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Thursday, February 26, 2015

Warren Mosler on Federal Deficits

     I recently had a discussion with Greg on the question of the phrase 'government debt' where he argued that the very phrase is a problem. My answer was that I'm not sure about that-I'm still not.

     http://diaryofarepublicanhater.blogspot.com/2015/02/keynes-vs-abba-lerner-on-pubic-debt.html

     I do see from looking at what Mosler and other MMters that they do argue that bonds are not sold so the govt has the money to spend here or there. Here is Mosler:

     "We all know how data entry works, but somehow this has gotten turned upside down and backwards by our politicians, media, and, most all, the prominent mainstream economists. Just keep this in mind as a starting point: The federal government doesn’t ever “have” or “not have” any dollars. It’s just like the stadium, which doesn’t “have” or “not have” a hoard of points to give out. When it comes to the dollar, our government, working through its Federal agencies, the Federal Reserve Bank and the U.S. Treasury Department, is the score keeper. (And it also makes the rules!) You now have the operational answer to the question: “How are we going to pay for it?” And the answer is: the same way government pays for anything, it changes the numbers in our bank accounts. The federal government isn’t going to “run out of money,” as our President has mistakenly repeated. There is no such thing. Nor is it dependent on “getting” dollars from China or anywhere else. All it takes for the government to spend is for it to change the numbers up in bank accounts at its own bank, the Federal Reserve Bank. There is no numerical limit to how much money our government can spend, whenever it wants to spend. (This includes making interest payments, as well as Social Security and Medicare payments.) It encompasses all government payments made in dollars to anyone."

    http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

    However, there is some fine print:

    "This is not to say that excess government spending won’t possibly cause prices to go up (which is inflation). But it is to say that the government can’t go broke and can’t be bankrupt. There is simply no such thing."

     Ok, so that still shows that even if nothing can stop the govt from spending anything it wants to spend it on there is still a reason why we can't just spend without limit-don't get me wrong we're currently far away from any such limit in the US today.

      If you go to far ether or not you want to call this 'printing money' then you harm the value of your currency. It's not so simple as like that old show lots of us in our early 40s used to watch in the 70s, Bewitched, where the good witch Samantha used to wiggle her nose and stuff would appear out of thin air.

    I mean if it were then the govt should simply send $10 million dollar checks to all individuals and $100 million checks for businesses and we can all live in a land of milk and honey. I'm not mocking or discounting the point just that it needs to be qualified. Achieving prosperity is not as simple as conjuring up whatever we want-unfortunately.

    Again, this is not to say Mosler is wrong but just read the fine print even he lays out which shows that it's not just about a blank check where we can write in whatever we like.

    It still does mean that there is a need for taxes and public debt-whether or not we want to call it that. Indeed, according to MMT, the whole reason for the existence of money is so we can pay our taxes.

   Again, even if prosperity is still even following Mosler as easy as having your own Genie where she gives you whatever you want, still it may be easier than it is now when politicians tell us that the government has to live within its means like a family.

   UPDATE: Regarding public debt, though, consider what Mosler says here:

    "From our point of view (not the federal government’s), we need to first have U.S. dollars to be able to make payments. Just like the children need to earn the coupons from their parents before they can make their weekly coupon payments. And state governments, cities, and businesses are all in that same boat as well. They all need to be able to somehow get dollars before they can spend them. That could mean earning them, borrowing them, or selling something to get the dollars they need to be able to spend. In fact, as a point of logic, the dollars we need to pay taxes must, directly or indirectly, from the inception of the currency, come from government spending (or government lending, which I’ll discuss later)."

   What this means then is the idea that you can never run out of money is only true for nations-that have their own currency. So at the state level, you really are limited by how much you can spend-as ultimately you need the federal government to give you your American dollars.

  So then they-assuming the federal govt doesn't give them enough to fully cover everything they want to finance do need taxes and or public debt to pay for their spending?


11 comments:

  1. Mike, I don't think anyone, certainly not me, has ever said that prosperity is as easy conjuring up whatever we want so Im not sure why you think you uncovered some fine print.

    As I understand it, the discussion that people are having today is "How do we get our pre 2007 economy back?" Almost everyone acknowledges that 2007 was where something happened. What was it? What were the forces leading up to it? I and I think you and most other thoughtful reasonable people, progressives IOW, feel as if some version of this story is true;

    Private debt levels got too high and had to give. Many people became unable to service the new mortgages they took out. As the mortgage market collapsed, this caused many other financial products which were derived from these mortgages MBSs,CDOs to also collapse. The institutions which held these things became insolvent and had to be bailed out. Stock market collapses followed and job losses too as everyone was "running out of money".

    We didn't have people who suddenly forgot how to do their jobs and were fired, they didn't lack skills at the time they were laid off. People stopped paying for whatever it was they did. In the public sector it is pure politics. None of the teachers HAD to be laid off, none of the other public servants needed to lose their jobs, it was all budgetary which is POLITICAL.

    So anyone saying we cant afford the stuff we had is wrong. We were affording it before. We haven't lost the technology nor the raw materials to produce everything we were producing .... AND more. All that has been lost is someone who will "write the check". Keynesians, MMTers and others KNOW that there is an entity that can write the check, and if they write that check it isn't coming from anywhere other than their desire to write that check and their willingness to ignore the cries from the hard money types.

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  2. "Mike, I don't think anyone, certainly not me, has ever said that prosperity is as easy conjuring up whatever we want so Im not sure why you think you uncovered some fine print"

    It wasn't directed at you Greg. I'm saying that just for general understanding. When I read Mosler the first time I kind of thought that.

    I'm just about understanding-first of all understanding tings myself. My point is that even if in theory we could just 'print money' or if that's a bad phrase, 'click a mouse' it's still not that easy.

    So I'm not criticizing you who from everything I've heard you say I mostly agree with. That isn't the point I'm driving at.

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  3. "As I understand it, the discussion that people are having today is "How do we get our pre 2007 economy back?" Almost everyone acknowledges that 2007 was where something happened. What was it? What were the forces leading up to it? I and I think you and most other thoughtful reasonable people, progressives IOW, feel as if some version of this story is true;"

    Agreed, Even prior to that there were some troubling problems-what Democrats are now at least talking about-even Republicans have at times admitted the problem exists-wage stagnation.

    However, it's true that even now we're not yet at 2007 levels yet-we won't be until 2016.

    So yes we agree.

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  4. "We didn't have people who suddenly forgot how to do their jobs and were fired, they didn't lack skills at the time they were laid off. People stopped paying for whatever it was they did. In the public sector it is pure politics. None of the teachers HAD to be laid off, none of the other public servants needed to lose their jobs, it was all budgetary which is POLITICAL."

    Agreed. To be sure even before that a lot of people were in lower quality jobs than what they wanted and what they paid for via education-this is the whole thing I was driving at when I wrote about the question of technological dislocation.

    As for the govt layoffs, this wasn't what caused the immediate recession but it was the bad medicine that made things worse. Agreed.

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  5. "So anyone saying we cant afford the stuff we had is wrong. We were affording it before. We haven't lost the technology nor the raw materials to produce everything we were producing .... AND more. All that has been lost is someone who will "write the check". Keynesians, MMTers and others KNOW that there is an entity that can write the check, and if they write that check it isn't coming from anywhere other than their desire to write that check and their willingness to ignore the cries from the hard money types."

    Certainly isn't me saying anything about we can't afford the things we had nor am I saying it now.

    Again, what I've been looking for is clarity-first of all in my own mind. In that vein, this discussion has been helpful as well. Thanks

    Overall, I like to take Socrates example. I don't think I know everything or anywhere close, certainly when it comes to economics. So I'm trying to learn more.

    If I question something you say it's not me saying 'Aha! You're dead wrong' but more like 'Really? Interesting. Well how's it work?'

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  6. I have seen some of these MMTer types-not you-that seem to give truth to the saying 'a little knowledge is a dangerous thing'-as they read a few things off a blog and then become so dogmatically dismissive of anyone they think for a second is off base.

    This is no less true than a lot of those facile commentators at Sumner.

    But I do think that the really snarky MMT types-not guys like Mosler or Fullweiller who really know what they're talking about-but certain commentators do the cause no favor.

    Even if someone were 100% right about something-I have no idea personally that I' anywhere close to that-it still would be counterproductive to be snarky and dogmatic Again, not talking about you Greg, and I mean that. You're one of my best commentators and hopefully we both have learnt a few things from each other.

    But I remember some silly MMT commentators who argued with silly commentators at Sumner. I;ll always remember this guy who acted like he knew everything. He was like 'And how do I know this? I work at a friggin bank!'

    Of course, Sumner and friends had an easy time lampooning him and making it sound like everyone who believed anything the MMTers believe are this silly.

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  7. I didn't mean to sound testy Mike sorry.

    What do you mean when you say; " if in theory we could just 'print money' or if that's a bad phrase, 'click a mouse' it's still not that easy" ?

    If you mean that the govt needs to do more than that in order to buy something, also known as spending, then I disagree. It is that simple. Congress approves a spending bill, the numbers in the recipients account go up, some good or service is provided to the govt........ done.

    If you mean that when all that does happen that there will be secondary affects which might be negative then I agree. What these second order affects are and how to manage them is the 64000$ question.

    If you mean that the govt cant just add 3 zeros to everyones account and make everyone a 1000x richer then I agree too.

    It seems to me the whole disagreement amongst macroeconomists is essentially what are these second order affects and how do we manage them. Where you place the govt/CB within your analysis matters for how you see the second order affects. Monetarists have this belief that CB can control all these financial variables and keep all our nominal metrics wherever they want. The real outcomes are secondarily managed form that point on. The fiscalists say the govt can manage many of the real variables by redistributing real goods and services as needed and financial outcomes can be seen as a result of those choices.

    Im glad you are checking up on more of Moslers stuff cuz I think the more you read him the more you will appreciate him. Check out some of the videos of him on youtube as well. Do I think Mosler has all the answers? No, but he doesn't pretend to either. He does ask the right questions though.

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  8. Here is an interesting article you might appreciate

    http://neweconomicperspectives.org/2015/02/the-millennials-money-pt-1.html

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  9. "If you mean that the govt needs to do more than that in order to buy something, also known as spending, then I disagree."

    Nope, that wasn't what I mean. I just mean in achieving overall prosperity. Again, I'm not disagreeing just that reading this for the first time it can be almost misleadingly simple-it was for me the first time I read it.

    I was just trying to qualify the point. Prospertiy isn't as easy as the govt saying it will click a few mouses and everyone gets $10 million and the businesses all get $100 million and we have prosperity.

    Nothing I've said has meant that I don't think we should do more fiscal policy or more spending or that don't understand what Mosler is saying. He says the same thing I'm saying here.

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  10. No I read Mosler a few years ago-his big piece I mean, 'The 7 Deadly Innocent Frauds' but as I know a lot more about econ now than I did then-though I still have a lot to learn-I'm interested in reading him again.

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  11. It's interesting in that Krugman would agree with Mosler and many MMTers on basic policy but not the theory. Krugman believes his theory is adequate-IS/LM-and Mosler is calling for a new theory.

    But when you look at the average New Keynesian type on policy I mostly agree with them but the question is theory which I find very interesting to delve into.

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