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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.

CNBC’s John Carney invokes MMT again

Posted by WARREN MOSLER on November 23rd, 2011

How High Should Taxes Get on the Wealthy?

By John Carney

Good to see John Carney invoking MMT again!

My conclusion would have been with today’s shortage of aggregate demand we are grossly over taxing for inflation prevention, and so, a FICA suspension is the way to go vs a tax cut for the rich.

But it wasn’t my story.

;)

76 Responses to “CNBC’s John Carney invokes MMT again”

  1. John Carney Says:

    For the record, I agree with the idea of a FICA suspension also.

    Reply

    Mario Reply:

    @John Carney,

    Hi John,

    Thank you for bringing MMT into the forefront of today’s economic discussions in the media. I really appreciate it and I’m sure everyone else here does too. Please keep it up if you feel so inclined.

    Best,

    Mario

    Reply

    wh10 Reply:

    @John Carney,

    Yeah John, I’d also like to express my gratitude as well.

    Reply

    WARREN MOSLER Reply:

    good to hear it, thanks!

    Reply

    Adam (ak) Reply:

    @John Carney,

    John,

    Any chance of getting this article translated into Polish and published or broadcast somehow on http://www.tvncnbc.pl ? I do not follow what’s going on in that country very closely but I know that TVN is the main independent news channel there.

    I tried a few times to contact politicians and journalists in Poland but the best response I got was “thank you very much for expressing interesting views”. This may change when they are confronted with the same ideas coming not from a random person but from a more trusted source.

    They still all think there that the government has to borrow or tax before it spends. There might be one or two old economists who had studied under Michal Kalecki in the 1960ies and who have an idea how the system works but the rest of the economists and politicians are either clueless or actively disseminating the “Treasury View” – like theories (prof Gomolka, prof Balcerowicz and their followers).

    Reply

  2. Mario Says:

    grossly over taxing for inflation prevention

    great way of putting that…I’m going to use that one

    Reply

  3. roger erickson Says:

    Very clever, actually. To be fair, Carney has to pander to CNBC ownership elites first, and leave the bulk of logic seemingly purely coincidental.

    That’s how to manipulate royalty – with a perfumed manure shovel.

    Reply

  4. roger erickson Says:

    how is this an innovation for the Treasury? “IN PARENTHESES, BELOW” –
    they don’t NEED revenue in the form of their own fiat currency, but to be innovative, they’re getting more of it?
    surely there’s a better way to drain bank-reserves, or to not bother?

    http://www.newyorkfed.org/research/current_issues/ci10-11/ci10-11.html

    Recent Innovations in Treasury Cash Management
    Evolutionary changes in the national payments system and revolutionary changes in telecommunications and information-processing technologies have created opportunities for the Treasury to keep Reserve Bank balances closer to target levels, to process taxes at lower cost, and “TO EARN SOMETHING CLOSER TO A MARKET RATE OF RETURN ON ITS DEPOSITS AT PRIVATE DEPOSITORY INSTITUTIONS.” This section describes three innovations that have drawn upon the emerging opportunities.

    Reply

  5. Tom Hickey Says:

    Thanks for the good work in making MMT better known, John.

    How about working in an in-depth interview with Warren on The Seven Deadly Innocent Frauds of Economic Policy. This country is in dire need of resetting, and it’s not going to happen without blowing up the myths about “affordability” and the moralizing about debt and deficits that are holding us back.

    Reply

    wh10 Reply:

    @Tom Hickey,

    What about taking the approach of interviewing Warren about his arbitrage trading successes that put MMT knowledge to work? Maybe this will be more convincing for some of the more skeptical?

    Reply

    Tom Hickey Reply:

    @wh10,

    Good to work this into the interview for cred, Wh10, but the world needs to know about 7DIF ASAP. This ship is taking on water and listing badly.

    Reply

    Save America Reply:

    @Tom Hickey, Yes I think many of us are in agreement we need a good propoganda piece to give out to the public and infect thier minds, a mike moore Style MMT/unemployment documentary, carney interviewing Mosler and others about how the current capitalist system will cause billions to starve, how this meme of debt repayment is consuming our government needlessly, and not a recent phenomenon, as greenspan wasted lots of time on it back in the 80′s during SS reform. How folks like Norbert Weiner and others decades ago predicted this inability to tackle the “unemployment” problem caused by technology and productivity would destroy billions. How this loss of billions of human people will hinder our global development for the betterment of us all. Hickey, you got the communist background, why don’t you put together a storyboard for us, or do a small sample video yourself and upload it to youtube, lets crowdsource some of this work. The members here who are familiar with 7DIF can suggest edits and improvements and then when we have refined it enough, release to public for infection….

    http://unemploymentisgood.wordpress.com/tag/shorter-work-week/

    Aristotle said that slavery could only be abolished when machines were built that could operate themselves. Working for wages, the modern equivalent of slavery — very accurately called “wage slavery” by social critics — is in the process of being abolished by just such self-programming machines. In fact, Norbert Wiener, one of the creators of cybernetics, foresaw this as early as 1947 and warned that we would have massive unemployment once the computer revolution really got moving.

    It is arguable, and I for one would argue, that the only reason Wiener’s prediction has not totally been realized yet — although we do have ever-increasing unemployment — is that big unions, the corporations, and government have all tacitly agreed to slow down the pace of cybernation, to drag their feet and run the economy with the brakes on. This is because they all, still, regard unemployment as a “disease” and cannot imagine a “cure” for the nearly total unemployment that full cybernation will create.

    Suppose, for a moment, we challenge this Calvinistic mind-set. Let us regard wage-work — as most people do, in fact, regard it — as a curse, a drag, a nuisance, a barrier that stands between us and what we really want to do. In that case, your job is the disease, and unemployment is the cure.

    “But without working for wages we’ll all starve to death!?! Won’t we?”

    Not at all. Many farseeing social thinkers have suggested intelligent and plausible plans for adapting to a society of rising unemployment. Here are some examples.

    1. The National Dividend. This was invented by engineer C. H. Douglas and has been revived with some modifications by poet Ezra Pound and designer Buckminster Fuller. The basic idea (although Douglas, Pound, and Fuller differ on the details) is that every citizen should be declared a shareholder in the nation, and should receive dividends on the Gross National Product for the year. …

    2. The Guaranteed Annual Income. This has been urged by economist Robert Theobald and others. The government would simply establish an income level above the poverty line and guarantee that no citizen would receive less; if your wages fall below that level, or you have no wages, the government makes up the difference. …

    3. The Negative Income Tax. This was first devised by Nobel economist Milton Friedman and is a less radical variation on the above ideas. The Negative Income Tax would establish a minimum income for every citizen; anyone whose income fell below that level would receive the amount necessary to bring them up to that standard. …

    What I am proposing, in brief, is that the Work Ethic (find a Master to employ you for wages, or live in squalid poverty) is obsolete. Delivered from the role of things and robots, people will learn to become fully developed persons, in the sense of the Human Potential movement. They will not seek work out of economic necessity, but out of psychological necessity—as an outlet for their creative potential.

    As Bucky Fuller says, the first thought of people, once they are delivered from wage slavery, will be, “What was it that I was so interested in as a youth, before I was told I had to earn a living?”

    The answer to that question, coming from millions and then billions of persons liberated from mechanical toil, will make the Renaissance look like a high school science fair or a Greenwich Village art show.

    Save America Reply:

    @Tom Hickey, I think of that orson wells movie, Citizen Kane, who said ROSEBUD at the end, thinking of his happy childhood before MONEY came in and ruined his soul.

    Save America Reply:

    @Tom Hickey, http://www.youtube.com/watch?v=BPUcfQS-slo Hickey I recently watched this documentary by Bjorn Lomborg – COOL IT, about the money involved in climate science. I forget the specifics but he talks about how the carbon credit system caused some asian manufacturing firm to produce some pollutant because it was more profitable in the carbon credit financial system than what the company was originally founded to produce. Showing AGAIN how the FINANCIAL SECTOR is a lot more trouble than it is worth…

    Edit: found it http://blogs.reuters.com/felix-salmon/2011/05/03/the-depressing-politics-of-climate-change/

    As a general rule, it simply isn’t possible to pass legislation where the many benefit but a few entrenched special interests lose out. There are exceptions, of course, but they tend to be extremely hard-fought (think the healthcare and Wall Street reform bills) and unique in many ways. What you really need, when it comes to climate change, is a powerful constituency which would benefit from a bill. And since the largest beneficiaries haven’t even been born yet, let alone started making campaign donations, we’re not about to find one.

    For similar political reasons, I’m evolving away from my preference for cap-and-trade over a carbon tax, since a cap-and-trade system is certain to get gamed by special interests. Allocations will be given out for free, and carbon credits will end up being given to projects which don’t reduce carbon emissions at all: Bjorn Lomborg talked about a cottage industry in China where people will build refrigerator factories designed to use a particularly potent greenhouse gas called HDFC23, not to build refrigerators, but just to get billions of dollars’ worth of carbon credits when they don’t build refrigerators.

    Mario Reply:

    @Tom Hickey,

    @Save America

    Delivered from the role of things and robots, people will learn to become fully developed persons, in the sense of the Human Potential movement. They will not seek work out of economic necessity, but out of psychological necessity—as an outlet for their creative potential.

    I couldn’t have said it better myself. In fact, if you really think about it…this set up is more truly representative of a free market of free people. No longer do they have to be bothered with mundane affairs of keeping the house in order, they can now explore and think and discover. Quite literally this has been the framework and breeding ground for all great thought and great achievement from the Pharaohs to the Founding Fathers….they just used HUMAN SLAVES to do those pesky daily affairs where as now we can use robots, etc. However just as Jefferson died with slavery still in his midst (indeed still in his HOUSE…Jefferson alone truly embodies the at once Sick and Ideal Spirit that is America), so too might we have to continue living with such issues…knowing full well that one day they will be resolved in their own perfect timing.

    I just watched the PBS documentary of Thomas Jefferson tonight…just a lovely production indeed.

    Did you know….that just like Ron Paul, Thomas Jefferson shrank the Navy to almost nothing in his first term only to find in his second term that he had no navy to protect American merchants and cruise ships in the Atlantic from French and English naval attack…so what did Jefferson do? Well, like any good small government man, he set up a trade embargo of course!!! Which was an abject failure and caused much disturbance and upset in the states both socially and economically. These notions of small government this and small government that need to framed within the realm of practicality, reason, and usefulness.

    http://www.shoppbs.org/product/index.jsp?productId=1402906&cp=&sr=1&kw=jefferson&origkw=jefferson&parentPage=search

    A jobs program is essential today, but it may not come about for some time.

    Save America Reply:

    @Tom Hickey, “A jobs program is essential today” I just got my new LTE android phone before “cybermonday” for a penny with a 4.3 inch super AMOLED screen and dual core processor. I didn’t even know about this device when I was in europe, and didn’t think I needed it until I just used it, and now I could never live without it. There are high speed trains, space elevators, underwater cities, virtual world technologies, etc etc that people are not aware of, but if built and used by the masses, they would slap themselves for not having it sooner and how it has enriched thier lives. There are so many smart people that need to be unleashed to bring on the new age of humanity, the gutting of NASA without a jobs program for those same people to go off and persue niche interests is totally insane. To make illegal loans to Solyndra so that we could compete with the Chinese who are using unfair practices to corner the solar market was not gonna be just a WIN for the USA, but the whole world. Certainly every economist here can agree competition is good for the consumers of the world, but letting china be a solar MONOPOLY is not good long term. Change is coming, the aggregate demand of the borg cannot be stopped, resistance is futile….

  6. markg Says:

    Taxes also function to discourage bad behavour such as taxing gas to promote conservation. Are the wealthy engaging in any bad behavour that could be discouraged through taxation? Highly leveraged speculation comes to mind. What else?

    Reply

    Tom Hickey Reply:

    @markg,

    Rent-seeking. The press has been on to minimize or even exempt economic rent from taxation while transferring the bulk to ordinary income and FICA. FICA doesn’t materially affect the 1% and they have ways of avoiding taxation on ordinary income.

    Reply

    beowulf Reply:

    @Tom Hickey,
    Well a financial transaction tax has been getting a fair amount of ink lately. Might as well be sneaky about it and use it to anchor interest rate at 0.

    That is, set the transaction tax rate at the most recent prior 3 month Tsy rate (0.02% right now), which I’d ballpark would raise $30 billion a year. Can you imagine what an unbelievable fiscal drain would occur if the Fed ever tried to raise interest rates?

    Reply

  7. beowulf Says:

    This NY Times story (“Behind Deficit Panel’s Failure, a Surprising Outcome”) is the CRAZIEST thing I’ve ever read.

    The latest Congressional failure to agree on a plan for balancing the government’s books could yield a surprising result: a sharp reduction in annual federal deficits, larger than anything contemplated by the special panel that reached its fruitless finale on Monday. But the absence of an agreement also threatens to significantly slow growth in an already ailing economy by raising taxes on almost everyone while reducing government spending on almost everything…
    http://www.nytimes.com/2011/11/22/us/politics/behind-deficit-panels-failure-a-surprise.html?_r=1&hp

    Good Lord, the President has wasted a Manhattan Project’s worth of political capital on deficit reduction when it turns out that simply doing nothing will lead to what Moody’s calls a “historically extreme” reduction in the deficit.

    Reply

  8. Thomas Bergbusch Says:

    The Carney article asks why we should tax the rich, given MMT. After all, taxing the earning classes is more effective at reducing aggregate demand and inflation.

    So why tax the rich? It seems to me that we have to tax the rich because excessive wealth provides a small elite with the financial power to control real resources and influence politics unduly in their interests, which are generally opposed to the interests of the majority of the population. (Inequality and financial instability go hand in hand.) The Government chooses who gets how much. We have to tax the rich much more because they are too rich (even the honest, dare I say enlightened, rich like Warren).

    Reply

    Tristan Lanfrey Reply:

    @Thomas Bergbusch,

    Let the rich be rich, taxing them just because they are too rich does not seem right to me. We need to let go of our envy!

    There needs to be a good reason for taxing them. Something like a property tax with an increasing rate as the surface of land owned increases (after a certain surface is reached) because concensus decides that herding land is harmful to society and one needs only so much land. Or a sales-tax on leasure yachts and private jets, because we’d rather use the actual resources towards building submarines capable of fixing huge BP style deep-sea c*#k-ups, replacement for the space shuttle, or even warships if America wants to carry-on showing its biceps to the rest of the World.

    I tend to think that, as long as enough jobs are created (Job Guarantee power!), redistributing income towards real wages and profits equally (rather than the current biais towards profits) will be more efficient at bringing down inequality. This in itself could be a justification to tax the wealthy big businesses, maybe like heavily taxing profits if they are not redistributed to (in a fair way) employees.

    We need to lift people out of poverty, not bring the rich closer to it (ok, a bit far fetched, but you get the idea :)).

    Reply

    JHoops Reply:

    @Tristan Lanfrey,

    “Let the rich be rich, taxing them just because they are too rich does not seem right to me. We need to let go of our envy!”

    They need to let go of their greed, and go back to kindergarten to learn how to properly share.

    Also they need to pay at least as much as I do on earned income instead of the paltry “capital gains tax” most of them pay. Why should I pay more tax on money earned by actually working than these sloths earn from laying around. Shouldn’t we be encouraging hard work? Or is that only for the unfortunate proles born into the wrong family.

    Reply

    Ivan Reply:

    So sad that a perfectly good economic forum has been hijacked by socialists. Think of all those great economic powerhouses over the years that followed a socialistic doctrine. Can’t think of any?

    Only the true billionaires like Buffet who earn most of their income through capital gains and dividends pay a lower tax rate. The typical person earning $50k per year pays about 7% of their income in federal taxes. The typical person earning $750k pays about 26%. But don’t let the facts get in the way of a perfectly good class warfare rant!

    WARREN MOSLER Reply:

    don’t forget about fica taxes, thanks

    MamMoTh Reply:

    The typical person earning $750k pays about 26%.

    And you think that is too high?

    Ivan Reply:

    MamMoTh:

    I wasn’t commenting on whether it was too high or too low. I was just pointing out the myth propagated by people like Buffet and Obama that the rich are paying a lower tax than their secretary.

    Taxes in aggregate are too high right now relative to aggregate demand or inflation risks.

    WARREN MOSLER Reply:

    yes, taxes are too high right now for the size govt and credit conditions we have.
    and fica elimination tops my list of cuts

    MamMoTh Reply:

    OK, I think those paying less taxes in % than their secretary are those that earn much more than 750K.

    ESM Reply:

    @JHoops,

    Greed is not necessarily bad, and it can certainly be harnessed for good purposes. Envy on the other hand strikes me as a wholly destructive emotion.

    As for income taxes, I think the whole idea of taxing income is idiotic. Why discourage people from accumulating points on a scoreboard in exchange for something useful?

    And it’s certainly not obvious to me that high income people should pay a larger percentage of their income in taxes as opposed to simply a higher absolute number of dollars. But even if you accept that as an axiom, capital gains taxes are on top of corporate income taxes, so by a reasonable measure, the all-in percentage tax is higher even for capital gains and qualified dividends nominally taxed at 15%.

    WARREN MOSLER Reply:

    see my brief section on taxation in ‘soft currency economics’

    Unforgiven Reply:

    @JHoops,

    Yeah, I think we need to work on that some. There’s some considerable resentment going on and I’m not sure it’s logical. When we’re talking about taxes wrt quelling inflation (the only apolitical use of taxes afik), we would need to know how to get the best bang for the buck. Knowing that would also have an impact on Gov’t spending, presumably in those same subsectors. I think if all knew how the currency works, the rich might well hoard less if the economy turned down, knowing that a well-informed Gov’t would apply policy that actually works instead of flailing about with, for instance, putting together a “Supercommittee in Charge of Doing The Wrong Damn Thing”

    Ivan Reply:

    Warren:

    Taking into consideration all federal taxes including fica, the top 1% pay 29.5%. Those between $34,000 and $50,000 pay 14.3%.

    The U.S. has the most progressive tax system in the world measured as the percentage that the top 1%, 5%, and 10% pay in taxes relative to the percentage they earn in income.

    WARREN MOSLER Reply:

    and i’d guess that in absolute terms that 14.3% is a lot more dollars than the 29.5%?

    i just don’t like it when it’s agreed the lower x% pay no ‘income taxes’ when fica is functionally a tax on income.

    Ivan Reply:

    Warren,

    I’m with you on the last point. Unfortunately, politicians can’t have it both ways. They can’t on one hand claim there is some sort of trust fund for which the FICA payment is a “contribution” for a defined benefit plan administered by the government and then later say FICA is just a tax and Social Security is just a transfer payment. Perhaps if our “leaders” were a little more honest with the citizens of this country, including debt fear mongering, the discussion could be at a higher level.

    Reply

    Neil Wilson Reply:

    @Thomas Bergbusch,

    You don’t need to tax the rich if they don’t get to cream so much off in the first place – relatively speaking.

    Fix the distribution system at source by upping the wage share, then you don’t need to do so much ‘redistribution’.

    Reply

    WARREN MOSLER Reply:

    Right, it’s about social engineering and not about the gov getting dollars to spend

    Reply

    Ivan Reply:

    Hmmmm. What is the net tax rate in the USVI? So tax rates were so high in the U.S. that people like Warren move to the USVI to get a 90% tax credit if they hire 10 employees? If Warren needed 10 employees to run his company, wouldn’t you prefer he had done so on the mainland? Just keep pursuing the rich and watch them disappear. It isn’t impossible for the rich to give up their U.S. Citizenship.

    Reply

    WARREN MOSLER Reply:

    the usvi is a us territory, all are us citizens, us passports, us dollars, us tax law, etc. etc. etc.
    just not enough people to be a state.

    Reply

    Ivan Reply:

    I understand that. My point is that this website is starting to become a bash the rich, maximize their tax burden blog for those interested in class warfare. Two points…1) the rich are mobile…including moving to the USVI and 2) why are people even talking about raising anyone’s taxes in this environment? Why don’t we wait until the economy is getting close to overheating before we start asking whose taxes should be raised to cool it down?

    WARREN MOSLER Reply:

    the website or the comments?

    Djp Reply:

    @WARREN MOSLER,

    Are you saying you never benefited from any tax advantages from being in the USVI?

    @ Ivan:
    Agreed, bashing the rich is not the way to make things better. MMT has a lot to offer in terms of clearing up confusion. Sadly, most MMT’ers seem to be a bit disingenuous in claiming that certain subjective progressive ideals somehow logically follow from a correct analysis of monetary operations.

    As for leaving the country, the US is slowly working on making that more painful. They already have the mark-to-market departure tax.

    WARREN MOSLER Reply:

    no

    Ivan Reply:

    I’m sure Warren is opting out of the 90% USVI tax discount in fear that his personal aggregate demand might be inflationary!

    WARREN MOSLER Reply:

    no, because of my loss carry forwards…

    Ivan Reply:

    @Warren:

    No? Never? Just wanted to live in the USVI? Never had any big hedge fund fees that exceeded your loss carry forwards?

    I’m not condemning you for making a tax efficient decision…if that’s what you’ve done. I think it is important for people to understand that successful hedge fund managers and other wealthy individuals have other options should this country become too hostile to the “rich”.

    WARREN MOSLER Reply:

    the USVI is ‘this country’

    and yes, the program has, in general, worked out well for me

    Djp Reply:

    @WARREN MOSLER,

    Good distinction, the comments aren’t necessarily the site.

    Djp Reply:

    @WARREN MOSLER,
    And good joke on loss carry forwards.

  9. Thomas Bergbusch Says:

    A clarification: envy has nothing to do with what I wrote and this is not a moralistic attack against the wealthy. I accept wholeheartedly most of the measures that are the proper purview of government as listed in the chapter of Warren’s book on the Public Purpose (and recognize that his proposals are not those of Carney). And I agree that upping the wage share of the earning classes is the more important measure.

    BUT, we also need to constrain not only the incomes but also the wealth of the rich, for a variety of reasons, for instance, to reduce inequality, to reduce class conflict and increase “social license” for MMT policies (so the rich are PERCEIVED as “paying their fair share”), and to improve environmental outcomes. As Lars Osberg has noted, it is ultimately consumption that causes pollution. He goes on to note:

    “But for those families at the very top of the income distribution – the top 5% and top 1% – the dollar value of household expenditures has grown significantly faster than the ‘per-dollar’ improvement in GHG intensity of the last 16 years. This implies that total GHG emissions continue to increase in Canada and the US, partly because income and expenditure at the top end of the income distribution have been growing so very rapidly.” http://myweb.dal.ca/osberg/classification/conference%20papers/Have%20most%20of%20us%20already%20met%20our%20k%20April%2022.pdf

    I do not believe that improving the earning classes’ wage share can on its own solve this problem (indeed by itself it might do the opposite, as raising all ships could sink the environment).

    I understand that, for practical purposes, it is important to have people such as Carney to sell the merits of MMT-based policies to right-wingers and many people on the upper end of the income spectrum (indeed, I have no TECHNICAL disagreements with his argument). I suggest, however, that what is required is a two-step approach. In the first instance, MTT provides the way to restore prosperity, lower unemployment, raise GDP, rejuvenate the public purpose of government (all the good things MMTers point to). Doing so is a political pre-condition for the second step: artificially constraining GDP growth, while substituting public sector investment in positional public goods for private spending on positional private goods. I fear that even this might not be enough, but also suspect that only in the absence of artificial restraints on public sector spending can GHG reduction be achieved.

    Reply

  10. Ivan Says:

    I run a small business. At a hypothetical 35% tax rate, I pay 65% of all costs associated with a new hire or new non-capital expenditure. At a hypothetical 100% tax rate above some threshold, I pay none of the cost of anything. I go crazy buying new things for my business, I hire everyone I can, I travel at will (first class), I spend crazy amounts on dinners and hotels and leased company cars. Why? Because the government picks up the full tab. I very rarely hear those who talk about soaking the rich addressing the massive government subsidy to the rich that a higher tax rate might cause. Of course in the long run this will be highly inefficient and make America a weaker country but most involved in the argument don’t care about that. They only care about class warfare to win votes. Important point, however, for people like Krugman is that at high enough tax rates, the government stops collecting anything from rich business owners. Higher taxes on the rich can actually cause inflation as the rich would rather spend than pay taxes.

    Reply

  11. Jim Says:

    So why tax the rich? It seems to me that we have to tax the rich because excessive wealth provides a small elite with the financial power to control real resources and influence politics unduly in their interests, which are generally opposed to the interests of the majority of the population.

    This formulation seems to locate the crux of the matter in rich individuals. In fact, the gross distortions in our society and above all the environmental threats come from the power not of individuals so much as from vast and legally “personalized” corporate entities, some of which are richer and more powerful than entire countries and which have effectively amalgamated with government. It is not a Lloyd Blankfein or a Robert Rubin that is the problem, for they are only well-paid managers of their firms. It is the Goldman Sachs and JP Morgans and BP Petroleums that are the problem, and their modes of operation effectively and monstrously turn humans into their instrumentality. The problems go much deeper than is usually discussed: at the root of politics lies human purpose and meaningfulness. If it is shallow or even decadent, as it tends to be in modern societies, the consequences are inevitable.

    Reply

    Ivan Reply:

    There is a massive circular reference in our society and our economic structure. Large corporations are legally required to maximize returns for shareholders. Pension managers have a fiduciary responsibility to maximize returns for beneficiaries. Pension managers must sue a corporation that breaches its fiduciary responsibility to its shareholders or they will be sued. In order to maximize returns, companies must move offshore or fire the very employees who are the plan beneficiaries in order to increase productivity and reduce cost per unit of output. Various people, including Jim, demonize large corporations when society and regulators have put enormous pressure on company management to maximize short term profits and reportable quarterly income.

    Reply

    Rentier Fungicide Reply:

    @Jim, Contrary to what Jim says, Thomas Bergbusch’s formulation seems not to locate the crux of the matter in rich individuals, but rather in the rich as a class, or a set of classes. Rational behaviour by the rich taken together can have unfavourable outcomes for everyone else; Jim and Ivan are saying the same thing as he is: the only question is whether higher taxation of the rich (including the shareholders of large corporations) is an effective mechanism of constraining the excessive influence of that class, and of leading to better outcomes for society as a whole. I am inclined to think it will. For instance, would not higher taxation of dividends result in less financial speculation and more investment in the real capital and operations of firms?

    Reply

    Ivan Reply:

    Why has speculation become such a bad word? Every commercial hedger needs a speculator to take the other side of the trade. Without speculators, it’s nearly impossible to hedge.

    Reply

    Unforgiven Reply:

    @Ivan,

    We’ve seen that speculation using naked positions and leveraging can cause huge problems, at the very least driving up prices for those with a legitimate need to hedge.

    Ivan Reply:

    @Unforgiven

    Naked speculators on both sides of a trade is essentially a zero sum game net of bid ask. If I bet you $100 that oil prices will be higher three months from now and you bet lower, it doesn’t change the price of oil, the price to hedge, or aggregate wealth in our society. Problem comes when one of us can’t pay off on the bet. That’s just business risk, collateral management etc.

    Unforgiven Reply:

    @Ivan,

    I was talking about the price of the instrument itself, not the underlying commodity.

    If one can’t make good on his bet, not so much of a problem. If many can’t, that’s a problem.

  12. Jim Says:

    Re: Various people, including Jim, demonize large corporations when society and regulators have put enormous pressure on company management to maximize short term profits and reportable quarterly income.

    What you say is true, and what I wrote implied it, since we all know that corporations are obligated to their stockholders. I’m afraid that what you wrote simply underscores my point.

    The idea is not to demonize anything. The idea is to recognize the nature of something and situate it within a system of values and priorities that do not largely serve monetary and power interests. For example, the great worth of MMT is to help to understand the real nature and operations of our financial system. One could argue that MMT is trying to “demonize” it, when its primary interest is to comprehend it; later, one can conclude that the financial system is faulty in this or that way and in terms of given public purposes.

    I would say that in comprehending the current corporate system, we come to realize that our society is verging on the classical definition of fascism, and I might remind you that fifty years ago Eisenhower warned of this.

    Reply

    Unforgiven Reply:

    @Jim,

    I would be interested in this; perhaps an understanding of the currency would help straighten out with the corps too. We don’t want to step on the good ones, but then we need to be able to slap down the Enrons and Goldmans before they cause huge collateral damage.

    Too much mob mentality/politics applied to both. Still, understanding the currency would have greatly abated the recession and perhaps even given us time to properly bitchslap the offenders.

    Reply

    WARREN MOSLER Reply:

    presume no pun intended with ‘collateral damage’

    Reply

    WARREN MOSLER Reply:

    my proposals address the underlying incentives

    Reply

  13. Jim Says:

    The strategic game being played against the public

    While the concept of disrupting an opponent’s decision cycle is an old
    idea in military affairs, Boyd’s theory of operating inside an
    adversary’s decision cycle — or OODA loop — and its relationship to
    conflict is a bold new conception. His strategic aim was to isolate his adversary — physically, mentally, and morally — from his external
    environment by destroying his view of the world: his orientation. The
    key to appreciating the power of Boyd’s idea is to understand why the
    orientation function is the door through which a competitor can
    penetrate his opponent’s decision cycle.

    Each of us bases our decisions and actions on observations of the
    outside world that are filtered through mental models that orient us to the opportunities and threats posed by these observations…these mental models, which thephilosopher of science Thomas Kuhn called paradigms, shape and are shaped by the evolving relationship between the individual organism and its external environment.

    In conflict, each participant…must make decisions based on his orientation to reality — his appreciation of the external circumstances which he must act on. Boyd argued that one’s orientation to the external world changes and evolves, because it is
    formed by a continuous interaction between his observations of
    unfolding external circumstances and his interior orientation processes that make sense of these circumstances. These interior process take two forms activity: analysis (understanding the observations in the context of pre-existing patterns of knowledge) and synthesis (creating new patterns of knowledge when existing patterns do not permit the understanding needed to cope with novel circumstances).

    The synthetic side of the dialectic is crucially important to one’s
    orientation, because it is the process by which the individual (or
    group) evolves a new world view, if and when one is needed to cope
    with novel circumstances. But as Kuhn and others have shown, the
    synthetic process can be extremely painful, because its nature is to
    build a new paradigm by destroying the existing one. Boyd strove to
    use multiple, quick-changing destructive thrusts to isolate his adversary from reality by destroying his existing paradigm, and at the same time,deny his adversary the opportunity to synthesize a new
    paradigm. The combination of menacing pressure and an inability to
    cope with external circumstances cause the adversary to experience
    various combinations of uncertainty, doubt, confusion, self-deception,
    indecision, fear, panic, discouragement, and despair — which, in turn,
    overload his capacity to adapt or endure.

    ["Genghis John"
    Proceedings of the U. S. Naval Institute
    July 1997, pp. 42-47
    By Franklin C. Spinney] — A short biographical note on Col. John Boyd

    Reply

  14. plain jane Says:

    I just want people to be able to take their kids to doc when needed without fear of the ensuing unpayable bill. Too much to ask for richest, bossiest country on earth? Ridiculous.

    What is money but a record of favors granted and repaid? Surely we can all think of favors to do for our neighbors, and surely we can also forgive when we have over-extended ourselves in expectation of favors that can’t be repaid. Whole German thing reminds me of nothing so much as a martyred, over-extended mother-in-law: if you hate doing unpaid favors so much, simply, politely STOP! Maybe then people will begin to respect you again. It doesn’t have to descend into feuding.

    Mr Mosler: I have a question, totally unrelated to your very interesting article. If China sends the US Real Stuff in exchange for Pictures Of Dead White Men… WHY?

    Have they some endgame in mind, do you think? And what could it possibly be?

    Reply

    Unforgiven Reply:

    @plain jane,

    Please read “The 7 Deadly Innocent Frauds of Economic Policy” here on this website (the first page is blank, you have to scroll down):

    http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

    Then you’ll be able to answer these two questions (which will answer yours):

    1. What currency is Oil settled in?

    2. Why do the Chinese want to keep the Yuan low against the USD and how do they do it?

    Reply

    Hugo Heden Reply:

    @plain jane,

    I responded below (meant to reply here but screwed up)

    Reply

    WARREN MOSLER Reply:

    hi,
    check out my health care proposal on this website?

    china’s exporters have sufficient political power to get the govt to serve their narrow interests at the expense of the real standard of living for the rest of the economy

    Reply

    Djp Reply:

    @plain jane,

    Why do they want to collect lots of shiny yellow metal and bury it in vaults? They do that too, but people seem not to question it as much.

    I’m waiting for that gold plated aircraft carrier — now THAT’s what people should be worrying about (well, except for the gold plated part).

    Reply

    plain jane Reply:

    @Djp, ha! Well, that’s a pretty pointless activity too, yes.

    Reply

    Djp Reply:

    @plain jane,

    Exactly.

    But why are people more worried about China collecting dollars, than they are about China collecting gold?

    I think once you realize you’re not worried about the gold, you should probably feel even less worried about the dollars.
    :)

  15. Hugo Heden Says:

    Right, according to the general principles as discussed in 7DIF, China is acting sub-optimally (read “they are stupid”). But there may be special reasons to maintain a trade surplus after all.

    In the case of China, there may be various other political reasons. Low wages and exports is strategy to maintain full employment. Yes, it’s a pointless strategy in the long run. But it may be a necessary short term strategy, as full employment helps keep the nation politically stable (until internal markets and aggregate demand builds up sufficiently..?)

    And I read somewhere the Asian Crisis taught the Asian nations a hard lesson: It’s best to accumulate huge amounts of dollars for next time. I’m not sure exactly why! Anybody else? Didn’t Wray write about this somewhere?

    In many cases though, the strategy to maintain a trade surplus is probably just mistaken, as is indicated in 7DIF. The idea may be a relic from the times of the gold standard when it was more rational.

    Reply

    Hugo Heden Reply:

    @Hugo Heden,

    This was intended as a response to @plain jane above

    Reply

    WARREN MOSLER Reply:

    agreed! there are far better ways to not allow unemployment!

    Reply

    Adam (ak) Reply:

    @WARREN MOSLER,

    But there are a few better ways to remove the global influence of the United States of America than running persistent trade surpluses, damaging the productive capacities of the American industry and getting China Inc into every single product’s supply chain. Then you can always pick up a red phone and call your lobbyists at Capitol Hill to deliver austerity further damaging the economy in the US – or threaten that their profits will suffer.

    Reunifying Taiwan is well worth these few trillion dollars otherwise wasted on shipping cargo to the US below the costs. Getting the US off Central and South-East Asia is worth even more. This is their future zone of influence, to be shared only with Russia.

    http://www.guardian.co.uk/world/2011/nov/28/china-pakistan-nato-border-attack

    If nothing changes in the US is just a matter of time – maybe 10 or 20 years, maybe even less. Sophisticated offensive weapons did not save the Soviet union when the economy crumbled.

    We must not reduce global politics to bean counting.

    Reply

    plain jane Reply:

    @Hugo Heden, Are they even trying to build up a consumer economy, though? Mind you I do not fear that my grandchildren will be paying the Chinese with their firstborns or anything like that– it’s just one of those things that is hard to fathom. All those hours of factory labor at pitiful wages, all that pollution, you’d think every countryside laborer would be managing his love-life on a smartphone by now. Instead they ship it all overseas? And nobody over there goes “Hey! Where’s our cut?!”

    Mr Mosler, thanks, I think that might make sense, even if it is sad and unjust.

    I also like the Mosler healthcare proposal.

    As to the rich, I don’t care much about them one way or another. (Bless their hearts.) ;)

    I DO care about whether or not the people in my neighborhood have decent employment and can take care of the basics in life without going into debt or having to ask for (always condescending!) handouts.

    Reply

    Unforgiven Reply:

    @plain jane,

    There’s a lot of confusion out there about economics and the Chinese are having to deal with ill-informed advisors much like the rest of the world.

    Seems like the best step we can take right now is to learn how our currency works and ask our politicians why they keep on talking about US bankruptcy, austerity, etc.

    Reply

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