Stand On One Foot

Government and Money - (1998)

Economic thinking is still mired in gold standard principles. The money with which government buys things is thought worthless because government buys worthless goods. The historic solution was to require that government tie the money in circulation to the amount of gold or silver (any commodity would do) on hand. Taking on unsecured debt would simply flood the country with still more worthless money, "monetizing the debt" and causing inflation. Thankfully, we now live in a world of fiat money, an ugly label for a wonderful system still hampered by gold standard thinking.

Government now creates money and puts it into the global economy by spending it. Government must spend at least as much as it takes in if those who pay taxes will be able to pay them. Basically, monetary policy should be understood as logically driven by the need to pay taxes. If government spends less than it takes in, those who owe taxes will have to liquidate holdings and take losses in order to pay, a depression-type activity. The same problem exists for those across the world who must repay any of their debts in dollars. The ability to pay taxes rests upon deficit spending. Along with many others, Greenspan often claims that government deficits push up interest rates, another leftover from gold standard days. In so arguing, he chooses to forget that he constantly raises and lowers interest rates according to his interpretation of what is needed. If he raises rates as deficits increase, and if the deficits are the actual cause of inflation, why does he raise the rates if it is a useless action? These are important questions because higher interest rates cause inflation by increasing the cost of doing business.

Government spending cannot damage the economy by "crowding out" (factories) by putting money into "worthless" government functions, sometimes labeled "necessary but wasteful," as in the case of the military. With fiat money, there cannot be a shortage of savings available for new investment. The capital is created when it is needed because savings are the accounting record of investment. Economists, including Keynes, have erroneously denied the possibility of "over investment" along with overproduction, but they are twins. A "low savings rate" indicates that deposits have been moved from banks into the stock market to take advantage of inflated share prices. A "low savings rate" may also indicate that in a world of glut, there is little need for immediate new investment in factories and equipment.

Only government spending can safely solve the problems of recessions and depressions. Because all government spending is, by definition, meeting some of the needs of society as a whole, \all government spending should be officially considered an investment in the nation’s future. Those who would list only spending on capital goods as investment fall short in their analysis. The health of citizens, for example, is as important as bridges.

When government is customer, it promises to buy what it orders people to produce, a stabilizing factor that cannot exist in a free market. While the IMF and others still do not accept the notion that government deficit spending can halt economic downturns, there is less hesitation than there used to be. The problem is that there used to be. The problem is that recessions cannot be clearly seen until a year or more after they begin. And, if deficits can end depressions and recessions, they can prevent them as well. The evidence of history shows that when deficits end recessions, but are then cut back during a recovery, the stage is set for the next downturn. Deficits should not be used only as overdue "jump starting," but are constantly needed as stabilizers. The "business cycle" is not an Act of God beyond human control, but only another by-product of theoretical economic nonsense.

Every part of the public economy, with perhaps the partial exception of the military, has been starved for years. Roads, bridges, and schools are national disgraces, and the complete list is far too long to include here. Taking money out of the military and putting it into other programs helps not at all with respect to the list of deficiencies, especially when there is no economic reason whatsoever for refusing to meet such needs. The old, the disable, the poor, the mentally ill, and even the young are targets of economic concepts that push leaders into condemning single parents for taking care of children instead of walking factory-to-factory looking for jobs. If "welfare reform" is a comic opera, our dominant economic concepts are a long-running theater of the absurd. Ignoring the cause of 50 years without a depression, we now resolutely move once again to create another great collapse.

Excerpted from A Theater of the Absurd Creates Global Collapse

by Frederick C. Thayer  

You Got to Know What Money is For

There is nothing new in creating "money to distribute wealth. It's a story that is 3,000 years old story, but it helps one to understand what money is and what it can do.

In B.C. 1766, the Emperor, Tching Tang, opened a copper mine and issued round coins with square holes and gave them to the poor, and this money enabled them to buy grain from the rich.

Most men have been so intent on the single "piece of money", as a measure, that they have forgotten its purpose...

Money, that is to attain abundance, it's NOT in itself abundance, but may well be an incentive to grow, or fabricate more grain, goods and even services.  

A nation that cannot obtain enough food for its people, that nation is poor...

But when enough food exists and people cannot get it by honest labor, that nation is rotten.

The aim of a sane and decent economic system is to fix things;

There're people who want to work, there're things that need to be done!

--  Gold?
---  A single commodity base for money is not satisfactory.

A few eggs are worth a great deal to a hungry man on a raft...

Big Private interests HIDE the most vital task of your constituency:  
--- a sovereign, legitimate government (by definition!) defines the value of its money.

Having determined the size of your "dollar", your government's next job is to see that "MONEY" is properly printed and that it gets to the people.  

Money is a broad sort of "ticket" -- which is its only difference from a theater ticket.  

When your government tells you that the country cannot do this, that or the other because it lacks "money", that's a lie.  

It (the government) disguises, dodges the problem of having enough "tickets" to serve the people, and of keeping those "tickets" moving.

It's like saying we cannot build roads because we have no miles.  

Would you call it inflation if the theater prints a ticket for every single seat in the house?

Content of this post assembled by a brilliant guy named Alberto Veronese.  Follow him on youtube at fistfullproduction 

Sequestration is Stupid & Wrong!

Modern Money and Public Purpose Launches Today!

ATTENDANCE

All seminars are open to the public and will be accessible to individuals without an extensive background in law or political economics, although a basic conceptual familiarity is recommended. 

Seminar 1:
Date: Tuesday, September 11, 2012, 7.00pm
Location: Room 104, Jerome Greene Hall

COLUMBIA LAW SCHOOL, 435 WEST 116TH STREET, NEW YORK

http://www.modernmoneyandpublicpurpose.com/about.html

Moderator: William V. Harris, William R. Shepherd Professor of History and Director, Center for the Ancient Mediterranean, Columbia University
Speaker 1: Michael Hudson, President, Institute for the Study of Long-Term Economic Trends and Distinguished Research Professor, University of Missouri-Kansas City
Speaker 2: L. Randall Wray, Research Director of the Center for Full Employment and Price Stability and Professor of Economics, University of Missouri-Kansas City

#MMPP Intro (youtube)

A Meeting With Al Gore

Exerpted from The 7 Deadly Innocent Frauds of Economic Policy
by Warren Mosler

Early in 2000, in a private home in Boca Raton Florida, I was seated next to then Presidential Candidate Al Gore at a fundraiser/dinner to discuss the economy. 

The first thing he asked was how I thought the next president should spend the coming $5.6 trillion surplus forecast for the next 10 years.  I explained that there wasn’t going to be a $5.6 trillion surplus, because that would mean a $5.6 trillion drop in non government savings of financial assets, which was a ridiculous proposition.  At that time the private sector didn’t even have that much in savings to be taxed away by the government, and the latest surpluses of  several hundred billion dollars had already removed more than enough private savings to turn the Clinton boom to the soon to come bust. 

I pointed out to Candidate Gore how the last 6 periods of surplus in our 200+ year history had been followed by the only 6 depressions in our history, and how the coming bust due to allowing the budget to go into surplus and drain our savings would result in a recession that would not end until the deficit got high enough to add back our lost income and savings, and deliver the aggregate demand needed to restore output and employment.  I suggested the $5.6 trillion surplus forecast for the next decade would more likely be a $5.6 trillion deficit, as normal savings desires are likely to average 5% of GDP over that period of time.

And that’s pretty much what happened.  The economy fell apart, and President Bush temporarily reversed it with his then massive deficit spending of 2003, but after that, and before we had enough deficit spending to replace the financial assets lost to the Clinton surplus years (a budget surplus takes away exactly that much savings from the rest of us), we let the deficit get too small again, and after the sub-prime debt driven bubble burst we again fell apart due to a deficit that was and remains far too small for the circumstances. 

For the current level of government spending, govt is over taxing us and we don’t have enough after tax income to buy what’s for sale in that big department store called the economy.

Anyway, Al was a good student, and went over all the details, and agreed it made sense and was indeed what might happen, but said he couldn’t ‘go there.’  And I said I understood the political realities, as he got up and gave his talk about how he was going to spend the coming surpluses. 

Subway Tokens and Social Security

A tale of two trusts

Austerity kills. This image was taken of a tree near the place where 77 year old retired pharmacist publicly killed himself. His final words are reported to be "So I won't leave debt for my children." Here is the best analogy as to why social security is not/can not be bankrupt, yet there are those who would like us to believe it is.

Subway Tokens and Social Security
Policy Note No. 99/02
L. Randall Wray

There is a wide-spread belief that Social Security surpluses must be "saved" for future retirees. Most believe that this can be done by accumulating a Trust Fund and ensuring that the Treasury does not "spend" the surplus. The "saviors" of Social Security thus insist that the rest of the government’s budget must remain balanced, for otherwise the Treasury would be forced to "dip into" Social Security reserves.

Can a Trust Fund help to provide for future retirees? Suppose the New York Transit Authority (NYTA) decided to offer subway tokens as part of the retirement package provided to employees—say, 50 free tokens a month after retirement. Should the city therefore attempt to run an annual "surplus" of tokens (collecting more tokens per month than it pays out) today in order to accumulate a trust fund of tokens to be provided to tomorrow’s NYTA retirees? Of course not. When tokens are needed to pay future retirees, the City will simply issue more tokens at that time. Not only is accumulation of a hoard of tokens by the City unnecessary, it will not in any way ease the burden of providing subway rides for future retirees. Whether or not the City can meet its obligation to future retirees will depend on the ability of the transit system to carry the paying customers plus NYTA retirees.

Note, also, that the NYTA does not currently attempt to run a "balanced budget", and, indeed, consistently runs a subway token deficit. That is, it consistently pays-out more tokens than it receives, as riders hoard tokens or lose them. Attempting to run a surplus of subway tokens would eventually result in a shortage of tokens, with customers unable to obtain them. A properly-run transit system would always run a deficit—issuing more tokens than it receives.

Accumulation of a Social Security Trust Fund is neither necessary nor useful. Just as a subway token surplus cannot help to provide subway rides for future retirees, neither can the Social Security Trust Fund help provide for babyboomer retirees. Whether the future burden of retirees will be excessive or not will depend on our society’s ability to produce real goods and services (including subway rides) at the time that they will be needed. Nor does it make any sense for our government to run a budget surplus—which simply reduces disposable income of the private sector. Just as a NYTA token surplus would generate lines of token-less people wanting rides, a federal budget surplus will generate jobless people desiring the necessities of life (including subway rides).

Thanks to my MMT pal, 

Tschäff Reisberg, for providing the content of this post.