So much for the legacy of corporate America:
CEOs Call for Deficit Action
By David Wessel
October 25 (WSJ) — Chief executives of more than 80 big-name U.S. corporations, from AetnaInc. to Weyerhaeuser Co., are banding together to pressure Congress to reduce the federal deficit with tax-revenue increases as well as spending cuts.
The CEOs, in a statement to be released on Thursday, say any fiscal plan “that can succeed both financially and politically” has to limit the growth of health-care spending, make Social Security solvent and “include comprehensive and pro-growth tax reform, which broadens the base, lowers rates, raises revenues and reduces the deficit.”
Very appropriate word:
legacy
What are the potential pitfalls of increasing deficits and loose monetary policies – in other words, for those people who find MMT wrong: “…MMT is, in fact, nothing more than the belief in Unicorns that crap out pretty colored candies, when the truth is that Unicorns are mythical creatures and what’s being emitted from the back end of the horse you are calling a “Unicorn” are not candy…” (Denninger) How do you counter their arguments without saying how ignorant they are? sometimes MMT does appear to exist in its own reality, laughing at everyone who “doesn’t get it.” I feel as though I have a firm grasp of the MMT model, but I ALSO see deficit-spending in its current form as only benefitting a very small circle of people. Please Help ME understand how operational realities can exist and also how the public good can be served (viz inflation, Ponzi finance, fraud, etc.)
Reframing my question: As you all know, people see the current manifestation of our fiat currency system (and the FED) as utterly corrupt. And frankly, there is much truth to this. As such, people associate all iterations of FIAT as corrupt and fraudulent. So, when Warren et al snicker at “our” ignorance, “we” become more intractable. “We” see the only solution as taking all power of money creation away, because such power can never be truly and honestly regulated. “We” look at MMT (I am saying we, though I am in the middle) and see all of the corruption that landed us in the morass. How do you effectively change that perception?
@Dan W,
these people who see the current manifestation of our fiat currency system (and the FED) as utterly corrupt might be right. But their proposal that is sound money, all the goldbug stuff etc would lead to even more corrupt system (called feudalism) and is unworkable.
Let’s look at this from evolutionary perspective. Fiat money was actually introduced to finance military expenditure. These states which are unable to finance military expenditure when it is needed would either be bullied or lose a war outright. Using a fiat monetary system gives a certain competitive advantage. Just imagine financing the American Civil War or WW2 within a commodity money system.
All of this doesn’t fit into praxeology which is based on a priori reasoning, on derivation of judgements from “first principles” such as an axiom of human action etc. I would say that these people who succumb to this way of thinking are plainly ignorant because they ignore the reality which doesn’t fit into their models. It is very difficult to change any perception of anything among ignorants or religious fanatics – they have to be left alone.
@Adam (ak),
“Fiat money was actually introduced to finance military expenditure.”
Source(s)???
Art,
Please read this book:
http://www.amazon.com/Debt-The-First-000-Years/dp/1933633867
It is a bit long and one may not agree with the ideological associations of the author but the book puts the origin and evolution of money in the proper historic context.
@Adam (ak),
““Fiat money was actually introduced to finance military expenditure.”
Ill go along with that. Its worded a little differently but this jives with Warrens famous statement (contested by some for some odd reason) that “the purpose of a modern monetary system is to move resources form the private sector to the public sector”
Now, I sort of get the aversion to the statement worded this way. It makes it sound like the monetary system is ONLY for the govts benefit, when clearly many private sector actors benefit as well and we all know we want dollars not just so we can send our services to the #$%@!*&^ GOVT!!! But if we step back a little its easy to see the obvious truth of Warrens statement. Any money that gets created by anyone anywhere is created for the sole purpose of moving some good or service TO the money issuer. Its never for any other purpose. You dont need money for the counter purpose of moving a good or service of yours TO someone else, all you need to do is give them the good OR exchange it for something you want. When the other person offers you money for your good or service instead of a real thing (a barter transaction) he wants your thing for his money and you decide if his money is “good” or not.
So how is money made “good”? We either all simply stand on our own reputations or we have a system like the US today where a third party standardizes it for us. This third party is not free though, it comes with at minimum a tax.
@ Adam. I would assert that these are the very people whose rear-brain thinking and erroneous perceptions MUST be challenged, not left alone. Because……what if these people are the president and vice president of the nation????
Dan W,
I know that there’s no good choice…
However:
A guy who publicly declares his belief in the story about golden plates and who changes his attitude towards gravely serious moral issues as often as required – can be 100% trusted as a seasoned pragmatist (yes I know there are words to describe his attitude). He doesn’t give a … about a fiscal deficit. Haven’t you seen the neocons in his shadow gearing up to liberate oil in a few more countries? This is what the game is about. Unfortunately in the current circumstances this is the best we, the Western people, can afford to have. The neocons-lite are still better than Mr Zbigniew Brzezinski with his nursing home ideology of controlled surrender.
The vice who is a Catholic (in my opinion still full of vice) might pose a slightly more serious problem. A properly trained team of chaplains may need to assist him whenever he commits a grave sin of deficit spending. So what?
Unfortunately the current Students Organiser in Chief appears to believe in all the stuff he learned when he attended his lectures. He is a typical product of the American educational system. People who question whether he was born American are insane as he exemplifies what is the worst in the American intellectual life – thinking in Power Point.
I don’t know what to think about Mr Biden. His name means a poor man in poor Polish (bidny)…
@Adam (ak), this may contradict the assertion that fiat “money” was created to finance military expenditures per se:
“When the inhabitants of one country became more dependent on those of another, and they imported what they needed, and exported what they had too much of, money necessarily came into use…… Of this the value was at first measured simply by size and weight, but in process of time they put a stamp upon it, to save the trouble of weighing and to mark the value.” Aristotle (c. 350 BC)
Perhaps just “efficiency” according to Aristotle here … of course not unreasonable to think it could lead to warfare if one nation that used fiat was put up against another that used scarce metals and the fiat nation was led to believe they had the military advantage…. rsp,
@Dan W,
BTW Orthodox Marxims is a conjoined twin of the Austrian school. It is also based on idiotic assumptions and philosophical speculations about the value added by labour:
http://en.wikipedia.org/wiki/Socially_necessary_labour_time
They thought that removing capitalists would liberate the workers streamline the economic growth. They ended up with labour camps and / or economy falling apart.
when did i snicker?
what specific corruption are you talking about?
and what is your new institutional structure?
Dammit Warren, How I m supposed to answer all of those questions? 🙂 I use the word “snicker” because, in my opinion, one of the pitfalls viz MMT is the perception that MMTers seem to think they have a monopoly on some hidden truth. MMTers are often amazed at how obtuse the worlds is with regard to understanding modern money – and that perception hinders the ability of MMT to spread the good word.
As for corruption, again this is a confluence of perception and truth – but a growing super-wealthy class, made rich in part by their insider status and through lac of government-financial oversight, all in combination with a middle class under increasing pressure…precipitates perceived corruption. I am willing to stipulate that much of this structure is legal…even moral! But MMT doesn’t do a great job of inculcating in the middle class a sense that their ideas are productive of some manner of social-fiscal justice.
As for my new institutional structure…..no idea. I can only tell you what I know. I know that there is a lot of anger out there; I know that people in the middle class are convinced that consumption (as a way to grow the economy) is not the way to go; I know that ideas such as $8/hour government-sponsored jobs programs are met with a lot of frustration at the seeming inequity and disparity in society; I know that the TONE of the debate does not favor MMT, because MMT does not do a good job of demonstrating its efficacy for the full spectrum of citizens. I suspect that decentralization will gain momentum over the next several decades, as people come to see that relying upon the government, or upon the largesse of the wealthy, is a dubious proposition.
I happen to think that MMT makes a great deal of sense. But there is an enormous political component to this process…and while MMT makes inroads, a fairly cynical plutocracy continues to gain strength….and they will not relinquish their position of advantage willingly.
agreed and thanks!
and many of my proposal are serious ‘anti corruption’ measures including narrowing banking, eliminating govt secs, etc.
@WARREN MOSLER,
Snicker…….135:20
just watched it. don’t see the problem? the japan anecdote? just hyperbole to make the point?
I second the question (without claiming firm grasp of anything). I suspect that there could be such a thing as ineffective deficit spending (or taxation for that matter), and that is not necessarily MMT’s shortcoming. It’s the politics, probably.
if tax cuts don’t increase demand it means the tax wasn’t needed in the first place, and further adjustment is in order.
same with spending. if it doesn’t do anything, that means an even larger fiscal adjustment can be made
Thanks. It is useful to see how you put it in macro terms. I still can’t get passed the question of who gets taxed or spent on/through. Afaics, for taxes/spending to be effective in controlling demand, they should affect (be directed to?) hot/cold sectors of the economy, rather than the saving sectors. Is it that MMT as an apolitical theory remains moot about such questions, observing that control can in any event be affected in the aggregate if somewhat inefficiently?
right, there are numerous political options.
i happen to like keeping everyone full employed, ‘whatever it takes’ ‘financially’
“Afaics, for taxes/spending to be effective in controlling demand, they should affect (be directed to?) hot/cold sectors of the economy,”
They have to net out amongst themselves. You can’t micro-manage the system with macro functions. MMT is really about maintaining the maximum sustainable flow of money around the system at all times.
The Job Guarantee provides the anchor which depletes spending as things get warm. That is the dynamic counter-cyclical facility. Main tax and spend policies have to sit behind that because the nature of them makes them less dynamic.
Let’s get to that point before we worry about the nooks and crannies.
@WARREN MOSLER,
@Nihat:
“I still can’t get passed the question of who gets taxed or spent on/through.”
MMT leaves that as a political question to be answered by voters and politicians. However, it make sense to me at least to tax consumption via a sales tax or a VAT rather than to tax income. If the goal is to curb inflation why would you tax the production of goods and services rather than their consumption?
As to government spending, I don’t think the government should spend to stimulate the economy. It should spend to provide those goods and services (mainly infrastructure, law enforcement, defense, and social safety net, the amount of which is also a political question) that the private sector cannot provide on its own for various reasons. Then taxes should be adjusted to keep the unemployment rate and inflation at reasonable levels.
yes, many of these options have been discussed beginning with soft currency economics
Neil & ESM, okay, no micro management in the MMT paradigm. Any micro question belongs in the political paradigm, like ESM suggests.
@WARREN MOSLER,
ESM: “If the goal is to curb inflation why would you tax the production of goods and services rather than their consumption”
ESM, this is super strange. If the goal is to increase production (atm it IS whether we agree or disagree), you need to increase consumption. Why do you tax consumption? Esp. in developed economies which spend zillions of resources on advertising. Tax the stuff which does NOT lead to increased production or consumption! Which is … existing assets!
full employment tends to support real output at higher levels than otherwise, making the pie larger
but yes, there can be distributional issues, etc.
It is all down to trusting politicians and we don’t …not MMT’s fault …given that we don’t trust them asking them to run the purse when it is limitless is not something to relish …I have heard MMT blame corruption for failures but corruption is part and parcel of any human ecosystem and cannot be overlooked ..MMT may be new but politicians or interest groups corrupting the fiat system because it is fiat is not new in my view .
@Walid M, all the self imposed constraints are there for a good reason as an insurance, which is suboptimal only if you are not going to need it.
@Walid M,
“It is all down to trusting politicians and we don’t”
Assume ‘we’ is ‘the people’ then why did ‘we’ elect them if ‘we’ don’t trust them?
And if the answer is because ‘we’ were hoodwinked, or manipulated, got the wrong answer or whatever then ultimately what you are proposing is a state that is no longer a Representative Democracy based on rule by the majority.
And that is a Constitutional change.
@Neil Wilson, because we need to elect someone between people we don’t trust?
@Neil Wilson,
Since when is it a requirement to trust those you chose to vote for in a democracy ?
In a country of 250 million voting for a few hundred politician do you really believe the voters can make a sound character judgement on a person they barely know and have never met based on tv appearances ?
you could most probably get a politician to agree with you in that he should be trusted ..after all they do keep telling us how much they trust us .( around election time to vote for them that is )
@ Walid. It IS partially MMT’s “fault.” There is no divorcing the economic and fiscal from the political. The two are conjoined, and MMT should, IMO, make a concerted effort to engage in the debate rather than remain aloof.
Well said. Rubber must meet the road.
There was an appropriate word describing Obsessive Deficit Reductionists used by the Supreme-Student-Organiser-in-Chief:
http://www.news.com.au/breaking-news/world/obama-team-plays-down-profane-jibe-about-romney/story-e6frfkui-1226503547471
Oh I forgot he also wants to reduce…
It was a double whammy: http://www.fixthedebt.org/blog/today-we-rang-the-bell-for-washington_2. Someone in their organization knows how to play the PR game, big time.
Today We Rang the Bell for Washington
25 October 2012 – In only a matter of weeks, the bipartisan Citizen’s Petition to Fix the Debt has grown to nearly 300,000 people and the world has taken notice: this morning I was privileged to stand with business leaders and Fix the Debt’s Maya MacGuineas in New York to ring the opening bell at the New York Stock Exchange on behalf of the campaign! The bell didn’t simply mark the start of the trading day; it represented a wakeup call for Washington. How we answer that bell will have a dramatic impact on our economy, our global leadership position and the quality of life we leave to our children and our grandchildren.
We have to understand that the usual competitor/enemy of America that is Russia is actively spreading subversive propaganda. Nothing has changed I’m afraid…
“According to the results of a Fox News poll released last week (a random telephone sample of more than 1,200 registered voters), 41% identified “inflation” as “the biggest economic problem they faced.” This is nearly double the 24% that named “unemployment” as their chief concern. For further comparison, 19% identified “taxes” and 7% “the housing market” as their primary concern. A full 44% of women, who often do more of the household shopping and would therefore be more sensitive to prices changes, identified rising prices as their primary concern.”
http://rt.com/usa/columns/peter-schiff-economics-crisis/inflation-government-annual-rate/
These people who spread the Austrian School of Economics propaganda may be “useful idiots” for the Russians, they may not know whose interests they serve. They think about spreading “liberty” in the US but before they accept any money from the Vladimir’s boys they should look a bit closer whom they serve:
http://www.guardian.co.uk/world/2012/oct/25/putin-pussy-riot-western-hypocrisy