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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.

Archive for January 28th, 2013

from Karim: January looks ok so far

Posted by WARREN MOSLER on 28th January 2013

Agreed with Karim. So far no signs of actual damage from the FICA hike. Even bonds now indicating same.

The problem is personal- it’s hard for me to fathom FICA going up that much without some meaningful damage to GDP.

So I remain on the sidelines pending more Jan data.

ICSC 3% Retail Sales Growth Maintained for January, Fiscal Year (ICSC) January sales growth is tracking above ICSC’s 3% estimate for the month, even with a slight moderation of yoy sales growth as the month has progressed. All Super Bowl shopping will fall in January this year, so sales should gain momentum as the month closes. January U.S. store traffic growth continued to slow in the third week of the month, rising 3.1%, as stores transition from post-holiday clearance to more everyday merchandise. Traffic at enclosed malls remained unchanged yoy and apparel stores declined by low-single digits for the first time since the lull in early December. The 12% month-to-date traffic gain stems from large increases in early January. U.S. same store sales excluding Wal-Mart rose 2.7 percent in Dec. from a year earlier.

ICSC index drops every January but this year higher than last, as Karim indicated.

January auto sales seen continuing 2012′s strong pace (Reuters) Auto sales in January are expected to continue the torrid pace set at the end of last year, with sales rising as much as 15 percent. J.D. Power and LMC Automotive, in a joint press release, said they expect U.S. retail sales in January to reach the highest rate in five years. Including fleet sales to commercial customers, the research firms expect an annual sales rate for the month of 15 million vehicles. That would follow the strong showings in November and December, when the rate topped 15 million. “The year is off to a fast start, which bodes well for the remainder of 2013,” J.D. Power Senior Vice President John Humphrey said.


Strongest manufacturing expansion since March 2011 (Markit) The Markit Flash U.S. Manufacturing PMI rose to 56.1 in January from 54.0 in December. The output index rose to 57.2 from 54.5, the new orders index rose to 57.7 from 54.7, the new export orders index fell to 51.3 from 52.6, and the backlog of orders index fell to 49.5 from 50.3. Manufacturers reported a further rise in production levels during January. Companies attributed faster output growth to an increase in new orders. Overall incoming new work rose at the fastest rate since May 2010, largely reflecting higher demand in the domestic market. New export orders continued to increase, up for the third month running, albeit at a slower rate than in December. Asia was mentioned by survey respondents as a key source of new business.

Posted in Economic Releases | No Comments »

Email exchange on balanced budget multiplier

Posted by WARREN MOSLER on 28th January 2013

>   
>   (email exchange)
>   
>   Hi Warren, I’m a bit confused over one point. MEMMT says that only govt deficits (or an
>   external sector like foreign) can inject NFAs into nongovt. So if govt runs a balanced
>   budget over the years the NFAs left to nongovt will net to 0.
>   

Yes.

>   
>   Now take Keynes’ consumption function and the multiplier. Govt invests 100$ into Mr A in
>   nongovt. Mr A will spend on average 75% of that, and will save the rest.
>   

Yes.

>   
>   The next guy will spend 75% of the $ he got from A and save, and so on along an ever
>   dwindling series of consumption expenditures that will add to say 300$, ie the multiplier
>   effect.
>   

Ok. This presumes there is unemployment/unmet savings desires. And the additional 100$ of nfa will have resulted in higher levels of employment that produced the 300$ of incremental output.

>   
>   So, say that govt runs a balance budget, ie spends 1 billion and will tax 1 billion, however
>   the multiplier effect will have created in the aggregate a lot more $ out of the original
>   govt injection of 1 billion.
>   

If it all reduces savings desires unemployment will fall and output will rise. The presumption is that the 1 billion tax cuts spending by less than 1 billion, while the spending is the full 1 billion. That is, savings desires fell as those who were taxed spent from savings (or borrowed to spend, same thing).

And just as the initial govt spending is spent and respent as you describe, the tax also cuts spending which further cuts spending etc.

The presumption of the idea that an equal spending and tax will lower unemployment must be based on one of two things.

First, somehow those taxed simply reduce their savings and their savings desires. This is certainly possible.

The second is first illustrated at the extreme.

As govt employment grows the number of people left in the private sector falls, and we don’t measure unemployment as a % of the private sector work force. So if half the workforce in Italy is in the public sector, and unemployment is 10%, that means unemployment is some 20% of the available private sector labor.

So if, for example, govt employment was 90% of the labor force, it would be impossible for reported unemployment to be over 10%.

With 100% public employees there is 0 unemployment as defined.

I discussed this back in 2008 and I need to repeat it in a post thanks!

>   
>   And here is where I lose it. Will this mean that even in a balance budget regime in reality
>   govt is never able to tax as many FAs as the multiplier will have created in nongovt before
>   taxation is due? Is this disproving MEMMT and prove instead that a balance budget can
>   still create NFAs for nongovt? Thx P.
>   

Not at all.

ME MMT fully explains the workings of the condition described.

;)

Added link to Bill Mitchell’s dissertation on the subject here.

Posted in Employment, Government Spending | No Comments »

Monti Proposes More Than EU13.5 Billion in New Tax Breaks, Cuts

Posted by WARREN MOSLER on 28th January 2013

The headline is promising but the details don’t read at all well.

Italy needs aggregate demand/spending/sales/ouput/employment. Cutting corporate taxes does precious little of that, especially over 5 years beginning 2014. And tax cuts ‘paid for’ by spending cuts tend to reduce demand overall as well, as does fighting tax evasion. And there’s nothing he can do about bond yields.

And I doubt his opposition is offering anything better.

As the gag stated, the food was bad and the portions were small.

Monti Proposes More Than EU13.5 Billion in New Tax Breaks, Cuts

January 27 (Bloomberg) — Italian Prime Minister Mario Monti said that he plans tax breaks and reductions worth more than EU13b if hes elected to a second term in February. Monti spoke in an interview on La7 Television. Monti proposes cutting corporate taxes after 2014;Monti sees EU11.5b reduction in corporate taxes over 5-yr period; Monti says he plans tax breaks for first-home owners, families with children worth EU2b; Monti says he will revamp IMU property tax from this year; Monti says he will try to cut income tax rates after 2014; Tax cuts can be paid for through cutting spending, fightingtax evasion and keeping bond yields down.

Posted in Government Spending | No Comments »