–Curing the student loan problem, and helping to reduce unemployment, all at one stroke

Mitchell’s laws:
●The more budgets are cut and taxes increased, the weaker an economy becomes.
●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.
●Austerity = poverty and leads to civil disorder.
●Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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My senator, Dick Durbin, has proposed new legislation. Here is what he says on his web site:

Many students turn to private student loans to help finance their education. Traditionally, private student loans issued by for-profit lenders have been—appropriately—treated like credit card debt and other similar types of unsecured consumer debt in bankruptcy.

If student debt became so overwhelming that a graduate had to declare bankruptcy, private loans could be discharged like any other debt. But in 2005, a provision was added to bankruptcy legislation that protects the private lenders that extend private credit—not federally guaranteed student loans—to students.

Where students could once find relief from suffocating debt, there is now no escape from high-interest, predatory student loans. And the student lending industry has not been the same since the law was changed–it quickly exploded from $11.8 billion the year before 2005 to a peak of more than $23 billion just four years later.

Today, a significant portion of students are burdened with tens—or even hundreds—of thousands of dollars in student loan debt, and, in our current economic climate, too many are struggling to make timely payments on these loans.

Senator Durbin’s proposed solution: Change the law to allow students to go bankrupt. According to Bloomberg:

The largest private student lender is SLM Corp., (SLM) known as Sallie Mae, which made $2.7 billion in private education loans last year, up 19 percent from a year earlier, the company said in a statement in January. It expects to originate about $3.2 billion this year.

Sallie Mae’s portfolio of private student loans was about $36 billion, and loans to students at for-profit colleges account for about 10 percent, according to the Newark, Delaware- based company.

“Sallie Mae supports reform that would allow federal and private student loans to be dischargeable in bankruptcy for those who have made a good-faith effort to repay their student loans over a five-to-seven year period and still experience financial difficulty,” Patricia Nash Christel, a spokeswoman for the company, said in an e-mail.

While being able to go bankrupt is better than not being able to go bankrupt, encouraging thousands of college students to put a bankruptcy on their credit history is not desirable. Further, maintaining barriers to school attendance, makes no sense for our nation. The future survival and growth of America requires us to make school an affordable and attractive option for as many people as possible.

Here are some facts that bear on this subject:

A. Most elementary school and high school education is provided free, courtesy of the states.

B. But, states are monetarily non-sovereign, and cannot create dollars at will. Most have serious financial problems. Supporting lower education is a large burden for the states. By contrast, the federal government is Monetarily Sovereign, having the ability to create dollars at will.

C. Even with free education available, many students opt out of elementary and, especially, high school. One reason: Families cannot afford to support the students. They need the students to go out and earn money.

D. College education is important to U.S. economic growth in this increasingly technical world, where machines do more of the “grunt” work, and brains increasingly are more important than brawn.

Given these facts, I’ve proposed this solution to the student loan problem:

1. The federal government should take over the funding of elementary and high school education. Because the states are strapped for funds, lower education funding may take a back seat. Every day, America loses the value of one of our most important resources: Our young people.

2. For the same reasons, the federal government should take over the funding of college education, including advanced degree education.

3. The federal government also should pay each student a salary for attending school. [See link for more details]

Finally (note to Warren Mosler and Randy Wray), though I have criticized Modern Monetary Theory’s (MMT) Jobs Guarantee (JG), I could visualize paying a salary for attending school, as a partial solution to the unemployment problem.

The negative would be the probable requirement that the “employee” attend full time and pass the course, which would preclude finding a full-time job, elsewhere. The positive would be that attending school would be more beneficial than typical minimum wage jobs — more beneficial to the worker and more beneficial to America.

Rodger Malcolm Mitchell
Monetary Sovereignty

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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports

#MONETARY SOVEREIGNTY

–Epic battle: The Chicago Tribune editors vs. The Chicago Tribune editors

Today’s (7/10/12) Chicago Tribune published an editorial titled, “Irrelevant and irresponsible”. Here are a few excerpts. See whether you agree with the Tribune editors or with the Tribune editors.

The federal government is in the midst of serious fiscal crisis and hurtling toward a much worse one.

Translation: In Tribune-speak, “Serious financial crisis” means the federal deficit and/or debt (the Tribune often uses these terms interchangeably — and incorrectly) are too high, and therefore a bad thing.

On Monday, President Barack Obama propos(ed) to extend the Bush-era tax cuts, for everyone except those making $250,000 a year or more. It’s a step that would widen the federal budget deficit by $175 billion a year, compared with letting all the cuts expire.

Translation: “Widen the federal budget deficit” is a bad thing.

Not that extending some or all of the tax cuts at the end of 2012 is a bad idea. Barring such an extension, rates will go up and money will be sucked out of an economy that is already sluggish. The current slowdown might turn into an outright recession. This is not the time for a tax increase.

Translation: Widening the federal budget deficit is a good thing.

But neither is it a time to ignore the steadily growing fiscal hole we are digging. Any extension should be part of a broader package that includes concrete measures to bring down the long-term deficit.

Translation: Widening the budget deficit is a good thing today, but for the same reasons, it’s a bad thing tomorrow.

One of the few instances when both (parties) accepted needed sacrifice was in last year’s debt ceiling showdown. The resulting plan called for some $900 billion in specified spending cuts over a decade. A so-called congressional supercommittee was tasked with finding another $1.5 trillion in savings, and if it failed — which it did — the deal called for $1.2 trillion in automatic cuts roughly balanced between defense and non-defense programs.

Translation: The $900 billion called for sacrifice by the lower 99% income group, because widening the budget deficit is a bad thing.

Romney is promising to tear up the deal because of its impact on the military. The cuts would be large, and they would take a lot of discretion away from the Pentagon, which are two legitimate complaints.

Translation: Widening the budget deficit is a good (“legitimate”) thing.

(Romney’s) plan, says Cato Institute analyst Christopher Preble, would mean nearly $2.6 trillion in additional defense outlays over the next decade — making it 45 percent higher (in inflation-adjusted dollars) than it was under President Ronald Reagan during the Cold War. A defense buildup of that magnitude is politically unrealistic and financially unaffordable.

Translation: Widening the budget deficit is a bad thing, because our Monetarily Sovereign government, having the unlimited ability to create dollars, can’t create enough dollars, so can’t afford to service the deficit.

Sometime before we arrive at the fiscal cliff that looms at the end of the year — that’s Federal Reserve Chairman Ben Bernanke’s term for the simultaneous automatic spending cuts combined with across-the-board tax increases — politicians will have to stop playing chicken and actually reach a compromise on the difficult fiscal choices the country faces.

Not widening the budget deficit is a “fiscal cliff,” which is a bad thing. Politicians should stop playing chicken and both widen and not widen the budget deficit — i.e., jump off the “fiscal cliff” while not jumping off the “fiscal cliff.”

But so far, Obama and Romney are devoid of serious proposals, leaving businesses and individuals to guess what will happen. Their irrelevance and irresponsibility leave the U.S. economy hobbled by uncertainty.

Obama and Romney have chosen to dodge the issue. If they and their similarly feckless comrades in Congress persist down this dead-end path, the consequences of their reckless posturing will not be so easy to evade.

Translation: Budget deficits are a bad thing. Budget deficits are a good thing. Though the federal government has the unlimited ability to create dollars, it cannot afford to pay for deficits. We don’t know why the President and Congress don’t understand this simple concept.

Obama and Romney are “feckless,” because they don’t increase the deficit while decreasing the deficit, which the government both can and cannot afford.

Question: Why would an intelligent person take two diametrically opposing sides of the same issue.
Answer: If he is intelligent enough to realize what he is doing, then he must have a secret agenda.

Question: Are the Tribune editors intelligent?
Answer: Yes, I believe they are.

Question: Do the Tribune editors realize they they are taking two opposing sides of the same issue?
Answer: I have corresponded with Bruce Dold, the Editorial page editor, several times, and have discussed this very fact. He ignores it.

Question: Does Bruce Dold have a secret agenda?
Answer: It’s the only conclusion I can imagine.

Question: What is Bruce Dold’s and the Tribune’s agenda?
Answer: Most federal spending helps the lower 99% income group far more than it helps the upper 1%, and when all federal taxes are considered, the lower 99% pay a higher share of their income than do the upper 1%.

Therefore, debt reduction increases the gap between the 99% and the 1%. I believe that is the secret agenda of the Tribune, which is owned by members of the 1%.

Question: What will happen?
Answer: Ironically, the Tribune editorial was titled, “Irrelevant and irresponsible.” Because the Tribune editors — and most newspaper editors — behave irresponsibly, their papers are becoming irrelevant. Fact checking via the Internet has become so easy, that papers are less often regarded as infallible guardians of the Truth, and more often regarded as mouthpieces for the rich.

The public, not trusting the papers, is leaving in droves. Circulation is down and papers are going out of business.

It seems that if you are going to be lied to, you’d rather to receive your lies in a more entertaining manner (a la Fox News) than in the deary format, surrounded by comparatively obsolete news, the papers provide.

Newspapers have two choices; They can appeal to an audience that wants the facts. Or they can appeal to an audience that doesn’t care about facts, but prefers entertainment. Otherwise, I foresee a time when there are left only a handful of papers in the entire United States.

Rodger Malcolm Mitchell
Monetary Sovereignty

#MONETARY SOVEREIGNTY

–Online sales taxes: The five issues and the one solution to all five

Online sales taxes involve several issues. The proposed solutions make the situation worse, not better, and new thinking is needed.

States, Congress rallying for an e-sales tax
Washington Post, By Amrita Jayakumar, Published: July 8, 2012

A wave of states have passed laws that will require consumers to pay sales tax on all Internet purchases as soon as next year.

For states struggling in the troubled economy, this could mean $23 billion in new revenue each year. The movement in state capitals is driving newfound support for a proposed bill in Congress that could make collection of sales tax a standard practice on the Web, no matter where a consumer logs in to shop.

Bricks-and-mortar retailers are cheering the moves. For years, their online rivals have resisted charging sales tax, giving them a price advantage. They have cited a 1992 Supreme Court ruling that let online companies off the hook if they didn’t have a physical presence in the state where the customer lived.

A Web trade association that includes eBay, Overstock.com and Facebook is fighting the new bills. But notably, Amazon.com appears to have waved the white flag and supports the sales tax measures.

Prices are so low online that retailers have long decried what they call the “showrooming” effect. Customers visit shops, try out different products and then buy them cheaper online, sometimes on their smartphone while they are still standing in the store.

On the other side is Net-Choice, the trade association of e-commerce companies. Its argument is that tax calculation for thousands of jurisdictions country-wide is an impossibly complicated task.

“The burden falls disproportionately on a small business,” said Steve DelBianco, executive director of NetChoice. The new bill exempts online businesses making less than $500,000 a year from collecting sales tax. NetChoice says that threshold is too low.

Buried in this article are at least five issues. Let’s briefly comment on each:

1. The states need the money: Unlike the federal government, the states are monetarily non-sovereign. They cannot create dollars at will, so must rely on income to pay their bills.

For long term survival, a monetarily non-sovereign entity must have income from outside its borders. Some states rely on a positive balance of trade — exports such as oil, agricultural products and tourism — and most states enjoy income from federal spending.

Because state taxes are internal, they merely recirculate dollars within the state, and do not provide long term, financial support. A portion of online tax dollars would come from outside the state, so would provide needed support, while negatively impacting other states’ economies by taxing their citizens.

Online sales taxes are a “beggar-thy-neighbor” strategy.

2. Collecting online taxes will burden the lower income 99% (who spend the largest portion of their income on purchases of goods). This tax will increase the net income gap between the 99% and the upper 1%.

3. Retail fairness: “Brick-and- mortar” stores have an advantage, too. They allow people to handle merchandise and be helped by in-person representatives. Is this “unfair” to online retailers?

On the other side, brick-and-mortar store require people to travel to the store, to see the merchandise. Is this unfair to them? States tax some in-store merchandise, while not taxing other in-store merchandise. Is this unfair to some manufacturers? Some states tax more than other states. Is this unfair to the taxing states?

It is not the role of the federal government to support various definitions of retail “fairness.”

4. Complexity: A retailer in my town collects Illinois, Cook County and Wilmette taxes on every purchase. Multiply this by thousands of taxing bodies in America, and you have massive complexity.

Yet, a computer program — probably an inexpensive app –could handle this complexity easily. In today’s computer world, complexity is not a valid excuse for non-compliance.

5. Would the counties, villages et al receive their fair share of online taxes? Each state would handle this differently, but I suspect that for the most part, the counties, villages et al would be screwed. The states would keep all the money.

The federal government should not step into state internal business and address this “unfairness”.

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So there are at least five issues:
–State money needs
–The gap between the 1% and the 99%
–Retail fairness
–Complexity
–Intra-state tax allocation fairness

All of these issues could be resolved by the simple expedient of federal, per capita support for the states.

Recommendation:

State and local government tax collections totaled $1.4 trillion in the 12 month period ending March 2012 (U.S. Census). This approximates $5,000 for every man, woman and child in America.

What if every state, county, city et al gave up the costly, arduous and economically unfair practice of levying, collecting and adjudicating myriad taxes, and instead received from the federal government, $5,000 per capita.

There would be no local income taxes, no sales taxes, no property taxes — no lost time filling out tax forms, no non-productive cost of tax collection, no non-productive cost of prosecutions for tax avoidance, no unfair burden on the lower 99%, no burden on businesses, in fact, no tax burden at all. It would be pure economic stimulus.

The whole, local tax payment/enforcement process, as it currently exists, is the most monumental waste of human resources in America. We need new thinking.

Instead of that waste, each year, the federal government should provide America with a $5,000 per capita stimulus, benefiting not only the national economy as a whole, but individually, the economies of every state and local government.

Rodger Malcolm Mitchell
Monetary Sovereignty

#MONETARY SOVEREIGNTY

–No, it’s not your imagination. The upper 1% really are screwing you more.

No, it’s not your imagination. The upper 1% really are screwing you more.

The Gini ratio measures income inequality. A Gini of zero would show perfect equality where everyone has the same income. A Gini of 100 (percent), would show maximum inequality, where only one person receives all the income.

Here is what has happened in the U.S.:

The above graph shows inequality in the U.S. has risen dramatically during the past 45 years.

Here is how we compare with other nations:

(From Wikipedia)

Income inequality in the U.S. is greater than all nations but Brazil, and essentially the same as Mexico and China.

Here’s a more complete view:

(Wikipedia)

The only nations with greater income inequality are shown in orange, red and brown.

Specific numbers for Europe are:

Not one European nation is as unequal as the United States.
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Advice to the upper 1%
Ten suggestions about how to screw the lower 99% even more, and increase the income gap

1. Maintain or even increase the FICA tax. This tax directly punishes lower salaried people. Institute a national sales tax or VAT. Poorer people devote a greater percentage of their income on consumption.

2. To “save” Social Security, tell the 99% it’s insolvent, so you must reduce benefits and continue to increase the SS starting age. Also, continue to tax SS benefits, as these benefits are most important to lower income people.

3. To “save” Medicare, tell the 99% it’s insolvent, so you must reduce payments to doctors, hospitals and other health care providers. That way, more of the best doctors will opt for “boutique” practices that only the 1% can afford. Don’t pay for expensive procedures (that only the rich can manage).

4. Cut military spending. The military employs the 99%. Military equipment production companies provide jobs to the 99%. Keep cutting postal and other government employment. Also cut domestic spending, as the vast majority of domestic spending benefits the 99%.

5. “Broaden” the income tax base by increasing the number of lower income people forced to pay taxes. Continue the Alternative Minimum Tax (AMT); it catches more of the 99% every year, and the 1% know how to avoid it.

6. Cut federal spending to reduce “big government.” The reason: Most federal spending creates jobs for the 99%. Especially cut food stamps, unemployment compensation, Medicaid, aid to education, job training and all other federal aid programs. The upper 1% don’t use them.

7. Cut financial assistance to the states. Virtually everything the states do benefits the 99%, and since the states are monetarily non-sovereign, they only can get money by taxing their own people, tourism or exports. The rich know how to avoid taxes. Tourism and imports mostly are inter-state money transfers.

8. Continue to spread the myth that the U.S. government is, or soon will be insolvent, like Greece, and that federal taxes pay for federal spending. These ideas confuse the 99% and give you a good excuse to cut anything that benefits them. Continue the federal debt limit exercise. Pretend federal finances are the same as personal finances.

9. Continue to allow banks to trade for their own accounts, and always bail them out when their investments go sour. Never accuse any banker of criminal activity. Banks are special.

10. Nominate more arch conservatives to the Supreme Court. Scalia, Alito and Thomas are good models. The “Citizens United” decision was an excellent step forward in providing the rich with greater power.

Rodger Malcolm Mitchell
Monetary Sovereignty

#MONETARY SOVEREIGNTY

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