That video has one of the highest “Number of overall views to number of user comments” ratios I’ve ever seen on YouTube! Is there a group of Austrians who get alerted every time Mike appears in a clip and take it upon themselves to flame him?
Bravo. You had talking points, got them across (more than once ins some cases), and didn’t let the reporterette lead you off track. You’re getting good at this.
WM says “wish I could do this well”. Anyone can do that well with practice. Tony Benn, the veteran UK left wing politician spent a huge amount of time in front of mirrors and video cameras getting this facial expressions and hand movements right. It worked.
Thomas Eddison: “Genius is 99% perspiration and 1% inspiration”.
Well done! Engaging, animated and easy to understand for a layperson.
Warren,
You should watch this video repeatedly and use the tone and tenor as a model for your senatorial debates. I think you came off as a bit stiff, subdued and deferential during your recent debate at Trinity. A little bit of stagecraft and passion would likely go a long way in conveying the importance of the issues you represent. I hate to say it but Schiff’s use of humor and general manner during the debate likely won him a good deal of support even though his dead wrong on the issues.
I would submit that the vast majority of voters pay much more attention to the manner in which things are said rather than the content of what is said as most can’t be bothered to research the issues to any degree. It’s unfortunate but true that elections are as much popularity contests as intellectual exercises.
Studies show that people prefer simple arguments they can understand as based on “common sense” and which appeal to their emotions, even though the argument is wrong, over complex arguments they don’t understand and which them off, even though the argument may be right.
It’s the old marketing adage, “Perception is reality.” It is necessary to sell ideas based on perception and feeling much more than logical reasoning and data. The former approach comes across as strong and warm, the latter seems weak and wonky. See Harry Beckwith, Selling the Invisible: A Field Guide to Modern Marketing (1997).
Mike has a great presences in front of the TV and the microphone. He does pull this discussion off real good. Almost too good.
If one dissects what he (and the chartalists) say…
1) The US can always print money to pay for its debt, thus creating new debt is not a problem. Even, spending with no debt is theoretically possible.
2) Since printing money is possible, then so is it possible that taxes don’t have to be collected.
3) Our foreign trade balance is like Mike said in our favor. Meaning we get to consume products made by foreigners and exchange that with paper that really doesn’t need to have debt behind it nor does it have to be created via taxation. It is just paper (or 0’s on a computer).
If I was a foreigner looking at this I’d ask these questions:
1) Since the US doesn’t produce anything any more or at least they are constantly a net-importer, for what value does any of their paper money then have?
2) If the US doesn’t work for their consumption and instead can just print money to pay for our goods that we make, who is the slave and who is the slave owner? Although we may be able to receive benefit for producing and selling goods, why should the US get off without having to do at least some of the work? At least if they aren’t willing to work, they should share their natural resources or their property. Why do they get the free lunch and not us?
If I were a banker or someone who relied on the debt market to make my money I may ask these questions…
1) How much more debt will the US be able to create before it eventually devalues its money and thus my assets? (Note, Mike said in this video that is the only problem we could face.)
2) What happens if people figure out that the US government can print money and thus doesn’t need my money for which I will lose my interest payments and stream of income?
Finally, the chartalists are correct in every way. That is until the rest of the world figures this out at which time the foreigner and the banker will cut us off. Can we survive when that happens? Can we live in isolation? We may need to.
(2) is wrong “…taxes don’t have to be collected.” Taxes are necessary for fiat money, in order to create and sustain a demand for it.
(And to be technical about (1), all money is debt, you are saying that interest bearing debt need not be issued)
On (3), etc, my personal view, which is of course the absolute truth, the foreign demand for US$ functions much like a tax, or forced savings, enforced ultimately by the US government. If a state has an insufficient supply of US$, then almost all governments are susceptible to having the IMF come in and intentionally destroy their economy. Sure, the demand for US$ benefits the US more – enormously more if we made use of it rationally – but the foreign demand is much more reasonable than it appears to many.
My answer to banker question 1) is – a helluva lot more – the deficit terrorists have frightened us into being a nation which is terrified of printing the most obviously necessary and beneficial amount of money. What the banker cutting the US government off means is obscure – bankers have no economic, as opposed to political, power over the US government.
“Taxes are necessary for fiat money, in order to create and sustain a demand for it.”
Yes and no. Tender laws also exist to force people to use government paper. But, yes taxes do create a demand for currency, they just don’t pay for anything.
“bankers have no economic, as opposed to political, power over the US government”
Exactly. The banker funds political campaigns. Do you think any politician would survive an election if they said we are sovereign and don’t need their borrowed money?
legal tender laws don’t function to value a currency.
In fact, after much discussion, the eu left them out of the Maastricht treaty
The only function i know of is to specify how debts are discharged in courts of law.
In the US damages are awarded in dollars, not in kind, with a few exceptions.
According to the US Treasury ( http://www.ustreas.gov/education/faq/currency/legal-tender.shtml#q1 ) anyone can specify what kind of physical medium of exchange can be used in a transaction. What is implied though is that this medium of exchange references the same value as other physical money. Someone can not allow you to pay with 100 pennies and instead insist on a dollar bill.
There are barter systems that exist but they seem to be illegal as soon as the token is valued to something similarly expressed in dollars. Thus, if I understand it, you can say one token is worth 1 gallon of milk, but you can’t say that 1 token is worth $3 which is the value of a gallon of milk.
So, I do think there are enforceable legal tender laws, but in our economy with check clearing, credit/debit cards, creating such a network would be very difficult to get any traction.
Warren, this is not correct. Article 105a defines ECB bank notes as the only allowed legal tender
Finally, the chartalists are correct in every way. That is until the rest of the world figures this out at which time the foreigner and the banker will cut us off. Can we survive when that happens? Can we live in isolation? We may need to.
Uh, the ROW runs fiat currencies, too, and their operational reality is essentially the same, with differences imposed politically.
The value of a currency is what it will buy relative to other currencies. That is shown in the fx rate. As currencies weaken (strengthen) relative to each other, they buy less (more).
As a country’s currency weakens (strengthens), its exports become less expensive (more expensive) in other currencies and the balance of payments shifts accordingly.
The correction is a automatic and market-based. Where’s the problem here?
“The correction is a automatic and market-based. Where’s the problem here?”
The correction is forced. With what I’ve asked above, why do foreigners continue to demand US dollars? Why are they willing to be the slaves for us so we can enjoy their labor? What keeps the demand increased and our US dollars worth anything at all? Why can’t Estonia become the consuming capital of the world with printed money? Or Chile? Or Brazil? Or China?
Is there a market on earth that only deals in US dollars for which these slaves need more and more of our money to spend in this market?
Nothing preventing others from dislodging the US as king of the mountain. It just isn’t happening yet. When it does, the US will have to adjust. No one stays on top forever. But the problems that the US may face won’t be the result of its fiat currency. It will be poor political choices involving short term advantage favoring special interests that imply long time detriment for the polity. The US is already on that road (to corporatist statism) and after a while that catches up as foundations weaken.
“The correction is forced”
The correction is voluntary policy when inflation appears.
Why should it happen before then?
The FX rate doesn’t matter unless it forces up domestic inflation.
The correction is forced.
I don’t see how the correction is “forced.” It’s the operation of the fx market. What is “forced” about that? Preferences change and with that nominal relationships of currencies. Pretty straightforward market economics. No one is holding the US at gunpoint. The US has already ensured that won’t happen.
Believe me, if the dollar collapses, so goes the world at this point in time. No other country is going to cut its own throat by forcing sudden change that undermines the existing system.
“Nothing preventing others from dislodging the US as king of the mountain.”
If you’re a country that does not have oil where do you buy it? What currency does that market use? If you don’t have the currency of the market how do you get it? Perhaps you’re willing to be a slave and trade your sweat and work for the currency that you can then use to buy oil.
If oil is not necessary is there a market? If there is no market is their a demand for someone else’s currency? If there is no demand for someone else’s currency, perhaps the slave can be free.
For now the slave’s rulers are willing to go along with the arrangement. But for how long?
And by the way, if our currency is “backed” by this demand for oil, is our currency truly a chartalist existence? Or does our currency have some value which is backed by a commodity?
IMO The Interest makes a point by asking why the oil prices aren’t quoted in the currency of the country which produces it. Then USA will have to purchase that currency first with USDs and these transactions will influence the fx rates as well.
If you think this is so obvious, short the the dollar with all the rest of the people that are banking on this eventuality.
In the first place, what difference does it make what currency a price is quoted in. Country’s get their fx in the market. Oh, and Menzie Chinn investigates claims of causality implying an inverse relationship of oil price and dollar value here. Turns out, not so much.
The second place the US has the largest military in the world to protect its national security, part of which is ensuring access to vital resources. The US has already been using this tool, and it will continue to do so.
Third, whether oil is denominated in dollars or not is becoming a lot less significant now that the handwriting is on the wall about reducing carbon emissions. This is accelerating development and deployment of alternatives.
Fourthly, it is clear that global demand is outrunning supply, which means that as oil prices increase with world demand, alternatives will become more competitive.
Fifth, rise in oil price benefits oil rich countries. While the US is not as oil rich as it was, it is far richer in oil that most countries and would benefit from this increase is prices of its natural resources. The US is very rich in both natural gas and coal, which would be used to replace oil in many applications. But as the price rises, less available field will increasingly be be tapped and the US is rich in hose, even though it has used up most of its easily available resources. This is not say that there is not an energy crisis brewing globally. EROEI is declining, and that is of concern. But the first step in the solution is conservation.
Precisely what I have been so against in all these comments.
Those looking for such simple explanations and solutions and plans and proposals are chasing a mirage!
All such attempts are doomed to be a failure.
As you know I agree with you in principle that without a global demand-based economy that is sustainable instead of of an asset-value debt-based Ponzi one that is unsustainable, markets won’t correct seamlessly and there will be market failures such as the one the world is still in the midst of. Indeed, this may still turn out to be “the big one.”
There’s no problem with the CA deficit until inflation appears.
And there’s no sign of that.
Both aspects were acknowledged in the video.
When inflation becomes a problem, you deal with it through higher rates. The CA deficit and the FX rate will adjust accordingly.
Thats the MMT equivalent of the Mundell-Fleming Thesis!
what does that mean, please?
is it good or bad?
The Mundell-Fleming approach ia a 2-country model and briefly says that when exports increase, money supply increases and decreases in the importing country. It says that there is an adjustment mechanism which brings trade into balance because if money supply increases, prices rise and vice versa. So this leads to a balance of trade.
(A related fact is that one talks of central banks sterilising when they purchase foreign currency. In reality they are just doing interest rate maintenance operations. The phrase sterlilization appeared in the mainstream economics literature because when the central bank has purchased the foreign currency, it is thought that the reserves created causes inflation as per Mundell-Fleming. )
According to MMT, however, trade imbalance is not a problem at all. It is just a matter of currency changes.
“In terms of the slightly worsening current account deficit, we can interpret that as signifying an increased desire by foreigners to place their savings in financial assets denominated in Australian dollars. This desire means that that the foreign sector will allow us to enjoy more real goods and services from them relative to the real goods and services we have to export. We note that exports are always a “cost” while imports are “benefits”. As long as there is a foreign desire for our financial assets, the real terms of trade will provide net benefits to Australian residents which manifests as the current account deficit. An external deficit presents no intrinsic problem despite views by the orthodoxy to the contrary.”
Of course I’ve heard of MF and always assumed it was garbage. Your description of it only confirms that.
Yeah.
MMTers think it operated in the Gold Standard – which it never!
first, worst case we can always have ‘balanced trade.’
second, the US can deficit spend to the extent the non govt sectors need dollars to pay taxes and net save.
third, the idea of ‘the banker’ cutting us off doesn’t apply
Interest,
“Since the US doesn’t produce anything any more or at least they are constantly a net-importer, for what value does any of their paper money then have?”
The imports for finished goods are just a tiny part of the US economy. For June, our net imports were 42B, 20B for unrefined crude oil and 22B from China for industrial components and some finished goods. This in what is approaching a 15T economy. The non-crude oil portion of this represents less than 2% of US GDP.
To say that US doesnt produce anything anymore is a bizzare statement, although I get the feeling many people somehow feel that way. The only explanation I can come up with is that most folks are focused on cheap discretionary consumer goods that they buy at the retail stores that have labeling that says “Made in ?”, often a foreign country.
You have to look at the bulk of the US economy to gain a better perspective. Massive industries like transportation, healthcare, education, power gen and transmission, public infrastructure, housing and contruction, I could go on…have virtually nothing to do with the foreign sector.
Look at a school, you have this large multi-million $ public school; Class A construction by US workers, computer networks, huge HVAC, food service, teaching and admin staff, bus transportation, power transmission, etc, all of this built/operated/maintained by US workers…but somehow all of that “doesnt count” because the 2 cent ink pen that a teacher writes with in a classroom from Office Depot was “Made in China”?…give me a break.
According to Mike Norman, Bush raised the national debt $5T during his presidency. During that time $1T was added to domestic gross savings. The other $4T went to the rest of the world in exchange for goods along with our spending on wars, etc. Your examples of HVAC, food service, teachers, etc. don’t mix in the foreign leakage of the $4T.
Interest,
I dont think Mike said that or perhaps you are misinterpreting, when Bush2 left, public debt was around 6T, he was in for 8 years, but I dont think it was 1T when he went in. US fiscal deficits were usually 500B or less (sometimes much less due to wild spec driven profits filling the coffers) during his tenure, I think it went up about 2T during Bush years. Lets say that the gdp averaged 12T during his 8 year tenure, thats about 100T of gdp, probably 1-2T was built up by the foreign sector over these years, so again you have to come back to the 2% or less. Almost all war spending stays right here in US in contractors bank accounts and Federal Credit unions at Ft Bragg.
When Bush2 went in FAs for Households was 33.7T Link here:
The foreign sector ex-petro is overblown by import-phobes outside of how it acts to throw US workers out of their jobs; and there are very simple ways we can correct for that (JG).
Resp,
Sorry, what Mike said was that W. added $5T to the current national debt and of that $1T was net savings on our side.
As for the dollar amounts we can’t compare apples to apples on that anyway.
What is the cost of labor for that $.02 pen made in some factory in China? If that same pen was made here what would that cost be? Higher? By how much? So the dollar amount of lost production here would never equal the production on foreign soil. If it did, then most likely the job would be done here.
Don’t be confused by the dollar amounts. GDP to GDP won’t compare. One slave’s worth in one country differs from a slave’s worth in another.
I foolishly decided to check the youtube comments…
These are a few of the gems:
Actually he is wrong in his first number of statements. The government does not issue its own currency, the federal reserve which is a privately owned corporation does (since 1913). And actually, when President Roosevelt signed the Emergency Banking Act in 1933, the US was declared as bankrupt. The US has a negative 75 trillion dollar net worth. The US has to borrow 4.5 billion dollars a day to keep financing obligations. Its not fear mongering, its the truth. Deal with it.
This is a fairly common counter argument (That the fed is a private entity and not a part of the government) that I’ve experienced. From the best of my knowledge it comes from Rothbard and those ‘zeitgeist’ videos.
I agree, Norman is a detriment to RT. First of all he’s wrong that we create our own money. BIG mistake, the fed, a private entity, issues our money.
He’s throwing verbal daggers,calling people lunatics even though his only disagreement is one of semantics. when you consider that we’re plugged into private and international banks which issue our money, the concept of bankruptcy becomes very real. He’s just an angry punk desperate to find people to listen to his drivel.
Then there’s this. Similar argument, but it’s not just the FED but also other banks which issue (ambiguously defined) ‘money’.
Another widespread conspiracy theory. I run into it all the time. It’s related to “the international bankers” (subtext Jews) own the world and we are their slaves unless we take it back from them (related to “we need to take our country back”).
The “we need to take our country back” meme is not related to crazy, conspiracy theories at all. In 2008, almost complete control over the US government was handed over to very liberal politicians. Arguably, the House and the Speaker of the House are further to the left of any in history, and our very liberal president has left much of the bill-writing to the House. Futhermore, the liberals in charge have pressed forward with much of their agenda despite strong opposition from a plurality of voters. All perfectly legitimate you say? Well, perhaps. But it is also legitimate to want to take back the levers of power from them at the first legal opportunity. To conflate moderate and appropriate political rhetoric with paranoia is itself paranoid.
ESM, “take our country back” from whom? The government was elected in a landside.That slogan is based on nutty conspiracy theory notions that have nothing to do with facts. Just look at who is behind it.
Obama/Pelosi/Reid. From those who are temporarily in power and using that power very aggessively to expand government against the wishes of the majority of the voters.
First of all, these guys did not win power in a landslide. Obama won by less than 7 percentage points in the popular vote against a crazy old coot with the charisma of a damp rag and his know-nothing diva of a vp pick, while in the middle of a financial meltdown that people naturally (although not rationally) blamed on the then incumbent president’s party.
Second, if you look at the rhetoric on the right against Obama/Pelosi/Reid, which only started to build after the scandalous stimulus bill and climaxed with the ramming home of Obamacare, and then compare it to the rhetoric on the left against Bush/Cheney et al starting from November 2000 and continuing until this very day, well, let me just say that it’s kind of like comparing Bill O’Reilly to Keith Olbermann.
“Second, if you look at the rhetoric on the right against Obama/Pelosi/Reid, which only started to build after the scandalous stimulus bill and climaxed with the ramming home of Obamacare, and then compare it to the rhetoric on the left against Bush/Cheney et al starting from November 2000 and continuing until this very day, well, let me just say that it’s kind of like comparing Bill O’Reilly to Keith Olbermann.”
Yeah that “socialist” stimulus bill. Infrastructure projects and 30% tax cuts….. LEFT WING I TELL YA!!
Obamacare, a handout to PRIVATE insurers (Newts exact plan in ’95). The majorit that are against Obamacare are not against it for the same reasons. Many oppose it (like myself) because it does not include the public option. It was an effort to appease the unappeasable rethugs.
Calling Obama the furthest left president in history shows a deep deep ignorance of what left right politics has been historically.
without further ado, the worst figures in American history are as follows (with the number of votes following each selection)…
23) Saul Alinsky (7)
23) Bill Clinton (7)
23) Hillary Clinton (7)
19) Michael Moore (7)
19) George Soros (8)
19) Alger Hiss (8)
19) Al Sharpton (8)
13) Al Gore (9)
13) Noam Chomsky (9)
13) Richard Nixon (9)
13) Jane Fonda (9)
13) Harry Reid (9)
13) Nancy Pelosi (9)
11) John Wilkes Booth (10)
11) Margaret Sanger (10)
9) Aldrich Ames (11)
9) Timothy McVeigh (11)
7) Ted Kennedy (14)
7) Lyndon Johnson (14)
5) Benedict Arnold (17)
5) Woodrow Wilson (17)
4) The Rosenbergs (19)
3) Franklin Delano Roosevelt (21)
2) Barack Obama (23)
1) Jimmy Carter (25)
Really?
Greg, I’m sorry for being blunt, but you have a serious issue with reading comprehension.
“Yeah that ‘socialist’ stimulus bill. Infrastructure projects and 30% tax cuts….. LEFT WING I TELL YA!!”
I didn’t say it was socialist. I said it was scandalous – in the sense that the funding was disproportionately allocated according to the wishes of Democratic interest groups. And it was rushed through so as to circumvent the normal review process.
“The majorit that are against Obamacare are not against it for the same reasons.”
I didn’t say that the overall majority are against Obamacare. I said that the rhetoric on the right climaxed with the passage of Obamacare because a) Obamacare takes a dramatic step towards socialized health care, and b) it passed by a hair’s breadth, and the way Pelosi and Reid got the votes for it seemed so outrageous and unfair.
“Calling Obama the furthest left president in history shows a deep deep ignorance of what left right politics has been historically.”
I never said this. Obama may be one of the most narcissistic and naive presidents we’ve ever had, but I don’t actually think he’s as progressive as FDR for example.
so what kind of liberal agenda supports high income earners and corps over low income individuals?
passes health care reform that throws a $T at the insurance companies to attempt to broaden health care coverage?
subsidizes illegals so they can provide cheap labor to business?
supports union leaders over union members?
passes a payroll tax break for business and not for employees?
backs off on international human rights issues?
looks to me a lot more like it’s functionally an elitist cabal of govt, business, etc. than a liberal/socialist agenda?
“looks to me a lot more like it’s functionally an elitist cabal of govt, business, etc. than a liberal/socialist agenda?”
Warren, that’s my problem with liberalism/socialism. It means a larger role for government, and government is the ultimate elitist cabal. Big business always gets its seat at the table too because money buys access to politicians and bureaucrats.
If you cut down the size of government, businesses will spend less time trying to compete in Washington for government dollars and more time trying to compete in the marketplace for consumer dollars.
If you cut down the size of government, businesses will spend less time trying to compete in Washington for government dollars and more time trying to compete in the marketplace for consumer dollars.
Agreed. So obvious. But how can it be unwound?
The only way to unwind down the currently expanding corporatist state is through comprehensive campaign finance and advertising reform that gets the money out of politics and locks the revolving door. Beowulf can comment on the means but I think it would take a carefully crafted constitutional amendment at this point in light of precedent, or else a reversal of precedent by the judiciary. Both are unlikely. Otherwise the looting will continue regardless of which party is in power. Even if a new crop is elected they will soon realize to whom they are beholden for reelection, and the game will go on.
how about something like if 60% of all contributions went to your candidate, and the rest to the opposition?
Interesting piece on the psychology of power that also sheds insight on why change is so difficult, even with the power elite is replaced.
“The only way to unwind down the currently expanding corporatist state is through comprehensive campaign finance and advertising reform that gets the money out of politics and locks the revolving door.”
Tom, you’re clearly a smart guy and very well-read. But Zanon is right that some of your ideas are completely unrealistic. You will never get the money out of politics through regulation. Not only is it impossible, but attempts to do so will infringe on individual liberty. Money is necessary for speech, and “Congress shall make no law … abridging the freedom of speech.”
The way to get the money out of politics is to make the government less powerful so that the payoff from influencing politicians with money is too small to make sense economically.
ESM, as a libertarian of the left I agree with you, but as someone who has studied political philosophy I recognize the limitations of contemporary libertarianisms, all of which naively assume that the “free market” will optimize not only economic life but also social and political life. That is not borne out the facts. Some government is necessary in complex societies, and all governments can be captured regardless of size.
But I agree that the present government needs to be downsized. When it comes to practical proposals for reducing the size of government, the place to start is with the military. A large and powerful military poses more of a danger to democracy than just about anything else. A second is ending central banking as it presently exists, as well as To Big To Fail in both finance and industry, which allows systemic risk and moral hazard to hold government hostage, essentially creating a implicit and explicit subsidies. These just ways of hijacking government and pillaging the Treasury. A third is putting an end to the reign of professional politicians.
It does not matter whether government is small or big if the state used to controlled the people. There are myriad instances of a relatively few controlling the many. The size of government is not the problem. The real problem is state capture by a power elite. History shows that a very small number can take control given the right conditions.
Moreover, there is no such thing as a “free market” without some regulation, and once you introduce regulation, the genie is out of the bottle.
If you want a libertarian critique, here is Tyler Cowen’ view.
ESM
I was also responding to this:
“The “we need to take our country back” meme is not related to crazy, conspiracy theories at all. In 2008, almost complete control over the US government was handed over to very liberal politicians. Arguably, the House and the Speaker of the House are further to the left of any in history, and our very liberal president has left much of the bill-writing to the House. Futhermore, the liberals in charge have pressed forward with much of their agenda despite strong opposition from a plurality of voters. All perfectly legitimate you say? Well, perhaps. But it is also legitimate to want to take back the levers of power from them at the first legal opportunity. To conflate moderate and appropriate political rhetoric with paranoia is itself paranoid.”
Now in this rant you equated our president with very liberal and our House as the furthest left in history. Yes, you didnt specifically call Obama the furthest left president in history, he simply gives the furthest left house the power to write all our bills. A difference without much distinction.
To add to yours and Toms discussion, I’m not sure I’d use the term downsize to describe what I think should be done for govt. I do think fewer people could work in govt but they probably need to be paid more so our costs would likely go up. The people regulating financial interests should be damn well paid so they cant be captured by the interests they are regulating. I think we underpay and overstaff most important govt jobs. Getting the money out of politics is easy. Every candidate gets full public payment for their campaigns. They all get equal airtime on a public channel and they dont NEED to do any fund raising.
Your quite wrong that money is necessary for speech. All that is necessary is vocal cords,paper and pen, and microphones. Allowing money to dictate who gets heard is bad for people with good things to say and very little money. The solution to money and politics is a simple solution which is politically difficult to change. But the answer is still a simple one.
Beowulf can comment on the means but I think it would take a carefully crafted constitutional amendment at this point in light of precedent, or else a reversal of precedent by the judiciary.
Tom, the trouble with constitutional amendment route is that the supermajorities required for passage (two-thirds of House, Senate and state legislatures) are even more onerous than the supermajority of 60 required to break a Senate filibuster. If the country is going to be fixed, its with the Constitution we have now.
The first step as Harvard law professor Larry Lessig has proposed, is a “clean money” voluntary campaign financing reform (since campaign self-funders like Warren could opt out of the campaign funding subsidies and restrictions, it should be able to avoid First Amendment challenge). http://www.fixcongressfirst.org/
The second step is to eliminate the Senate filibuster. It could be phased out over 2 Congresses (60 to 55 to 50 votes) or could be done all at once. The House of Representatives actually has a say in this. The Budget Act of 1974 (which both Houses of Congress voted on, federal law supercedes Senate rules) created the filibuster-proof budget reconciliation process that limited debate to 20 hours. The House could launch a filibuster of its own and refuse to consider any Senate bill until the Budget Act is amended to apply reconciliation status to every bill.
Education will get money out of politics. So people will vote not by the advertising campaign budget but by what they need and what politicians do. Dream? Maybe. But many dreams have come true.
The US can always print (or whatever euphemism you like to use around here) money to pay the debts in its own currency, there is no dispute about that. But despite the current deficits, the fact is that it’s not currently acting as if there were no limits (as Norman usually says). Would the interest rate be 0 if the US would publically adopt the policy that there are no limits to money printing? But even then you may say that US doesn’t need debt since it can’t print the money directly. But how is that different from any other country with fiat
currency?
I think the reasoning, at least as expressed by Norman, is extremely simplistic and lineal. For example: “there are no signs of inflation”, “we can print because there is spare capacity”, “we can print to achieve full employment”. I mean, are you sure
capacity utilization will come before inflation? why money won’t end in the pockets of those with power and knowledge of what is going on? etc.
I mean, are you sure capacity utilization will come before inflation? why money won’t end in the pockets of those with power and knowledge of what is going on? etc.
Fair questions. MMT’ers have considered these issues and many others in depth in professional publications and informally in many blog posts. If you want to know more about MMT and how it deals with such matters, check out the mandatory readings on this site. That will get you started. There is much more.
To summarize the concerns mentioned above, first, the Fed would love to get interest rates off the bottom but cannot do it even with the loosest monetary policy. Moreover, empirical studies show that some inflation before reaching full capacity can be beneficial after prices have been depressed or stagnant. The possibility of serious inflationary pressure is not imminent or even foreseeable in the distant future. Deflation remains the real threat, on one hand, and Japanification, on the other. This is a “balance sheet recession,” as Richard Koo calls it, and there is a huge amount of private debt, much of it bad, that is hanging by a thread, like a sword of Damocles, waiting to fall. Without resolving that confidence will remain weak and the economy is going nowhere. In addition, should inflation become problematic near full employment, MMT deals with that fiscally, through increasing taxes and curtailing spending to reduce demand, just as it recommends spending increases and tax cuts to stimulate demand in recession.
Secondly, monetary policy is a blunt instrument and cannot be targeted. Fiscal policy is a sharp tool that can be tightly targeted to place funds where they are most likely to be spent, increasing effective demand in recession. Under the present system, wealth gravitates (trickles) upward, so that is going to happen in any case without increasing progressive taxation, again fiscal. But on the way upward it flows through all levels of the economy, the opposite of trickle down.
For any nation with a floating fx policy and a fiat currency the interest rate is a political choice, not market determined.
So in the US, it’s done by a vote at the Fed.
And yes, money does end up in the pockets of those with power and knowledge in any case, including right now.
Do not confuse Tom hickey with reality. He is overload already by screaming dollar hegemony and giving damn about idiot ravings of conservative “blogger”. Is there lower form of life?
Like so many things, toms hickey, it does exactly the opposite.
just because conservative blogger may be lowest form of life, it does not mean that they do not have plenty of company down in gutter.
i do not like the tea party, nor do is support them, nor do i believe anything good will come from them activity. if i have magic wand i make them vanish. still, i understand perfectly what they mean when they say “take our country back” and am sypathetic.
it seems your sympathy only extend to individual who know what is good for them and vote the approved way. Pas d’ennemis a gauche, pas d’amis a droit.
Actually, Zanon, that is not true or I would have encouraged Warren to identify with the TP and speak at TP events. I believe that many people in the TP are well-intentioned people that are just confused about the economics, for a variety of reasons. Most mainstream economists are confused, too.
I won’t get into what I see as the kerfuffle over “take our country back” because I think it means different things to different people. I do think that the state has been captured, as I have said many times in the past. We the people need to take it back. To do this several things are required.
First and foremost, I believe is getting the money out of politics and closing the revolving door.
Second, the “military-industrial-congressional complex” (the phrase that Eisenhower originally wrote in the draft of his farewell address) must be dismantled. This leads to corporatist statism to a dangerous degree, as well as overly aggressive foreign policy.
Third, financial capitalism must be terminated and banks must be returned to traditional banking, that is, chiefly serving the needs of both workers and industrial capital as public/private parnerships, with sector income of no more than about 1% of GDP. Now it is about 6%. This means ending TBTF and moral hazard in general. It also requires government at this point ceasing to enable the practices that have resulted in a coverup of possibly trillions of dollars of toxic debt that is creating a drag on the economy and may even drag it down.
Fourth, the present concept of central banking as politically independent must be ended. It puts a small group of unelected technocrats in charge of making far-reaching decisions for which they are unaccountable.
Fifth, requirements must be put in place that limit the extent of economic rent-seeking of all forms.
Sixth, political power must be decentralized as much as possible, consistent with good order and public purpose.
Seventh, the US must formulate foreign and domestic policy that integrates all public needs and develop a budget based on this policy.
Eighth,the US must put an end to the asset-value debt-based model domestically and internationally, and replace it with a demand-based model that is grounded in incentives that harmonizes investment (growth), consumption/savings (income), and sustainability (resources).
Ninth, the US must deal with the constitutional issues surrounding human rights and the violation thereof.
Tenth, the US must distinguish public purpose as set forth in the preamble to the constitution from private issues by recognizing that these are categorically distinct. That means dealing with the tendency of the private sector to privatize the commons and socialize negative externalities.
There’s more.
“There’s more.”
Thats a great first ten. I’ll take any 5 of those ten and call it a landslide victory.
Toms Hickey:
I also believe the TP are well intentioned. They do not understand economics, or frankly, much else. You were the won who ridiculed their desire to “take their country back” and brought up the pathetic spectable of what “conservative bloggers” think, and “nutty conspiracy theory” not me. you also continually claim that people who don’t vote the way you want them to are being manipulated.
your ten point list is of as little interest to me as it is to you. you have made it clear how you make your decisions, there is just one quesiton you ask.
Zanon
“I also believe the TP are well intentioned. They do not understand economics, or frankly, much else. You were the won who ridiculed their desire to “take their country back” and brought up the pathetic spectable of what “conservative bloggers” think, and “nutty conspiracy theory” not me. you also continually claim that people who don’t vote the way you want them to are being manipulated”
If by well intentioned you mean, looking out for themselves, I agree, we all are doing that.
It not silly to ridicule their “Take the country back” chants, especially when asked what they mean they babble incoherently and simply spout socialism, founding fathers and constitution. They ARE being led by CORPORATE interests which seek the type of control over society that politicians have (and frankly are selling to them). The question is whos gonna run our society, politicians we elect or corporate interests who are going to make us pay for EVERYTHING that can be commoditized. I’m holding my nose and going with politicians I elect.
Dont tell me “the people” are going to run their society. That will work as well as workers running the corporations. This is not antidemocracy its simply recognizes that when “people” run their society its via a political system which uses other people as their proxies (politicians)
I think that to lump the TP’ers into one group is incorrect. There are a lot of people that are very upset with the status quo, and they identify with protest. The TP began as a libertarian movement but it was hijacked by arch-conservative professionals, who have access to money and organizational and promotional skills to get media attention. Moreover, a lot of big arch-conservative billionaires came in, along with Fox Noise. That skewed the picture to a great degree. Through in a bunch of nut case extremists and you have an interesting bunch, but hardly a coherent one. But the roots of the TP are libertarian, not conservative.
I think you have to distinguish the extremists who shout the slogans from the ordinary people that feel badly ripped off and who really don’t have a clue as to what’s really happening other then the people at the top are out of touch. These people are being cleverly manipulated for political reasons, and I think that Warren recognized that and tried to get the word out about what the real solutions are and the faux solutions are faux. But he never got heard over the noise and most importantly, didn’t get media exposure.
The TP turned out to be a media manufactured event because it was based on that tried and true political ploy, sure to get attention, outrageous street theater. This is being used by certain interest groups to further their own interests by, first, creating a distraction from the real issues facing the country, and, two, propagandizing their agenda using celebrity figures. It was successful in dominating many news cycles at a modest cost.
But I look at two groups that associate with the TP which I think are well intentioned but confused. The first groups is the libertarians, e.g., the Ron Paul folks, that want civil liberties above all. I sympathize with that desire; however, my view is that they are misguided in their understanding. Some of these people can come around to MMT solutions if issues are explained to them clearly and convincingly.
The other group is the political independents that voted for Obama in the expectation of change and did not see it. Instead they saw the new party in power serving financial and corporate interests at the expense of a middle class that is hurting badly. They are right.
Most of these people are under the illusion of the government-finance-is-like-household-finance analogy, so they are against the growing deficit and national debt, not knowing the true story of how things actually work and could be fixed using this knowledge. These people are especially fertile ground for sewing MMT ideas, since they are not highly ideological and just want the change that they are looking for.
The visible TP is greatly shrinking, BTW, due to most people not wishing to be associated with the crazies. But the protest mentality is still there and MMT can take advantage of it if if can get media traction. For example, a lot of these people are not Ron Paul people but Peter Schiff people. They have their economics all screwed up.
“…I think that Warren recognized that and tried to get the word out about what the real solutions are and the faux solutions are faux. But he never got heard over the noise and most importantly, didn’t get media exposure.”
Well, the reason is that Warren is unwilling (for a reason that strikes me as hopelessly idealistic) to spend a portion of his considerable wealth to get some name recognition and bootstrap his way to low single digits in the polls.
Of course, according to Greg “[a]ll that is necessary is vocal cords,paper and pen, and microphones” so maybe the problem is that Warren is too soft-spoken or has bad handwriting.
By the way, Tom, I fundamentally disagree with your implication that the Tea Party is either artificial or inundated by crazies. I think it is perhaps the most spontaneous and “grassroots” movement I have ever seen in the United States. Also, I believe that the percentage of crazies and racists is well below average for a protest movement. The Tea Party has been very unfairly maligned by liberals (and the mainstream media), in part, perhaps, because liberals are not used to being in power and being the target of protests. Do you remember the hilarious statement by Valerie Jarett about how the administration was speaking truth to power when it was attacking Fox News? I think this is the mindset of many Democrats attacking the Tea Party.
That all being said, I agree with you that most of the explicit policy goals of the Tea Partiers (such as they have been expressed by individuals at rallies, or even by candidates) make no sense. However, the inchoate sense of outrage that Tea Partiers feel is justified, and it is not based in racism or conspiracy theory.
ESM, I guess I did not make myself clear, because I essentially agree with you on this. The TP became a media phenomenon due to professional promotion of a particular agenda and street theater tactics on the part of a relatively small group. That emphasized only the periphery of a genuine protest movement that runs deep in US politics at the moment, and, I think, misrepresents what the protest is about. If it had not been hijacked by a faction, a lot of progressive would be out there in the streets with the protesters. These are middle class people that have come to the conclusion that government is not working for them, and, in fact, is often working against them. Very few of these people are racists, and they are not worried about “socialism” or a “take over by the left” either. They want change, and many of them voted against the status quo in the last election. What they see is more of the same. Unfortunately, they don’t understand the economics and are often lobbying against their own interests. MMT can set that straight. Then we can argue about tax cuts vs. deficit spending, the proper role of government relative to public purpose and private incentive, the need to reform controls, etc. There are a lot of options and a lot of issues to weigh. It would be an interesting debate if it were fact-based. There are powerful forces afoot that are doing everything in their considerable power to distract from having that debate.
Greg:
It is deeply arrogant to mock the tea party because they are incoherent. they understand little and are bad at expressing themselves, and yet i understand clearly where they are coming from.
it is called empathy, and it is something that bleeding-heart tom hickey, and maybe you, have nothing of if it comes from people who vote the wrong way. No, anyone who is not on left is either evil or a dupe. Pas d’ennemis a gauche, pas d’amis a droit.
Besides, I was clear that I think very little of tea party. I am no supporter. But I am also not idiot left-wing lackey.
ESM: You are correct, the tea party is actual real life “grassroot”. Toms Hickey is wrong, its base is not libertarian but i think rather amongst the same perdominant white, catholic group who voted for FDR in 30s, Reagan in 80s, and now have learned that sending their son to 4H kept him out of Harvard while they live in suburbs around old great cities of america with ghetto cores.
Tom Hickey: What debate? I just hear tea party being called racist by leftists loyal to obama. is there a more degraded word in the language these day?
Zanon, the greatest gift to the Democrats is the TP craziness that this turning off independents and moderate Republicans to TP candidates. I said that the TP began as a libertarian movement, chiefly the Ron Paul folks, and it morphed into a predominantly conservative GOP movement from there if we can believe the polls about TP identification that were taken recently.
But there are a lot of supporters that don’t self-identify as TP’ers and don’t go to rallies. They are generally middle class people that are bummed out by the bum deal they see themselves stuck with. This includes a lot of people whose retirement funds have been halved or worse.
Polls show that independents are moving away from the Democrats to “the other guys” not so much because they prefer the others, but because they see no future for them on the present course and they want to shift course. A lot of this is dissatisfaction is over the bailouts of the financial sector that they perceive as having rewarded failure.
It is certainly by far a white group, but predominantly Catholic? I don’t think so. From what I can see of the grassroots expressions in letters to the editor, for example, it is a pretty mixed group and hard to generalize about, other than shared anger at the status quo.
Do they want to go back to the Bush years. No. They want to see things change. A lot of their desires are confused, often contradictory, and usually based on narrow self-interest, mostly economic. Basically, they want to wind back the clock to pre-2007 when they had it pretty good, but without the wars and crony capitalism.
A lot of them are pretty zenophobic and want to withdraw into Fortress America, basically sealing the borders. While they are not overtly racist and certainly don’t consider themselves racist, they want to go back to the America that they knew previously and they fear cultural change. That, of course, is white America.
I also don’t see too many young people involved, other than Ron Paul folks. Most are middle-aged or elderly, pretty crystallized in their ways, and primarily concerned about being able to retire as they had expected.
Because its common denominator is anger, I don’t see the basis for a coherent political movement there. To the degree it is organized, it has been organized by political operatives attempting to harness the energy to their agenda, which is mounting a take-over of the GOP from the right.
Toms:
There is no basis for coherent political movement in TP. TP is incoherent, i say this many time. Your point about various parasite exploiting them to get themself elected is boring, trite, and time honor. Look at how democrats have weaponized blacks in US.
And I never say TP is catholic. I say that political strain that manifest itself in 2010 in TP can be traced back to catholic white voters who brought in FDR. You can go further back than that, but fundamentally, this is not libertarian phenomenon.
TP are completely correct at their disgust, despair, and anger with their lot. THey have been gyped. But nothing they are doing will make it any better. I empathize with them, but I do not support.
I also do not look down my nose at them as bunch of racist idiots and dupes, which is your position
Zanon,
“I say that political strain that manifest itself in 2010 in TP can be traced back to catholic white voters who brought in FDR. You can go further back than that, but fundamentally, this is not libertarian phenomenon.”
Can you expand on this? Ive never heard this before. My Catholic family ancestors would not even call the “East River Drive” the “FDR” Drive, and literally they would correct you if you used the name “FDR” Drive, they (literally!) sometimes would not take a Roosevelt Dime in change.
On the other hand, FoxNews (almost exclusively Northeast target market) has really tried to tap into the TP. OReilly and Hannity (Irish Catholics) have glommed onto the TP movement big time (in fact I believe Ailes had to intervene with Hannity to back off on this), so has Sarah Palin. I would be the first to attest that there is a very strong “religious” conservative attraction to the TP, but Ive never made the connection of Catholics to FDR… although I did not live thru those times.
Resp,
Zanon
“It is deeply arrogant to mock the tea party because they are incoherent. they understand little and are bad at expressing themselves, and yet i understand clearly where they are coming from”
When IS it appropriate to mock someone? I personally prefer not to mock until someone engages in such obviously ignorant rhetoric and behavior as many of the TPs do. Yes some have a point, there are many concerned people in the movement whom I would probably agree with about many things. Unfortunately they have chosen to self associate with a larger “us” that is quite overtly xenophobic, extreme libertarian (Rand Paulites) and Christian fundamentalist, a quite incoherent mix if Ive ever seen one.
I prefer to mock rather than threaten with physical violence or talk about “watering the tree of liberty with blood”. Mocking is a form of verbal violence as is humor. Both are tools of behavior modification, hoping to get your “opponent” to revise his tactics, to rethink his position. Mocking is a debate tool that can be used effectively if not overplayed.
Mocking can actually have empathy at its core Zanon. It can be a less violent way of confronting someone. The TPs are playing for keeps here Zanon. They are not just “kidding around” and theyve shown how far they are willing to take things by openly threatening people with physical violence they dont agree with. I apologize none for using mockery as a tool. I wish more people would. They NEED to rethink their strategy and their goals if they want to continue to live in a civil society. Yes many individuals in the grouo know not what many within the leadership are willing and ready to do to get their way. They are ignorant and not getting any help from within, they are only getting more ignorance. I wont apologize for pointing out ignorance if I see it.
“it is called empathy, and it is something that bleeding-heart tom hickey, and maybe you, have nothing of if it comes from people who vote the wrong way. No, anyone who is not on left is either evil or a dupe. Pas d’ennemis a gauche, pas d’amis a droit.”
You know nothing of mine nor Toms empathy level. We occasionally exchange the written word on an internet chat site and often writing can not display the emotion behind it. You can come across arrogantly as well, but I usually wish to only engage you on the substance of your arguments. If I met you face to face I’d likely be able to read you better and have a firmer ground to assess your place on the empathy/sociopathy scale.
“Besides, I was clear that I think very little of tea party. I am no supporter. But I am also not idiot left-wing lackey.”
Idiot left wing lackey………………….. how empathic of you.
I meant to address this as well
“TP are completely correct at their disgust, despair, and anger with their lot. THey have been gyped. But nothing they are doing will make it any better. I empathize with them, but I do not support”
WHY are they “completely correct”? They are virtually all middle/upper middle class, many on govt pensions/medicare, homeowners, were gainfully employed until they CHOSE to stop working, they live in the freeest country in the world (until Obama was elected of course). These same people MOCKED a guy in a wheelchair during the healthcare debate, openly mock our poor as richer than any poor people any where (yet THEY are victims to be empathic with). THEIR plights are reason for all Americans to stop what they are doing and make things right. They decry victimhood in others and play the collective victim card OVER AND OVER. Again, I’m well aware that not all individuals within a group are the same and that is part of the reason I am loathe to join ANY group but these people CHOOSE to rally around the TP ideals, get on Fox news and rant and rave and walk around with exposed firearms………….fuck ’em. They deserve any derision that comes their way for associating with such an incoherent and ill conceived group. Remember what your mother said …….choose your friends wisely!!
Greg,
When you have “A” (“A” could be a good pension, a good health care plan, a good job, a low tax rate, a nice neighborhood), which you feel you have earned because of hard work and good decision-making, which you have grown accustomed to having, and which you are satisified with, and somebody else comes along and proposes laws which you think will take away or diminish the value of “A,” then it is natural to fight to keep “A.” On top of that, when it appears a plurality of the people agree with you (and almost certainly a majority on some issues) and yet the government ignores you, disparages you, and steamrolls ahead and starts chipping away at “A,” then it is natural to become outraged. It is even more infuriating when the President of the United States repeatedly lies with dramatic flourish and claims that he is not really taking away “A” but in fact is allowing you to keep “A” and making “A” better and in any case if you do lose “A” it’s all George Bush’s fault. And then to add insult to injury, when you go out and protest peacefully, the most powerful people in the country lie about you, call you a racist or a fascist or an idiot or a “teabagger” and then fabricate stories about you (e.g. the supposed “N-word” incident on the day of the House health care bill vote) or make sweeping negative generalizations about you based on non-incidents or isolated incidents. I’d say that given all of that, your disgust, despair, and anger would be justified — indeed “correct.”
I also take issue with your “guilt by association” conclusion. Yes, there are some groups for which “guilt by association” makes sense — a leadership position in the Ku Klux Klan comes to mind, although somehow it is possible for the mainstream media to forgive such an association if you move far enough to the left politically (RIP Sen. Byrd). But making an exception for extreme groups, I don’t think it is fair to dismiss certain arguments just because of some of the isolated actions of a small number of fellow proponents of those arguments. I have enough trouble taking responsibility for my own actions and opinions. I don’t want the responsibility of defending countless other people who may agree with me on certain issues.
Perhaps you don’t want advice from me, but I encourage you to read more commentary from the conservative side of the political spectrum (powerlineblog.com and corner.nationalreview.com are both very high quality, although nobody at these places understands MMT unfortunately). I think it will give you a broader perspective.
ESM, some of us are pretty active in the liberal and progressive blogs advocating MMT. I even occasionally post on libertarian ones, as well as neoliberal and New Keynesian economic ones. I hope the conservative MMT is doing the same in the conservative and libertarian blogosphere. Maybe we can chip away at the ignorance and shift the basis of the debate from ideological presumptions and myths on both sides to a shared view of operational reality.
As I said, I see many of the TP’ers are as people who are simply misguided about the economics and candidates for a wake-up call from someone that speaks their own language and shares their interests.
Best wishes in this vital endeavor. I look forward to debating this widely on solid ground instead of having to deal with misconceptions on just about all sides. Maybe we can then come to some common agreement and workable compromises that move the ball forward for everyone.
think i might be libertarian?
matt franko: The political strain behind TP is not new, although TP itself is new of course. It is very old, and you can trace it back to FDR but it is older still. I bring up catholic to highlight catholic/protestant split, but nature of that in US has changed dramatically between 1900, 1950, and today. Nature of mainline protestantism in US has changed dramatically as well on even longer time frame. Still, this is not forum for that discussion.
In my area of northern california for example, middle class white has essentially been ethnically cleansed from entire peninsula area with maybe exception of pacifica. This group has been ethnically cleansed from most of where they used to live in 1950. They live with 10% unemployment in nation where top 3 issues seem to be 1) can a guy marry another guy? 2) how many mosque can we build at ground zero? and 3) how can we let in as many pregnany mexicans as possible?
the root cause of their discontent is clear to anyone who is not left wing lackey. And fundamentally it is not libertarian. It is same root as why rural kansans keep voting for GOP (the MORONS).
nevertheless, i am not TP nor am I supporter of TP so please do not interpret anything above as advocacy for them.
Greg: You and Tom have made your half-brain politically addled left wing tendency very clear. in fact, it is noxious pollutant on blog which should be about economics and accounting. I am repelled by your selfishness at your cramming your political beliefs here and wish you both would stop. Please take it to dailykos
Dear Zanon,
Last I looked this is Warren’s blog and I’ll take my marching orders from him.
Warren ran for the Senate nomination as a Tea Party Democrat. That is hardly an economic matter. It is blatantly political. The idea that applied economic, i.e., economics applied to policy-making, is independent of political issues is just not the case. We are not doing pure economics here nor at billy blog. The MMT posts at other MMT blogs are also politically tinged since they are directly concerned with policy options.
MMT is Keynesian in the sense of demand-based. Some of its influences include Marx and Kalecki, and Abba Lerner. It is genrally opposed to neoliberalism and New Keynesianism. That puts is solidly on the left.
We on the left are happy to see people on the right interested in these ideas and welcome them to the debate. But don’t expect us to give up what we stand for. Just because we argue for reducing unemployment as economically prudent in order to eliminate foregone opportunity, doesn’t imply we think that this all there is to it. We also advocate it as a matter of human rights.
Here is my summary:
The ideals of the Enlightenment thinking about political philosophy are contained in the motto of theFrench Revolution, liberté, égalité, et fraternité. Liberty is articulated as human rights; equality as absence of privilege, implying equal opportunity and equality before the law, and “fraternity” as promotion of the general welfare. These are the basis of and reflected in the Declaration of Independence, the US Constitution and the Bill of Rights.
On the other hand, as it developed, the West largely pursued the former two and ignored the latter. Moreover, the first was misinterpreted as individual freedom from contraint to do was one pleased within legal bounds, while the latter degraded into a double standard.
The ignoring of “fraternity,” which the Europeans now call “solidarity” has been so thoroughly ignored by the English and Americans that they don’t even have a key term for it in political discourse. In fact, it is often thought of as “socialism,” with all the pejorative connotations of totalitarianism.
What this results is an erroneous notion of society as an aggregation of individuals, which, of course, is a classic example of the fallacy of composition. It is a chief reason that the fallacy of composition is endemic in mainstream economics. It completely ignores the fact that society is a system of relationships linking subsystems and individuals (elements) in complex interdependent webs that are causally determinative.
Whereas optimal societies are self-organizing, self-augmenting and self-perpetuating systems, the prevalent notions are producing the suboptimal aggregates that this erroneous thinking reflects. Such societies are unsustainable owing to “internal contradictions,” as the Marxians say. That is they produce tensions that overly stress the system, resulting in lack of control and eventual failures.
Libertarianism with a cap (libertarianism of the right) takes this erroneous thinking to the extreme, focusing on individuals alone and actually denying intrinsic relationship. Extreme libertarian Ayn Rand modeled the heroes of her influential novel on a serial killer that she admired for being totally devoid of empathy. Wizard behind the veil Alan Greenspan belonged to her salon.
It is sad enough that developed nations have adopted these models, But it is especially sad to see emerging nations and communities adopting these kinds of failed models.
rather than saying mmt is demand based, i’d say the current myths are suppressing demand.
ESM
I dont wish to keep this up a lot longer but I do want to make a few comments.
“When you have “A” (“A” could be a good pension, a good health care plan, a good job, a low tax rate, a nice neighborhood), which you feel you have earned because of hard work and good decision-making, which you have grown accustomed to having, and which you are satisified with, and somebody else comes along and proposes laws which you think will take away or diminish the value of “A,” then it is natural to fight to keep “A.” ”
Agreed, but I’ll just add that the operative terms here are “FEEL you have earned” and “laws which you THINK will take away or diminish”. Thats not a trivial qualifier. In fact its at the root of politics isnt it? I might tell them that their “earning” had a hell of a lot of support from “big government” through the years. The very thing they seem to only see as a wealth destroyer. I might also tell them that they are wrong to think that the proposals they are fighting will necessarily diminish any value they are fighting for. That they are only listening to a small group that has an ideological opposition to ANY and ALL govt. Would I be correct? I think so obviously. There are good arguments for my view that govt is not ALWAYS wealth destructive. Contrary to many peoples views Reagan was dead wrong about govt. This is not to relabel govt as all knowing and perfect but simply to reduce some of the heat in this govt vs private sector debate. I say fight away but dont fight straw men and dont fight things which MIGHT end up hurting yourself
“On top of that, when it appears a plurality of the people agree with you (and almost certainly a majority on some issues) and yet the government ignores you, disparages you, and steamrolls ahead and starts chipping away at “A,” then it is natural to become outraged”
Again, if A is health insurance all that was done is require all to own it ( I dont prefer it but like auto insurance I as a health care worker think its a necessary evil) and require the insurers to stop certain freedom reducing practices like……. not paying for things THEY think is too expensive….. or putting limits on the amount you can get in a lifetime.
There is no SOCIALIZATION of health care, no death panels, no funding of abortions for illegals, all the things that got these people riled up. FALSE ISSUES ALL!!
” And then to add insult to injury, when you go out and protest peacefully, the most powerful people in the country lie about you, call you a racist or a fascist or an idiot or a “teabagger” and then fabricate stories about you (e.g. the supposed “N-word” incident on the day of the House health care bill vote) or make sweeping negative generalizations about you based on non-incidents or isolated incidents. I’d say that given all of that, your disgust, despair, and anger would be justified — indeed “correct.”
When you openly carry firearms at a rally, when you make speeches and write emails calling for tree of liberty to be watered (with blood dont you know) call for violence towards members of the political class you dont like….. your kinda toeing the line of “peaceful protest”. Your sure to disagree with my view here but implied violence, if they dont get their way, is running all through this movement. Its disgusting and unnecessary in a civil society. Its funny you bring up tea bagger because that was THEIR word initially but because of some mocking about it they dropped it. But their opponents continue to use it, much to their chagrin.
I have no issue with their sentiments, I’m pissed too. And Ive been pissed for longer than they have because they brought in the destructive (destructive to our middle class) political movement of Ronny RayGun. I see the roots of this going back to 1980 they see it starting with Barack Obama. I see this as a result of extremist policies which only see tax cuts, stock price increases and executive pay increases as the only measures of a humming economy. Were these exclusively republican policies?? No but these ideas were ushered in by the new conservatives who hated workers with bargaining power and only saw govt as a means to enrich corporations by turning a blind eye to costly environmental and financial regulations. So I understand pissed, I just cant understand how they only see Barack Obama and democrats as the source of their ire. They are incredibly short sighted and frankly dont wish to engage in too many intellectual exercises which might give them a more nuanced view of the world, intellectual exercises being a socialist plot and all.
Im not dismissing their arguments because of their source but because of their lack of merit…. in my view.
Zanon: Your not required to read anything I or Tom write and if Warren wishes me to stop, I’m sure he’ll delete my posts or kindly ask me to stop.
Getting back to Mike Norman’s presentational skills, as several people above have said, getting the phraseology and the presentation right is vital. I didn’t like what Warren said once on a video clip about just “shifting numbers between accounts at the Fed”. That may be true, but it sounds too slick and slippery to the uninitiated. How about something like the following.
1. The purpose of the economy is to produce what consumers and citizens want. 2. If there is excess unemployment, that means consumers must be given more spending power, plus it helps if government spends more. 3. Spending power comes from extra money, i.e. printing money, and channeling it into consumers’ pockets. 4. That DOES pose an inflationary risk, but if inflation looms, money can be withdrawn from consumers’ pockets as quickly as it can be channelled into their pockets (e.g. by increased taxes).
pretty good but personally I don’t use the term ‘printing money’ as a distinction from any other means of govt spending, as it was under the gold standard.
Toms Hickey: I don’t think you are capable of having a thought without infecting it with political garbage. “Who? Whom?” has taken over your brain entirely.
You assertion that double entry bookkeeping and fed operations as “left wing” is laughable garbage. Your probably think your underpants are left wing.
And Billy Blog I have given up on entirely. He is even more tiresome than you. Reading his blog is like listening to fidel castro speech while having diahhrea pour on your head.
Of course this is Warren’s blog, but that does not change the nonsense you prattle nor my desire that you take it elsewhere
Warren: rather than saying mmt is demand based, i’d say the current myths are suppressing demand
While I don’t disagree with that, supply and demand being two blades of a single scissors; hence, impossible to separate. However, I think it is a matter of emphasis that can be determined by examining priorities. Supply-side emphasizes the role of investment in producing the income for aggregate demand.
Investment is the independent variable and income the dependent variable in supply-side models. Demand side emphasizes the income needed for effective demand, pointing out that investment responds to demand. Income is the independent variable and investment is the dependent variable in demand-side models.
I take Art Laffer as an example of supply-side economics based on (unstated) MMT principles in that in his thinking “deficits don’t matter” as long as they come from tax cuts, not spending. Then, disingenuously, the deficit can be used strategically to argue for reduced social expenditure and increased privatization (private investment and financialization). This is quite different from traditional fiscal conservatism, for example, which insists on budget balance and, at its extreme, would like to see a balanced budget amendment added to the Constitution.
MMT’ers, on the other hand, are not concerned with deficits unless they portend to spark inflation when aggregate demand outpaces the ability of productive capacity/investment to respond. The chief concern is with income sufficient to provide for the desire to consumer and the current propensity to save (after paying taxes). This requires that either exports accommodate or else government take up the slack resulting from saving propensity,
Moreover, MMT’ers presume that if effective demand is predictably able to consume what the economy produces, then investment will respond accordingly. Thus the concern is income (effective demand) rather than investment (potential supply). Without sufficient effective demand, potential supply differs from actual supply called upon, and that adversely affects the economy, resulting in foregone opportunity and rising unemployment, until either the private sector goes into deeper debt, the export situation improves, or government act to pick up the slack with deficit expenditure, IAW the sectoral balance approach and functional finance.
I just don’t hear MMT’ers talking much about investment, while supply-siders are obsessed with it, to the exclusion of considering income effects on effective demand. So, relatively speaking, I would say that it is correct to characterize MMT demand-based, i.e., demand as the independent variable with supply/investment tagging along as the dependent variable.
private sector investment is driven by perceptions of future sales and cost cutting.
it responds to prices and chases dollars.
public sector investment puts that component of the public infrastructure in place for further public purpose.
including increasing real potential supply and reducing real costs.
Right, but the supply-siders and conservatives reject the notion of public “investment.” To them, it is an oxymoron. Government only “spends” and never invests. To them investment means capital investment, which is private. Talking about government “investing” for public purpose is meaningless to them. On the other hand, to MMT’ers expenditure of a JG, for example, is an investment in the labor force that maintains and improves it, while simultaneously providing a price anchor against inflation. Maybe MMT’ers should just drop “government spending” terminology, which is a key term of the opposition, and use “public investment” instead. It’s a more accurate descriptor of what is happening operationally.
They don’t count the legal system, law enforcement, military, major bridges, panama canal, internet, as public infrastructure and sometimes investment?
Not as I understand what they are consistently saying. In addition, did you know that government does not create jobs through stimulus, because it cannot do so — only the private sector can? Government “handouts,” “boondoggles,” and “political pork” don’t create real “work” and don’t produce anything of value. That’s actually the party line.
right, they don’t define anything the public sector does as ‘real’ work.
I suppose that includes the entire legal system, etc.
It’s politics to do that, not economics
Tom, I think you’re taking a page out of Obama’s playbook and railing against strawmen. There are very few people who believe that government is unnecessary, although isn’t Noam Chomsky one of them?
On the issue of government’s ability to create jobs, please have a look at my commentary from last year. It comes down to what the definition of a job is.
ESM, I am not making this stuff up. I hear on TV and see it in the papers and blogs all the time, coming from GOP politicians, for example. For awhile, it was daily talking point that the stimulus didn’t create jobs; only the private sector can do that. Eric Cantor pops into mind, for instance, and he was not alone. These are the people that are making stuff up.
The other favorite argument is that any job that government does create means one less job in the private sector.
As far as public investment goes, I mean, they are trying to privatize the road system! According to this ideology, investment is capital investment and a return can be computed on it relative to prevailing interest rates, against which commitment must be assessed. No sense investing money at risk when as much or more is available at low risk in bonds, for example.
The claim is that “investment doesn’t apply to government spending since it is not capital put at risk. No capital at risk, no investment.
I don’t see that I am over the top on this. This is standard fare.
“Tom, I think you’re taking a page out of Obama’s playbook and railing against strawmen. There are very few people who believe that government is unnecessary, although isn’t Noam Chomsky one of them?”
When pressed most will admit to the necessity of govt. Especially for defense, police blah blah blah but Toms point is valid regarding what way too many (maybe Chomsky too) love to say off the cuff.
I dont know how many of my colleagues (health care providers) made claims during the health debate like “Do you want the folks who run the post office to run our healthcare?” Ignoring the fact that the1) post office is totally funded by the rates it charges for mail and receives no extra taxpayer money 2) No one wants the postmaster general to administer the health care payment system.
Its this type of ludicrous hyperbole that only detracts from the real discussions that need to take place (like the one you had with your commenter at the post you linked to about govt job creation) regarding the proper size, role, and cost of govts. As imbalanced as you think Tom is making the critique, I think there is plenty of evidence that the crazy factor, the folks who refuse to acknowledge anything positive about our govt (except their men in fatigues) are mostly on the right these days. Not much nuanced discussion about stuff is sought.
So Warren, how would you respond to a Peter Schiff or an Art Laffer when they say, possibly in response to your suggestion of direct federal hiring of the unemployed (via a JG or direct supplements to private firms for example), that thats not creating employment its simply throwing money at people and not getting anything of value for your dollar. Its only going to trash our currencies’ value, bring on previously unseen inflation levels and lead to the end of our society.
Ive gotten those answers from Austrian types and from Fox watchers when I bring up direct federal hiring of people. I’ve even gotten responses in that vein from fellow progressives who dont appreciate the nuances of our currency system and MMTs analysis.
Surely you’ve had this debate before. How do you respond?
my $8/hr job will attract the unemployed who are already in the public sector for all practical purposes, and help them transition to the private sector.
i don’t see that wage doing much to increase aggregate demand, particularly as it allows us, for a given size govt., to keep taxes low enough for maybe only 3% of the work force to be in this transition job, rather than the 4-5% generally considered required for a pool of unemployed.
also, in private conversation Laffer is right there with MMT. It’s only his public persona that’s out to lunch.
and remember, the chain of events is:
govt desires to hire people by paying them it’s pieces of paper.
tax liabilities denominated in those pieces of paper function to cause people otherwise laboring elsewhere to seek employment to earn the now needed dollars.
Govt spending then hires the people govt wanted in the first place.
So creating a tax liability that causes more people to seek govt work than govt wants to hire makes no sense.
Govt should either cut the tax or hire them.
And there is no responding to Peter Schiff. There is only responding to others about Peter Schiff. In general, he responds as if we are still on the gold standard, thinking we need savings to fund investment, for example.
first, if they were unemployed any output is a useful gain, as is any drop in negative externalities associated with unemployment
second, if there is no public sector work deemed useful for the unemployed, they first go into my $8/hr job, and then taxes are reduces and they transition to private sector employment,
third, yes, we will get demand pull inflation should spending exceed things available for sale. It’s never happened in my lifetime but certainly a possibility. But to get out of a hole, first you have to stop digging, and right now seems to me the output gap continues to grow, if anything.
And remember, business and govt should strive for max efficiency- getting things done right with as few people as possible.
That leaves more of us to do all the other useful things we’d like to get done.
The only reason anyone would think other wise- try to get business to hire more, etc- is a lack of understanding of the monetary system
Warren, why do you think that 1) Laffer’s public persona doesn’t match his actual views, and 2) why is he so insist on cutting social spending that seemingly would tank demand without the tax cuts, which go mostly to the top end of town, making up for it? Or does he think that the US can survive and progress on consumption at the top end of town, along with military expenditure? If he gets MMT, I don’t get his stance.
I don’t either. it remains a mystery.
I do know at one point someone killed all the animals he kept at his home.
Don’t know why.
“private sector investment is driven by perceptions of future sales and cost cutting.
it responds to prices and chases dollars.”
Right. Those future sales are to people with incomes. If there are fewer people with incomes, private sector investment opportunities look grim.
Excellent
Amazing! Mike totally nailed it.
You did good job too Qc over at econbrowser. It was a pleasure to back you up there.
Great job Mike. Keep the momentum going and let us know if you need support.
That video has one of the highest “Number of overall views to number of user comments” ratios I’ve ever seen on YouTube! Is there a group of Austrians who get alerted every time Mike appears in a clip and take it upon themselves to flame him?
Bravo. You had talking points, got them across (more than once ins some cases), and didn’t let the reporterette lead you off track. You’re getting good at this.
You are good, man! I liked it!
WM says “wish I could do this well”. Anyone can do that well with practice. Tony Benn, the veteran UK left wing politician spent a huge amount of time in front of mirrors and video cameras getting this facial expressions and hand movements right. It worked.
Thomas Eddison: “Genius is 99% perspiration and 1% inspiration”.
He looked good, shame he was talking BS.
Mike,
Well done! Engaging, animated and easy to understand for a layperson.
Warren,
You should watch this video repeatedly and use the tone and tenor as a model for your senatorial debates. I think you came off as a bit stiff, subdued and deferential during your recent debate at Trinity. A little bit of stagecraft and passion would likely go a long way in conveying the importance of the issues you represent. I hate to say it but Schiff’s use of humor and general manner during the debate likely won him a good deal of support even though his dead wrong on the issues.
I would submit that the vast majority of voters pay much more attention to the manner in which things are said rather than the content of what is said as most can’t be bothered to research the issues to any degree. It’s unfortunate but true that elections are as much popularity contests as intellectual exercises.
Studies show that people prefer simple arguments they can understand as based on “common sense” and which appeal to their emotions, even though the argument is wrong, over complex arguments they don’t understand and which them off, even though the argument may be right.
It’s the old marketing adage, “Perception is reality.” It is necessary to sell ideas based on perception and feeling much more than logical reasoning and data. The former approach comes across as strong and warm, the latter seems weak and wonky. See Harry Beckwith, Selling the Invisible: A Field Guide to Modern Marketing (1997).
Thought I should hibernate on this – but can’t resist!
News flash – Steve Jobs announces he won’t export iPhones to other nations because the US government is revenue constrained!
Mike has a great presences in front of the TV and the microphone. He does pull this discussion off real good. Almost too good.
If one dissects what he (and the chartalists) say…
1) The US can always print money to pay for its debt, thus creating new debt is not a problem. Even, spending with no debt is theoretically possible.
2) Since printing money is possible, then so is it possible that taxes don’t have to be collected.
3) Our foreign trade balance is like Mike said in our favor. Meaning we get to consume products made by foreigners and exchange that with paper that really doesn’t need to have debt behind it nor does it have to be created via taxation. It is just paper (or 0’s on a computer).
If I was a foreigner looking at this I’d ask these questions:
1) Since the US doesn’t produce anything any more or at least they are constantly a net-importer, for what value does any of their paper money then have?
2) If the US doesn’t work for their consumption and instead can just print money to pay for our goods that we make, who is the slave and who is the slave owner? Although we may be able to receive benefit for producing and selling goods, why should the US get off without having to do at least some of the work? At least if they aren’t willing to work, they should share their natural resources or their property. Why do they get the free lunch and not us?
If I were a banker or someone who relied on the debt market to make my money I may ask these questions…
1) How much more debt will the US be able to create before it eventually devalues its money and thus my assets? (Note, Mike said in this video that is the only problem we could face.)
2) What happens if people figure out that the US government can print money and thus doesn’t need my money for which I will lose my interest payments and stream of income?
Finally, the chartalists are correct in every way. That is until the rest of the world figures this out at which time the foreigner and the banker will cut us off. Can we survive when that happens? Can we live in isolation? We may need to.
(2) is wrong “…taxes don’t have to be collected.” Taxes are necessary for fiat money, in order to create and sustain a demand for it.
(And to be technical about (1), all money is debt, you are saying that interest bearing debt need not be issued)
On (3), etc, my personal view, which is of course the absolute truth, the foreign demand for US$ functions much like a tax, or forced savings, enforced ultimately by the US government. If a state has an insufficient supply of US$, then almost all governments are susceptible to having the IMF come in and intentionally destroy their economy. Sure, the demand for US$ benefits the US more – enormously more if we made use of it rationally – but the foreign demand is much more reasonable than it appears to many.
My answer to banker question 1) is – a helluva lot more – the deficit terrorists have frightened us into being a nation which is terrified of printing the most obviously necessary and beneficial amount of money. What the banker cutting the US government off means is obscure – bankers have no economic, as opposed to political, power over the US government.
“Taxes are necessary for fiat money, in order to create and sustain a demand for it.”
Yes and no. Tender laws also exist to force people to use government paper. But, yes taxes do create a demand for currency, they just don’t pay for anything.
“bankers have no economic, as opposed to political, power over the US government”
Exactly. The banker funds political campaigns. Do you think any politician would survive an election if they said we are sovereign and don’t need their borrowed money?
legal tender laws don’t function to value a currency.
In fact, after much discussion, the eu left them out of the Maastricht treaty
The only function i know of is to specify how debts are discharged in courts of law.
In the US damages are awarded in dollars, not in kind, with a few exceptions.
According to the US Treasury ( http://www.ustreas.gov/education/faq/currency/legal-tender.shtml#q1 ) anyone can specify what kind of physical medium of exchange can be used in a transaction. What is implied though is that this medium of exchange references the same value as other physical money. Someone can not allow you to pay with 100 pennies and instead insist on a dollar bill.
There are barter systems that exist but they seem to be illegal as soon as the token is valued to something similarly expressed in dollars. Thus, if I understand it, you can say one token is worth 1 gallon of milk, but you can’t say that 1 token is worth $3 which is the value of a gallon of milk.
So, I do think there are enforceable legal tender laws, but in our economy with check clearing, credit/debit cards, creating such a network would be very difficult to get any traction.
Warren, this is not correct. Article 105a defines ECB bank notes as the only allowed legal tender
Finally, the chartalists are correct in every way. That is until the rest of the world figures this out at which time the foreigner and the banker will cut us off. Can we survive when that happens? Can we live in isolation? We may need to.
Uh, the ROW runs fiat currencies, too, and their operational reality is essentially the same, with differences imposed politically.
The value of a currency is what it will buy relative to other currencies. That is shown in the fx rate. As currencies weaken (strengthen) relative to each other, they buy less (more).
As a country’s currency weakens (strengthens), its exports become less expensive (more expensive) in other currencies and the balance of payments shifts accordingly.
The correction is a automatic and market-based. Where’s the problem here?
“The correction is a automatic and market-based. Where’s the problem here?”
The correction is forced. With what I’ve asked above, why do foreigners continue to demand US dollars? Why are they willing to be the slaves for us so we can enjoy their labor? What keeps the demand increased and our US dollars worth anything at all? Why can’t Estonia become the consuming capital of the world with printed money? Or Chile? Or Brazil? Or China?
Is there a market on earth that only deals in US dollars for which these slaves need more and more of our money to spend in this market?
Nothing preventing others from dislodging the US as king of the mountain. It just isn’t happening yet. When it does, the US will have to adjust. No one stays on top forever. But the problems that the US may face won’t be the result of its fiat currency. It will be poor political choices involving short term advantage favoring special interests that imply long time detriment for the polity. The US is already on that road (to corporatist statism) and after a while that catches up as foundations weaken.
“The correction is forced”
The correction is voluntary policy when inflation appears.
Why should it happen before then?
The FX rate doesn’t matter unless it forces up domestic inflation.
The correction is forced.
I don’t see how the correction is “forced.” It’s the operation of the fx market. What is “forced” about that? Preferences change and with that nominal relationships of currencies. Pretty straightforward market economics. No one is holding the US at gunpoint. The US has already ensured that won’t happen.
Believe me, if the dollar collapses, so goes the world at this point in time. No other country is going to cut its own throat by forcing sudden change that undermines the existing system.
“Nothing preventing others from dislodging the US as king of the mountain.”
If you’re a country that does not have oil where do you buy it? What currency does that market use? If you don’t have the currency of the market how do you get it? Perhaps you’re willing to be a slave and trade your sweat and work for the currency that you can then use to buy oil.
If oil is not necessary is there a market? If there is no market is their a demand for someone else’s currency? If there is no demand for someone else’s currency, perhaps the slave can be free.
For now the slave’s rulers are willing to go along with the arrangement. But for how long?
And by the way, if our currency is “backed” by this demand for oil, is our currency truly a chartalist existence? Or does our currency have some value which is backed by a commodity?
IMO The Interest makes a point by asking why the oil prices aren’t quoted in the currency of the country which produces it. Then USA will have to purchase that currency first with USDs and these transactions will influence the fx rates as well.
If you think this is so obvious, short the the dollar with all the rest of the people that are banking on this eventuality.
In the first place, what difference does it make what currency a price is quoted in. Country’s get their fx in the market. Oh, and Menzie Chinn investigates claims of causality implying an inverse relationship of oil price and dollar value here. Turns out, not so much.
The second place the US has the largest military in the world to protect its national security, part of which is ensuring access to vital resources. The US has already been using this tool, and it will continue to do so.
Third, whether oil is denominated in dollars or not is becoming a lot less significant now that the handwriting is on the wall about reducing carbon emissions. This is accelerating development and deployment of alternatives.
Fourthly, it is clear that global demand is outrunning supply, which means that as oil prices increase with world demand, alternatives will become more competitive.
Fifth, rise in oil price benefits oil rich countries. While the US is not as oil rich as it was, it is far richer in oil that most countries and would benefit from this increase is prices of its natural resources. The US is very rich in both natural gas and coal, which would be used to replace oil in many applications. But as the price rises, less available field will increasingly be be tapped and the US is rich in hose, even though it has used up most of its easily available resources. This is not say that there is not an energy crisis brewing globally. EROEI is declining, and that is of concern. But the first step in the solution is conservation.
Precisely what I have been so against in all these comments.
Those looking for such simple explanations and solutions and plans and proposals are chasing a mirage!
All such attempts are doomed to be a failure.
As you know I agree with you in principle that without a global demand-based economy that is sustainable instead of of an asset-value debt-based Ponzi one that is unsustainable, markets won’t correct seamlessly and there will be market failures such as the one the world is still in the midst of. Indeed, this may still turn out to be “the big one.”
There’s no problem with the CA deficit until inflation appears.
And there’s no sign of that.
Both aspects were acknowledged in the video.
When inflation becomes a problem, you deal with it through higher rates. The CA deficit and the FX rate will adjust accordingly.
or you deal with it through higher taxes, per MMT
either way, its not a problem now
Thats the MMT equivalent of the Mundell-Fleming Thesis!
what does that mean, please?
is it good or bad?
The Mundell-Fleming approach ia a 2-country model and briefly says that when exports increase, money supply increases and decreases in the importing country. It says that there is an adjustment mechanism which brings trade into balance because if money supply increases, prices rise and vice versa. So this leads to a balance of trade.
(A related fact is that one talks of central banks sterilising when they purchase foreign currency. In reality they are just doing interest rate maintenance operations. The phrase sterlilization appeared in the mainstream economics literature because when the central bank has purchased the foreign currency, it is thought that the reserves created causes inflation as per Mundell-Fleming. )
According to MMT, however, trade imbalance is not a problem at all. It is just a matter of currency changes.
From a paper by Bill: http://e1.newcastle.edu.au/coffee/pubs/wp/2008/08-10.pdf
“In terms of the slightly worsening current account deficit, we can interpret that as signifying an increased desire by foreigners to place their savings in financial assets denominated in Australian dollars. This desire means that that the foreign sector will allow us to enjoy more real goods and services from them relative to the real goods and services we have to export. We note that exports are always a “cost” while imports are “benefits”. As long as there is a foreign desire for our financial assets, the real terms of trade will provide net benefits to Australian residents which manifests as the current account deficit. An external deficit presents no intrinsic problem despite views by the orthodoxy to the contrary.”
Of course I’ve heard of MF and always assumed it was garbage. Your description of it only confirms that.
Yeah.
MMTers think it operated in the Gold Standard – which it never!
first, worst case we can always have ‘balanced trade.’
second, the US can deficit spend to the extent the non govt sectors need dollars to pay taxes and net save.
third, the idea of ‘the banker’ cutting us off doesn’t apply
Interest,
“Since the US doesn’t produce anything any more or at least they are constantly a net-importer, for what value does any of their paper money then have?”
The imports for finished goods are just a tiny part of the US economy. For June, our net imports were 42B, 20B for unrefined crude oil and 22B from China for industrial components and some finished goods. This in what is approaching a 15T economy. The non-crude oil portion of this represents less than 2% of US GDP.
To say that US doesnt produce anything anymore is a bizzare statement, although I get the feeling many people somehow feel that way. The only explanation I can come up with is that most folks are focused on cheap discretionary consumer goods that they buy at the retail stores that have labeling that says “Made in ?”, often a foreign country.
You have to look at the bulk of the US economy to gain a better perspective. Massive industries like transportation, healthcare, education, power gen and transmission, public infrastructure, housing and contruction, I could go on…have virtually nothing to do with the foreign sector.
Look at a school, you have this large multi-million $ public school; Class A construction by US workers, computer networks, huge HVAC, food service, teaching and admin staff, bus transportation, power transmission, etc, all of this built/operated/maintained by US workers…but somehow all of that “doesnt count” because the 2 cent ink pen that a teacher writes with in a classroom from Office Depot was “Made in China”?…give me a break.
Resp,
According to Mike Norman, Bush raised the national debt $5T during his presidency. During that time $1T was added to domestic gross savings. The other $4T went to the rest of the world in exchange for goods along with our spending on wars, etc. Your examples of HVAC, food service, teachers, etc. don’t mix in the foreign leakage of the $4T.
Interest,
I dont think Mike said that or perhaps you are misinterpreting, when Bush2 left, public debt was around 6T, he was in for 8 years, but I dont think it was 1T when he went in. US fiscal deficits were usually 500B or less (sometimes much less due to wild spec driven profits filling the coffers) during his tenure, I think it went up about 2T during Bush years. Lets say that the gdp averaged 12T during his 8 year tenure, thats about 100T of gdp, probably 1-2T was built up by the foreign sector over these years, so again you have to come back to the 2% or less. Almost all war spending stays right here in US in contractors bank accounts and Federal Credit unions at Ft Bragg.
When Bush2 went in FAs for Households was 33.7T Link here:
http://www.federalreserve.gov/releases/z1/20010309/z1r-5.pdf
When he came out it was 40.8T link here:
http://federalreserve.gov/releases/z1/20090312/z1r-5.pdf
The foreign sector ex-petro is overblown by import-phobes outside of how it acts to throw US workers out of their jobs; and there are very simple ways we can correct for that (JG).
Resp,
Sorry, what Mike said was that W. added $5T to the current national debt and of that $1T was net savings on our side.
As for the dollar amounts we can’t compare apples to apples on that anyway.
What is the cost of labor for that $.02 pen made in some factory in China? If that same pen was made here what would that cost be? Higher? By how much? So the dollar amount of lost production here would never equal the production on foreign soil. If it did, then most likely the job would be done here.
Don’t be confused by the dollar amounts. GDP to GDP won’t compare. One slave’s worth in one country differs from a slave’s worth in another.
I foolishly decided to check the youtube comments…
These are a few of the gems:
This is a fairly common counter argument (That the fed is a private entity and not a part of the government) that I’ve experienced. From the best of my knowledge it comes from Rothbard and those ‘zeitgeist’ videos.
Then there’s this. Similar argument, but it’s not just the FED but also other banks which issue (ambiguously defined) ‘money’.
Another widespread conspiracy theory. I run into it all the time. It’s related to “the international bankers” (subtext Jews) own the world and we are their slaves unless we take it back from them (related to “we need to take our country back”).
The “we need to take our country back” meme is not related to crazy, conspiracy theories at all. In 2008, almost complete control over the US government was handed over to very liberal politicians. Arguably, the House and the Speaker of the House are further to the left of any in history, and our very liberal president has left much of the bill-writing to the House. Futhermore, the liberals in charge have pressed forward with much of their agenda despite strong opposition from a plurality of voters. All perfectly legitimate you say? Well, perhaps. But it is also legitimate to want to take back the levers of power from them at the first legal opportunity. To conflate moderate and appropriate political rhetoric with paranoia is itself paranoid.
ESM, “take our country back” from whom? The government was elected in a landside.That slogan is based on nutty conspiracy theory notions that have nothing to do with facts. Just look at who is behind it.
Obama/Pelosi/Reid. From those who are temporarily in power and using that power very aggessively to expand government against the wishes of the majority of the voters.
First of all, these guys did not win power in a landslide. Obama won by less than 7 percentage points in the popular vote against a crazy old coot with the charisma of a damp rag and his know-nothing diva of a vp pick, while in the middle of a financial meltdown that people naturally (although not rationally) blamed on the then incumbent president’s party.
Second, if you look at the rhetoric on the right against Obama/Pelosi/Reid, which only started to build after the scandalous stimulus bill and climaxed with the ramming home of Obamacare, and then compare it to the rhetoric on the left against Bush/Cheney et al starting from November 2000 and continuing until this very day, well, let me just say that it’s kind of like comparing Bill O’Reilly to Keith Olbermann.
“Second, if you look at the rhetoric on the right against Obama/Pelosi/Reid, which only started to build after the scandalous stimulus bill and climaxed with the ramming home of Obamacare, and then compare it to the rhetoric on the left against Bush/Cheney et al starting from November 2000 and continuing until this very day, well, let me just say that it’s kind of like comparing Bill O’Reilly to Keith Olbermann.”
Yeah that “socialist” stimulus bill. Infrastructure projects and 30% tax cuts….. LEFT WING I TELL YA!!
Obamacare, a handout to PRIVATE insurers (Newts exact plan in ’95). The majorit that are against Obamacare are not against it for the same reasons. Many oppose it (like myself) because it does not include the public option. It was an effort to appease the unappeasable rethugs.
Calling Obama the furthest left president in history shows a deep deep ignorance of what left right politics has been historically.
You can’t make this stuff up. Would you believe?
Conservative Bloggers Select The 25 Worst Figures In American History
Really?
Greg, I’m sorry for being blunt, but you have a serious issue with reading comprehension.
“Yeah that ‘socialist’ stimulus bill. Infrastructure projects and 30% tax cuts….. LEFT WING I TELL YA!!”
I didn’t say it was socialist. I said it was scandalous – in the sense that the funding was disproportionately allocated according to the wishes of Democratic interest groups. And it was rushed through so as to circumvent the normal review process.
“The majorit that are against Obamacare are not against it for the same reasons.”
I didn’t say that the overall majority are against Obamacare. I said that the rhetoric on the right climaxed with the passage of Obamacare because a) Obamacare takes a dramatic step towards socialized health care, and b) it passed by a hair’s breadth, and the way Pelosi and Reid got the votes for it seemed so outrageous and unfair.
“Calling Obama the furthest left president in history shows a deep deep ignorance of what left right politics has been historically.”
I never said this. Obama may be one of the most narcissistic and naive presidents we’ve ever had, but I don’t actually think he’s as progressive as FDR for example.
so what kind of liberal agenda supports high income earners and corps over low income individuals?
passes health care reform that throws a $T at the insurance companies to attempt to broaden health care coverage?
subsidizes illegals so they can provide cheap labor to business?
supports union leaders over union members?
passes a payroll tax break for business and not for employees?
backs off on international human rights issues?
looks to me a lot more like it’s functionally an elitist cabal of govt, business, etc. than a liberal/socialist agenda?
“looks to me a lot more like it’s functionally an elitist cabal of govt, business, etc. than a liberal/socialist agenda?”
Warren, that’s my problem with liberalism/socialism. It means a larger role for government, and government is the ultimate elitist cabal. Big business always gets its seat at the table too because money buys access to politicians and bureaucrats.
If you cut down the size of government, businesses will spend less time trying to compete in Washington for government dollars and more time trying to compete in the marketplace for consumer dollars.
If you cut down the size of government, businesses will spend less time trying to compete in Washington for government dollars and more time trying to compete in the marketplace for consumer dollars.
Agreed. So obvious. But how can it be unwound?
The only way to unwind down the currently expanding corporatist state is through comprehensive campaign finance and advertising reform that gets the money out of politics and locks the revolving door. Beowulf can comment on the means but I think it would take a carefully crafted constitutional amendment at this point in light of precedent, or else a reversal of precedent by the judiciary. Both are unlikely. Otherwise the looting will continue regardless of which party is in power. Even if a new crop is elected they will soon realize to whom they are beholden for reelection, and the game will go on.
how about something like if 60% of all contributions went to your candidate, and the rest to the opposition?
Interesting piece on the psychology of power that also sheds insight on why change is so difficult, even with the power elite is replaced.
http://www.wired.com/wiredscience/2010/08/the-psychology-of-power/
“The only way to unwind down the currently expanding corporatist state is through comprehensive campaign finance and advertising reform that gets the money out of politics and locks the revolving door.”
Tom, you’re clearly a smart guy and very well-read. But Zanon is right that some of your ideas are completely unrealistic. You will never get the money out of politics through regulation. Not only is it impossible, but attempts to do so will infringe on individual liberty. Money is necessary for speech, and “Congress shall make no law … abridging the freedom of speech.”
The way to get the money out of politics is to make the government less powerful so that the payoff from influencing politicians with money is too small to make sense economically.
ESM, as a libertarian of the left I agree with you, but as someone who has studied political philosophy I recognize the limitations of contemporary libertarianisms, all of which naively assume that the “free market” will optimize not only economic life but also social and political life. That is not borne out the facts. Some government is necessary in complex societies, and all governments can be captured regardless of size.
But I agree that the present government needs to be downsized. When it comes to practical proposals for reducing the size of government, the place to start is with the military. A large and powerful military poses more of a danger to democracy than just about anything else. A second is ending central banking as it presently exists, as well as To Big To Fail in both finance and industry, which allows systemic risk and moral hazard to hold government hostage, essentially creating a implicit and explicit subsidies. These just ways of hijacking government and pillaging the Treasury. A third is putting an end to the reign of professional politicians.
It does not matter whether government is small or big if the state used to controlled the people. There are myriad instances of a relatively few controlling the many. The size of government is not the problem. The real problem is state capture by a power elite. History shows that a very small number can take control given the right conditions.
Moreover, there is no such thing as a “free market” without some regulation, and once you introduce regulation, the genie is out of the bottle.
http://en.wikipedia.org/wiki/Liberal_paradox
If you want a libertarian critique, here is Tyler Cowen’ view.
ESM
I was also responding to this:
“The “we need to take our country back” meme is not related to crazy, conspiracy theories at all. In 2008, almost complete control over the US government was handed over to very liberal politicians. Arguably, the House and the Speaker of the House are further to the left of any in history, and our very liberal president has left much of the bill-writing to the House. Futhermore, the liberals in charge have pressed forward with much of their agenda despite strong opposition from a plurality of voters. All perfectly legitimate you say? Well, perhaps. But it is also legitimate to want to take back the levers of power from them at the first legal opportunity. To conflate moderate and appropriate political rhetoric with paranoia is itself paranoid.”
Now in this rant you equated our president with very liberal and our House as the furthest left in history. Yes, you didnt specifically call Obama the furthest left president in history, he simply gives the furthest left house the power to write all our bills. A difference without much distinction.
To add to yours and Toms discussion, I’m not sure I’d use the term downsize to describe what I think should be done for govt. I do think fewer people could work in govt but they probably need to be paid more so our costs would likely go up. The people regulating financial interests should be damn well paid so they cant be captured by the interests they are regulating. I think we underpay and overstaff most important govt jobs. Getting the money out of politics is easy. Every candidate gets full public payment for their campaigns. They all get equal airtime on a public channel and they dont NEED to do any fund raising.
Your quite wrong that money is necessary for speech. All that is necessary is vocal cords,paper and pen, and microphones. Allowing money to dictate who gets heard is bad for people with good things to say and very little money. The solution to money and politics is a simple solution which is politically difficult to change. But the answer is still a simple one.
Beowulf can comment on the means but I think it would take a carefully crafted constitutional amendment at this point in light of precedent, or else a reversal of precedent by the judiciary.
Tom, the trouble with constitutional amendment route is that the supermajorities required for passage (two-thirds of House, Senate and state legislatures) are even more onerous than the supermajority of 60 required to break a Senate filibuster. If the country is going to be fixed, its with the Constitution we have now.
The first step as Harvard law professor Larry Lessig has proposed, is a “clean money” voluntary campaign financing reform (since campaign self-funders like Warren could opt out of the campaign funding subsidies and restrictions, it should be able to avoid First Amendment challenge).
http://www.fixcongressfirst.org/
The second step is to eliminate the Senate filibuster. It could be phased out over 2 Congresses (60 to 55 to 50 votes) or could be done all at once. The House of Representatives actually has a say in this. The Budget Act of 1974 (which both Houses of Congress voted on, federal law supercedes Senate rules) created the filibuster-proof budget reconciliation process that limited debate to 20 hours. The House could launch a filibuster of its own and refuse to consider any Senate bill until the Budget Act is amended to apply reconciliation status to every bill.
Education will get money out of politics. So people will vote not by the advertising campaign budget but by what they need and what politicians do. Dream? Maybe. But many dreams have come true.
The US can always print (or whatever euphemism you like to use around here) money to pay the debts in its own currency, there is no dispute about that. But despite the current deficits, the fact is that it’s not currently acting as if there were no limits (as Norman usually says). Would the interest rate be 0 if the US would publically adopt the policy that there are no limits to money printing? But even then you may say that US doesn’t need debt since it can’t print the money directly. But how is that different from any other country with fiat
currency?
I think the reasoning, at least as expressed by Norman, is extremely simplistic and lineal. For example: “there are no signs of inflation”, “we can print because there is spare capacity”, “we can print to achieve full employment”. I mean, are you sure
capacity utilization will come before inflation? why money won’t end in the pockets of those with power and knowledge of what is going on? etc.
I mean, are you sure capacity utilization will come before inflation? why money won’t end in the pockets of those with power and knowledge of what is going on? etc.
Fair questions. MMT’ers have considered these issues and many others in depth in professional publications and informally in many blog posts. If you want to know more about MMT and how it deals with such matters, check out the mandatory readings on this site. That will get you started. There is much more.
To summarize the concerns mentioned above, first, the Fed would love to get interest rates off the bottom but cannot do it even with the loosest monetary policy. Moreover, empirical studies show that some inflation before reaching full capacity can be beneficial after prices have been depressed or stagnant. The possibility of serious inflationary pressure is not imminent or even foreseeable in the distant future. Deflation remains the real threat, on one hand, and Japanification, on the other. This is a “balance sheet recession,” as Richard Koo calls it, and there is a huge amount of private debt, much of it bad, that is hanging by a thread, like a sword of Damocles, waiting to fall. Without resolving that confidence will remain weak and the economy is going nowhere. In addition, should inflation become problematic near full employment, MMT deals with that fiscally, through increasing taxes and curtailing spending to reduce demand, just as it recommends spending increases and tax cuts to stimulate demand in recession.
Secondly, monetary policy is a blunt instrument and cannot be targeted. Fiscal policy is a sharp tool that can be tightly targeted to place funds where they are most likely to be spent, increasing effective demand in recession. Under the present system, wealth gravitates (trickles) upward, so that is going to happen in any case without increasing progressive taxation, again fiscal. But on the way upward it flows through all levels of the economy, the opposite of trickle down.
For any nation with a floating fx policy and a fiat currency the interest rate is a political choice, not market determined.
So in the US, it’s done by a vote at the Fed.
And yes, money does end up in the pockets of those with power and knowledge in any case, including right now.
Esm
Do not confuse Tom hickey with reality. He is overload already by screaming dollar hegemony and giving damn about idiot ravings of conservative “blogger”. Is there lower form of life?
Zanon, your comment serves to confirm my point in August 15th, 2010 at 3:41 pm. 🙂
Like so many things, toms hickey, it does exactly the opposite.
just because conservative blogger may be lowest form of life, it does not mean that they do not have plenty of company down in gutter.
i do not like the tea party, nor do is support them, nor do i believe anything good will come from them activity. if i have magic wand i make them vanish. still, i understand perfectly what they mean when they say “take our country back” and am sypathetic.
it seems your sympathy only extend to individual who know what is good for them and vote the approved way. Pas d’ennemis a gauche, pas d’amis a droit.
Actually, Zanon, that is not true or I would have encouraged Warren to identify with the TP and speak at TP events. I believe that many people in the TP are well-intentioned people that are just confused about the economics, for a variety of reasons. Most mainstream economists are confused, too.
I won’t get into what I see as the kerfuffle over “take our country back” because I think it means different things to different people. I do think that the state has been captured, as I have said many times in the past. We the people need to take it back. To do this several things are required.
First and foremost, I believe is getting the money out of politics and closing the revolving door.
Second, the “military-industrial-congressional complex” (the phrase that Eisenhower originally wrote in the draft of his farewell address) must be dismantled. This leads to corporatist statism to a dangerous degree, as well as overly aggressive foreign policy.
Third, financial capitalism must be terminated and banks must be returned to traditional banking, that is, chiefly serving the needs of both workers and industrial capital as public/private parnerships, with sector income of no more than about 1% of GDP. Now it is about 6%. This means ending TBTF and moral hazard in general. It also requires government at this point ceasing to enable the practices that have resulted in a coverup of possibly trillions of dollars of toxic debt that is creating a drag on the economy and may even drag it down.
Fourth, the present concept of central banking as politically independent must be ended. It puts a small group of unelected technocrats in charge of making far-reaching decisions for which they are unaccountable.
Fifth, requirements must be put in place that limit the extent of economic rent-seeking of all forms.
Sixth, political power must be decentralized as much as possible, consistent with good order and public purpose.
Seventh, the US must formulate foreign and domestic policy that integrates all public needs and develop a budget based on this policy.
Eighth,the US must put an end to the asset-value debt-based model domestically and internationally, and replace it with a demand-based model that is grounded in incentives that harmonizes investment (growth), consumption/savings (income), and sustainability (resources).
Ninth, the US must deal with the constitutional issues surrounding human rights and the violation thereof.
Tenth, the US must distinguish public purpose as set forth in the preamble to the constitution from private issues by recognizing that these are categorically distinct. That means dealing with the tendency of the private sector to privatize the commons and socialize negative externalities.
There’s more.
“There’s more.”
Thats a great first ten. I’ll take any 5 of those ten and call it a landslide victory.
Toms Hickey:
I also believe the TP are well intentioned. They do not understand economics, or frankly, much else. You were the won who ridiculed their desire to “take their country back” and brought up the pathetic spectable of what “conservative bloggers” think, and “nutty conspiracy theory” not me. you also continually claim that people who don’t vote the way you want them to are being manipulated.
your ten point list is of as little interest to me as it is to you. you have made it clear how you make your decisions, there is just one quesiton you ask.
Zanon
“I also believe the TP are well intentioned. They do not understand economics, or frankly, much else. You were the won who ridiculed their desire to “take their country back” and brought up the pathetic spectable of what “conservative bloggers” think, and “nutty conspiracy theory” not me. you also continually claim that people who don’t vote the way you want them to are being manipulated”
If by well intentioned you mean, looking out for themselves, I agree, we all are doing that.
It not silly to ridicule their “Take the country back” chants, especially when asked what they mean they babble incoherently and simply spout socialism, founding fathers and constitution. They ARE being led by CORPORATE interests which seek the type of control over society that politicians have (and frankly are selling to them). The question is whos gonna run our society, politicians we elect or corporate interests who are going to make us pay for EVERYTHING that can be commoditized. I’m holding my nose and going with politicians I elect.
Dont tell me “the people” are going to run their society. That will work as well as workers running the corporations. This is not antidemocracy its simply recognizes that when “people” run their society its via a political system which uses other people as their proxies (politicians)
I think that to lump the TP’ers into one group is incorrect. There are a lot of people that are very upset with the status quo, and they identify with protest. The TP began as a libertarian movement but it was hijacked by arch-conservative professionals, who have access to money and organizational and promotional skills to get media attention. Moreover, a lot of big arch-conservative billionaires came in, along with Fox Noise. That skewed the picture to a great degree. Through in a bunch of nut case extremists and you have an interesting bunch, but hardly a coherent one. But the roots of the TP are libertarian, not conservative.
I think you have to distinguish the extremists who shout the slogans from the ordinary people that feel badly ripped off and who really don’t have a clue as to what’s really happening other then the people at the top are out of touch. These people are being cleverly manipulated for political reasons, and I think that Warren recognized that and tried to get the word out about what the real solutions are and the faux solutions are faux. But he never got heard over the noise and most importantly, didn’t get media exposure.
The TP turned out to be a media manufactured event because it was based on that tried and true political ploy, sure to get attention, outrageous street theater. This is being used by certain interest groups to further their own interests by, first, creating a distraction from the real issues facing the country, and, two, propagandizing their agenda using celebrity figures. It was successful in dominating many news cycles at a modest cost.
But I look at two groups that associate with the TP which I think are well intentioned but confused. The first groups is the libertarians, e.g., the Ron Paul folks, that want civil liberties above all. I sympathize with that desire; however, my view is that they are misguided in their understanding. Some of these people can come around to MMT solutions if issues are explained to them clearly and convincingly.
The other group is the political independents that voted for Obama in the expectation of change and did not see it. Instead they saw the new party in power serving financial and corporate interests at the expense of a middle class that is hurting badly. They are right.
Most of these people are under the illusion of the government-finance-is-like-household-finance analogy, so they are against the growing deficit and national debt, not knowing the true story of how things actually work and could be fixed using this knowledge. These people are especially fertile ground for sewing MMT ideas, since they are not highly ideological and just want the change that they are looking for.
The visible TP is greatly shrinking, BTW, due to most people not wishing to be associated with the crazies. But the protest mentality is still there and MMT can take advantage of it if if can get media traction. For example, a lot of these people are not Ron Paul people but Peter Schiff people. They have their economics all screwed up.
“…I think that Warren recognized that and tried to get the word out about what the real solutions are and the faux solutions are faux. But he never got heard over the noise and most importantly, didn’t get media exposure.”
Well, the reason is that Warren is unwilling (for a reason that strikes me as hopelessly idealistic) to spend a portion of his considerable wealth to get some name recognition and bootstrap his way to low single digits in the polls.
Of course, according to Greg “[a]ll that is necessary is vocal cords,paper and pen, and microphones” so maybe the problem is that Warren is too soft-spoken or has bad handwriting.
By the way, Tom, I fundamentally disagree with your implication that the Tea Party is either artificial or inundated by crazies. I think it is perhaps the most spontaneous and “grassroots” movement I have ever seen in the United States. Also, I believe that the percentage of crazies and racists is well below average for a protest movement. The Tea Party has been very unfairly maligned by liberals (and the mainstream media), in part, perhaps, because liberals are not used to being in power and being the target of protests. Do you remember the hilarious statement by Valerie Jarett about how the administration was speaking truth to power when it was attacking Fox News? I think this is the mindset of many Democrats attacking the Tea Party.
That all being said, I agree with you that most of the explicit policy goals of the Tea Partiers (such as they have been expressed by individuals at rallies, or even by candidates) make no sense. However, the inchoate sense of outrage that Tea Partiers feel is justified, and it is not based in racism or conspiracy theory.
ESM, I guess I did not make myself clear, because I essentially agree with you on this. The TP became a media phenomenon due to professional promotion of a particular agenda and street theater tactics on the part of a relatively small group. That emphasized only the periphery of a genuine protest movement that runs deep in US politics at the moment, and, I think, misrepresents what the protest is about. If it had not been hijacked by a faction, a lot of progressive would be out there in the streets with the protesters. These are middle class people that have come to the conclusion that government is not working for them, and, in fact, is often working against them. Very few of these people are racists, and they are not worried about “socialism” or a “take over by the left” either. They want change, and many of them voted against the status quo in the last election. What they see is more of the same. Unfortunately, they don’t understand the economics and are often lobbying against their own interests. MMT can set that straight. Then we can argue about tax cuts vs. deficit spending, the proper role of government relative to public purpose and private incentive, the need to reform controls, etc. There are a lot of options and a lot of issues to weigh. It would be an interesting debate if it were fact-based. There are powerful forces afoot that are doing everything in their considerable power to distract from having that debate.
Greg:
It is deeply arrogant to mock the tea party because they are incoherent. they understand little and are bad at expressing themselves, and yet i understand clearly where they are coming from.
it is called empathy, and it is something that bleeding-heart tom hickey, and maybe you, have nothing of if it comes from people who vote the wrong way. No, anyone who is not on left is either evil or a dupe. Pas d’ennemis a gauche, pas d’amis a droit.
Besides, I was clear that I think very little of tea party. I am no supporter. But I am also not idiot left-wing lackey.
ESM: You are correct, the tea party is actual real life “grassroot”. Toms Hickey is wrong, its base is not libertarian but i think rather amongst the same perdominant white, catholic group who voted for FDR in 30s, Reagan in 80s, and now have learned that sending their son to 4H kept him out of Harvard while they live in suburbs around old great cities of america with ghetto cores.
Tom Hickey: What debate? I just hear tea party being called racist by leftists loyal to obama. is there a more degraded word in the language these day?
Zanon, the greatest gift to the Democrats is the TP craziness that this turning off independents and moderate Republicans to TP candidates. I said that the TP began as a libertarian movement, chiefly the Ron Paul folks, and it morphed into a predominantly conservative GOP movement from there if we can believe the polls about TP identification that were taken recently.
But there are a lot of supporters that don’t self-identify as TP’ers and don’t go to rallies. They are generally middle class people that are bummed out by the bum deal they see themselves stuck with. This includes a lot of people whose retirement funds have been halved or worse.
Polls show that independents are moving away from the Democrats to “the other guys” not so much because they prefer the others, but because they see no future for them on the present course and they want to shift course. A lot of this is dissatisfaction is over the bailouts of the financial sector that they perceive as having rewarded failure.
It is certainly by far a white group, but predominantly Catholic? I don’t think so. From what I can see of the grassroots expressions in letters to the editor, for example, it is a pretty mixed group and hard to generalize about, other than shared anger at the status quo.
Do they want to go back to the Bush years. No. They want to see things change. A lot of their desires are confused, often contradictory, and usually based on narrow self-interest, mostly economic. Basically, they want to wind back the clock to pre-2007 when they had it pretty good, but without the wars and crony capitalism.
A lot of them are pretty zenophobic and want to withdraw into Fortress America, basically sealing the borders. While they are not overtly racist and certainly don’t consider themselves racist, they want to go back to the America that they knew previously and they fear cultural change. That, of course, is white America.
I also don’t see too many young people involved, other than Ron Paul folks. Most are middle-aged or elderly, pretty crystallized in their ways, and primarily concerned about being able to retire as they had expected.
Because its common denominator is anger, I don’t see the basis for a coherent political movement there. To the degree it is organized, it has been organized by political operatives attempting to harness the energy to their agenda, which is mounting a take-over of the GOP from the right.
Toms:
There is no basis for coherent political movement in TP. TP is incoherent, i say this many time. Your point about various parasite exploiting them to get themself elected is boring, trite, and time honor. Look at how democrats have weaponized blacks in US.
And I never say TP is catholic. I say that political strain that manifest itself in 2010 in TP can be traced back to catholic white voters who brought in FDR. You can go further back than that, but fundamentally, this is not libertarian phenomenon.
TP are completely correct at their disgust, despair, and anger with their lot. THey have been gyped. But nothing they are doing will make it any better. I empathize with them, but I do not support.
I also do not look down my nose at them as bunch of racist idiots and dupes, which is your position
Zanon,
“I say that political strain that manifest itself in 2010 in TP can be traced back to catholic white voters who brought in FDR. You can go further back than that, but fundamentally, this is not libertarian phenomenon.”
Can you expand on this? Ive never heard this before. My Catholic family ancestors would not even call the “East River Drive” the “FDR” Drive, and literally they would correct you if you used the name “FDR” Drive, they (literally!) sometimes would not take a Roosevelt Dime in change.
On the other hand, FoxNews (almost exclusively Northeast target market) has really tried to tap into the TP. OReilly and Hannity (Irish Catholics) have glommed onto the TP movement big time (in fact I believe Ailes had to intervene with Hannity to back off on this), so has Sarah Palin. I would be the first to attest that there is a very strong “religious” conservative attraction to the TP, but Ive never made the connection of Catholics to FDR… although I did not live thru those times.
Resp,
Zanon
“It is deeply arrogant to mock the tea party because they are incoherent. they understand little and are bad at expressing themselves, and yet i understand clearly where they are coming from”
When IS it appropriate to mock someone? I personally prefer not to mock until someone engages in such obviously ignorant rhetoric and behavior as many of the TPs do. Yes some have a point, there are many concerned people in the movement whom I would probably agree with about many things. Unfortunately they have chosen to self associate with a larger “us” that is quite overtly xenophobic, extreme libertarian (Rand Paulites) and Christian fundamentalist, a quite incoherent mix if Ive ever seen one.
I prefer to mock rather than threaten with physical violence or talk about “watering the tree of liberty with blood”. Mocking is a form of verbal violence as is humor. Both are tools of behavior modification, hoping to get your “opponent” to revise his tactics, to rethink his position. Mocking is a debate tool that can be used effectively if not overplayed.
Mocking can actually have empathy at its core Zanon. It can be a less violent way of confronting someone. The TPs are playing for keeps here Zanon. They are not just “kidding around” and theyve shown how far they are willing to take things by openly threatening people with physical violence they dont agree with. I apologize none for using mockery as a tool. I wish more people would. They NEED to rethink their strategy and their goals if they want to continue to live in a civil society. Yes many individuals in the grouo know not what many within the leadership are willing and ready to do to get their way. They are ignorant and not getting any help from within, they are only getting more ignorance. I wont apologize for pointing out ignorance if I see it.
“it is called empathy, and it is something that bleeding-heart tom hickey, and maybe you, have nothing of if it comes from people who vote the wrong way. No, anyone who is not on left is either evil or a dupe. Pas d’ennemis a gauche, pas d’amis a droit.”
You know nothing of mine nor Toms empathy level. We occasionally exchange the written word on an internet chat site and often writing can not display the emotion behind it. You can come across arrogantly as well, but I usually wish to only engage you on the substance of your arguments. If I met you face to face I’d likely be able to read you better and have a firmer ground to assess your place on the empathy/sociopathy scale.
“Besides, I was clear that I think very little of tea party. I am no supporter. But I am also not idiot left-wing lackey.”
Idiot left wing lackey………………….. how empathic of you.
I meant to address this as well
“TP are completely correct at their disgust, despair, and anger with their lot. THey have been gyped. But nothing they are doing will make it any better. I empathize with them, but I do not support”
WHY are they “completely correct”? They are virtually all middle/upper middle class, many on govt pensions/medicare, homeowners, were gainfully employed until they CHOSE to stop working, they live in the freeest country in the world (until Obama was elected of course). These same people MOCKED a guy in a wheelchair during the healthcare debate, openly mock our poor as richer than any poor people any where (yet THEY are victims to be empathic with). THEIR plights are reason for all Americans to stop what they are doing and make things right. They decry victimhood in others and play the collective victim card OVER AND OVER. Again, I’m well aware that not all individuals within a group are the same and that is part of the reason I am loathe to join ANY group but these people CHOOSE to rally around the TP ideals, get on Fox news and rant and rave and walk around with exposed firearms………….fuck ’em. They deserve any derision that comes their way for associating with such an incoherent and ill conceived group. Remember what your mother said …….choose your friends wisely!!
Greg,
When you have “A” (“A” could be a good pension, a good health care plan, a good job, a low tax rate, a nice neighborhood), which you feel you have earned because of hard work and good decision-making, which you have grown accustomed to having, and which you are satisified with, and somebody else comes along and proposes laws which you think will take away or diminish the value of “A,” then it is natural to fight to keep “A.” On top of that, when it appears a plurality of the people agree with you (and almost certainly a majority on some issues) and yet the government ignores you, disparages you, and steamrolls ahead and starts chipping away at “A,” then it is natural to become outraged. It is even more infuriating when the President of the United States repeatedly lies with dramatic flourish and claims that he is not really taking away “A” but in fact is allowing you to keep “A” and making “A” better and in any case if you do lose “A” it’s all George Bush’s fault. And then to add insult to injury, when you go out and protest peacefully, the most powerful people in the country lie about you, call you a racist or a fascist or an idiot or a “teabagger” and then fabricate stories about you (e.g. the supposed “N-word” incident on the day of the House health care bill vote) or make sweeping negative generalizations about you based on non-incidents or isolated incidents. I’d say that given all of that, your disgust, despair, and anger would be justified — indeed “correct.”
I also take issue with your “guilt by association” conclusion. Yes, there are some groups for which “guilt by association” makes sense — a leadership position in the Ku Klux Klan comes to mind, although somehow it is possible for the mainstream media to forgive such an association if you move far enough to the left politically (RIP Sen. Byrd). But making an exception for extreme groups, I don’t think it is fair to dismiss certain arguments just because of some of the isolated actions of a small number of fellow proponents of those arguments. I have enough trouble taking responsibility for my own actions and opinions. I don’t want the responsibility of defending countless other people who may agree with me on certain issues.
Perhaps you don’t want advice from me, but I encourage you to read more commentary from the conservative side of the political spectrum (powerlineblog.com and corner.nationalreview.com are both very high quality, although nobody at these places understands MMT unfortunately). I think it will give you a broader perspective.
ESM, some of us are pretty active in the liberal and progressive blogs advocating MMT. I even occasionally post on libertarian ones, as well as neoliberal and New Keynesian economic ones. I hope the conservative MMT is doing the same in the conservative and libertarian blogosphere. Maybe we can chip away at the ignorance and shift the basis of the debate from ideological presumptions and myths on both sides to a shared view of operational reality.
As I said, I see many of the TP’ers are as people who are simply misguided about the economics and candidates for a wake-up call from someone that speaks their own language and shares their interests.
Best wishes in this vital endeavor. I look forward to debating this widely on solid ground instead of having to deal with misconceptions on just about all sides. Maybe we can then come to some common agreement and workable compromises that move the ball forward for everyone.
think i might be libertarian?
matt franko: The political strain behind TP is not new, although TP itself is new of course. It is very old, and you can trace it back to FDR but it is older still. I bring up catholic to highlight catholic/protestant split, but nature of that in US has changed dramatically between 1900, 1950, and today. Nature of mainline protestantism in US has changed dramatically as well on even longer time frame. Still, this is not forum for that discussion.
In my area of northern california for example, middle class white has essentially been ethnically cleansed from entire peninsula area with maybe exception of pacifica. This group has been ethnically cleansed from most of where they used to live in 1950. They live with 10% unemployment in nation where top 3 issues seem to be 1) can a guy marry another guy? 2) how many mosque can we build at ground zero? and 3) how can we let in as many pregnany mexicans as possible?
the root cause of their discontent is clear to anyone who is not left wing lackey. And fundamentally it is not libertarian. It is same root as why rural kansans keep voting for GOP (the MORONS).
nevertheless, i am not TP nor am I supporter of TP so please do not interpret anything above as advocacy for them.
Greg: You and Tom have made your half-brain politically addled left wing tendency very clear. in fact, it is noxious pollutant on blog which should be about economics and accounting. I am repelled by your selfishness at your cramming your political beliefs here and wish you both would stop. Please take it to dailykos
Dear Zanon,
Last I looked this is Warren’s blog and I’ll take my marching orders from him.
Warren ran for the Senate nomination as a Tea Party Democrat. That is hardly an economic matter. It is blatantly political. The idea that applied economic, i.e., economics applied to policy-making, is independent of political issues is just not the case. We are not doing pure economics here nor at billy blog. The MMT posts at other MMT blogs are also politically tinged since they are directly concerned with policy options.
MMT is Keynesian in the sense of demand-based. Some of its influences include Marx and Kalecki, and Abba Lerner. It is genrally opposed to neoliberalism and New Keynesianism. That puts is solidly on the left.
We on the left are happy to see people on the right interested in these ideas and welcome them to the debate. But don’t expect us to give up what we stand for. Just because we argue for reducing unemployment as economically prudent in order to eliminate foregone opportunity, doesn’t imply we think that this all there is to it. We also advocate it as a matter of human rights.
Here is my summary:
The ideals of the Enlightenment thinking about political philosophy are contained in the motto of theFrench Revolution, liberté, égalité, et fraternité. Liberty is articulated as human rights; equality as absence of privilege, implying equal opportunity and equality before the law, and “fraternity” as promotion of the general welfare. These are the basis of and reflected in the Declaration of Independence, the US Constitution and the Bill of Rights.
On the other hand, as it developed, the West largely pursued the former two and ignored the latter. Moreover, the first was misinterpreted as individual freedom from contraint to do was one pleased within legal bounds, while the latter degraded into a double standard.
The ignoring of “fraternity,” which the Europeans now call “solidarity” has been so thoroughly ignored by the English and Americans that they don’t even have a key term for it in political discourse. In fact, it is often thought of as “socialism,” with all the pejorative connotations of totalitarianism.
What this results is an erroneous notion of society as an aggregation of individuals, which, of course, is a classic example of the fallacy of composition. It is a chief reason that the fallacy of composition is endemic in mainstream economics. It completely ignores the fact that society is a system of relationships linking subsystems and individuals (elements) in complex interdependent webs that are causally determinative.
Whereas optimal societies are self-organizing, self-augmenting and self-perpetuating systems, the prevalent notions are producing the suboptimal aggregates that this erroneous thinking reflects. Such societies are unsustainable owing to “internal contradictions,” as the Marxians say. That is they produce tensions that overly stress the system, resulting in lack of control and eventual failures.
Libertarianism with a cap (libertarianism of the right) takes this erroneous thinking to the extreme, focusing on individuals alone and actually denying intrinsic relationship. Extreme libertarian Ayn Rand modeled the heroes of her influential novel on a serial killer that she admired for being totally devoid of empathy. Wizard behind the veil Alan Greenspan belonged to her salon.
It is sad enough that developed nations have adopted these models, But it is especially sad to see emerging nations and communities adopting these kinds of failed models.
rather than saying mmt is demand based, i’d say the current myths are suppressing demand.
ESM
I dont wish to keep this up a lot longer but I do want to make a few comments.
“When you have “A” (“A” could be a good pension, a good health care plan, a good job, a low tax rate, a nice neighborhood), which you feel you have earned because of hard work and good decision-making, which you have grown accustomed to having, and which you are satisified with, and somebody else comes along and proposes laws which you think will take away or diminish the value of “A,” then it is natural to fight to keep “A.” ”
Agreed, but I’ll just add that the operative terms here are “FEEL you have earned” and “laws which you THINK will take away or diminish”. Thats not a trivial qualifier. In fact its at the root of politics isnt it? I might tell them that their “earning” had a hell of a lot of support from “big government” through the years. The very thing they seem to only see as a wealth destroyer. I might also tell them that they are wrong to think that the proposals they are fighting will necessarily diminish any value they are fighting for. That they are only listening to a small group that has an ideological opposition to ANY and ALL govt. Would I be correct? I think so obviously. There are good arguments for my view that govt is not ALWAYS wealth destructive. Contrary to many peoples views Reagan was dead wrong about govt. This is not to relabel govt as all knowing and perfect but simply to reduce some of the heat in this govt vs private sector debate. I say fight away but dont fight straw men and dont fight things which MIGHT end up hurting yourself
“On top of that, when it appears a plurality of the people agree with you (and almost certainly a majority on some issues) and yet the government ignores you, disparages you, and steamrolls ahead and starts chipping away at “A,” then it is natural to become outraged”
Again, if A is health insurance all that was done is require all to own it ( I dont prefer it but like auto insurance I as a health care worker think its a necessary evil) and require the insurers to stop certain freedom reducing practices like……. not paying for things THEY think is too expensive….. or putting limits on the amount you can get in a lifetime.
There is no SOCIALIZATION of health care, no death panels, no funding of abortions for illegals, all the things that got these people riled up. FALSE ISSUES ALL!!
” And then to add insult to injury, when you go out and protest peacefully, the most powerful people in the country lie about you, call you a racist or a fascist or an idiot or a “teabagger” and then fabricate stories about you (e.g. the supposed “N-word” incident on the day of the House health care bill vote) or make sweeping negative generalizations about you based on non-incidents or isolated incidents. I’d say that given all of that, your disgust, despair, and anger would be justified — indeed “correct.”
When you openly carry firearms at a rally, when you make speeches and write emails calling for tree of liberty to be watered (with blood dont you know) call for violence towards members of the political class you dont like….. your kinda toeing the line of “peaceful protest”. Your sure to disagree with my view here but implied violence, if they dont get their way, is running all through this movement. Its disgusting and unnecessary in a civil society. Its funny you bring up tea bagger because that was THEIR word initially but because of some mocking about it they dropped it. But their opponents continue to use it, much to their chagrin.
I have no issue with their sentiments, I’m pissed too. And Ive been pissed for longer than they have because they brought in the destructive (destructive to our middle class) political movement of Ronny RayGun. I see the roots of this going back to 1980 they see it starting with Barack Obama. I see this as a result of extremist policies which only see tax cuts, stock price increases and executive pay increases as the only measures of a humming economy. Were these exclusively republican policies?? No but these ideas were ushered in by the new conservatives who hated workers with bargaining power and only saw govt as a means to enrich corporations by turning a blind eye to costly environmental and financial regulations. So I understand pissed, I just cant understand how they only see Barack Obama and democrats as the source of their ire. They are incredibly short sighted and frankly dont wish to engage in too many intellectual exercises which might give them a more nuanced view of the world, intellectual exercises being a socialist plot and all.
Im not dismissing their arguments because of their source but because of their lack of merit…. in my view.
Zanon: Your not required to read anything I or Tom write and if Warren wishes me to stop, I’m sure he’ll delete my posts or kindly ask me to stop.
Getting back to Mike Norman’s presentational skills, as several people above have said, getting the phraseology and the presentation right is vital. I didn’t like what Warren said once on a video clip about just “shifting numbers between accounts at the Fed”. That may be true, but it sounds too slick and slippery to the uninitiated. How about something like the following.
1. The purpose of the economy is to produce what consumers and citizens want. 2. If there is excess unemployment, that means consumers must be given more spending power, plus it helps if government spends more. 3. Spending power comes from extra money, i.e. printing money, and channeling it into consumers’ pockets. 4. That DOES pose an inflationary risk, but if inflation looms, money can be withdrawn from consumers’ pockets as quickly as it can be channelled into their pockets (e.g. by increased taxes).
pretty good but personally I don’t use the term ‘printing money’ as a distinction from any other means of govt spending, as it was under the gold standard.
@Tom: Excellent! Thanks! Now please write the “more.”
Toms Hickey: I don’t think you are capable of having a thought without infecting it with political garbage. “Who? Whom?” has taken over your brain entirely.
You assertion that double entry bookkeeping and fed operations as “left wing” is laughable garbage. Your probably think your underpants are left wing.
And Billy Blog I have given up on entirely. He is even more tiresome than you. Reading his blog is like listening to fidel castro speech while having diahhrea pour on your head.
Of course this is Warren’s blog, but that does not change the nonsense you prattle nor my desire that you take it elsewhere
Warren: rather than saying mmt is demand based, i’d say the current myths are suppressing demand
While I don’t disagree with that, supply and demand being two blades of a single scissors; hence, impossible to separate. However, I think it is a matter of emphasis that can be determined by examining priorities. Supply-side emphasizes the role of investment in producing the income for aggregate demand.
Investment is the independent variable and income the dependent variable in supply-side models. Demand side emphasizes the income needed for effective demand, pointing out that investment responds to demand. Income is the independent variable and investment is the dependent variable in demand-side models.
I take Art Laffer as an example of supply-side economics based on (unstated) MMT principles in that in his thinking “deficits don’t matter” as long as they come from tax cuts, not spending. Then, disingenuously, the deficit can be used strategically to argue for reduced social expenditure and increased privatization (private investment and financialization). This is quite different from traditional fiscal conservatism, for example, which insists on budget balance and, at its extreme, would like to see a balanced budget amendment added to the Constitution.
MMT’ers, on the other hand, are not concerned with deficits unless they portend to spark inflation when aggregate demand outpaces the ability of productive capacity/investment to respond. The chief concern is with income sufficient to provide for the desire to consumer and the current propensity to save (after paying taxes). This requires that either exports accommodate or else government take up the slack resulting from saving propensity,
Moreover, MMT’ers presume that if effective demand is predictably able to consume what the economy produces, then investment will respond accordingly. Thus the concern is income (effective demand) rather than investment (potential supply). Without sufficient effective demand, potential supply differs from actual supply called upon, and that adversely affects the economy, resulting in foregone opportunity and rising unemployment, until either the private sector goes into deeper debt, the export situation improves, or government act to pick up the slack with deficit expenditure, IAW the sectoral balance approach and functional finance.
I just don’t hear MMT’ers talking much about investment, while supply-siders are obsessed with it, to the exclusion of considering income effects on effective demand. So, relatively speaking, I would say that it is correct to characterize MMT demand-based, i.e., demand as the independent variable with supply/investment tagging along as the dependent variable.
private sector investment is driven by perceptions of future sales and cost cutting.
it responds to prices and chases dollars.
public sector investment puts that component of the public infrastructure in place for further public purpose.
including increasing real potential supply and reducing real costs.
Right, but the supply-siders and conservatives reject the notion of public “investment.” To them, it is an oxymoron. Government only “spends” and never invests. To them investment means capital investment, which is private. Talking about government “investing” for public purpose is meaningless to them. On the other hand, to MMT’ers expenditure of a JG, for example, is an investment in the labor force that maintains and improves it, while simultaneously providing a price anchor against inflation. Maybe MMT’ers should just drop “government spending” terminology, which is a key term of the opposition, and use “public investment” instead. It’s a more accurate descriptor of what is happening operationally.
They don’t count the legal system, law enforcement, military, major bridges, panama canal, internet, as public infrastructure and sometimes investment?
Not as I understand what they are consistently saying. In addition, did you know that government does not create jobs through stimulus, because it cannot do so — only the private sector can? Government “handouts,” “boondoggles,” and “political pork” don’t create real “work” and don’t produce anything of value. That’s actually the party line.
right, they don’t define anything the public sector does as ‘real’ work.
I suppose that includes the entire legal system, etc.
It’s politics to do that, not economics
Tom, I think you’re taking a page out of Obama’s playbook and railing against strawmen. There are very few people who believe that government is unnecessary, although isn’t Noam Chomsky one of them?
On the issue of government’s ability to create jobs, please have a look at my commentary from last year. It comes down to what the definition of a job is.
ESM, I am not making this stuff up. I hear on TV and see it in the papers and blogs all the time, coming from GOP politicians, for example. For awhile, it was daily talking point that the stimulus didn’t create jobs; only the private sector can do that. Eric Cantor pops into mind, for instance, and he was not alone. These are the people that are making stuff up.
“Government spending money doesn’t create jobs.” Eric Cantor
http://www.ericcantor.com/blog/?cat=21
The other favorite argument is that any job that government does create means one less job in the private sector.
As far as public investment goes, I mean, they are trying to privatize the road system! According to this ideology, investment is capital investment and a return can be computed on it relative to prevailing interest rates, against which commitment must be assessed. No sense investing money at risk when as much or more is available at low risk in bonds, for example.
The claim is that “investment doesn’t apply to government spending since it is not capital put at risk. No capital at risk, no investment.
I don’t see that I am over the top on this. This is standard fare.
“Tom, I think you’re taking a page out of Obama’s playbook and railing against strawmen. There are very few people who believe that government is unnecessary, although isn’t Noam Chomsky one of them?”
When pressed most will admit to the necessity of govt. Especially for defense, police blah blah blah but Toms point is valid regarding what way too many (maybe Chomsky too) love to say off the cuff.
I dont know how many of my colleagues (health care providers) made claims during the health debate like “Do you want the folks who run the post office to run our healthcare?” Ignoring the fact that the1) post office is totally funded by the rates it charges for mail and receives no extra taxpayer money 2) No one wants the postmaster general to administer the health care payment system.
Its this type of ludicrous hyperbole that only detracts from the real discussions that need to take place (like the one you had with your commenter at the post you linked to about govt job creation) regarding the proper size, role, and cost of govts. As imbalanced as you think Tom is making the critique, I think there is plenty of evidence that the crazy factor, the folks who refuse to acknowledge anything positive about our govt (except their men in fatigues) are mostly on the right these days. Not much nuanced discussion about stuff is sought.
So Warren, how would you respond to a Peter Schiff or an Art Laffer when they say, possibly in response to your suggestion of direct federal hiring of the unemployed (via a JG or direct supplements to private firms for example), that thats not creating employment its simply throwing money at people and not getting anything of value for your dollar. Its only going to trash our currencies’ value, bring on previously unseen inflation levels and lead to the end of our society.
Ive gotten those answers from Austrian types and from Fox watchers when I bring up direct federal hiring of people. I’ve even gotten responses in that vein from fellow progressives who dont appreciate the nuances of our currency system and MMTs analysis.
Surely you’ve had this debate before. How do you respond?
my $8/hr job will attract the unemployed who are already in the public sector for all practical purposes, and help them transition to the private sector.
i don’t see that wage doing much to increase aggregate demand, particularly as it allows us, for a given size govt., to keep taxes low enough for maybe only 3% of the work force to be in this transition job, rather than the 4-5% generally considered required for a pool of unemployed.
also, in private conversation Laffer is right there with MMT. It’s only his public persona that’s out to lunch.
and remember, the chain of events is:
govt desires to hire people by paying them it’s pieces of paper.
tax liabilities denominated in those pieces of paper function to cause people otherwise laboring elsewhere to seek employment to earn the now needed dollars.
Govt spending then hires the people govt wanted in the first place.
So creating a tax liability that causes more people to seek govt work than govt wants to hire makes no sense.
Govt should either cut the tax or hire them.
And there is no responding to Peter Schiff. There is only responding to others about Peter Schiff. In general, he responds as if we are still on the gold standard, thinking we need savings to fund investment, for example.
first, if they were unemployed any output is a useful gain, as is any drop in negative externalities associated with unemployment
second, if there is no public sector work deemed useful for the unemployed, they first go into my $8/hr job, and then taxes are reduces and they transition to private sector employment,
third, yes, we will get demand pull inflation should spending exceed things available for sale. It’s never happened in my lifetime but certainly a possibility. But to get out of a hole, first you have to stop digging, and right now seems to me the output gap continues to grow, if anything.
And remember, business and govt should strive for max efficiency- getting things done right with as few people as possible.
That leaves more of us to do all the other useful things we’d like to get done.
The only reason anyone would think other wise- try to get business to hire more, etc- is a lack of understanding of the monetary system
Warren, why do you think that 1) Laffer’s public persona doesn’t match his actual views, and 2) why is he so insist on cutting social spending that seemingly would tank demand without the tax cuts, which go mostly to the top end of town, making up for it? Or does he think that the US can survive and progress on consumption at the top end of town, along with military expenditure? If he gets MMT, I don’t get his stance.
I don’t either. it remains a mystery.
I do know at one point someone killed all the animals he kept at his home.
Don’t know why.
“private sector investment is driven by perceptions of future sales and cost cutting.
it responds to prices and chases dollars.”
Right. Those future sales are to people with incomes. If there are fewer people with incomes, private sector investment opportunities look grim.