Monday, December 16, 2013

Divided We Fall

All those in the American lower and middle classes, know this: Your federal government is your only hope for a decent future. It is your only recourse against an increasingly abusive and rapacious hyper-Capitalist economy. It is your only hope for reducing income inequality that is reaching banana-republic levels. It your only hope, albeit a long one, for achieving true justice and equality of opportunity in the United States of America.Forget state and local governments. They have very little political power and limited financial resources. They are staffed with second-tier politicians and policy officials, who often work only part time. As impotent and corrupt as the federal government is, state and locals are worse.Throughout US history, it has mostly been the federal government that carried out the progressive reforms to create a strong middle class and unprecedented prosperity.

Supporting any movement, measure, or politician that advocates for weakening, shrinking, or reducing the federal government is suicidal for you and your fellow middle class Americans. Similarly, any initiative to transfer spending, power, or program management to a state government is purely an attempt to weaken the program, and thus justice and opportunity for the middle and lower class. "Giving power back to the states" has only ever been an excuse to thwart progress and justice. It was the go-to line for slaveholders, and it is the go-to line of modern conservatives, who hate the idea of an activist federal government that improves the lives of the majority of its citizens (ever heard of "divide and conquer?") More fragmentation and division is not the answer to an increasingly complex and competitive world.

The federal government has been, and will be the only way for the vast majority of the country to establish and maintain a decent standard of living. It is the only bulwark against total domination by, and servitude toward, the richest 10% of the country. Progressives in the 30's and 40's, and later in the 60's and 70's, rightfully focused their energies on Washington, with powerful results. If 21st century progressives want to succeed, we must pursue a similar strategy. As comforting as it may be, we cannot just retreat into our local blue state or big city enclaves to make piecemeal reforms.Our country as whole is suffering, and our country as a whole needs our help.

Of course, federal initiatives are never perfect, and they always have flaws, sometimes enormous ones. As economist Dean Baker regularly writes, many federal initiatives actually serve to make inequality and injustice worse. Federal officials are often incompetent and corrupt, but this doesn't mean that the whole federal government should be thrown out! To the contrary, we the middle class have an enormous stake in a strong, efficient, and functioning federal government. WE own it, and WE have to start acting like it, otherwise someone else will. And that someone is large corporations, their media machines, and their corporate lobbyists.

Wednesday, November 27, 2013

Charlie Sheen-O-Nomics

The Federal Government can't run out of money. Any economist, politician, or crazy uncle who says otherwise is an ignoramus. The government can't run out of money any more than I can run out of letters to type into this blog. Saying that the government can run out of money is like saying we will run out of emails to send to each other. Both are just forms of digital data communications, not anything physical or tangible. When I receive an email, the pixels on my computer screen change as directed by the electronic message. When I receive a payment from the government, the pixels on my computer screen change as directed by the electronic message. They are the same damn thing. Emails from my boss instruct me to do something. Checks from the government also reward or instruct us to do a myriad of different things which our legislators have deemed important to the nation. Thus federal spending is just a huge series of digital instructions. It is the QUALITY, NOT THE QUANTITY of these instructions that really matters. Instead, most people in Washington insist on obsessing over meaningless quantities which they don't even understand.

---

Even worse, people think we are losing the international trade game, when in the timeless words of Charlie Sheen, we are in fact "Winning!". The Chinese, and the Japanese before them, made themselves the world's slaves. They were willing to work extremely hard to send us real goods and services in exchange for....that's right, digital data. For some reason, they prefer to have digital numbers on a spreadsheet at the Federal Reserve (aka the "trade deficit") instead of the real goods and services which they produced. Why they did this is beyond me. And even worse, America thinks that it is are losing, when in fact it is winning! We have gotten all these other countries to send us real stuff, in exchange for digital data which is utterly cost-less to produce- by pressing on a keyboard! The Japanese have run persistent trade deficits with the US. You know all those checks for $2000 that we send them in the 1980's in exchange for those tiny cars? Guess what, those dollars balances are still sitting at the Fed. If they ever decide to spend those checks (ie run a trade surplus with the US), they will get significantly less real stuff than they could have in 1985. US: 1- Foreigners: 0.

I like to joke that if some clutzy intern at the Federal Reserve spilled coffee on the hard drive somewhere in the Fed's basement where all this data is stored, the hard drive would be fried, and the "trade deficit" would be gone! Just like that! Zap! What are they going to do, call the manager? We have the real fruits of their labor, and they have nothing.

This is called real terms of trade. In this crazy, convoluted world, people have come to care more about digital entries on spreadsheets instead of real, tangible things. At any point in time, the US can decide to reduce the value of existing dollars, thereby reducing the purchasing power of the previous Chinese labor. At any point in time, the US can decide to charge export tariffs on products going to China (Chinese Exclusion Laws 2.0?), or impose capital controls on Chinese claims. This too would reduce the real purchasing power of the money that the Chinese have already earned from us. Or, we could do as we are doing now, and bring down the interest rates that the Chinese earn on the dollars they already got from us, IE quantitative easing. The Chinese, and all other countries that chose to run a trade surplus with the US, put themselves in this incredibly vulnerable position voluntarily. US: 2 -Foreigners: 0.

Of course, I am in no way suggesting we do any of these things. I think the Chinese have worked very hard to improve their lives, and they deserve to earn some interest, or otherwise maintain the purchasing power, of the dollars they have earned from us. My point is that we remain in control, and can make their maintenance of spending power contingent on whatever we want. For example, I suggest we threaten to tax Chinese dollars claims until/unless they stop abusing the peaceful Tibetans, stop killing 100's of millions of sharks for their fins, or reduce their CO2 emissions.

Psssst! Here's a dirty little secret: China is also a sovereign currency issuer. There is no reason why the Chinese could not have always afforded to purchase every shoe, sock, and cellphone they were also capable of producing, and send us nothing. They would have been much materially wealthier in that scenario. They could have been real-stuff-rich, and dollars-poor, and nobody would have given a shit. WTF do the Chinese need dollars for? Do they want or even need anything that the US produces? Apparently not. Instead, they have made it their explicit policy to keep their currency weak in order to maintain their status as the world's slaves. Yes, its stupid, and they finally seem to be catching on, as are the Germans. But it works for us, so I'm not complaining, because after all, we're WINNING!

Friday, November 1, 2013

Uncle Sam Doesn't Need Your Money

As I say in the banner of this blog, the US Federal Government is the monopoly issuer of dollars and can never run out of them. This also means that our government does not need to tax our money back in order to spend it again! US policymakers learned back in the 1930's that taxes for revenue are obsolete. Doing so is a way to control aggregate demand and inflation, and is not necessary to fill the General Account at the Treasury. During weak economic times such as these, federal taxes suck money, and thus demand out of an economy that needs more, not less net spending.

Good thing Uncle Sam is hoarding all this fiat currency! The Treasury Daily Statement is a great source for keeping track of Uncle Sam's flow of dollars in and out. The daily statement from September 30, 2013 shows the numbers for all of FY2013:

*$37 billion in student loan interest and other Department of Education income in fy 13. This is up from just $18 billion in 2007, and is more than this year's estate tax revenues. Yes, lets juice young college students, while leaving the plutocrats alone!

*~$2.8 trillion in income, employment, and other taxes, which is an all time nominal high

*$75 billion from Federal Reserve Earnings that would have gone to the private sector instead

*$95 billion from GSE dividend payments (ok, maybe this one is acceptable)

....and More!

Wednesday, October 30, 2013

Economics is a Dirty Job, but Mike Rowe Shouldn't Do It, Parte Dos

*Sigh* its looks like Mike Rowe's Promoting Stupid Tour 2013 continued last week on, of all places Glenn Beck's online exclusive TV show (link, if you dare)

It was bad enough when Rowe went on Bill Maher and was able to spew his nonsense unchallenged. But appearing on the show of wild, raving neofascist lunatic Glenn Beck is a new low for Mr. Dirty Jobs. Rowe continues on his campaign to discredit four year liberal arts degrees with his folksy, visceral "wee dont need no edju-kay-shun BS. He brings up the widely discredited "skills gap" theory that "if only lazy, spoiled Americans would just take the high stress, low wage jobs the the High Holy Private Sector Job Creators(tm) are offering them" then we would fix the economy. He goes on to say "we are borrowing money we dont have" to fund higher ed. Yes Mike....we are going to run out of fiat! I always wonder how these geniuses think we paid for WWII and all the GI bill programs.

Thing is, I want to like Rowe. He does go on to say that he "isnt against college education, just against debt", which is a perfectly reasonable argument. However he doesnt make the next logical step, which is to say that the monetarily sovereign government could just as easily fund higher ed with interest-free grants instead of loans. There is no reason that higher education needs to come with enormous debt, but Rowe skips over this point and continues flattering Beck, who of course hates the idea of national populace that knows history and can think critically. Could it be that having a college education makes Beck's foaming-at-the-mouth chalkboard "lessons" seem almost ridiculous?

Rowe's comments get even more confused from there, when he says:

“This whole topic always boils down to management vs. workers…the blue, the white collar. Enough with the color of collars,” he declared. “The way to talk about work is through the context of, what are you addicted to? Are you addicted to smooth roads? …Cheap electricity? Indoor plumbing? I am. So if you share my addiction to the fruits of skilled labor, you’ve got skin in this game.  So I think if you start to engage a bigger hunk of people, not just management and not just labor, if you really start to have a conversation about work and education, about affordability, everybody can take a micro-macro look at this thing.”

Um, What?!?! Rowe's intentions are probably honest enough, but he shows no humility when making his ass-backwards arguments. He may not realize it, but he is effectively shilling for the corporatist distopian worldview where an informed electorate is an unaffordable triviality but wage slavery is "good for ya." And its not that I even have a problem with Rowe promoting blue-collar jobs, its just that he doesn't mention the reason for the deterioration of such jobs is due to the bipartisan attack on unions, not because "kids today" dont want to work hard. If we got back to 40% private sector unionization levels then maybe, just maybe, these blue collar jobs would be plentiful and lucrative. But you can't blame today's kids for looking at how their parents worked hard in blue collars jobs only to be betrayed by management, and not wanting to follow that same path. 

So Mike, please stop with the glorified s**t kicking. You're a good guy, but ya don't understand econ. From now on, please just stick to cleaning out urban sewer tunnels and leave the policy to the pros. After all, we have to make our fancy pants college degrees pay off somehow!

Monday, October 28, 2013

Dear Mr. President,

Dear Mr. President,

I understand you've had a rough couple of weeks. First you had to deal with an insane government shutdown and near debt-default. And now the rollout of your signature achievement- Healthcare reform- has been a total disaster. Here's the thing- I like you, and I voted for you. But I don't feel sorry for you. You deserve every ounce of the misery and failure that you are now immersed in. I feel just as obligated to defend your botched healthcare roll out as you felt obligated to listen to our pleadings for a public option/single payer. You sewed the seeds of your own destruction, because you didn't want to make the difficult, just, policy choices when the opportunity was presented to you. To make matters worse, this train wreck is severely undermining the American people's already low confidence in the ability of government to effectively serve the public interest. You, and your supporters, are now paying dearly for your prior lack of conviction. While you may be able to dye over all the gray hairs and wrinkles that these days have caused you, you will never be able to undo the trauma that this nation has endured since November 2010.

The failure of the Healthcare.gov website is entirely due to the policy choices you made back in 2009. Instead of adopting a fair, cheap, and simple Medicare-for-All like the majority of your supporters wanted, you opted for an expensive, hideously complicated, pro-corporate Rube-Goldberg machine because you opened the White House doors to industry lobbyists and didn't want to scare the Big Money. When it came to criminally prosecuting the perpetual fraud machine of Wall Street that cost the global economy tens of trillions, you urged us not to be so vindictive and "look forward, not back". Instead of focusing like a laser on the depressed economy, you passed through a weak stimulus, wiped your hands of responsibility for the macro-economy, and proceed to push through your status-quo healthcare bill that no one wanted, and few could understand. Your website is now a disaster, precisely because you lacked the courage to do what was right for the nation. Just as the ACA's drafters stretched and strained to make marginal improvements to an archaic and hopelessly broken healthcare system, Healthcare.gov's computer coders are stretching and straining to fulfill the nearly impossible bureaucratic tasks that your "reforms" have demanded of them. 

The insane Republican right has a lot do with these problems, sure. But you must realize that you inflamed and empowered them. This loudly dying party is now angry, racist and vile, but there is nothing you can do about that.  The way your enemies behave is out of your control. When you took office in January of 2009, the Republican party was in shambles. They were at their weakest point in a generation, and you had a golden opportunity to make them permanently irrelevant. Instead of driving a stake through the Republican Party's cruel gray heart, you breathed new life into the elephant's corpse by taking your eye off the economic ball, and opting for the status quo option of a conservative and legally dubious individual mandate.

Thankfully though, it appears you have finally gotten over the inane naivete of your 2004 convention speech, where you pretended, in front of a crowd of fawning loser liberals, that the vast political differences of this country simply didn't exist. Only declaring "there are no red states or blue states" does not make it so. Words alone do not have that power. When Lincoln read his Emancipation Proclamation, he did not simply declare slavery to be over; instead he fought to make it so, by rallying his nation around the bloody but righteous cause of the civil war. You must realize that you are now facing the same political/economic forces, propaganda strategies, ingrained racial animus, and oligarchic genetic codes that Mr. Lincoln faced nearly 150 years ago. The United States is once again fighting a civil war, (thankfully without guns), and the stakes this time are also very grave.  In the face of unprecedented foreign competition, our union, divided, cannot much longer stand.

But because you abandoned your supporters and scared the moderates with this complicated bill, you stirred up this mad right wing in a year ending with a zero. The disastrous midterm loss that you brought upon yourself and your party has killed the progressive agenda until 2014 at least, and likely until 2020. Your website is not the only thing putting the American people on hold! Making the real reforms necessary to save our economy and our planet have now been frozen indefinitely. Eventually, if you haven't already, you need to ask yourself if your complicated and inadequate health care bill was worth sacrificing 10 years of progress: 10 years that this crumbling nation probably cannot afford.

Mr. President, you are without a doubt an honest and upright family man. I hope, and predict, that this botched rollout will be a minor historical footnote in the broader effort of expanding health insurance coverage. You don't deserve half of the criticism leveled at you, but you have made some grave errors. My hope is that you can own up to these mistakes, and use the lessons learned to inform your decision making going forward.

As you would say in your native tongue: As-salam alaykum (kidding),

JGK


Thursday, October 17, 2013

Back to the (stupid) future

Understanding macro is difficult, because it has to be learned from a blank slate. There aren't many useful everyday analogies to make about macro as there is for micro, so it is more difficult to teach to most people.

So lets zoom out. Lets take an astronaut's view of the American economy. We can see the skyscrapers sticking out of the cities, the McDonald's golden arches sticking out of the suburbs, and the meth labs exploding in the countryside. You see 300 million people zipping about, trying to make the best of their lives. From this vantage point, how does it make sense for all this economic activity to be depressed for any reason other than real, physical constraints? If there are resource shortages, no infrastructure, mass starvation, disease or war, then there are real world constraints on output. But does it make sense to force 20% of our people into idleness because of a shortage of digital transactional data, known as money? No! Of course not!



Today's out of paradigm policymakers, Dems and Reps alike, are willing to allow real GDP to grind well below potential for years and force millions of people into entrenched unemployment because they think there is something magical about some deficit number. Marriner Eccles knew the folly of that sort of reasoning. He said:

I think it is unfortunate to say the least to have public attention is led into becoming alarmed over the wrong things. I very much regret that responsible leaders, however conscientiously, nevertheless mistakenly create public alarm over the solvency of the nation or the soundness of its credit. This is just what they do when they call attention to one set of facts or figures without showing their relationship to other facts and figures. Isn’t it up to us to keep our eyes on the important things?


We are 21st century human beings for God's Sake! We should be more advanced than, to quote Thomas Jefferson, our "barbarous ancestors" who thought that money was a shiny metal that had to be dug out of the ground! We now have incredibly advanced information technology, historically high standards of living and life expectancies. We can take pictures of galaxies that are billions of light years away and put chicken genomes into strawberries. But we can't understand how our 80 year old fiat currency system works?!?! How dumb is that!!!
Saving money for the future is only possible from financially-constrained private entity who sacrifices current spending in the hope of expanding their future spending capacity. So for a household, the act of saving means they forego current consumption to accumulate financial assets which will enable them to consume more in the future. 
But for the federal government, which issues its own currency, this way of thinking is useless, and even destructive. A federal budget surplus does not give us any extra capacity to spend in the future, in the same way that a budget deficit provides no less capacity for that government to spend in the future. There is no point in raising taxes on anyone or cutting spending right now, because it will only depress economic activity further.

Tuesday, October 1, 2013

The ghosts of A-holes past

Senator Ted Cruz (R-TX)


The utter insanity that has come to grip our national politics did not metastisize overnight. While Ted Cruz may be dominating the airwaves these days, he is just the latest colorful traveler on a road that was paved decades ago. In every word of Republican madness, I see the ghosts of Lee Atwater, Richard Nixon, and Ronald Reagan.

For some of our nation's history, there was a mutual, unwritten understanding among our politicians that you did not burn through the social fabric to win elections. Outright deception and playing of social and racial groups against one another used to be reprimanded by higher minded leaders, of both parties. Then along came the psychopath Richard Nixon, who's only agenda was to seek and hold as much political power as possible. Policy, if considered at all, always came second to Nixon, who was perfectly happy to let Democrats in congress pass liberal bills, as long they didn't threaten his power as president.

But in order to maintain his hold on the presidency, Nixon ventured into previously uncharted territory for national republicans- the south. Long considered a Democratic stronghold since Reconstruction, Nixon realized he could take advantage of the Democratic move toward Civil Rights by appealing to Southern racism in new, less explicit ways. His paranoid, win-at-all costs style ended up being his undoing, but Nixon ushered in the era of slash and burn cesspool politics that survives to this day.

In this era also came the rise of Lee Atwater, the brilliant, and mad political strategist who uttered the infamous phrase: "By 1968 you can’t say “n****r”—that hurts you, backfires. So you say stuff like, uh, forced busing, states’ rights, and all that stuff, and you’re getting so abstract. Now, you’re talking about cutting taxes, and all these things you’re talking about are totally economic things and a byproduct of them is, blacks get hurt worse than whites.… “We want to cut this,” is much more abstract than even the busing thing, uh, and a hell of a lot more abstract than “n***r, n***r”"

St. Ronnie the Actor was even more skillful at these divisive tactics than Nixon. He was a master at using charm and whit to disguise his radical, pro-corporate ideology. Despite his weak understanding of policy and diminished cognitive capacity, his appreciation for the art of political communication was enough to convince millions of middle class Americans to begin their experiment with political Stockholm syndrome by re-electing him/his administration twice. 


The legacy of the Southern Strategy and its shameless use of "wedge issues" to stir racial resentment and fear among the middle class remains as strong as ever today, and not just in the south. This "southification" has now spread to other areas of economic disempowerment, especially the rust belt states. It's no coincidence that some of the most rabid, radical members of Congress now come from states like Wisconsin, Indiana, Ohio, and Michigan. The engineered collapse of the white American working class had made for ripe-pickings of the modern day Atwaters, like Karl Rove, Rush Limbaugh, Frank Luntz, and the religious right demagogues.


This is why no explanation of reality matters anymore. When so many members of congress, and their constituents  are motivated only by emotion and visceral distaste for the president, no argument using logic or data has any potency. Good luck getting any discussion of sectoral balances or demand leakages through these frontal lobes! Just the mere idea that our sovereign government can spend its own currency in unlimited amounts is enough to cause heads to explode. At this point it is probably too late for these deranged maniacs to ever come back to earth and contribute positively to our society anyway. 


Thursday, September 19, 2013

Time to mature

The idea that money itself is a commodity is one of the largest impediments to societal prosperity. This mental construct of money inevitably leads to the feeling that a government can "run out" of its own money, which of course is ridiculous in the modern world. As I have said before, money is just a unit of transaction and means of facilitating commerce.

No society should ever constrict its growth through any arbitrary spending constrains, whether they be gold standards or debt ceilings. It never makes sense for any nation, at any point in time, to be producing anything less than its full capacity, and only a certain amount of aggregate spending can bring this about. Our founding fathers deeply understood the importance of money and how it could be used to bring a society to full productivity. It was for this reason they granted Congress, and only Congress, the right to coin money and regulate the value thereof. To do anything less would be to betray our founders, and betray the millions of un and under employed.

I suppose coming to this realization would be a signal of the US maturing as a nation and embracing modernity, by eschewing the Calvinist idea of money as instric worthy and embracing the human rights implications of anything less than full employment.

Saturday, September 14, 2013

The (debt) Ceiling Can't Hold Us

As the next Congressional showdown over the debt ceiling approaches, the whirlwind of Beltway discussions will once again tilt towards US debt and deficits. There are literally thousands of people Washington, DC whose job it is to analyze and comment on federal budgets, deficits and debt. There are also countless organizations and think tanks dedicated to these subjects, many of which emanate from octogenarian billionaire Pete Peterson, who funds several debt-hysteria groups such as the Concord Coalition, Fix the Debt, and the more recent, youth oriented “The Can Kicks Back”.

Unfortunately, nearly all of these groups and commentators are dead wrong. Simply, the United States Federal Government is the monopoly issuer of its currency, the dollar. The US government is no longer under a gold standard, or any other fixed-exchange rate currency regime, and thus has the ability to issue currency in unlimited amounts and pay all its debts. Article 1, Section 7 of our Constitution grants the US Congress the unique prerogative to “coin Money [and] regulate the Value thereof.” Congress has assigned this incredibly important task to two of its agents: the United States Treasury and the United States Federal Reserve. These two government agencies work in tandem to ensure that funds are always available to meet congressional appropriations.  Contrary to consistent statements from economists, budget experts, and our economically illiterate president and congress, there is absolutely no scenario in which the US Treasury can involuntary become insolvent, default on its debts, or “run out of money” (this is not the case for state and local governments, who are only currency users). Social Security, Medicare, and all other federal programs can never go bankrupt, regardless of the status of “trust funds” or other accounting mechanisms.

All such solvency concerns are remnants of the gold standard currency regime, which was ended domestically by Franklin D. Roosevelt in 1933 and internationally by Richard Nixon in 1971. Modern money is simply a means of facilitating commerce and moving real goods and services around the economy. As a fiat currency, the US dollar is no longer arbitrarily backed by the value of some shiny rock; in our modern civilization it is backed by the ever increasing productivity of American workers. So where does all this money come from? All that happens is the gnomes at the Federal Reserve sit in front of computers and type numbers into bank accounts. As Chairman Bernanke said to Scott Pelly of 60 minutes in a2009 interview: “…it’s not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank…we simply use the computer to mark up the size of the account that they have with the Fed.”

The job of paying the bills is almost solely in the hands of the Treasury and the Fed, with the exception of the legally and ethically dubious debt ceiling – a provision that prevents these bodies from performing their Congressionally appointed duties by mandating that they refuse to make payments on existing obligations without Congressional approval, once the debt limit has been reached.

Why does such a provision exist? Many members of Congress believe that exceeding an arbitrary dollar amount in federal spending is destructive to the country, for reasons that are to this point beyond comprehension. Attempting to induce draconian spending cuts or extreme tax increases to meet the obligations posed by this capriciously determined ceiling would be equally ridiculous, as it would depress economic growth for no reason other than self-imposed austerity. Such lack of spending has forcibly excluded millions of people from contributing to our economy. We already throw millions of people in jail for smoking some weed and prevent them from being part of the economy; why do we need to force millions of others to live in an unemployed state of house arrest?

So then what is debt, exactly? Our $17 trillion national debt exists mostly in the form of US Treasury securities, of varying maturity. These securities are simply a default-risk-free, interest bearing alternative to dollar balances. They are functionally nothing more than savings accounts at the Federal Reserve. In fact, all values of US dollar deposits and treasury securities outstanding are accounted for by the Fed. The nature of US government debt is entirely different from private debt, since no private actors are currency issuers. Further, concerns about China funding our debt are misguided; the Chinese have earned several trillion in dollar balances in their reserve account at the Fed, by selling us goods and services for several decades. Instead of making the Chinese, or any other holders of US dollars, just hold these dollar balances in non-interest bearing accounts, the US Treasury offers debt, or its securities, as an interest bearing alternative to dollar balances. The market for US Treasury securities is broad, deep, and highly liquid. Since leaving the gold standard, the Treasury has never had any problem selling all of its securities at auction, and never will. With few exceptions, there is also really no such thing as “paying down the debt.” The value of Treasury securities outstanding has increased consistently over our nation’s history, and the Treasury has been able to seamlessly roll over these securities since 1789, without any grandchildren involved. It can continue to do so into perpetuity, with interest rates determined not by markets, but by policymakers at the Federal Reserve.

US government debts serve as default risk-free asset to all private actors, and play an irreplaceable role in the global financial system. The sum total of bank reserves, cash, and US Treasury securities outstanding represent the net dollar assets of the private sector. As a simple matter of accounting, the US federal deficit equals the nominal net savings of the private sector, to the penny. Deficit spending does not subtract from anyone’s savings or “crowd out” the ability of the private sector to make investments; to the contrary, all the dollars that the government spends in excess of those which it taxes back remain permanently in the private sector. Over the course of US history, our government has added around $12 trillion more than it has taken from its citizens. The simple fact that you or I have a dollar in our pockets is proof that the government has at some point spent more than it has taxed back. In no way should this be considered a bad or unsustainable phenomenon! Here is proof:




What then is the role of taxation in a fiat currency? It is not, as most people believe, to raise revenues, for the Treasury can simply sell securities to fill its general account. Instead, modern federal taxes function primarily as a control on purchasing power, and therefore aggregate demand and inflation. We do also use the tax code to accomplish other political and policy goals, but in modern times the federal government does not need to tax back its own money before it can spend again. I am fully aware that this reality may not be palatable for some people on the political spectrum, but it is true nonetheless. Marriner Eccles, the Chairman of the Federal Reserve during the 1930’s and40’s, was one of the first men to openly and repeatedly acknowledge this new economic scenario, and correctly advocated for large government deficits; first to fight the depression, and then to fight fascism.

So what does all this mean for policymakers?  If the deficit is too small (not enough spending or too much taxation) to overcome the natural and constant desire of the private sector (which includes individuals, large and small businesses, pension funds, foreign central banks, and others) to net save, unemployment will result. And right now, the massive hangover of private debt, including mortgages, credit cards, and student loans, is preventing the private sector from borrowing, lending, and expanding on its own, no matter what kind of asset swaps and purchases the Federal Reserve may try. Therefore, it is the sole responsibility of Congress to deficit spend until the economy reaches full employment of labor and resources; nothing more and nothing less. The overriding economic concern of this spending is its ability to cause inflation, but not its creation of any arbitrary debt number or ratio. While some of this spending will certainly be considered “wasteful” by partisan observers, we must remember that absolutely nothing could be more wasteful than allowing millions of our fellow citizens to go unemployed or underemployed.

At this point, it should be clear to casual observers that the economic expertise of current policymakers is sorely lacking, and as such their policy regimes have utterly failed. The latest employment figures for the summer of 2013 have been awful, and our current employment-to-population ratio remains painfully low. So given these conditions, what might be an easy way to increase employment? How about we stop taxing it! An easing or full repeal of the regressive FICA (payroll) tax might just do the trick. Getting to full employment should be the number one priority for all progressives, because the political reality is that the American people will have little appetite for progressive reforms until the economy is strong again. Our great nation has already suffered through five years of high unemployment, weak growth, and deferred dreams, represented by the nearly $5 trillion in lost economic output since the 2008 financial crisis. Dumb policymakers aside, we the people need not allow this tragedy to continue for one more day.

The author is a 2013 graduate of the George Washington University with a bachelor’s degree in Political Science, a current graduate student in the GW Legislative Affairs program, and blogger at “All Wonks of Life.” For more, please read “The Seven Deadly Innocent Fraudsof Economic Policy” by Warren Mosler, and “Freedom from National Debt” byFormer Deputy Secretary of the Treasury Frank Newman.



Monday, August 19, 2013

welfare

When I hear people complaining about government welfare, my immediate question to them is "what government program are you talking about?" There are many federal programs that can be considered welfare; for example Medicare Part D is welfare for the pharmaceutical industry. Every single time I have asked that question, the person is unable to name the federal program they are talking about. Food stamps? Not really welfare. They are in-kind benefits that are intended as a counterciclical economic program more than anything else. What people usually talk about is a program called Temporary Assistance to Needy Families, or TANF. Contrary to perceptions of an out of control welfare state, the annual TANF appropriation was capped at $16 billion dollars in 1996, and has stayed the same since. It is available only to those who are working or engaged in "work like activities." Although TANF checks are small, the program is very effective at eliminating extreme poverty. No one on TANF is living a life of luxury, contrary to Ronald Reagan's Alzheimered rants on the subject. 

TANF makes an investment in a more stable and productive workforce. This is something we should all want for our country. The fact is a majority of welfare recipients are single women with children, foster children, or children being raised by aunts/uncles or grandparents.  Hardly creating a "culture of dependency", TANF benefits, even small ones, can give children and their families the stability they need to be more productive in the future. As any parent will tell you, an investment made into a child is the best one possible. It has the best bang for the buck. 

So I’m proud to live in a country that provides poor and middle income children and their families with some supplemental income, some food assistance, access to early childhood education, reduced school lunch. What could be better for a child than food and books? This is really common sense, and all the science agrees. Research shows that children raised poor are more likely than not to stay poor, and those that are in families that receive assistance do significantly better than those that don’t. 

And we only spend 16 billion on the federal level and another 15 or so from all the states put together. This is 30 billion, or about 1/500th of America’s GDP. So when Repubs say that 1/500th of our nations wealth that is invested in poor children is too much, that we need to cut, and cut, and cut spending, and add eligibility requirements; that is a cruelty that I simply cannot comprehend. And for what? To get savings maybe totaling the cost of a dozen F-22 fighter jets? Just allowing that thought to cross my mind sends chills down my spine. Is that really where we are as a country? That we are considering cutting these crucial programs? Nothing could be more penny wise and pound foolish.



Saturday, August 10, 2013

Economics is a Dirty Job, but Mike Rowe shouldn't do it

One of the worst "zombie economics" (thanks to PK for that gem) ideas out there is that the current unemployment crisis is due to "structural unemployment", or some chronic flaw in the American economy where workers are not trained or available to fill open jobs. This is one of those ideas that despite having absolutely no empirical support, and having been disproven over and over again by professional economists, refuses to die and keeps trudging alone, eating the brains of innocent people along the way. This is a common theme among the pseudo-economists and media talking head flacks. Even Mr. Dirty Jobs himself, Mike Rowe, went on Bill Maher last week to dispense his anecdotes about how "there are tons of jobs out there that kids these days dont want to do because they are spoiled and lazy" etc. If structural unemployment were a real problem, there would be some sort of macro data to support it, such as rapidly rising wages in the sectors that were struggling to fill job openings. In the total absence of such data, all that remain are the folksy anecdotes of people like Mike Rowe. God help us if 21st century American policymaking is based off anecdotes instead of empirical data.

These people insist that the American workforce is hopelessly unprepared for the modern economy, despite the fact that we remain one of the most productive, efficient, and highest educated workforce's in the world. The problem is aggregate demand, not enough spending in the economy, pure and simple. As Warren Mosler likes to say, unemployment is simply the evidence that the government deficit is too small, and can be easily cured by a large tax cut or spending increase. If the government does not spend enough to cover the tax liabilities that it imposes on the country, combined with the net savings desire of the private sector, unemployment will result. If the private sector is net saving, as it usually does, that savings is unspent income, which means that some amount of goods and services will go unsold, leading to unemployment. Its really that simply folks. There are some times when the private sector can spend more than its income (go into debt) to support full employment even when the government is in surplus. However this is rare and unsustainable, as evidenced by the Clinton surplus and subsequent stock market crash. This also happened to a lesser extent in the Bush years; although Bush did run deficits, they were sufficiently supplemented by the housing bubble, so unemployment remained fairly low.



As far as I can tell, these complaints about structural unemployment, are themselves the product of insufficient demand. When the economy is slack, what minor structural problems may exist become more acute, and thus win the attention of the talking heads. However if we are constantly focusing on workforce issues, we take our eye off the ball of aggregate demand. As I have said before, if the jobs are there, the skills will follow. This is how healthy economies usually work. In fact, if you believe in the efficiency of markets, as I do to some extent, structural unemployment should never really happen at all. What really bugs me is that these claims of structural unemployment serve to let bad economic policy makers off the hook. Even worse, all these talking heads are effectively blaming American workers for being inadequate, when it was really the reckless behavior of Wall Street, and the idiotic responses of Washington policymakers, that actually led to these 5 years of weak growth.

Aggregate demand is the momentum with which structural changes can be made. There is an order of things: first you get the economy going, then you change its structure. Its like pulling on the steering wheel of a car when the engine is off; without forward movement you cant change the direction anyway. From now on, Mike Rowe should leave econ to the experts, and stick to shoveling shit and doing Ford commercials.

Tuesday, August 6, 2013

Deflating inflation

Perhaps an area where modern monetary economics could grow into is about what to spend money on. For example, I think there is tremendous opportunity in making the argument of how our massive military spending does not cause inflation. We now spend over a trillion dollars a year on military, defense, and national security related items. This "welfare state for engineers and computer geeks" is money spent by the government that does not result in any commensurate production of goods and services to absorb to the new spending. Most of what this spending creates are intangible items such as "security"; what physical items it does produce are mostly either consumed abroad (bombs and bullets in wars), or not really used at all (ships, planes, all the other array of high-tech vehicles that we pay millions to design, billions to produce, whiz around the world a few times and then dump in the New Mexico desert). Then, when we spend trillions to pay all the millions of DoD, CIA, NSA, and DHS employees and their contractors, they take this money and use it to consume other goods and services in the American economy, without having produced any of their own for other people to consume. So at least half of what the federal government does is produce low-utility military surplus, and even this does not produce much inflation!

This gives you a sense of how truly large the American economy is, and how much more domestic spending we could be doing. In fact, if anything domestic spending would produce even lower levels of inflation than defense spending, because unlike defense spending, domestic spending does produce a commensurate increase in goods and services for its new dollars to consume. Some government investments, especially infrastructure and education, have enormous returns in the form of future efficiency and productivity. So as long as the new money spent by the government (injection of Net Financial Assets, or NFA) is accompanied by an equal increase in the amount of goods and services available for consumption, there will be no inflation!! In fact, because the modern American economy is so efficient, it may be possible for the money supply to increase, and the price level to actually stay the same or go down! Ha! Take that gold buggers!

Monday, August 5, 2013

Whistling for Dixie

As much as I love the food, music, and culture of the South, I have to admit that the whole idea of minority empowerment through democratic elections and governance has never really been accepted down below the Mason-Dixon. The idea that any group of people (blacks, immigrants, laborers) could assemble to demand certain rights through and from their government has always faced harsh, often violent resistant from the wealthy, landed gentry that has ruled the American South since the country’s founding. Just as this plantation class convinced hundreds of thousands of poor Southern farm boys to fight and die for the cause of slavery, for which they had no economic stake, the descendants of these same plantation owners have since the 1970’s, convinced millions of poor Southern whites to vote against their own economic interests in the vain hope of cultural and religious preservation. There’s a reason why parts of the south look like third world countries: it’s because they are governed like them. And as the modern, globalized world makes the 18th century ideology of the South more and more obsolete, the US as a whole will struggle to make the societal advancements necessary to maintain international competitiveness. 

If I could do one thing to fix the country, it would be to convince people to please stop watching Fox News. There is not one second of programming that comes out of that network that is not intended to make people think, and ultimately act in some planned way, and it is destroying the social fabric of this country. They take the righteous, legitimate rage of the disempowered American working class, and displace it onto easy and available targets: minorities, blacks, immigrants, gays, women’s rights advocates, etc. Of course, these are the groups that had the least to do with the economic demise of the American middle class, yet today’s right wing masters of propaganda, whose tactics would make Joseph Goebbels jealous, have succeeded in making these powerless minorities the targets of so much white anger. It is no longer an exaggeration to call these forces neo-fascist; their ends might be different but their means are nearly identical.

This rage is also channeled toward “big government”, which of course no one can really define in any coherent way. None of these talking heads have the slightest idea of how modern government actually works. All they can do, and all they have done throughout their careers, is repeat empty yet compelling slogans about how liberal, progressive, big government blah blah blah is supposedly ruining the country. They have no intent on actually informing viewers, or making our democratic government work better for the public. Their only intent is to destroy the foundations of American democracy, for which so many millions have fought and died.

Skills gap

While learning skills in college is important, the fact is that skills become obsolete. And in the 21st century, skills are becoming obsolete and an ever increasing pace, and many who are currently in the workforce are struggling just to keep up. Where jobs skills should be taught is in the workplace: by the employers, by the guild, or in an apprenticeship. That way once you have a job you have somewhere to go to update your skills without paying some outrageous tuition cost. This also helps to avoid having to make the blind leap across chasm between graduation and entering the workforce. Labor unions, before being systematically destroyed by Neo-liberal policies of both Republicans and Democrats since 1980, used to play this crucial role in the economy. Now, with unions mostly gone, every man is left for himself, to take on the financial burden of a higher education, and just blindly hope that a remunerative job somehow results.

College is really about learning how to think, because that can never become obsolete. Learning about the patterns of human nature through study of history, literature, art, philosophy, or psych/soc is invaluable. This teaches people to think differently, to ask why, to question norms, and to be suspicious of power. Any society that hopes to survive long term needs a healthy population of citizens who can think in this way. 

And when it comes to the labor market, I think Americans have comparative advantage in the humanities. Other cultures (East Asians) are very good at learning rote, mathematical, and technological skills, and for the foreseeable future are willing to put these skills to use for very low wages. But knowing how to think is not their forte, since they have seemingly tossed aside their philosophical heritage (Tao, Confucius) to instead acquire the technological skills that modern capitalism demands of them. We Americans should know better.

Monday, July 29, 2013

Harsh Truths

As the 50th anniversary of the 1963 March on Washington approaches, I've come to realize how little economic progress has been made available to African American's in the United States. A recent report from the Economic Policy Institute (EPI) showed that nearly half of all black youth live in areas of concentrated poverty.

While the civil rights movement was a quasi-legal (RIP Trayvon) victory, it was most certainly not an economic one. We have allowed ourselves to forget that Martin Luther King was a self identified Christian socialist; he an the millions behind him marched not only for equal rights, but for equal economic opportunity, fair pay, and jobs for all those willing and able to work. The second half of King's dream was never quite realized. Even until 1980, the vast majority of African-Americans never really had economic opportunity on par with the rest of the country. Since then, it seems the bleeding hearts have bled dry, and the regressive policies of a vicious right-wing have sealed the fate of the American poor.


We threw the Native Americans out onto the worthless rural land, and we left the blacks on the worthless urban land. Just take a glance at this map of Detroit's racial composition. These inner city reservations on which many blacks still live lack not only economic opportunity, but even some of the most basic human needs, such as housing, education, nutritious food, and a sense of security of person. With rampant unemployment, urban blight, drug use, alcoholism, and out of wedlock births, these urban reservations present little opportunity for personal improvement, no matter how hard one may try to pull on their bootstraps. Our education system based on local property tax revenues (and now a perverse push for privatization/vouchers/charters) has deprived the poor of the only real ticket out of poverty. Educational opportunities are severely lacking just where they are needed most. Its hard to pull yourself up with your bootstraps when you can't afford new shoes, or don't know how to tie them.

That's why I am torn about the Wal-Mart- in DC issue. Yes, the entire business model of this multinational corporation is dependent on subsidies from the government welfare state. Yes, its owners the Walton family are together worth $90 billion, or as much as the bottom 40% of Americans combined. But the reality is that Walmart can provide access to fresh produce in these urban enclaves that lack traditional grocery stores. Many urban dwellers do not own cars that would allow them to venture into the suburbs to get groceries as we do. Many rely on gas stations, convenience stores, and 7/11's to get the majority of their food. Not only are these stores full of high calorie-low nutrition junk food, they are grossly over priced. So as white suburbanites who shop at Whole Foods and Trader Joe's, we have to be sensitive to the fact that Wal-Mart may be providing access to decent food in locations that other grocery chains, for whatever reason, have deemed impractical to do business in.


The traditional liberal welfare state programs, while doing a lot to stave off extreme poverty, are really just a patchwork of band-aids. No amount of income support or job training programs really matter if the jobs are not there to begin with. And as every economist who is paid to be right knows, jobs are mostly a function of aggregate demand. As well intentioned as career counseling and job training programs may be, there is no point in training people for jobs that don't exist. It is common to hear politicos and talking heads complaining about "structural unemployment" or "chronic skills mismatch", but this is really just making excuses for bad macroeconomic policy. If the jobs are there, the skills will follow. Its funny how in the 1990's when we had  3% unemployment, you never heard anyone talking about skills mismatch. Now just a few years later, apparently the skills of millions of American laborers are hopelessly inadequate. Nothing could be farther from the truth.

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So many guys my age talk about patriotism, they wear American flag pants and say "American, fuck yeah!' But this is just a meaningless facade of patriotism, not true patriotism. You cannot claim to be a patriot and just walk around wearing red, white and blue while doing nothing to make your country a better place; or in the case of those who go to Wall Street, actively making the country worse.

I love this country as much as the next guy, but we have to be honest with ourselves. You know real love is when you can be honest. Just like in a personal relationship; real love occurs when the two people can be totally honest with each other and not be hurt. Relationships that are built on dishonesty can never really last. This country was founded on slavery of Africans and genocide of Native Americans. These stains will remain on the fabric of the United States for its entire existence. We must acknowledge these stains as part of our history, and work to ensure they remain just that.

Educ-aint

At least in the field of education, ideas are almost always better than products, and ideas can be free. The mentality that something has to be developed, produced, purchased, and then physically added to the classroom to improve education is based on path dependent thinking that material improvements are always beneficial. The reality is that the marginal benefit from new classroom technology is small…. Technological barriers are not really what is preventing better teaching- it’s the lack of good ideas and teaching strategies, and the failure to find these ideas and implement them across the country (in fact, technology can sometimes be distracting and therefore counterproductive to pedagogical goals).

And unfortunately for lazy or financially motivated policy makers , it won’t be as easy as simply throwing money at the problem.  Things like changing the hours of the school day, serving healthier meals, and having more physically interactive classes to keep students engaged will make the most difference.  The idea that simply extending the school day and having more “math and science” (whatever that means) will lead to better education is not realistic and intellectually lazy.

Eliminating social and psychological blocks to learning, such as feelings of inferiority or unwillingness to seek help and ask questions can make an enormous difference by getting kids more involved and excited about learning. If school age kids can see ways that they can personally improve themselves from what they are learning they will certainly be more motivated. One way to do this is by creating opportunities for field specialization, which at the latest should occur at 8th grade. By this point, the core curriculum's have essentially been repeated at least 5 years, and most kids have a good idea of their academic strengths and weaknesses.

This has a personal meaning for me too. I realized by age 8 or so that I was terrible at math. I hated it and could never seem to learn it as fast as the other kids. Although I was pretty good at writing, reading, and social studies, being forced to do math for every year of my K-12 education made me hate school as a whole. The stress and anxiety from having to take math classes (which I was terrible at) spilled over into the rest of my course work and made me hate school in general. In economics, this is called a "negative externality;  a phenomenon that all economists know is detrimental to societal improvement. And all that stress turned out to be in vain, because to this day I have yet to use anything more than simple multiplication in my daily life.

I always desperately wanted math to be taught to me in some sort of relevant context. One of the reasons I had such mental block towards mathematics was that it was taught as a bunch of abstract rules and theorems that never seemed to have any real world applicability. So instead of just teaching more out of context equations, what the mathematics curriculum going forward should do is be included in real world problems. Basic personal economic education, such as balancing checkbooks, paying taxes, saving money/investments etc. is not only severely lacking from modern K-12 curricula, but if made mandatory could act as a fantastic supplement to traditional mathematics.

Forcing all students to take the exact same coursework, regardless of their talents is foolish, wasteful, and demoralizing. Instead, allowing the prolific writers, the creative artists, the inquisitive scientists, and the few and the proud mathematicians to pursue their talents and differentiate themselves will be a boon to education nationwide, especially with students in their teenage years, where identity formation is so important psychologically.


And what could bring light and warmth to those dark teenage years better than a new realization of ones future potential. In the teenage years where prevailing self-doubt and confusion so often serve to demotivate and undermine academic efforts , giving students the ability to truly see themselves having a successful career and adult life could serve to motivate classroom effort at a time where it is needed most. It is often said that the key to happiness is simply the feeling of progress. And for America’s unmotivated and faltering schoolchildren, a feeling of individual progress will lead to collective progress nationwide.

Tuesday, July 23, 2013

No Confidence

I always get mad when policy arguments move into intangibles such as "confidence, expectations, or structural problems". These terms are used by people who are confused and don't know what they are talking about, or people who's ideology/worldview has failed to describe reality and need a rhetorical escape hatch. Since modern economics has failed to live up to a lot of outdated models, many  arrogant economists, instead of admitting they were wrong, simply start making things up.

It is now obvious that economics is more than just the "dismal science" - it is really a pseudo-science. In no other fields of study do you hear so called experts using intangibles to justify the non-performance of their models. Real scientists are concerned with finding the truth, even if that means scrapping old models, no matter how much time was devoted into developing them. Many high profile economists, on the other hand, seem to be concerned only with maintaining their public reputation to a high enough degree to keep their corporate cash rolling in. There is no need to seek the truth when you get paid to be wrong.

Sunday, July 21, 2013

Now is not the time to be stingy

Concerns about economic efficiency are important, but they are misplaced when the economy is running so far below full capacity as it is now. Right now our top priority should be reducing unemployment. If you really care about waste, nothing could be more wasteful than having tens of millions of our fellow citizens being un or under employed. This represents literally billions of lost man hours every year-hours that could be put to use rebuilding our transportation and energy infrastructure for the 21st century.

Where we should use our concerns about efficiency is when the economy is back up running near full capacity and things start to heat up. This is where you can start saying oh, things are getting wasteful, or overheating or delusional to spend money in a certain way. God knows that concerns over efficiency would have been extremely useful in the past decade when the economy was running hot and the housing bubble was inflating like crazy. But as we have learned over the past decade (actually re-learned from past boom and bust cycles), is that no one wants to be a downer during the good times. When everyone is fat and happy, no one wants to interject and say, hey, maybe we should slow things down a bit and prune out the excess. 

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We need to remember that earning interest on savings or investment is an economic privilege, not a right. Being able to use your productive capacity as a human being by being gainfully employed is a right. Societies that forget this will doom themselves to stagnation and decline. And the ironic thing is that they are not mutually exclusive. When the economy is growing and unemployment is low, chances are real yields will actually be higher than during slow economic times that we have now. This is because real goods and services will be making everybody in the economy wealthier, unlike now where stock prices/yields are dependent mostly on the ability of large corporations to extract larger and larger rents from productive workers. 

Wednesday, July 17, 2013

On Sausages and Congress

On sausages and congress:

People famously say that lawmaking is like sausage-making; you wouldn't want to see either in action. I've come to realize that there is even more to this analogy than first meets the eye. What sausages do is take pieces of meat and animal products that would otherwise be inedible and disgusting, and wrap them all together to make something delicious. Congress has a similar function. It takes all sorts of ideas and priorities from the amazingly vast array of constituencies across these united states, some bad and some good, and turns them into something that we can all live with and sometimes enjoy. This process is ugly, slow, frustrating, and seemingly corrupt, but it yields an acceptable whole product made from otherwise unacceptable parts. 

Similarly, I find frustrations about pork a little misplaced. I understand the desire to see politicians acting as cleanly as possible, but I believe that pork is actually necessary to the functioning of Congress. Again, when you have such a wide variety of conflicting priorities emanating from a country as diverse as the United States, you need something to grease the wheels. These pieces of varying size and shape can only come together when the right incentives can be used to get members to vote on an otherwise unacceptable piece of legislation. I’m not sure to what extent this is true, but it cannot be denied that some of today’s legislative gridlock is the result of limitations on pork and earmarks. That, combined with unprecedented right wing partisanship has made it harder and harder for members to convince each other to support measures that may not align with their partisan interests. The great thing about last year's hit movie Lincoln was that it showed how one of the most important pieces of legislation in human history (the 13th Amendment) was only passed after a series of deliberate bribes were handed out to various members.

That being said, I don’t think that even the best written laws can always counteract the moral failings of the most powerful people in business and government, but it is imperative that we try. When there is no justice, no rule of law, no punishment for antisocial behavior, those behaviors will spread and society will decay. The lesson of the past decades is that men in power can make vast sums of money trampling over uncodified social norms and get away with it (remember that Mitt Romney guy?) Because we no longer live in small, intimate societies where social norms can be enforced with personal contact, as many of these norms as possible should be codified at the federal level and enforced consistently.  All actors in our modern society, public or private, and especially the most powerful, must come to realize they are ultimately subordinate to the will of the people, written and enforced by a democratically elected government. This is the essence of our American democracy, and it will fail without it.

Tuesday, July 16, 2013

Waiting on Change

When it comes to dealing with climate change, we’re not gonna wait on the rest of the world because the rest of the world is waiting on us. The status quo defenders like to point to China and the rest of the developing world as evidence that US leadership on reducing emissions will not make much difference. But the fact is we remain the worlds largest emitter of CO2 per capita, and by far the most responsibility for legacy polluting- the CO2 that’s been up there since industrialization. Washington spends most of its time obsessing over financial transactions between the private and public sector, which is very foolish. First of all, when it comes to what must be done to mitigate and adapt to climate change, the important thing is not who does this work, but that it is done. The fact that much of this work must be done by the public sector is one that conservatives hate to acknowledge, and that I believe is their primary reason for disbelieving in climate change. Their image of the rugged individual responsible for his own actions falls apart with the acknowledgement of global climate change. Climate change is a unique 21st century challenge that the 17th century right wing ideology simply cannot comport to.

The reason that obsessive arguments over debt, deficits, and government spending are so foolish, even after an understanding of MMT and economic realities has been established, is that these arguments are about financial transactions between human beings. These transactions are for, by, and of human beings, and are thus entirely manageable by human beings. They pose little long term risk to our well being because they are human rules that are entirely with our ability to manage. What is not within humanity's ability to manage is our relationship with nature's rules. We cannot quickly and easily repair the damage that climate change and biodiversity loss will wreak on our planet, so we must start planning now.


The reality is that the US needs to be carbon neutral by 2030 or sooner if we are to avoid catastrophe. The barriers to this happening are enormous, and the naysayers are many. But the point I like to make is this: if I had gone to the White House on December 6, 1941, and said to Roosevelt: “Mr. President, I’m here to tell you that in four year's time, we will have defeated the Nazis, the Italians, and the Japanese, have zero percent unemployment, and have in our military arsenal a weapon capable of destroying and entire city in a matter of seconds” he would have laughed at me and the secret service would be carrying me off to the loony bin before I could draw my next breath. But as we know, in four year's time that is exactly what happened. The war period was an unprecedented time of national economic activity that was initiated and managed by the federal government, and the world was forever changed.


Today, the forces resisting change in Washington have more power than any of us can fully comprehend. But they can and will fall faster than the Berlin wall if we the people want them too. And that’s the core beauty our American democracy.  If we can learn to work together, acknowledge and overcome our weaknesses and deficiencies, and throw ourselves holeheartedly into this cause, not only will we save our planet and our species, but we will radically redefine what it means to be a human being on this planet earth. 

Thursday, July 11, 2013

Age of Empires IV, Modern Money edition

Modern monetary policy can be very hard to understand, and I sometimes think this was deliberate. Anyway, everyone know that analogies are usually a good way of explaining complex things in and understandable way, so here goes:

For those of you who may have been real time strategy geeks like I was as a child, you may remember playing some version of the Age of Empires game or something similar. In the game, you use village people to collect resources that you then spend on farms, buildings, and military stuff. The goal of the game is to invade and conquer your opponents on the map, so naturally it has a very military heavy focus. My dad, an economist, originally bought me the game because he thought it would teach me some economic principles about resource distribution, or something. To his dismay, the game turned out to really be mostly about killing your enemies, but I just recently realized that there is in fact an incredibly important economic lesson in the game.

Like most computer games, Age of Empires had various cheat codes that can be found online, that when typed into the game can cause deviations from the tradition script. Some of these cheats are ridiculous, such as instant-win or the creation of corvettes mounted with machine guns, that can be giddily driven through enemy territory to slaughter everything in sight. However, one of the cheats is actually very useful for demonstrating the benefits of a fiat currency. This cheat allows you to simply add 1000 units of gold to your national account by keystroke. While this may seem like cheating, most players will tell you that what this really does is unleash the full potential of the game, and makes it more fun to play. This cheat allows the player to no longer have to sit around and wait for villagers to dig gold out of the ground before being able to spend it on the things needed to win the game.

This cheat effectively ends the "gold standard" of the game, and turns the gold resource into a fiat currency. It allows the player to spend more time on the military strategy component of the game, and less time sitting around waiting for gold to accumulate. It saves the player from wasting his time, just as a fiat currency has the potential to save the time of the unemployed by putting them in productive jobs. Governments that don't have their spending abilities constrained by some ridiculous fixed convertibility are free to spend money into the economy to achieve maximum resource utilization. As any HR rep will tell you, "people are our greatest resource", so the high under/unemployment levels we have been suffering for the last 5 years represent a huge waste of resources. Instead of waiting around for the private sector to gain the "confidence" necessary to hire, fiat currency can get real resources moving as quickly as possible, stimulate demand, and help businesses and individuals pay down their debt sooner. In both cases, fiat currency allows people that would otherwise be sitting in a chair the ability to get up and do something with their lives.

This analogy goes even further, because the creation of modern money occurs in a similar way: it is just keystroke entries into computers. The gnomes at the Federal Reserve no longer have to spend time closely guarding their gold reserves; today they just sit in front of computer screens and make keystrokes into bank accounts. Thats it! Just like Age of Empires. Thanks dad.

We Can't Afford Not To

There are tons of policy issues that need fixing in Washington, but the increasingly widespread problem of food insecurity is perhaps the most obscene. Bill Moyers recently did a good piece about how poor access to nutrition is affecting millions of parents and their children. In DC, the recent debate over SNAP and the Farm Bill brought out the tired right wing platitudes about government spending and mythical "welfare dependency". As usual, Republicans trotted out the "b word" (billion) as a way to make SNAP expenditures sound excessive. Of course, taken out of context these numbers have no meaning and are deliberately used to scare people. And right on cue, all some Democrats could do was propose a less-worse bill. The only disagreement was on how much to cut food assistance to 50 million working parents and their children. 

We are literally starving the brains of developing children because we are afraid of numbers on a spreadsheet. This obsession with government spending is the height of insanity, and a form of national suicide. The government is the only source of dollars and can never run out of them, and thus has no functional constraint on its ability to spend money to move resources around the economy. 

Not having enough crops is an economic problem, not having enough cement or rebar is an economic problem, not having enough doctors is an economic problem. Not having enough money is NOT an economic problem, because dollars are simply a means of directing real resources to help society achieve its full potential. Today our country is not lacking in any real resource, it is only lacking in the funds to get these resources to their most productive locations. And there are few things I can think of that are more productive than ensuring that all our children have the food they need to help them reach their full potential. 

Tuesday, July 9, 2013

We Always Have the Money (and the People)

The willingness of so many people to remain ignorant about how modern governments spend fiat currency stems not from a lack of intellectual capacity, but from a normative preference for smaller government. The mere thought that the federal government has no functional spending constraint is enough to send even some Democrats into a raging fury. The notion that a democratically-empowered government should and does have the unique ability to create as much currency as it wants is so distasteful for the plutocrats and corporate cronies in Washington that they will never publicly except it. The right wing has spent the last three decades dismantling and destroying American democracy, and they will not allow MMT's implications about the true power of democratic governments to promulgate far. However true MMT's descriptions of modern monetary systems may be, they are incredibly dangerous to the conservative establishment and will thus face enormous resistance.

The right wing's worst nightmare is an educated and empowered citizenry that realizes its potential for self-determination. The closest America ever came to that was in the New Deal period between 1933 and the mid 1970's, and the Republicans have worked hard to make sure that those small and big "D" democratic attitudes never return again. So far the right has been very successful at undermining faith in democratic government through its various channels in the academic (R&R anyone??), religious, legal/judicial, media, and legislative realms.

Even those on the left that still believe in a pro-social role of government are despaired and disillusioned at best. But we simply have no alternative to fighting back. Although our nominally Democratic president and slim Democratic Senate majority remain a buffer to total right wing dominance, we can no longer vest any of our hopes in them. Although elections are still incredibly important, they are just a small part of the political toolbox. Our only remaining channel is public outreach and education, and thankfully it appears MMT is rising to the occasion. In the past few months alone MMT and its proponents have gained considerable steam in online and television policy debates, and recently punctured even the walls of the Old Gray Lady with the recent piece on Warren Mosler (as sloppily written as it may have been). I hope that going forward MMT can really begin to affect attitudes and behaviors in Washington, which for better or for worse, seems to be the only place where policy opinions really matter. Going forward I'd like to see (and be a part of) a more organized MMT presence that has a strategy set up for how we are going to educate the public, and if we try really hard, the politicians, too.

Sunday, July 7, 2013

The importance of currency sovereignty

Although it should seem obvious, the ability of democratic governments to issue their own currency is perhaps the most important thing any government does. Economic models that apply to fixed exchange rate currencies simply do not apply to floating currencies, a point that many economists seem to have tragically missed. For some reason, even smart economists like Paul Krugman have been "surprised" that currency sovereigns operate under completely different economic realities than pegged or non-sovereigns do. The reality is that the loanable funds and money multiplier models simply do not apply to currency sovereigns, nor should they.

The ability to issue its own fiat currency is critical to the ability of any government to make public policy for its citizens, and thus is a crucial element to any nation that claims to be a democratic sovereign. Surrendering currency sovereignty, as Argentina did in the 1990's, and the Eurozone nations did in 1999, is an enormous leap away from democratic sovereignty. Any government that does so significantly weakens its ability to move real resources around its country to maximize utility for its citizens (Argentina's currency board basically turned the country into an internationally-financed Ponzi scheme). The importance of this seems to have been greatly under appreciated during the 1990's and 2000's, when countries in Europe were falling all over themselves to join the Euro and abandon their currency sovereignty. And although the British economy has faced its own challenges from misguided policies of the Cameron government, they can at least congratulate themselves on having had the restraint to stay the hell away from the Euro.

Now the Eurozone has been stuck in nearly 6 years of disastrous depression, with sky high unemployment levels and continually contracting economies. The only option sufficient to restore growth, namely default and devaluation from the periphery countries (Portugal, Italy, Spain, Greece, or the PIGS) has been considered Verboten by the policy elite that have been so disastrously ruling Europe. The so called "Troika" of the European Central Bank, the European Commission, and the IMF, have been unbelievably bad economic policymakers, for the precise reasons that they don't understand the benefits of currency sovereignty, have considered default a non-option, and refuse to ever admit their errors. (As a GW student, I regularly walk by the IMF building and witness the international house  of (t)errors of European bankers standing outside and smoking cigarettes in their $2500 Italian suits.)

The callously indifferent responses of these policymakers to the ever growing demonstrations of discontent in the EU have been equally disturbing. This response suggests that in the future, a country that gives up its currency might as well also dissolve its legislature and end elections. Countries that are constrained by foreign central banks or arbitrary debt/gdp ratios simply cannot meet the economic needs of their citizens, especially during times of economic difficulty. Relying on foreign investment or bond market "confidence" to boost an economy has proven to be an incredibly difficult, if not impossible proposition. No government that calls itself politically sovereign can really be so if their economic output is determined by the whims of foreign investors.



Saturday, July 6, 2013

Calm Down about the Debt, Part 4: Kicking "The Can Kicks Back"

I recently stumbled upon a political action group called "The Can Kicks Back" on Facebook. It is a youth-oriented political action group that advocates for entitlement reform and deficit reduction, and does so with "hip" looking website and articles clearly written for a college age audience. It appears that most of its members are of or near college age as well, and a quick glance over the website makes it seem innocent enough. Upon closer inspection however, I quickly realized that it was just another variation on the Pete Peterson-funded theme of disseminating false information about government spending in order to gut our old age benefit programs of Social Security and Medicare. For those of you who don't know, Peterson is an ancient billionaire who has been using his money to advocate for gutting of SS and Medicare for decades now, with little success. (btw Peterson's money dump into this fruitless cause is an excellent demonstration of the low utility of rich people's dollars and the need for higher marginal tax rates!)

Anyhow, while I am always excited to see people my age interested and engaged with federal policymaking, I simply cannot trust any Peterson funded institution, of which "Can Kicks Back" is one of the most recent. It saddens me to see what seem like well-intentioned people wasting their talents on the cause of this billionaire hack. A basic understanding of modern public finance reveals that just about all the claims made on the "Can Kicks Back" site are incorrect. There is nothing to prevent the US from meeting any and all of its liabilities in the future. In no way are "unfunded liabilities" or the federal debt a "burden" to future generations. These funding issues are entirely within our control and are not worth 1/100th of the time we dedicate to debating them . Spending on entitlement programs doesn't really preclude us from investing/spending on anything else.(see my previous blogs for more detailed explanations) Instead, it is climate change, which is several degrees of magnitude more important, than we should all be worrying about. Mitigating and adapting to climate change will be incredibly difficult, since the laws of Nature are most certainly NOT in our control. All economic and financial systems are. For future reference, here is my list of things to worry about:

1) In the short term: Unemployment
2) In the medium term: Health care costs (the primary driver of our deficits)
3)In the long term: Global climate change

So while the deficit reduction fetishists seem to have been silenced for the time being, I'm sure they will return soon. Their over-the-top calls for deficit reduction come not from any real world understanding of macroeconomics; rather they are just further efforts by the PetePeterson medusa to impose on the rest of us his normative preference for smaller, impotent federal government. Thanks to the shrinking deficit, along with valiant efforts from Dean Baker, Paul Krugman, Brad DeLong, and the growing group of MMT economists, the latest Peterson snake head has been lopped off. However this is no time to rest on our laurels: He will be back soon enough.



(my hilari-bad photo editing skills on display)