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●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.
Because a large economy, by definition, contains more money than does a smaller economy, an economy growing from smaller to larger requires an increase in the money supply.
But in the minds of people ignorant about economics, every solution to recession, every solution to the income gap, every solution to other economic misfortunes — indeed every government action that involves adding to the money supply — always must lead to inflation and unsustainable debt.
For them economics is simple: Money Supply (MS) = Inflation (I). Period.
(The exceptionally ignorant believe all solutions lead to hyperinflation, with the inevitable, wrongheaded comparisons to Zimbabwe, Weimar Republic and Argentina.)
But economics actually is among the most complex of all sciences, encompassing psychology, sociology, mathematics, engineering, physics, chaos theory and innumerable other disciplines.
Inflation includes that complexity, for Inflation most certainly does not = Money Supply.
Inflation is the change in value of Money vs. the value of Goods and Services.
The Value of Money = Demand / Supply.
The Demand for Money = Reward/Risk
The Reward for owning money is Interest.
Put them all together and you have:
Value of Money = (Interest / Risk) / Supply.
Then we come to the Value of Goods and Services (G&S), which is calculated.
Value = (Demand / Supply) X Cost
Consider any Good, such as steel. The value of steel = the Demand for steel divided by the Supply of steel, x the cost of producing steel. The price of steel rises when demand rises, the supply falls and/or the cost of production rises.
So Inflation depends on this:
[(Demand for G&S / Supply of G&S) x Cost of producing Goods and Services] / [(Interest / Risk) / Supply of Money]
That is a long, long way from from the debt hawks’ simplistic: Money Supply = Inflation.
But, it gets more complicated. Each Good and each Service weighs differently on inflation. The cost of tomatoes might rise and have a very small effect on inflation, while the cost of oil has a huge effect on inflation.
Further, the price of some goods is artificially controlled (oil is an example), and the Demand for oil reacts minimally to price changes. Inflation then is the weighted Values of every Good and Service / the Value of Money, and that weighting, in of itself, is complex.
But, it gets even more complicated, for psychology is a big part of economics, and humans as a group, react differently to different situations.
Finally, a small inflation can be self curing or self perpetuating, depending on the power of automatic stabilizers (factors that automatically work against changes in inflation).
Many sciences encounter such complexity. Consider these excerpts from the January 25, 2014 issue of Science News Magazine
Tomorrow’s catch, Chaos theory’s potential for fisheries management
BY Gabriel Popkin, JANUARY 10, 2014
Pacific sardines all but disappeared from coastal waters in the 1950s. Numbers remained low until the late 1980s, when enough fish finally reappeared to make commercial harvesting worthwhile again. By then, sardines in the highly productive California Current were carefully managed.
Scientists still debate what causes sardine numbers to rise and fall. Overfishing certainly played a part in the collapse. Research suggests that a cooling of the eastern Pacific Ocean also played a key role.
The thinking goes that a cool period starting in the mid-1940s, combined with decades of overfishing, sank the sardine.
So, for the scientists, Sardine population = 1 / (Fishing x Water Temperature)
Based on this understanding, the Pacific Fishery Management Council developed a temperature-dependent method to predict population changes and set harvest limits for sardines in the California Current.
In 2010, however, scientists analyzed data from the previous two decades and published a study questioning the correlation between sardine population growth and sea surface temperature. As a result, the council removed ocean temperature from the mathematical models they use to forecast sardine population growth.
The council’s decision frustrates George Sugihara, a theoretical biologist. In his view, the simulations that fishery scientists use to predict population changes and set quotas are fundamentally flawed.
The simulations can’t capture how a population’s growth rate might change in response to the other fish species living in the ocean, for example, or to the amount of zooplankton, or to wind speeds or, for that matter, to fishing itself. He says “it’s like trying to understand reality by just looking at one page” of a book.
I do it. You do it. We all do it. We look for simple correlations. To the layman, Money Supply = Inflation makes perfect intuitive sense. “Print” more money, and we’ll have inflation. Right?
But somehow, it doesn’t work that way. In fact, since 1972, when we stopped using gold as a backing for the dollar, there has been no relationship between federal “money printing” (deficit spending) and inflation..
How is this possible? Complexity.
And as for federal debt being “unsustainable” and “costing taxpayers money,” these myths have been demolished in many posts throughout this blog, for instance here and here.
Intuition betrays us in all sciences. Time depends on speed (We age slower as we go faster.) An atomic particle can be in different places at the same moment. Fish populations do not correlate directly with fishing. Debt is not a burden on the federal government. And inflation does not result from federal spending.
So where does that leave us? Economics is beyond complex; it is chaotic. It follows the butterfly effect (A butterfly flapping its wings can change world weather). So simple, linear causes and effects are rare.
We are left, then, with the few things we know for sure.
1. We know for sure that a growing economy requires a growing money supply, as discussed, above (although this is not to say there is a linear relationship between money supply and economic growth).
2. We know for sure that federal spending and exports add money to the economy while federal taxes and imports remove money from the economy.
3. We know for sure that the federal government (unlike state and local governments) cannot run short of dollars, so can pay any debt at any time (unless Congress rules against paying its debts).
4. We know for sure that money cures poverty, at least temporarily. Give a poor person money and/or services on which he must spend money, and at that moment he is less poor (recognizing that any given individual quickly may lose the money or waste the services provided to him).
5. We know for sure that a growing gap between the rich and the rest punishes the majority, while rewarding the minority.
6. We know for sure that rewarding the poor and middle classes more than we reward the rich, narrows the gap between the rich and the rest.
7. We know for sure that education in general helps people in general to grow economically.
8. We know for sure, that when crime is rewarded more than punished, crime will exist, and when the rewards grow vs punishments, crime will grow.
And this knowledge is what leads us to “The Nine Steps to Prosperity,” below.
Rodger Malcolm Mitchell
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. Provide an Economic Bonus to every man, woman and child in America, and/or every state a per capita Economic Bonus. (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
As the federal deficit growth lines drop, we approach recession, which will be cured only when the lines rise. Federal deficit growth is absolutely, positively necessary for economic growth. Period.
42 thoughts on “–The economics of chaos. What we know for sure. The value of money (inflation) formula”
What we know for sure:
1. “Over time, whoever controls the money system,
controls the nation.”
2. How money is defined determines who controls the money system, and whoever controls the money system will dominate the whole society.
3. If money is defined as wealth (e.g., commodities like gold and silver by weight), as Adam Smith did, then the wealthy will control not only their own wealth, but the money system and thus the whole society as well.
4. If money is defined as credit or debt, as MMT and most economists now do, those who dominate credit (the banks) will control society’s monetary mechanism – and we know from experience they will misuse it to create bubbles, and inflate asset prices artificially until the whole system crashes.
5. If money is defined as an abstract legal power of society, as the Constitution does, then the money system is placed under our constitutional system of checks and balances to work justly and for the whole society, not for only a privileged part of it.Money’s essence (apart from whatever is used to signify it) is an abstract social power, embodied in law, as an unconditional means of payment.
6. The creation and issuance of coins, notes and bank reserves is unrelated to government expenditure.
7.Therefore, government spending is constrained by present monetary arrangements, not by the public’s desire or need for money.
My take is that the complexity that you outline does exist – but it’s not continuous. Meaning, the government can indeed add more dollars without causing massive issues in terms of inflation “in price terms”. Quite honestly, I am sure that if the government does it controlled enough, there won’t be any changes in prices.
That’s not the argument at all. You see, the fact that prices do not increase – does not prove there isn’t inflation in real terms. Quite honestly, Rodger, prices are trivial and mean nothing. As you said, weather and various other factors can impact supply and prices.
However, as productivity grows, prices for regular people should decrease – they should not stay constant or go up. Why should they decrease? Because productivity has increased, yet the regular person is worst today than 10, 20, 30, 40 years ago. It is the people that have earned the purchasing power, and if the money supply is left alone – it is the people that will spend it. Why do they need a government to rip it from them – only to give it to those who vote for them? It’s dumb.
The world is completely upside down today, “more money” actually means less money, “less money” actually means more money. Take it as you wish – it is not my opinion that social programs have exploded in the last 40 years, it is not my opinion that government spending has exploded in the last 40 years. It is not my opinion tha the ginie coefficient has been destroyed since the gold standard was removed. It is not my opinion that countries that have turned to socialist propaganda, like Russia, Venezuela, Argentina, Cuba – have destroyed their economies and their people.
“You see, the fact that prices do not increase – does not prove there isn’t inflation in real terms. Quite honestly, Rodger, prices are trivial and mean nothing.
Inflation in real terms? How droll. You invent words. Perhaps you are a fan of Lewis Carroll:
If prices do not increase, are trivial and mean nothing, why are you concerned about inflation?
But wait. Now you ARE concerned about prices:
“However, as productivity grows, prices for regular people should decrease – they should not stay constant or go up.”
But wait again, now I understand:
““more money” actually means less money, “less money” actually means more money. . . “
You must be a fan of George Orwell:
Really, aren’t you working too hard to be disagreeable? Perhaps you should slow down a bit, keep an open mind and try to learn something, rather than writing inanities. Give it a shot.
Two points: It is hard to understand not caring about prices, or what you mean. Sure, it would be nice if they went down and people’s income went up.
It is the people that have earned the purchasing power, and if the money supply is left alone – it is the people that will spend it. Why do they need a government to rip it from them
As always, it is your theory of money which is the heart of the errors. How could the money supply be “left alone”. The base “money supply” – “National Debt” is a better concept, theoretically and factually – is by definition a relation between the government and the governed (or other creditors), like any financial asset/liability. How could the government “leave it alone” and govern? Never happened, never will.
It is the people that have earned the purchasing power
Right, unless they are prevented from it, by the government insanely forcing them to be unemployed, by not having full employment at all times. But in reality, people don’t have “purchasing power” if money is meant, until the government sets up a tax & spend system. That’s basically the way it has worked for millennia. Money is a creature of the state. That’s just a historical fact on which all archaeologists, anthropologists, sociologists, numismatists, historians etc agree. And there is no example in history of a “left alone” system with constant “money supply”.
The people get the base money from the government originally and only return it to the government when they pay taxes or buy stuff from the government. The government then rips up this money which is worthless to it. The government does NOT get money from people. It just prints it into existence. A little while ago, there was an occult superstition that it had to be printed on gold coins.
Most of those “not my opinion” things do seem to me to be opinions which are not very factual. Social programs have not exploded in the USA. Government spending has not exploded. ( Nat Debt / GDP not particularly high, often too low.) By any reasonable or common measure, Venezuela & Argentina have done much better than before, become much better places to live during the Chavez & Kirchner years, if you want to call them socialist. Russia’s economy collapsed after the collapse of Communism – particularly under Yeltsin, the “free market” West’s darling – and has recovered under the more nationalistic, somewhat less corrupt – not really socialistic – Putin. Although I do agree that the regular person is becoming worse and worse off, the facts and the theory you use are just wrong, and get things backwards.
Great blogpost RMM. The ridiculous misconceptions about what causes hyperinflation are unfortunately very persistent and widespread, even among people who should know better. If people would just take the time to educate themselves, it would end a lot of needless worry and solve a lot of seemingly intractable problems.
Re: money supply.
As you know, we have to take into account 1) the velocity of money and 2) the creation or destruction of money by way of private debt.
As Steve Keen has demonstrated, the change in private debt tends to dominate the economy. Perhaps that should be the 9th thing that we know for sure?
IMHO the subject of inflation, and how to deal with it, are not understood all that well — perhaps because we in the US don’t have that much experience with inflation !
“Treasury’s Lew warns that U.S. default could happen quickly.”
Lew apparently doesn’t read this blog.
The real disgrace is his comment probably is not the result of ignorance. It is intent.
The upper .1% has bribed politicians and appointees (via campaign contributions and promises of lucrative employment later — the “revolving door”) to claim that federal taxes pay for federal spending and that the government could run short of dollars.
The purpose: To reduce federal spending, the vast majority of which benefits the 99%.
Exceptional work, Rodger! (‘Prosperity Steps’, #3, misspelled 2nd word should be ‘an’). So keep on keeping on, wise man! ………
Some countries that already offer free university education (some are monetary sovereign – unfortunately it seems that they also manage in a way that they are not monetary sovereign):
I’m not sure if U.S. citizens can attend these universities though.
Just think about how much our society could benefit if we had free higher ed. as well, which we could easily provide. Imagine all of the Edison’s and Einstein’s that we will never have because of economic ignorance.
A question for RMM: Are there any (or have there been) countries that have properly managed themselves according to the MMT and MS principles?
I’ve not heard of any.
I have to agree with oversimplification of inflation. Because of all the complexity people go for the simplest solution or response, path of least resistance. It’s so much easier to simply spout “Printing money = inflation” than it is to study and take time to understand. But the average person hates complexity and loves the easy way out, especially when it comes to money which can get real complicated. Wasn’t it Milton Friedman who really pushed the oversimplified connection between money supply and inflation?
One more thing we know to add to your list: As the production of electricity grows in any region the birth rate declines; and as the power grid pool grows with more interconnections between regions and nations, the cheaper the cost of production and less need for local nuclear and coal power stations. I.E. an internet (world) power grid would make economic sense. Superconducting materials are now available
@ tetrahedron720: You say that “People go for the simplest solution or response; the path of least resistance. It’s so much easier to simply spout ‘Printing money = inflation’ than it is to study and take time to understand. But the average person hates complexity and loves the easy way out, especially when it comes to money …”
Yes, people tend to think in phrases, slogans, and buzzwords. That is, stupidity is often a product of intellectual laziness.
I say that stupidity is also a product of moral laziness – i.e. of the tendency to be smug and self-righteous. This smugness is ultimately what keeps people enslaved.
Consider, for example, how people smugly use the word “Zimbabwe” to dismiss the facts of Monetary Sovereignty. (Printing money = Zimbabwe. Thus, printing money = evil.)
In reality the USA intentionally caused Zimbabwe’s inflation, which ended on 12 April 2009 when Zimbabwe stopped using the US dollar as its official currency. Today Zimbabwe has by far the highest literacy rate in Africa. Its capital of Harare has the lowest crime rate of any capital in Africa, plus the most public parks and art museums. Everyone who visits Harare remarks on how “quiet” it is. The population is two million, and there are many vehicles, yet there is almost no shouting, sirens, police whistles, traffic horns, and so on.
Zimbabwe has free education (including universities) and free medical care. (A few hospitals are private, and charge fees, but they give free emergency care to all.) It is a clean, modern paradise compared to “market fundamentalist” countries like Egypt, Indonesia, or the Philippines. And its government is very popular with the citizenry.
Zimbabwe is “evil” because its government refuses to worship the IMF, the World Bank, and trans-national corporations. Even worse, Zimbabwe has a very narrow gap between rich and poor.
Let me emphasize that. Rich globalists don’t care if a nation is “capitalist” or “socialist.” These labels may or may not be accurately applied to a given nation. (China for example, is no more “communist” than Europe is “socialist” or the USA is “democratic.”)
For rich globalists, a nation’s “goodness” depends on its wealth gap. Period. As Rodger says, “It’s the gap, and nothing but the gap.”
If a nation has extreme inequality, then it is “enlightened” and “good,” no matter how severe its poverty and savagery. By contrast, if a nation has moderate or non-existent economic inequality (like Zimbabwe) it is “evil.” It is a “rogue nation,” and a “sponsor of terrorism.” Its leaders are “brutal dictators.”
Indonesia has arguably the worst poverty of any nation, but it also has a horrendous gap between rich and poor. Thus, Indonesia is praised by right-wing rags such as “The Economist” and the “Financial Times.” On the other hand, Cuba is evil because Cuba does not have an extreme wealth gap. Cuba’s socialism is largely irrelevant. A nation can be socialist and still have an extreme wealth gap. For example, “Communist” China’s wealth gap is horrendous and getting worse every day.
Likewise, academic economists regard a theory or explanation as “true” to the extent that it supports a wider wealth gap. A theory or explanation is “false” and “insane” if it narrows the gap (e.g. Rodger’s Nine Steps, plus the facts of Monetary Sovereignty).
Applying all this to your original point, laziness and the “easy way out” are only part of the picture. Another part is arrogance and self-righteousness. When I claim that “printing money = Zimbabwe,” I am claiming to be “better” than the people of Zimbabwe. When I claim that, “entitlements must be reformed,” I am claiming to be “better” than anyone who receives Social Security benefits, etc.
Many Americans should have the U.S. national slogan tattooed across their forehead: “Screw you; I’ve got mine.” In fact, since many people would rather die of poverty that give up their smugness, an alternate U.S. national slogan could be, “Give me poverty or give me death!”
When a person repeats the phrases and slogans fed to him by the corporate media (e.g. printing money = inflation) he defends his own slavery. He does it again when he spouts nonsense in order to get attention. Back on 25 Jan 2014, Rodger wrote again about the MMT “jobs guarantee.” One clown twisted himself into so many knots that by the 140th comment he was condemning Che Guevara and Argentina. (!!!???) This is an example of smugly defending one’s own poverty.
Q. Why is there so much poverty and inequality? Is it mass brainwashing?
A. No. It is mass hate, selfishness, and smugness. You can only brainwash the masses if they want to be brainwashed. You can only maintain inequality if the masses want inequality.
Rodger has often noted that in any society, people at all levels naturally want to narrow the gap between themselves and those above, and to widen the gap between themselves and all those below. The more this is the case, the more a society will have mass hate, selfishness, and smugness, plus extreme inequality between rich and poor.
Right now there is great political unrest in Thailand. Former Prime Minister Thaksin Shinawatra introduced free (and excellent) universal health care and education. He also began housing the poor. He improved the lives of millions until he was deposed in a military coup, and yet middle class people in the capital of Bangkok hate him. Why? Because he elevated Thailand’s minimum wage to US $300 dollars a month, such that a cleaning lady at a hotel now makes as much as a receptionist. That is, he narrowed the wealth gap among average people in Bangkok. This is intolerable, since for urban Thais, it is not enough to make money. They must also be feared and worshipped by the lower classes. Hence they have now shut down Bangkok to protest the narrowing of the wealth gap.
The reason why most of mankind lives in poverty is that most of mankind insists on maintaining various forms of caste systems at all levels.
This is also the reason why most people reject the facts of Monetary Sovereignty
Good informative analysis.
Money isn’t “the root of all evil.” Even power isn’t “the root of all evil.”
The gap is the root of all evil.
Exactly, Rodger. This is what I have been trying to say all along. Power and money are neutral. The problem lies in our caste systems.
Some people say no, the real problem is that humans live as though resources were infinite, when our planet’s resources are actually finite.
I say there is no problem we humans cannot fix if we really want to, and if we cooperate. Peak oil? Mass pollution? Global climate change? We could fix anything, if those caste systems weren’t in the way.
Along these lines, I refer readers to Rodger’s numerous posts written on the theme of “You will never know what you have lost.”
— Off topic —
THE ALIEN FORCE
I claim that in Western nations, the 99% are enslaved because most of them want to be enslaved.
Paul Buchheit is a college teacher in Chicago, and an active member of US Uncut, a group whose members believe that tax revenue pays for the federal government. These people demand higher taxes on the rich and on corporations, thinking this will allow for expanded social programs. They say that “corporate cheats” are “bankrupting America” and robbing the US Treasury of $100 billion a year. They claim that they oppose austerity, yet they favor austerity in the form of higher taxes. ( http://usuncut.org/ ) An allied group in England is called UK Uncut.
Paul Buchheit writes, “Inequality is a cancer on society worldwide. Humanity seems helpless against it, as if it’s an alien force that no one understands. People without homes are freezing to death in America. On a winter day in 2012, over 633,000 people were homeless in the United States. Based on an annual single room occupancy cost of $558 per month, a little over $4 billion would provide shelter for every homeless person for the entire year. Meanwhile the stock market grew by $4.7 trillion in 2013. A wealth tax of just a one-tenth of 1 percent (one dollar out of every thousand) would have provided the $4 billion needed to shelter every homeless American for 365 days.”
Okay, but what if we explained the facts of Monetary Sovereignty to Mr. Buchheit and his colleagues? Would they accept the truth? Would they understand that corporate taxes paid to the federal government are destroyed upon receipt? Would they agree that there is plenty of money to shelter people without the need for federal taxes?
Thus, behind global inequality is an “alien force” called global stupidity. Not ignorance, but willful stupidity.
Most people would rather die than be free.
The 1% have always known this. That’s why they rule the 99%.
Like the great majority, he wants to narrow the gap above him, and is fine with widening the gap below him.
Thus punishing the rich is good, and punishing the poor also is good.
@quatloosx above: “I claim that in Western nations, the 99% are enslaved because most of them want to be enslaved.”
I really don’t think anybody, meaning the general public, wants to be enslaved – I think that they are just too ignorant to understand that they are being enslaved and manipulated.
The “problem” with monetary sovereignty and MMT is that it seems too “fantastic” to be believed (remember, people are inculcated to believe that “there is no free lunch.”), although it is indeed true regarding how our monetary system really functions (It seems like “common sense” to people ignorant of economics that the federal government just cannot “conjure money out of thin air” and print more dollars, which isn’t backed by gold or something, because it will lead to hyperinflation and economic collapse). Just watch CNBC sometime and you can see how these economic misconceptions are perpetuated by so-called professionals. Remember that the misconception that the federal government finances are analogous to a persons household finances is a widely-held and persistent belief. A lot of people just do not understand modern economics and how our system functions and there are malevolent people taking advantage of this misunderstanding like RMM states.
BJS writes, “I really don’t think anybody, meaning the general public, wants to be enslaved – I think that they are just too ignorant to understand that they are being enslaved and manipulated.”
Yes, how could anyone WANT to be enslaved? It seems dubious. Nonetheless, I stand by my assertion.
Walk with me through this, and see if you don’t agree by the end…
As Rodger has shown, what enslaves the 99% is average people’s insistence that they are “better” than others. The “others” are whoever you imagine you are better than. Most people have this disease of “superiority,” although most people deny having it. For example, in Zimbabwe there is still racial segregation, but only because white people insist on it. They won’t let blacks move into white suburbs, or attend white schools. But the whites are not racist. Oh no. The problem, you see, is that white neighborhoods and white schools are “full.” Get it? (Wink, nudge.)
When everyone at all social levels wants to widen the gap between himself and those he considers “inferior,” the result is that everyone in the 99% is deprived to varying degrees, while the 1% at the top become obscenely wealthy. (How could any human being ever “earn” fifty billion dollars?) Deprivation entails slavery and exploitation in myriad different forms.
But what happens when you explain the facts of Monetary Sovereignty, and you prove that money is infinite? Most people deny the facts, using bullshit objections that are actually defenses of their arrogant “superiority” over someone. Idiotic chatter about “inflation” is merely camouflage for their hate, selfishness, and “superiority.” (Science and statistics prove that the white schools are full. Wink, nudge.)
What irks Tea Party clowns about government spending is that their “inferiors” (e.g. poor people or non-white people) might get government help, and thus be as “worthy” as the Tea Party cretins.
Put another way, average right-wing clowns want austerity for everyone ELSE. Therefore EVERYONE gets austerity. And with austerity comes slavery. They choose their hate and their arrogance over the truth about Monetary Sovereignty. That is, they prefer to maintain the gap, rather than have freedom and prosperity for all.
Ergo, they WANT to be enslaved. They PREFER it.
It’s like being an “enabler” in an abusive relationship with a violent alcoholic. You stay in the relationship because you WANT to be abused. In clinging to the relationship, you cling to abuse. If you deny this, then you are merely rationalizing your addiction to abuse.
If I think I am “better” than you, then we create a symbiosis based on some form of slavery or exploitation. This is a miserable existence that stunts us both. (All hatred of others is ultimately hatred of ourselves, just as all lies we tell others begin with lies we tell ourselves). It is wretched, but this is how most people choose to live their lives, since most people imagine they are better than (fill in the blank).
One way that people keep this sickness going is to deny the facts of Monetary Sovereignty. If everyone realized that money is infinite, then the perennial drive to think we are “better” than (fill in the blank) could no longer rely on a mythical “scarcity” of money. We could only maintain our sickness by resorting to some other ridiculous lie, such as the “divine right of kings.”
(In any society there is always some ridiculous lie, and it is always essentially religious. Austerity, for example, is based on the bullshit religion of “no free lunch” — a religion that only the 99% believe and are enslaved by.)
Therefore I say that people do not reject the facts of Monetary Sovereignty out of mere “ignorance” or “brainwashing.” Rater, they do it from meanness and pettiness of spirit. Their failure is not one of intellect, but of moral character. Show me someone who rejects Rodger’s explanations, and I’ll show you someone who has a lot to learn about life. Someone that, if you peel away his bullshit, WANTS to be enslaved.
If we deny all this, and we blame only the rich and the corporate media, then we play the same game of dishonesty. We proudly imagine ourselves to be innocent “victims” of (fill in the blank).
Here’s another way to look at this. Imagine the following two scenarios…
SCENARIO ONE: You and I joust over the Internet, each trying to prove we are “better” or “smarter” than the other. We go round and round, never getting anywhere, and ending up thinking: “He or she is an idiot.” No one learns. No one gains. Reason: we started with the attitude of, “better than.”
SCENARIO TWO: You and I are good friends sitting beside a campfire, both of us feeling charitable and “spiritual.” We start talking about what it would take to have a better word, and I, with sincere affection for you, explain the facts of Monetary Sovereignty. Voila! You get it! It’s so simple! Reason: we started with the attitude of love. No one is “better.” No one wants to be a slave or a master. Both of us learn. Both of us gain.
Elsewhere, BJS writes: “Just watch CNBC sometime and you can see how these economic misconceptions are perpetuated by so-called professionals…there are malevolent people taking advantage of this misunderstanding like RMM states.”
Indeed. When I say the masses want to be enslaved, I do not mean that the masses alone are to blame. True evil occurs in politicians and media maggots who seek personal advantages by impoverishing their fellow citizens. They are the carriers of plague, the spreaders of hate and despair. When they claim that there is “no free lunch,” they mean that you personally are worthless compared to them. They want you to swallow their hate, become saturated by it, and then vomit it on others, so that everyone around you becomes miserable roaches, while the bloated media-demons look down from their banquet table and cackle diabolically.
Oh yes, the masses WANT to be enslaved, but far worse are society’s leaders and authority figures, for they have to power to change the mass mind for good or ill. With great power comes great responsibility. In failing this responsibility, they are the most wretched of all.
Are we “better” than these evil creeps who avoid the guillotine by being the ones who fill out the execution list? Yes, in this case we are. They save their own worthless asses by throwing others to the wolves.
“…A theory or explanation is “false” and “insane” if it narrows the gap (e.g. Rodger’s Nine Steps, plus the facts of Monetary Sovereignty…”
i.e., we are pitted against one another by believing this “logic.” Like horses corralled behind a fence, we accept our fate, that is, until a fire breaks out and the horses jump the fence. I don’t think the working man’s patience/tolerance is infinite. Whether we understand MS or not, it’ll be forced into action as the back breaking budget busting bill comes due and we try to say “but we don’t have the money” so therefore…what…let them starve, die, kill each other in the streets. There are consequences. Just as disturbing climate changes keep increasing in frequency or intensity or duration, there will be a counterpart to this in the financial world and the only solution will be to throw up our hands and give MS a try……after which the 1% will say, “Gee we’re sorry. We really meant no harm. We didn’t know MS would work; can’t we all just get along.”
“…Based on an annual single room occupancy cost of $558 per month, a little over $4 billion would provide shelter for every homeless person for the entire year.”
And we wouldn’t have build them a home. A lot of buildings and skyscrapers are sitting partially empty just waiting for a makeover. And I don’t think the building’s owners would turn down the money, especially if the owner is a Wall Streeter who would in effect be getting his money back and doing the city a favor getting the homeless off the park bench, out of a cardboard box and out of public sight.
By the way, what kind of tax is imposed on the 2 million people of Zimbabwe that all those services are free? Reminds me of Canada a little.
– Off topic —
Yesterday (4 Feb 2014) the US Senate voted 68-32 to cut another $8.7 billion from Food Stamps. Obama says he will sign it.
This is in addition to the $5 billion that was cut from Food Stamps on 1 Nov 2013.
The US Senate is controlled by Democrats. Of the 68 Senators that voted yes on the cuts, 65% of them were Democrats. Two “liberal” Independent Senators whined about the cuts, but voted for them anyway: Bernie Sanders of Vermont, and Angus King of Maine.
The average US household that receives Food Stamp benefits will now have to make do with $90 less per month. This will hurt Food Stamp recipients, and will also hurt food retailers that accept Food Stamps, which in turn means fewer jobs for everyone in society. Just what a depressed economy needs, aye?
Food Stamp benefits, like money itself, cost nothing, since they are purely electronic, and created out of thin air. Benefits are exchanged via EBT cards, which are exactly like debit cards. Federal taxes are irrelevant to this, as is federal “borrowing” (i.e. investor deposits at Fed savings accounts).
You could mention this to your friends and neighbors, but they wouldn’t want to hear it. Hence they will all suffer, whether or not they personally receive Food Stamp benefits.
The “good” news is that money removed from the economy will not be $8.7 billion, but only $2.7 billion, since the same farm bill will give $6 billion in new subsidies to rich landowners, and to companies like Monsanto. This will not be in direct cash payments, but in crop insurance subsidies (i.e. direct cash payments).
Also, until now, rich landowners and Big Ag corporations that made over $750,000 in income could not get these goodies. The new bill removes that limit. It also absolves members of Congress and the president’s cabinet from having to report what they receive in subsidies, which means the extra loot will not be taxable. Sweet!
Thus, the average person accepts cuts in his own benefits, since the US government is “broke” and “in debt.” He also accepts increased subsidies to the rich.
POSSIBLE DISAGREEMENT WITH RODGER
Rodger seems to feel that any federal spending is better than no federal spending, even if all the money goes to the rich. I’m not so sure about this. The farm bill will give $6 billion in new subsidies to rich landowners, who will use that money to widen the wealth gap. Some recipients will give the loot to their brokers, who will use it to gamble on Wall Street.
Rodger seems to think that federal money handed to the rich will eventually circulate throughout the economy. I’m not so sure. The U.S. middle class now faces extinction. Retailers that once catered to the middle class are disappearing (e.g. Sears, J.C. Penny, Red Lobster restaurants, Olive garden restaurants, etc).
Rodger seems to think that federal stimuli are always good. I’m not so sure. If most or all of the money goes to the rich, and helps to widen the wealth gap, does this help the real economy?
I want stimulus spending money to be spread around in the real economy, and right away.
Actually, I agree with your disagreement — or at least I’m torn.
Adding dollars to the economy is good, in that it is stimulative. So in one sense, even dollars given to the upper 1% are good dollars.
And I disagree with any notion that the 1% should be taxed more. I prefer that everyone be taxed less, including the 1%, because all taxes are depressive.
But taking dollars from the 99% in order to enrich the 1% clearly is bad, as it widens the gap, and the gap is the single most important issue in all of economics.
Bottom line: Give money to the 1% by taxing them less, but give even more money to the 99% by eliminating their taxes and by more federal spending that benefits them.
Add dollars to the economy, with special attention to the 99%.
 I agree that the rich should not be taxed more. I want federal taxes to be zero for everyone, rich and poor.
Rodger’s suggestion: “Add dollars to the economy, WITH SPECIAL ATTENTION TO THE 99%.”
Yes, if federal spending widens the gap, then it can do more harm than good. It may help the 1% at the expense of the 99%.
Thus, our task is to subvert the Big Lie. Then society itself can address issues of distribution.
In this regard, our foes include “liberals” and “progressives,” since they defend the Big Lie even more fanatically than do conservatives. They want higher federal taxes, and not only on the rich.
I oppose their demands for several reasons:
a. It is austerity
b. Federal tax revenue is destroyed upon receipt.
c. Calls for higher taxes only hurt the 99%, since the 1% don’t pay taxes anyway
d. Calls for higher taxes ignore the equally destructive issues of privatization, deregulation, and financialization
e. Calls for higher taxes help to sustain the Big Lie that federal social programs need tax revenue
 Rodger says that the gap is the single most important issue in economics.
Yes, I totally agree. When the rich and their toadies (pundits, professors, and politicians) assess any government policy, or any plan or idea in economics, they ask only two questions: “Will this widen the gap?” and “How shall we spin this so that the masses think it is good for them?”
Populists and leftists should ask the same questions, but they rarely do. Instead, they just want to punish the rich, which usually it ends up widening the gap, since it does not address the Big Lie.
Unless we understand the gap, we will be confused and bewildered by politics. Depending on the place and time, the rich may support or oppose so-called socialists. They may support or oppose a war. They may support or oppose Islamic fundamentalism. They may support or oppose a “color revolution.”
How do we figure it all out? Simple. If it widens the wealth gap, then the rich support it. If it narrows the wealth gap, then the rich oppose it.
This is a universal constant that never changes.
@RMM and others: What I do not understand is how can the rich be against MS and MMT in facilitating economic prosperity and improving American society?: Wouldn’t the rich benefit from the funding largesse and increase in services from the federal government as well (albeit indirectly)? After all, aren’t the rich often business owners who would benefit from the increased spending by poor (that is, hopefully no longer poor) and middle class people who would be buying more of their products and services? The rich wouldn’t lose, but would get to keep, their mansions, yachts, private jets, etc., correct? I think that MMT doesn’t actually propose that we give every citizen millions of dollars and make everybody a millionaire – rather a baseline standard of living to get rid of impoverishment and provide access to good healthcare, higher education, etc. – I really don’t think we’re talking about living like “the Jeffersons in a deluxe apartment in the sky.” Entrepreneurs would still be motivated and have the opportunity to succeed. It seems really ridiculous that any rational person would be against the MS and MMT proposals – It seems to me that there would still be rich people, and people could still have the opportunity to get rich if they were motivated to do so – Actually, with MMT, wouldn’t there be more opportunities to get rich? I think that there still would be some kind of a “gap” – it’s just that poorer people and people at the lower end of the income distribution would be helped more relatively.
Your very last sentence answered your very first question.
The rich do not care about their incomes in absolute terms. They care about the gap.
If there were no gap, no one would be rich, and the wider the gap, the richer they are. They want the gap to grow wider and wider.
@RMM: Please explain the statement: “There would be no rich.” (define “rich”). Do you mean that there would be no people that could afford yachts, private jets, mansions? Or that everybody could afford to have their own yacht, mansion, private jet, etc.? – Therefore, everybody would be at the same economic level, and would not be considered richer than anybody else relatively? I do not understand how MMT and MS implementation could achieve that: Even with MMT/MS, different occupations have different incomes – a medical doctor, successful entrepreneur, or car salesman makes more than a janitor or waiter, correct? Then, the doctor could afford stuff that the janitor could not, like a bigger house, a Ferrari, Gulfstream jet, or whatever. What am I missing here? Sure they both can have access to the basics, like basic healthcare, basic housing, etc. But there still could be an overall income gap – I don’t see how MMT would change that.
BJS asks, “With MMT, wouldn’t there be more opportunities to get rich?”
The question assumes that MMT describes something that does not exist. In reality MMT explains how things actually exist right now. MMT is descriptive, except for its (dubious) “jobs guarantee,” which is prescriptive.
MMT proponents are usually careful to distinguish between “mechanics” (how things really work) and “politics” (how things should work, in their opinion).
What I want is for everyone to understand how Monetary Sovereignty works. This means dispelling the Big Lie that the US government is “broke” and “in debt” and “needs an income.”
It means exposing the fact that the federal government does not need or use tax revenue, and actually destroys it upon receipt.
It means that terms like “profit” and “savings” and “debt-to-income ratio” are meaningless for MS governments.
It means that the federal government has infinite money, and no federal program is “unsustainable.”
If the public understands all this, and ceases to believe the Big Lie, then the rich could only sustain their wealth gap by switching to some other Big Lie, such as ruling by “divine right.”
As Rodger says, the rich have only one concern, which is widening the gap between themselves and the rest. If this means killing the US economy, then so be it. If it means helping the US economy, then so be it. Technology and globalization play a role. In the late 1950s and the 1960s, the wealth gap narrowed somewhat, because the level of technology meant that the rich widened the wealth gap by supporting the middle class. The rising tide lifted all boats.
Today the best way to widen the wealth gap is to destroy the middle class worldwide.
By the way, as Rodger says, the term “rich” is 100% relative. The rich do not care about absolute wealth, only relative wealth. They do not care how much money they have, only how much more money they have than you do. “Rich” means special. If everyone has a million dollars, then no one is special, but if I alone have a million dollars, then I alone am special and “rich.”
Money and power are not the root of evil, since they are neutral. Instead, the source of our social woes is the drive to widen the gap, and be “better than” others. The drive to be “special.” This means putting myself above others and / or putting others below me.
Today we measure a person’s “worth” by his “specialness,” i.e. how much more money he has than do average people. That is, we measure a person’s “human worth” by the size of the wealth gap.
The 99% enslave themselves because they too seek to be “special” at their own level. Average people want to narrow the gap between themselves and those above, and widen it between themselves and those below. (Or between themselves and whoever they hate.)
Thus, most people in the 99% want austerity for others. Result: most people in the 99% get austerity for themselves.
Neither MMT nor MS can or should eliminate the gap. The gap, in my opinion, not only is much too high, but growing.
(Please don’t ask me how much the gap should be, but no human on earth is worth a million times as much as the poorest of us.)
I was trying to explain why the gap defines “rich,” and why the rich care about the gap. They want to be rich, and they cannot be rich if everyone else has the same wealth.
Your statement (“Therefore, everybody would be at the same economic level, and would not be considered richer than anybody else relatively?”) is correct.
I’m not sure if you have already addressed the concern that the monetary sovereignty of the federal gov’t had been co-opted or hijacked by private banks? Or rather, that those private banks are aware of the concept of monetary sovereignty such that they position themselves to directly avail of its benefits instead of channeling it directly to the people. (In case you already have addressed this concern, a URL link would be much appreciated. Thanks.)
“Money manager Knippa: Japan will default on government bonds.”
Knippa apparently does not read this blog either. Isn’t Japan monetary sovereign?
Yes. Like the U.S., Japan is Monetarily Sovereign. It never can run short of its sovereign currency, the yen. Like the U.S., it has no need to borrow (issue bonds), and could redeem all its bonds tomorrow.
The story is bogus.
Educating people about monetary sovereignty and its implications as to how the federal government funding should be managed is an uphill battle. What can you do when there are ignoramuses out there that are considered to be the “experts” who cannot even get facts right?:
And this person is considered to be an expert on economics:
“About Allen W. Smith, Ph.D.
Allen W. Smith has devoted much of his adult life to battling economic illiteracy and promoting economic education. For the past decade, Smith has focused his research and writing on government finance and Social Security. You can read more about his work and publications on his Web site, thebiglie.net.”
“Intuition betrays us in all sciences.” True. BTW, neuroscience researchers have now discovered that, contrary to intuition, ALL human decisions are formulated in the subconscious prior to conscious awareness of the decision. Goodbye free will and personal responsibility. Also, BTW, intuition tells us the 1% doesn’t believe in MMT because their prize economists all pooh-pooh it. Bullshit. The 1% and Bush/Paulson started raiding the US Treasury with TARP and Obama continues the raid with QE. That is totally MMT, targeted at lining the coffers of the 1%. Our bipolar economy utilizes MMT for the 1% and Ludwig Von Mises austerity crap for everyone else.
“…..It means exposing the fact that the federal government does not need or use tax revenue, and actually destroys it upon receipt…..”
Rodger or anyone, exactly how would you go about explaining the decision to destroy money upon receipt as compared to not destroying it as is the case with state and local government, i.e., is there a url or source that shows a balance sheet of local government vs. the balance sheet of the federal government that would by comparison isolate the difference clearly. I would appreciate that source to give me better response to the argument of anti-MSers.
State and local governments deposit their tax dollars into private bank accounts — demand, savings or time deposits. These all are part of the Money Supply (http://en.wikipedia.org/wiki/Money_supply)
The federal government merely credits its own accounts, which are not part of the money supply. (Dollars on the government books are not money. Those big sheets of dollars the Treasury prints are not money. They don’t even represent money.)
The argument about whether or not tax dollars are destroyed, essentially is meaningless. The federal government (unlike state and local governments) creates dollars ad hoc, by spending. It can create dollars endlessly.
Think about it. Since the government can create unlimited dollars, what is the point of arguing about whether tax dollars are destroyed?
The point is that it helps to counter the part of the Big Lie which claims that the federal government needs tax revenue. The Big Lie cannot be subverted if the need-for-revenue part is left intact.
Regarding proof that the US government destroys tax revenue upon receipt, if we start looking for physical evidence or web links, then we start from the false assumption that money is physical.
Monetary Sovereign governments create and destroy money in the same way that sports scoreboards create and destroy points: by changing the numbers. On a scoreboard and in a bank account, if we change the number ’10’ to ‘0,’ then we destroy 10 points / dollars.
By the way Rodger, you write that, “Those big sheets of dollars the Treasury prints are not money. They don’t even represent money.”
I agree that paper currency bills are not money, but I disagree on the second part. I say that bills do indeed represent money, which itself consists of non-physical units of account.
A dollar bill in your hand represents a dollar’s worth of the “full faith and credit of the USA.” It is currency (not money) but it can be traded as money.
You’re right — and I’m right. Those big sheets don’t represent money. Only after they are trimmed and issued to the public do they represent money.
As I said, you’re right and I’m right.
“How government cutbacks ended Sweden’s great depression”
Not sure if the authors analysis is right.
Sweden is monetarily Sovereign I think (Swedish krona not pegged? fixed exchange rate?).
The author does not understand the basics of economics:
GDP = Government Spending + Non-government Spending + Net Exports.
He would have to explain how reducing Government Spending (which also increased Non-government Spending) increases GDP.
If there is validity in the concern that private banks are channeling, hijacking, and co-opting the monetary sovereignty of the federal gov’t towards their profit motive instead of the public good, or, to be more specific, that private banks position themselves to be direct beneficiaries of this exclusive money-printing ability by the federal gov’t (Rothschild scheme), then that should be part of the reason, along with your gap-widening theory, why both MS and MMT are being continually ignored by politicians, Fed officials, policy makers, media pundits, and economists for hire in the academe.
Revealed ignorance of MS and MMT works perfectly well for the bankers. Hank Paulson could not have been more proud of what he’d done.