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!