The debt hawks are to economics as the creationists are to biology. Those, who do not understand Monetary Sovereignty, do not understand economics. If you understand the following, simple statement, you are ahead of most economists, politicians and media writers in America: Our government, being Monetarily Sovereign, has the unlimited ability to create the dollars to pay its bills.
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Here are excerpts from an article titled, “Medicaid bills settled in a hurry before aid ends,” by Dennis Cauchon, USA TODAY:
State governments are rushing to pay billions of dollars of medical bills before special federal assistance for Medicaid expires July 1.
The “hurry-up-and-pay” effort will put an extra $1 billion or more into the pockets of financially struggling states — and increase the federal deficit by a similar amount.
[…]
The federal stimulus law and a later extension provided states an extra $80 billion in 2009 and 2010 for Medicaid, the nation’s health care program for the lpoor. This was done by reducing the states’ share of the program from a national average of 40% to 28%.
[…]
Because states run the $400 billion a year program — while the federal government reimburses them — states can time payments to maximize the federal share.
Two thoughts: First, why doesn’t our Monetarily Sovereign federal government pay for 100% of Medicaid, instead of asking our monetarily non-sovereign states to pay? Can anyone answer that?
Second, wouldn’t the idea of having states run Medicare as a universal health care program, with the federal government funding it, satisfy the “anti-big-government” people? I know it won’t satisfy the debt-hawk contingent of the Tea (formerly known as “Republican”) party. Nothing short of a depression will satisfy them. But at least federal funding combined with state operation, should remove the fear of big government and so-called “socialism” from universal health care. Then no American would need to do without health care.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
No nation can tax itself into prosperity, nor grow without money growth.
MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
Roger… Simple idea. Should work. Would also solve the issue of CommonWeath care being a “good” plan while ObamaCare is a “bad” plan.
To add a little fuel to your argument…. many people have spoken highly about the Canadian system.
There is no Canadian system.
In Canada, health care is administered by the governments of the provinces and the territories.
There is a British Columbia system.
There is an Albert system.
There is a Saskatchewan system.
There is a Monitoba system.
There is an Ontario system.
There is a Quebec system.
There is a New Brunswick system.
There is a Price Edward Island system.
There is a Nova Scotia system.
There is a Newfoundland and Labrador system.
There is a Yukon Territory system.
There is a North West Territory system.
There is an Nunavet Territory system.
There is no Canadian system per se.
It is quite possible the Canadian federal government provides funds, but the administrative oversight is at the Provincial and Territorial level.
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“First, why doesn’t our Monetarily Sovereign federal government pay for 100% of Medicaid, instead of asking our monetarily non-sovereign states to pay? Can anyone answer that?”
States’ rights? Also, I think that part of our history and philosophy is that welfare is left to the states. That has pluses and minuses.
“Second, wouldn’t the idea of having states run Medicare as a universal health care program, with the federal government funding it, satisfy the “anti-big-government” people?”
I don’t know. However, despite anti-big gov’t rhetoric, I think that most people realize that Federal bureaucrats are generally more capable than state bureaucrats, and that there is generally more corruption in state gov’ts.
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Min,
The federal government does pay part of Medicaid, so “states rights” doesn’t seem to apply.
And whether federal bureaucrats may or may not be more capable and honest than state and local bureaucrats, the anti-big-government people could be persuaded by local control.
Rodger Malcolm Mitchell
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“Second, wouldn’t the idea of having states run Medicare as a universal health care program”
Look at the history of California Prop 186 to see the forces arrayed against such an idea.
See
Click to access single_player.pdf
and
http://www.kff.org/statepolicy/loader.cfm?url=/commonspot/security/getfile.cfm&PageID=14427
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Yes, voters have been misled by politicians and the media. I understand the politicians. They do their polls and count votes.
But why are the median so ignorant? Take the Wall Street Journal editors (please). These are people who are supposed to understand money, yet they don’t have a clue about Monetary Sovereignty, despite its being the basis for all economics.
That’s why I gave up my subscription. Any group that ignorant is not worth reading.
Rodger Malcolm Mitchell
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This question is related to themes of the blog not Medcaid per se.
In a recent email dialogue I asserted the only way out of the present stagnation is massive federal government spending.
A participant replied, though he had nothing against that approach, policies to redistribute wealth on more equitable basis could be another and equally effective option. This would fuel greater spending in the population and thus act as stimulus. He cited strengthening unions and financial regulation as policies to achieve redistribution.
Would there be some merit to his argument, Rodger? Wouldn’t we though always need some degree of growth in deficit spending to foster a growing economy? I wonder if you’d share any thoughts on this.
Thanks,
Tyler
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“Taking” from the rich is necessary to redistribute money. Whether this occurs through progressive taxation, or spending that increases the money held by those with less may not really matter. In the long run, the effect is pretty much the same.
Rodger doesn’t like the idea of progressive taxation, even though history has shown that it promotes equality and improves the standard of living for the majority quite well. The only way in which you can make the poor less poor is, by definition, to make the rich less rich.
Nature smiles at the union of freedom and equality in our utopias. For freedom and equality are sworn and everlasting enemies, and when one prevails the other dies. Leave men free, and their natural inequalities will multiply almost geometrically, as in England and America in the nineteenth century under laissez-faire. To check the growth of inequality, liberty must be sacrificed, as in Russia after 1917″
“The Lessons of History” – Durant – 1968
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“The only way in which you can make the poor less poor is, by definition, to make the rich less rich.”
Then that’s a bad definition. The economy is not a zero sum game. In fact, economic activity is normally win-win. So it is quite possible to alleviate poverty without penalizing the rich.
However, if you define rich and poor in relative terms, then what you said is so. And a lot of people think that way. They are willing to suffer if someone else suffers more. But we do not need to be so mean spirited. 🙂
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Min,
People DO define themselves as rich or poor relative to each other. Studies have pretty-much shown this to be the case, and isn’t really an issue up worthy of debate.
This need not be mean-spirited. It’s simply psychology — it’s how we are wired. One can ask to have more or one can ask for another to have less, but the perception of wealth is largely the same.
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Yes, people do define themselves as rich or poor relative to others. But that is not hard-wired. Witness the denigration of poor people as envious. I. e., as not being “really” poor, but comparing themselves to people with more money. It is quite easy for people to switch perspectives.
In terms of politics, while it may be so that general prosperity would entail making the relative difference between rich and poor smaller, we do not have to adopt that perspective. In fact, doing so would only make rich people more resistant to change. Even Margaret Thatcher, in her rhetoric, advocated improving the lot of the poor, while remaining silent about their relative lot. To adopt a relative viewpoint invites class conflict, and is counterproductive and mean spirited.
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Tyler,
Without federal spending, “redistribution” amounts to taking from the rich and giving to the poor. The Robin Hood approach does not grow the economy. It does not increase the money supply, and does not cause greater spending. (All money is spent.) A growing economy requires a growing money supply.
A better approach would be direct support for the lower income groups. I have suggested eliminating FICA (which is a regressive tax), then each year, raising the standard deduction in the income tax. Also, federally supported universal health care would help grow the economy.
Your correspondent should forget about punishing the rich for being rich, as that does nothing for the poor, and instead focus on supporting the poor.
Rodger Malcolm Mitchell
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Thanks for the response, Rodger.
I don’t think my correspondent’s intention, per se, is punishing the rich. His point, that seems to resonate with others, is that the rich hoard (the specific word used) vast sums that are not spent. Redistribution would free up that money and facilitate spending.
You said “It does not increase the money supply, and does not cause greater spending. (All money is spent.)”
I get that redistribution would not add to the money supply. But how is, say, money sitting in a bank account equivalent spending to buying a television at Walmart?
I’m just trying to learn here. Thank you.
Oh, I just remembered my correspondent’s reference to the oft reported situation of corporations sitting on record amounts of cash. Again it seems to illustrate unspent money that contrasts with a lack of spending power for a great portion of the population. Although as the article referenced below mentions companies are raising dividends.
Here’s the opening lines of a current Esquire article entitled “Cash Back” -” American corporations are sitting on an unholy pile of cash. About $2 trillion. It’s an all-time record, and as a percentage of total assets, it’s the highest in more than 50 years. I would argue that this wad of dough actually greatly exceeds even the pileup of the late 1950s, because of the reason it exists. Past cash hoardings were strategic in nature.”
http://www.esquire.com/features/portfolio/stock-dividends-0411
What’s your take on these “corporations sitting on piles of cash” stories?
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Tyler,
That is what I’ve called the “first use myth,” the myth that money stops after its first use. Other than burying dollar bills in your back yard, there is no way to “sit on piles of cash.”
Visualize what a corporation does with money. It spends it, invests it or puts it in the bank. If it spends it or invests it, the money goes to someone else, who either spends it, invests it or puts it in the bank.
If the corporation puts money in the bank, the bank either invests it or lends it. Either way, the money goes to someone else, who spends it, invests it or puts it in the bank.
In short, money never stops. It keeps moving from hand to hand. The people who talk about “sitting on piles of cash” are drawing a false word picture. No one sits on piles of cash.
Actually, there is one exception to this. If you buy a T-bill, you might sit on that T-bill for a while, and the money you paid is destroyed by the government.
Rodger Malcolm Mitchell
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The banks can sit on piles of cash in reserve accounts getting the support interest rate now that we pay interest on reserves. But that is functionally equivalent to swapping it for a short term T-bill.
Obviously they only do this when they run out of more profitable uses for the money.
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Thanks again. I’m grateful for the education.
So is our problem now that we simply don’t have enough money being “spend, invested or lent”? The ways the money is “spent, invested, or lent” is irrelevant to growth and widespread prosperity, it is simply a matter of quantity? To get out of our present state of slow growth, unemployment and underemployment we simply need an increase in the money supply that comes with increased federal government spending?
Are recessions solely and only caused by insufficient federal government spending and how money is spent and distributed has no bearing at all?
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“To get out of our present state of slow growth, unemployment and underemployment we simply need an increase in the money supply that comes with increased federal government spending?”
We can increase the money supply and/or increase the velocity of money. I think that when we talk about hoarding we are talking about reducing the velocity of money. As Rodger says, the money never stops (until it reaches the gov’t). But now corporations are not investing and banks are not lending (by comparison with how they usually do), so there are bottlenecks.
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How to we increase the velocity of money?
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Why would we want to? If you have an opinion on this, please supply data to support it.
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Rodger.
I asked – “To get out of our present state of slow growth, unemployment and underemployment we simply need an increase in the money supply that comes with increased federal government spending?”
Min answered – “We can increase the money supply and/or increase the velocity of money.”
I asked , in return – “How do we increase the velocity of money?”
You ask – “Why would we want to?”
My answer is, referring back to my previous question – “to get out of our present state of slow growth, unemployment and underemployment” If Min asserts the ability of an increase in the velocity of money to do this wouldn’t it be incumbent on Min to provide the supporting data?
Thanks,
Tyler
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On the velocity of money:
Suppose that I take out a $100 loan from the local bank, and agree to repay it in four quarterly payments of $26. Where does the extra $4 come from? Doesn’t somebody need to create it? Not necessarily. An increase in the velocity of money will do, using money that already exists.
To keep it simple, suppose that the bank hires me on a temporary basis to stuff envelopes for its quartely mailing, and pays me $26, which was already in existence. I use that money to make my quarterly payment to the bank.
I do the same thing the next quarter, and the bank pays me with the same $26. (Yeah, that’s not how it will actually happen, but it could.)
The circulation of the $26 between me and the bank means that the interest can be paid without creating the $4.
That’s why an increase in the velocity of money can act like an increase in money. And a decrease in the velocity of money can act like a decrease in money.
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Why would we want to increase the velocity of money?
What we have now is not enough spending. We can have more spending with the same supply of money if we increase the velocity of money.
It is more straightforward, of course, to increase spending by simply spending, and the gov’t should do that. 🙂
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Essentially, “yes” to all your questions. Recessions, are caused by a shortage of money, and adding money grows the economy.
Having said that, I believe money spent for medical R&D and water reclamation and farm efficiency has more benefit than money spent to pay LeBron James, so the direction of the money does count. But your question was about companies “sitting on money,” which doesn’t happen.
Rodger Malcolm Mitchell
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Min, that extra already $4 exists. It might come from your checking account, where the bank had already invested it in short-term federal securities. Or it might come from your employer’s checking account, when he pays you a salary.
There are only two ways money is created, one temporary and one permanent. The temporary method is borrowing/lending. The permanent is federal deficit spending (that is, permanent until you pay taxes.)
Unlike money creation, money velocity is derivative, not something that can be government
controlled.
Rodger Malcolm Mitchell
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Andrew, you said, ““Taking” from the rich is necessary to redistribute money.”
First, I don’t know why redistribution is a goal. Shouldn’t the goal be to lift the fortunes of the poor? Why do you think its necessary, or even beneficial, to soak the rich in order to help the poor?
There is a common (false) belief that the supply of money is fixed and the only way to give some to the poor is to take it from the rich. I see you share that belief.
I don’t know what mechanism of progressive taxation improves anyone’s standard of living. Please explain how taking money from the rich improves the standard of living of the poor.
Keep in mind: The federal government does not use tax money for anything. Taxes do not pay for federal spending. Federal taxes are a 100% drag on the economy.
Rodger Malcolm Mitchell
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Rodger,
People don’t generally perceive how well they are doing by how much stuff they have, they look around and see how well they are doing in the context of how others are doing. Wealth is NOT absolute, it is relative. Would you feel wealthy if everyone had the same amount of money as you have? As you say, the government could make this happen.
Progressive taxation did improve the standard of living for many millions of Americans when it was in place. It did this by more evenly distributing the real resources available among the participants. This limits the “freedom” of those more lucky or more able to accumulate those resources, but it brings about more equality. There is a balance, and we should try to find one that encourages innovation and industriousness but still allows that we can all benefit from the superior work and ideas of the more gifted. Such a model is more likely to allow the cream to rise to the top to the benefit of all.
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Taking money from the rich does nothing for the poor. Only giving to the poor helps the poor.
But if you disagree, you have invented a cure for poverty. Simply tax everyone 100%. Then, in your philosophy, no one would be poor.
Rodger Malcolm Mitchell
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“But if you disagree, you have invented a cure for poverty”.
As have you, Rodger.
You need to read more carefully. I never suggested total equality. I never suggested total freedom. I suggested that we need to find an appropriate balance, and that there are multiple ways to do this. Your strawman argument isn’t helpful to the discussion.
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andrew,
Federal taxing destroys money. There is no known method by which increasing federal taxes on any group, stimulates the economy or helps any other group.
You are way too focused on the morality of wealth differences to understand that bringing down the top, never helps the bottom. Never. It always hurts the bottom.
Your idea might have some merit in a monetarily non-sovereign government (i.e. state and local), where total money is limited, but absolutely not in a Monetarily Sovereign government.
Raising federal taxes on anyone always, always, always is a bad idea. Always. Read Taxing the rich to help the poor.
Rodger Malcolm Mitchell
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