Deadly Innocent Misinterpretation #57: “Actually, we can [‘print’ $100 trillion]. We did it last year and the year before and the year before, etc. Check the Daily Treasury Statement. Over $100 TRILLION redeemed last year. The nation didn’t blow up.”
Fact: Over $100 trillion of federal bonds are redeemed every year but the NET CHANGE—how much was ‘printed’ (newly-created and added into existence)—was under $1 trillion last year.
It was Mike Norman who wrote this (during an April 2019 Twitter discussion with MineThis1) after being told that even though there is no ‘financial constraint’, the federal gov’t can’t just ‘print’ over $90T (for something like a Green New Deal) without consequences.
Mike included a screenshot of the Daily Treasury Statement (DTS) as of September 2018 showing that the outstanding issues of both federal debt held by the public (‘marketable’) plus intragovernmental debt (‘non-marketable’)—aka the total ‘National Debt’—redeemed last year was “over $100 trillion!”
One small detail that Mike left out (read: that only people who can properly understand data could see) is that the NET CHANGE in the amount (listed right below the $100T on that same DTS) was only $1.271T. Meaning that the amount ‘printed’ (Total Issues minus Total Redemptions = annual federal gov’t deficit spending which is ‘added’ to the Public Debt Outstanding) last year was approx $1T and not $100T (the federal gov’t deficit for 2018 officially wound up being $746 billion).
Anyone who has a credit card knows that ‘revolving’ a debt is not the same thing as ‘adding’ a debt. Mike was deadly, innocently and fraudulently misinterpreting off-budget non-marketable intra-gov’t held Gov’t Account Series (GAS) bonds being redeemed. Instead of $100T of bonds being ‘printed’ last year, what the DTS actually shows is that there was $90T worth of ‘transactions’. More specifically, GAS bonds were ‘rolled over’ to the tune of $90T. There is only $6T of GAS bonds. What makes that $90T figure seem like so much is that most of the $90T transacted is just multiple rollovers of the same bonds with very short maturities, day after day, same as always, which ”we did last year and the year before and the year before, etc.”
MineThis1 is right—Even a monetary sovereign can’t just ‘print’ (the federal gov’t can’t just newly-create and enter) over $90T into the banking system without risking serious consequences.
The pure MMT insight (the point MineThis1 was making to Mike Norman and the point many others are now making when warning MMTers to the dangers of rising ‘Debt’/GDP) is that the reason that it is a risk is not because there isn’t an offsetting tax ‘to pay for it’.
You can keystroke dollars but you cannot keystroke output—it’s a risk if the rise in how much you ‘print’ is not offset with an increase in productivity.
Deadly Innocent Misinterpretation #58: “Only after the government spends its new currency does the population have the funds to pay the tax. To repeat: the funds to pay taxes, from inception, come from government spending (or lending).”
Fact: The monetarily-sovereign federal government doesn’t necessarily have to spend its new currency so that the population has the funds to pay federal taxes. To repeat: the funds to pay taxes, from inception, do not necessarily come from government spending or loans from the Fed.
One of several reasons that ‘the funds to pay taxes come from government spending’ (from public-sector money creation) is wrong, is a US law called the Taxpayer Relief Act of 1997—which allows you to pay taxes with a credit card (with private-sector money creation).
The above quote from Warren Mosler’s 2010 book Seven Deadly Innocent Frauds (pg 20) foreshadowed this 58th of the 77 Deadly Innocent Misinterpretations that we are now hearing from the ‘prescription’ MMT community today. In other words, just as Mr. Mosler does in the course of explaining 7DIF#1 starting with the brilliant insight—that the federal gov’t has no ‘solvency risk’—along with more ‘description’ MMT enlightenment for the 100% (7DIF parts I & II) ends up getting undermined when data is cherry-picked and feelings replace facts to fit narratives pushing political ‘prescriptions’ (7DIF part III).
Please note that I too (along with all MMTers) consider Warren Mosler an MMT champion, but even the Great Ones swing and miss sometimes. By pointing out mistakes, I am actually trying to help improve the MMT message to the mainstream—to the 100%.
All MMTers should do so as well. If we don’t, if MMTers discourage that, if we instead consider MMT ‘chiseled in stone’, then MMT becomes more like a religion (and more people will continue to assume that MMTers are in a cult).
To fit the ‘funds to pay taxes comes from government spending’ narrative, Mr. Mosler reasons that whenever taxes are paid to the Treasury, since the taxpayer’s bank’s reserve account at the Fed is debited, and the Treasury’s account at the Fed is credited with reserves; thus, since “the private sector cannot generate reserves” (pg 20 / footnote #3), therefore that means “the funds to make payments to the federal government can only come from the federal government.” Using an analogy, “the government, in this case, is just like the parents who have to spend their coupons first, before they can actually start collecting them from their children” (with reserves being “the coupons the kids need to make their payments to their parents—that have to come from their parents”). Sure, that analogy works—if we were all kids and didn’t have credit cards (if we didn’t have the ability to create allowance coupons ourselves along with collecting the ones our parents created).
If you use a credit card (if you ‘deficit spend’), that’s a creation of dollars by the private-sector financial institution that issued the credit card; and if you pay federal taxes with a credit card, those taxes paid didn’t come from gov’t spending. If the US monetary system had the same rules as The Monopoly Game, which states that Monopoly Players can not borrow from other Monopoly Players (meaning no private-sector money creation), then that ‘Federal Gov’t (Monopoly Bank) Funds The People (Monopoly Players)’ narrative would hold true, but that’s not the case. The ‘bathtub’ (the economy) doesn’t just get the ‘water’ (newly-created dollars) from the ‘faucet’ (federal-gov’t spending); the economy ALSO gets dollars from private-sector money creation as well. Today’s MMTers (who prefer memey catchphrases over facts, math & data) don’t count those private-sector creations because those dollars ‘net-out’—so they are told. The monetary reality is that if a household takes out a 30-year mortgage, that means it takes THIRTY YEARS for that private-sector creation of dollars that went into the ‘bathtub’ to ‘net-out’ (while those newly-created dollars are working their magic in money-supply circulation). The same goes for large corporations who are constantly rolling over debt in the wholesale interbank funding markets—meaning lots of private-sector money creation that rarely ‘nets-out’. In fact, there are instances when private-sector money creation NEVER ‘nets-out’. Warren Mosler himself often points out that banks CAN and DO actually add Net Financial Assets (unintentionally) when they have negative capital (when a bank loan—or a bank itself—defaults).
The MMT insight (Mr. Mosler’s original ‘description’ that went off course) is that instead of the gold-standard era where the gov’t had to wait to collect gold-backed dollars first, the order of operations switched. The gov’t can now issue fiat dollars out of thin air and fund us first (the ‘federal stadium’ distributes ‘tickets’ first)—and then we fund the gov’t back (and then we pay the stadium for the tickets).
Another deadly innocent misinterpretation in that 7DIF#1 is where Mr. Mosler writes that in addition to taxes, the funds to buy Treasury bonds also comes from government spending as well. More specifically, that the Fed “does repos – to add the funds to the banking system that banks then have to buy the Treasury Securities; otherwise, the funds wouldn’t be there to buy the Treasury securities and the banks would have overdrafts in their reserve accounts.” (pg 20 / footnote #2). So, the first narrative was that ‘the funds to pay taxes comes from government spending’ and this narrative is that ‘the funds to buy the Treasury securities comes from government’ too. The former cherry-picks one tiny ‘reserve accounting’ part of the process to say taxes aren’t ‘technically’ funding taxes (which is like saying that the gasoline you put in your car doesn’t make the wheels turn because the gas is ‘destroyed’ in the pistons); with the latter misinterpreting repurchase agreements (also called repos) done by the Fed as meaning that the Fed is providing the funds on behalf of private investors to facilitate their purchases of Treasury securities. Which again isn’t the case. In the pre-LSAP (pre-quantitative easing) days, the Fed did repo transactions called Open Market Operations in the secondary market—meaning with existing Treasury bonds—with banks to maintain the Fed’s target (the Fed’s desired) overnight borrowing rate; however, the Fed DOES NOT do repos—the temporary purchase and selling of Treasury securities (a swap of bonds for reserves that is quickly unwound)—to fund the banks in order to buy newly-issued Treasury bonds at auction in the primary market.
Don’t take my word for it. A copy of a 08/20/15 letter posted up on the Intro to MMT facebook page from James A. Clouse, Deputy Director, Division of Monetary Affairs of the Federal Reserve System in Washington, D.C., responding to a question by Stanley Mulaik (regarding the mechanics of Treasury debt auctions) said the following:
“Chair Yellen asked me to respond to your recent letter…and a set of ideas that has been popularized as ‘Modern Monetary Theory.’ On the question of the mechanics of Treasury debt auctions, there are a number of inaccuracies in the description of the process…Contrary to some of the MMT website discussion you mentioned, primary dealers are never overdrawn at the Federal Reserve—they do not have reserve accounts with the Federal Reserve that can be overdrawn…It bears emphasizing that at no point in the Treasury auction process, does the Federal Reserve temporarily purchase or sell Treasury securities to facilitate settlement on behalf of private investors nor does it provide credit temporarily to facilitate their purchases of Treasury securities.”—BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Here’s another example of Mr. Mosler cherry-picking to fit a narrative. To show that federal gov’t spending is just like changing numbers on a scoreboard, 7DIF#1 includes the following transcript from a 03/15/09 episode of a 60 Minutes interview of Ben Bernanke during the early phase of the credit crisis when the Fed was lending money (with the bank’s toxic assets as collateral) to these troubled banks then suffering liquidity problems (when the Fed was creating reserves and giving them to the banks to ‘exchange’ for dollars to be spent into money supply circulation):
Pelley: “Is that tax money that the Fed is spending?”
Bernanke: “It is not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed…
Which is a perfect statement that all MMTers should use to explain how federal gov’t spending is completely different in the post-gold-standard era using fiat dollars. That’s as golden a line for the MMT community as that Greenspan “There is nothing to prevent the government from creating as much money as it wants” response to then-Chair of the House Budget Committee Paul Ryan (R-WI); but the very next line Bernanke said—that Mr. Mosler intentionally left out—was this:
…so it’s much more akin, although not exactly the same, but it’s much more akin to printing money than to borrowing.”
Pelley: “You’ve been printing money?”
Bernanke: “Well, effectively yes, and we need to do that because our economy is very weak and inflation is very low. When the economy begins to recover, that’ll be the time that we need to unwind those programs, raise interest rates, reduce the money supply and make sure that we have a recovery that does not involve inflation.”
Again, that’s a perfect printing-money-friendly quote for MMT, because ‘printing money’ = ‘money creation’ (the kind of money creation just like federal-gov’t deficit spending that results in needed net additions of financial assets feeding into money-supply circulation along with welcome increases in newly-created aggregate demand), and that’s how easy it’s done by our gov’t these days; but Mr. Mosler left that part out because like all political ‘prescription’ MMTers, he hates the term ‘printing money’ (since it means different things to different people).
(NOTE to Pure ‘description’ MMTers: In a follow-up interview with 60 Minutes on 12/05/10, Chair Bernanke explained that even though quantitative easing was also a creation of reserves to pay for the bank’s AAA-rated Treasury bonds, that was NOT to be considered ‘printing money’ because unlike Japan’s QE which includes buying commercial debt and equity ETFs to get more money into circulation—to specifically increase Japan’s money supply—the Fed’s QE was not creations that were intended to enter money-supply circulation. Rather than being like those earlier Fed loans for subprime bonds to cash-poor banks to be spent into circulation to keep their lights on, or just like routine federal-gov’t deficit spending, QE is not ‘printing money’ because QE is only a swap of bonds specifically done to extend a 0% short-term interest rate monetary policy (ZIRP)—by also lowering long-term interest rates. Rather than ‘printing money’, QE is ‘credit easing’; and rather than changing the money supply, QE only replaces the bank’s holdings of higher-yielding bonds that are not in the money supply, with holdings of lower-yielding reserves that are also not in the money supply).
(NOTE to Political ‘prescription’ MMTers : Disregard all that. Bernanke is wrong to say ‘printing money’ and the clueless Fed ‘has the pedals backwards’. In addition, Marx was right—Bernanke and the evil Fed are always plotting to ‘intentionally’ throw people out of work to control inflation. That plus any other cute story that fits an anti-Fed narrative to peddle a ‘prescription’ that dismantles capitalism).
The reason why today’s ‘prescription’ MMTers get very squeamish when it comes to the topic of inflation (the consumer’s loss of the purchasing power of their money over time) is because MMTers can’t stand when folks—bashing their beloved proposals—say things like ‘Oh sure, you just want to print more money, for more free stuff.’
Even though ‘printing money’ isn’t applicable now because we are in a digital computer age—and not ‘because MMT’—as the saying goes, never let facts get in the way of a good narrative. To avoid ‘prescription’ MMTers getting their feelings hurt, Mr. Mosler deploys some clever sleight-of-hand by telling them that ‘Saying printing money is wrong’ —meaning Bernanke is wrong— ‘because it’s a non-applicable gold-standard era term’.
Saying printing money is ‘wrong’ so let’s leave that part out of 7DIF#1 (because it doesn’t fit the narrative), but let’s cherry-pick the part Bernanke is ‘right’ about (which does fit nicely).
In closing, may I repeat, the ‘description’ MMT found in Warren Mosler’s 7DIF is brilliant. There is nothing wrong with having ‘prescriptions’—and the more the merrier (from both sides of the political aisle because that’s how the best solutions are found). However, just like that paradigm difference between the federal gov’t and your household, there’s also a big difference between the ‘description’ (the facts) and your ‘prescription’ (your feelings). Pure MMTers are way ahead on the MMT learning curve because they separate their economics from their politics. Those who don’t, dilute their expertise in both at the same time.
“All things are poison, and nothing is without poison, the dosage alone makes it so a thing is not a poison.”—Swiss physician Paracelsus,1538
“Expansive fiscal policy and expansive monetary policy is a very powerful tool, which should be used if needed and at the same time handled with great care. Once again: It is the dose that makes the poison.”—German economist Peter Bofinger, 2019
Deadly Innocent Misinterpretation #59: First it was ‘Deposits Create Loans’ and now it is ‘Loans Create Deposits’.
Fact: It was always ‘loans create deposits’…’Deposits create loans’ was just a historical blip, a subset, within ‘loans create deposits’.
The story of credit creation (the expansion of balance sheets) is the same old story—it’s when a damsel named Faith hooks up with a stud called Creditworthiness.
Picture a villager known as Creditworthy during medieval times. Seeing a herder named Faith with a few young goats, he offers to buy one; but having no coins, he also asks if he could pay her the asking price on the following month—to buy on credit. The herder agrees and hands over a goat. That promise to pay (newly-created IOUs), conjured up—out of thin air—to reach an agreement between counterparties (creating loans) is the newly-created asset that the herder deposits into her pocket (creates deposits), along with the already-existing asset that the villager adds to his barn.
Just like today when the federal gov’t ‘prints money’ (deficit spends), the newly-created IOU (the Treasury bond) is the addition of Net Financial Assets going into the banking system. Almost the same goes for the rest of us in the nonfederal gov’t when we deficit spend (except we go into actual debt when we ‘leverage’); and the opposite of the creation, is the destruction—when we pay off the ‘bond’ (when we ‘deleverage’).
Here’s the breakdown of the herder & the villager’s balance sheets: The sale of the goat is not an expansion of the herder’s balance sheet because she has only replaced one asset for another; however, as soon as she is paid back (and profit is ‘realized’), her net worth (Capital) does increase. Furthermore, the deposit of the goat into the villager’s barn IS an expansion of the herder’s balance sheet; however, it is also not yet an increase in his net worth (Capital) since his IOU (Liability) ‘nets-out’ with his goat (Asset). Only after the villager pays offs his ‘bond’ and then maybe sells some goat cheese for profit (‘retained earnings’) could he then increase his net worth (Capital). Which was the whole point of the exercise. Like dollars seeking yield, folks seek to lend and borrow—risk & reward running side by side—to increase their net worth.
Fast forward to the beginnings of the banking era, with requirements to hold a certain percentage of deposits of gold-backed dollars from savers (as a safety precaution against an over-extension of credit to borrowers). This ‘fractional reserve’ system, becomes a ‘deposits create loans’ form of money creation along with the already-existing system of ‘loans create deposits’.
Today, when the private sector borrows money (deficit spends), it always begins with a newly-created promise to pay back the money in the future (the creation of the ‘bond’ that is handed over in exchange for the loan). Note that it is WE who ‘print’ the money—the banks (the financial intermediaries) are only facilitating OUR printing of money. The difference is that it is these middlemen who pay the vendor—it is the middlemen who the villager settles up with, instead of with the goat herder directly.
In other words, it’s the same as it always was. Ever since the first civil caveman (good at hunting) accepted a promise from another hungry caveman (good at gathering) to deliver some stone arrows / or some other equivalent of productivity / or some other unit measurement of debt, later; for a serving of roasted woolly mammoth, right now.
Deadly Innocent Misinterpretation #60: “There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.”—Mosler’s Law
Fact: “Mosler’s Law assumes that all spending can be beneficial by decree, regardless of whether such spending translates productively to real economic benefit or not—it de-emphasizes the importance of real economy impacts in favor of playing up a trivial point.”—Jack Litle
“Modern Monetary Theorists don’t properly address productivity and the productivity issue is extremely important.
According to MMT, the government does not need to tax nor does not need to issue bonds to raise money—that both of these actions are simply policy controls, like plumbers adjusting the pressures and levers on a boiler. This isn’t the part of MMT that is fatally flawed. They are right when they say the government is self-funding.
Consider the (true) assertion that the U.S. government could fund itself without taxes or bonds. This highlights that the government’s spending choices are unlimited. But will all choices on the roster have the same impact on the economy?
When the government chooses to spend money—be it borrowed, extracted via taxation or created directly—it still matters HOW that money is spent.
The importance of wise spending is addressed in passing by MMT, but nowhere near thoroughly enough and not in consistent fashion, with MMT’s main assertions.
Productivity of investment is incredibly key… Why? Because funds spent and invested productively contribute to the health and growth of the U.S. economy, whereas funds not spent productively do not.
The importance of this distinction cannot be understated, yet MMT glosses over it. Why? Because Modern Monetary Theory does not properly address the vital linkage between fiat money creation and the real productivity of the U.S. economy.
Productivity—tangible assets and the volume of real goods and services provided—is what counts as genuine wealth. The digital 1s and 0s riding on top are just manipulated transaction mechanisms.
This is why it is so important to distinguish between productive spending and unproductive spending. Productive spending adds to the real wealth of the real economy. Unproductive spending does not.
The specific problem with an unproductive-debt boom is that it will further increase the total amount of credit flows WITHOUT a corresponding increase in the real wealth of the economy [it will further increase Debt/GDP, or in other words, it increases the ratio of ‘Our’ Savings v. output].
Of course, just where inflation shows up varies from case to case. Sometimes the results of an unproductive-debt boom can show up as pure, unadulterated asset inflation.
This is the heroin and cocaine of Wall Street—when all those extra flows push up the value of stocks, real estate, junk bonds et cetera while leaving the Fed’s traditional inflation-warning gauges untouched. Party!
Paper-asset inflation can be just as destructive as any other kind of inflation.
When the government malinvests, i.e. borrows or spends unproductively, it does not help things. In fact it only makes matters worse.
Though Walter Bagehot, 19th century editor of The Economist died more than 130 years ago in 1877, his description of the boom-bust cycle is still accurate in this era of ‘modern’ monetary systems.
Which is that the boom-bust cycles of today, just like those of yesteryear, are driven by a build-up of malinvestment and unproductive debt.
The key distinction is not between ‘public’ and ‘private’, but ‘productive” and ‘unproductive’; because productive credit-flows facilitate corresponding growth in the real wealth of the real economy, whereas unproductive credit-flows do not.
Real wealth is not created by a printing press or punched out by government decree. Real wealth is assets, savings, goods and services—the productive output of the underlying economy itself.
And thus the dog-and-pony show of self-funding government regimes counts as little more than a technicality. The U.S. government never has to technically go into default…fine, so what.
The financial power of the United States government is still inextricably linked to the productive power of the real U.S. economy.
This split also shows why Warren Mosler is wrong in his goofy assertion that ‘There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.’
The wackiness of ‘Mosler’s law’ (why it’s wrong) is that THE GOVERNMENT CAN SPEND AT WILL, BUT IT CANNOT SPEND PRODUCTIVELY AT WILL.”—Jack Litle aka ‘Jack Sparrow’, CEO of Mercenary Trader
Jack Litle aka ‘JACK SPARROW’, CEO of Mercenary Trader (@mercenaryjack on twitter) has fifteen-plus years worth of experience in markets. He cut his teeth as an international commodity broker with clients on five continents, including a large Russian hedge fund and has traded virtually every asset class except real estate. His specialty is global macro.
Deadly Innocent Misinterpretation #61: During the gold-standard era, the constraint on the federal gov’t—same as on any household—was a lack of gold-backed dollars to finance spending. Today, since there is no longer that financial constraint for a monetary sovereign because the only constraint to deficit spending in fiat currency is real resources, the federal gov’t can create money as long as there is a lack of inflation.
Fact: The constraint on deficit spending in fiat currency is a lack of production.
The word ‘productivity’ is not often spoken in the MMT community. The main reason for this (as explained in Deadly Innocent Misinterpretation #23) is that political ‘prescription’ MMTers simply accept that ‘taxes value the currency’ and call it a day. The only time these MMTers mention ‘productivity’ is when defending against that most popular of criticisms leveled against their ‘prescriptions’: ‘If you keep printing money we’ll end up like Zimbabwe.’ The quick retort to that is it WASN’T ‘printing money’ that causes countries to suffer hyperinflation and in fact ‘printing money’ may not cause any inflation at all. What hammered Zimbabwe was a lack of production, resulting in a scarcity of real resources, like consumer goods, that caused hyperinflation (and printing more money was just a last-ditch effort to save the economy). Which is all absolutely true; however, these MMTers keep their fingers crossed while saying that because they’re hoping that you don’t figure out that their ‘prescriptions’ (like a ‘job’ guarantee that is designed to be unproductive so as to not compete with the private sector) is exactly what would contribute to a lack of productivity in the USA—or at least they’re hoping you don’t realize it until after you’ve already voted.
Productivity is the constraint on private-sector money creation too. If you walk into a bank looking for a loan (if you want to deficit spend and create money), the first thing the bank does is find out if you have income and if your balance sheet looks good (if you are ‘productive’). So even in the non-federal gov’t, same as the federal gov’t, if you are ‘unproductive’, nobody wants your ‘IOUs’.
History shows that collapses of productivity proceed a total collapse of consumer purchasing power. Saying that ‘the federal gov’t can create money as long as there is no inflation’’ is not good enough—because the economic damage could already be done before you see rising ‘headline’ inflation. It would be like telling children that they can have all the junk food and candy they want; and then telling them to stop eating it on the day that you see signs of health problems:
“MMTers should launch a diet plan. Step 1) Eat whatever you want (cheeseburgers, pizza, ice cream). Step 2) Stop eating before you gain weight. It would be very popular. By definition it must work!”—Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, tweeted 04/12/19
Deadly Innocent Misinterpretation #62: The Federal Job Guarantee will increase wages for those right below the ‘anchor’ wage.
Fact: The Federal Job Guarantee will increase wages for those right below the ‘anchor’ wage while decreasing wages for those right above it.
H/T Charles ‘Kondy’ Kondak
“The Federal Job Guarantee (FJG) is considered by most in the Modern Monetary Theory (MMT) community to be an integral part of MMT. The Federal Job Guarantee is said to provide ‘Price Stability at Full Employment’.
One favorite throwaway line of #FakeMMT is that the Federal Job Guarantee will improve the ‘well-being of all workers’ by providing a wage/benefit floor such that Employers would have to offer better wages to lure workers away from Government Employment.
Some prominent Economists disagree on that effect of a Federal Job Guarantee and argue it will have a dampening effect on wages for workers higher up the Income ladder. One Economist says MMT would use ‘full employment [FJG] to fight inflation’ by giving companies that want to hire a better option:
‘They don’t have to bid wages up trying compete with one another for employed workers. They can hire from this pool, this ready-pool of skilled workers who are employed in public service jobs.’ (MMT Economist Professor Stephanie Kelton).
Based on this statement we’ve established the wage suppression effect of a FJG, at least for skilled workers—with Kelton’s commentary. Two other Economists write:
‘Would the incumbent workers use the decreased threat of unemployment to pursue higher wage demands? That is unlikely. … [T]here might be little perceived difference between unemployment and a JG job for a highly-paid worker, which means that they will still be cautious in making wage demands.’ (MMT Economists Professors L. Randall Wray and William Mitchell).
Who are these highly-paid workers that would still be cautious in making wage demands?
We are not only talking about a highly-paid (higher educated and higher-skilled) worker, but also a highly-paid (but not so higher-educated nor higher-skilled) worker like a doorman in NYC making $49K. To hire a NYC doorman, Employers ‘would not have to bid wages up trying to compete with one another’ according to Kelton; and the employed doorman on Union scale ‘would still be cautious in making wage demands’ according to Wray and Mitchell.
In other words, according to Kelton, the FJG compresses wages towards the FJG wage (rather than having ‘to bid wages up’ an employer simply combs the FJG pool for a person willing to work at $45K as a NYC doorman); and in addition, according to Mitchell/Wray, to at least some degree, the FJG compresses wages immediately above the FJG wage (the NYC doorman making $49K ‘will still be cautious in making wage demands’) as well.
Simply put, there is no other way to describe the effects of a Federal Job Guarantee as alluded to here: Wage suppression further up the Income ladder. The part the macroeconomic role the FJG plays here is more in the interest of price stability and less in the interest of worker well-being. Now I can see how some early MMT advocates broke from the herd based on this issue.
Further, it is also said by #FakeMMT that the Federal Job Guarantee would be ‘Federally Funded but Locally Administered’. Here at this juncture, one group of MMT Economists describe their proposal this way:
‘The PSE [Public Service Employment Program, aka FJG] would be under the jurisdiction of the DOL [Department of Labor], as UI [Unemployment Insurance] is today. Similar to UI, states will participate in the program’s administration. Congress would appropriate funding for the PSE program through the DOL. The DOL budget would fluctuate countercyclically in a manner consistent with hiring anyone who wants work over the course of the business cycle. The DOL would supply the general guidelines for the kinds of projects authorized under the PSE program. Municipalities would conduct assessment surveys, cataloguing community needs and available resources. In consultation with the DOL, states, and municipalities, One-Stop Job Centers (discussed below) create Community Jobs Banks—a repository of work projects and employers that offer employment opportunities.’
Thus, without the flowery language of serving the priorities of the State (sic Public Purpose), it sure does sound like the FJG is marshalling labor.
In conclusion, it is my contention that only with very strong trade unions can the Federal Job Guarantee system be given some consideration but this is certainly not the case in the USA.
Perhaps the beginning point could become changing US Labor Laws that gives workers countervailing power (like in Northern Europe), another possible Pure MMT for the 100% PRESCRIPTIVE proposal? Meaning that unlike the current FJG proposal, this would be a proposal that would be taken seriously by policymakers because it doesn’t need a single deficit-money keystroke.”—Charles Kondak
Deadly Innocent Misinterpretation #63: Article 1 Section 8 mandates Congress to mint money to provide for the general welfare.
Fact: Federal gov’t spending with newly-minted gold coins is not the same thing as federal gov’t spending with newly-created fiat dollars.
WHEN IN THE COURSE OF HUMAN EVENTS it becomes necessary for some MMTers to say Article 1 Section 8 mandates Congress to mint money to provide for the general welfare to substantiate deficit spending on their ‘prescriptions’; they are not only misinterpreting ‘description’ MMT, they are misinterpreting the US Constitution as well.
First of all, the US was NOT a monetary sovereign when the Constitution took effect in 1789.
Secondly, the reason why the US was a ‘user’ of currency was because the US had just tried and failed at becoming an ‘issuer’ of currency.
MMTers don’t need to go all the way to Wiemar or Zimbabwe to find examples of a fiat currency hyperinflating into oblivion—because we Americans had our own experience right here in America.
Our own original central government (the Continental Congress) printed $241,552,780 in paper money (in Continental Dollars) from May 10, 1775 to January 14, 1779 to finance the Revolutionary War.
Those Continentals were fiat currency—they were NOT backed by gold. Similar to today’s state or local gov’t—a ‘user’ of fiat currency—issuing a municipal ‘revenue’ bond, Continentals were an ‘IOU’ denominated in nonconvertible dollars that were only ‘backed’ by the ‘anticipation’ of tax revenues.
By the end of the war, they had become worthless (“not worth a continental”).
Which left the colonists with a searing memory (read: a legitimate fear) of ‘printing money’.
Which is why the Founding Fathers did not mention anything about ‘printing’ money in the US Constitution. Here is what it says about the money-creation power of the federal government:
From Article I, Section 8, there is “Congress shall have Power…to coin Money, regulate the Value thereof, and of foreign Coin.” And from Section 10, “no state…shall make any Thing but gold and silver Coin a Tender in Payment of Debts.”
In other words, the US (which won independence but fell short in trying to become a monetarily-sovereign issuer of fiat) was to continue as a ‘user’ of gold / gold-backed dollars for the time being.
Every time a political MMTer says that the Constitution gives the federal gov’t the power to create money for the public purpose they are unwittingly agreeing with the ‘neoliberal’ criticisms against MMT’s pet ‘prescriptions’ and backing the ’Austrian’ argument for the return to ‘sound’ money.
Thanks for reading,
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CONTINUED: 77 Deadly Innocent Misinterpretations (77 DIMs #64-77) http://thenationaldebit.com/wordpress/2019/07/16/77-deadly-innocent-fraudulent-misinterpretations-64-70/