Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Paul Krugman wrote an article, the beginning of which I’ll quote:
Barack Herbert Hoover Obama
From today’s radio address:“Government has to start living within its means, just like families do. We have to cut the spending we can’t afford so we can put the economy on sounder footing, and give our businesses the confidence they need to grow and create jobs.”
Yep, the false government-family equivalence, the myth of expansionary austerity, and the confidence fairy, all in just two sentences.
In one, succinct line, Krugman has summarized the destructive fantasy foisted on America by the Tea/Republican Party, and swallowed by the Democrats, the media, the bloggers and the public. Let’s parse Obama’s comments:
“Government has to start living within its means, just like families do.“
I can’t imagine how a President could express more utter economic foolishness than this. First, there is no comparison between federal finances and family finances. The federal government is unique. It is Monetarily Sovereign, meaning it has the unlimited ability to pay any bills of any size, any time.
If the government owed you $100 trillion (!), the government would pay your bill by instructing your bank to credit your checking account $100 trillion. This would require the press of a computer button. No money would move from the government to your bank. Instead, your bank simply would change the numbers in your account to reflect that additional $100 trillion. Bill paid. Period. This is how the federal governments pays all its debts, and is the reason the entire debt ceiling argument, as well as the debt ceiling itself, is an exercise in ignorance.
Families, on the other hand, are monetarily non-sovereign. You do not have the power to instruct a bank to mark up someone’s account. The best you can do is give someone a check, which is a set of instructions to your bank, to mark down your account, while your bank instructs your creditor’s bank to mark up his account. But your bank won’t do it unless you have sufficient balance in your account.
The same limitation exists for other monetarily non-sovereign entities such as businesses, states, counties and cities. The federal government, being Monetarily Sovereign, faces no such limitation.
The fact that the President of the United States, with all his advisers, either doesn’t know the differences between Monetary Sovereignty and monetary non-sovereignty — or is too contemptuous of the voting public to explain the differences — is an indictment of the man. He now is trapped by his own misstatements. His lies have begot bigger lies, while the truth would have set him free.
Then, there is,
“We have to cut the spending we can’t afford so we can put the economy on sounder footing . . .”
Since there is no spending the federal government can’t afford, what the hell is he talking about? And, would someone please tell me the mechanism by which reduced federal spending puts the economy on a “sounder footing.” To my thinking, a sounder footing would mean more jobs, more growth, more prosperity. How does reduced money growth accomplish that?
So, how does less federal money help business? How do increased taxes help business? How does cutting Medicare, Social Security and Medicaid benefits — all dollars paid to consumers — help the economy?
Finally, we have:
“. . .and give our businesses the confidence they need to grow and create jobs.”
The notion that confidence grows business and creates jobs — what a ridiculous myth. Business growth creates confidence and not the other way around. America was loaded with confidence, just before the Great Depression. America also was loaded with confidence just before the most recent recession. America always is loaded with confidence when business is good and people are working.
The idea that in some strange way, cutting federal money creation will create confidence which will stimulate business — despite a lack of money — is beyond ignorant. It is downright stupid. And the fact that our President mouths these obscene platitudes is beyond frightening. It is disgusting.
I’ll end this by admitting that I voted for Obama. Call it the Palin effect. Call it my liberal bias. Call it home cooking (I’m a Chicagoan.) So for me, this guy has been disappointment squared. He oversaw the “universal” (almost) health care program, by letting other Democrats fight for it. He reportedly made a brave decision regarding bin Laden. But, he either has been clueless or gutless when it comes to the economy.
I can understand the public not understanding Monetary Sovereignty; the media deny it exists. I can understand the media not understanding Monetary Sovereignty; the old-line economists deny it exists. I can understand the old-line economists not understanding Monetary Sovereignty; they have been giving the same classroom lectures since the gold standard days (when we were not Monetarily Sovereign), and one can’t teach egotistical old professors new ideas.
But, it angers me that the President of the United States, the leader of the free world, the most powerful man on earth, does not or will not understand the simple truths that: The federal government has no “means” to live within; the federal government is not in any way like families or like any other American institution; the federal government can “afford” anything simply by crediting bank accounts; reduced federal spending reduces the economy’s money supply which reduces growth; and confidence does not grow an economy, money does.
Or is this all just a traitorous politician’s “say-anything-and-do-anything” for personal power, and to hell with the American people? Whichever it is, Mr. Obama, you are a major disappointment, a leader from the rear, whose reelection will be salvaged only by the likes of Michelle Bachmann et al.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
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No nation can tax itself into prosperity, nor grow without money growth. It’s been 40 years since the U.S. became Monetary Sovereign, , and neither Congress, nor the President, nor the Fed, nor the vast majority of economists and economics bloggers, nor the preponderance of the media, nor the most famous educational institutions, nor the Nobel committee, nor the International Monetary Fund have yet acquired even the slightest notion of what that means.
Remember that the next time you’re tempted to ask a teenager, “What were you thinking?” He’s liable to respond, “Pretty much what your generation was thinking when it ruined my future.”
MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
i think the fundamental root of the problem is not malicious intentions but rather collective ignorance. MMT is correct but counter intuitive. It is a paradigm shift in thinking. The fundamental nature of debt for an issuer is different that that of a user. One paradigm of physics does not exist in the physical world, Newtonian/Quantum, just as one paradigm of debt does not exist in the monetary world. Debt for a currency user is a burden. Debt for a currency issuer is a convenience to currency users who chose to save and not spend.
MMT needs to explain how the system works not assign blame.
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I agree with you, regarding the populace, but not about the leaders.
MMT (or as I prefer, “Monetary Sovereignty”) has explained and explained. Though counterintuitive, the concept is easily grasped by any intelligent person who wishes to learn.
It simply is not possible for the Greenspans, the Bernankes, the Geithners et al not to know the fundamentals of federal financing. We have progressed well beyond misunderstanding, and have reached malicious intent.
The last three paragraphs of the post indicate why I feel blame should be assigned, and if possible, punishment. If/when American citizens realize what has been done to them by the lies about conflicts and credit, I will not be surprised at a revolution.
Yes, seems unlikely today, but so did Egypt’s.
Rodger Malcolm Mitchell
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Groupthink. All the policymaker advisors come from the mainstream economic departments. Even as Galbraith says…people from these camps don’t talk to each other.
So much has changed in the last 20 years I think it’s probably more productive to give these folks the benefit of the doubt. MMT doesn’t need better logic it needs an outreach program.
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Right, hope and change, Chicago style. I doubt Michelle Bachmann would do much worse.
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You voted for a person whom has taken you 2 years to find out he can’t do what he claim. He’ll, I knew that in 2007, and also knew he would get elected. How did I know? Because I did my research and saw who was running against him. The 2003 cubs had a better chance of winning the world series than Barry ever had of running a country ( he does a wonderful job of running his mouth I will add). So where does that leave you? A fool partnering with his money!
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I can understand why the President may be ignorant of monetary sovereignty, but I think you can clearly lay blame at him is in his choice of appointees to all the key financial positions. After the financial meltdown it should have been clear to him that a new approach was in order, given how the mainstream had totally missed it coming. To keep on using people so clearly clueless like Bernanke, who right on up to the crisis were talking about ‘the great moderation’, and having “cured” the business cycle seems pretty damn stupid.
The idea of monetary sovereignty isn’t that hard to grasp, and I don’t think beyond the ability of most people, once you understand the differences between the federal govt and individuals. For them to cut back on spending now is like stopping a basketball game because thev’e “run out of points”, even theough all the players are still on the court, and there’s 20 minutes left on the clock.
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“Or is this all just a traitorous politician’s “say-anything-and-do-anything” for personal power, and to hell with the American people?”
But for a few brief moments, this has been the fact for a very long time, all of my nearly 50 years anyway.
As for simply crediting money willy-nilly to accounts, that is theoretically true. In actual practice, there are limits – the fed could not credit every American with $100 trillion and not see a massive devaluation of the dollar. The ability to create dollars is not truly unlimited but it is pretty huge as we have obviously not hit the upper limit yet despite massive spending over the last decades.
The knock I have on government spending is not that it is unsustainable, it’s that it represents an increasing growth in the size and scope of government making it more intrusive and controlling every day. If you want to inject liquidity, rather than simply blindly increasing government spending we should cut the tax and regulatory burdens for the non-monetarily sovereign people and companies in the US. This has the same net effect as far as government debt increases but leaves the control where it belongs, in private hands where it will be more efficiently used; you can bet private enterprise will not create a job for an average of $278,000 per job.
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I agree, and have said so numerous times. In fact, I even have used the same “$100-trillion-to-every-American” example. The best stimulus effort was the first one” $500 to every taxpayer. Were it $5,000, rather than $500, the recession would have ended.
I suggest: Immediately eliminate FICA, the dopiest tax in existence.
Then eliminate corporate income tax.
Last, eliminate personal income tax.
Rodger Malcolm Mitchell
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I think the amount the Greece story has been in the news lately is nothing more than a distraction, and the real issue is the debt issue, as far as global economics is concerned.
You have said repeatedly to people at this blog, in order to understand real economics, you have to think out side the box. You may wish to employ this same approach when it comes to understanding politics and who really rules the roost.
There are no conspiracies in this world, and people should take an objective look at what their own definition of conspiracy is. Try using the word ‘agenda’ from now on and see how less your subjectivity controls you.
If you think we live in a free world, and that Obama is the most powerful man in the world, I would suggest there are a few boxes you still need to break out of.
Having said all that, I think your blog and your teachings here, are one of the best and most refreshing I have seen in quite a while, and I am enjoying reading and learning MS from you.
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A suitable quote might be from the Swedish Social democratic finance minister to be, Ernst Wigforss, from a election pamphlet of 1932:
[the right wing economic “wisdom”] “ … leads to a fantastic conclusion that work is a luxury, that jobs for all is something which rich societies can afford, but which is well beyond the means of a poor country like Sweden…In the face of growing unemployment our citizens are bidden to tell each other, with concern but also resignation: we are too poor to be able to work. And the poorer we become, the less we can afford to work. No society still in command of its common sense could satisfy itself with economic wisdom of this lunatic kind. If incomes fall, if poverty grows, it quite obviously means that we are not working as much as before, that we are not maintaining our productive activity, and the immediate task must be to create jobs and expand production “
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