69 Responses

  1. Those clowns don’t want to get it. A FICA tax holiday is not more spending. It is not spending at all. At worst even if you are wrong and taxes need to raised latter to make up the revenue, it is a very low interest loan to working people in bad times to be pay in good times.

    There is a big difference between Warren and Krugman.

    1. “taxes need to raised latter to make up the revenue”

      ? The US government is not revenue constrained.

  2. They just didn’t want to get it.

    I hope one of the producers of Charlie Rose notices you Mr Mosler – soundbite based TV like Fox doesn’t suit people with serious points to make.

  3. I just encountered your work in mid April, had a continuous slight headache for about a month as all the gold standard thinking unwound in my head and I understand some of the basics now.
    Thank you for all you do.
    The economy really is a Rashomon story. And this version you are presenting really would benefit so many people.
    It shocks me how many are still stuck in ‘gold standard’ world and lost in the fallacy of composition.
    I do wonder if an understanding of modern money is why Dick Cheney said ‘deficits don’t matter’. He was in the Nixon administration, after all. That adds a whole new level of perversity to economic history since 1971.
    In any event, best wishes and keep up the good work.
    Sincerely, John Massie

    1. John, ironically deficit hawk number 1, Pee Peterson, was a Nixon aide who was at the Camp David weekend retreat when Nixon decided to drop the gold standard.

      As for Cheney, no one is quite sure where Cheney stands on MMT. It is true that Art Laffer famously drew “the Laffer Curve” on a cocktail napkin for Cheney when he was Ford’s Chief of Staff. And Laffer and Warren have worked together in the past so its certainly possible that Cheney has read Warren’s work and is in paradigm. On the other hand, “the deficits don’t matter” line to Tsy Sec Paul O’Neill might have been about the political effect of deficits and not economics.

      Perhaps its wishful thinking but I’d like to think Cheney is onboard. He’s sharp as a whip (as you’d have be to become WH Chief of Staff by the age of 33) and certainly open to heterodoxic thinkers. He was a supporter of Col. John Boyd (the Abba Lerner of fighter pilots) and his theories at a time when that military genius was ignored by most of the defense community.

      Cheney was secretary of defense during the first Gulf war, and he has credited Boyd’s influence as a major reason he changed the battle plan for the liberation of Kuwait from a frontal assault, which could have led to many American casualties, to the “left hook” that proved so successful… Gen. Norman Schwarzkopf had presented Cheney with a plan for a head-on offensive. “Not only did Cheney reject it, he used Boyd’s colorful language to do so,” wrote Boyd’s biographer, Robert Coram.

      Incidentally. Coram’s biography is outstanding. A great read for anyone interested in military history.

      1. “He’s sharp as a whip (as you’d have be to become WH Chief of Staff by the age of 33)”

        Or that cronyism runs high in some circles?

        C’mon are we so desperate for publicity that we need to spin the speculation that such failed but visible public figures as Cheney are “onboard”?

      2. There are plenty of cushy jobs to stash political cronies– WH chief of staff is not one of them. If he fails the administration fails, so no president takes the appointment lightly.

        to clarify what I wrote above, I meant “onboard” as a synonym for “in paradigm”.

      3. One can go through political life, government appointment, CEO positions, as did Cheney, without knowing one bit more about monetary theory and in fact any technical field than the average Washington journalist, which is very little.

        The truth is only WM openly supports and probably knows of MMT in political life.

        It is absolutely futile to read into other people’s quotes, including Samuelson, to try to find some support for it, unless they write openly or engage in debate about it, in a capacity that is credible (academic, banker).

        Otherwise it contributes no evidence whatsoever and only makes the thing look like a little cult belief.

  4. Warren –

    Love to see you on these shows – especially your broad smile when you raised your hand to “take the oath”!

    Get on more: Bloomberg; MSNBC; Dylan Ratigan, etc

  5. the only reason to raise taxes is to reduce aggregate demand, presumably because the economy is ‘overheating’ however defined, and not to ‘get dollars’ to ‘pay for something.’

    and if a tax is cut and nothing different happens it only means the tax didn’t need to be there in the first place.

  6. You need to get on TV more and start spreading the truth more. It’s unbelievable that people don’t understand that the government “prints” the money and always has, deficits are meaningless if they raise aggregate demand and create jobs. The government is obligated to create capital in a way that benefits the citizens of the country, i.e. provide jobs when the private sector won’t.

    Next time when you’re on TV please ask the host the following simple questions: Where does money come from? Presumably they will say: “Trees”, which should provide a nice entry for explaining that the government prints our money and distributes it. It therefore is never in debt, as it can print money as it sees fit.

    The only issue is when the government prints money and uses it for silly purposes, like bailing out morons and crooks on Wall Street. That serves no purpose and doesn’t lead to an improved economy.

    1. Next time when you’re on TV please ask the host the following simple questions: Where does money come from?

      I’ve tried a similar tactic with my professors. It doesn’t work.

      I’ll ask: “Where do you get the money to pay your taxes?” and there respond ends up as a infinite regression. I’ll call them out on this or some sort of flow of income.

      if I’ve got the chance I’ll clarify my question by saying something like this: “if the government did not spend and if the central bank issued no reserves, how would you pay your taxes?” The best respond I’ve had is “I’ll obtain Chinese currency and then exchange it for my country’s currency. Unfortunately that same person is the head of honours.

      1. You should have asked him with he thought the aggregate effect would be if everyone had to do that to pay their taxes. 🙂

      2. haha yeah. The problem is that I always seem to think of things to say in hindsight and a lot of the times a lot of my professors seem ready to brush me off then even consider anything I have to say as valid. That professor that I spoke of in my post above actually ended the conversation saying: “You’re only a first year student, these are complex issues that you shouldn’t concern yourself with. You’ll understand when you’re in third year”

        I remember muttering something back like “But these are not my opinions, I’m just presenting arguments made by an alternative school of thought which is critical of everything that I have been teaching, I want to know if they are right or if they are wrong”, to which he replied “just concern yourself with learning our program”.

  7. A “tag line” is needed for these 3-minute-max video opportunities. While “Taxes only function to remove aggregate demand” is academically sound and will engage thoughtful people with some economics training, it’s not what today’s media wants.

    Trying to get the concepts of soft currency economics across in 3 minutes is impossible.

    I’m thinking maybe things like:

    “Everybody knows we have a fiat currency but we’re acting like we’re still on the gold standard. The very reason we went to a fiat currency is to free us to do the things we need in times like these.”

    “A fiat currency means we don’t ever have to default on our our treasury bonds. The only issue is, what will those bonds be worth? Under which scenario will our bonds be worth more – A – we use the deficit to put everybody back to work, growing demand again, or B – we cut back and wait for New York investment bankers to take care of things?”

    “Reagan understood what was needed – a broad-based tax cut and running far larger deficits. That positioned us for a strong recovery, causing tax receipts to grow again. There was plenty of “deficit doom” cries of at the time, none of which came true.”

    “Reagan knew it was better to cut taxes for 100 million Americans so they could figure out what to do with the money that made the most sense, than to let a few Washington bureaucrats dream up big “stimulus” programs that might or might not do something useful”

    I’m not a media type so I’m sure much better tag lines can be developed. But it’s a “sound bite” era not a “white paper” era. And nothing will close of the tea party deficit doomsayers than invoking Ronald Reagan. Most people have no idea that Reagan ran deficits that would have made Carter wince.

    1. Paul, I like where your head’s at, and you’re right that a historical example should be cited. As for which example to use, well as Shakespeare said, ripeness is all. I’d imagine that Reagan is too soon and Lincoln is too long ago. The sweet spot for historical examples is and has been for decades, World War II, They just keep publishing new WWII history books, and every year they get more nostalgic and heroic, just this week (per Amazon), (a) “The Venus Fixers: The Remarkable Story of the Allied Soldiers Who Saved Italy’s Art During World War II” and (b) “A WASP Among Eagles: A Woman Military Test Pilot in World War II”.

      As I suggested on the “Fox News Business” thread, mention who Beardsley Ruml was (New York Fed Chairman during WWII), how the Fed operated during WWII and why it is President Roosevelt never said (like the current President has) “we are out of money now”, because the United States was under no risk at all of running out of money… even when we had 20 to 30% of GDP deficits year after year after year, the equivalent today of $3 to 5 trillion annual deficits.

      And then I’d hold up a copy of the speech where Ruml tells the American Bar Association what he and his Fed colleagues had learned during the war, that “Taxes to raise revenue are obsolete”. After quoting relevant lines (and giving the campaign website address for anyone who’d like to read Ruml’s speech themselves)— end with comparing, unfavorably of course, the shallow, weak politicians in Washington today to the great leaders we had during the War who, when they were not off saving Italy’s art and what not, were pursuing the very same economic policies that Warren promises to bring back to Washington and the US Senate.

      Or words to that effect. :o)

      1. Well, if you’re looking for a 10 second punch line, Ruml won’t do. He’s too obscure. How about Kennedy’s tax cuts?

      2. Good point. Ruml is a speech, not a tag line. And you’re right about President Kennedy. He made at least three speeches with Functional Finance themes, full of lines worth quoting.

        We need: (1) First, Presidential stand-by authority, subject to Congressional veto, to adjust personal income tax rates downward within a specified range and time, to slow down an economic decline before it has dragged us all down…

        The myth persists that Federal deficits create inflation and budget surpluses prevent it. Yet sizeable budget surpluses after the war did not prevent inflation, and persistent deficits for the last several years have not upset our basic price stability

        budget deficits are not caused by wild-eyed spenders but by slow economic growth and periodic recessions, and any new recession would break all deficit records.

  8. It’s a pity he only gave you a few minutes. You need to get on Charlie Rose or a similar program where you get much more time. I also think the terminology involved is a bit above the average viewer’s familiarity which is another reason you need more time so you can explain the terms used.

  9. Try BNN. Auerback’s had a positive experience there.

    They actually listen, and are not attention deficient.

    And they have a US audience.

  10. Warren,
    I think you are starting to get to these people. He seamed uneasy because I think part of him knows you are right and it throws everything he has been preaching for many years out the window. Swallowing their pride and admitting they are wrong is going to be difficult for these guys.
    Is the Senate race still on and is there anything I can do here in CT?

    1. To be honest I thought his reaction was more along the lines of: ‘this guy is nuts. This is complete bullshit’.

    2. I agree with Markg but I see Varney being uncomfortable not because he doesn’t quite get it but because he is an insidious character.

      Warren caught Varney completely off-guard – Like hosting a party and someone saying ‘By the way I met your housekeeper’

      Varney reacts with “Oh you googled me” ha – He wishes!
      Varney says “Oh, were you there?” i.e. ‘did the housekeeper tell you I hide dirty socks under my pillow?’

      Varney “You’ve TOTALLY lost us all now.”

      Warren “I didn’t lose YOU though!”

      Warren did great!

      1. Thanks, glad you noticed those details!

        When i said ‘i didn’t lose you though!’ he didn’t dare not agree as it would have meant he didn’t understand what i’d said which he knew wasn’t all that sophisticated. He did understand it and hopefully is still thinking about it.

  11. Warren,

    I think you should lead with “taxes are not necessary to raise revenue to fund government expenditures, i.e. social security, medicare, military operations” etc… give them a second or two for their heads to blast off into orbit because what you are saying is heresy. Then hit them with, “that is the typical reaction I get from someone who makes the common mistake of equating the federal fiscal operations to that of an entity in the private sector, i.e. a business or a household”

    At that point you can dive into the accounting realities that make to the two totally distinct. I imagine it will take you months of making these types of appearances in order to get those dinosaurs to see the light but if you can knock that leg that holds up their world view you will be on the verge of a paradigm shift.

    Good luck, we are all counting on you! 🙂

  12. Thanks, lots of good ideas!

    And yes, can use lots of help here in CT.

    Need people to organize groups for me to address and try to get motivated, for example.

    And working on more TV spots.

      1. I was on a month or so ago. They asked me my proposals, and i led with the payroll tax holiday, or something like that. then they asked about the revenues, how are you going to pay for it. then the satellite link went dead (I was in a Ct. studio) and I could only listen to them speculating about what I was going to say, which was a bunch of nonsense about printing money and the like. They called later to apologize about the communications failure. Made me feel a lot better…

      2. Sorry, just remembered. they first asked me about how to fix the euro, and i presented my plan re the ecb and distributions to the nat govs. then they asked me about where the funds were going to come from or something like that when the line went dead and they finished it for me with the usual nonsense.

      3. that’s unfortunate about the communications failure, which is like a conversational IED

        as i say, Marshall Auerback and Yves Smith have both had pretty good experience there in getting somebody to actually listen to a story to reasonable completion (10 minutes plus), without short circuiting early on to off topic distraction

      4. i.e. certainly better than CNBC or Fox

        Stuart Varney’s a bit outrageous on the economics attention span front – I hear the Stones may have an opening for a new guitarist

      5. Anon,

        What is Yves opinion on MMT? I’ve been living under a rock the last two months (due to exams etc), but last I remember, she had a few posts related to MMT and she also linked to a MMT authors, such as, Bill. Is she still sympathetic or is that all over now?

      6. She’s certainly opened up to it recently by cross posting and linking to MMT posts. And she defends the story in the sense that she attempts to correct any reader misinterpretation of it. Seems pretty fair to me. That’s without committing to it herself – although she shares with MMT a disdain for neoclassical economics. That’s the big theme of her book ECONNED.

      7. I’ll have to check out her book. I also have to check out that huge and long discussion here and at billyblog between you and others. No idea what that was about, never got a chance to read through it.

        BTW what has happened to JKH? I haven’t seen a comment from him in ages

  13. Here’s what the stimulus DID do:

    1. Increased household net worth by $6 trillion
    2. Raised the economy’s output by $500 billion
    3. Caused a 70% increase in the stock market
    4. Created 1.6m jobs (combined, household and establishment survey results)

    And all that was done with a meager, 5% of GDP package (really much less as most of it went to bailing out banks).

    So when Varney says, “The simulus didn’t work as advertised,” he’s right…IT WORKED MUCH BETTER!!!!!

    1. Oh good grief. The stimulus did squat. Any rebound we’ve seen so far is due to the automatic stabilizers kicking in. We’d be in pretty much the same place without the stimulus, except stimulus spending wouldn’t be discredited, and the highways around me wouldn’t be clogged with construction equipment and construction workers working so slowly you’d think they were sunbathing.

      1. Well, we are apparently going to see the result of no stimulus very soon, as the effect wears off and no more is forthcoming. I wonder what that is going to look like.

      2. deficit spending may remain high enough and may have already added enough income and net financial assets to allow us to continue to muddle through with modest gdp gains until private sector credit creation via housing and cares emerges to ramp things up to the next level.

        the ongoing deficit spending is adding maybe 6% to gdp, which is quite a bit

      3. Warren, that may be true, but all the talk now is of the necessity to tighten to prevent inflation (they are looking at the swollen monetary base) and to cut back on deficits and debt based on the notion that this is crowding out investment. If that policy is instituted — and the GOP successfully blocked extended unemployment benefits — then the economy could go into reverse. There’s a good chance that the Dems will lose the House in the fall with the economy still in the tank. That could really change things, too, since the budget would become even more a matter of contention and the impetus would be toward cutting.

        Moreover, I don’t see anything like the ramp in credit extension at the consumer level necessary to spark a new round of housing and automotive purchasing. The banks are still recapitalizing, and the way for them to do that is through prop trading and financial maneuvers other than lending, which remains risky at the consumer level due to the dismal employment situation and lack of job creation.

        The out is more war, hence more military spending, which is pretty easy to get approved during “war time.” That is an increasingly likely outcome.

      4. Yes, but we got a brand new Amtrak station here that Amtrak doesn’t stop at. And it only took ’em 9 mos!

        Stimulus spending on stuff that nobody wants or needs is a horrible waste. One of the appealing aspects of MMT is that it is based upon reason. Currency has value because it is necessary to pay taxes. Bonds are only necessary to create a non zero interest rate. The government is not revenue constrained.

        Well reason tells us that the broken window is just that. a broken window and a bad thing. Wasting money on projects no one is willing to pay for is wasting money.

        It may be better to waste money on stuff that no one wants, than to raise taxes and not spend, but that doesn’t mean wasting money on stuff no one wants is a good idea. And saying it’s a good idea hurts ones credibility.

        The stimulus is a giant waste of money. Compared to a sensible policy (cutting taxes), it’s a disaster.

      5. In principle, this may be true, but the fact is that to pass a tax cut, it has to be broad based, which means that the top of the town gets the bulk of it and most of that goes into financial speculation rather than increased consumer spending and investment as capital expenditure. The bottom echelon gets bupkis unless it is a negative tax that gives a subsidy to people that don’t pay taxes. The middle class get a few buck that that many use to pay down their cards.

        This kind of tax cut is not stimulative other than in an accounting sense of increasing nongovernment NFA. But where the money goes and how it flows does count. Better to dig the hole and fill it in instead of having the money go into financial speculation that just drives up the prices of financial assets and commodities.

        The obvious solution is a payroll tax holiday but that would take admitting that there is no tie between SS and FICA, which is out of paradigm. The wealthy won’t support a FICA holiday, since there’s nothing in it for them (unless something like a repeal of the estate tax is tacked on), and the so-called progressives will go ballistic because they will see it as an attempt to defund SS.

        Principle is easy; practice is difficult.

      6. Tom, you’re quite right. What the president should have done right out of the gate was make his stimulus package, 1. a FICA payroll tax holiday and 2. dropping the age restrictions on Medicare. The day a newborn is issued a Social Security number, he’s issued a Medicare card as well. That would cut taxes by $900 billion and increase spending by about the same. What’s more, $800 billion in insurance premiums would stay with employers and employees and the $200 billion in State budget spending for Medicaid and SCHIP could go to other programs (our health care system is so inefficient, NHE would actually be lower with a universal Medicare plan like Pete Stark’s Americare bill, see linked chart).

        What’s more since Social Security trust funds are already off budget with a dedicated funding source and Medicare is partially off budget (Part A trust fund uses dedicated FICA tax, Part B trust fund uses general revenue), by consolidating Part B into the Part A trust fund, both Medicare and Social Security could be kept off budget and apart from Congress’s periodic efforts to heroically “cut the deficit”.

        Simply amend 31 US 5115 (“United States currency notes”) to authorize SS and Medicare trustees (the same for both; Secs. of Treasury, Labor and HHS plus two public members) to issue US Notes into the trust funds as needed for monthly checks or medical bills. No fuss, no muss and the president could have spent the first year of his presidency doing something productive. I suppose he could have added a revenue-neutral carbon tax while he was at it, but I’m already knee-deep in alien space bats as it is. :o)

    2. @mike norman,

      “So when Varney says, “The simulus didn’t work as advertised,” he’s right…IT WORKED MUCH BETTER!!!!!”

      What was advertised was that the unemployment rate would stay below 8%, instead of rising to 10%.

      The stimulus was a help, but they grossly underestimated the amount of help needed (and misspent the money to boot). Overpromised and underdelivered. Varney was exactly correct.

  14. I think I’m starting to understand all this. But let me ask this question: Why does the U.S. have to sell bonds?

    1. John,

      It doesn’t. The only reason it is still done is because of holdover thinking from the days of the gold standard. Functionally, the only thing they do is support a nonzero interest rate. One of Warren’s proposals is to cease the issuance of debt and instead allow interest rates to dopr to 0%, permanently.

      1. John,
        As I understand it, if I am wrong someone please clear it up but I feel I have a pretty good idea:

        Transactions to and from the government has a ‘reserve effect’ – either leaving the banking system with an excess reserve position or a shortage of reserves – this has implications for the overnight rate: an excess position will see downward pressure on the overnight rate, while a shortage would see upward pressure on rates. As the RBA states:

        If open market operations did not offset the resulting flows into and out of [reserve]* accounts, banks could find themselves flush with funds one day, but facing a shortage the next. The result would be a volatile cash rate (RBA, The Reserve Bank’s Open Market Operations, 2003, p. 2)

        *Reserve accounts are actually called exchanged settlement accounts in Australia.

        As transactions to and from the government constitute the largest transactions within the economy, the government’s position can potentially exacerbate this fluctuate in reserves, this is known as the ‘reserve effect’.

        The issuing of bonds drains reserves, whilst the purchasing of bonds increases reserves. So what is actually happening is that bonds act as interest-rate operations allowing the central bank to maintain a smooth flow of reserves and avoid the volatility of the ‘reserve effect’.

        Hope this makes sense.

  15. If you unemploy 10 million americans, and 20 million europeans, but employ 500 million chindians, are we in a global deflation or global inflation environment? If you kill one detroit, but 5 more pop up in the third world next year, do we really need stimulus? If 1,000 shopping malls close in the USA but 10,000 pop up elsewhere, is policy really needing adjustment? Honestly, in the big picture, how does a payroll tax holiday help the little joe 6 pack, when china is going to start getting the oil deals, and india the global agricultural excess, etc etc?? How do 300 million americans maintain an inflated standard of living over 7 billion other humans when those other humans decide they want that increased standard of living?

    1. Straw,

      It’s a positive sum game. If the productivity of the 3rd world is rising faster than their standard of living (which it is), that allows us to get fatter and lazier and still enjoy the same or higher standard of living. In the short-term, there will be dislocations, and Joe 6-Pack may have to learn how to do a new job, but it is a tautology that Joe 6-Pack will have employment opportunities if domestic aggregate demand is kept high enough. And as long as aggregate demand is not high enough, we won’t have inflation.

    2. we can always fully employ ourselves and consume our own production, however large that may be, worst case paying for imports with export revenues.

      no one can take that away from us.

  16. That’s great, Warren!! You have to spend the majority of your time on different TV politics and economics shows. Challenge Paul Krugman on a public TV economics debate – it would be extremely interesting! Show him some class!

  17. Warren Mosler says all the right things but comes on as flustered, cornered and nervous –i.e. as someone who has no idea what he’s atlking abiut, a fake! That’s just too bad.

    1. Well, thanks for getting my head out of gold standard thinking, but I wanted to ask two things: Are banking reserves the sum of all deposits and cash available to a bank to spend and loan (and if I’m wrong, what are bank reserves?)? And finally, do you think Chartalism/MMT is politically feasible? While I agree with it entirely, I am not sure how politically feasible it really is. One of my friends told me he would “explain how our money works”. The first words out of his mouth literally were: “You see our government has bits of gold for our money”. When I and another friend explained to him that we weren’t on the gold standard, he was dumbstruck. Then, I tried to explain why we weren’t revenue constrained, and I believe he thought I was Mugabe.

      1. @Ankur Patel,

        Bank reserves are liabilities of the central bank (Fed in US) used for interbank settlement of accounts. For example, when a check drawn on bank A is deposited in bank B, the check clears when the reserves are transferred from bank a to bank B on the Fed’s spreadsheet. This is reflected in the customer’s deposit account at bank A being charged and the counterparty’s deposit account at B credited. These transactions are recorded on the books of the respective banks. Reserves stay in the interbank system and are never loaned out. They enter the economy as FRN and coin through a bank exchanging some of its reserves at the Fed for the currency to meet demand at the cash window. The import thing to keep in mind is that fina settlement transactions that are not settled intrabank are settled either through cash transactions or by interbank clearing using bank reserves. Banks create credit money through extending loans — loans create deposits. Reserves only come into play later to meet reserve requirement and for settlement.

        MMT/Chartalism describes the current monetary system.

  18. Dear Warren – I am sorry to see that the TV interview was Way too short to make any headway – especially with all the interruptions. I am still digesting “The 7 Deadly…” and sharing with my friends. Today I am feeling much better about the federal economy than yesterday. Thanks for the education. I will continue to share.

  19. I’m behind you Warren but your interview was weak! If you are going to change the world, which is no less than your intentions, you have to be punchier. Can’t say thinks like, “We can’t guarantee it.” Also Charles made a good point about investment spending on infrastructure projects. He and the interviewer made you sound like MMT is free money for all. Put it in a giant fan and blow it all about. While those of us who have put a lot of time reading and deciphering the cryptic vernacular of your papers know this is not true, the half-interested public probably heard things the wrong way.

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