was proposed by a long-forgotten economist in an article I read in the 70's in an obscure little journal called The Washington Monthly. The basic idea was so good, and so simple to grasp, that I've never forgotten it, although I've forgotten the name of its inventor:

1. The Government announces the creation of a new currency, to exist side-by-side with the dollar.

2. The purpose of the second currency is simple: it will be legal tender, and henceforth, the only legal tender, for all transactions involving the U.S. Government.

a. All payments made by or from the Government will be made only in the new currency.

b. All payments made to the Government (taxes, fees, customs duties, etc.) will also be made only in the new currency.

3. All future government budgets, calculations, projections, etc., will be produced in terms only of the new currency.

4. The dollar will cease to exist as a currency recognized by the U.S. Government. All dollar accounts held at Federal Reserve Banks will immediately be converted into units of the new currency, at an initial ratio of 1:1.

Now, this is the key point -- so read carefully:

5. The dollar will continue to be the basic, and only, legal tender for the private economy. All of our daily business will continue to be transacted in dollars, just as before.

6. In order to deal with the Government, persons holding dollars will need to convert them into the new currency. (We need a convenient name for the new currency. The original author, I remember, suggested the name "Budget Bucks", or "BBs" for short, and that will do fine for now.)

7. All persons having dealings with the Government -- federal contractors, members of Congress and their staffs, the President and his staff, all federal judges and their staffs -- will be paid in BBs, and so they will need to convert them to dollars in order to buy groceries and pay their normal bills.

8. Dollars will freely be convertible to BBs, and vice versa, at all banks, or at local post offices.

And that's it! See how simple it all is, once again? Consider these aspects of the plan:

A. The convertibility of dollars into BBs, and vice versa, will establish over time an exchange rate, which will be set by the market, just as with any foreign currency. (As we saw above, the initial official exchange rate, to be fair, will be exactly 1:1 -- but it will apply only to those holding accounts at Federal Reserve Banks. Immediately thereafter, the BB will be free to float on its own.)

B. If the supply of dollars exceeds the supply of BBs, the latter will grow in value to be worth more than the dollar.

C. But -- and here's the kicker -- if the supply of BBs grows without bounds, due to profligate government spending and "budgets", the value of a given BB will drop in terms of the dollar.

D. And the dollar, freed of its government tether, will actually have a value in proportion to all of the goods and services which people using it create.

The beauty of this plan is that it will let the politicians play with their money -- the BBs in circulation -- all they want, and will divorce from us their ability to mess with our money supply. To the extent the politicians bring their own house into order, and balance their budgets, they will be rewarded in seeing that their salaries are actually worth something in the real world, when they exchange their BBs for dollars. But to the extent they run wild, then the more they try to make up for the loss in BB purchasing power by raising their salaries and perks, etc., the more their BBs will depreciate. As I say, the scheme is self-regulating, and therein lies its simple genius.

Doubtless the implementation of a real dollar-BB system would require a conference of monetary scholars and economists to work out all the finer details of implementation. But the basic idea could be expressed in a law to be passed by Congress (since it already has the constitutional power to regulate money) -- and then enshrined as a Constitutional amendment once the kinks were ironed out, in order to prevent Congress from tampering with the idea for its own benefit.

So call or write your Congressional representatives, and let them know that you want them to implement the Worstler (federal pay reduction) plan tomorrow, and start the wheels churning for an eventual two-currency system down the road. You will have no trouble sounding rational and sensible, because those plans are far better than anything Washington has thus far come up with on its own.