By L. Randall Wray, Professor of Economics at the University of Missouri-Kansas City, Research Director with the Center for Full Employment and Price Stability and Senior Research Scholar at The Levy Economics Institute. Originally posted at New Economic Perspectives
Memo to Obama: Don’t tie progressive spending policy to progressive tax policy. Each can stand on its own.
Reported today in the Washington Post:
Obama proposes $600 billion in new spending to boost economy
President Obama on Tuesday unveiled an ambitious budget that promised more than $600 billion in fresh spending to boost economic growth over the next decade while also pledging to solve the nation’s borrowing problem by raising taxes on the wealthy, passing an overhaul of immigration laws and cutting health costs without compromising the quality of care. Obama seeks to raise more than $1 trillion – largely by limiting tax breaks that benefit the wealthy — to spend on building roads and bridges, early childhood education and tax credits for the poor.
Here’s the conceit: Uncle Sam is broke. He’s got a borrowing problem. He’s gone hat-in-hand to those who’s got, trying to borrow a few dimes off them. But they are ready to foreclose on his White House.
Obama knows his economy is tanking. Five and a half years after Wall Street’s crisis, we still have tens of millions of workers without jobs. Even the best-case scenarios don’t see those jobs coming back for years.
Obama will leave office with a legacy of economic failure.
Belt-tightening austerity isn’t working. He wants to spend more, but he doesn’t have more to spend. He’s run up his credit tab at the local saloon and the bar-keep won’t pour another whiskey.
So he’s got an idea: let’s take from the rich, and give to the poor, homeless and jobless. Robin Hood rides to the rescue.
Look we all love Robin Hood. Almost no one outside the One Percenters disagrees with the view that the rich have too much. It is immoral. It is easy to argue that public policy ought to aim at reducing their income and wealth. And giving some to the poor.
If you have any remaining doubt at all that the One Percenters deserve to be dispossessed of much of their wealth, take a look at this segment by Chris Hayes. Kevin Roose crashed their obscene party and secretly recorded their shenanigans. Their hatred of the 99% just oozes from the video.
Or look here at the Mother Jones piece on the Fabulous Fab, who’s now teaching recruits at the University of Chicago for Wall Street’s fraud machine.
No lesson learned. Or, rather, they’ve learned that fraud pays. Big time.
Now to be clear, I do not know that Obama would win on a tax the rich platform; indeed, I’m not sure I even believe he wants to do it. The top One Percenters are not just Bush’s “base”—they also got Obama elected. Twice. And, of course, they are Hillary’s base, too, so get ready for a couple of years of nonstop of the inevitable.
But why link this to Obama’s plans to spend more? You then automatically ensure that anyone against “soak the rich” schemes will oppose the Robin Hood plan to “take from the rich to give to the poor”. It is bad politics to put a poison pill into your stimulus bill.
And it is bad economics, too. Doubly bad.
First, if you are trying to stimulate the economy, you don’t enact a “trillion dollar” tax increase. I do believe there is something to the “balanced budget multiplier”: if you reduce the income of those who don’t want to spend but increase the income of those who do, you will get some stimulus. But we are literally trillions of dollars of spending away from full capacity. And Obama’s plan is, apparently, to tax $1trillion and spend $600billion. Uhmmm. Can he subtract? I calculate a $400 billion shortfall. I doubt the differing spending propensities involved would make that much of a stimulus.
Second, Uncle Sam is the currency issuer. He cannot run out. He cannot become insolvent. He always spends by crediting bank accounts with High Powered Money. He never spends “taxpayer’s money”. Unless we’ve got a nation of counterfeiters, every single dollar that a taxpayer pays to Uncle Sam came from Uncle Sam.
Uncle Sam can never wear out his welcome. As former Deputy Secretary of the Treasury Frank Newman put it: “The bond vigilantes really have it backwards. There is always more demand for treasuries than can be allocated from a limited supply of new issues in each auction; the winners in the auctions get to place their funds in the safest most liquid form of instrument there is for US dollars; the losers are stuck keeping some of their funds in banks, with bank risk.”
Yep, the winners get the safest asset on the planet and the losers are stuck with Wall Street’s toxic waste. You choose.
Y-O-Y would Obama want to muddy the waters by tying a good plan—spending more on roads, bridges and early childhood education (and cutting taxes on the poor—which of course is not “spending” but rather a reduction of income destruction)—to bad economics?
If he delinked and did manage to get the stimulus package he wants, he can still tackle the One-Percenters. As I’ve argued before, Predistribution is much better than Redistribution. First, it is politically more plausible: don’t let the One-Percenters get the outrageous income and wealth in the first place because once they’ve got it, they have all the wealth and power they need to fight to keep it.
Second, it is more coherent. The currency issuer does not operate like Robin Hood. The Sovereign credits the bank accounts of the poor, and debits the accounts of the rich. While we can link these in a sentence, they are logically distinct operations—and we can do either one of them without doing the other.
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Damn. And MMT started out so well…
Is Randy Wray drunk, or is he starting to sip on Tea Party Kool-Aid?? Because he sure sounds like he wants to push MMT to the Right, towards the “Don’t touch the 1%, because MMT will raise all boats like Supply-Side used to” meme.
Sorry, but redistribution of wealth and resources from the top to the bottom is fundamental for not only basic human needs and services, but for actual functioning democracy itself. I am certainly a backer of using fiat currency and other MMT vehicles (including Joe Firestone’s idea of the $100T platinum coin), but basic fundamental economic populism of the Left dictates that none of that will happen as long as power and wealth remain in the hands of the upper 10%.
The real problem with Obama’s budget isn’t that it plays Robin Hood in “stealing from the rich”; in fact, it doesn’t even get started in reversing the 95% of the Bush tax cuts that he made permanent in the last Great Bargin debt ceiling/fiscal cliff-bridging “compromise” of 2013. Heck, even the spending that he would use to offset the “trillion dollar tax increase” wouldn’t even come close to generating any true means of growth…and since social spending cuts are still on the table (and much more will come due to negotiations with the GOTP-dominated House and the GOTP-DLC coalition Senate), even this budget will be chopped down ultimately.
Of course, we should reduce the tax burden AND raise income for the working class and the poor. But allowing the superwealthy to get away with robbery simply won’t cut it for genuine progressive policy. We don’t need a rising tide; we need to build better boats for everyone…right after we overrun the yachts.
It’s a flank attack. First get money into the hands of the 99% and keep new bailouts from the 1%.
Going after the current 1% is more difficult and requires law enforcement (ala financial warrior Bill Black) and much better corporate governance as well as taking on tax havens. (@nickshaxson)
It seems increasingly clear to me that the way MMT’s aggregate demand is being used in political discourse is basically a rebranding of supply side economics – a kinder, gentler trickle down theory.
Everything is always about reflating “the” economy, as if misallocation of resources within the economy isn’t a problem.
A job guarantee program focuses on provding income to the 99% to increase demand.
It is a positive side effect that this induces businesses to increase supply.
Resource allocation is key.
http://neweconomicperspectives.org/2014/02/revising-adam-smith.html
“If this is now resolved, it leaves us finally with two basic issues to confront: (1) How can we most effectively determine the goals of our Sovereign Spending? And (2) how can we most effectively guard against the corruption that will inevitably attempt to divert and corral the flow of Dollars?”
Your response to the waste and oppression of the national security state and the bankster bailouts and the criminal justice system and agribusiness and oil interests and so on is to give people $8 an hour jobs doing what the political leadership that is mismanaging our country tells them to do?
That’s a lot to deal with. I think $15/hr is more of a living wage and that there is a lot of useful work to be done and a lot of people willing to do it.
Think again.. with simple addition 15 is not a living wage. Probably much closer to 23.
Yeah, it is a lot to deal with. That’s my core critique of JG – it’s a vague academic brainstorm to make a monetary theory neat and tidy. It hasn’t thought through policy details that can be implemented to solve the actual problems we face.
I don’t want to add any more length to this thread, but I definitely agree there is lots to do and lots of people interested in doing it. How is the kicker.
Government of the people by the people and for the people has been given not only the right to print however much money it needs, but also the right to decide who pays to support that government and exactly how much.
Thinking about that fact and MMT, one must conclude that it is the TAX CODE which decises who is rich and stays rich and who is poor and stays poor.
The cold hard truth is very few families have any “REAL” descretionary income. The 99% literally spend all they have to buy food, clothing, shelter, transportation, insuranses, transportation, education and so on, that they are the working poor and the “Market” and governmental TAX CODES insure it stays that way.
The consumer creates all jobs and pays for all of societies benefits and profits and and woes and frauds and wars and corruption. It is the consumer and only the consumer that really matters,as he is the true creator of goods and services.
What should be clear to ALL is quite simple. Corporations in the pursuit of profit have now consumed the consumer, and the government has sent a clear message to the 99%. It will do nothing to change a game totally rigged for the benefit of the 1%, and don’t expect government to actually care about what happens to you, personally.
Devide and Conquer – government and corporations working in concert to decide who gets the most!
@Jim Shannon Government of the people by the people and for the people has been given not only the right to print however much money it needs
Government earns only printing costs on the money it prints. About 7 cents for a $100 bill. Government also makes a loss on coins of less than one dollar. Government funds itself by taxation, and by borrowing from the public.
Here’s a simple proposal that I’m sure Wray can even agree with: Tax away $1 trillion from the 1% and redistribute to the 99%. That’s how Robin Hood would do it. That will kill two birds with one stone. We narrow income disparity ( so what if it isn’t MMT pure in application or articulation) and at the same time put money into peoples hands who will spend it into the economy. Thus the tax isn’t to raise the the funds to redistribute (MMT is correct that we need not do that as a currency issuer). Rather the tax is to take from the gross wealth accumulation of the 1% that our kleptocracy makes manifest. I really don’t give a hoot if this operation is done absent an MMT explanation. I just want it done…and contrary to Prof Wray’s thinking it is more than possible to accomplish politically given proper framing.
Randy, I think you have it backwards. In this piece, you encourage Obama to decouple increasing taxation on the rich from increasing deficit spending, because we need additional deficit spending to both improve the economy and to improve the lot of workers. You support such decoupling because both increasing taxation on the 1% and increasing deficit spending are high hills, best climbed separately. I support your call for decoupling, but disagree about which of these two hills we should climb first. In my opinion, it is imperative that we reduce the political power of the 1%. At present, the only Constitutional way to do so would be through stiff taxation (of course I am referring to the political landscape post Citizens United). Hence, I believe that for the good of the republic and democracy, our focus should be on taxing the bejeezus out of the elite, even if the fiscal hawks demand that money be used to reduce the deficit.
Of course, my view is colored by the fact that I have a job and am not in danger of losing my home. Instead, we are losing our country.
That’s an excellent point as it’s hard to come up with anything more damaging than our campaign contribution policy.
But you’d think there would at least be some sort of 99% groundswell to counter this.
http://neweconomicperspectives.org/2014/03/forget-1.html
FORGET THE 1%
March 5, 2014
By J.D. Alt
” For one thing, we DON’T need their money. Even if we could get it—which we can’t because they steadfastly refuse to use it for anything other than casino gambling in their private and secretive financial networks.
Even when the 1% decides to invest some of their Dollars to manufacture or build something, they rarely decide to manufacture or build anything we really need—only things we really don’t need. Like strip-mines in the Bristol Bay salmon fishery, or pipe-lines across Nebraska’s freshwater aquifers, or rocket-planes for space-tourism. Thanks, but we really don’t need—or want—any of it.
Here’s an example: It turns out the United States—which has the largest and most complex electric power network in the world, and which is completely and utterly dependent upon electricity for its daily survival—does not have the capability of manufacturing the single most crucial component of its electrical grid: the TRANSFORMER.
it’s total nonsense to imagine that we have to depend on using ANY of the 1%’s gargantuan stash of Dollars to do it. Like I said, just totally forget them. Let them play their Monopoly game while we get on with the task of building the world we want to live in.”
Building the world I want to live in doesn’t consist of conspicuous wealth accumulation by the few. So, no, J.D., I don’t want the filthy rich to keep their obscene wealth. I want it taxed at a rate that bring them down closer to the 99% level. Let them get their hands dirty in Project Build, just like the rest of us.
The likes of Black, Shaxson, Graeber, @occupy and @wikileaks etc are putting in a lot of effort on that front. This just hits it from another angle.
Foremost should be to align properly the branches of government and to check the abuses of Big Money, Big Business, Big Religion, Big Oil, Big Military, Big Police, etc.
The 4th branch above the other 3.
Steelhead, you are right he got it backwards.
The danger is that after stimulus spending, they will ‘forget’ to tax the 0.01%.
“Hey, you OK now? We’re pals, right? Let me know if you want to me trickle a little bit more down to you. I am not too rich, am I? And why does it matter, as long as you are not near-death?”
My other favorite: ‘Everything is cool now. Why bother and be so extreme?’
Excellent comment.
BTW, an aside: I think it is well established in economics that the marginal propensity to spend of the rich is much lower than that of the poor; hence, other things being equal, a simple redistribution of wealth from the rich to the poor should INCREASE aggregate spending and GDP.
I do not believe increasing GDP is the panacea, as everyone here knows. However, those who DO believe that should be IN FAVOR of redistribution. To oppose it is to be i) illogical, or ii) a plutocrat — or his poodle.
There is no such thing as redistribution via taxation in a fiat currency. The creation of fiat money creates a liability upon the creator of the money. (This is simply double-entry bookkeeping.) Taxes merely extinguish the liability incurred via the creation of money. The taxed money ceases to exist. ALL taxed money ceases to exist. (In turn, all government spending is NEW money, creating new liabilities.)
@ Ronald Pires
There certainly is redistribution in the end. There’s redistribution of money and power no matter how the particular mechanisms function.
In our highly politicized fiat system, bent on treating the government like a household, I’m afraid perception is 99.9% reality. If the government taxes away significant wealth of the filthy rich and burns the money, and then spends exactly or more new money into the economy by direct transfer to individuals the end result is the same–The 1% have less money (and power) and the 99% have more. The income gap is narrowed too. Whether or not the mechanism is ever understood is simply immaterial.
I believe this has been commented many times before.
OLD money has gone mostly to the rich, for like, I don’t know, decades at least.
NEW money will likely go mostly to the rich.
Why bother with printing new money?
I gotta say, I have a lot of sympathy for what what you write.
I don’t agree with the notion that “more” is the solution to all problems, and I don’t believe the concept of “the output gap” is anything more than a neo-liberal figure of masturbatory imagination. I don’t see what good more deficit spending does if 95% of the economic product will inure (translation: be looted) by the 1%.
We need to be speaking about the obscene descent into poverty of the middle-class, at a time of record corporate profits and engorged plutocrat billionaires with zippers open, while politicians from both parties fall down on their knees.
Sorry, my editing left something to be desired, but you get the drift! It’s still early in CA…
I guess it’s not that difficult to imagine much of it being looted by the rentiers. It’s Henry George’s world, we just live in it.
Tying spending to taxation furthers the big lie about gov’t financial solvency. The former does not, in point of fact, require the latter.
As a practical matter, packaging a spending increase with a tax increase guarantees that both will be more difficult to pass. I know right-leaning people of good faith who believe that taxing the rich will put them out of a job. It’s not true, but they believe it, so putting the two policies together helps ensure that the spending increase will get more pushback than it otherwise would.
This is a major problem in Washington–packaging policies together so that individual actions cannot be considered on their own merits. Take the recent Farm Bill, for instance. I was quite perturbed to find that NCBA-CLUSA supported the bill because it was good for co-op food producers and distributors. However, this was the same bill that reduced food stamp benefits, something NCBA should, by all rights, be fighting against. Packaging policies in this way makes the exercise of solidarity on the national political level incredibly difficult. It is designed to pit natural allies (the poor, and co-op practioners) against each other.
This is another instance. Both spending increases and tax increases can and should be considered on their own merits and do not have any necessary connection to each other.
I get your point, but why wait for the misunderstanding of how the government funds itself to be cleared up? We have a much better chance to get help to the 99%, even if that means linking the two–taxing the 1% to redistribute to the 99%. You get more bang for the political and ideological buck that way, even if it appears that government can only fund vis-a-vis this way. We can start with a one to one tradeoff. That might be all we get in the short term with deficit scolds being the majority report. It’s better than the status quo, no? At minimum the rich get relatively poorer, while the 99% get wealthier. Velocity of money into the broad economy is substantially increased too given the 99% need to spend to live. Of course my plan would be transfer payments to the 99% rather than lining the pockets of corporate toadys in the infrastructure business. That’s much more none beating around the bush, just wealth distribution going directly where it needs to go minus the middle man, which immediately helps those in need instead of the trickle down crap Obama and likewise various infrastructure improvement MMT’ers appear to advocate.
My last point is that MMTers and Obama want trickle down too, rather than direct aid to the 99%. Of course we can redistribute and do the infrastructure work in tandem. They aren’t mutually exclusive policies. But lacking the two together, I think it’s time for the 99% to get a direct share of the pie before the road building commences if we must choose one or the other .
dip, I get that the two are separable. I also get that, in the short term, and maybe even the medium term, debt doesn’t matter.
What I don’t get is why we should advocate for more government deficit spending, leaving all else unchanged, when, as the economy currently functions, 95% of the benefit of economic growth since 2008 has gone to the top. As Hugh might say, it was looted. Why would it not be looted again? How do we spend in such a way that we are not simply enriching the plutocrats and the corporatocracy? Because if that’s the game, I don’t think I want to play it.
IMO, you have to change tax policy. And you need a living wage mandate.
“IMO, you have to change tax policy. And you need a living wage mandate”
I agree. I mean what’s scientific about how wages are determined? Likewise tax policy? Are we just going to keep winging it with various trickle down programs offered up by both political parties?
So called efficient markets are best to determine these matters? Why not once and for all just come clean and admit that our economic productivity is distributed way out of kilter, favoring the few over the many? If we can’t fix income inequality then we’ll be having this same conversation forever, with nothing really changing, whether we acknowledge MMT or not.
Think about it. Even if MMT is embraced by most in power from a technical point of view, how, pray tell, will anything meaningfully change for the 99% if so called free markets get to determine wages or tax structures remain essentially the same? MMT by itself can be used for good as long as it’s linked with policy prescriptions that address income inequalities. It can also be used for nefarious purposes that enrich the rich even more absent progressive policy choices.
I get what professor Wray is saying regarding the technical stuff, but I also get the feeling he’s aiming too low on the policy front. In other words I’d like to get the policy down first and then let the technical aspect that are strengths in the MMT approach come along later or at least always keep them tightly linked. Otherwise MMT by itself will be a wax nose for the oligarchs to exploit.
Good policies are there without MMT…completely without MMT.
1. Wealth tax
2. Money creation via the people (the 99.99% ) spending it into existence, instead of letting the (public) servants do all the hard work of spending it into existence.
3. GDP sharing
Sounds good to me.
You misunderstand what MMT is. It is simply the operational description of how a fiat currency works. There is no such thing as “without MMT.” If you have a fiat currency, MMT is its operating manual. You may choose not to read the operating manual, but that doesn’t change the way a fiat currency works.
I understand MMT. The operational reality isn’t enough by itself, however. The policy it MIGHT, but not necessarily, engenders is where the rubber meets the road.
America needs more polarized think tanks to give policy some agency thingy?
Seems – FEAR – is the key agency to most policy advocacy coming out of thinktanistan, wonder what would occur if that emotive was removed… eh.
skippy… value decoupled from scarcity at point of origin, then let the debate ensue, after the cover and concealment is removed.
I think people are just reciting their textbook.
With respect MLTPB – for a person that opined in the past for professional [elitist] voters, I find that comment droll.
With money creation by the people spending it into existence, we can all be professional voters.
We, the 99.99%, will all be elite, instead of the 0.01% being elite and with money to pay for (professional) politicians.
That’s not in the textbook but I think it will even the playing field a bit.
“With money creation by the people spending it into existence, we can all be professional voters.” – MLTPB
Didn’t know you were a Free Market Libertine sort, bloody hell, my bad.
skippy… seriously considering the cognitive effects of belief systems out of antiquity and resulting bias it projects on reality, as individuals and groups… Fun – Travel and Adventure for sure!
There are 2 choices.
1. The government spending money into existence (probably via corporations).
2. The people spending money into existence.
There is no theory.
It’s a choice.
Let the people decide.
There are 2 choices. – MLTPB
OK now you have completely lost me with your personal observation of two reality’s as being possible.
skippy… I see more.
People are saying, let’s change how it works.
A manual is not some sacred book.
Create money by the little people spending it into existence, not by the government spending it into existence.
that’s true. it’s not a theory, it’s simply a fact. the word “theory” is here misused. the only theory floating around in this thought pool would be whether, were a govermint to let it rip with these policy perscriptions, would it end in chaos and social collapse or would it end in some steady-state economic beneficence.
I’m not sure. Frankly. However I am sure of one thing, there’s no way I could personally ever get a grant of any kind to study the problem from any generally recognized institution of any sort. the research methods I employ are too unconventional and they would not be persuasive in a grant application. Even if mMT money were spent to fund the grant program. that’s not really troubling to me. So it’s only a theoretical problem, it’s not real. therein is the heart of the matter — what’s real and what isn’t real. that’s where the theory has to be born.
Zactly.
Randall Wray is right. The unemployed want jobs. They don’t want the stolen money of the 1%. The problem is how to get them jobs not how to get them money. “Redistribution” doesn’t solve the jobs problem it just defers it.
Politicians always like to claim issues are more complicated than they are to deal with. Social Security has a long range funding problem? Oh how very hard to fix…not. Simple to fix. ELIMINATE the income cap. Don’t increase it. ELIMINATE it entirely. No more problem AND the people that love the idea of a flat tax get a test drive. EVERYONE, regardless of how high their income, pays same percentage to SocSec. Fixed and simple. Income inequality a problem? It is just soooo hard to correct. Not. Use the tax system to fix it…the corporate tax system . Require that top exec compensation be no greater than 70x ave worker pay in a company or big corporate tax penalties ensue. No exceptions. No deductions. If the highest paid exec in ANY firm goes higher than 70x the pay ave for that company, boom, big corporate tax penalties.
You also treat all income as income and quit giving lazy, do-nothing income a special break. Dividend income is income. Tax it as any other. Gaining a windfall inheritance is NO DIFFERENT than winning the lottery. Tax it the same as lottery winnings (exception for inheriting something like a private family farm – if said farm actually serves big agri then tax that shit). The fixes are actually easy.
Alternatively, you could simply raise the interest rate on the bonds Social Security has by a half a per cent. Simply wave a wand, and it is done. You don’t have to make our rich elites cry poverty.
Politicians always like to claim issues are more complicated than they are to deal with. Social Security has a long range funding problem? Oh how very hard to fix…not. Simple to fix. ELIMINATE the income cap. Don’t increase it. ELIMINATE it entirely. No more problem AND the people that love the idea of a flat tax get a test drive. EVERYONE, regardless of how high their income, pays same percentage to SocSec. Fixed and simple. Income inequality a problem? It is just soooo hard to correct. Not. Use the tax system to fix it…the corporate tax system . Require that top exec compensation be no greater than 70x ave worker pay in a company or big corporate tax penalties ensue. No exceptions. No deductions. If the highest paid exec in ANY firm goes higher than 70x the pay ave for that company, boom, big corporate tax penalties. You also treat all income as income and quit giving lazy, do-nothing income a special break. Dividend income is income. Tax it as any other. Gaining a windfall inheritance is NO DIFFERENT than winning the lottery. Tax it the same as lottery winnings (exception for inheriting something like a private family farm – if said farm actually serves big agri then tax that shit). The fixes are actually easy.
Shorter Randall Wray: First, I’m going to pretend to not notice that ChimpCo republicans bankrupted the US nor will I notice that republican obstructionism made the recovery worse. Second, Obama shouldn’t try so hard to reduce inequality because the 1% got him elected.
Nonsense. Why don’t you read up on MMT. There is an extensive tutorial available on the New Economic Perspectives website. (P.S. It’s impossible to bankrupt a sovereign fiat issuer.)
The other question is whether the confidence of sovereign fiat currency users can be shaken.
The sovereign government can emit so many units of its money that each unit becomes worth nearly zero (hyperinflation). Weimaria did that. So did Mugabestan.
How to prevent MMT from becoming Magical Monetary Thinking?
‘Uncle Sam can never wear out his welcome.’
How many sovereign defaults have there been in the past century, and the one before that? Dozens.
The only government-issued money that survives from ancient times is metallic coins. Shun the paper-pushers.
Ah but perhaps you have forgotten the American exception.
Look up Appeal to Tradition Fallacy
I did. But ‘it’s different this time.’
The simple answer about currency is end fractional reserve banking and debt based currency.
The only argument is about bonds; if the currency is not debt based you do not need bonds.
Where would the liquidity come from? How would you fund research and development, new plant and equipment, and seasonal inventories? How would you adjust the money supply to an increasing population, and how would that formula do anything to end wealth inequality?
Inequality would be helped by banks not being able to fund speculation, which hurts all taxpayers.
Money would simply be spent into the economy, directly from the treasury. Instead of browning from the private banking system threw bond sales which the taxpayer ends up on the hook for threw higher taxes.
@beene Money would simply be spent into the economy, directly from the treasury.
Your own bank account is your bank’s liability, and the bank will not assume that liability unless you provide it with a (presumably less liquid) asset. Thus government can’t merely digitize money and remit it to you. It must surrender an asset to a private interest. Bonds or coins will do.
What fractional reserve banking system are you talking about, snicker…. that’s just so Nixon-ish.
All currency is debt-based. It is impossible to have a currency without debt. That’s what a currency is. The holder’s asset is the issuer’s debt. Double-entry bookkeeping.
Impossible to have a currency without debt…
Always? In every country?
Credit and debt are juxtaposed in numerical accounts or in the eyes… remember the hand shake days???
In those days, it was possible to have debt without currency.
It is still possible today, I believe.
Your fixating on the thing again, its like a sky burial, a continuation of life and not trying to ensconce it to be worshiped over endlessly.
Perhaps.
I was referring back to Pires’ comment, thinking about the days you mentioned.
I was fixating on his fixation.
Roflmmao funny sort…
BTW whats up with having non believers conduct the ceremony, fobbing off responsibility?
Oh, Jim. There has been zero sovereign defaults in the past century and the one before that. A monetary sovereign cannot run out of money.
but they can run out of paper, and then what would they print on?
nobody ever thinks it through to the next level!
Save the trees craazyman, I mean we transitioned away from clay.
I almost lost six paper dollars, and committed destruction of US federal property, last night when I did my laundry.
To hold an inanimate object or know the – wildlife – around me are feed and feel secure…. ummmm…. decisions…. decisions…
Sometimes, money seems to be alive, not inanimate.
Agency should not be laid upon that which has no conscience.
Hopefully, money can not buy conscience, even if it can buy everything else.
Indoctrination in values would be the point of contentious, what happens after that, is product of moneys human foibles folly.
It’s not the money that survives, just the metal, and it’s not the metal that made it money in the first place, it’s the fact that it was accepted by its issuer as having an agreed value. You’re not right about it being only metal that survives either; we also have stone and clay artefacts that were used as money, we have wooden tally sticks, beads… it all has some value in the here and now, perhaps high value in the case of rare artefacts, but none of it is intrinsically money, not even your shiny metal.
It would be nice to mention those “dozens” of sovereign defaults.
Wray (and MMTers in general) says that a government cannot run out of it’s own fiat currency. It’s such an evident and simple – even silly – claim that I don’t understand how you can misinterpret it. Bad faith, maybe?
Here you go … 89 of them, from 1827 to 2003.
http://www.nber.org/papers/w13946.pdf
Silly creditors … didn’t they know sovereigns can’t default?
Jim, you cited the two most discredited economists in the world. We are not talking about any nation when we say “sovereign.” We’re talking about nations with their own currency that they can issue at will. It’s called Monetary Sovereignty. Please visit mythfighter.com.
All nations should be nations with their own currency that they can issue at will.
NBER Jim? That ideological economic [cough social policy] think tank dressed up as concerned citizens advocacy group…. shezzz~
skippy… personally I view NBER as just another Mega Church.
The only case I know of where a monetary sovereign defaulted was Russia in 1998. It was not only clearly a voluntary default, but is shocked the markets because at the time, Russia had adequate foreign exchange reserves and its government debt to GDP was low (<20%).
Everyone knows that the monetary system of the future will be based around canned food and b.j.s…what good is a bunch of shiny metal gonna do ya?
Robin Hood stole from the rich to give to the poor, not because he was redistributing the wealth, but he was merely returning to the poor which had been wrongfully taken from them by the rich.
And that happens to be exactly what has happened in the last 30 years due to macroeconomic policy. So, whats your point?
I totally agree. It is much easier to predistribute than to redistribute. Making corporate higher ups limit income to a multiple of the lowest paid employee is a good start. All earned income should be taxed as earned income (no carry rules).
All in all socialism really doesn’t work- anywhere. We just need rules for capitalism that are enforced. We still offer people teaser interest loans and no payments for years loans. We just keep on keeping on, it seems.
I hear the “socialism doesn’t work – capitalism does if its properly socialized” canard from too many people who otherwise seem intelligent enough. “All in all socialism” hasn’t been tried. Ever. See Chomsky on the Soviet Union. Labor has never held the means of production at state scale.
You want to predistribute wealth.
You dont want socialism.
I think youre confused here: Socialism is workers owning the means of production. Theres no redistribution in an socialist economy because its already distributed correctly, without shareholders and top level executives leeching the majority of the profit.
Youre confusing socialism with European social democracy. Which is not socialism.
That is about the best budget proposal Americans could hope for from Obama imho. TBVH, at first I thought it was some kind of onion-type joke because I never ever thought Obama would propose such a progressive agenda.
Randall is a bit nuts to criticize it just because the rich are being taxed more. Even by MMT standards, taxes can be very useful for redistribution, which is most definitely needed in the current US economy. Obama may be claiming the increased taxes are being used to raise funds for spending which, yes, is contra MMT, but even as an MMT believer myself I would still raise taxes on the rich who are not using their money as effectively as more money in the hands of poorer people would be used.
It is pointless to criticize this proposal because it is nothing but public relations.
Let’s lend the 1%ers hundreds of billions at .25%, have them buy our bonds paying 1.5% and then if things aren’t going well enough for them, we buy the bonds back at a huge premium.
To show we are playing hardball, we’ll promise to one day tax all those profits at a slightly higher rate.
“Unless we’ve got a nation of counterfeiters, every single dollar that a taxpayer pays to Uncle Sam came from Uncle Sam.”
– I thought banks created money
Banks create deposits. If they run short of reserves, they borrow them form other banks, and if banks collectively run short, the central bank adds more IF NEEDED to maintain its rate targets.
Central banks are most decidedly in charge of money supply but they often choose to accommodate private banks.
Is this serious?
Taxing the wealthy is bad? Obama is Robin Hood? The USFG is doing belt-tightening austerity? Uncle Sam can never wear out his welcome?
What planet are you describing, professor?
What is wrong with our country is the authoritarianism of excessive concentration of wealth and power, not a lack of further spending of trillions of dollars on the national security state and bank bailouts and corporate welfare.
Dr Wray hits it on the head (again). Rational thought is refreshing amid the morass of self-interested discourse characterizing the 1% agenda.
Yikes. Rational? Refreshing? Wray has been headed the opposite direction these past few years since his assuming away of fraud and mismanagement no longer works.
“First, if you are trying to stimulate the economy, you don’t enact a “trillion dollar” tax increase.”
That has it exactly backwards. Inequality is the problem. Enacting a trillion dollar tax on the wealthiest Americans would be a great idea [not that Obama would do that, of course]. Plus, taking dollars out of circulation increases the value of the remaining dollars, helping the rest of the population that isn’t taxed by increasing the purchasing power of currency-denominated wages and savings.
“Second, Uncle Sam is the currency issuer. He cannot run out.”
This is irrelevant, to the point that it suggests purposeful misdirection. Of course fiat currency is infinite. The points of contention are the purchasing power and the distribution, not the logistical ability to print.
“Belt-tightening austerity isn’t working.”
Um, belt-tightening isn’t what we’re doing. The USFG has stimulated the economy to the tune of trillions of dollars of net deficit spending in the Bush-Obama years. That is our present approach. If the present approach isn’t working, then any serious intellectual would ask why not.
That of course would lead one to matters of distribution, not aggregate demand.
Uncle Sam is the currency issuer. He can not run out.
He is also the legislation issuer.
He can issue or enact good laws and bad laws, as many as he likes.
But not really.
People can always say, stop! Stop issuing more bad laws or bad money, or else I want uncle Bob to play Uncle Sam.
When you find a quote in Wray’s work stating that taxing the wealthy is bad, let us all know. Otherwise you’re arguing in bad faith, as usual.
Fascinating how so many on the “left” think exactly like wingnuts and climate deniers, even using the same underhanded polemical tactics.
rotfl
“First, if you are trying to stimulate the economy, you don’t enact a “trillion dollar” tax increase.”
Have you read this article Ben?
” Unless we’ve got a nation of counterfeiters, every single dollar that a taxpayer pays to Uncle Sam came from Uncle Sam.
So if that’s true, does “every single dollar” that is LENT to Uncle Sam come from Uncle Sam?
How does that work and where did the “lenders” get so much cash?
PS. If any of this “wealth” came from fraud or bribery, don’t TAX it, CONFISCATE it. All of it.
The lenders do get the dollars from Uncle Sam as in the dollars we send to China for their exports.
Agree completely with confiscating fraudulently acquired gains and would throw in jail time. http://neweconomicperspectives.org/2014/02/key-house-republicans-almost-get-accounting-control-fraud.html
The lenders get the cash from the Fed. In short:
1. Fed buys Treasuries and other securities (RMBS) from primary dealer banks.
2. Banks use those funds to purchase new Treasury issues
3. The Fed then buys those Treasuries from the banks, providing them the funds to purchase the next round of treasury issues.
The bankers, of course, take a cut at each step in the transaction.
It’s a financial perpetual-motion machine….
Could primary dealer banks directly “monetize” to buy Treasuries, by going to the Fed overnight window (or whatever it’s called) and increasing their reserves? The same way they can increase their reserves if they want to make loans, but don’t have the funds on hand?
Sure. Primary dealers borrow from the Fed all the time.
On a lighter note, every single dollar the 0.01% possess came from Uncle Sam as well :<
“Their hatred of the 99% just oozes from the video.”
Somebody needs to explain to me precisely what this video reveals. I don’t really “get” what their skits mean. I see that they make fun of Hillary and Barney Frank. The guy with the Confederate skit seems to be maybe of Southern heritage, so poking fun at his “Yankee” colleagues, and at himself for being a semi-outsider among them? And they are laughing about the bailouts, though I’m not sure exactly what spin they’re giving it; they seem to just be citing it in a general spirit of levity, as people do when they “let their hair down.” Maybe I am being dense (seriously), I’m just missing the clear “hatred of the 99%”… I guess I can see how they’re “reveling,” and they are economic victors in bad economic times, so that is naturally offensive; but the ill will towards the “losers” is not transparently clear to me?
Also, in that Hayes interview, it’s funny that the reporter says “they could see their careers crumbling apart” or something, based on his video, but I haven’t seen any fallout like that… None of these guys have lost their positions, have they?
i don’t understand why the following concept is so unfathomable to the intelligensia—-100% of every extra dollar earned/given to the bottom 80-ish% goes straight back into the local economy.
whereas only a fraction of the extra dollar given to the top 1% goes into main street—the rest goes into overseas vacations, German cars and art from Sotheby’s.
Because I think it’s simply wrong. If the money is spend on goods made in China (and that’s most good) even by the bottom 80% then the money does not stay in the local economy, or only the part of it that pays local workers does.
What really insults my intelligence is the notion that we are somehow short of the cash necessary to institute meaningful social programs, especially programs to create jobs — real jobs that pay real wages. There has never been as much wealth in all of history as there is now in the world at large — including the USA, where in fact most of it sits. And I say “sits,” because most of it is doing absolutely nothing for anyone, except maybe art dealers like Saatchi, who peddle phoney “concept art” to the .01% for billions, just so they can have something to spend their excessive wealth on. If it were up to me, I’d say: just confiscate it — take it. Just like Robin Hood, whom Obama definitely does NOT resemble. Unfortunately, it’s not up to me, so fine, I’m open to compromise: go ahead and tax it.
But PLEASE do not try to convince me that we should simply ignore all that wealth, born of huge injustices prompted by pure greed, because we don’t really need it — that some financial gimmick based on someone’s half baked theory is going to save us. Oh yeah, polish up that Platinum coin folks. And continue to bury your head in the sand, insulating yourself from the realities of the world we now live — and die — in.
The 1% have amassed claims -in the form of money- on wealth yet to be created. That these are claims on wealth and not wealth itself is a distinction that needs elaboration beyond the comment offered here. However, an obdurate empirical fact is that the ability of modern economies to produce real wealth -which flows from the earth’s systems and resources- is declining while claims on wealth -and population- are increasing. Due to hitting the limits to growth the economic pie is shrinking and the 1% have responded -automatically/reflexively, not consciously- by taking/stealing more and more claims on wealth.
I think this is the musical chairs foundation of the next financial crisis. The Fed realiizes this and absent any meaningful fiscal policy is trying to increase their ability to deal with money market and tri-party repo meltdown. http://www.reuters.com/article/2014/03/04/nyfed-reverserepo-idUSL1N0M11H220140304
But I think the true winners will be the ones that link productivity (including social such as medicine and education) to labor rather than to finance.
Ring around the debts
A pocket full of bets
Derivatives, derivatives
We all fall down
Government deficit spending + taxation with automatic balancers of social security (pay as you go) should do just fine. That’s all the liquidity needed. No need for any debt-money scams. Of course that requires an actually working government, but I’m sure that once you yanks manage to get that constitutional amendment to get money out of politics through that will solve itself. After all, the vast majority of yanklandian political paralysis is a direct result of the subhuman 1% scum buying politicians left and right, after that’s fixed, calmer heads can prevail.
Anyone or any system that bases a resource distribution system on taking from others enshrines the corollary effect: the ability to be taken from. Not simply monetarily, but in liberties, property, and rights.
Systems that are based on such fail over time, as any empire or governance system in world history has failed.
Those with no money to take will find their fundamental property, their person, taken and distributed as those who know better dictate. Avoid those who “know better” how to distribute resources than you, because you are the resource to be distributed on the auction block next.
We already have a system very similar to what you warn us about. There’s one slight difference: In our system, most people are prevented from owning the resources in the first place. Then the most privileged have the opportunity to distribute the resources to themselves. It’s a little different from redistribution; it’s just distribution among the financial elite and the power elite. No need to redistribute things once they’re in the hands of the people who really matter.
By sharing in the first place, going forward, we will minimize taking or involuntary giving.
If people are wondering why it is sharing and not taking, it is like this.
1. No one is an island
2. We stand on the shoulders of countless 99.99% dwarves whose collective knowledge we inherit
3. You can’t make money, selling, either products or services, to yourself.
4. Someone had to teach you and show you the way, when you were little and helpless.
etc.
So, what abut that billion you made with some fancy derivatives?
That came from Teamwork (some long dead 17th century mathematician, perhaps – who in his/her turn, benefitted from countless others – for one example), my friend.
Howzabout we just restore individual and corporate taxes to the Clinton era levels? They weren’t soaking the rich or strangling the economy then, so what’s different now?
But if that it too hard to wrap your noodle around, instead we could just flip the bank subsidy system on its head and CHANGE NOTHING ELSE. Loan every person ten times their net worth at zero interest, exchange all their past due debt in for treasury notes, and guarantee all the loans they take out.
Well said, but it’s time you moved on the the next stage.
The working class of this world is under direct assault. The rich are paying less taxes while loading up the working class with all manor of fees and taxes (that don’t count as ‘taxes’ because they say so). The rich are pushing race-to-the-bottom trade policies. They are bailing out wealthy investors who made bad investments with public funds, and then demanding ‘austerity’ on working people to pay for it. They are pushing for ever more population growth because of course we have a tight labor market and are running out of workers (what, you didn’t notice?). They demand that only billionaires have legal standing in court. And so on.
This is not subtle. Stating the obvious has its uses, but it is past time that you moved from diagnosis and on to cure. Find and push for true progressive alternatives in the primaries, build third and fourth parties – ANYTHING just get moving in a useful direction!
In this new blockbuster movie, Uncle Sam plays the Sheriff of Nottingham.
‘A good actor must be versatile.’
Technically the US has been broke for a long time, many believe since 1933. How can anyone be truly broke when you can borrow practically unlimited amounts of money any time you need it? And what a fantastic deal to borrow and make others pay back the debt! The Compound Interest Paradox shows us we must have endless money creation to make interest payments, since all of money is loaned into existence except the interest in the first place. Since our government was supposedly created to care for its citizens, as opposed to the wealthy bankers alone, what is wrong with policies that help the poor and the elderly?
The Compound GDP Growth also means we will need endless money creation to try for price stability.
And with the Compound Population Growth, we must have endless GDP growth to pay for food.
Why are roads and bridges or earlier education, you know, basic maintenance and learning considered “stimulus”? Stockholm syndrome?
I’m not knocking the plan to do these things…. but building something new like high speed fiber to every home (at very affordable rates) and business already on the old phone or current elec. grid would be stimulating. Lowering the cost of health care by half while maintaing a health care professional workforce large enough to care for all of us the way the French care for each other would be stimulating! Minimum living wage (guaranteed work if ya want/need it) at $23 plus an hour would be stimulating.
Once you put it that way, it sounds simple.
Given That: we need to stimulate the economy by increasing government spending on useful and necessary things, President Obama can present the 1% with a choice:
Either:
Shut up about the Deficit and “Fixing the Debt”
or
Pay higher taxes.
Take your pick.
Professor Wray, before you caution against redistributing wealth downward, shouldn’t you maybe suggest that we stop redistributing wealth upward, as we’ve been doing for the past 30+ years?
I agree with all of your comment except the 30+ year part. I would posit that number with the plus sign after it should be 500, if not 600.
How long has our social organization been centered around ongoing accumulation of private ownership of “property” supported by unfettered inheritance rules?…..500+ or 600+ years.
He’s not cautioning against redistribution, he’s stating that redistribution by tax increases is impossible. Taxing money from one group doesn’t send it anywhere else, it just disappears into the aether.
A lot of people in this thread (meaning the faith-based Utopian left) don’t like the realities of accounting; be careful when listening to them.
Well said Ben… and seconded.
A. Tax the rich.
B. Give that money to the 99.99%.
If you want to fit it into the textbook, you can think of it as
A. Money destruction.
B. Money creation by the people (99.99%) spending it into existence.
Have we learned nothing? Obama is doing a little “populist” positioning for the 2014 midterms. But after years of Obama, don’t we know that when Obama wants something he acts, and when he doesn’t want something he talks? This is talk. Fodder and misdirection for us rubes. But come on, the corporatist neoliberal Obama wanting to do something for the 99%, sounding a populist note? Shouldn’t this alone tell you that it is all fake, all bogus?
Earth to Wray, we live in a kleptocracy. Kleptocracy is a system run by the elites for the rich whose sole purpose is to loot. Kleptocracy is maintained and expanded by the economic and political class war being waged against the rest of us. I frankly am tired of reading yet another of these idiotic and/or consciously deceptive pieces predicated on the notion that the political classes working against us just need a nudge to get them to tweak the economy in ways that will help us and undercut the kleptocrats wo own them.
I mean if Wray would drop his obsession with MMT for a moment and just look at this from a resources perspective, he would immediately see that his spending program, however tentative and obsequious it is to the rich, would still reallocate resources away from them, and for this reason would be opposed by them. I doubt they would go for it even if it could be turned into a vehicle for looting, say like public-private partnerships. The reason for this is that while kleptocracy needs some fiscal spending to maintain empire and the institutional aspects of the kleptocratic system, the surveillance/police state, the legislature, executive, and judiciary, etc., looting can be accomplished more efficiently and on a much larger scale on the monetary side.
Wray’s post does raise an important question for me. Even as MMT rails against aspects of the current system, its practitioners remain basically supportive of it. But that system is kleptocracy, and no matter how MMTers twist and turn, until they reject that system (which this post clearly does not), they are acquiescing in it. So the question becomes are they idiots or are they bullsh*tting us. And at some point, does it even matter which?
Hugh:I mean if Wray would drop his obsession with MMT for a moment and just look at this from a resources perspective, he would immediately see that his spending program, however tentative and obsequious it is to the rich, would still reallocate resources away from them, and for this reason would be opposed by them.
The problem is that the way you often apply the “resources perspective”, as I pointed out in my last comment to you, repeats classical economic errors, as do others who focus on redistribution. The danger in blithely thinking this way is shown in the quite false statement above. Misunderstanding kleptocracy is not a way to fight it.
‘Wray’s tentative, obsequious program’ would NOT (necessarily) reallocate resources away from the rich. That’s a basic point of this article. So this non-existent reallocation is NOT why the kleptocrat class opposes sane policy. That would be a saner world. People fighting over a limited quantity of already existing good stuff. But to this world’s kleptocrats, the crat is much more important than the klepto. It is more important to deprive the poor than to make themselves richer.
What the kleptocrats do is “hire one-half of the working class to kill the other half.” Divida et Impera. The kleptocrats systematically prevent wealth-creation, systematically sabotage the economic system. The more necessary and socially productive a job is, the worse it is paid. The working class, the 99% just don’t need to and can’t really “reallocate resources” from the rich to themselves. Might be nice, but it is not necessary, it is beside the real point. It ignores the real theft, the stolen futures, the wasted lives, the sad might-have-beens. I’m all for “redistribution” & Robin Hood taxation. But the main thing is “predistribution” – to run national economies in a minimally sane way – 0% unemployment forever. This is what the kleptocrats fear. Myopia may see it as a tweak or a nudge, but the kleptocracy knows it is its death sentence.
Low wages and 0% unemployment?
Are you aware of how much like slavery that sounds?
A. Who said “low wages”? Not I. My personal preference is for a progressive tax system, major redirection of federal spending from mindless destruction like the military and as high a JG wage as feasible, $20/hr, $30/hr? Who knows?. May not be the likeliest outcome, but it isn’t all that important, What is important is the principle – a real, permanent JG at any reasonable living wage.
B. 0% unemployment at a “low” living wage does not at all sound particularly like slavery if one listens carefully and thinks logically and consistently. A “low” JG wage is still higher than the zero wage of unemployment – which Minsky emphasized was the true minimum wage when there was unemployment.
Comparing monetary economies to slavery as Paul Davidson does – concerning the JG – and thinking in terms of the master/slave dialectic as philosophers have since Aristotle is reasonable and enlightening and MMT thinkers should not shy away from it. But do it consistently.
How does raising a wage from zero to something make it “more slavery”? A JG worker vs an unemployed person is like a slave who is getting fed enough to survive (e.g. ancient slavery) vs one who is being starved to death in a death-camp or in West-Indian sugarcane plantation slavery. To think of only the first as real slavery – while ignoring the latter as not so bad I guess – is truly weird “thinking.”
“How does raising a wage from zero to something make it “more slavery”?”
Yeah, that’s what MMT seems to miss.
1) There is massive wage inequality in a JG system. Professor Wray, for example, is paid over $100K by UMKC. Are you prepared to offer every worker in America that compensation package? If you are, have you thought through the logistics of that? How would you get the existing leadership to accept such an arrangement?
2) Even if wages were fair, you are still forcing people to work for the authoritarian state to feed themselves, the very leadership that has been preying on them to begin with. That is not freedom in any real sense of having a choice. If you have to earn your right to live, then it’s not really a right.
Washunate – you really believe raising wages makes them “more slavery”? Not by anybody else’s definition of inequality or slavery.
There is massive wage inequality in a JG system. Same argument. Not necessarily. And in any case whatsoever, there is less inequality with a JG than a monetary system without a JG. The main driver of inequality and poverty in highly monetized, capitalist economies is and always has been unemployment.
Nobody is saying you have to earn your right to live, except “God”. The human race as a whole (or Robinson Crusoe) does have to work in order to live. Does this mean that the human race as a whole (or Robinson Crusoe) has no real right to live?
In a monetary economy, the JG, the right to work is a more important, more basic right than the right to receive money or be supported for nothing. It is like saying “the right not to be murdered” is a more important expression of “the right to life” than “the right to a living” is.
Even if wages were fair, you are still forcing people to work for the authoritarian state to feed themselves,
This is a common misapprehension. This simply is not the JG proposal, although many, maybe most people read this into the JG when it is not there. The JG is independent of whether it is necessary to get JG or other wages to not starve in a monetary economy. Wray makes this point by saying it is an “add-on”.
You wrongly locate the authoritarianism in the JG Job Offer. Job offers are increases in liberty, always. The authoritarianism in a monetary economy is located in the desirability usually, and ever more the necessity of obtaining the state’s money in order to live or live well.
So I guess the short answer is no?
You won’t acknowledge even the theoretical possibility that a JG system could be used for oppression rather than freedom?
Randy, oh Randy, where art thou? So many posts crying out for a reply!