Issuers vs Users of a Currency
Posted by WARREN MOSLER on May 23rd, 2012
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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: Taxes function to regulate aggregate demand, and not to raise revenue per se.
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The funds to pay taxes and buy government securities come from government spending.
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May 23rd, 2012 at 12:32 pm
Warren — I think it would help people understand your position better if you made the connection between our desire to have a functioning government, and that a functioning government “costs money,” and therefore we are willing to honor US currency, and government spending. The points in a football game is a good analogy, but you can’t spend those points elsewhere, so it is a little too dissimilar to currency to work as an analogy for some people.
You don’t want people to start thinking… “so you’re saying everything is a sham?”
You want people to say “Yes. I’d like a government to protect my freedom. Why thank you for this paper money. I will go overseas and fight.” Or “I will build a federal courthouse” Or “I will use my Law Degree to be a judge for the courthouse.” Or “I will use my car knowledge to fix this judge’s car, because I want the Judge to continue to honor the paper money because I, too, love this country and believe in contributing a portion of my labor towards a functioning government.
See where I’m going with this?
Also, in theory, you could tax 100% through inflation. If people never paid taxes, and no money was ever “thrown in the paper shredder” … the supply of money would keep going up, as government has ongoing costs to function, and would continue “printing money” (I know you don’t like that term). We could just do like a reverse stock split with our currency every once in awhile, shave off two zeroes every 25 years or something. We’d still have a target inflation rate, but it’d be much much higher.
Of course that would be disastrous because other countries who use our currency wouldn’t want to be taxed through inflation, but if there was only one country in the world, say.
So maybe you’ll want to take a different approach, but you need to remind everybody that government is a good thing, government takes human labor to run, and the reason people honor the paper money is because the people WANT government in one form or another, and are willing to work towards that end.
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jcmccutcheon Reply:
May 23rd, 2012 at 1:34 pm
@Colin, Read Warren’s book, The 7 deadly innocent frauds of economic policy. Its free.
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Brian Reply:
May 23rd, 2012 at 3:12 pm
@Colin
Taxes create demand for the currency and government spending creates supply. You could not “tax 100% through inflation” as there would be no demand for the currency and nobody would be willing to accept it as payment from the government.
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Beshiva Reply:
May 23rd, 2012 at 10:38 pm
@Brian, It is a good point about the government. Three decades of blaming the government for all our troubles has led to a general distrust of, and distaste for, government at all levels. The OCCUPY movement has many well-intended members who think returning to the gold standard is the solution. I believe MMT supporters need to directly attack the inflation paper tiger as much as possible. It is the inflation scare that has everyone running from MMT.
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WARREN MOSLER Reply:
May 24th, 2012 at 1:50 am
ok. didn’t realize everyone was running from mmt? feels like the opposite?
and interesting how japan trying as hard as they possibly can to inflate for going on 20 years and the US going on 5 years, with both failing hasn’t led most to believe there’s a lot more to what causes inflation than they think.
note how very few agreed with me when i suggested fed policy was deflationary and most still don’t.
jason m Reply:
May 24th, 2012 at 3:37 pm
@Beshiva, who’s running away??
WARREN MOSLER Reply:
May 23rd, 2012 at 6:21 pm
have a read of my 7dif book free online and let me know what you think thanks
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binve Reply:
May 23rd, 2012 at 7:09 pm
@WARREN MOSLER,
Warren,
I had an idea after I read 7DIF awhile ago, but forgot to pose to you. I will pose it now:
What do you think about making an audio book version of 7DIF?
Personally, I think it would be great if you did the narration (I always like your interviews and you conversational way of speaking), but it could easily be done by someone else given your busy schedule.
I think it would be yet another accessible format to get your message across.
Just food for your thought.
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WARREN MOSLER Reply:
May 24th, 2012 at 1:42 am
good idea!
Tschäff Reisberg Reply:
May 24th, 2012 at 6:58 am
@binve, I second that request. I can try to get it hosted on librivox a place with a few of the classics on audio (Thorstein Veblen, Adam Smith, John Locke).
WARREN MOSLER Reply:
May 24th, 2012 at 6:20 pm
Volunteers? :)
LetsGetItDone Reply:
May 24th, 2012 at 12:13 pm
@binve, How about a video book, Warren. That would be even better!
WARREN MOSLER Reply:
May 24th, 2012 at 6:35 pm
You do it?
Colin Reply:
May 23rd, 2012 at 10:39 pm
@WARREN MOSLER, Yea I did. The concepts could be better explained. The score-keeper doesn’t run out of points? So… where do I spend my football touchdown points to get goods and services? Why should anybody give goods or services in exchange for paper issued by a government? …because…we…want…a…functioning…government.
But then again I didn’t read the hard copy. I read a microsoft word document and not the final draft. Maybe it’s in there.
-Colin
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WARREN MOSLER Reply:
May 24th, 2012 at 1:51 am
yes.
note too (for the most part) you can’t buy points for your football team with dollars- you have to play that game to get those points.
Colin Reply:
May 24th, 2012 at 4:39 am
@Colin, So playing football, physical exertion, would be the human resources that go into the work necessary to form and maintain a government, generally thought of as a good thing.
I accept your apology.
LetsGetItDone Reply:
May 24th, 2012 at 12:20 pm
@Colin, Analogies always break down somewhere; that’s why they’re analogies rather than rigorous models. Where the analogy holds is well is in relation to the idea that just like the scorekeeper who never runs out of points in a game; the Government never runs out of points in a competitive economy.
As far as why we accept the currency in return for goods and services; that’s because the government stands at the top of the hierarchy of physical coercion, and it insists that we accept it in payment of all debts public and private.
WARREN MOSLER Reply:
May 24th, 2012 at 6:37 pm
Government doesn’t insist that
only says dollars are needed to pay taxes
:)
ESM Reply:
May 24th, 2012 at 12:51 pm
@Colin,
@LetsGetItDone:
“that’s because the government … insists that we accept it in payment of all debts public and private.”
This statement is misleading at best. More likely it’s just false. If I lend somebody Euros, is the US government going to insist that I accept dollars in lieu of payment in Euros?
In fact, for debts issued after October 27, 1977, even gold clauses are valid.
The currency is made valuable by taxes. The legal tender language is economically inconsequential. I think it only assures that paper currency and coins are fungible with bank deposits.
JK Reply:
May 26th, 2012 at 6:44 pm
@WARREN MOSLER, The transcript would need to be heavily edited if someone other than Warren narrated because of the first person anecdotes. But I love the idea. I’d certainly pass it along for people to listen to on their drive from work instead of hate-talk radio :)
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May 23rd, 2012 at 3:15 pm
Excellent video. Just wish there was better sound for Warren.
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JK Reply:
May 23rd, 2012 at 4:48 pm
@Abram Larson,
There is better sound on the original videos. You can find them on youtube.
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May 23rd, 2012 at 3:53 pm
@Alexander, You can hate the game but don’t hate the player. Especially when that player is one of the few willing to explain the game to you and will do it for free.
I would also suggest truth about the game is pretty valuable to society.
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May 23rd, 2012 at 5:23 pm
Hi Warren and everyone
This is out of subject but I just found that petition on change.org and I though it’d be great if you started a counter-petition, explaining everything.
It could be a great channel for MMT and a good way to stop these horrible scrooges from destroying a hundred years of social progress. Thanks ;-)
http://www.change.org/petitions/tell-the-presidential-candidates-debate-the-debt
This is from this group:
http://debatethedebt.org/
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Unforgiven Reply:
May 24th, 2012 at 10:51 am
@aliena,
Great idea, Aliena!
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May 23rd, 2012 at 6:17 pm
“If the addicted debt users do not pay then the US military kills them in a drive by.
Another name for the pushers are “career criminals”.
The Rothbardian cult strikes again.
When are you guys going to get taken up in the big flying saucer to your libertarian paradise in the sky?
The sooner the better.
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May 24th, 2012 at 6:38 am
Good job Warren. Nicely put together too.
Keep this up and I might have to buy a teeshirt.
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WARREN MOSLER Reply:
May 24th, 2012 at 6:19 pm
Thanks!
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May 24th, 2012 at 9:01 am
Impressions from a non financial guy:
Pros: Clips of Nixon, Bernake and Greenspan to support your point and add credibility.
Cons: Meaning of the phrase, “The federal government doesn’t have money, it doesn’t not have money.” Isn’t very clear. It needs explanation.
Overall great job. We’re behind you!
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WARREN MOSLER Reply:
May 24th, 2012 at 6:26 pm
Much appreciated!
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Brian Reply:
May 24th, 2012 at 6:55 pm
@WARREN MOSLER
Since we’re making suggestions, on the Italy video when asked why you’re giving talks you said that when you see someone drowning you help them. A better analogy might be, when you see someone drowning in four feet of water you yell at them to stand up.
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chris Reply:
May 25th, 2012 at 9:49 am
@Brian, That’s some good material Warren can use!
MamMoTh Reply:
May 24th, 2012 at 6:37 pm
@chris,
as already mentioned, the sound when Warren speaks sucks, which is probably only a problem to those of us who are not native speakers.
i don’t know how hard it is, but it would be probably a good idea to add subtitles even in English, as there are much more people able to read it than to understand spoken English.
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May 24th, 2012 at 9:13 am
One question:
Is it in paradigm to describe the effects of additional currency into our economy as too little will lead to deflation, too much will lead to inflation? We must steer the ship based on economic indicators such as unemployment numbers?
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jason m Reply:
May 24th, 2012 at 3:40 pm
@chris, yep
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WARREN MOSLER Reply:
May 24th, 2012 at 6:31 pm
Yes, steer based on real objectives
And how you add subtract matters!
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May 24th, 2012 at 11:14 am
@Chris, prices are sticky so too little spending does not necessarily lead to deflation. Nor is all inflation caused by too much spending in the US, since we live in a global economy and are impacted by demand for copper in China, the Russian wheat harvest, and how much the Sauds want for oil, etc.
Too much spending when the economy is running near full capacity would cause demand-pull inflation, but when is the last time the economy was running near full capacity ? WWII ?
@Colin, we give goods and services in exchange for pieces of paper issued by government because we need those pieces of paper to pay taxes. If we get a functioning government out of the deal, that’s icing on the cake.
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chris Reply:
May 25th, 2012 at 10:14 am
T@Dan Lynch, The way a guy like me sorts out global involvement in our economy is to consider other countries as players who choose to participate in our domestic economy and vice-versa. MMT principles remain unchanged. It seems one should understand the domestic economy before moving on to the global economy. Do those of you in the know agree???
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May 24th, 2012 at 11:59 am
Warren
Given all the talk on Eurobonds ..lets assume they go for it ..but without the ECB guarantee(so continued ponzi) …how do you think it will play out in the markets ?
i am getting the sense the majority think it will be positive so the initial reaction could also be +ve ..
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WARREN MOSLER Reply:
May 24th, 2012 at 6:34 pm
I think one way or another they all now get funded?
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May 24th, 2012 at 7:49 pm
I like the “The federal government doesn’t ever “have” or “not have” any dollars” in explaining to newcomers. Once you accept this concept and understand the govt is a scorekeeper, it comes quite easily. Saying that, it is not an easy concept to accept for most.
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