Sunday, February 20, 2011
The real truth is, when it comes to the government there is no debt.
All we hear about is the debt, the mountain of debt. Debt, debt, debt...it never ends. My question is, what debt? What's the debt that everyone is talking about?
Okay, the so-called, "debt" is $14 trillion or thereabouts. That's the amount that the non-government holds in Treasuries. That's what's considered to be the debt.
So let me ask you this: what if the government had just sent out $14 trillion worth of checks to everone or better yet, $14 trillion dollar bills and just spread it around?
It would break down like this:
$9.5 trillion in checks or cash to the public, with about half of that going to foreigners like the Chinese, Japanese, Opec, etc.
$4.6 trillion in checks or cash that the government gives to agencies of the government.
In other words, the public would have gotten $9.5 trillion in checks or cash and agencies of the government would be holding $4.6 trillion of the same, checks and/or cash.
Would that be considered a debt? Would the government be considered in debt to these entities? Better yet, would these entities be considered as having a liability?
Anyone with half a brain would see that the recipients of the checks or cash would be the recipients of a windfall of new assets.
And this is exactly what has happened. The $14.1 trillion that people see as a debt of the government is really a distribution of $14.1 trillion in assets to the non-government.
And if the government sent it out as cash (Federal Reserve Notes) or checks, no one would be saying the government was in debt.
So why do we continue to hear this?
We hear it because that's the amount the non-government holds in Treasuries and people believe Treasuries to be a debt obligation, when in fact there's very little difference between a Treasury note or bond and a dollar bill. They're both accounted for the same way--as liabilities of the Federal Government--however, one has no duration (cash) and the other has some duration and pays interest.
How hard, then, is it for the government to pay that interest?
Not any harder than it is to send you a check or distribute dollar bills to you. In other words, pretty much effortless.
So why all the hysteria about the debt?
One reason: ignorance.
It's the ignorance that is killing us. The Treasuries held by the non-government is exactly the same thing as if the non-government had received checks or cash from the government, with one exception: they get paid interest. And the ability of the government to pay that interest is as easy as its ability to send you a check or some cash. There is never any problem.
So now when you hear that the Republicans or the president or Tea Party people want to "pay down the debt" you should understand that to mean they want the government to take back that check or cash that they distributed to you. That's the only way to pay it back. The government must take back those assets. And for what reason? Does it need to collect what it has already distributed and what it can freely distribute in order to function?
Think about it.
The whole thing is absurd.
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11 comments:
The national debt is the cumulative deficits less matured tsys. Deficits increase the net financial assets of nongovernment. The sum total of tsys is the savings of nongovernment financial assets.
Thus, paying down the debt would mean wiping out nongovernment savings of net financial assets. The result would be economic catastrophe as private borrowing increased to unsustainable levels or the economy contracted, absent net exports to offset.
If the US became a huge net exporter and the private sector did not save much, then government could run a surplus and pay down "debt." Without a huge trade surplus and with the private sector saving, running a surplus to pay down the "debt" would be suicidal.
Obviously, the idiots have not thunk this thang through. Don't worry though, it's not going to happen, because Wall Street would be screaming that there aren't enough tsys entering the system if there were ever a serious attempt to eradicate the debt.
Actually, it is more relevant to consider is what a country owes other countries in terms of foreign financial claims and ownership of real assets. The US position relative to the ROW is pretty huge, which is a big reason that the US has military bases all over the place to protect its interests. Moreover, it is misleading to see the US as "a debtor nation" in the absence of gold convertibility. Those dollars held by other countries have to be spent or invested in the dollar zone, and so they represent future transactions and investments.
As you point out, Mike, this whole kerfuffle is based on ignorance, but it is also being used disingenuously by those in the know to fleece the sheeple by providing an excuse to cut social benefits, which is, in effect, a regressive tax on the middle class and poor.
Tom,
The more I look at this situation, the more I am becoming convinced that "free will" does not exist.
The people on the other side of this from us have no free will on this issue... they cannot be convinced of the realities. They are making decisions based on reasons that cannot have a physical explanation.
From Wiki on 'Free Will': Accounts of libertarianism subdivide into non-physical theories and physical or naturalistic theories. Non-physical theories hold that a non-physical mind overrides physical causality, so that physical events in the brain that lead to the performance of actions do not have an entirely physical explanation.
I wish I knew more about this branch of Philosophy, but if you know anyone studying this it may make one of the most interesting cases in human history.
These people cannot snap out of it, I think it may be related to weak mathematical aptitudes... but in any case these people do not seem to be under their own cognizant objective mental control. Their are too many inconsistencies to explain it away based on corruption/greed/ etc... These people often make policy decisions that are harmful to themselves overall...
Resp,
Please see:
http://en.wikipedia.org/wiki/List_of_cognitive_biases
Philosophy is not needed to explain human behavior. Philosophy is not needed, period.
Nicely done, Mike. Good common sense treatment. Also, a good amplification Tom. We really need to hammer away at the idea that repaying "the national debt" leads to disaster. In fact, we probably ought to start referring to "the cumulative deficits less matured tsys" as "the savings of non-Government financial assets," so we can ask whether people really want to give back those savings to the Government by paying higher taxes, getting rid of all Government spending or both. Somehow, I don't think they'll want to do that.
Matt, I know how you feel about the seeming futility of trying to communicate MMT to people. We all share that frustration, but clearly people do learn; they do change their minds under the influence of persuasion; and we have had our successes and our failures in explaining things to people.
As for the Body-Mind problem in philosophy, even if it gets resolved someday, our new understanding of it won't help us with the specifics of getting MMT knowledge claims seriously considered by people. We'll still have to communicate as simply as we can, be as persuasive as we can, and try to be tireless in magnifying our message so that it gets through the filters and screens protecting the neo-liberal paradigm.
If the problem interests you however, I think names like John Searle, Patricia Churchland, David Chalmers, Ned Block, Mark Bickhard, Daniel Dennett, Jaegwon Kim, and Karl Popper come up. My favorites are Popper and John Eccles The Self and Its Brain, Popper, Knowledge and the Body-mind Problem, and Mark Bickhard's papers:
http://www.lehigh.edu/~mhb0/pubspage.html
which, in my view, reflect the most promising non-reductionist approach to the problem.
Philosophy does not explain human behavior or attempt to explain it. Behavior is empirical, hence, a scientific issue, that is, positive in contrast to logical or normative.
Whereas science is positive, philosophy is either logical or normative. The logical deals with ideas, and the normative deals with ideas that function as rules.
What philosophy does is examine ideas. Ideas are human artifacts that are not found in the real world. They are imposed on the real world by humans. The result is called civilization and culture.
History examines the workings of these ideas across time. Philosophy is concerned with the nature of the ideas and their justification.
Many key ideas are normative. The concept of human rights is a normative idea, for example. There is nothing in the material world corresponding to the concept of rights, but it is one of the most significant human inventions and it is philosophical through and though. Nor is the concept of rights "just" an idea. Ideas like "rights" are powerful motivators. People go to war for such ideas, for example. It is often what revolutions are about beyond the lack of bread.
The founding documents, the Declaration and Constitution, did not appear out of nowhere. The ideas on which they are based and to which they give expression originated in ancient Greece and were developed uniquely in the West, culminating in the 18th century Enlightenment.
These are historical facts, but the ideas themselves are the stuff of philosophy. People had these ideas and developed them through debate. They were subsequently applied in life and grew into institutions like liberal democracy.
Philosophy is not arcane. Everyone has a philosophy of life in the sense of a normative worldview. Some people reflect on worldviews and others just accept them unwares, absorbing them through culture and upbringing but seldom reflecting on them. The former are the philosophers, whether they have formally studied philosophy or not. The rest are naive.
Studying philosophy is not necessary for being a philosopher, that is, reflective. But if one hasn't studied philosophy, one is likely to fall into mistakes that were dispatch previously, often long previously.
Aristotle dispatched the naive utilitarianism of Bentham upon which Neoliberalism is based, for instance. Similarly, most contemporary Libertarianism is based on a puerile view of freedom that is not only naive but also self-contradictory when pushed to the extreme. Then the idea of freedom becomes a justification for license and libertinism.
America, like Australia, is rushing headlong into peak debt, due to inflation of house prices and asset prices as explained here.....
Peak Debt Blog
We are driven by excessive borrowing and a dangerous addiction to credit. To observers like myself it appears bizarre to borrow ever greater sums simply to bid against other for the same group of assets. Countries must at some point hit a maximum credit limit.
Anders B
Anders:
When workers see their paychecks stagnate or decline in real terms, year after year after year, there is no other choice but to load up on debt to try to maintain a certain standard of living. I agree, it is doomed to fail as it has been failing for the past 30 years.
Even worse, instead of recognizing this and putting in place policies that would restore income and savings, we see just the opposite: organized political attempts to further reduce real wages. (See Wisconsin and the ongoing attack on unions.) Cuts in government spending for education, infrastructure, the poor, service cuts, etc. All of these are fiscally equivalent to tax increases on those who can least afford it. So...what do you expect?
Bad policy in...bad result out.
Tom,
Aristotle is dead. So is Ayn Rand. Their ideas live on. Philosophy cannot change that.
I have little interest in exploring the 'etymology of ideas' when it is clear that humans are capable of rationalizing almost anything. The human mind can throw ideas into a blender and recycle them endlessly. A worldview may carry a label, or be eclectic, and may or may not be logically consistent. Why should I spend time sorting this out? What is important is what is being advocated in terms of action or policy.
If I am to devote energy to an applicable idea, such as a jobs guarantee, I believe it is more constructive to be an advocate. Describe how a JG mechanism would work, what it would accomplish (its purpose), and ask for public support. A JG must also be based on facts. This is where MMT and a cost/benefit analysis of full employment come into play.
I do not see what debating the philosophical merits of the libertarian(US) worldview would accomplish. MMT doesn't say the government ought to implement a JG, only that it has the means to do so. I would not want to persuade right-wingers of anything other than the facts.
The Dodd-Frank Bill did nothing to address the OTC Credit Default Swap Derivitives market, which is valued at what 60 trillion maybe more. What about another Long Term Capitol Event, or Bear Sterns, Lehman brothers type meltdown in this market. Can anyone central bank or nation stand up to this again? Was the Tarp Bailout just a bait and switch like congressman Stearns said to Hank Paulson when he confronted him in the hearings? What happens to the economy when another one of these haymakers occur? Will they be bailed out again? The banks are bigger than ever now.
Tom: My view of philosophy may be different from yours, and follows Hegel. Philosophy is simply understanding what you are talking about, and starts from the observation that in any field of endeavor, one comes to a point where one doesn't. Outside philosophy itself, one rarely sees the level of confusion & charlatans of economics!
As for ideas being dispatched, no philosophy that deserves the name has ever been refuted, or can be refuted. And philosophy should beware of being morally edifying.
@Laura: Why should I spend time sorting this out? What is important is what is being advocated in terms of action or policy. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. (Keynes).
The point is that the simple, trivial ideas of MMT, like understanding all money as credit, and the job guarantee are the product of long and hard, philosophical, thought, like most simple and trivial ideas.
Calgacus: The job guarantee is a proposed solution to a specific problem: unemployment. MMT is a theory. Neither are philosophical in nature.
Madmen in authority would not be a problem if we had direct democracy. That was the Athenian ideal, after all. The so called "democracy" we have today is a sham, designed to legitimize the existence of a ruling elite.
Philosophy seems to be about inventing imaginary problems and then failing to solve them. That you can earn a PhD in this field is outrageous.
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