Friday, December 28, 2012

Wonkblog — Wonk of the year: Grover Norquist


The Washington Post | Wonkblog
Wonk of the year: Grover Norquist
Ezra Klein and team

The ironic thing this that Grover Norquist is right — taxes are higher than they need to be, as evidenced by the long unemployment lines.

But he is correct for the wrong reason.

The debate is framed as if taxes were needed to fund government. Which is not the case for a currency sovereign like the US.

The dual purpose of taxation is 1) to withdraw down consolidated nongovernment aggregate net financial assets in order to control inflation at full employment, when effective demand threatens to exceed the capacity of the economy to meet it, and 2) to discourage socially undesirable behaviors.

The issue then become deciding the size of the government relative to the economy based on public purpose. This is a political decision based on balancing personal responsibility and social welfare.

The issue is providing the appropriate amount of funding to generate effective demand resulting in optimal use of national resources, taking externalities into account.

48 comments:

Dan Kervick said...
This comment has been removed by the author.
Anonymous said...

The issue then become deciding the size of the government relative to the economy based on public purpose. This is a political decision based on balancing personal responsibility and social welfare. Tom Hickey

The government is overly large because it works at cross purposes to itself and society. On one hand, the national government backs a counterfeiting cartel, the banking system, that increases unjust wealth disparity and on the other hand it attempts to reduce that disparity with social spending for the benefit of the victims of that cartel. What kind of screwy system is that?!

Anonymous said...

The implicit assumption is that the people who are disemployed by technology are too stupid and worthless to do anything really useful and new, and so they are unemployed because society has run out of useful occupations for them. Dan K

They have been disemployed with their own stolen purchasing power via unethical endogenous money creation is the problem. Maybe they are incapable of learning new skills but who says they should have to? Do bankers have to learn new skills or do they prosper with their old game of lending money they don't have via government privileges? When will you learn that banks are and have been the problem for centuries?

Matt Franko said...

f,

Seems to me the main thing wrong with current banking is that at loan origination, the balances are created for the principle, and then the interest balances are left to magically show up by chance...

Like sending a spacecraft to Mars without enough fuel... and then hoping something good would happen to the craft along the way... only a moron would design a system this way.. rsp,

Anonymous said...

Matt,

Common stock as private money requires no borrowing much less usury. Nor does it requires reserves since common stock is normally non-redeemable.

So why isn't common stock widely used as a private money form? ans: Who can compete with a government backed credit cartel?

Matt Franko said...

f,

you can see how the interest rates are eventually collapsing as the govt sets the policy rate to zero...

If the fed would just leave rates here where they are at zero, eventually bank credit rates would collapse to a 'natural rate' just above zero imo.... might take a few more years..

You would still have lending but not much usury... very little..

rsp,

Anonymous said...

eventually bank credit rates would collapse to a 'natural rate' just above zero imo Matt Franko

The government backed banking cartel is not "natural" so the interest it charges is not natural.

y said...

"why isn't common stock widely used as a private money form?"

I'm struggling to see what the benefits would be. If you want to buy stock in a company you can do so.

Anonymous said...

I'm struggling to see what the benefits would be. y

Common stock as private money requires no usury, no reserves (much less fractional reserves), no central bank, no deposit insurance (much less government deposit insurance). Nor is deflation a hazard since common stock is spent, not lent into existence. Nor is price inflation a danger since every money holder can vote on whether and how much new money is created.

But why should corporations issue and use their own common stock as private money when they have access to a government enforced/backed counterfeiting cartel, the banking system? Why "share" when stealing is the only competitive option?

Matt Franko said...

f,

Net, corporations havent accessed the banking system in going on at least 4 years now... they dont need the banks... as you point out they have their shares and retained earnings to work with..

If you examine bank credit, all banks do is lend against automobiles and property... big deal!! (and they dont even do that very well now do they???

rsp,

Matt Franko said...

f,

non-financial corps are basically already doing what you propose... check the numbers.. rsp

Anonymous said...

If you examine bank credit, all banks do is lend against automobiles and property... big deal!! Matt Franko

Ah yes, consumer credit, another rip off by the banks. Consumers are driven into debt bidding against each other with their own stolen purchasing power which they are forced to borrow from the banks or else be priced out of the market by those who do borrow.

Hint: Borrowing should not be required just to avoid falling behind economically. The fact that borrowing is required indicates we are enslaved to the banking cartel.

Matt Franko said...

f,

I was at Sam's the other day and they have a 60" widescreen for $700 ?

What bidding war?

In peacetime, we're basically in permanent deflation due to productivity...


rsp,

Jose Guilherme said...

Common stock as private money requires no usury, no reserves (much less fractional reserves), no central bank, no deposit insurance

But it's a risky asset. It can go down in value, wipe out all your savings, etc.

Risk-free assets (aka government bonds, in the pre-fiscal cliff era) are way better, IMO.

paul said...

"Common stock as private money requires no usury, no reserves (much less fractional reserves), no central bank," - fribane

Jose nailed it…people are not going to store their savings in a vehicle that could implode at any moment.

Buying stock is no different than betting on the horses.

You are inadvertently advocating for society to become a bunch of gamblers. People save because they aren't gamblers.

That said, making investment more risky by reducing risk-free credit will reduce investment…forcing the government to invest more…which it already does by proxy through business, but the gains would not be privatized (as much).

At least the gains would then be distributed more equitably.

Anonymous said...

Jose nailed it…people are not going to store their savings in a vehicle that could implode at any moment. paul

Much of the volatility in the value of common stock is because it is priced in a volatile money supply that is lent into existence and is destroyed as it is repaid. But use common stock itself as money and the underlying volatility disappears. Then the value of a common stock would not depend on our inherently crooked and unstable money system.

Anonymous said...

There's also diversification as protection - once the nation- (world?) wide synchronized boom-bust cycle is abolished along with its cause, the infernal government-backed usury for stolen purchasing power cartel, the banking system.

Matt Franko said...

"our inherently crooked and unstable money system"

f, It's not "the system", any system can become unstable if it is operated by morons... rsp,

y said...

"Much of the volatility in the value of common stock is because it is priced in a volatile money supply"

No not really.

"Common stock as private money requires no usury, no reserves...etc"

Money will always be the most liquid asset, and other things will be priced in terms of that asset. Government liabiilities ("cash" - inc reserves/Fed deposits) are the most liquid assets and everything else is priced in terms of them.

Bank credit/bank money is a promise to pay government 'cash'. As banks have reserves of 'cash' and access to the central bank (and deposit insurance) their liabilities are highly liquid and therefore serve as money too.

Common stock issued by companies could never hope to play that role. Every time you accepted stock in payment you would have to do some research to see how the company was doing and whether their share price was about to collapse or not. No one wants to do that.

If people want stock they can buy it with money. If they think inflation is too high then they will keep their holdings of money to a minimum, i.e. just for transaction purposes.

Stock-as-money will not solve the problems with banking that you describe.

Anonymous said...

Stock-as-money will not solve the problems with banking that you describe. y

Common stock is just one of several possible ethical endogenous money forms. Futures contracts and store coupons are other possibilities. Other forms, no doubt, are possible too.

My main point is that endogenous money creation does not need a government-backed counterfeiting cartel, which is what the banks are. So there is no real excuse for the existence of government privileges for the banks.

Anonymous said...

No not really. y

How else do you explain the entire stock market rising and falling at the same time during booms and busts?

y said...

"government-backed counterfeiting cartel"

It seems obvious to me that banks will always be the primary creators of private money, as their business is simply that - storing, lending, borrowing, investing money - not manufacturing goods, for example.

Their deposits are direct promises to pay government money on demand, whereas common stock and other less liquid assests are not.

The question is whether to go to some sort of free-banking model, or just strictly limit what banks can do.

Anonymous said...

Their deposits are direct promises to pay government money on demand y

Empty promises since there is no risk-free fiat storage and transaction service for people to move their deposits to outside the banking cartel. If the monetary sovereign provided such a service for its fiat, as it should, instead of deposit insurance for the so-called "private" banks and if that service made no loans then credit creation would be risky indeed.

paul said...

"there is no risk-free fiat storage and transaction service for people to move their deposits to outside the banking cartel" - fribane

Why would anyone want to move their fiat from risk-free storage to another non-risk-free storage vehicle? That makes no sense, and no storage vehicle will be as riskless as the one backed by the monopoly issuer. Deal with it.

This is one of the reasons government bonds exist.

The only thing wrong with the banking system is the crooked underwriters. If we eliminated the FRB system the crooks would move to wherever the money was.

You should be focusing on the regulastory system as a solution, not private equity traders.

y said...

You can buy government bonds. Or you could leave your money in a safe-deposit box...

People often keep their savings in assets other than cash/deposits.

I agree there are massive problems with banking as it currently exists..

I just listened to this talk by Richard Werner, hich you might find interesting:

"The Quantity Theory of Credit"

http://www.postkeynesian.net/keynes.html

y said...

(Lots of other great talks and other PK resources on that site too)

Anonymous said...

You can buy government bonds. y

Yes, the bonds of a monetary sovereign are risk-free but I doubt that the public can readily transact with them for everyday purchases. The monetary sovereign should provide such a service.

Or you could leave your money in a safe-deposit box...
y

Yes but that does not provide risk-free transaction services.





Anonymous said...

That makes no sense, and no storage vehicle will be as riskless as the one backed by the monopoly issuer. paul

The monetary sovereign ITSELF should provide a risk-free storage and transaction service for its fiat and NOT insure the deposits of the supposedly private banks.

y said...

That's true, but you can quite easily hold your savings in instruments other than bank deposits or cash.

y said...

"a risk-free storage and transaction service"

That makes sense I guess, though you would have to pay for the transaction service I think.

paul said...

"The monetary sovereign ITSELF should provide a risk-free storage and transaction service for its fiat and NOT insure the deposits of the supposedly private banks."

It does…through the issuance of bonds.

Further, banks are not private per se…they are based wholly upon a public-private partnership, just like nearly everything else the government does. Banks agree to provide sound underwriting for the privilege of lending out state-backed currency.

The government subs out it's banking operations just like it subs out pretty much everything else.

The government buys our military weapons and hardware from private companies.

The government pays for our Medicare and Medicade services by contracting with private companies.

The government pays for the construction of our highway system, bridges and dams by contracting with private companies.

You need to figure out who the real enemy is.

The rule is…aim first, then shoot.

y said...

who's the real enemy?

paul said...

"who's the real enemy?" - y

Crooks embedded as managers.

Adam1 said...

Just wanted to point out that government backing is not a prerequisite for modern banking or the cause of its instability. Banks create money because they are able to get the public to accept their payment instruments as a currency equivalent. If you take away the government backing it just means each bank's "notes" or payment instruments are subject to a discount. This is exactly how banking worked before backing by sovereigns.

If a bank accepted private money of any form and people still accepted its checks then it still can blow a bubble and endogenously create money. Double entry bookkeeping banking has been blowing bubbles for the last 400 or so years.

Anonymous said...

Just wanted to point out that government backing is not a prerequisite for modern banking or the cause of its instability. Adam1

Then what's the harm in abolishing that backing, hmmm?

As for "free banking", the banks were privileged by government in that redemption was often suspended during a financial crisis and also because the monetary sovereign itself failed to provide a risk-free storage and transaction service for its fiat, leaving that service by default to the private sector. And, if I'm not mistaken, the State itself accepted monies (including shiny metals) other than its own fiat for the payment of taxes thus adding value to what should have been purely private monies.

Anonymous said...

Double entry bookkeeping banking has been blowing bubbles for the last 400 or so years. Adam1

Bank runs would keep that in check except banker dominated governments have eliminated that essential check on credit creation.

Anonymous said...

It does…through the issuance of bonds. paul

No it doesn't; try paying for your groceries with a Treasury Bond.

We should have the equivalent of a Postal Bank in the US except it should make no loans and pay no interest and then abolish government deposit insurance for the banks and the legal tender lender of last resort. Since the "Postal Bank" could make no loans, it would not be part of the inter-bank lending system so the banks could not borrow reserves from it (Borrowing from individual depositors at the "Postal Bank" would be possible, of course).

Tom Hickey said...

@ Adam1

Right. Take GMAC for instance. It provides the loan for a GM vehicle purchase taking a lien on the vehicle as collateral. If it makes bad credit choices or there is a crunch, it can be stuck with a lot of non-performing loans. Then it repossesses the vehicles and tries to recoup as much as possible through resale. Lots of transaction costs involved and the holding company is exposed to equity losses.

No commercial banks ever involved.

y said...

"We should have the equivalent of a Postal Bank in the US except it should make no loans and pay no interest and then abolish government deposit insurance for the banks and the legal tender lender of last resort"

Interesting idea.

y said...

Although, why shouldn't it pay interest? If you deposit your money in the 'postal bank' (state bank) the money could be placed in government bonds (assuming that practice is not discontinued).

Anonymous said...

@Tom Hickey,

If GMAC operates as you say then it is merely lending its own money which is morally legitimate. You are conflating "credit creation" which is a form of temporary money creation (Btw, just how "temporary" is a 30-year mortgage?) with the honest lending of existing money.

Anonymous said...

Although, why shouldn't it pay interest? y

Because risk-free money hoarding should not be encouraged. Progress requires taking risks, not money hoarding.

Tom Hickey said...

GMAC is not "lending its own money." It is providing credit against collateral that it owns. In this way, the automakers self-finance sales of their own products, providing low rates to facilitate sales and pocketing the finance charge (interest) that other lenders would have gotten instead. GMAC is acting like a bank here.

Anonymous said...

In this way, the automakers self-finance sales of their own products, ... Tom Hickey

I have no problem with that if no government privileges are involved. But note that an auto maker actually has to offer something of genuine value (e.g. a car) in order to self-finance it. All ethical private money creation would have to offer genuine value else people would not accept that money. The banks, otoh, by "virtue" of their government privileges don't have to offer anything of real value but take plenty.

paul said...

"No it doesn't; try paying for your groceries with a Treasury Bond." - fribane

All one needs to do is plan a day in advance before going grocery shopping.

People store their money in bonds and savings accounts usually because they don't plan to spend it anytime soon. That's why it's called saving.

y said...

yeah, they make promises they can't keep and then the govt bails them out.

Deposit insurance is supposedly paid for by banks, but when the shit hits the fan the govt ends up footing the bill.

Tom Hickey said...

All one needs to do is plan a day in advance before going grocery shopping.

I doubt it's a day in advance anymore in the digital economy and online banking. More like instantaneously?

Pete Petepete said...

"The debate is framed as if taxes were needed to fund government. Which is not the case for a currency sovereign like the US."

Taxation is needed to coax citizens into accepting dollars in exchange. If the state no longer taxed people in dollars, then dollars would no longer be accepted in exchange, but whatever the state taxed them in (gold, copper, oil, or whatever).

You say taxes are needed to control inflation as if it doesn't exist at less than full employment. There are long unemployment lines, and yet prices are still rising. This is effective demand outrunning the capacity to meet it.