In Germany, "Merkel is voicing the household analogy. It’s intuitive, MMT is not. That is the challenge we face." [Dan Lynch]
Who says existing monetary operations are not intuitive? By definition, existing operations are ALWAYS intuitive, that's how they end up being existing operations! It's not that the obvious isn't intuitive yet to some, it's just that those not yet finding it obvious haven't yet been exposed to the context that led people working in that area to come to obvious conclusions and practices.
Confusion over what is & isn't intuitive always reflects isolation, lack of communication, and lack of connections in a struggling organization.
You know, putting together what people from John Law to Marriner Eccles to Warren Mosler have said, plus what Robert Heinlein said, plus what Walter Shewhart said, plus what Dan Lynch said, above, [plus a little intuition :) ] we get:
"Data is meaningless w/o context. Therefore, what's intuitive is not intuitive w/o a proper grasp of context. Therefore, if you want to bamboozle most of the people most of the time, it's better if you don't let your marks catch on to actual context." Otherwise, called "divide & conquer."
Grasp of context is what we call "situational awareness," hence the post title.
Why is it so hard to get individuals to examine context first, and data secondarily? It goes back to a saying by an 19th century naturalist: "People will do anything in their power to avoid thinking." Why? Because it's actual work. To think, one must burn calories, and people have multiple mechanisms for conserving calories unless absolutely necessary.
Why is it even harder to get whole groups to simultaneously examine context first, and data secondarily? First, there's the extra work of alignment - called the "cost of coordination." Second, there's the lack of exposure to the payoff, the return-on-coordination.
Reassessing context before interpreting data is an endless, indirect process further developed only with practice. It also requires a more agile - i.e., interconnected - mind to start with. That's why humans are better at it than most other species. And it's also why kids are better at starting it than adults ... but the habit grows & persists only if practiced - and can be completely suppressed with enough drill.
As a corollary, a group can't be agile if the group-mind isn't kept adequately connected.
Finally, thinking can be a very domain-specific habit. Angela Merkel had years of practice thinking about chemistry & physics - sometimes twice before lunch! Yet she may never have acquired the habit of actually thinking about operations in other areas, such as fiscal & monetary policy.
Finally, thinking can be a very domain-specific habit. Angela Merkel had years of practice thinking about chemistry & physics - sometimes twice before lunch! Yet she may never have acquired the habit of actually thinking about operations in other areas, such as fiscal & monetary policy.
That's a bad sign, overall. When it comes to thinking, the best habit of all is to be fiercely independent about when to think, how much, how thoroughly, and how well. The glory really does go to those who find a better way, faster ... and there's currently no fiscal operations glory (and precious little overall) in either Germany or Greece.
Group thinking? That's defined as the body of messages passing between the elements of a group mind. Our group intelligence is held in our "cloud," our body of public discourse. If that body of discourse on any topic isn't sampling enough diverse perspectives, across multiple disciplines, it can't claim to have enough situational awareness to adequately assess the implications for a group of any amount of data.
If we're going to discuss what's intuitive for one person, we have to also ask what's coherent intuition for a group mind? That obviously depends on the amount of experiences, observations and discussion that are shared across statistically significant fractions of the group.
We're back to some simple truths. First, every process is too important to be left to the presumed process owners. Second, fiscal and monetary policy as an example, cannot be improved without widening the base of people and perspectives involved in the discussion.
What doesn't yet seem intuitive for too many people can only be solved by ending their isolation, and bringing them into the experiences, observations and/or discussion of contexts they're simply not yet adequately aware of.
Only then, intuitions in operations and policy circles converge to some form of adaptive common perspective. Only then will our group situational awareness allow shared data to be more useful to us.
59 comments:
If a President or a Fed chief -- or a pop star -- tried to explain to the American people how our monetary system actually works, perhaps they could make some progress. We don't know, since it has never been tried. To the contrary, our leaders constantly bombard the public with "the sky is falling because of the deficit" messages.
The reality as I see it is that we can't even get most economists to understand soft currency economics, let alone the general population.
For PR purposes, it might be more productive to emphasize the MORAL advantages of MMT, and the MORAL disadvantages of Neoliberalism.
For example, take this profound economic thesis from Esquire blogger Charles Pierce: "F**K the deficit. People got no jobs. People got no money."
I suggest Pierce's line is "MMT for the masses."
FDR showed us how it should be done in his 1936 Pittsburg speech: "To balance our budget in 1933 or 1934 or 1935 would have been a crime against the American people. To do so we should either have had to make a capital levy that would have been confiscatory, or we should have had to set our face against human suffering with callous indifference. When Americans suffered, we refused to pass by on the other side. HUMANITY CAME FIRST.. . . . We accepted the final responsibility of Government, after all else had failed, to spend money when no one else had money left to spend."
http://www.presidency.ucsb.edu/ws/index.php?pid=15149
Unfortunately FDR succumbed to the deficit reduction madness, resulting in the double dip recession of 1937-38.
David Koch Buys Government to Cut Your Social Security-Sam Seder
http://www.youtube.com/watch?v=SfcNvCXzRTs&feature=g-all-u
I think people have to stop looking to MMT as some kind of comprehensive solution in itself to our economic problems. It isn't. You can know MMT inside and out and it doesn't change anything unless that understanding is followed up with organizing to bring about political change.
MMT only deals with certain aspects of the monetary system, and it deals with those aspects in a fairly abstract way based mainly on sectoral thinking, abstracted from the grimy and complicated details of institutions. It is also not a comprehensive view of the whole system of production, distribution and exchange. Nor does it say a lot about the social foundations of the economy: the system of classes, institutions and power relations in which the economy lives.
MMTers need to give a lot more thought to fundamental institutional and social reform. You can't just go around telling people that the government spends by "crediting accounts" and expect that to get anywhere. We don't live in the abstract framework of the "general case". We live in a very specific legal and institutional framework, created by previous government choices and legislation, in which government spending is constrained by budgetary rules and regulations. Right now, if the government wants to spend more it has to tax more or borrow more. The borrowing is an obligation of the US government which means the taxpayers rightly believe they are on the hook for it. To some extent, these obligations are defrayed since the Fed continually buys up and rolls over a significant amount of government debt. But those decisions are an aspect of the Fed's politically unaccountable discretionary exercise of monetary policy. Regular citizens quite rightly view these as matters over which they have no control.
The US Treasury does not spend simply by unilaterally crediting a payment to the payee. It makes payments the same way other people do, often by check, and the payment is processed by the Fed, the government's banker. When the payment is processed, the Fed deducts money from some government account in order to credit the payee's account.
We could have a system in which the government has the standing option to spend simply by crediting dollars to its own account, or by crediting a payee's account without making an adjustment to its own account. Then the only constraint on government spending would be price stability concerns. But we don't have that system yet. If we want it, we should advocate it and organize to establish it, with a detailed spec for its institutional setup, instead of pretending we already have it.
Significant social, political and economic change requires assimilating the lessons of MMT, but then moving beyond it as well to build a larger agenda for the kind of society we want to live in, and the kinds of reformed institutions we will need to actualize that society.
" It's not that the obvious isn't intuitive yet to some, it's just that those not yet finding it obvious haven't yet been exposed to the context that led people working in that area to come to obvious conclusions and practices."
Roger,
Is this an accurate description of what has been going on?
I can find no historic record that depicts that a human or group of humans ever came up with the policy of "MMT" and implemented it.
So there is no record where it can be documented that we are purposefully even close to "doing the right thing" here...
The closest I can come in the historic record is Aristotle explaining what they were doing with their "nomisma" system... and that is from like 2,500 years ago.
And I'm not sure if even MMT folks like Prof. Wray or perhaps MMT "friendly" Michael Hudson have exhibited knowledge of the ancient Greek 'nomisma'.... they look at it as "debt" and other things, etc...
So where you say: "that led people working in that area to come to obvious conclusions and practices."
Nobody working in this area have ever come to any "obvious conclusions and practices" that I can so far find in the historic record (perhaps since Aristotle)...
If things are arranged somewhat correctly (ie No gold, etc.. some other things that we are doing right, etc..) it looks like it is totally by accident as no human policy makers have ever exhibited true knowledge of these operations.... again perhaps since Aristotle...
rsp,
The US Treasury does not spend simply by unilaterally crediting a payment to the payee. It makes payments the same way other people do, often by check, and the payment is processed by the Fed, the government's banker. When the payment is processed, the Fed deducts money from some government account in order to credit the payee's account."
Sorry, but all of this is immaterial to the discussion. This is a description of optics pure and simple. Optics have no direct bearing on what occurs in the real world. Optics are equivalent to blinders, confusing or obscuring the real issue.
The functioning of the underlying system is unaffected by optics. I may believe the Earth sucks but that does not alter the reality that it's gravity keeping me stuck to the ground.
It comes down to this: the government either spends new money into the economy or it doesn't. Fuzzy logic isn't appropriate here.
This is a binary choice and nothing more. Politics or optics may make the choice difficult or impossible to make but the system depends only on whether or not that choice is made.
The myriad convolutions the various agencies must go through in order to spend may increase employment for bureaucrats that may be otherwise unemployable, but as far as the non-government is concerned the process is invisible and irrelevant.
The optics serve only to confuse and obfuscate.
If one doesn't understand this one doesn't really understand MMT.
"For example, take this profound economic thesis from Esquire blogger Charles Pierce: "F**K the deficit. People got no jobs. People got no money."
Dan, I've been waiting for the opportunity to drop this line here for some time, glad you did it. As far as I'm concerned Charles Pierce is a national treasure.
BTW, my mothers maiden name was Lynch, my uncle was Dan. Lynch's from White Sulfur Springs, West Virginia. My mom dated Sam Snead, not bragging, she was probably one of only a few dating age women in a town that small.
Roger,
This is from your 'John Law' link which goes to a wiki entry on "Fiat":
"Fiat money is money that derives its value from government regulation or law. The term fiat currency is also used when the fiat money is used as the main currency of the country. The term derives from the Latin fiat ("let it be done", "it shall be").[1]
Fiat money originated in 11th century China,[2] and its use became widespread during the Yuan and Ming dynasties."
This is A COMPLETE FALSEHOOD.
http://mikenormaneconomics.blogspot.com/2012/08/aristotle-on-nomisma.html
Call it "fiat" in Latin or "nomisma" in Greek, the oldest record I can find of its establishment is from the west during or before Aristotle.
As usual, the zombie east is like 1,000+ years behind the west and then just copies what we do once they leave their opium stupor for a while ....
rsp,
Matt,
They build the best cars (IMO).
"F**K the deficit. People got no jobs. People got no money."
Sounds like GW Bush here from Warren's blog:
"A month or so after this was written I met with Andy Card, Bush’s chief of staff, and told him much the same. He got it and they took immediate action to increase spending and cut taxes. It was shortly after that meeting that Bush was asked about the deficit and said he doesn’t look at numbers on pieces of paper, he looks at jobs, and did all he could to make the deficit as large as possible. It got up to 200 billion for Q3 or about 800 billion annually; enough to turn the economy enough to not lose the election."
Hmmmmmm....
rsp,
"They build the best cars (IMO)."
Paul,
Of course they do, because they are making them for export to the west....
rsp,
The myriad convolutions the various agencies must go through in order to spend may increase employment for bureaucrats that may be otherwise unemployable, but as far as the non-government is concerned the process is invisible and irrelevant.
That might be true, but it utterly unhelpful to the politically engaged citizen or practical policy maker.
Assume your friend says, "I want to write a letter to my member of Congress, and advocate some policies. What do you think I should tell him to do?
What is your answer? Philosophic pronouncements of the true nature of money and the monetary system probably aren't much help.
Roger,
Perhaps to summarize...
The only people who I have read that have exhibited this knowledge of a state currency system are, in chronological order: Aristotle, Jesus, Apostle Paul, Alexander del Mar, and Warren Mosler....
I'm not saying there were not others, it is just that I have not come across the writings of others...
rsp,
Assume your friend says, "I want to write a letter to my member of Congress, and advocate some policies. What do you think I should tell him to do?
Does it matter when the only reply you'll get is "That sounds like a nice idea but the government has no money"?
Then it's back to philosophic pronouncements of the true nature of money and the monetary system. Understanding the monetary system is square zero.
Does it matter when the only reply you'll get is "That sounds like a nice idea but the government has no money"?
Of course it matters. The point should be to get people past this dodge or excuse. So what do you tell them?
"What is your answer? "
Dan, If it's a friend or acquaintance I keep it simple:
"Where do you think money comes from?"
"spending equals income".
"It's impossible to cut spending without cutting income."
"Every dollar you have was created by the Federal Government. If the government doesn't print it it doesn't exist."
I keep it simple and I never try to explain the Fed/treasury because it would just confuse them and it's irrelevant besides.
As far as an observer in the non-government or domestic economy is concerned, economic activity on it's own cannot create new funds. It requires intervention by an external source.
Dan Kervick -- You've made some really good points in your first comment. MMT does not (and probably cannot and should not) tell us how to approach the institutional changes that would be necessary to allow the monetary system to work the way MMT describes the operational setup. The budgetary rules (borrowing to finance the deficit) are the problem. And we need to figure out how to address the ignorance that keeps people from seeing the operational truth and advantages of the MMT analysis. The household analogy is perhaps one line of attack, and emphasizing the currency issuer vs user is another way to go. I see the overarching problem as one of breaking very tightly held myths that the plutocracy continues to promote in many ways.
Paul,
So if the government spends $900 trillion dollars next year more than this year, that means we will have $900 trillion dollars more in income. Will we be $900 trillion dollars richer?
Suppose my friend and his Congressman are convinced, and want to know what to do. How do they accomplish this magnificent feat?
And if each of us 300 million people spends $1 million dollars more in income next year as individuals, that also means there will be $900 trillion more in income. Would that be a good thing.
And we need to figure out how to address the ignorance that keeps people from seeing the operational truth and advantages of the MMT analysis.
John Zelnicker, yes, the ignorance is one thing. But there are also many legitimate questions.
Many people recognize that in some sense the government can create through spending as much money as they want. But I think they are entitled to at least a general kind of answer about how a government decision-maker is to decide what is the right sized deficit, and how and whether to adjust taxes and borrowings.
Right now there is a system. People might not like how it works, but at least they roughly understand how it works. Before taking a leap in the dark, they need to understand, with a fair bit of detail, how an alternative system would work.
Dan,
Those are absurd examples and I can't tell what point you're trying to make.
We only need to spend enough to maintain full (as practical) employment. Close the spending gap. It should be obvious that we have to choose the right targets for that spending but that problem is not mysterious.
Let's turn your argument around. Let's not spend any more money and wait for better policy decisions to make people's lives better. Good luck with that.
That sounds to me like the underpants gnomes approach to problem solving.
Changing the operational setup of how money is created isn't going to change anything wrt the economy because the economy is not a function of operations, it's a function of spending, which in turn is a function of the size of the pool of funds available for spending and the distribution of those funds.
Any solution that doesn't involve those factors has no traction.
"MMT does not (and probably cannot and should not) tell us how to approach the institutional changes that would be necessary to allow the monetary system to work the way MMT describes the operational setup."
Bill Mitchell has stated many times that it doesn't matter whether or not the monetary arrangements are changed. There is no mathematical or natural constraint on money creation, MMT works fine with the monetary system the way it is.
The only constraint on money creation is political, and we will have that no matter how we fashion operations.
In my view it's a waste of time discussing monetary operations unless you are an academic.
It isn't a problem that needs to be solved, at least not right now.
Paul,
How much money do we have to spend to generate full employment?
All I'm doing is responding to your assertion that spending is income with a follow-up question.
You seem to be assuming that people are morons and so all you need to give them is a slogan.
I think it's inconsistent to say "The only constraint on money creation is political" and "it doesn't matter whether or not the monetary arrangements are changed." Monetary arrangements in the US are part of its political institutions. We don't have compartmentalization with the monetary system on one side and the political institutions on the other.
Right now, government administrators are bound by a number of legal rules which constrain the amount of money they can spend, and the ways in which they can spend it.
"Right now, government administrators are bound by a number of legal rules which constrain the amount of money they can spend,"
Congress is the constraint on spending, legal rules have nothing to do with it.
It's politics and politics alone. There are no legal or mathematical constraints that I can see.
It would be helpful if you could quantify the constraints you see, legal or otherwise.
I don't mean some number, I mean in a sense relative to the National Debt what are the constraints we're talking about? Interest payments? How many bonds we can sell to the public?
Roger,
Here's Eccles from 1941:
http://fraser.stlouisfed.org/docs/historical/eccles/010_03_0005.pdf
"Talk of hardening rates is, therefore, premature. If the Treasury will have to pay a fraction of one percent more for the money it has to borrow, there are fifty millions of creditors in the country, holders of insurance policies and of savings accounts, who will benefit... One should be fair to creditors and debtors alike; they are an equally large part of the people."
Eccles obviously thought the govt had to borrow it's own "money" and is WAAAAY out of paradigm.
Eccles should not be referred to as someone who knew what was going on imo...
rsp,
Dan,
"about how a government decision-maker is to decide what is the right sized deficit,"
Remember a deficit is ex-post, not a policy option.... you have to look at it like Bush does in the Warren quote from above ie it is just a number and our 'feedback' is the unemployment and suffering within society. If too much then keep cutting taxes and sending USD balances to the people....
Here's Caesar Augustus on this:
http://classics.mit.edu/Augustus/deeds.html
"when the taxes fell short, I gave out contributions of grain and money from my granary and patrimony, sometimes to 100,000 men, sometimes to many more."
ie When savings desires spike up and accordingly tax revenues fall, Augustus knew that the solution was NOT to raise taxes, but rather send balances of nomisma to the non-govt sector and also any real assets that the govt had in buffer stock to relieve any economic suffering...
And remember this is the guy under whose ultimate authority the Lord was crucified... what does that say about the morons we have running things today? Pretty bad imo....
rsp,
Oopsy: Perhaps it would be more accurate to say the this was A guy in the position of ultimate authority under which the Lord was crucified...
rsp,
It's not a quantitative constraint Paul; it's an operational constraint. Right now, for the Treasury to spend money in any amount, it has to possess sufficient balances in its accounts. The Fed processes the payments and is not permitted by law to give the Treasury an overdraft. The Treasury doesn't get to declare how much money it has in its account. The Treasury isn't the idealized consolidated "government" of the MMT general case model.
The Treasury builds those account balances mainly by taxing and borrowing. (It can also sell some things.) Both of those processes suck liquidity out of the private sector. Also, the borrowing is effectively state welfare for wealthy capitalists, obligations for payments to bondholders some of which obligations result in the legislature raising tax revenues from the general public.
It doesn't have to be this way. Congress could change the legal rules under which Treasury and the Fed operate. It could authorize the Fed to permit overdrafts, or authorize it to make direct credits to Treasury accounts in the exercise of monetary policy, the same way it does when it pays interest on reserves and makes direct credits to commercial bank reserve accounts. But right now it is this way. If your Congressman elects to press for boosted spending, without changing these operational rules, then he is going to have to authorize additional taxes or additional borrowing.
If we want to liberate the potential of the government to spend without sucking money out of the economy to create its necessary spending balances, then we have to change the laws. For the life of me, I don't understand why MMTers are not constantly harping on this. This seems to be a big point of embarrassment and silence in the MMT community, since they are fixated on proving their point about some oversimplified slogans that describe a system that could exist but does not yet exist.
Paul, if Congress gets rid of the debt limit, there is no limit to how many bonds the Treasury can sell to the public. But each of those bonds represents an obligation by the Treasury, and hence the American people, to the bondholders. These bondholders are mostly wealthy folks. Why should we have to promise rich people extra money, for no productive work, in order to spend?
But that is the system we have now.
Matt, from the quote we can see that Augustus is saying that the money is coming from his own patrimony. That shows he does not have an enlightened understanding of the role of the state in the creation of money. He just thinks he is the greatest citizen of all, and that the money came from his savings. It's no different than if Bill Gates or Warren Buffet announced proudly that they had engaged in philanthropic spending during tough times.
Matt Franko: "Nobody working in this area have ever come to any "obvious conclusions and practices" that I can so far find in the historic record"
The "operations" people at reserve banking desks, like Warren Mosler, understand the ongoing operations. The problem is that the policy/operations/theory people no longer interact or talk enough. Hence both theory & policy degrade, and the public inevitably becomes uninformed.
The reason context is seldom examined is because there are a few who benefit from the current return on coordination. This group has economic and political power. They see to it that context is removed from public discussion and even suppressed. It doesn't require any conspiracy theories; only rational self interest.
While there would be a much larger return on coordination if context were carefully considered, the distribution would necessarily be more equal and this small group would have diminished power relative to everyone else.
Dan,
Read the record.
"A copy below of the deeds of the divine Augustus, by which he subjected the whole wide earth to the rule of the Roman people, and of the money which he spent FOR THE STATE and Roman people, inscribed on two bronze pillars, which are set up in Rome."
It doesnt say "the money he donated to the state and then the state spent it..." it says "that he spent FOR the state".
He is not chronicling his "deeds" as a citizen. He is chronicling his deeds as the "Chief Executive" if you will of the Roman Empire.
Augustus was NOT an "entrepreneur" in the non-govt like the moron Warren Buffet. Please.
This record indicates he was not a dictator (he refused the position). So there was another branch of govt.
This govt advanced him great sums of both nomisma (state currency) and real assets as what we may call today "discretionary funds". For him to use as he saw fit. He probably could have kept them in his personal possession, but he of course didnt.
This record indicates he used them for fiscal transfers and real transfers often when tax receipts fell to inadequate levels.
and used them for public works projects: "I rebuilt aqueducts in many places that had decayed with age, and I doubled the capacity of the Marcian aqueduct by sending a new spring into its channel."
Humans need potable water to live. Sounds like some pretty good projects, too bad our Libertarian morons today think "we cant afford it"....
I see no evidence here of "borrowing". Rather he is proud of the real assets he directed the construction of...
No indication that they are ever "out of money".
Looks like the west was not led by morons back then... I wonder what happened... (hint: it begins with an "L")
rsp,
Matt, he says that the money was his "patrimony". That's not the way someone would talk if he thought that the money was simply a creature of the state that is created and extinguished as a matter of state policy. The guy is basically saying that he spent the money out of his own pocket for the good of the state, and that he therefore deserves credit as a great benefactor. It's a totally primitive, monarchical mindset.
Roger,
"The "operations" people at reserve banking desks, like Warren Mosler, understand the ongoing operations. "
Uh, NO they don't.
Warren does for sure I'll grant you that. but Warren is not at a reserve banking desk and never was to my knowledge.
Here is an article from the NYT that shows how the morons at the NY Fed absolutely DO NOT understand anything:
http://www.nytimes.com/2011/01/11/business/economy/11fed.html?pagewanted=all
Roger, there is NO EVIDENCE that ANYBODY in current govt or past govt knows how a state currency system operates. At least I have not been able to find the documentation... it looks like if we are near to any operations which would be common to a true FFNC currency operation it is entirely by accident... I can find no "plan".
granted there are some out there who are not complete blithering idiots a la Ron Paul, Paul Ryan, Peterson, Walker, etc... but that does not prove that they know what is really going on.
That said WE DO though, and there are not many of us. Perhaps we who are in paradigm are like a "biological cluster"....
rsp,
Dan,
"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."
The Lord knew how this worked, Caesar himself WAS the tax authority. You can see here he had authority over the Roman Treasury to a great if not absolute extent. ie his "patrimony" included the entire state financial assets.
Dan they used ACTUAL COINS with his picture on them. How would he logically assume he could get coins from the population that had his picture on them thru poll tax that he didnt spend into circulation in the first place? magic?
that is what our morons do today dont be confused by them... rsp
Dan K -- I understand we need to teach people how an alternative system would work. But it really isn't so much an alternative system we are talking about, as it is changing the rules that require borrowing or taxing to fill the Treasury's account. The system is in place and well described by MMT. As you said, it is the political that is in need of change. And there are very legitimate questions about how we want to allocate our real resources. But we won't get far until we break the myth of "affordability."
Matt, I don't think you can extract any theory of money from the scriptural passages.
Also, the fact that the coins had the picture of the emperor on them means nothing. It is consistent with every kind of theory of money. Defenders of the "emergence from barter" theory believe that the government only affixed seals to coins to validate their weight.
John Z,
Issues of affordability still exist even after people understand that they are using a fiat currency that can be created at will in either conventional form as bills and coins or as balances in digital accounts. What we ultimately spend on any projects we want to carry out, or in giving newly created monetary purchasing power to people, is some portion of our are real output. Questions about how the monetary claims on that output should be distributed, and about what role the government should play in creating or adjusting those claims, and about what kinds of price stability policies should be followed in creating those claims will still exist, even if people understand the monetary system.
Dan,
It's not like they put the pictures of FORMER Caesars on the coins exclusively in honor of FORMER rulers and there was a somewhat independent Treasury/CB function like we have today...
For instance they issued coins with Augustus image WHILE Augustus was ruling... our morons would never do that today... back then, the archaeology indicates that they let the previously issued coins continue to circulate (in honor of the previous) and started making new coins with the current ruler's image...
Probably not a stretch to think that any moron who would have "tweeted": "who's going to accept a denarius now?" back then would have found themselves hanging from a pole by sundown....
The Lord's advice from excerpt above: 'accept the denarius and pay your taxes'... sounds like good advice.
rsp,
A silly question:
If private bank creates money, it is a creditor. If government creates money it is a debtor. This is just a matter of semntics, right? Can't we just call government also creditor? Everything would be politically easier...
Dan,
Here Apostle Paul expands on what the Lord said from above:
"5 Wherefore it is necessary to be subject, not only because of indignation, but also because of conscience.
6 For therefore you are settling taxes also, for they are God's ministers, perpetuated for this self-same thing.
7 Render to all their dues, to whom tax, tax, to whom tribute, tribute,"
I dont think Paul mistakenly tells us that we must pay taxes exclusively to exhibit subjection to the authority of civil government.... And he is wrong here and that the true reason is because "the state needs the money to be able to spend", etc..
I see NO mention or indication or CONTEXT of exogenous "money" in either of these verses from the Lord or Paul.
These verses depict a system of endogenous "money", what the writings of Aristotle and the Lord termed 'nomisma' in Greek.
These 2 verses from Romans 13 is the ONLY place where the word "tax" appears in the book of Acts or any of Paul's epistles. It is the ONLY information about taxes provided by Paul to the nations in scripture. I guess one could get information from other sources... rsp
Dan,
Given that Fed liabilties are US govt obligations, i.e US govt liabilities, when the Treasury has a positive balance in its account the GOVERNMENT HAS NO MONEY.
The US government can only 'have' money if that money is issued by some non-govt entity. i.e. it can have foreign currency or commercial bank deposits. But when it hold its own liabilities, it does not 'have' money. This is just simple logic, regardless of the institutional smoke and mirrors.
When the Treasury spends (it spends out of its accounts at the Fed), MONEY IS CREATED.
(On a side note, Tax&Loan deposits are basically loans to commercial banks from the Treasury).
Kaj,
Looks like when govt issues Treasury securities, people are immediately led to believe they are a 'debtor' via the semantics.
speaking for myself, I am sensitive to the points Dan makes here when I look at these issues semantically. What Dan writes here is basically true from the semantic pov imo... or at least I find it hard to argue along those lines..
But from a mathematical perspective it cannot be true.
And from a Biblical perspective it also cannot be true. rsp
If congress were to abolish the 'independence' of the Fed, whoever was in charge of monetary policy would still have to decide whether to maintain a positive short term interest rate and whether to offer longer maturity interest-bearing assets to the non-govt.
If the govt chose not to issue bonds, or offer savings accounts or anything like that, and instead allowed 'excess' reserves to pile up as the result of deficit spending, they would still have to decide whether to let the interest rate fall to zero or whether to pay interest on reserves.
If they thought that a ZIRP was untenable, they would have to pay IOR or offer interest-bearing term deposits/ bonds too.
So changing the institutional structure wouldn't necessarily mean an end to the 'rich man's welfare' of government interest payments in itself.
Whether it's possible to end this 'welfare' depends on whether ZIRP/ no-bond issuance is actually a tenable policy.
There's a lot of disagreement about this.
Dan,
It's not that I am extracting a theory of "money" from the scriptures, any more than I am learning that compliant sheep are different from stubborn goats via the scriptures.
Creation is used as a backdrop or visual aid for the flesh eye in teaching. Whether the creation is a biological entity (sheep and goats) or legal entity (nomisma and argurion).
rsp,
Kaj,
The money a bank creates when it creates a deposit account for a new borrower is a liability of the bank. Any balance you the customer have in such an account is money the bank owes you. But the bank doesn't do that for free. It exchanges that liability for your promise to pay them a greater amount in the future.
Jeff65,
Thanks for picking up on my closing point. Everyone else seems to have gone off on tangents.
Dan K (@6:53 am) -- I agree. But now you are talking about the allocation of real resources and that is the discussion we should be having. And, yes, their are still "affordability" issues (and others) to be resolved as to these real resources. However, this is a different discussion than whether or not we have enough fiat currency to acquire those real resources. And that, as I see it, is one of the biggest hurdles to overcome in the thinking of the general public.
Dan K, there is still something fishy in this semantics. Perhaps we should stop calling Central Bank a "bank." Let's call it "ministry of money." And it's chair "secretary of money."
'stop calling Central Bank a "bank." Let's call it "ministry of money." And it's chair "secretary of money."'
Exactly. Define context accurate first.
Then accurately & exhaustively discuss & define goals.
Only then do we let everyone invent distributed, coordinated tactics (strategy), and only then do we tune policy as we go along. The entire tuning process has to become fused operations.
Operations always develop bottom-up, per what works.
Operations then tells theory to try to make sense of emerging operations.
Just to throw a small idea in here: the pre-revolutionary American colonies experimented with fiat currency (i.e. direct money printing and regulation of demand via taxation) quite a lot - MA is quite famous for its failure in this regard, but other states were more successful.
Farley Grubb is quite good on this:
http://ideas.repec.org/f/pgr272.html
Dan K "Questions about how the monetary claims on that output should be distributed, and about what role the government should play in creating or adjusting those claims, and about what kinds of price stability policies should be followed in creating those claims will still exist, even if people understand the monetary system."
This is one of the most basic issues in capitalism, where rationing of real resources is based on price, and the perception is that it is in owners' interests to keep compensation low in order to maximize value for shareholders. Another fundamental issue is maldistribution from rent and rent-seeking.
The universe of political and economic discourse in the US has tended to minimize if not exclude such matters as out of bounds.
Capitalism is pretty much all about income and wealth distribution based on favoring capital as the dominant scarce factor,with the other factors made subservient to the "needs" (read "wants") of owners. Thus, the perception that the chief purpose of firms is to maximize shareholder value — at the expense of other factors, often by hook or by crook, e.g., through state capture.
John Z,
Yes, I agree. people should never be convinced that we can't do something we want to do because we are "out of money". Money is just a tool we can invent at will at no cost to convey resources from one place to another and to give people claims on them.
Kaj,
You make a good point. On the other hand it is useful for people to understand that commercial banks have accounts at the Fed in exactly the same way you and I have accounts at a commercial bank. I can make a payment to you using by deposit balance at my bank. And a bank can pay another bank by using its reserve deposit balance at the Fed.
If private bank creates money, it is a creditor. If government creates money it is a debtor. This is just a matter of semntics, right? Can't we just call government also creditor? Everything would be politically easier...
Government is the ultimate creditor. As Warren Mosler points out, currency is a "tax credit" which is needed to satisfy liabilities imposed by government chiefly in the form of taxes, but also fines and fees.
Perhaps we should stop calling Central Bank a "bank." Let's call it "ministry of money." And it's chair "secretary of money."
There is a reason for central bank "independence," and making the central banks a public-private partnership in the US, the the emphasis on private. Most people in the US do not trust the government with money creation for fear that politicians will act irresponsibly and spark inflation. In fact, many if not most people in the US think that the Fed is a privately owned bank instead of a government agency.
Ro said... "Just to throw a small idea in here: the pre-revolutionary American colonies experimented with fiat currency (i.e. direct money printing and regulation of demand via taxation) quite a lot - MA is quite famous for its failure in this regard, but other states were more successful."
One reason that a lot of Americans have been suspicious about government money creation is memory of the phrase, "not worth a continental." Since then there has been a bias toward "sound money."
Thanks for the Grubb link.
Ro,
Seems for a state currency to be very successful you need a strong state.
The stronger the state, the stronger the state currency looks like.
Back during the pre-revolutionary times, North America didnt have a very strong state so you see chaos in the monetary systems...
rsp
The stronger the state, the stronger the state currency looks like. Back during the pre-revolutionary times, North America didnt have a very strong state so you see chaos in the monetary systems...
See the Whiskey Rebellion of 1791.
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