MMT’s divorce from reality: Jobs Guarantee and inflation fear

Modern Monetary Theory (MMT) is a cousin to Monetary Sovereignty (MS), in that both concepts acknowledge the indisputable fact that the U.S. federal government’s ability to spend is not constrained by the availability of funds.

Modern monetary theory and Monopoly money : r/wallstreetbets — **Neither the federal government nor any federal agency can run out of money unless Congress wants it to. Federal “Trust Funds” are a lie to prevent you from receiving federal benefits.**

In short, the Monetarily Sovereign federal government cannot run short of dollars. It cannot “go broke.” It neither needs nor uses tax dollars.

Similarly, no agency of the federal government (Medicare, Medicaid, Social Security, et al) can run short of dollars unless Congress wants it to.

Even if all federal tax collections were $0, the government could continue spending, forever.

This is true of all sovereign issuers of a sovereign currency.

Federal taxes do not pay for federal spending.

The federal government pays for all spending by creating new dollars. Federal tax dollars are destroyed upon receipt.

Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Quote from Ben Bernanke when, as Fed chief, he was on 60 Minutes:
Scott Pelley: Is that tax money that the Fed is spending?
Ben Bernanke: It’s not tax money… We simply use the computer to mark up the size of the account.

Statement from the St. Louis Fed:
“As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational.”

Press Conference: Mario Draghi, President of the ECB, 9 January 2014
Question: I am wondering: can the ECB ever run out of money?
Mario Draghi: Technically, no. We cannot run out of money.

Sadly, MMT believers go astray with two false beliefs: MMT’s Jobs Guarantee and the belief that federal deficit spending can cause inflation.

I. JOBS GUARANTEE
Briefly, JG is just what it sounds like: The government guarantees it will find or provide (it’s not clear which) a job for anyone who wants a job.

We have published many articles describing the foolishness of that proposal. Rather than repeat the many, many reasons why the JG is naive, wrongheaded, and damaging, we’ll just provide you with these references:

How the MMT “Jobs Guarantee” ignores humanity.

MMT’s “Jobs Guarantee”: The final nail in the coffin of this naive, foolish program

One more reason why the MMT Jobs Guarantee is a con job

The MMT Jobs Guarantee con job

More proof the MMT’s “Jobs Guarantee” can’t work

The Jobs Guarantee (JG) mouse

Another word on MMT’s Jobs Guarantee and “The Rise Of Bullshit Jobs”

Life in a Jobs Guarantee (JG) World

The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Economic Bonus)

Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem.

Will people still work if the government gives them money?

Now, circumstances have arrived to demonstrate reality in the face of MMT’s academic ignorance.

All those people quitting jobs, where are they going?
Kristin Schwab, Oct 28, 2021

You may have heard the news that last week’s initial unemployment claims fell to a new pandemic low. But even though layoffs are decreasing, it’s also true that lots of workers are leaving their jobs and lots of employers are still having trouble filling them.

So, where are the workers who are leaving jobs going?

Right now, it is statistically more difficult to become a receptionist than to get into Harvard. That’s according to data from ZipRecruiter, where Julia Pollak is chief economist.

“I have a lot of bad news for job seekers in certain occupations. Some are much more competitive even,” Pollak said.

Some of these jobs are specialized or senior roles, but a lot of them are what Pollak calls pleasant jobs with predictable schedules, such as in customer service or communications — and fields like airport security.

Guess what, MMT? People aren’t simply mindless pegs to be fitted into crap-job holes as JG would do. Human beings have desires. They want — no, demand — good jobs: Good pay, good conditions, good futures.

MMT’s JG program, designed by academics who have not experienced reality, relies on people being so desperate they will take any job offered.

When people are selective about their lives, JG falls apart.

“So, jobs where you have some degree of prestige, perhaps a uniform and a union looking out for your interests,” Pollak said.

The growing interest in jobs that are more stable and offer better pay and benefits makes sense when you compare them to jobs that require similar skills and are begging people to come back — think less predictable or less protected industries like trucking and restaurants.

Imagine that, MMT, people want stability, better pay, and better benefits, not what a federal JG bureaucracy offers them.

“If you’re a worker at a restaurant and suddenly the restaurant is short-staffed, it’s going to be that much harder for you to actually manage your shift,” said Daniel Zhao, an economist at Glassdoor.

People are tired, burned out and fed up. And a lot of them are looking for a new work-from-home lifestyle. Glassdoor said searches for remote roles is up more than 350% in the last year. Whether everyone can get one is a different story.

The paternalistic Jobs Guarantee was a depression-era solution, that is as appropriate as a hand-crank calculator in today’s computer age. Sadly, MMT still doesn’t get it.

Instead of JG nonsense, we finally are leaning toward Step #3 of the Ten Steps to Prosperity: Social Security for All.

II SOCIAL SECURITY FOR ALL
The following article calls it, “Guaranteed Basic Income” (GBI). Different name, same fundamental concept: Instead of finding crap jobs for the poor, simply give people money.

Guaranteed basic income is coming
By Alice Yin and John Byrne Chicago Tribune, The Tribune’s Gregory Pratt contributed

Thousands of struggling Chicago residents will receive monthly cash payments from the city of Chicago as it becomes home to one of the largest guaranteed income programs in the U.S.

Mayor Lori Lightfoot’s $31.5 million basic income program is just a sliver of the total $16.7 billion budget, which will be buoyed by federal COVID-19 relief funds and won City Council approval Wednesday.

Few details of the pilot have been hammered out yet, except that 5,000 households will receive $500 per month for a year — with no strings attached. The lowest-income residents who suffered financial blows from the COVID-19 pandemic will be the focus.

When the funds go out, Chicago will join a contingent of American cities that have warmed up to the concept of guaranteed income.

Once deemed a pipe dream in mainstream politics, the idea of handing unconditional cash directly to those in need has particularly gained steam during the coronavirus-fueled recession, when most Americans saw multiple rounds of stimulus checks and other temporary social safety net expansions.

However, guaranteed income pilots have launched before the pandemic too, such as in Stockton, California, under former Mayor Michael Tubbs.

The program doled out $500 monthly payments to a small subset of low-income families. In June 2020, Tubbs started the coalition Mayors for a Guaranteed Income, which now has more than 50 mayors on board, more than two dozen of whom are piloting the concept in some form.

Though Lightfoot has touted her proposal as the largest in U.S. history, Los Angeles is in the process of implementing its own guaranteed income pilot targeting 3,000 households with $1,000 a month for a year.

Andrew Yang, a Democratic presidential candidate in 2020, has also championed a more far-reaching version of cash assistance known as universal basic income, which would go out to all adults regardless of means.

Rather than insisting on the Puritanical demand that people must labor in order to survive (i.e JG), more enlightened city governments recognize that at least at some basic level, poverty is harmful to the whole nation, and Americans have a right to live.

The irony is that monetarily non-sovereign cities (which are financially limited) are doing it rather than the Monetarily Sovereign federal government, which is financially unlimited.

But that is why the efforts are so small, with just a few thousand households receiving benefits.

Not all Chicago aldermen were on board with Lightfoot’s plan. Her overall budget passed 35-15, with some of the opposition pointing to the basic income program.

Southwest Side Ald. Matt O’Shea said after the vote that the pilot won’t work because “in two years, we won’t be able to afford it.” He’d rather see resources spent on boosting child care and “getting people back to work,” he said.

“Just giving money out to people when there’s tens of thousands of jobs in our city right now, that’s not something I can support,” O’Shea said.

But that is the whole point. There are “tens of thousands of jobs” people don’t want. Arrogant academic snobs claim the “underclass” should be grateful to work crap jobs for crap wages.

Those are Gap Psychology words. They serve only to widen the Gap between the rich and those below. JG is cruel and ignorant. It dooms people to failure. It is bad economics.

Giving people money turns them into consumers whose spending helps the entire economy.

Apparently, people are tired of the “work ’til you drop” routine. They have the strange desire to lead pleasant lives, no matter what the rich tell them. If people won’t work, it’s not because of laziness, as the rich love to claim. It’s because the jobs are unattractive.

Back in March, when aldermen held a hearing on a proposal over direct monthly checks, caucus chairman Jason Ervin said it would be a “slap in the face” to proceed with guaranteed income before setting up a reparations programs for descendants of slaves.

That’s a perfect example of the old, “We can’t do this before we do that” stalling routine.

It’s like this: “We can’t feed them until we clothe them, and we can’t clothe them until we house them, and we can’t house them until we educate them, and we can’t educate them until we give them free healthcare, and we can’t afford to give them free healthcare until we raise taxes — and we can’t raise taxes because no one wants that.

“So we can’t do anything. Sorry.”

One of City Council’s loudest voices for direct cash assistance has been Northwest Side Ald. Gilbert Villegas, who said his mother received a monthly $800 stipend through the Social Security survivors death benefits program after his father died.

Villegas introduced a proposal ordinance this spring that largely resembled Lightfoot’s plan of $500 monthly payments to 5,000 households, but it did not pass.

Villegas’s mother received benefits from a federal agency, that is funded from an unlimited source. City governments are not unlimited sources.

Still, Villegas said he’s prepared to go all-in on helping work out the details of Lightfoot’s program. He wants an eligibility threshold of households earning 300% or less of the federal poverty level, and Chicago Public Schools families should be prioritized, he said.

The problem with income eligibility programs is they are expensive to administer, unfair to those who barely miss out, and subject to cheating.

Though most guaranteed income programs are still nascent, researchers have examined the effects — with limitations. The current pilots in place are narrow in size and duration, said Carmelo Barbaro, executive director of the University of Chicago Inclusive Economy Lab.

Still, there is promise in further investigating the results because unlike other safety-net programs, direct cash assistance is simpler to implement, he said.

“Broadly accessible and unconditional cash transfers like Chicago’s guaranteed income pilot are intended to address those limitations of existing programs,” Barbaro wrote in an email. “The cost of such programs is higher, but the benefits could also be higher.”

No deductible, comprehensive Social Security for All is affordable for the federal government (as are all federal expenses). It would be simple to administer, and massively beneficial to the economy.

University of Pennsylvania professor Ioana Marinescu, an economist who has also studied such programs, said the early signs show that some of the outcomes feared by critics may not have materialized.

A 2014 research review on the effect of cash transfers on alcohol and tobacco purchases, for example, found virtually no change in or even a decrease in spending on these so-called temptation goods.

“There’s advantages to cash in terms of flexibility,” Marinescu said. “There could be drawbacks if you’re worried that people misuse the cash. But that doesn’t seem to be the case based on the empirical evidence.”

The rich like to portray the poor as ignorant sloths who will use any extra money for drinking, gambling, smoking, and drugs. That gives the rich a fake excuse to widen the Gap and thereby make themselves richer. Republicans, the party of the rich, invariably vote against money for the poor.

(The Gap is what makes the rich rich. Without the Gap, no one would be rich. We all would be the same. The wider the Gap, the richer the rich are.)

The lack of money is the biggest problem in any economy. The best way to cure that problem is to give people money.

The rich hate it, and invent excuses for not doing it, because they don’t want the Gap between the rich and the rest to be narrowed.

III Inflation
Contrary to popular myth, inflation never is caused by “too much” federal deficit spending. Inflation always is caused by shortages of key goods and services.

**There is no correlation between federal deficit spending (blue line) and inflation (red line).**

Today’s inflation is related to shortages of energy, labor, food, and computer chips.

Inflation actually can be cured by additional federal spending to pay for scarce goods and services.

In Summary

The Monetarily Sovereign federal government has infinite access to dollars. Neither the government nor any agency of the government can run short of dollars unless Congress wants that to happen.
Federal taxes do not “pay for” federal spending. Federal spending is paid for by the creation of new dollars, which the government has the infinite ability to do.
Federal spending does not cause inflation. Inflation is caused by the scarcity of key goods and services. Federal spending can cure inflation by paying for scarce goods and services.
America is not short of jobs. America is short of good jobs. Modern Monetary Theory’s Jobs Guarantee will solve zero problems, and in fact exacerbate a “crap jobs” economy.
Poverty, the lack of money, is bad for the American economy. Poverty is not cured by bad jobs, but rather by putting money in the hands of the impoverished. This creates new consumers, whose purchases grow the economy, which grows businesses that are able to provide attractive jobs.

It all begins putting with money into the hands of the people, which the U.S. federal government has the infinite ability to provide.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty
Facebook: Rodger Malcolm Mitchell

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THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

Monetary Sovereignty describes money creation and destruction.
Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY

Why is there no federal “debt” or “deficit,” and 7 other interesting questions.

[According to the MonopolyⒸ game rules, money is unlimited; if the Bank runs out of money it may issue as much as needed “by merely writing on any ordinary paper”.]

BACKGROUND
We previously have discussed the parallels between the MonopolyⒸ game’s Bank and the U.S. federal government. Both are Monetarily Sovereign, which means:

Image result for four column chart — Create a column for each player.

They cannot run short of money.
They have no need to borrow money.
They do not need to collect taxes.
And the taxes they collect are destroyed upon receipt.

Let’s say you wish to play the MonopolyⒸ game with three friends, but when you open the box you find it has no money.

What do you do?

The paper “money” in a MonopolyⒸ game merely is a convenience, not a necessity. The game can be played in exactly the same way, without paper MonopolyⒸ dollars.

You simply can draw four columns on a sheet of paper — one column for each player. Then you write 5,000 (or any amount) at the top of each column. The total of the columns (say, 20,000) is the total amount of money in the game.

When any player spends money, you deduct that amount from the last number in the column, and when any player receives money, you add that amount.

But what happens when a player is required to pay money to the Bank? There is no column for the Bank. So, you simply deduct that amount from the player’s column.

Since the bank has no column, the money is destroyed. No record is kept of Bank “deficits.” The total in the game is now less than 20,000 MonopolyⒸ dollars.

This is similar to what happens when you pay taxes to the federal government. Although the federal government keeps a record of that payment, it doesn’t use those dollars for anything. Effectively, the U.S. dollars are destroyed.

And, like the MonopolyⒸ bank, the U.S. federal government creates brand new dollars, every time it spends.

And what happens when the MonopolyⒸ Bank spends money (for instance by paying 200 dollars when a player passes “GO”)? You add that 200 dollars to the appropriate player’s column. The total money in the game now increases by 200 Monopoly dollars.

The MonopolyⒸ Bank doesn’t have debt, because it simply creates new MonopolyⒸ dollars by the very act of spending. Similarly, the federal government creates new U.S. dollars by the very act of spending.

QUESTIONS
1. What is the federal “deficit”?
The so-called “deficit is the misleading name given to the difference between the amount of money the federal government collects vs. the amount it spends.

The deficit is just an arithmetic difference; it does not imply a real financial relationship between collections and spending.

Reductions in federal debt growth introduce recessions (vertical gray bars). Recessions are cured by increases in federal debt growth.

The federal government has the unlimited ability to create U.S. dollars, so the deficit merely shows how many dollars the government sends into the economy compared to the number of dollars the government takes from the economy.

Thus the so-called “deficit” more properly should be viewed as an “economic surplus.”

Because deficits add dollars to the private sector, they are necessary to cure recessions and depressions.

2. What is the federal debt?
The government accepts deposits into U.S. Treasury Security accounts. The purpose of these accounts is not to supply the government with dollars (it creates dollars at will), but rather:

To help the government control interest rates.
To provide the world with a safe “parking” place for unused U.S. dollars, which helps stabilize the dollar.

The total of deposits into the U.S. Treasury Security accounts is misleadingly known as the federal “debt,” though the accurate term would be “deposits.”

3. Do federal taxpayers pay for the federal debt?
These T-security accounts pose no burden on the federal government or on taxpayers. The government pays interest into these accounts by creating brand new dollars.

The accounts are paid off by sending the dollars that reside in the accounts, back to the account holders. No tax dollars are used.

4. Does the federal government borrow?
Unlike state and local governments, the U.S. federal government does not borrow. Why would it? Being Monetarily Sovereign, it has the unlimited ability to create dollars.

Though accepting deposits into Treasury Security accounts sometimes wrongly is called “borrowing,” those dollars are not used by the government. They stay in the accounts, earning interest, until maturity, at which time they return to the account owners.

The term “borrow,” implies that the borrower has some need of, or use for, the thing being borrowed. The federal government has neither need of, nor use for, the dollars deposited in T-security accounts.

The purposes of federal T-securities are:

To help the Federal Reserve control interest rates
To provide a safe parking place for unused dollars, which stabilizes the dollar.
To convince the public that the federal government does not have the unlimited ability to create dollars.

(#3 helps the very rich prevent the public from demanding more social spending.)

5. Does federal deficit spending cause inflation?
Federal deficit spending adds growth dollars to the economy.

There is a popular myth that “excessive” government spending causes inflation. The common belief is that increasing the supply of dollars, without increasing the demand for dollars, would make each dollar less valuable, which is the definition of “inflation.”

While the total of deficits (blue line) has increased massively, inflation (red line) has been comparatively modest.

In reality, however, adding dollars to the economy puts spending-dollars into consumers’ pockets, which grows the economy and increases the demand for dollars. (See #6.)

Since 1947, the U.S. federal deficit increases have totaled more than 80,000%, while prices have increased significantly less.

The illusion of deficit spending causing inflation comes partly from the images of wheelbarrows filled with money during hyperinflations.

But those were examples of hyperinflations causing currency printing, and not the other way around.

Example: Zimbabwe. Farmland was taken from white farmers and given to blacks who did not know how to farm. Food shortage and then hyperinflation predictable results.

Inflations are caused by shortages, usually shortages of food or oil.

6. How is inflation prevented and cured?
The standard, recommended cure for inflations and hyperinflations is to reduce government spending, aka “austerity.” Unfortunately, this actually can worsen the problem by exacerbating the shortages.

The best prevention/cure for modest inflation: First raise interest rates to increase the value of the currency. This can be done quickly and incrementally, without the need for time-consuming, politically-tilted debates in Congress.

Meanwhile, to prevent/cure more serious inflations, increase government financial support for farming and oil exploration. Because this requires a counter-intuitive increase in government spending, it can take longer for a government to implement, but it is the only path to ending an inflation.

In extraordinary circumstances, it may be necessary to introduce a new currency, while focusing financial efforts on food and oil supplies. Until food and oil shortages are cured, inflations and hyperinflations cannot be cured.

7. How does Modern Monetary Theory (MMT) differ from Monetary Sovereignty (MS)?
These two economic philosophies agree that the federal government cannot run short of its own sovereign currency, the U.S. dollar, federal taxing does not fund federal spending, and that federal deficit spending adds growth dollars to the economy.

They further agree that the federal “debt” is not a burden on the federal government or on federal taxpayers.

MMT’s primary goals are full employment (effected by a Jobs Guarantee) and a stable currency.

In contrast, MS’s primary goals are economic growth and a reduction in income/wealth inequality (via the Ten Steps to Prosperity, below).

Since the great recession of 2008, unemployment (blue line) has dropped to low levels, and inflation as been within the Federal Reserve target of 2.5%. That would mean the economy already has met MMT’s goals. Presumably then, for MMT, all is well.

But wealth/income inequality has grown markedly, so clearly MMT’s goals are inadequate.

GINI index for the United States

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell

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The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:

1. Eliminate FICA

2. Federally funded Medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually.

8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9%

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

Yet another economics writer who doesn’t understand the fundamentals.

A fundamental truth of economics: A Monetarily Sovereign nation never unintentionally can run short of its own sovereign currency.

The nation does not need to tax and does not need to borrow. It creates its sovereign currency at will.

To not understand that fact is to not understand economics, for it is the absolute foundation of economics.

THEWEEK Magazine recently published the article, “The big question about Modern Monetary Theory everyone is missing,” by Ryan Cooper.

Modern Monetary Theory (MMT) and Monetary Sovereignty (MS) share many characteristics regarding money in today’s economies.

Here are a few excerpts from the article, together with my comments.

Economists are in the midst of one of the periodic debate flare-ups over Modern Monetary Theory.

On the pro-MMT side we have economists like Stephanie Kelton and Randall Wray, while on the other we have the odd bedfellows of The New York Times’ Paul Krugman and the People’s Policy Project’s Matt Bruenig.

Professor Kelton has been a “pen pal” of mine for several years. I met Professor Wray years ago, when I gave a talk to his class at UMKC.

This intricate debate is about the main merits of MMT, an economic school of thought which has received wide attention for its dismissal of the need for taxes to pay for new spending.

Both MMT and MS agree that unlike state and local taxes, which do pay for state and local government spending, federal taxes do not pay for federal spending.

The reason is that the U.S. federal government is Monetarily Sovereign. It is sovereign over U.S. dollars, which it creates ad hoc, every time it pays a creditor.

Even if the U.S. government collected zero taxes, it could continue spending, forever.

However, there is an important question which has to this point not been raised. The MMT advocates say that inflation should be controlled through fiscal policy, instead of monetary policy conducted by the central bank as is current practice.

In other words, if prices start rising, we can keep them in line by raising taxes.

But does that actually work?

No, it doesn’t work, cannot work and never will work.

Raising taxes is too slow and too political (waiting for Congress), too undirected (which taxes?), not incremental enough (raise taxes how much?), and too damaging to economic growth (taxes reduce the money supply).

Unfortunately, MMT takes incompatible positions. It says correctly, that federal taxes do not fund federal spending, but incorrectly that federal taxes are necessary to cause demand for U.S. dollars.

During times of recession and economic slack, a state borrowing in its own currency has unlimited capacity to spend, because printing money or borrowing to spend on public works and so on will not cause inflation so long as there are unemployed workers and idle capital stock.

Think, Mr. Cooper. If a state has the unlimited capacity to spend and to “print” money, why would it need to, or even want to, borrow? Think.

Contrary to popular wisdom, the U.S. does not borrow dollars. Instead, it accepts deposits into T-security accounts, the purpose of which are:

To provide the world with a safe place to park unused dollars. This helps stabilize the dollar.
To assist the Fed in controlling interest rates, which control inflation.

But if there is full employment, taxes are needed for new programs — to fund them for the former, or to stave off inflation for the latter.

Here, Cooper reveals he doesn’t understand the differences between monetarily non-sovereign state and local government financing (where borrowing is necessary), vs. Monetarily Sovereign federal financing (that requires no borrowing).

The federal government levies taxes, but not to obtain dollars. It freely produces all the dollars it needs.

The purpose of federal taxes is to control the economy by discouraging certain activities with higher taxes and by encouraging others with tax reductions.

The effect of federal taxes (as opposed to the purpose), is to reduce federal deficit spending which reduces the money supply.

All federal taxes do this — income taxes, FICA, sales taxes, import duties, etc. They all reduce the money supply. Just as tax cuts are economically stimulative, tax increases are recessionary.

And just as increased federal deficit spending helps cure recessions, decreased federal deficit spending causes recessions, and worst case, depressions.

U.S. depressions tend to come on the heels of federal surpluses.

1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1997-2001: U. S. Federal Debt reduced 15%. Recession began 2001.

Now, it should be noted that MMT’s style of argumentation seems to have dented the brainless pro-austerity mindset that dominates much of elite discourse, which is very much to its credit.

Remember the above comment, because later in his article, Cooper unknowingly supports the very austerity he calls “brainless.”

He discusses the key objection to MMT (and MS), inflation:

The way tax-side inflation control is supposed to work is through supply and demand.

Since taxation will leave buyers with less money in their pockets to spend, market competition will force suppliers to cut prices and workers to accept lower wages.

But if markets have become dominated by a few big firms, then business can resist this pressure, because buyers have nowhere else to go.

Taxation reduces the supply of money. Though taxation can support the demand for money, it is not necessary for that purpose.

Interest is a more effective device for supporting the demand for money. While taxes depress an economy, interest stimulates the economy by increasing federal dollar interest input.

Money growth grows an economy.

A good test of this prediction came in the late 1970s, when inflation was at its postwar peak.

Economist John Kenneth Galbraith argued for price controls, but conservative “monetarists” like Milton Friedman argued that (with) a steep hike in interest rates, inflation would come down quickly and easily.

The Fed tried Friedman’s policy, but it turned out Galbraith was right.

The Fed hiked interest rates to an eyewatering 20 percent, creating the worst recession since the Great Depression up to that time.

But inflation only came down very slowly — partly through Keynesian-style spending effects, but partly by badly damaging the labor movement, which cut unionization.

In the past 50 years, since President Nixon took the U.S. off a gold standard, inflation has not been caused by America’s massive federal deficit spending. See: Inflation has been caused by the price of oil.

The Fed wisely has not recommended controlling the price of oil, an action that would lead to an oil shortage, and a recession, if not a depression. That is what price controls do: Lead to shortages.

And what do shortages lead to? Hyperinflations.

So, Cooper writes that Galbraith was right about price controls?? Where did that come from? He provides no evidence.

The true effect of price controls is to reduce economic growth by reducing supply and profits — the economic necessities for growth.

Price control is a feature of the “brainless, pro-austerity mindset” that Cooper properly criticized a few paragraphs ago.

And do increased interest rates really lead to recessions? Or is it simply that recessions lead to decreased interest rates?

Interest rates (red); deficit spending increases (blue); recessions (vertical gray bars)

The above graph shows that sometimes interest rates peak at the start of recessions, sometimes they peak in the midst of economic growth, and sometimes they decline at the start of recessions.

One cannot say that increased interest rates historically have caused recessions.

The real pattern is that decreased deficit spending causes recessions and increased deficit spending cures recessions.

Why? Because a growing economy requires a growing supply of dollars, and deficit spending adds stimulus dollars to the economy.

Federal deficit spending and debt don’t cause inflation.

Since the U.S. went off the gold standard in 1971, the federal debt (blue) has risen massively, while inflation (red) has been moderate.

Most inflations and nearly all hyperinflations are caused by shortages, usually shortages of food, and often shortages of oil.

For instance, Zimbabwe, an oft-mentioned hyperinflation victim, had its hyperinflation begin with a food shortage. (Farmland was stolen from farmers and given to non-farmers.)

One reason inflation control is delegated to the central bank is that it can work quickly, adjusting interest rates in response to economic conditions several times per year.

Congress works extremely slowly at the best of times, and control is usually split between the two parties.

The Fed may have performed poorly over the last decade, but do we really want Mitch McConnell having to sign off on inflation policy?

Exactly. Now that Cooper belatedly has confirmed why price controls and tax increases don’t work and can’t work, we come to the:

SUMMARY

Modern Monetary Theory (MMT) and Monetary Sovereignty MS) describe the realities of economics similarly.

They agree that a Monetarily Sovereign nation, such as the U.S., cannot run short of its own sovereign currency, and neither needs nor uses tax dollars to fund spending.

They differ in many other areas however, one of which has to do with controlling inflation:

Three inflation controls were discussed, only one of which is effective:

Price controls which cut profits and thus cut economic growth, lead to recessions and ultimately cause inflations by causing shortages. They don’t work, and neither MMT nor MS supports this approach.
Tax increases, which are too slow, too political, not incremental, and cause recessions by decreasing the money supply. They don’t work, though MMT supports this approach.
Interest rate increases, which actually increase the money supply (by causing the federal government to pay more interest into the economy, and work by increasing the value of dollars (by increasing the demand for dollars). Works, and has been working since the end of WWII. MS supports this approach.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereigntyFacebook: Rodger Malcolm Mitchell

The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:

1. Eliminate FICA

2. Federally funded medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually.

8. Tax the very rich (the “.1%) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9%

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY

One more reason why the MMT Jobs Guarantee is a con job

Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

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The previous post, The MMT Jobs Guarantee con job, gave several reasons why JG is unworkable, and in fact, will hinder employment. For example:

Jobs are not hard to find. There are millions of jobs available.

May 8, 2018: U.S. employers post record high 6.6 million open jobs
By Christopher A. Rugaber Associated Press

U.S. employers advertised 6.6 million open jobs in March, the most on records dating back to December 2000, suggesting businesses want to staff up to meet strong demand.

Job openings rise to record high as employers battle for qualified workers
The number of U.S. job openings increased by 472,000 to a seasonally adjusted 6.6 million in March, a record high, the Labor Department reported Tuesday. The latest statistics in the monthly Job Openings and Labor Turnover Survey suggested that as hiring has improved, employers have found it increasingly difficult to find qualified workers.

A job is not hard to find. The right job is hard to find. The job in the right location — the job you want to do and are qualified to do — that job is hard to find.

Congratulations on your JG job.

JG will not find the right job for you. At best, it might find a job, take it or leave it.
Most people do not work for the joy of labor. Most people work for money, or more accurately, for financial benefits.
.
Continuing the above article:
.

The unemployment rate is at a 17-year low, but stagnant wages, chronic underemployment and growing inequality are leading more Americans to take on so-called side hustles.

Some want to supplement their incomes. Others are just trying to eke out a living. Nearly 1 in 4 Americans now earn money from the digital “platform economy,” according to the Pew Research Center.

Most of that work is for domestic tasks, such as housecleaning and repairs, or driving for companies such as Uber.

By moving into shops and cafes, on-demand work stands to reshape a broader slice of the U.S. economy. There are implications for low-wage workers, too, as a new class of employers fills its labor pool with on-call temp workers.

Retail and hospitality — which accounts for 20 percent of U.S. positions, according to the Bureau of Labor Statistics — is the on-ramp for many employees to better jobs.

But the sector is also pinched by rising minimum wages and health-care costs, and employers are seeking more flexible work arrangements that respond to the ebbs and flows of their businesses.

But labor experts say companies such as Snag Work could set a dangerous precedent. Employers are already wary of hiring full-time employees because of overtime and health-care costs, they say, and having a pool of potential gig workers at the ready could make matters worse for those seeking the stability, benefits and protections that come with full-time work.

Despite JG beliefs, laboring for money neither is inherently more moral or emotionally more satisfying than receiving money without labor.

Many retired people and wealthy people tend to be quite satisfied with their lives, while not having a paying job.

You can see other reasons why JG is unworkable by visiting The MMT Jobs Guarantee con job, but there is one additional reason, not mentioned in the prior post.

**What becomes of JG job searchers, creators, supervisors and trainers when jobs are plentiful vs. when jobs are scarce?**

The reason relates to the current situation where unemployment is low, and available jobs are plentiful. This is not a permanent or even a long-term situation.

Unemployment and jobs availability change markedly through time.

But by any measure, implementing JG would require a large federal bureaucracy, and depending on the degree to which state and local governments are involved, large state and local bureaucracies.

These bureaucrats not only would require significant training themselves, but any private job searchers, job creators and job trainers would need to be hired and trained.

So the question becomes:

3. What would happen to the thousands of people hired to implement JG during those periods, like today, when JG scarcely is needed, if at all?

Would these thousands of people be retained during slack periods, to twiddle their thumbs? Or would they be fired, which later would require another round of hiring and training?

And if the latter, wouldn’t this new round of hiring and training always be behind the curve, so that many months or years pass before the program once again, is up and running?

If you have had occasion to debate with a JG adherent, you probably have discovered there are an infinite number of JG’s. For each objection, a new JG is invented, until the only common element is the words “Jobs Guarantee.”

In my personal experience discussing and debating JG, I’ve been told the program involves one or more of:

–federal jobs, local government jobs, and/or private jobs
–JG implementation government or private employees, or no program employees
–supplementary Basic Income payments
–minimum wage (about $7 hour) or enhanced minimum wage of $15 hour
–prior job training by program trainers, or on-the-job training by the employee’s supervisors
–Benefits like vacations, health insurance, prenatal programs, education, special clothing, IRAs
–Part time, temporary, or full-time jobs

I also have been told JG employees would not compete with or replace existing employees, though I cannot imagine how that would work.

4. Finally, the private sector already is doing JG, far better than the government would. Continuing with the article:

Snag Work and other new platforms are the go-betweens, allowing users to pick up open shifts from retailers, restaurants and hotels that have gaps in their schedules.

Wonolo, which bills itself as 40 percent cheaper than traditional temporary staffing companies, counts Coca-Cola, McDonald’s and Papa John’s Pizza among its clients. Other start-ups include AllWork and Coople.

Snag Work, which recently expanded to Washington, D.C., says the arrangements are mutually beneficial for cash-strapped workers and understaffed businesses. “Workers now have lots of options to pick up shifts — Instacart, TaskRabbit, Postmates, Lyft,” said Peter Harrison, chief executive of Snag, the parent company of Snag Work, which says it has 2.1 million active users.

“But for small businesses, there are not ways for them to participate in this revolution. They’re suffering for it because they’re losing workers to these other platforms.”

That’s where Snag Work comes in, he says. This is how it works: Interested workers sign up online and are vetted by Snag Work via Skype interviews and background checks. They can search for open shifts — which typically pay $10 to $15 an hour — on the company’s app and sign up for the ones they’re interested in.

They clock in and clock out and are paid through Snag Work’s online platform. A spokeswoman for Snag Work said the company provides workers’ compensation coverage to all workers.

The federal government should encourage and regulate businesses like Snag Work, rather than create a competitive, job-hunting/ job-creating business of its own:

Temporary workers also have fewer rights. They can’t unionize and don’t have the same legal protections against workplace harassment that other employees do, according to Erin Johansson, research director at Jobs With Justice, a nonprofit that advocates for workers’ rights.

State legislatures across the country are considering bills that would legally classify gig workers as independent contractors, stripping them of a number of workplace rights and protections.

Until now, the distinction between on-demand employee and contractor has been largely unclear, as evidenced by a number of lawsuits alleging that companies such as Uber, Grubhub and Handy are incorrectly classifying their workers as independent contractors.

Stallings, the full-time gig worker, said he regularly picks up dishwashing shifts at the Five Guys near Virginia Commonwealth University.

“The other workers get a little upset when they hear I’m making more than minimum wage,” Stallings said. “You’ll hear them talk about how they’re struggling to keep full-time hours, and then I come in to wash dishes, and at $10 an hour, am making almost as much as the cooks are.”

In summary, JG is a complex, convoluted, naive program created by people who seem not to understand the realities of job hunting. So they assume they simply can supply A JOB, and anyone unemployed will be delighted to have it.

Think of how much easier, faster and more beneficial it would be simply to:

Step #1. Eliminate FICA, then
Step #2. Expand Medicare to cover everyone, then
Step #3. Give Social Security to everyone, then
Step #4. Provide free education for everyone who wants it, then . . .

You get the idea. I’m suggesting the 10 Steps to Prosperity (below) — good at all times for all economic situations.

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

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The most important problems in economics involve the excessive income/wealth/power Gaps between the have-mores and the have-lesses.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:
1. ELIMINATE FICA (Ten Reasons to Eliminate FICA )
Although the article lists 10 reasons to eliminate FICA, there are two fundamental reasons:
*FICA is the most regressive tax in American history, widening the Gap by punishing the low and middle-income groups, while leaving the rich untouched, and
*The federal government, being Monetarily Sovereign, neither needs nor uses FICA to support Social Security and Medicare.
2. FEDERALLY FUNDED MEDICARE — PARTS A, B & D, PLUS LONG TERM CARE — FOR EVERYONE (H.R. 676, Medicare for All )
This article addresses the questions:
*Does the economy benefit when the rich can afford better health care than can the rest of Americans?
*Aside from improved health care, what are the other economic effects of “Medicare for everyone?”
*How much would it cost taxpayers?
*Who opposes it?”
3. PROVIDE A MONTHLY ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA (similar to Social Security for All) (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB (Economic Bonus)) Or institute a reverse income tax.
This article is the fifth in a series about direct financial assistance to Americans:

Why Modern Monetary Theory’s Employer of Last Resort is a bad idea. Sunday, Jan 1 2012
MMT’s Job Guarantee (JG) — “Another crazy, rightwing, Austrian nutjob?” Thursday, Jan 12 2012
Why Modern Monetary Theory’s Jobs Guarantee is like the EU’s euro: A beloved solution to the wrong problem. Tuesday, May 29 2012
“You can’t fire me. I’m on JG” Saturday, Jun 2 2012

Economic growth should include the “bottom” 99.9%, not just the .1%, the only question being, how best to accomplish that. Modern Monetary Theory (MMT) favors giving everyone a job. Monetary Sovereignty (MS) favors giving everyone money. The five articles describe the pros and cons of each approach.
4. FREE EDUCATION (INCLUDING POST-GRAD) FOR EVERYONE Five reasons why we should eliminate school loans
Monetarily non-sovereign State and local governments, despite their limited finances, support grades K-12. That level of education may have been sufficient for a largely agrarian economy, but not for our currently more technical economy that demands greater numbers of highly educated workers.
Because state and local funding is so limited, grades K-12 receive short shrift, especially those schools whose populations come from the lowest economic groups. And college is too costly for most families.
An educated populace benefits a nation, and benefitting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
5. SALARY FOR ATTENDING SCHOOL
Even were schooling to be completely free, many young people cannot attend, because they and their families cannot afford to support non-workers. In a foundering boat, everyone needs to bail, and no one can take time off for study.
If a young person’s “job” is to learn and be productive, he/she should be paid to do that job, especially since that job is one of America’s most important.
6. ELIMINATE FEDERAL TAXES ON BUSINESS
Businesses are dollar-transferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the federal government (the later having no use for those dollars). Any tax on businesses reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all business taxes reduce your personal income.
7. INCREASE THE STANDARD INCOME TAX DEDUCTION, ANNUALLY. (Refer to this.) Federal taxes punish taxpayers and harm the economy. The federal government has no need for those punishing and harmful tax dollars. There are several ways to reduce taxes, and we should evaluate and choose the most progressive approaches.
Cutting FICA and business taxes would be a good early step, as both dramatically affect the 99%. Annual increases in the standard income tax deduction, and a reverse income tax also would provide benefits from the bottom up. Both would narrow the Gap.
8. TAX THE VERY RICH (THE “.1%) MORE, WITH HIGHER PROGRESSIVE TAX RATES ON ALL FORMS OF INCOME. (TROPHIC CASCADE)
There was a time when I argued against increasing anyone’s federal taxes. After all, the federal government has no need for tax dollars, and all taxes reduce Gross Domestic Product, thereby negatively affecting the entire economy, including the 99.9%.
But I have come to realize that narrowing the Gap requires trimming the top. It simply would not be possible to provide the 99.9% with enough benefits to narrow the Gap in any meaningful way. Bill Gates reportedly owns $70 billion. To get to that level, he must have been earning $10 billion a year. Pick any acceptable Gap (1000 to 1?), and the lowest paid American would have to receive $10 million a year. Unreasonable.
9. FEDERAL OWNERSHIP OF ALL BANKS (Click The end of private banking and How should America decide “who-gets-money”?)
Banks have created all the dollars that exist. Even dollars created at the direction of the federal government, actually come into being when banks increase the numbers in checking accounts. This gives the banks enormous financial power, and as we all know, power corrupts — especially when multiplied by a profit motive.
Although the federal government also is powerful and corrupted, it does not suffer from a profit motive, the world’s most corrupting influence.
10. INCREASE FEDERAL SPENDING ON THE MYRIAD INITIATIVES THAT BENEFIT AMERICA’S 99.9% (Federal agencies)Browse the agencies. See how many agencies benefit the lower- and middle-income/wealth/ power groups, by adding dollars to the economy and/or by actions more beneficial to the 99.9% than to the .1%.
Save this reference as your primer to current economics. Sadly, much of the material is not being taught in American schools, which is all the more reason for you to use it.

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

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MONETARY SOVEREIGNTY

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