Can We Afford a Green New Deal? — JW Mason

The correct question is, Can we not afford a GND?

So when we look at the cost of the climate proposals out there against today’s macroeconomic background, the question should not be, are they too expensive? The question should be: Are they expensive enough?

The purpose of policy is meeting policy goals effectively and efficiently. This means getting as close as possible in the design solution to "just right — not too much and not too little."

But in the case of serious challenges overshooting is better than undershooting, even if it "costs" more on spreadsheets and uses more real resources that turn out to be necessary.

The way it is looking, climate change is an existential threat as great as war. No nation can afford to scrimp on defense spending since national security is the highest priority of a government.

J. W. Mason's Blog
Can We Afford a Green New Deal?
JW Mason | Assistant Professor of Economics, John Jay College, City University of New York

John T. Harvey — The Green New Deal: Would It Turn Brown And Die For Lack Of Funding?

To reiterate, we didn’t need people’s money to fund the war effort. And in case you don’t believe me, take the word of someone who was there. Beardsley Ruml, Chair of the Federal Reserve Bank of New York, published a piece in American Affairs in 1946 entitled “Taxes for Revenue are Obsolete.”

Guess what he says!

John Harvey might also have pointed out that this how the US government self-funds the military now, and everything else it spends money on, including Social Security. FDR knew this at the time but tied SS to a tax to make it look like "insurance" rather than welfare in order to head off attacks on the programs as a "give-away" (transfer).

As Alan Greenspan testified to Congress, the only constraint on government spending is the availability of real resources in the present and future. There is no financial constraint regarding funding, although inflation can result from generating effective demand in excess of the ability to expand supply to meet it in a timely fashion.

Forbes — Pragmatic Economics
The Green New Deal: Would It Turn Brown And Die For Lack Of Funding?
John T. Harvey | Professor of Economics, Texas Christian University

FRED Blog — How expensive is it to service the national debt? : A battle between interest rates and growth rates

Not that affordability is relevant from the MMT POV, but it's worth looking at anyway. "They" view it conventionally in terms of the interest rate "r," that is, the policy rate, and the growth rate "g" measured as change in GDP.

This is the ratio of r to g, or "r : g". As long as r is greater than g, "they" consider the increasing interest affordable. In fact, "r > g" has become a meme and entered the jargon since the publication of Thomas Piketty's Capital in the Twenty–First Century.

While MMT regards this ratio is irrelevant to affordability for a currency sovereign, MMT economists also point out that that it is under the control of the central bank as the monetary policy authority that sets "r" as the policy rate. The central bank can set the policy rate where it chooses relative to its mandate of growth, employment and price stability ("inflation"), although price stability usually predominate, since central banks tend to target an inflation rate and use employment rate as a tool under NAIRU.

There are no bond vigilantes that control interest rates in a currency zone where the government is sovereign in its currency and does not undertake obligations in terms where it is not sovereign and therefore could get squeezed.

So from the MMT perspective, concern over the affordability of the national debt is a canard that distracts from the issues that are actually important for policy. Neither fiscal payments by the Treasury nor monetary payments like interest on excess reserves are constraints on the government to spend. According to MMT, the real constraint is availability of real resources and the nominal constraint is inflation. "Affordability" is not an issue for a currency sovereign as the monopoly issuer of its currency as the unit of account in the currency zone.

The classic MMT paper on this issue is "Interest Rates and Fiscal Sustainability" by Scott T. Fullwiler (2006).

FRED Blog
How expensive is it to service the national debt? : A battle between interest rates and growth rates

John Lounsbury — Documentary Of The Week: But How Will We Pay For It?

On Stephanie Kelton and MMT.

econintersect.com
Documentary Of The Week: But How Will We Pay For It?
John Lounsbury

See also at econintersect

Even The Statisticians Are Highly Dubious Of Applying Their Methods In Economics!
Philip Pilkington

Daniel José Camacho — Can We Afford Economic Justice In The United States?

If the government is not as broke as some say it is, then the inability to invest in things like public education is due to a lack of political will and not some natural law written into the fabric of economic reality.

Sojourners
Can We Afford Economic Justice In The United States?

Daniel José Camacho | Associate Web Editor

Dirk Ehnts — John Maynard Keynes: “I could create, I could afford” (Public Service Employment)

Here is a quote from John Maynard Keynes, writing in 1933:

If I had the power today I should surely set out to endow our capital cities with all the appurtenances of art and civilisation on the highest standards of which the citizens of each were individually capable, convinced that what I could create, I could afford – and believing that money thus spent would not only be better than any dole, but would make unnecessary any dole. For with what we have spent on the dole in England since the War we could have made our cities the greatest works of man in the world.

econoblog 101
John Maynard Keynes: “I could create, I could afford” (Public Service Employment)
Dirk Ehnts | Lecturer at Bard College Berlin

The quote is from National self-sufficiency (Yale Review, 1933).  See the whole of Section IV. It's brilliant.

Peter Cooper — If it’s Doable, it’s Affordable

Modern Monetary Theory (MMT) continues to make inroads into the mainstream discourse with the appearance of an article by Youssef El-Gingihy in The Independent Online. The article features MMT in connection with the new book by Bill Mitchell and Thomas Fazi, Reclaiming the State. At its recent rate of dissemination, MMT may transition from heterodox to mainstream ahead of expectations.

Although the finer points of MMT can get quite involved, the most basic takeaway is very simple. For societies with currency-issuing governments:
If something can be done, it is “affordable”.

If we have access to the raw materials, the labor power, the skills, the equipment and the facilities needed to produce something, then we can afford to produce it. The cost of doing so is not financial. The cost is a real cost: the exertion of human effort and know-how, the wear and tear on facilities and equipment, and the depletion of natural resources.

On one level, it is bizarre that this basic takeaway of MMT is not already mainstream. If the idea is heterodox, it is only because we are currently living in a very topsy-turvy world, in which up is presented to us as down, black as white, with everything reversed. In reality, it should be much harder to believe the opposite: that what we are capable of is impossible.

heteconomist

If it’s Doable, it’s Affordable

Peter Cooper

Zero Hedge — Even Bernie Sanders Thinks "Medicare For All" Would Bankrupt America

This is an illustration of the political cost of Bernie not understanding and embracing MMT. He should have paid closer attention to MMT economist Stephanie Kelton when she was his economic adviser.

1. A currency sovereign cannot "go bankrupt." A currency issuer can always issue currency to cover its obligations in the currency of issue. In this case, default is a political choice rather than a financial necessity.

2. The only actual constraint on a currency soveriegn is the availability of real resources. This implies a financial constraint if effective demand created exceeds the capacity to supply real resources to meet it. Then accelerating inflation could result.

3. The United States government is a currency soveriegn. Affordability is never an issue.

4. A sovereign currency issuer has a monopoly on the issuance of the currency and can exercise this monopoloy by setting the prices the government will pay, including the interest rate.

Zero Hedge
Even Bernie Sanders Thinks "Medicare For All" Would Bankrupt America

Tyler Durden

Peter Cooper — We’re Wealthier Now, We Can’t Afford That Anymore

Have you noticed how things we used to be able to do are beyond our capabilities now?
We finally reached a point where we were able to provide free university education. Then we grew wealthier, and some countries couldn’t afford it anymore.

Some of us still have universal public health care systems, but they’re increasingly a chronic burden. Maybe they made sense once, but it’s only a matter of time before they go. Sure, Cuba can do it, but they’re poorer than us.

Those impoverished Soviets somehow managed, all those decades ago, to provide free housing, health care and education, subsidized holiday accommodation, guaranteed employment and virtually free public transport. There’s no way we could ever have done anything like that, let alone in these prosperous times....

Too bad. We used to be able to afford good stuff when we were poorer.

heteconomist
We’re Wealthier Now, We Can’t Afford That Anymore
Peter Cooper

John T. Harvey — Yes, There Is Such Thing As A Free Lunch

With the presidential campaign season in full swing, a number of hopefuls have made a point of specifying the monetary cost of various government programs. Some have done so in the context of how they will finance their own ideas while others have used the opportunity to argue that we can’t afford to pay for the programs we already have in place. In both cases, however, they are missing a fundamental point: at the national level, money is not the issue, resources are. Furthermore, once this becomes clear, it is evident that not only can we can “afford” everything currently in place, we can do more. There is such thing as a free lunch when we have idle resources and how much money we have has absolutely no bearing on this.

For the individual, having money is extremely important as it represents a claim on existing resources. The more money you have, the more you can claim. It’s a bit like having a winning raffle ticket. If you have three winning tickets, you get three prizes; if you have zero, you get none. To the organizers, however, the tickets are an afterthought. The scope of their event is limited by the number of prizes available, not how many claims exist. They would never say, “We can’t afford to do the raffle this year because we don’t have enough winning tickets!”

Yet this is precisely what many presidential candidates are arguing. When someone says, “We can’t afford to continue to fund Social Security,” they are saying that we lack sufficient winning tickets to hand out to seniors. Okay, print some more. If that’s the only problem, then solving it is trivial (notwithstanding any politics). On the other hand, if we lack the ability to produce sufficient goods and services for both the working and the retired, then we’re screwed. Our ability to support Social Security depends on productivity and not how much money we have.

Frontal assault at Forbes.

Forbes — Pragmatic Economics
Yes, There Is Such Thing As A Free Lunch
John T. Harvey | Professor of Economics, Texas Christian University

John T. Harvey — Belgian Riots And Confusing Money With Wealth

Yesterday, 100,000 rioters clashed with police in Belgium over government austerity measures that will raise the pension age and reduce social services. These measures are, it was explained, “essential to keep the budget deficit within European Union constraints” (Belgian protesters clash with police over pensions and pay). This is utter nonsense and is yet another example of the confusion between money and wealth that is contributing to economic stagnation throughout the globe. 

What we are witnessing is economic policy based on the fallacy of composition. The latter results when one assumes that what is true at the individual level translates to the whole.…

Explaining Keynes without mentioning him.

Forbes | Pragmatic Economics
Belgian Riots And Confusing Money With Wealth
John T. Harvey | Professor of Economics, Texas Christian University

whoknu — The most important thing you will learn about Social Security today

MMT.

Job well done.

Daily Kos
The most important thing you will learn about Social Security today
whoknu

J.D. Alt — A Fallacy of Composition

The central point of MMT with respect to economic policy.

It is nonsensical to imagine that the number of Dollars available is what determines what people can accomplish. Instead it is what people can accomplish that determines how many Dollars exist. This is the essential dynamic of Modern Money systems. Modern Money is the unique socialinvention that enables nations of people—so long as the real resources and citizen’s labor are available̶—to collectively build national goods and services. It has nothing whatsoever to do with the amount of capital the individuals of the society possess at any given point in time (in spite of what Thomas Pikkety tells us.) It has everything to do with what people collectively decide needs to be done, and what real resources are actually available to do it with.

How can this possibly be? How, operationally, can the potential accomplishments of people determine how many Dollars are available to pay them to actually implement those accomplishments? In a nutshell, the answer has four parts: 

1. The people decide to form a nation and become its citizens, agreeing to abide by the rules they, the citizens, collectively impose on themselves as a nation.
2. The nation (the collective form of the citizens) establishes a Central Bank and a Treasury—and then simultaneously does two things: (a) it issues a national currency (money created by fiat, or “fiat money”) and (b) it imposes a tax on the citizens which can ONLY be paid with the national currency.
3. Having agreed to abide by the rules (which now include paying taxes) the citizens become willing to provide the nation (the collective form of the citizens themselves) with goods and services in exchange for the fiat money they need in order to pay their taxes. Subsequently, the citizens use that same fiat money as the means of measuring the value of goods and services produced and exchanged privately amongst themselves as well—(i.e. the fiat money becomes the unit of exchange in the nation’s private economy.)
4. The nation’s Central Bank and Treasury now have the task of continuing to issue the national currency—and collecting it back in taxes—in quantities as needed to match the actual potential and need the citizens have for producing goods and services. If the citizens have an actual need and potential for production for which there is not enough currency, the Central Bank and Treasury will simply issue and spend the required currency into existence by purchasing the goods and services, or otherwise causing them to be purchased. If the citizens have too much currency relative to what they are actually capable of producing (rising prices) the Treasury will increase the currency it collects back in taxes, re-establishing the balance.

 Shout it from the rooftops.

New Economic Perspectives
A Fallacy of Composition
J.D. Alt

Peter Martin — Muddled Thinking Watch #1 “We will need decades of austerity not years” writes Phillip Booth in the Daily Telegraph

Its not a question of whether it “can be afforded” in money terms but whether “it can be afforded” in resource terms. Present commitments may or may not be able to be afforded at some future time. It will depend on the resources which will be available at that future time.

Alan Greenspan's response to Paul Ryan in congressional testimony: “Well, I wouldn’t say that the pay-as-you-go benefits are insecure, in the sense that there’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase.” 

Greenspan lays the smackdown on Paul Ryan

Modern Monetary Theory: Real Economics
Muddled Thinking Watch #1 “We will need decades of austerity not years” writes Phillip Booth in the Daily Telegraph
Peter Martin

AFP — Thailand to distribute 1.7 million tablets to schools

Thailand plans to distribute about 1.7 million tablet computers to students and teachers this year in the world’s largest handout of the devices for education, officials said Thursday. Nine firms from countries including China, India, Germany and the Netherlands are set to join an online tender in April to supply the tablet computers, according to the Ministry of Information and Communication Technology (ICT). 

The Raw Story \
Thailand to distribute 1.7 million tablets to schools
Agence Presse-France

 Looks like Thailand can "afford" it. Easy to justify based on public purpose and competitiveness.

Google Earth Helps Indian Man Find Family And Village After 25 Years

This is a heartwarming human interest story, but I am posting it for another reason. It is the story of an Indian child, a beggar, who gets lost and is permanently separated from his poor family. He is later adopted by an Australian couple, is educated and attains success in business. Still remembering his Indian family and village, he searches for the village on Google Earth and discovers it. Returning, he finds his birth family living in a slum.

The social, political, and economy point is that poor people are not poor by nature but by circumstance, and by changing their circumstances, they can assume a higher position in society and lead lives normal for the society, even a much wealthier society.

This is strong argument against the notion that the poor are poor by choice and if they just worked harder and pulled themselves up by their boot straps everything would be fine. It also give the lie to the notion that people born in better circumstances than other deserve the head start they get in society through the luck of the draw. (Others would say karma, and this is my view also; but this is beside the point here.)

If the basis of democratic egalitarianism is equal opportunity, then a democratic society needs to pay more attention to circumstances that affect lack of equal opportunity. MMT analysis shows that lack of affordability is no excuse for inaction.

Read it at The Mercury (AU)
He's our Slumdog Millionaire
by Emma Hope
(via The Huffington Post)

U.S. decides to rent rather than own

Fifty years after John Glenn became the first American to orbit Earth, NASA no longer has the ability to fly astronauts in space, a decision Glenn lays squarely on the shoulders of the Bush administration.

Read it at Reuters
Fifty years after Glenn flight, U.S. buying rides to space
by Irene Klotz

Problem? You guessed it. "Lack of affordability." Which anyone who understands MMT knows this reasoning is just silly when a government funds itself through currency sovereignty.

Moreover, it fails to recognized the pay off of wise public investment in the nation's future, such as technological innovation and basic research.

"If there's one thing we have learned through the history of our country, it's that money spent on basic research has a way of paying back in the future beyond anything we ever see at the outset," [Glen] said.