Dean Baker confuses a subsidy with a cost to taxpayers

Dean Baker is still presuming that taxes fund the federal government, or at least using it club the opposition. He gets it right in the post, calling it a subsidy and one much larger than most needy people will be getting through the ACA. The Cruzes are needy? Really?


Beat the press
Senator Cruz's Health Care Plan Costs Taxpayers $8,000 a Year
Dean Baker | CEPR

Simon Johnson — Big Banks’ Tall Tales

As Bill Dudley, the president of the New York Federal Reserve Bank, put it recently, using the delicate language of central bankers, “The impediments to an orderly cross-border resolution still need to be fully identified and dismantled. This is necessary to eliminate the so-called ‘too big to fail’ problem.”

Translation: Orderly resolution of global megabanks is an illusion. As long as we allow cross-border banks at or close to their current scale, our political leaders will be unable to tolerate their failure. And, because these large financial institutions are by any meaningful definition “too big to fail,” they can borrow more cheaply than would otherwise be the case. Worse, they have both motive and opportunity to grow even larger.

This form of government support amounts to a large implicit subsidy for big banks. It is a bizarre form of subsidy, to be sure, but that does not make it any less damaging to the public interest. On the contrary, because implicit government support for “too big to fail” banks rises with the amount of risk that they assume, this support may be among the most dangerous subsidies that the world has ever seen. After all, more debt (relative to equity) means a higher payoff when things go well. And, when things go badly, it becomes the taxpayers’ problem (or the problem of some foreign government and their taxpayers).

Project Syndicate

Big Banks’ Tall Tales

Simon Johnson, a former chief economist of the IMF, is a professor at MIT Sloan, a senior fellow at the Peterson Institute for International Economics

Out of paradigm about "taxpayers," but it shows that cross-border resolution is an issue with transnationals.

Timothy Taylor — Is "Intellectual Property" a Misnomer?

If "intellectual property" is not a misnomer, then it needs to be explained on what basis a property right is time-delimited, as are copyrights and patents but not other forms of property. Is this a property right or a subsidy granted by law, e.g., to foster innovation and creativity?

Conservable Economist
Is "Intellectual Property" a Misnomer?
Timothy Taylor

Jeff Spross — Bombshell IMF Study: United States Is World’s Number One Fossil Fuel Subsidizer

Between directly lowered prices, tax breaks, and the failure to properly price carbon, the world subsidized fossil fuel use by over $1.9 trillion in 2011 — or eight percent of global government revenues — according to a study released this week by the International Monetary Fund.

The biggest offender was by far the United States, clocking in at $502 billion. China came in second at $279 billion, and Russia was third at $116 billion. In fact, the problem is so significant in the U.S. that the IMF figures correcting it will require new fees, levies, or taxes totaling over $500 billion a year, or more than 3 percent of the economy.

Climate Progress
Bombshell IMF Study: United States Is World’s Number One Fossil Fuel Subsidizer
Jeff Spross

As Warren Mosler says, a subsidy is a negative tax. Now we learn that it is necessary not only to eliminate the subsidies but to increase taxes and regulation (which increases costs) in order to save the home planet.

But developing an inexpensive, renewable, clean source of transportable energy is of the highest priority to avoid severe culling of the species.

Laurence Kotlikoff — The Treasury Has Already Minted Two Trillion Dollar Coins

...substitute a $2 trillion piece of paper called a Treasury bond for the platinum coin. Suppose the Treasury prints up such a piece of paper and hands it to the Fed and the Fed puts $2 trillion into its account. No difference right, except for the lack of platinum.

Next suppose the Treasury doesn’t hand the $2 trillion bond to the Fed directly, but hands it to John Q. Public who gives the Treasury $2 trillion and then hands the bond to the Fed in exchange for $2 trillion. What’s the result? It’s the same. The Treasury has $2 trillion to spend. John Q. Public has his original $2 trillion. And the Fed is holding the piece of paper labeled U.S. Treasury bond.

Finally, suppose the Treasury does this operation in smaller steps and over five years, specifically between 2007 and today. It sells, i.e., hands to John Q. in exchange for money, smaller denomination bonds, which Johns Q. sells to the Fed, i.e., hands to the Fed in exchange for money. Further, suppose the sum total of all these bond sales to the public and Fed purchases of the bonds from the public equals $2 trillion. Voila, you’ve got U.S. monetary policy since 2007.

In 2007, the monetary base – the amount of money our government printed in its 231 years of existence totaled $800 billion. Today it totals $2.8 trillion. And it increased by this amount via the process just described – the Treasury’s effective minting out of thin air two $1 trillion platinum coins.

Yahoo! Finance | The Exchange
The Treasury Has Already Minted Two Trillion Dollar Coins
Laurence Kotlikoff | economist at Boston University, co-author of The Clash of Generations, and President of Economic Security Planning, Inc.
(h/t Clonal Antibody in the comments at Monetary Realism)

Props to Laurence Kotlikoff for pointing out that coin issuance and bond issuance are essentially the same in outcome operationally, that is, they provide the Treasury with reserves to settle deposits it creates in non-government accounts through expenditures and transfers. Note that Treasury only "spends" what has already been approved through the appropriations process and commitments made through the various agencies. The Treasury is not authorized to add to spending itself.

Except that in issuing interest-bearing securities the Treasury is providing safe assets to the private sector, which it pays the private sector a premium to hold. Since this premium is not required operationally, it constitutes a special interest subsidy that is unnecessary. Enquiring minds wonder why it exists at all, since the high liquidity of Treasury securities does not reduce the propensity to spend, i.e., "sterlize" the bank reserves created by Treasury expenditure.

Issuing Treasury securities made sense under a convertible fixed rate monetary system such as the gold standard, but it is no longer needed under modern monetary system that uses non-convertible flexible rate sovereign currencies. It is now an obstacle that limits policy space and a subsidy with dubious justification wrt to public purpose. It should be excised with Ockham's razor and replace with direct issuance of Treasury notes in sufficient amount to offset changing saving desire of consolidated non-government in aggregate but no greater at full employment, in order to harmonize growth, employment and price stability.

Considering the growing size of the interest payments to the rest of the budget, the question arises, Is this politically mandated subsidy serving public purpose, or is it catering to interest groups that profit from it inordinately due to their privileged position in society — as landowners, generally the monarchy and aristocracy, did from land rent in the agricultural era under feudalism?

Note: After showing how the coin and bond issuance accomplish the same goal in the government's self-funding, Kotlikoff goes off the rails in claiming that this is "inflationary,"

Now what happens when the Treasury spends its freebee money? It raises prices of the goods and services we buy or keeps them from falling as much as would otherwise be the case. Either way, the money we have in our pockets or in the bank or coming to us over time as, for example, interest plus principal on bonds we’ve bought in the past – all this money loses purchasing power. So we are effectively taxed $2 trillion.

Someone needs to explain to him what inflation is defined as economically, namely, a continuous rise in the price level, and how it occurs, that is when effective demand increases faster than the economy can expand to meet it. One wonders whether a professional economist is unaware of this obvious fact, or he has a political agenda.

Reading the rests of the article, the conclusion seems to be that it is political in that it has no basis in fact, unless Kotlikoff just doesn't know what he is taking about. The proof. He even throws in Zimbabwe! ROFL. He thinks that seigniorage is a sin.

Steve Randy Waldman — There’s no such thing as base money anymore

I’ve no grand ideological point to make here. But I think a lot of debate and commentary on monetary issues hasn’t caught up with the fact that we have permanently entered a brave new world in which there is no opportunity cost to holding money rather than safe short-term debt, whether we are at the zero bound or not.

Interfluidity
There’s no such thing as base money anymore
Steve Randy Waldman

That is a grand ideological point, and the bankers don't want it drawn for fear it will undercut the rationale for the interest subsidy.

John Lounsbury — The Terrifying Danger of the Trillion Dollar Coin

Excellent post by John Lounsbury shows the real implication of TPC, the option of government self-financing and the consequent ending of the public subsidy to finance in the form of operationally unnecessary interest payments on consolidated non-government saving of net financial assets in aggregate and with it ending the so-called government intertemporal budget constraint.

Global Economic Intersection
The Terrifying Danger of the Trillion Dollar Coin: No One is Talking about the Bottom Line with the Platinum Coin
John Lounsbury | Managing Editor and Co-founder of Global Economic Intersection