Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity breeds austerity and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
It had seemed mysterious to me, that otherwise well-informed, often intelligent people – people who have easy access to the facts – still seem not to understand the very basis of all economics: Monetary Sovereignty. Media writers and politicians are examples of groups who easily could discover the truth, yet they don’t.
For years I’ve ascribed this to laziness of mind or reluctance to admit error. I may have been wrong on both counts.
Let’s begin with a few, absolute, undeniable facts:
1. In 1971, the U.S. federal government became Monetarily Sovereign. It gave itself the unlimited ability to pay any bill of any size, any time.
2. Given this unlimited ability to create dollars, it needs neither taxes nor borrowing to support its spending.
3. U.S. states counties and cities, corporations and individuals are monetarily non-sovereign
4. The sole economic limitation on federal spending is inflation.
5. Since the U.S. became Monetarily Sovereign, and deficits increased greatly, the Fed largely has been able to control inflation at close to its target range of 2%-3%, and there never has been imminent danger of hyperinflation.
6. Federal deficit spending is economically stimulative and supports many economic benefits; reduced deficit spending, i.e. austerity, restricts benefits.
7. Dollars have no physical existence. Much like numbers, they exist only as accounting references. You nether can see nor touch a dollar.
8. The federal government pays its bills, not by sending dollars, which being non-physical, cannot be sent, but rather by sending instructions to banks to mark up accounts.
9. Austerity negatively impacts the poor more than the rich.
One may choose to argue these points, but the evidence suggests such arguments devolve to word play and sophistry. I never have known of an intelligent – emphasis on “intelligent” – debt hawk who seriously will deny any of the above. Yet, these same debt hawks continue to maintain that reductions in federal deficits are prudent and necessary, which strangely does not result in feelings of cognitive dissonance. They seem comfortable holding conflicting beliefs.
As said earlier, I first thought this indicated mental laziness, a cousin to low intelligence. And later I felt it might be closer to pride, hubris and the difficulty in admitting error. In my more recent posts I’ve suggested the real problem is class warfare. The wealthiest 1% are pressing down on the less wealthy 99%, not so much to increase absolute power, but to increase comparative power.
As a businessman, I often saw that absolute compensation was much less important to workers than comparative compensation. A worker making $25K per year was happy, if he were the highest paid among his peers, but a worker making $50K per year was angry if he were the lowest paid. One only need look at professional athletes to see this effect.
Though rationally, absolute income and benefits should be of paramount importance, the “wealth gap” has great psychological meaning. While austerity impacts the poor and the rich, the upper 1% are willing to accept some loss of wealth if the loss to the poor is greater, i.e. if the “gap” grows.
We see this everywhere. Deficit cutters want to reduce Social Security benefits. This negatively would impact the 1%, but not nearly so much as it would hurt the 99%. The same is true for Medicare reductions. Reducing military expenditures might make America less safe for all, but this has the “advantage” of unemploying thousands of soldiers and workers in militarily-related industries, thereby increasing the gap. Cutting postal services will be an inconvenience for the 1%, but a major trauma for those postal workers who lose their jobs.
Everywhere you look, reduced deficit spending hurts America overall, but the 1% are hurt less than the 99%. Reduced deficit spending growth leads to recessions, which grow the gap.
This effect may not always be intentional or even conscious by the 1%. It may simply be a matter of “comfort.” The 1% are uncomfortable when the gap narrows – when members of the 99% move into the neighborhood or into the exclusive building. Some clubs levy high fees to keep the “riff-raff” out. In organizations catering to the 1%, the staff goes beyond courtesy into obsequiousness, further to extend the gap.
Even racial and religious bigotry may be related to a psychological desire to press down some groups in order to extend the gap.
America’s and the world’s opinion leaders – the T.V. personalities, the print media editors, the politicians, the economists – they generally are part of the 1%, and if not the 1% at least the upper 5%. Emotionally, they all treasure the gap and feel uncomfortable when it closes.
Increased deficit spending would stimulate the economy, benefitting everyone, but it would benefit the 99% more, and that bothers the 1%. Even the upper 50% treasure the gap between them and the lower 50%. Everyone loves the gap if they are part of the “haves.”
Citizens, who don’t want immigrants to become citizens, use non-factual excuses like crime and job loss to explain their feelings. “Straights” deny marriage to gays, thereby maintaining the social gap. Everywhere we look, we find groups trying to press down other groups, not for any personal benefits, but to maintain a gap.
And that may be why facts and logic have had so little effect on economic beliefs. The greatly maligned (by me) Chicago Tribune editors, who stoutly refuse even to look at facts, much less acknowledge them, may not reflect mental laziness or reluctance to admit error. They may reflect their possibly subconscious, personal desire to maintain or build the gap.
So if facts and logic cannot overcome the myth that deficits should be reduced and austerity is beneficial, what can? In many nations, military power. In today’s America, political power.
Historically, efforts to reduce the gap have been met with resistance by the upper levels, this resistance being overcome only by political power. All the bloody revolutions fall into that category. Martin Luther King’s marches and especially voter registration, led to the gap-closing, Civil Rights act of 1964, perhaps America’s greatest revolution since the Civil War.
Political power means votes. While #Occupy Wall Street wishes to close the gap, it’s immediate goals are not clearly defined. They seem to want to bring down the upper 1%, a goal that will be met with the fiercest resistance, and which would not benefit the 99%.
#OWS first must learn Monetary Sovereignty, then put forth and support candidates (probably Democrats, not independents) who will show the 99% how MS can close the gap. The 1% will resist, but the 99% have the votes.
Warren Mosler ran for office. He was creamed. He had no backing, no name, no voice, no organization. He was alone with his facts and logic. #OWS should get behind people like Warren (and Warren himself, if he still has the stomach for politics), march for them, gather voters for them and give them big, loud, visible soapboxes, where they can shout the benefits of federal deficit spending – where they can show the 99% how their lives and their children’s lives need not be relegated to agonizing austerity.
That should be the focus of #OWS’s efforts: Learn MS, then elect candidates who understand MS. Given enough votes, the media, the politicians and even the old-school economists will fall in line, and America will emerge from the doldrums into the light.
Don’t damage the 1%. Damage the gap.
Rodger Malcolm Mitchell
No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
b>Gross Domestic Product = Federal Spending + Private Investment + Private Consumption + Net exports
10 thoughts on “–Saving America by closing the gap: A suggestion for #OWS”
“Yet, these same debt hawks continue to maintain that reductions in federal deficits are prudent and necessary, which strangely does not result in feelings of cognitive dissonance. They seem comfortable holding conflicting beliefs.”
I think George Orwell called this Doublethink. It’s CD minus the discomfort. Great post though!
You often say that all (or most?) taxes should be eliminated… that the federal government doesn’t need to tax us in order to spend. And I completely agree on the operational reality of the federal government not being revenue constrained.
Are you in support of the common MMT position that the U.S. should implement a JobGuanrantee or Emplyoer of Last Resort? If not, why?
If you agree, are there differences in the way you think it should be designed than those offered a la Mosler, Wray, et al?
I disagree with MMT’s Employer of Last Resort, and have told Warren and Randy this many times. I believe it is an unworkable idea from many standpoints:
–The specific jobs
–The location of the jobs
–The supervision of the jobs
–The people who would want or even could work such jobs
–The salaries, benefits and perks
–The incredible politics involved
And list goes on and on and on. It simply is not realistic.
By the way, Monetary Sovereignty also differs from MMT in the handling of inflation. I agree with the Fed’s approach (which seems to have been successful) of raising interest rates to increase the value of money. MMT believes the opposite: That lowering rates fights inflation by lowering costs.
So though Warren, Randy and I agree on the economic basics, there is a bit of devil in some of the details. That said, I’d love to see Warren as a Senator.
Rodger Malcolm Mitchell
Thanks for the response.
You often speak about raising up the poor instead of pulling down the rich. Can explain how that can be achieved? Or link me to your specific policy proposals that would achieve that specific goal?
And a related question: what’s your view on the minimum wage?
See: Nine steps to prosperity
I believe the minimum wage serves no useful function.
Rodger Malcolm Mitchell
WOW ! !
This should be printed as a leaflet and dropped on OWS site’s.
WITH A CALL FOR AN “OCCUPY THE WASINGTON MONUMENT” IN SPRING 2012.A MILLION PEOPLE GATHERING TO ANNOUNCE THE CANDIDATES
of either party that will support the 99%.Whether R or D or I, those who will support OWS’s platform.
What a place to hold an American Dream.
If we must have taxes then 0% for income up to $75,000!
Good thought. Email #OWS with your idea.
If JG or ELR is unnecesaary… are you suggesting that if our economy was properly saturated with enough money, that we wouldn’t ever run into persistent unemplyoment?
Also, do you have any opinion on economic inequality and the research that has been done that suggests that societies with higher levels of economic inequality also have higher instances of other societal problems? (I can link you to some of this if you’re unaware of it)
Unemployment goes up during recessions, and there is a clear relationship between recessions and reductions in federal deficit growth. When federal deficit growth declines, we eventually fall into a recession, which prompts the government to increase deficit spending, which cures the inflation.
So yes, deficit spending helps reduce unemployment.
As I state at the top of virtually every post, “Austerity breeds austerity and leads to civil disorder.” Austerity is not so much an absolute term as it is a comparative term. For instance the native Americans lived in tents, without indoor toilets or running water. You probably would consider that austere. They didn’t, because that’s the way “everyone” lived, so it didn’t upset them.
It’s the gap that causes the problems.
Rodger Malcolm Mitchell
“It’s the gap that causes the problems.”
Right. So while what you suggest may do great things to bring up the poor, and that is important in and of itself… if the gap continues to expand, is that an undesirable outcome? If so, are any of your proposals designed to narrow the gap?
Is an expanding gap a concern we should worry about later? i.e. first things first, lets start bringing up the poor.
our money system itself is the problem. 1% and 99% is all just a silly distinction when you realize that the true power falls in the hands of the very very few maybe a few hundred people spread out over the entire globe. SO people who talk in percentages witha broad brush have no clue what is really going on and need to concentrate their fire a bit more. some upper management executive making 400K a year is going to be smashed just like the welfare recipient when hyper inflation kicks in. Proper preperation could actually make the welfare recipient better off when the im pending doom arrives.