MMT Summit with Kaboom - regulation & macroeconomics

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01-18-2012, 12:09 PM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

Since my Summit post has taken a decidedly MMT turn in the discussions, I thought best to start this post as I begin to answer Schmidt’s MMT inquiries.
The original “Summit with Kaboom” post will continue with more discussion of Buddy Roemer and my dissident bipartisanship, but later. This post includes several areas of MMT discussion.
…………
Recently, CNBC’s John Carney’s MMT writings (here and here), which read like congratulations, wrapped in insults, trapped in partisan delusions, have stirred debate over on Mosler’s blog and the general MMT blogosphere, prompting a strong rebuttal from Bill Mitchell (here). According to Carney, MMT’s understanding of US dollar account is totally valid and in the ascendant; however, the problem is that too many MMT supporters “overlook” crony capitalism, and we should link up with the tea party and the Austrian school, if we know what’s good for us. I’m summarizing here, but I’m not kidding. That’s what he says. Totally bizarre and it prompted many MMT supporters to ask, just what and who the hell is Carney talking about? As Bill Mitchell wrote, “MMT is anti-crony.” Carney’s loaded assumptions a priori about the virtues of the tea party, and dogged ignorance of MMT’s descriptive and prescriptive analysis about how to cut crony capitalism off at its source is totally inexcusable.

At a fundamental level, we got a law and order problem on Wall Street. The tea party people and the Austrian crowd can hardly be expected as allies in the fight to regulate and prosecute Wall Street. Whatever the movements populist pretensions, very few in the tea party could have claimed any real outrage after reading the recent NEP missive by esteemed criminologist, government whistle-blower, and “stern” regulator Bill Black, “President Obama Negotiates our Formal Surrender to Crony Capitalism – and the Nation Yawns.” If the GOTP (Grand Ole Tea Party) and members of the Austrian-school really stood opposed to crony capitalism they would have longed joined anti-establishment progressives in fighting for the restoration of the rule of law and public-purpose.
………
Let me begin with what I really want to talk about here by laying out The Mosler Plan for restoring previous output levels and economic growth.
Warren Mosler's Plan:
1. Full FICA payroll suspension, i.e., “tax holiday.”
Not just a 2% reduction. All of it.
SSA and Medicare/caid revenues funded by Treasury.
This equals $900 billion dollars.
2. Per capita aid to state governments:
-$150 billion one-time federal transfer payment to the states.
-each state gets equal amount per citizen.
-no strings attached.
3. Federal job guarantee (JG):
-($8/hr + healthcare)
-reduce enforcement and compliance costs of federal minimum wage laws.
-remove burden of unemployment spending from state budgets.
-buffer stock on minimum wage and unemployment.
My take on JG:
-part of longer-term plan to return to economic stability.
-financial transaction tax of FED fees could offset spending-inflation fears.
-program could be part of OPEN fiscal-monetary operations,* with FED assuming a fiscal authority role to fulfill its unemployment mandate, maintain its interest rate and price stability targets.
-transitional paid placement in qualified nonprofits, charities, local government-community service initiatives, disaster and environmental relief, and auxiliary local government personnel
-does not replace or subsidize private sector job opportunities.
-evolves into workfare.
-more control for individuals, better wage flooring and competitive wage pricing.
-real costs of unemployment on society outweigh costs associated with JG
-employment driven growth, not the other way around
.........

To be clear, government should spend if it is consistent with our values, laws, and society stands to benefit, and we’ve decided upon it based on merit through an open, transparent, and deliberative democratic process, recession or not. Problem with government spending is….frankly the entire process is corrupt. There’s a hell of lot in the budget and tax code that does not support public-purpose. It should take our government a long time to decide upon the size, scope, and goals of the public-sector. Direct spending by the federal government in the real economy on real goods and services + government spending on public-sector employment ought be dutifully crafted to serve common goals and purposes that service private-sector expansion and quality of life improvement. This “central spending” by the federal government need not rise as a countercyclical reaction to a downturn in the business cycle, per se.

All MMT says is that for a given level of government spending, i.e. political choices, there is an appropriate level of taxation in-order to achieve full employment. So with the size of our current demand-output gap, working people are clearly overtaxed. Government needs to either spend more, or give us tax-cuts (e.g., Full FICA payroll suspension) to restore aggregate demand.

Federal spending, in the form of transfer payments as part of automatic stabilizers, and the federal budget deficit, due to lower tax revenues, will both rise in a recession. Transfer payments cannot be conceived of as “centralized spending.” Government is not directly purchasing any market good or service. Crediting the accounts of Social Security recipients and the unemployed does not take anything away from the private-sector for consumption by the public-sector, nor does the federal government operationally require external financing for spending (i.e., taxation of/borrowing from currency users). The real constraint is demand pull-inflation. When government “central spending” (e.g., bombs, books, and bridges, etc.) + private sector spending (including that resultant from transfer payments by government, exceeds supply inventories, demand-pull inflation will follow as a consequence, rippling its way out to general price-level increases. This is why government taxes to create the 'space' for its spending without causing undesirable inflation.

Now, crediting the accounts of state governments, which are currency users, is itself a transfer payment. On a per-capita basis, these payments could not be considered to unfairly advantage one state over another; and with no strings attached, the federal government denies itself the ability to micromanage what states do with the money. Ideally, states would prevent layoffs and cut backs on basic services, or they could give their citizens tax cuts.
Even the JG falls outside of “central spending.” OPEN monetary-fiscal operations, as I define them, involve the Federal Reserve using a fiscal authority, as part of its monetary authority, to employ idle labor assets to maintain price-level stability, and thus achieve stronger management and targeting of monetary flows. Instead of just buying assets to improve liquidity as a Lender of Last Resort (LLR), the new FED job mandate would seek to maintain stable aggregate demand to avoid liquidity problems in the first place as an Employer of Last Resort (ELR). And while people making $8/hr won’t contribute much of anything to federal income taxes; their spending will obviously boost local sales taxes and boost the revenues of the companies that they buy things from. The problem with long-term unemployment is that because it depreciates the value of idle labor, the economy is likely to have labor shortage problems even when hiring picks back up, due to a mismatch between the skills offered by available labor and that demanded by employers. The job guarantee is a channel for long-term unemployed and impoverished-unemployables to regain lost value for their labor and learn these skills in a transitional phase to more rewarding private sector employment, as well as a means to support the incomes of retired/disabled volunteers (on a means tested basis).

The FED’s decentralized fiscal authority over unemployment, would reduce the burden of unemployment spending on state budgets, combat effects of long-term unemployment, and buffer the price-level of entry level wages far more effectively and less intrusively than national-state minimum wage law enforcement. This is not saying do away with federal minimum wage. This is saying use the market to bring about the compliance of private business with minimum wage laws without a massive regulatory-enforcement burden on government and the usual problems of federal micromanagement of employment conditions.

How my version works: FED district banks organize and seek approval at state-level for certification process for paid community service positions. Different states, different communities would have different positions available to the unemployed, entry level workers, and volunteers. Basically, county level governments would maintain community service jobs lists certified as paid positions by the state government and the Federal Reserve district bank in their area It’s important that the certification process is a negotiation between FED district banks and state governments. The point of all of this is to put to work idle labor forces and not directly federalize local government budgets. Congress could review and nullify the certification policies, but only in the context of the broad guidelines established for the FED and the states to abide by, such as that which relates to uniformity of rules, fair treatment of sub-national governments, and the general conditions relating to the ethical purpose of the program- to employ those who would otherwise not be able to receive paychecks in work doing things that need to be done in the communities in which they reside. Job guarantee is not to extend into for-profit sectors, or to federalize the labor costs of sub-national governments.

Grand technical details must be worked out county by county, but here are two basic principles to guard against moral hazard:

1.) A cap on the percentage of JG enrollees allowable under the employ of sub-national governments in traditional/preexisting entry level roles and contractor positions (office workers, lawn crews, street crews, administrators) vs. the number of certified workers in non-profits and charities, indexed to per capita incomes and tax revenues in a given area. Lower income areas could have a very real need for JG workers in public sector positions, but wealthy areas should not be allowed to pinch pennies by downgrading the pay of their public workers and pushing their wage costs onto the federal government.

2.) All JG certified jobs are $8/hr + health insurance. Sub-national governments, non-profits, and charities cannot add wages on top of this. If this is necessary to fill the position, the position cannot be certified.
Here are a few examples of JG positions certifiable for urban communities:
-“Habitat for Humanity” style community cleanup crews that refurbish, restore, and beautify run-down housing.
-crews that develop and beautify parks and recreation facilities
-elderly outreach
-homeless outreach
-urban farming crews who distribute food to needy families or manage and plan community gardens
-foreign language translator crews for community outreach
-adult literacy teachers
-administrative assistants to local county-municipal JG coordinators

The operational costs of these programs would be met by charity, small amounts of local tax dollar investments, or existing and additional federal subsidies. Of the above, all could be managed by certified non-profits and charities, with coordinated support from sub-national governments. Furthermore, private companies could very well commit resources to community service and charity missions, and establish their own transitional training programs for new entry level employees. Enrollees in privately sponsored programs could work during the day in certified community service positions, while studying to advance their qualifications for paid private sector positions.

Now, if Congress so chooses, job guarantee programs could be rolled into national public works programs (i.e., infrastructure “central spending”), in which both labor and operating costs would be paid for by the US Treasury. In my federal job guarantee vision, certification would only cover the costs of $8/hr labor for qualified non-profits and local government community service organizations; those entities would be forced to make due on acquiring operational funds outside of the job guarantee program for moral hazard reasons. That does not mean that these entities should not receive federal financial assistance, but that funding process is entirely separate from the job guarantee program, and has its own distinct political challenges.

Effectively, my plan would make an abundance of currently unemployed labor available for certified non-profit organizations and local government community service initiatives, free of charge to those entities. Structurally speaking, spending on the JG would be endogenous, with the federal government committed to supporting local and individual decision making with respect to programs to end involuntary employment certified by state governments and FED district banks.

Unemployment insurance could work a bit differently, as laid off or unjustly fired workers would receive payments not for how long they will follow without a job, but in defined amounts, as a form of guaranteed severance. Traditional unemployment benefits would then be tied to a workfare-guarantee, and states themselves could link, within certain negotiated measures, their own social welfare benefit programs to participation in the federal job guarantee program.

Now, doesn’t this sound a whole lot like a “New Deal 2.0 public works program”? Well, yeah, except it’s not typically what’s put forward under that label. What the federal job guarantee amounts to is a new type of fiscal approach to the unemployment problem that decentralizes the typical appropriations process allowing for faster response time, and less Congressional approximation of political influence over new deficit-spending decisions.

Here’s how the spending side works, either the Treasury or the FED (with new authority) creates new additional net-dollar assets for job guarantee wages and related spending, and this is either accounted for by some type of reserve drain to maintain FED’s targeted overnight interest rates (the interbank market or fed funds market), whether it be Treasury bonds, or interest bearing reserve accounts at the FED. It does not matter. They both have the same effect of artificially raising interest rates on the interbank market to higher than it would be as a result of new deficit spending. Point here to make is that money creation does not equal dollars in people’s hands with a propensity to spend. There’s no straight line correlation between deficit spending and inflation, and the Reagan administration made this quite clear.

Now, the certification process cannot merely reside at the federal level, different states and local communities will have different opportunities and not all of this can possibly be authorized in detail and approved by Congress. What Congress should do is create the nationalized financial credits required for full employment in the real economy through the utilization of the non-profit/community service sector, per the quality control, management role, and direct consent of the states, purvey to the discretion of the FED Reserve, through the oversight of its District banks. Congress need not sign a blank check with unlimited moral hazard, but nor should it centrally micromanage the allocation of federal job guarantee spending.

Congress already regulates non-profit organizations, per federal grant requirements and tax-code. It should continue to do so, but this is a separate spending regime, still subject to the same scrutiny with respect to public-purpose as the federal job guarantee.
All of this is further complicated by our desperate need for income and capital gains tax reform. While spenders are overtaxed, high-earners and savers are clearly getting the deal of a lifetime: low interest rates and low taxes. And that’s standard. The overall point of federal taxation is to regulate demand, and this includes investments. Capital gains taxes incentivize the active search and development of more profitable investments, and not in the ways you think. Not all business models are sustainable in all tax environments, obviously. With low marginal taxes on the long-term capital gains rate (applies to profits realized on assets held for one year or more), we incentivize less productive investments, many of which will inevitably falter in the event of a recession, leading to negative externality burdens shared by both the public and private sectors (e.g., missed payments, loss of tax revenues, gentrification, federal insurance spending, public-private costs of bankruptcy and bankruptcy protections).

I call this shake. The more shake, the more volatility, and the more volatility and shake, the greater the need for government intervention. The Heritage foundation is fond of pointing out that the Clinton era capital gains rate cut actually increased Treasury receipts; needless to say, they avoid all discussion of the fact that the capital gains rate cut incentivized compensation by portfolio, as opposed to salaries taxed at the higher Clinton era marginal income rates, and the benefits of lower interest rates.

Why should investors pay less a percentage of their income in taxes, than business owners? This is putting the cart before the horse. And when you end up without enough aggregate consumer demand to support the profitability of highly leveraged investments, capital rushes into T-bills, other government bonds, and tax-incentivized savings accounts in-order to post a return on idle non-interest earning dollar financial assets, and the federal government’s “ugly” deficit goes up from the loss in taxable incomes

We’re operating under MMT for Evil. Remember, MMT is descriptive. It describes the actual circumstances and accounting of a sovereign issued fiat monetary system on a floating world fx with a central-bank acting as a LLR. People have a right to be upset about “ugly” deficits. They support rent incomes. They support criminal, toxic, and zombie banks. They elevate income disparity. They support the pay of CEOs who preside over companies that ship American jobs overseas.

Now, I’m not saying I don’t support infrastructure investments and more money for education or fully funding Social Security, Medicare, and Medicaid. Obviously, I support a new JG spending regime, but that’s not really to resolve the economic crisis, but to prevent the depravity of the next one. And that’s what I think is the key, I think of government spending as maintenance, not as a primary driver of broad based recovery and economic expansion. The appropriations process is for resolving critical questions regarding government’s mandate as a buyer/creditor in the marketplace. It is a heavily politicized and notoriously long and drawn out process. Attempting to extract merit based policy consensus on public-purpose spending from our Congressional whorehouse is not something that can be rushed for sake of jump starting an ailing economy or saving it from a bottomless disaster.

Federal power should be used wisely and responsibly; more to the point, in an economic crisis, one of the immediate things government should focus on is correcting whatever it is doing or not doing to cause or contribute to the economic crisis in the first place.
If this were the case, the Bush and Obama administrations would have closed insolvent banks and non-bank private label mortgage originators, arrested their CEOs for securities and mortgage fraud, and rewrote the terms of shoddy and fraudulent mortgages and put a hold on people from losing their houses and prevented defrauded mortgage securities investors from losing their shirts. Instead, they primarily went the Monetarist route, and decided everything would blow over so long as the banks, credit markets, and Wall Street was given an extraordinary amount of cushion to weather the storm, while everyone else was nearly eaten alive. The $787 billion “stimulus” was not all “stimulus,” a third was restructuring of basic maintenance spending, and it was stretched out over many years and tied to a lot of bureaucratic wrangling and federal-state politics. Compare this $787 billion stimulus with the total of $29 trillion in low cost Fed lending to anyone with access to the Discount Window. Borrowing money through the discount window used to be a sign of shame and weakness for a financial institution. Still, the FED will return $79 billion in profits this year to the Treasury on account of its various ABC discount repo swap windows. It might be nearing a penny on the dollar in interest income earned for all of its extraordinary intervention since the recession began. But QE is still a tax. The FED is not “printing money,” it’s clearly receiving incomes. Some might call that State-Capitalism, which is a very weird place for our federal government to be in. Hey, Bernanke is supposed to be a libertarian, and Greenspan was literally in Ayn Rand’s psycho-dramatic and ironically named “Collective.” The libertarian Republicans need to look at themselves in the mirror when they start complaining about the Federal Reserve.

But in short, government is fucking up more than it can fix through a New Deal public-works spending regime. For that matter, a ND 2.0 massive public works program would require extraordinary and unrealistic institutional efforts on the government’s part to just achieve the political consensus required to get such a thing passed, with an equal and additional institutional leap of Mount Saint Helena required to develop a plan that actually serves public purpose, while just as well and fortuitously managing its execution even while encountering additional side-effect problems incidental to government digging itself deeper and deeper into the micromanagement of the real economy. Maybe we should have new spending regimes that put people to work rebuilding infrastructure and ecosystems. Seems like a wise move. But the amount of effort we put into these projects should not be dictated by aggregate demand shortfalls that the government creates by over taxation, and the market remedies with private unemployment. It’s going to take too long to appropriate the spending in a manner consistent with public-purpose to have the desired effects on aggregate demand, and politically it’s inherently problematic.

The quickest most painless path to restoring aggregate demand is to stop overtaxing those with the highest propensity to spend. Since the purpose of taxation is to regulate demand, and not to finance federal spending, it follows then that with the existence of a demand-output gap government is overtaxing and, thus, creating the unemployment.

Problem is that tax policy is totally unbalanced and government is also doing other things on top of overtaxing workers and their employers that is totally inconsistent with public-purpose.

Once again, regulating demand includes demand for investments. Capital gains taxes and taxes on interest income promote profitable investments. I've discussed this before, when you give tax-cuts to investors and savers, this will inevitably promote financial inflation. It's putting the cart before the horse. And it's not just tax-cuts for the rich, that's not the half of it. Government is intervening in all kinds of ways in support of upper income wealth.

Look you got:
-tax-incentivized savings accounts
-Treasury interest payments on bonds
-$29 trillion in low cost FED repo-lending (uncovered by two grad students of UMKC’s professor Dr. Randal Wray)
-massive goddamn regulatory favors
-patent office protections
-low cost Treasury lending
-bankruptcy protections
-suspension/modification of market-to-market accounting
-hands out for employment pension and retirement accounts fraudulently used to improve the bottom lines of corporations (see Retirement Heist by Ellen E. Schultz)
-non-enforcement of the law as written (see Bill Black, this is obvious and all over the place, from lobbying, campaign finance, mortgage lending, securities regulation, existence of “zombie” insolvent banks, fraud at GSEs, credit rating agencies, etc., etc)
-absence of Congressional action to prevent administrative-regulatory capture
-historically low long term (i.e., one year +) capital gains tax rate
-corporate handouts and tax exemptions and tax expenditures and tax code written by hoards of lobbyists
-no bid/no compete federal government contracts
-and on and on and on and on. I’m forgetting stuff.

It’s Big Government State-Socialism for the Rich and MMT best understands that Government intervention in the economy, let alone spending, should serve well thought-out public-purpose that is consistent with our values.

So the first thing the government should do is stop auctioning away the power of the state to the powerful private interests that are guilty of decades and decades of massive financial-economic fraud of Soviet/Maoist proportions. The Republic no longer exists. We are living under the Empire. It is a Kafkaesque nightmare come true. Those Republicans bitching about social welfare programs are protecting a far larger and insidious Marxist Socialism for the wealthy, a corporate fascism that is driving this country off a cliff. Furthermore, dollar for dollar, unemployment spending provides government some of the biggest bang it can get for its buck, with spending actually driving net increases in federal revenues. Keeping seniors out of dumpsters and preventing people from dying in the street for lack of private health insurance coverage are questions of values.

Like, I’ve always said (remember my “Beyond the Looking Glass Thesis on American politics”), Progressives are the true descriptive-noun “conservatives.” I stand opposed to the hyper State Socialist-Anarchogarchy that has come to rule over our country. I consider myself a freedom fighter for American Capitalism in a just state of liberty.
.........
You can't fix the banks before you fix the real economy.

And look, in the real economy it is good that people save. What if they get sick? What if they lose their jobs? People should save US dollar assets. We should want people to save. Savings are a bulwark in support of personal responsibility.
But that means government has got to create the net-financial assets necessary to support both demand for savings and for the goods and services that our economy can produce.

01-18-2012, 01:57 PM

Schmidt
Colorado Springs, CO
Posts: 1058

Wow Kaboom...there's a lot to digest here. Thanks a lot. I'll read it all very carefully and get back to you with questions.

01-18-2012, 09:29 PM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

There's a lot of ideas out there for a Federal Job Guarantee. In reality, I believe I have offered what is truly a "Federalist" Job Guarantee. I'm going to be editing this post, any suggestions would be most helpful.

I'm mixing the descriptive with the prescriptive here

01-23-2012, 10:48 PM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

Hot points:

When someone starts going nuts about debt and deficits, ask them if they know how much a 3-month Treasury bill costs the government to finance: somewhere between 0% and 1/100th of a percent. It produces a negative yield for investors.

Does this sound like a normal 'borrowing' operation to you?

01-24-2012, 12:55 AM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

The 99%'s Deficit Proposal

Link

This is not good. This is like emancipated democratic thinking, still riddled with error about the nature of the US dollar spreadsheet. MMT has not got off the internet.

We need an MMT-Occupy wing.

We need a "federalist" job guarantee!

01-24-2012, 09:28 AM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

So it is like this....

We got massive wealth inequality, right?

Well, because aggregate demand is not there to support profits from new investments, the wealthy park their funds in tax-incentive savings accounts.

So

1.) There's less revenues because of less sales activity.

2.) Tax-incentivized savings accounts increase non-taxable incomes.

3.) bigger deficit, more government bond issuance, but demand for interesting bearing Treasury securities still exceeds supply.

01-24-2012, 10:16 PM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

So I've read through Obama's STOUA 2012, but have not yet watched the speech. Usual misunderstanding of debt and deficits is obvious. Deficit reduction is deficit stupid, and POTUS is still under the allure of the Clinton surplus narrative.

There's stuff in there about a labor shortage. Obama wants money to train employees for in demand skills.

Long term unemployment degrades skill sets, so when the economy picks back up there's still going to be a labor shortage.

Makes more sense for government to stop causing involuntary unemployment by overtaxing per size of our government. Government needs to either spend more, or tax less. Unemployment is a byproduct of inappropriately sized government account balances, per falling aggregate demand.

Secondly, full employment is a paradox. Unless, you got a steady stream of new workers keeping wages in check, sustained full employment will slow expansion, leading to recessions and back to involuntary unemployment.

A "federalist" job guarantee will take some of the labor pool offline. It will also discourage voluntary unemployment.

01-24-2012, 11:24 PM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

Mitch Daniel's response is complete fucking nonsense.

We are not Greece or Spain. Republicans are not for cutting off crony capitalism at its source, i.e., regulating Wall Street and public-private financial institutions known as banks.

Mitch Daniel's does not remember what he should have learned in national income accounting.
Nobody needs to 'pick up the tab.' The tab is the money that we use to pay our taxes, buy bonds, and goods and services in the private sector. We are living in a macroeconomic dark age.

I vomited a little during his speech.

These people follow the Hitler line.

It's highly effective. Hits all populist GOP themes.

Too bad for them that Daniels isn't their nominee.

01-26-2012, 10:43 AM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

You know when a Treasury bond matures in the hands of the Federal Reserve, by the law, the Treasury can directly issue a new Treasury bond to the FED.

Now, the FED can't go out and buy new US Treasury debt directly at auction, but it can purchase Treasury debt in secondary markets. Most of this is done in short-term repo swaps, but the FED does buy and hold US Treasury debt from resellers on occasion to influence the term-structure of longer term interest rates, per monetary policy of the FOMC.

Despite its quirky status, fact of the matter is the FED is part of the executive branch. Actions on secondary markets, prime the free market place for desired results from US Treasury debt issuance. Effectively, it's just a way around the law barring the FED from directly purchasing US Treasury debt. The FED achieves similar/same results through its broad market making powers to buy and sell in secondary markets.

We cannot have a democracy if the people and policymakers have no idea how the system actually works.

Sorry if all this ruffles your ideological feathers. Time to start dealing in reality. Conservatives should heed their own advice.

01-26-2012, 10:08 PM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

Warren "Daddy Bad Ass" Mosler on the CNBC blogs and on fire:

"Why Won't The Fed Tell Congress the Truth About Our Debt?" (link here)

I heart MMT.

DEFICIT OWLS UNITE!

01-27-2012, 12:58 AM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

Alexander Hamilton, MMTer?

Check out his 1790 "Report on the Public Credit."

"To justify and preserve their confidence; to promote the encreasing respectability of the American name; to answer the calls of justice; to restore landed property to its due value; to furnish new resources both to agriculture and commerce; to cement more closely the union of the states; to add to their security against foreign attack; to establish public order on the basis of an upright and liberal policy. These are the great and invaluable ends to be secured, by a proper and adequate provision, at the present period, for the support of public credit."

"It is a well known fact, that in countries in which the national debt is properly funded, and an object of established confidence, it answers most of the purposes of money. Transfers of stock or public debt are there equivalent to payments in specie; or in other words, stock, in the principal transactions of business, passes current as specie. The same thing would, in all probability happen here, under the like circumstances.

The benefits of this are various and obvious.

First. Trade is extended by it; because there is a larger capital to carry it on, and the merchant can at the same time, afford to trade for smaller profits; as his stock, which, when unemployed, brings him in an interest from the government, serves him also as money, when he has a call for it in his commercial operations.

Secondly. Agriculture and manufactures are also promoted by it: For the like reason, that more capital can be commanded to be employed in both; and because the merchant, whose enterprize in foreign trade, gives to them activity and extension, has greater means for enterprize.

Thirdly. The interest of money will be lowered by it; for this is always in a ratio, to the quantity of money, and to the quickness of circulation. This circumstance will enable both the public and individuals to borrow on easier and cheaper terms.

And from the combination of these effects, additional aids will be furnished to labour, to industry, and to arts of every kind."

So there you have it. MMT shortly after the Founding.

Spanish silver standard and fixed price of gold to the dollar, merely opened a speculative line of attack on the nation's sectoral account balances finances, which subverts public purpose to the whims of market interests, and creates real physical constraints on government sovereign control of the money supply.

Whether you are on a gold exchange/standard/bullion system, the accounting logic of the US dollar spreadsheet still applies. But under gold systems, policymakers do not have the same control over the money supply as they do under fiat currency regimes. Gold systems have a self-destruct button that will go off if enough people jump on it at the same time.

01-28-2012, 09:32 AM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

So like with a gold run, people want to change their dollars for gold. If enough want to do it at the same time, you have a thermonuclear snowball problem on hand.

But the swap leads to a material gain in their eyes...

Now take our system:

Say people holding dollars want out of the dollar system. Well somebody else has to want in, via fx and foreign trade.

Now, what about interest rates on T-bills? Could investors refuse to buy?

Yes, to the extent that they're willing to pay the inflation tax on their overnight deposits.

As far as I know, capitalism is about making money.

So what would have to happen....would be an economic sacrifice for political ends.

I'm not betting on a communal, vanguard revolt of the establishment anytime soon.

Funny, conservatives would have us base economic policy on the false likelihood of capitalists acting and coordinating like communists in order to destroy the dollar, e.g., who is John Gault?

NIN: "Terrible Lie"

01-30-2012, 10:29 AM

Schmidt
Colorado Springs, CO
Posts: 1058

Good thinking Kaboom,

I'm still mulling other parts of MMT, but I've already taken too long to respond on your original posting with respect to Warren Mosler's Plan and your take on it. I agree with it and will add my own take.

1. Full FICA payroll tax suspension. I agree. It is a regressive tax that hits the poor and middle class disproportionately. And the Alan Greespan/Reagan generated surplus (although now much smaller) has only worked as a means of wealth transfer using the tax code...i.e. lower progressive income taxes in return for higher regressive payroll taxes. Those that cry that reducing or eliminating that payroll tax "borrows from our future" don't understand that every penny of the SS surplus has already been borrowed by our government and will be paid back over time, not via payroll taxes, but rather income taxes. As I said before, I like PAYGO...pay as you go, the way SS was before Greenspan/Reagan created the surplus accounts, which has been nothing more than a back door means for wealth transfer upwards.

2. Per capita aid to state governments. Yes again. As Jared Bernstein shows in this graph from his blog, the contribution to or subtraction from real GDP growth from the state and local sectors since the late 1980s has steadily declined and especially so in the last decade as states have struggled with forced balancing of budgets by laying off teachers, cops, and other public sector workers. While the states are budget constrained, the Federal government is not, so all means of transfer of funds from the fed to the states makes good economic sense...it will help growth instead of hindering it. Cutting education, especially, is cutting the legs out on our future.

Bernstein adds a reflective note that "this figure is a good argument against a balanced budget amendment...think of a recession as all the states piled in a boat together along with the federal government and the boat is taking on water. There’s really only one institution in that boat with bilge pump and that’s the feds. A BBA takes the pump away…then the boat sinks…"

3. Federal Jobs Guarantee (JG). Again, I agree, although on the surface one might have concerns of how the mechanics of this would work. You, of course, have addressed these in your "basic principles to guard against moral hazard," with caps and certification of jobs. I haven't thought through the whole concept enough to raise any additional questions. But yes conceptually, it makes good sense. Although the $8/per hour wage is not great for some that may have had better paying jobs, it is better than nothing, particular if your unemployment benefits have run out (although you have proposed restructuring that program as well). And people that partake in the program are contributing to society...creating wealth...and feeling good about themselves. The healthcare component is important incentive to appreciate the jobs.

I like your examples of “Habitat for Humanity” style community cleanup crews that refurbish, restore, and beautify run-down housing; crews that develop and beautify parks and recreation facilities; elderly and homeless outreach; urban farming crews who distribute food to needy families or manage and plan community gardens; foreign language translator crews for community outreach; adult literacy teachers; administrative assistants to local county-municipal JG coordinators. All of these are worthy jobs that contribute to our society. A very good list...work that those participating should be made to feel proud of.

Okay this is a start on your very long posting. I'll move onto additional topics that you addressed, but just wanted to get something on the table now before I lose my thought process...us seniors forget our trends of thought at times if we don't write them down.

More later...

01-30-2012, 12:32 PM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

Yeah the Job Guarantee debate has now stirred division within the MMT camp....

On the one hand, you have 2nd generation MMTers like Cullen Roche and beowulf arguing for "Monetary Realism."
-focus on improving government spending efficiencies
-see JG and gov't labor program as problematic
-adhere to central tenets of MMT that relate to descriptive accounting truths

Now, Mosler himself does not argue that the JG is a central aspect of MMT....there are many ways to check inflation and prices, unemployment or the JG are both policy options.

Others of NEP fame take this a step further and argue that w/o a JG the monetary system is fundamentally unstable.

I'm concerned with the reality of a JG. We need to move beyond theorizing and into designing hypothetical systems.

I believe my "federalist" approach is consistent with the Monetary Realists' and Mosler's aversion to federal level micromanagement and centralization (which stands in contradiction to his views on the JG).

I want a system that Hamilton and Jefferson/Madison could be proud of.
........
Hell, here in Texas....we periodically now have counties on fire w/ 10% unemployment and above, and this while the state continues to cut spending on fire prevention activities, such as brush clearing. There is plenty of work that needs to be done.

01-31-2012, 02:21 AM

CARLITOS BAM-BAM
Dallas, TX
Posts: 897

So the "certification process" for the JG, a few points-

on the expansion FED's unemployment mandate:
-idea here is to utilize FED services and economic reporting data.
-no sense in a separate government agency since overall JG policy must be in line with the FED's interest rate and inflation targets

on the utilization of non-profits:
-idea is to add flexibility to all possible community scenarios for JG
-reduce/outsource bureaucracy to private sector

oversight of non-profits:
-every level of government would have oversight authority
-certification process must involve monitoring regime

on the utilization of private business and corporations to manage their own non-profits certifiable under a JG:
-idea is to put corporate responsibility and self-interest together
-good p.r. and could provide pool of trained skilled workers for entry level positions.

on placing the operational costs of certified JG programs to employers (state, local, non-profit):
-prevents quagmire/cluster-fuck of Congressional micromanagement
-requires community efforts/initiative + spending
-helps insure that the JG is purposeful work of benefit to society

on giving states veto power over accepting FED district level negotiated certification plans:
-JG won't work with hostile state government
-need knowledge of local affairs...coordination between city-county-state.

This is an original Federalism updated for a 21st Century just-capitalist system.

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