Monday, December 1, 2014

Angst in Freedonia: are there no alternatives to austerity?

As neighboring countries, the Kingdom of Moronia and the republic of Freedonia could not have had more different monetary systems. What wasn't apparent at first was just how significant those differences were when it came to how they could deal with both difficult and prosperous economic times. 

Moronian austerity

Moronia, with its gold-based money, was constantly at risk of the depletion of their reserves of gold. This occurred especially when the nation desired to import more goods than it exported (since it had to pay for them in gold) - and this almost always happened when Moronia was at war (Moronians often waged war). To stem the outflow of gold, wages would plummet, rations would be imposed, imports would be minimized, and after a painful adjustment they would start exporting again to restock the gold reserves. 

Over time, the people of Moronia noticed that every time this happened, the large industrial business owners would end up with more and more profits, while the workers never recovered their wages from the downturn. They weren't too happy with all the wars and falling incomes. 

To avoid revolt, the king of Moronia consulted his advisers and business leaders, and they came up with a clever strategy: they would broadcast repeatedly through all possible media the message that "There Is No Alternative" (they called the propaganda campaign TINA, which was later satirized by a popular folk band). The message was harsh, but (so it went) the alternative would be much worse. The only way to survive and compete in a global economy is with lower wages and higher productivity (i.e. longer hours and worse worker conditions) in order to keep the nation's economy strong. 

The Moronians, who were accustomed to suffering (many believed it was virtuous), thought the logic was irrefutable and they dutifully accepted the King's meme. They held out hope that perhaps one day they would join the ranks of the wealthy if they just worked hard enough.


Meanwhile, Freedonia was experiencing a very different dynamic. The had set up their currency (the "Liberties") based not on a promise to convert to gold (a promise they knew they could never keep permanently, especially if they were forced into war -- Freedonians hated war), but on the simple notion that a tax imposed on the population would drive demand for the newly created currency (you can read that story here).

Freedonia traded with other nations (even Moronia), but they always preserved their sovereign right to protect national interests by limiting trade when necessary. Rather than using gold, goods and services were bought and sold at the going currency exchange rate between them and their trading partners. Other nations had followed their lead in forming their own national money of account, and each currency would fluctuate in relation to the others based on a variety of factors. Usually, this took the form of Freedonia's national bank holding onto currency reserves of the nations they sold goods (in selling them goods, they were "buying" that nation's currency), and the reverse would hold for nations they mostly imported from.

Over time, Freedonia became prosperous and also a net importer. They were sending more Liberties abroad than they were receiving back. Their trading partners were holding more and more Liberties (usually in the form of interest-earning government bonds). It looked like they had a mountain of debt owed to other countries but they understood that it simply represented their trade partners' desires to hold their currency in exchange for selling them products. Of course, this also meant that Freedonia was able to keep more of their nation's resources and production for their own enjoyment, in addition to receiving the work product of other nations.

But then came the big recession. 

Banks were in trouble, and the economy was hurting. People were losing their private sector jobs as businesses tightened their belts (fortunately, most found temporary work & a basic income through the national job guarantee program). Businesses stopped investing, and there were some saying the government should also pull back on many of its ambitious projects, especially the national high-speed electric rail system powered mostly be renewable energy. To many, stopping spending just seemed to be the logical response when times are tough. At least, that's what businesses and households do. 

Do sovereign nations with their own currency have to behave this way too?

The export debate

Like all freedom-loving peoples, Freedonias had a lot of opinions across a wide spectrum of values and ideals. One such group, which after the crisis became a fairly vocal minority, emphasized the values of discipline, hard work, & self reliance. Many of them had started their own businesses and had succeeded, or had overcome obstacles in their lives and moved on to success in various fields. They looked over at Moronia and began to wonder if they had something right. 

Perhaps what was needed, they proposed, was to lower wages, work harder, and boost exports to earn the way back to prosperity. They began to question whether the job guarantee should be taken away since it provided a base wage that the private sector couldn't really go below. Seeing an opportunity to lower costs and boost profits, some of Freedonia's leading CEOs and business organizations joined the chorus. 

TINA was a hot topic of debate in bars across the land. 

Many others in Freedonia were more concerned about the darker side of the policies across the border in Moronia. Since the great recession, unemployment had skyrocketed and was taking a very long time to recover. Wages were falling and more and more people were losing their life savings just to stay afloat. Many were no longer able to provide an adequate living from the jobs that were available, and were relying of food pantries and donations for assistance. Crime, domestic abuse, and even mental illness were on the rise. Youth were dropping out of universities because they couldn't afford to stay in school. This wasn't the land of liberty the people of Freedonia wanted. 

Was there really no alternative, they wondered?

So they turned again to study how their monetary system could be used to help them recover from the recession and grow their economy. Did they really need to take the austerity path in the hope their suffering will lead to more exports and, one day, higher wages again?

What they discovered surprised them.

Comparing exports to government purchases

They decided to run an experiment. Freedonia was very good at making trains, so they compared what would happen if:

  1. a new train was exported to Moronia, or 
  2. a new train was bought by the Freedonian government.

Option 1: 

  • Moronia places an order for a train with a large train manufacturer in Freedonia
    • Moronia only has gold, but the businesses wants Liberties to pay suppliers and employees, so the Bank of Freedonia takes the Moronian gold and then issues new Liberties by crediting the bank account of the train manufacturer. 
  • A number of businesses in Freedonia work together to make the train (there are many small and medium businesses involved in the supply chain)
  • These businesses have to hire additional good paying jobs
  • The businesses see profits increase
  • Finally the train is shipped off to Moronia

The end result is that there is a NET INFLOW of Liberties into the economy from outside the Freedonian domestic private sector economy.

Great, this is exactly what the supporters of the Moronia Austerity Plan predicted!

Option 2: 

  • The Freedonian government places an order for the same train. 
    • In this case, the Government simply credits the bank account of the train manufacturer with newly created Liberties, which only the Bank of Freedonia can issue. 
  • The same manufacturer and suppliers make the train.
  • The same number of new, higher paying jobs are created.
  • The same profits made and workers paid. 
  • The train, however, stays in Freedonia to the benefit of the people

So once again, the end result is still a NET INFLOW of Liberties into the economy from outside the Freedonian domestic private sector economy.

What's the difference? 

  • In money terms, there is none! Fiscal policy has virtually the same effect as foreign trade in stimulating the economy.
  • In "real" terms, one could argue that the Freedonian's are actually better off having worked to produce a train they use themselves rather than one that is sent to help Moronians (especially since Moronian trains are mostly powered by non-renewable energy, which has been causing pollution in the neighboring regions of Freedonia!)

Some still worried about the so-called "national debt"? It seemed to be a big issue for Moronia with their gold-based money. So once again, they set out to evaluate the two scenarios to see how they impacted Government Bonds. 

Option 1:

Moronia used gold to pay for the train so the Bank of Freedonia now has a stock of gold as an asset on its balance sheet, but it also issued new Liberties (a liability in accounting terms) to the train manufacturer. All just entries in a computer - keeping track of money units.

If the buyer was another nation, the Bank of Freedonia would hold an account of that nation's currency instead of gold. 

In some cases, the buying nation might already have Liberties accumulated from selling goods to Freedonia. In this case, those Liberties would have been converted into a government bond so they earn interest. That nation would then sell some of its stock of Government Bonds to make the purchase. Who will buy those Government Bonds? Quite simply, the train sale caused bank accounts in Freedonia to increase. This causes bank reserves to increase, and banks prefer to earn interest on excess reserves, so they buy bonds in equal portion to the injection of Liberties - i.e. exactly the same number that the other nation sold to make the purchase.

In an economy like Freedonia where money is issued by the government, there are ALWAYS enough buyers for any Government Bonds because the money has been injected into the banking system first. 

Option 2:

Well, you may have figured this out what the Freedonians discovered: the same bank accounts are credited for the sale with new Liberties, which causes the same increase in bank reserves, which creates the same demand for an interest-earning alternative to holding excess reserves, which leads to the same Government Bond being purchased as in Option 1.

In other words, it makes no difference whether Liberties came from trading with another nation (exports) or from a government purchase (fiscal policy). 

And Freedonians already knew that what Moronians called "government debt" was simply a record of all the interest-earning injections of money - whether initiated through foreign trade or from direct purchases from their government. In both cases someone in the Private Sector increased their savings via an investment in Government Bonds!

Austerity angst abandoned!

Freedonia had their answer! 

  • They didn't need to take away the job guarantee that was providing essential income and work for those who lost jobs in the recession. 
  • They didn't need to lower wages and join the austere Moronians in a race to the bottom of worker pay in order to sell exports cheaper than other nations.
  • They didn't need to cut funding for education or research that were part of their vision to have Freedonians lead the world in innovative ideas and technologies.
  • And they didn't need to stop investing in their important infrastructure projects that were laying the groundwork for a prosperous future.

Of course, this wasn't about digging holes in the ground and filling them up to create work. The train was needed, along with so many other things. The question was whether they had to "get money" from someone else to help their economy or whether they had the ability to help themselves. 

How did the train get built? They simply created the money by crediting bank accounts, because Freedonians had a sovereign currency. And it works just as well as exporting!

With this debate settled, the Freedonians began to think again of all the things they wished to do as a nation that they would have done of they had a booming export business and money flowing in to their economy. 

They remembered again why it was that they created the sovereign currency in the first place. It was for exactly this moment - so they could fully deploy their national resources in ways that were to the benefit of their people and that the private, profit-seeking entrepreneurs and businesses couldn't do themselves. 

Rejecting austerity and carefully investing in their people and nation, through good times and bad, was the fiscally responsible thing to do.

Tuesday, November 25, 2014

Living in Fearguson or Hopeville

What we do in response to fear, is very often worse than the things we fear themselves, which are all too often phantoms of our minds and media. 

In economic terms, our response to the fear of inflation causes us to destroy jobs and with it, human lives.

Our response to the fear of deficits causes us to cut off the hand that feeds us, hurting the poor the most and ruining our future by cutting back on investment. 

Our response to the fear of tyrannical government leads to the dismantling of essential protections and regulations that reign in private sector abuses and hazards.

Our response to the fear of enemies, domestic and foreign, leads to an increasing police state and global militarized presence, often with first-strike intent, often breeding more violence.

Hope has no room for fear. 

Hope in people. Hope in the poor. Hope in the youth. Hope in rejuvenated neighborhoods. Hope in cities. Hope in governments. Hope in businesses. 

Hope in ourselves. 

Hope acts. Hope builds. Hope has vision. Hope grows. Hope restores and rejuvenates. Hope respects. Hope honors. Hope includes. Hope invests. 

Hope always wins. 

Friday, November 14, 2014

Freedonia & Moronia: A Sovereign Currency Parable

In the emerging but scattered country of Freedonia, the people decided one day that they wanted to band together to protect their freedom as a nation, their individual rights, and to grow their economy together. They establish a constitution to form a government, courts, police, an army, and the ability to empower their government to build roads and infrastructure needed for defense, well-being, and commerce. They also wanted a way to provision for their elderly and needy. 

With their constitution in place, they excitedly asked for volunteers to come and perform all the work needed in the new government … but no one stepped forward. They were all too busy working to meet their own needs and run their farms & businesses.

Freedonia's economists convened and suggested that the government create and issue a national form of money to pay for their needs. So they created a national currency called ‘Liberties’ and printed the first issue of notes. Before long, they were proudly announcing the new money to the people, promising to give it to anyone who would come and fill the government jobs and build the roads and other infrastructure projects. Again, to their dismay, the people all declined. The new money had no value to them and they’d rather keep working their fields and making their goods.

Now there was one wise history professor who had studied all the economies throughout the ages. She urged the new Freedonia government to 1) create a small tax on every household (initially suggesting the amount of 100 Liberties), 2) require that the tax can only be paid back in Liberties, and 3) ensure the new tax was collected. They debated the radical proposal (Freedonians love to debate), wondering if it would work and if the people would accept it. Eventually they all agree to proceed. The people of Freedonia had followed the debate and were well informed; the new tax passed in a national vote. Most of Freedonia really wanted a functioning government with its institutions that would protect property rights and help facilitate commerce, and to accomplish their collective goals for a great nation. 

To their surprise, as soon as the tax was imposed, applications for all the work came flooding in and businesses were also willing to accept Liberties in payment for their goods and services. Everyone was willing to work for wages in Liberties because they all now needed them to pay the Freedonia government tax. Many people even began saving lots of Liberties for future needs.

They noticed something else that was new... unemployment has been created! People were looking for work to earn Liberties but couldn't find enough jobs. 

The government quickly got busy issuing new Liberties whenever it needed to build a road, a hospital, or to pay judges, court staff, police, and the army. Even those not working for the new Freedonia government now accepted Liberties as payment for goods and services because they knew they needed them to pay their taxes, or they could exchange them with someone who did need them. Before long, everything in Freedonia became priced in Liberties and it become the standard unit of accounting and the sole means of trade throughout the land.

A sovereign currency was born!

The Freedonians marveled at the simple yet effective tool they had created to facilitate the provisioning of their collective needs. The small tax would regularly remove some of the Liberties that the government created when it spent, but not all of them. Occasionally, they had to increase the tax to remove more of the Liberties from the economy when it was “overheating”, but most of the time, they had to keep the taxes low and even spend more Liberties to make up for the amount that were being saved by the people. 

They realized that since every business and household now used Liberties, whenever too many Liberties were saved, businesses couldn’t sell all their goods and had to lay off workers. No one in Freedonia wanted to be unemployed or to waste idle labor when there were so many things they could do, so they found endless creative ways to get their people working again that benefited society. They simply issued new Liberties to pay for this work and to make up for the Liberties that were being saved. Everyone was employed that wanted to work.

Now the neighboring king of Moronia, who still used gold coins in his kingdom that he dug from his mines, borrowed, or received when exporting to other countries, was amazed at the success of Freedonia and went and met with the government to find out how their amazing new currency worked. 

He had so many questions...

How did you get these Liberties to be accepted? Did you promise to convert them into gold? 
No! We simply created a small tax that could only be paid in Liberties, and that created the demand for Liberties throughout our land. 

But don't you have to borrow the Liberties from the people in order to spend them? 
No! The people of Freedonia had to first obtain Liberties from the government before they could pay them back for taxes they owed. We never needed to borrow because we control the creation of Liberties ourselves. Sometimes we choose to give people a chance to hold Liberties in a special account and earn interest. It might look like borrowing, but it's really a policy choice to give interest to savers and our foreign trading partners.

Well then, was the government of Freedonia restricted from issuing new Liberties until the last ones have been collected back from the people in taxes? 
No! We could issue as many Liberties as needed for whatever the people authorized. Remember, we are a public monopoly - the sole issuer of Liberties on behalf of our people!

Okay, but you could issue too many Liberties at once, right? Your currency is surely going to fail when you keep making more of them. I saw how big the number was getting.
No, dear king. It appears you can't see past your gold money. Yes, in theory we could just create endless Liberties, but we only do what is in the interest of our people. We have put in place a budget process to make sure we only issue what the people want and to ensure our people are fully employed and the economy is productive.

But surely issuing more new Liberties than those you tax back from the people causes prices to rise? 
No! A lot of people want to save Liberties for retirement and other needs, so we have discovered that we actually need to issue more than we tax just to keep everyone employed. We also buy goods from other countries and they receive our Liberties in exchange, which means we need to issue more back home to make up the gap and keep everyone employed. Since we pay them interest (remember how we described "borrowing" earlier), they are happy to keep saving our money in exchange for selling us their goods. 

Still dazzled by his gold coin collection, the confused king of Moronia hurried home, fearful his subjects would rob his vault in his absence.

Meanwhile, the people of Freedonia had begun making plans for more schools and universities to train their next generation for the needs of the future, more hospitals and medical centers to provide care for their growing population, plans to care for their elderly with housing and income, and a new rail system that would enable them to move goods and people rapidly around the nation and facilitate trade.

Their best days lay ahead!

Tuesday, November 11, 2014

Money lessons from the military

It is a bit of a mystery why we treat our military and our federal government in such polar opposite ways. 

The military is granted a virtually unlimited budget, while our federal employees and programs are constantly under attack to eliminate or reduce their budgets.

The military and its employees are considered our national heroes and held in highest esteem (and honor is certainly due for their courage and sacrifice), yet many other federal departments and employees are often derided or even despised, despite the lifelong sacrifice many give to serve us. 

We are greatly exercised over the rise in size and power of our elected officials and government programs yet we often have little concern about the size and power of our military and the industrial complex that it supports. 

Both are part of our "government", but we seem to love one and hate the other. We seem to have two standards when judging the separation of powers. 


Perhaps it is because the military parades its employees and hides its generals & policies, whereas the federal government parades its officials & policies and hides its workers?

Perhaps we need to take a page from the military's playbook and push out on social media a "hero of the day" featuring our teachers, FAA engineers, court judges and staff, environmental workers, and bank regulators. Perhaps if we made them our heroes we would begin to see the good we actually do together, and we would inspire more of the best to step forward and serve.

Do we realize the sacrifice of those who give up higher paying jobs in the private sector to educate our children or expose pollution in our drinking water or fight an army of lawyers and smear campaigns to expose criminal activity in financial institutions? 

Our brave soldiers deserve our respect, and so do our public officials. Perhaps by doing so, we would elevate service and responsibility and efficiency and all the things we deserve and wish for from our government. Perhaps we reap what we sow.

Whatever the reason, a parable may help us see that what works for one can, in fact, be used for the other, opening up possibilities of national well-being and prosperity.

Protecting freedom by sidelining the army

We easily recognize a foreign threat when something blows up: Pearl Harbor; World Trade Centers. 

But freedom is no less under attack when our financial system is blown up by runaway deregulated financial institutions. When 800,000 people are losing their jobs every month as was the case after 2008. When savings and retirements are wiped out or taken fraudulently. When education is out of reach financially without a lifelong debt burden. When the jobs available don't pay for the cost of living, let alone providing for our children's futures. When one medical problem leads to bankruptcy and poverty for an entire generation. Freedom is under attack and out of reach for tens of millions of Americans today.

So what can we learn from the part of government we call the military?

Imagine if our free land were attacked by two powerful nations from each coast, and we responded as follows:

  • Since we are afraid of giving our military too much power, we decide not to allow it to intervene in our defense. "It's just too much power in the hands of government officials." 
  • We need money so we cut the military budget and have the armed forces stay on their bases.
  • We instead give tax breaks to citizens and businesses so they can go to the market and buy guns and ammunition to protect themselves.
  • If enough people do this, we believe we will create strong free market-based militias to fend off the invaders, although we realize the enemies will probably have made huge inroads into our land by then. 
  • We realize that many people in many parts of the country may never actually be able to fend for themselves but that's just the cost of ensuring that the military doesn't use the war to take over the whole country and we lose our freedoms. 
  • The wealthier pockets, especially the corporations that have more resources, will be able to protect themselves. The smaller businesses and population see these safe areas and ask for help, and the corporate militias do so in exchange for taking over the small businesses.
  • Of course most citizens simply build bunkers, hide, or cloister together in small scattered groups and so few unified militias actually form and so the tax breaks have no effect on stimulating a strong resistance force.
  • Eventually, the corporations sue for peace with the invaders, working out a way to keep growing while leaving the population under occupation. A new equilibrium forms with a relatively stable land, large scale servitude, and small pockets of freedom and excess for the wealthy. 

Imagine the national outrage at such a response! 

If such a military invasion occurred we would release our powerful military forces that were created for this very purpose. We would marshal every resource in our nation, build and buy whatever we needed for the war effort, and employ every able bodied citizen in the fight until we had thoroughly defeated and repelled the invasion. 

Would we worry about deficits and national "debt"?  Of course not. What matters isn't the money but our land, our people, our liberty, and our way of life. Money can and will be created at will to pay for whatever is needed to ensure our national survival and prosperity. We have, in fact, done just this with every war.

So why do we not respond in kind to our economic plight? Why don't we release our powerful monetary system that was created for this very purpose to dispel the forces of unemployment, failing infrastructure, accessible education, and all the other threats to individual liberty?

What works in war also works in peace

In fact, we can and we should use the federal budget in this very same way. It can rise and fall as needed to marshal the real resources of our nation to be utilized in such a way that provides employment for all workers, incomes for the elderly, medical care for the sick, education for the eager minds, transportation for the future energy paradigm, and so much more.

This is actually how the system is designed to work. The term Functional Finance has been used to describe the proper use of the government's operations of spending, taxing, buying, selling, and borrowing. Each operation should be used ONLY with regard to the EFFECT it has on the real economy and the wishes of the public, and not with any regard to any irrelevant ratios of one factor to the other (such as borrowing and taxing in ratio to spending).  

  • Tax because we want to take spending power away or shift resources from socially undesirable production/consumption. 
  • Buy because we wish the government to build or own something (like roads or oil reserves).
  • Spend because we want portions of our population to have more income. 
  • Borrow because we want to provide interest payments to savers and trading partners.

None of these operations need to be measured or adjusted in relation to any other. Each can be evaluated separately for its effect on the economy and on real needs and wants. This is exactly how modern monetary systems work. We just need to get out the instruction manual and start using it properly, as we always do during war time. 

And unlike the military and its industrial complex, we can actually do so without enormous centralized bureaucracy! We can use money to protect individual liberties, provide equality of opportunity, and enhance families, local communities, and states -- all without centralizing control in Washington DC.

As we remember and respect all that our military does for us, let us learn the lessons it teaches, and release ourselves from senseless financial limitations that crush our people and take their liberty. We have the most powerful monetary system ever created that can permanently end unemployment and fund any project we need to ensure our free and prosperous future, so long as we have willing people and the real resources available to deploy.

Sunday, November 9, 2014

A new narrative

I'm curious how many realize that we have recreated the same economic environment as the Great Depression. 

It's astonishing really. 

It feels different this time only because of the income-supporting welfare systems the West has that were absent in the 30s. 

They are a poor substitute for employment.

As Twain said, history doesn't repeat, it rhymes - which only makes it less obvious to see when we're in it. We've done it again, but we can't seem to see what we've done or to find the clear and simple path out of this human tragedy. 

Sovereign nations have the ability and responsibility to prevent depression, and to ensure people have adequate employment and income to live. 

But we don't seem to want our government to do this. Those of us with sufficient work and income are content to let others suffer rather than direct national resources toward our neighbors. The prevailing narrative says we have to leave things alone - that trying to help will only make it worse. And we've all seen that before. 

We who are in the ranks of the "doing okay" control the vote and the purse strings. And we keep voting to maintain the very system that created another depression, sentencing more friends and neighbors to a life of welfare, underemployment, uncertainty, and unemployability for some. Ironically, we make our own situation more precarious by leaving our economy teetering on the edge of recession, closing down more and more of our public services, and starving off investment in public infrastructure.

We can change this - and quickly!

We need a new narrative - one that respects our ability to have good leadership for our nation, not just the worst we've come to expect. We reap what we sow. 

We need a new narrative that understands that capitalism always and only functions in the framework of public institutions, and we can make these institutions work for good. 

We need a new narrative that places the dignity of all citizens as the foundation of the economy, ensuring they can work and provide for their families and grow their skills and knowledge. 

We need a new narrative that recognizes that a nation's wealth is not financial; that money can always be created on demand to create the real prosperity we desire and need. 

The most stable and prosperous economy is one where the nation's currency is anchored by maintaining full employment - not by gold or central banks - and that uses money to invest in people, infrastructure, knowledge, and the rejuvenation and cultivation of our natural resources within which we all live.

We need a new narrative that forgives, that hopes, that serves, that inspires, that believes that we can be great again. 

Thursday, November 6, 2014

Confessions of a former fiscal conservative

Yes, I used to be so proud of the elevated moral ground I stood on when proclaiming my fiscal conservatism. I mean what can be more right than making "hard decisions" to "get our house in order", right? 

Yeah, I knew that meant the most vulnerable will probably feel the pinch the worst, but I had worked hard and it paid off for me - why couldn't they just do the same?  Ugh!

So why do I say "former" fiscal conservative?

It's quite simple, really. The fatally flawed premise of fiscal conservatism is that the federal government is like a business (or household if you prefer). That is, it earns revenues and has expenses, and like all of us, it has to balance it's check book or it will get in trouble. Yep - I did say fatally flawed. It's complete nonsense - and we all know it if we just sit and think for a moment about what it means to have a legal money printing press. 

A currency-issuing sovereign nation is nothing like a business. It operates on a completely different fiscal paradigm. It has been granted monopoly control of a national monetary system that provides the ability to create spending power out of thin air whenever directed to do so for the common good. What business or household has this power? None!

How did we come to forget this? It would be funny if it weren't so tragic.

What we think of as fiscal conservatism is, in reality, nothing less than the reckless waste of valuable resources. We fail to maintain and enhance critical infrastructure that powers our economy and serves our peoples needs; we abandon large portions of our population to live on welfare, refusing to employ and educate them so that they could enhance their own lives and those of others in the community; we let capital and businesses sit idle when they could be put to productive use; we lay off scientists and close labs that could be inventing the next medical or technological breakthrough.

This is the height of fiscal irresponsibility. There's no moral high ground here - only a web of misinformation and folly that has entrapped western civilization in a cycle of impoverishment and inequality. 

Real fiscal conservatism in a nutshell is this: utilize fiscal policy to whatever measure is necessary to ensure that the private sector is fully employed. 

Period. No irrelevant squabbles over debt-to-GDP ratios and arbitrary debt ceilings. No meaningless metaphors of deficit black holes, drunken sailors, or per-capita debt burdens on our descendants. No hysteria over imaginary fears of hyperinflation. It's all irrelevant.

We can and we should debate all the other government investments, programs & benefits on their merits, but never on the question of affordability or with arbitrary limits based on annual tax receipts.  

So take it from a former fiscal conservative: if you want to balance taxes and government spending with zero regard for the impact that has on the economy, employment, and the lives of citizens, you are neither conservative nor fiscally responsible. Rather, you are harming the economy, people's lives, and contributing to the destruction of capitalism. 

Let's redefine REAL fiscal conservatism, and return our economy to full capacity. And any time you see someone talking about balancing the federal budget, please kindly educate them about how a sovereign currency works!

Thursday, October 30, 2014

Hillary Hysteria & Job Creation

I have no idea what Hillary was talking about here, but the question of job creation is greatly misunderstood on all sides, and of much importance to us all.

It is often said that entrepreneurs and small businesses are the "job creators" in the economy. But if all an entrepreneur does is cause consumers to shift their spending from Dell to Apple, or from Panera to Chipotle, have we added new jobs to the economy? Are we also counting the lost jobs that resulted from the shift in consumer preferences?

  • Does Tesla create jobs if GM loses them? 
  • Do robotics manufacturers create jobs if factory workers lose them?
  • Can businesses really create more jobs in the whole economy by themselves? 
  • Can the government also create jobs?

Well, of course businesses create jobs in the sense that entrepreneurs and innovators and business managers are working diligently to provide a product or service that the public wants or needs, and when they are successful and grow they can hire more people. But in the aggregate (across the whole economy), businesses don't create new jobs simply by wanting to hire people or make more stuff. There has to be growing demand for their product. 

For a business, new jobs can originate from two main sources:

  1. Investors or banks inject funds for the business to hire people, build a factory, make a product, etc. in anticipation of the business selling enough in the future at profit such that they get a return on that investment. Investment funding is temporary and must be replaced by sales or it will quickly run dry. 
  2. The business has sales and based on forecast growth they add staff and expand to meet anticipated or actual demand.

Now where do these sales and this anticipated future demand come from? The consumer's ability and willingness to spend (let's ignore exports to keep this simple). So how do sales grow?

1. Consumers get into debt to spend (remember the Clinton years!)
2. Consumers spend their existing savings ('dis'-saving)
3. Consumers spend more of their income and save less (living on the edge)
4. Consumers have more income so they can spend more while still saving (healthy growth)

At the end of the day, new jobs are added and sustained in an economy not by tax cuts for corporations, but by customer demand for goods.

When the economy stagnates and real incomes keep falling and debt levels are already high, businesses won't invest and grow as they don't see the forecast for demand increasing. This is the situation we have been in since 2008. 

This is where outside injections of income into the economy (we call that a government "deficit" - a poor choice of words for a positive flow of money into the private sector) are critical. This can take the form of tax cuts (ideally aimed at spendable income, not wealthy savers), various welfare payments, direct hiring of the unemployed, and direct investment in useful areas (R&D, infrastructure).

So yes, businesses individually might create jobs and are essential to the system of innovation and capturing/shaping consumer wants and needs...

...but no, businesses themselves don't 'create' more jobs in our economy in the aggregate - that always comes from more people spending more of their incomes (or debt) which stimulates businesses into hiring. Capitalism runs on sales.

The Minimum Wage

The minimum wage seems to be a focal point of Hillary's message. She is arguing that a higher minimum wage will result in more jobs and less inequality, pointing to her husband's term as an example (never mentioning the excessive private debt build-up that fueled that economic boom, and subsequent crash). 

The usual reaction from the other side is that supply and demand 'laws' teach us that rising minimum wages will result in more unemployment as businesses can't afford the higher costs and will have to lay off low-income workers. Of course, this 'law' assumes that the "wage market" is already in perfect equilibrium, and that all prices & wages are perfectly flexible (adjusting to any sensitive movement of the other), which never occurs in the real world, but we'll ignore this for now. 

In reality, there's some truth to both sides. 

To the extent that current minimum wages are below a level considered livable, it may be that the current wage is lower than the equilibrium wage in the imaginary world of supply & demand curves - i.e. raising it might not lower demand for labor.

But more importantly, to the extent wages can be raised by shifting corporate profits to workers, and the workers have a higher propensity to spend (which they usually do), then the economy could see an increase in total demand (savings of businesses/owners fall and consumption by low-income workers increases), stimulating growth & more jobs.

On the other hand, if margins are tight, profits are slim, and a small increase in wages results in more layoffs than can be overcome by the increased wages/demand, then the higher Minimum Wage law might have a negative effect on demand and jobs.

It's not a given either way, as the politico blog hysteria would like us to believe.

A false choice?

What is always missed in this debate is that there is another, much preferred option: the job guarantee. If we simply eliminated involuntary unemployment by having the federal government cover the cost of work at a living wage (locally offered & administered), we would simultaneously eliminate the Minimum Wage debate, end unemployment, dramatically reduce welfare dependency, and make the biggest dent in poverty and its related social ills we've ever seen. 

Oh, and it would also happen to create jobs through restoring growth in the private sector economy!

So before you argue against a Minimum Wage increase on economic grounds, consider that it's not so black & white as many claim. Rather than believing we're helping people by fiddling with this policy, we should instead all turn our attention from such endless debates and really solve the underlying problem of unemployment and living wages. 

Ask your elected officials if they support and job guarantee, and if not, vote for those that do!

Sunday, October 26, 2014

Time for Teachers

Time: The War on Teacher Tenure
Time magazine's recent piece has caused quite a stir among educators and the public.  

Blogger, Brian Anderson, responded with a series of comments on Twitter that I thought are worth repeating. He takes particular aim at the Venture Capital (VC) approach to turn education into a mass market for hi-tech products.

Once again, it is a mistaken belief in how a sovereign monetary system functions that gives strength to the arguments of those opposing appropriate investment in universal education for the next generation. And so we turn to alternatives, thinking we can't afford to do what needs to be done.

What would a 50% increase in teacher salaries and a maximum of 15 students per class do to our quality of education? Oh wait, we don't even consider such alternatives because we think we'd have to raise taxes to pay for it. 

Thanks to Brian for permission to re-post his comments (a few minor edits were made to fix "Twitter" abbreviations). Emphasis added.  

"Let's make a list of teacher-bashing VC's, and boycott them! Why would you want to let someone make money off of your start-up who is going to use it to attack your friends, your family and your kids. I can deal with libertarians, I can do business with libertarians. Everyone is a libertarian or some kind of 'fiscal conservative'. But when you attack teachers and the public education system you make it personal. Remember that. Teacher bashers let bad logic about money and gov’t turn them into bad people. Don't be a teacher basher.

We need to move to a 100% federally funded education system, with haste.

Just because you are born in a poor place doesn't mean you should get a substandard education.

Educating your own kids is like being your own lawyer, only it’s more like being your kid’s lawyer.

It must be possible for someone to graduate high school, finance a college education, and then pay off any loans by working as a school teacher.

Libertarians would have you think that is a mathematical impossibility. But they shouldn't have a say in education OR finance.

If you have to be from a privileged background in order to follow that type of career path, we must be doing it wrong.

Libertarians and their neoliberal enablers see Ponzi schemes everywhere they look. That's because they don't know squat about finance. Education is not a Ponzi scheme. Not in kindergarten and not in grad school. Education is like everything else. The money to pay for it comes from gov’t spending.

VCs seem especially interested in education these days, and I see two reasons for the trend. The first reason VCs are interested in education is because they are libertarians and neoliberals. As such, they believe that all public spending is essentially a Ponzi scheme. They believe the deficits required to provide universal free education are unsustainable and erode the purchasing power of THEIR money. They view public school teachers as takers who are getting a free ride at their expense. Because they believe taxes fund gov’t spending.

They believe these things because they learned them from economists while they were in business school. But those economists should have constructed better theories of markets, and their students (the VCs) should have been more critical. If your best explanation of middle-class consumer capitalism has a Ponzi scheme at its center, maybe you are doing it wrong? Maybe it is not the existence of the middle class that is the problem, maybe it is your understanding of asset-pricing and accounting? Of course, I could go on about why capitalism needs deficits in order to operate a unit of account that is both liquid and stable in value.

But I want to talk about the second reason why VCs are so interested in education these days. It is because VCs are investors who put their gov’t issued money into startups and want to get MORE gov’t issued money out. They have tried to compete with Wall St. to help the middle class invest for retirement. Mostly failed because Wall St. knows money better. They have tried hawking all sorts of ad tech gizmos at fortune 500's. That's ok for a while but they know they are bleeding a stone.

They cannot MAKE people spend money that they don't have. They have tried turning the unemployed into unregulated cab-drivers and inn-keepers. The point is that they are setting their sights lower and lower. It is no surprise that they see education as a promising market. After all, money comes from govt. VCs see teachers making salaries and THEY want that money.

They want to replace your kid's English teacher with a computer program that will take them through "Of Mice and Men" one page at a time. They will print out charts and graphs that tell you how many pages per minute your kid reads, and where they sit on the normal distribution. And they are going to try to convince you that this is better than having actual teachers in the schools.

And they are going to replace public school teachers’ salaries with license fees that go directly into the bank accounts of firms they OWN. Whether they can explain it or not, VCs know that money comes from govt. That's why they are lined up at the trough. That's why they are trying to muscle the middle class out the way. To take a bigger share of the gov’t created income.

It’s also a thriving marketplace for them. If you think test scores show a problem, you can sell all kinds of products. The marketplace for (mostly worthless) school interventions on the market is denominated in the $multi-billions. Not just VCs, Conservatives, libertarians & politicians, all know money comes from government but can't/won't explain it!

The fact that gov’t spending creates the money that we earn, spend and save has a lot of consequences. When public spending dollars are allocated to individuals like teachers, those teachers are then able to spend, save and invest. That spending is what makes the rest of our investments profitable. It sends information about consumer preferences to entrepreneurs. But when (say) education spending is allocated directly to some Silicon Valley software company, it does nothing for the community.

What it amounts to is a gov’t which directly allocates capital to a group of producers selected by bureaucrats. IOW, central planning.

I want to help you visualize the difference. Imagine a map of the US with a little dot at the home of every public school teacher. Now imagine a second map where there are three big dots centered in Silicon Valley, such that the area of the three dots is equal to the combined area of all the little dots in our first map. The first map is how public education spending is distributed in our traditional system, which libertarians think is a socialist system. And the second map is how education spending would be distributed if these people get their way. So the way that gov’t spends has consequences that go far beyond the resulting change in our national debt (equity). It determines the geographical distribution of income and spending, it determines which communities are buyers and which are sellers. That's why we should reject VCs bearing better, faster, cheaper forms of education. They are the ones that need to be reeducated."

TINA, you're breaking my heart!

TINA, you're breaking my heart,
You're shaking my confidence daily.
Oh TINA, I'm all out of work,
I'm begging for job guarantees.

TINA, you're breaking my heart,
You're shaking my confidence daily.
Oh TINA, there's no place to work,
I'm begging for deficits, please.
Job guarantees.

Unemployed in the afternoon with TINA
Upload resume,
I get up to find some cheer,
When I refresh the page,
Jobs are no longer there.

TINA, you're breaking my heart,
You're shaking my confidence daily.
Oh TINA, I'm down on my knees,
I'm begging for job guarantees.

She loves me again,
I fall on the floor of the dole.

She loves me again,
I fall on the floor of food stamps.

There is always an alternative! 

A Job Guarantee is arguably the most "just" policy mechanism related to unemployment for a monetized economy, and is certainly a compelling policy for a host of other social and economic reasons.

Friday, October 24, 2014

National high speed rail network coming to USA!

Bill Gates, Elon Musk, and Warren Buffet team up to invest their billions in a new high speed electric rail system linking all major US cities. The project will transform US public transportation, dramatically reducing air travel while cutting carbon emissions and helping transition the nation to a more sustainable energy future. The project will be built in phases and is expected to be completed by 2030. 

Exciting, isn't it? Could these three storied entrepreneurs and investors pull it off? 

Okay, the story is totally fabricated, but we have something so much better than three billionaires at our disposal. We have a sovereign currency and a nation of incredible resources, engineers, and skilled labor - all ready to be deployed if we'd simply direct them to do it. Why would we get so excited about entrepreneurs tackling a project like this and then be disappointed that it would take our government resources to pull it off? In fact, a project of this scale can probably only be accomplished with federal backing, and can be made affordable to all by injecting the funds to build and operate it into the economy. Why would we want to burden our states and cities with this bill when they have to tax and borrow to fund it. These are exactly the kinds of initiatives for which we created our sovereign currency!

Why have we forgotten that we don't have to wait for Silicon Valley or the Oracle of Omaha to take bold steps forward that are in our collective interests? We used to think this way as a nation. We built a national highway infrastructure that powered an economy that was the envy of the world. We put men on the moon and invented groundbreaking new technologies that transformed society. We placed satellites into orbit and provided weather data, cosmological discoveries, and GPS services that now resides in the pockets of consumers worldwide. We did this not by waiting for private funds to be saved up in order to afford these investments. Rather, we took the initiative knowing that as a sovereign nation with vast real resources, we had the ability to issue our currency to marshal resources to tackle big problems and build big dreams.

It's time we began to dream again. We have the money. We have the resources. We have the people. We just need the vision, the hope, and the belief in ourselves that we can do good together.

It's time to do good together. 

Image source from USHSR

Check out the USHSR vision for a high speed electric rail system across the US here

Thursday, October 23, 2014

It's scary to admit something's wrong

So many of us think that if we can just free up capitalism from even more of the regulations and hindrances made by "government", the free markets will quickly liberate us from our economic woes.

Unfortunately, this is part of the fraud of "deregulated capitalism" - the more it is deregulated, the greater the wealth concentration by those who control the capital, the greater the inequality, the more frequent the crises and job losses, and the lower the real wages for everyone else.

Not to mention the continued destruction of our environment and the geopolitical instability and oppression that results.

This reality is incredibly threatening to so many since faith in free markets is all we have known. To admit its faults is scary - we fear a slippery slope to government take-over of everything, and so we blindly and dutifully defend the status quo.

There's a marvelous alternative if we'll just take the time to set aside our ideology and seek it out. Imagine what it could look like.

Monday, October 6, 2014

The Market gods are angry

When did The Market become a god? And when did free people decide to bow to this golden calf of their own design? 

The high priests declare from above:

"The markets are saying..." 
"The market won't support..." 
"The market requires..."

And we timidly accept their decrees, gratefully taking what economic morsels they grant while watching as millions are turned aside with little or nothing.

When did we give The Market control of our children's education? Our nation's infrastructure? Our health services? Our political process? Our employment? Our sovereign currency?

Have we not become like a primitive culture, sacrificing our children at the whim of a medicine man in the hopes that the gods will no longer be angry and will give us some more jobs and incomes? Are we so helpless? Is there really no alternative, as the priests keep assuring us? Have we forgotten that we are a sovereign nation and a free people? 

We have forgotten what a sovereign currency is, why it matters, and what it should be used for.

We are a rich and abundant nation yet we have come to believe that we must be paupers to appease The Market gods. 

  • We have an incredible educated workforce
  • We have an army of professional educators and professors
  • We have abundant land, food and natural resources
  • We have boundless sources of renewable energy
  • We have the world's finest doctors and health care professionals, and the means to train many more
  • We have engineers and architects and construction workers and all manner of human capital, with an eager new generation hoping to learn and contribute more than ourselves
  • We have a political process designed by and for the people
  • We have a nation of entrepreneurs, innovators, pioneers, and just plain hard working, tough people who are willing to do what's needed

So who told us that we can't afford to educate our children and train the next generation of doctors and engineers? 
Who told us that we must leave millions of our people unemployed as a buffer against inflation? 
Who told us that is it too costly to have affordably-sustainable energy and clean air and water? 
Who told us that our cities can't afford to have world-class sewer systems, water treatment facilities, roads, bridges, libraries, museums, parks, hospitals, and other common infrastructure? 
Who told us that corporations are people and can outspend the people to control the political process? 
Who told us that millions must have no access to good medical care otherwise we'll all have to suffer shortages of doctors? 
Who told us that welfare is the only option to help the unemployed?
Who told us that caring for our elderly is unattainable and that our funding mechanism is going broke?

The Market gods are angry. 

They have not allowed us to recover this time around. Millions have stopped trying to find work after years of searching. The priests are telling us we need to sacrifice more: to give up our care for the needy; to stop helping the unemployed and unemployable; to sell off our public assets; to reduce spending on government services everywhere; to cut and slash and bleed until the sick patient recovers.

Oh the folly of serving the gods! 
How disastrous is the idolatry of bowing to golden calves!

A free people and sovereign nation is never constrained by any market gods for determining what they wish if it is readily available in their currency. Affordability is NEVER a constraint for a currency-issuing nation. Yes, there are questions as to where to spend and what to tax that should all be debated on their merits. These are political questions, not financial limits. The starting point for these discussions is that we have a sovereign currency that affords us the policy space to do what is right.

We can afford to lower taxes on businesses and incomes. We can afford employment for all who seek work. We can afford education for our children. We can afford to provide access to health care for all. We can afford state-of-the-art infrastructure and transportation. We can afford freedom of opportunity. 

There is no freedom in serving The Market gods. Yes, markets and capitalism play an important role but they do not rule us. A truly free people can choose life and prosperity and equal opportunity for its citizens, without yielding to the tyranny of overbearing governments or deistic markets.

Some gods shouldn't be appeased. They should be demoted and learn to serve the people.