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funksands On February - 3 - 2014
Last chance....

Last chance….

If you don’t know me, I’m a bit of a student of economics, though “Student” may be stretching it.  What I am intensely interested in is the overarching “whole” of how things work together to form the civilization that surrounds us.  One piece of this “whole” is economics.  “Economics” is short descriptor of a vast field of study.  Today we’re going to focus in on a particularly interesting sector of economics: Monetary Theory or How Money Works.  If you’ve managed to finish the prior sentence without closing this tab on your browser, I’ll assume that you are going to stick with me at least a little bit longer.

Every so often in our short lives we discover something that completely changes how we view a small part of our vast world. I think that happened to me not too long ago when I stumbled across Modern Monetary Theory (here forward referred to as MMT).  I was taken totally off-guard.  I started thinking that Morpheus from the “Matrix” had just entered the room and asked me which color pill I wanted to take.  I quickly downed the red pill and dove headlong into MMT.

Paradigm shift: A change in the basic assumptions of ruling theories of science

If one applies this definition to the science/art/magic of economics, there may indeed be a looming paradigm shift across the boundaries of economics.  Until then, I’ll have to content myself with my own personal shift in how I view this part of the world and how it works.  If you are still reading, then I will assume that you too have swallowed the blue pill and have prepared to open your mind just a bit.

The study of economics throughout history has often been segregated into “schools” of thought.  From Ancient to Classical to Modern, economists have tended to organize under collective banners that helped the outside world catalogue the root from which the theories of the economist spring.  The most prevalent schools today are the Chicago School, Austrian, and Keynesian.  You’ve probably heard of each of these.  We aren’t going to delve into these channels of thought and theory today, but its important we know each of these actors, because they comprise the whole of the economic matrix that surrounds us in the US today.  In a literary, scholastic and political sense, each of these schools dominate the very way we think and speak about the reality around us.  So pervasive are they that they’ve simply become part of the background, become the starting point of reference for nearly every economic and fiscal decision our policy-makers engage in.

Nearly everyone has picked their favorite.  Fierce battles are fought in the public space and in our own private conversations over which school is “right”, which one “works”, which is “best”.  I myself have always considered myself a proud if agnostic Keynesian.  Chicago Schoolers should be viewed with suspicion and Austrians with utter derision.  I spent years cementing these beliefs with research, reading and personal experience.  Then MMT came along and I found myself questioning many deeply ingrained beliefs about how things “work”.  I’m not sure whether MMT even counts as a “school”, more like a department, but let’s explore it a bit shall we? I’ll be interested to hear your feedback once you’ve read through the whole post.

The components of Modern Monetary Theory have been around since 1895, but become a cohesive “thing” in 1998 or so.  It is designed to explain how modern money works, both from a monetary and fiscal standpoint.  The theory is not especially complicated and is easily digested.  MMT is beginning to emerge as a viable alternative to conventional wisdom.  Often you’ll hear MMT described as “Chartalism” or “Post Keynesian”.  The University of Missouri, Kansas City is considered to the center of the cutting edge of MMT.

Let’s start with the basics that we need to understand and agree to before we move forward.

1. One’s financial asset is another financial liability: Simple right?  The money in your checking account is offset by an IOU at your bank.  The govt. bond you buy is offset by a liability on the books of the federal government.  Student loans, auto loans all work like this too.  A household’s financial net worth is asset – liabilities.

2. Public and Private sector: By using the agreed logic above we know both the public sector and private sector work this way too. All of the financial assets inside the private sector (all households and firms) HAVE to be offset by an equal amount of financial liabilities inside the private sector.  Right?  That goes for the Public sector (all levels of government) as well.  Agreed?  If all we do is look at this, then the net financial wealth of the private and public sector would always be zero (very important to remember).  There are also real assets, which we’ll talk about later.

3. So how does the private sector accumulate wealth then?  By definition they need to accumulate assets from “outside” the private sector.  The private sector holds government currency as well as IOU’s in the form of the full range of different government debt (t-bonds, t-bills etc).  This adds to the positive side of the balance sheet for the private sector.

4. Real assets are assets that are not necessarily offset by a financial liability.  For example, you bought a car with borrowed money, but now the car is paid off.  It is now a real asset without an offsetting liability.

5. Net private wealth equals public debt – Since financial wealth above and beyond zero has to come from somewhere “outside” the private sector, typically it comes from the government.  You can accumulate this wealth in the form of Government IOU’s.  Government cannot create and distribute these IOU’s unless they are running a deficit.  Private sector debt and surpluses mirror the public levels of debt and surplus.  If government balances the budget each year, then the net growth of surplus in both sectors by definition must be zero.  Look at the chart below.   Public and Private deficits and surpluses mirror are nearly perfectly opposed.  “We” (private sector) go UP when “They” (public sector) goes down.

An interesting way to think of this is that the Governmental Deficit = Non-Government Surplus

If the Government balances its budget, unfortunately so does the private sector.

Private Surplus and Deficit v. Public Surplus and Deficit

Notice how closely the Private Sector surplus and deficits mirror the Public Sector surplus and deficit.

The following illustrations expands this view a bit:

Another example of how private surpluses and deficits mirror public deficits and surpluses.

6. Foreign assets and liabilities – As you may have noticed in the 2nd illustration, we can add a third sector; the Foreign Sector, composed of foreign governments, households and organizations.  The US Private Sector can accumulate financial assets in the form of both US Public liabilities and Foreign liabilities.

Basically what all of this boils down to is this:  All sectors CANNOT run a surplus.  Think about what this means in terms of the Budget Deficit.  We’ll come back to this.

Domestic Private Balance + Domestic Government Balance + Foreign Balance = 0

Remember 1999? The Wall Street Journal ran two stories side by side. One trumpeting the elimination of the Public Deficit, and another puzzling over the lack of Private Sector saving. Hmmm

By the way, the above equation is true of every country that controls its own currency.  For those that don’t (see Greece), things can get trickier and more complicated.

Sovereign Currency – The domestic currency of a nation (British Pound, Japanese Yen, US Dollar) is often referred to as sovereign currency, or currency issued by a sovereign government.  This government retains many special powers for itself in this area.

1. The government determines what form of currency it will recognize for purposes of financial accounting and transactions.

2. The sovereign government reserves for itself the right to issue this currency in the form of its choosing.

3.  If anyone other than the sovereign government tries to issue domestic currency (without permission) they will be prosecuted as a counterfeiter.

4. The government imposes its taxes, fines, and fees in this “money of account” and decides how it will accept payment for these items.

5. The sovereign government also decides how it will make its own payments to those it is obligated to (pensioners, bond-holders etc).  Typically a sovereign government will pay and accept payment for all of these financial transactions in its own domestic currency.

The overwhelming tendency globally is for a government to adopt its own unique currency that it performs all of its external and internal transactions with. Also typically wages are paid in this currency and the court system tends to enforce contracts and fines in the domestic currency as well.

You may be old enough to remember that the US domestic currency and indeed much of the rest of the globe’s domestic currencies were backed by gold.  Now for the most part they are not.  So why would anyone accept a nation’s domestic currency if it isn’t backed by anything?  This type of currency is known as “fiat” currency.  Fiat in this case means that the currency is not convertible to another commodity (like gold or silver) or foreign currency.  The British Pound and Euro don’t even have the words “legal tender” on them.

We’ve established that sovereign governments get to decide what unit of money they’ll accept in payment for financial transactions.  They also get to decided what unit of money they’ll use to make their own payments.  The answer to the question of why people accept currency that is not backed by anything is taxes.  Let me explain:

Taxes drive money. Because the official government currency is the only thing the government will accept in payment of the taxes it levies, to avoid fines and imprisonment, the individual or business must get it’s hands on official government currency to pay its taxes.  Essentially when we pay our taxes, we are using the government IOU (currency) to pay the tax collector. Thus domestic  currency is accepted in private financial transactions as well.  The government can’t force private entities to use dollars in payment for goods and services in the Private sector or to save those dollars either but because everyone must use domestic currency to pay their tax bill, fines, and fees, it is far more convenient to use that same domestic currency in private transactions as well.  If something costs a “Dollar”, you must use a “Dollar” to pay for it, no?

This is why reserves of metal or foreign currencies are not necessary to make people accept a domestic currency.  Kind of neat trick no?  The government imposes a liability payable only in its own domestic currency on you, which forces you to use that currency to pay the liability.

To summarize:

“*The government names a unit of account and issues a currency denominated in that unit;

*The government ensures a demand for its currency by imposing a tax liability that can be fulfilled by payment of its currency;

*Government spends by crediting bank reserves and taxes by debiting bank reserves; (They tax you a dollar, you write a check for a dollar, the bank sends a dollar to the tax collector)

*In this manner, banks act as intermediaries between government and the nongovernment sector, crediting depositor’s accounts as government spends and debiting them when taxes are paid;

*Government deficits mean net credits to banking system reserves and also to nongovernment deposits at bank.”

– L. Randall Wray – Fiscal and Monetary Policy Operations in a Nation that Issues its Own Currency – 10/2/2011

Great, so what does all this have to do with anything?  

Good question, if you are still with me (bravo!) let’s get back to our friend Conventional Wisdom.

Conventional Wisdom #1 – Governments are constrained by their budgets.  In order to spend more, they need to raise money through taxing or borrowing

Conventional Wisdom #2 – Budget deficits are inherently bad.  Not only that but they impose burdens on the economy as a whole in some manner.

Conventional Wisdom #3 – Public deficits take away savings that could be used for investment.

Conventional Wisdom #4 – We needs savings of some kind to finance the government’s deficits and investment.

Conventional Wisdom #5 – Higher deficits now mean the need to raise taxes or cut spending in the future to pay for them.

Conventional Wisdom #6 – Government deficits crown out private investments and drive interest rates up.

Conventional Wisdom #7 – Government deficits create debt that is left for our grandkids.  We have to cut taxes or reduce spending to pay down our debt.

All of these in the view of MMT are patently false arguments.

Much of the conventional wisdom is indeed true for a country that does not control it’s own domestic currency.  For a country that issues it’s own domestic currency these are not true.  Think about what this means in our everyday understanding of Congress, budgets, spending and our very national priorities.

>>>We need to be careful here.  What this does NOT mean is that the government can spend whatever it wants whenever it wants.  Too much spending would be inflationary and lead to other problems.  Nor can Treasury pay for governmental desires and obligations at whim.  That spending authority is constrained by Congress. <<<

Too much government spending can cause inflation

Too much spending could affect the exchange rate

Too much spending could take resources from private industries seeking to use these assets

Government shouldn’t do everything.  It could create reverse incentives for private entities

Budgets do provide and check and balance on government projects

As you can see there are legitimate concerns around how much and on what government spends money.  But the concern should never be insolvency.  By definition this is impossible in a country that uses a sovereign currency.

What I’ve (hopefully) done today is to establish the basic framework within MMT operates.  We’ve now established the DESCRIPTION.  In the subsequent post, I’ll try to apply MMT to specific situations occurring in our country and around the world today.  How does MMT apply to the Fed’s quantitative easing?  To the Euro crisis? To the Debt Ceiling?  To unemployment? To social programs?  This will focus on the PRESCRIPTION.

Lastly, and most importantly the final post will look back at our first two posts and evaluate what we’ve learned.  What do we agree with?  What do we disagree with?  What can we use going forward?

Nearly all of this information came from a few key MMT resources:

A particularly important source is  http://neweconomicperspectives.org/p/about.html – A MMT blog

 http://www.youtube.com/watch?v=cUTLCDBONok – A great video featuring MMT heavyweight Warren Mosler 

 http://www.youtube.com/watch?v=-i7O791RkvU – Great resource featuring University of Missouri KC MMT’er Stephanie Kelton

“Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems” – L. Randall Wray

“The Perfect Fiscal Storm” – L. Randall Wray  http://www.epicoalition.org/docs/perfect_fiscal_storm.htm

“The Fundamental Difference Between Austrians and MMT’ers – Cullen Roche  http://pragcap.com/the-fundamental-difference-between-austrians-and-mmters

Lastly please enjoy this excellent video on how modern money works.  I for one am a visual learner and this helped me immensely.

Written by funksands

There are known knowns; there are things we know that we know. There are known unknowns; that is to say there are things that, we now know we don't know. But there are also unknown unknowns – there are things we do not know we don't know. Additionally there is bacon.

16 Responses so far.

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  1. NoManIsAnIsland says:

    Funksands,

    When I see or hear the word “economics,” ordinarily my eyes glaze
    over and I fall into a trance (it sounds nicer than “stupor, doesn’t
    it) of non-comprehension.

    But to my surprise — and slight unease — I read the first part of
    your treatise on MMT all the way through without becoming stuporous,
    was able to understand it, and agreed with it. I’m going to read the
    rest of your series as soon as I can.

    Full disclosure: to the extent of my knowledge of economics, I’d also
    call myself an “agnostic Keynesian,” although I don’t think of it in
    terms of pride. All this said, if it may be stretching it to call yourself a “student” of economics, it may also be stretching it a bit to call Mohandas K. Gandhi a “Mahatma!”

  2. Dbos says:

    Having studied with Dr. Milton Friedman thru an NDA grant in Economics; he and I argued Monetary Policy; the Chicago School called such because he was a professor at The University Of Chicago . Our arguments were centered around Government spending and Inflation; example government injected money moves faster than privately injected money causing greater inflation . Here’s the tricky part and even Dr.Friedman agreed with me when money is being taken from the economy ; off shored now; not when we discussed this aberration, when approaching deflation we must have the government spend more to create the phenomenon and argument that a little bit of inflation is necessary at certain junctures in our economy . The American people have been lead to believe that all inflation is evil ;NOT TRUE;just as the American people have been pounded with the idea that progressives and liberals are evil. Dr Freidman agreed with me that government spending and inflation are necessary when the private sector fails to inject enough money to move the economy where more jobs are created than lost. Plain and simple right now we need jobs and we need government spending to create the money in the economy to create jobs;we need inflation and not spending cuts ;Dr.freidman is rolling over in his grave at tis time in our history

    • funksands says:

      Dbos, thanks for the reply. I have a question first: Are you familiar with MMT? If so, I’d love to hear your take on it.

      That said, I couldn’t agree with you more. The Fed, whether spoken or unspoken has been frantically trying to stimulate inflation in the economy since 2008. Deflation is the real fear. I do agree with you that inflation isn’t really good or bad, but that too much of anything can be harmful.

      I also agree (and most MMT’ers do as well) that the deficit should be as big as it needs to be to ensure full employment. The least “efficient” thing there is in an economy is a labor force sitting on its hands with nothing to do.

      Employers (myself among them) do not create jobs. We only hire when we are forced to by demand or circumstances. Many MMT’ers argue for job guarantees as a central piece of their “prescription” for the nation’s ills. I would tend to agree.

      I really appreciate you putting your two cents in.

  3. Nirek says:

    After watching the video I’m more confused, Funk.
    Is the debt what we owe because the legislature spent more money on programs than they had?

    Or is that the deficit?

    Maybe you will get to that stuff in a future post.
    Otherwise , HELP!

    • funksands says:

      Nirek, I am going to publish the authors web and notes version of that video. It really is helpful formatted that way.

      According to MMT’ers the total public debt is simply the financial assets the public sector has created and transferred to the private sector.

      The federal government CAN spend whatever it likes. There is no monetary constraint to the federal government spending whatever it likes. There is however a budgetary constraint per Congress, and there is a fiscal restraint of inflation. Just because the Treasury can create an unlimited supply of money doesn’t mean it should.

      One helpful way to remember is that the deficit is a January 1st to December 31st measurement. The debt is a rolling accumulation of deficits.

  4. kesmarn says:

    funk, thanks so much for introducing a school of economic thought that I’d never even heard of. Economics is a field that I find baffling and interesting at the same time.

    For starters — (be prepared for weirdness here, of the kes kind) — I have always wondered why some “laws” of economics are called that. “Laws.” As if economics is an exact science. Is the field of economics really based on science — the way math and physics are? It seems so “emotional” to me. The common saying is that greed and fear are what make Wall Street tick. That doesn’t seem scientific to me. It seems pretty lizard brain, frankly.

    For instance, take the example of the “Law of Supply and Demand.” How is it really a “law”? If something is in short supply, do suppliers have to raise prices? I know it must be irresistibly tempting to do it. But will they go to jail if they don’t? (Or at least be thrown out of the Kiwanis club?) So, to me, the law of supply and demand feels more like a matter of choice. A totally understandable one, but still a matter of human free will.

    So far, I’m the only person I know, though, who’s ever questioned this alleged law. 😉

    Also — could an argument be made that the notion that the job of the government is not only to regulate inflation — but (possibly much more importantly?) to redistribute wealth (via taxes) and to regulate capitalism (which is a bone-crushing, flesh-eating monster if it’s not controlled)?

    It seems that the government is the only entity powerful enough to control capitalism’s rapacity. Which is — of course — why the right wants to drown it in a bathtub. They (the right) seem to see government as valuable only to the degree that it acts as a conduit. An XL pipeline that funnels the people’s tax dollars into the pockets of corporations — whether they be private prisons, charter school chains, insurance companies, Blackwater or Halliburton.

    Government’s other job, in their view, is to maintain a military large enough to protect their interests any where, any time. And to suck up enormous amounts of cash at the same time. Win-win.

    So every dollar that is “wasted” on frivolities like SNAP, unemployment compensation, Head Start, or health care for poor people is highly offensive and wasteful, in their cynical view of things. That part of government is the part that needs to go down the bathroom drain along with the scrubbing Wall Street bubbles.

    But what I’m too dumb to figure out is how — or even if — any of this fits into MMT.

    I’m anxiously awaiting further developments in your series of articles, funk. And forgive me if I’ve muddied the waters with my own brand of Voodoo Economics.

    • funksands says:

      Why Kes, who knew that you were such a contrarian? 😉

      Economics, IMO is 1 part math, 8 parts art, 1 part bullshit and 1 part politics. That’s the primary reason why I’ve stared at MMT for over a year before letting myself be convinced of many (not all) of it’s arguments and theories.

      Again, IMO Economics 101 classes at most universities teach what they teach not because they are looking to condition a new generation of scholars to think a certain way about economics, (though I could be wrong) rather they teach what they teach because the whole field is so squishy. How can you build a foundation of knowledge about economics without some concrete “laws” to build upon? Introduction to economics is taught this way because it is the only possible way for that professor to teach 18 year olds something.

      Laws of “supply and demand” , “labor”, “efficiency” and “productivity” are inherently screwed up and proven wrong by the simple fact that humans and all of their flaws are the ones implementing them.

      Much economic conventional wisdom is referred to as if they operate in a vacuum. Nothing could be further from the truth.

      For example: The price of oil. The supply of oil has never been greater on earth. The demand for oil was at a 20 year low as late as 2010. Why then did the price not go down significantly? Well, there is supposedly a lack of refineries, there is Middle East instability, 20% of the price of a barrel of oil is due to speculation, lack of competition in most community gas stations, cartel control of the price, etc etc etc. All of these things are human caused and mess up a perfectly good “Law” that never really existed in real life.

      Supply and Demand obviously is a real thing. The less there is of something and the more people want it, the price does TEND to go up. Perhaps these “laws” should be taught as what “typically” occurs unless something or someone intervenes.

      Now, how does this relate to MMT? I think you’ll be please with the follow-up piece. It does very much so fit into MMT, but maybe not in the way that you think.

      Not surprisingly there is nearly unanimous agreement among MMT’ers about the DESCRIPTiON of how our country and money work. There is robust discussion among them about the PRESCRIPTION for our ills. I’ll talk about that soon.

  5. Nirek says:

    Funk, I have always gone by the saying “buy low sell high” with my investments. Then I see these adds for buying gold. They say “buy gold to hedge against drops in stocks”. But gold is at or near all time highs. So why would anyone buy gold at these high prices?

  6. Nirek says:

    Funk, that was eye opening to me. Thanks for the article. I learned a lot from it. I used to worry about the deficit, remember the “deficit clock” spinning out of control.

    For myself and my wife, we have savings. We did without for years to build our nest egg. Now we are living off Social Security and our IRA. We don’t have to scrimp now but we are still careful about what we spend our money on.

    The charts you posted show that the rich are getting richer as our debt goes up. At least that is what I saw (correct me if I’m wrong).

    All and all Your article is excellent and I will read it again to reinforce my understanding.
    Thanks again.

    • funksands says:

      Nirek, thank you and re-reading it is a good idea. It’s taken me several times through to start to feel some order to the info. Watch the video too.

      To your question, the chart doesn’t show the rich getting richer, it shows the ebb and flow of money in and out of the private sector. Meaning all of us. It doesn’t differentiate between rich, poor, individual or corporation. As the blue line in chart 1 goes up, that means the wealth of the entire private sector is going up.

      The red line is the public sector, same story.

  7. AdLib says:

    Funk, can’t tell you how much I really appreciated this primer on MMT. It really is a revelation to realize that public debt is exactly mirrored by private assets and vice versa. It seems so intuitive once you read it but my assumptions were that there was more dilution and diversity to debts and assets…though how could there be? Kind of the theory of matter, something can’t be created from nothing so assets can only be created from deficits and back the other way.

    So would it be correct that the imbalance of wealth restricts the flow of this system since assets are being concentrated in the 1% who are not returning assets and taxes to the federal government as much as the rest of the 99% would if they had a larger share of those assets? Because of that, the government is being choked off from having more assets to circulate through programs and initiatives to the 99% and for the welfare of the nation as a whole…which would be transferring those assets to the 99% which then would reciprocate.

    So, the more billionaires that are made, the wealthier they get and the less taxes they pay, the more the flow of assets are restricted in their cyclical flow to and from government and the public.

    And instead of taxes being the relief valve to keep inflation at bay since they have been reduced so much (until recently with the expiration of the Bush Tax Cuts for the wealthy), isn’t the siphoning of wealth from government and the 99% by the 1% acting as an anti-inflationary factor? That is, if 99% of the public isn’t getting more money, just the wealthy, then the price of products that 99% of people buy can’t practically inflate?

    And if the wealthy escape paying taxes, hide their money overseas and keep downward pressure on the incomes of 99% of Americans (stagnant wages impacted by annual levels of inflation equate to less income), isn’t this a withering system that is unsustainable in this form for the long term?

    Lots of thoughts percolating in my head thanks to your fascinating article!

    What is kind of amusing is that if the Repubs got their way on slashing the federal deficit, they would be decimating the assets of the wealthy (as public deficits fell, private assets would as well) and possibly stoking up inflation to terrifying heights since a slashing of taxes would harm its function as an inflationary relief valve.

    Their economic theories were proven wrong and destructive in the Bush years and seeing their response, it’s clear that they aren’t open to learning from their mistakes, their views of economics are faith based and can’t be altered by even definitive proof of how false and misguided they are.

    Looking forward to your follow up article with “inflated” interest.

    • funksands says:

      Ad, I’m glad you found it valuable. Looking back on it, I’m not sure that this was the way to start off the discussion. The video might be the place to start. I found the author’s written web version with notes explaining the diagrams shortly after finishing the article and find it to be the perfect way to introduce the concept. I may just add that as a follow-up piece to this to really tie things together.

      Your first observation exactly matched my own. Seems obvious, but feels awkward when you first think about it.

      Your first question is partly correct. MMT’ers would argue that taxes are a way of destroying money in the system, rather than being recycled back to the federal govt. MMT’ers are pretty agnostic about taxes for that very reason. Since the Treasury can create money with a keystroke, it isn’t necessary to collect taxes to pay for stuff the federal government needs to buy. Their argument is that the tax rate needs to be the rate it needs to be in order to accomplish the task of taming inflation and achieving other public purpose. Money taxed is money destroyed and adds nothing to the economy as a whole other than providing inflation control.

      However, they readily acknowledge that the greater economic benefit comes from taxing the working poor and middle class less, because they are far more likely to spend the money in the economy.

      This is why some MMT’ers loudly call for a partial or full repeal of the FICA tax. A) It puts money in the hands of those that will spend nearly all of it. B) Funding and financing Medicare and SS with payroll taxes is dumb. They view it as purely a political decision to fund it this way rather than a necessary one. I’ll explore this more.

      Inflation is when there is too much money chasing too few goods. MMT’ers would argue that having vast sums of money in the hands of people that probably won’t spend much of it is hardly a recipe for inflation. MMT’ers don’t foresee any inflation of much significance in the future, because there simply isn’t enough demand in the general public for goods and services that they can’t buy because of not enough dollars and/or not enough goods.

      Many MMT’ers would argue that stashing money offshore really doesn’t hurt the federal government at all, because it really doesn’t have to rely on tax revenues to operate. It does that by political choice. That said, they also don’t think being able to flaunt and rig tax laws is a good idea. It corrodes the public trust, enhances inequality, and makes it harder for the public and private sector to work properly.

      Why won’t any public official just come and say that focusing on paying the debt off is stupid and that the deficit matters, just not the way anyone thinks? Simple. Lack of credibility. Until the general public understands any of this, that official will be viewed as a crackpot. The media daily reinforces this wrong-headedness.

      • AdLib says:

        Funk, it seems a matter of semantics, taxes destroying money then government creating more money and tax money being recycled. Either way, there is an ongoing cycle of money being eliminated and created.

        Though it would take a real Progressive revolution to achieve, I like the idea of wiping out the FICA tax for the 99% for all the economic benefits and fairness that would produce (and instead destroying a little money of the wealthy by raising the percentage they pay and removing the cap). Raise the minimum wage to $15 dollars and revise SS so it is funded by those who have benefitted the most and would still be wealthy enough not to have their lifestyle diminished, sounds like a one-two punch for a booming economy and secure futures to me. The increased income to the 99% offset by greater taxes from the 1%, that’s my kind of recipe.

        I do think it could be a winning message to more accurately explain the deficit but the reason that hasn’t been done could be that it is harder to sell a more complex message like that than a simple fear-based message. If any politician tried to recast the perception of the deficit AND explain that it’s so high because the wealthy have amassed too much money, there would be a Category 5 political hurricane coming from the right to destroy that politician and that message…and all that wealth would be at the RW’s disposal to obliterate both. I don’t know that the public would see through the fear mongering about how “Government is destroying our country through this out of control deficit!” Or that they would reject the false comparison of government deficits to their family’s or a business’ finances.

        If there was a true Progressive/populist movement across the country though, this concept would seem to fit in well with a policy of restructuring the tax system to unburden the majority and shift the burden to the wealthy. Explaining in such an environment that taxation is a necessary control on inflation and that the duty should be shifted to those in a position to more comfortably provide it, could work well.

        I do recognize that some taxes need to remain on the 99% though since they represent a different impact on the economy, too much money in the hands of too many would cause ongoing inflation, but the inequity is so great now, I don’t think a shift like we’re discussing would have much of a detrimental impact on inflation and would instead drive a stronger economy.

        • funksands says:

          Ad, I would argue about the semantics of whether it is destroyed or recycled. MMT is very clear that that money is NOT recycled and is important to remember that because it starts breaking the chain of logic that taxes are somehow necessary for the government to finance it’s public purpose.

          Not trying to be nitpicky

          I think the best way to explain the deficit to the public might be to tell them that the deficit is as high as it needs to be to help keep the economy going and provide jobs for everyone that wants one. The private sector is unable to provide all the lift our economy needs, so our deficit is a result of the government spending to fulfill the public purpose of the United States. The deficit is not good or bad if it is low or high, its simply a reflection of what government has had to do to achieve it’s purpose.’

          I think training the public to view the deficit (not debt, that’s a harder slog) as a neutral entity is maybe the easiest step.

          1) Your government is nothing like your household AT ALL.

          2) As such deficits for the government are nothing like your household deficit AT ALL.

          Maybe that’s a start.

          I really will get to inequality in my (3rd?) post. It does matter.

          Your last paragraph is spot on. We are SO far from the 99% creating inflation its laughable.


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