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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.

MMT to Congress: You are the scorekeepers for the US dollar, not a player!

Posted by WARREN MOSLER on July 30th, 2011

Imagine a card game, where every entity in the economy is one of the players,
and you, Congress, are the scorekeeper.

The message here is the difference between being the scorekeeper and being a player.

The problem is, you are acting like one of the players when, in fact, you are the scorekeeper.

And you support your mistake with false analogies that presume you are one of the players,
when, in fact, you are the scorekeeper for the dollar.

That correct analogy is between scorekeepers in card games and your role as scorekeeper for the US dollar.

As scorekeeper in a card game, you keep track of how many points everyone has.
You award points to players with winning hands.
You subtract points from players with losing hands.

So as the scorekeeper, let me ask you:

How many points do you have?

Can the scorekeeper run out of points?

When you award points to players with winning hands,
where do those points come from?

When the scorekeeper subtracts points from players with losing hands,
does he have more points?

Do you understand the difference between being the scorekeeper and being the players?

You are the scorekeep for the US dollar.

You spend by marking up numbers in bank accounts at your Fed,
just like your Fed Chairman Bernanke has testified before you.

When you tax, the Fed marks numbers down in bank accounts.
Yes, the Fed accounts for what it does, but doesn’t actually get anything,

Just like the scorekeeper of a card game doesn’t get any points himself
when he subtracts points from the players.

When Congress spends more than it taxes,
it’s just like the scorekeeper of the card game awarding more points to the players’ scores than he subtracts from their scores.

What happens to the players total score when that happens?
It goes up by exactly that amount.
To the point.

What happens to dollar savings in the economy when Congress spends more than it taxes?
It goes up by exactly that amount.
To the penny.

The score keeper in a the card game keeps track of everyone’s score.
The players’ scores are accounted for by the scorekeeper.
The score keeper keeps the books.

Likewise, the Fed accounts for what it does.
The Fed keeps accounts for all the dollars all its member banks and participating governments hold in their accounts at the Fed.

That’s what accounts are- record keeping entries.

So when China sells us goods and services and gets paid in dollars,
the Fed- the scorekeeper for the dollar-
marks up (credits) the number in their reserve account at the Fed.

And when China buys US Treasury securities,
the Fed marks down (debits) the number in their reserve account.
And markes up (credits) the number in China’s securities account at the Fed.

That is what ‘government borrowing’ and ‘government debt’ is-
the shifting of dollars from reserve accounts to securities accounts at the Fed.

Yes, there are some $14 trillion in securities accounts at the Fed.
This represents the dollars the economy has left after the Fed added to our accounts when the Treasury spent, and subtracted from our accounts when the IRS taxed.

And it also happens to be the economy’s total net savings of dollars.

And paying back the debt is the reverse. It happens this way:
The Fed, the scorekeeper, shifts dollars from securities accounts to reserve accounts
Again, all on it’s own books.

This done for billions of dollars every month.
There are no grandchildren involved.

The Fed, the scorekeeper, can’t ‘run out of money’ as you’ve all presumed

The Fed, the scorekeeper, spends by marking up numbers in accounts with its computer.
This operation has nothing to with either

‘debt management’ which oversees the shifting of dollars between reserve accounts and securities accounts,

or the internal revenue service which oversees the subtraction of balances from bank reserve accounts.

And so yes, your deficits of recent years have added that many dollars to global dollar income and savings, to the penny.

Just ask anyone at the CBO.

It is no coincidence that savings goes up every time the deficit goes up-

It’s the same dollars that you deficit spend that necessarily become our dollar savings.

To the penny.

A word about Greece.

Greece is not the scorekeeper for the euro,
any more than the US states are scorekeepers for the dollar.
The European Central Bank is the scorekeeper for the euro.
Greece and the other euro member nations,
like the US states,
are players,
and players can run out of points and default,
and look to the scorekeeper for a bailout.

What does this mean?

There is no financial crisis for the US Government, the scorekeeper for the US dollar.
It can’t run out of dollars, and it is not dependent on taxing or borrowing to be able to spend.
That sky is not falling.
Ever.

Let me conclude that the risk of under taxing and/or overspending is inflation, not insolvency.

And monetary inflation comes from trying to buy more than there is for sale,
which drives up prices.

But, as they say, to get out of a hole first you have to stop digging.

(I don’t think you, or anyone else, believes acceptable price stability requires 16% unemployment?)

Someday there may be excess demand from people with dollars to spend for labor, housing, and all the other goods and services that are desperately looking for buyers with dollars to spend.

But today excess capacity rules.

And an informed Congress
That recognizes it’s role of scorekeeper,
And recognizes the desperate shortage of consumer dollars for business to compete for,

Would be debating a compromise combination of tax cuts and spending increases.

Instead,
presuming itself to be a player rather than scorekeeper,

Congress continues to act as if we could become the next Greece,

as it continues to repress the economy and turn us into the next Japan.

***comments welcome, feel free to repost, etc.

232 Responses to “MMT to Congress: You are the scorekeepers for the US dollar, not a player!”

  1. anon Says:

    nice post!

    speaking of keeping score, and avoiding in-house confusion:

    the social security trust fund owns more treasuries than China and Japan combined

    Reply

  2. Shrek Says:

    There are risks to MMT just like everything else. I know Warren doesnt drive race cars without thinking about risks. MMT needs to acknowledge that risks exist everywhere even MMT

    Reply

    WARREN MOSLER Reply:

    you’re ‘mixing metaphors’

    mmt tells you how it all works and reveals policy options currently not under consideration

    Reply

  3. danny Says:

    The “risk” of implementing the policies which are obvious once one grasps MMT is, as Warren often states, inflation. And it’s fairly obvious that that is not a risk in the current economic environment.

    Reply

  4. WARREN MOSLER Says:

    George M Richvalsky to me
    show details 11:37 PM (0 minutes ago)
    We are told of GODS that shower their LOVE on humankind. The Gods’ capacity to generate love is limitless. They also have the ability to take away the love they have already given. And they give this love and take it away at their discretion. Both love and its reduction impact mankind greatly.

    Today’s GODS are the US Congress who likewise have limitless capacity to shower their love and take it away, at their discretion. Today this love is called government spending and the takeaway of that love is taxation. The US congress uses the Federal Reserve and the FED’s operating procedures to shower their love, their spending, and to take some of it away through taxation. Government spending causes aggregate demand to increase while taxation reduces spending and aggregate demand. How much love is too much, too little? Too much love can result in inflation and the debasement of the US currency. If this was our situation, love can be reduced by cutting back on government spending or increasing taxation to reduce aggregate demand and with it expected inflation. Too little love can result in a stagnant economy or worse and substantial unemployment. Interestingly, while our economy is stagnant with substantial unemployment, the GODS are treating humankind as thought they have been given too much love. We are planning on reducing love by reducing government spending directly and or combined with an increase in taxes when what we should be doing is considering how to increase the love by increasing government spending and reducing taxes.

    Warren—I can continue this analogy if you believe it has merit.

    Reply

  5. Ralph Musgrave Says:

    Milton Friedman: “It need cost society essentially nothing in real resources to provide the individual with the current services of an additional dollar in cash balances.” (From Ch 3 of his book “A Program for Monetary Stability”)

    Reply

  6. Colin Says:

    So, I’m going around telling my fellow misinformed Econ graduates about your book, but am having trouble with fielding some questions I get:

    1. Should we aim to have as many dollars overseas as possible (or appropriate/optimal) so that, via inflation, we transfer world wealth to ourselves (the US)?

    2. What is the appropriate level of debt and taxation? How to we begin to measure/define/develop an equation that turns Economic indicators into monetary policy? Why isn’t Ben Bernanke making a case for increasing the deficit rather than decreasing it?

    And my question:

    It appears to me that the US has directed a huge amount of its resources to the wars and has also experienced a large transfer of wealth to corporations and the wealthy. Additionally, we are not prioritizing investment in education.

    So, is the penalty for these follies to be paid in some sort of combination of high unemployment and inflation?

    If so, are the current endeavors by congress to decrease the deficit mean we are choosing (misinformed choice) to pay this penalty with a combination heavily weighted towards unemployment?

    Is my writing indicating to you that I have severe deficits in understanding of basic Macroeconomics and I should just stop bugging you? This last question is funny, but I am genuinely curious. I went into aviation, not finance, after college.

    Reply

    ESM Reply:

    @Colin,

    “It appears to me that the US has directed a huge amount of its resources to the wars and has also experienced a large transfer of wealth to corporations and the wealthy.”

    War does not cause unemployment. Quite the opposite in fact.

    “Additionally, we are not prioritizing investment in education.”

    A hackneyed lament.

    How do you know we are not spending enough on education? What is your data? We actually spend far more on education than most developed countries (perhaps all, I have to check). Seems actually like we have an education bubble. Parents (either subisidized by government or not) are ready to drop close to $200K on college for their child for not much in return as far as I can tell.

    And public school teachers earn a decent salary with great benefits (for only 9 months of work per year).

    My guess is that if you’re not happy with the results (and I’m not sure whether such unhappiness would be justified), it’s because the US system prioritizes bringing up the bottom 20% of students to acceptable standards. It’s a political decision of course, perhaps a good one, but it is not what other countries do.

    Reply

    Linda G Reply:

    @ESM,

    It must be nice to be so cavalier about how well public school teachers are doing; you are obviously not a teacher facing these times…

    http://www.txstatedemocrats.org/?p=1792

    “As Texas GOP lays off thousands of teachers, they face a brutal market” (and it’s only going to get worse)

    My sister, now in her 50′s, with outstanding credentials, but who took some time off during a battle with cancer and has since recovered, had to leave the country to find work.

    And she’s far from alone.

    Reply

    ESM Reply:

    @Linda G,

    Not a teacher Linda, but I know many people who are, my kids are in public school and at one time I had delved quite deeply into the compensation scales for public ed teachers in both New Jersey (where I used to live) and Massachusetts (where I live now).

    The impression I get is that it is quite a good job to be a tenured teacher, which makes it all the more painful if you get laid off.

    ““As Texas GOP lays off thousands of teachers, they face a brutal market” (and it’s only going to get worse)”

    Layoffs happen because teachers unions don’t accept reductions in benefits or wages. It’s typical union strategy. In Wisconsin, the passage of collective bargaining restrictions on public workers has allowed many school districts to avoid layoffs altogether.

    WARREN MOSLER Reply:

    Mainly because congress didn’t support agg demand in 2008

    Linda G Reply:

    @Linda G,

    Texas is a “right to work” state, with very little union influence, at least for teachers. Unions didn’t cause massive layoffs of public school teachers in Texas.

    ESM Reply:

    @Linda G,

    I don’t think that’s true — see here.

    In any case, my claim was that public school teachers are well compensated. The fact that layoffs happen lends support to my claim, not the opposite. There’s less reason to layoff poorly compensated employees.

    Just yesterday, I was struck by the fact that I saw “Help Wanted” notices at the following places (all in one day): McDonalds, Dunkin Donuts, Bertuccis Pizzeria, and Shaws Supermarket. These were not for high-paying jobs.

    And yeah, I know, I’m not eating healthy…

    WARREN MOSLER Reply:

    they always try to hire at the bottom of their pay scale to replace people leaving and to replace higher paid people

    Linda G Reply:

    @Linda G,

    Ah nuts, I can’t find a “reply” button to the comment I’m trying to reply to – oh well, this will do, ;-).

    I don’t know anything about that site you pointed to about teacher’s unions in Texas, which seems to be a rather dodgy site to me, but here’s a pretty good source:

    http://www.atpe.org/advocacy/issues/ColBarExcCon.asp

    Association of Texas Professional Educators

    “One of ATPE’s guiding tenets is that educators have the right to work in public schools without being forced to join any particular organization. That is why opposing collective bargaining and exclusive consultation policies for public education has long been a major component of ATPE’s legislative program.”

    Anyway, ESM, I don’t think you’re intentionally trying to “get my goat,” ;-), but coming from a family of teachers, who are really struggling right now and feeling anything but secure about their jobs, you might not want to be caught in a dark alley with any “well compensated teachers” any time soon, ;-).

    Can you tell I’m a little touchy about this subject? ;-)

    Linda G Reply:

    @Linda G,

    Whoops! I didn’t highlight the definitive statement from the ATPE site:

    “Texas is a “right to work” state. This means by law, employees cannot be forced to join a professional organization as a term of employment.”

    Anyway, that should at least clear that up…

    Linda G Reply:

    @Linda G,

    And yes, I will concede the point.

    Texas teachers who actually have jobs at this juncture are paid more than employees at Dunkin Donuts…

    (yep, I’m still touchy, ;-))

    ESM Reply:

    @Linda G,

    Linda,

    From a certain point of view, I was actually defending public teachers. I was challenging the conventional wisdom that US schools are bad. I actually think the main reason people are unhappy with the results is that we have made a political decision to attend to the needs of the bottom 20% of students to the detriment of the other 80%. Most other societies don’t do that.

    Now, I do think teachers unions have had a negative impact on our educational system, mostly by inflating the compensation scales and removing incentives. Even if Texas has weak unions (and it seems like it does relatively), tenured teachers in Texas will still benefit from unions in other states because the labor market extends across state borders, and more importantly, Texas teachers will be able to use cross-border comparisons in their negotiations (which are ultimately political, because teachers are public servants).

    Also, even though union rules and union intransigence in Texas are not directly responsible for your sister being uable to find a job there, unions are certainly negatively impacting your sister’s ability to find a job in another state.

    Anyway, even my claim that teachers are well-compensated (overpaid, according to my market definition) is not a moral judgment. Teachers are very important to society, and a good one can be worth their weight in gold (well, I’m exaggerating a bit). But in a free market, a superstar baseball player may “deserve” to make $15MM per year, and the average teacher may “deserve” to only make $40K per year. It doesn’t mean that a teacher who makes $60K per year (with benefits worth $25K per year) is a leech, and the superstar baseball player who makes only $10MM is being exploited. It just means that a market distortion is happening for some reason, and the market would work better if the distortion were removed.

    If unions are distorting the market so that a teacher makes $85K in total compensation rather than a free market level of $50K, then people who are capable of doing $80K per year jobs will reject them in favor of doing the teaching job (which is inefficient), and people who can do the $50K per year teacher job, but not the $80K per year job, won’t have a job at all (which is even more inefficient).

    Oliver Reply:

    @Linda G,

    an undistorted or free market is a ludicrous concept. someone has to define the rules for each market and by doing so automatically ‘distorts’ it, as well as all other markets, relative to any prior state of affairs. this someone is usually a legislative power, but is often influenced by lobbies such as unions, interest groups, think tanks, bilionaires, a mob of angry voters, any other mob, feng shui specialists or what not. and just because we have a one-size-fits-all remuneration unit called money, that does not automatically render the outcomes it produces ‘undistorted’ or ‘natural’ in any relevant sense. every outcome is a product of the current legal and social framework of which teachers unions are as legitimate and distortive a part as sports promoters or the belief in Jesus Christ.

    ESM Reply:

    @Linda G,

    @Oliver:

    I agree in principle. Of course there is an institutional structure which provides the skeleton for the free market. We can argue about what that structure should be, but allowing unions in this day and age (when we have a complex and complete labor market, with millions of jobs to choose from, and even global labor mobility) seems counterproductive. It creates an arbitrary restriction on the market for labor, which is not working to rectify any externalities that I can see.

    In fact, allowing unions is part of US institutional structure. They are specifically exempted from anti-trust law. But the effect they have is to make our labor markets less efficient.

    pebird Reply:

    @ESM, You need to be careful about the education spending measure. You have to take into account the extent to which financial interests have extended their share of the education budget via monopoly textbook providers, interest charges, federal micro-management, the testing industry, etc.

    Reply

    Colin Reply:

    ESM, thanks for your reply. Thinking of the broken window parable, I don’t see how going overseas and breaking windows there with bullets builds national wealth, EVEN WITH all the oil we get (it would have been cheaper to just buy it). So, yea, it’s employment, but it’s similar to the aggregate affect on the economy if the government paid $10,000 to every man, woman, and child to sit in a chair for 12 hours one day. Lots of new money but no new goods or services.

    And, our students are among the stupidest in the world (google it). I’d attribute our high level of education spending to inefficiency, because it’s clearly not working.

    Anyway, I guess MMT means that the fed should be able to control levels of taxation as well, for optimal growth of the Economy. Just off the top of my head, I think the most politically acceptable way to start transitioning this type of authority to the fed would be to have a flat income tax across the board of 5% or something. Reduce all income taxes across the board by that 5% and give the fed the authority to change it as necessary. Or, perhaps give the fed authority over a national sales tax, because that is more directly linked to commerce.

    This is probably completely stupid or undo-able because of politics that I’m not aware of, but suddenly I feel more confident expressing my opinions after reading “war is good” and “teachers have a cushy life.” LAWL

    Reply

    ESM Reply:

    @Colin,

    Colin,

    If you would like to have reasonable discussions on serious blogs like this one, you will have to refrain from misstating what other people write. I never said “war is good.” War is obviously a huge waste of resources, although sometimes it is necessary. However, it does not cause unemployment, which is what you implied. It directly reduces unemployment.

    “And, our students are among the stupidest in the world (google it).”

    Stupidest? Or among the lowest scorers on arbitrary standardized tests? One of the biggest complaints about NCLB is that it encourages “teaching to the test.” Well, the best scoring countries on those international standardized tests do exactly that.

    Also, arguments about demographics and test scores are always fraught, but students in Asia score the highest on math and science tests. Asian-Americans as a group score even better.

    Colin Reply:

    I’m sorry ESM; I thought that our serious discussion was about what’s good policy vs. bad policy, and that would mean thinking long term. War, in the short-term, will reduce unemployment, but in the long term, will increase either inflation or unemployment. Our choice. Is this roughly correct, Warren?

    And, the second you said that war reduces unemployment, without elaborating on its long term effects or anything else, (what we’re talking about) as if to say “so there.” and that teachers have a decent salary with great benefits, the discussion go pretty un-serious from my point of view.

    And, how can a standardized test on Math be arbitrary?

    Asian-Americans probably do better than Asians due to the self-selection bias of being amongst the ones that take the boat over to America.

    Anyway, so war reduces unemployment, teachers in America are very well compensated, and public high-school graduates are smart, and tests that say otherwise are invalid.

    Care you add any more insights, ESM? I’m serious.

    WARREN MOSLER Reply:

    only with deficient public policy to begin with.
    with full employment policy in place at all times, war works to remove gainfully employed labor and drive up the price or confiscates it. Both would be obvious real costs of war.

    that’s yet another reason for full employment policy. it makes that actual cost of war obvious to the population

    also, an educated public, for me, is a plus. Especially for people in the service industry who interact with the public.
    Most of us like dealing with educated people vs uneducated people.

    ESM Reply:

    @Colin,

    “And, the second you said that war reduces unemployment, without elaborating on its long term effects or anything else, (what we’re talking about) as if to say “so there.””

    I was trying to be helpful and point out that you were conflating things that have opposite effects. People tend to be succinct here. Warren is the worst offender of all in that regard.

    War causes a lower standard of living as resources are diverted towards breaking things rather than towards consumption or capital stock. It also tends to be inflationary for the same reason. But war uses lots of manpower, so it causes unemployment to drop (in fact labor is probably the most important resource that is diverted from productive use).

    “and that teachers have a decent salary with great benefits, the discussion go pretty un-serious from my point of view.”

    Why is that unserious? You may disagree (do you?), but I was not joking, and it is hardly a minority opinion. You’re the one that wrote a sentence that politicians are probably taught to repeat ad nauseum on the first day of Politics 101. I was only trying to stimulate some actual thinking on your part.

    “And, how can a standardized test on Math be arbitrary?”

    There are a gazillion different things to learn in math pre-calculus (and a gazillion things after). On a practical test, you can’t sample everything. You have to pick what you’re going to test. Furthermore, there are gazillion different ways to present a problem that can be solved using mathematical techniques. For better or worse, the math curriculum in the US has evolved away from rote learning of calculation techniques and formulas to a more holistic way of understanding arithmetic, algebra, and geometry. I think that is not conducive to scoring well on practical timed tests (which by the way is not exactly the goal of education, although perhaps it is positively correlated with the goal).

    “Asian-Americans probably do better than Asians due to the self-selection bias of being amongst the ones that take the boat over to America.”

    Quite possibly. But it’s merely a theory, and there are lots of factors. That’s why I would reserve judgment on whether the US educational system is turning out stupid graduates.

    “…and public high-school graduates are smart, and tests that say otherwise are invalid.”

    There you go again. Objecting to your claim that American graduates are the “stupidest” is not the same as claiming they’re smart OR that the tests are invalid. The tests are what they are. I’m sure they are valid for what they are trying to measure. But are they really measuring how good our schools are? I’m skeptical.

    WARREN MOSLER Reply:

    also, the US has a lot more college grads as a % of the population vs most other nations, last I read?

    so the average college grad under those circumstances is bound to be statistically below the ave college grad in a nation that’s more selective

    WARREN MOSLER Reply:

    Yes, but not because of inflation
    The right level for full employment
    War is paid for by the squandered real resources
    Try retracing the 7dif thanks

    Reply

    Ralph Musgrave Reply:

    @Colin,
    Colin,

    Re your first question, for a monetarily sovereign country, like the U.S. to borrow dollars from abroad when it can print its own dollars is lunatic. At least it is lunatic if the US pays any significant interest on the borrowed money.

    In contrast, if the rate of inflation in the US exceeds the interest it pays on borrowed money, then by all means borrow from abroad: there is nothing like ripping off one’s creditors.

    Re your second question and what is the appropriate level of taxation, that is a largely political question. E.g. Sweden devotes a much bigger percentage of GDP to public spending than the US, and Swedes thus pay more tax.

    Re what is the appropriate level of debt, my answer is that all the arguments for governments running up debt are nonsense, and for reasons I spelled out here:

    http://mpra.ub.uni-muenchen.de/23785/

    A standard MMT answer to that question is that governments should expand their indebtedness to the point where private sector savings desires are satisfied, a point which might seem to conflict with the above para. However, as Warren Mosler has argued, the natural rate of interest of risk free borrowed money is and should remain zero. Thus government debt should certainly be expanded to satisfy savings desires, but no interest should be offered on such debt. This effectively means such debt is not debt at all: it is “money”.

    Regarding wars and education, I agree with ESM: these do not have much influence on unemployment levels.

    Reply

    Colin Reply:

    @ ESM — I accept your apology.

    Reply

    WARREN MOSLER Reply:

    also, the ‘right size’ govt is independent of ‘govt. finance’ and is best determined by the real resources it consumes vs the public purpose it serves.

    once determined, taxation then should be set at whatever level results in full employment in the private sector, however defined

    Reply

  7. bram Says:

    2. What is the appropriate level of debt and taxation? How to we begin to measure/define/develop an equation that turns Economic indicators into monetary policy? Why isn’t Ben Bernanke making a case for increasing the deficit rather than decreasing it?

    That’s a great question. I too have wondered how you would go about actually implementing an MMT tax policy. Right now it’s so convenient to say to people, ‘we spend a million dollars on this program and pay for it by taxing this resource a million dollars’. It’s easy to communicate this message and easy for people to grasp the checkbook/credit card metaphor…. even though, at the Federal level, it’s wrong.
    In MMT you ‘tax out the inflation’ — but how do you target inflation without the constituency that’s affected from feeling unfairly targeted, becoming irate and voting you out?

    Reply

    Mario Reply:

    @bram,

    awesome question. I’d love to hear others’ thoughts on this too, b/c this when the creativity and fun really start flowing!!!

    Here’s my thoughts on the issue for today…

    you’d probably need to trial things out and adjust as you go based on the data and results (which frankly is what they are doing now just very poorly) but generally speaking there are likely so many ways to methodically and systematically skin this cat. Likely as things were practiced and trialed through, we’d get a better sense of the sensitivity analysis of any changes. For example a 2% rate of change in the tax rate statistically creates an average “x” amount of change in UE, etc. Only with time and data can we really know those details, but with MMT we have the fundamental basis to start running tests and adapt from there.

    For one you could tie taxation levels to a % of UE with a set floor of taxation not to be altered since taxes are a requirement. Say 5% as a floor or base. I think as it stands already the federal government reviews tax rates every year for budgetary purposes as well as IRS updates, etc. So theoretically they could do what they do now in terms of revisions but now just consider if we are running hot or cold and adjust accordingly and re-adjust (adapt) based on results. I believe congress is who specifically approves tax rates yoy, so they’d be the ones to do that…but this time with a more informed approach.

    You could tie federal spending to inflation levels (military spending could likely fluctuate for example in that regard) as well as output gap levels with a floor set for spending based on certain key social services like health care and social security and a jobs program and defense. Honestly with those in place, federal spending could just operate practically beyond that…that is to say in terms of simply maintaining the domain of the Federal government (national parks, infrastructure, department staffing, building maintenance and contract work, etc.) and probably not have to get real “creative” with spending practices. Let taxes fluctuate first before getting creative with federal spending I say. That way we can let the “free market” reign over what businesses do and how the output gap is closed before the government does. If taxes prove to be just not enough then likely the jobs program would help and if not that too, then likely the culture and society needs a regular “facelift” which seems to happen every 80-100 years or so in order to help stimulate the market enough so that it can once again get running on its own. This seems to be where we are today with a serious need to overhaul our major infrastructure in most industries/sectors.

    The irony really is that a more perfect, efficient, and “free market” (that is a market where the private sector can really thrive on its own terms) is really actually obtainable only once government spending is really understood and for example certain key necessary social services (like retirement livelihood and decent medical care) are handled federally to at least instill confidence in the system for the citizens of that society.

    I believe in the market, but I don’t believe everything should be made for profit. Some things need to be given freely to all like basic health care and a basic means of monetary survival (jobs program for the younger and a reasonable retirement program for the older).

    Reply

    luigi Reply:

    @Bram,

    “2. What is the appropriate level of debt and taxation? How to we begin to measure/define/develop an equation that turns Economic indicators into monetary policy? Why isn’t Ben Bernanke making a case for increasing the deficit rather than decreasing it?”

    in my understanding, we can’t say in an abstract way what’s the appropriate level of debt or taxation. It depends on how works the economy in a given period.
    If you decide a priori what’s the level, you do the same error that EMU has done.

    Bernanke is an austerity fan, so he thinks that austerity works well. (I think)

    Reply

    Dan Kervick Reply:

    @luigi,

    The point is that people who believe the economic principles that defenders of MMT purport to believe need to develop something like an actual agenda for the reform of the institutions and policies that currently direct national policy in countries like the United States. If they do not, MMT will remain a marginal movement of cultish true believers and cranks singing their three limited notes over and over but never going beyond that little tune to impact policy and governance.

    What would a world look like that was run in accordance with MMT principles? How would the executive branch do its business? How would the legislature do its business? How would the central back do it’s business? How should these entities be institutionally and legally organized or reformed to accomplish that business?

    WARREN MOSLER Reply:

    See the rest of this website

    PZ Reply:

    @luigi,

    Here are some proposals: http://www.youtube.com/watch?v=TVMaQmDSi9Y&t=10m50s

    Mario Reply:

    @ESM,

    “If the government pays providers directly, then that is government run health care. He who pays the bills, calls the shots. The monopsony buyer sets the prices. If the government simply gives you a fixed amount of money to spend on health care (and you can keep what you don’t spend), then that leads to a completely different dynamic. Prices are set by market supply and demand, resource allocation is optimized, and incentives are aligned.”

    If prices were set by s/d then if I happened to break my arm at a time when there was a lot of such cases happening then s/d says that I will pay more for the EXACT SAME SERVICE simply b/c of increased demand. The same with cancer, cessarians, etc., etc. That’s ridiculous ESM and flies in the face of public purpose and general ethics and sanity. First of all the costs for the provider have not changed, their profit margins are still in tact regardless of volume, and secondly there is no valid reason why a provider needs to exercise opportunity cost as a reason to raise their rates…they are in the business of helping people who are ill/sick/dying. Where is their opportunity cost?!?!! To not help these people?!?!? If we were talking about making cell phones or baking bread sure, fine, opportunity cost exists…I could be doing something else or whatever so I’ll raise my rates as demand increases. But this is PEOPLE we’re talking about…this isn’t consumption ESM…it’s life. It’s a fundamental element to the economy…without people there is no economy. And with MMT principles we all know that this can all be “afforded.” You’re only argument at this point is that free market principles must reign otherwise “inefficiencies” will creep out. Well let me inform you that already prices are set in the health care industry. That’s what medicare/medicaid does. Workers Comp also has set prices based on zip codes (wealth of that area). It’s called a “fee schedule.” There really isn’t too much debate with insurers and providers about the price of a service…but there is much debate about the necessity of the service and that’s what goes on with w/c claims for the most part. Interestingly enough, to fly in the face of your “prices cannot be set” “theory” many, many doctors, hospitals, MRI places, etc. use w/c as a main portion of their “bread and butter” services b/c those clients pay much better and more reliably and in greater frequency than pi claims and regular, normal insured patients. You’re entire argument is completely flawed to the core man and w/c proves it.

    Resource allocation will still be optimized even if the government gives unlimited health care credits to its citizens b/c the providers are still doing services for people and there is still COMPETITION in the market place. Yes the government “writes the checks” but that money is TOTALLY VALID in the eyes of those providers let me tell you!!! And those providers are NOT being guaranteed A SINGLE CUSTOMER. That means they are completely incentivized to provide the best, friendliest, and most appropriate service around. And again…you fail to understand that. B/c of these facts, “market principles” of s/d WILL STILL EXIST. People will truly be “consumers and shoppers” at that point for the best health care providers around. Those providers will then have very, very real incentives to make their services and practices the best they can be to generate more volume and clientele…the money is still being chased let me tell you ESM and the profits are still there and now EVERYONE is happy AND businesses are still “pressured” by the “free market” to be competitive and top notch AND people are being cared for as they need it. In fact there are actual precedents for this system working…it’s in education with the no child left behind act. I have extensive experience in running SES tutoring companies that operate in this very manner and let me tell you not only is this a HIGHLY PROFITABLE venture it is also effective in getting kids tutored outside of school…granted it’s not perfect and those kids need really intense help, but again the precedent is there and is already going on today. ;)

    Your points as far as I can tell are totally invalidated now. With customers free to choose and shop, incentives and resource allocations are totally present. Prices remain fixed as a point of public purpose and there is precedent for the efficacy of fixing price in the USA health care industry already as well as precedent for the government being the sole creditor of services. What else you got?!?! ;)

    “First of all, the way SS works, you only have to work for 40 quarters to get full benefits. That is hardly “all their lives.” Second of all, if you are unfortunate enough to die before you’re 65, you get diddly squat, and your heirs get diddly squat too, even if you actually worked 40 years rather than just 40 quarters. The Chilean pension plan fixes both of these inequities.”

    Actually, first of all, I am not in support of SS…I am in support of a completely tax free retirement program for seniors. Second of all you are just completely WRONG here with your stats. 40 quarters DOES NOT get you “full benefits.” 40 quarters is the MINIMUM you must work to even get ANY SS benefits. Huge difference ESM…huge difference. Basically with 40 quarters you’ll get approx. $100 in SS benefits a month. Woo-hoo!!! So let’s stick to the FACTS here yeah? Third of all, if you do die even before you get SS, your heirs DO GET that money. It’s called Survivors benefits and is a major part of the larger reason SS was created in the OASDI act and totally active right now for children, widows, etc. Come on man what are you talking about here?!?! Your chilean pension plan ONLY works for those that ARE ABLE to save plus it flies COMPLETELY in the face of your whole “free market” principle (go figure). It’s just hilarious to me to listen to this stuff. Also, with a fully provided retirement plan guess what…people can STILL save and they likely will really be able to since there’s no FICA tax (assuming all other taxes are equal…which they may not be). So we can have your chilean plan in a natural way the market sets (you’d appreciate that I’m sure) AND we can still have everybody cared for as they get older. Win-win…this is a no brainer man…what gives???

    “So even if I accept your argument that we should give old people a comfortable retirement to look forward to, would it be so outrageous to raise the retirement age to 68 or 70 over a period of 20 years (when life expectancy will be even longer)?”

    Yeah that’s a valid point, especially once everyone gets total and free access to health care for sure!! LOL ;) And that can be easily indexed based on relevant data points much like a retirement program must be indexed for inflation as well. Problem solved. Not really a big deal as I see it man.

    “As the population ages (which is where demographics and life expectancy are taking us), the status quo is putting an increasing burden on young people.”

    Wait…wait…what about the free market?!?!?! I thought s/d would handle any market “inefficiencies”!!! What happened man? I am very, very confident that if demand remains in the market place, there will definitely be people to step up and fulfill that demand…whatever age the person may be…money talks my man. You’re also forgetting the edge that technology provides with being able to service more people with less workers. I really think we’ll be all right. I’m not losing sleep over that one. ;)

    ESM Reply:

    @luigi,

    @Mario:

    “If prices were set by s/d then if I happened to break my arm at a time when there was a lot of such cases happening then s/d says that I will pay more for the EXACT SAME SERVICE simply b/c of increased demand. The same with cancer, cessarians, etc., etc. That’s ridiculous ESM and flies in the face of public purpose and general ethics and sanity.”

    Not ridiculous. That’s how it should work. It will bring on more supply to meet the spike in demand. If prices remained the same, then you would simply have to wait to have your arm set because there wouldn’t be enough doctors (which is actually an option that you have anyway, if you don’t want to pay the temporary high price).

    “Resource allocation will still be optimized even if the government gives unlimited health care credits to its citizens b/c the providers are still doing services for people and there is still COMPETITION in the market place.”

    No, that’s not true. Optimization of resources requires price signals to be applied to both the supply and the demand side. If people were given unlimited health spending vouchers by the government, then initially we would have very long lines to get health care, but eventually almost all of our GDP would be devoted to health care. We would be very healthy, but we would miss out on all the other good things in life. The health care market is connected to all other markets, especially through the labor force. If prices spike up too high in health care, then all of the people would have become engineers or lawyers or artists or whatever will become doctors.

    “40 quarters is the MINIMUM you must work to even get ANY SS benefits. Huge difference ESM”

    You’re right, my mistake. What they do is average in 25 years of making zero with your income from the 10 years you work to get your average wage, which lowers your benefits. However, the benefits scale is extremely progressive, so it’s possible to nearly full benefits by working only half of the typical worker. Your benefits are still not very closely related with what you paid into the system.

    “Third of all, if you do die even before you get SS, your heirs DO GET that money.”

    This I know about, and I disagree. Your children only get benefits until the age of 18, which for a 65 year old person is not particularly relevant. Spouses would ordinarily get half benefits anyway, even if they didn’t work, and even if they divorced you. Being a widow steps things up to full benefits (if – another caveat – the widow is over the retirement age), but it’s still not the same as inheriting a lump sum retirement account.

    You and your family are still being penalized immensely if you die early. And the argument that it’s insurance or an annuity and that’s part of the risk doesn’t wash, because people in poor health or who have a family history of dying young do not get a discount on what they pay into the system. If it was a real annuity system, they would be able to get such a discount.

    “Wait…wait…what about the free market?!?!?! I thought s/d would handle any market “inefficiencies”!!! What happened man?

    The market will optimize the situation, but it is still a burden on younger workers. If the status quo holds, then within 30 years, there will be one SS beneficiary for every 2 workers. Perhaps the workers’ productivity will be so great by that time, it won’t be much of a burden, but I feel it already is a big burden on young families.

    Mario Reply:

    @ESM,

    “If prices remained the same, then you would simply have to wait to have your arm set because there wouldn’t be enough doctors (which is actually an option that you have anyway, if you don’t want to pay the temporary high price).”

    Unlikely even in a high demand season that you’d not be able to get service from someone in your area (or even just a little outside of it) or if you had to wait a bit in the waiting room (a phenomena not uncommon now either by the way which proves that supply doesn’t necessarily expand to meet demand even in today’s market). If the issue really became pervasive in an area then investors and businessmen would see the opportunity and capitalize on it. What’s the prob Bob?!?! And deciding to “wait out the high season” when you have a broken arm or something is just insane ESM…where do you come up with this stuff man…it’s like this is all some flippant joke to you man. Have you ever had to deal with someone dying of cancer before man?!?! Do you not get how severe and vital these services are?!?! Seriously man, what’s wrong with your thinking on this topic? You’re so clinical and detached about it all, it’s almost frightening.

    “No, that’s not true. Optimization of resources requires price signals to be applied to both the supply and the demand side. If people were given unlimited health spending vouchers by the government, then initially we would have very long lines to get health care, but eventually almost all of our GDP would be devoted to health care. We would be very healthy, but we would miss out on all the other good things in life. The health care market is connected to all other markets, especially through the labor force. If prices spike up too high in health care, then all of the people would have become engineers or lawyers or artists or whatever will become doctors.”

    wrong again man…what part of PRICE SETTING don’t you understand? Just look at w/c comp man. The government can set price and let quantity adjust as the saying goes!!! When price is set, profits are capped. Not only that but there is a limit to how many doctors and hospitals are needed in any given area…otherwise you’ll have an over supply of providers and they will quite literally be out of a job and go under simply b/c of lack of demand (over-saturation) and won’t be able to meet their expenses. Come on man!!! Not only that but I frankly don’t see anything wrong with more people going into medicine…we need more science-minded professionals. And no that will not mean that there won’t be anymore engineers or lawyers or accountants, etc. so again your concerns are just fantasy. And now somehow it’s impractical to have lots of doctors in a society!??!?!! With all due respect…what are you talking about man!??!!

    ESM you’ve already admitted earlier that giving people $5,000 in cash would be great for the market and competition. That’s the plan you support and you give the EXACT SAME REASONS I give here except now my reasons aren’t accurate all of a sudden (but yours are of course). You’re being disingenuous and flip-flopping your rationale in whatever way more conveniently fits into your belief system instead of what is the reality of the situation. Sorry man…logic doesn’t work like that.
    You’re still poking holes into SS benefits as if I am defending them or something. Listen a retirement program for all citizens would handle all of that man. No need to “inherit” your parents’ retirement benefits…you’ve got your own…for you regardless if you save and live well or not. You’re covered. Why is this such a terrible thing again?!?!?! Truthfully you haven’t answered that question, b/c there isn’t a good reason not to enact it. That’s the long and the short of it regarding retirement man. All else is just bs frankly. Respect your elders. Period.

    “I feel it already is a big burden on young families.”

    Based on what evidence? How are you quantifying such measurements? If anything families are burdened b/c of health care costs, poor jobs, little demand, hugely expensive education costs, a shitty 401k, and now apparently little to no retirement benefits either!!! Yeah for some reason I don’t think what you’re saying is a big factor burdening families right now…if what you’re saying is accurate then you’d be seeing an economy having a hard time keeping up with demand…I beg to differ with you on that one.

    ESM Reply:

    @Mario,

    “Some things need to be given freely to all like basic health care and a basic means of monetary survival…”

    Isn’t this redundant? If you are providing a floor on income (or wealth) for poor people, why can’t you make that floor high enough to allow covering basic necessities, including health care? The wonderful thing about the free market is that consumers make their own decisions about what to spend their money on. Giving people real resources that they value less than the market does is inefficient. It is better to give them the value of those resources in money.

    There is a blind spot in most people’s worldview when it comes to health care. Health care is a complex market, which includes tradeoffs and costs vs benefits decisions, like any other. There is nothing special about health care. People trade health for money (or other rewards) all the time, most conspicuously in their employment (e.g. coal miners, football players, policemen, firefighters, soldiers, competitive eaters, even doctors).

    Reply

    luigi Reply:

    @ESM,

    In my opinion is not redundant, because health care should be a public service, a complete State monopoly, like currency, energy, water. I mean, they are all public goods and so, no free market should be implicated in public goods, in my opinion.

    I know that in America they have a strange view about public goods, I consider America a fifth world country talking about welfare, because they have the abilities to guarantee this, but they have a strange view about mankind.

    I don’t know how to describe this without be potentially offensive, so I say “strange view” that is really abstract.

    For example, in Italy (but we can say Australia or Europe in general), the healthcare reform by Obama is not considered a reform, is only a little step in nineteenth-century.

    ESM Reply:

    @ESM,

    “…health care should be a public service, a complete State monopoly, like currency, energy, water.”

    Well, I certainly don’t think that energy and water should be state monopolies, or even should have involvement of the state beyond regulations and taxes to minimize externalities. In the case of currency, I only have a minor quibble in that anybody should be able to create their own currency, and in fact they do (e.g. IOUs, gift cards, store credits, credit card points, airline miles, subway tokens).

    I realize that Italians have a different view of the role of the state than most Americans, but you should bear in mind that the standard of living in the US is quite a bit higher than it is in Italy, and this is almost certainly due to the greater economic freedom we have here.

    And our standard of living is higher despite the fact that Italy and all developed countries benefit from the huge amount of resources Americans spend on the military and (directly or indirectly) on medical R&D.

    Mario Reply:

    @ESM,

    It’s definitely not redundant by definition, but it may be an idea you don’t agree with.

    If what you say is true, would you support the idea of getting into the business of selling oxygen (in the future if/when oxygen becomes a precious commodity that is)? I mean surely the “free market” would be able to more efficiently and effectively distribute it right?

    Personally ESM, seeing that you know how deficits work at the federal level I really can’t even fathom why you would be opposed to more people being able to receive basic medical care, have a job, and retire in basic decency. It baffles me beyond measure. It’s just a fact that not everyone can “make it so easy” in the private sector. Life happens and people aren’t perfect…but do they honestly need to mortgage the house in order to get the health care they need? Seriously?

    Let me ask you this…do you honestly think that if more people could get easy access to doctors and health care that the medical attention and medical care of those people would go DOWN in comparison to the status quo? It’s ludicrous and defies all macro statistics if you do, and the reason I ask that is b/c it proves that the status quo is NOT as efficient as what it could be. There is demand out there NOT being fulfilled. In a perfectly free market you wouldn’t have that scenario ESM. There are certain things in life where it really about making sure people are taken care of at a basic level. It clearly “trumps” plastic ideals of market efficiency (that aren’t even efficient in the first place in this regard!). It’s about helping people ESM. And why not do that considering all that MMT shows us? Seriously why not? The free market status quo is not working which is easily proven by the fact that so many Americans do not have health care services and are in both physical and financial hardship b/c of it. Hello!?!?! The status quo isn’t working for a large majority of people and employers to boot!!! Hence more jobs being shipped elsewhere and/or lay offs, etc. This whole privatization of health care thing is a sick parasite upon the USA in so many ways it’s not even funny anymore.

    I don’t know if you’ve ever been to Italy, but I just spent about 3 weeks there in May and let me tell you man…they have a very nice standard of living compared to many people in the US…it is different with more families living together for longer and they are bit slow on the administrative side but I’ll tell ya man…the food is incredibly wholesome (and delicious!!), the homes are nice, the people dress (and look) great, they have all the amenities we have, and they live in just an amazing land (ahh Roma!!). I’d take Italy over the US in a heartbeat my friend!!!! Whew!! Fortza Italia!!! LOL

    ESM Reply:

    @ESM,

    @Mario:

    “If what you say is true, would you support the idea of getting into the business of selling oxygen (in the future if/when oxygen becomes a precious commodity that is)? I mean surely the “free market” would be able to more efficiently and effectively distribute it right?”

    Yes, and absolutely!

    “…I really can’t even fathom why you would be opposed to more people being able to receive basic medical care, have a job, and retire in basic decency.”

    Mario, this is exactly what is so frustrating for conservatives. Liberals have Plan A to achieve Goal X. Conservatives oppose Plan A, and liberals conclude (or perhaps disingenuously claim) that conservatives don’t support Goal X.

    I don’t oppose more people being able to … {Goal X}. I just think that your Plan A won’t get us to Goal X. In fact, I think it will do more harm than good.

    “It’s about helping people ESM. And why not do that considering all that MMT shows us? Seriously why not?”

    All I wrote is that it is better to give poor people money to buy goods and services than to give them the actual goods and services (that presumably omniscient government bureaucrats have decided they need). Is that so evil? Is that so obviously wrong? Is that out of MMT paradigm?

    WARREN MOSLER Reply:

    those are options.

    and there are fallacies of composition

    for example, the option to stand up at a football game doesn’t work to public purpose.

    you stand up you see better, everyone stands up no one sees better and no one gets to sit down.

    so a no standing up rule except for very brief periods of time seems the way to go.

    i would consider that a ‘public good.’

    Same with police protection. I don’t see choice working for that. etc.

    Sergei Reply:

    @ESM,

    ESM, you keep on saying that the US population is subsidizing global pharma industry.

    Of top 5 pharma companies, 3 are European: Novartis, Bayer, Glaxo. Novartis makes less than a third of its nominal (!) sales in the US and that is lower than it makes in Europe. Bayer makes slightly more than a quarter in the US and way below Europe. GSK comes on top making about 38% in the US. These are nominal sales volumes, not profits. Global sales split is slightly above 40% for the US. So do you make an argument that outsized sales of generics in the US help subsidize the rest of the world? Otherwise where is the subsidy coming from?

    Besides that, the fact that US population is almost as sick as the rest of the world together (or take Europe alone if you want to bring affordability argument) does not mean that US is sudsidizing everybody else.

    WARREN MOSLER Reply:

    I agree we should allow re-importation.

    ESM Reply:

    @ESM,

    @Sergei:

    “ESM, you keep on saying that the US population is subsidizing global pharma industry.”

    Not just pharma. All of medical technology. I think that if there is one thing both liberals and conservatives can agree on, it’s that Americans pay significantly higher prices for the same drugs than the rest of the world, and we spend much more on advanced technology (e.g. MRI machines). Not only to we have a free market in the pricing of medical services, but we have a skewed system which insulates consumers from the cost. That’s a recipe for paying top dollar for medical technology, which then incentivizes profit-making entities to develop more.

    “Of top 5 pharma companies, 3 are European”

    Completely irrelevant. It doesn’t matter where the headquarters of a company is, or what language the CEO speaks. What matters is whether there is a market to sell drugs that are successfully developed, at a high price and in large enough volumes to make a nice return.

    “These are nominal sales volumes, not profits.”

    Right, hence irrelevant.

    Look, I don’t have the data in front of me, but it’s just straightforward logic. The US pharma market is the only non-minuscule one that has prices determined by supply and demand. There’s no question that Americans pay higher prices for drugs. Why do you think the pharma companies work so hard to keep in place laws here which make it illegal to reimport drugs?

    WARREN MOSLER Reply:

    agreed we should allow reimportation

    Sergei Reply:

    @ESM,

    ESM: Look, I don’t have the data in front of me, but it’s just straightforward logic

    What you believe in is irrelevant. If you do not have the data then you’d better get it before you claim anything. The fact that US medical industry is heavily lobbying has zero relevance to what level of medical service citizens of other countries in the world get and how much they pay for it. At the end of the day the medical industry has to recover the costs of lobbying as well as marketing, i.e. something which is much less important in Europe. Overall, your level of argument is equivalent to the argument that if Apple sells more ipads or iphones in the US then US consumer is subsidizing European buyers of ipads because they buy less. Everybody understands how ridiculous this is.

    Me: “These are nominal sales volumes, not profits.”
    You: Right, hence irrelevant.

    Wrong. This is as important measure as profit margins. I can hardly believe (but waiting for the data from you) that profit margins in the US are 2x .. no 3x … no 50x higher than that in Europe. Because nominal sales volume of drugs are NOT even 2x higher than in Europe. And drugs are an important component of medical industry in particular in terms of R&D to which you referred above.

    ESM Reply:

    @ESM,

    @Sergei:

    This is an excellent report. Read the executive summary. It claims that patented drug prices are 18% to 67% lower in Europe (depends on the country and the drug) than in the US, mainly due to government price controls.

    The executive summary concludes that if the rest of the OECD countries didn’t have government price controls for pharmaceuticals, then worldwide private sector R&D for drugs would increase by between 11% and 16%, which equates to about 3 or 4 new drugs annually.

    Also, the wiki page on pharmaceutical prices in the US claims that the US accounts for 36% of worldwide drug R&D, which is much higher than US % of world GDP. But as I alluded to before, it doesn’t matter where the drugs are developed, it matters why.

    WARREN MOSLER Reply:

    the US produces drugs based on what it can sell which is based on who’s funded sufficiently to pay for them

    ESM Reply:

    @ESM,

    “The executive summary concludes that if the rest of the OECD countries didn’t have government price controls for pharmaceuticals, then worldwide private sector R&D for drugs would increase by between 11% and 16%, which equates to about 3 or 4 new drugs annually.”

    I should note that the study does not appear to provide a number for how much less private sector R&D spending we would have if the US adopted the European model of government price controls for drugs (which is a more important number for our argument). I expect that the decrease would be much, much larger than 11% to 16%.

    Sergei Reply:

    @ESM,

    ESM: But as I alluded to before, it doesn’t matter where the drugs are developed, it matters why.

    Very good point. It is important why they are developed. However before we answer this question we need to answer why they are demanded. Because as you surely know in the market economy demand drives supply, including the supply of technology. In other words R&D. And here we get back to my argument of ipads and iphones. The fact that there are more ipads sold in the US does not mean that the american consumer of ipads is subsidizing the European consumer of ipads. Also, the fact that ipad 3 will be first sold in the US and only later elsewhere does not mean that American consumers of ipads 3 will be subsidizing everybody else.

    Overall, the fact that patented drug prices in the US are higher than elsewhere is irrelevant to the argument of cross-subsidies if any. On exactly the same grounds I could argue that European consumers of cars subsidize American consumers of cars because car prices in Europe are much higher and cars are much better. We can cast the net even broader. Because consumer prices in Europe in general are higher than in the US then Europe is doing a huge subsidy to the US consumer. Ok, the only exception is drug prices. And may be a little bit of ipads and iphones.

    I am seriously shocked that you allude to such arguments. Why don’t you take, say, house prices and start arguing about cross-border subsidies? Surely, you can not move houses across borders. But you can not move patented drugs either. I am simply curious how those 3 out of global top 5 poor European drug companies are doing their business in this world of global financial markets with such a low share of revenues in the US.

    beowulf Reply:

    @Luigi,
    I know that in America they have a strange view about public goods, I consider America a fifth world country talking about welfare, because they have the abilities to guarantee this, but they have a strange view about mankind.

    ‘Twas not always so (FDR gave that speech a week or so before a fairly large number of American, British and German “tourists” were visiting Monte Cassino).
    http://youtu.be/effDfpKYcVo

    ESM Reply:

    @ESM,

    @Sergei:

    “Overall, the fact that patented drug prices in the US are higher than elsewhere is irrelevant to the argument of cross-subsidies if any.”

    You asked for data. I gave you data. Please don’t ignore it.

    “Because consumer prices in Europe in general are higher than in the US then Europe is doing a huge subsidy to the US consumer.”

    It depends why the prices are higher (or lower). Consumer prices are higher in Europe because of excessive government taxation and regulation. This does nothing to enrich the US consumer. Drug prices are lower in Europe because of government price controls. Not only does this do nothing for the US consumer, it hurts him (as it hurts everybody), as the report I linked to purports to show.

    In both instances, it is European prices of goods and services which are distorted by government (either too high or too low). The US prices are much closer to free market prices, which I think leads to a more optimal allocation of resources directed to produce those goods and services.

    In fact, in the case of prescription drugs, US prices are probably distorted upwards by government creating too much demand. This is inefficient of course, and normally excessive demand would hurt other global consumers. But in the case of drugs, the production cost is so low, that European consumers are not hurt at all. They are only helped because drugs that wouldn’t have been developed are developed at US consumer expense.

    Sergei Reply:

    @ESM,

    I accept your data as much as you accept the fact that 3 out of top 5 pharma companies are European and all of them have a lower share of sales coming from the US than the share of the US in the global drugs market.

    Moreover, I accept your data as much as you accept my argument that there is much more to final prices than R&D costs. Such items as marketing or distribution or even potential legal costs take a great share of costs in the US and yet they are not applicable to Europe in the same extent as in the US.

    Again, if business in Europe is soooo unprofitable why do not we see it reflected in the financial as well as business world?

    Finally, what else would you expect from the Trade Administration of the US government? The study you mentioned is just one of a possible gazillion of similar studies coming from the side which you would expect to complain about the status quo.

    I remain shocked.

    Mario Reply:

    @ESM,

    “All I wrote is that it is better to give poor people money to buy goods and services than to give them the actual goods and services (that presumably omniscient government bureaucrats have decided they need). Is that so evil? Is that so obviously wrong? Is that out of MMT paradigm?”

    I didn’t hear how you suggest that we “give poor people money.” What is your suggestion in that regard? How are you suggesting they get given money? I missed that part of your thinking. How does that work for retirees and in health care exactly?

    Another question for you…do you think it is possible for the government AND business to be in the same industry together? In other words do you think it is possible for the government to provide a BASELINE level of support in medical care while at the same time the private sector can ALSO provide support and services too? The same would be true for oxygen (in that example)?

    The reason why I ask is b/c it appears to me that you have an underlying assumption that such a dual-service cannot exist in an economy. I’d like to inform you that it can (and does) exist. The two are not mutually exclusive and we actually can have our cake and eat it too. In fact, if the private sector is so much more efficient than the government (as you say it is…and I don’t necessarily disagree with you either), why should the private sector care if there is one more competitor in the marketplace? They are better anyway, so they shouldn’t lose any customers…right? ;)

    Also you failed to address the real issue I brought up on how inefficient the current health care market is in the USA. So let me ask you, which one of these statements do you agree with more:

    #1. The USA health care system is working efficiently as it stands today.

    #2. The USA health care system is not working efficiently as it stands today.

    Which one of these statements do you agree with more? If you say #1, then my question to you is what about all the unfulfilled demand in our economy and nation for health care? Why aren’t prices coming down to meet all that excess demand as would be expected in an efficient market? And if you say that it is already at equilibrium, then I ask you, what about the millions of Americans that do not have health insurance and can’t take care of themselves? What about them? Are they just considered the inevitable “losses at the margins”? Are they just “destined” to suffer physically and financially b/c they just aren’t wealthy enough according to the “laws” of supply and demand? Is this all about survival of the fittest now?

    If you say #2, then I ask you what is not working and how do we fix it?

    WARREN MOSLER Reply:

    And i suggest there be jobs for everyone willing and able to work and only ‘give money’ where there is no moral hazard.

    Along with my healthcare proposal, etc.

    ESM Reply:

    @ESM,

    @Mario:

    “How does that work for retirees and in health care exactly?”

    Well, for retirees it works like the pension system they have in Chile (mandatory savings in your own account) plus welfare. For health care, I think Warren’s proposal (see the Proposals tab at the top of the website) is a good one.

    “Another question for you…do you think it is possible for the government AND business to be in the same industry together?”

    No, I think in practice it doesn’t work. The difference between a private business and a government agency is that if the private business can’t compete, it goes bankrupt and gets out. If the government agency can’t compete, it just continues to tinker with the rules and the regulations and bleed money to stay in the running. Government agencies can’t go bankrupt, and in the end whether to kill them off or not is always a political decision and not a financial one. The only example I can think of where a wasteful appendage of the government was actually scaled back was when the military base closings happened in the early ’90s. And that was a hell of a fight, and the military bases didn’t even have customers!

    “…why should the private sector care if there is one more competitor in the marketplace?”

    Because it is a competitor that will refuse to lose and has the power to change the rules until it starts winning again.

    “Which one of these statements do you agree with more?”

    The 2nd obviously. Our system is horribly inefficient. It subsidizes demand (by making health insurance a tax-deductible benefit for workers), and it isolates the ultimate consumer from the cost of what he is consuming. The pricing for medical services is completely opaque to the consumer, and it is not a functioning free market at the level of the individual (although it works a bit better at the institutional level). Despite all that, I think the US still delivers the best health care in the world. It’s just that we pay way, way too much.

    “If you say #2, then I ask you what is not working and how do we fix it?”

    Once again, Warren’s proposal is an excellent start. It creates a real consumer driven health care market. And I think people on both the left and right could actually get behind it.

    Gary Reply:

    @ESM,

    “the US still delivers the best health care in the world” – that is interesting statement.
    You mean – if you can spend unlimited amount of money on healthcare? In that case – maybe.
    But that hardly can be considered a “delivery”, can it?

    The US has millions of people who cannot afford healthcare, and millions still who can afford only minimal healthcare.
    It is really immaterial to them how good is healthcare that they cannot get.

    If some dictator or oligarch in some country of the world can get a better healthcare than you can get in US – would you consider that country’s healthcare “the best in the world”?
    Hardly.

    Also – even when not considering the price: the US healthcare is just another business. Trying to maximize profits. Doctors making numerous appointments during which they hardly do anything; prescribing medications which pharmaceutical companies ask them to prescribe; choosing the most profitable treatments and procedures; fighting alternative and unprofitable treatments; add to that the hospitals which are also businesses – trying to keep the patients only long enough to charge them fully, but kicking them out once they run out of money;

    Hardly the “best in the world”

    WARREN MOSLER Reply:

    How about the way our healthcare system works to sustain people who don’t take care of their health.

    Mario Reply:

    @ESM,

    “Because it is a competitor that will refuse to lose and has the power to change the rules until it starts winning again.”

    That’s interesting b/c Warren’s plan has the government as a competitor in the health care industry for the very reason that it will stimulate better competition in the private sector. If you like Warren’s plan, then you are contradicting yourself royally.

    I like Warren’s plan but I still don’t think it covers the real issue at hand, which is not “discretionary” health care costs of your monthly check up here and there. It has to do with unexpected issues with things like car accidents, birth issues, child diseases, broken limbs, cancer, etc. These are the real issues that Americans are concerned about and are literally left stranded on. $5,000 bucks ain’t gonna cut it with those serious issues. The real issues lie in the DETAILS of how that “catastrophic insurance” actually works for people. The real issue in today’s health care world is less about doctors’ bills and more about the hospitals and surgeons and the insurance companies. I’d gladly handle the couple grand of expenses to see my doctor and get meds if the government will handle 90% of the serious costs without the use of dreaded insurance companies. And if the government is subsidizing 90% of costs as Warren suggests then why the hell not give me better coverage on more serious issues??!! That’s all backwards in my book, unless I’m misunderstanding something in that proposal. I used to work in collections for a doctor…I know first hand how freaking evil those insurance companies…let me tell you!!!

    “Well, for retirees it works like the pension system they have in Chile (mandatory savings in your own account) plus welfare.”

    How can forcing people to save actually be considered a “pension program”? Let alone how you’d enforce that…I am surprised to see you all of a sudden have no problem with the government getting involved in such private affairs like a person’s savings account and savings rate. Very interesting ESM.

    The whole idea is that a retirement program avoids people lost in those very margins and gaps in the ability to save? How is the “welfare” system any different from a simple retirement program funded by the government? Aren’t you basically agreeing with me, you just think a lower amount should be provided via “welfare” (and what is that exactly) while the difference is “covered” by the people themselves being forced to save? I had no idea a conservative like yourself supports being told what to do with your money all of a sudden. It’s always interesting to me how people’s principles change according to who proposes the idea. ;)

    WARREN MOSLER Reply:

    after you use up your $4,000 (or whatever it turns out to be when enacted) you get ‘medicare for all’ with no donut holes, etc.

    Mario Reply:

    @ESM,

    I also don’t like how Warren’s plan still leaves businesses paying for insurance for people. It makes a person’s health insurance NOT a public right but rather a privatized right on two fronts…first with who you work for and second by how much you can afford to pay (and how healthy you are statistically or otherwise).

    I want businesses freed from having to even deal with health insurance benefits for workers. Business is not here to take care of me…they’re here to make money. Let’s just keep it at that imo.

    Let government provide a baseline service for health care and let private sector compete against that. If government is as bad as you say it is they should have no problem getting customers. Look at Fedex and UPS. ;)

    WARREN MOSLER Reply:

    business pays nothing. i make it clear healthcare isn’t a marginal cost of production and should not be paid for by business.

    ESM Reply:

    @ESM,

    @Mario:

    “That’s interesting b/c Warren’s plan has the government as a competitor in the health care industry for the very reason that it will stimulate better competition in the private sector.”

    No he doesn’t. He appears to propose a transition where health insurance is provided along with the ELR. That’s not the same as getting into the health care business. In any case, I would oppose that part of his plan even as a transition. I agree with you that employers shouldn’t be in the business of providing health insurance. Warren does too.

    It’s the long-term plan where the government gives people $5K refundable health care credits annually that I like. That introduces a market component, a consumer incentive to consume wisely.

    I am fine with government providing catastrophic health insurance beyond that although I would prefer it be quantified and limited in some transparent way. I would expect the catastrophic health insurance to cost less significantly less per capita than the refundable health care credits. Supplemental catastrophic insurance could be provided by the private sector, and perhaps the basic government paid for version could be too.

    “I know first hand how freaking evil those insurance companies…let me tell you!!!”

    You know, my sister-in-law is a lawyer for a health insurer, and despite the fact that she is a left-wing whack job, she understands that insurers have to fight constantly against selection bias and fraud. That’s the nature of the business. You might think they’re being evil, but they’re really just trying to avoid being cheated.

    “How can forcing people to save actually be considered a “pension program”? Let alone how you’d enforce that…”

    It works like SS wage tax, except that instead of your tax money going into a nonexistent government trust fund, it actually goes into a retirement account with your name on it which you legally own.

    “How is the “welfare” system any different from a simple retirement program funded by the government?”

    Welfare is means tested. Also, welfare benefits are low enough that people who can work will choose to continue to work (at least in theory).

    WARREN MOSLER Reply:

    forcing people to not spend reduces current year aggregate demand.

    Peter D Reply:

    @ESM,

    Drug costs is not the most important component of our healthcare spending being higher than abroad anyway. Hospital care is:
    http://feeds.washingtonpost.com/click.phdo?i=df0269e2b9eb295b3bdc1c6da82cfb29

    ESM Reply:

    @ESM,

    @Peter D:

    It wasn’t really an argument about why Americans pay more for health care than Europeans. It was about whether part of what Americans pay provides an indirect subsidy to Europeans.

    And I had included all of medical technology in my example, not just drugs. Almost all non-drug medical technology is probably contained in the hospital care component.

    That’s an interesting graph by the way. The only place where a single-payer system would save money over a market based system is in administrative costs. But the amount extra we pay in administrative costs now (which is exacerbated by the crazy employer provided insurance system we have now, and the fact that insurers are regulated at the state level rather than the federal level) is comparable to the amount extra we pay for drugs.

    Note that administrative overhead is the tribute that capitalism pays to competition. So although it looks like a waste, it may be a necessary waste. For example, we could save administrative costs by having only one computer maker or only one auto manufacturer, but I think they tried that kind of thing in the Soviet Union and it didn’t work out.

    Mario Reply:

    @ESM,

    “That’s not the same as getting into the health care business.”

    Ahh, we are misunderstanding each other then, b/c I have never been thinking that the government needs to become a health care provider itself as in there are USA doctors versus private sector doctors and USA hospitals versus private hospitals or however that works. NO. I am simply saying that the government PAYS FOR THE HEALTH CARE for people. I don’t give a shit if the doctor is a “private sector” doctor or a “government sector” doctor (whatever that is supposed to be anyway)…I only care that AMERICANS GET HEALTH CARE!!!! If that means the government directly subsidizes health care costs for individual citizens directly then GREAT!!! Fine…I don’t care. All I care about is that every single American can get the health care they need without losing an arm and a leg over it (both literally and metaphorically speaking!!!). Have your private sector system if it’s that precious to you…I couldn’t give a shit who the doctor is and where he is working and whose writing his check…all I care about is that he’s good and I can get his aide and services without paying for it each month. Is that really too much to ask in this world ESM? Let’s keep this simple really.

    “You might think they’re being evil, but they’re really just trying to avoid being cheated.”

    come on man we both know that’s just a euphemism for “maximizing profits” which only proves my point further that it’s not ethical or economical (as evidenced by the terrible state of our health care system, which you agree about) to privatize the saving of people’s lives. Some things in this world are sacred and need to be respected appropriately, and a man’s life and health is one of them. It’s the way things are now that led Nietzche to say truly, “God is dead.” He saw what capitalism unfettered was doing to society, and although he’s not accurately in the literal statement of “God is dead” he is accurate in the metaphoric/social sense to be sure. The health care industry is one case in point among (too) many in our society.

    “It works like SS wage tax, except that instead of your tax money going into a nonexistent government trust fund, it actually goes into a retirement account with your name on it which you legally own.”

    Come on ESM, you and I both know through MMT that your suggestion still amounts to the FICA tax being maintained and you and I both know that is really not sustainable for our economy at this time. I can’t believe that you are ostensibly now all of a sudden supporting keeping higher taxes in place for our economy. Seriously man, why are so resistant to a simple retirement pension program funded by the government? Why can’t it be that simple? Clearly your suggestion to be like Chile of all places is just not functional in our current USA economy for so many reasons.

    “Welfare is means tested. Also, welfare benefits are low enough that people who can work will choose to continue to work (at least in theory).”

    Right so if it’s means tested and only supports those who can no longer work, what’s the point of having it be a part of the retirement pension? Your suggestion is in direct opposition to the whole purpose of a retirement program for seniors. Obviously you can create a stipulation in the program that only gets kicked into effect for citizens once they reach a certain age that they can defer their retirement program if they are still working or want to continue to work in lieu of the program. Come on man, seriously, why do your suggestions have to be so difficult for people to just relax and enjoy a few of the fruits of life like health care and retirement? What gives? The people are old and have already worked all their lives…what more do you want from them man?

    We do agree that health care shouldn’t be covered by businesses so that’s cool and we do both agree that the government can provide health care funding for citizens so that’s cool. So we do have some good grounds to lift off from. I think we can get this to work for everyone man I really do. ;)

    Sergei Reply:

    @ESM,

    ESM: The only place where a single-payer system would save money over a market based system is in administrative costs

    It shows the straw man you built. European governments do not pay or provide. They guarantee the provision. And the provision itself is a pretty much private business with the exception of large scale efforts where private sector is generally failing to catch up with fair demand. Same case as with infrastructure, education and other public goods. Private sector activities in such areas are always driven by other considerations than universal access.

    ESM Reply:

    @ESM,

    @Mario:

    “I am simply saying that the government PAYS FOR THE HEALTH CARE for people. I don’t give a shit if the doctor is a “private sector” doctor or a “government sector” doctor (whatever that is supposed to be anyway)…”

    If the government pays providers directly, then that is government run health care. He who pays the bills, calls the shots. The monopsony buyer sets the prices. If the government simply gives you a fixed amount of money to spend on health care (and you can keep what you don’t spend), then that leads to a completely different dynamic. Prices are set by market supply and demand, resource allocation is optimized, and incentives are aligned.

    “come on man we both know that’s just a euphemism for “maximizing profits””

    Well, I didn’t mean to use a euphemism, since I want private sector companies to maximize profits. Health insurers aren’t particularly profitable by the way. Their gross margins are razor thin, which is why they have to be so careful about selection bias. Ultimately, an insurer that is making extraordinary profits will either face competition to lower its premiums or face competition to provide better (i.e. more costly) service to its customers. If an insurer denies your claim unreasonably, then presumably you would have a tort for breach of contract. If an insurer simply inundates you with paperwork to discourage you from filing a claim, then that’s just plain bad service, which, while not legally actionable, will presumably incentivize you to find another insurer.

    “Come on ESM, you and I both know through MMT that your suggestion still amounts to the FICA tax being maintained and you and I both know that is really not sustainable for our economy at this time.”

    This is obviously not the best time to implement such a program. Generally, I would have offsetting tax cuts in other areas to maintain aggregate demand. And actually, except for the “forced” pension accounts, I would not allow there to be tax-exempt retirement accounts. Of course, in my ideal world, I wouldn’t have income taxes at all, so everything would have to be flipped around. I would prefer a consumption tax, with annual rebates.

    “The people are old and have already worked all their lives…what more do you want from them man?”

    First of all, the way SS works, you only have to work for 40 quarters to get full benefits. That is hardly “all their lives.” Second of all, if you are unfortunate enough to die before you’re 65, you get diddly squat, and your heirs get diddly squat too, even if you actually worked 40 years rather than just 40 quarters. The Chilean pension plan fixes both of these inequities.

    Third of all, the retirement age hasn’t risen, even though life expectancy and vigor at 65 has increased dramatically, so the system is incentivizing millions of perfectly productive and active people to stop working, which is not only bad for society, but may actually be bad for their mental and physical health. The Chilean system does not disincentive work since whatever you earn you get to keep, for yourself or for your heirs.

    Ultimately, it is a political question. We have a system where we start paying people a pension at age 65 and at the same time force them to face a very high marginal wage tax which discourages them from working. Why not age 62 or age 60? Or why not age 68, or 70?

    Seventy years ago, it was decided that 65 was the right age, perhaps because that’s when physical health began declining rapidly, and life expectancy at that point was only an additional 12 years for men and 13.5 years for women (and women generally did not participate except as their husbands’ beneficiaries). Today, 65 year olds are much more vigorous, and their life expectancy is 17 years for men and 19.5 years for women. So even if I accept your argument that we should give old people a comfortable retirement to look forward to, would it be so outrageous to raise the retirement age to 68 or 70 over a period of 20 years (when life expectancy will be even longer)?. As the population ages (which is where demographics and life expectancy are taking us), the status quo is putting an increasing burden on young people.

    Mario Reply:

    @ESM,

    “You would end up consuming a lot more bananas (and banana bread and banana splits).”

    right…but we’re not talking about bananas (a consumptive product)…we’re talking about health care. You don’t “consume” health care in the same way you consume a banana. Either you need medical help or you don’t. There’s not really any “wanting” of health care. You’re not going to get a “craze” of health care consumption. Either you need the treatment or you don’t. This is one of the main reasons why health care must be offered as a public service…it’s not your typical “retail/consumptive” business model.

    “Does health care include therapeutic massage?”

    Massage is included for w/c patients in case you weren’t aware. But for general public I’d say no. Massage is secondary and could be paid for by people on their own. We’re talking about serious health care…medicine, technology, surgery, cancer, heart attacks, hospitals, babies, dialysis, etc.

    “Does health care include transportation to the doctor?”

    I’d say no except for whatever services are already being rendered for disabled people, elderly, etc. I don’t know for certain but there is stuff like that already around in the USA (believe it or not). ;)

    “Does health care include visits to the doctor just to chat because the patient is rather lonely (Medicare covers this, as my mother can attest to about her hypochondriac friend)?”

    It’s possible it could happen. Like you said, it happens now, and doctors are already trained to deal with it (they deal with it now). But frankly we’re talking about people on the margin…outliers. Sure it’ll go up with the more people going to get help, but it’ll still STATISTICALLY be on the margin. It would be silly to not expect marginal data and outliers like that from cropping up…it’s part of humanity. There’s really nothing to do. It wouldn’t become a “wide-spread” epidemic, b/c people aren’t generally like that for one, your boss/parents would get suspicious quickly for two, and it’s just not sustainable practice and lifestyle for three, etc.

    “I don’t have a problem with health care growing to a larger fraction of GDP”

    AWESOME TO HEAR MAN!!!! Let’s get this thing going then!!!! :) :D

    Also remember lawyers would likely INCREASE in work b/c so much of their work is based in health care and injuries, etc. Accountants and engineers would also still be needed for the books and the technology, etc. So I really don’t think you’re concerns is necessary.

    “but I want it to be driven by natural consumer demand, not artificial demand (which is what happens when government makes the price zero).”

    what exactly is “artificial demand”? I can’t conceptualize such a thing. Either you need cancer treatment or you don’t. You can’t “make that up.” This is not a retail/consumptive business model remember. It’s living or dying. You can’t “fake” your pregnant.

    The price would not be set to zero by the government. The COST FOR CITIZENS would be zero…but there would still be a price to compensate those practitioners of course. Big difference.

    ESM Reply:

    @ESM,

    @Mario:

    “what exactly is “artificial demand”? I can’t conceptualize such a thing.”

    Ok, let me help. Suppose that the government fully reimbursed the cost of getting an MRI, so the price was zero. Many people (myself included) would probably go for regular MRIs, say every 6 months, just in case. After all, even though a tumor in the pancreas is almost a certain death sentence, that’s only because it doesn’t cause symptoms until it’s too late to do anything about it. But if you spot that thing with an MRI when it is still less than 1cm in diameter, then you can cut it out and have an excellent chance of survival.

    So now, you have to devote real resources to building MRI machines like mad. And you have to devote labor resources to training people to be radiologists to read the scans. A typical MRI machine requires more than $1MM in resources to build. Some of that’s engineering, some of that’s materials, some of that is royalties on patents (for which I’ll admit the marginal cost in real resources is zero). But by expending real resources on building the MRI machine, you might have had to forgo building 40 automobiles, or perhaps 10 houses. And the extra people who have been trained to be radiologists might have become aerospace engineers instead, or maybe writers or artists.

    So the price of MRI scans has gone to zero, but the price of other things have gone up. The people in aggregate have been tricked or forced to trade something of greater value (cars, houses, airplanes, art) for something of lesser value (frequent MRI scans). There is opportunity cost in devoting more resources to MRI scans, although I’ll concede that such opportunity cost is much less when we are running 16% unemployment (although it is still not zero, because not just anybody can contribute to the supply of MRI scans).

    Neil Wilson Reply:

    @ESM,

    You wouldn’t be able to because you would have to be referred based on ‘clinical need’ by a qualified medical practitioner.

    And the people doing the referring are subject to professional regulation and budget oversight.

    A free for all it is not. Resources are simply allocated based on level of sickness, not depth of pocket.

    Mario Reply:

    @ESM,

    right I understand how demand effects the economy. You described that very well in your hypothetical. However what you fail to explain is the LIKELIHOOD AND POSSIBILITY of your hypothetical even occurring at all and especially to such a dramatic degree.

    You still seem to miss the fact that you need a prescription to get an MRI. Nearly all medical services require a doctor’s prescription. You can’t just walk into an MRI place and get a scan. LOL You’re doctor needs to prescribe one to you. And your doctor will not prescribe one to you unless you actually need it. Your regular check up, etc. will allow him/her to see if that is necessary or not. The fact is ESM the very scientific method of how medicine works will stop such “artificial” demand from really effecting the economy and gaining momentum. You do realize that doctors today already deal with people you are suggesting that want to get scans all the live-long day. It’s not going to happen man. The only reason why a doctor would prescribe an MRI EVERY 6 months is in VERY SERIOUS CONDITIONS. I would know. I have had (too) many very close loved ones be diagnosed with cancer. This scenario you are laying out is hyperbole and does not function like a normal retail/consumptive business model and it does not to into account the reality of the way the health care industry actually functions. It is based on scientific data and fact, not people’s extreme emotions.

    Until they find a better way to indicate pancreatic cancer earlier, that issue of people suffering and dying from it quickly without notice will still be around. Accessible health care is NOT intended to stop all diseases from killing people, as you are erroneously implying in your example. It is to make AVAILABLE all the necessary and practical resources to our citizens such that they can stay alive and healthy to the best of our society’s abilities. That’s all.

    Even if what you say does occur, which based upon the nature of the way the health care profession operates, it is unlikely if not impossible (unless you are a fraudulent doctor and that needs to be dealt with anyway as it is done today)…but let’s still assume you are “right.” The opportunity cost is not exactly there, simply b/c the creation of MRI’s does not mean that we cannot build houses or cars (as if cars are really being built in the USA anyway LOL). Opportunity doesn’t work like that unless the very same people building the MRI’s are the ONLY people that can build houses and cars. And obviously that is not the case. Our economy is large…we do have room for both. Sure “resources” are used up…but honestly man this is just such hyperbole to think that ALL RESOURCES will be used on MRI’s or what have you such that NO HOUSES and NO CARS can be built anymore. Come on man this is ridiculous and is not an accurate description of opportunity cost.

    Of course fraud will need to be dealt with as it is now anyway and there will “leakage” that way…but that is a small price to pay at the aggregate for everyone to get health care access. If I were a gambling man ESM, I’d put money down that says your concern of artificial demand will not occur such that it “over-burdens” and “handicaps” the aggregate economy. One thing that would be possible and likely is that the media and powers that be would do scare tactics like bird flu and diseases and stuff like that to get people to make a mad rush to their doctor and jack up health care revenues. That is very likely and I would bet that would occur. Heck they may even start to create diseases…I put nothing past “them” at this point. But that’s not an issue with universal health care access…it’s an issue of manipulation and corruption…which frankly is already rampant in our health care industry today…the only difference being that far too few people are getting acceptable health care coverage. I’ll take the health care access with a dash of fear mongering and corruption any day over our status quo that still has the fear and corruption.

    I think every one of your objections has been completely and directly addressed. It’s time for full health care access!!!!

    Mario Reply:

    @Neil,

    exactly Neil!! You said in a few lines what I said in paragraphs!!! LOL

    The military example is actually a near perfect analogy too. Great call. Isn’t that funny that people don’t see government funded military operations as a “threat” to competition, services, and technology in warfare but for some unknown and ungodly reason they obviously do for health care. That’s what I call a clear example of being disingenuous…and it really stems from believing so heavily in any one ideology such that you can no longer perceive fact from fiction…reality from fantasy. It seems to be a national epidemic these days. I am thinking that these conversations and this blog and others around town are helping to break up such crystallizations in the national thinking. ;)

    ESM Reply:

    @ESM,

    @Neil/Mario:

    “And your doctor will not prescribe one to you unless you actually need it.”

    Ok, now we’re getting to the crux of the disagreement. Who defines “need?” In the UK, government bureaucrats define it, with consultation from medical professionals. Still, it is a one-size fits all, formulation.

    In the US, health insurance companies define it for about half of the population, although there is consumer input insofar as there is competition between the health insurance companies for customers. For the other half of the population, government bureaucrats define it, once again in consultation with medical professionals at a very high level.

    But you wouldn’t run any other sector of the economy like this, right? You wouldn’t make cars free and then have bureaucratic formulas to decide who needs what kind of car would you? I mean each consumer is an individual with his own set of circumstances. One person might be paralyzed with fear over coming down with cancer. Another might be blissfully unconcerned. One person might have a family history of cancer and another might have no history at all. At what point does the doctor/bureaucrat decide that somebody needs to get an MRI, even though there are no symptoms, or only marginal ones? Does the patient have to beg, plead, write an essay in 1,000 words or less? Or possibly bribe to get what he thinks he needs?

    Centralized bureaucracies defining what consumers “need” has a long dark history indeed.

    Neil Wilson Reply:

    @ESM,

    In the UK need is determined by the doctors, who are private businesses operating under a service contract to the NHS.

    The government bureaucrats you are so clearly terrified of never get involved in the care system.

    If there is a resource crunch – too many hip replacements for the current capacity constraints – and the clinical assessments permits then you wait in line for you turn. At worst service is rationed by time.

    If you want an MRI scan outside of that, then you can always pay for one at the private hospitals, which have plenty of capacity because they’re not dealing with the aftermath of gunshot wounds and/or Saturday night binge drinking.

    And the other sectors of the economy that are run exactly like this are the military and the police force and for precisely the same purpose – defence of the population.

    I’m looking forward to the free market revolution in the police force and the military in the US. That will definitely be one to watch – from afar.

    Mario Reply:

    @ESM,

    ESM my man you’re grabbing for straws here buddy. This is the final kamakazie dive, but I love and respect your determination I really do. I’m as persistent as you are in life and it’s a great quality to have…when you have your facts lined up that is.

    Show me some stats that reveal overwhelming evidence of diagnosis and prescriptive variance between “private sector” doctors and “public sector” doctors that resulted in ill-fated, inaccurate, or generally “negative” outcomes for the patient. Sorry bud…it ain’t happening…unless of course you’re data pool is limited to fraudulent doctors on one side.

    The fact is doctors are doctors man. Whether they are paid from an insurance company or a consumer or a government credit they still do THE EXACT SAME THING…they run their charts, use their technologies, and address the issues as they see them.

    Your points and objections are consistently wide of the mark, largely irrelevant, inaccurate, or inapplicable.

    Again let me remind you that in this type of universal health care, the doctors are STILL PRIVATE BUSINESSES. And the health care providers are STILL PRIVATE ENTERPRISES. They are not run by “government bureaucrats.” They are owned, run, operated, and funded by private business. The government simply provides the reliable revenue stream that’s all. In short, your point is completely unrelated to anything we’re talking about. Doctors will still be trained at the best private medical schools and run their practices in the exact same way they do now. Why you fail to understand this at this point I can only surmise is due to ideological blind spots. I don’t know how to help you in eradicating such things other than to say your logic is flawed, inaccurate, and inconsistent.

    Now please surrender and open up to universal health care!!!! LOL ;) It really is great discussing this with you man…I think we all really learn alot from it on both sides and really this is what it’s all about I think…intelligent and open discussions on how to solve our current social problems with the resources and abilities available to us. My kind of way to spend some good quality time with fellow citizens of the world! :)

    ESM Reply:

    @ESM,

    @Neil/Mario:

    “They are not run by “government bureaucrats.” They are owned, run, operated, and funded by private business.”

    The prices for their services are set by the government. The government decides what it is willing to pay for, under what circumstances, and how much. Those price signals are not driven directly by consumer demand and available supply; hence the whole market mechanism is screwed up.

    The UK actually has an interesting system with a separate private system in parallel with the public system. Many doctors will see patients under both systems, and they might even have separate entrances into their offices for the NHS patients versus the private patients.

    As you might expect, the service has to be better under the private system. The single payer advocates in the US do not want such a dual system here because the private system bleeds resources from the public system. It’s the old (valid) theory that programs for the poor will end up being poorly funded.

    Read here about how “nice” the NHS is in the UK. It’s a perfectly reasonable and rational way to go about things, if you’re going to control things centrally. Unfortunately, it leaves out consumer choice. Yes, there is the private option, but you’re still missing the price signals from the lower 90% of the economic scale. Everything is free, until it’s not. That’s going to lead to misallocation of resources.

    I’m not saying the US system is currently better. It’s currently awful. But what we need here is more market feedback from the consumer. When consumers feel the cost of what they consumer they moderate their consumption to meet their own personal needs. Much waste goes away.

    The guy that has a mild cold and has low opportunity cost might put off seeing the doctor until he’s really sure it won’t go away by itself and he needs antibiotics. The guy who has an important meeting in three days will go to the doctor and get antibiotics just in case it really is a bacterial infection instead of a virus.

    I understand that we don’t have a free market as it is, and that we are at the mercy of our doctors anyway (although you can always go find a more amenable one). Doctors have a lot of control, and it frustrates the hell out of me. I don’t actually believe there should be such a thing as prescription drugs (or illegal drugs for that matter), but I know that’s an extremist position.

    Mario Reply:

    @ESM,

    “The prices for their services are set by the government. The government decides what it is willing to pay for, under what circumstances, and how much. Those price signals are not driven directly by consumer demand and available supply; hence the whole market mechanism is screwed up.”

    that’s exactly how it works now except it’s insurance companies calling the shots instead. Look at the way workers comp operates. They use set fees and everyone just hops on board. Obviously those who set the fees can balance the process out based on resource costs and profit margins, etc. The fact that w/c is really one of the largest revenue streams for many doctors shows that the system is definitely functional. Again like what Warren has always said, as long the government doesn’t raise prices for the same service, there’s no inflation. This isn’t complicated. You make this so much more complicated than they have to be.

    “Yes, there is the private option, but you’re still missing the price signals from the lower 90% of the economic scale.”

    yes you can always have a private option as well, and the price signals ARE PRESENT for the lower 90%…their prices are the prices set by the government for those services. Any private option that wants to compete with that can do so knowing full well where supply/demand lies and it works to scale even better really considering the “lower 90%” is so completely homogenous. It’s really a dream for a private options company (obviously it’s not when you compare it to the control they have now…but that’s the whole point here).

    You have to drop the whole “free market” hullaballoo and simply think about PUBLIC PURPOSE. Health care doesn’t function in the same ways as retail consumerism does. Why don’t you get that?

    “we are at the mercy of our doctors anyway (although you can always go find a more amenable one).”

    or you can get educated and become one yourself. ;)

    Sergei Reply:

    @ESM,

    ESM: Suppose that the government fully reimbursed the cost of getting an MRI, so the price was zero

    You have built an incredible size straw man in your mind. Universal access means that you can always get access at your unconstrained wish to a general doctor of your unconstrained choice (feels like free choice and market economy, or?). If you pass the smell test on this level, only then you get access to anything more complex. There is no daily MRI exercise available to anybody unless you pay full price of it.

    WARREN MOSLER Reply:

    As unemployment falls the debate will heat up

    Reply

    Mario Reply:

    @WARREN MOSLER,

    you mean as unemployment RISES don’t you?

    Sergei Reply:

    @ESM,

    ESM: If people were given unlimited health spending vouchers by the government, then initially we would have very long lines to get health care

    If you were given an unlimited voucher to eat bananas would you end up eating only bananas?

    You really need to study real life cases of health care system. Though some people can and will clearly abuse the “unlimited” issue, most people have more important things to do and accomplish in their lives. And the fall-back guarantee of universal health-care gives them more freedom and confidence to achieve that. Just like SME in Germany is way more successful than in the US despite all the American Dream rhetoric.

    ESM Reply:

    @WARREN MOSLER,

    @Sergei:

    “If you were given an unlimited voucher to eat bananas would you end up eating only bananas?”

    You would end up consuming a lot more bananas (and banana bread and banana splits). It wouldn’t be particularly good for health because bananas contain a lot of potassium which gets stored in the body, and there is a radioactive isotope of potassium which has a very high natural abundance.

    Anyway, banana groves would be created all over the southern US, crowding out the use of the land for other things. I’m sure there would be ancillary businesses created involving the use of banana peels and banana leaves for useful stuff, but there still would be a reallocation of resources throughout the economy which was suboptimal. Not a huge deal since bananas couldn’t possibly represent a sizable fraction of GDP, even if subsidized to a price of zero.

    Health care is more encompassing as an economic sector, so it is a bit more problematic. Does health care include therapeutic massage? If so, there will be a lot more masseuses and a very limbered up population. Does health care include transportation to the doctor (as it does in France)? If so, I think you’ll find that shopping malls will relocate close to hospitals and doctor’s offices. Does health care include visits to the doctor just to chat because the patient is rather lonely (Medicare covers this, as my mother can attest to about her hypochondriac friend)? If so, then doctors will become part-time psychotherapists and need to be trained accordingly.

    I don’t have a problem with health care growing to a larger fraction of GDP, but I want it to be driven by natural consumer demand, not artificial demand (which is what happens when government makes the price zero).

    Sergei Reply:

    @WARREN MOSLER,

    ESM: Anyway, banana groves would be created all over the southern US, crowding out the use of the land for other things

    As was already mentioned several times here, you need to study real life cases of health care systems with universal access instead of believing in your theories. There is no crowding out, there is no unlimited consumption, there is no ever larger share of GDP, there is no decision by government officials, and so on.

    BUT there is a *system* built by the collective human intelligence for the best of *all* human beings. This system might once in a while require certain tweaking but most if not all evils that you ascribe to it are misplaced. It is like a car which was created by human intelligence, runs well and ever better i.e. on less fuel but still needs a regular service. What’s more is that every “car” in such health care system gets a right for a regular *free* full check. And you know what? Far-far-far from everybody is using this free right to have a chat with a doctor as you say. It might not fit your world view of unconstrained free-riding but this is real life.

    I enjoy such system, hardly use it (thank god) but nevertheless happy paying taxes to have it while perfectly knowing that some people do abuse it. And there are small tweaks that I would add to this system but it is just my opinion.

    ESM Reply:

    @WARREN MOSLER,

    @Sergei:

    “As was already mentioned several times here, you need to study real life cases of health care systems with universal access instead of believing in your theories. There is no crowding out, there is no unlimited consumption, there is no ever larger share of GDP, there is no decision by government officials, and so on.”

    Of course there isn’t unlimited consumption or ever larger share of GDP under these systems, because there ARE decisions by government officials. Available resources are determined by the political process, and therefore are limited by it. The limited resources are then allocated by waiting time, first and foremost.

    As for whether there is crowding out, or sub-optimality, well I was originally going to write that we have nothing to compare these socialized systems to. The US most definitely does NOT have a free market system.

    But then I remembered that there are examples of free markets operating in sectors of medical care. Veterinary medicine is a free market, as is cosmetic surgery and vision correction. I haven’t looked at veterinary medicine (although I have read some provocative comparisons between public doctors’ offices and veterinarians’ offices in the UK), but I know that the rate of inflation for services in optometry and cosmetic surgery has been lower than the general rate of consumer price inflation and much, much lower than the rate of health care inflation.

    Also, as I argued before, the rest of the world is benefiting from the vast sums Americans are spending on health care technology, which provides the profit motive to drive further R&D. If the US went to a government run system, I believe medical progress and innovation would slow appreciably.

    Mario Reply:

    @ESM,

    “If people were given unlimited health spending vouchers by the government, then initially we would have very long lines to get health care, but eventually almost all of our GDP would be devoted to health care.”

    yes b/c alot of people today need to go the doctor but can’t. That’s the whole point of doing this…so lots of people can go to the doctor when they need to. Of course there some high school kids that pretend to be sick and go the doctor to play hookey, but seriously it doesn’t take too long before a doctor (and your boss) realize if you’re sick or not. You either have a broken arm to fix or you don’t. Next!

    And what exactly is wrong again with having a larger portion of our GDP devoted to health care? It’s not possible to ship it overseas…it’s homegrown USA jobs…it’s technology based…it’s lucrative…it’s healing…it’s state of the art…it’s non-cyclical, education-based, professional-based, and has tons of room for career growth (unlike retail for example)…we can be a leader in the field…and it can provide tons of jobs, research, innovation, and it’s actually physical and valuable to people (unlike CDO’s and CDS’s and hedge funds for example). So what exactly is the problem here ESM…I’d really like to know!!! Seems to me health care could be for the 21st century what manufacturing was for the USA in the 20th century.

    Reply

    Neil Wilson Reply:

    @Mario,

    “That it meets the needs of everyone, free at the point of delivery based on clinical need rather than ability to pay”

    Those are the founding values of the NHS and the only humane way of providing health care to a population.

    That means the doctors are delegated the resource allocation powers, are trained and regulated accordingly, and the state just makes sure the resources the doctors require are there.

    The same approach as applies to the military and for the same reason – defence of the population.

    WARREN MOSLER Reply:

    Education

    Reply

    luigi Reply:

    @WARREN MOSLER,

    Yeah, I forgot, but obviously education, and also light in the streets, I don’t know how you tell this. (how?)

    ESM,

    “but you should bear in mind that the standard of living in the US is quite a bit higher than it is in Italy”

    this is a lie. a patriotic lie. In Italy we can’t have a lower standard of living, because we have a public welfare. I mean, I don’ want to be patriotic or something like that, but you know, it’s a fact.

    Ok, there is the american dream and the typical american propaganda, but the example about healthcare is sufficient to describe the difference. In Italy we know very well how the great privatization in nineties has worsened ex public services.

    Reply

    ESM Reply:

    @luigi,

    “Yeah, I forgot, but obviously education…”

    I think Warren’s comment was directed to somebody else’s question.

    “this is a lie. a patriotic lie.”

    Well, perhaps you can tell me why the information here is a lie. Bear in mind that standard of living is supplemented by a trade deficit, and although Italy does pretty well in this regard, the US does better (as a % of its much greater GDP per capita).

    “In Italy we can’t have a lower standard of living, because we have a public welfare.”

    Well, you got me there. Your logic is impenetrable.

    WARREN MOSLER Reply:

    i think he means that there is a minimum standard of living with universal public benefits.

    luigi Reply:

    @ESM,

    Ok sorry Warren, I have misunderstood.

    ESM,

    there are three people and a gdp of 300 dollars, one has 300, the others 0. The gdp per capita is 100.

    Now, there are three people and a gdp of 300 dollars, one has 100, the others the same. The gdp per capita is 100.

    My logic is really simple, a Nation that hasn’t some public services like healthcare can’t have a higher standard of living than a Nation that has a real public welfare. I mean, in your logic, Sweden has a lower standard than America. But really, it’s a strange view.

    WARREN MOSLER Reply:

    not my view at all, see prior posts

    JCD Reply:

    @luigi,

    What about a country that has 5 people and a GDP of 600? 4 people make 150 each. The fifth makes zero.

    How does that compare to the country where everyone makes 100?

    What is the rule? How does Luigi measure standard of living?

    WARREN MOSLER Reply:

    what value do you put on a lower crime rate? Friendly police and friendly attendants at the motor vehicle dept?

    GDP measures final sales, not quality of life.

    Enact problematic drug laws, then spend on police, legal system, prisons, etc. and you’ve increased gdp, for example

    Luigi Reply:

    @JCD,

    no particular rule. There are “symptoms”, for example public services like healthcare or water. there are unemployment benefits or redundancy payments that in Italy is called Cassa Integrazione Guadagni. there is one of the more advanced Statute of the Workers.
    Yes I admit, last years the situation is worsened, financial crisis, unemployment etc. But liberalism and stupid dogma are everywhere.

    But these are only elements, the reality is more complex.

    You can’t measure a standard of living taking the gdp per capita point of view, it’s an economical point of view and a only a statistic based on an average, reality and society are more complex, I repeat.

    A nation that hasn’t a guarantee public health for all the citizens, how can have a higher standard of living? It’s precarious. I don’t know how to explain this because it’s unthinkable your health service.

    I know that in America there is a socialism phobia, but it’s not socialism, it’s only to be sensible.

    So, you understand MMT but you think that private is always more efficient? In what sense? What’s the problem with the fact that people ara people and if there isn’t a monetary cost there isn’t a reason to taking a profit point of view?

    I mean, in Italy I have a cancer, I go to the hospital, I don’t pay nothing.

    You are worried about this?

    WARREN MOSLER Reply:

    i assume you are both ok with my universal health care proposal?

    Sergei Reply:

    @luigi,

    “How does Luigi measure standard of living”

    Sergei’s definition of the standard of living: how much others have to suffer for you to feel happy.

    ESM Reply:

    @luigi,

    “I don’t know how to explain this because it’s unthinkable your health service.”

    I think it’s becoming clear that you don’t really understand how the US health care system works.

    WARREN MOSLER Reply:

    always been clear to me that no one quite does…

    ESM Reply:

    @luigi,

    @ Sergei:

    “Sergei’s definition of the standard of living: how much others have to suffer for you to feel happy.”

    Ok, so sadists have a very low standard of living. But how about masochists?

    Sergei Reply:

    @ESM,

    ESM: Ok, so sadists have a very low standard of living. But how about masochists?

    It is irrelevant. It is relevant only in the society full of sadists or masochists. Nothing personal though.

    JCD Reply:

    @luigi,

    OK Luigi, you can’t measure standard of living. But I take it you like Italy more than America. No fault in that. I’m always happy when I visit Italy.

    It seems we’ve come full circle though. You like Italy, and feel the standard of living is higher there, but have no way to measure it except you like the health care system. But you have no knowledge of how health care actually works in the US.

    So we’re down to patriotism then?

    So we’re down to

    WARREN MOSLER Reply:

    My issue with Italy is the they have one menu for every restaurant in the country. Yes, the prep varies, but seems the menu is the same…

    luigi Reply:

    @JCD,

    no no, I like Italy, but I know qualities and imperfections. I have done an example about health care, and I’m generally talkin about welfare policies, or you want to deny that US is not the typical example to take talkin about welfare?

    Anyway, my question was that:

    What’s the problem with the fact that people are people and if there isn’t a monetary cost there isn’t a reason to taking a profit point of view?

    Ah, I don’t know perfectly health care in US, I have seen Sicko, I have read many document about this and I think that it’s sufficient to have an idea. Or there is something new?

    ESM Reply:

    @luigi,

    @Luigi:

    “What’s the problem with the fact that people are people and if there isn’t a monetary cost there isn’t a reason to taking a profit point of view?”

    If there isn’t a resource cost, then there is no reason to have a market, and indeed one will not develop. There is no market for oxygen because it is given to us free by the bountiful earth, not because governments have banned the development of one. But if there was ever a shortage of oxygen, then resources would be needed to be diverted to produce it or deliver it, and a market would make sense.

    Providing health care is not the same thing as breathing oxygen. Delivering health care involves labor and energy and all kinds of other resources. It is a complex and complete market that touches on every area of human industry and endeavor. Health care ranges from emptying bed pans to giving massages to building artifical organs to bombarding tumors with beams of anti-protons. It is crazy beyond belief to exclude the whole kit and kaboodle from market economics.

    “…I have seen Sicko, I have read many document about this and I think that it’s sufficient to have an idea. Or there is something new?”

    I’m sure that most people who read that sentence about Sicko at least giggled a little to themselves. Sicko is hard left, Michael Moore-produced propaganda. Think of what an anti-socalized medicine person could do with a camera and a $10MM budget if he ran around Italy looking for examples where Italians were unhappy with their medical care. That’s Sicko in a nutshell.

    People in the US get excellent health care. The elderly have medicare. The poor have medicaid. Most people have insurance, and the vast majority of the 10% of the population that do not have insurance have made a conscious decision not to pay for it (even though they can afford it). There are people who get stuck without insurance and then get sick, but in most cases it is through a combination of bad luck and poor planning.

    In any case, no matter who you are, you can never be turned down emergency room care. You get the bill later, and if you don’t want to pay it, generally nothing happens.

    The argument in the US is basically about people who don’t have insurance for some reason (usually their own fault) and have to choose between getting the medical care they need and going bankrupt. It’s not a pleasant choice, but ultimately, going bankrupt isn’t the end of the world in the US.

    WARREN MOSLER Reply:

    and it all comes down to rationing in its various forms, including by price.

    price tends to be the most regressive, not to say it shouldn’t be used.

    beowulf Reply:

    @luigi,
    Luigi, you seem to understand US healthcare just fine. Its just one market failure after another piled on top of each other. Paul Krugman and his wife Robin Wells wrote an excellent account of US healthcare economics 5 years ago that Obamacare hasn’t changed much.
    http://www.nybooks.com/articles/archives/2006/mar/23/the-health-care-crisis-and-what-to-do-about-it/?pagination=false

    The hidden factor in post-World War II American politics that’s easy to forget (especially with a black family in the White House) was the way racism poisoned the well even for social programs that had nothing to do with race. An aide to President Reagan (who later became Republican party chair), Lee Atwater, explained this dynamic 30 years ago– I’ll apologze in advance for quoting Atwaters raw language:
    Atwater: You start out in 1954 by saying, “Nigger, nigger, nigger.” By 1968 you can’t say “nigger” — that hurts you. Backfires. So you say stuff like forced busing, states’ rights and all that stuff. You’re getting so abstract now [that] you’re talking about cutting taxes, and all these things you’re talking about are totally economic things and a byproduct of them is [that] blacks get hurt worse than whites.
    And subconsciously maybe that is part of it. I’m not saying that. But I’m saying that if it is getting that abstract, and that coded, that we are doing away with the racial problem one way or the other. You follow me — because obviously sitting around saying, “We want to cut this,” is much more abstract than even the busing thing, and a hell of a lot more abstract than “Nigger, nigger.”

    http://query.nytimes.com/gst/fullpage.html?res=9C04E6DF1E30F935A35753C1A9639C8B63

    luigi Reply:

    @ESM,

    @ESM,

    Michael Moore hard left? really? In Italy a person like Michael Moore could be a centre-left.
    This is an example that help to understand your view about people in general. A basic act of solidarity is a hard left thought… come on!

    “The argument in the US is basically about people who don’t have insurance for some reason (usually their own fault) and have to choose between getting the medical care they need and going bankrupt.”

    And this is a higher standard of living? In italy and many other countries, this choice doesn’t exist because it’s not a choice, it’s blackmail.

    And you think that Michael Moore is hard left? So, I’m hard (x12) left.

    I mean, probably this debate is stupid, because every sensible person know the hypocrisy behind “the land of freedom” propaganda and other typical marketing operations. So continue in this debate is useless, because you can’t imagine anything that hasn’t the dollar symbol in the face. It’s a poor thought, and I can’t understand.
    (respectfully)

    But the point is, how can you think in this way, and in the same moment, understand MMT?

    WARREN MOSLER Reply:

    Michael Moore thinks we have a deficit problem. That’s hard ignorant

    Tom Hickey Reply:

    @luigi,

    @ Beowulf,

    For those non-Americans not familiar with the political dynamic after the Civil Rights Act of 1964 and Voting Rights Act of 1965, and desegregation, GOP President Nixon’s Southern strategy was to bring in the white conservative Southern (Boll Weevil) Democrats with not so subtle appeals to racism. That has continued to be the m. o. of the GOP. RNC Chair Ken Mehlman apologized for GOP racism in 2005, but that was only one man’s apology.

    GOP: ‘We were wrong’ to play racial politics

    PaulJ Reply:

    @luigi, I very much appreciate the responses by beowulf and Tom Hickey in support of Luigi. It’s been pretty obvious that he has a reasonable perception of the American healthcare system but the same cannot be said for the average American for solutions outside the U.S.

    The tendency to ridicule or trivialize another’s position even though it has been presented in good faith seems to be most common among certain ideologies. By and large these arguments tend to ignore the idea that we (most of us) believe that our neighbor should be treated fairly – if only because if he can be mis-treated then so can we. I don’t believe in an every man for himself world.

    ESM Reply:

    @luigi,

    @Beowulf:

    That is simply an absurd suggestion that Americans are less socialist than Europeans are because of racism. Americans have always been more skeptical of government than Europeans, going back to even before the American Revolution.

    Also your Lee Atwater quote is of unknown provenance:

    “Bob Herbert, a New York Times columnist, reported a 1981 anonymous interview alleged to be with Lee Atwater, published in Southern Politics in the 1990s by Prof. Alexander P. Lamis, in which Lee Atwater discussed politics in the South:

    This was only published after Lee Atwater had died [in 1991], leaving him unable to defend against the claim.”

    WARREN MOSLER Reply:

    seems to me most people tend to be tribal and, one way or another, racist

    ESM Reply:

    @luigi,

    @Beowulf/PaulJ:

    So both of you can tell that Luigi has a good understanding of the US health care system, but this is the sum total that he has written about it in this thread:

    “A nation that hasn’t a guarantee public health for all the citizens, how can have a higher standard of living? It’s precarious. I don’t know how to explain this because it’s unthinkable your health service.”

    luigi Reply:

    @ESM,

    you have explained how it works, or do you want a treatise?

    It’s unthinkable, because there isn’t the idea of “public health”. You consider health like a market. You are wrong, now and forever. It’s not my opinion, it’s a basic ethical idea. You treat water like a market, and you are wrong, now and forever. These are rights, like freedom of opinion etc. I repeat, freedom of opinion, not freedom to treat people like consumers.

    Or there are rights from which you can make profit and others that you use to make acceptable the first? (like freedom of opinion)

    What do you think about capital punishment? If you think that is wrong, mabe you are an hypocrite.

    JCD Reply:

    @luigi,

    “It’s unthinkable, because there isn’t the idea of “public health”. You consider health like a market. You are wrong, now and forever. It’s not my opinion, it’s a basic ethical idea. You treat water like a market, and you are wrong, now and forever. These are rights, like freedom of opinion etc. I repeat, freedom of opinion, not freedom to treat people like consumers. ”

    Wow. That’s an interesting claim.

    So help me out now, OK? In your opinion, do *I* have a right to disagree with *your* statement that provision of health care (if I have it right) should not be subject market forces? Does that fall under the definition of my right to have an opinion?

    Or is it that I have a right to health care, but I have no right to disagree with the way it’s provided, because it’s a *fact* that the only ethical way to provide it is by and through the state?

    And where was this “basic ethical idea” revealed to you? Was it by prophesy? Or do you claim that is is objective and knowable to all?

    Oh and one more thing. If I have a right to free healthcare provided by the state, who is obliged to provide it for me? Who must change my bed pan? Who must pay for my MRI? What if they refuse? Can I enslave them? Jail them?

    As long as I still have a right to an opinion, my opinion is that the provision of healthcare (and education and water and restaurant meals and housing and massages and …) is far more ethically done when done by free choice and not through force.

    It isn’t that men aren’t good enough for socialism, and because of this socialism fails. It’s that socialism isn’t ethical enough for man. We are too good for it, and eventually reject it as immoral.

    luigi Reply:

    @JCD,

    socialism? do you think Sweden, Norway, Italy and others, socialist?

    “So help me out now, OK? In your opinion, do *I* have a right to disagree with *your* statement that provision of health care (if I have it right) should not be subject market forces? Does that fall under the definition of my right to have an opinion?”

    It’s not an opinion, it’s a dogma. An opinion should be discuss, but you have not an opinion, because it’s a blind point of view. I can enumerate many Nations that have public health and a better health system, and, above all, available for all the citizens, without discriminations, but you continue to say that private is better because bla bla bla.
    But the real reason probably is “our system is better because we are USA!”.

    Is this an opinion? Or it’s a dogma?

    You use the word “free” out of context. You see public health like a product, not like a right, You see water like a product, not like a right. So what’s the opinion? That you want to make profit on water? Yeah, it’s your opinion (fuck poors).

    “through force”

    what? that a State guarantee public health for all the citizens? where is the force? It’s a service. You want to choose the better for you? so, why discriminate?
    You have more rights because you have more money? Come on, you are a person, don’t rate yourself too highly.

    beowulf Reply:

    @ESM,
    That is simply an absurd suggestion that Americans are less socialist than Europeans are because of racism.

    Seriously? The subtext of the Atwater quote (incidentally, they were anonymous only to the reader– the interviewer, editor and publisher certainly knew it was Atwater) was thatthat in Southern politics, racial solidarity trumped economic solidarity.

    Sergei Reply:

    @JCD,

    JCD: the only ethical way to provide it is by and through the state

    jeez. You reveal a complete and absolute lack of understanding of the healthcare system in Europe. The state does not provide. It guarantees.

    JCD Reply:

    @luigi,

    “socialism? do you think Sweden, Norway, Italy and others, socialist?”

    More so than the US or Singapore. Less so than Cuba.

    Regarding the charge of dogmatism, I invite you to read your own posts and compare them to mine.

    Regarding the profit motive, I applaud it. It’s the profit motive that makes most humans get out of bed in the morning and go to work. It’s what’s behind most of humanities great advances. Profit builds our cars and roads. Profit puts food on our tables and gives us computers to engage in debates like this. Industries that are dominated by the profit motive (restaurants, automobile, consumer goods, agriculture) have an awesome ability to provide goods and services to meet consumer demand and satisfy human needs. Those that are driven (in whole or in part) by not for profit institutions (health care, education) tend to be those that fail to meet consumers needs and desires. And yes, as water becomes an increasingly scarce commodity, I think it is too important a resource to be left to governments and not for profit entities to manage.

    Regarding the charge of force, I will elaborate.

    Ultimately, any free provision of goods or services by the state depends upon force. At it’s core, the state is a monopoly on violence. It’s what gives the state its authority. The state alone has the legal authority to compel through the threat (and use) of violence.

    By the way it’s that same monopoly of violence that makes the state’s power to tax have teeth. Without an ability to impose force on it’s taxpayers, no taxation regime can last long (see the Confederate States of America circa 1865), and hyper inflation is the likely result.

    When the government taxes us all to pay for my health care, it is implicitly using force. We are compelled to pay taxes by the threat of seizure of property or imprisonment.

    Please note that this is different that in the case of freedom of speech. I do not need to pay taxes for you to have the freedom to speak. Your speech does not require me to do anything at all. But if I have a ‘right’ to healthcare, then someone somewhere has an obligation to provide it.

    http://en.wikipedia.org/wiki/Negative_and_positive_rights

    luigi Reply:

    @JCD,

    Read something about health system in Sweden, Norway, Italy, Australia.

    ask someone in that nations if they feel bad because the State guarantee public health without discriminations. ask someone if they think that private is better because State has a monopoly of violence on citizens, because it guarantees public health. ask someone, possibly someone that hasn’t much money (majority), if he feels bad, raped by the State because he doesn’t pay nothing when he goes to the hospital.

    Never heard someone (left, right, centre, hard left, hard right, anarchic etc) say something like “I want to pay, fuck State they raped me.”. nobody says that, and nobody in Parliament doubts that health is a service of interest to all of us. Ok, also in Italy there are private services, but there aren’t better than public. it’s a lie.

    So what’s the matter? You are the State.

    I hear all the time people against State, but nobody takes back to the State a benefit, and nobody takes back money received to start business.

    “But if I have a ‘right’ to healthcare, then someone somewhere has an obligation to provide it.”

    Yes, State pays people to do this, it’s so difficult to imagine?

    Warren, I don’t like Michael Moore, he likes Obama, so he doesn’t understand nothing.
    It was an example.

    JCD Reply:

    @luigi,

    So in Sweden, there is no one that feels over taxed?

    luigi Reply:

    @JCD,

    This is another issue, JCD. I’m talkin about public vs private in a world that understand MMT. Public is not better than private if we talk about furniture, shoes and other consumption goods. But health is not a consumption good, water is not, education is not.

    Ok, it’s my point of view, but I can’t understand why, if there are many examples of public health that are better than yours, you deny this.

    And we are not in a situation where people understand MMT.

    luigi Reply:

    @JCD,

    What I don’t understand is how you can think that a person could think in a consumer view.
    I mean, you have a cancer, you have leukaemia, I don’t know, there are many examples.

    Nobody goes shopping in a hospital, he goes because he is ill, and he wants to heal, he doesn’t think really about costs. So I also think that make profit on health is an abuse on people, because they are not, in that case, consumers, they want only to heal.

    So imagine the dialogue:

    “I don’t know, I like this chemotherapy, but I think that I could to become fat, I don’t know… I prefer this, I feel very beautiful when I’m on a drip. But only in this hospital.”

    I know that is an exageration, but I want to understand your idea.

    ESM Reply:

    @luigi,

    @Beowulf:

    “The subtext of the Atwater quote (incidentally, they were anonymous only to the reader– the interviewer, editor and publisher certainly knew it was Atwater) was thatthat in Southern politics, racial solidarity trumped economic solidarity.”

    Not terribly important, but Atwater supposedly made those comments in 1981, and they weren’t published until after his death in 1991. I remain skeptical that he said it. Even if he did, he is only one man. It’s quite easy to cherry-pick quotes (as Bob Herbert loves to do since he’s too dumb to think logically) to support a particular worldview.

    Yes, the Southern strategy was real to a certain extent, but I think it’s quite a stretch to say that the South (or the American people as a whole) rejected socialist programs because they were seen to help blacks. I mean, sure, racism exists, and as Warren pointed out, we’re all tribal, so that we feel less affinity for those who don’t look like us (which I guess counts as racism under the modern definition), but even racists aren’t obsessed with race to the exclusion of all else.

    There are so many reasons why America is less socialist than Europe (e.g. we’re a nation of immigrants who fled government oppression). Racism against blacks (12% of the US population) is not even worth mentioning, unless of course you’re a lefty trying to score political points.

    ESM Reply:

    @luigi,

    “Nobody goes shopping in a hospital, he goes because he is ill, and he wants to heal, he doesn’t think really about costs.”

    Luigi, you’re really not thinking deeply or creatively enough. There are so many tradeoffs in getting health care, even for life-threatening diseases.

    What if the treatment for your cancer is only going to extend your life 6 months. Is it worth spending $100K on? Or suffering the pain of the treatment?

    What if there is one medicine which costs $10,000 and has a 90% chance of curing you, and another one which costs $10 and has only an 85% chance of curing you. Which one do you choose? What if both medicines will cure you, but the vastly more expensive one will have fewer side effects or will get you up and out of bed one week earlier?

    Ultimately, this gets down to allocation of scarce resources.

    What if there are 3,000 people in need of a certain surgical procedure per year, but there only enough surgeons to do 2,000? How do you allocate the resources?

    If you allocate by cost (which I’m sure you don’t like because it reeks of wealth entitlement), at least a market incentive is created to encourage new supply, and perhaps dampen demand from those people who are borderline. Then maybe 5 years later, when 3,100 people need the procedure, there will be enough surgeons and surgical facilities to do 2,500 procedures, and the other 600 people might decide that they can really do with a substitute treatment.

    The problem with giving real resources away to people for free is that people will use them regardless of their need. And then those resources might not be there for those who really do need them.

    JCD Reply:

    @luigi,

    “Ok, it’s my point of view”

    I consider this progress. We can booth agree that the best way to organize the provision of health care is a matter of opinion, not of fact.

    You may have a difficult time understanding my point of view, but it’s comforting to know that you feel I’m entitled to it.

    The good news is MMT doesn’t care. It’s not ideological.

    Let’s call it a day and move on.

    luigi Reply:

    @ESM,

    “Luigi, you’re really not thinking deeply or creatively enough. There are so many tradeoffs in getting health care, even for life-threatening diseases.”

    I know, but it’s not the issue. the issue private vs public in a MMT world.
    Now, think about health system in some nations (sweden ecc), and it’s good, very good and the State guarantees that. so, if we take this model, and we imagine this in a MMT world, we can say that is better? (ok, also warren’s plan seems good)

    JCD talks about taxes, people that feel over taxed etc, so, if we know (and we know that given that we write in this blog) that taxes do not fund government, why you continue to say that private is better also in a world where people understand this?

    How can you confuse freedom to choose with need to be cured?

    To be creative is to change a paradigm, without to keep the same old ideas.

    JCD,

    I’m talking about approach. I ask about capital punishment because also that could be an opinion. So, the matter is, why I know in general USA system, but you don’t know how works in Europe (if you say that Italy is socialist, probably you confuse something)?

    Anyway, I apologise for my exageration, by I don’t like blind opinions. I mean, an opinion should be supported by facts ad knowledge about alternatives.

    ESM Reply:

    @luigi,

    “Now, think about health system in some nations (sweden ecc), and it’s good, very good and the State guarantees that. so, if we take this model, and we imagine this in a MMT world, we can say that is better?”

    I think you’re misunderstanding what MMT says. MMT does not show us that the government can provide unlimited amounts of real resources. It shows us that it can keep the economy running at full capacity, which is quite a different thing. Bringing the unemployment rate in the US from 9.3% (or 16% or whatever it really is) to 0% is not suddenly going to make it possible to meet all needs.

    Both you and Sergei are completely missing JCD’s point, which is that if the State guarantees a minimum level of real resources to people, it is guaranteeing that real resources will be redistributed, which means that real resources will be forcibly taken from some people and given to others. Now, we all accept that at some level. The political fight is about what the level is.

    Still, your system is worse. You’re having the state give away real resources without any price feedback from the market. Even if you want to be very socialist and have a very high tax state that provides a very comfortable safety net to the poor, it still makes sense to have a free market in health care and give the poor the money to purchase as much or as little health care as they want.

    That way, not everybody will clamor to have the latest greatest drug which costs 1000x as much as the old drug and has only marginally better results (this is a very, very real problem).

    Neil Wilson Reply:

    @ESM,

    There are limits to the ability of a free market system provides efficiency.

    There is not really a free market in health care, because there is no substitution and no ability to say no. If you need dialysis then you need it or you die. That is not an efficient free market bargaining position.

    You cannot get insurance against pregnancy and pre-existing conditions pose a problem. Those are not efficient free market bargaining positions.

    And of course people dying or being incapacitated does indeed provide a cost feedback but one that usually socialised and ingnored by capitalist structures.

    The data shows that the US healthcare system is an outlier. It is ridiculously expensive with poor outcomes.

    Yet the Canadian, Australian and European systems work relatively happily without the roof caving in providing better outcomes with less cost.

    Healthcare and education cannot be pure free market solutions because the cost of failure is too high – people die and people remain illiterate.

    Free market can’t work there because other than optional extras you can’t get to a state where there is a free and equal bargain.

    Mario Reply:

    @ESM,

    “it still makes sense to have a free market in health care and give the poor the money to purchase as much or as little health care as they want.”

    So then would you support the government giving all citizens a $100,000 health care credit card? Or even an unlimited credit card? The health care “consumers” would be able to still shop around the market and health care businesses would be able to open up shop, advertise, and set up price points and compete for customers based on services, etc.

    Granted an unlimited credit care for all citizens would cause prices to skyrocket in that market but government could be caps on what health care professionals can charge for their services…indeed that is already in place now with insurance companies and workers comp claims, so then an unlimited credit card would handle it as long as price caps are in place.

    Now you have your free market, all people are cared for, and MMT principles are in place and active. Wouldn’t this work for you? What say you man?!?!

    Mario Reply:

    @Neil,

    fantastic points Neil. Sometimes this “free market” stuff gets so plasticized into certain molds and forms that I begin to feel like I’m in a bible-beating church.

    I think the real issue that Americans deal with is righteousness. If we believe in something…then we REALLY, REALLY believe in it and do just about ANYTHING to maintain and defend that belief…and that more than anything has been the degradation to the USA in the past 50 years it seems to me.

    It’s a good quality to have when what you believe is actually ACCURATE and CONTRIBUTES to a “more perfect union” but if it doesn’t then you get some serious problems in Chinatown as the saying goes.

    Americans (myself included) have a giant stick up their ass too much of the time!! LOL I need more Europe and Australia!! LOL

    luigi Reply:

    @ESM,

    I think Neil, Sergei, Mario and the others have said the essential about the issue.
    I can’t add anything. Maybe one, you have to study how health works in others countries.

    ESM Reply:

    @luigi,

    @Neil:

    “There is not really a free market in health care, because there is no substitution and no ability to say no.”

    That’s simply false. First of all, the vast majority of health care does not involve immediate life-saving care. Second of all, even for life and death situations, there are plenty of substitute treatments and difficult cost/benefit decisions to make. Nobody lives forever; therefore, all life-saving treatments involve postponing death for a finite amount of time. Surely, the value of one day of life cannot be worth more than $1MM, can it? But it can be worth different amounts to different people. For somebody in pain, it can even have negative value. For somebody who wants to see his granddaughter’s wedding happening that day, it can have immense value. By induction, extra days of life are worth different amounts to different people, and ultimately, people will value a drug that extends life by 3 months or by 6 months (this is extremely common for cancer drugs by the way) differently. A free market allows optimization of choice, even for life-extending treatments.

    Adding in the component of risk or uncertainty makes things even more complicated. If there was a $100K treatment which had a 97% chance of saving your life, would you choose it over a $1K treatment which had a 95% chance of saving your life? I would, but probably most people wouldn’t, and I doubt very much that the NHS would.

    When you look at quality of life examples, it becomes really obvious how silly your conclusory statement is. Suppose two people needed elbow surgery so that they could swing their arm freely. The surgery costs $10K. In one case, the patient is an avid tennis player, and in the other he’s a couch potato who uses his arm mainly for reaching into a bag of chips. Who is going to decide who gets the surgery? Shouldn’t the patients decide, but pay for it themselves (or through any insurance plan that they had the foresight to purchase in advance)? I just don’t think the government should be making these decisions for people.

    If you give somebody a resource with a market value of X which he values at Y < X, then resources have been wasted.

    "Yet the Canadian, Australian and European systems work relatively happily without the roof caving in providing better outcomes with less cost."

    I deny that these systems have better outcomes than the US system. No measures are completely objective, but the most objective ones I have found (e.g. 5-yr survival rates after being diagnosed with a potentially fatal disease), show that the US system has better results.

    The two most common measures people cite, which are life expectancy and infant mortality, are actually quite muddled. After controlling for violent deaths like homicides and car accidents, US life expectancy actually ranks very high (one study I saw claims it is the highest in the world). Demographics and life style have a big effect which is difficult to tease out. When you can control for it though, the US does pretty well. Japanese-American women have a longer life expectancy than women in Japan, for example.

    Infant mortality rates in the US are elevated in part due to the way births and deaths are counted and in part due to a high rate of teenage pregnancy (teenager mothers are far more likely to have low birth weight babies for some reason). Also, there is a greater reluctance in the US to abort unhealthy fetuses.

    beowulf Reply:

    @Mario,
    I think the real issue that Americans deal with is righteousness. If we believe in something…then we REALLY, REALLY believe in it and do just about ANYTHING to maintain and defend that belief….

    Ha ha, that reminds of something former Sen. Rick Santorum said recently while campaigning for the GOP presidential nomination:
    “Almost 60,000 average Americans had the courage to go out and charge those beaches on Normandy, to drop out of airplanes who knows where, and take on the battle for freedom,” Santorum said.
    “Average Americans,” he added. “The very Americans that our government now, and this president, does not trust a to make decision on your health care plan. Those Americans risked everything so they could make that decision on their health care plan.”

    http://tpmdc.talkingpointsmemo.com/2011/06/santorum-d-day-troops-fought-for-the-ryan-plan.php

    Let’s assume Santorum is correct and US soldiers fought to keep America save from the scourge (maybe “plague” is a better analogy) of universal healthcare. Perhaps that’s what Eisenhower was talking to those paratroopers about in the famous picture.
    http://en.wikipedia.org/wiki/File:Eisenhower_d-day.jpg

    He forgets that there were five landing beaches on D-Day. Only the Omaha and Utah landings were on behalf of American healthcare “freedom”, Juno Beach was invaded to make the world safe for Canadian single payer healthcare, while the landings at Gold and Sword were carried out so Britain could create a socialized National Health Service (Good Lord, who’s side were they on anyway?). :o)

    Gary Reply:

    @ESM,

    “When you look at quality of life examples, it becomes really obvious how silly your conclusory statement is. Suppose two people needed elbow surgery so that they could swing their arm freely. The surgery costs $10K. In one case, the patient is an avid tennis player, and in the other he’s a couch potato who uses his arm mainly for reaching into a bag of chips. Who is going to decide who gets the surgery? Shouldn’t the patients decide, but pay for it themselves (or through any insurance plan that they had the foresight to purchase in advance)? I just don’t think the government should be making these decisions for people.”

    If there are resources – both should get the surgery. If there are not enough resources – the first one to come should get it.
    That still leaves the choice with the people – for if they don’t want it – they don’t need to get it.
    While in your case – you did not specify if they do have those 10K. What if tennis player does not have it, but couch potato – does? Having money is nothing to do with fairness or human decisions.
    It is just having money. Or not.

    beowulf Reply:

    Or as we’d spell it in America, “whose side were they on anyway?”

    :o) j/k Neil

    Mario Reply:

    @Beowulf,

    LOL ahhh man that is some classic stuff there man…LOL. Seriously whose side WERE THEY ON!!!! LOL

    I agree Salk is a monster…just think of all the innovation and new ideas and cures for diseases we could have discovered if he only charged everyone to be cured of polio. Man to think of all that great potential lost forever just kills me…this country has SERIOUSLY gone socialist I’ll tell ya man. I may as well move to Russia for crying out loud!!!

    Sergei Reply:

    @ESM,

    ESM: What if there are 3,000 people in need of a certain surgical procedure per year, but there only enough surgeons to do 2,000? How do you allocate the resources?

    What if you have two kids and they start crying? How do you allocate your resources? Or your wait for five years until your older kid gets older to take care of the younger?

    Yes, you need to make choices but why is there such a blind belief that your (mechanical market-based) decision (and we even completely ignore intentional rip-offs of monopoly-like market providers) is better than collective human intelligence? We have enough market failures around us to disregard this belief and yet you are so incredibly stubborn to stick to it. I am absolutely fine with the market if we talk ipads but what market can you make out of human pain and suffering? Look around and open your eyes, ESM! People are often ready to kill themselves only to save their relatives! Are you talking the market of human lives?! Or are we going back to the point of the nation of sadists and masochists?

    Reply

    ESM Reply:

    @Sergei,

    “What if you have two kids and they start crying? How do you allocate your resources?”

    I don’t think this question is on point, but I’ll concede that there are many situations where it is impractical to develop a market. Allocation of resources within a family is one of them. In fact, I think communism works quite well within a family unit, and my parents applied it to me and my brothers: from each according to his abilities, to each according to his needs.

    “Or your wait for five years until your older kid gets older to take care of the younger?”

    I didn’t say that the strategy was to do nothing but wait five years. I said that you do what you can, and maybe in five years you will have enough resources to satisfy all needs. Forty years ago, not everybody could afford a large color TV in the US. Today, even the poorest of the poor have nice TVs. Free markets not only allocate scarce resources optimally, but they work over time to make the scarce resources not so scarce. Compare South Korea with North Korea.

    “Yes, you need to make choices but why is there such a blind belief that your (mechanical market-based) decision (and we even completely ignore intentional rip-offs of monopoly-like market providers) is better than collective human intelligence?”

    By collective human intelligence, I assume you mean economic decisions made by government officials. My definition of collective human intelligence is the array of prices for goods and services set in a free market. I’ll take the latter over the former. Is my belief blind? No, it is based on the results of a 75-year experiment run by the human race in the 20th century.

    Unfortunately, humans have a natural bias towards command economies. I’m afraid this fight against communism will have to be fought again and again.

    Sergei Reply:

    @ESM,

    ESM: Unfortunately, humans have a natural bias towards command economies

    It is not unfortunate. This is the basis of the human society. The society delineates then what is commanded and what is not. You can disagree but as long as your opinion is a minority in democracy you will have to comply. But generally you can not blindly claim that A shall never be commanded because X, Y or Z are or are not fulfilled.

    ESM: I said that you do what you can, and maybe in five years you will have enough resources to satisfy all needs

    Sure, if it is about ipads. But healthcare can not wait. In healthcare time is life and human life is not tradable unless you also advocate slavery. At the very least you might not be able to wait until private market takes its pleasure to allocate enough resources in 5 years. You have government to enforce the required reallocation today. It might be in-efficient of terms of resources wasted but it might more efficient in terms of human lives saved. You are free, of course, to introduce your measure of human life that you want to compare to the wastage of real resources.

    ESM Reply:

    @Sergei,

    “It is not unfortunate. This is the basis of the human society. The society delineates then what is commanded and what is not.”

    “Command economy” is a term of art. It means centralized planning — where the government sets the prices of goods and services and determines how much to produce of each item based on projections of consumer demand. It is the opposite of a “demand economy” or a free market.

    “But healthcare can not wait.”

    You still must not be understanding me. If the resources don’t exist, they don’t exist. It’s not a question about choosing between saving 10 lives today or 15 lives in five years. It’s a question about choosing between (saving 10 lives today and 15 lives in five years) or (saving 9 lives today and 12 lives in five years). My claim is that a free market will dominate both now and in the future. You may disagree, but don’t claim that I am valuing human life differently than you do.

    Gary Reply:

    @ESM,

    “Free markets not only allocate scarce resources optimally, but they work over time to make the scarce resources not so scarce. Compare South Korea with North Korea. ”

    you are forgetting that it is scarcity that creates profits.
    The point of trading is to make profits, and profits are best made when there is scarcity of the thing you are trading.
    So – since profit making is less about “optimal allocation of resources” and more about profits – it is commonplace to actually destroy resources in order to keep profits.

    Basically – your claim about optimal allocation of resources – is nonsense.

    Regarding North Korea and South Korea – you cannot really compare isolated country with the one that was aided by US.
    Compare North Korea with Jamaica or some poor “free market” country in Africa. Not that different.

    I think the rules of economic life is what makes or breaks the economy. Not some mythical “free market”. Each economy has some rules. Some have rules that are to the advantage of foreigners – and such economy falters; some have rules to the advantage of the very rich – and such economy falters as well; some have rules that are to the advantage to some bureaucracy (so called command economies) – and thy also falter;

    The economic rules should benefit the domestic majority and such economy prospers. There are practical rules that work – but the essence of them is fairness and humanity. Not the survival of the fittest or the rightest. And certainly not some mythical “free market” dogma – which is codeword for the economy that favors the very rich. It creates very unstable economy that keeps majority of population in poverty and works only when rich find it profitable to give something to the majority.

    ESM Reply:

    @Sergei,

    @Gary:

    “you are forgetting that it is scarcity that creates profits.”

    And profits generate competition, and competition reduces scarcity and profits.

    “… it is commonplace to actually destroy resources in order to keep profits.”

    What? Where? Who? Examples please.

    “Basically – your claim about optimal allocation of resources – is nonsense.”

    This is a conclusory statement, not a logical argument. Care to explain why my claim is nonsense?

    “Compare North Korea with Jamaica or some poor “free market” country in Africa. Not that different.”

    Jamaica? You mean the country with $8,300 GDP/capita vs $1,800 GDP/capita for North Korea? Ummm, ok.

    The poor free market countries in Africa are not really free market countries. They are missing key elements like rule of law and private property rights. Furthermore, relief agencies which provide free goods probably do harm in the long-run to the development of the economy.

    “Not the survival of the fittest or the rightest.”

    Free markets are not set up SO that the strongest get all the spoils. They’re set up because such a system provides proper incentives and price signals that enriches everybody. I consider the unequal wealth distribution under a laissez faire system to be an unfortunate side effect, not a goal. It just so happens that it is a necessary side effect, and happily a tolerable side effect since unequal wealth distribution does not translate into comparably unequal consumption.

    beowulf Reply:

    @Sergei,
    Free markets are not set up SO that the strongest get all the spoils. They’re set up because such a system provides proper incentives and price signals that enriches everybody.

    That’s why Dr. Jonas Salk has my vote as History’s Greatest Monster. What profit a man if he beats polio yet loses the price signals that enriches everybody? Salk could have extracted a “walking tax” from the parents of of every child in America but in a cruel twist, chose to hobble our free market system instead.

    The “public reaction [to polio] was to a plague”, said historian William O’Neill. “Citizens of urban areas were to be terrified every summer when this frightful visitor returned.” According to a 2009 PBS documentary, “Apart from the atomic bomb, America’s greatest fear was polio… When news of the vaccine’s success was made public on April 12, 1955, Salk was hailed as a “miracle worker”, and the day “almost became a national holiday.” His sole focus had been to develop a safe and effective vaccine as rapidly as possible, with no interest in personal profit. When he was asked in a televised interview who owned the patent to the vaccine, Salk replied: “There is no patent. Could you patent the sun?”
    http://en.wikipedia.org/wiki/Jonas_Salk

    ESM Reply:

    @Sergei,

    Polio Vaccine

    “In 1952 and 1953, the U.S. experienced an outbreak of 58,000 and 35,000 polio cases, respectively, up from a typical number of some 20,000 a year. Amid this U.S. polio epidemic, millions of dollars were invested in finding and marketing a polio vaccine by commercial interests, including Lederle Laboratories in New York under the direction of H. R. Cox. Also working at Lederle was Polish-born virologist and immunologist Hilary Koprowski, who claims to have created the first successful polio vaccine, in 1950. His vaccine, however, being a live attenuated virus taken orally, was still in the research stage and would not be ready for use until five years after Jonas Salk’s polio vaccine (a dead injectable vaccine) had reached the market.”

    Jonas Salk
    “Salk saw an opportunity to extend this project towards developing a vaccine against polio, and, together with the skilled research team he assembled, devoted himself to this work for the next seven years. The field trial set up to test the Salk vaccine was, according to O’Neill, “the most elaborate program of its kind in history, involving 20,000 physicians and public health officers, 64,000 school personnel, and 220,000 volunteers.” Over 1,800,000 school children took part in the trial.”

    He didn’t do it by himself, and given that he used government funds for his research, he probably had no right to patent “his” vaccine. So, he’s not really a monster is he?

    Gary Reply:

    @ESM,

    “What? Where? Who? Examples please.”

    the most common example is planned obsolescence. I don’t think you need examples of that is you live in the US.

    “Jamaica? You mean the country with $8,300 GDP/capita vs $1,800 GDP/capita for North Korea? Ummm, ok.”

    yeah – comparing GDP of isolated command economy with dollarized economy. Makes sense…
    Quality of life is bad enough in both countries.

    “The poor free market countries in Africa are not really free market countries. They are missing key elements like rule of law and private property rights. Furthermore, relief agencies which provide free goods probably do harm in the long-run to the development of the economy.”

    Yeah – because in prefectly free market economy there would be no poverty? Care to mention a “free market” economy? Don’t tell me it is US with all its government interference, subsidies, bailouts and so on.

    In fact – even if you look around in South America – like Brasil – you will find millions of people living not much differently than North Koreans – and likely worse.
    Are you saying that Brazil actually lacks resources to take care of them – that is that the scarce resources were allocated optimally there and Brasil can do no batter in order to take care of those people?

    “I consider the unequal wealth distribution under a laissez faire system to be an unfortunate side effect, not a goal. It just so happens that it is a necessary side effect, and happily a tolerable side effect since unequal wealth distribution does not translate into comparably unequal consumption.”

    what is “comparably unequal consumption”? You mean that rich and poor have the same quality of life?

    ESM Reply:

    @Sergei,

    @Gary:

    “the most common example is planned obsolescence. I don’t think you need examples of that is you live in the US.”

    I don’t consider that destroying resources. Presumably the consumer has reasonable expectations of the useful life of the product he his buying, and if the product doesn’t meet his expectations, then he will look to a competitor the next time. Planned obsolescence is basically the same as quality. A company that can make a profit without planned obsolescence will no doubt tout its more cost-effective product. I thought you were talking about sabotage.

    “yeah – comparing GDP of isolated command economy with dollarized economy.”

    The GDP is PPP-adjusted. In any case, I don’t think that any serious person doubts that North Korea is a hell-hole compared to Jamaica.

    “Are you saying that Brazil actually lacks resources to take care of them – that is that the scarce resources were allocated optimally there and Brasil can do no batter in order to take care of those people?”

    Brazil is not a shining example of a free market. Most of these places you refer to that have extreme poverty suffer from corrupt and stifling government.

    “what is “comparably unequal consumption”? You mean that rich and poor have the same quality of life?”

    No, I mean that the ratio of consumption for a rich man versus a poor man is much lower than the respective wealth ratio. There are billionaires, and there are people with net worth of zero. But the people with net worth of zero might consume $25K of resources a year, whereas the billionaire might consume $1MM. Still a large difference, but not a factor of 1,000 or anything. It’s consumption that matters. The wealth is just a number in a computer.

    Mario Reply:

    @ESM,

    “He didn’t do it by himself, and given that he used government funds for his research, he probably had no right to patent “his” vaccine. So, he’s not really a monster is he?”

    You just unknowingly admitted that the government can fund health care…they funded the cure for polio. Gotcha!!! ;)

    beowulf Reply:

    @Mario,
    Well, I think we can all agree that the Nobel Foundation thinking Barack Obama had earned a Nobel Prize (and he being foolish enough to accept it) when it thought Jonas Salk was not worthy of one is some kind of sick joke.

    On April 12, 1955, Dr. Thomas Francis, Jr., of the University of Michigan, the monitor of the test results, “declared the vaccine to be safe and effective”… “By the time Thomas Francis stepped down from the podium, church bells were ringing across the country, factories were observing moments of silence, synagogues and churches were holding prayer meetings, and parents and teachers were weeping. One shopkeeper painted a sign on his window: Thank you, Dr. Salk. ‘It was as if a war had ended’, one observer recalled.”
    “In the Eisenhower White House, plans were already afoot to present Salk a special presidential medal designating him “a benefactor of mankind” in a Rose Garden ceremony… However, New York City could not get him to accept a ticker tape parade… “Salk had become an international hero and a household name. His vaccine was a modern medical miracle”.”

    In short, http://nobelprize.org/ = douchebags

    WARREN MOSLER Reply:

    expectations theory- hand out the prize first and then the person will do something to earn it?

    Mario Reply:

    @Beowulf,

    “In short, http://nobelprize.org/ = douchebags”

    well that about sums it up perfectly I’d say!!!!

    Sergei Reply:

    @ESM,

    ESM: It’s a question about choosing between (saving 10 lives today and 15 lives in five years) or (saving 9 lives today and 12 lives in five years)

    Is your trade-off assumption of 15 or 12 lives in 5 years derived from the neoclassical inter-temporal optimization based on the projection of nominal GDP? Lets be serious because you are not.

    ESM Reply:

    @Sergei,

    “Is your trade-off assumption of 15 or 12 lives in 5 years derived from the neoclassical inter-temporal optimization based on the projection of nominal GDP?”

    I can’t prove it, but we do have some empirical evidence. Compare health care in the Soviet Union to the US in, say, 1950, and compare again every five years. In fact, compare almost any measure of standard of living, except maybe vodka consumption, and you’ll reach similar conclusions.

    WARREN MOSLER Reply:

    including happiness

  8. anon Says:

    bizarro anti-MMT world:

    http://latimesblogs.latimes.com/technology/2011/07/could-apple-pull-a-jp-morgan-and-bail-out-the-us-government-.html

    Reply

    pebird Reply:

    @anon, iDollars

    Reply

    pebird Reply:

    @anon, And you need an iTunes account to get to your money.

    Reply

    Ramanan Reply:

    @anon,

    “.. the $76 billion that Apple now has in cash.”

    Is the author sure that the $76 billion is not in short-term T-bills ? :-o

    Reply

    John Zelnicker` Reply:

    @Ramanan,

    In fact, it is in “cash and cash equivalents”, i.e., short term Treasuries and commercial paper.

    Reply

    vjk Reply:

    @Ramanan,

    The author uses typical bs language so beloved by fin analysts of various persuasions.

    “Apple has more cash than the treasury”, indeed.

    Out of so called apple “cash”, about $60b is short and long term investments and the remainder is “cash and cash equivalents” totaling about $12b which is a mixture of actual cash and commercial paper and t-bills maturing in less than 3 months.

    Reply

    Matt Franko Reply:

    @Ramanan,
    Or in actuality foreign currency equivalent reported in USD GAAP earnings/ balance sheet but the actual currency is foreign and held in a foreign subsidiary and therefore not not taxed in the US nor reported to the BEA for the ITA reports… resp,

    Reply

    Ramanan Reply:

    Geithner questioned on Apple Vs. Treasury !

    http://abcnews.go.com/Video/playerIndex?id=14211092 (@ 03:10)

    Reply

  9. Adam (ak) Says:

    I dug out this little “pearl of wisdom” from the website of Chinese Academy of Social Science:
    http://translate.googleusercontent.com/translate_c?hl=en&ie=UTF8&prev=_t&rurl=translate.google.com.au&sl=zh-CN&tl=en&twu=1&u=http://www.cssn.cn/news/386252.htm&usg=ALkJrhiQS_JhRhHh2ilvFbp6tyzHAW2fWQ

    Of course they do not dare to write similar stuff in English. It is hard to read the translation but after a few attempts I think everyone will get the main idea (I wonder whether a proper translation can be obtained but I will not dare to ask my colleague at work tomorrow).

    They know in the Academy of Science who the scorekeeper is and they hate him for plundering the wealth of developing nations or whatever. I became very familiar with that language in the 1980ies when I lived on the wrong side of the iron curtain (obviously this is just one side of the coin, I personally remain neutral in this ugly argument).

    The reason why I am providing the link to this document is mainly to highlight two facts.

    1. The Chinese know perfectly well the rules of the game and the rules of score-keeping. The wife of a well-known right wing media mogul will never tell him these things as I suspect she is still a very patriotic person.

    2. The second reason is that preserving the “dollar hegemony” might be actually the name of the game on the American side as well. To hell with all these unemployed, disabled veterans and illegal migrants! As long as oil and cheap cargo can be cheaply sourced and profits are fat – it’s all good.

    MMT would lead to dismantling the “global dollar hegemony” as one of the principles of MMT is to fill up the gap in the aggregate demand caused by:
    1. debt deleveraging (mentioned in the Chinese document),
    2. current account deficit caused by trade deficit.

    USD would be just another free-floating currency – equal among peers.

    The American plutocracy (sorry for that term but I think it is adequate) will even sacrifice the productive capacities of the country as long as the illusion of global leadership can be preserved. Therefore I would not assume that everyone in the Administration believes in the neoclassical stuff about “expansion by contraction”.

    Reply

    ESM Reply:

    @Adam (ak),

    Seems to me that you either didn’t understand the article or don’t understand MMT (and probably both). The author displays no understanding of MMT. He only knows that it is within the US government’s power to debase the dollar, which everybody knows, whether they are in paradigm or not.

    Furthermore, a better understanding of MMT amoung US leaders would lead to greater dollar hegemony (assuming that means the use of the dollar as a store of value abroad), not less. We would have greater GDP and greater trade deficits, and the rest of the world would be accumulating even more dollars.

    Reply

    Adam (ak) Reply:

    @ESM,
    ESM,

    I only wanted to point out that defending the global reserve status of USD might be one of the real reasons of the propaganda show run in the Congress about the debt ceiling.

    The assumption that saving propensity for dollars in overseas countries is constant in time is as good as the assumption that money velocity is constant. What gives the value to gold and does not give a similar value to neodymium which is another heavy metal? The utility of gold? No, the historic illusion. The value of USD overseas as a hoarding instrument is also based on a historic illusion.

    In regards to whether the Chinese know how to control the aggregate demand (using functional finance tools and other means) – we need to wait a few more years to see how they mop up the mess created by their own housing bubble.

    I simply do not believe that everyone advocating austerity in the media and in your Congress is an idiot. They often do it for profit – this is what makes the system so dysfunctional. Reading about all the events from 1917 in Russia gives a solid historic perspective. A lot of politicians said something and did exactly the opposite.

    N.B. the main newspaper of the Bolsheviks was called “Pravda” what means “The Truth” in Russian. But the real truth does not lie in oversimplifying the reality.

    Reply

    Unforgiven Reply:

    @Adam (ak),

    Good point. A good read on the subject of politics vs Keynesianism wrt German austerity here:

    http://crookedtimber.org/2011/01/19/keynesianism-by-stealth-and-symbolic-austerity-german-fiscal-policy-and-the-post-2007-economic-crisis/

    WARREN MOSLER Reply:

    seems you haven’t met the people in congress i’ve met…

    and don’t forget, they are pushing china to revalue the yuan higher which is a weaker dollar.
    then they act as if they don’t want the dollar to go down…

    Adam (ak) Reply:

    @Adam (ak),

    Dear Warren,

    Actually what you’ve written opened my mind further. The key to dollar hegemony is to be able to push certain currencies higher in order to destroy the competition but overall maintain a strong dollar and get free lunches. Vladimir Putin has been ranting about it recently – http://www.reuters.com/article/2011/08/01/us-russia-putin-usa-idUSTRE77052R20110801 )

    If USD is replaced by a basket of reserve currencies, the Bancor or even gold (what seems rather unlikely to me) – the global seigniorage (aided by hoarding USD overseas) disappears and US has to rebalance the trade. Also – I have a suspicion that global pricing structure would change, making oil, energy and labour in some countries more expensive.

    How is it possible that Foxconn reported losses and Apple had record profits? Why my nominal salary increased 2.5 times when I moved from Poland to Australia almost 10 years ago? (Not that I complained about it but this did not suggest any equilibrium). The wealth of the rich countries is supported by the poverty of the poorer countries.

    As long as a developing country is willing to supply commodities and labour at very low prices because of the export-driven growth policy or austerity imposed by IMF – that’s fine from the American point of view. But if the economy grows too strong (as Japan in the 1980ies) then it’s time to “rebalance” the exchange rates (as in Plaza Accord). What happens next is a typical case of whiplash. An influx of hot capital triggered by the initial appreciation leads to asset bubbles and then either a deflationary spiral develops or the local currency is thrashed (as in East Asia in the late 1990ies). In the end all the assets are owned by the international capital.

    The Americans wanted to do the same with China and replace it by smaller East Asian or Latin American countries as the main supplier of manufactured goods but the Chinese did not allow for convertibility of their currency and maintained rather strict capital controls.
    This was written in 2005:
    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ahJXQ3turp7A

    I am not sure about the IQ of the members of the Congress but there must be a reason why the austerity has been imposed. I agree that this “compromise” is plainly insane from the point of view of the long-term interests of the American state and the majority of the society. In my opinion these politicians who pushed for austerity behaved like saboteurs. Some of them seem to genuinely believe in absolute intellectual rubbish (“the state has run out of money and has to borrow from China”). But this outcome makes perfect sense if we look at the interests of a certain minority, directly benefiting from the status quo inside the US and on the global arena. These people (the modern “magnates” using the 16th century Polish world) would actually lose a lot if the MMT recommendations were implemented.

    The Polish and Lithuanian magnates betrayed the Commonwealth in the 18th century – it was divided between the neighbours and you got Kosciuszko and Pulaski. But the magnates did remarkably well, only a few were hanged during an insurrection…

    Therefore I think that the struggle is not between the truth and ignorance but between the truth and vested interests often manifesting themselves as ignorance. I am not defending the vested interests of Mr Putin or the Chinese. I just want to describe and understand somehow what’s going on and MMT adds invaluable resources.

    In fact I may agree with the analysis provided by prof Michael Hudson (who even added a direct link to an MMT site in his article):
    http://michael-hudson.com/2011/07/debt-ceiling-for-progressive-repealing/

    Unforgiven,
    Thank you for the link – I agree. The Germans did not need Keynes, they had Otto von Bismarck.

  10. Ivan Says:

    Good post but I don’t know that I entirely agree. The govt is the scorekeeper the way; judges are the scorekeepers in figure skating. They may keep score but they also have an integral part in determining what that score will be.

    Reply

  11. The Arthurian Says:

    No.

    “Just like the scorekeeper of a card game doesn’t get any points himself when he subtracts points from the players.”

    Warren, this is absurd. The government is a participant in the economy.

    Reply

    WARREN MOSLER Reply:

    And scorekeeper nonetheless

    Reply

  12. John Krehbiel Says:

    I’m afraid we are missing the opportunity to become the next Japan, and will instead become the US in 1937. But this time, we have no Roosevelt.

    Reply

    Ivan Reply:

    Roosevelt’s policies were a complete failure. As the economy was rolling over in 1937, Congress repudiated additional “New Deal” policies and cut taxes and regulations. It wasn’t until then that the economy began to expand again. Unfortunately, Obama may be the new Roosevelt.

    Reply

    Charles Reply:

    @Ivan,
    Ivan, I’m afraid you have the sequence rather backwards. In 1937 Roosevelt was actually complicit in reducing spending, the Fed raised interest rates, and the economy sputtered. Recovery was quite robust from the time Roosevelt entered office to 1937. Things did not begin to improve again until 1938/1939 depending upon what measures you use (CPI, industrial production, unemployment, GDP, etc). See here: http://libertystreeteconomics.newyorkfed.org/2011/06/commodity-prices-and-the-mistake-of-1937-would-modern-economists-make-the-same-mistake.html

    Reply

    WARREN MOSLER Reply:

    check out the net social security contribution the first year they introduced the tax

    WARREN MOSLER Reply:

    best i can tell the big mistake was collecting social security taxes before benefits were being paid. the fiscal drag shock tanked the economy and subsequently the accounting was changed to where it is today

    Reply

    Charles Reply:

    @WARREN MOSLER, Good point. Even so, the original comment is still off in sequence and content.

  13. Greg Marquez Says:

    Warren:
    I wonder if you could elaborate on what’s bad about becoming the next Japan. I think most people look at Japan and think they’re doing pretty good.

    Thanks,

    Reply

    WARREN MOSLER Reply:

    0 real growth and elevated unemployment by their standards

    Reply

  14. brian Says:

    I like the scorekeeper idea but an even more down to earth analogy that everyone understands is the game Monopoly.

    The government is the bank. At the beginning of the game everyone gets 1500 (is that right?) dollars in equity which is a transfer payment from the bank to each player. Every time players pass go the bank makes them another transfer payment of 200 dollars. The banker never worries about getting the money back. Anyone can see that if the bank did not run a deficit, players would have no money to buy all the property and houses that are for sale. The property would be abandoned and there would be no new houses or hotels. Sound familiar?

    If the bank needed all of the money back it would have to start collecting taxes (when players pass go?), which would inevitably mean that the players would have to liquidate all of their property and hotels and would end up insolvent (out of the game).

    In fact, an interesting variation might be to give everyone randomly selected property, fully stocked with houses, and a certain amount of cash. Then, the bank collects $200 from each player on each pass. The winner is the person who says in the game longest. This would accurately model a government running a persistent surplus (paying off its debt).

    I don’t think that mmt is saying much more than this. Anyone who has played monopoly should be able to understand the situation our economy is in.

    Reply

    Mario Reply:

    @brian,

    brilliant!!!

    Reply

    Matty G Reply:

    @brian,

    That is indeed genius.

    I think this may be the most intuitive way to explain the basics of MMT that anyone has come up with yet.

    I think I am going to try a game of monopoly in which the bank runs a budget surplus.

    You still get $200 for passing go, but you have to pay $300 in taxes every time you pass Free Parking. This amounts to a $100 per player government budget surplus every time around the board (disregarding chance, community chest, etc).

    Gradually, the game (the economy) will die.

    Reply

    bram Reply:

    @Matty G, I don’t think that makes too much sense. Under what circumstances would you be taxed more than you earn?

    Reply

    Matty G Reply:

    @bram,

    The use of the word “earn” is a bit strained, primarily because ordinary earnings are re-spent in circulation more than one time per year – there is a spending multiplier factor on earnings in the real economy. What is really about is government spending being less than government taxation.

    But for the private sector as a whole, any time the government runs a budget surplus (as in the late 1990s) it is being taxed more than it “earns.”

    bram Reply:

    @brian,
    Warren, have you considered fleshing out some detailed Monopoly rules and have people play out for themselves an MMT understood economy vs a balanced budget version. Sounds like a good teaching tool. Include wages, taxes, gov spending, etc….

    Reply

    WARREN MOSLER Reply:

    Check out the Buckaroo system at the UMKC somewhere on this website?

    Reply

  15. Gary Connors-Boe Says:

    Great post. Prior to reading your book I would have found it incomprehensible. Now it’s conspicuous wisdom. Your explanations put me in mind of Socrates’ dialogue with Phaedrus.

    Reply

    WARREN MOSLER Reply:

    Thanks!

    Reply

  16. Charles Yaker Says:

    Warren seems to me some of the people commenting at this site haven’t done their homework and haven’t really read much of your material. they like many others in our country especially the media just seem to spit out their opinions without trying to learn any thing new.

    Reply

    WARREN MOSLER Reply:

    true.

    Reply

  17. Charles Yaker Says:

    Warren

    I know I have said this before I just think it bears repeating until I can get a handle on it. While I accept that we can’t become the next Greece I can’t accept the fact that we will become the next Japan. Yes in economic terms that may be true but qualitatively I suspect we will be something different. For instance their unemployment rate is around 5% while ours is 9% or higher. Their Gini Coefficient is 38 while ours ranges from 40 to 50 with an average of 45. that’s just for starters I don’t know if their homeless rate or hunger is as high as ours or if their educational system or infrastructure is as bad as ours is. Just a feeling that it is going to be a lot worse here and I am afraid that just saying that we will become the next Japan while correct does not convey enormity of what will occur here. They have muddled through I am afraid we will not. While your comment awhile back said RIP USA I have not seen you say that about Japan. I still hope you run for President either in the primaries against Obama or as a third party candidate. If your not interested is their somebody you believe electable that can be convinced to run.

    Reply

    WARREN MOSLER Reply:

    Yes, we could become worse than the next Japan.

    Don’t know of anyone who could run with an MMT based understanding of public purpose and the monetary system.

    Reply

    MamMoTh Reply:

    @WARREN MOSLER, what about that democrat who contacted you some time ago?

    Reply

    WARREN MOSLER Reply:

    ?

    MamMoTh Reply:

    Michael Colen

    http://moslereconomics.com/contact/#comment-49084

  18. PaulJ Says:

    A CONVERSATION WITH ED

    me: Ed, how much money do you have in your wallet?
    Ed: I dunno, probably about $50.00. Why?

    me: Where did it come from?
    Ed: I earned it.

    me: That’s not what I mean. I mean where did the money come from originally?
    Ed: I guess from the bank.

    me: No, that would mean you borrowed it. You said you earned it.
    Ed: OK. I guess it came from the government?

    me: Right. Where did the government get it?
    Ed. They issued it based on the amount of gold we have in Fort Knox.

    me: No. We haven’t been on the Gold Standard since 1971. There is no gold backing the US dollar.
    Ed: You mean the dollar isn’t backed by anything?

    me: Not exactly. But let me ask you again. Where does the government get it’s money?
    Ed: They print it?

    me: Right. So if they print the money, how does it get to your wallet?
    Ed: I don’t know…I guess through banks.

    me: No. If you got your money through the bank you borrowed it. We already covered that.
    Ed: Well, how then?

    me: The government spends the money into the economy. Every time the government buys something from private businesses, or pays government worker’s salaries it is spending money into the economy.
    Ed: Yeah but I earned the money in my wallet. It didn’t come from the government.

    me: Where did it come from then?
    Ed: From whoever I worked for.

    me: Where did they get it?
    Ed: From whoever they earned it from.

    me: Now we’re going in circles. Money had to exist before anyone could earn it. Where did it come from?
    Ed: From the government?

    me: OK so you agree that before anyone had any money the government had to create and spend it first.
    Ed: I guess so.

    me: So every year the government spends into the economy a budgeted amount and at the end of the year it taxes all of the money it created that year back out. Otherwise we would have a budget deficit.
    Ed: But we do have budget deficits. That’s what’s wrong with the economy now.

    me: So budget deficits are bad?
    Ed: Yes.

    me: Why are they bad?
    Ed: Because then we have to borrow money to pay for the deficit, and then the government has to raise taxes to pay the money back.

    me: The government creates the money. Why would it borrow back money it previously created? Wouldn’t it make more sense to just print more money?
    Ed: No. That would cause inflation.

    me: Why would that cause inflation?
    Ed: Because there would be too much money in the economy. That would make money worth less so we would have inflation.

    me: Maybe. But if the government didn’t spend more money into the economy than it taxed out there would be no money in the economy. How would you get the money that’s in your wallet? And how would there be inflation in that circumstance?
    Ed: Good question. This is making my head hurt. I don’t know.

    me: Yeah learning simple things can be hard. So you can see why deficit spending is required for the economy to grow.
    Ed: I guess so. But we have to borrow to pay for the deficit and the borrowing is killing the economy.

    me: We’re going in circles again. The government doesn’t have to borrow, it is the creator of the money. It creates money at will out of thin air as needed. It does not necessarily lead to inflation. That depends on how the government spends the money.
    Ed: Then why does the government borrow money to pay for the deficit?

    me: That’s another discussion. We can talk about that some other time.
    Ed: OK. But what about the National Debt?

    me: What about it?
    Ed: Don’t we have to pay it back?

    me: If we paid it back, there would be no money left in the economy. How would you get money in your wallet then?
    Ed: You’re making my head hurt again.

    me: Thinking is hard. That’s why we rarely do it.
    Ed: So what is the National Debt?

    me: The National Debt is the amount of money to the penny that the federal government has created since it began creating dollars. It includes all of the dollars held by the public plus all of the dollars held by foreign companies that have done business with the U.S. There is no taking it back. Paying off the National Debt is impossible and it makes no logical sense to think of the National Debt in th way we have been taught.
    Ed: You’re killing me. Theres no way anyone could understand this stuff.

    me: I give up.

    Note: there may be some factual errors in this regarding the National Debt – I am not a monetary expert. Feel free to correct or make suggestions.

    Reply

    Draco Reply:

    @PaulJ,

    Nice job Paul!

    I do think that any intelligent Ed worth his salt is going to come back at you on the borrowing question: ‘Why does govt appear to be borrowing (from the Chinese and others) to “fund” its debt?’ You need to say something about the debt as an interest rate maintenance account in answer to that.

    How does the MMT community deal with the following question from an MMT skeptic?

    “If the government runs deficits forever to fund a continuously growing economy, won’t the interest payments on the debt eventually absorb 100% of the budget, leaving nothing else for the government to spend on (roads, environmental protection, military, whatever else you think is a public good)?”

    Reply

    PaulJ Reply:

    @Draco,

    Actually I did mention that obliquely near the middle of the conversation…

    “Ed: Then why does the government borrow money to pay for the deficit?

    me: That’s another discussion. We can talk about that some other time.”

    I punted on that here for brevity and because if I were talking to the real Ed I would lose him here. Baby steps.

    For the record Ed is a real person & friend of mine and I used his name because he is one of the few people I come in contact with that doesn’t roll his eyes mention something about blasphemy when I talk about these things.

    He has absorbed some of this but still asks “what will happen to us if the bond-traders won’t lend us money and interest rates go up and…”

    He is at the stage of learning spanish where he recognizes the words but he still can’t think in Spanish.

    Reply

    Neil Wilson Reply:

    @Draco,

    There’s no current need to pay interest. Why pay interest to people who have money to persuade them not to spend it when you haven’t enough spending to start with?

    Reply

    PaulJ Reply:

    @Neil Wilson, Accumulated wealth was never going to be spent anyway, it’s only use is to buy governments.

    PZ Reply:

    @Draco,

    “If the government runs deficits forever to fund a continuously growing economy, won’t the interest payments on the debt eventually absorb 100% of the budget, leaving nothing else for the government to spend on (roads, environmental protection, military, whatever else you think is a public good)?”

    Interest payments do not disappear to some black hole never to be seen again, instead they are merely an income transfer to the bondholders. The more government spends on interest payment the more non-government sector actors receive as an interest income. This in itself has the effect of rejuvenating economy and boosting tax revenue, but if you take sovereign governments ability to impose tax liabilities seriously, government could collect tax revenues whereever it wanted, including these interest income receivers.

    Other way to say this is that amount of NFA government releases to the private sector is not discretionary. It has to accommodate private sector’s saving desires, otherwise, too much or too little both lead to trouble. Too little NFA leads to output gap and unemployment, trying to run too much deficits would only cause inflation. It is quite questionable whether debt/GDP ratio could even raise anymore in that inflationary environment. It is a self-balancing system.

    Reply

    WARREN MOSLER Reply:

    that’s only if interest gets spent, and, if it does, it allocates real resources in that direction

    WARREN MOSLER Reply:

    interest payments don’t operationally constrain other spending

    Reply

    PaulJ Reply:

    @Draco, You are right – I think I will add something about borrowing to the conversation. It is a major part of the myth. I was just concerned about it being too long.

    Reply

    WARREN MOSLER Reply:

    very good!

    Reply

  19. Pierce Inverarity Says:

    Warren, given your extraordinary successes in finance, is it safe to assume you have accumulated a great deal of wealth over the years? If so, have you given any thought to sponsoring an economics department at any university in order to try and further institutionalize MMT? Maybe it would be a vain gesture, but it seems that one of MMT’s only weaknesses is its current lack of “esteemed” academic support. As science progresses “one death at a time”, so too does economics, it seems.

    On another note, there was a comment on Cullen’s blog that someone should spearhead a movement to get a second counter installed underneath the “National Debt Clock” that reads “Private Sector Savings Clock”, matching the former penny for penny. While comical at first blush, the symbol is a powerful thing. I can’t say how many times I’ve seen the Debt Clock inset while folks on Fox or CNBC have been blathering on during this manufactured crisis.

    Thank you for all the work you’ve done, and have inspired others to do.

    Reply

    WARREN MOSLER Reply:

    Had a bit of a financial setback with the 2008 goings on, but before that funded the UMKC Econ dept and quite a few other things.

    Reply

    Pierce Inverarity Reply:

    @WARREN MOSLER,

    That’s refreshing to hear. Thanks again.

    Reply

  20. Tom Hickey Says:

    Warren: “seems to me most people tend to be tribal and, one way or another, racist”

    Biological research reveals that much cooperation for survival in the sub-human world operates through kinship. The same is relatively true in the human world. This is the basis for traditional nationalism, which used to mean blood kinship, and it still does in many parts of the world. In the emerging world, tribal relationships are still common.

    We tend to forget this in the US, where nationhood is not based on kinship, and Native American tribalism was fiercely suppressed. However, the vestiges remain powerfully operative here, too. Sociologists have described this pretty exhaustively. The conclusion is that people who think that they are above tribal, racial and gender biases are in denial. It is part of early childhood imprinting and very difficult to extirpate completely. That is a big reason that we have laws against discrimination. The economic bias against women is still extremely strong in the US, as wage discrepancy shows.

    Reply

    ESM Reply:

    @Tom Hickey,

    I agree mostly except for the last sentence (which I think doesn’t really fit anyway; I mean how can men have a tribal bias against women — are we reproducing asexually?)

    “The economic bias against women is still extremely strong in the US, as wage discrepancy shows.

    I don’t think the data shows that at all. If you control for the types of jobs women choose versus men, as well as time spent away from a job to do childraising, I think women actually make more than men.

    There is a much, much stronger economic bias against short men vs tall men (unfortunately for me). Whether that’s due to actual bias on the job or something that happens early in life (e.g. personality development), I have no idea.

    Reply

    Tom Hickey Reply:

    @ESM,

    “I agree mostly except for the last sentence (which I think doesn’t really fit anyway; I mean how can men have a tribal bias against women — are we reproducing asexually?)”

    The tribal view of gender is based on roles, and most tribes are patriarchal. This has been a barrier that women have had to overcome, for example, the suffrage movement, marriage (contract) equality, equal right to work, women’s liberation from gender stereotypes, and now gender discrimination suits. The US still has not had a female president.

    Most of this based on “tradition” this tribal in origin. Lots of anthropological and sociological work has been done on this, and women are still struggling to gain recognition for a feminist view of history, sociology, etc., because they don’t see it as having gone far enough to correct the inherent bias.

    Reply

    Coupon_Clipper Reply:

    @Tom Hickey, “The US still has not had a female president.”

    C’mon now… which is more likely in the next couple decades: A female president or a short male president?

    I’ll bet on the female president, and I’ll give you very favorable odds if you want to take the other side. I’m neither short nor female, but it seems clear that short men face much, much greater obstacles in every aspect of life than women. (And unlike the male vs. female wage issue, there’s actually evidence to back up this claim.)

  21. Tom Hickey Says:

    WArren: “and it all comes down to rationing in its various forms, including by price.
    price tends to be the most regressive, not to say it shouldn’t be used.”

    This is the crux of it. Some argue that in a market economy, price should be the only means of rationing. Others hold that price should only be used to ration discretionary items and not vital ones, and private goods but not public goods. This is basic in the right-left divide, with different factions representing different degrees. There is an extreme right postion in the US, but not much of a left one, let alone extreme, as evidenced by the difference between the US and Europe.

    In the US, the right argues that the choice is between market capitalism and command socialism. That is a ridiculous argument that is not borne out by fact. There are many options regarding distribution of real resources and financial wealth.

    Reply

    Gary Reply:

    @Tom Hickey,

    think about it:
    who would prefer to ration everything by price? Yes, the rich.
    That way they can morally and legally rule over everything: land, water, health, life, minds. Everything.

    now – who would prefer to ration by something else than price? Yes – the poor, and those who are poor enough not to afford decent life.

    That is all simple, and if there was democracy – the poor (who are in majority) would have enough influence to implement such rules of the state – so that at least the basic necessities would be rationed by something else than price (perhaps by some socially agreed rules of fairness?).

    But – the unemployment, the private health care, the privatization of water, the regressive taxation etc. – shows that it is not really the democracy. It is something else. Some mind controlling system that actually persuades part of the poor to believe into an economic religion that “explains” to the poor that it is OK and it is fair and the most efficient way to ration resources.
    The “free market” religion (“money is impartial and fair”).

    Reply

  22. Matthijs Says:

    What I don’t understand, and sorry if this is a silly question, is why it is even called a “debt”. I mean, in the monopoly example, you would not call the bank giving someone some money being “in debt”. It’s just handing out money to a player. Nobody questions whether the bank can run out of money, it never will.
    (ok actually with a real play there might be not enough paper pieces of money… ;0 )

    I have walked past the debt clock in NY and every time I passed it the only thoughts going through my mind where “how are they ever going to pay that back”, “the US is in so much trouble”, etc etc. Just like everybody in the world thinks. I read opinion pieces in the big newspapers every day talking about this huge debt problem and how something has to be done to start paying that back. And how citizens also should start saving more. But how is that possible?

    I’m really confused.

    Reply

    WARREN MOSLER Reply:

    we could call all the savings accounts at the commercial banks debt as well, but we don’t. we just call them bank liabilities

    Reply

    Mario Reply:

    @Matthijs,

    “I’m really confused.”

    just stick around and keep reading/posting here at this blog and others like these:

    http://mikenormaneconomics.blogspot.com/

    http://bilbo.economicoutlook.net/blog/

    http://neweconomicperspectives.blogspot.com/p/modern-money-primer-under-construction.html

    It all comes in time. Just keep at it. We are like salmon swimming upstream. It’s kind of like those 3D pictures you stare at long enough and then you see shapes and figures in there. ;)

    Reply

  23. Matthijs Says:

    @mario and Warren: thanks for your replies, much appreciated.

    So I’ve read some more and understand how it works now. Saw the light, so to say. I’m assuming there are no factual errors (or lies) presented in the works of MMT I read on this site, the sites mentioned or pragcap.com. I’m no economist so I can’t check the facts presented. So for now I assume that the facts presented are true.

    Everything I thought I knew about money or economics turned upside down.

    But then comes the next, real nagging question: if I can understand this from reading a couple of blogs, a downloadable e-book and articles in a few days, why is almost the whole world not understanding this? Just open up any newspaper these days and the articles written don’t make any sense at all, in light of what I now know about modern economics. I can’t turn on the TV anymore and watch the news, because what they are talking about seems like complete nonsense now.

    What is missing here? Either there’s something wrong in MMT or there should be an explanation for the worlds’ ignorance. (I’m a very rational person ..) Which is it? ;)

    Reply

    Tom Hickey Reply:

    @Matthijs,

    “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”

    —Upton Sinclair, I, Candidate for Governor: And How I Got Licked (1935), repr. University of California Press, 1994, p. 109.

    Reply

    Matt Franko Reply:

    @Tom Hickey, That’s Krugman in a nutshell!

    Reply

    WARREN MOSLER Reply:

    there should be a explanation for the world’s ignorance.

    I’ve been an ‘insider’ in monetary operations for 40 years. this is how it works

    Reply

    Mario Reply:

    @Matthijs,

    I call it corrupt to the core. To me that means corruption for corruption’s sake. There is no reason or logic to it other than their own subjective logic outside of the reality that exists beyond them. I view this as the most insidious type of corruption one can have b/c it’s a completely isolated, selfish, and useless endeavor. It cannot last by definition. I agree it’s one thing to be corrupt to “protect someone” or for the “betterment” of the people but this is something all together sinister and futile in my eyes.

    I view all of this as a parallel to the 1960′s racial issues. Racism is a subjective experience without reason or logic to back it up…yet it still persists. Our issues are not about race in this case but instead it is about class and money. Eventually the dawn comes and the 60′s were a culmination moment of at least 100 years in the making. I don’t know when this culmination will arrive but I do know what it will look like….people operating economically and monetarily at a higher perspective that includes all people (aka public purpose)…people not “tied up” in their views of themselves through a monetary lense (aka until a person has “x amount” of dollars can they be a “good” person worthy and able to be helped, cared for, considered, supported, addressed, etc.)…it will also look like a world where people see it as a duty, almost like a brotherhood, to support their neighbor in supporting himself. We will not be “crowding each other out” for dollars, instead we will all realize that full employment full potential, full utilization is possible, and that there is no “lack” of dollars and wealth and riches can be earned for all. Call it a utopia, but it’s no more of a utopia than to think of a world where people of all different colors can join and mix together freely doing the same things together happily. And now we do have a black president. History is on the side of Truth, but history can be a slow mistress at times (relatively speaking of course). LOL ;)

    That is what I see lying on the other side of this coin. I also do see that we will get there and MMT has shown me that it is possible to get there practically and operationally speaking. I just don’t see when we will get there.

    http://www.youtube.com/watch?v=MwKIUMbi9Jk&feature=related

    Reply

  24. Matthijs Says:

    Mario, some good words. I agree. I also sense that there’s something ‘building up’. I just hope it explodes in a positive way, not a bad collapse.

    Reply

  25. Rodger Malcolm Mitchell Says:

    Warren,

    We all have been acting as though the President of the United States, Secretary of the Treasury, the Chairman of the Fed and all their aides, do not understand Monetary Sovereignty. So we go to great lengths to provide ever easier-to-understand analogies, hoping that somehow the next analogy will turn on a light bulb.

    Do you really think it’s possible that all those smart people don’t understand the simple facts of Monetary Sovereignty?

    No, they understand. So all the simple analogies will accomplish nothing.

    The real question is: Why do they pretend not to understand? Answer: They are paid by the 1% not to understand, because cuts in federal spending widen the income gap, and that is what the 1% really wants.

    This is not just an educational problem; it also is a power problem. I have begun to focus more on motivation in addition to education. The public not only must know the facts, but also why these facts are being hidden.

    In short, the public has to get angry at being screwed. Only when public outrage is added to the mix, will anything happen. Emotion is more powerful than fact alone, and we need to stir emotion.

    The Message: “Here is how you being screwed; here is who’s screwing you and here is why they’re doing it.” Time to break out the torches and pitchforks.

    Reply

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