If you've been watching the third season of Netflix's House of Cards, you'll have noticed something odd. Frank Underwood, amoral power-monger extraordinaire and newly-minted president of the United States, has proposed the most ambitious and idealistic bit of leftwing policymaking since the New Deal: the America Works program, an effort to create 10 million new jobs by spending $500 billion.
This is a genuinely great idea! Unfortunately, Frank wants to pay for it by cutting Social Security, Medicare, Medicaid and other safety net programs. Which is an atrocious idea.
There is an alternative. It would genuinely work in policy terms. And in storytelling terms, it would likely require just as much ambition and just as many plot machinations.
But first, the merits of America Works. In recent decades, lawmakers have tried to indirectly cajole the private sector into job creation, through subsidies and tax cuts and the like. But if jobs are what we want, then why not just have the government create them itself? In policy circles, it's called a jobs guarantee. There are different possible approaches; subsidizing businesses to hire at specific salaries, doing the same through the nonprofit sector, or hiring for government jobs directly. Here in America, for example, we need to build massive amounts of green energy generation, revamp public transit, upgrade our infrastructure, and we have an entire city — Detroit — that needs to rebuild basic civic services. There's plenty of government work that needs doing. But what it boils down to is Frank's idea: a big federal spending program to give paid work to people who want it.
By calling unemployment a "disaster," Frank and the mayor of Washington, DC may be cynically trying to raid FEMA funding to get a pilot program off the ground. But they're not wrong. When lots of workers can't find jobs, businesses can play them against each other, keeping wages low and making sure the cut of total economic production American workers get is as small as possible. For individuals, long spells of joblessness are correlated with everything from degraded mental and physical health, to marital breakup, to general unhappiness. It can permanently lock people out of the labor market, and at the aggregate level, it damages the productive potential of the economy.
Now, why not cut government aid programs to pay for this? First, in 2012 alone, programs like Social Security, food stamps, welfare, and unemployment benefits kept 13 percent of Americans — 40 million people — above the poverty line. A 2013 study of Medicaid in Oregon showed the program virtually eliminates catastrophic health expenses among the poor. And the use of many of these programs would naturally decline as employment increases.
Second, these programs inject demand into the economy. Medicare and Medicaid buy health care services, and Social Security, welfare, and the rest give people the means to buy life's basic necessities. Cutting that spending means cutting that economic activity. Even if you don't care about these programs' moral import (and I'm sure Frank does not) you'd be destroying jobs with those cuts even as you created them with America Works. It would defeat the purpose of Frank's political gambit.
So what's this alternative that would get Frank all the cash he needs without ripping up the legacy of the New Deal and the Great Society?
Two words: money printing. As former Federal Reserve Chairman Ben Bernanke noted, "the U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost." In other words, the Federal Reserve could fully finance America Works without the government having to cut a cent.
The Fed's charter allows it to print money and buy up financial instruments, and one of the most common financial instruments out there is U.S. government debt. Frank could borrow the $500 billion to pay for America Works, then have the Fed immediately print the money to buy up $500 billion in U.S. debt. Because the Fed would be creating new demand for U.S. debt, it would keep interest rates on it from going up, making it functionally equivalent to the Fed just giving Congress the money.
But the Federal Open Market Committee (FOMC) — the appointed body within the Fed that runs monetary policy — is supposed to be independent of political pressure from Congress and the President. So Frank would have to employ his skills at backroom dealing to convince them to go along with it. Or he could push an amendment to the charter through Congress, perhaps forcing the Fed to finance government spending directly in emergencies.
And all this money printing almost certainly wouldn't lead to runaway inflation. Inflation is just the general price level of everything bought and sold in the economy, and nothing is bought and sold more than labor. Then the cost of labor (i.e. workers' incomes) determines how much of everything else people can buy.
So you can't get steadily a rising inflation rate without constant wage pressure, and you can't get constant wage pressure without full employment. That's the threshold under which unemployment is so low, and so many people have jobs, that businesses are forced to continuously hike wage offers and poach workers from other businesses to grow their hires. That drives wages and inflation into an ever-upward spiral.
Economists aren't sure where the full employment threshold lies, but all the evidence suggests its suggests its below the 5.5 percent unemployment rate we're at now. In other words, an America Works program financed by Fed money-printing wouldn't start driving up inflation until it had already solved the problem of unemployment.
Furthermore, a new rising school of economic thought — modern monetary theory — argues that taxes can also be used as a tool to control the money supply. So if Frank money-printed his way to too much inflation, he could also pass a bill to use new taxes to skim money off the top of the economy and tamp inflation back down.
So there's every reason to think this strategy would work. As in, work in the real world.
Finally, in the House of Cards world, it's also an idea with great storytelling potential! Monetary policy is arcane and few people understand it. The policy would be unprecedented, enormously ambitious, and hugely controversial. Frank's Republican opponents in Congress would loathe the idea. Getting it done would require Frank to either push radical changes to the Fed's charter through Congress, or scheme to leverage and corral the FOMC — as rarified a group of elite power brokers as you're likely to find — into supporting his plan. You could even imagine an over-bearing, inflation-hawk Fed Chair as Frank's chief antagonist for the season.
The final irony would be that Frank, the ultimate anti-hero, would wind up genuinely benefiting the American people in his quest for power. And really, isn't that how American democratic governance is supposed to function: by taking politicians' mercurial and self-interested ambition and channeling it into socially beneficial behavior?
So I guess the only question left is, are any House of Cards writers (not to mention American policymakers) reading this column?