On Sep 22, 2012 8:31 AM, “Art Patten” wrote:
Dear Congresswoman,
As always, we appreciate your hard work and everything you do for your constituents. But I can’t bring myself to congratulate you on the award from the Concord Coalition, an organization that unwittingly works to undermine public purpose.
Like so many organizations, economists, politicians, and citizens, the Coalition fails to recognize that, as one writer recently put it, ‘Everything changed in 1973 [when President Nixon ended the Bretton Woods monetary system], except the economic textbooks.’
We are no longer on the gold standard. The U.S. government doesn’t ‘owe’ anybody, inside or outside the country, anything but U.S. dollars, which it is the monopoly supplier of.
In our current monetary system, the relevance of the federal deficit is its role in supporting aggregate demand. Whether the deficit is large enough is reflected in GDP growth and the unemployment rate. Inflation, although terribly difficult to measure with accuracy (and probably chronically overstated, in my view), indicates when fiscal deficits are too large.
The Coalition and many other groups witness the large budget deficits of recent years and imagine that the federal government faces the same constraints as any household, business, or state or municipal government. But that simply isn’t the case. The monopoly supplier of U.S. dollars can run deficits indefinitely. And if those other sectors of the economy want dollars to save, invest, or spend (and if other countries want to sell us stuff), they all need the U.S. government to run optimally sized deficits.
Unfortunately, the imaginary concept of a real budget constraint is reflected in harmful economic myths such as the inevitability of ‘crowding out’ and higher interest rates, and the inter-temporal government budget constraint; myths that both parties have elevated to high policy dogma. As a result, the Coalition and others urge us to gnash teeth and rend garments in response to large federal deficits, due to the draconian fiscal future we are supposedly imposing on our children and grandchildren. Many very smart people believe in this narrative. However, in our current monetary system, it is nothing more than the collective imagination run wild.
The real burden we are imposing on future generations (and today’s lower and middle classes) is not some future date with the fiscal pied piper, but long-term and completely unnecessary opportunity costs, due in large part to the myth that we must reduce and limit federal deficits. Millions of households are earning less than their combined talents are truly worth as underemployment remains mired at 1930s levels. Our public infrastructure continues to deteriorate. There’s still much more we can do for veterans and the needy. The list goes on. And by any of those metrics, the current federal deficit remains too small. That means either federal tax revenue is too high or spending too low, and the Coalition and other groups like them are misguidedly placing the highest priority on what should be among our least important concerns today.
Sincerely,
Art Patten
Jenkintown, PA
P.S. I’m attaching “Seven Deadly Innocent Frauds” by Warren Mosler. You can also find it online here. It is a quick but powerful read, and one that you could get through in a single train trip to Washington. As a member of a household that has been periodically underemployed since at least 2008, (and overtaxed when we’re fully employed! :)) I implore you to give it a look. Warren is running for Congress in the USVI this fall. He’s a wonderful guy, and if all goes well, perhaps you two can sit down and talk about this stuff next year. Best regards.
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Awesome letter. Needs to be sent to every Congresscritter in America.
Doesn’t work. You will get a standard “thanks for your comments” letter in return most likely stating something totally contradictory about how the debt is a bad thing and they are doing everything they can to get it under control.
These letters are read by interns and dismissed as some sort of crazy rant that should be politely responded to and summarily ignored.
@Dan,
Unless they get hundreds, possibly?
@Dan,
Such letters are very important.
Sooner or later we will watch a Hollywood movie about the MMT-people.
@RyanVMarkov,
Maybe we should send letters to Charles Ferguson’s* of this world.
* Director of the “inside job”
@PZ,
I haven’t seen this documentary yet. Just saw the trailer and will purchase it.
Thank you.
🙂
A very well written letter. It must make you feel good to know that you are reaching at least a few people.
I can’t tell you how many times I’ve written my Congressman or Senators in regards to enlightening them to the world of MMT. Each and every time I’ve received a form letter with a stock respond of “I, like you, understand our need to reduce the national debt and balance the budget…” And my Senators and Congressman are all Dems. It’s very frustrating.
@Broll The American, Yes, it is very frustrating. Letters from MMT economists (like Warren) to banking and finance trade journals are a better bet for making change. A Federal Budget Resolution calling for auto-stabilizers circulated through #OWS alternative banking working group without attracting much interest. Here it is:
WHEREAS the federal government belongs to all the people, and WHEREAS the federal government creates all of the dollar currency used by all the people, and WHEREAS all of the dollar currency so created belongs to the public commons until it is deposited in a commercial bank, and WHEREAS the federal government can provide funding to employ the unemployed in productive work, and WHEREAS all the people benefit from being gainfully employed in a highly productive economy, and WHEREAS the federal government can control currency inflation by raising federal taxes if needed; BE IT THEREFORE RESOLVED, that the federal government will create for deposit in state treasuries the amount of public commons currency dollars needed to fully support state job programs that provide productive employment at a living wage to all citizens willing and able to work, and BE IT FURTHER RESOLVED that said federal job program will be utilized whenever the national unemployment rate is over 5%, and BE IT FURTHER RESOLVED that whenever the national consumer price index (CPI) rises above 5%, a 1% surtax on adjusted gross income will be paid by all citizens until the CPI returns to 5% or less.
Why do people focus so much on 1973? We’ve been officially off the gold-std since 1933. As Warren has noted, there was merely the pretense of inter-government gold exchange – Breton Woods – from 1944-1973, but France was the only one to ever test it. And – comically – they were denied by Nixon, in a move that never mattered anyway.
(France demanded what they didn’t need, and the USA refused to give it too them. Tempest in a tea pot?)
Point is that we’ve been operating under soft-currency economics for 79 years now, not just since 1973. You’d think the implications would have sunk in far earlier.
@roger erickson,
Point is people don’t understand how the gold standard worked, or didn’t work, never mind how the current monetary system operates.
Beck had it right with his book title “arguing with idiots”. Doesn’t matter what you say it is all about the buzz you can create. And there is an inverse relationship to people that understand MMT and “creating a buzz”.
@Dan,beck should be very good at arguing with idiots, seeing how he is one.
@roger erickson,
GOLDFINGER came out in 1964. It wasn’t until 1971 that his treasury sec’y David Kennedy explained to him that it was only a movie.
@roger erickson,
Some would argue that it was a default.
I personally think it is a losing cause. First, I highly doubt the ideas are every accepted by enough to effectively advocate it on an official level and even if it did, it would be so easy to ridicule by others for political favor.
Also, if it ever did get legislatively accepted, what would be the constraint to it? The real constraint is inflation but at what point? The point at which inflation was too high is subjective and soft. Assuming an understanding of MMT by most, do you really think elected officials would have the will-power and discipline to constrain spending and/or raise taxes themselves based on such nebulous measurements as inflation and full employment. I think they never would, so once the genie of MMT understanding was out of the bottle, it would be gung ho spending and no to little taxes until an inflation crash. That is simple human nature – it is what it is and you won’t change it.
@Roger,
Sad world you live in; eternally convicted to a low grade humankind.
@Roger,
the constraint will be that, should they mismanage, they would be removed from office at the next elections (or even before if they’re really bad).
And anyway, the fear of inflation seems to be so anchored in most people that self-restraint should be enough to avoid that.
Besides, with a good understanding of MMT, fighting demand pulled inflation is easy, so I don’t think the inflation crash scenario to be that scary.
@Tristan Lanfrey,
“Besides, with a good understanding of MMT, fighting demand pulled inflation is easy, so I don’t think the inflation crash scenario to be that scary.”
Presumably you are referring to raising taxes as a the prescribed policy lever to regulate consumption?
@Ed Rombach,
Strong auto-stabilisers are better.
@Ed Rombach,
Neil – Can you elaborate?
@Ed Rombach,
Strong auto-stabilisers are automatically counter cyclical, so they withdraw spending as an economy heats up and inject it as it slows down.
Really well designed ones like the Job Guarantee act as price anchors as well by defeating price pressure for longer in a tightening labour market.
I believe Warren has said he isn’t keen on transactional and income taxes, but the one thing they are is strongly counter-cyclical.
true.
i like transactions taxes on transactions i don’t want to take place
😉
not to forget the difference between ‘inflation’ and a one time price adjustment
Economic recovery automatically increases government’s revenue and pulls money out of the economy. Governments tax revenue acts automatically as a stabilizer for the economy. Job Guarantee would be even more powerful automatic stablizer.
@Roger, there will always be politics involved, but at least decisions would be based on a solid understanding of how the monetary system worked. At the moment, it is like the blind leading the blind.
Warren can you now explain foreign reserve accumulations, does it increase national debt or not. I read your answer to last question but you did not make it clear.
On the face of it, Russia for example has fx reserves of about 500 billion USD, and it sould have national debt of 15 trillion rubbles if USD’s were purcahased at todays exchange rates. Instead, it’s entire GDP is worth about 15 trillion rubbles and national debt is only 10% of GDP.
So what gives?
Generally they don’t count fx purchases as deficit spending and the purchases don’t add to the national debt because the fx itself is an asset for the govt.
@WARREN MOSLER,
Do you know how accounting goes if there is currency fluctuations (always)?
Doesn’t that show as a huge gains/losses on goverments/central banks balance sheet?
Are FX reserves booked as an asset of the central bank?
yes, most do a mark to market, but most also recognize it doesn’t mean anything
Most members of congress understand very well how monetary operations work.
All they care about is how to sell an ignorant America policy that will enrich the special interests that each congressman is connected to and that will ensure they get re-elected.
It would be great if Mosler spent more time writing about how a few individuals have become insanely rich beyond belief through favored access to monetary operations. Both access to information prior to everyone else and through access to the actual money prior to everyone else.
The current game in banker town is buying portfolios of 1,000 homes at 50% from Fannie Mae using free money borrowed from taxpayers at ~0%.
Oh, and these are the same houses that the banks got to dump onto the taxpayers at 100% during the great bailout. See how that works? Is that capitalism or is the criminal corruption?
Actually, it is fascism 101. Nothing will improve until congress eliminates the federal reserve and will get back to real money, managed directly by the people (congress).
@Alicia,
“It would be great if Mosler spent more time writing about how a few individuals have become insanely rich beyond belief through favored access to monetary operations.”
Can you name them please?
As far as not being able to trust politicians to restrict spending and raise taxes as necessary couldn’t it mostly be made automatic like we do with unemployment compensation and whatnot?
http://www.democracynow.org/2012/9/27/the_united_states_of_alec_bill
Warren, here is Bill Moyers talking about ALEC, american legislative exchance council, a bunch of companies that are shaping state policy in all 50 states.
Have you contacted this group to try and get them to draft legislation about a jobs gaurantee program in the 50 states? How this would provide the businesses and business leaders with employed labor when the economy turns?