Mitchell’s laws:
●The more budgets are cut and taxes increased, the weaker an economy becomes.
●Austerity is the government’s method for widening the gap between rich and poor, which leads to civil disorder.
●Until the 99% understand the need for federal deficits, the upper 1% will rule.
●To survive long term, a monetarily non-sovereign government must have a positive balance of payments.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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Believers in Modern Monetary Theory (MMT) and Monetary Sovereignty often wonder why the clear and obvious bases for their hypothesis so actively are resisted by the public. We encounter not just reasonable doubt, but sarcasm and anger.
We wonder, “Why do people so passionately object to paying less tax and receiving more benefits?”
Recently a blogger, whose name is hidden to protect the ignorant – we’ll call him “F” — labeled Modern Monetary Theory (MMT), and by association, Monetary Sovereignty, “fringe theories.” An example of his commentary is:
I am continually baffled by people who give views far outside the mainstream, and insult people with conventional views — as if these non-consensus views were obvious and widely accepted by most experts.
That does not mean they are wrong. Sometimes — although rarely — very fringe theories become accepted (ie, some of today’s views were once on the fringe, but few fringe views become widely accepted).
After scores of fruitless debates with such people, I concluded that this attitude tends to characterize ideologues, people with an idée fixe. That does not mean that they’re bad, or wrong. It, in my experience, means that debate with such people is a waste of time (ie, a rule based on a generalization).
F is referring to MMT and MS, and his use of the words “fringe theory” is a gratuitous slap disguised by phony reasonableness. His comment has nothing to do with the merits of MMT and MS. It merely is his excuse for saying they are wrong, without having to justify why.
For the F’s of the world, science stands still. He does not acknowledge that every new scientific idea begins in the “fringe.”
This thread touches on one of my major shocks from the comments on [my] website: the degree to which my bland, mainstream views (with which most people will agree) are fiercely attacked as if they were extraordinary violations of common sense.
Ah, the innocence of those “bland, mainstream views,” and the implication that “most people” agreeing is proof of correctness. We attack F’s views, not just because they violate mathematics and common sense (which they do), but when demanding reductions in the federal deficit and debt, F joins those who put America at risk. “Bland,” indeed.
The mainstream takes umbrage at Monetary Sovereignty calling their ideas not only wrong, but obviously and dangerously wrong. But those ideas are motivated not by sincere applications of science, but by the greed of the upper 1% income group. .
In short, F, you and the populace have been had by the 1%.
Gross Domestic Product (GDP) is the most popular (mainstream) measure of economic growth. It is calculated by adding federal spending, non-federal spending and net exports. More specifically:
GDP = Government Consumption & Investment (federal spending) + Personal Consumption Expenditures + Private Domestic Investment (non-federal spending) – Net Imports
Because U.S. Net Imports removes about $500 billion a year from GDP, the total of federal spending plus non-federal spending must exceed that $500 billion sent overseas, just for GDP to exist, let alone grow. Basic algebra.
But the mainstream economists wish to reduce, or even eliminate, the federal deficit, and the only ways to do that are to cut federal spending and/or to increase federal taxes – both of which reduce federal and non-federal spending. In short, F’s “bland, mainstream view” is to reduce the only elements responsible for economic growth.
And we shouldn’t attack that??
I have called the mainstream view, “Applying leeches to cure anemia.” (I’ll accept any better analogies.) Meanwhile, there is not one iota of evidence that federal deficits and debt are “unsustainable” or excessively inflationary or any of the other “sky-is-falling” deficit scenarios depicted by the mainstream, and further, not one iota of evidence that cutting the federal deficit and debt will stimulate the economy. All the evidence is on the other side.
So, shame on us “fringe” theorists for daring to attack these bland, mainstream unsupported, harmful views. Better that we should stand back and say nothing and join the safety of the majority, while the country descends into recession, depression and ultimately, into anarchy (when the income gap, between rich and poor, grows large enough)?
In the previous post, I described how President Obama’s “grand bargain” will widen that gap, and I speculated on his motivation, i.e. he is bought and paid for by the upper 1% income group. (Ask him about his real estate deal with convicted felon Tony Rezko.)
But while the 1% is motivated by the desire to increase the gap, and the Republicans and Democrats are motivated by the 1%’s bribes, none could accomplish their misdeeds without the acquiescence of the public. And standing at the public’s source of this river of misinformation, you’ll find mainstream economists.
What motivates mainstream economists to ignore science, mathematics and common sense, to hold fast to ideas that cannot be supported by data? Let me count the ways:
1. Some economists have won what misleadingly are called “Nobel Prizes,” for proving the world is flat, and by heaven, they are not about to admit the errors of their ways.
2. Those awarding the prize have staked their reputations on the mainstream idea of reducing the factors making up GDP in order to increase GDP. Economists know the prize will go to the mainstream, so they follow the mainstream.
3. Some economists receive money from the upper 1% income group, and one does not bite the hand that feeds you.
4. Professors need to publish, and mainstream publications are far more likely to publish articles parroting mainstream propaganda.
5. And what shall one do about those annually revised, profitable textbooks forced on the students every semester – textbooks espousing the mainstream view?
6. Finally, no one is granted economics department tenure for advocating a hypothesis embarrassing to the head of the economics department, and that guy already has published mainstream pap.
So you have the great Harvard University and the even greater (for economics awards) University of Chicago, pumping out mainstream nonsense, which the media, the politicians and bloggers like “F” accept without resistance, while professors at the University of Missouri, Kansas City (may their name be blessed) courageously tell the truth about our economy.
Would that their voices were louder.
As the bought-and-paid-for Obamas, Romneys and Bernankes, Senators and Representatives, newspaper and T.V. “journalists, Fox News and mainstream economists all do their utmost to indoctrinate the populace with lies, a handful of heroic economists – Randall Wray, Warren Mosler, Bill Black, Billy Mitchell, Stephanie Kelton, Mathew Forstater and others fight to save America.
And endure the F’s of the world sneering at “fringe” theories.
Of course, one day, as either the evidence continues to pile on their heads, or the angry mobs impale them with pitchforks, these mainstreamers will tell everyone, “You misunderstood me. I knew Monetary Sovereignty all the time. When I said the deficit should be reduced, I really meant it should be unreduced. That always has been my bland, mainstream view.”
Bottom line, there are many reasons why the public resists the facts of Monetary Sovereignty – and perhaps the most powerful reason is: The mainstream disputes it. We humans are predisposed to join the collective, especially when the F’s of the world say so.
As the Borg in Star Trek said, “Resistance is futile.”
Or maybe not.
Rodger Malcolm Mitchell
Monetary Sovereignty
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Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Medicare — parts A, B & D — for everyone
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here)
4. Long-term nursing care for everyone
5. Free education (including post-grad) for everyone
6. Salary for attending school (Click here)
7. Eliminate corporate taxes
8. Increase the standard income tax deduction annually
9. Increase federal spending on the myriad initiatives that benefit America’s 99%
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 Imports
#MONETARY SOVEREIGNTY
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#Monetary Sovereignty - Mitchell 
From the desk of another mainstream “economist”:
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA 22030
Open Letter to Mike Norman
by DON BOUDREAUX on APRIL 11, 2011
in DEBT AND DEFICITS, MYTHS AND FALLACIES…
“Dear Mr. Norman:
Peter Parlapiano, a reader of my and Russ Roberts’s blog, Café Hayek, sent me a link to your March 30 blog post in which you argue that no additional money (and, hence, no additional inflation) would be injected into the economy if Uncle Sam buys back all outstanding U.S. Treasuries with newly printed dollars…Your imaginary dialog, Mr. Norman, fails to prove your point. The reason is that you confuse wealth with money….
“I rest my case.”
>>>3 “Comments” including the author himself follow . (Boudreaux’s obviously denies or fails to grasp anything about Monetary Sovereignty)
1. Sandre April 11, 2011 at 10:08 am
MMT people confuses accounting for economics.
2. Don Boudreaux April 11, 2011 at 10:09 am
Pardon a stupid question, but what is “MMT”?
3. jjoxman April 11, 2011 at 10:11 am
Modern Monetary Theory. It is a serious cult.
Here is an introduction to it that reveals how hare-brained it is: http://smarttaxes.org/2010/10/22/the-basics-of-mmt-by-bill-mitchell/
From what I can tell, the whole story is based around deriving the following from national accounting identities:
S – I = T – G
Such that the MMTers say the only source of private savings is for government to run deficits.
I spent a couple hours once debunking this MMT junk. I wish I had those hours back.
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Isn’t this simply a matter of switching balances at the Fed from the securities account to the reserve account?
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Steve, what is the “this” to which you’re referring?
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Sorry Rodger, “this”, in this case refers to “no additional money (and, hence, no additional inflation) would be injected into the economy if Uncle Sam buys back all outstanding U.S. Treasuries with newly printed dollars”
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Correct. The dollars previously were created, then deposited in T-security accounts. To “pay off” these accounts, the FRB merely transfers the dollars back. No new dollars created (except for interest).
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Hey Don,
Rather than spending those hours debunking, you should have spent them learning.
How’s this for accounting:
GDP=Federal Spending+Private Consumption and Investment-Net Imports.
Now, explain exactly how reductions in the federal deficit, which require spending decreases and/or tax increases (both of which reduce Private Consumption and Investment), can grow GDP.
Shouldn’t take too much time.
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MMT is not an ideology, a philosophy, or interpretation. It is a formal theory, meaning it can be expressed in hard algebra and immutable logic, without value judgments. (I consider MS to be the purest form of MMT.) The theory of aerodynamics explains how an airplane actually flies in the real world. MMT explains how fiat money actually operates in the real world. MMT does this by explaining how electronic ledgers or spread sheets work. It’s like explaining how standard accounting works. Thus, properly written MMT books are like standard accounting textbooks. To call MMT a “fringe theory” is like calling standard accounting a “fringe theory.” It reveals the speaker’s ignorance and prejudices.
In any formal theory there is a small amount of “wiggle room” (e.g. in controlling inflation, is it best to use taxes or interest rates?), but there is no logical way to argue against the central theory. Either the airplane flies, or it doesn’t.
Rodger uses hard logic and mathematics, plus charts and graphs from the FRB of St. Louis. The math is present for all to see. The Fed is quite candid in all its information, but the information only makes sense of we understand MMT. If we do not understand it, then we bicker all day long, going nowhere. (Which is precisely what the 1% and the politicians want.)
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Incidentally I see a comment above in which a reader says, “MMT confuses accounting for economics.” This is a common response from morons who self-righteously cling to the lies.
The truth is the reverse. Economics (i.e. bickering and bullshit) is treated as though it were formal accounting, or as valid as MMT.
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Right. Much of economics is about money, and money is described through accounting, so much of economics is, in fact, accounting.
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Rodger – this comment of yours “But the mainstream economists wish to reduce, or even eliminate, the federal deficit, and the only ways to do that are to cut federal spending and/or to increase federal taxes – both of which reduce federal and non-federal spending” is simply wrong, and no doubt goes a long way towards explaining why FM (not just F) doesn’t see things your way. There is, as I’ve said repeatedly here, another way to decrease the debt without decreasing spending OR increasing taxes (you could even increase spending AND DECREASE taxes). That way is through direct issuance of dollars, debt-free, from Treasury. Lincoln did it first with the original legal tender laws (I’m leaving off American Colonial experience and European experiences prior to American’s founding here, though they are relevant too). We had 14 series of Greenbacks form 1862-1972, and not fully phased out by Treasury until 1996 (i.e. the United States Notes were burned).
This debt-free money was used to fight the Civil War, could be used today for multi-trillion dollar public works programs (current Transportation Secretary Ray LaHood tried this when he was a Congressman in 1999 with a bill to inject $360 billion into transportation infrastructure – HR 1452, though this was not “pure” in the sense that the principal, but not the interest, would have to be repaid. Still, saving on interest can save up to 50% of a typical highway construction project!
I haven’t heard FM counter this.
I have heard him counter your argument that we need to increase the debt, and do so quite well. Until you see the difference between debt and spending, you will not make headway, because these are two different things.
And no, as I’ve said repeatedly, we are NOT monetarily sovereign. If we were, we (at the Federal level) would not need to borrow money at all, from anyone, including our own Central Bank. This is not a mere technicality, it is an issue of seigniorage, and a major source of drag on economic performance – as are all those idle economic rent collectors living off Treasuries, whether in China, or the U.S. Only productive activity contributes to economic wealth. Rent collection is a minus, not a plus to economic growth. BTW, if we stopped paying interest to the Chinese, they would not be subsidized and so would have to earn more off their exports, making their products more costly, and ultimately helping our balance of trade by making the U.S. more competitive, a great result for us!
Inflation can be controlled by proper taxation (I favor Land Value Taxes and possibly tariffs – our country experienced its greatest growth when we protected out industries, and is a net debtor roughly since we started free trade; this is no accident, but inevitable, but I digress…)
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The U.S. no longer needs to borrow money. A law requires it to issue T-securities in an amount equal to the deficit. Nevertheless, the U.S. has a sovereign currency which is not attached to any other currency or product.
That makes the U.S. Monetarily Sovereign.
By contrast, the euro nations (like U.S. states, counties and cities) have no sovereign currency, so are monetarily non-sovereign. The euro is the sovereign currency of the EU, which is Monetarily Sovereign.
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Scott,
I said, “But the mainstream economists wish to reduce, or even eliminate, the federal deficit, and the only ways to do that are to cut federal spending and/or to increase federal taxes – both of which reduce federal and non-federal spending”
You said “(that) is simply wrong, and no doubt goes a long way towards explaining why FM (not just F) doesn’t see things your way. There is, as I’ve said repeatedly here, another way to decrease the debt . . . ”
See anything wrong with that? I spoke of deficits, and you responded about debt.
I agree with you that federal debt is entirely unnecessary for a Monetarily Sovereign nation. That is a fundamental point made by Monetary Sovereignty.
In fact, all federal debt (which is nothing more than the total of deposits in T-security accounts at the Federal Reserve Bank), could be eliminated tomorrow. Simply debit all those accounts and credit the holders’ checking accounts. No new dollars needed (but for outstanding interest).
The federal government does not need to issue T-securities, but it does need to run deficits.
There is no necessary financial connection between federal deficits and federal debt. We can have deficits without debt, and we can have debt without deficits.
I discuss this in several posts, one of which is at https://rodgermmitchell.wordpress.com/?s=%22deficits+without+debt%22
Gaining an understanding of Monetary Sovereignty is important for understanding economics.
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Deficits (the difference between what we take in and what we spend), under our current system, lead to debt (what we owe to the holders of the debt, overall) eventually. I actually am calling for an end to double-entry accounting on the Federal Level. As you point out, it is a fiction anyway to say that we are “in debt” when the Federal Government can simply “coin Money” as per the constitution and TRUE monetary sovereignty. So, why not end the deliberate confusion and just stop pretending we can’t do what we can do? Well, of course, there are those who hate the government so much that they would rather the country be poor (and themselves), just to preserve a eco-religious ideology. I’m not sure you can ever reach them.
But for the rest, I believe it makes more sense to talk about sensible spending for the common good, under a debt-free money creation system, than to pretend that a whole class of people living off Treasuries instead of working does not matter to ultimate productivity, or doesn’t contribute to our continued dependence on the banking elite. By firmly establishing that government can, does, and should, “coin (its own) Money” we can REALLY establish the Monetary Sovereignty you and I aspire to have for America. We’re better off than Euroland, not quite as well off as Japan – which produces its money opaquely through a Public Bank – but nowhere near as well off as we ought to be.
I don’t want governemnt off my back, I want my government back.
One way to do that is to finally sever the mutual ties between governemnt and the banking elite, and truly sovereign money would be a big step in that direction.
As for simply crediting holders of T-securities, I’m not sure why we ought to do that, nor how that will end the next cycle of indebtedness. Indeed, politicians, once they see how “debt-free” we suddenly are, might go on a spending spree, putting the debt right back up again. Remember how the banks started to panic when Clinton left office and there was a tiny surplus? They want us to be in debt too, which we really have no need to be, IF we produce debt-free money. The fact that the bankers want us to be in debt is enough right there to indicate we ought not to be.
Monetary Sovereignty Now!
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Scott,
I’m with you . . . I think.
Just one small caveat. There never can be “debt-free” money, because every form of money is a form of debt. In fact, the broadest measure of the money supply is: “Debt Outstanding Domestic Non-financial Sectors.”
But there certainly can and should be an end to the issuance of T-securities, as they simply make people think the federal government is “in debt.”
The politicians certainly might go on a spending spree, which would benefit millions of people — until we hit the limit of inflation. So there always are limits. Today, the limit is fear of debt. Tomorrow, the limit could be fear of inflation.
The difference is the ability to pump more dollars into the economy than we do now.
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Well, I understand and agree with your fear of inflation. But inflation is not a form of debt, so yes, there can be debt-free money (the coins jiggling in your pocket are another form, so are stamps, for a limited purpose). True, most people have come to think of money as debt, but it need not be. It can be just m-o-n-e-y. As Zarlenga pointed out, when you spend money like this on infrastructure, for example, you actually get something for it. And that something is a true item of wealth. Money itself is not wealth (as any Zimbabwe millionaire can tell you), but it is a claim on it. It is an incentive to develop it. It is the grease that lubricates society so that more wealth can be created.
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“Money is measured in many ways: M0, M1, M2, M3, L and Debt Outstanding Domestic Nonfinancial Sectors. Take, for instance, M2, which includes: Coins and notes, traveler’s checks, checking accounts, savings accounts and money market accounts,
Traveler’s checks are debts of the company issuing them. Checking and savings accounts are bank debts. Money market accounts are debts of the money markets.
This brings us to coins and notes, which are debts of the federal government. What does the government owe the owner of a coin? Full faith and credit.
All forms of money are forms of debt, each with a different collateral. That is what gives money its value.
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No debt can exist without a credit. They are polar concepts like negative and positive electrical charge.
If money is a debt then it is also a credit. If it is a credit then it is also a debt.
If there is a credit of +x then there must be a debt of -x.
A credit is also a saving.
Savings, credits or positive money is a handy device to glue numbers to goods and services. Nobody prices a good with minus units.
Using money to associate credit numbers with goods and prices, and other factors enables a monetized economy and constitutes a material basis to wide human prosperity.
The functioning of a healthy monetized economy requires positive money, credits or savings. This can result from private credits / debts, the created credits functioning as positive money while not being used or the corresponding debt paid.
This can be very profitable for credit issuers, yet such profitability is predicated on the losses of debt takers so that overall fluctuations of economic output results in net losses both with regard to past and with regard to the maximum theoretically possible.
The problem is solved with a public issuer of a designated money or currency. The units of currency issued by public government can be left issued or destroyed through tax.
In this view money is not created as credits and debts but simply as units of economic value. The public government issues currency in paying public spending. This money, people can use to buy things, save or pay as taxes.
Taxes are required to ensure that production of citizens goes into publicly provisioned goods or services, which should include wise management of currency.
If people are globally taxed to the global level of public government spending then no issued currency is left in the system for people to buy things and save. The system is in a currency-deficient state
A wise therefore fiscal responsible government must lower tax enough that enough units of currency enter the system through net government spending to satiate or satisfy private savings desires and buying behavior or product growth.
Satiation or satisfaction is signaled by approaching full employment, taken here to mean that everyone wanting to earn a minimal decent income from honest productive activity goes into that situation without delay. Our current and foreseeable technological power shows this is possible even to the more strict condition of every citizen earning a decent income and possessing a decent wealth from being a decent citizen.
The question is how people can have governments, some supposed to be elected by people, to make real such currency management policy.
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Paulo, the U.S. federal government, being Monetarily Sovereign and so, having the unlimited ability to create the dollar and pay its bills, does not need to collect taxes, nor does it use tax dollars for spending.
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Rodger, I know that tax is strongly understood as exaction from “they”, “the conquerors”, “the explorers” executed by “The State (of a monarchy or of a republic, either foreigner or our own”.
The philosophers of the Enlightenment gave us another concept of ‘state’. State as the public government of consenting and wanting nations, politically organized as citizenries.
Public government must allocate private resources to public use; by public one means here citizen universal.
We function in a monetized economy. This means that numbers are assigned to goods, services and assets. Should the goods, services and assets that go from private production to public use not be assigned a number as a matter of accounting? After all the monetary system is an accounting system.
I think that one can redefine tax with a positive meaning: it is the nominal average of each citizen contribution in income to publicly provided goods, services and assets.
If this were real and recognized as such by people paying taxes would change from ignominy to merit. Paying higher tax values would mean, greater contribution for public good.
Now, the ratio of tax paid to total income becomes a central question to define citizenry. The democratic principle means one person one vote, a coherent principle would be to make each and every citizen base tax rate on income equal to total public provided goods and services over total citizens income. I acknowledge that this definition is not satisfactory as it does not consider the government buying private assets or selling public ones.
Then, this ratio must be lowered to accommodate net imports, production growth and saving desires. Experimentally, one knows that nominal tax paid or social discount on income or contribution to public good is near the optimal level when full employment is attained and endogenous prices are stable meaning that productive capacity is not being stressed over its actual limit.
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There is no need to “redefine tax with a positive meaning.”
t is a useless burden by a Monetarily Sovereign government. It is an unfortunate necessity by a monetarily non-sovereign government.
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