Posted by WARREN MOSLER on June 22nd, 2010
Warren will be on Fox Business tomorrow morning at 9:30. Video to follow.
This entry was posted on Tuesday, June 22nd, 2010 at 8:08 pm and is filed under Deficit, Government Spending.
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Knock ‘em dead.
will try to lead with two things for him to ponder
operationally spending is not revenue constrained
taxes function to regulate aggregate demand, not raise revenue per se
ESM Reply:June 23rd, 2010 at 9:13 am
It’s probably too late for you to read this, but it’s important to point out that the money that the Treasury spends ultimately must be recycled into Treasuries or else earn 0% interest. Even the deficit hawks understand that the government can print money, but what they don’t seem to understand is that the non-governmental sector is forced to buy Treasuries with their dollars. Therefore, the interest rate that the Treasury pays on bonds has little correlation to the size of the deficits (in fact, if anything, the correlation is negative).
When you tell them that the Treasury spending is not revenue-constrained, they’re going to just say “Yeah, sure, but it will lead to higher interest rates if they deficit spend too much.” That innocent fraud is what you have to focus on.
Tom Hickey Reply:June 23rd, 2010 at 11:31 am
ESM: When you tell them that the Treasury spending is not revenue-constrained, they’re going to just say “Yeah, sure, but it will lead to higher interest rates if they deficit spend too much.” That innocent fraud is what you have to focus on
Exactly. This myth is at the foundation of “the bond market rules.” The best way to break this illusion, in my view, is the no bonds proposal and letting the interbank rate fall toward zero with excess reserves. Once this is understood as an option under the current system, the truth is out. Then, can get that issuance of Treasuries is to provide a parking place rather than finance spending.
I think it is also valuable to attack the neoliberals and libertarians with their own arguments. Why should a small group of unelected and unaccountable technocrats be delegated the power to set the price of money, which is what interest rate setting does. It is anti-calitalistic and anti-democratic. Moreover, even their heroes, Hayek and Friedman, advocated getting away from this.
ESM Reply:June 23rd, 2010 at 9:39 am
Great job, Warren! But you didn’t have enough time to break through unfortunately. I guess we can’t expect anybody to have an ephiphany in 3 minutes on live TV.
beowulf Reply:June 23rd, 2010 at 12:02 pm
It can take an experience cult deprogrammer days to break through. Three minutes on a Wednesday morning would be fast work indeed. :o)
Having said that, I’ve changed my mind on that Beardsley Ruml article (Taxes for Revenue Are Obsolete). It probably would make a good prop to quote from, citing Ruml’s experience as NY Fed Chairman during World War II (working closely with Tsy, apparently tax withholding was his idea). If you were so inclined, you could segue into mentioning how the Fed providing fixed low interest funding to the Government during WWII. There was never a risk of “running out money” even in 1943 when 28% of the GDP was deficit spending.
Anyway, if you said its been known since World War II that taxes aren’t needed for revenue, held up the article’s headline and then quoted “Chairman Ruml”, well, that might help with the cult deprogramming efforts. Here’s a pdf of the American Affairs issue the Ruml article came from (p. 37 of 76).
The good Austrians at the Mises Institute have several years worth of “American Affairs” online (1945 to 1950). I leave it to the retired or bored to figure out if there are any other articles there worth reading. :o)
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