An MMT Fiscal Responsibility Narrative: Some Truths After A Second Crowd Sourcing Revision

By Joe Firestone

Many MMT posts and other writings on fiscal responsibility, including my own, focus on the myths of neoliberalism, pointing out why they are myths and developing an alternative MMT perspective in some detail. Off  hand, and I may have forgotten something, I couldn’t think of a brief positive MMT narrative related to fiscal responsibility containing primarily the truths, rather than the myths.

So, here’s my version, revised, a second time, after calling for and receiving comments from readers at New Economic Perspectives, Correntewire, FireDogLake, DailyKos, and ourfuture.org, a second time. Thanks to Tadit Anderson, Mitch Shapiro, Devin Smith, Dan Kervick, Nihat, James M., MRW, Marvin Sussman, joebhed, Clonal Antibody, Calgacus, Ed Seedhouse, JonF, Lyle, Thornton Parker, Sean, Golfer1john, Rodger Malcolm Mitchell, econobuzz, Charles Yaker, Lambert Strether, maltheopia, Ian S., Tyler Healy, PG, for contributing significantly to the critical evaluation of the earlier versions.

More comments, criticisms, recasting in more effective form, are all welcome. But this will be my last round of crowd-sourced revision. I hope all readers will feel free to use this version as they think is best to spread the MMT message about fiscal responsibility. To boil that message down: fiscal responsibility is about the impact of fiscal policy on people; it’s not about the old time religion of its impact on a supposedly limited supply of gold standard-based money.

The Narrative

The first four points in the narrative offer some conclusions

– Austerity requiring budget surpluses cannot work in the United States economy, because surpluses, defined as tax revenue exceeding spending, destroy money in the private sector. Unless these financial assets are replaced through revenues acquired by running a trade surplus; the continuous loss of financial assets by the private sector is unsustainable, eventually leading to credit bubbles, recession or depression, and the return of deficit spending. It is mathematically IMPOSSIBLE for the USA to simultaneously run a government surplus, have a trade deficit and increase aggregate private sector wealth! (h/t  Ian S.)

– It is fiscally irresponsible to frame and follow a long – term deficit reduction plan (limited austerity) when both a trade deficit and an output gap exists, because by definition, such a plan is one that must remove more money from the economy than would otherwise be the case every year the plan is pursued. Eventually, if pursued for long enough, a declining rate of addition to financial assets will exacerbate the output gap by lowering aggregate demand and causing both labor and capital to deteriorate, thus reducing the productive capacity of the economy, and the Government’s ability to sustain greater levels of deficit spending producing outputs of real social value without triggering inflation.

– REAL fiscal responsibility is a pattern of fiscal policy intended to achieve public purposes (such as full employment, price stability, a first class educational system, Medicare for All, etc.), while also maintaining or increasing fiscal sustainability, viewed as the extent to which patterns of Government spending do not undermine the capability of the Government to continue to spend to achieve its public purposes.

– REAL fiscally responsible policy, if it works generally as expected, creates greater real benefits than real costs for people! It has nothing to do with conforming to some standard simple measure like an acceptable debt-to-GDP ratio that has only a questionable theoretical connection to the actual well-being of people. It is political malpractice to give greater priority to that kind of abstraction than to full employment, price stability, a strong social safety net, and Government programs that will help us solve the many outstanding problems of our nation. Let’s put an end to the domination of Washington by that kind of malpractice. Let’s put an end to the current misguided fiscally irresponsible campaign to promote a “Grand Bargain” that is sure to do nothing but destroy more private sector money and jobs than would be the case if we either did nothing or increased the deficit and created a full employment budget.

– Social Security has no solvency or “running out of money” problems. The SS crisis is a phoney one. No solution to this “fiscal crisis,” bipartisan or partisan, is needed. What is needed is a solution to the political problem of getting SS’s funding guaranteed in perpetuity  by Congress, just the way it guarantees funding for Medicare Parts B and D.

– The same applies to the so-called Medicare crisis. It too is phoney, and can be solved easily by Congress guaranteeing funding in perpetuity to Medicare Parts A and C.

– More generally, there is no entitlement funding crisis in the United States, except a political crisis where US politicians are determined to ignore their constituents and cut back on an already inadequate safety net either because they believe in, or want others to believe in false ideas about fiscal responsibility and nature of the Government as a giant household.

And the rest of it provides the reasoning underlying them.

– The US Government can’t involuntarily run out of its own fiat money (USD), since it has the constitutional authority to create it without limit. Congress constrains and regulates this ability. But its existence is still a stubborn fact!

– Greece and Ireland are users of the Euro, not issuers of it. So, their supply is always limited and that’s why they can run out of Euros. The US is the issuer of Dollars; so it’s supply of dollars is limited only by its desire to create them, and its ability to mark up private accounts, and that’s why it can’t become Greece, Ireland, or any other Eurozone nation.

– In addition to taxing and borrowing money, the Government (including the combined activities of the Congress, the Treasury, and the Federal Reserve) has an unlimited capacity to create it. When it taxes and borrows, the Government removes money from the private sector, and destroys it. When it creates money, it adds it to the private sector. A deficit is the net amount of money creation minus the amount of destruction due to taxation. A surplus is the net amount of money destruction minus the amount of creation due to Government spending. (h/t Golfer1john)

– Since this is the case, it’s clear that present proposals to reduce the deficit by an average of $400 Billion/year over the next 10 years are sure to remove money or Treasury securities (assuming deficit spending is accompanied by issuing debt) from the private sector that otherwise would have been created there in the absence of deficit reduction.

– The Government of the United States offers the functional equivalent of interest-bearing savings accounts to investors, usually wealthy individuals, large corporations, and foreign nations. The savings accounts are usually called US Treasury securities, and the sum of their face values is called the debt-subject-to-the-limit; or more colloquially, the national debt, even though comparable savings accounts in banks, are for some reason, not called bank debt. (h/t PG)

– The Treasury can keep accepting deposits (“borrowing money”) and issuing securities if we want it to. There’s no limit on this Government “credit card,” just as there is no limit to the deposits a bank can accept, except the one imposed arbitrarily by Congress in the form of the amount of debt-subject-to-the-limit, otherwise known as the debt ceiling. So, if the US does run out of money, due to a failure to raise the debt ceiling between now and March 31, 2013, it will clearly be the fault of the Congress for refusing to grant further authority to the Treasury to elicit and accept further deposits, also known as refusing to raise the debt ceiling!

– Even though it may seem that foreign nations can place a limit on “the credit card” by refusing to buy Treasury securities at auction, foreign nations holding dollars basically have a choice between continuing to hold them and earning no income, or earning interest on them  by buying securities. So, as long as other nations are exporting to the US and accepting dollars as payment; those dollars are likely to be invested in the interest-bearing “savings accounts” known as Treasury securities.

– Bond markets don’t control US interest rates; the Federal Reserve Bank does by exercising its authority to meet its target interest rates. Bond vigilantes have no power against the Fed. If they fight against its interest rate targets by trying to bid them up; then they will “die” in the flood of reserves the Fed can unleash to drive the interest rates down to its chosen target. The Fed can’t control the money supply. But it does control the price of it with its interest rate targeting.

– The bond markets will buy US debt as long as we keep issuing it; but if one insists on considering the hypothetical case where the markets won’t, the US would still not be forced into insolvency; because the Government can always create the money needed to meet all US obligations.

– The US is obligated by the 14th Amendment to pay all its debts as they come due. Nevertheless, our national debt cannot be a burden on our grandchildren; unless they wish to make it so by stupidly taxing more than they spend. This is true because, assuming the debt ceiling is raised when needed, or repealed, we have an unlimited credit card to incur new debt at interest rates of our choosing. So, we can “roll over” our national debt indefinitely. Or, alternatively, we can create all the money we need to pay off the debt-subject-to-the-limit, without ever incurring any more debt. One way to do this is through Proof Platinum Coin Seigniorage (PPCS). A second way is through subordinating the Fed to Treasury and then using the Fed’s ability to create money out of thin air to pay back all debt instruments (“savings account balance”) when they fall due. The first way is legal now. The second is constitutional, but would require politically unlikely action by Congress to authorize it.

– A fiscal policy that measures its success or failure in reducing deficits, rather than by its impacts on public purpose, is fiscally irresponsible and unsustainable. The deficit is a meaningless measure because the US Government has no limits on its authority to create/spend money other than self-imposed ones, so neither the level of the national debt, nor the debt-to-GDP ratio can affect the Government’s capacity to spend Congressional Appropriations at all.  Also, a deficit/debt oriented fiscal policy ignores real outcomes relating to employment, price stability, economic growth, environmental impact, crime rates, etc. which actually can affect fiscal sustainability by strengthening or weakening the underlying economy, and, with it the legitimacy of the Government and its fiat currency. In short, responsible fiscal policy is not about its impact on Government debt. It’s about its impact on people!

– The Federal Government is not like a household! Households can’t make their own currency and require that people use that currency to pay taxes! So, their supply of dollars is always limited; while the Government’s supply is a matter of its decisions alone.

– However large the Federal Debt becomes, it cannot be a “crushing burden” on our Government, because Federal spending is virtually costless to the Government, if it wants it to be.

Conclusion

Current claims that we have a fiscal crisis, must debate the debt, must fix the debt, and must immediately embark on a long-term deficit reduction program to bring the debt-to-GDP ratio under control, all misconceive the fiscal situation, and smack of a campaign to create hysteria among the public. They are based on the idea that fiscal responsibility is about developing a plan to bring the debt-to-GDP ratio “under control,” when it is really about using Government spending to achieve outputs that fulfill “public purpose.” There is no fiscal crisis that will require “a Grand Bargain” including cuts to popular discretionary spending and entitlement programs. It is a phoney crisis!.

The only real crises is one of a failing economy and growing economic inequality in which only the needs of the few are served, and also one of lack of political desire or will to solve these real problems. MMT policies can help to bring an end to the first economic crisis; but not if progressives, and others continue to believe in false ideas about fiscal sustainability and responsibility, and the similarity of their Government to a household. To begin to solve our problems, we need to reject the neoliberal narrative and embrace the MMT narrative about the meaning of fiscal responsibility. That will lead us to the political action we need to solve the political crisis and eventually toward fiscal policies that achieve public purpose and away from policies that prolong economic stagnation and the ravages of austerity.

48 Responses to An MMT Fiscal Responsibility Narrative: Some Truths After A Second Crowd Sourcing Revision

  1. So what we have is a free ride. We can spend all we want with no consequences. It’s like there was “eugene money” that everyone accepts for everything. If I run short, I simply print more. It’s a bottomless pit. An endless supply of money. Why do we bother with a budget at all? Why don’t we just print however much we need each year? I understand the bit about creating to loan and destroy when the loan is paid off. Seems to me the hidden problem is when people say something like we don’t want “eugene money” anymore which a whole lot of countries are starting to do. I can only assume these other countries “don’t get it”. I’ve lived a long time and there aren’t any free rides especially when the “free rider” says the real problem is people just don’t understand me. Think I’ll spend some time studying this.

    If I understand this correctly, any sovereign nation can just create whatever they need. The problem with Greece is they accepted the Euro which they can’t just print. Based on this theory there should never be a money problem again. Everyone just prints whatever they need and we all sail happily along. It’s a perpetual motion machine. Cynical old me, I figure there’s a bit more to the tale.

    • Eugene, when you say “We can spend all we want with no consequences.” you demonstrate not even a basic understanding of MMT. MMT does not say we can spend all we want with no consequences.

      Do your homework before your criticize.

    • and there aren’t any free rides eugene12

      The “rides” are already paid for – with the American population’s own stolen purchasing power that they were forced to borrow back with interest. The options when a government priviledged counterfieter is lending (typically during the boom) are borrow or be priced out of the market by those who do borrow. Thus the deficit spending is not a free ride but a means to recover stolen properthy.

    • Typical straw man.

      So much better to have banks loan money for a house that already exists and dump that into circulation isn’t it? Lets rent our money from banks?

  2. Unless these financial assets are replaced through revenues acquired by running a trade surplus; Joe Firestone

    But eventually the foreigners would run out of dollars too (in the case of the US) unless that abomination called the Fed created new ones and sold them to foreigners in exchange for foreign fiat which might well be newly created too.

  3. Eugene12

    Internally people have to keep accepting $US because it is the only currency they can pay taxes in. Other countries could certainly refuse them but as long as they want to buy US exports or there is another country which will trade them something for $US they will continue to accept them. The price (exchange rate) might change though.

    Unlimited government money might look like a free lunch but it’s not. The key is that spending is limited by real resources and labour. So the government can always buy anything available for sale in $US. If it tries to buy more than can be supplied (and supply will try to expand to meet demand) then the price for that thing will go up and may result in inflation. With unemployment so high the government could print money and hire people with no risk of inflation and if they did useful work it would expand the economy as well as those workers having money to spend and support other business.

    MMT reveals the truth that money is not things. The economy is limited by real resources and capacity not by dollars.

    • Good one, Daniel. Can you elaborate just a little on ” if they did useful work”? I wonder what is the problem if they do nothing? Bc if there is no consequence, why not just give all the unemployed a salary? And if you do that, include me in the scheme. I suppose this begs the question. If enough people are paid for not doing productive work, like retirees, will that result in inflation? And what is the limit or is it an unknown? I think the biggest problem with all of this is inflation. People generally will not accept the idea of printing money without some good idea about the impact on inflation. The first part of your post is good. But that sentence begs the question. Maybe just don’t say it or find better work around.

      • Giving the unemployed money is good in that it means less people starving on your streets. It also means those people have money to buy goods and services and thus keep others employed. Paying people to do useless work is no better than this and in some ways worse as it wastes effort which could be better employed in training or progress towards employment or invention or starting a business etc. Even leisure is a better application of time in my opinion than digging holes and filling them in. However it is important that paid work be more attractive than unemployment so wages should be higher than whatever the unemployed receive. less of a problem with the retired or sick.
        Paying people to do useful work is even better because they add to the economy with their increased purchasing power AND contribute something as well. So we have more real goods and or services available to buy.

    • “Unlimited government money might look like a free lunch but it’s not. The key is that spending is limited by real resources and labour. So the government can always buy anything available for sale in $US. ”

      Here is a problem I see. You are basically suggesting that elected officials decide what to do with all those resources and unused labor. 20th century history is filled with tragedy resulting from this method of resource distribution. I am especially skeptical of granting the power to determine what do with all those resources in a country where we have representatives on the science committee who think women can’t get pregnant from rape, people who think the Bible is literal historical fact, and politicians who are only interested in getting kickbacks to their constituent representatives, to secure the population numbers in their congressional districts.

      Another problem is that you say we can buy “anything available for sale in $US”, but were are in an interdependent global economy where there are wars being fought for control of real natural resources. Many of the products we use rely on rare earth minerals, hard -to-obtain resources, or human capital in the form of technical expertise that are best pooled from the global economy. You stated that other countries will demand US$ because they want US exports, but then contradict that with the fact that we have a huge trade deficit. There is less demand for US exports, so why would countries sell their mineral resources to obtain US$? China has sold their massive pool of labor to us, essentially, in exchange for US$, but we don’t have much to offer in return, so they just convert it to bonds and it sits there scaring Americans.

      How is the US able to get its hands on resources from around the world then? Naked military aggression! Basically, this whole plan will only lead to more US imperialism and violent wars to extract resources. You’re right, that money isn’t tied to real things, but if the goal is full employment, then I am betting our oh so wise and compassionate government of hillbilly racist rednecks and bible-thumping apocalyptic whack-jobs will buy “labor” in the form of using poor people as cannon fodder to rape and pillage other poor people around the world. And the march of European white hegemony continues.

      • For most of the 20th century the world was limited by gold standard currency which limited government spending to taxes and borrowing.
        But certainly government planning can and often does go wrong.

        The revelation from MMT is regarding the Cost for government to do things being availability of things not money. That doesn’t mean they should appropriate every available resource not used by the private sector, just that they can. Ideally government should only buy resources that it actually wants to use. Gold unused will just sit happily in the ground and wait, government should be concerned about waste there, but perishable goods and labour do go to waste and finding uses for them is a good thing in most cases.

        The problem you highlight with elected officials is not an economic one but one of representation. Outside the scope of MMT. Different problem with different solutions.

        At the moment government is told that it “can’t afford” to employ people or help the homeless or the sick. MMT highlights and disproves that lie. In the current system %5 unemployment is considered necessary to maintain low inflation, left to the market people starve. A pure market only approach is not working, a mixed private/public economy (like most countries currently have) is needed.
        Certainly mass conscription is an option but a wasteful and foolish one. Historically governments have used institutions like the post office to soak extra labour. Right now many areas of government are running extreemly poorly due to a lack of labour or funds. Simply properly funding existing programes and government projects would take up a lot of the slack without having to find any new activities at all.

        Yes, the US has a huge trade deficit, partially because of the $US status as a reserve currency increasing demand and partially because of Dutch disease eroding much of the national production causing a switch to imports. This will eventually cause prices for foreign goods. Which should make local goods more competitive and revive local industry.

        Global scarce resources is quite a different problem again rather outside the scope of MMT. Also they are a really tiny proportion of imports and resources generally. Ultimatly there are three ways of getting things, trade or force or just do without (find some other way to do it). Trade is currently working quite nicely and is likely to continue to do so. Once trade stops working relations shift towards force and war. Hard to know how that will go.
        As for imperialism, the USA is being far outstripped in it’s efforts by Wall Street. Wall Street and a few large banks/wealthy individuals are taking over other countries economies with debt and the resulting dependency. Look at Greece, they are being told to punish their population and sell their assets, utilities, resources to pay foreign creditors. Previously this could only be done following an invasion.

        I would strongly recommend reading lots of Michael Hudson on the sort of global issues you raise. He covers it very well, far better than I can.

  4. There is no such thing as a free lunch. Not true.

    This is a useful guide for spotting loony theories and pyramid schemes or frauds. But it also turns out to be false. There IS a free lunch but those on the receiving end would really rather we believed their lunch was earned.

    Money received from exercising a privilege is unearned income, this used to be called Rent; the most common unearned income being the Aristocracy’s land rents. This also includes increased prices from Monopolies or Cartels.

    Most of the income of the top 1% is from Rent of one form or another. They have a huge free lunch and like to pretend otherwise.

    • What are property taxes if not “unearned rent”? And how does the confiscator of those taxes deserve them any more than the rentier?

      • But aren’t we effectively buying infrastructure with those taxes? It would then seem to be earned rent.

        • No, Federal taxes don’t pay for anything. Newly created money does. What we’re buying with those taxes is 1) the value of the currency; 2) deflationary impact; and 3) at least some leveling which is necessary for a democratic society. So, yes, they’re not unearned rent!

      • Land is not a product of humanity like goods or services, there can be no original owner of land no individual can have more claim to it than another. When you buy land what you are really buying is a right to exclusive use of that land and you are buying it from everyone.
        If private ownership of land is permitted then land rents are inevitable and any rent not collected as taxes will go to landlords.
        Taxes levied by government are essentially removed from the system the money doesn’t go anywhere it is essentially destroyed. Thus no one gains advantage from that rent and the holder of the land must continue to make payments in exchange for the privilege of exclusion.

        Failure to tax the entire site rent of land is in effect the creation of privilege and theft from everyone else.

        Improvements and buildings are another matter. These are the product of labour and industry and tax on them is the same as tax on anything else. Usual arguments for and against taxation apply.

        • Improvements, yes. I have a…suburban…concept in mind. Taxes pay for the improvements and services that make the typical suburban house accessible, powered, clean, and protected.

          Of course, that’s why cities like to annex neighboring areas.

      • What are property taxes if not “unearned rent”?
        Yes, property taxes are rent. So they’re a particularly good way for the government to impose taxation, to drive the demand for its currency – which can then be thought of as rental coupons if you will. So if this is the only tax, then these rental coupons become the money of the government’s economy, and markets for commodities and services will arise using them. Markets are a government intervention.

        And how does the confiscator of those taxes deserve them any more than the rentier? Well, the “confiscator”, the government, is the sovereign. He owns the property. The rentier / property owner who is enfeoffed by him is just renting from the government/sovereign – as evinced by the property taxes themselves. You can’t get allodial title to anything, pretty much anywhere, no matter how many armed knights you have following you.

        Note of course that the sovereign, the government, the ultimate landlord doesn’t need any of his coupons – he just shreds them when he gets them back. He demands them back solely to make the coupons desirable, solely so that he can get real, valuable stuff, like JG labor, from the governed, when he issues the coupons in the first place. Money issuance is the real taxation, the real emburdening. He knows that everyone has to live somewhere, so there will always be a demand for his rental coupons.

        • Sovereignty is not a fact. It is a concept which men in certain circumstances have applied–a quality they have attributed or a claim they have counterposed–to the political power which they or other men were exercising.

          F.H. Hinsley, Sovereignty.Cambridge, Cambridge University Press, 1986. pg. 1.

      • Because the “confiscator” is representative of others around them. You know the ones creating the wealth?

      • Oh yeah one more thing. Its the government that enforces your title to property called a deed. Can you explain to me how you can claim property, especially absentee ownership without the government enforcing it. So you ask what right does the entity that enforces your right to property have to tax you? Please…..

    • Agreed.

      The so called marginal revolution, which happens to be a transactional point of view, asserts that labor does not create value. Well then if value increases without a direct link to labor how is that not a free lunch? It implies income without labor. Private property is a state granted monopoly. Point out what they take as a given.

  5. You do not include any mention of the affect of interest payments on the debt. This is a significant issue to many people. Remember the compaign add that depicted the Chinese in the future owning the USA. My take is that it is just a Government transfer payment to holders of treasury bonds. If foreigners hold the bonds, it just increases balance of payments deficit, increases the money supply and stimulates the economy. I am certain that you or your followers can explain this more clearly in detail.

  6. Reducing the ‘deficit’ does not take out money of the economy or savings_as_a_stock of the private sector because the deficit is a flow. Should the ‘deficit’ grow, stay constant or diminish? Is it too low, OK, or too high?

    That ‘net government spending’ – often deceptively called ‘budget deficit’ – is too low can be diagnosed from
    - unemployment of the no available jobs type
    - fall of GDP per person
    - generalized fall of income
    - increased or above normal insolvencies

    It must be taken in account that net government spending is distributed so its efficiency and impact in reverting the above symptoms depends on the distribution chosen.

  7. Much mo’ bettah. ;-)

    SOME QUIBBLES:
    ———————————————-
    YOU WROTE:
    except the one imposed arbitrarily by Congress in the form of the amount of debt-subject-to-the-limit, otherwise known as the debt ceiling.

    ADD:
    except the one imposed arbitrarily by Congress in the form of the amount of debt-subject-to-the-limit, otherwise known as the debt ceiling, a relic imposed during the gold-standard years that served as a belt and suspenders on our gold supply to keep it from leaving the country, and which Congress neglected to remove in 1934.
    ———————————————-
    YOU WROTE IN ONE PARAGRAPH:
    the debt-subject-to-the-limit; or more colloquially, the national debt

    THEN THIS IN THE NEXT PARAGRAPH…you need to clear it up these two usages with a parenthetical explanation:
    the amount of debt-subject-to-the-limit, otherwise known as the debt ceiling.
    ———————————————-
    YOU WROTE:
    the fault of the Congress for refusing to grant further authority to the Treasury to elicit and accept further deposits, also known as refusing to raise the debt ceiling!

    ADD:
    “the fault of the Congress for abdicating its constitutional duty to pay the bills that came due, and for refusing to grant authority to the Treasury to elicit and accept further deposits, also known as refusing to raise the debt ceiling!”
    ———————————————-
    YOU WROTE:
    Even though it may seem that foreign nations can place a limit on “the credit card” by refusing to buy Treasury securities at auction

    ADD:
    Even though deficit hawks make it seem as if foreign nations can place a limit on the “credit card” by refusing to buy Treasury securities at auction
    ———————————————-
    YOU WROTE:
    The US is obligated by the 14th Amendment to pay all its debts as they come due. Nevertheless, our national debt cannot be a burden on our grandchildren; unless they wish to make it so by stupidly taxing more than they spend.

    REMOVE AND ADD:
    The US is obligated by the 14th Amendment to pay all its debts as they come due. Our national debt cannot be a burden on our grandchildren, unless Congress wishes to make it so by stupidly taxing more than it spends.
    ———————————————-
    YOU WROTE:
    One way to do this is through Proof Platinum Coin Seigniorage (PPCS)

    ADD:
    One way to do this is through Proof Platinum Coin Seigniorage (PPCS); create a single $20, $30, or $60 trillion coin.
    ———————————————-
    YOU WROTE:
    A fiscal policy, that measures its success or failure in reducing deficits

    ADD:
    A fiscal policy (Congress’ responsibility) that measures its success or failure in reducing deficits
    ———————————————-
    YOU WROTE:
    because Federal spending is virtually costless to the Government,

    ADD:
    because Federal spending is virtually costless to the Government, and you and me,
    ———————————————-
    YOU WROTE:
    all misconceive the fiscal situation, and smack of a campaign to create hysteria among the public.

    REMOVE AND ADD:
    misconceive the fiscal situation, and smack of a campaign to create needless hysteria in the public.
    ———————————————-
    YOU WROTE:
    They are based on the idea that fiscal responsibility is about developing a plan to bring the debt-to-GDP ratio “under control,”

    ADD:
    These current fiscal claims are based on the idea that fiscal responsibility is about developing a plan to bring the debt-to-GDP ratio “under control.”
    ———————————————-
    YOU WROTE:
    when it is really about using Government spending to achieve outputs that fulfill “public purpose.”

    CHANGE:
    The truth is Government spending achieves outputs (sales, jobs, income) that fulfill “public purpose.”
    ———————————————-
    YOU WROTE:
    will require “a Grand Bargain” including cuts to popular discretionary spending and entitlement programs.

    CHANGE:
    will require a “Grand Bargain” that includes cuts to popular discretionary spending and entitlement programs.
    ———————————————-
    YOU WROTE:
    The only real crises is one of a failing economy and growing economic inequality in which only the needs of the few are served, and also one of lack of political desire or will to solve these real problems.

    CHANGE:
    The only real crises is one of a failing economy and growing economic inequality in which only the needs of the few are served through a lack of political desire or will to solve these real problems.
    ———————————————-
    YOU WROTE:
    and the similarity of their Government to a household.

    CHANGE:
    and claim falsely that the Federal Government acts like a household.
    ———————————————-
    YOU WROTE:
    fiscal policies that achieve public purpose and away from policies that prolong economic stagnation and the ravages of austerity.

    CHANGE:
    fiscal policies that will achieve public purpose, and stop the policies that prolong economic stagnation and may produce the ravages of austerity.
    ———————————————-

    • Thanks MRW, I’m not going to blog any further revisions beyond this one for now. But I encourage everyone to begin with this version. Introduce the changes they’d like to see and then use that new version themselves.

      This is no reflection on the comments this time which are both excellent and useful; but I have to stop somewhere and get back to blogging on “fiscal cliff,” deficit, and debt issues, since we’re all in a fight right now. So, this is the place I’ll choose to stop, at least temporarily. But anyone who wants to go further certain should!

  8. No real negatives, though depending on the intended audience, a shorter version might be handy. Contrary to brevity certainly, I have rarely seen anyone including SNAP/”Food Stamps” as an existing fiat currency also the extension of the public purpose. Along with this fact the decision to reduce or “budget” SNAP benefits is purely a political decision. This may become the 2×4 that may reach particularly people already being effected by the theo-classical economics and deficit terrorism sock puppet show now plaguing communities near you

  9. Peter Vanderwaart

    I think this piece needs explicit comments on inflation. Without it, it reads like a license to print money without limit. A lot of us old-timers lived though long periods of high inflation, so it remains a real concern to us.

    The analysis also lacks a time dimension. Economists, like weathermen, are better on what will happen than on when it will happen.

    • A way to preclude damage to the private sector with government money creation is to allow genuinely private monies for private debts only. That way, if government overspent relative to taxation then only government and its payees would suffer loss of purchasing power.

      The concept of coexisting government and private money supplies is implied in Matthew 22:16-22 (“Render to Caesar …”).

      • F. Beard,

        “A way to preclude damage to the private sector with government money creation is to allow genuinely private monies for private debts only.”

        Then you have zero idea how a fiat currency works for the benefit of 300 million people. It’s flown over your head. You sound like Ayn Rand in 1979 who was crowing for the ‘separation of the state and its economy’. She failed colossally to understand what happened on August 15, 1971.

        • I am totally for a 100% fiat currency but it should be legal tender for government debts only*. However, people would still be free to use fiat for private debts too. And since fiat is the only means to extinguish tax liabilities, it has an enormous advantage over private currencies since they would be acceptable for private debts only. So a reasonably well managed fiat currency should not be threatened by genuine private currencies.

          As for Ayn Rand, she advocated a government enforced gold standard. That’s not at all ‘separation of the state and its economy.’ Instead, it is government priviledge for a scarce, easily cornered metal for the sake of gold owners, gold miners and especially usurers.

          *After a universal bailout of the population with full legal tender fiat so as to force the banks to accept it.

      • I think this is likely to have many unpredictable and uncontrollable impacts on the economy, society, and politics and would only accelerate the tendency toward oligarchy. There must not be any change to the basic fiat money system we have now, because it provides the fiscal space we need to get through business cycles. The change I’d like to see is relocating the Fed under the Treasury Department so that the power to freely create money directly is restored to Treasury. What I mean by this is placing the Board of Governors under Treasury, and nationalizing the Fed Regional Banks, while placing them within Treasury.

        I’d also like to see public banks in each State as in North Dakota, to give the States more fiscal flexibility during business cycles. And I’d like to also prohibit any participation in the derivatives market by US banks, with very strict regulation of new financial instruments by criminologists without financial ties to the FIRE sector.

        • There must not be any change to the basic fiat money system we have now, because it provides the fiscal space we need to get through business cycles. Joe Firestone

          It is usury that is the cause of the business cycle since the debt eventually compounds faster than real economic growth. It is therefor important that usury-free private money forms such as common stock be encouraged or at least not be penalized as the capital gains tax does.

          As for state banks, credit creation is inherently discriminatory since it dilutes the purchasing power of the less “credit-worthy” (typically the poor) for the sake of the more “credit-worthy” (typically not poor).

      • I disagree with your Biblical interpretation. In the preceding verses, it is clear that the enemies of Jesus were trying to trick him into telling people not to pay their taxes–a criminal offense. Instead, Jesus asked them “whose image is on the coin?” They replied “Caesar’s.” Jesus then said “render unto Caesar the things which are Caesar’s and unto God the things which are God’s.” Since the physical coin was created by Caesar, it is his. To render tribute to God requires a superior coinage, as it were, a spiritual one. Jesus said: ‘But the hour cometh, and now is, when the true worshippers shall worship the Father in spirit and in truth: for the Father seeketh such to worship him. God is a Spirit: and they that worship him must worship him in spirit and in truth.’ (John 4:23-24) …

        I don’t think Jesus was talking about a private, physical monetary system to compete with Caesar’s.

    • I’m an old timer, and I don’t recall a historically high inflation here, in the post-WWII period, and even if you consider the inflation of the Carter period “high” which I don’t by historical standards, that still wasn’t an inflation caused by Government spending.

      It was a cost-push inflation caused initially by the oil cartel, and then sustained and exacerbated by Paul Volcker who used the ham-handed blunt tool of monetary policy to try to break the inflation; which proved very resistant to his attempts and only drove the inflation cycle higher until finally the de-regulation of natural gas, coupled with the extremely high cost of interest, and accumulating oil supplies, finally drove demand down.

      You know that old saying: “We’re knee deep in the big muddy, and the big fool says to go on!”? It applied even more to Volcker than it did to Johnson in the Vietnam War.

      • Peter Vanderwaart

        Yes, I call 20% prime rates “high.”

        But my point is not the economic one of the right thing to do, it’s the pedagogic one of anticipating the readers questions. The essay is not convincing if the reader is left wondering about inflation and what the upper limits on money creation are.

        • Peter the upper limits of money creation should be determined by the actual goods and services available in the real economy. At the moment the US economy is probably operating at barely 70% of its capacity so any talk of government austerity is madness. Even if we reach what some may characterize as “full” capacity I have some difficulty with the proposition that there is some “limit” to the work that can or needs to be done.

  10. Joe, you can get around any length complaints by adding more subheads that telegraph the point that’s coming. Use humor or sarcasm in those. In the old days, the WSJ did it to great effect. It would have smart-alecky titles to lure you into reading something heavy and initially too boring to trudge through. But the snappy head and subhead would give you a barroom perspective that would pique your interest.

    You can also do it this way, which works well on a screen. Scroll down.
    http://www.nytimes.com/2012/11/08/technology/personaltech/how-to-devise-passwords-that-drive-hackers-away.html

  11. Looking forward to you finishing this thing so I can send it around to people as an attachment to my email signature before Thanksgiving. Thanksgiving dinner would be a good time for families to discuss this.

  12. Joe,
    Agree. Much improved.
    Can you use my email to let me contact you off-screen? Please.
    Now on the PPCS option.
    Only to mention this.
    It is coin seigniorage.
    It is an ‘other financing’ source of income to the government.
    It is money.
    It is not debt.
    By definition.
    Therefrom, money is not debt.
    And real progress can be made.
    Thanks.
    For the Money System Common.

  13. An encomium for your efforts which bring some clarity to a dismal subject.

    About the only improvement I see is to incorporate your MMT into a broader M^3 (Modern Monetary Management) or MMTM (Modern Monetary Theory Management) in which the function and dynamics of money are defined and described as a superstructure designed to facilitate the economic process. In this manner, it is possible to incorporate government taxes and savings policy into a coherent whole coupled with the historically unique position of the dollar as the world’s reserve currency and the demands that position makes upon monetary policy, a view that is seldom mentioned in economic discourse. [Both m^3 (Modern Monetary Management) and MMTM (Modern Monetary Theory Management) are used here as hypothetical subjects and, as in the movies, not related to any existing entity, living or dead]. Of course, this would necessitate constructing a coherent core of what economics and economic process is which could be a fine thing to clarify the dismal science and remove some of the mal-conceptions existing in the public discourses – carpe idiom, carpe diem.

  14. “It is mathematically IMPOSSIBLE for the USA to simultaneously run a government surplus, have a trade deficit and increase aggregate private sector wealth! (h/t Ian S.)”

    Not strictly correct. It is only correct if you replace ‘aggregate private sector wealth’ with ‘net financial assets (MMT meaning)’ or, better, ‘private sector surplus (sectoral balances meaning)’.

    During the Clinton years, the USA ran a government surplus, had a trade deficit and had large private sector credit and debt growth which made the first two possible without killing GDP growth. Australia similarly.

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