Excellent presentation – fiscal part stronger than the monetary part, I thought.
The “under oath” levity is good.
I wonder as you go along what sort of feedback you get on the “changing numbers”, “scoreboard” theme. Sometimes I think you have to be either one of the “50 to 100” you mentioned, or Forrest Gump, to fully appreciate the subtlety of the analogy.
The “changing numbers” theme has a more tangible finance representation, which is that the government manages its book as a net liability position in total. They’re writing numbers up and down on that liability book. Hence, the government “neither has nor doesn’t have” money, because it generally has no financial asset position on consolidation with the CB. Similar, the notions of revenue and expense are absorbed into the stock perspective of a net liability position. It’s the liability view of the net financial asset scoreboard.
The taxes as inflation control part was very good – focused.
Maybe I take you too literally, but you make it sound like revenue to the Federal government is not accounted for and that all spending is done via issuing news bonds (new money). I know this cannot be the case.
Tax money is not destroyed; you said so yourself on “Soft Currency Economics” I quote “The government spends money and then borrows what it does not tax, because deficit spending, not offset by borrowing, would cause the fed funds rate to fall.”
I’m sure I’m the one that’s offbase here; but if I’m going to spread the word on this to friends, family, and co-workers; I have to be able to explain the processes with confidence. I’ve read your various discriptions of the process numerous times; but there are still many gaps for me. Can you explain the contradiction (as I see it)?
Interesting presentation. Warren is always entertaining.
As far as the shredding money part:
Taxes paid in cash to the Treasury, get send to the Fed, which may shred it, but not before crediting that amount to the Treasury’s account first (otherwise why wouldn’t the Treasury just spend it?). So the money doesn’t disappear.
If the gov’t ends up with more money in its account than what it budgeted to spend, it will come up with new spending. Therefore taxes don’t reduce aggregate demand at all, taxes only change who does the spending (it’s the gov’t instead of the taxpayer).
Curious – I think Warren’s point about shredding cash is intended to get people away from thinking that taxation is operationally prior to spending. Of course the money does disappear as M0 money but is conserved as M1.
Your point that a govt will inevitably spend unforeseen tax receipts, is only true of federal departments, or states, which behave as if they are operationally constrained (like a household). The federal govt itself (and any govt which controls a non-convertible currency, unlike Greece) will not suddenly cast around for new things to spend the money on, unless it believes that aggregate demand needs boosting.
Looks like they used an iphone to take the video but the message was right on target. I know it must be tough, but you really are starting to sound like a politician 🙂
The talk started me thinking about how a well run government needs to run larger deficits. Good fiscal policy is pro-fiscal, requiring more fiscal policy of the deficit kind. Kind of counter-intuitive. If the were spending on too many ‘wasteful projects’ (war, bank bailouts, etc.) there would be inflation and no one would want to hold the currency. Wasteful projects are counter-fiscal, requiring less fiscal policy of the deficit kind.
The need for government deficits actually is an indication that people want to ‘save’ the currency. A current account deficit says foreigners want to ‘save’ the currency. The Chinese want to save the U.S. dollar because the U.S. government is, relatively speaking, the best run government in the world. American citizens might not think so but they don’t seem to want to save anything. U.S. banks seem to think so and they should, after all the U.S. government just gave them a huge bailout. Japanese citizens seem to think the Japanese government does a good job.
If the U.S. government wants U.S. citizens to save, the U.S. government needs to do a better job as seen by U.S. citizens.
The Chinese want to save because the current account surplus is identical to the capital account deficit and vice versa as an accounting ideentity. The US runs a huge trade deficit and therefore a huge capital account surplus. (President Bush was fond of trumpeting this.) This symbiotic relationship has been called “Chinamerica,” or “Chimerica.” (coined by Niall Ferguson)
Hi Warren, Did you see Grayson’s War is Making You Poor Act. He is proposing income tax to be eliminated on the first $35,000. Why don’t you contact Grayson and propose your Social Security tax elimination strategy.
Warren has my total support, but for an aspiring politician those speeches make the usual mistake that amateur politicians make: speaking too quickly.
Study the number of syallables per minute and per second used by successful politicians, and don’t exceed either.
Plus I don’t like the points about shifting sums from one Fed account to another. That will sound to the average voter like fiddling the books. Simple, understandable analogies are needed. Comparing the Fed to the banker in a game of Monopoly is a possibility. I’ll think of something.
Good points, Ralph. ONe doesn’t absolutely need to hire a top communications consultant if one observes the game closely and figures out the state of the art “production values.”
I also agree that simple gripping analogies to which folks can relate on the basis of their experience or “common sense” are the way to go. The opposition is using a lot of such analogies that are gripping but flat out wrong. They need to be countered on that level, not wonky explanations that go over people’s heads.
Excellent presentation – fiscal part stronger than the monetary part, I thought.
The “under oath” levity is good.
I wonder as you go along what sort of feedback you get on the “changing numbers”, “scoreboard” theme. Sometimes I think you have to be either one of the “50 to 100” you mentioned, or Forrest Gump, to fully appreciate the subtlety of the analogy.
The “changing numbers” theme has a more tangible finance representation, which is that the government manages its book as a net liability position in total. They’re writing numbers up and down on that liability book. Hence, the government “neither has nor doesn’t have” money, because it generally has no financial asset position on consolidation with the CB. Similar, the notions of revenue and expense are absorbed into the stock perspective of a net liability position. It’s the liability view of the net financial asset scoreboard.
The taxes as inflation control part was very good – focused.
Maybe I take you too literally, but you make it sound like revenue to the Federal government is not accounted for and that all spending is done via issuing news bonds (new money). I know this cannot be the case.
Tax money is not destroyed; you said so yourself on “Soft Currency Economics” I quote “The government spends money and then borrows what it does not tax, because deficit spending, not offset by borrowing, would cause the fed funds rate to fall.”
I’m sure I’m the one that’s offbase here; but if I’m going to spread the word on this to friends, family, and co-workers; I have to be able to explain the processes with confidence. I’ve read your various discriptions of the process numerous times; but there are still many gaps for me. Can you explain the contradiction (as I see it)?
Interesting presentation. Warren is always entertaining.
As far as the shredding money part:
Taxes paid in cash to the Treasury, get send to the Fed, which may shred it, but not before crediting that amount to the Treasury’s account first (otherwise why wouldn’t the Treasury just spend it?). So the money doesn’t disappear.
If the gov’t ends up with more money in its account than what it budgeted to spend, it will come up with new spending. Therefore taxes don’t reduce aggregate demand at all, taxes only change who does the spending (it’s the gov’t instead of the taxpayer).
Curious – I think Warren’s point about shredding cash is intended to get people away from thinking that taxation is operationally prior to spending. Of course the money does disappear as M0 money but is conserved as M1.
Your point that a govt will inevitably spend unforeseen tax receipts, is only true of federal departments, or states, which behave as if they are operationally constrained (like a household). The federal govt itself (and any govt which controls a non-convertible currency, unlike Greece) will not suddenly cast around for new things to spend the money on, unless it believes that aggregate demand needs boosting.
Looks like they used an iphone to take the video but the message was right on target. I know it must be tough, but you really are starting to sound like a politician 🙂
The talk started me thinking about how a well run government needs to run larger deficits. Good fiscal policy is pro-fiscal, requiring more fiscal policy of the deficit kind. Kind of counter-intuitive. If the were spending on too many ‘wasteful projects’ (war, bank bailouts, etc.) there would be inflation and no one would want to hold the currency. Wasteful projects are counter-fiscal, requiring less fiscal policy of the deficit kind.
The need for government deficits actually is an indication that people want to ‘save’ the currency. A current account deficit says foreigners want to ‘save’ the currency. The Chinese want to save the U.S. dollar because the U.S. government is, relatively speaking, the best run government in the world. American citizens might not think so but they don’t seem to want to save anything. U.S. banks seem to think so and they should, after all the U.S. government just gave them a huge bailout. Japanese citizens seem to think the Japanese government does a good job.
If the U.S. government wants U.S. citizens to save, the U.S. government needs to do a better job as seen by U.S. citizens.
The Chinese want to save because the current account surplus is identical to the capital account deficit and vice versa as an accounting ideentity. The US runs a huge trade deficit and therefore a huge capital account surplus. (President Bush was fond of trumpeting this.) This symbiotic relationship has been called “Chinamerica,” or “Chimerica.” (coined by Niall Ferguson)
See Michael Pettis, The RMB and the magic of accounting identities for an explanation of how this affects China, the US, and the global economy.
Hi Warren, Did you see Grayson’s War is Making You Poor Act. He is proposing income tax to be eliminated on the first $35,000. Why don’t you contact Grayson and propose your Social Security tax elimination strategy.
Warren has my total support, but for an aspiring politician those speeches make the usual mistake that amateur politicians make: speaking too quickly.
Study the number of syallables per minute and per second used by successful politicians, and don’t exceed either.
Plus I don’t like the points about shifting sums from one Fed account to another. That will sound to the average voter like fiddling the books. Simple, understandable analogies are needed. Comparing the Fed to the banker in a game of Monopoly is a possibility. I’ll think of something.
Good points, Ralph. ONe doesn’t absolutely need to hire a top communications consultant if one observes the game closely and figures out the state of the art “production values.”
I also agree that simple gripping analogies to which folks can relate on the basis of their experience or “common sense” are the way to go. The opposition is using a lot of such analogies that are gripping but flat out wrong. They need to be countered on that level, not wonky explanations that go over people’s heads.