Monthly Archives: March 2015

Why Understanding Money Matters in Greece

By Robert W. Parenteau
March 06, 2015

As Greece staggers under the weight of a depression exceeding that of the 1930s in the US, it appears difficult to see a way forward from what is becoming increasingly a Ponzi financed, extend and pretend, “bailout” scheme. In fact, there are much more creative and effective ways to solve some of the macrofinancial dilemmas that Greece is facing, and without Greece having to exit the euro. But these solutions challenge many existing economic paradigms, including the concept of “money” itself.

At the Levy Economics Institute conference held in Athens in November 2013, I proposed tax anticipation notes, or “TANs”, as a way for Greece to exit austerity without having to exit the euro (see “Get a TAN, Yanis!” published here last month, for an updated version of that policy proposal). This proposal is based on a deeper understanding of what money actually is, and the many roles that it plays in the economies we inhabit. In this regard, Abba Lerner captured the essence of modern fiat currencies, which are created out of thin air by modern states with sovereign currency arrangements. Lerner’s essential insight is contained in the following passage from over half a century ago (and, you will note, Lerner’s view informs much of the neo-chartalist view espoused by advocates of what is called Modern Monetary Theory):

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The “Debt Crisis” According to Bruce Bartlett: Capital Investment, the “Debt Burden,” Fiat Currency, and the Debt Limit

This is the second in a blog series of commentaries on Bruce Bartlett’s recent statement to the Senate Budget Committee. The first post in the series discussed a number of his comments on aspects of the “debt crisis,” a crisis he and I both believe doesn’t exist. I discussed a number of his reasons for doubting the severity of any debt problem and related each of them to the capabilities of the United States as a fiat sovereign.

In this post, I’ll cover the issues related to capital investment, the debt burden, fiat currency, and the debt limit. I’ll begin with Bruce Bartlett’s statement on how capital investments ought to be treated in the budget.

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The “Debt Crisis” According to Bruce Bartlett: Fiat Sovereignty

Today, I’d like to offer the first of three commentary posts on Bruce Bartlett’s recent testimony before the Senate Budget Committee. Bruce Bartlett is a long-time veteran of the fiscal policy wars. He initially became known as a supply-side free market economist working for Ron Paul and then Jack Kemp in the 1970s. Later, he served as a senior policy analyst in the Reagan Administration, and then in the Bush 41 Administration as the deputy assistant secretary for economic policy at the Treasury Department. Since then he’s worked at conservative think tanks and as a well-known writer on economic policy and politics, becoming increasingly critical, first of the Bush 43 Administration and then of the increasingly rightward trend of the Republican Party. Today I think Bruce Bartlett is best characterized as a fiercely independent voice still respected in conservative circles, and also, among progressives such as Jamie Galbraith and Stephanie Kelton, but never afraid to call balls and strikes on any Administration or Congress as he sees them.

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McCloskey’s First “Cheer for Corruption” is also a Cheer for Fraud

By William K. Black
Quito: March 5, 2015

In my first column in this series I discussed the gaping contradiction in Deirdre McCloskey’s book review of two books on corruption. The title of her article captures the immorality of her proposed “sermons” on corruption: “Two Cheers for Corruption.” McCloskey urges us to embrace many forms of corruption because she asserts that they add to economic efficiency and justice.

“But corruption can be efficient and just, too. It can be good for efficiency if, say, bribes are paid to get around bad laws (such as most of the building codes in American cities) or to smooth the course of sales by U.S. businesses to the Egyptian military. And the turkey at Christmas supplied by Tammany Hall justly helped the poor—if they voted right.”

McCloskey’s first of three “cheers for corruption” is inherently a cheer not only for corruption, i.e., bribery and extortion, but also a cheer for four types of felonies by elite white-collar criminals. The first crime is deliberately violating the building safety codes. The second crime is covering up that underlying crime through corruption – the bribery and/or extortion of the building safety code inspectors.

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McCloskey’s Plea for an Unethical Ethical Response to Corporate Bribery

By William K. Black
Quito: March 4, 2015

Deirdre McCloskey has provided another proof of our family saying that it is impossible to compete with unintentional self-parody. She did so in the guise of a review in the Wall Street Journal of two books on corruption. McCloskey’s thesis is that only ethics, not institutions, matter when it comes to stopping corruption.

“All that works in the end is ethical change, urged from the mother’s knee, the pastor’s pulpit, the judge’s bench, the schoolmaster’s lectern. It is fruitless to propose ‘mechanisms’ or ‘institutions’ absent an ethical desire in enough of us to do good.

We need sermons, which is to say instruction from our mothers and movies and imams about How to Be Good. Sarah Chayes and Jay Cost provide ample texts for the sermons. Indignation on the ground, if pervasive, stops corruption. The books give us cause for indignation, surely. But the rest is up to us, or our mothers teaching us at their knees.”

McCloskey proposes that we create “pervasive” “indignation” demanding an end to “corruption.” She suggests that the key is the consistency of that ethical message to “do good.” We need “sermons” from clergy, mothers, teachers, judges (during sentencing), and the media and movies that reinforce the message that the public must achieve a “pervasive” loathing of corruption and a commitment to “stop” it.

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Will We Ever Get Change if We Keep Electing People Who Represent Special Interests?

We can see the positioning and the messaging on the Democratic side beginning to take shape for the 2016 elections. Bernie Sanders and Elizabeth Warren with nods to Thomas Piketty and various economists have stepped forward to offer the themes of salvation for the middle class, moderating the extremes of inequality in American society, and doing something real about jobs and wages.

Clinton World seems to be responding, not yet with forthright statements from Hillary Clinton, but recently with articles by stalwarts of neoliberal Clintonism (and veterans of the Obama Administration) such as Larry Summers and Peter Orszag, expressing concerns about inequality and proposing measures to alleviate it, even including increased taxation on the wealthy.

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The Millennials’ Money (Pt 2)

By J.D. Alt

The comments on Part 1 have given me pause and food for thought—and they are much appreciated. Obviously, the generational theme is a lot more complicated than simply BGXers versus Millennials, but I don’t want to get lost explaining or defending the generational theories of Strauss & Howe. I’m sensitive to the critique that making BGXers out the way I am is a dramatic oversimplification and might, in some degree, be counterproductive to my goals by alienating the BGXers themselves. I’m struggling with that because, on the other hand, I want the book to be a “simple” and highly focused message—and the message is (a) that understanding and effectively using modern fiat money could very usefully become the “political brand” of the Millennials, and (b) the BGXers, because of their ideological baggage, can be expected to resist the whole way down the road.

In the meantime, what comes next in the proposed book is the essay Diagrams & Dollars, which I won’t repeat here, since it is already posted. The beginning and end of the essay will be re-written to better flow with the Millennial narrative. The section after D&D is what follows below. This is a particularly difficult segment for me: I am trying to convey, accurately, the money operations described by L. Randall Wray—which is a bit like trying to describe the rotations of a rubric’s-cube puzzle—and to do it in a way that won’t wrangle the brain of a typical Millennial reader who isn’t aspiring to being a banker. Comments here will be especially helpful!

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A Question to Our Bank CEOs Who Are Criminals: “Have You No Sense of Decency”?

By William K. Black
Quito: March 4, 2015

The FCPA Blog, an invaluable aid to anyone involved in the effort against corruption, has just run a story that epitomizes the neo-liberal approach to “liberty.” There is a massive movement, well-funded by political contributions, to privatize our prison systems. The private jailors overwhelmingly want to deal with the lowest risk jail populations – and then claim that they are “less expensive” than other prisons owned by the State.

The “Cash for Kids” Scheme

In Pennsylvania, in a fitting illustration of the dark side of von Hayek’s praise of “spontaneous order,” this privatization movement reached its neo-liberal peak when the owner of two privatized juvenile detention facilities bribed two Pennsylvania judges to send more kids to jail and maximize the owners’ profits. The huge size of the bribes demonstrates the scale of the miscarriage of justice and the enormous profits that injustice produced for the owner of the privatized juvenile detention facility. The FCPA Blog tells the sickening tale.

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Job Guarantee Presentation in Madrid Spain

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Walker’s War on Workers and the Wall Street Journal’s Cleaned-Up Coverage

By William K. Black
Quito: March 1, 2015

Wisconsin Governor Scott Walker has channeled his inner Mitt Romney and written off an immense swath of Americans as people he would not represent if he were elected President. Romney wrote off 47% of Americans and Walker wrote off America’s workers. Romney channeled his inner Ayn Rand and labeled 47% of American’s as worthless “takers.” Walker was more extreme. He labeled American workers, peacefully protesting, as analogous to ISIS terrorists. Romney’s dismissal of the 47% was made as part of a fund raising pitch to billionaire supporters who responded warmly. Walker’ war on workers was warmly received by his ultra-conservative base and his ultra-wealthy potential donors.

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