MMT Lesson 1

MMT Lesson 1

from Warren Mosler.

Brilliant paper

How banks really work, and the misconceptions about them that abound in economics.  Very wonky in the details, but exposes the phoniness of the establishment.

Shop to Win

by Warren Mosler

Shop to Win!

The President no doubt knows that when you go shopping, buying at the lowest price is the mark of a winner, while paying too much is the mark of a loser. Yet when it comes to buying lumber from Canada and cars from Germany, the President viciously attacked those nations for not charging us enough for their products!

And while everyone knows that buying at the lowest price is a good thing, there is no serious pushback from Democrats, the 'free trade' Republicans, the media or any of the headline mainstream analysts. There is something very wrong with their underlying logic that leads to this type of costly Presidential blunder.

Yes, when we buy imports jobs are lost, just as when we replace workers with machines, including lawn mowers, vacuum cleaners, and power washers, jobs are lost. And yet somehow we've survived all that. We went from needing 99% of the people working to grow our food to less than 1%, and manufacturing jobs are down to only 7% of the labor force as well. And yet the remaining 90% of us are not all unemployed, as jobs have proliferated in the service sector, where most of those jobs are now considered to be better jobs and generally pay more than agricultural and manufacturing jobs. Nor has a trade deficit necessarily resulted in higher unemployment or lower pay. In 1999, for example, we had record imports with unemployment under 4% and inflation under 2%, and students were getting recruited for good paying jobs well before graduation.

The answer to sustaining high levels of employment and pay is policy response. Yes, we are better off if we do the obvious and buy our imports at the lowest possible prices. And if weak demand at home is keeping unemployment too high or wages too low, the appropriate policy response is fiscal relaxation- either a tax cut or spending increase- and not to tax or otherwise drive up the cost of imports, even if that results in a higher public debt.

Yes, the right move in response to a slow economy is to cut taxes or increase public spending and let the public debt increase accordingly. Unfortunately however, the policy that allows us to pay the lowest prices for imports and have good paying jobs to replace those lost because of imports has been taken entirely off the table by both Republicans and Democrat. And this is the case even though lowering taxes or increasing public spending are direct benefits for their voters.

Sadly, a very good thing for America- lower prices of imports- has been turned into a bad thing- unemployment- due to an aversion to cutting taxes or increasing public spending. And we are at this counterproductive place for only one reason- fake news about the public debt that is supported by Republicans and Democrats.

The US public debt is nothing more than the dollars spent by the federal government that have not yet been used to pay taxes. Those dollars spent and not yet taxed sit in bank accounts at the Federal Reserve Bank that are called 'reserve accounts' and 'securities accounts', along with the actual cash in circulation. Treasury securities (bonds, notes, and bills) are nothing more than dollars in securities accounts at the Federal Reserve Bank, functionally the same as dollars in savings accounts or CD's at commercial banks.

Think of it this way- when the government spends a dollar, that dollar either is used to pay taxes and is lost to the economy, or it's not used to pay taxes and remains in the economy. Deficit spending adds to those dollars spent but not yet taxed, which is called the public debt.

So how about what's called 'paying off the debt' as happens to 10's of billions of Treasury securities every month? That's just a matter of the Fed shifting dollars from securities accounts to reserve accounts- a simple debit and a credit- all on its own books. And there are no tax payers or grand children in sight when that happens.

Note that the 'ability to pay' is always there- it's just a debit and a credit to accounts on the books of the Federal Reserve Bank. The fear mongering about the US running out of money or constraints by foreigners is simply not applicable to today's monetary system. However, the 'willingness to pay' is a very different story, as Congress from time to time argues over the debt ceiling and threatens to block the Fed from doing its normal job. Default because Congress decides to default, even though it has the unrestricted ability to pay, is an entirely different and political matter.

Point is, once it's understood that the public debt is nothing more than a component of what can be called the money supply, that there is no risk of default, there is no dependence on foreign or any other lenders, there is no burden being put on future generations, or any other of those trumped up fears both sides freely toss around, the President will be free to make us all better off by a great shopper who works to get us the lowest possible prices.

MMT Rock Stars

A short article to read.

Begin Here

I have a BA degree in Economics, but have never practiced it, in the academic sense.  Like everyone who balances a checkbook or manages a business expense, I have practiced it in a practical sense, but that requires little formal training in economic theory.  Such things are the realm of microeconomics, or even of accounting, and are quite well understood and subject to no dissenting opinions about their substance.

The interesting part of economics is macroeconomics, which is the study of aggregates rather than discrete elements.  This is where the action is, and where all the disputes between the many and various schools of economic thought reside.

All the macro theory I was taught was created prior to 1971, which is when the macroeconomic basis of the world was turned inside-out.  This blog will explore what changed, what it means to ordinary people and to their governments, and how and why our political leaders have been doing it all wrong for the past 46 years (at least), culminating in the mediocre-to-poor macroeconomic conditions and performance that have prevailed since the Great Financial Crisis.  I hope it will do it in a way that is understandable for those who have not suffered formal training in economics.  Indeed, that may be an advantage, because there is less to be un-learned in order to expose the truth.