Your proposals under the current monetary economics are indeed quite clever. Sadly however, we will never fully be free as a people so long as the U.S. pays a premium for it’s very own currency through the Federal Reserve banking system, as long as our government is corrupt and for as long as we wage war for profit!
In truth, I believe we have in our midst the spawning of a new era wherein we finally realize that our current socio-economic foundation no longer serves us…it never really did! We must shift our thinking towards a completely new structure that supports all life on this planet and not just the privileged few at the expense of others.
Our current structure is inherently corrupt and as I stated earlier, we can never be free under it nor can it be “fixed”. “Problems cannot be solved by the same level of thinking that created them”.
The Zeitgeist Movement is one such organization, albeit in its infancy, that proposes radically different ideas, ideals and would create a world where “pure science” could lead us all towards a global society where everyone’s basic needs are met.
I invite you to open your heart and mind, to explore the ideas and concepts proposed therein:
My guess is Obama is modeling after the Clinton years 9They have a lot of the same people)
Large deficits in the beginning(blame them on Bush)
Gets reelected on platform of cutting deficit -fiscal responsibility
Raises taxes in year 5, cuts spending due to more Republicans in congress
Economy continues to grow then collapses just after he leaves office and blames the new guy
I must quote the comment above because it is so appropriate, “Your proposals under the current monetary economics are indeed quite clever. Sadly however, we will never fully be free as a people so long as the U.S. pays a premium for it’s very own currency through the Federal Reserve banking system”
It’s a complicated subject in many ways but I will try to distill my questions to their essence. Do you support abloshing the Federal Reserve? If not, could you please explain briefly why it is better to allow a private banking cartel to issue our currency at interest than to print it ourselves at no interest to anyone (as the constitution clearly says we must)?
My local newspaper, published every Tuesday and Friday, prints every letter to the editor it receives, unedited even for grammar, spelling and punctuation, but only up to 300 words, and only once per week per author.
Would it be possible to package some MMT principles in 300-word bites for publication in papers like mine? I would try, but I think it would be more effective coming from the likes of Warren, or Randall.
Not a really wide audience, but a grass-roots start. Once created, these short epistles could be collected on a web site and used by others in their own local papers. And they do have longer guest op-eds, too.
Well, no comments on my last post here, so I claim plagiarism rights as necessary. Here’s a draft of my first installment. Comments, corrections, suggestions welcome. It’s 288 words. In particular, I would like for Warren or someone else knowlegable to validate the statement in the 6th paragraph:
Our politicians seem all to be ignorant of some basic economics.
If the world is divided into government (the US Federal variety) and non-government, then if one of them saves money ($US) the other must dissave it. In other terms, if one has a “surplus” in its budget, the other must have an equal “deficit”. There is no other place where savings can go or come from, because these two categories encompass the entire universe.
The US Federal Government is the monopoly producer of dollars. There is no other place that the dollars saved by non-government can come from. Government produces dollars by spending, and destroys them by taxing. Net production is a budget deficit, and net destruction is a budget surplus.
Non-government can be divided into two sectors, domestic and foreign. When the domestic non-government sector saves money, we call it “private savings”. When the foreign sector saves $US, it is called the Trade Deficit. The way the foreign sector gets $US to save is by selling more goods and services to us than they buy from us.
We have a trade deficit because the foreign sector wants to save $US (by buying T-Bills), just like we do. If they didn’t want to save $US, they could buy US goods and services, or exchange their $US for other currencies. They don’t. They prefer to save $US.
Since we do have a trade deficit, and we do have net private savings, it is a mathematical certainty, not a policy option, that (if the economy is in equilibrium) we must also have a Federal Budget deficit, and it must be equal to the sum of the other two surpluses.
I’ve been meaning to ask this for a while, amd now the flat yield curve discussion is my chance.
Occasionally, the Fed engineers an inverted yield curve, driving short term rates above longer rates. They did it in 2006, and before that in the late 1990′s. Every time they do it, a recesion follows.
This is widely believed to be a causal relationship. How does MMT view the effects of the inverted yield curve?
Second letter to the editor, for your review and comment (292 words):
In my last letter I explained why we have a Federal Budget deficit, and why we MUST have one, if the economy is to be in equilibrium.
Equilibrium is when all production is just barely consumed. If there is any stuff left over, producers will reduce production to clear the market. That means laying off workers. If the stuff is all gone, and people are still looking to buy it, then producers will hire more workers and produce more stuff.
Equilibrium is not a very good goal for us right now. Unemployment is very high, and growth is too low. We need to advance, not to stay the same. The way to advance is for somebody to buy more stuff, and then producers will hire more people. Economists call that “increasing aggregate demand”.
Government can influence the economy by spending more (or taxing less, and then consumers will have more to spend) to make it grow, or by spending less (or taxing more) to reduce its growth rate, or even make it shrink (i.e., recession). The policy question is always whether the deficit is too big, too small, or just about right.
(It matters what kind of spending government does. Some things are more effective than others, and some can be harmful to certain individuals, but any spending helps the economy, even if it is not the spending we would prefer.)
So, today, is the deficit too big, too small, or just right? If you like the current unemployment rate and growth rate, then it’s just right. But, if you want higher growth and lower unemployment, the way to do that is with a bigger deficit, not a smaller one.
No mention here of your economic program for Italy, Warren.
I’m not sure the italian program you signed really reflects your ideas and not just Paolo Barnard’s ones. Did you read it (in english translation of course)?
Do you know that this ME-MMT program says:
1) The state must eliminate the financial sector (???)
2) There will be no devaluation at all of lira vs euro, on the contrary lira may revalue vs euro (??)
3) The state will force the rich to invest and to spend in the way it is more suitable for the public interest (!)
4) There will be higher taxes than today (!) on luxury items and the rich people will be stimulated to spend on ordinary items (!)
5) The state will discourage savings (!)
I really didn’t know you for being such a socialist and totalitarian economist, so i suppose there could have been a few misapprehension between Paolo and you. I was wondering if you could be so kind to tell us if you know of every portion of the ME-MMT program for Italian salvation you signed, or if the final version is mainly Paolo’s own work (or the other 2 minor economists I do not know). In case you do know, then I would like to know if you would live here in Italy should the country apply 100% of this program (so that you should change your activities I suppose…).
(didn’t find the “reply” bottom on your last comment so I write mine here)
In the greek exit strategy you told “Freedom to transact is the source of that substantial contribution to real wealth”, and I thought that your program for Italy would have been aimed to freedom from taxes slavery that are now applied to all workers and entrepreneurs (up to 65% of income!), but I see no speak about freedom, just constraints in the name of the public purpose (and since I read all Ayn Rand’s romances when I see too many references to public purpose I feel distrustful.
This gap between your “freedom to transact” and the program “public purpose contraintes is probably because of the statalistic view of your co-author and his demonization of everything involved with “finance” (and I can also understand his reasons). But I believe that individual freedom comes first than the public purpose, until it doesn’t involve unlawful things of course. I may be wrong but the financial sector that is eliminated in Paolo’s view is not just treasury bonds, otherwise why it is told: “since the government has taken away the speculative financial sector the rich will only have 2 investment options: either they invest in ORDINARY items or they invest in productive activities”? Why do I have to buy ordinary items and not Mosler cars? Because it is in the public purpose! And what about my freedom? Because in the public purpose I may think it is proper to close night clubs, casinos, tobacconists, financial markets, liquor stores, etc. but I prefer to leave the choices to the individual freedom not to the government!
If you had the chance to read the whole translation of the program maybe you too would find that it has got a socialistic/totalitarian tone in many parts. And for this reason there is not any hope it could be welcome by any political forces but the extreme left. This is what I got hurt by. Then of course there are other thoughts about inflation and devaluation that I simply don’t buy, but that’s not a problem, if you believe lira will be the next swiss franc it’s ok, you are just wrong.
On the contrary I will work, together with Giovanni, at a program “MMT-inspired” ways more simple, that any political party member could share, and then let’s hope we find one who does.
One more curiosity: do you also think greek dracma will appreciate vs euro like the lira? I want to look Giovanni Zibordi’s face when I told him you think so :-)
if you increase the gov deficit from 2% to 7% of GDP you get 80 billions euros in Italy right ?
If the transition to the lira creates an artificial demand of liras to pay taxes this will not last. Business expect the lira to go down and need a lira at 90 cents to the dollar, 30% lower. We import 460 billions a year of stuff and export the same, have a reputation of weak currency and if we use the exit from the euro to spend another 5% of gdp in public programs the Forex will SHORT LIRA. If we exit the euro together with Greece, Portugal and Greece and we use the exit from the Euro to increase public spending by 80 billions will go down A LOT. Because everybody that has some business or capital will be scared, nobody trusts the gov to spend another bunch of money, bringing public expenditure to 57% of GDP and keeping taxation at 60-65% of income for a business will not incourage business people, unless the Lira devalues a lot and this gives inflation. How can you think that an “argentinian-style” policy of big deficits and big gov programs will push up the lira ? We had a weak lira, big deficits and big gov programs all through the ’70s and ’80s. We had MMT in Italy ! And it works with a weak lira..it has already been done.
1)A Job Guarantess program means that politician will have another 80 billions to manage on top of the 800 billions they already have of public expenditure. The money will be wasted, we did a thing like that for 30 years in Southern Italy, we had MMT-like-job-programs in the South between 1970 and 1990, to give jobs at any cost to people… at the time there was no costrain on the Treasury because it was financed directly by the Bank of Italy…It has already been done!… and on a grand scale, the result was more employment, yes, but enormous waste and little to show for after 30 years
2) in Italy a small company, that is not able to “triangulate” among jurisdiction like Luxottica or Benetton (95% of Italian companies), pays above 60% in total taxes, state and local and a self employed, programmer, artisan, restaturant, hotel, small shop etc.. pays around 65% in total taxation. Why should I work and invest here ? You pay 4% !!
A study that just came out shows that Italy has taxes 9 PERCENTAGE POINTS above the OCSE average.
As you know S&P 500 companies have an effective tax rate around 23% and koreans, singapore, taiwan, hong kong, malesia, russian… companies pay even less. Everybody I know is giving up, only banks and multinationals survive this kind of taxation (and we have no more tax evasion to speak of because we have the elaborate system of tax documentation compliance in the world, everything is measured, in the USA a small restaurant can avoid reporting cash payments not in Italy, I filed taxes in America and in Italy and in NY or LA I can avoid some, here I can’t
MMT in Italy should be used to cut taxes, cut taxes, cut taxes. Also on payrolls, because you pay 100,000 euros and the employee get to keep 40,000 euros… WE HAVE TO CUT TAXES BY AT LEAST 80 BILLIONS euros, 1/2 on companies and 1/2 on payrolls, better 100 billions euros
The MMT program that Paolo Barnard put together does not even mentions in 30 pages cutting taxes! The fact that the gov will hire a bunch of people will help sales, sure, but Italian companies need to breath first. The Italian MMT program looks like a Chavez-like gov expansions that Southern politicians around here will just love, because they will have a bunch of money to distribute. You have to realize that we already had this policy, but at the time taxes were lower and there was some escape with tax evasion. If we do the same, but keeping taxes as they are will be a mess
Italy lost 1 million jobs since 2007 and is about 3 millions jobs short of full employment so a JGB has to hire at least 2 millions people at minimum wage of around 30k euros per person (total employers cost) which comes to at least 60 billions for 2 millions jobs, and 90 billions if you want real full employment. GDP is 1.6 trillions so a 5% GDP budget deficit increase will be 80 billions. So if you do the JGB where is the money to cut taxes ?
But the point is that a 5% GDP budget deficit increase in a country that already has a very high gov expenditures and 60 to 65% taxation on business that all goes into more gov expendtures is crazy. You live in America where companies are profitabile, here they are not! why don’t you propose the US companies pay a 60 to 65% total tax rate ?
Nobody trust the gov to hire 2 or 3 millions people. It has already been done and even the politicians said it was not good to let them create job. Italy has a history, only with lower taxation and gov expenditure we did OK, what you propose is exactly what was done in the ’70s and ’80s, but now with much higher taxation. And on top we have already have terrible regulations, everything you want to do is costrained, you cannot restructure a room in your own house without a permit, to set up a gymn takes a year or two only to get a permission and you propose a program to regulate more. We do not have multinationals that produce only in China and a huge military, health care, university and financial sector (and prison sector) like the USA. Italy ha small companies that export tools and machines in niche markets. If we let them go bust what do we do ? start a system of private hugely expensive health care, military, prisons and education like the US to create jobs financed by the Bank of Italy ?
Why should we let the politicians hire 2 millions people instead of bringing down taxation to the OCSE average ? And we do need to export 450 billions to 500 billions a year, never in its history Italy was able to have permanent trade deficits, even with a weak lira. Except for Australia, UK and US there are no countries that can afford permanent trade deficits.
We will not be able to sell a lot of Italian financial assets abroad if you hire 2 millions people in government programs and keep taxation at these levels. There is monetary theory and there is reality
I am really interested as to what MMT’ers think on this issue and correct me if Im wrong. You propose a payroll tax holiday as stimulus which has a similar effect as increasing monetary stimulus but I see this proposal as imbalanced because not everyone receives stimulus including retirees, students the disabled and unemployed. Also if the people are directly involved in monetary policy with the central bank the system will become more democratic and participatory and remove some of the responsibility from the executive government making governing easier.