Our National Private Surplus Clock

This is a continuation of my ongoing series of articles that deal with Modern Monetary Theory

Today we are going to boil down parts 1-4 into a super-easy to understand “elevator pitch” for MMT.  You may know what an elevator pitch/speech is, but for those that don’t here is how it is defined by Wikipedia:

“An elevator pitch, elevator speech, or elevator statement is a short summary used to quickly and simply define a person, profession, product, service, organization or event and its value proposition.

The name “elevator pitch” reflects the idea that it should be possible to deliver the summary in the time span of an elevator ride, or approximately thirty seconds to two minutes and is widely credited to Ilene Rosenzweig and Michael Caruso (while he was Editor for Vanity Fair) for its origin. The term itself comes from a scenario of an accidental meeting with someone important in the elevator. If the conversation inside the elevator in those few seconds is interesting and value adding, the conversation will continue after the elevator ride or end in exchange of business card or a scheduled meeting.”

My goal with this particular post is pique your interest and add value to your understanding of money, economics and political policy.  Hopefully you will be interested to keep reading my posts about MMT as well as strike off on your own to learn more about it.

Perhaps you can even use this info to craft your own elevator pitch about MMT.

The following is an actual postcard that Lambert Strether of the blogsite Corrente created for public use.  He encouraged everyone to use it and send it to your Congressperson to stimulate the conversation about MMT and thereby the policies that should come from understanding of MMT.  I couldn’t have picked a better way to boil MMT down to its essence:

mmt_postcard_final-e1401342019907

 

1)

1. Does the government need to receive tax revenue before it can spend? – No
2. Does the central bank need to receive reserve deposits before it can lend? – No
3. Do private banks need to receive demand deposits before they can lend? – No

Banks simply keystroke money into your checking account.

The government simply keystrokes money into the bank’s accounts.

For money to exist, the government must first create it and then let it flow into the private sector.

The government must SPEND first, THEN tax

2)

The US federal government can never go broke.  Ever.  EVER.

If it is the sole creator and issuer of money, and that money is keystroked into existence on Treasury computer, then how can it ever “run out”?

Greece is actually broke because it no longer controls its own currency.  It’s debts are in someone else’s money and they want to make sure they get paid.

The amount of money that the government has pumped into the private sector minus the taxes it has collected = The National Debt.

3)

This does not mean the Government SHOULD spend as much as it wants, simply that it CAN.

If Congress passed a bill to re-build every highway, bridge and public school in the US starting next year, it can AFFORD to do so. However, that would take an enormous amount of resources that may be needed elsewhere and could cause damage to the private sector.  It could cause shortages in several key areas and lead to inflation and labor shortages.  Real resources constrain government spending, not affordability.

4)

This also means that Social Security and Medicare are not going broke and never will unless the political decision to starve them is made.

5)

There are 12 million people looking for work for every 4 million job openings.  If the private sector cannot or will not employ them (and why should they be forced to?) then the government must step in to fill the gap.  The deficit needs to rise until full employment has been reached.

6)

The Jobs Guarantee Program is an example of policy that can be crafted once the basics of MMT are understood and implemented.  The details of the plan are discussed in part 4.

If the private sector cannot or will not employ enough of our citizens, then the government must provide a job to everyone that wants one.  Boom and busts will come and go in a capitalist economy, but why not simply eliminate the joblessness that comes along with it?

What can we do with this information?

A) When you see a liberal, moderate, progressive, Democrat regurgitate the well-honed wive’s tale about the US going broke, or bankrupt or the deficit or debt being a “critical concern”, tell them that that isn’t the case.  Start a conversation and get them to think.  When a media person or your Congressperson says it, be a little firmer.  The more its repeated, the more people will start to believe it.

B) Start demanding from our public officials that the government start spending what we need to spend to move the US out of the frigging stone age.  It’s time to fund the things we need to make our country move forward.

Thanks for your eyeballs!

Many thanks to Naked Capitalism, New Economic Perspectives, Lambert Strether, and L. Randall Wray

http://www.nakedcapitalism.com/2014/05/mmt-postcard.html

CREATIONISM VERSUS REDEMPTIONISM: HOW A MONEY-ISSUER REALLY LENDS AND SPENDS

 

 

 

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Nirek
Member

Funk, this is an excerpt from my financial adviser.

6. Is high government debt a threat?
We don’t think so, especially if the
economy continues to grow. Although
the U.S. government debt has
increased to record levels, it’s still a
smaller percent of the economy than
in the early 1950s. And the federal
defi cit has shrunk to about 3% of the
economy in 2014 due to higher tax
rates and improving economic growth,
putting it in line with the average since
1950. Over that time, the stock market
has generally been rising unrelated to
the size of the government’s debt.
Source: Federal Reserve, Department of Treasury, Congressional Budget O ce, Bloomberg. Congressional Budget O ce uses data on federal
debt from the Department of the Treasury and the Board of Governors of the Federal Reserve System. Estimates of gross domestic product
(GDP) come from the Bureau of the Census. Past performance does not guarantee future results. The S&P 500 is an unmanaged index and
cannot be invested in directly.
120%
100%
80%
60%
40%
20%
0%
1929
1934
1939
1944
1949
1954
1959
1964
1969
1974
1979
1984
1989
1994
1999
2004
2009
2014
Net Debt Held by the Public as a % of GDP
S&P 500
10,000
1,000
100
10
1
Debt as a % of GDP
S&P 500
7. What’s the longer-term outlook?
Despite the challenges ahead, the long-term outlook is good. Long-term economic growth depends on
population growth and productivity growth – and the U.S. is well-positioned for both. Although the population
is aging worldwide, the U.S. is aging more slowly than China and almost every other developed country. And
the U.S. continues to be a leader in innovation, especially in patents and trademarks. Innovation helps raise
productivity growth over time, again contributing to faster economic growth.
The dramatic increase in oil and natural gas production in North America has lowered energy costs in the U.S.,
creating a long-term competitive advantage. That’s one reason some businesses are moving some operations
to the U.S. And as oil production has increased, oil imports have declined, reducing the trade defi cit and
helping support the value of the dollar over time. Although the U.S. has challenges to face, long-term
competitive advantages help make them easier to overcome.
Fed

I think this confirms what you have said about the debt. Am I right ?

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Mojave Green
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Mojave Green

I’m not real old, but I’m no longer young. What I’m trying to say is that I’m in my 50s and closer to 60 than 50, and I’m only pointing it out so you can decide what that has to do with anything here. And because, when I was attending a quality State University in one of the New England states, I also held a full time job that paid me a weekly take-home salary of $260. I bought my first brand new car during that time. It was a BMW and the price was $3100. Tuition was $800 a semester and last year I got yet another request for a ‘donation’ to help new students with their $34,000 tuition. Same school and the same BMW company. The lady I was seeing at the time was studying business law and she forced me to read some books that proved to me that quote by……Henry Ford? Or someone. The one about how ‘if people understood ‘their’ banking system they’d be a revolution by morning’. Not exact, but close. And though this is not the best I’ve seen on the subject, all the facts are correct. I’m not sure on the little bit of rhetoric in it and can’t even say if it’s points ‘right’ or ‘left’. The fact is that it doesn’t matter. The facts do, and I’d like opinions on how many people even know this stuff? I have for a long time but find that I’m a minority. It’s not too long and I think it’s important. Pura vida

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sillylittleme
Member

OMG. It’s about time someone breaks it down. Money is totally a man-made fabrication. It is humans that give it value. It was designed for ease of trade. PERIOD. We can never run out of something completely contrived.

I would add that it should be the responsibility of the Fed to annually issue a pre-determined (based on inflation) amount of money for every new citizen/resident that we create.

It should also be policy, that if you are to remain an American (via passport) and you have a company that is chartered in the US that all of the profit (note profit specific, not expenditures) remain in the US.

I would add one other item. That if the top 20% have 80% of the wealth, leaving 80% to keep the economy going with 20% of the wealth; that the top 20% pay taxes commensurate with that wealth.

If you can’t keep it circulating with moderate savings then you don’t get to keep it as it wasn’t yours to begin with. It is all of ours collectively.

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MurphTheSurf3
Editor

Well I asked for and you gave it to me.

Short, simple, fast, pointed and still baffling.

None of this is home base for me.

I have now read three articles on MMT and each provides more and more background on the theory.

Your summary here is a helpful skeletal structure for me to hang the information I am gathering onto. I can’t say that I am comfortable with any of it…..

I found this http://pragcap.com/wp-content/uploads/2014/03/Critique-of-Modern-Monetary-Theory.pdf

Do you know it? The author identifies MMT as a “new arm of Post+Keynesian Economics (PKE) That label helped to put MMT into a broader context.

Could you look at this article and tell me what you think of it?

So, friend, I am one of those kids who keeps riding up and down in the elevator pushing the buttons all the time and, every now and then, pulling the emergency stop.

I am going to keep push at this.

Be patient.

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kesmarn
Admin

funk, this is so amazing. I’m still not entirely sure that I comprehend the whole MMT theory well enough to apply it to lots of different possible scenarios. But the notion that unacceptable levels of unemployment could conceivably be a thing of the past really seems like a dream come true.

Just think of the tremendous reduction in overall national levels of anxiety that would result. Even though there doesn’t seem to be a direct connection, don’t you think that even some of this national gun obsession would abate? People who are scared about the future get angry. And angry, scared people seem to be drawn to the “need” to arm themselves. (“I don’t have much, but nobody’s going to take the little bit I have left.”) Don’t you have a sense that this increased feeling of security (especially combined with greater access to health care coverage) could be a real game-changer for the national psyche?

We all might be able to focus on something besides partisan bickering and finding ways to get entangled in foreign wars to boost the MIC-based economy. Fancy that! We could think about things like the arts, creative ways to reduce energy consumption, scientific research into subjects other than new weapons systems… and maybe even vastly increased production of funny cat videos for YouTube.

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KillgoreTrout
Member

Hey Homie! I would love to realize, in real time, a true Platonic, “ideal plane,” where all of us, regardless of pigmentation, gender or sexuality could really have all the time we need for higher thought. But, Plato did name his plane “Ideal.”

Unfortunately, Plato’s ideals rested upon the backs of slaves. Oh, if such a world existed where none would shun work and all would take part in the actual, physical labor it takes to make a great society…….oh well, call me a dreamer! As Winston O Boogie once famously said….”I’m not the only one.” 😉

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kesmarn
Admin

Maybe the closest we’ve come to that ideal have been the monasteries (Buddhist ones too) where the monks had certain hours for meditation — but also had to get that laundry done too, Homie! 😀

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JumpingJackFlash
Member
JumpingJackFlash

You are ignoring the effects of inflation and exchange rates in this analysis. You mentioned it in your 1st article in this series. I think that breaks most of your points. For example point #4 about SS and medicare going broke. That is a huge amount of debt and when we reach the point where we don’t have enough people paying into the system to cover the people receiving benefits, the system will collapse. If the government chose to just print money to meet the burden, we will have massive inflation.

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Nirek
Member

Funk, until Obama took office the Republicans understood what you say about MMT. Suddenly they are saying that the debt and deficit are so important.
I think they are important but for the reasons in your latest and easiest to understand MMT post. Those reasons are resources and distributions of them.

Excellent explanation of the other MMT posts. You never lost me at all.
Thanks Funk for clearing the muddy waters on MMT.

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