Fueled by Deficit Hysteria, Obama and the Republicans Are Choosing the Path of “Economicide”

By Michael Hoexter

In the “fiscal cliff” negotiations and the subsequent debt limit talks between Obama and the Republican leadership of the House of Representatives, it appears that there will be no “good guys” because the talks and policy framework within which they are operating are at odds with the welfare of the American people.  Set up by a series of interactions over the last four years between Obama and his nominal opponents in the Republican Party, the framework of the negotiations ignores the way that the US government finances itself as well as the only known economic policy orientation which will allow our economy to thrive; the proposed policies and negotiations have been to date economically illiterate.  The biggest losers in these talks if they “succeed” according to the self-evaluations of the Republican and Democratic leaderships will be the American people and politically the Democrats who go along with a framework that demands cuts in federal budget deficits at all costs. 

The 2011 Budget Control Act, initiated by the Republican controlled House, is one of the most foolish pieces of legislation ever passed into law by Congress, as it forces the government to attempt to “balance” its budget and reduce the budget deficit.  National government budget deficits, which are the net contribution of government spending to economic growth, are actually integral to economic growth, contrary to the anti-scientific conventional budget lore upon which deficit hysteria has been built.  Without government budget deficits, the economies of nations with trade deficits CANNOT accumulate net financial wealth  due a matter of simple arithmetic; those few nations (China, Germany, not the US) with large trade surpluses MIGHT be able to accumulate net financial wealth without a budget deficit but always with the cooperation of other nations financing those surpluses through trade and, in most cases, government budget deficits on the side of the net-importing nation.

A fiat currency-issuing national government, unlike a local government, business or a household, does not depend upon tax or other income and therefore is not and should not pretend to be bound by conventional balance sheet accounting, which was perhaps a more applicable, though not particularly successful, means of national government accounting during the gold standard era. The reasons for transitioning away from the gold-standard, the rigidities which it imposed on aggregate demand and the money supply, have been suppressed from public discourse in an era in which deficit hysterics like those at “Fix the Debt” hold honored seats at the policymaking and policy advocacy tables.  These deficit hysterics, funded by Wall Street tycoons freelancing as economic pundits, would like Washington insiders and the media to believe that the gold-standard never went away, specifically for the purpose of cutting social programs that stand in the way of Wall Street’s expansion into new markets.

I have recently proposed that we rename the so-called budget deficits specifically of currency-issuing governments, the government’s “net contribution to monetary/economic growth” so that the confusion no longer persists that these so-called deficits are by their nature “bad” and to be avoided.  The fiat currency issuer can never run out of its own money, can never be in “deficit” in it; “net contribution” is a better formal description of the excess of spending over taxes for specifically a fiat currency-issuing government.  The government spending over taxes collected becomes the incremental increase in the money supply for the real economy as it grows in real terms, underneath the pro-cyclical expansion and contraction of money available from bank credit (i.e. expands in a boom and collapses in a bust).  Too much price inflation is a possibility with too much government spending over-and-above taxes collected but demand-led inflation in our current situation would be a “high quality problem” indicating that we have reached full capacity in our economy, which is not nearly the case.  Right now we have a very large output gap as well as high demand for government-led expenditures on things like infrastructure, public services and education, making increased government expenditures very unlikely to cause inflation.

The foolishness of the 2011 Budget Control Act has been compounded by its timing:  attempts to balance budgets during an economic boom can sometimes have lesser yet often negative effects but during a period of economic weakness, during a debt-deflation, budget balancing and deficit reduction efforts (reducing the government’s contribution to economic growth) can have dire effects.

Despite the fact that cutting government spending and vital government programs will in the medium term not serve either Party well politically, elements of the Democratic and most of the Republican Party are trying to commit this “economicide” together now.  Why are they so foolish?  While getting elected is important to politicians, in between elections, the electorate tends to be ignored and politicians have as a primary constituency and funder the now extremely wealthy and politically cosseted financial services industry.  The FIRE sector with its political emissaries in organizations like Third Way and “Fix the Debt”, is desperately trying to throw up enough dust to escape re-regulation and downsizing, as happened during the last debt-deflation, the Great Depression of the 1930’s.  So far, no leader in one of the major finance centers has stood up as did Franklin Roosevelt almost 80 years ago to diminish their power.  Even worse, in the historical place and time where a 21st Century FDR should have stood, President Obama has been, despite the appearance of a rift with Wall Street, a true believer in rescuing the financial services industry as it is now constituted.  Good opportunists that they are, the financial services industry’s proxies are attempting via whipping up public debt hysteria to use this crisis to expand their markets:  downsizing or eliminating the risk-free government provision of retirement and health insurance would open the market for the FIRE sector’s riskier and less secure products that will cost us all more while delivering less.

This is also fundamentally a fight about the nature of our economic system, the nature of money and the source of money, in which government leaders play a critical role.

The Myth of Market Self-Regulation

Not too long ago, it was considered to be a middle-of-the-road political position to suggest that capitalism needed to be saved from itself.   Government’s economic role was seen in the post-Depression era largely as the stabilizer of an economy that would otherwise run off the rails as it had in the 1920’s.   Many businesspeople and the citizenry at large accepted this compromise between government and market dynamics, an acceptance of the fact of a mixed economy that had existed in various forms since the inception of complex economies in the ancient world.

During the 1950’ and 1960’s, when Keynesianism was viewed as the economic policy norm, there emerged groupings of dissenting economic philosophers led by Friedrich von Hayek and Milton Friedman, that came to be called neoliberals, who suggested to leaders that in the name of “liberty” they should rid economies of regulation and let “the free market” do its work.  In part inspired by neoliberals, in the 1970’s and 80’s,a series of “innovations” in neoclassical economic theory posited that in fact capitalism is a self-regulating system (efficient markets hypothesis, real business cycle theory, etc.) and that markets are the fundamental institution in society.  An accompanying counter-theory of government based on neoclassical economics’ Homo Oeconomicus (public choice theory) portrayed government officials as simply self-interested market participants and not potential representatives of some common interest.  These political and economic theories in turn boosted the self-regard of many businesspeople to delusional levels who were told by academics, politicians and the media that they in fact were the paragon of economic virtue and could do without government’s role in the economy.

Our current set of political leaders almost to a man or woman now operate within the narrowed assumptions of the market fundamentalist/neoliberal picture of the functioning of the economy.  They are also under continual pressure to support the reality distortions demanded by wealthy political patrons, who, as they have breathed in the new self-flattering theory, become increasingly short-sighted in their perception of their self-interest.  The current fiscal cliff and debt limit fiascos are a direct outgrowth of the delusional view of capitalism as a self-regulating, self-sufficient system promoted successively by neoclassical economics, neoliberalism and now austerity economics.

Capitalism’s Habitual Destruction of Effective Demand

One of the critical and obvious ways that capitalism and markets cannot regulate themselves is in maintaining sufficient demand for products and services to allow continuing growth of the economy, an existential need for the existence of capitalism.   There are two primary reasons for capitalism’s chronic and increasing demand gap: on the one hand, a tendency towards inequality and concentration of resources and, on the other, the drive to increase labor productivity and reduce unit labor costs.

Effective demand is weakened by the tendency within capitalism towards increasing inequality in income and wealth, intensified by financialization of the economy.  The increasing inequality leads to shortfalls in demand as money becomes concentrated more and more in savings, which are differentially concentrated among the wealthy.  To preserve these savings, ways are found by financial intermediaries and con men, with the help of lax or enabling government regulations, to grow these savings without putting them fundamentally at risk in real investments in businesses that need to hire people and thereby distribute income more equitably.  Without targeted intervention by government, the formation of a Ponzi economy becomes a matter of course, and eventually the inevitable collapse of that economy in a debt-deflation, similar to that of the 1930’s or of the current period.  Private debt is offered as a means to boost buying power but this only provides a short-lived stopgap as debts become bad debts because average incomes cannot support both current consumption and the debt burden, leading to the collapse of the Ponzi house of cards.

Another area, that has recently received some media attention, is that capitalism and “economic development” as widely understood means the replacement of human labor with machines (powered by a non-food energy source like fossil fuels, nuclear or renewable energy) and the accompanying increase in labor productivity, i.e. the amount of goods and services produced per unit labor.  Even though productivity is celebrated as a universal good, it leads systemically to the reduction in demand for labor as well as reduction in effective aggregate demand for goods and services.  Payment for labor has been one of the primary ways that money gets into the hands of people who want goods and services.  With every rise in productivity and investment in labor-saving technologies, effective demand is endangered locally unless other means are found to distribute income or the primary market, usually abroad, still has a favorable enough income distribution to enable the purchase of these goods.  Eventually this process of capitalizing on others’ still-favorable income distribution reaches its endpoint.

Effective demand has two major components:  intent to buy and means to buy.  With increasing inequality and increasing labor productivity, the means to buy, money, is concentrating increasingly in fewer and fewer hands.  Intent to buy is more evenly distributed throughout the population, dependent as it is on the biological needs and wishes of people; many middle income and poor people of equal total income to one rich person have together “more” intent to buy than that one wealthy person, who by definition is saving a good portion of his or her very large income.  So with increasing inequality and increasing labor productivity effective demand is on a systemic basis destroyed.

It should now also be obvious that by reducing effective demand, which is a primary driver of the economy, capitalism also stifles economic growth and reduces the profits to be gained from selling real goods and services.  Without the stoking of effective demand via injection of the means to buy from outside the market, capitalism would be dead in the water as an economic system; to repeat, our economic system is not a self-regulating system, contradicting the assumptions that have become embedded in contemporary political discourse and that underlie the self-induced debacle that is the Budget Control Act of 2011.

The Only Known Solution: Government Sponsorship of Demand

As money gets more concentrated in the hands of people who are less inclined to spend it, the only way to stabilize capitalism and enable economic growth of some kind, is for the government to put money into the hands of people who are inclined to spend it.  The means available to government are various forms of government spending, including old age and disability pensions, low cost public health insurance that frees up private money for discretionary purchases, as well as payment for labor, goods and services from the private sector in the process of operating the government and creating government projects.  The governments of most advanced economies have for the last 80 years used these solutions to stabilize their economies, building a social welfare state that also manages the economy as a matter of course.  In the context of these efforts, we have seen wealth shared between social classes and, in historical terms, relative social peace.

Of course, government payments are not simply issued to boost demand in the economy but to fulfill the public purpose and increase overall social welfare, which might be considered the primary intention of engaging in these activities in the first place.  The demand-related effects of these activities are an important byproduct of building public infrastructure, taking care of the sick, funding for basic research, caring for the elderly, etc.   The dual benefit of this work makes it all the more foolish to try to cut it in the name of a phantom deficit problem.

In the current budget negotiations, both sides of the negotiation are in agreement that they should permanently eliminate this only solution available to stabilize and rescue capitalism from itself, the ability of government to put money in the hands of people who will spend it.  This is notwithstanding the absolutely vital and ever more valuable services of government which are endangered and also in increasing demand (see for instance the aftereffects of various climate disasters like Hurricane Sandy).  No plausible substitute is being offered by austerity advocates for the vital role of government in providing critically needed services as well as sponsorship of demand.  No private enterprise or bank can offer these services to the people and to the economy.

Obama’s and the Democrats’ focus on increasing taxes on the rich could be only seen, in the context of our current fiat currency system, as an effort to reduce the purchasing and the informal power of the wealthy but not a means to support social spending and the government’s role in sponsoring demand.  Without the Democratic side standing up for maintaining or increasing government spending in combination with the increased taxation on the wealthy, the reductions in income inequality from that taxation will be washed out as lowered growth will reduce proportionally the incomes of the middle classes and the poor more than the incomes of the wealthy.  Furthermore overall economic growth will diminish with both increases in taxation and decreases in government spending.  Targeted taxation of specific activities, for instance a financial transactions tax and a carbon tax, will drive economic activity towards more socially productive ends and perhaps lower unemployment as more labor intensive activities become more attractive investments.  Yet these taxes without increases in government spending overall and/or the serendipitous reduction in the trade deficit will not lead to aggregate economic growth in monetary terms.

Politically Instigated “Economicide”

As Bill Black has just pointed out, the austerity drive that has become popular among political elites in capitals of the world over the last 4 years is a surefire way to “kill the economy”.   Fueled by deficit hysteria, the Cameron government has done its best to kill the UK economy and the Euro-Zone’s “structural” austerity is in the process of killing the Greek, Spanish, Irish and Italian economies.  If you the reader are incredulous that well-attired, well-informed politicians could do such a thing, I have hoped above to show you that 30 years of ideological training has so obscured politicians’ perception of how the economy works, that they are now capable of inflicting damage on their own economies, still convinced of their own rectitude.

The two pillars of the delusional system that enables politicians to commit economicide already discussed above are

  1. the neoliberal view that capitalism is self-regulating and government intervention in it optional and
  2. the Wall Street-led austerity drive’s reinforcement of myths about modern money that are holdovers from the gold-standard.

It also helps sustain this delusional thinking about the economy, for politicians to recognize that they will, in all probability be “saved” in their post-public service lives by the patronage of the elite community that now demands sacrifice from the least while realizing the social vision of the most privileged and corrupt.  Thus there are two sets of “books” kept, one for the elites and one for the rest of society.  The idea that the fates of all are yoked together is not yet fashionable enough.

 

 

27 Responses to Fueled by Deficit Hysteria, Obama and the Republicans Are Choosing the Path of “Economicide”

  1. Does it strike anyone here unusual that for all the taxes, fees,tolls the states and federal govt has to borrow money?
    If things were running in logical fashion the feds and states would be cash rich and lenders of funds. Who’s stealing it all from the thiefdoms? Or did the Emperors buy magic cloths from the income?

  2. Excellent overview, Michael. What seems so obvious and logically sound to anyone thinking seriously about the economy and its operation, seems totally incomprehensible to President Obama, his advisers, and main stream media. The Republican/tea party right is hopelessly lost in 19th century thinking. There must be a way to break through the log jam of idiocy and self-serving pandering. Articles like yours can help, but I fear that only a major shock like the Great Depression will dislodge the obstructions. I hope I am wrong.

    • The US does not simply print its own money…China, as well as other countries, buys debt from the US, so the author’s opinion that a soverign state can print all of the money it wants without peril is nuts…nearly 100% of the money that the Gov receives is tax money…private industry provides that…but private businesses don’t get all of their tax money back..and the part that they don’t get back gets larger all of the time…plus what is sent back to citizens comes, apparently, without any responsibility attached…so, as long as the gravy train in on the rails, why look for work that could provide the Gov with revenue?…it’s Pacman eating itself and will not work longterm…

      • “the author’s opinion that a soverign state can print all of the money it wants without peril is nuts.”

        There are two types of sovereign states: Monetarily Sovereign and monetarily non-sovereign. A monetarily non-sovereign state cannot “print all the money it wants,” because it has no sovereign currency. Examples are the euro nations.

        A Monetarily Sovereign nation has the power to create as much sovereign currency as it wishes, limited only by inflation. It also has the power to tax as much as it wishes, limited by recession and depression.

        The so-called “gravy train” is the federal deficit, without which we would be mired in the worst depression imaginable. You, as a taxpayer, do not pay for federal spending. The government, having the unlimited ability to create dollars, has no need to ask you or anyone else for dollars. It destroys your tax dollars upon receipt.

        If all federal taxes were $0, this would not affect the federal government’s ability to spend.

  3. The eternal question: Are the elites stupid and/or evil? It’s Christmas, so I’m going with stupid.

  4. Fiscliffphilia is hereby donated to the public trust. What a year end we have to look forward to. Anyone already sold manuscript rights? I enjoyed the holiday read thanks M.H.

  5. This is incredibly well written.
    I’ve read it twice already and intend on sharing it with others as it serves as an important corrective introduction to the field of economics itself as we’ll as a rebuttal of fiscal austerity and deficit madness.
    There are points where the language is a little less than scholarly and becomes ad hominem, but perhaps for the layman that is exactly what’s needed.
    Thanks again for writing this.

    • Correct me if I’m wrong (as a layman poking around MMT websites) What has confused/bamboozled the public… Associating the household budget analogy with federal debt and deficits. Federal debts and deficits do not exist in the context of the Household Budget analogy. Greater deficit spending simply means creating more money without the restraints of “owing” it to another entitity. So why call a federal Bond a Bond if it not a bond? Why call “federal debt” a debt if it is not a debt??

  6. Michael, your conclusion raises a foundational issue—omnibus electoral reform. The duopoly is incentived to serve their funders. Our electoral system is truly an abomination from single mark ballots, closed primaries, gerrymandering, no term limits, incumbent bias, independent disenfranchisement, duopoly regulated debates, elected officials taking money from corporations they regulate including nonprofits, and job cronyism as you mentioned. I’m on a board of a nonprofit that is working towards change which is renaming itself the Clean Government Alliance. Their current website is RebuildDemocracy.org. On my site, aGREATER.US the highest rated item is No Political Party Shall Be Privileged. That alone would start the reversal of the the party’s and their funder’s monopoly. I’ll be tweeting your article’s link, by the way, the hashtag #my2K is a good way into the White House, as they created it.

  7. Robert Lavergne

    The “neo-liberal” myth is not new. It’s essentially the same idea promulgated by Rousseau, who asserted a fallacious liberty, individualism in private production, that man was born good, was everywhere in chains, was everywhere in chains, and that institutions made him unfree. This misconception of freedom infects not only economics and philosophy, but is rampant throughout modern culture. The contradiction is/was promoting freedom/liberty appearing as a restraint, for it could only be secured with unrestricted right to own the means of production.

    The dissolution of feudal social obligations could be justified if man was free in himself, and if, doing what seemed best for him, for his own good and profit, he would in fact get what he desired, and so secure freedom. It was a return to the apparent liberty of the jungle, where each beast struggles only for himself, and owes no obligations to anyone. But this is an illusion. The beast is less free than man. The desires of the jungle are a zero-sum game, cancel each other out, and no one gets exactly what he wants. No beast is free.

    Whatever motion or phenomenon we see, there is always a cause for it, which is itself caused, and so on. And the same causes, in the same circumstances, always secure the same effects. Understanding this determinism brings freedom. The more we understand causality in the universe, the more we are able to do what we freely will – our knowledge of thermodynamics allows us to transfer heat from cold areas to hotter ones, our knowledge of MMT allows us to realize that a government with a sovereign currency doesn’t need taxes to spend, our knowledge of the necessary movements of the planets enables us to construct calendars so that we sow, take vacations, and meet others at the times most conducive to achieving what we will to do. Determinism then can be seen to produce freedom as freedom is understood to be a special form of necessity – it is the consciousness of necessity. (“Necessity is blind, insofar as it’s not understood” – Hegel)

    Society is a creation by which man attains a more comprehensive measure of freedom than the beasts. It is society that distinguishes man from the beasts and society’s essential feature is economic production. Man is unfree alone. He attains freedom by co-operation with his fellows. Science, by which he becomes conscious of outer reality, is social. Economic production, by which he makes outer reality conform to his feeling is social, and generates science and culture. Economic production gives men freedom. Because of economic production, men are free and beasts are not. It enables man to do what he wills. Neoliberals argue economic production is what entails all the “constraints” of society – labor laws, regulations, all arise out of economic production. Thus, all the “constraints”, obligations, inhibitions, and duties are the very means by which freedom is obtained. Liberty is the social consciousness of necessity. The beast is a victim of necessity, but man is in society conscious and self-determined, not absolutely, but more so than the beast.

    Liberty does not consist in the absence of social organization. It is not a negative quality, a deprivation of existing obstacles to it. It’s not a positive quality, the reward of endeavor and wisdom. Society, who Thatcher liked to say didn’t exist, is the only instrument of freedom. Society is an instrument of freedom in so far as it secures what men want. The members of present society all want an increase of material wealth, happiness, freedom from strife, from danger of death, economic security. However, present social relations produce the opposite – a decrease in material wealth for the many, unemployment for the many, unhappiness, increasing economic uncertainty, and constant war.

    Why? Because the present arrangement of social relations does not understand the laws of economic production – it is unorganized and unplanned. It is unconscious of the necessities of economic production and cannot make economic production fulfill men’s desires. Why is it unconscious of the necessities of economic production. Because, for historical reasons, it believes that production is best when each man is left free to produce for himself what seems to him most profitable to produce. In other words, neoliberals hold the same misconception of liberty that Rousseau held – they believe that freedom is secured in the lack of social organization of the individual in economic production. This individual freedom through unconsciousness and a fairy-like “free-market” is a delusion. An unconscious, deluded society based upon these social relations is therefore unfree.

  8. This article hints at what other writers on NEP have stated very clearly; the Financial, Insurance, Real Estate sector is a huge collection of predators, leeches, vampires and squids that suck the life blood out of the economy. The services rendered really are not contributing very much real value to our collective efforts. Could one of the writers fill me in on one aspect the FIRE sector-how does Wall Street financing, selling of stocks and transfer of wealth work in actual practice. I have the theory down in its simplest form-investors large and small offer up money for equity shares in business entities -they buy stocks-which are supposedly used by the corporate entity to grow the business. But is that is what is really going on? Is not the Federal Reserve, vis a vis asset buy backs propping up a large portion of the investment banks? Where do the investment banks really get all of their funds? Are the larger banks transferring funds to corporate entities and thus keeping the like of G. E afloat? Fill me in please on how the stock market actually works. And, one final request; in the glorious day when MMT is fully instituted, what place will savings and individual investment have in that picutre?

    • I found some answers to my questions-still searching.
      I started out by looking up the term FIRE-
      http://en.wikipedia.org/wiki/FIRE_economy
      ” Much criticism exists on the internet and in the blogosphere for the shifting of the U.S. economy to a FIRE economy at the expense of a manufacturing and export-based economy. As the consumer of last resort, many believe that the United States has eschewed productive elements of its economy in favor of consumption to its long term detriment”

      My next stop was
      http://en.wikipedia.org/wiki/Financialization#cite_ref-3 where I found this reference to a Michael Hudson interview-way back in 2003 -the longish quote is to give the full context of what has to be the most important aspect of how the FIRE sector has hollowed out our economy as a tapeworm hollows out the inside guts of its host.
      http://www.counterpunch.org/2003/08/29/who-benefited-from-the-tech-bubble-an-interview-with-michael-hudson/

      MH: The problem of inadequate consumer demand to fuel an economic recovery does not lie with the cost of labor so much as with the fact that it is now normal for families to pay a quarter or even a third of their income for debt service. This diverts spending away from goods and services. The Bureau of Labor Statistics reports that this proportion rises to 40 percent for home-owners who have taken out big mortgages to buy their homes as the real estate bubble has pushed housing further and further out of reach of families that in the past could have afforded to buy similar properties with their earnings. Many companies are in a similar strapped position. They are not able to invest in new physical capital equipment or buildings because they are obliged to use their operating revenue to pay their bankers and bondholders, as well as junk-bond holders. This is what I mean when I say that the economy is becoming financialized. Its aim is not to provide tangible capital formation or rising living standards, but to generate interest, financial fees for underwriting mergers and acquisitions, and capital gains that accrue mainly to insiders, headed by upper management and large financial institutions.

      The upshot is that the traditional business cycle has been overshadowed by a secular increase in debt. Instead of labor earning more, hourly earnings have declined in real terms. There has been a drop in net disposable income after paying taxes and withholding “forced saving” for social Security and medical insurance, pension-fund contributions and–most serious of all–debt service on credit cards, bank loans, mortgage loans, student loans, auto loans, home insurance premiums, life insurance, private medical insurance and other FIRE-sector charges.

      Hardly any economist has been so outrageous as to claim that this Financial, Insurance and Real Estate (FIRE) overhead is “technology.” It has not even been mentioned that the growth in this financial and rentier overhead has outstripped the contribution of productivity gains for most workers economic welfare.

      SS: Isn’t the growth in wealth and saving recycled somehow to become a demand for goods and services? I’m referring to Say’s Law of Markets–the idea that supply creates its own demand.

      MH: This circular flow is interrupted by FIRE-sector charges siphoning off the revenue which employees normally would have available for spending on the goods and services produced by their employers and other producers.

      SS: Wasn’t this the criticism that Keynes levied against Say’s Law?

      MH: Not really. He saw saving simply as non-spending. The problem is that savings are turned over to financial institutions, which lend them out at interest, which leads debts to double and redouble. As this debt service grows, consumers have less net ready money to spend, because they are obliged to pay more interest and amortization on the loans they have been obliged to take out just in order to break even, to pay for their education, to achieve the American dream of home-ownership, to pay for their children’s education, and simply to retain their social and economic status by keeping up with their neighbors. The irony here is that these neighbors themselves are running into debt for just the same reasons to participate in today’s economic rate race. Yet most people think that the problem is theirs alone, and blame themselves for a change that has become society-wide.

  9. The ultimate Neo-Liberal framing, or view of life, that causes us so much trouble is the delusion that the individual, group or nation can have their necessary freedom at the expense of others and the planet. Denial by the FIRE sector of the majority’s right to issue and control money as they see fit for their personal and collective well-being exemplifies this.

  10. Re: “I have recently proposed that we rename the so-called budget deficits specifically of currency-issuing governments, the government’s “net contribution to monetary/economic growth””

    I like this idea but I think you should just shorten it to “The Growth Fund”, which should entice people to ask what you mean by that term. That gives us a chance to explain it is the government’s “net contribution to monetary/economic growth”” and how the economy works to those not familiar to MMT.

  11. 12/26/12 Michael Hoexter, How does MMT resolve the gowing inertest and principle carring costs on constantly increasing government isssued debt?

  12. Re:”capitalism and “economic development” as widely understood means the replacement of human labor with machines”

    This is another one of my grave concerns for society, although I will be long gone by then. Long term planning for the eventual reduction in the need for human labor is something that needs to be looked at today. It’s been estimated that in four short decades the need for human labor will be reduced by 50%. That can lead us us to incredible destruction or the great reward we were promised by the technological revolution. Likely, as it is with almost all human endeavor, it will be a mix of both.

    The question remains whether we are intelligent enough to transition into that future with the least amount of pain.

  13. RobertM, I too have thought about how labor will be paid for future non-manufacturing work. One thing I have read is that jobs in the service sector need to be better paid. Right now, someone working full-time at McDonald’s or 7-Eleven cannot live on their income. Their income needs to be increased either by the creation of unions to demand a living wage or by a job guarantee offered by the government which will offer public employment for anyone who is willing and able to work thus setting the bar higher for private employers to give a decent wage for their workers. This is my hope for the future and I too will be long gone if and when that is ever achieved.

  14. The core of an economy is Surplus Circulation (term stolen from Yanis Varoufakis which he uses for international trade only) which enables effective demand. Surplus as meaning unspent income on yourself, not in a Marxist sense, not only savings but also income spent on someone else. Like parent spending income on kids as surplus, giving to charities or investing in production or financial assets that ends up in hands that will use it. Getting a credit and then buying a house on which will be foreclosed is still using a real stuff. Consumption credit that is never paid off is still enabling people to use real products and services.
    With capitalist tendency to accumulate wealth in eversmaller number of hands it is neccesary to return it to those that will use it (workers, poor) from wealthy that will save it (not use it). Surplus (savings) have to circulate in order to keep an economy going. High marginal taxation is shown to be the best way to keep Surplus Circulation going. Doing it trough FIRE sector is shown as a bad way to keep it going but it did the job after marginal tax rates were reduced. FIRE sector did keep Surplus Circulation going untill financial crash in 2008.
    I would say that way which reduces buying power by interest payment going back to the wealthy was a moot point because that was eliminated by enabling evermore debt which pay for interest payments.
    What is important that debtors did enjoy more real wealth which was consumed, which enabled Surplus Circulation to keep going. FIRE sector provided for accounting method for poor to use real stuff and services, provided savings from wealthy to be used by poor in order to use real stuff (real value).
    The problem is that it is the end of that way for enabling Surplus Circulation, wealthy got scared that they will not get their savings back, even tough they will never use it, ever, for real products and services. Now, wealthy want savings circulating between themselves only, not to seep down to enablers of more wealth, not to reach to those that will consume and provide for more production.
    Productivity is the problem in a present situtation, because those that control fruits of rising productivity do not want to share it with anybody, do not want to enable Surplus Circulation. With more automated production, there will be more productivity growth and since they do not want to share it, they will keep Surplus Circulation with ever smaller number of people neccesary for providing consumption for the wealthy only. Unemployment will keep rising without everlarger private surplus (public deficit) and debt growth which keep SC going.
    FIRE sector growth is a symptom of bad Surplus Circulation which found a way in accounting trick to keep it going.

  15. roger erickson

    Ya think?

    Our Output Gap = Our Grandhildren’s Options Gap
    http://econintersect.com/b2evolution/blog2.php/2012/12/16/redefining-fiscal-policy-outcomes-so-that-our-definition-of-successful-investing-isn-t-depriving-our-grandchildren-of-options

    You can say that in diverse, simplistic ways for diverse sub-audiences, but it’s at heart a simple matter of system dynamics. Equal or more organization is possible in increasingly complex culturs ONLY if distributed liquidity increases as a function of net options available. Any AI student understands this, most 1st year college math students can grasp it if stated, and every software programmer or network modeler should find it passe.

    What’s that say about the level of discourse in our electorate, or policy channels?

  16. Do you really believe that of the President of the United States, the Secretary of the Treasury of the United States, the Chairman of the Federal Reserve, the 435 members of Congress and all their associates and financial experts and virtually all of the media, not one understands the reality of Monetary Sovereignty and the fact that deficits are necessary for economic growth?

    They understand. However, the upper .1% income group has bribed the politicians (via campaign contributions) and the media (via ownership) not to understand. Why? Deficit reduction increases the income gap between the rich and the rest.

    If you make $1 million a year, and everyone else makes $1 million a year, you aren’t rich. But if you make $1 million and everyone else makes $1 thousand, you are rich. The gap, not absolute income, is what the rich care about, and the Kochs, the Petersons et al have spent billions to widen that gap — which in fact, continues to widen. See: The Gap Widens

  17. I’ve found the references extremely provocative especially The Financial Instability Hypothesis
    by Hyman P. Minsky*
    He shows that our economy has essentially, as far as businesses are concerned, moved into the realm of many Ponzi schemes linked together by the banking system. Incredible.

  18. Erudite discussions of various fantasy lands.

    We know they are fantasy lands, because they have the property that economists can predict the future, which is not possible in the world that I live in. We would all know if that property were different here in reality, because the obscenely rich would have gotten their wealth by superior predictive abilities instead of go-along-to-get-along in the merging of politics and economics that is crony capitalism. And there would be no merger of the political parties, to the point that it isn’t possible to tell party affiliation from voting record.

    Read Taleb’s “Antifragile”. He boils these intellectual poseurs in oil. It is quite wonderful to exist in a world where superior thought is indeed winning, after a long period out of intellectual favor. My kid was arguing politics with college freshmen the other day, the Libertarian flavor of all of their opinions was very obvious. The centralizers of the world are losing their political power at long last. Too bad we are all going to suffer for letting them get out of control again.

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