Tweet
This is the third and last in a series of posts based on youtubes from a speech in Milford CT by Warren Mosler. Warren is running for the Senate in CT in the Independent Party primary. Unlike both the Democratic and Republican candidates Warren really understands economics and his forté is explaining it to people. Here’s a youtube following on the last one I blogged about. My earlier post covered Warren’s policy proposals. This one considers the question “How are you gonna pay for it?”
I’ve written some about this question recently here, here, and here. And a lot of what I’ve written has been based on Warren’s words and the words of other economists who use the MMT approach including Bill Mitchell, Randy Wray, Stephanie Kelton, Pavlina Tcherneva, Marshall Auerback, and Jamie Galbraith. In writing about the question, I’ve tied to write simply and bring my answers down to earth. But I don’t think anybody is better at this than Warren. So here’s what he has to say in the Milford speech:
Warren explains in plain language that our taxing and borrowing through the selling debt instruments do not produce money that is then used for spending. Instead, we never use the borrowed or taxed money, and instead just make money every time the Government spends. The Government is not like us. We have to use earned or borrowed funds to spend. But the Government has unlimited authority to spend subject only to what Congress says it can spend. That’s part of what I mean by saying that the US Government is sovereign in its own currency, and also the basic reason why someone who asks you “How are you gonna pay for the it?” is just exhibiting their ignorance and failure to understand the monetary system, or even worse, if they do understand it, is just, plain lying.
(Cross-posted at All Life Is Problem Solving and Fiscal Sustainability)
104 Comments
There are so many fundamental errors in Neo-Chartalist theory, aka MMT.
Read this for some of them: http://mises.org/daily/4349
Thanks for pointing out this piece from the Austrian School konst. My own reply to it would simply be, that Warren has laid out how the Government actually spends, taxes and borrows. Are you denying these operational facts? Are you denying that when the US Government spends money it simply marks up certain bank accounts, and never actually uses the money it gets from taxing and borrowing?
That’s irrelevant. Though it DOES use taxes or borrows the money.
When it prints the money, aka inflates the money supply, it causes prices to rises thereby increasing the gap between the rich and the poor.
No, it’s not irrelevant. If the Government doesn’t, in fact, actually use the money it taxes away or borrows to spend, then it cannot be the case that it requires taxing or borrowing before it can spend, and so, also it cannot be that it can run out of money. Thus, there is no solvency risk which is the whole point of Warren’s argument.
You say:
Proof please. Bernanke, under oath to the Congress just last year said that he never used tax money to mark up the accounts of the big banks so that they could stay solvent. Moreover, if the Government uses tax money to spend with, then where specifically are the checking accounts it both places taxes into and then disburses from?
Warren claims that there are no such accounts. If you think there are, tell us where they are, and how you know that the money deposited in them and disbursed out of them is tax money or borrowed money.
You also say:
No, konst. Prices won’t rise unless demand outstrips potential supply in the short run. In today’s economy, that is not a possibility. In fact, the danger now, is deflation, that aggregate demand will, due to high unemployment, fall to such a degree that prices collapse, more companies fail and we get a deflationary spiral that results in the much-feared double-dip.
In any event, there is nothing sacred about the previous currency the Government has created which suggests that it should not spend and create new money in order to accomplish worthwhile public purposes like full employment and Medicare for All, as well as a hundred other things I can name. The money that exists now was issued to fulfill public purposes and any new spending that occurs now would also be for public purposes so a priori they are on equal footing. If you want to discuss specifics, however, a very good case can be made that we’ve been spending Federal money very badly since 1980 on all sorts of programs that amount to corporate welfare, and that new Government spending while eliminating some of the old spending may well be a great improvement from the viewpoint of public purpose.
http://www.bea.gov/scb/pdf/national/nipa/methpap/mpi1_0907.pdf
Sorry. That doesn’t cut it. Please quote, don’t link. Links are too gross as a reply to specific claims. Warren has made certain claims about actual operations. Do you have a quote from the BEA or any other report that contradicts his account of operations? If not, this discussion is over.
That is not the way the rise in prices that’s caused by inflating the money supply works.
Deflation is not a danger as long as the prices known as wages also decrease somewhat with the prices of good and services.
If the prices known as wages fall more slowly than the prices of goods and services, then there is no danger. Even if they don;t the prices of goods and services will adjust to meet demand of consumers.
konst you do a lot of asserting when you disagree with what someone has said, but an assertion denying my reasoning about aggregate demand is not proof. It’s not even counter-reasoning. it’s just you saying I’m wrong. Well, you may be right about that. But no one reading what you’ve said has any reason to believe that you are; only that you disagree.
As for:
Deflation is a danger if aggregate demand falls faster than supply. Aggregate demand may fall even where wages for those who are working don’t fall that fast. That happens because many people become unemployed and find their purchasing power reduced overnight by 50 percent or more, and with long periods of unemployment demand from them gets reduced even more. There are already real world cases of deflation, the prime case being Japan, where in spite of a debt-to-GDP ratio growing to nearly 200%, there’s been no inflation, and very low interest rates, and also an economy in recession since the early 90s. But if you want to see real deflation, it will be coming to Europe and the United States if our idiot elites go ahead with their austerity programs.
Purchasing power is not attached to people. It’s a property of the medium of exchange called money.
If the money is not properly distributed or if it is disappearing from the system due to austerity programs or if there is saving that is not compensated for by export revenues or increased Government spending, then the purchasing power won’t exist among those who want to purchase goods and services and aggregate demand will fall, leading to deflation, and even perhaps, even to deflationary spirals.
You seem to think the quantity of money has some strong significance as if it’s going to run out. It doesn’t have the significance you seem to attribute to it.
Real money, i.e. a medium of exchange, doesn’t appear and disappear. It increases or decreases in purchasing power.
If people start saving more, thereby making it available for lending, then interest rates fall since money becomes more easier to obtain. It doesn’t cause the economy to crash due to an erroneous thinking that “aggregate demand is crashing”.
A big mistake Keynesians seem to make i s they think wealth is created by government spending. It’s not.
Wealth is created by increased productivity and you can’t get that by printing pieces of paper and calling it money.
First, I’m not a Keynesian. Keynes, unfortunately, had to deal with gold standards, so his thinking didn’t deal adequately with fiat money. Second, I don’t believe that money is wealth. It was you who seemed to take that point of view, when you suggested that the Government spending was stealing. Third, I think that Government spending adds to non-Government sector savings. Those savings can fund economic activity by people who can create real wealth.
I can’t see that there can be much dispute about this. There are so many historical examples of just that happening that it’s hard to believe that anyone can doubt it. Right now, the non+government sector of the economy is not funding economic activity and a large part of our productive capacity lays idle. This is a crime. It ruins lives. It kills people. it deprives children and future generations. We know how to out people and productive capacity back to work. There’s no excuse for not doing so, except for some by now, outdated, economic theories that have been refuted by the facts more times than I care to say.
how about this: national wealth is the productive capacity of the national economy?
does that work for you?
I think that’s part of national wealth, but that, at any point in time, it also includes the real wealth previously produced by the economy.
not at a single point in time — over time. if that was so, we’d never make investments in the future productive capacity (of people, natural resources, knowledge, etc).
At any point in time there exists previous outcomes of the economic system, some of which are valued as real wealth. Some of that wealth is capital that can be used to produce more wealth.
So, sorry, I don’t get what you mean here:
Why would the existence such previous outcomes imply that we’d never make investments in future productive capacity?
It’s making things worse. One thing the government can do to makes the economy recover, even though it will still spend, is tpo end the wars and close down military bases abroad.
Not only won’t it make things worse. it will create full employment. However, I do agree with you about the wars. Those are not making us safer, we should end them precipitously in my view, and while we’re at it pull our troops out of Europe, the Mideast and parts of the Far East too.
BTW, I’m pretty sure Warren doesn’t agree with that last stuff.
The evidence that shows the flaws in yur logic is the current situation; the money supply’ has been greatly increased yet prices are either holding steady or decreasing.
And for a real rebuttal of your comment at 14 is Japan; please quit trying to put forth the idea you have a real understanding of economics because you don’t.
YOU are the one “totally misleading people!”
When you say the money supply has been greatly increased, which years are you referring to?
If the government can “simply change the 3 to a 4 in your bank account” and thereby pay you your social security then they should be able to pay a vendor for 1000 toilet seats the same way: just log onto the “scorekeeper” computer and up the appropriate bank account by the appropriate amount.
If that’s the case, if they can really increase the balance of bank account A without needing a corresponding decrease to the balance of bank account B then a few questions come to mind:
Why do they need taxes?
How can they run a deficit?
Why did they ever borrow?
Wait, here’s a good one: why don’t they just adjust the balance in Toyota’s bank account upwards by $30,000,000,000 in exchange for Toyota giving a Prius hybrid to the first 100 million people to come in and ask for one? Gas consumption, oil imports, and carbon emissions would drop faster than BP stock prices…
Or even better, every January 1st adjust the bank account of every hospital in the country upwards by the amount of the hospital’s annual budget and they can treat patients for free!
good one!
Not good, because it’s not saying anything that Warren or other MMT economists advocate. Nor is it implied by their views in any way. This sort of example is at the level of Rush Limbaugh or Glenn Beck nonsense. So you ought to retire now with your tail between your legs.
ironymeter, because even though the Government can spend in the ways you’ve suggested, it has to consider the consequences of such spending. In particular it has to avoid excessive spending beyond the point of full employment, since this is likely to cause inflation. All this has been discussed in many previous posts of mine, and I urge you to read those and the many links in them. The bottom line however, is that the specific questions you’ve asked are distractions from the issue. the deficit hawks argue that further Government spending creates solvency risks that will later have to be mitigated with austerity to pay down debts. The truth however, is that there are no such solvency risks.
Excessive Government spending may carry with it other risks: spending on things that produce nothing worthwhile for public purposes is a waste of Government spending that soaks up real resources and misdirects it; spending beyond full employment may produce inflation; spending on wars that don’t make us safer harm us; spending on investments in energy that will have serious environmental consequences also may do more harm than good. Anyway MMT practitioners don’t say that there are no limits to spending or that spending should be without constraint. They only say that as long as as our productive potential isn’t being fully utilized, we can spend on worthwhile activities without worrying about solvency or inflation. And after that point we can still spend without worrying about solvency, but then must take action to counter inflation by raising taxes to cool aggregate demand.
In short, your questions suggest things about MMT that are simply false. I suggest you read a lot more to relieve the extreme ignorance betrayed by your remarks.
taxes are what creates demand for a currency.
been doing it for most of our country’s history.
to set short term interest rates
In addition to the comments on taxation I added in another reply, I also think that the Federal Government borrows as a hangover from gold standard practices that included borrowing to “fund” deficits, even though with its fiat money system it doesn’t now have to borrow to “fund” its spending.
In addition, I think the Government borrows because a lot of wealthy people would complain if it didn’t continue to borrow at interest and give them that source of income.
Finally, I think the Government borrows because of certain Congressional political constraints, that are also there to favor well-off people who participate in the international financial system and its speculative activities.
However, none of these reasons for borrowing means that the Government has to borrow in order to spend, or that it may have to pay substantial interest rates if it borrows a lot. The more the Government spends without borrowing, the more the Government can flood the market for overnight bank reserves, and, in doing so, can drive those interest rates down to very near zero. See contemporary Japan.
I just saw that video you have posted. That is the stupidest thing I’ve ever seen. He is totally misleading people!
When the government spends money it didn’t get from people by taxing them or borrowingthe it’s called printing money and it is actually STEALING from people. The Fed won’t actually tell you that though.
Konst, you must be a person of sub-human intelligence.
According to the constitution of the United States, the Government has the legal authority to “coin money,” which according to legal decisions rendered by the Courts means that it has the right to print money, and, today, to spend by marking up accounts. You can call that “stealing” if you like. But since the Government has at one time or another created all the legal tender that currently exists in the United States of America, it may be hard for people (other than those of sub-human intelligence like you) to understand why making money previously was not stealing, while making more money now suddenly is.
In fact, these other people may come to expect that your sole motive in leveling the charge of “stealing” is simply to protect your own economic interest at the expense of those who want to work but currently find themselves unable to find jobs because of the failures of our current economic system.
In any event, I don’t think either of us gain very much making uncivil charges directed at the beliefs or person of the other. However, unlike many on this site, when some yahoo appears here trying to level the epithet “stealing” at a perfectly reasonable economic viewpoint that offers possible answers to our current problems, you will find me more than equal to the task of responding in kind.
In any event, I renew my previous question to you. Can you prove that Warren’s account of how money is spent, taxed, and borrowed by the Federal Government is wrong? If not, I think there is no more to be said here.
You may not have really seriously researched the subject but it IS stealing.
The failures of our current economic system were caused by the Fed. It created the unemployment of tens of millions of people by it’s policies which enriched to politically connected wealthy at the expense of the middle class and the poor. I could provide you with a link that explains it but I don’t think you would believe it even then.
Saying that the government and the Fed is stealing is not an uncivil charge.
All he literally said in that video is that people press keys in a computer and type numbers in one account and other numbers in another account. It’s like he was talking to kindergarten children.
konst, I’m not a defender of the behavior of the FED. Nor do I believe that stealing has not been going on and that people should not be put in jail. But you have equated Government spending with stealing and that is both ridiculous and flat-out a lie, if there ever was one.
It is not a civil charge, because it clearly reflects ignorance of the Government’s authority to create currency; nor could you prosecute or convict a Government official for spending money according to law, and yet you still accuse poor civil servants and other Government officials of stealing, and then you turn around and claim it is civil. I’m sure you are quite at home with Orwell’s “War Is Peace; Freedom Is Slavery; Ignorance Is Strength;” but I am not. So, please take your doublethink elsewhere.
if bernanke’s helicopter drops are fiscal policy (and scott fullwiler has an excellent post showing that they are), and congress is supposed to control fed gov spending….. well, something doesn’t seem quite right about those helicopter drops to me.
haven’t thought about it in terms of stealing but maybe it does kinda fit?
If the “helicopter drops” are illegal, and Bernanke exceeded his authority under the law, then some crime is involved, though not necessarily “stealing.” Also, konst is saying that all Government spending is “stealing,” which, is, on its face, pure nonsense.
No what I said is that the spending of money that the government didn’t collect by taxes or didn’t get by selling government securities, in other words the money the government+Fed that they “create up out of thin air” and spend THAT’S stealing.
It would be very apparent why but you and most MMT and Keynesians think in terms of aggregates which ignores the capital structure of production.
Well, thanks for correcting me. By all means, then, please lay out your thinking about “the capital structure of production,” and while you’re at it you might want to be clear about what you mean by “capital,” and how it’s differentiated from other factors on production.
i don’t know anything about the legalities, let alone what a court would find. but i don’t think a strictly legal def was what was meant. certainly not by me.
The point is that if a different meaning of “stealing” that goes beyond the law was intended then I think that meaning should have been explained, as should have been konst’s use of the epithet. His use may make sense, but without explanation, it’s just labeling and undermines civility in discussion.
I thought I did explain it in comments #41and 47.
neither adequately nor well, I’m afraid.
When the government+Fed is spending “money it created out of thin air”,
it is exchanging nothing, i.e. “money it created out of thin air”, for the goods and services produced by the free market. It is stealing from the free market.
See the Cantillon effect: http://www.economictheories.org/2008/08/effect-of-changes-in-money.html
Right, but if the cash in hand is not used for spending, but is destroyed, then it can’t be true that the Government spends tax money, can it?
Also, there is no “bank account” somewhere in Federal heaven that contains Government tax money. A record is kept of tax collections sure, but there’s no “account” where these credits sit so there is nothing to get fatter and fatter. Sorry.
You can read Warren’s book here. And for more technical, scholarly treatments, see here and here.
I think you were replying to ironymeter #53
Sorry.
Only if ALL tax monies are received in cash, obviously.
I send a paper check to the US Treasury. A few days later my bank account is reduced by that amount. How does that happen if the Treasury’s account is not credited?
8.5 of 10 on the Irony Meter.
Hi irony,
I said:
And you replied:
Well, that’s not really quite to the point, is it? If the Government is destroying the tax payments it receives in cash by shredding them, then it’s obvious that the cash involved is not needed and not used to spend with and that there is an operational de-coupling of taxing and spending. Now, you’ve been claiming that the Government taxes or borrows and then uses those funds to spend. Thus the Government can run out of money if it can’t borrow or tax enough. However, if the Government can destroy even a small portion of its tax collections without applying it to spending that it’s pretty clear that operationally the Government is not dependent on the tax funds it gathers in order to spend.
In rely to my remark about there not being some great bank account in Federal Heaven with tax money in it you also said:
There is a tsy account at the Fed that’s used to clear checks like yours and the Fed does mark it up when your check clears and your check is also marked down. But this account is not a destination for all tax money collected by the tsy, and the amount the tsy spends out of that account is not determined by the amount of marking up it gets as a result of clearing tax checks. The amount in the account isn’t constrained by the tax payments used to credit it. The tsy can use it to disburse payments, even if the numbers in the account go negative. Or alternatively, the account can be marked up by tsy in a manner unrelated to what has been credited to it from tax payments.
Finally you replied to my:
with:
Not so much, I think you asked for sources and I provided them. You did not ask specifically for links.
Hi, lets,
Or that “the now infrequently received cash” isn’t enough to justify the expense of processing it (handling cash requires people, which is more expensive than automation). Hard to say the answer is obvious when there’s more than one possible explanation, IMO. I took your word that this happens rather than asking for a source, but if you have one maybe it would explain the reasoning behind it?
You at 64:
You at 89:
Which is it, No there’s no such account or Yes there is such an account?
Fair enough; I said “source or example” so I shouldn’t criticize. If what I really wanted was a specific example I should have said so.
In this thread you agreed with Les that there should be a windfall profit tax on Wall Street bonuses and hedge fund incomes: why? As I understand MMT the purpose of taxation is to reduce the amount of money available in the private sector in order to allow increased government spending without inflation, but that only applies if we’re achieving maximum productive capacity. Since we aren’t there, shouldn’t the government be able to spend freely without needing to reduce liquidity in the private sector? Prior to achieving max capacity (at which point the government is essentially competing with the private sector for access to the limited available goods and services) what purpose do any Federal taxes serve, and especially extra and high rate windfall taxes?
Earlier, you agreed with selise that Federal taxes exist to create a demand for currency. Supermarkets, phone companies and everyone else with a good or service to sell also create a demand for currency, plus State and local governments. If Federal taxes were abolished tomorrow we’d still need currency, so we don’t need taxes to create the demand. You further supported the need for Federal taxes to “cool demand when inflation threatens” which isn’t a problem right now, and “to create great economic equality” which they aren’t succeeding at so why keep them?
I really do not see the need for Federal taxes under current conditions if MMT is valid.
The expense doesn’t matter. If the tax money raised in this was earmarked for spending the Government would have to collect and then account for any expenses incurred in the collection.
There is a tsy account at the Fed that the Treasury uses for transactions, but this account isn’t limited to receiving taxes and can be used to perform spending transactions whether or not its balance is negative. It’s not like the bank accounts of other entities and can be marked up according to the wishes of tsy.
Next you say:
My agreement with Les is outside the context of MMT. It’s about the need for distributive and greater economic equality, also very important American values. Since 1980 neo-liberalism has resulted in extremely unfair distributions of wealth and income. These now threaten the continued existence of Democracy, as they did in the 1930s. I’m all for measures that will help us achieve distributive justice through higher taxation of those who have fixed the political system over the past 35 years to facilitate their amassing outrageous fortunes. If such measures result in increasing tax revenue in a time of contraction, the Government can compensate for that with increased spending targeted on the public purpose. Next, you said:
The right level and distribution of federal taxes to facilitate full employment is an empirical question. But the demand for Federal currency is created not only by the general need for currency, but because everyone is required to have Federal currency to pay taxes. If they were not any entity could issue currency and the fiat monetary system that makes the Government sovereign in its own currency and that removes its solvency risk would be undermined. That would be a disaster for working Americans.
You might be right: spending $250,000 to collect $100,000 does sound like something the government would do, doesn’t it? Not that it matters to this discussion: the alleged shredding of taxes paid in cash is not proof that no tax revenues are being spent.
You do know that’s illegal and would remain illegal even in the absence of Federal taxes, right?
If your only reason for supporting windfall profit taxes is to redistribute wealth, then you’re right: that’s not MMT, that’s Robin Hood. You still haven’t given a compelling reason for collecting regular Federal taxes though, especially in light of your acknowledgment that such taxes are not the only force creating a demand for currency.
They aren’t needed to impoverish the private sector to keep them from buying up limited goods and services the government wants for itself. They aren’t needed to create a demand. They aren’t needed (atm) to “cool” inflation. They are spectacularly unsuccessful at redistributing wealth, and that goal is outside the context of MMT anyway. So, I’ll ask again, under the MMT theory why couldn’t Federal taxes be eliminated tomorrow? It shouldn’t be any hardship for the Feds to forgo taxing us since “the Government is not dependent on the tax funds it gathers in order to spend” and the increased money supply in the general public would spur spending, which would spur production, which would spur employment.
I think we should postpone discussing these points until you’ve decided what your position is:
This?
The “Government can increase the balance of bank account A belonging to a non-government sector entity without needing a corresponding decrease in some bank account B, belonging to a Federal Government entity.”
Or this?
“It’s not like the bank accounts of other entities and can be marked up according to the wishes of tsy.”
This?
“when the Government spends, it doesn’t spend out of the same account used to collect taxes. ”
“That account gets marked up when people pay by credit card and by check, but it is not an account that is used to spend.”
Or this?
“There is a tsy account at the Fed that the Treasury uses for transactions, but this account isn’t limited to receiving taxes and can be used to perform spending transactions”
I do know that it’s illegal, but nevertheless if people no longer need dollars to pay for taxes, the desire to have dollars would decline and people would create other instruments in place of currency on the borders of legality. A very big support for the value of US legal tender is that we need it to pay taxes. That’s just a fact. And the suggestion that we ought to get rid of all taxes would be a very dangerous experiment almost certain to de-stabilize our wwhole monetary system. In addition, it would remover a major tool for cooling inflation if the economy were to become over-heated.
Well, you can call it names and hope that will carry the day. But I call re-distribution justice and fairness and think that without it we will lose our democracy, as we are very clearly in the process of losing it now. That may not matter to you since you’ve been more and more exhibiting views consistent with plutocracy as we continue to exchange. But it matters very much to me and hopefully to most Americans.
Next, you’ve pointed to some imagined contradictions in my position. This:
Sorry, I don’t see why you think there’s a contradiction here. The Government has the power and authority to create money, so it can do both of these things.
And this:
That one’s easy. I made a mistake in my first statement and corrected it in my second, after clarifying operations with Warren Mosler.
I’ve already replied to this here:
http://seminal.firedoglake.com/diary/51367#comment-197944
The following is from the Huffington Post piece of the MMT economists myth #6 (http://www.huffingtonpost.com/lynn-parramore/the-deficit-nine-myths-we_b_553527.html).
The quote is exactly as they wrote it except the only changes every instance of “government” is replaced by “Haliburton”. (As economist Robert P. Murphy suggested in http://mises.org/daily/4349)
And that’s where your fallacious logic shows it’s true colors; trying to use a individual company as the equivalent of a sovereign government is absolutely ludicrous.
And I’m finished with this as you are not interested in dialogue but simply in putting forth your fallacious “reasoning”.
The only reason I did that is cause when you see “government treasuries” you think of some omnipotent organization that can’t do no wrong.
The reasoning is the same. I know the government creates money out of thin air unlike Haliburton.
Not so konst. We know that there are all kinds of things Government can do wrong. It can easily spend on the wrong things like the wars, and it can also fail to enforce the laws as it has done consistently for the past 30 years when it comes to regulating private companies.
What we’re talking about is getting the Government to do the right things and particularly to fulfill its obligations to facilitate full employment and provide for the general welfare. It hasn’t been doing these things. Instead it’s been doing what’s good for the corporates.
this is true. the only way one ‘sector’ can increase its net financial assets is if another sector, haliburton in this case, reduces theirs.
the difference is that haliburton is revenue constrained, in that it must get funds from some source- borrowing, sales, etc.- or its checks will bounce.
only the issuer of the currency is not (operationally) revenue constrained. in fact, the issuer of a currency is best thought of as spending first and then collecting revenue, as where else can the funds it issues come from?
http://www.moslerforsenate.com
Konst and Warren,
This is mainly a reply to konst.
I join in Warren’s reply about the Halliburton example.
But I also want to put a question to konst. You quoted the Halliburton example at length and seem to think it proves something. But Warren turned it aside, simply by noting that the Government is economically (though not politically) unconstrained it its ability to issue currency, while Halliburton is constrained. So my question is: why didn’t you see that very obvious point? Did you provide the Halliburton example just as an exercise in debate, or did you really think it carried the day?
And, if the latter, why do you suppose it is that you didn’t see that the Government is unconstrained in a way that Halliburton is not? Or do you think that the Government is constrained and has no currency creation powers beyond Halliburton’s?
I told you the same thing in the reply to your objection of Haliburton example. First Robert Murphy suggested it in his post at http://mises.org/daily/4349 and I thought it would make clearer that (from comment #40):
“the spending of money that the government didn’t collect by taxes or didn’t get by selling government securities, in other words the money the government+Fed that they “create up out of thin air” and spend THAT’S stealing.”
why is that stealing? stealing from whom?
is it stealing when a bank makes a loan?
is it stealing when i write from my imagination (“create up out of thin air”)?
also:
where does the money to pay taxes come from?
When they spend that money they are taking away resources from the public and directing them for their own means and for the cronies they grant favors to, e.g. the Military-Industrial-Complex.
When they spend money they got from taxes or bonds, the consumers decreased their own spending, thereby releasing some resources that are then used by the government. Otherwise the government redirects those resources which the consumers need.
Konst,
.
But as we’ve already shown, they’re not spending money from taxes or borrowing, since there’s no operational connection there. While their spending does involve taking resources from the non-Government, including the private, sector, when this sector is not using those resources, the Government in using them isn’t hurting these sectors as long as it creates valued outcomes (e.g. education) through its spending. As for the military-industrial complex, much of this portion of the economy is part of the non-Government sector. I don’t think Government spending here has been productive for some time, but that spending has certainly resulted in savings for privates sector components of this complex.
I confess I find this incoherent. I don’t know what you’re trying to say here. When the Government taxes, it reduces private sector savings. All MMT people subscribe to this view. It’s the whole basis for cooling inflation, when it occurs. As for tsys entities buy those because they don’t want their USD sitting idle in reserve accounts, or to use them to buy or invest in anything. If the Government didn’t issue tsys, and entities still didn’t want to buy or invest, the USD involved would just sit there. By paying interest the Government is spending and adding to Non-Government sector savings and to aggregate demand. now I’m not for that particularly, because I’d rather the Government spend on other things than interest for investors, since these would do more to grow the economy. But there’s no way that Government debt instruments in a down economy take money away from consumers.
if we were at full employment i’d agree (with the caveat of public goods – but that seems more like a political question than an economic one). but when we’re not at anything close to full employment, how is, for example, employing the unemployed taking away resources from anyone?
…………
i completely agree that most of the MIC spending is a waste of real resources. and imo, immoral to boot.
What you’re neglecting is why they’re unemployed like in the current situation?
Is it perhaps the Fed “helicopter Ben’s printing press” (not a literal printing press) printed so much money which went into the housing sector that when the housing bubble burst millions of people in the housing sector and their supporting capital structure lost their jobs?
What’s the solution? Prop up the housing market to overinflated prices like before?
Perhaps build an energy infrastructure? The most efficient form of energy production currently known is 4th generation clean nuclear thorium power.
Do you even think that for one moment the government will invest those fake fiat dollars for thorium nuclear energy? Nope. The government will likely spend those fiat dollars in inefficient solar and wind energy farms cause of lobbyists.
Think about this. Who decides? The government has NO consequences for it’s bad decisions. It’s the people who suffer from their mistakes.
The Government suffers political consequences if people understand that they’re getting screwed. But,in any case, now we’re talking politics, not economics.
What happens if a clean thorium nuclear power plant gets blown up? Is there any significant explosion or dispersal of nuclear radiation? Is this a problem with solar or wind energy. Also, where do we get the thorium from?
To paraphrase you – “Now we’re talking nuclear physics, not politics or economics.”
Here we’re talking about LFTRs = Liquid Thorium Fluoride Reactors.
Answer: Nothing. See next answer.
Answer: The fuel in LFTRs is liquid at the high temperatures the reactors operate and solid at lower temperatures. The fuel would freeze to solid form.
Answer: Solar and wind turbine energy sources are unreliable. Their “capacity factor” is very low compared to nuclear and they need backup storage to provide energy when the sun doesn’t shine and the wind doesn’t blow.
Answer: Enough thorium has already been mined to last the US for a few hundred years. The earth has enough thorium to last the human race for at least a billion years.
Sources:
http://energyfromthorium.com
http://energyfromthorium.com/faq
There are links to videos on that site.
Sounds good. Thanks for the references.
But in the real world the government and politicians don’t suffer consequences. When politicians are in danger of being discovered of being corrupt they leave office and become lobbyists to those corporations they have been taking bribes from. Most politicians are like sociopaths and their political careers are a way to insure their future in a life of deceptive lobbying.
konst, you and I have some common ground here. But I still believe they will eventually suffer consequences. How long will it take? I don’t know. That depends on how angry people get and what they do to express that anger.
Too long.
There is a WIRED article on thorium reactors:
Uranium Is So Last Century — Enter Thorium, the New Green Nuke
I saw a little of the dust-up last night and decided not to engage, but I do have a question that you might have already answered:
Shutting down thorium research reminds me of what GM did in the 70′s after UCLA mastered hydrogen in internal combustion engines. Is that the kind of shutdown we are talking about?
I don’t know exactly. All I know is that these thorium reactors are self-sufficient and don’t need the current industries expensive fuel rod type fuel. The current industry makes a lot of money on those fuel rods if I understand that correctly.
Also thorium reactors can provide enough energy to replace the fossil fuel industry by either going all electric vehicles or by manufacturing gasoline from taking carbon out of the atmosphere. That will end the need for oil drilling. Of course oil corporations can use these to manufacture gasoline but when it’s so cheap I don;t think they can maintain their current level of profits.
Thanks.
i’m not neglecting why they’re unemployed. i just don’t agree with your analysis.
my question, though, was how does employing the unemployed taking away resources from anyone?
………..
i have thought about this. a lot. and i mostly agree. but i also think that this is our, the citizens, responsibility to address in order to try to change.
I agree with selise. In fact, we have the potential to exact consequences. We have to exercise that potential. If one posits that we no longer have that potential then why worry about whether we’re going to implement MMT, Austrian school economics, or just stay with the neo-liberalism we have now, since we have no power to effect what happens, and whatever happens the elites will be able to cheat us anyway without consequence.
Let me rephrase your question which might make it clearer.
“Where does the WEALTH to pay taxes come from?”
It should be apparent that what we are talking about is not the actually money but the end results of indirect exchange.
When the government buys resources by spending “created money out of thin air” then it gets those resources in exchange for NOTHING.
Creative thought is one of the few things people add to the world which did not exist before. Other things human beings transform, not create.
selise’s reply was to your comment about money, and her implication is exactly right. The money, all the money, came from the Federal Government. There is no other place it could have come from. You say:
Wealth comes from the activities of people and wealth is the valued outcomes of those activities and also the on-going capacity to produce valued things. The production of wealth is not limited to the Non-Government sector. Products and services produced by the Government can also constitute or result in societal wealth.
You also say:
Actually I think we’re talking about both money and its relation to the economy, since money is our medium of exchange. When Government spends to buy resources for its use it exchanges them for something the recipients value. You may not think the recipients of the money ought to value it, and you may also think that the new money has de-valued, in some part, the previously existing money. But neither of these changes the fact people who provide the resources accept the Government “money” as just as good as the previously existing money, and at that point in time, are happy to receive it. So what is given for the resources is “valued currency,” and, again, there is no stealing involved.
However, there is no question that all this is based upon the idea of a society that has a Government with a near monopoly over the legitimate physical means of coercion, and with a monopoly over the currency. If one is an anarchist and doesn’t believe in that, then one will have all kinds of problems with the Government making money. But, if one is not, then it is hard to consistently maintain the idea that there is stealing going on.
So, tell me is the real basis of this argument not MMT per se, but really the issue of anarchy vs. Government?
as far as i know, the only thing i can pay my taxes with is dollars. that’s why i was asking, where do the dollars come from?
but if those resources are for sale (as in say, the employed’s time), and would otherwise be wasted, paying for that time is a benefit to both those now employed and to those who benefit from the public goods they create (i’m not talking MIC here – public libraries and other public goods the private sector is not well suited to).
and banks create money out of thin air too. is it stealing when a bank makes a loan?
Yes when it’s by fractional reserve banking.
how is that relevant if it’s not how our banking system actually operates?
We’re back to “stealing” again. huh. Where in the constitution or the US Code does it say that the Government cannot create money without “taxing” or “borrowing” and that if it does so then it is “stealing?”
I have no problem with your offering reasons why you don’t like such actions, or think they are morally wrong, but throwing around the epithet “stealing” without explaining why you’re using that term is beyond the pale.
The United States Constitution, Amendment X
http://www.archives.gov/exhibits/charters/bill_of_rights_transcript.html
Article 1, Section 8:
“To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;”
To coin money does not mean to counterfeit which is fraud.
Plenty of Court cases have established that the sole power to coin money is a Federal power and that “coining money” includes “printing it” or electronically issuing it. Charges of ‘stealing” and “fraud” are nonsensical and irresponsible, and only serve to open yourself to equally irresponsible talk and personal attack.
Irony Meter rating: 8 of 10. You might want to ease up a bit, pal: I heard a rumor that the mods object to personal insults.
Are you denying that when the US Government spends money it also marks down certain accounts? Specifically, the ones holding the money it gets from taxing and borrowing. I have very good reason to believe such accounts exist: my tax checks made out to The United States Treasury are cashed. Or are you suggesting that my account gets marked down, but no other account gets marked up?
You said my questions “suggest things about MMT that are simply false.” So I’m wrong in suggesting that you and Mosler claim the government can increase the balance of bank account A without needing a corresponding decrease to the balance of bank account B?
letsgetitdone, if this question betrays my extreme ignorance please forgive me and answer it anyway: why does a government sovereign in its own currency need to collect taxes?
I wasn’t the first to bring epithets like “stealing” into the conversation. I merely replied in kind. But if you’d like to keep the conversation civiul, I’m happy to do that too. You asked:
First, I think you ought to answer my question with an answer, not a question. Had you done that then you would never have asked that question.
Second, but, yes, I’m denying that when it spends it marks down the accounts it gets from taxing and borrowing. Do you know that the Government shreds the now infrequently received cash it gets from taxes? What account is marked up when it does that, do you suppose?
Also, when the Government spends, it doesn’t spend out of the same account used to collect taxes. That account gets marked up when people pay by credit card and by check, but it is not an account that is used to spend. There is no operational connection between its tax collection accounts and its spending mechanisms.
Third, when the Government sells tsys to someone, it moves their money from their reserve account at the Fed to their securities account at the Fed, and it records what it has borrowed. What it doesn’t do is to place the borrowed USD into a spending account that it then uses to pay Social Security or Medicare entitlements or war expenditures for example.
You also asked:
I didn’t say or imply that everything you asked was false. But, to be precise, I, and I won’t speak for Warren, do say that Government can increase the balance of bank account A belonging to a non-government sector entity without needing a corresponding decrease in some bank account B, belonging to a Federal Government entity.
Finally you asked:
selise has already given the most important answer to this question. In addition, I’d also answer that taxes are needed to cool demand when inflation threatens, and taxes are also needed to create great economic equality, since our non-working non-free “markets” distribute economic outcomes in a way that is threatening to political democracy in the long run.
When I said “it also marks down” I meant yes, they do what you said (mark someone’s account up), but that’s not the end of the story.
Cash in hand is — by definition — not in an account.
You said the account that holds collected taxes is not used for spending: what is it used for? I’m assuming it does not just sit there getting fatter and fatter.
Do you have a source or example for “Government can increase the balance of bank account A belonging to a non-government sector entity without needing a corresponding decrease in some bank account B”? Like, when the DoD bought F/A-18′s Boeing’s account was marked up. Was no one’s account marked down?
i think this is a really important question, so although you didn’t ask me, i’m still going to give it a shot by typing up a bit from the intro of randy wray’s book, understanding modern money (which i highly recommend), you might find useful. typos are mine:
taxes are really important — just not for revenue collection (at the fed level only. state and local gov.s are like us – users of the national currency and so state and local taxes DO provide revenue to state and local gov budgets).
Typo in the link at comment #19 where Robert Murphy refutes the HuffPo article concerning MMT. The correct link is:
http://mises.org/daily/4349
This might also be of interest to the MMT economists and Warren Mossler:
Aren’t Deficits Another Name for Saving? Nope.
Murphy says:
I think talks past the point. That point is that when Government spends without taxing or borrowing it adds money in accounts i.e. ‘savings’ to the non-Government sector. Now this money can be used for various purposes and whether the outcome is real wealth or not depends on the outcome of the economic processes involved. But there’s no doubt that Government spending has helped economies to grow when private sector spending is low or has collapsed. We not only have the evidence of the Great Depression for that, but of decades of Government spending all over the world. To assert:
Perhaps you’d like to explain how it “sucks” such savings out of the privates sector when it is adding those savings to non-Government, including, private accounts?
Also, about whether I believe that ‘politicians’ spend more wisely than investors, what I believe is that both groups spend money incredibly stupidly most of the time and that we have centuries of evidence to prove that. Moreover, the stupidity of any particular expenditure appears unrelated to whether it was made by an investor or by a politician. It appears, instead, to be related to the bad judgment, greed, or perfidy, of the person, persons, or entities doing the spending. And if you or Murphy believes anything different, then boy, have I got a bridge to sell you.
As far as Government deficits retarding economic growth is concerned, the whole history of this country speaks against this conclusion. There have been 7 short periods of surplus in the history of this nation. Every last one of them has been shortly followed by a depression, or a recession. This suggests that the steady state for a growing American economy is one of Government deficit, and it also suggests what the Austrian School is justly famous for — namely, ignoring facts in favor of abstract economic theory.
When the government spends, it affects and impoverishes millions of people. Millions of people pay for it’s mistakes.
And your theory eliminates that how exactly?
MMT doesn’t eliminate that, of course. But MMT, but plus real regulation as framed by people like Elizabeth warren and Bill Black would certainly do much to solve that problem. You say also:
And the “Masters of the Universe,” the Health insurance tycoons, and the enormous energy companies have not affected and impoverished millions of people. Give me a break. The only institution in our history that provided a temporary answer to the depredations of big business has been the Government. the failures of the Government over the last 35 years in this respect are due entirely to the public’s mistake in embracing the ideology of the market and thinking that capitalism without regulation could possibly work. Hopefully the crash of 2008 has made clear that the market system needs to be heavily regulated by Government civil servants who are independent and suspicious of business, and that it also needs vigorous supplementation by an activist Government willing to raise aggregate demand whenever the non-Government sector cuts back on spending.
And your theory eliminates that how exactly?
If anything that’s an argument for government to stay out of the free market and for a small government which can’t do much damage to the people’s free market.
I’ve answered this in my reply to #57 here
http://seminal.firedoglake.com/diary/51367#comment-197972
However, on why not a small free market economy two points:
1) small free market economies are unstable. They grow to large economies in which the free market is made unfree by businessmen themselves and
2) We can no longer have such economies anyway because national defense requires a large nation with considerable military power. That need also implies a large-scale economy to support a large-scale political system. I’m sorry but we can’t go back to small-state utopias, as much as some of us might want to.
Instead we have to tame and control the large agglomerations of power we see in our society.
Let me give you one example: the Military-Industrial-Complex
Another point you’re missing is government bureaucrats decide where they will spend/waste the “fake money” (newly created fiat money). They are usually corrupt. Even if they’re not corrupt they change the capital structure of production to serve their ends not the free will of the people.
I’ve already talked about the military-industrial complex. As for corruption of public officials, I agree that we have a real problem there today. But
1) this problem is due to bribery by corrupt private business people and
2) It is the politicians rather than the bureaucrats in federal agencies who reflect most of the corruption
and
3) Your unmitigated gall in calling attention to corruption in the Government sector and not calling attention to the unprecedented corruption we see these days in the private sector is truly amazing.
When will you recognize that one reason why pure market economies can’t work is because businessmen are not interested in living in accordance with the market. As soon as they gain a little wealth, much of their effort is spent in trying to control the market and destroy its free character. This is true in every business subject to concentration: from Steel, to Autos, to Health Insurance; and to IT, as the history of Microsoft and Google show. In any event, I think people would take you a lot more seriously if you started leveling charges of theft and fraud at BP and the insurance companies as well as at the politicians and the poor, long suffering, Federal bureaucrats, who here their work demeaned everyday while the “Masters of the Universe” turn the world upside down, destroy the savings of the middle class and working people everywhere, and then walk away with huge bonuses which you Austrians defend on grounds of the sanctity of contracts that everyone but yourselves view as unconscionable and immoral in the first place.
What you just described sounds very much like fraud committed by the government.
In other words economic slavery.
The basis for this argument is freedom of choice and freedom from coercion.
The basis for this argument is stupidity. Hobbes showed long ago that the life of man in the state of nature is nasty, brutish, and short. There is no free choice. because everyone’s free choice, exercised in an anarchic state conflicts with everyone else’s free choice.
And he was right. Government, though not the leviathan, is something we need very badly to express and help us fulfill common interests and public purposes. Man is a social animal, and methodological individualism is BS, and you want to create a society that is best depicted in Golding’s Lord of the Flies. Leave the rest of us our of it, please.
Let me try to sort this out.
First, Tsy and Fed are part of Govt and both are under the control of Congress.
the Federal Reserve Bank is the govt’s ‘bank’ with ‘bank accounts’ for foreign govts, US member banks, and various international agencies.
The Tsy also can use commercial bank accounts called tax and loan accounts to make the fed’s job ‘easier’ which today is meaningless, but they do it anyway and it’s another story. So for this I’m assuming the tsy uses it’s Fed account only.
Tax payment is, operationally, a debit of a fed reserve account of a member bank (which debits it’s depositors account at that member bank) and a credit to the tsy’s fed account.
The debit and credit are operationally independent. If the Fed only debited the member bank account and didn’t credit the tsy account the
‘economy’ wouldn’t know/’feel’ the difference.
When the tsy spends the fed debits the tsy’s fed account and credits a member bank’s fed account (or possibly a foreign gov’s fed account, depending on who’s getting the funds). Again, if all the Fed did to ‘clear the gov’s check’ was to credit the member bank’s account the ‘economy’ wouldn’t know or ‘feel’ the difference.
there is no operational reason to utilize a tsy account at the fed. It might make sense to help with the accounting (hence the word ‘account’) but that’s an entirely different matter.
So operationally, there is no connection between spending and taxing. the tsy’s account is for accounting purposes only. it is not an operational constraint. it doesn’t matter operationally what the balance is. the govt can spend by instructing the fed to credit a member’s fed account at will, and can likewise tax at will.
the govt. neither has nor doesn’t have dollars. it is the scorekeeper. it just changes numbers in our accounts.
hope this helps!
http://www.moslerforsenate.com
http://www.moslereconomics.com
(A) Irrelevant to MMT, (B) Speculation, (C) Unlikely (approximately 80% of dollars are spent on something other than federal taxes: there would still be plenty of “demand”.)
Again, irrelevant to MMT. Ergo, you can ignore the question of why keep it up if it’s not working, and I’ll ignore that you’ve gone back to being insulting.
Really? First statement says they can, second statement says they can’t, now you’re back to they can, again.
Sorry, I missed the part where you said your second statement was a correction.
By the way, I did not offer “the suggestion that we ought to get rid of all taxes.” I’m trying to test the MMT theory by applying it to a real world situation and it’s falling short. We are not at max capacity, we are not suffering from serious inflation, so what in the MMT theory requires Federal income taxes in this situation?
Not at all irrelevant. At the heart of MMT is the idea that people will value the currency and accept it as the medium of exchange. If people no longer need to it to pay taxes, the willingness to this will decline. “Speculation”? I prefer “reasonable conjecture.” Just as reasonable as any other assertions of economic theory I’ve seen lately.”Unlikely,” well again that depends on how good the reasonable conjecture is. We know from historical examples that Governments have imposed fiat currencies before on populations that has no desire for them, and that the currencies became the medium of exchange because people needed it to pay taxes. So, I don’t think this view is unlikely at all.
On the supposed contradiction, I hate to keep repeating myself But here are the statements:
You say there’s a contradiction. I ask you why you think it’s a contradiction, and you say:
But from where I sit the first says they can and the second says they can too. So, again, please explain.
On saying that my second statement was a correction I didn’t, until you pointed out the contradiction. Was I somehow required to point it out before that point in our discussion?
Next you said:
I don’t agree that it’s falling short and I don’t think you’ve “laid a glove” on MMT. However, there’s nothing in MMT that requires Federal income taxes. Did I say that? MMTers may vary all over the lot on which taxes ought to be applied in specific situations.
Beyond what MMT requires, I prefer progressive Federal Income Taxes however, with high marginal tax rates and few, if any, loopholes. I also prefer high inheritance taxes for their re-distributive value.
Where in the history of the world has a government imposed a fiat currency in a society where a real money-medium-of-exchange has not already existed?
If there really was such a case in history it’s likely the people on which it was imposed were slaves to begin with.
taxes and money
Posted by WARREN MOSLER on October 23rd, 2009
[Skip to the end]
you are addressing a room full of people.
you tell them taxes turn litter into money.
you try to sell your business cards to the group for $5 each.
probably no takers.
you offer your cards to anyone who stays to help clean up the room
no takers.
you then point to the man at the door with the 9mm who’s the tax collector, and no one leaves without 10 of your business cards.
you then repeat the questions.
http://www.moslereconomics.com
http://www.moslerforsenate.com
Perhaps I’m missing something in your comment, but are you suggesting that a 9mm is your most effective campaign method?
And I guess while I’m thinking about it, what’s a “tea party Democrat”?
From your example it seems MMT/Neo-Chartalists idea of what our world should be is the government as a sociopath which threatens you with a gun saying “your money or your life” like the kleptocracy we have now.
That is so wrong on many levels. The Soviet Union tried that in the 20th century. Where are they now?
P.S. Mr. Mossler nothing personal. I have seen MMT theorists using that argument before. I just wanted to make a point. It’s a road to totalitarianism.
Hello, Mr. Mosler,
Thank you for joining in: I wish more candidates for elected office would engage in this sort of interactive discussion.
Can you tell me, please, what does MMT theory say about the necessity for Federal Income Taxes in our current economic situation?
The heart of MMT is a conjecture that people won’t value currency if they don’t need it to pay Federal taxes?
At the heart of every economic theory based on government issued currency (backed or fiat) is the idea that people will accept it as a medium of exchange, otherwise it’s worthless. Could you explain the reasoning behind your “reasonable conjecture” that in the absence of Federal taxes people will be less willing to accept government issued currency as a medium of exchange? Roughly 80% of what we use money for is not Federal Taxes: it hardly seems reasonable to conjecture that in the absence of federal taxes people will stop using money…
Here’s an analogy: where Suzy lives the sun shines 8 days out of 10 and she carries an umbrella to prevent sunburn. The other two days it rains and she carries it to keep dry. Is it a “reasonable conjecture” that if it stops raining Suzy will stop carrying an umbrella?
This seems to be just semantic confusion rather than disagreement. Your second statement was “It’s not like the bank accounts of other entities and can be marked up according to the wishes of tsy.” When someones says, “It’s not like” that is taken to mean it isn’t the case. It’s not like I can flap my arms and fly away. It’s not like I can snap my fingers and dinner will appear.
You’re welcome. If you mean point out that you were correcting a previous statement then no, you weren’t required to but it would have avoided confusion.
Whew! I finally got an answer to the question I asked in #29. So, may I assume that MMT supporters are in favor of abolishing existing Federal taxes, save in times of full production capacity, and (possibly replacing) them with a straightforward wealth redistribution tax?
If you’re still around, Mr. Mosler, is that what you hope to propose in Washington? That we eliminate Federal Income Taxes as unnecessary?