Americans are just fine with debt. When they fight about it, they're actually negotiating in code over something else: what programs are so important that it doesn't matter how you pay for them?Good article.
A little more than a month ago, Howard Dean had breakfast at the Hotel Vermont in Burlington with Stephanie Kelton. Mr Dean has served as Vermont's governor, a candidate for President, and head of the Democratic National Committee. Ms Kelton, who teaches economics and public policy at Stony Brook University in New York, is the best-known advocate for modern monetary theory, a way of looking at how governments spend money. "I expected some semi-Marxist bullshit," says Mr Dean, "but she’s a real thinker."...
FT Alphaville
America has never worried about financing its priorities
Brendan Greeley
See also Warren's comment:
Warren Mosler
Excellent report and thanks for the mention!
Let me state that you need to omit the word 'only' as there are numerous other reasons for what is called "inflation" in addition to what you described:
"Modern monetary theorists argue that inflation happens only when the real economy — plants, machines, workers — can't absorb what the government is spending."
Also, for the record, I met with Don Rumsfeld seeking guidance on promoting the understandings. He directed me to Art Laffer's firm where I worked with Professor Mark McNary to write 'Soft Currency Economics'. My 2010 book 'The 7 Deadly Innocent Frauds of Economic Policy' is free online at www.moslereconomics.com
And for those interested, core understandings include:
1. The currency itself is a state monopoly, and monopolists are necessarily 'price setters'.
2. The 'money story' begins with a state desiring to provision itself.
3. Taxation by design functions to create sellers of goods and services (unemployment) seeking the state's currency in exchange to avoid tax penalties. The state can then provision itself with its otherwise worthless currency.
4. The state (or its agents) is the single supplier of that which it demands as payment of taxes.
5. Therefore the state, from inception, necessarily spends first, after which tax payments are made and state securities paid for.
6. The public debt is nothing more than the funds spend by the state that have yet to be used for tax payment, and remains outstanding as the 'net money supply' in the form of cash, balances in reserve accounts at the Fed, and balances in securities accounts at the Fed until used to pay taxes.
“Taxation by design functions to create sellers of goods and services (unemployment) seeking the state's currency in exchange to avoid tax penalties.”
ReplyDeleteError.
Taxation exists to regulate the economy and behavior.
.
ReplyDeleteThe Alphaville author is confused.
“A government can issue debt to pay for whatever it likes. It can pay to fight a war, to lower taxes for a preferred group, to soften the sharp edges of a recession. The United States has, in fact, issued debt to pay for all of these things.”
WRONG. Banks “issue debt” by issuing credit (i.e. loans). However the U.S. government does not “issue debt” to pay for anything. The U.S. government creates its spending money out of thin air by crediting bank accounts. U.S. government money is not borrowed from anyone, nor lent to anyone. Therefore U.S. government spending does not entail “issuing debt.”
“American politicians say that public debt crowds out private investment, that it's unsustainable and will turn the country into Argentina. Or Greece. Or now Venezuela. But regardless of what they say, what American politicians do is vote for more debt.”
WRONG. American politicians vote for more spending. This does not involve more debt.
“Americans are just fine with debt. When they fight about it, they're actually negotiating in code over something else: what programs are so important that it doesn't matter how you pay for them?”
WRONG. Americans are not “fine” with private debt such as student loans, or balloon payments on their mortgages.
The article then devotes several paragraphs to correctly saying that MT is neither Marxist nor bullshit.
Then we get more errors…
“The United States Congress spends money on stuff it thinks is important. Over the last four decades, it has only once matched that spending with taxes, in the late 1990s.
WRONG. The U.S. government ran a federal budget surplus (not a balance) for four fiscal years, thereby causing a severe recession.
1998 federal budget surplus $69.3 billion
1999 federal budget surplus $126 billion
2000 federal budget surplus $236.2 billion
2001 federal budget surplus $128 billion
The U.S. government shifted back to deficit spending in 2002 in order for to pay for W. Bush's War of Terror.
“Arguments about balancing budgets aren't actually about constraints. They're about priorities. Important programs get appropriations, full stop. Unimportant programs need to be paid for with taxes.”
WRONG. No federal program runs on tax revenue. At the federal level, tax revenues are effectively destroyed upon receipt.
“In Washington: "We can't afford that" actually just means ‘I don't think that's very important’.”
WRONG."We can't afford that" means, “We must kill this program because it might narrow the gap between the rich and the rest.” For example, Medicare for All would reduce the gap between average people and the health insurance giants.
“America has never worried about financing its priorities”
True, and America’s priorities are usually designed to widen the gap between the rich and the rest.
This has nothing to do with the U.S. government’s ability fund itself. During the 1930s depression when the U.S. government had “no money,” no one in Washington lost his job. Not a single federal department lacked funding.
I noted above that the budget surpluses of 1998-2001 caused a severe recession that was only cured by federal spending for W. Bush’s War of Terror.
ReplyDeleteThe same thing happened in the 1930s.
By the spring of 1937 the U.S. economy had almost completely recovered from the 1929 crash. Production, profits, and wages had regained their early 1929 levels.
However in mid-1937, America’s oligarchs convinced President F.D. Roosevelt that deficit spending would destroy the USA, and that the U.S. government desperately needed a balanced budget. Therefore Roosevelt and the Congress indulged in gratuitous austerity that plunged the U.S. economy into the worse depression ever. Unemployment skyrocketed, manufacturing output plunged, and consumer spending vanished.
The U.S. economy did not recover until the start of World War II, just as the U.S. economy of 1998-2001 did not recover until the start of the War of Terror.
"Modern monetary theorists argue that inflation happens only when the real economy — plants, machines, workers — can't absorb what the government is spending." Warren Mosler
ReplyDeleteSo deposit creation by the banks can't outstrip what the real economy can absorb?
I don't see why not.
But how convenient for the bank privileges whereby banks can safely create so many deposits if somehow, mysteriously, those new deposits cannot outstrip what the real economy can absorb? So that only government spending can cause inflation?
Hence one can be for liberal deficit spending by the monetary sovereign or for bank privileges but not for both.
Mr. Mosler, a banker, is apparently siding with bank privileges - which favor private interests, especially the rich. But what about liberal deficit spending for the general welfare? Shall that bear sole blame for any inflation because government-privileges for banks may not be questioned?
Konrad: The Roosevelt Recession was more complicated than that. FDR had some tough decisions to make. For instance, he and his advisers perfectly well knew that the commencement of Social Security taxation would be deflationary, which was one cause of the recession- but in FDR's words "It couldn't be helped". But the very sharp recession was over in months, due to major spending especially on work programs, the economy was recovering again well before the war.
ReplyDeleteWarren Mosler: scientific dilettante and political fraudster
ReplyDeleteComment on Tom Hickey on ‘Brendan Greeley ― America has never worried about financing its priorities’
Tom Hickey features Stephanie Kelton and Warren Mosler as the two major MMT spokespersons.
Stephanie Kelton has been refuted elsewhere.#1 Here, Tom Hickey’s summary of Warren Mosler arguments is taken as a check-list for the detailed final refutation.
“1. The currency itself is a state monopoly.” Half-true. The central bank (in a closed economy) is the institution tasked with the creation/destruction of money according to the needs of the household sector, the business sector, and the government sector. The specifics of the task and the rights/obligations are defined by the Legitimate Sovereign.
“2. The ‘money story’ begins with a state desiring to provision itself.” False. The money story begins with the elementary production-consumption economy with the household sector receiving money wages from the business sector and the households spending their wage income by buying stuff from the business sector. Money is created out of nothing and completely destroyed in the process. There is no such thing as a fixed stock of money.#2, #3
“3. Taxation by design functions to create sellers of goods and services (unemployment) seeking the state’s currency in exchange to avoid tax penalties.” False. A Zero-Tax Economy is feasible.#4
“4. The state (or its agents) is the single supplier of that which it demands as payment of taxes.” False. The definition of central bank money as a general discharge of liabilities includes tax liabilities. As a generalized IOU central bank money discharges, first of all, the wage claims of workers against the firms that comprise the business sector.
“5. Therefore the state, from inception, necessarily spends first, after which tax payments are made …” False. The sequence, i.e. G before T vs T before T is NOT decisive. The crucial point is the balance, i.e. G greater T = deficit vs T greater G = surplus, in a period of given length. The central bank finances G by money creation and gets T back and destroys the money. If T=G, the budget is balanced, otherwise not. If G is greater than T, the business sector makes a profit, otherwise it makes a loss. This follows from the macroeconomic Profit Law.#5 It is completely irrelevant for profit/loss in a given period whether the government spends first and taxes later or the other way round.
“6. The public debt is nothing more than the funds spend by the state that have yet to be used for tax payment, …” True. Public debt is a tax liability of the household sector which is rolled over for an indefinite time. This liability generates interest income for the Oligarchy which is taxed from WeThePeople for an indefinite time. When the accumulated deferred taxes (= public debt) are eventually paid, the economy faces a crisis because profit turns into loss.#5
Note well that Warren Mosler never mentions the word profit and the negative distributional effects of deficit-spending/money-creation on WeThePeople.#6
MMT’s Warren Mosler is a stupid/corrupt political agenda pusher.#7, #8
Egmont Kakarot-Handtke
See part 2, References
Part 2
ReplyDelete#1 Stephanie Kelton’s legendary Plain-Sight-Ink-Trick
https://axecorg.blogspot.com/2019/01/stephanie-keltons-legendary-plain-sight.html
#2 The ultimate ― analytical ― origin of money
https://axecorg.blogspot.com/2017/07/the-ultimate-analytical-origin-of-money.html
#3 The creation and value of money and near-monies
https://axecorg.blogspot.com/2017/12/the-creation-and-value-of-money-and.html
#4 The Third Way: Towards the happy Zero-Tax Economy
https://axecorg.blogspot.com/2018/06/the-third-way-towards-happy-zero-tax.html
#5 Deficit-spending, public debt, and macroeconomic profit/loss
https://axecorg.blogspot.com/2019/01/deficit-spending-public-debt-and.html
#6 MMT sucks
https://axecorg.blogspot.com/2018/12/mmt-sucks.html
#7 MMT: The one deadly error/fraud of Warren Mosler
https://axecorg.blogspot.com/2017/11/mmt-one-deadly-errorfraud-of-warren.html
#8 MMT, Warren Mosler, and the little helpers from Wall Street and Academia
https://axecorg.blogspot.com/2018/10/mmt-warren-mosler-and-little-helpers.html
Don't feed the troll.
ReplyDelete