The Center of the Universe

St Croix, United States Virgin Islands

MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

Dallas address

Posted by WARREN MOSLER on February 4th, 2010


[Skip to the end]

This is the text of the address I gave at Dallas.

Will be repeating it in a northern Va meeting next weekend.

Still waiting for the video.

Feel free to distribute.

How tea party democrats can run successfully in the primaries

Honesty in government is a core value of the Tea Party movement and the most basic value in any representative democracy. Accordingly, my first proposal is that all candidates for public office be sworn in: ‘I solemnly swear to tell the truth, the whole truth, and nothing but the truth, so help me God.’ As a consequence, any subsequent lies are perjury, and punishable by law.

I am here to discuss how I believe Tea Party Democrats can win in upcoming Democratic primaries. The answer is to emulate and extend the success of the Tea Party movement by getting back to basics. The Democratic party is the party of Jefferson and Jackson. The founders believed that the public voice should be heard. They believed in limited government. And they never kowtowed to special interests or cowered before purveyors of the conventional wisdom. This means Tea Party Democrats should be running against the Obama administration’s policies which are counter to both traditional Democratic values and Tea Party values.

It is the Washington elite that have moved away from the ideals of Jefferson and Jackson with policies that are, at best, regressive, elitist, and destructive to our quality of life. For example, with unemployment rising, real wage growth falling, and GDP now growing at over 5%, who’s getting all that increase in real goods and services?

Not the millions who voted Democratic who are losing their jobs and their homes, and watching wages fall even as their cost of living goes up. All that real wealth being created is instead rising to the top, due to impossible trickle down policies that would have made even Reagan blush.

The large majority of Americans that elected this administration did not do so to enrich the bankers, insurance executives, drug companies, and union leaders at the expense of the rest of us, in a perversion of true core Democratic values. But it’s clearly happening as even a blind man can see. And all because they don’t understand the monetary system, how and why government spends and taxes, and why we don’t owe China anything more than a bank statement.

I will devote most of the rest of my time talking about the economy. In part, that is because it is my area of expertise, given that I have spent most of my adult life in financial markets. But the most important reason is it is in that arena that the Washington elite have failed us the most. The so-called economic experts have confused themselves and their political masters with contrived explanations for the way the economy works. Their limited vision has limited the range of policy choice. And the result has been a monumental economic disaster and human tragedy.

My first proposal for the economy encompasses both the Tea Party and traditional Democratic values of limited government, fiscal responsibility, and reliance on competitive markets. Working through the logic of this proposal will show both how this straightforward government policy can work, and how convoluted is the elite’s understanding of finance.

I believe that the surest engine for full economic recovery is a full payroll tax holiday. Payroll taxes take away over 15% of everyone’s paycheck, from the very first dollar earned. This is big money- about $1 trillion per year. Half comes from the employee and half from the employer. A payroll tax holiday does not give anyone anything. What it does is stop taking away $1 trillion a year from working people struggling to make their payments and stay in their homes, and businesses struggling to survive. A full payroll tax holiday means a husband and wife earning $50,000 a year each will see their combined take home pay go up by over $650 a month, so they can make their mortgage payments and their car payments and maybe even do a little shopping.

This fixes the banks and fixes the economy, from what I call the bottom up. It fixes the banks without giving them anything more than people who can afford to make their payments. That’s all they need to remain viable.

And what all businesses need most to expand output and employment is people with spending money who can buy their products. Without people to buy goods and services, nothing happens. The payroll tax holiday also means there is also a big reduction in expenses for business. With competitive markets this means lower prices, which also helps consumers, helps keep inflation down, helps businesses compete domestically and in world markets to help optimize our real terms of trade, and helps keep the currency stable as the dollar is ultimately worth what it can buy. So with the payroll tax holiday we get a dramatic increase in economic activity, rising employment in good jobs, and better prices. And we’ll see millions of new jobs, because, again, what business needs most is people with money to buy their products. Then they hire and expand.

What I don’t see is how any self respecting Democrat can allow this tax to stand for a single moment. It is the most regressive, punishing tax we’ve ever had. It starts from the first dollar earned with a cap at $106,800 per year. It’s an utter disgrace to the Democratic party. It should be immediately eliminated. Yet, instead, the Washington Democratic elite are actually discussing increasing it.

Let’s now back up and review how we got to where we are at this moment in time. Headline unemployment is unthinkably high at 10%, and if you count workers who have given up looking for a full time job, it’s over 17%. As you all know, it’s about the financial crisis. The banks got in trouble when their loans went bad. Well, what makes a loan go bad? Only one thing- people who can’t make their payments. If people make their payments, the loans are AAA. If people don’t make their payments the loans are junk and toxic waste. No matter what the security is- a loan, a cmo, cdo, clo, or whatever, it’s all the same. If people are making their loan payments there is no financial crisis. Unfortunately, instead of attacking the problem from the bottom up with a payroll tax holiday, we have an administration that thinks it first needs to fix the financial sector from the top down, before the real economy can improve. This is completely upside down. But the elites believe it, so that’s what they have done to us.

So starting with President Bush, and supported by both Senators McCain and Obama, they funded the financial sector with trillions, while they kept taking away trillions from people working for a living who couldn’t make their payments.

How does that help anyone make their payments, apart from a few bankers? It doesn’t.

What happened for the next year and a half? The banks muddled through, profits and bonuses returned, but unemployment skyrocketed and is still going up, loan delinquencies and defaults and foreclosures skyrocketed and are still going up, and millions of Americans still can’t make their payments and are losing their homes. And a lot of the money the banks are making on federal support is being drained by continuing loan losses. We are getting nowhere as tens of millions of lives are being destroyed by policy makers who simply don’t understand how the monetary system works.

This has been a trickle down policy where nothing has trickled down, because there is no connection between funding the banks, and the incomes of people trying to make their payments. The answer, of course, is instead of giving trillions to the banks, to simply stop taking away trillions from people still working for a living. The government doesn’t even have to give us anything, just stop taking away the trillion dollars a year of payroll taxes with a full payroll tax holiday.

But then there’s the nagging question of ‘how are we going to pay for it? Aren’t we just going to have to borrow more money from China and leave it for our children to pay back? And if it doesn’t work, then where are we, another trillion in debt with nothing to show for it?’
And, in fact the failure to understand that question of ‘how are you going to pay for it’ is exactly what has set the Democratic party, and the nation, on the current path of economic ruin. Therefore, to run successfully against the Democrats who support current policy it is critical you understand what I’m going to say next. This understanding is the basis for achieving our core values of limited government and lower taxes. And what I’m about to tell you is pure, undisputable fact, and not theory or philosophy.

So let me start by examining exactly how government spends at what’s called the operational level. In other words, exactly how does government spend? And this is for the federal government, not the State and local government, who are in much the same position as you and I are. Well, when the federal government spends, it simply changes numbers up in bank accounts. Last May Fed Chairman Bernanke answered Congressman Pelley’s question about where the money comes from that the banks are getting. Bernanke told him the banks have accounts at the Fed and the Fed simply ‘marks them up’- changes the numbers in their bank accounts.

• (PELLEY) Is that tax money that the Fed is spending?
• (BERNANKE) It’s not tax money. The banks have– accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.

The Chairman is exactly right. All government spending is simply a matter of changing numbers upward in our bank accounts. It doesn’t come from anywhere. Just like when you kick a field goal and get 3 points. Where does the stadium get those points? Right, they don’t come from anywhere. It’s just scorekeeping. And that’s exactly how government actually pays for anything.

All it ever does, and ever can do when it spends, is mark up numbers in bank accounts, as the Fed Chairman told us. And with online banking you can actually watch it happen. When a government payment hits your account you can actually watch as the numbers change upward on your computer screen. And notice I’ve never mentioned China or anyone else in this spending process. They are simply not involved. Spending is done by changing numbers higher in our bank accounts. What China does or doesn’t do has nothing to do with this process. Again, this is not some theory or philosophy. It’s simply how it actually works. I’ve been there, I’ve seen it. I grew up on the money desk at Banker’s Trust on Wall St. in the 70’s, and I visit the Fed regularly and discuss monetary operations. I know exactly how it all works.

Now let’s look at how government taxes. And keep in mind what any Congressman will tell you- we have to get money from taxing or borrowing to be able to spend it.
Well, with modern on line banking you can watch what happens when a tax is paid. Suppose you have $5,000 in your bank account and you write a check to the government for $1,000 to pay your taxes. What happens? You can see it on your computer screen. The number 5,000 changes into the number 4,000. The number 5 changes to the number 4. All the government did is change the number in your bank account. They didn’t ‘get’ anything. No gold coins dropped into a box at the Fed. Yes, they account for it, which means they keep track of what they do, but they don’t actually get anything that they give to anyone. The man at the IRS simply changes numbers down in our bank accounts when he collects taxes. And, if you pay your taxes with actual cash, they give you a receipt, and then shred it. How does taking your cash and shredding it pay for anything? It doesn’t. Taxes don’t give the government anything to use to make payments.

So the absolute fact of the matter is, the government never has nor doesn’t have dollars. It taxes by changing numbers down, but doesn’t get anything. It spends by changing numbers up and doesn’t use up anything. Government can’t ‘run out of money’ like our President has repeated many times. There isn’t anything to run out of. It’s just data entry, it’s score keeping. And it has nothing to do with China, which I’ll get to shortly.

So why then does the government tax at all? To control our spending power, which economists call aggregate demand. If the government didn’t tax us at all and let us spend all the money we earn, and government spent all the money it wanted to spend, the result would be a lot of inflation, caused by more spending then there are real goods and services for sale. Too much spending power chasing too few goods and services is a sure way to drive up prices. So the purpose of taxes is to regulate the economy. If the economy is too hot, taxes can be raised to cool it down. If the economy is too cold, as it obviously is today, taxes should be cut to warm it up back to operating temperature.

Taxes are like the thermostat. When it gets too hot or too cold you adjust it. It’s not about collecting revenues, there is no such thing, government never has nor doesn’t have any dollars, it just changes numbers up and down in our bank accounts. It’s all about looking at the economy and deciding whether it’s too hot or too cold, and then making an adjustment.

So, given all this, just what does ‘fiscal responsibility’ mean?
Fiscal responsibility means not overtaxing us to the point we are at today with record unemployment. And Fiscal Responsibility means not spending so much or taxing so little that the economy ‘overheats’ and inflation becomes a problem. That’s what fiscal responsibility means. That’s all it means. The government is responsible for getting the economy right, and the monetary system, including taxation, is a tool for that job.
Taxation is a tool to get the economy right.

So where does China and borrowing come into the picture? To be a successful Tea Party Democrat you will have to understand this and be able to explain it.
So first, how does China get its dollars? It sells things to us and gets paid for them.

And where does China keep its dollars? In a bank account at the Federal Reserve Bank which they call a reserve account. It’s nothing more than a checking account with a fancy name. And why does China buy Treasury securities? To earn a bit more interest.

And what is a Treasury security? It is nothing more than a savings account at the Federal Reserve Bank with a fancy name. And just like any other savings account at any other bank, with a Treasury security you give the Federal Reserve Bank money, and you get it back plus interest. So when China buys a Treasury security, what happens? The Fed moves their funds- the money they earned from selling things to us- from their checking account at the Fed to their savings account at the Fed.

And what happens when those Treasury securities- savings accounts- come due? How do we pay off China? The Fed just moves the funds from China’s savings account at the Fed back to their checking account at the Fed, and makes the number a little higher to include the interest. That’s it. Debt paid. And our children will continue to do this just like our fathers did before us. None of this involves what we call government spending. When government spends to buy something or pay someone else, it just ‘marks up’- as Chairman Bernanke put it- numbers in bank accounts. China’s bank accounts at the Fed are not involved. So why is this administration kowtowing to China on everything from Korea to human rights? And why do we go over there, thinking they are our government’s bankers, worried about getting their money to spend on everything from health care to Afghanistan, when there is no such thing as the US government getting money to spend? Why? There is only one reason. This administration does not understand the monetary system. They reason the Democrats are against a payroll tax holiday is because they think they need those actual revenues to support their spending.

So yes, we are grossly overtaxed and that’s what’s causing the sky high unemployment and the failed economy, as well as the ongoing banking crisis. And fiscal responsibility means setting taxes at the right level to sustain our spending power- not to hot and not too cold, but just right for optimal output and employment and price stability, and a return to prosperity.

And this brings up the next question, which is how to determine the right size of government. First, tax revenues don’t tell us anything about that. Taxing is just changing numbers down. It doesn’t give us anything to spend. Spending is changing numbers up; there is no numerical limit to spending.

So how do we decide how much government we want if the money doesn’t tell us anything? We do it on a very practical level. For example, when it comes to the military we need to ask ourselves, how many soldiers do we need to defend ourselves? How many planes, boats, tanks, and missiles do we need? The more we need, the more people we take who could be in the private sector producing real private sector goods and services, including doctors and nurses, teachers and teaching assistants, scientists and engineers, etc. etc. The military also uses up real resources like oil and steel. That’s the real cost of the military- how many people and resources it takes away from productive private sector activity.

What is the right size for the legal system? That depends on how long you want to wait for a court date, or for a decision. If the process is too slow, we may need more people working there, or we may need better technology. And again, the more people in government, the fewer there are to work in the private sector.

Once we have decided on the ‘right size’ of government, and pay for it by changing numbers up in people’s bank accounts when government spends, we have to decide the right amount to tax to keep the economy not too hot and not too cold, but just right. My educated guess would be, in a normal economy, to start with taxes that are less then spending by about 5% of GDP, if history is any guide. If I’m wrong taxes can either be lowered or raised to get it right. And when government spends more than it taxes- when it changes numbers up more than it changes down- we call that difference the budget deficit.

And when government changes more numbers changed up than down, the economy has exactly that many more dollars in it, which adds exactly that much to the savings of the economy. In fact, in US National Income Accounting, as taught in economics 101, the government deficit equals the total savings of financial assets in the rest of the economy, to the penny. Yes, deficits add to our monetary savings, to the penny. And everyone I’ve talked to in the Congressional Budget Office knows it. And it’s just common sense as well that if government changes numbers up in our bank accounts more than it changes them down, we have exactly that many more dollars.

Let me add one more thing about the size of government. It makes no sense to me to grow the size of the government just because the economy is too cold, if we already have the right sized government. And if we don’t have the right sized government we should immediately get it right, and then adjust taxes if the economy is too hot or too cold.
With this grasp of the fundamentals of taxing, spending, and the size of government, a Tea Party Democrat is well armed to take on the Democratic establishment that’s overtaxing us, driving up unemployment to today’s record levels, destroying our economy and standard of living, and arbitrarily growing government as well.

Conclusions:

Tea Party Democrats have a unique opportunity to be a part of history and overturn the ideas the current administration is employing that are, at best, regressive, elitist, and destructive to our quality of life.

With unemployment rising, real wage growth falling, and GDP now growing at about 4%, who’s getting that increased GDP? Not the millions who voted Democratic who are losing their jobs and their homes, and watching their wages fall. That real wealth being created is instead rising to the top, due to the Obama administration’s impossible trickle down policies. This administration was not elected to enrich the bankers, insurance executives, drug companies, and union leaders at the expense of the rest of us, in a perversion of true core Democratic values. But it’s clearly happening, and all because they don’t understand the monetary system, the don’t understand how and why government spends and taxes, and the don’t understand why we don’t owe China anything more than a bank statement.

The door is wide open for an enlightened, populist Democrat to lead the way to a new era of unsurpassed national prosperity.


[top]

37 Responses to “Dallas address”

  1. Jason Says:

    Is it just me?? Which Democrats favor “values of limited government, fiscal responsibility, and reliance on competitive markets”. If one has to go back to Jefferson & Jackson to locate one, doesn’t that illustrate the acute weakness of the description? Forgive me, but I have never heard a Democrat state that they favor limited government. Republicans may state they do, but in practice don’t, but Democrats neither favor it in theory or praxis.

    Reply

  2. Tom Hickey Says:

    Warren, I think that Jason is correct. While it is true that Jefferson and Jackson did advocate limited, decentralized government, that’s a long time ago and most Democrats could care less now, I suspect. I think you should go with your “right sized” government from 7 Deadly Innocent Frauds. Makes more sense, to me at least. Moreover, I don’t see this as the lede. People are concerned now about their own precarious economic situation — unemployment, health insurance, etc. “It’s the economy, stupid.” The pressing question for most Democrats is how to pay for progressive reform, since most people think that government spending needs to be “funded” by taxes now or “financed” by borrowing, which means higher taxes later. The household-government finance analogy needs to be demolished before people can get much else, especially now with Democrats in power advocating pay-as-you-go.

    I also think that if you want to make headway advocating the payroll tax holiday, then I think you need to disabuse people of the idea that the payroll tax somehow contributes to the SS/Medicare “fund.” Otherwise, there is going to be the perception that you are indirectly attacking SS/Medicare by “defunding” these popular programs.

    I just watched your latest campaign video on Mosler 2012. It’s really a podcast rather than a video. You need to up the production value to expected standards, as they say in the business. Not that difficult these days even with prosumer equipment. Getting the sound right is a bigger challenge than the picture. A high quality mic is a must.

    Otherwise, it looks good. Keep on truckin’. The country needs you.

    Reply

  3. vimothy Says:

    Warren,

    I have been discussing QE a bit and trying to think it through. Essentially we started thinking about how if demand for long term credit is relatively elastic, at some low rate there will be a demand for long term credit (mortgage refinances est). But, I wondered, if the income gained by borrowers is the income lost to savers, the net effect is a wash.

    But then if we add in government and private sector balances to the picture, it seems that we get the following:

    QE shifts income from savers to borrowers. Since the government is the net borrower and the private sector the net saver in this context, on aggregate QE shifts income from the private sector to the government.

    Is this what you mean when you call QE a tax?

    Best,

    Reply

    warren mosler Reply:

    yes.

    Reply

  4. vimothy Says:

    Sorry, that was poor internets form. I should have said: apologies but this is totally off topic.

    Reply

  5. warren mosler Says:

    I define ‘limited govt.’ as the ‘right sized govt. as indicated in the address. and i specify i wouldn’t increase the size of govt to help the economy, but keep it at the ‘right sized’ govt.

    And note that almost all of my proposals have govt providing incentives rather than actually doing the work.

    Payroll tax holiday doesn’t add to govt.
    per capita rev distributions to the states doesn’t add to the fed govt.
    my healthcare proposal probably reduces real costs by 500 billion/year if measured in dollars.
    even the $8/hr job doesn’t add to govt in the sense that it will employ the unemployed who are already functionally in the public sector (as described in more detail elsewhere on this website) and serve to more quickly get them into the private sector, which is a net reduction in the public sector.

    So yes, I limit govt to the right sized govt, and with growing efficiencies and productivity the same functions should require fewer employees.

    and a private sector with the right level of agg demand will continuously offer paid employment to facilitate transitions from public to private sector employment.

    Reply

    zanon Reply:

    Govt should be as small as possible but no smaller. Impossible idea for certain types to understand

    Reply

    Ed Rombach Reply:

    Ironically, downsizing of government involvement in the economy and personal lives of citizens, which is a hallmark of Libertarians and Tea Party activists, runs parallel to the Marxist prediction that in the post socialist transition to pure stateless communism, the state would wither away.

    Reply

    AB Reply:

    I think that some people are not very specific when they talk about ‘big government’. Some probably think that govt. shouldn’t be spending as much money, some think of too many govt. employees, while others hate the notion that govt. tells us what to do with our lives. It all looks like a pretty blended bag of Tea.

    Reply

  6. Richard Benson Says:

    Warren says: So why is this administration kowtowing to China on everything from Korea to human rights?

    China threatens US sanctions over arms sale
    JOHN GARNAUT HERALD CORRESPONDENT
    February 3, 2010
    GUANGZHOU: China will erect trade sanctions against Boeing and other large US companies unless the US Congress blocks the Obama administration’s planned $US6.4 billion ($7.2 billion) weapons sales program to Taiwan, a senior defence strategist said.

    Rear Admiral Yang Yi told the Herald yesterday China was prepared to hurt itself in order to teach the administration a lesson.

    ”We’re waiting for the reaction from US Congress and if they don’t have a U-turn then the follow-up of sanctions will come soon,” said Admiral Yang, who previously co-wrote Chinese defence white papers while director of international strategic studies at the National Defence University.

    ”We are clear this action will harm ourselves but we don’t care,” he said. ”We are going to give a lesson to the US government that harming others will harm yourself. This will not only affect Boeing but all companies involved in this.”

    Reply

  7. jorge rl Says:

    Warren, stay independent, attaching to Democrats turns people off! It only detracts from your message.

    In other words fix one thing at a time, the Dem party and the Rep party are “lost”, Independent Tea party will be listenned to by everyone.

    Reply

  8. Richard Benson Says:

    There goes our standard of living Warren:

    Obama’s Math: More Exports Equals More Jobs
    By DIANA RANSOM
    Is President Obama’s plan to increase exports the booster small businesses need?

    On Thursday, U.S. Commerce Secretary Gary Locke revealed details about the president’s plan for doubling the nation’s exports in five years. The plan, known as the National Export Initiative or NEI, could support two million jobs, according to the president. Although many of the funds allotted to the program won’t be available until 2011, should the president’s budget pass, some efforts would go into effect immediately, said Locke at the National Press Club in Washington, D.C. In the past, export promotion was “a ‘some of the time’ focus” for cabinet agencies and departments, he said. Now, it will be an “all the time focus.”

    Under the program, the government hopes to strengthen U.S. efforts to promote exports from small businesses, help enforce free-trade agreements with other nations, and work toward eliminating barriers to sales of U.S. products. Leaders from various government agencies including the Department of Commerce, the Treasury Department, the State Department, the Small Business Administration, and the U.S. Trade Representative will also be required to form a so-called Export Promotion Cabinet that will submit a detailed plan to the president about how they will collectively enhance U.S. exports.

    In addition, the president has called upon the Export-Import Bank—an independent institution that provides financing to U.S. companies when private banks won’t—to increase its financing activities to small- and medium-sized businesses from $4 billion to $6 billion over the next year.

    During the downturn, small business owners’ number one complaint has been their ability (or inability) to reach their sales goals, says Bill Dunkelberg, chief economist for the National Federation of Independent Business in Washington. Less than 1% of companies expected to increase sales in January, down from 1% a month earlier, according to the NFIB’s latest “Small Business Trends” survey. Helping U.S. companies export doesn’t just make sense financially for those firms, it could also boost jobs—especially in the manufacturing sector, he says.

    Still, this initiative won’t be easy. Less than 1% of the country’s 30 million companies export, according to Locke. Even fewer small companies do so, says Dunkelberg. Plus, there are very real barriers associated with international trade. Among them: currency exchange, cross-border tax differences and language barriers often inhibit a more vibrant export market.

    Given these constraints, some small business owners are skeptical about the president’s plan to boost exports. “The only thing you can really expect from the government on the level that Obama is talking about is introducing parties,” says Scott Layman, a co-owner of Zyvax, a specialty chemicals supplier in Ellijay, Ga. “If anything, the countries where the government has injected itself the most—[North American Free Trade Agreement or] NAFTA countries—are the hardest places for us to export to,” says Layman, whose company now exports to roughly 100 countries.

    Brian Burt, the chief financial officer of Hardwoods of Michigan, a small flooring supply company in Clinton, Mich., says the risk involved with exporting is his biggest issue. Not only is there potential for getting stiffed and having no legal recourse, the time it takes to receive payment from foreign customers is lengthy. Typically, payments in the flooring industry clear in 30 days. For foreign customers, payments generally take 70 to 90 days, he says. “We manage our inventories well but couldn’t afford to have many more of our sales come in at 90 days,” says Burt. That said, if the president’s new plan does in fact help boost his company’s exports from roughly 5% or 10% to 20% or 30%, “we would definitely be adding people on,” he says.

    http://online.wsj.com/article/SB10001424052748704533204575047150436100266.html?mod=WSJ_hps_sections_smallbusiness

    Reply

  9. markg Says:

    Warren,
    How was your message received by the tea party?

    Reply

  10. warren mosler Says:

    Very, very well.

    They are having me back for a repeat next saturday near DC.

    Fits with lower taxes, competitive market solutions, and fiscal responsibility defined as the govt being responsible to keep taxes at the right level for optimal output and employment.

    Reply

    Slawek Galimi Reply:

    Warren,

    I’m having a difficult time with two key issues.

    First is Sara Palin. She was extremely well received by the Tea Party movement but she’s advocating a very different economic belief, at least with respect to deficits.

    The second is a little more subtle (I suppose). If politicians actually ever learn to understand reserve accounting and that debt is not truly debt, what will ever stop them from spending? Are we not, at least most of the time, better off with our pols thinking we might run out of money? I just can’t imagine what Maxine Waters or Nancy Pelosi would advocate and the damage they could do if they knew they were playing with funny money. Are you sure you want to attach yourself to that party?

    Reply

    warren mosler Reply:

    Sara Palin expresses the views and values of many millions of concerned citizens. Many of their views are based on deficit myths. I don’t take it any further than that.

    Second, fear of inflation runs very high. Note that even with today’s high unemployment there is little objection to the fed considering rate hikes (the fact that hiking doesn’t work like they think is a different story)

    Reply

  11. Slawek Galimi Says:

    Warren,

    I often laugh when I hear the pundits talking about “spending taxpayer money”. However, that is what they are doing indirectly, even if there is no direct link between spending and taxing. In order to maintain a non-inflationary budget deficit level of let’s say 5% of GDP, the government does need to take dollars from taxpayers each time they spend dollars…otherwise the economy gets “too hot”. If they don’t tax, then they are spending our money in the form of reducing its worth through inflation. I doubt that you’d disagree (unless I’m misunderstanding you) with this premise. That said, how can you trust politicians of either party to restrain spending once they realize that the debt isn’t truly debt as states, municipalities, businesses and individuals think of debt?

    Reply

  12. beowulf Says:

    Good speech Warren. Just a note that while perjury laws require the person to be under oath, however the “Martha Stewart” law (18 US 1001) require only that the material falsehood be told to an investigating federal official (its broader than just “lying to the FBI”), there is no requirement to be under oath or for the person to be guilty of an underlying crime, as you’ll recall Martha Stewart was acquitted of insider trading charge and was only convicted on a 18 US 1001 charge (maximum sentence of 5 years).

    If Congress can impose stiff penalties to force citizens to tell the truth to government officials, then its only fair that Congressmen and other federal candidates face the same obligation to tell the truth to the citizens who elect our government.

    On another note, if you are headed out on the campaign trail, pick up a book or two by Nixon/Ford speechwriter James C. Humes. He boils down speechwriting (and speechgiving) better than anyone else I’ve read. Here’s a fair summary of some of his points (from an article, curiously enough, about teaching biology).
    http://www.psychologicalscience.org/observer/getArticle.cfm?id=1766

    Reply

  13. Rodger Malcolm Mitchell Says:

    Sorry to be late to the party. Good speech. Unfortunately, I don’t see your name in the news. You need a good PR/marketing guy, who can guide you in getting campaign donations, that will pay his fee.

    I truly wish I could go along with the use of taxes (i.e., reduce deficits) as a way to fight inflation. It’s a bad idea for several reasons:
    1. Too slow. By the time a tax increase is passed, then implemented, a year could go by
    2. Too political. Which tax on whom? See #1.
    3. Unfair. All taxes are unfair. See: http://www.rodgermitchell.com/FairTaxes.html ) so no matter what you do will be wrong.

    Since money is a commodity, increasing demand (interest rates) would increase value (reduce inflation). Interest rates can be increase or decreased instantly, and are far less political. As for your concern that raising rates increases costs, thereby increasing inflation, I see no relationship between low rates and high inflation.

    Good luck.

    Rodger

    Reply

  14. caleb Says:

    Who is Congressman Pelley?

    Reply

    caleb Reply:

    “Congressman Pelley” I think you mean Scott Pelley reporter for CBS News and 60 Minutes.

    Reply

  15. WARREN MOSLER Says:

    Yes, I’ve corrected that elsewhere, thanks

    I’ll have Michael do that here too.

    Reply

  16. Tempest Says:

    You invoke the names of Jefferson, Jackson and advocate “limited government”, yet you support MMT? Those are counter positions as MMT requires extensive government intervention in the market place. Do you think Jefferson and Jackson would buy into the idea of “counter cyclical” stimulus and using taxes as a thermostat on the economy?

    That is central planning.

    Also, what exactly are all of those people being paid $8 an hour by the government going to be doing?

    Reply

    Tom Hickey Reply:

    Here’s a summary about the JG/ELR with links to catch you up to speed. Also see thisin mandatory readings in the menu bar. When you have finished you might like to peruse this.

    Reply

  17. Tempest Says:

    “Employer of Last Resort”

    The State hiring people so as to ensure “full employment”. A policy straight out the Soviet Union (and other Socialist/Fascist states). And look how well that worked out!

    What are all of these people going to be doing? How do we know that the work they will be doing will be productive? Government is terrible at increasing productivity and often (usually?) obtains negative productivity. Such is very evident in public schools.

    And even if the rate started low, there would soon be calls to raise the low compensation rate because it wouldn’t provide a “living wage”, and politicians would quickly figure out that it would be a great way to buy votes (as is the real goal of all transfer programs). Then you start to have a real competition with the private sector and government will always win because it has the rule of law and can print all the money it wants.

    MMT lives in a fantasy land.

    Reply

    WARREN MOSLER Reply:

    it only has to be marginally better than the unemployment it ‘replaces’ which it clearly is.

    and it should be obvious that there are more things to do every day than there are people to do them.

    labor is naturally a scarce resource.

    it’s bad fiscal policy that squanders this valuable resource in the unemployment lines

    Reply

    Tempest Reply:

    So unemployment is bad.

    What is the difference between unemployment compensation, and Social Security payments that you support?

    They both pay people to be unproductive.

    Reply

    WARREN MOSLER Reply:

    My fica tax suspension is designed to restore the private sector spending that creates funded jobs.

    My $8/hr federally funded job for everyone willing and able to work helps transition people from unemployment to private sector employment.

    Social Security is to support people of retirement age at some minimum that keeps them out of garbage cans. Some humans value caring for their elderly, some don’t. you’re entitled to your opinion. then we vote.

  18. Tempest Says:

    So then why do centrally planned economies always fail?

    Reply

    Matt Franko Reply:

    Temp,
    A tax cut is not central planning.
    Resp,

    Reply

    Tempest Reply:

    Sure it is. Congress uses taxes to regulate demand, and therefore the economy.

    Reply

    WARREN MOSLER Reply:

    so that happens to be a fact, not a philosophy.

    we all agree congress regulates the economy.

    that doesn’t mean we like it, or agree with how they do it, or how much of it they do or don’t do.

    the difference here vs elsewhere is that elsewhere, including Congress and the President and the Fed,
    is they think the purposes of federal taxes (and borrowing) is to get dollars to spend.

    And because they have it wrong, they are making decisions that are destroying and otherwise modifying our economy in ways
    they would not be doing if they instead understood that taxes function to regulate the economy, and not to raise revenues.

    That’s all. So please stop with your cheap shots and innuendos about MMT saying this and that.
    All it says is that taxes function to regulate aggregate demand, and not to raise revenue per se.
    And your job, now that you know this, is to get out there and spread the word.

    Tempest Reply:

    Believe me, I have been. I’m all about getting facts out into the open.

    “we all agree congress regulates the economy. ”

    Thank you. But I think you will agree that topics such as SS and JG are not part of MMT?

    WARREN MOSLER Reply:

    “But I think you will agree that topics such as SS and JG are not part of MMT?”

    That question ‘mixes metaphors.’

    MMT says govt checks won’t bounce, but they can cause inflation and they do alter distribution.

    That means Social Security and JG won’t ‘bankrupt the nation and leave the tab to our grandchildren.’

    It doesn’t mean those programs don’t have economic and social consequences on which to judge the merits.

    Such as support of our elderly, and providing a transition mechanism to move people from unemployment to private sector employment.

    With the real cost being the food the elderly eat, the clothes they wear, etc. and the additional real consumption of the formerly unemployed who enter the transition job along with the benefits of any useful output and beneficial social consequences and reduced negative externalities including crime and family breakups.

    Tempest Reply:

    “”MMT says govt checks won’t bounce, but they can cause inflation and they do alter distribution.”"

    Such is my understanding.

    “”It doesn’t mean those programs don’t have economic and social consequences on which to judge the merits.”"

    But that is not part of the MECHANICS of MMT correct? And that they are not prerequisites to the existence of MMT.

    “”That question ‘mixes metaphors.’”"

    That is a source of great consternation over the last couple of days. ;)
    If the mission of this site is to educate people, using clearly delineated terms would help, and that is what I am trying to accomplish.

  19. Larry Says:

    I was wondering if China can take its FED bank statement and buy USA commercial real estate. There are many banks that would like a buyer for commercial mortgage paper in default. A trillion USD would buy a lot of commercial deals which could be foreclosed. China would then have “real” assets and the banks would have China’s FED bank statement.

    Reply

    WARREN MOSLER Reply:

    china can buy what they want from willing sellers

    Reply

Leave a Reply

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>