This second entry in the Money & Public Purpose series features Stephanie Kelton and Warren Mosler debunking widely held misperceptions on the relationship of governments to the economy (for instance, that running surpluses is a good idea). In order to have government play the role they suggest, that of accommodating the actions of the other major sectors (households, businesses, export/import), the best approach is heavy reliance on automatic stabilizers such as their job guarantee. For instance, the English language media was hectoring Germany immediately after the financial crisis for not implementing much in the way of stimulus programs, as China and the US did. Germans were at first puzzled, then annoyed, since their employment related programs would lead to higher spending as the economy soured. And indeed, Germany’s performance shortly after the implosion was better than the critics forecast for this very reason.
They’ve aslo made a short slide deck available that includes the visuals used in the talk.
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Early MMTer, Al Jolson, explains, to his small group of loyal followers back in 1927, why we will need more and more MMT.
Al Jolson Yes, We Have No Bananas (sync corrected) – Opera Parody
http://www.youtube.com/watch?v=T-uJVA90hTE
Read more at http://www.nakedcapitalism.com/2012/10/links-102112.html#cl6pCV4k43iSXyiC.99
I am curious how many of us will be comfortable with a person saying to us, the more promises I give you, the more promises from me you will have. That’s an identity – a mathematical identity and an accounting identity.
Moreover, the person says that he can issue promises limitlessly, as he will never run out, i.e. bankrupt of promises.
If money is power, to admit some entity can issue money without running out is to grant that entity unlimited power.
I think we have to run this by some Constitution scholars.
Or we could just conclude that if you make way too many promises you don’t keep, promises become worthless.
Look. Keynesians are missing half of Keynes, just as Lafferians are missing half of Laffer.
Keynes did NOT say that government should serve ONLY as a stimulator in bad times. He DID say that government should be like a reservoir, storing up revenue in good times and pouring it out in bad times. If governments had the guts to tax the rich in good times, they WOULDN’T HAVE TO RUN DEFICITS in bad times. Since no modern government has the guts to build up its reservoir in good times, they are NOT MORALLY JUSTIFIED in running up debts in bad times.
Laffer did NOT say that governments should always lower taxes. He DID say that governments should constantly adjust tax rates BOTH UP AND DOWN to find the ‘sweet spot’ between growth and revenue. In good times a relatively low rate will allow growth and bring in revenue. In bad times a low rate doesn’t do anything because growth is not available, so a higher rate will bring in more revenue.
@polistra,
But didn’t Laffer believe that the govt needed revenue in order to, or before it could, spend? Wasn’t that the basis of his theory?
If so, that is not what the people in this video are saying.
They are addressing the world after August 15, 1971.
That’s what they’re saying, but how do you know that it’s correct?
The video implies that the government does not need tax revenues through extrapolation of the example of ‘someone’ paying their taxes with cash and having the IRS shred the currency.
I have never seen this, nor do I know of anyone who has ever seen this, nor have I ever met anyone who takes their cash money down to their local IRS office to pay their taxes.
But even a bonafide, certified example of such is simply anecdotal.
I await the proof that everyone at Fed and Treasury agrees with what is being said.
The government says that it needs the money before it spends.
Legally.
Right now.
Again, how do we know otherwise?
joebhed,
My response somehow ended up at the bottom of the page at Oct 23, 2012 9:06 AM.
I replied at your comment below, but it seems to have gone into the interweb tubes.
Let’s hope it comes back.
Morally justified!
You just havnt been following this debate have you?
But before the govt can tax it must spend, as Stephanie’s demo showed.
“…before the govt can tax it must spend.”
What is amazing to me is that there are people beyond the 5th grade that don’t know this.
Paul
If the private banks create the money that goes into my M1 checking account and if I use my M1 checking account to pay my taxes, what does any of this have to with government spending?
It is important to establish whether, under our current system, the government is the monopoly issuer of the national currency, or merely another user of the national currency.
We-the-people’s government was $6 million in debt before we coined a nickel.
And today, except primarily for Greenbacks, coins are the only money that the government issues.
>>And today, except primarily for Greenbacks, coins are the only money that the government issues.<<
Joe, are you referring to the Lincoln-era and Kennedy-era Greenbacks? FedBank, not USG, issues the Federal Reserve Notes of today. USG earns no seigniorage on these notes, as it does on the coins. The notes are FedBank liabilities, while USG coins are FedBank assets. USG prints the notes and is obligated to accept them, but must borrow or tax them to have use of their purchasing power. They're just a form of Reserves, i.e. Central Bank Money, designed for hand-to-hand use.
This is to ExonCCX – I could not find a ‘reply’ route.
Yes, I was so referring and I agree completely your differentiation between money and credit, both as to issuance and accounting.
The Federal Reserve banks issue the currency and the Member banks of the Federal Reserve system issue the bank credit; all as part of the debt-based money supply – accounted for accordingly with zero gain to the sovereign people who own the money system.
Part of what Prof. Bernd Senf calls ‘the fog around the money’ is this deeper truth that government must either tax or borrow to use this privately-created purchasing power, when, again, we own the money system..
It’s like Henry Ford said – there’d be a revolution before morning.
“If the private banks create the money that goes into my M1 checking account and if I use my M1 checking account to pay my taxes, what does any of this have to with government spending? “
joebhed – you’ve just made the same point I’ve been making in a different way.
I have been hammering away on the huge difference between debt and direct fiscal spending.
The spending of bank issued money is unsustainable mathematically.
This is because the liabilities associated with debt increase geometrically relative to income for the individual borrower if the borrower keeps expanding debt to maintain a lifestyle.
This isn’t a problem for the economy in the aggregate until the level of debt reaches the limit of borrowers ability to service it.
Once the system is saturated with debt, there can be no more spending growth contributed from debt. Debt service is a direct removal of spendingfrom the economy.
The only possible source of funds now is net government spending, both to extinguish the debt and to power the economy.
That’s how government spending is related.
There was a time, in my lifetime, when the economy did not depend on debt accumulated for consumption, although the expansion of housing did account for a significant chunk of the economy.
From here on out, until private debt is paid down significantly, the economy cannot thrive without either increased government deficit spending or more progressive taxation. To believe otherwise would be to suspend the laws of arithmetic.
This is reply to Paul,
You wrote a lot there that I agree with – up to the point where debt-saturation leads to deflation without government ‘printing’ money.
And it’s not that I disagree with the principle involved – because it is true – it is that legally the government NEEDs authorization before it can print money.
Period.
The government cannot, does not and never will ‘print’ money without a similar authorization as Lincoln obtained to print the Greenbacks.
Every budgeted expenditure NEEDs a source of revenue.
If you think there is something I am missing, I am open to knowing what that is and discussing it.
For the Money System Common.
I have recently realized that Woodrow Wilson prevented economic collapse, civil war, and a Communist revolution in the US by instituting the progressive income tax. Tax rates for million-dollar-a-year men went from 0% to 77% in less than ten years. Meanwhile, tariff rates dropped.
Cutting the top-bracket income tax rates helped bring on the Great Depression.
“I have recently realized that Woodrow Wilson prevented economic collapse, civil war, and a Communist revolution in the US by instituting the progressive income tax.”
I think Theodore Roosevelt is the father of the progressive income tax but otherwise I agree.
In my view, steep progressive taxation is the only thing that can save capitalism from itself.
Compensating for wealth accumulation by creating more money doesn’t seem like a sustainable solution. We make the rich so powerful they buy our government out from under us.
Watched this the other day this – liked Kelton;s presentation, but disagreed with Mosler in QnA section at end on a couple of points:
He says eliminate FICA – disagree strongly, should make it more progressive, eliminate cap, but ISTM that the continued existence of SS and Medicare depend on folks having the sense of having “skin in the game” – eliminate that, it becomes “welfare”. Sure we could “afford it” under MMT scenario but methinks Mosler missed the very shrewd calculation FDR made when he sat it up the way he did …
Also disagree on his trade stance on encouraging imports – “hey if the rest of the world wants to toil to make our goods we should let them”. Aside from the footnote of “Sucker!” I detect, it seems to me quite unwise indeed to become more instead of less dependent on the rest of the world for the stuff of life ….
@Aquifer. It wasn’t FDR who figured it out. It was his Labor Secretary. Can’t remember her name.The Republicans were–‘natch’–against SS, and vowed to contest any agreement in the Supreme Court. The Labor Secretary couldn’t bear to watch the poor sleeping in the streets. She was obsessed with passing it. She had tea (uncharacteristic for her) with the Chief Justice of the Supreme Court one afternoon. He pulled her aside and gave her a tip, and vowed her to secrecy. He told her to make it a tax. He said Congress was legally enjoined to create taxes, something the Supreme Court could not knock down.
The Labor Secretary ran back to FDR’s office and told him to create what Mosler calls, accurately, the “useful fiction” that people are paying for their SS, call it a tax. Everyone was sworn to secrecy. For the record, if you will read current documents, Supplement B is not part of it. The government promises to pay that in perpetuity without any tax of any kind.
Upshot? There is no reason to charge people a FICA tax. It’s not welfare. it’s because they are Americans and everyone is entitled. And it’s no skin off anyone’s teeth, and our grandchildren aren’t going to have to pay for it.
Ryan is an idiot, Romney and Obama too. Social Security and Medicare are fully-funded as long as there is a USA.
The tax claim was half the argument when the ACA was challenged.
Then why are people paid different amounts? Why are some people denied SS in old age entirely?
MRW:
I agree with you that Social Security does not need FICA taxes to make it a viable program.
The FICA taxes flow into the Treasury’s general fund, just like income taxes.
And, because these are taxes, they cannot be directed to specific programs, but only for the general welfare.
Where I disagree with you is your statement that Social Security and Medicare ae fully funded as long as there is a USA.
Could you logically explain that statement?
Even if I would agree with you the USA will never default, does that mean that Social Security and Medicare are fiscally sound, as well as any pay-as-you-go programs? It sounds like the UsA can continue to accumulate debt, but as long as our country is physically around, our finances will be in order.
Don Levit
Don, you are correct to challenge me on this: “Where I disagree with you is your statement that Social Security and Medicare ae fully funded as long as there is a USA.”
I realized as soon as I prematurely hit Return that I should have explained it. (Why is there no EDIT button?)
What I meant was that the USA can always pay for Social Security and Medicare, as long as there is the political desire to want it, because Social Security and Medicare are not dependent on FICA taxes to fund it. The USA has the ability to pay for anything it wants with its dollars. There is no threat to SS and Medicare.
This, actually, is going to become a major issue as the Baby Boomers age. They are a huge population. But the Millennials are larger. The Millennials will need to produce enough goods and services for the BBs to consume. It will become a political matter to make sure that the BBs have the income to pay for these goods and services. [This will make a mockery of the ‘debt to our grandchildren’ charge, btw. We’re not paying for The Greatest Generation’s debts.]
Frances Perkins – and it IS a tax, a payroll tax – if you have any doubt check your paystub. Also i do believe it was set up as a dedicated fund to the point of having about $2.3 billion or is it trillion, in any case a heck of a lot of bucks in it in the form of Treasuries and the interest they have accumulated. When they decided to reduce the payroll tax recently, the folks worried about the effect on SS were told any difference would be made up out of general revenues, i,e. an admission that ordinarily this wouldn’t be necessary. The folks who claim it was all used up simply don’t want to have to make good on those IOUs that are every much as valid as the ones China holds – so go tell China we’re broke. If i have this seriously wrong please tell me, but i think this is basically the way Dean Baker has explained it …
I do agree that SS/Med is something that the American people should do as a society for its members BUT i am also very much a “realist” (hard to believe, ain’t it?) in this respect – given the American psyche, hell maybe just the human psyche, one is much more likely to fight for something one believes one has paid for oneself – that is why Clinton could get away with gutting welfare without too much outcry from the general public – but it is taking a lot longer with more devious mechanisms to whack SS/Med …
So yeah, in a monetary or fiscal or whatever the correct term is, we don’t need to tax to get there, i would argue that in another, very real, and i might argue equally valid sense, we do … I think we need to tweak the tax make it more progressive, perhaps – but make sure that it is specifically identified with SS/Med – all this talk about an ownership society has indeed been manipulated to get folks to do a lot of stuff but the reason it is used is because it does indeed strike a deep cord in the American psyche – “Let the gov’t keep its hands off ‘My’ Medicare!” is ridiculous in one sense, but in another a paean to how successful this approach has been in getting folks of all political persuasions to defend these programs fiercely, so i say again – shrewd maneuver ….
Aquifer:
If we could have a tax dedicated to Social Security, that would be wonderful. But, the very nature of taxes, as far as the federal government is concerned, is that they all go directly to the same place – the general Treasury.
From a House Ways and Means Committee report in 2003:
Pages 1-6 “Along with many other forms of revenues, the FICA and SECA taxes become part of the Government’s operating cash pool, or what is more commonly referred to as the U.S. Treasury. In effect, once these taxes are received, they become indistinguishable from other moneys the Government takes in.”
http://waysandmeans.house.gov/media/pdf/greenbook2003/Section1.pdf.
It is not that the SS trust fund IoUs should not be honored.
It is that honoring them will incur the same proccess as filling in the 2% payroll tax reductions – with general revenues, which, in a budget defcit, means additional debt held by the public.
Don Levit
“From a House Ways and Means Committee report in 2003:
Pages 1-6 “Along with many other forms of revenues, the FICA and SECA taxes become part of the Government’s operating cash pool, or what is more commonly referred to as the U.S. Treasury. In effect, once these taxes are received, they become indistinguishable from other moneys the Government takes in.”
http://waysandmeans.house.gov/media/pdf/greenbook2003/Section1.pdf”
The ballgame.
WHICH MEANS EXACTLY THIS: there is no way, zero, nunque, zip way to tell if paying SS and Medicare are inflationary.
None.
It’s a made-up argument by an idiot Ryan.
But…
But….
Don….
I thought the whole “thing” was that MMT does not believe that the government NEEDS any of that tax money – or otherwise – before it can spend …
And that taxes do not pay for any acts of government – or some such thing…
Which is it?
Thanks.
The point i was trying to make is that these moneys ARE associated with a “trust fund” of Treasuries with interest rates and all that unlike, say income taxes …. So the gov’t has a direct specific obligation to “repay”, just as it does to honor it’s IOUs to China, e.g. Frankly that House Committee report sounds like a sleight of hand – “we have it because we said so”. The problem with that is that, if gone unchallenged for too long a time, it “becomes” fact just as the “corporations are people” bit was NOT actually a finding or determination of the SC, but a phrase stuck in the headnote by a clerk, so i am told – but correct me if wrong.
That’s not necessarily the way people view their social security taxes today. Today a lot them are saying, I sent all this money in and if I die tomorrow I don’t collect it, women live longer than men, and so men are oppressed by the state, blah blah blah.
Meanwhile, a lot of people are having a hard time making rent or saving anything out of their paychecks and are virulently anti-tax and anti-public service as a result. Why should I pay to educate other people’s kids, blah blah blah.
It’s the “I paid for my (SS, medicare, etc), you pay for your (schooling, etc)” logic that has everyone eyeing up their neighbor’s parasite quotient.
There’s something about this that doesn’t work for me in the somewhat random walk of life as I perceive it.
Meanwhile, I’m starting to think the bottom half of the population really needs a living stipend in addition to their two and a half minimum wage jobs.
Just because. If people with one decently paid job don’t like it, they can always quit and see how the other half lives. That’s all. Go for it.
God, I love the comments on this blog.
TJF,
I am not arguing with you here about the need to “socialize” the costs of meeting the fundamental needs of our populace. I too, find this “I don’t want to pay for anyone else’s kids education, or health care” routine appalling. I never had any kids, but i never questioned my obligation to pay school taxes when and where they were imposed – though, i must admit in the last couple of years i have filed for a senior citizen exemption, though i do feel a bit guilty about it ..
But i do believe that given the increasingly atomized tenor of the populace – the ONLY thing that has preserved these programs this long Is the idea that at some level we have “earned” this stuff – and let’s face it, in the sense that it is considered deferred wages we have …. As I said, i am a pragmatist – if we can combine this sense of “earned” entitlement with a broad based concept of social insurance whether it be for retirement or healthcare or education or whatever else we agree we need for that iconic “life, l iberty, and the pursuit of happiness”, methinks we will be more likely to preserve it in the face of the onslaught from the social Darwinian mentality that seems to accompany the market model of life …
In the middle of my “flights of fancy” re Green politics et.al. which incorporates this “everybody in, nobody out” to the hilt, i try to keep one sneaker on the ground, if for no other reason than to have a place to jump up from when possible …
“the ONLY thing that has preserved these programs this long Is the idea that at some level we have “earned” this stuff –”
I understand what you’re saying, but that’s only one way of looking at it. The fact is that we have a steeply hierarchical society that is rapidly disenfranchising people and making it difficult for too many to claim that they have “earned” much of anything.
And indeed, if you got laid off for an extended period of time in this sharp downturn, you got to watch your entitlement shrink.
At the same time, the idea that people get back in old age, the taxes they paid in previously has become an argument people use against the program on the chance they will never get their money back. This is the tenor of the macho sentiment today, which is the same sensibility they were pandering to back then, with this whole “you earned it, not like those pathetic welfare queens with the mothers’ and soldiers’ pensions.”
Meanwhile, with SS, you get compensated by the state for spousal duties but you don’t get compensated by the state for elder care, or even technically, childcare. I don’t know when f***ing became a legitimate state interest for which you are entitled to be compensated until the day you die, but there you have it.
This is just off the top of my head. I don’t have hard and fast opinions about it, it just strikes me that times change.
Meanwhile, my other point still stands:
It is this same “I earned it, (but you didn’t)” dynamic that is today creating an increasingly toxic culture in a population under pressure, that is ironically eating away at the very same welfare state you want to defend.
@Aquifer,
“When they decided to reduce the payroll tax recently, the folks worried about the effect on SS were told any difference would be made up out of general revenues, i,e. an admission that ordinarily this wouldn’t be necessary. The folks who claim it was all used up simply don’t want to have to make good on those IOUs that are every much as valid as the ones China holds – so go tell China we’re broke.”
Because it’s bogus. FICA was created to pass the SS law. There is no Social Security Trust Fund. No such entity. They slapped a tax on for two reasons: to get it past the Republicans because Congress can enact taxes, and to give a sense that they were paying in and it wasn’t a handout, whatever that means.
And there are no IOUs to China. China bought Fed reserve style CDs to make interest on their money. The amount they have at the Fed is a record of purchases made by Walmart, K-Mart, and Target. That’s all.
http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt
>>And there are no IOUs to China. China bought Fed reserve style CDs to make interest on their money. The amount they have at the Fed is a record of purchases made by Walmart, K-Mart, and Target. That’s all.<<
But you then linked very helpfully to a page showing China owning 1.15T in UST securities. Meaning China used dollars spent by WalMart customers etc. to purchase USG debt, i.e. IOUs. Delivering Reserves to the USG with which USG clears its checks. Leaving USG with a substantial debt to China.
“”There is no Social Security Trust Fund. No such entity.””
Is it because it has a slightly different name?
Because if that ain’t it, then what are we to make of all of this?
http://www.ssa.gov/oact/trsum/index.html
Thanks.
joebhed,
Mucho thank you, sir! I guess i had it pretty much right …
Now i “got the goods” as they say …
i really do think this is something we have project far and wide – and what MMT can contribute, ISTM, is the idea that the gov’t can make up the difference between what folks “defer” as “payroll” taxes for SS or “put aside” as health insurance “premiums” for Medicare – and what they need for a decent retirement or good healthcare, so that we can make these taxes considerably more progressive than they are now, without running into the “we can;t afford it” BS. This isn’t a “voucher” – this eliminates the for-profit middleman in these social function transactions and is all inclusive and across generations – the glue that binds us together …
Rats – “we have project ..” should be “need to project …”
“But you then linked very helpfully to a page showing China owning 1.15T in UST securities. Meaning China used dollars spent by WalMart customers etc. to purchase USG debt, i.e. IOUs. Delivering Reserves to the USG with which USG clears its checks. Leaving USG with a substantial debt to China.”
China buying T-Bills and bonds a is no different than you buying a CD at your local bank. It parks it in its securities account. It could just as easily taken the Walmart/K-Mart/Target money out of checking (reserve account) and bought Yuan on the open market. But China wants to save in US dollars so it buys T-Bills, parks them in its savings (securities account) and gets interest. The principal has already been created by the US govt; the federal government doesn’t need to recreate it. It does pay China interest, which it pays with newly issued currency at maturity that doesn’t involve you or me or our grandchildren.
China’s reserve account at the Fed has absolutely nothing to do with the Fed’s check-clearing operation, which it does by marking OUR bank accounts up or down at OUR bank’s reserve account at the Fed.
Joebhed,
SS is a basket of fed govt insurance programs with long names. If it were a legally identified trust fund, social security checks would be sent from the SS Trust Fund. They’re not. They’re sent from general revenues of US Treasury.
@MRW: Do you not believe that USG borrows in its own currency? That the reason the USG sold a bond to China was to obtain Reserves, the private central bank money against which USG writes checks? That to pay the interest, and to repay the principal upon the bond’s maturity, the USG must borrow anew, or tax, or sell sovereign coins from the Mint to a Federal Reserve Bank?
Do you believe Federal Reserve Bank sites that convey that the banks are privately owned, that they pay dividends to their owners, that Treasury coins and T-Bills are among the banks’ assets, and that Reserves, including Reserve Notes, are among their liabilities? Do you have any site that shows how much ‘newly issued currency’ the USG pays out with each year?
I’ll repeat the Bernanke quote and NYT cite from elsewhere on this page. Why did Bernanke say this, if reserves obtained from China do not fund USG spending, and if tax payments do not fund interest payments?
But Fed officials note that this cycle — payments flowing from Treasury to the Fed and then back to the Treasury — still saves money for taxpayers because those interest payments otherwise would be made to other investors.
“It’s interest that the Treasury didn’t have to pay to the Chinese,” the Fed’s chairman, Ben S. Bernanke, half-jokingly told Congress last year.
http://www.nytimes.com/2012/01/11/business/economy/fed-returns-77-billion-in-profits-to-treasury.html
On imports: it drains their natural resources, not ours. Same with oil. We are draining the world’s oil without touching our own stash. (Did you get as far as Mosler saying ‘it’s not what I would do if I were they’?)
Think of it this way: You can create the medium of exchange, the money, your currency. You need wood for your homes and restaurants. You have tons, ACRES of wood. But so does country A, B and C. Countries A, B, and C also have ACRES of wood…and lucky you, they want your currency. Why wouldn’t you buy all the wood they have with your currency before using your own?
But the U.S. does drain its “Own stash.” Most of the oil from Alaska, for instance, is exported, and I recall a Wall Street Journal article early this year that noted that the U.S. had become a net exporter of oil.
See, here’s the problem – this winds up being just another version of a zero sum game and we are the ones who should “win”. Yeah, I got all the way through …
And what happens if they send all their resources to us, and they have none? Tough titties, as they say? So we are to pursue policies that strip the rest of the world of its resources and say it’s OK because, hey, they’re dumb enough to do that … besides the fact that that is what we have been doing for sometime now – gobbling up everything in sight and that isn’t working too well for the planet, or even for us …
And as SD points out, in fact it is us that is stripping ourselves of basic materials in return for manufactured products from abroad.
There is sooo much wrong with this view, IMO – by giving up manufacturing we are giving up skills as well – trading it for a “knowledge” economy where the only thing we need know how to do is type … Granted, carpal tunnel may be a worthwhile trade for slipped discs, but i ain’t sure even about that – too much carpal tunnel and we can’t even feed ourselves, not even bits and bytes …
And there is the issue of what happens if trade breaks down for what ever reason – how secure is a country that doesn’t even make its own underwear anymore?
And finally there is, to my way of thinking, the most important argument – the necessity of preserving the redundant diverse systems that make any ecosystem not just viable, but rigorous, and sustainable into the future – the system MN developed over 4 billion years was one where the inhabitants lived and interrelated within the confines of various ecosystems. The “goods and services” traded by her creatures were within those confines at various levels … And we have seen what happens when we try to “globalize” what was never designed to be globalized, and colonize what WAS designed to be globalized, as in air, water, etc.
I guess the main problem I have with this stuff – with pretty much all the economic theories i have seen so far is what i see as a fatal failure to incorporate our environment into the equation – or, more correctly, to incorporate our economics into our environment …
I like the idea of “we ain’t broke, we can make all the money we want” – that is very liberating in a real sense but ISTM it has to be subordinated to a bigger picture, indeed, THE Big Picture, or all it is is another example of my favorite Fallacy of Misplaced Concreteness. …
Remember, the phony “money shortage” is what’s being used by the scum of the earth to seize control of publicly-owned water systems. It’s what’s being used to claim we “can’t afford” to build solar panels everywhere. Etc. So the “money shortage” is one of the main excuses given for NOT dealing with the environmental problems.
I realize that – i am not arguing with the basic tenets of MMT as i understand them (which is probably not very well) and agree that it seems a great way to squash all this “need to privatize everything including the hairs in your nose” BS but i do not agree with Mosler’s take on trade and frankly do not see how that is a “sequitur” of MMT ….
…people appear to have missed the part where it’s a “financial sector” problem=SPECULATION, not a “resource” problem-just as Saudis told bushitters, 2005:
WASHINGTON — When oil prices hit a record $147 a barrel in July 2008, the Bush administration leaned on Saudi Arabia to pump more crude in hopes that a flood of new crude would drive the price down. The Saudis complied, but not before warning that oil already was plentiful and that Wall Street speculation, not a shortage of oil, was driving up prices.
Saudi Oil Minister Ali al Naimi even told U.S. Ambassador Ford Fraker that the kingdom would have difficulty finding customers for the additional crude, according to an account laid out in a confidential State Department cable dated Sept. 28, 2008,
“Saudi Arabia can’t just put crude out on the market,” the cable quotes Naimi as saying. Instead, Naimi suggested, “speculators bore significant responsibility for the sharp increase in oil prices in the last few years,” according to the cable.
What role Wall Street investors play in the high cost of oil is a hotly debated topic in Washington. Despite weak demand, the price of a barrel of crude oil surged more than 25 percent in the past year, reaching a peak of $113 May 2 before falling back to a range of $95 to $100 a barrel.
The Obama administration, the Bush administration before it and Congress have been slow to take steps to rein in speculators. On Tuesday, the Commodity Futures Trading Commission, a U.S. regulatory agency, charged a group of financial firms with manipulating the price of oil in 2008. But the commission hasn’t enacted a proposal to limit the percentage of oil contracts a financial company can hold, while Congress remains focused primarily on big oil companies, threatening in hearings last week to eliminate their tax breaks because of the $38 billion in first-quarter profits the top six U.S. companies earned.
The Saudis, however, have struck a steady theme for years that something should be done to curb the influence of banks and hedge funds that are speculating on the price of oil, according to diplomatic cables made available to McClatchy by the WikiLeaks website.
Read more here: http://www.mcclatchydc.com/2011/05/25/114759/wikileaks-saudis-often-warned.html#storylink=cpy#storylink=cpy
The speculation in oil is hard to avoid. And it’s hard to avoid because *peak oil is here*.
People know there isn’t any more cheap oil, therefore hoarding the oil for later is an obvious investment strategy. You won’t be able to stop it. Even if you stop “financialized” oil speculation (which could be stopped), people will start actually stockpiling oil in tanks and tankers.
Speculation in oil is easy to avoid. Buy 50-year contracts.
I’m skeptical regarding what can be inferred from accounting identities (and the a priori synthetic in general).
Can someone comment on the significance of the changes in AMPLITUDE around the zero balance on Slide #4?
I have a hunch that the amplitude, or rather the changes in amplitude as opposed to the absolute levels, are far more significant than the netting to zero (which is simply true by definition).
The most basic and important accounting identity is this:
Money printed = money owned by the private sector + money owned by foreigners.
That is to say, if the government prints more money, we all have more money, in aggregate.
In reality, the 0.01% get almost all of the money printed soon or later, often soon; thus, the 0.01% will always plead for ‘compassionate’ money printing.
Sooner.
How many of these “the government’s debt doesn’t have to be paid back in real terms or with interest so let it continue to borrow and spend ” is this blog going to keep posting?
Continuing to repeat a lie doesn’t make it true.
“How many of these “the government’s debt doesn’t have to be paid back in real terms or with interest so let it continue to borrow and spend ” is this blog going to keep posting?
Continuing to repeat a lie doesn’t make it true.”
A couple of questions:
You seem to be claiming that someone has to pay back that which was created from thin air. Does the air demand it?
Over the past 150 years or so we have not paid back any of this “air money”. When do we have to start?
On the one hand, please consider the compounding interest on all of that $Trillions debt-outstanding that is going from the taxpayers to the holders of the ‘monetary-assets’ that are government debt.
Can you say ‘wealth-transferring-upstairs’?
On the other hand, ALL of the private so-called bank-credit money has been created out of thin air, and issued as a debt to the people, had to be paid back.
It’s not the thin-air that gets paid back, but the thin-air issuer of the debt(money).
“…that is going from the taxpayers to the holders of the ‘monetary-assets’ that are government debt.”
The taxpayer has never paid a net nickel to the bond-holders. These payments are made by the government to the bond-holder and the funds are created out of thin air.
Please, people go back and review 5th-grade math.
>>These payments are made by the government to the bond-holder and the funds are created out of thin air.
Please, people go back and review 5th-grade math.<< @Paul
Please MMTers, offer up a trace of evidentiary support. Paul, do you have the numbers people are expected to review? How much do you show the government creating from thin air to pay its bills, and how do you know? Meaning not from taxes, not from new borrowing, and including constitutional coin seigniorage, which is not in dispute (and on which USG makes a loss for coins with face value less than $1.) FedBank pays USG only printing costs for the paper notes, as they’re FedBank IOUs, not assets like the coins.
Paul
I wish you would make the connection between 5th Grade and some math on the table.
What ‘math’ are we missing?
Here are a couple of points about public debt and taxpayers that don’t so much involve math as they do political-economics.
I’ve made the point that all debt is a flow of wealth from the payers of interest to the collectors of the interest payments.
With public debt, the interest payments really do get made – by a government cheque or wire transfer – to the holder of that debt-security.
I’ve made the point that the government CAN NOT make the interest payment – however paid – that transfers real wealth in the form of purchasing power in the economy to the holders of the monetary assets, unless and until the money for the payment is collected from taxpayers – or from issuing more debt – with even more payments of interest transferring more purchasing power.
While I focused my question on the continued immorality of debt-based money, with its essential character of transferring wealth ‘upwards’, and you answer with some criticism of mathematics.
The math is all right here.
http://blip.tv/file/4111596
The government is no more than the debt-collector for the owners of the monetary assets.
And to be clear of my claim, there is something wrong with that.
And it is something that MMT ignores, if not embraces.
It is time to end the debt-based system of money.
For the Money System Common.
So, are you suggesting that bondholders were never paid a cent or that you can never owe the IRS money because it can just go pony up to the Federal Reserve for some of that ‘air money’?
Why work when the government can just create money and pay for us? Most of us don’t need to work since a very small number of people and a large number of fossil-fuel-powered machines are responsible for most of what we consume.*
*Even if that utopian fantasy were possible, do you think your fellow human beings would allow you to obtain something for nothing?
If the country’s debt is debt owed to itself, why does it have to charge itself interest?
I am trying to think of an analogy.
Maybe if one division of a company borrows from another division, or one subsidiary from another subsidiary, some money, it has to pay interest?
I am Batman! -> I am Uncle Sam!
“Interest” paid between different subsidiaries is often (though not always) used for complete scam operations intended to defraud either government tax departments, or shareholders; intersubsidiary interest *can* be done honestly, but usually it’s a tool useful for accounting scams.
And yeah, “interest” paid between different parts of the government has been used for the same purpose: to defraud either recipients of government benefits, or taxpayers, or voters — using accounting scams, of course.
“If the country’s debt is debt owed to itself, why does it have to charge itself interest?”
Because political actors long ago dead believed that direct printing of money into the economy would be inflationary. They reasoned that if we had to pay interest on previously-created money equal to the amount of new money issued, this would be less inflationary.
It was just a coincidence I’m sure that the recipients of the interest were mainly rich people that don’t need the money. We got duped into paying them to not spend money they weren’t going to spend anyway.
The monies to pay the interest comes from thin air just like all other money does, so no big deal.
Taxes do not pay interest on the National Debt. If they did, it would only be because the government made the choice to remove net dollars from the economy. Over the past 150 years, except for a few minor blips, this has not happened.
There is no mathematical reason to pay back the “Debt”. (I feel a little creepy every time I write the words National Debt).
Don’t want to go all creepy on you, but it is the thought that there IS a national public debt that I find a lot more than creepy, more like treasonous, after we fought a War of Independence in order to have monetary sovereignty – and the freedom of the government to create, issue and regulate the nation’s money.
This is one of those corners I have a hard time squaring with MMT.
It seems to be widely known that debt of all kinds is the tool of the owning class, and that it requires transfers of real wealth upward.
The more of it there is, the greater the wealth transfer.
Yet, MMT says, hey, not to worry.
Here’s a clue.
There is no “ourselves”.
Sorry, but embracing public debt gets my progressive “Do Not Buy” sticker.
joebhed,
You are seriously confused about this debt thing. I’ve explained it pretty much completely with comments all over this thread, and you are making all sorts of logical errors in your argument.
When one borrows from another in the real economy, one agent gives up the use of his asset to another.
When the government “borrows” to “fund” spending, no entity gives up the use of any asset, and the net level of assets in the economy increases.
So, you say the government “borrows” from the private sector, yet the private sectors assets increase. oops.
Let me see you “borrow” from your right pocket, put it in your left pocket, and increase the amount at the same time.
If you can pull that off you will be special indeed.
>>When the government “borrows” to “fund” spending, no entity gives up the use of any asset, and the net level of assets in the economy increases. @Paul
The party that buys a UST bond surrenders Reserves, the money the USG requires so as not to bounce its checks drawn at FedBank, which you’ve agreed is a private entity.
@EconCCX
“The party that buys a UST bond surrenders Reserves, the money the USG requires so as not to bounce its checks drawn at FedBank, which you’ve agreed is a private entity.”
B.F.D.
This matters not one whit to anyone living in the real economy. It’s nothing more than a series of accounting abstractions.
You’re welcome to conjure up some real-world consequences of those phantom transactions if you like.
You’re attmpting to solve problems that only exist in your own mind.
B.F.D. …You’re attmpting to solve problems that only exist in your own mind. @paul
A lively retort. Thanks, Paul. It’s my own meaningless pettifogging.
(Those scoring at home will notice that I quoted Paul’s own claim about how USG debt is booked, and attempted to correct it.)
This is reply to Paul,
Excuse me for the confusion if any exists.
I will leave this question on the table – where does the money come from that is used to purchase new issues of government securities?
From nowhere?
With China joining the Primaries as “Direct” purchaser of GUVdebt, it is easy to see that the flow is from whomever buys the securities from the primary dealers, to the government. China just leap-frogged the Primaries.
“”When the government “borrows” to “fund” spending, no entity gives up the use of any asset, and the net level of assets in the economy increases.””
I don’t know what those “folks” who place orders for securities through the Primary Dealers(like China used to) use for exchange in their transactions, but I think it would meet the normal meaning of the term ‘asset’, even assuming it was cash.
The government didn’t create any money, rather it simply used – rented, really – money already created and controlled by its holders.
The government rents from private holders of monetary assets the money which it has the power and authority to create itself – without debt.
THAT’s the part the government doesn’t seem to know.
But on to the more championing point – that the result of the transaction is an increase in holding of monetary assets of the private sector.
Well, friggin hooray for the monetary asset accountants.
THAT the government created a monetary asset in the form of the security it sold when issuing the debt means that there is an increase in the monetary assets of the purchaser of THAT security, which was, in reality, an increase in public debt.
None existed before that GUV borrowing.
Funny, the way that works.
It is the nature of the “debt” thing, that it increases the assets of whoever ‘owns’ the debt-instrument, and who collects the debt-service payment streams.
I hope you weren’t taken by the apparent mystery of the reserve flows, which have ZERO meaning to the real modern monetary economy.
The ultimate first purchaser of a new government security – the entity that placed the order with the PD – gives up one liquid form of a monetary asset that goes to the government account, and the government uses that liquidity “balance” to make purchases and provide services.
There is no VOILA !
There is no magic.
Please explain where I am confused about this “debt” thing.
Thanks.
>>If the country’s debt is debt owed to itself, why does it have to charge itself interest?<<
Federal Reserve Banks are privately owned, if that's the "itself" you're talking about. Federal Reserve Banks are private consortia of USG's creditors. That's why Treasury deals with FedBanks at arm's length. Note: rejoinders that describe how FedBanks were created, or how they’re governed, or which payments they return to the government, or how they act as agent for the government, do not address FedBank’s private ownership in the slightest. Those who own the bank own the bank’s assets, including UST debt. The elected government does not.
Treasury is the “moneteary sovereign,” however, and can pay off any part of the debt in Proof Platinum Coins. Turning that amount into Reserves, and some multiple of it into liquid media of exchange. Careful what you wish for.
EconCCX,
“Federal Reserve Banks are privately owned…”
Except every penny they earn less expenses is turned over to the Treasury.
>>Except every penny they earn less expenses is turned over to the Treasury. @Paul
FedBank rebates the interest that taxpayers pay on government securities because it purchases and sells such securities to conduct monetary policy. A grand total of less than $80B per year on an annual USG deficit of over a thousand billion. And when FedBank sells that debt, USG loses those interest rebates. A landlord rebating a portion of the rent does not mean the tenant owns the building.
But Fed officials note that this cycle — payments flowing from Treasury to the Fed and then back to the Treasury — still saves money for taxpayers because those interest payments otherwise would be made to other investors.
“It’s interest that the Treasury didn’t have to pay to the Chinese,” the Fed’s chairman, Ben S. Bernanke, half-jokingly told Congress last year.
http://www.nytimes.com/2012/01/11/business/economy/fed-returns-77-billion-in-profits-to-treasury.html
A good chunk of the national debt is held by private U.S. citizens. A good chunk of the national debt held by private citizens overseas. They expect the money (the right to consume) the U.S. is being lent to be paid back with interest. The more money the U.S. government creates out of “thin air” with nothing desirable to export, the less
that money is going to be worth in the future.
In addition to that, many foreign countries are forced to trade oil in devalued U.S. dollars. If they try to move away from the U.S. dollar, they suddenly become targets for regime change. The current fiat monetary system is a form of imperialism because it allows the U.S. to consume more resources than it should. The service economy is not something that arose from the American people. It’s something that is being supported by bondholders from around the world. Other countries are lending U.S. the ability to consume more than it it produces, which allows the service economy and its bloated social infrastructure to exist. We’re still doing a terrible job in the areas of education and healthcare. I don’t why some of you liberally minded folks want to enlarge the deficit for more spending on “social infrastructure” or why you liberally mind folks want to support a monetary policy that is reeks of imperialism.
The U.S. deficit is critical because in the future it seems like we will be unable to pay out for government pensions, government worker salaries, Social Security benefits and Medicare benefits. America’s deficit is manageable. It is the unfunded liabilities–the pensions that are unfunded, the generous benefits that seem unsustainable with a shrinking tax base.
The solutions being proposed are cuts to “social infrastructure”, tax hikes for all income groups(which are not politically feasible) and importing immigrants who will work for what in the future will be close to two dollars an hour as the total population will approach one billion.
I wonder which one will be picked.
Sometimes, you have guys gather to play baseball, but can’t find someone to referee the game.
So, they decide to umpire themselves on a honor system.
Does it mean you arbitrary change the score, doctor the balls, or call the game any way you want?
The fact is the government participates in the economy and is also charged with issuing money, similar to enforcing rules or taking care of the balls while also playing in a baseball game.
Ideally, you want to have an umpire crew someone not playing in the game. The Fed was supposed to be independent (with Congress delegating money coin duty to someone else assumes to be legal) and work for the good of all, i.e. the integrity of the game. Sadly, it hasn’t worked out that way.
Again, the two are not the same – government issuing money and government spending. It might look the same as we are playing without an umpire crew and are refereeing the game on a honor system.
The Fed does not issue “money”, at least not money the way we think of it. The Fed issues credit, which is an asset plus a liability that net to zero.
Thus, the Fed does not issue NET money into the economy (through banks), only deficit spending can do that. The Fed doesn’t “spend” anything, nor does it “buy” anything.
If there were only credit, there would be no net savings in the economy. Every dollar Grandma had in savings would be offset by another person’s dollar debt to a bank.
We’ve seen what that looks like and it wasn’t pretty.
They have more tricks than you and I can imagine.
I guess the Fed does not issue the kind of money we think of as money but instead issues some other kind of money that we don’t normally think of as money, but is still some kind of money. I guess that’s how they get around the Constitution – it’s not money.
“I guess the Fed does not issue the kind of money we think of as money but instead issues some other kind of money that we don’t normally think of as money, but is still some kind of money. I guess that’s how they get around the Constitution – it’s not money”
The Fed doesn’t get around the Constitution, it does what all central banks do, it issues liquidity.
Liquidity only becomes money when someone borrows it…then it becomes money and anti-money.
Through the normal business of commerce, business entities accumulate the money part…we (the wage-earner) end up with the anti-money part (the liabilities).
Where the Fed screws us is when banks gamble and lose, meaning they will have to eat the liabilities and we get to keep the asset, the Fed moves in and exchanges money assets for the worthless liabilites instead of closing the bank down and selling off it’s parts.
Then we get stuck with liabilities again. This has nothing to do with the Fed per se…our system of crony capitalism is designed by the rich for the rich. No matter what kind of institutional arrangement we come up with they will find a way to co-opt it, because we aren’t paying attention.
We beg them to hurt us…we love it.
The Fed gets around the Constitution by not issuing money because only Congress can do so.
Or, the Fed doesn’t not get around the Constitution becuase it is not issuing ‘money.’
The Fed most certainly issues money — look at the “Federal Reserve Note” in your wallet, which is certainly money (medium of exchange / store of value / unit of account). I’m not sure what you mean.
“The Fed most certainly issues money — look at the “Federal Reserve Note” in your wallet, which is certainly money (medium of exchange / store of value / unit of account). I’m not sure what you mean.”
If you are responding to the PrimeBeef guy, he’s just a little confused. If you are responding to me (paul), I am pointing out the massive difference between bank money, which is credit (debt), and deficit spending, which is cash.
Would you rather have a $100.00 cash or a $100.00 from debt?
When you buy consumer goods with debt, you have spent money you haven’t earned yet. It’s a trap, how far into the future can you spend your income before you can’t borrow any more?
Sure, the economy is goosed for a time, but what happens when nearly everyone working has expanded their debt to the max?
The bubble bursts and the economy contracts. At the present level of deficit spending it will take a decade to make a significant dent in that debt.
The annual interest on the $54 Trillion of outstanding debt has to be in excess of $1 Trillion/year (thats figuring 2% average rate). We’re only running a $1 Trillion deficit.
Then we’re talking seriously about cutting spending. Two decades. High unemployment for two decades?
The rules are really quite simple. Players can borrow runs from future innings. The runs come due, plus accrued interest runnings, in the inning they were borrowed from. If the runs were not produced, you may consult a ref to get the runs postponed until a future inning. He does this on the electronic scoreboard.
Then there are extra innings, and you may have to play until you drop and bequeth the run deficit to the next generation.
Best ‘inside baseball’ analogy of the day… wins the internets :)
Did I mention the price of beer and hotdogs keep going up?
I’ll drink to that… esp. since my home team, the Boston Red Sox have the most expensive tickets in baseball today.
One Bourbon, One Scotch, One Beer – George Thorogood (awesome live version) http://www.youtube.com/watch?v=UgngyzNb52c
Was thinkin bout posting one of the charming videos on the art of boiling hot dogs in beer, but instead I’ll offer these…
New York Yankees Stars Sing “Take Me Out to the Ball Game” – 1958 http://www.youtube.com/watch?v=drOdOCuWNRY
Yankees stars Whitey Ford, Yogi Berra, Mickey Mantle & Bill Skowron sing Jack Norworth’s “Take Me Out to the Ball Game” on the Ed Sullivan Show on April, 13, 1958.
The full version of the song here… Baseball “Take Me Out to The Ball Game” (1908) http://www.youtube.com/watch?v=q4-gsdLSSQ0
It seems that the arguments emphasized the real economy – production and consumption – there I do agree. Also talked about was the different bleeds that occur to the money.
One of those bleeds is the one going to the un-real economy and has caused great distortions – that being the financial engineering and income inequality produced.
Basically there is so much money concentrated in ‘users of money’- the few rich that they cannot possibly spend enough in the consumption and production economy to make up for those who do not have enough money to spend in the production and consumption economy. All wealth creation Every factory, every store, every building, every bit of wealth in any shape requires labor in its creation. The more wealth created the more labor employed, the higher wages and lower prices.
Those who profit thru speculation , financial gimmicks, not putting skin in the game regarding wealth creation but a skimming routine – have effectively short circuited the real economy/wealth creation.
But while some men employ labor and produce wealth, others speculate without employing labor or producing wealth they secure a large part of the wealth others produce. What they get without producing, labor and capital produce without getting. The quarrel should not be between labor and capital, but between the non-producing speculator on the one hand and labor and capital on the other.
The removal of taxes from industry, and the taxing of privilege and monopoly. Remove the heavy burdens of government from those who employ labor and produce wealth, and lay them upon those who enrich themselves without employing labor or producing wealth.
Taxing in this way will help employment, real economy businesses, and the currently unsound revenue system by bringing back leaking money into the public use/real economy.
The boogeyman ‘deficit’ is a direct result of money that should be taxed heavily – (to enable real-economy investment by government) and discourage speculation and fake economy scams that divert real economic (production and consumption) wealth production into the hands of many wealth wasting uses.
For any of you billionaires/millionaires out there who are too afraid to invest in the actual labor and consumption economy. Afraid to actually take risks that ideas and real action to invest in labor and capital investment to produce a product or service that others will buy without having to worry that you may get a return or not – IE: some spare change that you can gamble on a different casino – one with actual involvement – like not going thru middlemen who prefer to skim off the top. Maybe like a venture without need for an IPO or hedges and spread out risks – I have a few damned good ideas for actual products and services that will employ labor and capital without you having to bother with the many scammers in between. On top of that, a complete accounting of costs, difficulties, cures and progress while in process – it just might make you feel good and – even if your stake is lost (something you can afford to lose) you will have the ultimate reward of fulfillment in your life’s purpose. Contact me if that sounds appealing. I am not looking for a hand out.
Maybe I just violated some conduct on this board – if so I apologize
Must go now to make donation to NC
Already have such an opportunity, but thanks anyway.
Headline: ‘Government is Not a Household’
This generality is easily disproved by the example of Sealand, an offshore platform which is both a claimed sovereign state and simultaneously the household of its ruler, Prince Michael.
http://en.wikipedia.org/wiki/Principality_of_Sealand
Should Prince Michael fall under the numbing sway of MMT and engage in incontinent deficit spending on the grounds that Sealand’s government must run a deficit in order for his household to run a surplus, he would be both mistaken (since transactions with his ‘sovereign’ alter ego cannot alter their combined net worth) and (presently) the ruler of an insolvent kingdom.
MMT is an intellectual error so simplistic and so gross that it deserves inclusion in the next update of Mackay’s Extraordinary Popular Delusions — MMT being unique in that it mainly infects egghead academicians, rather than the unlettered peasantry who are the more usual victims of ‘too good to be true’ pyramid schemes.
To paraphrase Archimedes, give me a plausible equation and I’ll swindle the world!
Government is not a household.
The government is charged with issuing currency (Congress shall coin money).
People trust it will keep the value of the currency stable.
That’s not the same as saying the government can spend whatever it wants. Not alwasy, unless you rig it so that the only way to issue money is for the government to spend. But it doesn’t have to be that way. And the two are not always the same – issuing money and government spending.
“…unless you rig it so that the only way to issue money is for the government to spend. But it doesn’t have to be that way.”
How would the government issue money without spending,? Unless you mean through credit and we already know how that works out.
The government can back their currency with, say, trees.
Those citizens starting a new government would then contribute trees and then issue money backed by those trees.
They would then collect tax revunues. Some of it may be saved to buy more trees in the future, as the economy grows, to issue more money.
That’s just one example.
A fiat currency example would be simply for the government to print money out of thin air and evenly distribute it to everyone, and avoid government spending it into existence, as government spending can be easily corrupted into favoring those with whom it does business and/or those who are supposedly working for it.
OK, I misunderstood your statement. You are saying that is how it could be not how it is.
One big problem with the money-creation system is that it is centralized, making it easier to capture and skew towards special interests.
This would be true whether the goverment has control or private interests.
If the government issued it for commodities or resources, it would still be picking winners, and what would it do with the stuff after it bought it?
Money should be issued/retracted via automatic stabilizers, triggered by say changes in unemployment.
We need to keep politics out of the economy as much as possible.
Whatever backs the currency will be the winner(s).
You can say, let’s back our currency with books, good and bad. That will favor people who write and those who buy books. Those who write will be always winners.
Those who buy and sell, well, they will pay more to buy and so, the profits will not necessarily be greater, when they sell.
Those who write books voluminously, well, besides needing a good editor and avoiding writing books that repeat the same ideas, can be taxed more to even out the advantage, I guess.
“Whatever backs the currency will be the winner(s)”
Hey, I’ve got an idea…lets use GOLD!!!
So, Paul, you want gold mining companies to be the winners? Why?
The solution is quite simple, and if I may add, elegant – just slap an anti-winners tax on goldminers, if you want to use gold to back your currency.
A basket, representative of the diverse sectors we have in the economy, including books and trees, may be a better idea.
“So, Paul, you want gold mining companies to be the winners? Why?”
I guess I didn’t make the dripping sarcasm drip enough…
@ Paul
There is no keeping politics out of the economy nor should there be since economics is a social science. As far as the government picking winners and losers, well there’s nothing new there since it always has. What needs to change ASAP is the private issuance of money. Banking should be a pubic utility. This is a foundational issue that has to be addressed before there’s any moving forward with a viable system.
@Coldtype,
The economic “machine” is a function of math, period. It is a system of flows.
Completely separate from that is politics and human behavior. These can affect flows but, so what? We can choose to torpedo the economy, which we pretty much do all of the time, but it has little to do with how the economy works.
Further, If we don’t understand how and why the “machine” works the way it does, the only way our choices can succeed is by accident.
Not a smart approach to problem solving.
paul,
The only “system if flows” that is independent of politics and human nature is that of MN – that is the system of flows we need to understand and accommodate our politics and economy to …
The proper way for the government to create money would be to spend it(issuance) into existence, but it would NEED to be so recognized and budgeted for just that purpose.
On the revenue (Equity) side of the budget would be “X” taxation and “y” new-money issuance.
Both would be used to pay government expenses.
As such it would not be a debt and it would remain permanently in the economy.
MMT says government creates money now when it spends.
But it doesn’t.
Government does not create any money except coins.
Instead of issuing money, the government issues debt.
And the taxpayers pay interest.
To the money-issuers.
“MMT is an intellectual error so simplistic and so gross that it deserves inclusion in the next update of Mackay’s Extraordinary Popular Delusions”
This is funny because MMT is nothing more than applied arithmetic within the context of a closed system, which has been known to mathemeticians and scientists for 100’s of years and is accepted unquestioned…except by a few really bright people like yourself that have apparently disproven math.
Why didn’t the rest of us get the memo?
I think MMT is brazen to claim
1. money printed = money we have
2. government is not a household.
Velocity of Money, also known as “The Shit Thru A Goose Law”.
V=dm/dt
As a participant in the economy and its monetary system, and as a money issuer at the same time, the government has added resposbility not to commingle the two accounts and to honor its ‘fiduciary’ duty in order to gain the trust of the currency users.
“I think MMT is brazen to claim
1. money printed = money we have
2. government is not a household.”
MMT doesn’t claim #1, which proves you’ve never read a sentence of the MMT literature. Your pitiful straw-man existence is now showing, exposing you for one that is not interested in serious discussion.
I’m sorry now I gave you the benefit of the doubt.
#2 is just plain true, MMT just repeats it from time-to-time for the slow minds.
This is my understanding –
In another time, maybe we don’t need government debt. But right now, government debt is money.
As for #2, the government is literally not a household, but as repeated a few times already here, government spending is not the same as government issuing money.
So, like a household, it has to mind how it spends money, depending on how much it has through taxation – which is how the people agrees to what amount it spends. No taxation without representation, in a democracy.
When we say we want to have a say in how and how much we are taxed, what do you think we mean, except that is how much we want to the government to spend.
Do we say this is how much we want to be taxed because that is appropriate for the inflation/deflation lever and government is not restrained in how much it can spend? I don’t think so.
I think we want to have a say in how much we are taxed, to have taxation only with representation, because that is how much we are willing to be taxed for a certain level of government service rendered. In that sense, it’s like a household.
MLTPB
I think for every MMTer out there, there is a slightly different version of MMT.
Beware – you will always misunderstand it, or just be plain wrong.
Or worse yet, you will be accused of coveting a gold standard, which is clearly treason because it would immediatley turn S. Africa, Russia, Canada and Australia into world superpowers and we and yurp into money slaves.
They can’t handle it and we can’t handle it. So please don’t ever mention gold, even if you never have yet.
Thanks, Bert.
I figure if I am not wrong a few times, I am not really learning.
Actually, it has a lot going for it, but that it is “accepted unquestioned” is going to be cause for adjustment.
And not joy.
And dealing with criticism will be its mark of currency.
MMT makes perfectly good accounting sense but where this theory falls short for me is politics. It seems to lose everything in translation. There need to be political fail-safe measures for us 99ers. Without good politics we are just whistling past the graveyard. Like, what do we do when What-me-worry Paul Ryan actually convinces the country that Medicare causes inflation, or that Medicare for All would bankrupt the country, or that we need to deregulate the banks some more; or let the Koch brothers rescind EPA regulations; or Romney write favorable laws and tax laws for PE-which is a totally rogue section of society… you get my drift. We do not have the political and the legal infrastructure we need. The results are disastrous regardless of money theories.
I also take issue with the idea that production capacity is idle. What we have world wide is super capacity; a nightmare of productivity and pollution. And that is why growth is going into stall speed. The kind of growth I wish Stephanie would emphasize as a cure to this situation is low productivity growth with high social value. She really doesn’t do this; and physical infrastructure is temporary. We need more to our social infrastructure like health and education and environmental maintenance, etc. I do think that sort of a low-productivity economy is fully compatible with MMT, but try convincing the productivity profiteers of that.
“Susan the other”….
“We need more to our social infrastructure like health and education and environmental maintenance, etc. I do think that sort of a low-productivity economy is fully compatible with MMT, but try convincing the productivity profiteers of that.”
Holy Moley!!!!!
WE have a Commie in the house!!!!!!!!!!!
Arguably the best part comment on this page….Susan…..
But, alas, we have been sold out (with our self-absorbtion) to the materialists in our society and have gone to the gallows with alacrity……however….we will now find outselves down the slippery slope of underconsumption because of too much greed and the destruction of the “consumer society” by the very “them” who depend on that over-consumption (debt) to fuel this maniacal system.
We will pay dearly for our selfishness (too many of us; this writer NOT included)
You know who you are…..
“WE have a Commie in the house!!!!!!!!!!!”
Sounds like a realist to me…
The missing factor is “distribution of wealth”.
If you want to abuse the household analogy, it’s the difference between deciding that all the household money and property is the HUSBAND’S money and property and everyone else is there on sufferance — versus having some sort of equitable household arrangement.
We have actually made this transition in most people’s households over the last few centuries. Can we make this transition in society, or will money and property continue to be controlled by the “propertied class”, who dole it out to everyone else grudgingly? Hmm.
You’re right.
It’s not about how much money is printed, it’s about how it is distributed.
What happened to all the money printed and the stimulus programs under all the presidents from Obama, Bush Jr., Clinton, Bush senior?
It is with the 0.01%.
This is also to the “less-tha-prime” reply here.
It is correct to ask about this ‘distributive’ matter when discussing the modern monetary economy.
MMT avoids the nature of ‘money-issuance’ being itself a ‘distributive’ mechanism, where the private money-and-wealth-creators are the beneficiaries of this upwardly-bound privilege.
Just say full-employment and embrace the status-quo when it comes to money-creation.
A quick read of Soddy’s “The Role of Money”, available free online, shows why it is important to understand the mechanism by which money distributes wealth.
And, given the high profile which MMT ascribes to the matter of “deficit-spending” and funding it by “irrelevant” public debt, it is perhaps worth listening to the explanation of Dr. Bernd Senf, ProfEm at the Berlin School of Economics, describe the flow of wealth, money and power upward, which might be okay were it not for the social, political, environmental and human crises caused by those who pay.
Hope this works.
http://blip.tv/file/4111596
Yes, it’s a lecture.
But worth the time only if you realize that the future is what is at stake.
Thanks.
For the Money System Common.
“The kind of growth I wish Stephanie would emphasize as a cure to this situation is low productivity growth with high social value.” I suppose you think most people are going to take care of bed-ridden people outside their kinship for free?
Susan, we don’t operate in a national gift economy, here in the United States. If you try to expand gift economy type of activity in a market-exchange type of economy you will typically end up with debt because most people expect to work for personal gain. Charity and non-profit groups are different story since the work performed there is not for personal gain but that is changing now, I believe, with the term “competitive salary” being used in the non-profit world.
That is Warren Mosler not Randy Wray in the video with Stephanie Kelton. Randy Wray was in the previous video along with Michael Hudson.
Thank you, devoted reader. Fixed!
I gotta hit the road now.
Taxing the billionaires, the 0.01%, those with wealth-giantism disease, is the best idea I know of right now.
Forget theories, especailly one that sounds like the cure is worse than the disease, reminding people of unlimited, unrestrained, highly concentrated powers and of undermining our right to consent to be taxed through the election process by reducing taxation to some bureacratic mystery called inflation which is to be calculated the same way they calculate unemployment.
It sounds perfect for staging a coup on democracy.
“The government says that it needs the money before it spends.
Legally.
Right now.
Again, how do we know otherwise?”
“The government says”…except that claim is contrary to the laws of arithmetic. Whatever the government (or anyone) says man cannot legislate against the laws of arithmetic. He may attempt to do so, but he always fails.
Taxes serve one purpose…they provide government-induced flow necessary for the economy to go. Through progressive taxation. Without it all monies would flow to the top 0.1% and the economy would cease. Stop. Dead.
This is a dynamic found in all sytems that are known to exist in the universe, The concept is entropy, ie all processes move to a state of maximum entropy, at which point the system becomes inert, motionless. All systems require excitation.