Joe Weisenthal — How To Close The Deficit Without Raising Taxes Or Cutting Spending

When the economy improves, unemployment goes down, and deficit/GDP shrinks, as tax revenue goes up. When the reverse happens, deficits rise. Duh, right?

But not so fast...

The post-2009 period is associated with a virtually unprecedented pursuit of government spending and deficits (as far as the eye can see!). Not only did the deficit go up because tax revenue collapsed, but Obama announced a historic stimulus the likes of which weren't seen since the New Deal

And yet! The relationship holds. Even when the government purposely spends like crazy to increase the debt and fight the weak economy, deficits/GDP have shrunk alongside unemployment. There is a big gap between the red and blue lines, perhaps in part because the downturn was so severe, but the clear lesson is that spending to reduce unemployment does have the effect of reducing deficits as a share of total GDP.

That's part of why John Boehner's chart of of Medicare spending exploding the deficit is in economic lala-land.

Dueling charts.

Business Insider
How To Close The Deficit Without Raising Taxes Or Cutting Spending
Joe Weisenthal

"State of Human Capital Utilization"

commentary by Roger Erickson

A report and accompanying film are out.

State of the World's Minorities and Indigenous Peoples 2012

This Could be Generalized to "State of Human Capital Utilization"

What's money got to do with capital? Just another automatic stabilizer.

It's telling that the paradigm most commonly voiced by developers is that local people are standing in the way of others utilizing static "riches." Such a definition of development and "finance", as rape, is then a rallying cry to angrily take said riches by force from the "obstructionists," who are subsequently typically labeled as terrorists. Talk about not being able to see the human capital for all the people!

By this measure, the list of prominent terrorists throughout history would include most notable religious martyrs, nearly all regional tribes in every land, and, of course, all the signatories to our own US Constitution. Oh, and we must now also include that 99% of our current population who are standing in the way of our 1%, who simply want to put OUR resources to "better" use - by and for them, of course. But of what use is their form of use?  Their use always turns out to a confused state of the tail hoarding the dog.  Buddy can you spare a paradigm?  We seem to all be in the way of the one we have.

However, there are other paradigms to select from. One is as follows.

"Venimus, Vidimus, Perfecimus Eventus Accommodatos" 

[We came, we saw, we made a more perfect union.]

What is wrong with an education system that can teach superficial aspects of accounting, relativity, organic chemistry, and nuclear engineering to vast numbers of people, yet can't or won't teach a topic as rudimentary and fundamental as the difference between static and dynamic value?

Without that distinction, supposed "capitalists" show only an abject failure to compound net human capital. Some capitalists! If you're gonna aspire to be one, it might help to define and rank the forms of capital, and what they mean to citizens of a nation, and members of a social species.  Is dynamic value EVER mentioned in accounting classes?

Paul Krugman — Sources of the Budget Deficit

The point is that more than 90 percent of the rise in the deficit relative to pre-crisis projections is related directly to the crisis — and probably that’s true of the other bit too, although it’s harder to show.

Read it at The New York Times | Conscience of a Liberal
Sources of the Budget Deficit (very short)
Paul Krugman

Older essays on the Nature of Coin, Credit and Circulation

Here are yet more forgotten links - this time by one Alfred Mitchell-Innes, and one Arthur Kitson.  They both make many shockingly modern points about monetary operations - shocking only because they were ignored and/or actively suppressed for so long. Some points they obviously miss, but what they caught 100 years ago are still unknown to most citizens today.

Still shocking to see how much of this was known that long ago, yet NOT widely disseminated - or at least not widely acknowledged or accepted.

The work from the same period of Fischer, Rutherford, Curie, Pavlov, Koch, Cajal, Ehrlich, Röntgen, Thomson, Michelson, van der Waals, Bragg, Kipling, Maeterlinck, Teddy Roosevelt, Poincaré, Planck, Kelvin, Boltzmann, Einstein, etc is taught in most highschools. Why aren't analyses of MONETARY OPERATIONS equally highlighted?

There's nothing more limiting to an economy, electorate and nation than to remain ignorant about the nature of "coin, credit and circulation."

Alfred Mitchell-Innes, 1864 - 1950

'What is Money' (1913)

'The Credit Theory of Money' (1914)

Arthur Kitson, 1860-1937

The Money Problem, 1903

Unemployment : the cause and a remedy / by Arthur Kitson. (London : C. Palmer, [1921])

Kitson economics articles in Popular Science, 1890-1892

Thomas Edison Questions Arthur Kitson

"The Bank of England inflicts more trade damage on British industry than all the trade tariffs of the world combined."
  (hat tip to "Paul", from comments to a recent post)

After reading these, an analogy comes to mind.

Monetary operations is to economics as engineering is to physics or chemistry?

If so, we need a separate academic field devoted to monetary operations. It's clearly lacking, and that ignorance is chronically debilitating our economy.  Not many physicists can build a bridge or power plant, no matter how much theoretical knowledge they have.  Yet they're all we talk to when setting fiscal policy.

If this were physiology, monetary ignorance would be considered as terrifying as drug-resistant tuberculosis, malaria or smallpox - regardless of how much we knew about genetics or cellular biology or biochemistry. In response, we'd be vaccinating students before age 10 and draining every swamp of ignorance in sight.  We'd also be quarantining virulent pathogens (e.g., ignoring the quacks, & prosecuting the frauds propagating criminogenic contexts).

Together, these provide very interesting commentary. Makes one wonder how to define an operational field dedicated to regulating Control Fraud. We're lacking that too.  In regards to incompetent or fraudulent monetary operations, there seems to be a pattern.

1903 - Trust Busting, onset of Dept Commerce, etc
.....(the Empire gradually strikes back, goes back to gold std) 

1933 - Leaving the Gold Standard (again)
....(the Empire gradually strikes back; reinstating a quasi gold std) 

1973 - Closing the last Inter-Gov Gold Window
.....(the Empire gradually strikes back, significantly de-regulating everything coordinated since 1903) 

20?? - Downsizing the Financial Sector to Automatic Stabilizer status ?
.....(we better hope so)

30?? - A fully OpenSource electorate finally realizes that everything invented harms as much as helps until it is regulated ASAP to Public Purpose and policy of competing nation states.

40??  Our born-Open-Source electorate further realizes that every fully-provisioned electorate generates far more innovations and options than it has means to quickly & wisely select from?    At that point, we'll pass an inflection point.  We'll go from simply generating innovations & hoping some fraction get noticed - to investing in catalysts specifically for improving the fraction of our innovations that actually get tested.  Even then, we only realize that our Output Gap is infinite, and practically defined only as what the majority can already see we could but aren't achieving.

While there are many details to sift through, there are a few, key concepts that can be described, visualized and taught through simplified models & neural-net visualizations.   The few things we need to do are not complex, only subtle.

Cease, Forever, the Practice of Calling Fiat Currency Creation a Deficit.

It's currency creation that denominates any economic growth.

In another investors interview, Warren Mosler once again explains monetary operations beautifully. Pity his audience remains so small.

Early in the interview, Warren makes an overlooked point very succinctly.

Altering his phrase slightly, I'll put it this way:

It's "deficit" spending that supports any economic growth.

Please, let's all commit to saying that in a different format. See below.

Why is it that such a simple point is not universally recognized? We can put a man on the moon, but we can't understand something as simple as a fiat currency system?

Whatever new activities we the people are capable of creating, we're free to do. Then, we're free to record and adjust to our created growth by creating fiat bookkeeping.

What is fiat bookkeeping? Fiat currency.

No population can generate more people + more activity without creating more currency to denominate the newly created & highly organized transaction chains. That couldn't be more simple, or more clear.

JIT supply chains, logistics & economies are not possible without JIT creation of bookkeeping currency. We can't run out of RFID chips unless we choose to, nor can we run out of fiat currency ... unless we choose to limit our own capabilities.

So, we're back to semantics. Why is currency creation called "deficit" or "debt," when that use conflicts profoundly with other applications of those words?  Do we get fiat from somewhere else?  Can we run out of fiat?  Do we owe fiat to someone?  No, no & no.

It's the semantics that are our stumbling point, not static vs dynamic operations.

Cease, forever, the practice of calling fiat currency creation a deficit, or a debt.
We can't ease the cognitive tensions over this as long as we keep calling currency creation a deficit.

It's fiat currency creation that allows more transaction-chains to be denominated upon demand, thereby unleashing exploration of any & all options we can imagine.

If an aggregate can do something, and benefit from it, what on earth is the problem with recording the transactions involved, so everyone can adjust accordingly?

As individuals from John Law to Warren Mosler keep hinting, fiat currency supply is just another automatic stabilizer for an organized aggregate.

Please, let's all just say so, more bluntly, more often.

It's currency creation that denominates any economic growth.

Common Sense is now "Bold New Thinking!"

Why Building Community Wealth is a Key Challenge to Corporate Power

something new has exploded in America’s communities; “community wealth building”

So far so good.  Hope we can get over the surprise at such "boldness," and get back to viewing it as the obvious minimum?  The perennial springboard for exploring, not burying options?

Asking honeypots for grants of fiat currency?  Get real!  There's ALWAYS more where that came from.  Just grant some to ourselves.   Declare our own prizes.  Create our own jobs, and maybe even vote for our own representatives!!!  Why not just OpenSource everything, and re-distribute aggregate power?

In preparation, how about changing K-12 curricula, to incorporate 3 springboard themes?

1) Aggregate success tracks the quality and pace of distributed decision-making?

2) Aggregates generate pace simply by the act of distributing decision-making.

3) Highest aggregate return is always the return-on-coordination?

I mean, with those foundations in place, everything else - certainly macroeconomics & fiscal policy - are just incidental details.  In fact, politics itself would be just another Automatic Stabilizer, only reduced to a mobile app.

With that kind of effort in place, maybe we wouldn't churn out so many economists & bankers more interested in self & math than in welfare of the people and national capabilities.

ps:  Despite trying to sound politically correct, "exploding" might give DHS the idea that community wealth is dangerous, and even associated with terrorism.   Listen for the faint sounds of drones hovering.