Question of the day: Why is it easier to believe in worldwide ignorance than in conspiracy?

Mitchell’s laws:
●The more federal 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.
●The penalty for ignorance is slavery.
●Everything in economics devolves to motive.

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Of our leaders – the President and his many advisors, the Secretary of the Treasury and his many advisors, the Chairman of the Fed and his many advisors, the Counsel of Economic Advisers and their 400+ economic PhDs, and Congress, 535 strong – not one of these thousand-plus leaders admits to understanding Monetary Sovereignty.

Not one admits to knowing the federal government cannot run short of dollars. Instead, 100% of them falsely claims the government is “broke” and the federal deficit is “unsustainable” and the debt will be paid by our children.

Not one admits to knowing the U.S. government, being Monetarily Sovereign, is different from the monetarily non-sovereign governments of Chicago, Ohio, Greece and France.

Not one admits to understanding why personal finances are unlike federal finances. So our leaders lie, as President Obama did, when he said, “You have to live within your means, so the federal government should live within its means.”

The followers of Modern Monetary Theory (MMT) reject the notion that this is a conspiracy, perhaps because conspiracy theories, in of themselves, so often have lacked proof. MMT says this simply is an example of massive and unimaginable ignorance, which can be cured by education.

So they try to educate our leaders with ever simpler and clearer explanations – all to no avail. Somehow, strangely, our leaders just can’t seem to “get it.”

Meanwhile, the charade in Washington, DC continues, as each political party competes to destroy the American middle class, by cutting benefits.

Recently, I read an article by Chris Cook, a senior research fellow at University College London and a former director at the International Petroleum Exchange. The piece is titled, THE MYTH OF DEBT. I urge you to read it.

Here are a few excerpts:

The fiscal myth of tax and spend shared by virtually all schools of economics is that tax is first collected and then spent. This has never been the case: the reality has always been that government spending has come first and taxation later.

Taxation acts to remove money from circulation and to prevent inflation: it does not fund and never has funded public spending.

THE clearing banks have their own power to create money, for the purposes of lending. They are responsible for most new money in the modern system They, too, are the subject of a well-peddled myth, which is that deposits are first collected by banks and then spent or loaned into circulation on the basis of requiring a certain reserve level of deposits to be maintained.

In fact, there is no constraint on UK credit/money creation of reserves: the constraint on modern money creation by private banks is the capital required to cover losses on loans. Private banks first lend . . . and then fund their dated interest-bearing loans (assets) with dated interest-bearing deposits (liabilities).

Putting most money creation into the hands of organisations whose raison d’etre is to make money from lending (and more recently, from speculation) is behind much of what has gone wrong with the financial system. As with all historic bubbles, the profit motive drove excessive credit creation.

Bank lending departments were abetted by everyone from bank lobbyists persuading the authorities to allow dangerously low capital ratios to trading departments devising increasingly complex instruments for shifting loans off bank balance sheets to make more and more lending possible.

From these observations, I reach two conclusions. First, the clearing banks cannot be trusted to freely create the credit which is modern money. If money is to be created by a middleman or intermediary then it should be either the central bank or the Treasury itself.

My second conclusion is that we must revisit the concept of the national debt itself and recognise it for the national equity it is in reality. We have only saddled ourselves with this debt delusion because we have forgotten what the true relationship actually is between public spending and taxation.

Mr. Cook’s article appeared March 5th, 2013, in the Scottish newspaper, the Herald. Clearly, he understands Monetary Sovereignty. His Scotland is part of the UK, which remains Monetarily Sovereign, while much of Europe surrendered its most valuable asset, its Monetary Sovereignty, by adopting that alien currency, the euro.

Why did Mr. Cook feel compelled to write this piece? Because, the leaders of the UK, and all their economic advisers, even now, debate the best way to sacrifice their middle class, while also debating the forfeit of their Monetary Sovereignty via entry into the eurozone.

So, is this an example of worldwide ignorance or worldwide bribery and conspiracy?

Aside from their provably wrong statements, there is no evidence these thousands of economics-educated people do not understand the basics of economics. There is no evidence telling us these people do not understand the clear and obvious facts expressed in Mr. Cook’s article and in thousands of other such articles written under the MMT banner and in this very blog.

While zero evidence tells us these people are ignorant, what is the evidence for conspiracy?

Slate
The Failure of Peterson-ism
By David Weigel|Posted Monday, Dec. 10, 2012

For 20 years, a coalition of wealthy people—Pete Peterson chief among them—has spent hundreds of millions of dollars to build public support for austerity.

Hundreds of millions of dollars? Where did those dollars go? Many went into the campaign funds of politicians. Hundreds of millions will buy a great many politicians.

Then there are the Koch brothers.

According to

OpenSecrets Blog here are a few Koch political expenditures:
–Political Action Committee Spending (1989 to 2010): Koch Industries: $5,938,993
–527 Group Contributions (2001 to 2010): Koch Industries: $574,998
–Lobbying Expenditures (1998 to 2010): Koch Industries: $50,972,700

So well more than $55 million dollars were spent, most of them on “lobbying.” That too will buy you a great many politicians.

Then there is George Soros:

http://www.politico.com/news/stories/1010/43157.html Politico quotes him as saying, “Admittedly, consumption cannot be sustained indefinitely by running up the national debt …”

According to OpenSecrets blog: Individual donations to 527 organizations (2001 to 2010)
George Soros: $32.5 million

Hundreds upon hundreds of millions of dollars, given to politicians by people who claim the federal deficit and debt are, or soon will be, too large. Are these billionaires, with all their access to economic facts, also ignorant of economics?

Finally, the rich own the media, which promulgate the lie that deficits must be reduced.

So, which is more likely: Universal ignorance of economics by economics experts and the media or worldwide bribery of politicians and ownership of the media? All the evidence is on the side of bribery; no evidence supports worldwide ignorance.

What is the motive? Why do billionaires, who if anything, are experts in money, “waste” their valuable, and much beloved, dollars spreading the lie that deficits must be reduced? Because that lie will widen the wealth and income gap between the rich and the rest.

If you earned $50,000 per year, would you be rich? Yes, if everyone else earned $10,000. But no, if everyone else earned $50,000. It is the gap that makes the upper .1% rich and powerful, and the wider the gap, the richer and more powerful they are.

Without the gap, no one would be rich. That is why the rich are willing to spend millions, even billions, to widen the gap and to increase their power over the middle- and lower-classes.

Do we really believe we are so brilliant that we understand a Monetarily Sovereign government cannot run short of money, but these thousands of intelligent leaders simply cannot understand? A reporter in Scotland understands, but the leaders of the UK do not? Really?

These leaders are not stupid people. They are bribed people.

The public has been misled and brainwashed. The people do not want to learn economics, but rather wish to rely on their leaders. When the bribed leaders lie, the public believes.

So to change the world, and to save the middle- and lower classes, we who understand Monetary Sovereignty first must explain to the people how and why they have been lied to. We must not fear to explain the conspiracy and the motive.

Only when the people see the bribery and the lies, will they be willing to accept the truth.

And it is the truth that will save them from the ever growing disaster known as the “gap.”

Rodger Malcolm Mitchell
Monetary Sovereignty

====================================================================================================================================================

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

46 thoughts on “Question of the day: Why is it easier to believe in worldwide ignorance than in conspiracy?

  1. It’s too simple to comprehend, LOL. Furthermore, any person with the power to change the system who attempts to pull back the curtain to expose the truth about our money will either have an accident or a sexual abuse charge to deal with.

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  2. Great article.
    But please read again. Does “The Myth Of Debt” clearly state, “the clearing banks cannot be trusted to freely create the credit which is modern money. If money is to be created by a middleman or intermediary then it should be either the central bank or the Treasury itself.”
    OMG, why can we not understand the written English word : freely creating credit expansion is the ways and means of destruction of a monetary sovereignty. And since the PFPB (private for profit banks) can compound the interest they charge they have created a taxation which can eventually allow them to own all the currency issued by the sovereignty.
    Yes, a monetary sovereignty (and an authorized agent (PFPB) can “print” with no limit, BUT NOT IF IT MUST PAY A TAXATION(interest) TO PFPB on that issuance.
    ●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
    YES, but is the USA a Monetary Sovereignty, or has it violated the rules by : (A) Allowing PFPB to issue currency (albeit temporary yet listed as an asset) and (B) Allowing the PFPB to charge a taxation on that money a/k/a interest.

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  3. The current and previous Chairmen of the Fed have indicated in Congressional testimony that they understand Monetary Sovereignty. They are not ignorant, nor are they trying to conceal their knowledge. If they are part of the conspiracy, why have they spoken as they have? (And lived to tell about it, Curt.)

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    1. You’re talking about the two or three sentences that have been uttered among a blizzard of commentary essentially agreeing that the debt is a problem?

      Perhaps, if the Chairman would write one — just one — article like any of the posts in this blog, I might believe he wishes to communicate the truth.

      That’ll be the day!

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      1. Yes, that’s so true. These Fed officials talk from both sides of their mouth. Here’s one example: http://www.stlouisfed.org/publications/re/articles/?id=2157 First they say this,
        As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills.6 In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar-denominated assets (by virtue of never facing insolvency and paying interest rates over the inflation rate, e.g., TIPS—Treasury Inflation-Protected Securities).

        Then immediately in the next paragraph they say this, which has no correlation to what they said above:

        Of course, as we have already seen with health care, the government does not have the ability to systematically increase spending without any regard for funding it. And government borrowing can be extremely costly. The cost of government borrowing is the “crowding out effect”: Investment funds mobilized by the government cannot be used in the private sector. It is in this framework, though, that classical economic theory argues the government should neither borrow nor lend, not because it has a moral obligation to run balanced budgets, but because it must consider the cost of diverting investment funds away from potentially more-productive uses.

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        1. Great catch, Nathan.

          That blog post for the Fed shows how the mystification process operates. When people see such contradictions, they think, “This is confusing. I guess I’m not smart enough to understand economics. If politicians say we must have austerity, then there must be sound reasons for it, whatever they are.”

          Author Luciana Juvenal is an “economist” – i.e. an average nobody who gets paid to write garbage for the St. Louis Fed. This is what you do if you put in the time and you incur the student loan debt to get a Ph.D. in economics. If you can’t get a teaching position, you face minimum-waged slavery at Wal Mart, unless you can get paid to write trash that supports the rich and austerity. Ms. Juvenal is originally from Argentina. She interned for free for the IMF and ECB, and had a couple of part-time teaching assistant jobs, but that’s it. She probably works for minimum wage anyway, with the papers as a part-time gig.

          The other author, Brett Fawley, is a mere “research assistant,” meaning he has a B.A. at best. I suspect that he and Ms. Juvenal are married, or live together.

          The St. Louis Fed pays them a couple of shekels for each trash paper (that nobody reads) until the two can finally get a job in a college somewhere.

          Until then, they barely survive, and they praise the rich, hoping the rich will eventually give them a position somewhere.

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  4. The Federal Reserve also said they would not accept a trillion dollar coin. That Is a denial of monetary sovereignty to the USA.

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  5. Q. Why is it easier to believe in worldwide ignorance than in conspiracy?

    A. Because slaves use denial to cope with their misery. Having no physical escape, they mentally escape into dream worlds. That’s why religiosity tends to increase with poverty and suffering.

    Incidentally, the pejorative term “conspiracy theory” is relative. If I agree with you, then you are “right.” If I disagree, then you have a mere “conspiracy theory.”

    Average people berate “conspiracy theories,” yet they constantly make claims about conspiracies. Right-wing wackos claim there is a “liberal conspiracy” in the corporate media. White bigots claim there is a Latino “conspiracy” to invade and conquer the USA. Politicians claim that there are “terrorist conspiracies” behind every bush. Feminists claim that all men conspire to rape women.

    Some conspiracies are real, especially those maintained publicly. For many years, rich and poor Whites both conspired to keep Blacks enslaved.

    The conspiracy about money is public and unspoken, and therefore ironclad. It is maintained by anyone, rich or poor, who rejects the facts of Monetary Sovereignty, or who rejects the fact that politicians are bribed to lie. It purpose (as with all myths about money) is to maintain the social strata, so that everyone can keep his job, or cling to his present place in the social food chain.

    This willful blindness causes societies to become extinct. As nations and empires go into decline, their average people go into denial, thereby accelerating the decline. Today, few people deny that the gap between rich and poor is horrendous, but most people deny the facts of MS. Hence they hasten America’s decline.

    ++++++++++++++++++++++++++++++++++++++

    Rodger writes, “The followers of Modern Monetary Theory (MMT) reject the notion that this is a conspiracy, perhaps because conspiracy theories, in of themselves, so often have lacked proof.”

    I say it is not an issue of “proof.” I say that most MMT people are simply cowards. This brings up a specific issue…

    ON COMMUNICATION

    Regarding Monetary Sovereignty, who is open to the facts? It is usually NOT people who have some understanding of money and economics. They are often the most closed-minded of all, with heads full of garbage that they emotionally cling to like security blankets. Often they learn part of the truth, but get stuck at midway point, refusing to go further. Indeed, their ignorance increases with their knowledge. The closer they get to 100% of the truth, the fiercer they oppose the final 20%. Their denseness is worse than that of the deficit hawks, since the hawks consciously know they are lying.

    Consider the claim by many MMT folk that politicians are simply “misguided,” and that austerity mania is an “innocent” manifestation of groupthink. This claim is insulting, but many MMT people refuse to budge from it. Their rigidity distorts their minds, such that when they discuss how to better communicate MMT to the public, their writing is garbled and worthless. Their stubbornness makes them unable to write in English, let alone grasp the politics of the wealth gap. It is a character flaw. They are stuck.

    Or consider people who resent the rich. They claim to understand MMT, but they only want to hear, “Tax the rich!” They claim to want general prosperity for all, but they only want to hear, “Punish the 1%!” Being typical Americans, they want a “war on the rich,” which they rationalize via illogical claims. Their childish emotions keep them enslaved by the rich, and opposed to the facts of Monetary Sovereignty. Some of them post comments here on Rodger’s blog. If you expose their illogic, they attack you with insults.

    Or consider popular blogger Ellen Brown, who gives speeches all over the world. Ms. Brown and her followers want public banks, but they also insist that every dollar in circulation is lent by bankers. They offer no proof for this claim, but they refuse to budge from it.

    In Ms. Brown’s latest blog post, she admits that the Fed creates QE money “on a computer screen” (her words). She wants QE for the people, with credit issued by a nationalized central bank. Unfortunately she can only think in terms of credit (loans), since she insists that all money is lent by bankers. She cannot grasp something like Rodger’s Nine Steps to Prosperity. Ms. Brown is another example of a person learning part of the truth, and getting stuck. If we think we have nothing more to learn, then we have learned nothing.

    http://webofdebt.wordpress.com/2013/03/07/qe-for-the-people-comedian-grillos-populist-plan-for-italy/

    Therefore our best audience is people who know nothing, and are economically innocent. This was confirmed to me again last night during a chat I had with a neighbor across the street, an elderly woman who lives alone. A nearby house had recently sold, and I asked her where she thought banks got the money to lend for mortgages. She said, “I assume it’s from deposits, but I don’t know anything about economics.” I said banks create loan money on computer keyboards; that is, from nothing. She said this made sense, since loan volume far exceeded deposits. I said the federal government also created money from nothing, on computer keyboards. She said she suspected this all along. She grasped every fact of Monetary Sovereignty, and surmised ON HER OWN that the rich and their puppets keep these facts concealed. I was amazed. I told her that perhaps one person in 200,000 had her level of understanding. She shrugged and said it was “the only logical explanation.” It was a classic “emperor’s new clothes” moment with an innocent.

    Foreigners from impoverished lands often have open minds. I have tenants in my house who rent rooms. One is a Mexican. The other two are from Guatemala. None speak English. All are open to the facts of MS, as is my girlfriend, who does not speak English. Contrast them with Hispanics who do speak English, and have spent most of their lives in the USA. Their minds are usually closed, or else they are not interested in MS. (I have conducted experiments in this.)

    Therefore it is probably useless to rely on MMT people to convey the facts. Either a person “gets it” or he doesn’t. If he “gets it,” then he can speak in plain, logically cogent language. If not, then he is useless. Those most likely to “get it” are those who don’t have heads full of garbage that they emotionally cling to.

    By the way, I’m not religious, but there’s an appropriate quote from the Bible.

    “Jesus said, ‘Let the little children come to me, and do not hinder them, for the kingdom of heaven belongs to such as these’.” (Matthew 19:14)

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  6. TAKING THE NEXT STEP

    Here is an example of a person learning only part of the truth, and getting stuck, thereby falling into self-contradiction…

    Ellen Frank teaches economics at the University of Massachusetts-Boston. She understands that, “The true aim of deficit scare-mongering is to gut Social Security and Medicare.”

    “Why is there so much angst over federal deficits and debts? Since the Reagan administration, conservatives have used federal deficits to ‘starve the beast’ of government spending on social programs. Massive tax cuts that mainly benefitted the top 1% have created massive deficits, which conservatives use to demand cuts in social programs.”

    Ms. Frank does not grasp that the “national debt” is simply the amount of outstanding T-securities. (Thus, the “national debt” equals national assets.)

    However she does expose the false analogy between government and household spending.

    “Unlike households or businesses, the government can print money to pay its debt.”

    She ably dismisses the lies about inflation, and says that the way to cure a recession is via government spending.

    She says that if conservatives want to reduce spending on social programs, then conservatives should reduce the need for such programs by making “concerted efforts to put people back to work.”

    Great. So far, so good.

    Unfortunately Ellen Frank has false beliefs that create contradictions, which leave the door open for continual attack by the rich and their puppets.

    Contradiction 1: Ellen Frank (like Ellen Brown) believes that the U.S. government borrows all its money. Yet Ms. Frank also says the US government prints money to pay its debts. Thus, the word “debts” still has potency. Austerity remains.

    Contradiction 2: Ms. Frank believes that FICA revenue pays for SS, Medicaid, and Medicare, and that there is an actual SS “trust fund.” Thus, she sustains the lie that federal tax revenue pays for social programs.

    Contradiction 3: Ms. Frank wants to tax the rich. “There are good reasons to raise taxes on the wealthy and to raise the tax rates on dividends, capital gains, and carried interest, all of which would help close the deficit.” Thus, deficits are not a problem, but they are. This is the curse of the deficit dove.

    Ms. Frank’s final sentences allude to the wealth gap…

    “Entitlements place a floor under wages, and substantially reduce the pain of unemployment. Pulling this floor out from under American workers would cause wages to fall precipitously for most working-class people. A cynic might wonder whether this isn’t, after all, the real goal of conservative deficit hawks and their big-business backers.”

    Good for you, Ms. Frank. You understand that deficit hawks lie about their motivations, but can you admit that deficit hawks lie about EVERYTHING I have mentioned here?

    The US government does not borrow all its money, and does not run on tax revenue. FICA does not pay for SS and Medicare. SS does not have a “trust fund.” Large federal deficits are not a problem, since the government’s deficit is the economy’s surplus.

    Can you take the next step and grasp this, Ms. Frank? Or are you stuck, like many MMT people are stuck regarding political motivation?

    http://www.dollarsandsense.org/archives/2013/0313frank.html

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    1. By the way, Ms. Frank is an academician, and all academicians (like religious priests) are essentially politicians. Note her use of MMT-style weasel words.

      “A cynic might wonder if this is a the real goal…”

      A cynic? No, just a person who is awake and honest.

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  7. First, please allow me to say: Perhaps anyone that believes they know “What constitutes a Monetary Sovereignty, and how must function to remain a Monetary Sovereignty”, please write a declaration that could be used as a guide. Something that all who claim “What a Monetary Sovereignty Is and how it must administrate its currency”. The rules that can show why that Sovereignty can claim to be a Monetary Sovereignty.
    CAN YOU DO THAT ?
    PERHAPS, just maybe if by chance you get 5 or 6 economist to agree, you may discover that the USA is not a MS.
    P.S. While you are at it: What is money?, What is the value of the fiat currency issued by the MS? Justaluckyfool has a favorite question: If deficit spending is ” the government’s deficit is the economy’s surplus. ” what the hell is the almost $16 trillion ‘accumulated interest” owed ?
    Or is this saying just another one of those (as Roger says) ‘ sounds good
    albeit unproven statements?
    I will understand if there are no profound reply’s for it is customary to ignore questions about “religious” beliefs,or beliefs based on faith .

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  8. I think I’ve read through all of your posts and agree with most of what you (Mitchell) say, even having quoted you in other discussions.

    I especially agree with your assertion that taxes do not fund the federal government’s operations. However, I could not totally agree with your claim that taxes are harmful as they remove money from the economy, and felt that on some level there must be more to the answer.

    I also knew that if the government were to merely print money without regard for the total amount in circulation it would lead to inflation.

    This then created a conundrum for me which was, I knew that there had to be a legitimate reason for federal taxes, but what could it be? (It certainly wasn’t needed to pay for federal spending.)

    Then in the article quoted above, Myth of Debt by Chris Cook, comes the answer, which is actually blindingly simple:

    “Taxation acts to remove money from circulation and to prevent inflation: it does not fund and never has funded public spending.”

    So now the only question is whom will pay those taxes needed to prevent and/or control inflation?

    To me the answer is quite simple. There are only three classes of people who should pay federal taxes. They are (in ascending order of the degree to which they should be taxed):

    1) the rich
    2) the very rich, and
    3) the filthy rich

    The fact is that they are the ones least hurt by taxes or affected by inflation as well as the ones who can most afford to pay federal taxes. (Indeed this was how the original federal income tax system was designed to work!)

    Now we just need to define exactly what income levels qualify for these three categories and what amount of taxes are needed to control inflation.

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    1. bryan jackson,

      It is not a matter of taxing people whom you deem deserving, it’s that taxes are used to REGULATE the economy.

      If the economy is running hot (full employment, more money around than goods and services to buy) then you run the risk of inflation, and need to cool it down. Taxes act as a drain to restore equilibrium in the economy.

      If the economy is running ice cold (heavy unemployment, no income to spend on the goods and services produced) then you need to heat it up. Cut taxes and increase government spending to create jobs, which create income that drives spending and sales.

      Right now our economy is ice cold.

      Taxing the rich is more of a social engineering thing, and that is a political decision more than an economic decision, which a society can make. Nothing wrong with that.

      But don’t make the mistake that the purpose of taxes are punitive exercises to vilify groups of people. (Taxing the rich at this point does nothing to help the 99% grow in prosperity.)

      That is not what taxes do when a country has a monetarily sovereign non-convertible currency and fiat system.

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    2. This is nice, but you’re confusing income and wealth. The rich have wealth, and not necessarily high income. Some very wealthy people (e.g., Donald Trump) have been to bankruptcy court more than once. Some no-so-rich have very high incomes, but die broke after having lived high.

      If the purpose of taxation is to regulate the economy, taxing the wealthy won’t do it. They will continue to spend whatever they want, and pay the tax out of their accumulated savings. There will be no effect on aggregate demand or inflation. Taxing only high incomes will have only a very small effect, because despite the profligate ones, most high income earners are also high savers, and can pay the tax by reducing their savings, not their spending.

      A tax to cool off the economy should be very broad-based. I propose a tax on all business sales, replacing the corporate income tax (and many other taxes). The rate should be adjustable without an act of Congress in tenths of a percent, similar to the way the Fed adjusts interest rates without Congress having to act.

      There are many schemes for taxing the wealthy. One innovative one that I like is a tax on the square footage of residential real estate. A side effect would be that the wealthy might downsize their homes, so Al Gore might move to a 10,000 square-foot mansion, and reduce his carbon footprint in the process. The first 1,000 square feet per permanent resident might be exempt from taxation, and you can make the rate as high as you want.

      Estate taxes are a more standard answer. To reduce the concentration of wealth, I would exempt the first $1M left to each heir, and tax anything over that at a high rate. If Warren Buffet leaves his $500B to 500,000 different people, no tax. To 500 people, maybe $350B tax.

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      1. Just what the economy needs: Additional taxes, especially complicated, convoluted methods for removing dollars from the economy (in an effort to grow the economy, of course.)

        Have you considered running for Congress?

        I’m reminded of the supposed origin of those beautiful Mansard roofs. As the story goes, the French had the kind of tax you suggest, but they didn’t tax attics, so people built houses where the upper floor in essence was an attic, to avoid the tax.

        I doubt the story is true, but it is a perfect example of why removing dollars from the economy is questionable. The law of unintended consequences rules.

        All federal taxes are bad because they remove dollars from the economy (except perhaps “sin” taxes).

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        1. “IF IF IF IF the purpose of taxation is to regulate the economy…”

          That pesky little I-word again.

          Of course, you would do it with interest rates, but not everyone agrees.

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        2. If (IF IF IF) people think the inequality of wealth and income is harmful to society, then taxing the wealthy may be helpful on balance, even if it hurts the macro economy. And if (IF IF IF) the wealth tax is combined with some additional policy that offsets the harmful macro effects of the tax (perhaps a cut in the payroll tax, or an increase in Social Security payments), then the harmful macro effects of the tax can be neutralized.

          But, as I understand MMT, a tax that reduces ONLY saving and does not affect spending would not be harmful to the macro economy. Whether the money is removed by taxing or leaks out of the economy by saving, the harm is the same. It is true that the tax removes financial assets from the private sector (and saving does not), but if the assets come only from the 0.1%, reducing the gap, wouldn’t that be a good thing in your opinion?

          Why not just do the good things, though, and forget the bad or potentially bad? Good idea. I’d go with that, because I’m not convinced that inequality is important. I think the absolute wealth of the poorest is a better criterion. A non-corrupt (or even less activist) government would disconnect wealth from power.

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        3. “Complicated, convoluted”?? Really?? You can’t be doing your own income taxes The best feature of my tax system would be simplicity. I’d like to put all the tax lawyers and accountants out of business. If government were small enough that spending alone without taxing would just offset the leakages, I’d be for no taxes, too. Except, like you say, maybe some “sin” taxes. Recreational drugs should have high taxes, like alcohol and tobacco do.

          And they’re not “additional”, The existing complicated and convoluted taxes would be eliminated.

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        4. See here’s where you lose me, when you just constantly repeat the mantra that “all taxes bad”. IMO you fail to recognize the fact that taxes are a tool that can be used to good or bad effect.

          And why do you allow an exception for “sin” taxes? They still remove money from the economy so they must still be bad.

          And taxing the rich is not necessarily (meant to be) punitive. The fact remains that they are the ones who can most afford to pay taxes and that group of people who are least affected by taxes.

          Please read up on the history of the federal income tax (which you probably already know, but re-read it then).

          The tax system that the income tax replaced was quite regressive, mainly in the form of tariffs (which also served as a protectionism for industry) and were merely passed on to consumers. Granted that was when the gold standard was still in use (ca. 1900), but I believe the same principles still apply.

          The income tax was designed as (or at least meant to be) a progressive system of taxation. That the rich have, over time, figured out ways to get out of paying their “fair share” should come as no surprise to anyone, but that doesn’t mean the effort should abandoned.

          Unfortunately, IMO your message that “all taxes are bad” just plays right into the hands of the Republicans/Libertarians/etc. who want to reduce taxes on those at the top while sticking it to everyone else.

          Perhaps better to explain the role taxes have in regulating the economy (and not paying for federal spending). The Common Man (and Woman) might find that message a bit more palatable and understandable.

          Just a thought…

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        5. Thanks for your suggestion, but all federal taxes do remove money from the economy. I make exception for sin taxes because, although they remove minuscule amounts of money from the economy, they serve a greater purpose.

          Every federal tax is subverted by the rich (via campaign contributions), to be regressive, so there never will be a truly progressive tax.

          I agree with those who want to reduce federal taxes; I just disagree that the deficit must be reduced.

          The real question is, how best to reduce the income/wealth gap. Trying to increase taxes on the rich never has, and never will, work. They always will bribe their way out of it, and the economy (i.e. the poor) always get hurt.

          Focus on lifting the poor. Punishing the rich does nothing for the poor.

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        6. So you make an exception for “sin taxes” because (in your opinion) they serve a “greater purpose”. So I’ll see your argument with my own argument that higher taxes on the rich also serve a “greater purpose” in that those taxes help keep inflation in check and then raise the stakes with the argument that such taxes also help to “reduce the gap”.

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        7. Brian,

          All federal taxes are destructive, including sin taxes.

          If sin taxes were significant and if there were a good alternative, I’d oppose them, too. But since they are a minuscule part of our economy, and are the best method I know to deal with the health problems of alcohol and tobacco, I’ll go with them.

          If you know a better method for dealing with these addiction, maybe I’ll change my mind. Convince me.

          Meanwhile, raising taxes on the upper .1% is foolish. It does not close the gap, because in the unlikely event the upper .1%ers actually pay those taxes, they simply will spend less, which will hurt the poor.

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        8. Rodger says, “Regarding sin taxes, if you know a better method for dealing with addictions such as alcohol and cigarettes, maybe I’ll change my mind. Convince me.”

          I know a better method.

          Statistically speaking, humans are more motivated by the promise of reward than by the threat of punishment. For example, punishing a child is not as effective as withdrawing love from a child. In the work world, if companies award outstanding employees not with pay, but with allowing them to keep their jobs, then all employees will find ways to “look busy” while they stab each other in the back, seeing to it that the other guy gets fired.

          Therefore the federal government should eliminate sin taxes, and instead give out money as a reward for conquering or avoiding addictions. We should allow people to participate in some variant of Rodger’s Nine Steps to Prosperity, unless people use tobacco products, or they abuse alcohol or drugs. For example, you are free to smoke, but you will not be paid for going to college.

          Another problem with “sin taxes” is that substance abuse is most prevalent in the lower economic classes. Therefore “sin taxes” mainly punish the lower classes, making their lives harder. This drives them to escape via increased substance abuse.

          Fortunately for the rich, most people only care about punishment, i.e. taxing the rich., who never pay taxes, and whose money the economy needs.

          “Most people” incudes most people who comment on Rodger’s blog. They look for ANY rationalization to punish the rich, rather than reward the poor. Their attitude is an example of what I call “peasant thinking.”

          Another example of peasant thinking is the childish belief that politicians are simply “misguided.”

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        9. To simplify, instead of sin taxes, I favor Rodger’s Nine Steps to Prosperity (or something like it).

          People who choose to continue with their substance abuse will not get the goodies.

          Rather than punish one behavior, I prefer to reward a different behavior.

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        10. As someone who has worked extensively in the field of tobacco control and prevention, I am acutely aware of just what effect increased tax rates play in reducing cigarette usage. (In case you’re wondering, the basic formula is for every 10% increase in the cost of cigs, you get about a 4-8% reduction in smoking). But the question is not, will increases in “sin taxes” effect some desired social change? The question is, are you going to be consistent in your arguments? All along you have told us that taxes are “bad” but now you tell us that they are “not so bad” as long as they serve some “greater purpose”. So now that you’ve admitted that in some cases taxes are “not so bad” after all, the only question is who gets to decide exactly what that “greater purpose” is? I like to drink beer in moderation. Some maintain that moderate alcohol consumption is actually good for you (or at least it doesn’t hurt). Why should I have to pay federal taxes on the beer I drink? (Where is the “greater purpose” you speak of here?) Some economists have made the argument that cigarette smokers actually cost society less because they tend to die off younger (thus drawing less SS and other retirement benefits) and die quicker deaths (thus requiring less in the way of expensive end-of-life health care). So please, Roger, decide if federal taxes are either “bad” or “are not so bad” because they serve a”greater purpose”. And if you finally decide that “sin taxes” are “not so bad” then I have a “luxury tax” I would like you to meet (whose “greater purpose” is to curb abusive spending by the rich that contributes less to the economy than the spending I have decided would better serve the Common People!)

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        11. Rodger,

          The liberal objection to cutting the top income tax rate is that the people paying that rate won’t spend their extra after-tax income, they will mostly save it, and so their tax cut won’t help the economy much. Conversely, raising the rate doesn’t hurt the economy much, because they will pay the tax (if they can’t avoid it) by reducing their savings, not by reducing their spending. Thus, the case can be made that raising a tax only on the very wealthy will do more to reduce the gap than it will do to harm the economy.

          Like a sin tax, the macroeconomic effect is small, and there is a greater purpose: reducing the gap.

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        12. Bryan,

          All federal taxes remove dollars from the economy, and therefore are recessive.

          Sin taxes help prevent whatever “sin” you’re against.

          So for each individual case, you have to decide whether the amount of recessing caused by the tax is worth the amount of sin prevented by the tax.

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        13. Sorry Roger but the reality is that for the most part “sin” taxes at the federal level don’t prevent “sin” they just make it more costly for individuals to indulge in their chosen “sin” while the government makes money off of them for doing so.

          For example, the federal tax adds about a nickel to the cost of a bottle of beer! Do you seriously think that this prevents anyone from indulging in beer?

          Admittedly, at $1.01 per pack the federal excise tax on cigarettes has more effect, but the tobacco taxes assessed by states (and some cities) is typically quite a bit larger and thus has more effect.

          As I mentioned yesterday the relationship between the cost of cigarettes and the level of consumption is quite elastic, and this is especially important in helping to prevent youth from taking up smoking (but has less effect on older smokers who are already hooked).

          So why not just get rid of the federal excise tax on “sin” and let the states increase the amount of sin taxes they charge to make up the difference?

          As you admit, the federal government has no need for tax revenue to begin with and the states could definitely use it. This way, you would also be consistent in your argument re federal taxes.

          In 2007 federal revenue from the excise tax on beer/wine/spirits was $9.3 billion dollar and on tobacco was $8.2 billion dollars (for a total of $17.5 billion). Admittedly out of the total amount of on-budget receipts of $1.7 trillion this was relatively small (barely over 1%), but still $17.5 billion removed from the economy is $17.5 billion.

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          1. Great comment: It also helps to show-The Fed does not need taxes to spend as they are allowed to ‘print’, while at the same time it shows states must appropriate money (taxation) in order to spend. Plus it illustrates that taxation does not have to be via “income tax or FICA”. One only has to have “something else” to tax. Now just imagine we were to no longer allow PFPB
            to ‘print’ money and to have a taxation on it for their private for profit banks to have as profits.

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  9. Rodger, would you explain Cook’s statement some more by referring to how the US banking system does it, “Private banks first lend or spend what are essentially “lookalikes” of central bank money and then fund their dated interest-bearing loans (assets) with dated interest-bearing deposits (liabilities).”

    Aren’t the “dated interest-bearing loans” what create the deposits in the first place that the Fed then funds through its series of (to me) complicated operations?

    Would you mind explaining what am I missing? I really appreciate it, and I prevail upon you because I know you can say it simply. Thx

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    1. He makes it way too complicated.

      A bank lends by increasing the number in your checking account, which also increases the bank’s reserves by the same amount.

      If you then spend those dollars from your checking account, the banks reserves decrease, so the bank gets additional reserves from the Federal Reserve Bank or from other banks. These reserves are freely obtained, so no bank ever runs short of reserves.

      The banks ability to lend is limited by its capital, not by its reserves, which means “fractional reserve lending” essentially is a myth. It should be called “fractional capital lending.”

      Everything else — the debits and credits to its own books and the clearing through the Federal Reserve Bank — are just accounting steps to balance the books.

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      1. “A bank lends by increasing the number in your checking account, which also increases the bank’s reserves by the same amount.”

        I don’t think the loan counts as reserves. I think reserves are only currency and balances on deposit at the Fed. Loans create deposits, but they don’t create currency.

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        1. I think maybe some of Mosler or Wray’s writings would explain it in more detail, but I think they must come originally from transfers into the banks’ FR accounts during the clearing process following government spending. If an individual bank is short of reserves it borrows from other banks or from the Fed itself. The Fed supplies (lends, creates) whatever amount of reserves may be lacking in the aggregate. Reserves are also created by the Fed when it buys bonds or other assets from the private sector.. There are lots of excess reserves at the moment, due to QE. Government drains reserves from the system when it taxes or borrows.

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      2. Roger, you keep hitting the nail on the head, but you do not follow thru.
        “The banks ability to lend is limited by its capital” Yes, but only by 10%.
        Isn’t it correct that a bank can lend $1 trillion with a capital requirement of $100 billion (10%) ? Perhaps we should have this discussion when you write something on ,”How is the gap of inequality changed from what innovation requires to what greed creates”.
        Theory:
        100 banks create 100 loans of $1 trillion with the terms and conditions of 2% interest for 36 years. This would create an income ,revenue of $400 trillion as profit for the 100 PFPB (Private For Profit Banks)
        Please advice the 99% HOW they can compete when the game is so ridged? IF only I were allowed to lend money that I don’t have and be allowed to collect a taxation on it (interest) , the only question I would have is, How long do you think I would be in the ranks of the 1%?

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    2. The Fed doesn’t “fund” bank loans. The loan creates an asset and a liability for the bank, and also for the borrower. The Fed is not involved. The bank is in fact creating money when it makes a loan, but it does not change the net financial assets of any of the sectors.

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      1. Yes,” The bank is in fact creating money when it makes a loan, but it does not change the net financial assets of any of the sectors.” But what happens ‘ to the net financial assets of that sector when that loan is paid in full? The private for profit bank (PFPB) sucks at lease twice the amount of the loan out of the sector as a profit for itself.
        Yes, the so called zero game “loans = assets” is not a true equation
        since the paid in full loans is greater than the loan itself bepending upon the interest (taxation) paid.
        Please refer to “The Switch Game” as it shows have $100 trillion as a loan assets at 2% for 36 years creates “from thin air” a deposit of $400 trillion. How’s that for creation of a gap in equality?

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        1. “The private for profit bank (PFPB) sucks at least twice the amount of the loan out of the sector as a profit for itself.”

          Private banks are part of the private sector; their profits are in the private sector and are spend in the private sector.

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        2. Yes, RMM correct once again,”Private banks are part of the private sector; their profits are in the private sector and are spend in the private sector….” but when and how do the 1% spend that 100% gain? When do they redistribute that wealth ” to form a more perfect union” Is it perhaps maybe just a little after they LEND it again so the borrowers can pay their new loans?
          How does anyone explain that since there is enough wealth in this world for all to share, what system enables one group to gain more than another? What advantage does the 1% have that the rest can not ever achieve regardless of how much innovation they possess?
          Could it be perhaps the right to ‘print’ money and use that printing to gain ‘real’ money? Question….BUT what if these profits were-profits to be returned to the private sector as the means “to form a more perfect union”?

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  10. MMT states it does not have the answer re: inequality.
    But please read again. Does “The Myth Of Debt” clearly state, “the clearing banks cannot be trusted to freely create the credit which is modern money. If money is to be created by a middleman or intermediary then it should be either the central bank or the Treasury itself.”
    Then play “The Switch Game by justaluckyfool.” Switch the words “Central Bank Working For The People” when ever the words “Private For Profit Banks” appear. Theory: You will discover a ways and means of taxation that will lower the gaps of inequality while at the same time increase prosperity.

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  11. RMM, prove me to be Justafoolishfool. Prove ,the SWITCH GAME to be incorrect.
    *********************
    *WHAT IF THE …The Fed Reserve were to become the CENTRAL BANK WORKING FOR THE PEOPLE (CBWFTP) instead of working for the Private For Profit Banks (PFPB) .

    The government can not win against ‘compound interest’ on debt for that can be infinite in amount. IF ‘compound interest were eliminated then there would be no “systemic failure”. Or better yet; take that most powerful weapon, use it for the people .
    Let’s try this game: Substitute the words “Central Bank Working For The People” (CBWFTP) where ever” Private For Profit Banks” (PFPB) appears.

    ****PFPB (read CBWFTP) have $100 trillion in assets as mortgages on residential and commercial real property (RE) loans. The average compound interest rate is 4% for a term of 36 years. The PFPB (read CBWFTP) would have created that $100 trillion ‘out of thin air’ (Horizontal Money)(read Vertical Money) which would have an attachment that would require $400 trillion to be paid to the PFPB (read CBWFTP). YES, take away the smoke and mirrors, this is a fact-the Rule of 72. Now we must replace (reduce to zero ) the Horizontal Money by subtracting $100 trillion leaving a profit,income,taxation from ‘somewhere else’ of $300 trillion. This amount goes as profits to the PFPB.(read CBWFTP) Revenue they may use for their own selfish purposes. That’s not the bad news-what the bad news is :That $300 trillion is real money, real currency, sucked up by the PFPB, (CBWFTP) yes Vertical Money !!
    NOW READ IT AGAIN,
    Why would you not want prosperity for yourselves and your children? Why would you not want $400 trillion THAT MUST BE PLACED BACK INTO THE ECONOMY IN ORDER TO PREVENT DEFLATION !
    *********************
    MAYBE,JUST MAYBE, PERHAPS ECONOMIST ARE BEGINNING TO GET IT !!
    ****************

    Maybe,just perhaps you might read and improve : “Justaluckyfool”
    Try to disprove that ” PFPB profit via taxation on their loans not only double but even quadruple the amount of the loans”

    Amazing that Adair Turner is suggesting Quantitative Easing for the People not for banks.http://t.co/P2o6J8ux9m Copying @ProfSteveKeen?
    Adair Turner recommends Quantitative Easing for the People
    neweconomics.net.nz
    A breakthrough speech on Monetary policy by journalist and financial economist Anatole Kaletsky was published.
    READ “QE 4 The People”
    Read “QE 4 Disaster Relief”-The Feds could purchase State Bonds.
    Discover a path to prosperity.read: http://bit.ly/MlQWNs

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  12. YES,YES…Quote Roger.”The real question is, how best to reduce the income/wealth gap. Trying to increase taxes on the rich never has, and never will, work. They always will bribe their way out of it, and the economy (i.e. the poor) always get hurt.

    Focus on lifting the poor. Punishing the rich does nothing for the poor.”
    THAT IS THE QUESTION.
    “How do , ” ““We the People of the United States, 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,” ?

    Why not challenge,edit, improve a concept that a MS can as the keeper of the record of the wealth of a nation while being the only source of issuance of the receipts of that wealth, can by taxation ( using compound interest)
    create a redistribution of that wealth so as to …”form a more perfect union…”
    The MS does not own the wealth of the total sovereignty, it is only the score keeper.

    Like

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