He’s Got My Vote

Yesterday I was driving into New York City for a couple of meetings, and I heard an old friend from the business being interviewed by Kathleen Hays on Bloomberg Radio.

I was amazed that Warren Mosler is running for Chris Dodd’s seat in the US Senate.

I thought his business interests in Florida and the US Virgin Islands would keep him from coming back to New England, but maybe he’s getting a jump on future northward migration from global warming.

Warren was a “blogger” on economic and market topics before there was blogging. Besides making the fastest sports car on the planet, he used to pen columns on the economy, the market, and government policy before we even used the internet to communicate.

His position papers and thought pieces that were very popular with professionals in the bond business throughout the late 80’s and 90’s, so I suppose it’s no surprise to find him sharing his thoughts on the web today.

I’ll be contacting the campaign to see how I can help.



Howard Hill is a former Wall Street mortgage finance “rocket scientist” who invented a number of successful bond structuring techniques and analytic tools in the 1980’s and 1990’s. He headed research, finance, sales and trading groups at major Wall Street houses in the first half of his career, and became a customer for Wall Street in the new Millennium, analyzing and buying the same kinds of bonds he used to create. In addition to scores of mortgage deals, he structured the first securitized deals with apartment building loans, nursing home loans, mobile home park mortgages, computer leases, life insurance policyholder loans and Argentine mortgages.

25 Responses

  1. This kind of nonsensical blather really is what gives economists a bad name. The idea that a payroll tax cut would not be stimulative, unless you define the word stimulative to mean something erotic, is obviously idiotic.

    The idea that a payroll tax cut could be marginally deflationary is I suppose barely plausible and perhaps interesting for economist eggheads to debate. But to think that it would be a bad thing to increase aggregate demand, and yet increase aggregate supply even more so that there was even more excess capacity, is really perverse.

    1. IF “payroll taxes” (aka FICA taxes) are suspended to put more money in the economy directly, as a practical matter won’t it be very hard to resume their collection?

      Also as a practical political matter, wouldn’t this be the beginning of the end of Social Security? IMHO this would be a huge mistake in that the public needs something to rely on that won’t get wiped out in some future down cycle.

      1. it should make the point that soc payments are not dependent on revenues. and the tax should not be put on unless there is a problem with too much agg demand (something I doubt would happen), in which case the reason to add a tax would be to cool demand and not to pay for anything.

        People hate inflation, so I have no doubt they would use taxes to cool it if they drew the connection

      2. You’re right Warren people hate inflation. Problem is most people have no idea what inflation is.
        Gas prices rising “Oh thats inflation” , US$ falling relative to some other currency “Oh thats inflation”, A loaf of bread being $2.50 as opposed to $0.25 80 yrs ago…. “Oh thats inflation”.

        Some people really seem to think you can live in a world where you have a chance to get better and better wages and not have the prices of things rise.

        The only way to have your salary rise and no overall increase in buying power economy wide is for our incomes to be a zero sum game where my increase comes at the expense of someone else decrease. Only as long as the money supply is a non zero sum entity, there can be general wage improvements for all.

      3. Exactly, and a tax increase in an inflationary environment would be seen by the public as making the problem worse (since its more money coming out of their paycheck). For the last 30-odd years, its been obvious that the US should raise taxes on gasoline and use it to reduce payroll taxes, in fact, Jimmy Carter proposed just that tax shift 30 years. From then to now Congress, has run from the idea.

        Greg, you’ve stumbled over the fourth rule of functional finance with this line, “my increase comes at the expense of someone else decrease”. To quote Nobel laureate William Vickrey:

        My own solution to the problem builds on an idea promoted by Abba Lerner shortly before he died, that there should be a free competitive market in rights to raise prices, with those wanting to raise their prices having to buy the right from those willing to lower theirs. In this way the general level of prices would be kept constant without imposing rigid controls over individual prices, permitting them to vary in response to conditions in the various markets. This overcomes the problem of how to adjust the anti-inflationary pressure from time to time, as this would be adjusted automatically by the market.

      4. you can also have productivity increases, and output increases to the point of full employment.

        and changes in the distribution of consumption.

        and, last and far from least, increases in unspent income

      5. “and, last and far from least, increases in unspent income”

        So the government could require mandatory IRA contributions for earned income (say, above the poverty line) and use it a demand regulator? When the economy starts to overheat, the govt could simply increase the IRA withholding rate and reduce it when the economy slows.

        It wouldn’t be a tax increase, after all, Tsy has no new revenue to show for it. But it would be an increase in unspent income.

      6. (suspended to stop taking money out of the economy)

        hopefully they also realize social security is not broken. see the 7 deadly innocent frauds, etc

        also, unlikely that tax would ever need to be reinstated. the ‘full employment budget’ is far to ‘aggressive’ as is, with surpluses at full employment.

  2. if fica taxes aren’t reducing demand there’s not point in having them there to begin with.

    per Lerner’s principles of functional finance

    (See beowulf comment listing the four principles here.)

      1. That’s a brilliant brief paper and ranks with Warren’s 7 Deadly Innocent Frauds as an intro to the basics of MMT as something that is accessible to just about everyone.

  3. The problem here is that prices are not rising quickly enough on negative externalities, I don’t see that Vickrey’s proposal addresses this. Negative externalities need to be disincentivized by adjusting price to reflect true cost, and taxes are the obvious way to do this. But so far, the public has not been dissuaded from opposition to this form of taxation, so it has gone no where and likely will not go anywhere until consequences are broadly felt. Information on the adverse health effect of pollution is wisely available, and the costs are known to be large.

    My view is that the more equitable solution would be per capita rationing with some adjustment for specific need, since imposing higher taxes on, say, gasoline, is highly regressive in the effect and would effectively shut out the poor. Higher taxes even for the worthwhile purpose of creating needed incentives withdraw net financial assets and reduce effective demand. In addition, higher gas prices eat through discretionary income in the lower tiers pretty quickly.

    In the longer run, both positive and negative reinforcement will be needed to enforce conservation, innovation, and phasing out of old technology. But the world needs to face up to this since global demand is outpacing global supply, and investment is not keeping up at present for a variety of reasons. This could well lead to cost-push inflation in a recovery owing to supply constraint.

    1. I should add that the true cost of gasoline is estimated to be about $15 a US gallon. It would be difficult to impose a tax that high in the US, although Europeans have been paying high gas prices for quite awhile.

      1. Gasoline rationing, eh? You’re right that gasoline is sui generis and should be handled separately. In fact, Martin Feldstein (Reagan’s CEA Chairman) proposed a gasoline rationing plan in a Wall Street Journal op-ed a few years ago.

        A far better approach would be a system of tradeable gasoline rights, or TGRs. These could be distributed in a way that actually raises the income of a majority of households while giving everyone an incentive to reduce gasoline consumption.

        In a system of tradeable gasoline rights, the government would give each adult a TGR debit card. The gasoline pumps at service stations … would be modified to read these new TGR debit cards… Buying a gallon of gasoline would require using up one tradeable gasoline right as well as paying money…

        Individuals with more TGRs than they need could sell the excess, while those who want to use more gallons than their allocation would have to buy extra TGRs.

      2. I hadn’t seen this, but I think it is a good idea. This is going to be a huge problem going forward, and we need to be ready to deal with it. While I don’t like rationing, if we don’t deal with this problem before it becomes obvious to just about everyone, that is where we are headed, barring unforeseen innovation and investment on a large scale.

        I would like to see a Manhattan Project on energy with a view to phasing out carbon, and going to completely sustainable resources like solar, wind, geothermal, tidal, etc., although we will probably have to go through a period of thorium nuclear.

      3. The big political advantage of regulating via a “cap and trade” instead of taxes is that the redistributed revenue flow stays out of the government sector. That’s the biggest error Democrats made with their doomed carbon cap and trade bill; it was designed to raise federal revenue instead of being revenue-neutral.

        Whether its controlling gasoline consumption (Feldstein), price inflation (Vickrey) or imports (Buffett), clearing prices through financial markets lets Congress do their job without taking a hit for draining money out of the economy by raising taxes.

      4. thought you might be pushing the benefits of a 30 mph speed limit- thanks for trying to protect me!

        for coal, why not cap the prices mines can sell at, and then start lowering it until they stop producing?

        and how about incentives to direct gdp growth to non energy consumptive arenas?

        and public consciousness promotion like my ‘don’t drive’ poster concept?

      5. “thought you might be pushing the benefits of a 30 mph speed limit- thanks for trying to protect me!”

        Ha ha, I did that in April. :o)

        “for coal, why not cap the prices mines can sell at, and then start lowering it until they stop producing?”

        Old-school price controls would work, yes. But a revenue-neutral carbon tax would get you to the same place with fewer lawsuits. Carbon taxes would be ratcheted up every year. It would raise the price of carbon (with consumers made whole by a tax cut) and demand reduced, with Uncle Sam taking a cut of the total sales price. Keeping hiking carbon taxes enough, Uncle Sam takes a larger and larger cut and demand will keep dropping.

        In fact, your old buddy Art Laffer (with SC Congressman Bob Inglis) proposed doing that in a NY Times op-ed at the end of 2008. Inglis introduced a revenue-neutral carbon bill last year and for his troubles (though voting for the TARP bailout didn’t help) was denied renomination by SC Republicans this year.

      6. “This is going to be a huge problem going forward, and we need to be ready to deal with it.”

        Ummm. Why is going to be a bigger problem going forward than it is today? I agree it’s a problem now. Gasoline is priced too cheaply, and it leads to a misallocation of resources and inefficiency. But I don’t see why the problem is going to get worse.

      7. But I don’t see why the problem is going to get worse.

        Marginal demand is greater than marginal supply.

        With emerging economies coming on line, there are going to billions more consumers in the coming decades, using a whole lot more energy than is being used now. Presently, China and India are chiefly dependent on petroleum and coal as energy sources. Those who have traveled to these countries know what the pollution problem is up close. That pollution travels in the atmosphere, too.

        Ravi Batra, USA, China and India: the oil stakes

      8. “I should add that the true cost of gasoline is estimated to be about $15 a US gallon.”

        Do you have a reference? Most of the estimates I’ve seen are around $1.50-$3.00 extra per gallon.

      9. just read through it. i don’t think that without those things they wrote about the price would be higher. none of it would alter the marginal cost of production enough to change supply, which is already limited which allows the saudis to set price.

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