What is the purpose of government? What is the purpose of business? What are their goals and methods?

We are not born with governments and businesses. We create them. But why?

Why do people voluntarily allow themselves to be ruled by others? You might believe it is not necessarily voluntary, particularly in the case of dictatorial governments.

But there always are vastly more ruled than rulers, and if government was not what the ruled wanted — if government was a burden — they have the numerical power to rid themselves of this device.

Sometimes this happens. Sometimes the governed rise up and free themselves of dictators. And when they do, what happens?

They form another government.Brexit: Rediscovering Europe as a win-win project – EURACTIV.com

So what is the purpose of this institution that virtually all humans and even some animals have adopted.?

It has persisted for millennia, so it clearly has an evolutionary advantage.

While one can list several specific purposes, there is one general, overall purpose of government:

The purpose of government is to improve the lives of the people.

Government is a form of mandated cooperation. Having a government says two things:

  1. Cooperation is more efficient than working individually, and
  2. Cooperation works better when there is leadership

So we give up our individual freedoms and rights to reap the benefits of cooperation and leadership. In that sense, businesses are very much like governments.

We form businesses because specialization is more efficient than the “jack-of-all-trades” who most often is “master-of-none.”

To accomplish this efficiency, businesses are formed as legal mini-governments, complete with rulers and the ruled.

Governments tell people what to do and what not to do, and the people allow this because it improves their lives.

Business owners and managers tell their people what to do and what not to do, and the people allow this, because it improves their lives.

The purpose of business is to improve the lives of the people.

That said, it is crucial not to confuse purpose with goal. While improving the lives of the people is the purpose of government and business, it is not the goal of government and business.

The goal of government and business is to improve the lives of the leaders.

The leaders accomplish this goal via several methods.

In analyzing government and business, we not only must consider purpose and goal but also, method. Governments essentially balance two methods: Providing benefits and applying force.

The benefits — food, clothing, shelter, medical care, entertainment — lead to acquiescence among the populace.

Government force — laws, police, military — does the same. Either way discourages action against the leaders.

Businesses also balance two methods: Providing benefits and force. The benefits are promotion, salary, and perks, while the force is demotion and firing.

Again, business and government use similar methods — the carrot and the stick — to reach their goals.

Keep the purpose, the goals, and the methods of business and government in mind as we discuss the following articles.

Pay a Living Wage or ‘Flip Your Own Damn Burgers’: Progressives Blast Right-Wing Narrative on Jobs Posted on May 8, 2021 by Yves Smith
Yves here. Glad to see someone is calling out the Republican “You need to keep them hungry so they’ll turn up” approach to labor management.
Corporate profit share of GDP has been record highs for years, which means nearly two times the level Warren Buffett deemed to be unsustainably high in the early 2000s.
Time for corporate owners to pay a decent wage.
By Kenny Stancil, staff writer at Common Dreams. Originally published at Common Dreams
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The U.S. Chamber of Congress blamed last month’s weak employment growth on the existence of a $300 weekly supplemental jobless benefit and began urging lawmakers to eliminate the federally enhanced unemployment payments that were extended through early September when congressional Democrats passed President Joe Biden’s American Rescue Plan.
“No. We don’t need to end [the additional] $300 a week in emergency unemployment benefits that workers desperately need,” Sen. Bernie Sanders (I-Vt.) said in response to the grumbles of the nation’s largest business lobbying group.
“We need to end starvation wages in America.”
“If $300 a week is preventing employers from hiring low-wage workers there’s a simple solution,” Sanders added. “Raise your wages. Pay decent benefits.”
According to the Chamber’s analysis, the extra $300 unemployment insurance (UI) benefit results in roughly one in four recipients taking home more pay than they earned working.
In response to that claim, Sanders’ staff director Warren Gunnels said: “If one in four recipients are making more off unemployment than they did working, that’s not an indictment of $300 a week in UI benefits. It’s an indictment of corporations paying starvation wages.”

The problem: Government believes that the more benefits government gives to workers, the more likely the government’s goal — improving the lives of the political leaders by acquiring votes — will be reached.

Business believes that keeping salaries low will improve business’s goal of improving the lives of business leaders by increasing profits.

Today, Government benefits to the people are high enough that going to work provides little marginal benefit for many people.

The Republican proposed method is for the government to stop paying benefits, so that workers will be starved back to work, and business profits will keep increasing.

The Democratic proposed method is for businesses to pay more — enough to tempt workers to forego government benefits, but this may reduce profits.

While both goals are different, and the methods may seem incompatible, the solution is mind-numbingly simple: Do both.

Rather than the current either/or of government benefits coming instead of business benefits, as unemployment compensation does, pay government benefits in addition to business benefits.

This would come under the heading:

Medicare for All, Social Security for All, Free College for All, etc.

A wage of $300 per week is at poverty levels. It is a starvation wage. It is an “abandon all hope” wage.

How a multi-billionaire, a person whose wealth measures up to $170 billion could countenance such a wage, is beyond cruel.

Do these people lack all sense of sympathy and empathy? Are they made of compassionless stone?

Well, yes. Compassion comes from Latin, and means “co-suffering,” as in “I feel your pain.” But how many of us really do feel someone else’s pain?

Keep in mind, the goal of business is to improve the lives of the leaders, and the leaders are certain that keeping costs down, which leads to keeping salaries down, will improve profits and thereby improve their lives.

“Raise your wages and benefits or flip your own damn burgers and sweep your own damn floors,” Gunnels added.
Other progressives like former labor secretary Robert Reich and Rep. Alexandria Ocasio-Cortez (D-N.Y.) also chimed in. “We do not have a shortage of willing workers in this country,” Morris Pearl of the Patriotic Millionaires said in a Friday afternoon statement responding to the Chamber. “We have a shortage of employers who are willing to pay workers enough to live.”
“Claiming that today’s disappointing jobs report is a result of expanded unemployment insurance is nothing more than a cruel tactic to pressure the administration into helping companies that they represent to continue to underpay and exploit their workforce,” Pearl continued.
“Our leaders are supposed to be helping to increase wages for low paid workers, not helping employers to keep wages down.”
“Instead of blaming struggling workers,” Pearl continued, “large corporations that do not pay their employees a liveable wage… should take this moment to self-reflect.
Maybe—just maybe—paying their workers more than starvation wages would incentivize workers to reenter the workforce.”

Yes, this is all true, but it ignores the true goal of business: Profits that enrich the leaders.

One might argue that paying workers more will make the workers bigger consumers who in buying more will enrich companies, but that too ignores reality.

If Company “A” pays its workers more, those workers may spend more, but not necessarily with Company “A.”

If Ford raises wages, nothing says those newly enriched workers will, out of the goodness of their hearts, buy Fords.

The public has as little compassion as do the business executives. The people who formerly were myriad small-business customers, but now are Amazon customers, have proved that.

Loyalty is something honored more in the breach.

Writing for Jacobin earlier this week, Sandy Barnard noted that another overlooked factor is the increased morbidity rates among food and agricultural workers, which increased more than any other occupation during the Covid-19 pandemic.

Is big agriculture supposed to have such guilt that workers immediately are given raises? Dream on.

“Living, breathing people… have decided they do not want to risk their lives for $7.25 per hour and no health benefits,” Barnard wrote.
Rep. Ilhan Omar (D-Minn.) responded to the Chamber’s call for an end to enhanced unemployment benefits by arguing that “the interests of big business are at war with the interests of the working class.”

And that is the fundamental problem. It is a war, with one side winning and the other sides losing.

The solution is for all sides — government, business, and the populace — to win.

Government can win — win votes, that is — by providing benefits.

Business can win by paying enough to attract workers — while remaining profitable. The populace can win by receiving benefits from both sides, from government and from business.

There absolutely will be no long-term solutions that involve either business, government, or the people losing.

The only intelligent solution is for all sides to get what they want, or at least to get enough of what they want. See the Ten Steps to Prosperity, below.

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

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:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. 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 the rest.

MONETARY SOVEREIGNTY

 

 

The Six Rules of Trump

Here are The Six Rules of Trump

Rule #1. All who touch Trump come away dirty

Rule #2. Eventually, Trump will stab you in the back

Rule #3. If it’s good, Trump created it. If it’s bad, you ruined it.

Rule #4. There is no discernable difference between a lie and a truth.

Rule #5. People who sacrifice without reward are suckers.

Rule #6. Trump is not the center of the universe; Trump is the universe.

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Attorney General William Barr did everything he could to ingratiate himself with President Trump. As Eric Zorn wrote for the Chicago Tribune:

Before this week, it was tough to identify the single most infamous act of William Barr’s tenure as U.S. attorney general.

Was it personally ordering the expansion of the security perimeter around Lafayette Park in Washington, D.C., in early June, clearing out protesters with tear gas just prior to President Donald Trump‘s photo-op holding up a Bible in front of St. John’s Episcopal Church?

Trump, Barr, and the Justice Department Takeover, Explained - Rolling Stone
Barr offered a flimsy argument for why Trump didn’t obstruct justice when he told Barr to remove special counsel Robert Mueller in the middle of his Russia probe.

Was it issuing a preemptive summary of the 2019 report of special counsel Robert Mueller into Russian election interference that a federal judge later characterized as “distorted” and “misleading” for the way he downplayed Trump’s obstruction of justice and abuse of power?

Was it openly campaigning for Trump by parroting the line of right-wing hysterics that electing moderate Democrat Joe Biden would mean our nation was “irrevocably committed to the socialist path”?

Was it his amplification and endorsement of Trump’s charge that the Obama administration had “spied on” the Trump campaign even though Department of Justice Inspector General Michael Horowitz concluded that the investigation into Russian interference in the 2016 election had been properly predicated?

Was Barr’s most infamous act overruling his own prosecutors and seeking leniency for Trump pal Roger Stone after Stone’s conviction on witness tampering and lying to investigators? That move was infamous enough that four federal prosecutors quit over it.

Or, related, was it trying to drop the case against Trump’s former national security adviser Michael Flynn, who’d pleaded guilty to lying to the FBI?

Was it having the Justice Department intervene on Trump’s behalf in a civil defamation suit filed by a woman who claimed Trump had raped her in the 1990s?

Was it declaring that pandemic-related restrictions such as stay-at-home orders were “the greatest intrusion on civil liberties in American history” aside from slavery? House Majority Whip Jim Clyburn, D-S.C., called that remark one of the “most ridiculous, tone-deaf, God-awful things I’ve ever heard.”

Was it casting doubt in advance on the integrity of the 2020 election with a series of unsupported warnings about fraud and foreign plots to defeat Trump?

Was it ignoring long-standing Justice Department policies after the 2020 election and authorizing prosecutors to investigate allegations of voter fraud before the results of the race were certified? That move, which weakened a safeguard protecting elections from partisan interference, prompted the Justice Department official in charge of voter fraud investigations, Richard Pilger, to step down almost immediately.

Or was it writing this cringeworthy, fawning letter of resignation?

Here are some excerpts: I have bolded some of the “highlights.”

“Dear Mr. President,

“I am greatly honored that you called on me to serve your Administration and the American people once again as Attorney General. I am proud to have played a role in the many successes and unprecedented achievements you have delivered for the American people.

“Your record is all the more historic because you accomplished it in the face of relentless, implacable resistance. Your 2016 victory speech in which you reached out to your opponents and called for working together for the benefit of the American people was immediately met by a partisan onslaught against you in which no tactic, no matter how abusing and deceitful, was out of bounds.

“The nadir of this campaign was the effort to cripple, if not oust, your Administration with frenzied and baseless accusations of collusion with Russia.”

Consider that this is a letter of resignation, not an obituary, but it is loaded with shameless adulation and applause for the boss, and not a word of truth to be found.

The unrelenting brown-nosing continues:

“Few could have weathered these attacks, much less forge ahead with a positive program for the country. You built the strongest and most resilient economy in American history — one that has brought unprecedented progress to those  previously left out. You have restored American military strength.

“By brokering historing peace deals in the Mideast you have achieved what most thought impossible. You have curbed illegal immigration and enhanced the security of our nation’s borders.

“You have advanced the rule of law by appointing a record number of judges committed to constitutional principles. With Operation Warp Speed, you delivered a vaccine for coronavirus on a schedule no one thoguht conveivable — a feat that will undoubtedly save millions of lives.”

This is not the place to argue why each of the bolded phrases actually is a misstatement of fact. Rather, the point is the butt-kissing, toadying nature of the so-called “letter of resignation,” that have little-to-nothing to do with Barr or with his resignation.

Ah, but Barr has even more butt-kissing to do:

“During your Administration, the Department of Justice has worked tirelessly to protect the public from violent crime; worked closely with leaders in Mexico to fight the drug cartels; cracked down on China‘s exploitation of our economy and workers; defended competitonin the marketplace, especially the technology sector; and supported the men and women of law enforcement who selflessly — and too often thanklessly — risk their lives to keep our communities safe.”

Far be it for us to point out that neither Trump nor Barr has done any of the above, nor will we be so discourteous as to point out how many of those under Barr have resigned in disgust.

He ends with a final bit of suckup:

“Wishing you, Melania, and your family a Merry Christmas and a Blessed Holiday Season. God Bless.”

Well, surely no one could possibly have done more to leave lip prints on the boss’s rear than Barr, not only with this bootlicking and mendacious letter, but with his ongoing job performance.

As House Judiciary Committee Chairman Jerry Nadler said,

“From misleading the American public about the Mueller report to his dangerous efforts to overturn COVID safety measures, from his callous disregard for civil rights to his rampant politicization of the Justice Department, William Barr was willing to do the president’s bidding on every front but one.

“Barr refused to play along with President Trump’s nonsensical claims to have won the election. He is now out as attorney general one month early.”

And here was Barr’s reward for drowning his reputation in mud, hoping to please Donald Trump:

President Trump assailed Attorney General Bill Barr.

“Joe Biden lied on the debate stage he said there’s nothing happening, nothing happening, and Bill Barr should have stepped up.

“All he had to do is say an investigation is going on.

“But when you affect an election … when they are saying things, making statements and the press is purposely not reporting it, Bill Barr, I believe, not believe I know, had an obligation to set the record straight.”

Trump said that Barr should have acted more like then-special counsel Robert Mueller, who was heading the Russia probe, and disputed a 2019 BuzzFeed report that Trump directed his former personal lawyer Michael Cohen to lie to Congress.

“But Bob Mueller stood up and he interjected that this article was false. Bill Barr should have done the same.” 

Barr, through sad experience, learned the Six Rules of Trump, though far too late to save his tattered reputation.

But I shed no tears for Barr, nor do I shed tears for Steve Bannon, Tom Price, Scott Pruitt, Ben Carson, Paul Manafort, Rick Gates, Michael Flynn, Michael Cohen, Wilbur Ross, Chris Collins, Duncan Hunter, Salvatore Testa, Tony Salerno, Roger Stone, Felix Sater, Jeffrey Epstein, Alexander Acosta, George Papadopoulos, Alex Van der Zwaan, Konstantin Kilimnik, Ralph Shortey, Timothy Nolan, et al.

Barr came in believing he could be the right-hand man to a king — perhaps even the controlling voice behind the throne. Instead, he became just another Trump joker, now discarded by the poseur.

Good riddance.

Rodger Malcolm Mitchell

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

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

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. 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:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all or a reverse income tax
  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 the rest.

MONETARY SOVEREIGNTY

An example of responsible leadership vs. politics

Trump is eager to ‘open’ the U.S. His team’s estimates for when that will happen are all over the map.

Trump fire stop wasting water now.png
I feel comfortable that we can stop wasting water. I’ve got this virus thing under control. It may cost a few lives, but I have an election to worry about.

The following are from the Washington Post and the New York Times.

WASHINGTON—Record-setting jobless claims and dire economic forecasts are giving fresh urgency to the debate within the Trump administration and across the country over how rapidly coronavirus-fueled restrictions should be pared back so the economy can begin its revival.

President Trump has expressed eagerness to move quickly, and Treasury Secretary Steven Mnuchin said on CNBC Thursday that he thought the U.S. economy could be ready to reopen by the end of May, as soon as the president feels comfortable with the medical issues.”

Trump can’t actually restart the economy since he did not shut it down — most states have issued stay-at-home orders to halt the spread of the disease, and only states can lift them.

Nevertheless, the president has privately “sought a strategy forresuming business activity by May 1,” The Washington Post reports, and “in phone calls with outside advisers, Trump has even floated trying to reopen much of the country before the end of this month.” 

Why is he looking for “a strategy.” The virus will do what it will do, and all Trump’s political “strategy” will not change that.

The “strategy” should have been to keep capable people and organizations designed specifically to combat mass infections, rather than firing the capable, hiring sycophant flunkies, and listening to flattering fools like Russ Limbaugh, Sean Hannity, and the rest of the FOX crew.

Treasury Secretary Steven Mnuchin told CNBC Thursday he thinks the U.S. economy may be ready to reopen by the end of May, while Federal Reserve Chairman Jerome Powell said “most people expect” employees to be able to safely return to work “after the second quarter, which of course ends on June 30.”

Dr. Anthony Fauci told CBS News he could see public gatherings resuming this summer “if we do the things that we need to do to prevent the resurgence” of the coronavirus.

“Health experts say that ending the shutdown prematurely would be disastrous,” the Post reports, creating another spike in infections and forcing another shutdown “because U.S. leaders have not built up the capacity for alternatives to stay-at-home orders — such as the mass testing, large-scale contact tracing, and targeted quarantines.”

Pence said Thursday the U.S. has tested two million people, or less than 1 percent of the U.S. population, and Trump rejected the idea that mass testing is necessary to restart the economy. 

Medical experts Donald Trump, Steven Mnuchin, Jerome Powell, and Mike Pence are confident the social distancing can begin in April, May 1, June 30 or whenever.

Trump says there is no need for testing, a vaccine, or an effective medicine. And don’t let the medical doctors get in the way.

Let’s just get out there and mingle, as soon as Trump “feels comfortable with the medical issues.

After all, he told us the doctors were amazed at how much he knows.

And Mike Pence agrees.

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:

  1. Monetary Sovereignty describes money creation and destruction.
  2. 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:

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 the rest.

MONETARY SOVEREIGNTY

The Hyperinflation Myth Explained

There is a widespread myth that hyperinflations are caused by excessive government money “printing.” Perhaps you are among the vast majority who believe this pernicious myth.

Well, it simply isn’t so, and the belief alone is responsible for great misery, worldwide.

Consider these excerpts from the following article:

Fed analysis warns of ‘economic ruin’ when governments print money to pay off debt
NOV 26 2019, Jeff Cox, CNBC

St. Louis Fed economists warn in a paper of potential “economic ruin” if policies that advocate money-printing to pay off government debts are ever adopted.

Immediately, the article provides us with a misunderstanding. “Money-printing” never is used for paying off U.S. federal debt.

The federal debt is the total of net deposits into Treasury security accounts. When you buy a T-bill, T-note, or T-bond (aka “federal debt”), you open a T-security account, and into that account, you deposit the price of the T-security.

There, your dollars remain, collecting interest, until the T-security matures, at which time, your dollars — the dollars you deposited plus the interest in the account —  are returned to you.

During that entire round trip — you depositing dollars and those same dollars being returned to you — the only so-called money “printing” has occurred daily over a period of years, as your account accumulates interest.

The U.S. federal government could pay off the entire U.S. debt today, if it wished, simply by returning the $20 trillion that currently exist in T-security accounts. No money “printing” or taxes involved.

Returning to the article:

“A solution some countries with high levels of unsustainable debt have tried is printing money.

“In this scenario, the government borrows money by issuing bonds and then orders the central bank to buy those bonds by creating (printing) money,” wrote Scott A. Wolla and Kaitlyn Frerking.

“History has taught us, however, that this type of policy leads to extremely high rates of inflation (hyperinflation) and often ends in economic ruin.”

They cite Zimbabwe in the 2007-09 period, Venezuela currently and Weimar-era Germany . All three faced massive deficits that led to hyperinflation due to money printing.

In fact, all three nations provide examples of the real cause of hyperinflation, and it isn’t money “printing.”

(As an aside, money is  not printed; it is created via bookkeeping. Money has no physical existence. A dollar bill actually is a title to a dollar. Just as the paper title to a car is not a car, and the paper title to a house is not a house, the paper dollar bill, is not in itself a dollar. The actual dollar is nothing more than a non-physical accounting notation on the government’s books.)

The cause of general price increases, i.e. inflation, is shortages. Usually, these are shortages of food or energy. It is shortages, not money “printing” or full employment or excessive demand (as some people claim), that makes prices go up.

Zimbabwe
Hyperinflation in Zimbabwe began in February 2007. . In the late 1990s, the Robert Mugabe government evicted white landowners and gave their farms to blacks.

Many of these “farmers” had no experience or training in farming. As a result, from 1999 to 2009, the country experienced a sharp drop in food production, creating massive food shortages.

The non-farmers were unable to obtain loans for capital development, (money shortage). Food output capacity fell 45%, manufacturing output 29% in 2005, 26% in 2006 and 28% in 2007, and unemployment rose to 80%.

Everything, especially food, was in shortage, which is what caused the Zimbabwean hyperinflation.

Venezuela
Hyperinflation in Venezuela began in November 2016 during the country’s ongoing socio-economic and political crisis.

Since the 1990s, food production had dropped precipitously, with the government beginning to rely upon imported food using the country’s then-large oil profits.

In 2003, the government created a currency control board that placing currency limits on individuals, and that caused widespread shortages of goods.

In 2005, the government announced the initiation of Venezuela’s own “great leap forward”, following the example of Mao Zedong’s Great Leap Forward. An increase in shortages began to occur that year as 5% of items became unavailable.

In January 2008, 24.7% of goods were reported to be unavailable in Venezuela, with the scarcity of goods remaining high until May 2008, when there was a shortage of 16.3% of goods. Shortages increased again in January 2012 to nearly the same rate as in 2008.

In 2013, shortage rates continued to increase and reached a record high of 28% in February 2014. In January 2015, the hashtag #AnaquelesVaciosEnVenezuela (or #EmptyShelvesInVenezuela) was the number one trending topic on Twitter in Venezuela

General shortages caused the Venezuelan hyperinflation.

The Weimar Republic, Germany
The Weimar Republic experienced hyperinflation, between 1921 and 1923, primarily in 1923.

In April 1921, the Germany Reparations Commission announced the “London payment plan”, under which Germany would pay reparations in gold or foreign currency in annual installments of 2 billion gold marks, plus 26% of the value of Germany’s exports.

Since reparations were required to be repaid in hard currency, one strategy that Germany used was the mass printing of banknotes to buy foreign currency, which was then used to pay reparations, greatly exacerbating the inflation of the paper mark.

The brief German hyperinflation was caused by shortages of hard currency with which to pay for imports of goods, especially food and food production.

The resultant shortages caused the general increase in prices, i.e. the German hyperinflation.

In summary, prices rise not because the people have too much money (Germans, Zimbabweans, and Venezualians certainly didn’t) but because needed products, mostly food and/or oil, are in short supply.

Back to excerpts from the article:

The Fed analysis references a paper on MMT (Modern Monetary Theory) in a sidebar box on monetary “owls” — the owls, “suggest that a government that controls a fiat money system is not constrained because it can simply create more money to pay its debts.”

Indeed, MMT supporters argue that a country that runs up debts in its own currency can never default, and as long as inflation remains tame, there really are no problems with government deficit spending.

They further say that public spending can be used to stimulate the economy, that essentially a deficit in the public sector can be a surplus in the private sector.

In this, MMT is absolutely correct, and noted economists agree:

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.”

St. Louis Federal Reserve: “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.

The article continues:

The total federal government debt is just over $23 trillion, or 103.2% of GDP.

The Fed itself has come under criticism for “money printing,” which it did in three rounds of quantitative easing during and after the Great Recession.

This came along with keeping its short-term lending rate anchored near zero for seven years.

However, the central bank’s stated aims were to bring down long-term interest rates and stimulate economic growth, not to finance the national debt.

And that is exactly what happened. Despite all the hand-wringing from the deficit hawks, inflation stayed low, the economy grew, and the national debt was not “financed.”

Nothing “finances” the national debt if the word “finance” means pays off. The national debt is not like your debt, my debt, business debt or state/local government debt.

The national debt is just the net total of deposits into T-security accounts, that are paid off by simply returning the money in those accounts.

“There are ways in which the government can make investments today, that increase deficits today, that produce higher growth tomorrow and build in the extra capacity to absorb those higher deficits,” Stephanie Kelton, professor of public policy and economics at Stony Brook University, said in a video for CNBC.com.

“Their red ink becomes our black ink and their deficits are our surpluses.”

Kelton added that deficit spending can be used to fund improvements in education, infrastructure and other inequality-reducing programs without causing long-term damage.

Absolutely, 100% correct is Stephanie, a very bright lady with whom I have been in contact for many years.

Some of the most prominent advocates for MMT are Democratic presidential candidate Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez, both of whom identify as democratic socialists, as well as former Pimco economist Paul McCulley.

Too bad Sanders and Ocasio-Cortez do not really believe what Kelton has told them. They continue to search for ways to “pay for” Medicare for All, when the solution hangs right before their eyes: The federal government can and should pay for Medicare for All via deficit spending.

And contrary to what Ocasio-Cortez claims, this does not require more borrowing. Remember this quote from the St. Louis Fed: ” . . . the government is not dependent on credit markets (i.e.borrowing) to remain operational.

Most mainstream economists and Wall Street authorities, however, reject the basis that deficits don’t matter absent inflation.

Bond market guru Jeffrey Gundlach at DoubleLine Capital has called MMT “a crackpot idea,” while former White House economist and Treasury Secretary Larry Summers has labeled it “dangerous.”

However, hedge fund king Ray Dalio at Bridgewater Associates said its adoption is “inevitable” amid growing wealth disparity.

“Most mainstream economists and Wall Street authorities” do not understand the truth of Monetary Sovereignty. They still disseminate the “Big Lie,” that federal financing is similar to personal financing, where debt is a burden on the debtor.

Federal debt (deposits) is not a burden on anyone — not on the federal government and not on future taxpayers. It is a benefit to the economy and to taxpayers, and does not cause inflation.

There has been no relationship between changes in federal debt, aka deficits  (blue) and inflation (red).

Addendum
One of the many places where MMT (Modern Monetary Theory) and MS (Monetary Sovereignty) differ is with regard to the relationship between “full” employment and inflation.

MMT claims that one cause of inflation is “excessive demand.” We never have seen anyone point to nationwide demand as excessive (especially when inflation describes not one or two products and services, but an entire nation). We cannot agree on MMT’s proposed solution to inflation: Taxes.

Taxes are recessionary, and the opposite of inflation is not recession; it is deflation. Taxes are austerity, and are not a cure for inflation.

MMT also says that deficit spending at a time of full employment is inflationary. Again, we disagree. Deficit spending means the federal government’s taxation is less than its purchases of goods and services.

It is not clear why the federal purchase of goods and services during times of full employment (if those times ever really have existed outside of WWII), should be more or less inflationary than during times of low employment.

The theory seems to be that during full employment, people have more money (not necessarily true), and they will spend rather than save that money (also not necessarily true), and when they are spending in competition with increased government spending, all that increased demand will cause inflation.

The main problem with that hypothesis is that in the real world, it never actually happens:

1) No one can agree on exactly what “full employment” is.

a. Does “full” employment include single or married, men or women or children and of what age?
b. Does one person earning $100K equal four people each earning $25K?
c. Does “full” include only full-time or part-time work, and exactly what are the definitions of each?
d. Does “employment take into consideration productivity, i.e is one man on a riding mower equal to 4 men pushing manual lawnmowers?
e. And what about unemployed or retired people. Some have a great deal of money to spend; others don’t. How is that accounted for?

2) Federal spending not only increases demand, but it also increases supply. In response to federal contracts, contractors gear up to create more product to meet the anticipated demand.

3) The federal government generally buys different things than the public buys, creating demand in different areas, so a general increase in all prices does not ordinarily occur. Prices may increase in specific products or materials but overall price increases are not caused by federal buying except during major wars, when the government buys so much a broad range of products is affected.

Consider the case of Medicare for All. Will federal funding of this program cause a general increase in prices at a time of “full” employment? Will it cause a shortage of food and/or oil, the main cause of inflation?

That is the real question, and I submit the answer is, “No.”

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

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The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. 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:

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 the rest.

MONETARY SOVEREIGNTY