Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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One thing I love about economics: Every time you think you’ve heard every argument, a new one emerges. Though many (most?) of these new arguments are specious, I enjoy reading and even printing them, because they help to visualize the facts of Monetary Sovereignty.
There’s an old saying, “The best way to learn a subject is to teach it.” For the past 15 years I’ve been teaching economics, and the effort has taught me more than if I had spend that same time continuing in formal classes. Why? Much more variety. Classrooms teach the professor’s beliefs.
Recently, I heard from someone named “Pete,” who seems to be an ardent environmentalist. To argue with Pete is like arguing with a religious fundamentalist. Truth blends with fiction, outrageous claims and exaggerations pop up and need to be addressed.
The whole thing turns into a whac-a-mole argument, leading to even more outrageous exaggerations and outright denials of fact, drifting further and further from point. (At one point he doubted people live longer today than in the distant past, and demanded I supply data.)
Nevertheless, I participate in such arguments (and admittedly, instigate them) because I learn from the nuggets of truth hidden in the hyperbole. Unlike debt-hawks, Pete seems to agree that Monetary Sovereignty — the government’s unlimited ability to pay for anything — does in fact lead to economic growth. This takes him orders of magnitude beyond popular ignorance.
But, Pete’s argument is that growth itself is bad, so even though Monetary Sovereignty, more specifically, federal deficit spending, begets technology, which begets economic growth, he feels this is a bad thing, not a good thing.
He provides a long list of bad results, mostly involving chemicals in our environment, to prove that humans have put way too many chemicals into the air, water and food, and killed too many animals. I agree.
But what is the trade-off? A dreamy return to a mythical, idyllic lifestyle, living naked in the forest, eating berries? Yes, some chemicals are bad; but some are good. Some medicines fail; some succeed. Some inventions bless us; some curse us.
How do we differentiate unless we progress? Can we learn in advance every side effect, and if so, how? Will we cope with the future? When the next big meteor or pandemic or ice age hits, will humans survive it — or even prevent it?
I grow impatient with people who feel progress must be linear — no bad experiments, no bad results, no bad surprises. I grow impatient with people who would junk democracy because there are crooked politicians, or blame business because some businessmen care more about profits than consumer safety.
One often hears the question, “How is man unique?” I suggest the answer is, “Man progresses.” Lions, tigers and bears do not progress. They are what they were and always will be. Nature may have changed them, and may change them in the future, but they will not change themselves. They are victims of what is. They settle for darkness; humans invent light bulbs.
To progress is to be human, as is to err. To learn from history, and to act on your learning, is to be human. To overcome intuition is to be human. To discover by (as Newton said) “standing on the shoulders of giants” is to be human.
Humans reach for the hills, for the mountains, for the stars. That reaching, reaching, failing, then reaching more is progress. Without it, we are no more than the lions, tigers and bears.
Animals eat eggs. Humans eat omelettes, and to the dismay of many environmental extremists, omelettes require egg breaking. Two steps forward; one step back. That is the reality of our growth.
The hope for humankind is not a reversion to nature or mean austerity or an end to economic growth. We must seek solutions to the problems that face us, some of which we have caused ourselves.
The Pete’s of the world disagree. They come from a culture where pessimism is oh, so much cooler than optimism. But, I believe in us. I believe we will find solutions to disease and pain and global warming, and poverty and hunger and the extinction of our species. I believe in human progress.
But progress demands money. I know of no other path. Those who deny Monetary Sovereignty — those who deny the absolute need for growth in federal deficits, i.e. money creation — they deny us the money we need for progress.
For the sake of a pessimistic present, they deny us an optimistic future. In essence, they deny us what makes us human.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
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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
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports
#MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
Nice post Rodger.
The acronym Tony Buzan uses is TEFCAS
Trial
Event
Fail
Check
Adjust
Success!
Without trying and failing we cannot succeed. Hell we wouldn’t even learn to walk.
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The real issue is how to create a sustainable economy. Understanding monetary sovereignty/MMT is an important part, but this area hasn’t been developed very much. We should have an economy that grows and progresses but we need one that grows much more efficient at the same time, i.e. uses less resources and produces less pollutants.
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BW, you are 100% correct. And to achieve that efficiency and cleanliness, we need education, business support and R&D. Unfortunately, when Congress goes on a deficit cutting binge, education, business support and R&D aren’t sexy enough to be funded.
What you want, what Pete wants and what I want — they all come down to money.
Rodger Malcolm Mitchell
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Very nice post RMM.
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Brings to mind the Solyndra scandal. Conservatives harp on the topic of the “wasted” $600 million of “tax payer” money. Unless the Solyndra execs actually took that money and burned it in a bonfire, its wasn’t all wasted. It went to pay salaries to people who bought cars, ate out at restaurants, and made mortgage payments. They bought office furniture and copy toner from local supplies… and lots of computers and software too. It also probably paid for the construction of their HQ or factory, which can be used by some other enterprise down the line. If the Federal financing was given to Solyndra over another more worthy applicant, that surely is a sin. The Solyndra funds all found their way into the general economy for the betterment of the whole population.
I also found it ironic that Steve Jobs passed right around the time that this came to a head. Everyone was kneeling at the alter of Jobs’ brilliance and innovation. The Solyndra funds were something like 6% of the total Green-Energy budget. How would Steve Jobs react if his R&D Department saw no return on 6% of its budget? He probably would have pushed them harder for being too conservative and not trying to innovate further.
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Broll,
Right on all counts. And it wasn’t even taxpayer money. A Monetarily Sovereign government doesn’t spend taxpayer money.
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HI folks,
Left a comprehensive response as the victim of this post but it vanished like a fart in the wind. Here lies the “tree hugger”. You can follow the original discussion thread under the IMF post. I was met with a certain amount of hostility and name calling.
NO worries. Just so eveyone knows I’m not “anti-society”, “anti-technology”, just honest about the grey areas. Concern and skepticism = “Pete hates…”, “henny penny”, “doomsdayist”, and “pessimist” in the world of absolutes and hyprebole.
Neo-classical mainstream economics is the religion, not those who question it.
http://theautomaticearth.org/Earth/uneconomic-growth-when-illth-trumps-wealth.html
There are a lot of great ideas circulating out there. The first step is admitting the addiction to the crack pipe of consumerism and perpetual “growth”. “De-doctrinating” will be a difficult process.
Professor Daily lists some general concepts at the end of his piece. Other ingredients to the winning recipe include;
1) Negative interest
2) Steady-state economic de-growth
3) Relocalization & restoration of community
4) Alternative & complimentary currencies (Bernard Leitaer)
5) Resource based economy.
http://onthecommons.org/stirrings-degrowth-movement
http://www.theresourcebasedeconomy.com/2011/06/will-a-resource-based-economy-work/
http://www.realitysandwich.com/sacred_economics_chapter_12
Not having blind faith that the technology tower of babel will provide all solutions to all crises is not the false equivalent of “hating technology”.
http://energybulletin.net/51035
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Pete, to summarize your position:
“Based on my knowledge of future technologies, current progress is not sustainable for an unknown period.”
See any flaws in that?
Rodger Malcolm Mitchell
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This is a superb summation. Soddy was one smart SOB, enjoy:
“That insight comes from the reference frame suggested by Frederick Soddy, as elaborated by Nicholas Georgescu-Roegen, Herman Daly, and others. Soddy offered a vision of economics as rooted in physics — the laws of thermodynamics, in particular. An economy is often likened to a machine, though few economists follow the parallel to its logical conclusion: like any machine the economy must draw energy from outside itself. The first and second laws of thermodynamics forbid perpetual motion, schemes in which machines create energy out of nothing or recycle it forever. Soddy criticized the prevailing belief in the economy as a perpetual motion machine, capable of generating infinite wealth. That belief is nowhere more clearly manifest than in how we treat money. Soddy distinguished between wealth, virtual wealth, and debt. Real wealth, even the provision of services, is irreducibly rooted in physical reality. The money we use to represent this wealth isn’t real wealth, but virtual wealth — a symbol representing the bearer’s claim on an economy’s ability to generate real wealth. Debt, for its part, is a claim on the economy’s ability to generate wealth in the future. “The ruling passion of the age,” Soddy said, “is to convert wealth into debt” — to exchange a thing with present day real value (a thing that could be stolen, or broken, or rust or rot before you can manage to use it) for something immutable and unchanging, a claim on wealth that has yet to be made. Money facilitates the exchange; it is, Soddy said, “the nothing you get for something before you can get anything.”
http://www.energybulletin.net/stories/2011-01-06/financial-crisis-environmental-crisis
Food for thought ~ Nature Boy
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Here is the heart of the error: “Soddy offered a vision of economics as rooted in physics — the laws of thermodynamics, in particular.
The laws of thermodynamics do not apply to economics, and when they are used that way, they mislead. It’s part of the old “This-can’t-go-on-forever” philosophies, that always seem to have been justified by theories from another discipline (to give them a logical patina), and always seem to have been proven wrong.
They don’t take into account the very progress they decry. Based on 1900 technologies, population growth should have put us back in the stone age by now. Surely we should have run out of food and energy sources. But here we are.
In essence, the suggestion seems to be: “Let’s impoverish ourselves today, or we’ll have to impoverish ourselves tomorrow.” The problem boils down to predictions of results based on predictions of causes — essentially impossible — plus ignorance of Monetary Sovereignty.
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It’s worthwhile reading Pete’s first reference. Unfortunately the author (Professor Daly) concludes the article with, ” . . . the auction willraise much revenue and make it possible to tax value added (labor and capital) less because in effect we will have shifted the tax base to resource throughput,” thus demonstrating he doesn’t have a clue about Monetary Sovereignty.
Raising revenue is completely unnecessary for a Monetarily Sovereign nation, and taxing one thing does not allow for less taxing on some other thing.
While taxes can be used as a deterrent (cigarette, liquor taxes), they never are a source of income for a Monetarily Sovereign nation. Professor Daly apparently believes we still are in a gold standard.
Professor Daly also says, “The former goal of full employment has been sacrificed to the modern ideology of “growth in share holder value.”
Here, he confuses the federal sector’s goals with the private sector’s goals. The private sector never has had a goal of full employment; it always has aimed for “growth in share holder value.” No change, there.
The federal sector goal never has been growth in share holder value, but with the arrival of the Tea Party mentality and ongoing ignorance of Monetary Sovereignty, the federal sector has been more concerned with reduced deficits than with full employment. That is the fundamental reason this blog exists.
In addition to economic ignorance, there is one error the Professor Daly’s of the world continually make. They base their predictions on current technologies. One example: There are various predictions about when the world will run out of oil — perhaps 100 years.
But within that 100 years, will humankind find a substitute for oil, or a way to create oil from other substances? Based on the ever increasing rate of technological innovation (the growth Daly fears), 100 years is a very long time, and the likelihood is we will have learned how to create oil or another source of energy.
Or, the economies of the world will run down, and we’ll be right where Professor Daly wants us to be: No growth.
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Roger,
“…current progress is not sustainable for an unknown period. See any flaws in that?”
You substitute “progress” for perpetual growth. Because of course, we cannot imagine any progress without more more more more monetized transactions, services, and goods we don’t need, whether of value or not….
“The laws of thermodynamics do not apply to economics, and when they are used that way, they mislead.”
In other words, economics (which is nothing more than a human projection onto the natural world and at best, a social science) and money (which is nothing more than a web of social arrangements amongst humans) are above the laws of nature. They are in fact, supernatural. This is a great example of the arrogance of human exceptionalism. We don’t need to co-exist with the natural world, we need to dominate it.
“Man in his arrogance thinks of himself a great work, worthy the interposition of a deity.” Charles Darwin
I think you put a bunch of preditctions in Soddy’s mouth, none of which he said. One I believe he did though, is that we would soon be in a perpetual state of war. He got that one right. Of course, it is a “growth industry”.
The economic and ecological crisis is already here. Maybe you noticed it. That isn’t “doomsdayist”, that’s just honesty. Sorry. Need an itemized list?
~ Henny Penny
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Pete, your paragraph beginning “In other words . . . ” is so far from reality, I’m concerned for you.
The four laws of thermodynamics are quite specific in their application to physics, and do not apply to the social sciences. Exceptionalism has nothing to do with it.
Also, I did not put a “bunch of predictions in Soddy’s mouth.”
As for the “itemized crisis list,” how about one from the year 1800? Or 1400. I suspect it would be equally dire. Start with Malthus.
No wait, I take that back. Please don’t. Instead, start your own blog, where you can anguish to your heart’s content. Please.
Rodger Malcolm Mitchell
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Educational for anyone interested.
Unearthed : the economic roots of our environmental crisis, Submitted by admin on Mon, 02/13/2012 – 07:09, Author: Kenneth M. Sayre, Published Date: 2010, Call Number: ECAL CIRC 504.3 S2755, Cover Page:
Summary: In Unearthed: The Economic Roots of Our Environmental Crisis, Kenneth M. Sayre argues that the only way to resolve our current environmental crisis is to reduce our energy consumption to a level where the entropy (degraded energy and organization) produced by that consumption no longer exceeds the biosphere’s ability to dispose of it. Tangible illustrations of this entropy buildup include global warming, ozone depletion, loss of species diversity, and unmanageable amounts of nonbiodegradable waste. Degradation of the biosphere is tied directly to human energy use, which has been increasing exponentially since the Industrial Revolution. Energy use, in turn, is directly correlated with economic production. Sayre shows how these three factors are invariably bound together. The unavoidable conclusion is that the only way to resolve our environmental crisis is to reverse the present pattern of growth in the world economy. http://www.nd.edu/~philinst/energy.html, Chapter 12 Economics without Continuing Growth,http://www.nd.edu/~philinst/pdfs/CHAPTER12-2009.pdf
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And now, a voice from the religious right:
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These people are incredibly dangerous. Chalk up yet another con in the long list of consequences for organized religion.
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I don’t object to religion. Not at all. I object to the perversion of religion by those who claim to know God’s plan, and twist that belief to suit any occasion. For them, their translation of the bible has allowed every form of murder, torture or wreaking of misery on those who believe differently.
Don’t blame religion. Blame the phonies.
Rodger Malcolm Mitchell
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Chalk up yet another con in the long list of consequences for organized religion.
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FANTASTIC DEBATE. But how did Pete get you so mis-directed?
How did he get you to CHALLENGE his concepts rather then defend yours?
Why ignore this challenge ?
1. “A Monetary Sovereignty will self-destruct if
it allows any other entity to issue (print) its currency;i.e., allows Fractional Reserve Banking.”
2. “A Monetary Sovereignty can issue unlimited currency,but it has the duty to have a means for the control of the quality and control of that currency.”
3.”The most powerful economic force in the universe is compound interest.”
How that force is used could lead to servitude or utopia.
What would happen, if any Monetary Sovereignty were to use the unlimited issuance with a compound interest control for ” in Order 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.”
Sometimes foolish questions could produce profound answers.(? quote?)
“Great News,Zero Income Taxes Solves Worldwide Economic Crisis.”
by justaluckyfool
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Oh Pete, stop whining. I actually was trying to be polite in the face of utter nonsense.
Lots of organizations create money. My local check cashing service gives “pay day” loans, which create dollars. H&R Block gives tax refund loans, which create dollars.
The point is, to eliminate the lending functions of banks, you would have to invent some other entity that has the same functions. Lending is basic to economic growth (oops, you and Soddy don’t like growth), and lending creates money.
And by the way, Soddy’s justification of his ideas, by referring to the laws of thermodynamics, makes him a charlatan of the first order. Energy (the subject of thermodynamics) neither can be created nor destroyed. Money can be, and continually is. What next for Soddy? E = MCC?
Twisting the meaning of one science to justify a completely different concept in another science is beyond dishonest. It’s what the snake oil salesmen do. How you got hypnotized by that guy is beyond me.
Your comments are so full of holes (I was going to use a different word), it’s hard to know where to begin. You said, “. . . the profit that comes from the issuance of money belongs to the sovereign power that guarantees that money. In the U.S., that’s us: We, the People.”
Sorry, Pete, “we the people” are not the federal government. We pay taxes; the government collect taxes. The government makes and enforces the laws; we obey the laws the government makes and enforces. We are the private sector; the government is the public sector.
Is it possible Soddy doesn’t know the difference between the private and public sectors? Probably.
You said, “. . . profit (belongs) to the sovereign power that guarantees . . . money . . .” But , Pete, the federal government has no need for profit. Remember, it creates dollars. Why would any entity, with the unlimited ability to create dollars, need profit? Think about it.
Anyway, there are three things I don’t wish to include in this blog:
1. Arguments favoring creationism
2. Discussions of the tooth fairy
3. Soddy’s theories
So please, don’t even bother.
Rodger Malcolm Mitchell
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http://www.alternet.org/world/154453/why_the_american_empire_was_destined_to_collapse?page=entire
“As a dean, my friend interacts with faculty a lot, at department meetings, cocktail parties, or whatever. He took these opportunities to raise the topic of the rapid redefinition of virtue in colonial America, only to discover that within 30 seconds, the eyes of whomever he was talking to glazed over and they would change the subject. Tocqueville said it in 1831, and it is even more true today: Americans simply cannot tolerate, cannot even hear, fundamental critiques of America. IQ has very little to do with it. In an ontological sense, they simply cannot bear it. And if this is true for the “best and the brightest,” then what does this say for the rest of us?”
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Oh, woe is us . . . again, and again. Are we talking about the most powerful, successful, overall wealthiest, overall most advanced nation in human history — a nation envied and emulated by people all over the planet?
Why is it considered oh so clever and chic to be negative about America.? Is it that, if it isn’t perfect it must be rotten?
“Americans simply cannot tolerate, cannot even hear, fundamental critiques of America.” Hmmm . . . Does that mean you’re not American, or simply very superior to all other Americans?
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After telling the stories of particular societies that collapsed or prospered, Diamond asks pointedly, “What lessons can we draw from history?”
Take environmental problems seriously
He answers bluntly: “The most straightforward [lesson from history]: take environmental problems seriously. They destroyed societies in the past, and they are even more likely to do so now. If 6,000 Polynesians with stone tools were able to destroy Mangareva Island, consider what six billion people with metal tools and bulldozers are doing today. Moreover, while the Maya collapse affected just a few neighboring societies in Central America, globalization now means that any society’s problems have the potential to affect anyone else. Just think how crises in Somalia, Afghanistan and Iraq have shaped the United States today.”
Examples of this in contemporary society might include
•The petrochemical industry that reaps mountainous profits by selling products that are heating up the planet, contaminating our bodies with biologically-active industrial poisons, and leaving tens of thousands of chemically-contaminated waste sites for taxpayers to try to deal with.
•Another example might be the tobacco industry that is now hawking its cancer-causing wares to unsuspecting children world-wide.
•This list could be readily extended because the U.S. pays only lip service to the important principle that “the polluter shall pay.” More often than not, in the U.S. the polluter is subsidized by the federal government to evade paying.
Decision-making failure #2: “… [T]he pursuit of short-term gains at the expense of long-term survival, as when fishermen overfish the stocks on which their livelihoods ultimately depend.”
•We might include in this category: unsustainable logging practices; industrialized agriculture, which depletes topsoil and contaminates water with fertilizer and pesticides; and waste-treatment plants that discharge wastes into waters that must then be cleaned for drinking and other essential purposes.
Deep lesson #1: “A society contains a built-in blueprint for failure if the elite insulates itself from the consequences of its actions.”
http://hnn.us/articles/22563.html
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