For years now, economists using the ideas of Modern Money Theory (MMT) have been telling us that the so-called long-term “funding” problems of Social Security (SS) and Medicare emphasized incessantly by supporters of austerity are faux problems. The MMT economists believe this because the US is a currency issuer of a non-convertible fiat currency, has a floating exchange rate, and incurs no debts in any currency except US dollars. So, the US Government can issue whatever financial resources it needs to carry out its obligations without raising any solvency issues. The only problems involved in carrying out these obligations are problems of political will, not problems of financial incapacity, which is why, from an economic point of view, they are faux problems.
There are other economists who also believe these are faux problems, even though they don’t subscribe to the view that the government can’t become insolvent. They also view them as problems of political will because they think that the SS long term “solvency” issue can be easily solved by Congress just by lifting the payroll tax cap on income; while the problem of rising health costs threatening long term Medicare “solvency” is easily solved by passing a Medicare for All bill such as HR 676, which creates a single-payer for most health care services and puts the private insurers out of business, while holding down provider costs through negotiations.
Still other economists and fiscal policy analysts, believe, or say they believe, that the Federal Government does have fiscal limits, that the Government can only fund activities through taxing or borrowing, that deficit spending must be avoided or kept to a low level because it corresponds to growth in public debt, which will eventually create spiraling interest rates in the bond markets leading to financial insolvency for the United States, or at least to very damaging periods in which the US must impose extreme austerity on its citizens and forgo economic growth, because it must, at all costs, reduce its public debt substantially, and in short order.
These “austerians” suggest that this last fate be avoided by cutting deficits now, and, even more, by implementing long term deficit reduction plans that cut entitlements. Since the passage of the stimulus bill in 2009, the counsel of austerians of varying degree has dominated the US Government leading to conflicts among some who want to lower deficit spending to extreme levels and others who want to lower deficits more gradually and to levels a bit higher than their “starve the beast” opponents. Despite conflicts among them, the austerians have, through a few rounds of “debt ceiling,” fiscal cliff,” and “sequester” conflicts managed to implement considerable deficit reduction with serious costs to the economy and efforts to decrease unemployment substantially.
This conflict has created the present situation where the sequester and recent increases in Social Security taxes have set the stage for a “grand bargain” that would begin deep cuts in entitlements by implementing the Administration’s “chained CPI” proposal. But, a number of things have now happened to slow down the austerity train and even threaten its derailment.
Reality, the Austerian Retreat, and Entitlements
The first of these things has been the record of austerian deficit reduction efforts from 2010 to the present. The impact of austerity on economies the world over has been abysmal. Unemployment in many economies, including many of the Eurozone nations is now at levels not seen since the Great Depression, and in is even higher in some nations, especially among younger workers. In addition, in many nations brutal cuts in government spending have only increased deficits and debts while creating greater unemployment.
Nations like Canada, Australia, New Zealand, and the US, which haven’t implemented extreme austerity after initial stimulative reactions to the crash of 2008, but also have put in place efforts at deficit reduction in response to increasing influence of the austerians, haven’t suffered as much as other nations that have implemented full bore austerity. But they have suffered losses in employment and economic slowdowns as a cost of lowering deficits. The UK, which like the US, could have chosen to be less aggressive about deficit reduction, instead elected a Conservative-Liberal coalition that bought into the dogma of “expansionary austerity” and created a declining economy suffering periodic dips after the initial recession.
Second, the intellectual underpinnings of austerity have recently taken a big hit from academic studies showing spreadsheet errors, and various other errors in analysis, in the major academic studies supporting the idea that public debt-to-GDP ratios cause slower GDP growth. More and more analysts and observers now seem to believe that it is likely that low growth causes high public debt, rather than the opposite belief, which had fueled the austerity efforts of politicians and government officials.
Third, in the United States, the deficit reduction outcomes of Congressional/ Executive conflicts, while reducing actual deficits somewhat, have reduced projections of future deficits even more, and are perceived as both having reduced actual deficits and as holding back economic recovery. So, political sentiment has been gradually building against additional austerity efforts. There is now much opposition to further deficit reduction including opposition to proposals providing for entitlement cuts. And there are claims from progressives that “austerity is dead,” and advocacy that we should no longer make deficit reduction the centerpiece of fiscal policy but should immediately shift to an emphasis on creating jobs.
This past week saw a recent important defection from the ranks of advocates for austerity. The Center for American Progress (CAP) published a report by Michael Linden which concludes:
What does it mean to reset the debate? First, it means starting from the understanding that there is no longer a looming fiscal crisis—if there ever even was one. . . . .
Second, resetting the debate means discarding other fiscal theories that have fared poorly over the past several years. . . .
Third, we must recognize that there are costs to elevating deficit reduction above all other concerns. . . .
and:
. . . . we can no longer afford to pretend as if the benefits of deficit reduction always, in all circumstances, outweigh the costs. And we cannot allow the continued perception of a deficit-reduction imperative to prevent us from fixing the sequester and avoiding more economic damage.
It is time to reset the entire budget debate. No more pretending that the sky is falling. No more rash actions to cut the deficit without regard for real-world impacts. No more calls for an ever-elusive grand bargain. No more super special committees or draconian automatic punishments intended to force action. Improving our national finances is still an important goal—that has not changed. But so much else has, and the debate must change too.
It is good to see this beginning of wisdom, and even implied opposition to entitlement cuts, in a report from an organization with direct lines to the White House. But it’s important not to mistake this report, with its fine rhetoric, for actual opposition to the Federal Government continuing to pursue an inadequate level of deficit spending to simultaneously contain the growth of debt while somehow creating substantially lower levels of unemployment than we have now.
Progressives and Centrists like CAP still don’t understand that austerity is destroying private sector net financial assets by cutting government spending and/or raising taxes in such a way that Government additions of net financial assets to the non-government portions of the economy (government deficits) fall to a level low enough that they are less than the size of the trade balance, whether in deficit or in surplus. Right now the trade deficit is 3.5% of GDP. That means Government deficits must be at least 3.5% of GDP to prevent contraction in net private sector financial assets. That’s a roughly a $560 B deficit in 2013, just to remain in place. CBO’s latest projections are for a deficit of $642 Billion this year, a bit higher than break even; but not by very much. The deficit could well be smaller than that, however, since it’s dropping fast.
If the economy recovers further, it’s likely that the trade deficit will grow larger as a proportion of GDP. If the Government deficit isn’t allowed to grow, then the result will mean declining net financial assets and greater inequality since the scramble for declining net financial assets will favor the economically well-positioned over most of the rest of us.
The question is: will the progressives and centrists who have had enough of austerity be ready to run deficits large enough to both compensate for the trade deficit and also allow enough saving of net financial assets to fuel renewed aggregate demand and the growing consumption needed for an expanding economy? Since deficits large enough to do both might range anywhere from 6 – 10% of GDP or more, I doubt that they will be up for that, because despite their protestations about leaving austerity behind, their de-emphasis on deficit reduction doesn’t mean they’ve abandoned their fear of increasing debt-to-GDP ratios, or their belief that high debt-to-GDP ratios are hurtful to economies.
In fact, a recent “austerity is dead” post at Think Progress (a project of the Center for American Progress Action Fund) in advocating for Michael Linden’s recommendations to repeal the sequester at least for the next few years, and invest $82 Billion (roughly 1/2 of 1 percent of GDP) on “pro-growth investments” to create jobs, cites the CBO projection favorably that shows the deficit falling sharply right now, and falling below 3% annually in 2014 and staying below that level until 2019.
But that projection is actual government austerity from now until 2019, barring a substantial decrease in our trade deficit over that period. Also, if there’s no private credit bubble during this time, it’s very likely that the economy will do nothing but stagnate until 2019 and beyond. We are looking at a Japanese “lost decade” scenario for the US economy.
And most “progressives” don’t see it because while they joyously proclaim that “austerity is dead,” they also, with equal joy, plan for austerity-level deficits of 3% or less for the foreseeable future. Now hear this CAP, Campaign for America’s Future, and other “village” DC/New York progressive organizations: Warren Buffett’s 3% deficits are the very essence of austerity, as the Eurozone well knows.
Make no mistake about that. So, when you tell us that “austerity is dead,” please don’t tell us at the same time that you’re planning to maintain deficits at the 3% level or below, and with them austerity for the indefinite future.
And how about the more determined austerians? What do they think about the death of austerity? Well, generally, they don’t believe it. They still hold that high debt-to-GDP ratios are problematic for growth. And while they’re now willing to grant that it may be wise to back off deficit reduction somewhat in order to emphasize job creation a bit; austerians like the Peter G. Peterson Foundation, and the Washington Post editorial writers, are still persuaded that now is the time to pursue arrangements for long term spending reductions in Social Security and Medicare entitlements. So, for them, and for the White House, pursuit of a “grand bargain” is still not off the table that the President has so persistently set, since at least the beginning of 2010.
In brief, the hard-core austerians still believe that deficits and the GDP ratio are very important and must be reduced even at the cost of considerable economic pain for those who aren’t wealthy. Given their view, it’s unwise for people who really think that austerity is, or should be, dead to relax now, because it’s a good bet that if the austerians can make a deal with the Republican right to reduce entitlement spending, then they will do just that, and also spring their deal on Congress suddenly and at the last moment.
The No Debt/No Inflation Platinum Coin Solution to the “Long Term Entitlement Solvency Problem”
So, let’s address a solution to the long-term entitlement spending solvency problem that really kills austerity for entitlements dead. Of course, it’s a faux problem in the sense that there is no economic or financial solvency problem, since the Federal Government can never involuntarily run out of money to pay Social Security and Medicare obligations, as long as Congress is willing to provide the authority to meet those obligations. But there is a real political problem in that Congress may decide not to do that because spending on entitlements in future years may exceed FICA tax revenues year after year until “the trust funds” cannot “cover” the deficit between annual tax revenues and annual spending.
The austerians want to solve this political problem by cutting back on entitlement benefits. “Progressives” want to solve it by eliminating the income cap on FICA taxation. The advantages and disadvantages of both solutions are very well-known so I won’t repeat them, but will just point out that both will subtract net financial assets from the economy, and offer a third solution that doesn’t have that problem.
That solution is for the Executive Branch to use its Platinum Coin Seigniorage (PCS) authority under 31 USC 5112(k) and 31 USC 5136 to mint a single proof platinum coin each year to cover any shortfall between FICA revenues and spending on Social Security and Medicare. If that were done annually in advance, based on projections, then there would be no further depletion of the “trust fund” credits, and no further political issue of Social Security and Medicare insolvency.
This solution also has at least the following other advantages.
— It requires no Congressional action to implement. The necessary authority is there already;
— It will not increase spending, beyond that already scheduled for Social Security and Medicare, so it won’t add any inflation beyond that already built into the system;
— It will not increase the public debt subject to the limit, so that worry needn’t trouble people;
— It will educate people about the fact that the Government can spend without having to tax or borrow if it needs to do that;
— It will educate people about PCS as an alternative to taxing and borrowing;
— It will educate people to the idea that neither the Treasury nor the Government can become insolvent because it can always mint coins;
— It will educate people about the fact that the US Government need not ever borrow back its own previously issued currency from anyone else, unless it wants to;
— It will educate people to the idea that their grandchildren won’t have a burden of public debt that they can’t always easily pay back by using PCS;
— It requires neither an increase in taxes nor cuts in Social Security or Medicare benefits.
— Also, if benefits were increased in the future there wouldn’t need to be any tax increases to “fund” them.
— It would be a great political success for any President who did this, because it would have the effect of safeguarding the major components of the safety net for good, and that President would be remembered by a grateful populace for having done that.
There are, of course, some disadvantages to this third solution, too.
— The opposition to the President will attack she or he for using PCS, claiming that it is the dreaded “printing money,” practiced, so infamously, by the Weimar Republic and Zimbabwe. This may be an effective attack in holding down the President’s approval rating for a limited period of time; but once people observe that no inflation results from using PCS, this attack will fade away; it’s effectiveness destroyed by experience and reality;
— To make PCS effective, the President may have to force the Federal Reserve Chairman to create reserves in exchange for Treasury’s platinum coins. This may create a firestorm politically if the Fed Chairman resigns in protest. However, eventually, the President will find a successor who will credit the Mint’s Public Enterprise Fund (PEF) account for platinum coins with very high face value, because the law is clear that in cases of disagreement between the Fed and the Secretary on matters of interpretation, the opinion of the Secretary is to prevail.
— The opposition may attack the President for “grabbing more power.” This may make a few headlines; but since the President’s action would halt any further depletion of the Social Security and Medicare “trust funds” it is hard to see the public either disapproving of the action, or getting motivated by any perceived power grab.
— The opposition to the President in Congress may become enraged by the loss of leverage against entitlement spending they experience as a result of the Administration using PCS to stop depletion of the “trust funds.” However, I can’t see this anger going anywhere unless it somehow gets extended to the country at large. But, then again, the only reason why most people would get angry at this is if inflation were somehow triggered using PCS. Since this is a very unlikely prospect, the anger in Congress will just go to ground in the sweep of events.
Two weeks after the minting each year, there will be other issues to fight about. After a few years of use, PCS will be institutionalized as the way to ensure the sustainability of Social Security and Medicare regardless of fluctuations in the economy and in tax revenues.
So, that’s it. Using PCS to cover the shortfall between entitlement spending and FICA revenues is a quick and relatively easy solution to the political problem of ensuring that the Social Security and Medicare “trust funds” are sustainable, provided that a president will use it. When will this, or the next, or the next president make this happen and really kill “austerity” politics targeting the entitlements that most Americans love so well? When will this or some future president hear the voice of the people?
Hi Joe,
You claim that given a trade deficit of 3.5% of GDP, the deficit has to be at least 3.5% of GDP to prevent private sector net financial assets falling. There is actually another factor which necessitates another significant chunk of deficit and it’s as follows.
Assuming the 2% inflation target is hit, the national debt and monetary base will shrink in real terms at 2%pa. If those two are to remain constant in real terms (just to keep things simple) then they have to be topped up via deficit. If those two are say 50% of GDP, then that necessitates more deficit equal to 1% of GDP (50% x 2).
Plus there is economic growth. If that’s running at say 2%pa, then yet more deficit (equal to 1% of GDP) is needed.
Hey Ralph, i don’t get your point. If there’s inflation of 2%, then that applies to everything in the SFB model where all terms are expressed as a percent on inflated GDP. isn’t that so?
Hi Joe,
I’ll put it another way. Your 3.5% of GDP deficit is caused by the trade deficit. But suppose there’s no trade deficit (or surplus). Then you’d presumably claim that no deficit was needed.
I’m saying “No – a significant deficit is still needed because of the decline in real terms of the national debt and monetary base.”
Put it yet another way, it’s widely accepted that high national debts (e.g. the post WW2 debt) eventually decline to a significant extent because they are whittled away by inflation. Thus if the national debt and monetary base (i.e. PSNFA) are to remain constant relative to GDP, then they need topping up via a deficit.
I’ve never known anyone else make that point, or agree with me on that point. Which means either I’m talking thru my rear end, or everyone else is..:-)
Ralp, you’re changing the subject and making a different point. Please answer the question I put to you, just above.
As far as the national debt to GDP ration remaining constant. I don’t care about that at all, except for the politics surrounding that issue. I’ve offered a solution to that political problem here.
Pingback: What Social Security/Medicare Solvency Problem?...
Thanks, Joe, for again bringing this solution before the public. The problem right now is that the austerians have the bit in their teeth and are hell bent on running the wagon over the (fiscal) cliff, even though austerity is dieing a slow death. The good news is that the President has the reigns in his hand and only needs to pull hard to turn the wagon. The big question is: will he do it? I hope we can bring enough pressure to force his hand.
Hi Sun, the problem is that the President is an austerian himself!
Joe,
Excellent navigation through the muddied, debt-laden course to classical austerity, the only road they seem to know in The District.
Just wondering if you would agree that both the rationale and the solution proposed by Adair Turner in his recent keynote speech at INET also provides the same way out of this mess, only except minting coins – which we should agree should not be necessary . Turner goes for Overt Permanent Money Finance(OPMF), doing so in the same fiscal-monetary vein as Simons, Fisher and Friedman.
http://www.youtube.com/watch?v=ZhrY_coLK_k
Monetary politics also makes strange bedfellows.
Turner’s recent release through the G-30 along the same vein.
http://www.group30.org/images/PDF/ReportPDFs/OP%2087.pdf
Please.
Gerry, “monetization” of the debt is another option. But in the PCS proposal I made above, there’s no monetization of debt. Just no debt issuance at all to make up the uncovered deficit. I think that’s better than monetization. Turner keeps talking about debt in his report. If HVPCS were used in the way proposed in my e-book (link above), then the debt would be paid off as it falls due, and no more debt would be issued.
Ye, I agree that the PCS option, as proposed, does not involve monetization of debt and does not involve debt-issuance. These are great tenets of recognizing the potential of sovereign fiat money.
I’m not clear on why you might think that Turner’s OPMF proposal involves debt issuance.
The (O) vert action is to join fiscal-monetary policy in direct government spending.
The (P)ermanent aspect of Turner’s plan matches Friedman’s Framework’ proposal – ‘ending the creation and destruction of money’ which can only happen when money is not debt-issued.
The (M)oney aspect is of course related to how the policy is funded, instead of through debt-
“”Appropriate increase in money supply is achieved by running fiscal deficit of 2% of GDP, financed entirely by
money..”
All of those being used to ((F)inance government deficits. He quotes Friedman’s ‘Framework’, thus.
“”The chief function of the monetary authority [would be] the creation of money to meet government deficits or the retirement of money when the government has a surplus. (p. 247)
Under the proposal, government expenditures would be financed entirely by tax revenues or the creation of money, that is, the issue of non-interest-bearing securities. (p. 250)
— Milton Friedman , 1948
Joe, please have a listen to Turner’s INET keynote speech.
It provides great legitimacy to any debt-free money proposal.
Thanks.
Gerry, I got the idea that Turner was talking about monetization from p. 2 of the paper adapted from his speech. This line, in particular:
“At the extreme end of this spectrum of possible tools lies the overt money finance (OMF)
of fiscal deficits—“helicopter money”—permanent monetization of government debt. This
extreme option should not be excluded from consideration for three reasons.”
Perhaps Turner didn’t really mean “monetization” but was just using the term loosely. Of course, you can’t “monetize” debt unless it’s issued in the first place. I don’t consider “helicopter money” monetization, but just “direct money creation” or perhaps “overt money financing,” if you prefer (I don’t because I think “direct money creation” is more descriptive).
I won’t make extensive comments on Turner’s paper/speech/framework because they would have to be too detailed, and I don’t want to take the time. But I will say that I sense a wrongness about it, a partial focus on both policy inputs and economic/political outcomes that will lead to bad analysis
Joe Firestone , “… Using PCS to cover the shortfall between entitlement spending and FICA revenues is a quick and relatively easy solution to the political problem of ensuring that the Social Security and Medicare “trust funds” are sustainable..”
Sorry Joe, that’s too good and too simple and it is correct, so why would they do something like that? Money ‘printed’ (coined) put into the economy by the government that would not require interest payments can at any future date be taken out of circulation at the exact same amount.
Spend an extra $1 trillion per year take 36 years to pull it back in.No sweat.
But Joe, how do you think you will be able to do this/ How do you think you will get the private for profit banks to allow US to screw them out of $1 trillion dollars profit over the next 36 years?
You see Joe, we are in servitude to them (PFPB) because like it or not they can simply ‘print’ that $1 trillion each year and tax it, (it’s called interest) and if at 2% , we would have to pay back $2 trillion.
Sorry Joe, you have the solution to part of where we went wrong: “paying interest on our own money”
The other part; Allowing ” Private For Profit Banks (PFPB) to ‘print our money’.
I think we can end our “servitude” anytime we get pissed off enough about ending it. I don’t think the banks can do anything about it once we see through the propaganda they generate. So, I’ keep trying to get through that. One day, I and others like me will get through it. But we have to keep at it, and that’s what I’ll do. I can use the help. I don’t need the cynicism. I’ve got enough of that myself.
JF,”I think we can end our “servitude” anytime we get pissed off enough about ending it.”
From your mouth to God’s ears. with the hope that “systemic failure” is not the required to get the people ‘pissed off enough.
We the people have for 100 years years allowed private for profit banks (PFPB): to tax us for simply being able to use our own money.
Please tell me .Where is the outrage? Where is the call “to end this slavery, servitude?
I read cures for the symptoms daily but there is no cry , “To end the PFPB to stop printing our money and taxing us to use it.- The disease itself.
Ask 100 people, one question ? You will not ever get 2 to answer “yes”.
“Do you believe that our money when issued is taxed, not by the government but by the private for profit banks (PFPB) ?
Perhaps,maybe what you call ‘cynicism is really just plain reality.
Perhaps, but I think that the case has simply not been put well enough. FDR died too early, and his New Deal people lost power too soon under HST. Harry didn’t understand New Deal economics well enough. Gradually, during the next 20 years its insights gradually faded, and many of the key figures who were closer to the truth about money died. It has taken MMT to resurrect and deepen their knowledge. This time we will eventually win.
“Time will come” with a hope that it may be sooner than previously thought.
Please read this post:PLEASE,PLEASE EVERYONE, SHARE THIS A MILLION TIMES.
May I repeat,
” Carl Herman, on June 14, 2013 at 9:34 am said:
Great article, Ellen; thank you. The power of our ideas must continue to resound until they resonate with the public’s critical mass if we’re ever to have money and banking serve the public.
We’ll do the best we can and discover all together what we can create.
All we have is good-faith effort and trust that we’re here on this beautiful but dominated planet for good reason 🙂 ”
And:
” pm , on June 14, 2013 at 11:08 am said:
There is no rational excuse for the politicians in Washington D.C. not to pass this bill, except for the fact that it upsets their banker overlords…”
Justaluckyfool says, “Amend the Fed” Make it a central bank that works For the People. Stop working for the Private For Profit Banks.
****Great article, Ellen; thank you.****
If they don’t pass the bill then, ” Elizabeth Warren for President”
Elizabeth Warren’s QE for Students: Populist Demagoguery or Economic Breakthrough?
Posted on June 14, 2013 by Ellen Brown http://webofdebt.wordpress.com/2013/06/14/elizabeth-warrens-qe-for-students-populist-demagoguery-or-economic-breakthrough/
A point that the Fed might make against PCS and in favour of the current policy of QE is that PCS reduces the amount of ammunition the Fed has to withdraw reserves from the system when monetary inflation takes hold. As in, if the Fed owns less T-bills than it wants, it will have a hard time raising rates when it wants them raised. Assuming that Congress will rapidly act to raise taxes to reign in inflation, which many people know they can use to their advantage – witness the public’s positive reaction to housing price inflation -, might very well be doubtful. Granted, the Fed’s willingness to act may also be doubtful.
The Fed can always maintain its FFRs. It just needs to raise interest on reserves (IOR), or lower that interest. It can get along perfectly well without bonds.
As for inflation, we are very far from demand-pull inflation right now. So, it’s hard to project what the willingness of Congress would be to raise taxes if it occurs. I have a feeling that they are so inflation averse, that they won’t have a problem raising taxes when the time comes.
I wish this were a problem we had right now so we could find out just how averse Congress is to inflation. I suspect that the tea party Republicans would still resist raising taxes that could bolster big government. The specter of hyper or even robust inflation still haunts the halls of the Capitol, however, so I think they would lose on that one.
During 1945-1970, we often fought the inflation vs. unemployment battle. Generally people chose a bit on inflation rather than higher levels of UE. This changed in the 1970s when people (and economists) confused cost-push inflation due to the oil cartel and demand-pull inflation caused by government spending. Fighting inflation then became the priority. We need to reverse that now. Straight up, if we counter the myths we’ll always win the inflation vs. UE trade-off. Keep in mind though that MMT-based policies can create full employment with price stability. So, perhaps even the trade-off is unnecessary.
Would you say that MMT principles would still be effective in a nation that does not have the leverage of the United States?
I’m not sure what you mean by “MMT principles.” MMT is a theoretical/conceptual approach to economics as well as a set of operational descriptions about how Governments and banks relate to the rest of the macroeconomy. The knowledge it represents is applicable to very economy, but leads to different policies depending on the specific circumstances of the macroeconomy being addressed. MMT is relevant for economies that have great impact on the rest of the world like the United States and also for economies that are much smaller and less impactful.
Hey Joe,
I’ve also thought about this statement recently….it seemed perfectly logical to me that when the unemployment rate was averaging under ~ 5% between 1945 and 1970……then the inflation rate had to be higher since increasing wages from a tight labor market would naturally translate into increasing prices since more people could afford to pay more for goods and services.
However, when I went and plotted CPI (less food and gas) at FRED, inflation was very similar between 45 and 70 to what it has been in the post stagflation period……if you chart both CPI and the unemployment rate together….there is almost no correlation so I am not sure how to account for this (in my mind at least) logical inconsistency with the historical record….any thoughts?
I think you are quite right, Auburn Parks. The idea that there is a long-term, essential trade-off between unemployment and inflation, is in essence, yet another piece of preposterous, insane BS from modern mainstream neo-neoclassical “economics”. After the instructive but undeservedly forgotten postwar inflation, there was a low inflation period til the 70s. The 70s had high inflation. Then we had a low inflation period til now. Any other segmentation is dishonest and tendentious.
Warren Mosler sometimes says that unemployment is inflationary. And IIRC , though I haven’t read it, Alain Parguez’s student, now at Bard, Olivier Giovannoni’s research claims to show this, that unemployment caused, was associated with, inflation in the postwar USA. Compared to MMT or real Keynesianism, or the New Deal WPA, postwar bastard Keynesianism was weak and inflationary, particularly in the USA. But apparently still strong enough.
First, I think fears of inflation were always greatly exaggerated. The Weimar and Post WW II experiences in Europe weighed heavily on everyone’s mind. Second, however, during the immediate post-war years in the US when wage and price controls came off, there was relatively high inflation during the first few years and then some higher than normal inflation during the Korean War. Then I think things were pretty stable until the Vietnam War expansion which introduced more inflation into the economy. On balance though I think the 1945-70 period was not very different from the post-stagflation period especially if you partial out food and gas before comparing the two periods.
I was thinking. Today government is further and further away from its citizens. The Federal government keeps growing in power year after year. In some cases this is good, but in other cases it solidifies power in the hands of a few elite.
I believe one reason that States are losing sovereignty to the Federal government relates to the ability of the Federal government to fund State expenditures in a way that States cannot ignore or do for themselves via high levels of deficit spending.
Pondering this, I wondered what would happen if all States maintained their own fiat currency and an exchange system was built that could route payment / translate prices for inter-stat economic activity (e.g. through Amazon).
It would seem that the Federal government would maintain some control through taxation. You would have State governments trying out new monetary policies to compete for economic activity. States would have options to get through economic downturns.
I’m pretty ignorant of all this stuff, but I do like to read MMT stuff.. I find it pretty interesting, and intuitively spot on.
What do you think?
I believe one of the articles in the Constitution specifically prohibits states from issuing their own currency. I don’t have the reference right here, and there may be some clever ways around the prohibition, but you can bet they would be challenged in the SCOTUS.
By the way, if people haven’t read it, here is a free link to Robert Eisner’s Save Social Security from Its Saviors. Recommended here by Stephanie Kelton as “the most honest and concise essay on the subject.” & “Find Robert Eisner’s article …. It should be THE basis for the progressive opposition to any/all attempts to change the program.”
A national sales tax that computes tax rates via formula based on 1st and 2nd order inflation estimates might provide a means to fight inflation
It might, but its regressive. I don’t accept regressive taxation, because I care about inequality.
I was thinking of it in terms of having a tax that removes money from circulation and reduces demand without a year long tax year lag.
But I agree that the taxation is regressive.
It can be made progressive by implementing an income-adjusted rebate of inflationary taxes. Monthly check, here you go.
I agree that could be effective.