We always knew our readers were a smart bunch, but we had no idea how imaginative you are! Please keep sharing your creative endeavors with us (merchandise, animated videos, signs/slogans, etc.), and please keep spreading the word about MMT and NEP. Understanding the monetary system is the first step in a long journey toward creating a better world for us all.
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| Courtesy of Tschaff Reisberg |
Readers in the Rochester (Minn.), Waterloo (Iowa), and La Crosse (Wis.) area can attend a public lecture by Stephanie Kelton on Wednesday, September 28 at Luther College in Decorah, Iowa. Stephanie’s talk is at 7:00 p.m. in the Center for Faith and Life Recital Hall. For more information, visit the Luther College website. http://www.luther.edu/publiclife/
Don’t forget that beginning this Friday, NEP will kick off a new series called “Say W-h-a-a-a-h-t?” We’re keeping track of the craziest, boldest, and most surprising statements, stories, and videos we run across each week and we’ll share them with you every Friday.
Keep sending us your favorites and watch for ours beginning next Friday. Tweet your recommendations to @deficitowl, submit them through Facebook at New Economic Perspectives, or e-mail them to us at [email protected]
Beginning next week, NEP will kick off a new series called “Say What?” We’ll keep track of the craziest, boldest, and most surprising comments we run across each week and we’ll share them with you every Friday. Send us your favorites and watch for ours beginning next Friday.
We engaged Mark Thoma of Economist’s View on Twitter this morning. The debate is raging. Follow both of us on Twitter to watch things unfold. It’s not pretty.
Follow us @deficitowl
Follow him @MarkThoma
By L. Randall Wray and Stephanie Kelton
On Thursday night Barack Obama will deliver his highly anticipated jobs speech. At this point, only those closest to the president know exactly how he intends to help spur the economy and create jobs, but reports suggest that he is mulling a $300 billion jobs package that includes more of the same—a one-year extension of the payroll tax cut, a continuation of unemployment benefits, some additional spending on infrastructure and tax incentives to encourage businesses to hire and invest in new capital. Too little of what will work and too much of what won’t for an economy that’s teetering on the brink of a double-dip recession and a president who is running out of time to deliver jobs. [Read the entire article here]
Three months ago, when the May employment report revealed that the economy added just 54,000 jobs, President Obama urged the American people “not to panic.” (I urged the opposite here.) Now the August report is in, and oh what we wouldn’t give for 54,000 new jobs. The Republicans blame it all on uncertainty — employers are worried about the threat of new regulations and higher taxes, so they won’t risk parting with their mountains of (record-high corporate) profits (Mike Norman debunks the Republican argument here.). Obama essentially agrees with the Republicans.
First he blamed the doomsdayers for pointing out that the recovery was faltering, saying that their dismal warnings only hamper confidence, causing people to spend less and save more. Then he blamed lackluster job growth on the uncertainty that was created during the standoff over raising the nation’s debt-ceiling limit. Striking a deal to cut trillions in future demand (oops – I mean nasty deficits) was supposed to restore confidence among sellers. Like the Republicans, President Obama (is it really necessary to distinguish the two any longer?) also believes that red tape and regulation are major deterrents to the recovery and that ratifying some free trade deals and overhauling our patent laws will provide a substantial boost to the economy. Unlike the Republicans, the president also wants to see more spending on infrastructure and an extension of the payroll tax cut (possibly to include employers this time), but there is nothing truly bold or imaginative in any of this — certainly nothing that is going to prevent a double-dip (if it hasn’t happened already), and nothing that’s going to create millions of jobs within any reasonable time frame.
My fellow Americans,let me get right to the point.I have three bold new proposals to get back all the jobs we lost, and then some.In fact, we need at least 20 million new jobs to restore our lost prosperity and put America back on top.First let me state that the reason private sector jobs are lost is always the same.Jobs are lost when business sales go down.Economists give that fancy words- they call it a lack of aggregate demand.But it’s very simple.A restaurant doesn’t lay anyone off when it’s full of paying customers,no matter how much the owner might hate the government,the paper work, and the health regulations.A department store doesn’t lay off workers when it’s full of paying customers,And an engineering firm doesn’t lay anyone off when it has a backlog of orders.Restaurants and other businesses lay people off when their customers stop buying, for any reason.So the reason we lost 8 million jobs almost all at once back in 2008 wasn’t because all of a suddenall those people decided they’d rather collect unemployment than work.The reason all those jobs were lost was because sales collapsed.Car sales, for example, collapsed from a rate of almost 17 million cars a year to just over 9 million cars a year.That’s a serious collapse that cost millions of jobs.Let me repeat, and it’s very simple, when sales go down, jobs are lost,and when sales go up, jobs go up, as business hires to service all their new customers.So my three proposals are specifically designed to get sales up to make sure business has a good paying job for anyonewilling and able to work.That’s good for businesses and all the people who work for them.And these proposals are bipartisan.They are supported by Americans ranging from Tea Party supporters to the Progressive left, and everyone in between.So listen up!My first proposal if for a full payroll tax suspension.That means no FICA taxes will be taken from both employees and employers.These taxes are punishing, regressive taxes that no progressive should ever support.And, of course, the Tea Party is against any tax.So I expect full bipartisan support on this proposal.Suspending these taxes adds hundreds of dollars a month to the incomes of people working for a living.This is big money, not just a few pennies as in previous measures.These are the people doing the real work.Allowing them to take home more of their pay supports their good efforts.Right now take home pay is barely enough to pay for food, rent, and gasoline, with not much left over.When government stops taking FICA taxes out of their pockets,they’ll be able to get back to more normal levels of spending.And many will be able to better make their mortgage payments and their car payments,which, by the way, is what the banks really want – people who can make their payments.That’s the bottom up way to fix the banks, and not the top down bailouts we’ve done in the past.And the payroll tax holiday is also for business,which reduces costs for business,which, through competition,helps keep prices down for all of us, which means our dollars buy more than otherwise.So a full payroll tax holiday means more take home pay for people working for a living,and lower costs for business to help keep prices and inflation down,so sales can go up and we can finally create those 20 million private sector jobs we desperately need.My second proposal is for a one time $150 billion Federal revenue distribution to the 50 state governmentswith no strings attached.This will help the states to fill the financial hole created by the recession,and stay afloat while the sales and jobs recovery spurred by the payroll tax holidayrestores their lost revenues.Again, I expect bipartisan support.The progressives will support this as it helps the states sustain essential services,and the Tea Party believes money is better spent at the state level than the federal level.My third proposal does not involve a lot of money,but it’s critical for the kind of recovery that fits our common vision of AmericaMy third proposal is for a federally funded $8/hr transition jobfor anyone willing and able to work,to help the transition from unemployment to private sector employment.The problem is employers don’t like to hire the unemployed,and especially the long term unemployed.While at the same time,with the payroll tax holiday and the revenue distribution to the states,business is going to need to hire all the people it can get.The federally funded transition job allows the unemployed to get a transition job,and show that they are willing and able to go to work every day,which makes them good candidates for graduation to private sector employment.Again, I expect this proposal to also get solid bipartisan support.Progressives have always known the value of full employment,while the Tea Party believes people should be able to work for a living, rather than collect unemployment.Let me add here that nothing in these proposals expands the role or scope of the federal government.The payroll tax holiday is a cut of a regressive, punishing tax,that takes the government’s hand out of the pockets of both workers and business.The revenue distribution to the states has no strings attached.The federal government does nothing more than write a check.And the transition job is designed to move the unemployed, who are in fact already in the public sector,to private sector jobs.There is no question that these three proposals will bring the increase in sales we need tousher in a new era of prosperity and full employment.The remaining concern is the federal budget deficit.Fortunately, with the bad news of the downgrade of US Treasury securities by Standard and Poors to AA+ from AAA,a very important lesson was learned.Interest rates actually came down. And substantially.And with that the financial and economic heavy weights from the 4 corners of the globemade a very important point.The markets are telling us something we should have known all along.The US is not Greece for a very important reason that has been overlooked.That reason is, the US federal government is the issuer of its own currency, the US dollar.While Greece is not the issuer of the euro.In fact, Greece, and all the other euro nations, have put themselves in the position of the US states.Like the US states, Greece and other euro nations are not the issuer of the currency that they spend.So they can run out of money and go broke, and are dependent on being able to tax and borrow to be able to spend.But the issuer of its own currency, like the US, Japan, and the UK,can always pay their bills.There is no such thing as the US running out of dollars.The US is not dependent on taxes or borrowing to be able to make all of its dollar payments.The US federal government can not go broke like Greece.That was the important lesson of the S and P downgrade,and everyone has seen it up close and personal and they all now agree.And now they all know why, with the deficit at record high levels, interest rates remain at record low levels.Does that mean we should spend without limit and not tax at all?Absolutely not!Too much spending and not enough taxing will surely drive up prices and inflation.But it does mean that right now,with unemployment sky high and an economy on the verge of another recession,we can immediately enact my 3 proposals to bring us back toa strong economy with good jobs for people who want them.And some day, if somehow there are too many jobs and it’s causing an inflation problem,we can then take the measures needed to cool things down.But meanwhile, as they say, to get out of hole we need to stop digging,and instead implement my 3 proposals.So in conclusion, let me repeat these three, simple, direct, bipartisan proposalsfor a speedy recovery:A full payroll tax holiday for employees and employersA one time, per-capita, $150 billion revenue distribution to the statesAnd an $8/hr transition job for anyone willing and able to work to facilitatethe transition from unemployment to private sector employment as the economy recovers.Thank you.
Germany #1 being the Bundesbank and “finanzkapital”, which retains huge phobias about the recurrence of Weimar-style hyperinflation, and retains an almost theological belief in “sound money”. It is the Germany of closet gold bugs and Austrian economists, who believe in hard money, “responsible” fiscal policy and the like, and who were basically always antithetical to the euro as a big and broad union. Then you had the “Europeanists”, led by Kohl who essentially argued that you solve the “German problem” by binding Germany ever more fully into a pan-European framework, the currency union being a key part of that. The swing vote was Germany #3, Industrial Germany which bought into the idea of the currency union precisely because it locked Germany’s industrial competitors at a fixed exchange and removed the expedient of devaluation.
By Marshall Auerback and Rob Parenteau
No less than the new IMF head, Christine Lagarde, has recently counseled against letting fiscal brakes stall global recovery, even though the IMF has hitherto consistently been at the forefront of calling for more “fiscal consolidation.” Indeed, it is manifestly clear that the governments which have drunk from this particularly glass of Kool-Aid most enthusiastically – Ireland, Greece, Latvia, Spain – are now seeing depression-like economic data.
Forget about the S&P downgrade, which has had ZERO impact on the global equity markets. The downgrade was supposed to mean that it would be more likely that the US government would not be able to pay its debt than previously assumed. IF the markets took this warning seriously, then they would have attached a higher risk premium to US government bonds. Of course, the opposite occurred. US bonds soared in price. In other words, investors, both here and abroad, voted with money as loudly as possible that they view the US government debt as a very safe haven in a time of financial turmoil
At this juncture, however, there isn’t enough time to create a “United States of Europe”, which is why the ECB has resumed its bond buying operations to put a floor on the bonds and alleviate concerns about the solvency issues of the individual nation states. The ECB has received a lot of criticism for this. In one sense, the criticisms are legitimate: The ECB is in effect playing a “fiscal role” for which they are ill-suited. They buy time by buying the bonds. But the bond buying attacks the symptoms, rather than the underlying problems. And it’s fundamentally undemocratic: In taking up this role – by way of the ad hoc bailouts and secondary bond market purchases the ECB has become a sort of fiscal tsar unanswerable to any national electorate.
Immediate relief can be provided by the ECB, which should be directed to create and distribute several trillion euros across all euro zone nations on a per capita basis. This would not constitute a “bailout” as such as Germany (with the largest per capita economy) would be the largest recipient. Each individual eurozone nation would be allowed to use this emergency relief as it sees fit. Greece might choose to purchase some of its outstanding public debt; others might choose fiscal stimulus packages. While this might sound much like the current bail-out, in which the ECB buys government bonds in the secondary markets from banks (assuming the risk of a default by Greece, for example), the emergency package outlined here (first proposed by Warren Mosler) would be under the discretion of the individual nations.
“The likely result of a German exit would be a huge surge in the value of the newly reconstituted DM. In effect, then, everybody devalues against the economic powerhouse which is Germany and the onus for fiscal reflation is now placed on the most recalcitrant member of the European Union. Germany will likely have to bail out its banks, but this is more politically palatable than, say, bailing out the Greek banks (at least from the perspective of the German populace).”
The question remains: do the Germans ultimately quit the euro to save Germany or do they take the view that their fate is too intertwined with the common currency and that departure imposes an even greater economic and political cost.
Consider the chart constructed by the economist, Rebecca Braeu, of Standish Management:
The red line refers to Germany’s leading economic indicators – order books, exports, etc., and point to dramatically slower growth in the months ahead. Germany is in effect also a passenger on the Titanic, as Italian Finance Minister Guilio Tremonti recently noted. It might be in the first-class cabin, rather than steerage (or Irish stowaways, as the Germans no doubt view the former “Celtic Tiger”), but when the boat hits the iceberg, all passengers are affected.
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