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

Krugman & 7DIF

Posted by WARREN MOSLER on February 23rd, 2011

>   
>   (email exchange)
>   
>   On Tue, Feb 22, 2011 at 9:15 PM, wrote:
>   
>   Paul Krugman gave a speech at Florida Atlantic University and agreed
>   to a brief meeting with our econonomics club.
>   
>   I thought you might enjoy the attached picture.
>   

108 Responses to “Krugman & 7DIF”

  1. Oliver Says:

    Krugman with two officers of the First Church of Modern Monetology after a successful audition in which he attained the first level of FIAT with honors.

    ;-)

    Reply

  2. anon Says:

    he looks delirious

    too much sun?

    induced chemical imbalance?

    :)

    Reply

    beowulf Reply:

    “he looks delirious

    too much sun?” :o)
    Suppose further,” Socrates says, “that the man was compelled to look at the fire: wouldn’t he be struck blind and try to turn his gaze back toward the shadows, as toward what he can see clearly and hold to be real? What if someone forcibly dragged such a man upward, out of the cave: wouldn’t the man be angry at the one doing this to him? And if dragged all the way out into the sunlight, wouldn’t he be distressed and unable to see “even one of the things now said to be true,” viz. the shadows on the wall (516a)?
    http://en.wikipedia.org/wiki/Allegory_of_the_Cave

    Reply

  3. Mr. E Says:

    !! Where was this?

    Reply

  4. rvm Says:

    He better devote a blog in his NYT column about the book he is holding on the picture!

    Reply

  5. Mike V Says:

    Nice! It would be great if Krugman helped spread the word.

    Reply

  6. Dan F Says:

    Nice! Have you ever met Krugman?

    Reply

    WARREN MOSLER Reply:

    yes, had dinner a year or so ago down here. went through the whole thing. he got it, but hasn’t let on.

    Reply

    beowulf Reply:

    Krugman needs to abandon Paul Samuelson and embrace Paul Davidson.

    It is not often that Paul Samuelson and Paul Krugman are indicted for lack of fidelity to Keynes, but this is exactly Paul Davidson’s complaint against them. Davidson is a leading Post Keynesian, who holds that almost all economists, even professed Keynesians, have been untrue to the radical vision of The General Theory. The pseudo Keynesians attempt to domesticate Keynes by combining his theories with neoclassical economics; in fact, the two approaches are diametrically opposed… [quoting Davidson]“In Chapter 19 of his General Theory, Keynes specifically stated that his theory of unemployment did not rely on the assumption of wage and/or price rigidities. He claimed that his theory provided a different analysis where the cause of unemployment was related to the operation of financial markets and the public’s desire to hold liquid assets.”
    http://mises.org/misesreview_detail.aspx?control=365

    Reply

    WARREN MOSLER Reply:

    once they realize the currency is a public monopoly it will all be one big happy family

    JCD Reply:

    It may be a public monopoly, but it is supported unequally. The currency only has value because the government can and does enforce taxes. But taxes are not borne equally.

    Tom Hickey Reply:

    Warren, what do you suppose is so hard for them to get about this? Why would very smart people miss it when it seems so obvious. I mean, isn’t that bound up in the whole notion of fiat currency?

    Similarly with sectoral balances. Seems like Macro 101 to me, but I’m not an economist.

    Reply

    Anders Reply:

    Warren – adding to Tom’s question, what is Krugman waiting for? I can’t see how the penny can have dropped with him, and yet he continues to peddle “loosen now, tighten later” line. Really bizarre.

    I’m engaging with some professional UK-based economists at the moment that I am exposed to through work, with a view to persuading them to start spreading the MMT word; but if even Krugman can sit through a dinner with the Master without changing his line in public, I’m not sure it’s worth me bothering.

    Reply

    WARREN MOSLER Reply:

    give it a shot, can’t hurt!

    hbl Reply:

    Tom & Anders-

    I’m guessing and am likely out of my depth, but I suspect there are two answers to your question:

    1. Krugman probably “gets” most of MMT, but the facts remain that: (a) he is a strong democrat politically, and (b) one of the easiest ways to push for reduced concentration of wealth and income is to suggest controlling long term government deficits (i.e., high enough taxes on the rich to reduce this concentrating effect).

    2. He probably doesn’t “get” all of it. For example he still puts up IS-LM graphs and the like, and if I understand correctly, some of that stuff is a lot less relevant post-gold-standard.

    Reply

  7. Winslow R. Says:

    First thing to come to mind, Photoshop?

    I’m sure he’s read a few things regarding MMT.

    Nice advertising, negotiate an endorsement fee?

    Reply

  8. jaymaster Says:

    This was probably taken just before he threw it on the floor and urinated on it….

    Reply

  9. JCD Says:

    Wow. He’s short.

    Reply

    ESM Reply:

    JCD,

    As I know you know, physical stature is completely irrelevant. Milton Friedman was diminutive ( 6’6″) feel very small.

    Likewise, Paul Krugman is physically small (5’5″ or so), yet he is one of the world’s biggest jackasses.

    Reply

    ESM Reply:

    Whoa, that didn’t come out right. Should be:

    “Milton Friedman was diminutive (5′ 3″ or so), yet was an intellectual giant who probably made Paul Volcker (> 6′6″) feel very small.”

    Reply

    beowulf Reply:

    Its simply a matter of perspective, the evidence equally supports the possibility that the students he’s standing with are freakishly tall. :o)

    yet he is one of the world’s biggest jackasses.
    I’ve never met the man, but from his columns at least, his heart seems in the right place. Ranking him by his peers in the category of famous economics professors (so yes there’s a curve), he seems like an affable enough fellow. I could think of half a dozen others I’d pepper spray for sport, but Krugman seems all right.

    Reply

    ESM Reply:

    Well, Warren’s book would have to be freakishly big too.

    My problem with Krugman is that he’s intellectually dishonest. I think that’s obvious to anybody who knows some economics. He is also unreasonably vitriolic. As for being affable, I know economists who know him, and that’s pretty much the furthest word from their minds when they describe him. Not nasty or anything, but certainly not friendly or socially comfortable. Of course, the joke is that an extroverted economist is one that is willing to look at the other guy’s shoes.

    Reply

  10. mario Says:

    one of my main concerns with MMT is that it relies on POLITICIANS and fiscal policy to act rationally in economic affairs. This is unlikely I think…UNLESS the people overwhelmingly realize how MMT works and then politicians won’t be able to pass their “lines” off on them…like we can’t afford this, we can’t afford that…think of our children’s debt inheritance, etc.

    The other issue, like someone else said above, is that taxes are not equally paid but many benefits are…does MMT suggest a flat tax for all over our current tax rates?

    Also when the Fed gives the Treasury their spending money, does the Treasury give the Fed bonds in return? Is it okay for the Fed to expand its balance sheet forever as the Treasury continues to spend? How does the Treasury ever pay back the Fed if taxes don’t add revenue to the Treasury?

    I’ve been spreading the word of MMT on my facebook account and these are some of the questions I’ve been getting and don’t exactly know the answers.

    I’d really appreciate people’s help with these if at all possible.

    Thank you!

    Reply

    Neil Wilson Reply:

    MMT doesn’t. MMT just describes how the money system work.

    You then take the insights from MMT and design a political system based upon it.

    I’m not keen on anything that requires the ‘Wisdom of Solomon’ to operate effectively. The adjustments should be automatic.

    Which is why a Job Guarantee is the best of the MMT inspired policy ideas – since it is just an enhancement of the existing automatic counter-cyclical stabilisers.

    Everybody needs an income, and that income should be the minimum required to exist at the minimum acceptable standard for the society you live in.

    If you don’t accept that, then ultimately you end up with the elimination of excess population through deprivation.

    Reply

    Tom Hickey Reply:

    If you don’t accept that, then ultimately you end up with the elimination of excess population through deprivation.

    Or the excess population eliminates you. :o

    Reply

    beowulf Reply:

    The market always clears! :o)

    WARREN MOSLER Reply:

    MMT for the most part just tells you how it works and what your options are.

    I think your tsy/fed questions are addressed in The 7 Deadly Innocent Frauds on this website, thanks

    Reply

  11. mario Says:

    also it’s really cool that Paul’s got the book and you’ve talked with him too…hopefully he’ll start coming out the closet sooner than later!!! haha!! :D

    Reply

  12. LetsGetItDone Says:

    Wonder how they got him to pose with 7 DIFs? Did the folks at FAU give him a free copy?

    Reply

  13. Tom Hickey Says:

    BTW, Jeff Sachs was on the Ed (Schultz) Show last evening and he sounded positively revolutionary. Maybe there is hope for Krugman to get fired up.

    Reply

    WARREN MOSLER Reply:

    can’t remember if my jeff sachs story was in my book?

    Reply

    Peter D Reply:

    No, I searched the PDF – no Sachs

    Reply

    MamMoTh Reply:

    now you have to find the time to tell us!

    Reply

    beowulf Reply:

    Warren, you should write an article called “Famous Brains I Have Melted” where you share your Jeff Sachs story (which I don’t remember reading before) as well similar stories, some of which are in your book (Summers, Gore, Rumsfeld, etc), one after another.

    How did you get in the room? How did they respond to your ideas? Did you hear any follow up? What would they have done differently had they followed your advice (or in the case of Andy Card, not followed your advice)? Heck, before you print it, contact them all for a comment (Rummy has a book to sell, so I bet he gives you a quote if you promise to mention “Known and Unknown” published by Sentinel). :o)

    WARREN MOSLER Reply:

    So I was in a meeting in Boston with Jeff Sachs and Ben Friedman and one other Harvard dude, and a few Merrill people and some Harvard money managers who had set it up. We got around to talking about Japan. That day Sachs had an editorial in the wsj about how the BOJ should print money, and criticizing them for not doing it.

    I led with, ‘there’s nothing the boj can do. Rates are at 0. it’s up to the mof.”

    To which Sachs (predictably) stated, ‘no, the can print money’

    To which I said ‘well, i’m an operations type of guy, what do you mean, printing money? so the boj prints a stack of yen. what do they do with it? if they spend it, or throw it out the window, that’s a fiscal transfer. lending isn’t reserve constrained- there’s no line of borrowers waiting for the banks to have yen to lend, in fact, the opposite is the case. ”

    Sachs and Friedman just start looking at each other. Then Sachs, says, “well, they can buy JGB’s (japan govt bonds)’
    It was like a kid who gave the wrong answer, got called on it, so went to a second choice. except these are hvd economic professors.

    So I said “well, if they buy jgb’s, all they are doing is exchanging interest bearing jgb’s for reserves with the banks. total bank assets don’t change, and allthey are doing is modestly reducing bank income. reserves are just a bank tax.”

    Now they are getting very uneasy. They’ve been teaching for years that reserves are a bank tax in their intro money and banking courses. there’s nothing to argue. so what does Sachs do- gives up on answer 2 and moves on to answer 3:

    “they could buy $”

    to which I said, ‘yes, they could sell the yen down to 200, which i would call off balance sheet deficit spending, but if that’s what you thought they should do you would have written that the BOJ should be selling yen to buy dollars, rather than criticizing them for not ‘printing money’ as you did in today’s wsj. Look, printing money is a gold standard term, the ratio of gold certificates vs actual gold reserves. it has no application whatsoever with today’s non convertible currency regimes.”

    to which he and Friedman replied, ‘yes, I guess we need to go back and rethink what we’ve been saying.’

    Tom Hickey Reply:

    :)

    Warren, you should write a book of stories. It would be a NYT bestseller, if people could understand it, that is.

    beowulf Reply:

    Good for Sachs and Friedman for at least having an open mind about it. Cognitive dissonance is strongest in those who have most invested in the existing paradigm.

    For decades, doctors (“real doctors” as my physician dad would say) believed that peptic ulcers were caused by stressed-induced stomach acid. The only treatment was change of diet and antacids (Pharma spent much money developing drugs of this sort). Two Australian physicians Barry Marshall and Robin Warren came up with a theory that peptic ulcers were not a stress-induced illness but rather were caused by bacterial infection (h. pylori). Marshall went to so far as to drink h. pylori infused liquid to cause an ulcer (it did) and then cure himself with antibiotics (it did). For years they were rejected for research funding and roundly ignored by their peers stuck in the old paradigm. The first publication of their research in the United States was by… the National Enquirer. In 2005, Marshall and Warren were awarded the Nobel Prize in Medicine for finding the cure to peptic ulcers.
    http://books.google.com/books?id=HqUZ-aeWENIC&pg=PA270&lpg=PA270

    Of course Medicine is a “real Nobel Prize”. If it was up to the Reserve Bank of Sweden, no doubt Marshall and Warren would still be waiting. :o)

  14. Peter D Says:

    By the way, this editorial from 2004(!) sounds positively as if written by Warren! Hat tip: Mr. E (the editorial is the one Bob Murphy tries to “refudiate”)

    Reply

    Peter D Reply:

    he even proposes a payroll tax holiday! Warren, he must have consulted with you.

    Reply

    WARREN MOSLER Reply:

    and maybe read the book!

    Reply

    beowulf Reply:

    Warren is being modest, he and Tom Nugent have co-written articles together.
    http://www.nationalreview.com/articles/209617/debtor-nation-without-rhetoric/warren-mosler

    What’s curious is that while MMT (and by extension, Keynesian economics) is usually associated with liberals, there’s no ideological reason conservatives don’t adopt it and use it to further their own political goals. Tom Hickey has made the point that in a very sneaky way, some of them have. Arthur Laffer and other supply-siders DO understand MMT but feign ignorance by jumping on the deficit hysteria bandwagon simply to starve govt spending programs (sure there’s wasteful spending, but deficit hysteria misses the point that spending cuts not matched with tax cuts only deepen the output gap). My theory why conservative politicians have been marching to Austeria ever since Obama took office is because some GOP pollster figured out that many Americans confused “Keynesian” with “Kenyan”. :o)

    Bruce Bartlett’s mistake was that he became a deficit hawk a little too early. He was fired from the conservative American Enterprise Institute during the Bush Administration for criticizing Bush’s fiscal policy (ironically, from the MMT standpoint, Bush’s tax cuts were the most commendable part of his Administration). However he did a fascinating article couple of years ago worth reading, “Keynes Was Really A Conservative”.
    In Keynes’ view, it was sufficient for government intervention to be limited to the macroeconomy–that is, to use monetary and fiscal policy to maintain total spending (effective demand), which would both sustain growth and eliminate political pressure for radical actions to reduce unemployment… As Plumptre put it, Keynes “tried to devise the minimum government controls that would allow free enterprise to work.”
    http://www.forbes.com/2009/08/13/john-maynard-keynes-conservative-opinions-columnists-bruce-bartlett.html

    As Keynes said of Hayek’s Road to Serfdom, “Morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement.” :o)

    Reply

    Tom Hickey Reply:

    Good one, Beowulf. What most people don’t realize is that at the time socialism was a real threat to capitalism at the time, and the General Theory was about saving capitalism. Apparently, this has been forgotten.

    In the meanwhile, capitalism has been converted into corporate statism and runs the danger of being creative destroyed (see Schumpeter, Capitalism, Socialism and Democracy (1942). Will we see the emergence of social democracy in the US “after the fall”?

    WARREN MOSLER Reply:

    A few years ago i talked to one of the current leading marxists and he said he didn’t like what i’d been doing, and not because it wasn’t correct.

    in fact, he agreed with it, and didn’t like it because he didn’t like anything that might keep capitalism going.

    WARREN MOSLER Reply:

    Jamie Galbraith and I worked on Bruce for over an hour on monetary operations a few years back and seemed he simply had no ability to grasp it.

    Kind of like people who can’t do math, or can’t do languages.

    Anders Reply:

    That’s what’s so frustrating – this stuff ought to appeal right across the political spectrum. This old Cato Institute piece is straight out of the MMT playbook

    Reply

    mario Reply:

    Great discussion here guys. What’s even more interesting is that Marx himself wasn’t even against capitalism…if you really read him. He even states in his preface to the 2nd or 3rd publication of the manifesto that much of it was already outdated b/c much of what the manifesto demanded had already been accomplished!?!?!

    Marx was more about a “blind” government and decent human rights in the workplace and a truly “open opportunity” for social advancement for all people. Much of that was and has been accomplished in the US in particular simply due to free land that was available and a lack of historical “nobility” per say.

    People just don’t realize that Marx was really NOT for a socially distributive economy (aka communism/socialism)…and if you really read Marx (like his essay “On the Jewish Question”) that he is probably more in support of American Democracy than most politicians today…he would totally TAKE OUT lobbyists if he was alive today imho.

    Most Marxists, including whomever you talked with Warren, just don’t understand Marx and his own ideas in reality (imho at least). I think Marx would embrace MMT as much as any of us imho…well at least I do and I love both Marx and MMT.

    I sincerely hope that all politicians realize the power of MMT and our actual economic system in the USA b/c very truly we could have a great economy, lifestyle, and standard of living, and NOT live with bread and toilet paper lines the likes of communist russia either!?!?! Dear God help us all!!!

    Reply

    WARREN MOSLER Reply:

    good to hear it, thanks!

  15. Rodger Malcolm Mitchell Says:

    The single greatest mystery in economics is not why the economy acts as it does, nor how to prevent recessions/depressions nor what measures are most indicative of economic futures. No, the single greatest mystery is why otherwise intelligent people either do not understand, or claim not to understand, or simply don’t want to understand, the implications of Monetary Sovereignty.

    Solve that mystery and you can begin to save the world.

    Rodger Malcolm Mitchell

    Reply

    mario Reply:

    amen brotha!!! so true!!!

    But as they have always said…the world has always changed due to the likes of a few collective individuals…so here we go again!! :D

    Reply

  16. Howard Says:

    As a newcomer, I have a question I hope someone will be kind enough to answer. I understand that taxes buy nothing and serve a quite different purpose; I also understand that governments do not “run out” of money or have to balance expenditures and income. What I don’t understand is how the dollar can be issued in the trillions and not lose purchasing power or “value,” either in the US or abroad. Is it just because the amounts that countries hold as reserves is now so huge that they are locked-in? To abandon the dollar would be to grow broke? In fact, if the dollar devalues a lot, doesn’t that have a catastrophic effect on other countries whose dollar reserves essentially buttress or determine the value of their own currencies? In this sense, is the dollar like gold used to be?

    Reply

    WARREN MOSLER Reply:

    It’s all about ‘savings desires’ which you allude to.

    see ‘soft currency economics’ on this website, as well as the 7 deadly innocent frauds

    Reply

    Jim Baird Reply:

    Remember – the last few years have seen vast meltdowns in the value of housing and housing debt. Households and corps have been desperately trying to repair their balance sheets. While the deficits look huge, they are really fairly puny compared to the increased savings desires.

    Reply

    Tom Hickey Reply:

    The global economy is a commodity-based market economy. Commodities are produced for exchange, not use by the producer. Market exchange is based on price, i.e., money. Therefore, there has to be enough money exchanged to facilitate the desired transactions for the market economy to perform optimally. Money underlies both the effective demand that signals active desires to buy to producers, and money also underlies the investment that producers use to produce supply to meet anticipated demand based on these signals from markets.

    The right amount of money for optimal economic performance in a market-based economy has to provide for both consumption and demand leakage, e.g., saving, as Warren states above. Unless there is enough money to satisfy both demand to consume and also to save, there won’t be enough money available to buy potential supply, unsold inventory will build and the economy will underperform, because business is being forced to save more than it wishes, hence, will cut back production of new inventory.

    The problem the world economy faces today is a demand problem, as shown by the billions of people that are unemployed, underemployed, or non-participants and have high notional demand but low effective demand. They would like to purchase but don’t have the money to do so.

    This indicates that there is not enough money in the global system to accomodate full employment along with saving desire. Admittedly, there is a lot of money is the system but the saving desire is very high in relation to demand to consume. This shows that there is an imbalance in flows. However, there is no global control center to direct flow. This is left to the market and the market is directing flow ineffectively and inefficiently, in that the global economy could be a lot more productive, including providing employment.

    This is a problem of distribution. Markets are supposed to handle distribution efficiently according to neoliberal doctrine, but we see a mountain of evidence that this is not so.

    So the global economy only needs to consider consumption and saving desires in determining how much money is the right amount to facilitate optimal economic performance — full employment (everyone who wants a job has a standing offer) and price stability. Price stability doesn’t necessarily mean that prices do not rise but that all factors remain balanced in real terms. As long as the increase is moderate, a small increase in inflation encourages investment over saving.

    The trick now is to get the global economy working harmoniously and the present neoliberal system is not cutting it in real terms as shown by mass unemployment. Currency issues are a side show in comparison. Presently, there is no control system for managing flows, so there are huge imbalances that threaten global stability not only economically but also politically. The invisible hand is not hacking it, because, as Joseph Stiglitz recently observed, “There is no invisible hand.” I would add that if there is an invisible hand, it is crippled, because the assumptions underlying (perfect competition) do not hold in the real world of vested interests that tip the playing field.

    The problem is that those who are now in charge of consider the global economy as a closed economy are doing so based on neoliberal dogma, as well as in terms of vested interests. One cannot expect a very good outcome from that process and, indeed, the record has been dismal. The world either fixes this or faces continuing conflict and wars.

    Reply

    WARREN MOSLER Reply:

    “The right amount of money for optimal economic performance”

    you mean the right amount of govt net spending

    :)

    Reply

    Tom Hickey Reply:

    Yes. The government balance has to offset the nongovernment balance such that the deficit makes up for the demand leakage. Since there is no state, hence no state money or budget sitting at the top of the global economy, lagging global demand is a problem due to excessive global saving at the top of the money chain. The invisible hand is not working here. It is also creating a superclass that is vested in the status quo and extending it. Since the superclass is primarily Western oligarchs and clients, this is provoking a reaction, e.g., China and Russia.

    If the US and rest of the developed world were operating optimally, that is, at full employment, and also absorbing the leakage due to imports as well as saving though deficits, their real terms of trade would be advantageous and they would be contributing to increased demand in the developing world simultaneously, a win-win.

    So, yes, the answer is more government net spending with global unemployment so dismal. However, there should also be reform that prevents capture of saving at the top through economic rent. Creation of a rentier superclass is not in anyone’s interest but the superclass, and it gives the superclass inordinate power and influence.

    Otherwise, the developed world will leak jobs to the developing world through labor arbitrage, as well as drive down wages in the developed world, reducing demand, and this will eventually create political instability that could lead to protectionism of one sort or another, which would not be good for anyone.

  17. Howard Says:

    To make it clearer, I assume issue of currency of a country should have some correlation to productive activity; thus deficit spending should be spent so as to increase productive employment. I suppose it could be argued that the trillions issues have been spent “productively” in the sense that they support an enormous industrial-military complex on the one hand, and that the trillions that have gone to the financial sector wind up as investments in the “emerging economies”. But that can’t be all of it; the quantities are too astronomically large. There has to be a ponzi-scheme like structure behind all these manipulations, doesn’t there? Is it not in large measure about a global power-grab before the thing tumbles down?

    Reply

    Tom Hickey Reply:

    Yes. Just what does anyone think that a military-industrial complex of the present size (and growing) is for?

    Reply

    Howard Reply:

    Thanks for the replies, Tom. Warren’s are a bit too telegraphic for me at my present stage of understanding. There really is a need for a more user-friendly version of MMT that also addresses certain contemporary political realities from which economics cannot really be dissociated.

    Your last “yes” relates to the military-industrial complex. Does it also apply to my characterization of “ponzi scheme” and its inherent instability?

    I think the problem of distribution is intractable. Will-to-power is not interested in such things.

    Reply

    Howard Reply:

    More precisely: just as Modern Money essentially exists thanks to an underlying coercion, so too the dollar hegemony, as it has been termed, exists thanks to guns and petro-dollars. There is an underlying and essential coercive element that has existed, particularly since the end of WWII. Do you agree?

    I supposed this could be nuanced by saying that it is less a question of dollar hegemony than excessive financialization of the US and other modern economies, but is that not precisely part and parcel of the accumulation-power strategy, its very linchpin?

    Reply

    Tom Hickey Reply:

    The issues you bring up are very real and pressing. A lot of the present social and political unrest is due to economic issues arising from the current neoliberal, neo-imperial and neocolonial regime that arose post WWII, and which is now dominated by finance capital.

    I believe that the world is experiencing a rebellion against neoliberalism, and this rebellion is going to be growing stronger and spreading more widely. This is going to force a change in political and economic paradigms that are now enforced by Western entrenched elites and their clients and cronies around the world.

    The result will be that people will be looking for alternatives, and MMT needs to be ready at hand to pick up. I don’t see this as “saving capitalism,” but rather making available the option of social democracy as liberal democracy based on a market economy with distributive justice.

    I see the MMT goal of full employment with price stability as integral to that as long as humanity is still working toward the age of abundance in which effective demand is decoupled from income from wages. If Ray Kurzweil’s law of accelerating returns is anywhere near correct, we are not too far away, if we can avoid blowing ourselves up in the meanwhile.

    ESM Reply:

    Dollar hegemony exists because the US is relatively big, relatively stable and, most importantly, relatively free. There is no coercion from the US side.

    One way to look at it is the following: Suppose you were an entrepreneur in a developing country who became wealthy very suddenly. Wouldn’t you want to put at least part of your savings in US dollars, if for no other reason than keeping it beyond the reach of your potentially corrupt and arbitrary government? What percentage would you keep in dollars? 2%? 5%? perhaps even 25%? Now multiply that across the entire world, and you get very big US dollar savings desires indeed.

  18. Joseph Says:

    Re: The single greatest mystery in economics

    This probably not an economics mystery, but a psychological one. Look to human nature and vested interests for the answer.

    I do have a question about MMT, however. If deficits equal savings, and if deficits have reached mind-boggling quantities, is it the case that the savings have been concentrated in few hands–i.e. the “banksters” hands, rather than in the public’s, which for its part has become impossibly indebted?

    Reply

    Jim Baird Reply:

    A lot of the savings has “gone overseas” – i.e. China and Japan. A lot of the rest has gone the to the corporate sector. Apple alone has a stash of cash of over $50B and rising. It used to be that personal savings funded corporate debt, now it seems corporate debt funds personal savings…

    Reply

    WARREN MOSLER Reply:

    most of the ‘savings’ are in the likes of pension funds and various other tax advantaged savings plans, like ira’s, corp reserves, etc. as well as foreign govts.

    but yes, the concentration has been moving north for quite a while, and maybe even accelerating north under the current govt.

    Reply

    Tom Hickey Reply:

    Tsys are held by the foreign sector, banks, and domestic private owners, including firms and individuals. IIRC, the division is roughly in thirds, and it is difficult to determine how much of this is held by the US middle class because the way that domestic private holdings are reported.

    But look at the income and wealth distribution figures for the US, and do the math. The bulk of national savings is not going to “the people” in the usual sense of the term, i.e., broadly distributed.

    The interest on tsys is essentially a subsidy for the top of the town, and given the way budgetary thinking goes in the US at present, this is eating into benefits for the middle class and poor in the appropriation process. Essentially, it’s the middle and bottom that is being forced to accept the “shared sacrifice.”

    Reply

  19. Rodger Malcolm Mitchell Says:

    Joseph,

    You said, “Re: The single greatest mystery in economics: This probably not an economics mystery, but a psychological one. Look to human nature and vested interests for the answer.” I assume psychology and vested interests are the cause (aren’t they always?), but that begs the question an bit.

    I understand why the economists, who have staked their reputations on statements about cutting the deficit and debt, would need to believe federal debt is bad. But, the vested interests of vast majorities, including most voters, most business owners, most poor people and most rich people, most politicians and most media would be better served by understanding the government’s greater ability to spend and reduced need for taxing.

    Given the huge numbers who would benefit by understanding Monetary Sovereignty, vs the relative few who benefit from denial, the mystery remains: Why have we been so unsuccessful? Specifically, what is the human nature and vested interests to which you refer?

    Rodger Malcolm Mitchell

    Reply

    Joseph Reply:

    Well, firstly there was no petitio principii in my statement, merely a suggestion that the answer probably does not lie within the sphere of economic inquiry alone.

    I suppose you’ve heard Shopenhauer’s aphorism a thousand times, but it is quite accurate. People react against those who question what to them seems either obvious or absolute or both. And entrenched views inevitably comprise a complex network of interests. This is doubtless why Warren has remarked that after some conversation a person has understood and agreed and yet goes on to preach according to the same old perspective. Moral courage and love of truth are among the rarest of qualities, in my experience.

    In the eyes of the crowd, money is wealth; it is inevitably viewed as a concrete reality and not as an accounting abstraction. To tell the average man that money is like points on a scoreboard strikes them as madness. In a very general way, a collectivity cannot assimilate abstractions; they have to be clothed in some concrete manner. This is why the crowd can be so easily manipulated by terms like “democracy” or “freedom” used by politicians and demagogues, who are expert in attaching concrete emotion and image-laden associations to them.

    Reply

    MamMoTh Reply:

    An accounting abstraction is a measure of something concrete. People are right to consider their money as wealth even if it’s stored as an entry in the spreadsheet of the bank where they deposited their money. The accounting abstraction measures how much goods or services they had to produce to obtain the money. They have every right to get mad if inflation wipes out the value of their past work, as any basketball team that is leading at the end of the 3rd quarter would get mad if points counted twice as much for the last quarter, or if the government awarded free points to the team that was losing.

    Reply

    Tom Hickey Reply:

    That’s why it is so necessary to achieve full employment with price stability instead of using unemployment as tool to target inflation, as current policy does. It is not only inflation that reduces people real purchasing power. A buffer stock of unemployed maintains wages lower than they would be otherwise. So under the current system in “fighting inflation,” those who work for a living have to accept lower pay. Hardly a good trade-off when there is a better alternative.

    Joseph Reply:

    “It is hard for the plain people to think about a thing, but easy for them to feel. Error, to hold their attention, must be visualized as a villain, and the villain must proceed swiftly to his inevitable retribution. They can understand that process; it is simple, usual, satisfying; it squares with their primitive conception of justice as a form of revenge…. [The average reader] is not at all responsive to purely intellectual argument, even when its theme is his own ultimate benefit…. But he is very responsive to emotional suggestion, particularly when it is crudely and violently made, and it is to this weakness that the newspapers must ever address their endeavors. In brief, they must try to arouse his horror, or indignation, or pity, or simply his lust for slaughter. Once they have done that, they have him safely by the nose. He will follow blindly until his emotion wears out. He will be ready to believe anything, however absurd, so long as he is in his state of psychic tumescence.”

    —————————-

    Tom’s Sanskrit quote–equivalent to the Latin vincit omnia veritas–is hardly convincing in this context, which is ia subset of the “march of folly.”

    Reply

    Joseph Reply:

    Forgot to credit H.L. Mencken for the quote.

    Reply

  20. Tom Hickey Says:

    Warren in #14 on February 27th, 2011 at 9:06 am

    A few years ago i talked to one of the current leading marxists and he said he didn’t like what i’d been doing, and not because it wasn’t correct.

    in fact, he agreed with it, and didn’t like it because he didn’t like anything that might keep capitalism going.

    I’ve run into similar objections when commenting on other blogs. People see MMT as patching a broken system that needs to just go away.

    I agree with this in part, in that the current system of corporate statism, which even many conservatives now admit is not capitalism, need to go away. But I point out that MMT not just fiscal fixes, it is also about reforming the now broken system.

    If Marxists are true to their principles, they would recognize that history is dialectical and one idea manifested in a cultural moment and its institutions is replaced by another as time change. As John Kenneth Galbraith documented some time ago, free market capitalism is no more with the rise of the modern corporation, whose goal is market domination. As Jamie continued in The Predator State, free market capitalism based on distributed competition has been replaced by an oligopoly of behemoth corporations that have effectively captured the state, turning ostensibly liberal democracy into an oligarchy of wealth, power and influence that has tilted the playing field.

    Schumpeter, who was anti-Marxist, was saying something similar, namely, that neoliberal capitalism taken to the extreme results in capture and subsequent overreach. His point was that “the people” would get fed up and replace the broken system politically at the voting booth.

    Schumpeterians see the likely outcome as something akin to Sweden’s social democracy rather than socialism as state ownership of the means of production. I think that some present-day Marxians (not Marxists) are basically OK with that as long as the result is distributive justice in a liberal democracy.

    Reply

    Rodger Malcolm Mitchell Reply:

    “. . . oligopoly of behemoth corporations that have effectively captured the state, turning ostensibly liberal democracy into an oligarchy of wealth, power and influence that has tilted the playing field.”

    Having “captured the state,” why do they prefer balanced federal budgets to Monetary Sovereignty? Wouldn’t the Koch brothers benefit from lower taxes and freer federal spending?

    Rodger Malcolm Mitchell

    Reply

    Tom Hickey Reply:

    Rodger, fiscal responsibility is about cutting social programs, which conservatives hate because they hate government and only tolerate it as “a necessary evil” in the words of AZ Gov. Jan Brewer. Government is a necessary evil for them because conservatives know that the government is needed to provide protection. It’s also useful for getting subsidies.

    Reply

    beowulf Reply:

    Right, “government” means programs you don’t need; programs you do need (or at least, want) isn’t government, its part of the “submerged state” and doesn’t count.

    Mettler’s upcoming book details exactly how the twin phenomena of sensationalism and submergence have conspired to sow mass cognitive dissonance. Citing findings from her nationwide survey, she shows that while most Americans conceptually support submerged-state pillars such as federal education tax credits, student loans and mortgage interest subsidies, a majority of those benefits’ recipients nonetheless tell pollsters they “have not used a government social program.”
    http://www.noozhawk.com/article/022111_david_sirota_the_significance_of_the_submerged_state/

    WARREN MOSLER Reply:

    yes

    Reply

    ESM Reply:

    Right, Rodger. I think you’ve put your finger on why left-wing talking points about the Kochs is absolute nonsense.

    Not only have they not “captured the state,” but the Kochs are hard-core libertarians who aim to make the state so small that it is not worth capturing. This is exactly the opposite strategy of, for example, the public sector unions.

    Reply

    Tom Hickey Reply:

    The state that is so small as not to be worth capturing is either a dictatorship or anarchy. Get real.

    beowulf Reply:

    I’m sorr ESM but you’re 180 degrees out of phase with reality. They want a state too small to have an EPA or TV networks that do investigative journalism but one big enough that a totalitarian dictator like Joseph Stalin can make their father a rich man.

    “Bill Koch [the "white sheep" of the family b] filed a lawsuit in federal court claiming that much of the oil collected by Koch Industries was stolen from federal lands. At the trial, 50 former Koch gaugers testified against the company, some in video depositions. They said Koch employees had a name for cheating on the measurements.

    “We in the company referred to it as the “Koch Method” because it was a system for cheating the producer out of oil,” said one of these gaugers, Mark Wilson… In December 1999, the jury found that Koch Industries did steal oil from the public and lied about its purchases – 24 thousand times. The oil theft conviction was a heavy blow, but the troubles of Koch Industries don’t stop there. If the company was fattening its bottom line through theft – there is also evidence Koch was pinching pennies on safety and environmental protection – cutting costs with disastrous results.

    “Former EPA administrator Carol Browner announced in 2000 that she was hitting Koch Industries with the largest civil penalty in the history of the federal Clean Water Act: a $30 million fine.

    “She said, Koch Industries spilled over 3 million gallons of crude oil in six states…he EPA complaint targeted more than 300 oil spills, some poisoning fisheries and drinking water.”
    http://www.cbsnews.com/stories/2000/11/27/60II/main252545.shtml

    “In 1929, after hosting a delegation of Soviet planners in Wichita, Kansas, Winkler and Koch signed a $5 million contract to build 15 refineries in the Soviet Union. According to Oil of Russia, a Russian oil industry trade magazine, the deal made Winkler–Koch into Comrade Stalin’s Number One refinery builder… The Communists were so impressed they kept giving Winkler-Koch business and regularly sent Soviet engineers to train in Wichita. It was a sign of growing mutual trust.

    “By the time he got out in 1933, Koch earned $500,000, which was a ton of money for a kid fresh out of college. This nut of money served as the foundation for the family’s future wealth”
    http://exiledonline.com/a-peoples-history-of-koch-industries-how-stalin-funded-the-tea-party-movement/

    MamMoTh Reply:

    Has there ever been a dictatorship with a small state? Quite the opposite seems to be the rule. Maybe Singapore if you call it a dictatorship in disguise.

    Tom Hickey Reply:

    Mammoth, a dictator, like the kings of old, is the state.

    L’état, c’est moi.
    —Louis XIV

  21. Tom Hickey Says:

    Warren in ##14 at February 27th, 2011 at 9:04 am

    Warren Mosler Reply:
February 27th, 2011 at 9:04 am
    Jamie Galbraith and I worked on Bruce for over an hour on monetary operations a few years back and seemed he simply had no ability to grasp it.
    Kind of like people who can’t do math, or can’t do languages.

    Warren, I’d like to hear more about this, not necessarily about the person, but why you think this is so difficult to get. I would assume that explaining sectoral balances and demand leakage would make it clear, and this is simple algebra. Do some people just have closed minds. Mike Norman reported a similar experience recently, too.

    I recall Barry Ritholtz saying that your numbers don’t add up. What can he possibly mean? I have asked him a couple of times in his comment section, but no response.

    Krugman, too, in his blog duel with Jamie, where many MMT folks jumped into the comments.

    The examples multiply.

    It’s pretty astonishing that obviously intelligent and competent people can be so closed-minded in their own field.

    Without getting some of these “experts” on board, it’s going to be difficult to convince other people, many of whom take their cues from them. Could we be doing anything differently from our side?

    Reply

    Rodger Malcolm Mitchell Reply:

    “Could we be doing anything differently from our side?”

    Tom, yes, that’s my question. One possibility. We have allowed the debt hawks to frame the discussion by naming the key elements. “Debt” and “deficit” have powerful, everyday meanings.

    There is no way we will convince the media and the populace that “debt” and “deficit” are good things. It would be like trying ton sell a new cola called “Vomit” or “Rat Poison.”

    Perhaps instead of “debt,” we should refer to “Treasuries sold.” And perhaps instead of “deficit” we should call it “federal money supply.”

    I really think we have allowed the semantics to carry the day. Thoughts?

    Rodger Malcolm Mitchell

    Reply

    Tom Hickey Reply:

    I have long thought that the lynchpin is the false government-finance-is-the-same-as household-finance analogy. The point to convey is that government is the currency issuer and nongovernment (including states in the US) is the currency user.

    People don’t know how money is created and think that it is a scarce commodity — only so much that has to be shared — instead of being a flexible medium under the control of government as the monopolist.

    The next problem is getting to macro. Even a lot of economists presume that macro is just micro scaled up.

    There’s an opportunity for someone to write a popular book on this, breaking it down and making it accessible. Warren’s 7DIF is a good start. Now what is needed is a complete articulation of the basics of MMT and their policy implications. A good book could be the outcome of a collaboration of a liberal and a conservative, showing different policy options.

    Randy Wray’s Understanding Modern Money is accessible but it’s not written in a popular style. To be successful and also accomplish the purpose, the book would have to be clear, brief and precise, but also simple and engaging, with practical examples from recent events familiar to everyone.

    Reply

    Peter D Reply:

    People don’t know how money is created and think that it is a scarce commodity — only so much that has to be shared — instead of being a flexible medium under the control of government as the monopolist.”

    See, Tom, I don’t think this is the case. In fact, every time I try to comment and educate people on MMT, everybody understands that money can always be “printed” (not a term that Warren likes, but nevermind.) The problem is that people assume that printed money automatically leads to inflation. I think the challenge of MMT is not to convince people that money is “a scarce commodity”, but that injecting money doesn’t lead to inflation when economy operates with slack capacity.

    WARREN MOSLER Reply:

    I’ve become more ok with ‘printing money’ as a description of govt. spending, as long as I add that taxing is ‘unprinting money’

    MamMoTh Reply:

    I totally agree with you Peter. That’s why I criticize the obsession with the taxes don’t fund anything mantra. Everyone understands that money can always be printed, and that it can be shred. For any given G, T funds the net injection (G-T) when positive. So the main point is arguing that this injection is not (necessarily) inflationary.

    Neil Wilson Reply:

    The important point to get across is when the non-government sector metaphorically stuffs a load of currency under the mattress then that puts it out of use just like shredding it with taxation.

    It plays no more part in proceedings until it comes out of the mattress.

    Tom Hickey Reply:

    What I notice is that there is pretty widespread cognitive dissonance on this. Many people hold both the government/household analogy and the fiat currency is inflationary conviction. They switch back and forth. One what to get them over this is showing them the contradiction arising from their cognitive dissonance.

    For example, most people think that if someone gets a benefit, the someone else must be taxed now or later. They know that government can create all the money it wants, but they think that restrictions have been placed on this preventing it — borrowing to “finance” deficits and the debt limit for example. So they can justify holding both a fixed pie and the also possibility of rampant inflation if government is not held on a tight leash.

    They don’t get how the size of the pie changes based on shifts in sectoral balances.

    Tom Hickey Reply:

    Sorry, but that is the truth. People are not paying for anything with taxes. Get used to it.

    Democracy is supposed to work by lying to the people because they just can’t handle the truth? Really?

    Tom Hickey Reply:

    Warren: I’ve become more ok with ‘printing money’ as a description of govt. spending, as long as I add that taxing is ‘unprinting money’

    “Burn money” is more graphic. “Shred” is OK too. “Unprint”? Meh. :)

    Reply

    WARREN MOSLER Reply:

    unprint directly shows how it ‘reverses’ printing?

    Tom Hickey Reply:

    Yeah, but “unprint” isn’t a word, unless you are aiming to coin one, and it doesn’t really convey the sense of destruction. Taxes withdraw (destroy) nongovernment net financial assets. That’s why the “burn” and “shred” language is appropriate. It’s stark.

    In think that we really have to convey the idea that taxes are used to fund anything. They aren’t saved by government or spent by government. Taxes just destroy nongovernment NFA. That’s it. Obviously, the response has to be either, “That’s insane,” or “Why.” “That’s insane” signals the need for further explanation, while “Why” is a signal to proceed to FF.

    WARREN MOSLER Reply:

    I sort of like ‘unprint’ for those reasons. It conveys the utter reversal of ‘printing’ with emphasis from using the same root word. And using a non word is a means of emphasis as well. It’s something hard to refudiate.

    MamMoTh Reply:

    No way! Can you imagine the day MMT goes mainstream and you complain to that bloody public servant who is not doing his job whilst you are paying his salary and he laughs at you and tells you your money has been shred? (or burned, or unprinted)

  22. Danf Says:

    Google “how the Fed works” and you get every crackpot from Ron Paul to the Von Mises Institute.

    There is no good source on MMT that is accessible to the general public. Until you get some real marketing it won’t happen.

    Reply

  23. Howard Says:

    I think it is enough to say that that government “issues” currency in the form of crediting bank accounts; and that taxes debit or remove money from bank accounts. This is a concrete phenomenon that every citizen is aware of. They get paid and they see their bank account decrease. They pay taxes–or the mortgage, or anything else–and they see the bank account diminish.

    That taxes are not necessary to fund anything simply infuriates people. At least one they think taxes pay for public works they can mollify their feelings at having their earnings taken away by government. But to accept that it is to “diminish aggregate demand” is simply unacceptable–it is far too abstract. Besides, changes in taxation are not like turning a dial: they are a political process difficult to integrate in the idea that they are merely an efficient control over inflation. In addition, right now we are hardly experiencing full employment, yet government continues to tax, precisely. Add to that the idea that at root the taxes really are the driver of the system, and you confirm all feelings that government is imposed and not agreed upon. Coercion is not palatable.
    I might add that it is not difficult to foresee the possibility that states might revolt against paying federal taxes. Many of them might be able to function quite well independent of the Union. Just ask Texans.

    An important confusion is created with the word “spend.” The government does spend in buying goods and services, but it has no diminishing bank account. This is what citizens just can’t wrap their head around: the public firmly believes “there ain’t no free lunch.” Government spending is at once a “paying into” the system and a purchasing operation. But the money is free and not “earned”: this is the moral conundrum that I believe lies at the very root of the inability or unwillingness to accept the MMT description by the common man–and which also increases his suspicion and contempt for government; it all seems parasitical, deceptive, and coercive at one and the same time. MMT writers tirelessly repeat the basic truths, but they do not address the psychological and cultural obstacles preventing the acceptance and assimilation of the truths. As the Buddhists would say, they lack “skill in means.” MMT has to come up with a narrative and lexicon of its own, and not try to fight on the “enemy’s” ground–or an uphill battle, if you will. It’s no good to go on insisting that these are accounting or operational realities, etc. That simply does not convince people. It is emotions and associated ideas that are in question here, and it is these that have to be addressed. People are far more swayed by feelings than by ideas alone; or rather, the ideas have to be properly clothed and presented: “skill in means.” Any effective salesman or politician or diplomat, or even a good teacher or parent knows this; it’s second nature to them and self-evident.

    Reply

    Tom Hickey Reply:

    There is an ancient Sanskrit proverb. It is now the national motto of India.

    Truth alone triumphs. (satyameva jayate)
    — Mundaka Upanishad

    Reply

    Patriot Reply:

    It has a lot to do with the “taxpayer” mentality, where people have been encouraged to think of themselves as “buying” government services. See the infamous “California Tax Payers Association” for proof of this.

    In reality, if we look at the economic system from an MMT perspective, then the reason that we pay taxes is not to “buy” services on a dollar per hour basis, but as an obligation that helps keep things running.

    And, public employees should perform their services for people not because the people “paid” for it, but as part of the public servants’ obligation to the citizens on whom they depend, and who depend on them for the smooth functioning of society.

    That’s a difficult proposition in a time where most people have been indoctrinated to think of themselves as consumers and not as citizens. Therefore, our argument as MMT proponents must be in favor of citizenship and against the narrow consumerist mindset.

    Reply

    Neil Wilson Reply:

    but as an obligation that helps keep things running.

    It’s more to create non-inflationary space in the economy where public goods can exist.

    If public goods don’t create any inflation then there isn’t any need for taxation.

    Reply

    WARREN MOSLER Reply:

    right, the real cost of govt spending is the actual goods and services transfered from private to public domain

    Reply

  24. Howard Says:

    And the Indians would do well to heed it. They certainly don’t do so now.

    Reply

  25. Jim Says:

    According to MMT, taxes are “absolutely” necessary. First, they establish the legality and legitimacy of the currency. You must pay taxes and only the fiat currency is accepted for payment of taxes. Coercion lies at the very core of the system: it is the driving mechanism. Secondly, taxes theoretically serve to diminish aggregate demand once full employment-productive capacity is reached and thus serve to forestall inflation.

    At any rate, it is not convenient to acknowledge this truth, because taxation serves not so much to enrich the rich further–taxes are just debits on the spreadsheets–but to keep the public in debt. It is a means of social control. After all, inflation is hardly a threat right now, but the government keeps taxing anyway. Moreover, this theoretical use of taxes as brakes on the system is just that: to change tax laws requires a lengthy political process; it doesn’t work like the so-called automatic stabilizers in the economy. Fiat money is theoretically merely a way to keep faciliate the exchanges and accounts of the market process of buying and selling economic goods. But in practice, it functions to greatly empower government, and as Rothschild said, “Give me control of a nation’s money and I care not who makes it’s laws”

    Reply

    Neil Wilson Reply:

    Moreover, this theoretical use of taxes as brakes on the system is just that: to change tax laws requires a lengthy political process;

    That’s only because of the political process. It is fairly simple to alter that via delegable powers within a range or with a target.

    For example it would be straightforward to pass primary legislation that gives the Fed the ability to vary, say, a Land Value Tax between x% and y% to control demand inflation. Such a tax would be paid be Freeholders or those with a primary charge over the Land (ie mortgagors).

    Or any other tax system you care to design.

    Simple. After all the Fed already has the ability to jiggle monetary policy unilaterally without politicians getting involved. It’s not a huge leap for the Fed (or any other ‘independent’ institution) to do Flow control using taxation.

    The real problem is the mental block on doing that.

    Reply

    beowulf Reply:

    It’s not a huge leap for the Fed (or any other ‘independent’ institution) to do Flow control using taxation.
    You’re absolutely right. I made the point at the Saudi thread that the Fed already has taxing power with its authority to levy transaction fees on wire transactions. Doesn’t matter if you call it a “user fee” or a “tax”, same difference since Fed earnings are transferred to Tsy General Fund). To excerpt some of what I wrote over there (but can’t link directly):
    “The Monetary Control Act of 1980 (MCA) requires the Reserve Banks to recover fully, over the long run, the costs… associated with the provision of most financial services they provide…Fedwire transaction fees are charged to both the originating institution (debit side) and receiving institution (credit side)… volume-based transaction fees range from 8 cents to 26 cents per transfer, per institution…Fedwire processed an average daily volume of approximately 521,000 payments… of approximately $2.7 trillion.”
    http://www.federalreserve.gov/paymentsystems/fedfunds_coreprinciples.htm#Ops

    “Because the ultimate CHIPS settlements are provided by Fedwire, CHIPS is a customer, as well as a competitor, of Fedwire… daily value of CHIPS transfers is about 80 percent of Fedwire’s non-securities transfers.”</i
    http://www.ny.frb.org/aboutthefed/fedpoint/fed36.html

    Levying the tax on transactions going through the Federal Reserve Bank system (Fed) would be one of the most technically feasible implementation options for a
    broad-based transaction tax…[however] at the nominal rate of 0.01%, the effective annual rate ends up at 5%, rendering many transactions useless.

    http://webcache.googleusercontent.com/search?q=cache:AcrA6×8O9WUJ:assets.opencrs.com/rpts/RL32266_20041202.pdf

    No reason for Congress to impose a new transaction tax (as economist Edgar Feige has proposed with his APT tax) when the Fed already sets and collects a transaction user fee that it can raise at any time. In terms of controlling inflation, it actually doesn’t matter if user fees set by BOG (presumably more than 8 cents per transaction but less than 0.01% per value of transaction) netted Tsy any revenue since Quantity of money theory is P(t) = V*M(t)

    To control P (price level), draining V (velocity of money) works just as well as draining M (money in circulation). And nothing kicks the crap out of V like a transaction tax (err, “user fee”). :o)

    I’m with you on the LVT. However in the US, property taxes are levied by state governments (technically by local tax commissioners, but state sets rules). Since the Fed already has the power to drain reserves with transaction fees it can adjust as conditions warrant, Congress could simply give a 100% federal income tax credit for LVT payments to state/local governments. State lawmakers would quickly shift their tax burden onto land value since levying any other tax (sales, income, property improvements) would force their citizens to pay federal taxes they don’t have to.

    Reply

    beowulf Reply:

    Ugh, sorry for the all-italics.

  26. Jim Says:

    “…it’s laws should be its laws.”

    Reply

  27. gp Says:

    Re: “It’s pretty astonishing that obviously intelligent and competent people can be so closed-minded in their own field.”

    It is not astonishing, it is usual. Paradigm shifts are extremely difficult to realize for many, if not most, people. Partly it is most often a case of vested interests of one sort or another, to be sure, but not entirely. A habit of mind, a fixed framework or lens that views the real, is not easily exchanged for another manner of thinking and evaluating. It may be easy for this or that person in relation to this or that field, but probably so not in every instance. That would require a total love of truth and an impartiality, detachment, and serenity of spirit that is extremely rare; in fact, a kind of sanctity.

    Reply

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