Macroeconomic System for Climate Change

New Economic Perspectives presents J. D. Alt’s patent application for a Macroeconomic System for Climate Change.

Abstract:

A macroeconomic system including the issuing of a fiat currency by a sovereign government; the establishment of a tax regime on the government’s citizens wherein the taxes levied can only be paid with the sovereign government’s fiat currency; the sovereign government’s debiting of its tax collection account to purchase goods and services from its citizens and their commerce; the sovereign government’s issuing of future fiat currency certificates—to be redefined as “treasury bonds”—which it trades, at a discount, for existing fiat currency held in private financial markets; the sovereign government then spending the traded-for existing fiat currency to purchase goods and services from its citizens and their commerce over and above what it is able to purchase by debiting its tax collection account; the management of the value of the said fiat currency relative to goods and services by the general means of draining the currency from circulation through the sovereign tax regime—and by the specific means of controlling the discount and time-to-maturity of the issued future fiat currency certificates (treasury bonds); and wherein the sovereign government’s spending is thereby enabled to be orders-of-magnitude greater than what the government collects in taxes—without encumbering the government with debt, and without devaluing the fiat currency with respect to the citizens’ commerce; said macroeconomic system thus enabling a sovereign government to spend whatever fiat currency is necessary to enable and assist its collective society to mitigate and adapt to climate-change.

This sounds remarkably like the bonds I used to get as a child in the 1950s. These were modeled after the bonds that were sold during WW II so that the government could spend huge amounts of money on the war without causing inflation in the civilian economy. It was considered to be very patriotic to buy these bonds. 🙂


‘Beyond Weird’ and ‘What Is Real?’ try to make sense of quantum weirdness

Science News has the review of two books, ‘Beyond Weird’ and ‘What Is Real?’ try to make sense of quantum weirdness.

Ball especially favors the perspective on quantum physics offered by the notion of quantum decoherence. Very roughly, the decoherence process dissipates various possible quantum realities into the environment, and only those versions of reality that are robustly recorded in the environment present themselves to observers. It’s of course much more complicated than that, and Ball admirably conveys those complications even at the occasional expense of clarity. Which puts his account closer to the truth.

“Beyond Weird” by Philip Ball is the book I am going to want to read.


The Bond Market Doesn’t Control Anything; the Currency-Issuing National Government Does

The Gower Initiative for Modern Money Studies has the article The Bond Market Doesn’t Control Anything; the Currency-Issuing National Government Does by Ellis Winningham.

This means that the national government no longer must maintain a certain level of currency in circulation through taxation and borrowing, save for the consideration of the real production ability of the domestic economy, because there is no peg to defend.

As MMT folk are quick to point out that real production ability of the domestic economy is a very important limitation on what the government should do with the money supply. It is not just an after thought that can be easily dismissed from the conversation.

Next I want to comment on this Ellis Winningham statement.

Monetary policy is a blunt, ineffective tool, which relies on the manipulation of interest rates to “encourage” the economy whereas fiscal policy is a direct manipulation of the economy.

This is something Warren Mosler wanted to argue with me when I pointed this out. In my previous post, Warren Mosler: MMT Explains Taxes Are Needed to Prevent Private Sector Spending I quoted Mosler as saying:

Taxes are more powerful than spending.

To which I commented:

This is not always true. Taxes are more powerful than spending for reining in excess spending in the private sector. However, when there is insufficient spending in the private sector, government spending is more powerful than tax cuts.

You can give people all the money you want in order to get them to spend, but if there is a rational reason for them to want to save rather than spend, you cannot force them to spend. In that situation, the government has to do the spending.

I leave it to Ellis Winningham and Warren Mosler to argue it out and try to come to some conclusion that they both can agree on.


The Economics of Soaking the Rich

The Dreaded New York Times has another article by the dreaded Paul Krugman titled The Economics of Soaking the Rich. He starts out all right by supporting taxing the rich, but he quickly descends into his typical economic myopia when he goes on to say the following:

Or to put it a bit more succinctly, when taxing the rich, all we should care about is how much revenue we raise. The optimal tax rate on people with very high incomes is the rate that raises the maximum possible revenue.

Krugman fails to account for the damage that the rich do to the economy with some of the “work” that they do. Part of the reason for taxing the rich heavily is to get the money out of their hands to stop them from doing the damage that they do.

I see no signs that Krugman is paying attention to the writings of Michael Hudson. I have posted about Hudson many times in cluding all the articles mentioning his book Killing the Host. One article in particular lists some of Hudson’s suggestions – Ten Reforms to Restore Industrial Prosperity.


Behind the Pay-go Battle Is No Central Contradiction That Alexandria Ocasio-Cortez and Her Allies Will Need to Resolve

The Intercept has the article actually titled Behind the Pay-go Battle Is a Central Contradiction That Alexandria Ocasio-Cortez and Her Allies Will Need to Resolve.

“I think coming through this process from the background of organizing, and as an organizer, it really makes you think of the political process as – it really opens what that field looks like, of what change is possible. So it’s not just about whipping votes or getting someone to a yes or no — although all of those are critical elements of the job — but the other part of it is really shaping the landscape of what we think is possible,” Ocasio-Cortez said.

AOC would be a fool to give up her power to shape the landscape so that her colleagues would like her even though they are trying to undermine her policy objectives. The Republicans have caught onto the importance of shaping the landscape, while the Democrats just don’t seem to get it. That is exactly how we have come to the mess we are in right now.

If we don’t get more politicians who behave like AOC and Bernie Sanders, we are never going to have a landscape shaped the way it needs to be. If AOC changed the landscape enough, it would make it more difficult for Progressives to vote against their own principles for political reasons.

The Progressives who negotiated concessions, but still voted for the rules with pay-go in it, could have said that they appreciated the concessions they negotiated, but the outcome was just not good enough for them to vote for it. Now the oligarchs’ Democrats know that they can throw a few crumbs, make some promises that they won’t keep, and get the Progressives to knuckle under.

Here are a few other random excerpts from the article that contradict the intent of the article.

The gap between the New York Democrat’s power outside the Capitol and the display of it on day one inside of it could hardly have been greater, and it’s an imbalance that simply can’t hold long-term. Something has to give; one side or the other will need to break or bend. It remains to be seen which one it will be.
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That hostility built upon already strong wariness on the part of her fellow lawmakers, who see in Ocasio-Cortez’s brand of people-powered, corporate-free politics a challenge to their own integrity or progressivism. She is a walking reminder to some Democrats of the space between their ideals and how they have come to practice politics — and they don’t appreciate the reminder.
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Part of what Ocasio-Cortez has been so good at since arriving in Washington is educating the public – introducing people outside of Congress to arcane but crucial levers of power at work, such as the way she exposed elements of freshman orientation as little more than corporate propaganda.


Why the federal budget is not like a household budget

The Conversation has the article Why the federal budget is not like a household budget.

The absolute minimum you should take away from this article is the following excerpt:

Can the government just spend as much as it wants on whatever it wants? Of course not, the result would be out-of-control inflation. Can it spend a lot more than it currently is without substantial negative consequences? Absolutely.

Since I have advanced beyond the stage of having doubts about Modern Money Theory, this article clarifies one point that I wished some MMT expert would have stated very explicitly.
I quote it here on my blog for future reference. [Emphasis added].

Seeking a balanced budget and automatically borrowing any deficit spending (as we currently do) is an effective but unsophisticated way of ensuring government spending doesn’t cause runaway inflation. Taxes and government borrowing remove money from the private sector, creating space for government spending (which injects money into the private sector). Remember, the government does not have to borrow or tax in order to finance spending because they can create money.

This is exactly the way I always thought of this, but I never heard this said explicitly before. In other words, the automatic borrowing that our laws insist on cancels out much of the stimulative effect of deficit spending.

Well, of course, nothing is quite that simple. Money that was in the private sector, but being saved and not spent is not economically stimulative. If the money that was being saved in the private sector anyway gets used to buy government bonds, then the government spending is stimulative if the government spends the money that the bonds represent.

The point being that how much the economy needs to be stimulated is a somewhat separate calculation from how much the government needs to spend. So the creation of money, the selling of bonds, government spending, and the level of taxation are all tools that can be used to modify the behavior of the economy. If the government understood what its goals were in correcting the path of the economy, then it could decide on the right mix of tools to use to try to accomplish our goals.


Bernie Sanders on 2019

I just received an email from Bernie Sanders. There are two things I wanted to comment on.

  • When one or two adult jobs in the family was enough to support the family, the unemployment rate was a good indicator of how the economy was doing for most people. Now that it takes more than two adult jobs for many families, a low unemployment rate does not paint the picture it used to. Even a 0% unemployment rate, but with employment that was not sufficient to support a family, would indicate a very unhealthy economy that needed to be fixed.
  • I am particularly happy to see mention of a foreign policy based on peace, democracy and human rights. There are a lot of ills in this world that could be made better if our foreign policy weren’t so imperialistic.


Warren Mosler: MMT Explains Taxes Are Needed to Prevent Private Sector Spending

The Gower Initiative for Modern Money Studies has Warren Mosler’s talk The Good Dream is Factual MMT.

I don’t like to say that taxes don’t fund spending. The word fund is ambiguous. It’s better to say the government doesn’t need your money to be able to spend. But they need you not to have it so that they can spend.

So many people who think they understand MMT don’t get this point. They do like to say “taxes don’t fund spending” even though one of the founders explicitly warns against saying that. As he says here, it is not your money the government needs. What they need is for you not to spend it in competition for resources with what the government needs to spend the money on.

Taxes are more powerful than spending.

This is not always true. Taxes are more powerful than spending for reining in excess spending in the private sector. However, when there is insufficient spending in the private sector, government spending is more powerful than tax cuts.

You can give people all the money you want to get them to spend, but if there is a rational reason for them to want to save rather than spend, you cannot force them to spend. In that situation, the government has to do the spending.


Warren Mosler, The Euro: past, present and future.

YouTube has the video Warren Mosler, The Euro: past, present and future. The Crossroads Workshop 1 in Zurich. This was published on Mar 29, 2013.

The euro assumed its position on January 1, 1999. Representatives of the prospective member nations achieved political consensus, as manifested in the Treaty of Maastricht. The ‘no bailout’ directive for the new ECB (European Central Bank) emerged as a pillar of the political imperative, intended as protection from a genetic proclivity toward fiscal irresponsibility. Unfortunately the naked heel is but a magnet for the financial market’s arrows.


I don’t know how you could make the explanation any simpler. Still, people cannot believe this when they hear it. The explanation is that people decide on what they are going to believe by gut reaction, and then the search for information or ignore information as necessary to confirm their pre-chosen beliefs. I find the first step is to start to wonder if this guy has something to tell you that is worth understanding. That’s how I started to understand Modern Money Theory.

The only issue I see with this presentation is that the emphasis is too much on monetary policy and not enough on fiscal policy. As Keynes explained in great detail, you can make all the money you want available to the private sector, but you cannot make them spend it on what the economy needs. There are perfectly rational reasons for this behavior that I won’t go into here. The upshot is that when the economy gets stuck in this situation, only direct spending by the government on the necessary items can get the economy going again quickly.