Friday, September 16, 2011

Krugman moralizes — "Free to die"

Paul Krugman's observation that America in becoming less compassionate can be taken as a sociological observation with economic policy implications, or as liberal moralization. George Lakoff would argue that all policy decisions, being political choices, are fundamentally moral in character, since practical politics is about different worldviews based on different moral norms.

In the past, conservatives accepted the need for a government-provided safety net on humanitarian grounds. Don’t take it from me, take it from Friedrich Hayek, the conservative intellectual hero, who specifically declared in “The Road to Serfdom” his support for “a comprehensive system of social insurance” to protect citizens against “the common hazards of life,” and singled out health in particular.

Given the agreed-upon desirability of protecting citizens against the worst, the question then became one of costs and benefits — and health care was one of those areas where even conservatives used to be willing to accept government intervention in the name of compassion, given the clear evidence that covering the uninsured would not, in fact, cost very much money. As many observers have pointed out, the Obama health care plan was largely based on past Republican plans, and is virtually identical to Mitt Romney’s health reform in Massachusetts.

Now, however, compassion is out of fashion — indeed, lack of compassion has become a matter of principle, at least among the G.O.P.’s base.
Read it all at The New York Times, Free To Die

UPDATE: Read in conjunction with Joshua Holland's Has American-Style Conservatism Become a Religion?
But I think another belief may be more telling; that cutting taxes always brings in more revenues to the government's coffers. There are two reasons this claim is more a manifestation of religious dogma than just the usual spin. First, it represents a perfect article of faith – universally held among the brethren but without any discernible basis in reality (see here for more explanation).

In 2007, Time magazine reporter Justin Fox surveyed conservatives on whether they believed the myth. He found a perfect split: all conservative politicians, pundits and operatives bought into it while conservative economists or budget experts -- people who have to remain somewhat grounded in evidence -- didn't hesitate to call it out for the nonsense it is, and that included “virtually every economics Ph.D. who has worked in a prominent role in the Bush administration.”




25 comments:

Matt Franko said...

Krugman hopelessly out of paradigm: "given the clear evidence that covering the uninsured would not, in fact, cost very much money.

Under a FFNC system, the only "costs" are REAL.... the "money" is only the govt (Treasury/CB) providing the balances for settlement.

Resp,

googleheim said...

Did anyone know that one of Ron Paul's staffers died and he was uninsured ? Can anyone confirm ? Was he uninsured out of zealousness or couldn't afford it ?

Krugman might be bending out of paradigm but his point is really starting with MMT and developing a game plan such that spending on medical care protects people as assets numero uno.

I don't like much of this blog due to current high run wonkishness and low applicability to forensically show the pathology of current events of the deficit terrorists.

Hi Matt

Your past posts have easily helped to drive down the "gold standard mentality" further.

MMT is about how to create and uncreate "heat", "liquidity", and or credited monies in a manageable way and to accept deficits as part of the spiel.

IF you are on a gold standard, then you can get rid of deficits and the means by which you do this is to plunder lower economies and to create war.

So the harkening of going back to a gold standard is a pining for undoing the civil rights movement, creating war to "get" the deficit undone, and to hid the workings of wall street and mega global corps.

Therefore, MMT exposes the sham of libertarianism with the highest transparency.

Ergo, Ron Paul is not ANTI WAR since he is Gold Standard OLD HAT.
His wanting of a gold standard would lead to more war over commodities such as seen by the false groping towards commodities currently seen in their respective markets. We know from MMT that at the core there is no need to run to gold either in it's self curtailed ETF or by revamping the entire system to be based on certain dollars to certain pounds of gold in stock.

Redoing the sheets to provide more circulation and flow of heat/money/liquidity is a much better approach than balancing and elliminating shortfalls.

I posit further to Mike Norman's analysis of Clinton's balancing of the budget not only created the recession, but also led to the wars that followed since if America were in a good economic state, then maybe we would have thought twice about squandering a good economy for a war economy.

Ron Paul's gold standard cry is a rally for future wars.

Mario said...

hopefully now that Krugman is feeling "the tug" that a better way just might exist he may start to not only attempt to manipulate the neo-cons into "compassion" regardless of "unsustainable debts" but rather start to PROVE to everyone the mathematical and accounting soundness of a health care program provided by the government in conjunction with the private health sector.

Note to Krugman: stop watching Dr. Phil now and start reading 7 Deadly Frauds and being an economist. Thank you!

Shaun Hingston said...

More Krugman Crap. He is tarnishing the nobel award.

@MMTers

Can someone please clarify what occurs at bond expiry? I'm guessing the bond holder takes the bond to the Treasury(not the central bank?) to get it redeemed. The Treasury prints the money, and gives to the bond holder. The amount printed is added to the public debt?( or is there some other term that is used?)

From the State(Government) perspective what accounting term describes the outstanding bond balance? And what accounting term describes the total amount of bond 'amounts' redeemed? Is there another accounting term that measures the amount of money created directly by the treasury, i.e treasury just prints and spends the money without bond issuance?

Thanks In Advance!

shaun.hingston@hushmail.com

Mario said...

Hi Shuan,

for states and corporations bond issuance at par value for example is recorded as a debit to cash and a credit to bonds payable. Interest payments to bondholders is recorded as a debit to interest expense and a credit to cash. When the bond matures it is recorded as a debit to bonds payable and a credit to cash. It's a little different when issuing bonds at a premium or discount but the process is basically the same. I assume this is true for the federal government as well however I know that sometimes the accounting for government agencies can be a bit more strict or particular (for example in budgeting and forecasting).

I don't know personally what happens at bond expiry but I don't think anything physical is required. It's all done online now for normal people (not PD's) at treasurydirect.gov so I'd imagine they just use serial numbers with particular maturity dates and once that date is complete the banking transactions occur and the bond is now "void" based on the serial number and date. I'm just guessing though I really don't know from first or second hand experience.

Hope that helps.

Mario said...

in fact the PD's probably do it all from online too I don't know. Do they all get together and negotiate price live and in person? Just an interesting side thought.

Mike Norman said...

Shaun:

Treasury's account at the Fed is debited and the reserve account of the bondholder's bank is credited (with the bondholder's checking acc't then being credited).

Accounting terms as per the Treasury's statement: Public debt securities issued/Public debt cash redemptions.

Only the difference of total public debt securities issued minus total public debt redeemed is the amount added to the public debt.

beowulf said...

his point is really starting with MMT and developing a game plan such that spending on medical care protects people as assets numero uno.

1. Raise Medicare payroll taxes sufficiently to cover everyone with an improved benefits package (no premiums, minimal copays, etc). The numbers I've seen estimate bumping Medicare FICA from 2.9% to 14%, so a total SS/Medicare FICA of 24.4% (approx. $70B a point the last time I looked into it).
2. Buy FICA rate down by uncapping SS FICA and with Pigovian taxes on financial transactions and carbon emissions, reducing combined FICA to somwhere between 20% and current 15.3%.
3. Adjust new FICA rate monthly based on unemployment rate. So every month when BLS reports current U3 rate, multiply that by, say, 10 to derive tax holiday (9.0% U3 would mean a 90% reduction from base FICA rate). Even using a multiplier of 5 would give a 45% tax cut, and universal health care.

Tom Hickey said...

It is necessary to understand that the Treasury is not a treasury in the traditional sense. It doesn't have any money. True, the Treasury is responsible for coin, but it transfers coin after minting to the Fed for distribution, with the seigniorage credited to the Treasury.

The Fed is a government agency that acts as the government's bank. The Treasury operates through its account(s) at the Fed. Treasury checks, electronic transfers, etc, are issued against its account at the Fed and settlement takes place though the FRS in terms of reserves, which only the Fed has the power to create.

The Treasury obtains reserves needed to settle its accounts from the Fed through issuance of Treasury securities, which are sold at auction by the Fed and the proceeds (reserve transfers) are credited to the Treasuries deposit account, as are taxes upon collection by the IRS. These reserves cover (settle) the expenditures the Treasury makes on behalf of various government agencies iaw budgetary appropriations (US law).

The records of account are the entries in the Fed's spreadsheet wrt its own accounts, the Treasury's accounts and the accounts of other institutions with accounts at the Fed. These accounts record changes in reserve balances in the various accounts due to transfers between accounts. If people present mature bonds to the Treasury for redemption, they receive a Treasury check drawn on the Treasury's account at the Fed. Similarly, when people receive their SS payments by electronic deposit, what has happened is that the Treasury has directed the Fed to debit its account and credit the reserve account of the recipients' banks. Then the banks credit the respective customer accounts.

The Treasury does practically nothing on its own. It just carries out fiscal policy as an agency of the executive branch iaw the laws passed by the legislature. The Treasury secretary has no power to act independently wrt fiscal policy. Fiscal policy rests with the legislature, with the president having veto power over legislation.

The Fed does have other duties in addition to providing liquidity (reserves) for settlement. It is authorized to conduct monetary policy by setting the FF rate, penalty rate, etc. It is also charged with regulating the financial sector. It is also the Fed that provides banks with currency (Federal Reserve notes and coin) in exchange for bank reserves when banks request currency to meet demand at the customer window.

Both the Treasury and the Fed are government agencies. The Treasury is part of the executive branch and the Treasury secretary reports to the president and serves at the president's pleasure.

The Federal Reserves System was instituted by Congress with presidential approval through the Federal Reserve Act of 1913, which has been amended by occasion. The Fed is politically independent in that once confirmed appointees serve out their terms without reporting to anyone, and neither the president nor the legislature intervenes in monetary policy. However, the Fed is not independent of government as many erroneously think. It is a government agency and it is subject to the Congress, which created it and can change institutional arrangements or abolish the institution entirely as it wishes.

Most of what Treasury and the Fed is very routine, but many people seem to imagine them acting with powers they don't have, often in a conspiratorial way. This just blurs the reality that these agencies just carry out fiscal policy set by the political process and monetary policy set by the Fed BOG iaw the laws regulating these institutions.

Can corruption enter the picture? Of course. This falls under the oversight responsibility of Congress, the DOJ, and the law of the land.

Matt Franko said...

Goog,

"So the harkening of going back to a gold standard is a pining for undoing the civil rights movement, creating war to "get" the deficit undone, and to hid the workings of wall street and mega global corps.

Therefore, MMT exposes the sham of libertarianism with the highest transparency."

Goog, This from David Graeber that Tom posted really gets to the bottom of "metallism" imo:

"Sumerian Temples (and even many of the early Palace complexes that imitated them) were not states, did not extract taxes or maintain a monopoly of force, but did contain thousands of people engaged in agriculture, industry, fishing, and herding, people who had to be fed and provisioned, their inputs and outputs measured. All evidence that exists points to money emerging as a series of fixed equivalents between silver – the stuff used to measure fixed equivalents in long distance trade, and conveniently stockpiled in the temples themselves where it was used to make images of gods, etc – and grain, the stuff used to pay the most important rations from temple stockpiles to its workers. Hence a silver shekel was fixed as the amount of silver equivalent to the numbers of bushels of barley that could provide 2 meals a day for a temple worker over the course of a month. It was the Temples that actually had a need to extend a silver system from a unit used to compare the value of a limited number of rare items traded long distance, used almost exclusively by members of the political or administrative elite of the societies in question – to something that could be used to compare the values of everyday items, like planks of wood, jugs of beer, and so forth."

So to use any other weight measure of silver (like these around the operations of pagan Summerian temples) than that mandated by God in the operations of His Temple of Jerusalem (Israelite shekel) is blatant idolatry....

Paul said in 1 Timothy 6:10 "For a root of all of the evils is the fondness for money, which some, craving, were led astray from the faith and try themselves on all sides with much pain."

'fondness for money' is written as the Greek word "phil-arguron" or 'fondness for SILVER' ....

This is why the Lord backed state currency (noumisma):

Mat 22:"17 Tell us, then, what you are supposing. Is it allowed to give poll tax to Caesar, or not?"
18 Now Jesus, knowing their wickedness, said, "Why are you trying Me, hypocrites?
19 Exhibit to Me the poll tax currency." Now they bring to Him a denarius.
20 And He is saying to them, "Whose is this image and the inscription?"
21 They are saying, "Caesar's." Then He is saying to them, "Be paying, then, Caesar's to Caesar, and God's to God."

Vice the money that had it's origin in the operations of pagan temples... these morons who listen to Ron Paul should listen to the Apostle Paul here again this time in Romans: "13:1 Let every soul be subject to the superior authorities, for there is no authority except under God. Now those which are, have been set under God,
2 so that he who is resisting an authority has withstood God's mandate."

God has set civil govt in authority for now, including monetary authority, and these metallist bozos are trying to shut that down.... scary!

Resp,

Mario said...

I always suspected these gold bugs were just closet dwarves that had a fetish for a shiny object. Perhaps historically based on your info Matt that's more accurate than I realized! It's almost mind-numbing when you think about it...put a base animal in front of a shiny object and watch them drool over it and lose all consciousness. Just another form of slavery seems to me. Slavery doesn't work too well when the Truth sets a man free.

Let it also be known that the golden calf was an outrage to Moses. ;)

Mario said...

@beowulf

I don't understand what you're suggesting there B. You're very bright. But my question is why do we need to do all of that confusing stuff at all? Why do we need to "pay for" health care by manipulating taxes and all that jazz?

Anonymous said...

@goog

"Ron Paul's campaign manager Kent Snyder died of pneumonia, penniless and uninsured." According to the article, he was uninsured because he could not afford health premiums due to some sort of pre-existing condition.

> Back in 2008, Kent Snyder — Paul's former campaign chairman — died of complications from pneumonia. Like the man in Blitzer's example, the 49-year-old Snyder was relatively young and seemingly healthy* when the illness struck. He was also uninsured. When he died on June 26, 2008, two weeks after Paul withdrew his first bid for the presidency, his hospital costs amounted to $400,000. The bill was handed to Snyder's surviving mother, who was incapable of paying.

http://gawker.com/5840024/ron-pauls-campaign-manager-died-of-pneumonia-penniless-and-uninsured

beowulf said...

"Why do we need to "pay for" health care by manipulating taxes and all that jazz?"

Because it kills several birds with one stone. 1. provides universal healthcare (which would reduce costs in every state govt, business and household, 2.redistributes tax burden off of work and onto Wall Street and carbon (throw in Pigiovian taxes on traffic congestion, imports and/or cannabis too if you wish) 3. Provides an immediate tax cut. 4. On an ongoing basis, provides a rule-based formula to automatically adjust fiscal policy based on on quite current economic numbers (monthly U3 rate). 5. The rigmarole is necessary for the same reason lion tamers carry chairs.

The animal is biologically programmed to focus on one thing and then attack it. When the lion tamer holds up a chair, the big cat sees four things and all of a sudden, he has four points of interest-the four legs of the chair-and doesn't know which one to focus its anger. The lion has a one-track mind. He loses his original train of thought and gets completely distracted, which dissipates the rage.
http://wiki.answers.com/Q/Why_does_a_lion_tamer_use_a_chair_in_his_act

Shaun Hingston said...

Thanks Mario, Mike and Tom.

From what Tom said it seems that the Treasury must issue more bonds to redeem the value of expired bonds? This would become exponentially circular.

What happens to the bonds held by the Fed at expiry? Does Treasury issue more bonds to 'pay the Fed'?

shaun.hingston@hushmail.com

GLH said...

Tom Hickey:
I've been reading MMT sites for a few years now and I must say that your comment is best explination of how the Fed operates that I have seen.
But, I would like to know what the abbreviation iaw stands for. I believe an understanding of iaw might help me even more. I am sorry for my ignorance.
Also, if anonoymous does come back to the comment section, please give the title to the article at gawker. I went to the site, but couldn't find the story.

dave said...

shaun hingston, at least someone is pointing out how evil and selfish the current "representatives" of the people are. these "people" should be ashamed of themselves.

Shaun Hingston said...

Considering the kudos Tom gets, I think it would be wise to organize everything Tom has said for future reference. Search the internet and categorize all of Tom's posts. I think such a resource would serve MMT well.

Matt Franko said...

GLH,

Tom is the best.... i believe IAW is 'in accord with' or 'in accordance with'...

Mario,

Right, metallism looks like it basically comes back to insubjection to God, idolatry, ie letting it all up to how much silver we can dig out of the ground instead of implementing righteous policies via the God given authority of civil government... very pagan/barbaric.

Resp,

Tom Hickey said...

Thanks for the kudos.

iaw = in accordance with
wrt = with respect to

From what Tom said it seems that the Treasury must issue more bonds to redeem the value of expired bonds? This would become exponentially circular. What happens to the bonds held by the Fed at expiry? Does Treasury issue more bonds to 'pay the Fed'?

Yes, generally the maturing tys get rolled over. That is to say, the maturing bonds get down off by transferring reserves from a Treasury account to the holders account (the holders' bank's account in the case of non-bank holders and then the bank credits the holders account). Tsy issues fresh securities for the Fed to auction, and the proceeds (reserves) are credited to the one of the Treasury's reserve account.

There is a very good reason that the debt seldom gets paid down much overall, and it is not lack of funds from taxes to do so. There is a tremendous demand for tsys as a default risk free paid parking place for large sums of USD, which is the world's reserve currency. Governments, banks, corporations, large savers including funds, etc. gobble up tys. The Treasury and Fed coordinate operations to provide the term composition across the yield curve that the market desires to hold.

Bill Mitchell is fond of telling how when Australia ran budget surpluses and therefore security issuance declined below the level the market desired, the financial sector petitioned the government to issue securities anyway.

The payment of interest on tsys is a subsidy and those receiving the subsidy know a good deal with they see it. The notion that government has persuaded lenders to lend it its own money is beyond silly. The truth is that the financial sector demands the subsidy as an entitlement, so to speak. So the US generally rolls over its "debt" to oblige. If the national debt were ever to be seriously reduced and tys issuance curtailed as a result, the financial sector would soon freak out.

The public has this relationship 180 degrees wrong in thinking that the government has to finance itself and taxes will be required to pay down the national debt sometime in the near future, or that the US is becoming insolvent due to the growing national debt. It's just ridiculous.

Same with the IGBC (intertemporal government budget constraint), which states that if the primary deficit (deficit minus interest obligation) grows faster than GDP, then the country will become insolvent or hyperinflation will ensue.

(continued)

Tom Hickey said...

(continuation)

Insolvency is impossible for a currency issuer that is not operationally constrained. Moreover, the government can also meet its interest payments and avoid inflation by increasing taxation.

But neither would actually become necessary under a regime that understood sectoral balances and functional finance and managed its fiscal policy accordingly.

In the final analysis, the issue always comes down the availability of real resources, and the way to ensure that resources will be available in the future is not to operate inefficiently in the present by operating with idle resources instead of investing in the future.

The single most important investment in the future is maintaining full employment along with price stability. This is the way to sustainable economic growth proportional to population growth. And this requires provisioning the appropriate amount of non-government net financial assets to balance effective demand with the capacity of the economy to expand to accomodate this demand. Then incentives have to be put in place that favor productive investment in sustainable technology and industry and discourage non-productive use and gain therefrom.

The amount of tsys and their term composition has little to do with this since tsys are simply time deposits at the central bank in contrast to demand (reserves) deposits, and these can be converted back and forth by holders iaw their liquidity preferences at any time, the tsys market being very highly liquid.

The interest on tsys adds to non-government net financial asets, and that has to be taken in consideration in sectoral balances and functional finance. But that's it. All the brouhaha over the national debt is a lot of hot air by people who don't understand what they are talking about.

Shaun Hingston said...

Yes, generally the maturing tys get rolled over.


So tsys can be payed down another way, without going into surplus?

Shaun Hingston said...

Another thing I find disturbing is how banks position themselves to benefit from surplus and deficit during fiscal cycles.

During surplus interest rates will fall to accommodate the contraction in money base(M2) and leading to credit supply increase. Bank's benefit from the numerous transaction fees and interest spreads.

During deficit banks become a large recipient of public debt, and consequently receive an interest subsidy that increases their reserve holdings.

Hmmmm....

And does anyone know why an entity needs large capitalization before it can become a bank?

Tom Hickey said...

"So tsys can be payed down another way, without going into surplus?"

As long as the country is running a deficit, its expenditure is running ahead of its revenue, so cannot pay down debt unless it can create the $ without issuing more debt. This is no problem operationally for a country with non-convertible floating rate currency like the US, but political restrictions currently in place are designed to prevent this. However, beowulf has suggested how to end run this legally with platinum coin seigniorage.

Mario said...

@Beowulf

Love the lion quote B. Awesome stuff I never knew that.

however I'm still confused about your #1 point about raising medicare taxes so substantially. Why do we need to do that exactly? Taxes don't "fund" anything so I am confused why this is necessary.

I am of the persuasion of no FICA tax b/c I don't believe it has any value at this time for anyone and I again it's not necessary to "fund" SS so why do it?

I like the idea of pigouvian taxes and handling negative externalities though but again what relation does this have to universal health care? In other words a pigouvian tax should be implemented on its own merits regardless of UHC.