Joe Stiglitz has a solution for the euro

Joseph Stiglitz has a solution for the euro. You can read it at:


Does it involve saving the euro, too?

It is a pretty good article, because it says much the same thing I’ve been saying for 15 years. (That’s my criterion for “good.”)

But it comes to a rather strange conclusion, which I’ll discuss.

Here are some excerpts from Stiglitz’s article:

The world has been bombarded with depressing news from Europe. Greece is in a depression, with half of its youth unemployed.

The extreme right has made large gains in France.

In Catalonia, the region surrounding Barcelona, a majority of those elected to the regional parliament support independence from Spain.

Large parts of Europe face a lost decade, with G.D.P. per capita lower than it was before the global financial crisis.

Even what Europe celebrates as a success signifies a failure: Spain’s unemployment rate has fallen from 26 percent, in 2013, to 20 percent at the beginning of 2016.

But nearly one out of two young people remain unemployed, and the unemployment rate would be even higher if so many of its most talented young workers had not left the country to look for jobs elsewhere.

As I said in a speech at the University of Missouri, Kansas City, way back in 2005, “Because of the Euro, no euro nation can control its own money supply. The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the euro.

There is a simple answer to this apparent puzzle: a fatal decision, in 1992, to adopt a single currency without providing for the institutions that would make it work. Good currency arrangements cannot ensure prosperity, but flawed currency arrangements can lead to recessions and depressions.

And among the kinds of currency arrangements that have long been associated with recessions and depressions are currency pegs, where the value of one country’s currency is fixed relative to another or relative to a commodity.

America’s depression at the end of the 19th century was linked to the gold standard, where every country pegged its currency’s value to gold and, therefore, implicitly to one another’s currencies.

The gold standard is widely blamed for its role in deepening and prolonging the Great Depression. Those countries that abandoned the gold standard early recovered more quickly.

In spite of this history, Europe decided to tie itself together with a single currency—creating within Europe the same kind of rigidity that the gold standard had inflicted on the world.

The gold standard failed, and, other than a few blinkered diehards known as “gold bugs,” no one wants to see it restored.

Correct. Gold standards benefit only those who make a living buying and selling gold (See: The Daily Bell and Comment #1, below).

For nations, gold standards are disasters, quickly abandoned as soon as recession looms (at just the time when gold standards supposedly create stability).

The eurozone was flawed at birth. A single currency entails a fixed exchange rate among the member countries as well as a single interest rate.

And therein lies the problem. Each nation has a unique set of economic problems.

Yet each nation is constrained from solving their unique problems by the requirement to do what every other nation does — or more accurately, what the EU wants done.

A small country in Europe could, for instance, be in a recession when the rest of Europe is doing well.

If there were a eurozone institution that lent it money at low interest rates so it could finance investment projects, it would stimulate the economy now, even as it provided the foundations for future growth.

This borrowing might help in the short term, but that “small country” would still be in debt to the eurozone institution, with no means to create the euros to pay the debt — which is exactly what has been happening since 2008.

With strong constraints on deficit spending, the individual countries were given insufficient flexibility in the conduct of their fiscal policy—their ability to tax and spend—to enable a country facing adverse circumstances to avoid a deep recession.

Correct. The constraint on deficit spending, aka “austerity,” is perhaps the worst economic idea ever advanced.  It is a guarantee of recession — though made necessary for the euro nations by their inability to create euros.

Worse still, the structure of the eurozone built in certain ideas about what was required for economic success—for instance, that the central bank should focus on inflation, as opposed to the mandate of the Federal Reserve, in the United States, which incorporates unemployment, growth, and stability as well.

Wrong. The mission of the central bank in the eurozone should be substantially different from the mission of the U.S. Federal Reserve Bank.

In the eurozone, the EU controls both the Supply and the Demand for euros.

In the U.S., Congress creates many dollars by deficit spending. The primary economic function of the Fed should be to control the Demand for dollars, while Congress controls the Supply.

Where the U.S. gets in economic trouble is when Congress relies on the Fed to control the Supply of dollars, as well as the Demand.  The Fed easily controls Demand with interest rate control, but has no real tools to control Supply. (Quantitative Easing is a phony tool, made to look like the Fed is “doing something”)

Then, as a last resort to get us out of recessions it caused, Congress does what it should have been doing all along: Deficit spend to add to the Supply of dollars.

Even granting the zone’s flawed structure, there were choices to be made. Europe made the wrong ones. It imposed austerity—excessive cutbacks in government expenditures.

While austerity is imposed on the euro nations, no such limitation exists for the EU itself. It can create all the euros it needs, any time it needs them.

Thus the wealthy EU bankers are kings, doling out alms to the begging and powerless peasant euro nations.

There is a way forward: adopting a “flexible euro.”

The flexible euro would create a system in which different countries (or groups of countries) could each have their own euro.

The value of the different euros would fluctuate, but within bounds that the policies of the eurozone itself would affect.

Over time, perhaps, with the evolution of sufficient solidarity, those bounds could be reduced, and eventually, the goal of a single currency set forth in the Maastricht Treaty of 1992 would be achieved.

But this time, with the requisite institutions in place, the single currency might actually achieve its goals of promoting prosperity, European solidarity, and political integration.

I won’t go into technical detail here about how a flexible euro would work in practice.

This is where it gets funky.

I don’t blame Stiglitz for not wanting to “go into technical detail.” It would be quite technical, and not just a detail.

He seemingly doesn’t realize that his “flexible euro” is a return to individual, national Monetary Sovereignty, with each nation controlling its own currency — just the way it always had been before the ill-fated euro experiment.

The dream of the euro — financial merger without political merger — has been an easily predictable nightmare. There simply cannot be successful financial merger without political merger.

The founders of the United States of America were wise enough to realize that.

The individual states (actually small nations, similar to Europe), voluntarily surrendered not only their own currencies, but also agreed on a common government.

And this government pumps billions — trillions — of deficit dollars into the common economy.  Most states, being monetarily non-sovereign, run a surplus vs. the federal government, a surplus that is infinitely affordable for the feds.

Only when the anti-deficit ignorant (Hello Tea Party) take control, do we enter a euro-like recession, from which we recover only with massive doses of deficit spending.

The euro can survive as a common currency if the EU drops its austerity foolishness, and begins to pump “deficit” money into the eurozone economy. 

And this will happen if the individual nations have a strong voice in their common economy — something akin to a United States of Europe — but without the burden of deficit hawks like the “Committee for a Responsible Federal Budget” et al.

At long last, the eurozone must learn: The belief that Monetarily Sovereign entities should not run deficits, is harmful, inane, and has caused every depression and most recessions in modern history.

Rodger Malcolm Mitchell
Monetary Sovereignty

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.
This article addresses the questions:
*Does the economy benefit when the rich afford better health care than 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 AN ECONOMIC BONUS TO EVERY MAN, WOMAN AND CHILD IN AMERICA, AND/OR EVERY STATE, A PER CAPITA ECONOMIC BONUS (The JG (Jobs Guarantee) vs the GI (Guaranteed Income) vs the EB) 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 EVERYONEFive 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 benefiting the nation is the purpose of the federal government, which has the unlimited ability to pay for K-16 and beyond.
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.
Corporations themselves exist only as legalities. They don’t pay taxes or pay for anything else. They are dollar-tranferring machines. They transfer dollars from customers to employees, suppliers, shareholders and the government (the later having no use for those dollars).
Any tax on corporations reduces the amount going to employees, suppliers and shareholders, which diminishes the economy. Ultimately, all corporate taxes come around and reappear as deductions from 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 corporate taxes would be an 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.
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.


–A few simple questions that never have been answered

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

The nonsense in Washington boils down to a few simple questions that never seem to be answered

First the background:
The federal government is the largest customer and money provider in America, spending about $3.8 trillion dollars per year on goods, services and benefits. This compares with under $12 trillion for the entire domestic business sector.

( ) and ( )

The U.S. government also is America’s largest employer, with about 4.6 million full time employees:

Military: 1,430,000 (Department of Defense, Active Duty Military Personnel Strengths by Regional Area and by Country, September 30, 2010); 700,000 defense employees worldwide (Department of Defense Civilian Personnel Management Service); 2009 Number of Full-Time Federal Employees – 2,518,101

The federal government employs as many people as the top nine civilian employers – Wal-Mart, McDonalds, UPS, Sears, Home Depot, Target, IBM, GM and GE — combined.

( )

The President, the Tea (formerly Republican) Party, the Democrats, the media, most columnists and old-line economists agree federal spending should be reduced and/or federal taxes increased. The goal: To reduce the federal deficit.

The two biggest problems facing America are the recession and the related unemployment.

Now for the simple questions:
1. What do businesses do when their biggest customer reduces purchases? Do they fire employees, reduce purchases of goods and services or both?

2. When businesses fire employees, or reduce purchases of goods and services, how does this stimulate the economy or cut unemployment?

3. What do individuals do when their salaries and/or benefit checks are reduced? Do they spend less, save less or both?

4. When individuals spend less or save less, how does this stimulate the economy or cut unemployment?

5. Considering all of the above, how does a reduction in federal spending and/or an increase in taxing (aka “deficit reduction”) solve our two biggest related problems: the economy and unemployment?

These questions never are asked, much less answered, because the politicians do not care about the answers. Their prime concern is not the working (or non-working) Americans. The politicians prime concern is who gets elected, i.e., power.

President Obama, the Tea (formerly Republican) Party and the Democrats all have the same goal, with the differences being only in the execution. And I use the word “execution” intentionally, because whoever “wins,” the American public will lose. We, our children and our grandchildren will suffer the execution of joblessness, poverty and loss of health and lifestyle. Our great American dream will be shattered — needlessly — all for the greed, ambitions and ignorance of the politicians.

While we stress about traitors at Fort Hood, we give a free pass to traitors in Congress, who intentionally do more harm to America than al Qaeda ever could.

Rodger Malcolm Mitchell

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.


–The depression cometh

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

Historically, whenever dollars have been taken from our economy, or even when dollar growth has been reduced, the economy has gone into recession or depression. (See: Cause of recessions and depressions)

Congress and the President insist the federal deficit must be reduced. There are but two methods for reducing the deficit: Increase federal taxes and/or reduce federal spending. Both methods reduce the number of dollars in the U.S. economy.

7/29/11: Roya Wolverson, Time Magazine: “The bad news just keeps coming. The U.S. economy grew even less than expected in the second quarter, at a rate of 1.3%, down from what many economists predicted would be 1.8% or higher. The reasons for the continued lackluster performance haven’t changed. Consumers, squeezed by higher gas and other prices, are buying less of everything from electronics to meals out to new furniture.”

Recently, I posted, “Based on where Obama and the Tea/Republicans are headed, there will be a depression (not just a recession) next year. Only a miracle of realization, by both parties, can save us now. (See: Depression in 2012)

7/30/11: Alan Rappeport, Pharmaceuticals Magazine: “Merck, the US drug company, will cut as many as 13,000 jobs, or 13 per cent of its workforce, as it looks to slash costs and invest in emerging markets. The cuts, to be achieved by 2015, follow those announced last year when Merck said it would reduce its staff by 17 per cent. Merck has been looking to achieve the savings it promised when it acquired Schering Plough for $41bn in 2009.”

Congress and the President remain ignorant. They continue to call for increased taxes and/or spending cuts. The depression cometh.

Rodger Malcolm Mitchell

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.


–Today’s ignorant comment, this time from Robert J. Samuelson, Opinion Writer at the Washington Post

Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

Unfortunately, this blog never will run short of material. With the vast majority of writers, politicians and even old-time economists, not understanding Monetary Sovereignty, and instead parroting today’s popular wisdom that federal government finances resemble personal finances, I have a huge selection of ignorant comments from which to choose.

This time, the myths come to us courtesy of Robert J. Samuelson:

Social Security, Medicare, Medicaid and other retiree programs constitute roughly half of non-interest federal spending.

These transfers have become so huge that, unless checked, they will sabotage America’s future. The facts are known: By 2035, the 65-and-over population will nearly double, and health costs remain uncontrolled; the combination automatically expands federal spending (as a share of the economy) by about one-third from 2005 levels. This tidal wave of spending means one or all of the following: (a) much higher taxes; (b) the gutting of other government services, from the Weather Service to medical research; (c) a partial and dangerous disarmament; (d) large and unstable deficits.

No Mr. Samuelson, it doesn’t mean any of those things. Let me address each:

(a)”. . . much higher taxes. . .”
Federal taxes have nothing whatsoever to do with federal spending. The U.S. is Monetarily Sovereign. It pays its bills by instructing banks to credit bank accounts. Whether taxes fall to $0 or rise to $100 trillion, neither event would change by even $1 the federal government’s ability to instruct banks to credit bank accounts.

In federal financing, there is no functional connection between taxing (or borrowing) and spending. When you and I spend, we transfer money. When the federal government spends, it creates money. Huge difference, that Mr. Samuelson does not understand.

(b)” . . . the gutting of other government services, from the Weather Service to medical research. . . “
This is based on the myth that federal spending is limited. It is, but not by what Mr. Samuelson thinks. It’s not limited by taxes. It’s not limited by borrowing. It’s limited only by Congress and inflation, which today is nowhere near. Remember, we’re in a recession, where the nation is starved for money. Federal spending adds needed money to the economy.

(c)” . . . a partial and dangerous disarmament. . . “
Same as (b)

(d)” . . . large and unstable deficits.”
Yes the deficits will be large. They need to be. This is a large country with large money needs. Deficits are the federal government’s method for adding money to this large country. Without large and growing federal deficits we will not be a large and growing country. And what the heck are “unstable” deficits? Or is “unstable” just a more erudite-sounding word you toss in as a synonym for “bad”?

Like most opinion writers, you do not understand the differences between Monetary Sovereignty and monetary non-sovereignty. Let me summarize our current situation:

Our economy languishes. Unemployment is far too high. We need to stimulate businesses so they will hire more people. You, Mr. Samuelson, are suggesting that the federal government pay less money to Social Security, Medicare, Medicaid and other retiree programs, because you erroneously believe the government does not have the unlimited ability to pay its bills.

If the federal government increases its payments to these programs, the recipients of this money will spend it, which will stimulate business and help reduce the unemployment problem.

Mr. Samuelson has joined the crowd who feels that funding ”. . . other government services, from the Weather Service to medical research” along with the military must be accomplished by reduced funding to our seniors and to our poor. If we follow Mr. Samuelson, America will decline to a mean, harsh, wretched nation, indeed.

Readers of Mr. Samuelson’s columns should drop him a note and suggest he acquaint himself with Monetary Sovereignty, before he spreads any more incorrect and harmful myths.

Rodger Malcolm Mitchell

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.