By Dan Kervick
Imagine this: In a burst of manic, public-spirited zeal and budgetary enthusiasm, the US Congress passes, and the President signs, the following law. (Lawyers, forgive my poor mastery of legalese and feel free to translate the sense of what follows into the appropriate terminology):
L.1 The Secretary of the Treasury shall by a date no later than September 30, 2013 consolidate all United States Treasury accounts into a single account, to be called the “General Account”, and to be held at the Federal Reserve Bank of New York.
L.2 The General Account shall be used to settle and record all payments to and from the US Treasury.
L.3 The Federal Reserve Bank of New York shall on midnight, October 1, 2013 credit the General Account with an initial balance of $1,000,000,000,000,000.00
That’s one quadrillion dollars, about 263 times the current US annual budget, and about 63 times the current US Gross Domestic Product.
There is no question that Congress has the authority to do this. Constitutionally, the monetary authority of the United States rests with Congress. The Federal Reserve was created by an act of Congress, the Federal Reserve Act, and exercises its powers under that act. The Fed operates according to congressionally assigned mandates and regulations, and those governing rules can be changed any time Congress so desires. Congress also possesses the power of the purse; that is, it controls the US Treasury subject only to the possibility of a Presidential veto – which it can override.
So suppose it passed such a law. What would change?
Note that nothing important would change automatically. Congress could go right on spending exactly what it spends now and taxing exactly what it taxes now. It could even direct the Treasury to issue the existing forms of Treasury securities – notes, bills, bonds and TIPS – in exactly the quantities and denominations it currently does : about a trillion dollars net increase in debt a year. Business in the non-governmental sector would therefore go on more or less just as it does now, wouldn’t it? And so long as people were convinced the government was resolved to continue on as before, expectations of growth, employment, inflation and the rest should be unaltered.
So nothing important would have to change. But what would change and what should change? What would responsible fiscal and monetary policy look like in this new world of the gargantuan balance? What kinds of changes would the public call for? What expectations would people have about what the government’s policies would look like in the future? And how would those expectations influence their current behavior?
Now suppose Congress decides it doesn’t like the new law as originally written. They vote again, and section L.3 is replaced by:
L.3a The Federal Reserve shall on midnight, October 1, 2013 credit the General Account with a negative balance of minus $1,000,000,000,000,000.00.
L.3b The Federal Reserve shall clear all authorized payments by the Treasury, and adjust the General Account balance accordingly, permitting overdrafts when necessary without penalty to the General Account.
That’s minus one quadrillion dollars. Oh no! The government is out of money!
But wait: since the Fed is now required to permit overdrafts, it really doesn’t matter, does it? The balance in the account is just a convenient way of measuring the size of the Federal government’s transactions with the non-governmental sector. The absolute size of the balance doesn’t matter. If the Treasury has $1,000,000,000,000,000 in the account at the opening of business on October 1st 2013 and $999,000,000,000,000 in the account at the close of business on September 30th 2014, then its combined outlays and tax receipts amount to a transactional deficit with the non-governmental sector of $1 trillion. But the same is true if it begins with a minus $1,000,000,000,000,000 balance and ends with a minus $1,001,000,000,000,000 balance.
What if the account balance were $0? Or $1,000,000,000,000,000,000,000,000,000? Or minus $761,006,525,819.82? It seems obvious now that it doesn’t matter.
Unlike the rest of us, the government doesn’t need an account balance to spend. The balance is ultimately there for bookkeeping purposes. As the issuer of the dollar the government doesn’t fundamentally need to keep track of the money it has, but only needs to keep track of its taxing and spending. All it really needs is a sort of in-meter and out-meter. The economic impact of $3 trillion going in and $4 trillion going out is exactly the same, no matter what quantity happens to be in the account. In fact, so long as the government has a well-functioning and well-governed in-meter and a similarly well-functioning and well-governed out-meter, it really doesn’t matter whether the Treasury has an account balance at all. The incoming transactions from tax payments could be re-classified as “deletions”, since they just delete private sector balances without moving those balances to a government account. Similarly, the outlays could be re-classified as “creations” since they just create private sector balances without moving those balances from a government account.
But there are a number of questions we can then ask, once we have moved to this picture of the irrelevance of the absolute size of the government balance:
- Would the government still tax? How much? And from whom? And what purposes would the taxes serve?
- What about government spending? How would we direct our spending? And with the new accounting system in place, would the public change its perspective on how, and for what purposes, the government should spend?
- What about government securities? Would any purpose still be served by issuing securities? Who would be permitted to buy them? How would we conduct the sales? How should the rates be set?
- Would the government buy securities from others? And if so, then again, for what purpose?
- And once the psychological link between taxing and spending were broken, how would we understand the nature of our social contract in the economic sphere and the sphere of public finance?
This is just a thought experiment about an imaginary world and system of public finance that doesn’t exist. But thinking about this imaginary world seems to tell us something about the world that does exist. How should we think about the fact that both Republicans and Democrats in Washington are currently preparing to negotiate the details of a $1.1 trillion deficit reduction package due to reduce this year’s deficit by $110 billion dollars and reduce our GDP by 1.5% – all while the country is enduring a staggering 7.8% unemployment rate and a disturbing intensification and institutionalization of economic inequality? And how should we respond when both our President and the leadership in Congress tell us we are “out of money”?
Why bother taxing citizens when you can print all you want?
Because taxation – debts to the state – is what drives demand for the money – debts of the state. The printing/spending is the real taxation, whereby the state gets real stuff from the governed for credit=money. But the state has such a good record in credit-redemption = taxation, that the state’s credit is highly desirable, and for most people, hard to get. So people want to save up the state’s credit/debt/money, which means there is usually going to be more printing than unprinting/taxing. Individuals do get something for their tax payments: they really rent from the state the land they think they “own”, the rent payment being property taxes. They get freedom from jail for other taxes. Unemployment is an indication that we are taxing too little or printing too much. Inflation indicates of the reverse.
I think you mean, “Unemployment is an indication that we are taxing too much or printing too little. Inflation indicates the reverse.” Let me know if I’m wrong about that. It’s as easy to reverse these as to reverse
Dan’s + and – signs, but in this case it means a little more.
“Because taxation – debts to the state – is what drives demand for the money – debts of the state. ”
But please note, “Taxation is a means by the Sovereignty to acquire currency in existence from circulation .” Federal Income Tax is only one of the means that is used of many possible.
Why not use compound interest on issuance of the currency instead of income or FICA?
Broge asks, “Why bother taxing citizens when you can print all you want?”
Why indeed. I say all federal taxes should be abolished.
MMT people are extremely rigid about a number of things. They think in slogans, such as, “Taxes drive money.”
State and local taxes would maintain the legitimacy and authority of the U.S. dollar currency, but no, MMT people love federal taxes (which the rich don’t pay anyway).
Inflation could be controlled via interest rates, but no, MMT people love federal taxes.
If it turns out that we must have federal taxes after all, then federal taxes should be a last resort — but MMT people think it should be a first resort.
It’s one of the MMT people’s many failings. They are as rigid as people who reject MMT altogether.
Mark, does it bother you at all that nothing you just said is actually correct?
Instead of saying “MMT people are extremely rigid”, “They think in slogans” and “love federal taxes”, why not just say “I disagree with MMT on this and that” or “I think MMT is wrong on this and that”?
That is very true Mark. Nice catch.
Federal gov should tax only for SS and Medicare funds, or universal healthcare for purpose of organizing it and equitable distribution, while local and state gov should tax to preserve their accounts since they are only the user of the currency and to keep desire to use US money alive.
Benefits and problems of a fully MMT system is not yet discovered fully so do not ostracise MMT theorist for not knowing everything. People like you contributed to present epistomology of MMT. Thank you.
Broge – – –
Taxation is a tool to regulate the amount of money in existence. There are times (like now) when taxation should be lower and times (like 1996 – 2000 and 2004-2007) when taxes should be higher. The adjustment of tax levels could be defined by a legislated formula that would include employment and inflation.
Fiscal policy could be a defined guide rail for the ecomony with monetary policy (interest rates and reserve requirements) from the Fed providing tuning of what results from the fiscal guide rail.
We need to stop thinking of taxation as the means of funding the federal government and start thinking of it as a monetary stabilization tool.
It’s also a potential tool of redistribution or leveling.
Which is precisely why changes are so anathema.
What an amazing article !
A real challenge to “What we are doing, If we are doing it wrong, and How to improve”.
****””How can a government use a taxation “…to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity,…”” at the same time reduce personal income taxes to zero, and reduce FICA to zero, while maintaining control of the quality and quantity of its currency? ”
I beg for your assistance to :” ***** “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha[Gautama Siddharta] (563 – 483 BC), Hindu Prince, founder of Buddhism
The solution is in how we redistribute the wealth of the nation. We need to change its path from going to the few that use it for its own selfish aims and benefits. Change that path to that which would benefit “all the people”.
Please see above comment as I wish to include your comment within a valid definition of taxation.
“Taxation is a tool to regulate the amount of money in existence.”
Once again, Why not have a fair and equitable tax, one based on currency issuance?
Dan – good article. As I was reading the first half, I was writing a comment in my head. Which was roughly the second half of the article.
Thanks Calgacus. I tried to write a more Socratic, interrogative piece this time, instead of pretending I already know all the answers.
For a currency sovereign, the monetary issue is a liquidity management issue only. When Treasury credits bank accounts based on expenditure iaw the legalities of appropriation process and the regulation governing the agencies that contract for govt, the govt’s fiscal agent, typically the cb under the current arrangement, simply needs to supply liquidity to clear.
The Treasury simply credits accounts iaw the appropriations and expenditure processes, and the fiscal agent clears in the payments system. There is no need for govt to have “money in the bank.” It’s just keystrokes entered on spreadsheets iaw institutional rules, like keeping score in a game.
Anything in addition to that which is imposed over the operational necessity is just an attempt to baffle with BS, or the introduction of inefficiency.
Would Billy Bob understand ANY word of that?
Well done. I wonder what Krugman would say.
Hmmm…. “Where’s the IS-LM curve in all this?”
We really need to figure out a halfway decent way to incorporate the key insights of MMT into an IS/LM format. I think it’ll help a lot of people.
Start by accepting that the LM “curve” is actually a horizontal line and is an exogenous policy variable. I think that get’s you quite a ways.
I thought he meant a more graphical presentation for MMT, not injecting MMT ideas into IS-LM.
Might as well go all the way – creating an MMT/Post-Keynesian IS curve.
Since the MMT position is that the rate on government debt is a government policy choice, not market driven, then isn’t an IS-LM framework inapplicable?
I think that IS-LM is totally inapplicable. My point was just about how one could explain macroeconomic reality to someone with that framework already imbedded in their noggin.
True! But that just makes it identical to the New Keynesian LM curve. We’ll need to take it further than that.
Unlike the rest of us, the government doesn’t need an account balance to spend.
You were doing great until that sentence.
Nobody needs an account balance to spend. Anyone can make expenditures in excess of their income as long as they can issue liabilities that someone will accept. For you or I, that usually means being able to borrow for a mortgage, or on a credit card, student loan, etc., but also stuff like this: The other night I was at my local watering hole, it’s closing time, and I find I’ve forgotten my wallet. “Fine, we know you, you can pay us tomorrow.” (There’s a reason that dissertation is still not done.) Hey presto, I just spent without an account balance.
In this case, I’d really forgotten the wallet, but you could imagine the same thing happening when I just didn’t have the money. That kind of informal credit is economically minor today, but historically has been the main form of payment in many settings. (Graeber is good on this.) It can potentially make spending very elastic with respect to incomes, especially once you start exchanging these kinds of private debt claims with third parties.
For businesses there’s bank credit, plus trade credit (the equivalent of my paying the bar the next day), plus the capacity to issue new equity and bonds. It’s quite normal to hear about corporations paying for acquisitions with stock; there is no *fundamental* difference between that and what the government does when it makes payments with newly issued money.
Now, it’s true that there are differences in practice, but they are only differences of degree, and there are gray areas, like company-town scrip, or the dollar in its international role.
It’s my opinion that you MMT guys are right on all the important substantive questions, but you undermine your case with this chartalist idea that there is something special about government liabilities, and then working deductively from that.
I think you are wrong about this JW. Yes, it is true that ordinary people can also deficit spend, by reducing their stock of savings. If they have positive savings then the amount goes down – either immediately by using some of it or over time by issuing debt against it. If they have insufficient savings then they must issue debt, if a creditor can be found, and their savings stock goes negative. They can continue that way indefinitely, but only so long as they can continue to find creditors. And when you or I or a business issues credit, the credit instrument that is issued is necessarily different from that which the instrument promises. A genuine financial liability is always a liability for something.
Government is not like that, unless they choose to operate on similar principles. Some government liabilities are genuine debt instruments that are liabilities for something. Securities are obligations to pay dollars. But government dollar liabilities are not really liabilities for anything, and so are liabilities only in a more honorific sense. When you accept a dollar in payment from the government, you are not extending the government credit by accepting a financial instrument that is redeemable in terms of something else. Once you take it, you already have the thing that is the final means of payment for all debts. That’s it. It’s the bottom of the credit chain. You have no further claim on the government.
If the government has imposed a liability on you to give them dollars, then you are entitled to use those the dollars you already have discharge the obligation. But the same is true if the government obligates you to give them bushels of wheat and you possess bushels of wheat. That doesn’t make wheat a credit instrument. The wheat is here what is owed, not an instrument representing the owing of it.
It is also true that in accepting the government’s currency you are in some sense investing “faith” in the currency. But that faith is not the faith of the creditor who extends faith to the debtor, faith that they will eventually pay up. Once you have accepted the dollar the government no longer owes you anything. Your faith is only the faith that others will accept the dollar in exchange for certain other things you want. But that is true even if the government pays you with a Picasso and you hate Picasso. You accept the painting because you think you can exchange it for other things. Once you have accepted it, the government owes you nothing.
This is where the chartalist considerations properly enter in my view. The government has the power to support the widespread demand for these final payment instruments by requiring people to tender a certain number of them to the government. Government has the power to issue OUMEs (“You owe me”), not just IOUs. That’s unique. A private individual can try to issue a UOME to you, and compel you to make payment, but that kind of shakedown is illegal and you have legal recourse against it. Not so with the government.
And there is the adjudicative role as well. People can work out various contracts among themselves involving exchange and credit. But the final adjudicative role as to how much of a balance of the final means of payment any agent has, and how much they owe, is played by the government. The government could always dictate, by fiat, what you have, and adjust your balance through a legal proceeding. But the government is its own judge where its own balance is concerned, and with respect to whether it does or does not owe.
“this chartalist idea that there is something special about government liabilities”
The main difference I suppose is that government makes the law and has the legal power to impose debts on people.
“When you accept a dollar in payment from the government, you are not extending the government credit by accepting a financial instrument that is redeemable in terms of something else. ”
You could say that simply by accepting it in payment you are extending credit to the government.
How y? It seems to me that if “credit” has any fixed meaning in economics and finance it means “accepting a promise of final payment in lieu of a final payment.” But when you accept the government’s dollar the government hasn’t promised you anything. That’s it. You’ve been paid.
“the government hasn’t promised you anything”
It’s promising that its bits of paper/bits of metal are/will be worth something.
When it pays people with its liabilites it’s not saying “this is a worthless and meaningless piece of paper I’m giving you right now”. It’s saying, “this piece of paper has value. Trust me”.
“Credit” comes from the latin “credo”, meaning “I believe”. You can either believe that
..someone will “repay you”, or that the thing they pay you with has value.
“The main difference I suppose is that government makes the law and has the legal power to impose debts on people.”
Exactly. That is what “sovereign” means.
JW Mason : It’s my opinion that you MMT guys are right on all the important substantive questions, but you undermine your case with this chartalist idea that there is something special about government liabilities, and then working deductively from that. This is not something that the MMT academics actually do, or do incorrectly. Sometimes, often they speak as if they do. Bill Mitchell a few days ago was a bad example of this confusing way of speaking. But as Wray says, the best papers ever written on Money were Alfred Mitchell-Innes’s – see the conference volume on it for further explication and development – and they are devoted to NOT making this mistake. This is essentially an old circuitiste critique of Kansas City, of MMT. The countercritique was for the circuistes to get the role of the state right. But now as far as I can tell, it’s all peace, love and harmony – two bunches of damn hippies merging their communes. 🙂
The chartalist idea that there is something special about government liabilities is correct. Because there is something special about the government. It is a lot bigger than you or me. That is all. But it is more than enough. Otherwise, government liabilities are exactly the same as private liabilities. A government is just a big household. The household budget “analogy” (not a mere analogy, but two instances of the same concept) is valid. But you have to do it correctly, do the accounting correctly, which is almost always not done.
What Dan is saying below is not MMT. Frankly, it is very wrong. Financial liabilities are never liabilities for something in the way he says. Mitchell-Innes is right, he is wrong, and this is not a peripheral matter, but a central one. Government liabilities are no different from any other sort, not “honorary”. The problem with MMT is misguided exposition, that makes people think it is saying something it is not. I have been saying this for quite some time; I’m a broken record about it.
The upshot is that you, JW Mason agree with MMT, while Dan unfortunately is distorting it. Thinking of government liabilities as magically different in fact is a step backward towards the commodity theory and the neoclassical mire. In fact, as far as I can tell, was part of how the Great Leap Backwards, the demise of the Keynesian era, actually occurred. Thinking in terms of “negative”, pejorative terms like “debt” and “printing money” is actually the right way to present things, to really understand real economics. Better memes than keystrokes etc, as I said a few days ago,
Because modern governments are so big, their monies are the natural choice of “coordinate system” for understanding finance. It usually is the best way to perform calculations, talk about specific situations. Thinking of money purely creditarily is the slick, modern, look-ma-no-hands coordinate-free description. Which is a definite advance, a true increase in knowledge But very often, the easiest way to understand things is by using coordinates. Using matrices, not linear operators. (Even if the final published result speaks solely about operators, you can be 99% sure that behind closed doors, the writer was furiously fiddling with matrices. 🙂 See PR Halmos on this point.) But there are some other things which are much easier without coordinates than with. Economists should do what good mathematicians do: whatever is easier. But definitely do both, present both, make people understand both and how they are related, are really the same thing.
Terrific piece, Dan! It really establishes the point that the balance doesn’t matter, as long long as there’s no constraint on spending what Congress has already appropriated. Of course, since there is such an artificial constraint; the TGA balance matters; and that’s why with the present structure of laws, we need that big coin.
A corollary to Parkinson’s Law applies, expenditures expand to consume resources allotted. An ungoverned engine of state would rev until it destroyed itself. Presumably your central planners wouldn’t take TOO many vacations.
Do you have a list of the email addresses of all the members of Congress and the Senate? If so, have you sent them an copy of this item as an attachment? What about the economics departments of USA universities.
Thanks. An interesting way way of avoiding the concept of infinity. But big numbers will always worry people, they are comfortable with small numbers, but I wonder how many in the street actually know the number of zeros in a billion?
Excellent article. I wish I had time to do research on issues like this. As I understand the original “greenbacks” issued during the Civil War they were essentially just printed currency for internal use. I am fairly certain that a similar currency was used in the Revolutionary War. The point being that for “internal” expenditures I would think that the government did consider that it could literally “print” money. (granted this was war time). I think that the “debt” originated more as foreign obligations where the US government needed to buy things in the international market. I wonder if originally US government bonds may have been issued in Pounds Sterling?
Of course, printing money can debase the currency just as effectively as rubbing the edges off coins. Granted as well that a government that draws too many resources from an economy can…… And this is here I have problems expressing myself. So much of our economic discourse is riddled with “code” words. Can such a government “confiscate wealth” “destroy growth” “crush freedom” or merely “create inefficiencies.” What does any of that mean? What is “wealth?” If I have $1 billion in the bank I guess I am wealthy. But what if I own a business valued at $1 billion that employs 1,000? I would suggest that the business owner’s “wealth” is much different although of apparent equal “value.” (I would note that I do not agre that the owner as a person should somehow be revered above the mere bank account holder. In fact, quite the opposite. His workers add “value” that he can collect upon in our financialized world).
I think that it will speak volumes about the financialization of the economy if we become the first government to collapse because of a bookkeeping entry.
Thanks George. Personally, I don’t have the time for this kind of research. But I do it anyway. 🙂
As it happens, I’ve come across some historical documents and information about money preceding and during the early years of the US.
At Valley Forge, they told us that the soldiers were paid in scrip, which was promised to be redeemed after the war, assuming, of course, that the United States still existed after the war. The scrip traded at a discount to actual money (or money-things), and many soldiers traded it away because of an immediate need to buy things, and speculators hoarded the scrip and were paid in full after the war.
In Burlington, VT, we visited the home of Ethan Allen, and they had some early notes issued by the nation of Vermont, which promised to redeem them in pounds sterling, or Spanish gold or silver coins. I took some pictures of them:
I think the scrip is much like the greenbacks of the Civil war, and the Vermont currency seems like a sovereign pegging its currency to another one, or to bullion. Vermont was an independent country from 1777 until 1791, when it became the 14th State.
I’ve wondered (sometimes in writing, but without a response) about how the MMT statement that the sovereign spends first, then taxes, operates in a brand new country. I can’t imagine that Vermonters were all stuck with worthless paper when the Nation of Vermont vanished, and they all had to scramble to get some US dollars. I think the equitable thing to do would be for the US to buy up the Vermont currency, issuing dollars to do so. Does MMT consider that to be “spending first”, and is it equivalent to the US buying gold bullion, or gold coins or even British notes, and that is how most of the dollars came into existence, rather than the government ignoring all previous money and simply buying the things it needed with dollars?
I don’t know if there is a well-developed MMT position on this issue. But swapping the new IOUs for the old IOUs seems like an excellent way to get the adherents to the former collapsed polity to buy in to the success of the new one. The value of the currency issued by a government depends on the success and continued viability of that government. So once people have bought into the currency, they have bought into the government.
I think a complication is that most of these older currencies were not chartal currencies. They were IOUs for gold or some other more generally accepted currency, something like a bill of exchange – or else for something else of immediate value the issuer promised to provide on demand. The era of more or less pure chartal fiat currencies is a relatively recent historical phenomenon.
But I think we see throughout the course of monetary history that a form of currency that originally draws its value as a credible IOU redeemable for something else that backs it develops a kind of independent life of its own as the redemption rate at which it is redeemed for the backing stuff declines – and eventually most people forget about the backing. Then the currency is sustained by a combination of its conventional convenience as the customary means of exchange, and by the tax obligations the government imposes for it.
“most of these older currencies were not chartal currencies. They were IOUs for gold or some other more generally accepted currency, something like a bill of exchange”
unmarked lumps of gold may not be ‘chartal’, but coins are chartal if they are designated as money by law.
you could go so far as to say that gold bars, which are marked with their weight and fineness along with a stamp of authority, can be chartal money if they are designated as money by law.
There has to be more than just designation. They have to be established as the means of settling payment in government “pay offices”.
well that would foll0w, wouldn’t it?
The early colonial scrips, or “bills of credit” were usually just ‘tax credits’ and legal tender. Some government-issued notes were redeemable in coin however.
Government creation of credit to lend into the economy as part of the National Credit should be viewed as “Conditional” in the sense that it only needs refluxing when abnormal inflation occurs or, for example at an extreme, a democratic process might rule that an environmental disaster threatens unless private consumption is rapidly reduced ( Nature is not considered a “creditor” in our economic system merely something we tend take from for free or have a great deal of difficulty pricing as an abuse deterrent ). Private banks creation of credit as their contribution to the National Credit is always “Unconditional” in the sense that despite any roll-over of repayment of principal and interest ultimately it will always need refluxing.
Forget the Fed; it exists to serve the banking cartel, not the US or the US Government; let the “General Account” be held at the US Treasury.
Also the Fed is an enemy of inflation-free deficit spending by the monetary sovereign since the central bank plus government deposit insurance allow the banking cartel to create vast amounts of spending power that compete with deficit spending for goods and services.
Yes,perhaps that is why Keynes, Minsky, Desoto, and many others, especially Frederick Soddy felt the need to “free banking”.
Now that’s one hell of a term meaning….to separate banking from any special privileges granted them by legislation and have them return to being accountable to civil law.
This example can be examined as if the account extremes had the relational equivalent of frequencies as octaves, a ratio of 2/1. This acoustic relation is shown to be the first harmonic subdivision of a vibrating medium set in motion at twice the speed as the fundamental itself which is a single curve given the ratio of 1/1. Much of the work currently happening here, as this article suggests, are thought exercises, experiments in psychology and communication and since these can be evaluated for their efficiency in relation to changes measured against a norm, it may prove useful to consider a simple,yet typical view of perceptual norms as correlated to physical properties.
Joseph Schillinger, an innovator in the field of design as it was applicable to an overall general theory arts, approached the issue of norms along this line of thought. He asserted that the perceived equivalent of an accepted norm was always the ratio of 1/1. His viewpoint held that psychological response emerged from the relation of a tendency to its realization,much like a trajectory, an experiential evaluation of mechanical efficiency. He further asserted that response would evolve in either a positive or negative direction caused by an existing norm, a perceptual bias.
Schillinger’s general theory proceeded to model itself using numerical orders that were naturally occurring, claiming that while unpredictable perceptual diversity and bias existed, they also co-existed with a deeper bias relating to physical properties with roots in natural causality. Orders of numbers, harmonic series, fibonacci series, dynamic symmetries ect. had an importance in creating useful narratives by reliance on inherent psychologically valid norms.
I had to marvel at Dan’s intuitive grasp of extending an octaval relation to a narrative argument of values arranged to indicate a relative mean. He first sets the stage with a positive balance under conditions that border on the fantastic, but for the sake of argument are valid to the norm of the narrative. He introduces the relative mean a point of reference to evaluate trajectory, following which the narrative is proportionately inverted to the negative zone and symmetrically reorganizes it again to the relative. A single wave form, a natural curve has been established which he goes on to identify and articulate and support the experience of, validating the suggested norm of the mean. It’s really quite amazing, clever and intuitive. The overall experience is progressive and encourages the provocative value of experience in terms of perspective, the value of hypothesis and experiential learning. A credible hit to far right field right inside the first base line, I’d say he’s safe on third.
Interesting. Do you have a citation I can look up?
Is there any difference between implementing Laws 1, 2, and 3 above and just eliminating the debt limit entirely, or setting it at about one quadrillion dollars?
Well, you could eliminate the debt limit but still require the Treasury to sell debt to cover gaps between tax receipts and outlays. One option, at least, with the overdraft/big balance would be not to issue debt at all. The government could just spend more than it taxes – end of story. Whether that is a good idea or not is a different issue. Some savers might want the option of buying government bonds rather than depositing in commercial banks or buying other safe private assets, whether the government needs to borrow or not, just like they might want the option of Social Security instead of private retirement plans. So the question of debt issuance then comes down to whether or not we want the government to provide that public service.
This is one point that is rarely mentioned in the debate surrounding the Federal debt: US Treasury securities (US debt) are the safest investment possible. If the government actually balanced it’s budget (or ran a surplus) to the extent that they stopped issuing securities, investors would freak out. When the stock market takes a dive, where do all the investors flee to? Government bonds; US debt. And I’m pretty sure most pension funds are required by law to hold large amounts of their invesments in government securities.
Imho, income taxes should not be imposed on anyone making less than, say, $250,000/yr. After that they should start high (30%) and be sharply progressive. Exise taxes are another can of worms, of course. Preventing distortions in wealth concentration that inevitabley lead to distortions in the political process is the main positive benefit that can (possibly) result from tax policy.
Your analysis helps me think of the need for funds and the issuance of securities separately. We could fund our debt without issuing securities and we could issue bonds even if we had no debt. Not exactly family finance is it? Once that link between the need for funds and the issuance of securities is broken, it’s easier to see the selling of bonds to China at a low interest rate as a good deal rather than as a loss of control, as it’s often portrayed.
One follow up question. Is there any effective interest rate on the overdraft/big balance? If there isn’t, that would appear to be a slick way to eliminate interest on the debt.
The US Treasury debt is held by various entities as US Treasury Bills, which are sold at a discount to their face value, which implies an embedded rate of interest. Maturing Bills are redeemed for US dollars on daily basis and new Bills are sold in an auction like process to the highest bidder. Supply and demand sets the new embedded interest rate.
Since all money is created as debt in the US banking system, there is always a corresponding credit. It is a zero sum game. No debts = no money. For someone to be wealthy, other people must owe him his money, directly or indirectly.
There is now so much money sloshing around the world seeking a return with limited risk, it has caused interest rates to fall. The small saver is screwed by these low rates, since inflation of the currency – its loss of buying power- is greater than the interest rate. Wealthy people invest their money in hedge funds, which speculate heavily in the stock, bond and commodity markets. These people are not concerned if prices go down, since it gives them an opportunity for shorting the market and great profits.
This debate, whatever its theoretical merits, is over.