–Are you for or against raising the minimum wage? A reverse income tax?

Twitter: @rodgermitchell; Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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 ultimately 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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Most people think of morality as an inherent personal quality by which people can be measured. But morality simply is a code of conduct for group well-being. Each group invents its own morality.

Even necro-cannibalism might be considered moral by a group on a life raft, where such cannibalism can save lives. Outsiders may view it differently, but morality is case and group specific.

Murder is considered immoral in most societies, except when committed by soldiers in battle, or by police in defense of the law, in which case it not only can be moral, but heroic.

Religious and civil laws define and document morality. The most moral people are those whose actions and beliefs best follow those laws, the purpose of which is to contribute to group well-being.

While the Golden Rule – “Do to others as you would have them to do to you” – may be the epitome of moral expression, it merely is a simplification and guideline for the impossible-to-know “well-being of the group.” By narrowing the group to “you,” the Golden Rule removes many layers of doubt about what is the well-being of the entire group. “You” are the group and “you” are the judge.

But it is a weak and contradictory rule, repeatedly broken by every judge who ever has sentenced a criminal. (Doing to the criminal as you would have the criminal do to you, doesn’t work for judges.)

By its very nature, economics is a study of morality – a study of the actions that contribute to, or detract from, group well-being. So, while religious leaders seek to be our moral guides, economists have equal claim to that title.

Now, as for the question of minimum wage: On the surface, the moral issue is quite simple. In most American locations, people cannot survive financially, earning the federal minimum wage of $7.25 per hour. Even allowing for food stamps and other government stipends, adequate housing, clothing, health care and education are beyond reach.

These minimum wage workers are not the lazy, shiftless, unmotivated, “rather-be-on-the-dole-than-work” slugs the rich make them out to be. They generally are hard workers, often taking two or even three jobs, just to get by.

Meanwhile, the executives of companies paying minimum wage — the Macdonalds, the Walmarts et al — may make as much as a thousand times more than their lowest paid workers, while receiving comforts and benefits the poor cannot even dream of.

Isn’t there a moral question here?

New York Times
Democrats Turn to Minimum Wage as 2014 Strategy
By Jonathan Martin and Michael D. Shear
Published: December 29, 2013

Democratic Party leaders have focused on an effort to raise the federal minimum wage, which will be pushed by President Obama and congressional leaders, and a campaign to place state-level minimum wage proposals on the ballot in states with hotly contested congressional races.

Nicely populist. There are more minimum wage voters than rich voters, so this seems like a sure winner. But, hold on. Rich donors give more to the politicians than do poor donors.

Republicans assert that a wage increase would dampen the economic recovery and indicated they had no intention of bringing a minimum-wage increase to a vote in the House, which they control. “Why would we want to make it harder for small employers to hire people?” Speaker John A. Boehner of Ohio said.

So both sides want to claim the moral high ground. They both want to help the little guy, but can’t agree on how.

Mr. Obama and congressional Democrats are supporting legislation that would raise the federal minimum wage to $10.10 an hour by 2015. But some moderate Democrats are uneasy about inflaming their local business communities; the imperiled Democratic Senate incumbents in Alaska and Arkansas, Mark Begich and Mark Pryor, have yet to embrace the ballot measures.

The Republicans want to please the rich, without angering the poor. The Democrats want to please the poor, without angering the rich.

Personally, though I tend to lean more toward the liberal side, I am conflicted. I believe the minimum wage is unconscionably low, even at the $10.10 level requested for 2015.

Because economics is a study of morality, what is the economic/moral answer?

I suggest the answer is not a Robin Hood, “take-from-the-rich-to-give-to-the-poor approach.” Yes, asking rich corporations to pay poor people more may seem to be a moral approach, but is it economically moral? Will it benefit American society as a whole for our businesses to be “penalized” for employing American workers?

Rather, the solution may be to give the poor more, while taking nothing from the rich. That would provide the most benefit to the entire American group.

How shall we do it? The federal government could institute a reverse income tax. The less you earn, the more the government will pay you.

Since taxes do not pay for federal spending, no one would be punished. The poor would be lifted, and even the rich would be lifted, because the entire economy would be lifted.

The reverse income tax would operate like the current federal tax, except that below a certain income level (say $50,000 per year?), the federal government would pay Americans rather than Americans paying the federal government.

The logistics are in place. The IRS already is set up to accomplish this. It would cost nothing, not for you, nor for me, not for anyone.

All that would be required is the admission that federal taxes don’t pay for federal spending, and federal deficits are necessary for a growing economy.

That would be true economic morality.

Rodger Malcolm Mitchell
Monetary Sovereignty

====================================================================================================================================================
Nine Steps to Prosperity:
1. Eliminate FICA (Click here)
2. Federally funded Medicare — parts A, B & D plus long term nursing care — for everyone (Click here)
3. Send every American citizen an annual check for $5,000 or give every state $5,000 per capita (Click here) Or institute a reverse income tax.
4. Free education (including post-grad) for everyone. Click here
5. Salary for attending school (Click here)
6. Eliminate corporate taxes (Click here)
7. Increase the standard income tax deduction annually
8. Increase federal spending on the myriad initiatives that benefit America’s 99% (Click here)
9. Federal ownership of all banks (Click here)

—–

10 Steps to Economic Misery: (Click here:)
1. Maintain or increase the FICA tax..
2. Spread the myth Social Security, Medicare and the U.S. government are insolvent.
3. Cut federal employment in the military, post office, other federal agencies.
4. Broaden the income tax base so more lower income people will pay.
5. Cut financial assistance to the states.
6. Spread the myth federal taxes pay for federal spending.
7. Allow banks to trade for their own accounts; save them when their investments go sour.
8. Never prosecute any banker for criminal activity.
9. Nominate arch conservatives to the Supreme Court.
10. Reduce the federal deficit and debt

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:
1. Federal Deficits – Net Imports = Net Private Savings
2. Gross Domestic Product = Federal Spending + Private Investment and Consumption – Net Imports

THE RECESSION CLOCK
Monetary Sovereignty Monetary Sovereignty

As the federal deficit growth lines drop, we approach recession, which will be cured only when the lines rise.

#MONETARY SOVEREIGNTY

43 thoughts on “–Are you for or against raising the minimum wage? A reverse income tax?

  1. We don’t take anything from the rich now…we always spend more than we tax, so we are constantly giving money to the rich, because the wage share of profits has not accrued proportionately to the worker.

    Raising taxes just allows them to keep less of ill-gotten gains…through th eco-opting of the system that is supposed to regulates excess.

    I’m all for raising taxes on the 0.1% since they buy access with the excess dollars…that’s where the problem lies, otherwise taxing them would have no point…it’s the main reason progressive taxation was implemented.

    No solution exists that does not address income inequality. Raising the minimum wage is a step in that direction.

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    1. Yes, income inequality is the biggest economic issue of our time. But increasing taxes on the rich removes dollars from the economy, which impacts the poor.

      Better to increase federal payments to the poor (See the Nine Steps to Prosperity,” above.)

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      1. Right Rodger, but if instituting a 75% tax on all income over $20 million a year resulted in an additional withdrawal of $100 billion per year (arbitrary number of $’s): and we increased spending on programs that distributed $’s to regular people by $100 billion; the net effect on economic activity would be positive given the differing propensities to spend. And thats just the straightforward first order effects.

        The real work of a tax like that wouldn’t be to raise the $100 B to spend on others. It would be to change the incentive structure of the economy. How many companies would pay executives over $20 million per year when 75% of every marginal dollar was simply being destroyed by the Govt? The purpose of the tax would be to create an effective income ceiling and hopefully restart a positive feedback loop where the share of national income becomes more efficient and effective. And the dollar amount collected would be aside effect that was offset by increased money creation elsewhere.

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      2. “Don’t need to increase federal taxes in order to increase federal spending. Simply increase federal spending.”

        Of course. My point was simply that the impact of any particular tax increase doesn’t have to net to a negative effect for the economy if its combined with a corresponding tax cut or spending increase. The difference being the relative multiplier of different types of Govt “spending” including tax expenditures. I’m not arguing with you about anything in particular, I’m simply stating one fact and you are stating a different fact.

        “Are you saying that a high income tax on the rich reduces their incentive to receive a high income?”

        Yes. Its obvious isn’t it? If we placed a 99% tax on every marginal dollar of income above $20 M per year, I’m pretty certain that businesses would find something more useful to do with their money than to pay $.99 to the Govt for every $1 dollar of additional executive compensation. My point is simply that one way (and obviously not the only way or even the best way) to ensure more money circulates (national income share) through the “real” economy is to implement an effective income ceiling. Just like we had between 1945 and 1980ish.

        A high marginal tax rate was one leg in the stool of national income distribution that reigned during the period. The other two included strong union membership combined with very low unemployment (averaged below 5% compared to above 5% for the period since), and industrial policy including a Net trade export policy (in order to rebuild the entire world after WWII, and support employment).

        And I don’t think we are going back to high rates of union membership nor a net exporter policy. So that leaves us with MS\MMT based spending and taxing policy.

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        1. I think businesses that now pay more than $20M would switch to nontaxable compensation, like deferred income, fancier airplanes, etc. Investors would switch from taxable to nontaxable forms of income, like muni bonds, long-term gains, MLPs, REITs, etc. I think the impact on income (or wealth, the real issue) distribution would be minimal.

          To do what you want would require a wealth tax, not an income tax. Or very high rates at much lower income levels, and a lot of loophole plugging.

          In the 50’s, the very high tax rates reached a lot more of the population than the ones who make more than $20M today. The 91% bracket of the 1950’s was at $200,000, equivalent to about $2.3M today. The 70% bracket in 1981 kicked in at $212,000, equivalent to $532,000 in 2011.

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  2. [1] Economics = morality. I hadn’t thought of that, but Rodger is totally correct. I shall chew on it awhile.

    [2] It seems to me that if American companies paid more to their workers, then there would be less people needing government assistance. However conservatives don’t want companies paying more to their workers. Conservatives just want to whine about people who need government assistance (because of conservative policies).

    Actually I have questions about raising the minimum wage. Will it increase unemployment? Perhaps not. Australia’s minimum wage is $16.37 per hour (USD $14.60) or $622.20 per week (USD $554.95).

    However, if we force employers to pay a higher minimum wage, then we impose more austerity on employers. I fear that this could backfire on workers. For example, it might force smaller employers to eliminate all benefits, and all overtime salaries.

    Why don’t we eliminate federal taxes? This would give an instant $1.30-per-hour boost to a minumum waged worker in the USA without hurting employers. (Unfortunately it would also weaken the Big Lie. Therefore it is unacceptable.)

    Rodger’s solution is to give the poor more, while taking nothing from the rich. This would provide the most benefit to the entire American group. (Unfortunately it would narrow the wealth gap. Therefore it is unacceptable.)

    Rodger writes,”The reverse income tax would operate like the current federal tax, except that below a certain income level (say $50,000 per year?), the federal government would pay Americans, rather than Americans paying the federal government.”

    HYPER-INFLATION! HYPER-INFLATION!

    Translation: NARROWED WEALTH GAP! NARROWED WEALTH GAP!

    People like Bernie Sanders and Ralph Nader want a higher minimum wage, but they shoot themselves in the foot, since they claim that the federal government relies on tax revenue.

    [3] Reader paulmeli (above) says: “No solution exists that does not address income inequality.”

    True, but I say that no solution to income inequality exists that does not address the Big Lie.

    The Big Lie is that the US government is “broke” and “in debt,” and that its programs are “unsustainable.” The Big Lie is that the US government is just like an individual person, with limited money, and a need to borrow and have an income.

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  3. Off topic…

    ARE YOU A TAKER?

    For conservatives, you are a “taker” if you need government assistance. By contrast, you are a “maker” if you are rich enough to not need government assistance (but you receive it anyway).

    Examples of “makers” include rich people in Manhattan NY who get federal subsidies because they own farmland in the USA. They never work the land, or even visit it, and yet they receive regular checks (electronic transfers) from the US government for doing nothing. Some $5 billion a year is doled out to these absentee “makers.” This program is separate from the regular farm subsidies.

    Of course, the real “takers” are business owners who pay so little that they force their employees to seek government assistance. And the real “makers” are ordinary people who build our homes, remove our trash, produce our food, and so on.

    Politicians have a much simpler way to distinguish “makers” from “takers.” For politicians it doesn’t matter whether you receive government assistance. It doesn’t matter whether you are rich or poor, a “liberal” or “conservative.” It has nothing to do with your race, gender, age, values, religion, intelligence, education, or background. All these things are irrelevant.

    Politicians only care about one thing….

    A “maker” is anyone who directly or indirectly bribes politicians.

    A “taker” is anyone who won’t, or can’t.

    It’s that simple.

    Wealth doesn’t matter. You can be wealthy and still be a “taker” if you fail to bribe politicians with cash and / or favors. Penny Pritzker is a “maker” because she promised to build a presidential library for Obama after he leaves office.

    War profiteers, banking executives, military contractors, recipients of farm subsidies and corporate subsidies – they are all “welfare queens.” They receive trillions in government handouts, and they collude to maintain the depression so they can hollow out the middle class. They are parasites that intentionally kill jobs in order to boost stock values and company profitability. They suck life out of the USA. They are the ultimate “takers.” And yet, so long as they pay bribes and kickbacks to politicians, they are “makers.”

    Meanwhile the 99% have no money to bribe politicians. Hence they are “takers.”

    Do you give generously to society, despite receiving no government benefits? Then, unless you donate to politicians, you are a “taker.” Jesus Christ was a “taker.”

    ARE YOU ARE PATRIOT OR A HOME-GROWN TERRORIST?

    The difference is simple.

    If you seek to narrow the gap between the rich and the rest, then you are a “home-grown terrorist” (which is an acute form of “taker”).

    However, if you seek to widen the wealth gap, then you are a “patriot” (which is a form of “maker,” since you help the rich). Almost all pundits, professors, and politicians work for the rich at the expense of the rest. Hence these liars are “patriots.” These thieves and hucksters are “true Americans.” And indeed, they are often fond of hanging US flags at their social events.

    By contrast, authentically left-leaning people are “terrorists” and “takers” (unless they give bribes to politicians, in which case they become Democrats).

    For instance, Western governments had long classified the Mojahedin-e-Khalq (MEK) as a terrorist organization, until the MEK started bribing Western politicians. In this way the MEK changed from “takers” into “makers”; and from “terrorists” into “freedom fighters.” In Jan 2009 the European Union took the MEK off its terrorist list (i.e. off the taker list). The USA took them off its list in Sep 2012, and Canada in Dec 2012.

    Today the MEK are Iranian “patriots,” and will remain so as long as they continue giving bribes to politicians. Their bribes take the form of a $100,000 “fee” to give a speech.

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  4. Milton Friedman suggested a Negative Income Tax in the US in 1962, and before that it was developed by British politician Juliet Rhys-Williams in the 1940s. The Earned Income Tax Credit is the current implementation of it in the US. Unlike most in-kind welfare programs, it is a straightforward anti-poverty measure, in that it deals directly and efficiently, though incompletely, with the problem of low income. The mathematical reality is that if it does not extend to incomes well above poverty level, the tax rate is very high, discouraging efforts to increase the earnings subject to the tax.

    The city of Seatac on Wednesday will implement a minimum wage of $15 an hour. It will be interesting to see what happens there.

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    1. With regards to your reply above John. No tax deductions for anything IMO.
      No taxes on the first $40K
      10% between $40k and $19.99 million (adjustable for inflation pressures and agg demand issues), and no yearly income of any kind above $20 million thats not taxed at 90%.
      There would be no way to move money to a place where it would be tax exempt, no loopholes. Loopholes are taken advantage of mainly by the wealthy who pay to get them written and who can afford to pay accountants and lawyers to take advantage of them.

      Laws are best written as simply as possible since its impossible to control 300 million individuals in any sort of predictable fashion.

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      1. OK, but there’s still definitions of income: If the company agrees to pay another $40M at the rate of $2M a year starting in 20 years, is that taxable income this year? If so, where does the taxpayer get the $36M to pay the tax?

        State and municipal bonds are exempt from federal tax because of constitutional sovereignty issues. How do you get around that?

        If you go on a business trip at your employer’s bidding, and the employer pays for a meal, is that going to be taxable income? Or if the employer flys you on its private jet instead of paying for a commercial ticket, is the difference in cost considered taxable income? What about all sorts of currently non-taxable employee benefits, like health care, child care, use of the corporate gym, subsidized cafeteria, etc.?

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        1. How much money of the first example is being earned in this year? $0, therefore taxes = $0 When you start collecting income in 20 years ($2 million) then you get taxed on that 2 million (10%).

          You would only be taxed on either a) the capital gain if the bond price increased and you sold it or B) on the interest income the Bond pays. When your bond matures and you get your original deposit back, that is not income (assuming no capital gains), you’re just getting your own money back.

          In general, I would say that nothing is tax deductible (at least to start). And also in general, not everything is considered income. If the boss takes you out to lunch, that is not a wage from the company, and the boss can’t write off the lunch. But you are of course right John, life is complicated. There are many grey areas, that why I would rather try and keep it simple.

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        2. “How much money of the first example is being earned in this year? ”

          All of it. Deferred income is nothing but a tax dodge. It’s earned while you work, but paid later. Very similar to a pension, except deferred income is still paid to your heirs after you die.

          I agree, simplification is good and necessary, but taxing income is inherently complicated, and even the simplest schemes are not easy. Like PC hackers, tax attorneys will always be one step ahead.

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  5. I prefer a Universal Basic Income to the Reverse Income Tax, so the more you work, the more you earn. This is #3 on Rodger’s Nine Steps to Prosperity, but the amount would need to be $10,000 instead of $5,000. If we do this there would be no need to raise the minimum wage have Food Stamps.

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    1. With negative income tax, (or EITC, or Rodger’s plan) the more you work, the more you earn. It’s just that when you earn an extra $1, you only get to keep about 50 cents. Even Bill Gates gets to keep more than that.

      And Rodger’s number is $50,000 (about average family income) not $5000.

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  6. I agree and disagree with the statement that we should “give” more to the poor, as well as the middle class.

    First – give the poor what? Some will say give them more money. I ask – what is it about money that you want to give people more of it. Is there something to this that perhaps you are not considering? Perhaps people’s quality of life improves when their money can buy them more as opposed to wanting “more money”. Will giving them more money actually result in increased output? What if instead of increasing the output, it lowers it. I propose it does the latter.

    Don’t people already make “more money” and “higher” minimum wages than ours in other countries? Does that increase their standard of living versus ours? Not a zilch, actually, the majority has lower living standards than ours. What’s up with that?

    At a fundamental level, I disagree that the source cause of our issues is “lack of money”. I propose that our issue is our financial system, which rewards theft and punishes labor and savings (the poor). If the poor and middle class are struggling – it’s due to the lack of goods and services – not lack of money. And these poor folks have been getting strangled with the growing amount of un-backed credit – throwing them into debt while increasing the prices they pay for goods and services. And I disagree that individuals and corporations will produce more for simply “more money”, the premise is fundamentally flawed – I will save the hyperinflation debate for another time. Individuals and corporations work for a “profit” whether you believe in unicorns or not.

    So then the question we all should be asking is – how does a society promote the increase in the amount of goods and services relative to people in the economy, all else (including the amount of money) are moot points. What improves our living standard are the goods and services that we consume, nothing else. Instead of dollars, we could be using air as a currency (which is unlimited) – doesn’t matter an iota.

    With that said, my solution to address the source of the issue is to ditch the current system (Fractional Reserve), implement a system which prohibits un-backed credit creation and allow the free markets to re-align the economy. Let the government create and implement laws – jail those who commit fraud and cheat others whether rich or poor, not micromanage the economy. Implement sound money policies which, again, prevent fraud. Although it should be the leaders who tell the truth, the people need to put pressure on the jackals in DC – and hold them accountable. Remind them from time to time – that we, the voters, put them there.

    Perhaps my solution is not perfect, but solutions should promote productivity and punish theft (the opposite of the current system and what I proposed above). Take it as you wish – what I see above are “solutions” that cover the theft and fraud – and will never, ever work. Increase of minimum wage, more handouts, will continue to mask the issue for the rest of our existence if we keep in the same path.

    As the post says, the poor work pretty hard enough already – what they deserve is to KEEP their purchasing power.The people who ALREADY produce the majority of the goods and services we consume do NOT need handouts and “programs”, they need to KEEP their rightfully earned purchasing power.

    The Greek economy is crashing and the people have turned to a party (communist) with policies responsible for their demise – it’s ironic that this same party will likely win and cause the eventual collapse of the nation. I’m sure that the political landscape will look extremely different in a few years.

    Merry Christmas and prosperous 2014 Roger!

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  7. A higher minimum wage does not even reduce profits. A higher wage is a higher cost, reducing profits. However, if these higher wages are spent, they become a corporate revenue, increasing profits – basically a “wash” overall for profits. So the workers gain and nobody loses. As some know, the Kalecki equations show the sources of business profits. Changes in wages do not have an impact on profits in this equation for this reason. .

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    1. Kalecki’s analysis is about the macro economy. The minimum wage is a microeconomic change. Raising it would tend to shift profits, output, and employment from low-wage to higher-wage competitors in the area where it takes effect. Motel 6 to Fairfield Inn, or Wendy’s to Applebees. Furthermore, the “wash” occurs only in a closed system. As Kalecki observed, profits are reduced by the trade deficit, and raising local wages in relation to foreign competitors would tend to increase the trade deficit, reducing profits.

      I think that is the big risk for Seatac. The city is too small, and it is too easy for customers to go to a lower-priced hotel or restaurant outside the city limits.

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      1. golfer1john writes, “Profits are reduced by the trade deficit, and raising local wages in relation to foreign competitors would tend to increase the trade deficit, reducing profits.”

        I think the threat to US profitability comes not from the foreign trade deficit, but from domestic policies within the USA.

        To explain:

        In the mid-1970s the USA changed from a net exporter to a net importer. Today the size of the USA’s trade deficit depends on which source you read (the WTO says it is $785 billion per year) but all sources agree that it is now the highest in the world, by far.

        For thirty years this trade deficit was no threat to the US economy, or on the profitability of US corporations. Reason: the US government, having true Monetary Sovereignty, could create as much money as Americans needed to buy foreign stuff. Many dollars sent abroad ended up in Fed savings accounts (i.e. foreigners bought T-securities).

        More simply, the trade deficit was no problem as long as the US government created dollars out of thin air, and foreigners accepted those dollars in exchange for their goods and services.

        However, in November 2010, Americans voted a Republican majority into the US house, and into state governorships, thereby ushering in the Age of Austerity. From that point on, austerity mania has worsened with each passing month. This has been great for the financial economy, which keeps setting new records for profits and activity, and has no relationship to the trade deficit. However austerity mania is deadly for the real economy, in which average Americans have fewer dollars to buy foreign goods and services.

        Austerity mania has severely hurt the profits of medium and small companies, but it has not hurt the profits of large US corporations that act like hedge funds, devoting all their capital to boosting their stock values, and to speculating in the financial markets.

        Some huge corporations have indeed been hurt by austerity mania, especially those whose business is the retail sale of consumer goods. Before the Age of Austerity, Wal Mart was the most profitable retailer in the USA. Now, because of austerity mania, Wal Mart’s profits are down, and Target is in deep financial trouble.

        CONCLUSION

        The trade deficit by itself is no threat to the US economy, since the US government has Monetary Sovereignty. Instead, the threat comes from within. Its source is not the foreign trade deficit, but domestic policies.

        The threat comes from the US government pretending it does not have MS. The threat comes from austerity mania, plus a Fed that is hostile to the real economy, plus deregulation, which has transformed many large US companies into hedge funds that do not care about the real economy.

        If these domestic policies continue, they will indeed make the trade deficit into a severe problem for the US economy.

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        1. Actually, from a pure numbers point of view. R’s have been much better for the economy than D’s if you are judging simply by the size of the average yearly contributions of the Govt via the deficit.

          The average deficits since JFK have been larger under R Presidents
          If it wasn’t for Obama and the Great Recession’s 10% of GDP deficits, the gap would be even bigger than it already is.

          http://home.adelphi.edu/sbloch/deficits.html

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        2. But corporate profits today are higher, as a % of GDP, than ever.

          Government deficits are a positive contribution to profits in the Kalecki equations, and are related to the trade deficit via the sectoral balance. Despite the austerity talk and high unemployment, deficits became very high by historical standards in 2009, and are now almost back down to levels that Democrats used to decry just a few years ago when a Republican was President, and Republicans controlled both houses of Congress, and growth was good and unemployment very low. Neither party understands monetary sovereignty, nor did they in the 1980s, when budget deficits were as much an issue as today, or the 1990’s when the budget was in surplus – austerity far beyond today’s.

          A year ago, the first estimate of 2012 Q4 GDP was negative. It looked like the fiscal cliff was going to put us back into recession. Instead, growth improved each quarter until 2013 Q3 GDP growth was 4.1%, even as austerity reigns. I know of no economic theory that explains this past year’s results, surely not anything related to the 2010 election.

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        3. “The average deficits since JFK have been larger under R Presidents
          If it wasn’t for Obama and the Great Recession’s 10% of GDP deficits, the gap would be even bigger than it already is.”

          Mainly because of tax rate cuts advocated by Reagan and W, and enacted early in their first terms. Not because of any particular differences in spending, although R’s tend to spend more on defense and (since 1980) have been in office when that was the popular policy, and D’s were elected when there were (because of?) opportunities to reduce defense spending.

          One must wonder what would have happened to deficits and unemployment if income tax rates had been cut 20% across the board in 2009.

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        4. @ Auburn Parks: yes, traditionally when Republicans have held the White House, “deficits don’t matter” (in the words of Dick Cheney).

          Ronald Reagan preached “smaller government” while pushing through massive increases in government spending. Bush likewise engaged in massive spending for his wars.

          However things have changed. Today both Democrats and Republicans seek to widen the gap between the rich and the rest. Both preach austerity and the Big Lie.

          Therefore it no longer mattters which party holds the White House.

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        5. Cheney’s remark was about political strategy. What he meant was that when your policies cause growing employment and rising incomes for the people, the deficit is no longer a political issue, you’ve got their votes. He was right, Reagan won reelection by a landslide despite historically large peacetime deficits. Or, in the MMT view, because of them.

          Reagan “pushed” increases in defense, and of course the income tax cuts. O’Neill held the purse strings and in the compromise O’Neill got increases in domestic spending and FICA taxes. Reagan didn’t get to implement the cuts he wanted, like eliminating the Education department and sending money to the states instead. Lucky for Reagan, overall spending rose smartly, and overall taxes were reduced.

          The party doesn’t matter much any more, the individual does. If Paul Ryan becomes President, you’ll get about what you’ve got now. If Romney runs again and wins, he gets his tax cut and the agony is over.

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      2. Does Applebee’s pay its workers significantly more than Wendy’s?

        If wages went up, and executive compensation went down an equivalent margin, profitability would presumably at least stay the same. So I don’t know where you’re evidence of a firm relationship between higher wages and lower profitability comes from?

        For every dollar of higher wages, maybe a company contributes 20cents towards the total from Advertising, R & D, financing costs, executive pay, and higher prices. And then profitability stays the same.

        Thats the problem with interdependent variable analysis. When you change one thing you change everything and in unpredictable ways. The only firm conclusion anyone can come up with about an increase in the minimum wage is that the workers earning it will be making more money.

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        1. I don’t know what anyone makes at Applebee’s, but if a burger at Wendy’s costs the same as at Applebee’s, where would you go? Plenty of businesses have a “low price” business model, and they will be disproportionately hurt by higher costs of any sort.

          Like I said, we’ll see what happens in Seatac.

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      3. Unless Romney’s plan was to significantly increase the deficit (it wasn’t) then his policies wouldn’t have been any better than Obama’s. Don’t let you R fandom get in the way of good analysis.

        There is just no getting around the fact that the last 30 years of growth have been fueled by an increase in private sector debt to 300%of GDP im 2008. Its gone down some since, but where is the next 100% of GDP boom = bubble going to come from? Since 1990, we’ve averaged something like $2.4T in new money creation per year. If the deficit keeps shrinking, will private debt be able to not only pick up the slack but fuel a new business cycle?

        I think we’re in for decades of stagnation just like Japan. The only difference is our GDP will grow slowly because we actually have population growth and Japan’s GDP has largely stagnated as their population has declined.

        So in that context, Romney would have done nothing meaningful either.

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        1. Romney said he wouldn’t increase the deficit, but Obama and the GAO said it would “blow a hole” in it, to the tune of $5T over 10 years. And the way he would offset some of the rate cuts would be to reduce deductions when AGI exceeded some limit. So that would shift income toward those with a higher propensity to consume, if the offsets worked. He figured more revenue from higher growth, too, which would have only come from higher deficits. As you and I both know, revenue neutral and higher growth don’t both happen at the same time. Either he increases the deficit, or he increases the deficit.

          I, too, don’t see how we’re getting out of the rut we’re in without acceptance of MMT, but then I also don’t see how GDP growth accelerates from 0.1% to 4.1% this year when the tax burden is rising and the deficit is falling. What’s your take on that? If it keeps going at 4.1%, we’re not Japan anymore.

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      4. Hey John, my take on one quarter of GDP data is that its jjust one quarter of GDP data. Just like one month’s employment report is practically worthless. Its the trend that matters to smooth out natural fluctuations and outliers. If we have 2 to 3 quarters in a row with that kind of growth (and not only inventory buildup) tthen we could start considering real growth coming. And in that case, look to private debt increases:

        http://research.stlouisfed.org/fred2/series/TCMDO

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    2. Charles,

      Raising the minimum wage will have a huge impact on smaller players as Roger said. I can put a bet with anyone that Corporations like Walmart, McDonalds, etc are for an increase in the minimum wage. We should thank minimum wage laws for the disappearance of mom and pop shops.

      The larger corporations can borrow tons of money on credit and weather any additional cost squeeze in the short run, smaller mom and pop shops will go poof immediately. A short while later the corporations will pass on the costs to the consumer, i.e. the same laborers that just got the raise. It has been tried, it has not worked, and it will never work.

      Net net, this is actually a negative to the consumer – as there will be less choices as smaller players disappear.

      Raising the minimum wage, reverse income tax, handouts, etc, etc mask the real source of our issue – they do not address the source of the issue (theft of purchasing power via the emission of un-backed credit). It boils down to a simple concept: reward work, punish theft. The free markets coupled with a sound legal structure (which we have) will reward work and punish theft.

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      1. And what evidence do you have to support your claim that small mom and pop shops pay their workers minimum wage at a higher rate than large corporations?

        Wait for it, thats right, you have no objective data whatsoever. Why should this particular erroneous claim by you be any different than the dozens of other false statements you repeat here day in and day out.

        You’re entire view of reality about economics is wrong. You should be embarrassed. If I was as ignorant about as many things as you are, I would at least have the decency to shut the hell up.

        A fool who keeps his mouth shut may trick the world, but a fool who opens his mouth proves it to world continuously……or something like that

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        1. Mark Twain, my favorite:

          “It is better to keep your mouth closed and let people think you are a fool than to open it and remove all doubt.”

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        2. I didn’t endorse the comment, just clarified the quip. Auburn and I disagree on a variety of issues, as you know from reading our posts. And you know I never make personal attacks or disparaging remarks about those with whom I disagree. If I reply, it is based on an assumption of good faith on your part.

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  8. Rodger, you say that morality is relative, or group-dependent, and sometimes case-dependent. Our speech and actions are moral if they benefit our group or society. If my actions harm the group, then the group regards me as immoral.

    Different groups may or may not share the same “morality.” That is, different groups may or may not share the same ideas of what is best for their respective groups. One group may consider slavery to be moral, while another group considers it immoral.

    I agree with you in all this, although there are some gray areas. I consider it immoral to eat meat, even though my vegetarianism does not necessarily benefit the group.

    When society starts to break down, its morality becomes random, arbitrary, and manipulated by the rich.

    This brings me to my opinions regarding austerity…

    I think that austerity simply reflects the increasing breakdown of modern societies and their moralities. If average Americans had a sense of community, and cared about each other, and had clear ideas of their group morality, then they would reject austerity. They would stop using the Big Lie against each other. They would win the class war.

    When the rich and their toadies push austerity, they simply encourage and exploit the social and moral breakdown that already afflicts society. Brainwashing works best on people who are eager to be brainwashed. When people are bitter, scared, divided, and desperate, they WANT to be brainwashed, i.e. lied to.

    The following are examples of average Americans’ hatred of their neighbors. This hatred itself is, I think, a product of social breakdown, or a loss of community. The comments below are in joyous response to 1.3 million Americans losing their federal unemployment benefits last Saturday (28 Dec 2013). Another 1.9 million Americans will be cut off during the first half of 2014. This delights conservatives…

    a) “Food Stamps? Social Security? Medicare? Unemployment benefits? That worked well for the USSR, didn’t it? And Zimbabwe and Weimar Germany.”
    b) “As a taxpayer, I foot the bill for federal unemployment insurance. I’m the guy who signs the check. When you start signing the checks, you can a comment on what should or should not get paid. Until you liberals do that, you should keep your mouths shut.” (Notice how this clown thinks he is the only person who pays taxes.)

    c) “If welfare spending helps the economy, then why not just tell everyone to quit his job and get on unemployment? After all, these people actually believe every $1 in unemployment produces $1.65 in the economy.”

    d) “Liberals love to think that they are helping the poor, but they are merely creating a permanent class of losers.”
    Note how such attacks are only directed at the lower classes. That is social breakdown.

    The haters ignore the fact that austerity and the “sequester” never hurt the executives of military contractors. On 26 Dec 2013, Obama signed the National Defense Authorization Act for the fiscal year 2014, which will dole out $607 billion in military-related spending. That’s $30 billion more than was agreed to in the Bipartisan Budget Act of 2013. In addition, there is the classified “black budget.”

    But this is okay with the lower classes, since they only attack each other. And those attacks happen because society is breaking down, and so morality is breaking down. That is, Americans’ communal sense of what is best for the group is breaking down.

    The result is ever-increasing austerity and inequality.

    CONCLUSION

    Brainwashing by the rich and their toadies helps to sustain the Big Lie and austerity. However I think a bigger factor is the increasing breakdown of modern societies. This breakdown has been increasing for decades. The latest symptoms are austerity mania and severe inequality.

    If I am correct in all this, then the only true antidote to the Big Lie is for society to recover its sense of community.

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  9. Golfer1John – re:Kalecki. Good point about the impact of a higher minimum wage on trade. As you point out, a reduction in exports directly reduces profits. Also, good point that Kalecki equation for profits olds at the overall level – but the impact will differ on a local basis. Thanks.

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  10. Fascinating reading for a novice to economics such as myself. I’ve come to a similar conclusion about minimum wage vis-a-vis a negative income tax. (In all fairness, Ezra Kline put this idea into my head.) Though both are conceivable – and I’d prefer to call it a US Citizen’s Dividend instead of a negative income tax – what would it take, in US dollars, to insure that all US citizens had their physiological and security needs met? $25K per year per single household, plus an increment for each additional person in the household, say, averaged across different geographical regions? What would the total be, per year, for the US to fund this? Can anyone do the math for me? Would it be more than the Fed “gave” to the banks during the melt-down 2007-2009, over and above TARP?

    Another question comes to mind for me…what would such a guaranteed income do to the low-wage labor pool? D’ya think Wal-Mart, et al, could find workers for $7.50/hour? I think, if nothing else, this mental exercise points to the fact that most workers are “wage slaves”, and, I propose, if freed from Dickensian life of trying to just survive, would be free to pursue a much more productive life, and this “rising tide” of productivity would “lift all ships”.

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    1. “what would it take, in US dollars, to insure that all US citizens had their physiological and security needs met?”

      About half what is paid now for all welfare and anti-poverty programs, which is about $60,000 per poor family of four.

      I’m confused about the notion of freeing “wage slaves” – meaning low-wage employed workers, not highly-paid employees? – to pursue a more productive life. If they were able to become more productive, would they not already have better jobs with higher incomes? What is stopping them now from being more productive?

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  11. So would you end the minimum wage or keep it at 7.50hr and have the government make up the difference? Either way the base income would be
    50grand a year at 40hrs a wk?

    Thanks, Penny

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  12. I’m all for having the government make up the difference. Raising the minimum wage involves pressuring/ taking from businesses; instituting a Citizens’ Dividend takes nothing from anyone. Government is a currency issuer and the rest of us are currency users. Like a volcano constantly spewing money-lava, nothing goes back into the volcano, only outward bound.

    With a healthy Citizens Dividend = no need to strike for wage increase, drop the food stamps and all the other time and energy wasting, pencil pushing. Go back to school and/or get a real job people can benefit from.

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  13. Christian Science Monitor
    Income inequality: Does wider gap between rich and poor threaten capitalism?
    Since mid-2009, some 95 percent of all US income gains have gone to the top 1 percent. Now, even powerful financiers are alarmed by the increased income inequality between rich and poor.
    By Harry Bruinius, Staff writer / January 5, 2014

    And still, the Republicans, the Democrats and Obama wish to cut federal spending even further.

    And the people most affected go along with it.

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