The Right Way To Do Medicare For All

With the debate about single-payer Medicare For All increasing in recent months, it is important to know a crucial detail about it.  While the main thrust of the debate lately has been how to "pay for" it all, and exactly which taxpayers will bear the brunt of it, the truth remains that our Monetarily Sovereign federal government by definition has infinite money, and thus does NOT actually need any taxes to pay for it (or anything else, for that matter), since federal taxes do NOT actually pay for federal spending at all.  That is in fact a Big Lie, and has been false ever since we got off the gold standard in 1971, yet for some reason most Americans seem to not have gotten the memo yet.

Notice how nobody seems too worried about how we are going to "pay for" the military with its truly massive price tag, after all.  That is in itself a kind of tacit admission that the Big Lie is in fact a lie, and that the emperor isn't wearing any clothes.  So no reason for all of this silly handwringing and harrumphing about how to "pay for" Medicare For All.

Yes, Virginia, we actually can have free and comprehensive health care for all Americans, period, with no deductibles, copays, cost-sharing, premiums, or taxes.  In fact, being the richest country in the world, we can aim even that much higher still than all of the other countries that currently have single-payer healthcare.  All we have to do is stop believing the Big Lie that federal taxes pay for federal spending.

So what are we waiting for?

Setting The Record Straight: Austerity Is NOT Good For The Economy

The evidence is overwhelming now.  Austerity is NOT good for the economy, for the same reason that applying leeches to cure anemia is not a good idea.  Money is the lifeblood of any economy, and cutting "deficit" spending (via tax hikes, spending cuts, or both) effectively shrinks the money supply.  And for a Monetarily Sovereign government like our own federal government, there is literally no good reason to do so at all, in good economic times or bad.

Never was, and never will be.  At least not in the post-gold standard world since August 15, 1971.

The infamous Reinhart and Rogoff (2010) outlier study that suggested that a debt/GDP ratio reaching some arbitrary level was inherently bad for the economy was roundly debunked in 2013 by a 28 year old grad student who discovered that the results were due to a coding error in the spreadsheet.  And even when Reinhart and Rogoff claimed that there still was a correlation (albeit much weaker), that was most likely due to reverse causation (i.e. due to countercylical policy responses to recessions) and residual or unmeasured confounding.

As for the Canadian experience that suggests that their austerity in the 1990s and early 2000s was somehow good for the economy has also been debunked.  The inherently harmful effects of austerity were masked by 1) an increase in the money supply, 2) a massive devaluation of the Canadian dollar, 3) a sharp cut in interest rates, 4) lag effects of previously massive deficit spending, and 5) secular global trends during that time period.  And of course, there was also the Alberta oil boom as well that continues to this day.  And they still experienced adverse effects in spite of their economic growth, particularly from the ruthless cuts to their otherwise legendary and stellar healthcare system that led to a "brain drain" and the notoriously longer "wait times" that opponents of single-payer Medicare For All disingenuously luuurve to scare ignorant Americans about.

As for Iceland in the wake of their 2008 financial crisis, they actually did more austerity than any country not named Greece.  But their austerity cuts did not begin in earnest until 2010, and the effects were essentially masked by a sharp devaluation in their currency as well as lag effects from previous deficit spending.  Thus, their massive recovery still occured in spite of budget cuts and tax hikes.

And how about the biggy:  the postwar surpluses in the late 1940 and early 1950s in the USA?  That was a deficit spending cut of a whopping 35% of GDP, yet the economy still grew like gangbusters.  But again, that growth was in spite of, not because of, their massive deficit reduction.  It was masked by massive increases in private-sector debt, lag effects of the previously massive deficits of WWII, and of course the relatively short-lived unique competitive advantage the USA had as the only major developed economy that was not devastated by the war.  And there were some fairly deep deflationary recessions during that time in 1948-1949 and 1954-1955, and before long, the federal government saw the need to run deficits once again to keep the secular economic boom going (which it did).

Thus, these exceptions really only prove the rule.  Not only is the conventional "wisdom" about austerity inaccurate, but it is in fact 100% wrong at least as far as federal finances go.  If anything, so called "deficit" spending is needed to ensure robust economic growth in the long run.  All the more reason to put an end to the Big Lie and finally decouple federal spending from taxes and Treasury securities yesterday.

In fact, since a growing economy requires a growing supply of money, and the fact that GDP = Federal Spending + Nonfederal Spending + Net Exports, one can therefore argue that a deficit/GDP ratio of at least 3% on average is needed to maintain robust economic growth of 3% per year or higher.  And to cure recessions, depressions, or secular stagnation, an even higher ratio is needed, perhaps as high as 7% or 8% even.  No wonder the EU has been persistently in the doldrums:  they actually set a 3% ceiling on their members' deficit/GDP ratios, they all have painfully high and regressive taxes such as VAT, and worse still, those nations who use the Euro are monetarily non-sovereign and cannot create their own money.

And for any country who is still contemplating fiscal austerity in spite of all this: at the very least, the growth of the money supply needs to be maintained by other means, namely the loosening of monetary policy.  Failure to do so will risk a recession or even a depression.  Note that GDP growth (or lack thereof) tends to lag the growth (or lack thereof) of the money supply by four quarters (one year) on average, sometimes even longer if there is a lot of momentum, so any apparent lack of immediate adverse effects should really not lull one into complacency.

Please note that until about 2014, the TSAP once did support austerity as well as a return to the gold standard.  We no longer do, and deeply regret ever giving any sort of credence to these outmoded ideas based on fundamental ignorance of economics.

Just Print The Money

What seemingly intractable problems can be solved with just four simple words?  And which current presidential candidate once actually said those four exact words, "just print the money", or at least the last three of those four magic words?

A)  Bernie Sanders
B)  Elizabeth Warren
C)  Kamala Harris
D)  Joe Biden
E)  Donald Trump

Give up?  Scroll down to find the answer:

The answer, believe it or not, is E, Donald Trump.  Yes, THAT Donald Trump.  Meanwhile all of the other 2020 candidates (sorry Bernie, but even you don't get a pass on this one) are apparently too cowardly to utter those words when asked how they will "pay for" the various high-ticket items on their wish list.

Back in 2016, then presidential candidate Donald Trump said a lot of outrageous and controversial things and too many gaffes to count.  But one in particular stands out in light of recent posts and current events, namely, the one in which he implied he would default on the national debt if he couldn't negotiate a better deal.  Now that is clearly not something for a politician or candidate to even joke about, let alone actually do.  But it was what he said after he was criticized for it and he backpedaled on it which was actually much more noteworthy:

This is the United States government. First of all, you never have to default because you [just] print the money. I hate to tell you. So there’s never a default.

And that second "gaffe", ladies and gentlemen, was actually NOT a gaffe at all.  Why?  Because it is actually TRUE, believe it or not.  Even a stopped clock is right twice a day, after all.

Wait, what?  You read that correctly.  Modern Monetary Theory (MMT) has actually been arguing this for years now, as has Rodger Malcolm Mitchell and his own theory of Monetary Sovereignty (MS).  That is, a Monetarily Sovereign government like our own federal government and many others (but unlike the euro nations or any US state or local government) has the inherent and unlimited power to create money by fiat.  The only limits such a government has are those it chooses to impose on itself, such as the remaining arcane and archaic rules left over from when we actually had a gold standard before we got off of it in 1971.  The world changed in that year, but our "leaders" have apparently not gotten the memo.

You might want to sit down before you read any further.  Taxes do NOT actually pay for federal spending, rather, the government simply creates the money they spend ad hoc with a few clicks of a computer as they go along.  Nor is there any physical need for them to borrow money, but they do so anyway by issuing Treasury securities (i.e. T-bills, T-notes, and T-bonds) whenever they create new money that is unmatched by taxes in order to match it with borrowing--all because of those arcane and archaic rules that they could remove with a stroke of a pen if they chose to.  That is, IF they actually chose to.

So where do our tax dollars actually go then?  Well, one could argue that those dollars are effectively taken out of the economy and needlessly destroyed.  And yes, some of those dollars are ultimately destroyed in practice if not in theory.  But it is worse than that, for at least at some point before destruction, they first have to make a pit stop at the privately-owned FERAL Reserve, where they do little more than further enrich the bankster oligarchs.  Again, all because of those arcane and archaic rules.

And that big, scary number that we see on the National Debt Clock?  Well, nowadays the national debt is literally just an accounting gimmick.  What it really consists of are deposits in federal Treasury security accounts, not debt in the way that private debt is.  Effectively, it is really a national savings account, and so-called "deficit" spending is simply when the government puts more money into the economy (via spending) than it takes out (via taxes and fees).  Thus, a deficit for the federal budget is actually a surplus for the rest of the economy, and vice-versa.

Of course, Rodger Mitchell has an even better, more fundamental idea that makes it so the government would never need to borrow a single penny ever again, and it doesn't require raising taxes OR cutting spending.  Not only that, but it would guarantee that Social Security and Medicare, and any other program, would remain fully funded indefinitely as well without the use of FICA taxes (or any other tax for that matter).  The solution, in his exact words:

The best way is to eliminate the federal budget deficit and debt: Ending government borrowing. The government has the unlimited ability to create and spend money without borrowing. The process will be: 

1) Congress will create an account called "Money." 

2) Congress will determine how much money this account contains. The process will be similar to the way Congress now determines the debt ceiling. 

3) Federal agencies will write checks against this account according to budgets decided by Congress. If any federal agency needed additional funds, Congress would decide whether or not to allow this spending, in the same way that Congress votes for additional spending by the military et al. 

This would eliminate concerns about "our grandchildren paying for the federal debt." There would be no federal debt.

And as long as such money were created without any interest or related fees attached to its creation (as per Ellen Brown), such a solution would actually work.  Modern Monetary Theory indeed supports such an idea.  Congress can already spend money into existence rather than lend it into existence, all they would have to do now is officially decouple such spending from taxes and Treasury securities.  (And since he mentioned the debt ceiling, that is another thing we should really get rid of as well in the meantime, since it does far more harm than good.)

Before that, there actually is a painless (albeit unconventional) method of paying off the existing debt in one fell swoop.  Not just this year's deficit, but ALL of the cumulative $21 trillion of the debt. It's called the Noble Solution (named after its creator, Richard E. Noble) and does not involve any significant tax hikes or spending cuts. So what is it? It's something we never would have advocated just a few years ago:  printing (electronically creating) money out of thin air to pay it off all at once.  After all, FERAL Reserve has been creating money out of thin air for decades now (including that recent whopping $16 trillion secret bailout of the banks, which eventually rose to nearly $30 trillion) so we might as well put this practice to productive use.  Money is really nothing more than an accounting entry nowadays, so let's make the entry and be done with it for good.

But wouldn't that lead to hyperinflation?  In a word, NO.  Noble points out that while creating such money is undoubtedly inflationary, using it to pay off the debt (which is in Treasury bonds and is thus already part of the money supply) would be deflationary in that it would shrink the money supply by an equal amount. Thus, the two effects would cancel each other out, as paper (electronic data) would be exchanged for paper (data).   Besides, inflation and hyperinflation is NOT caused by money creation, but rather by shortages of food and/or energy, leading to reverse causation.  Of course, we would have to bypass the FERAL Reserve to avoid creating more debt in the process, such as #MintTheCoin. Or better yet, nationalize the FERAL Reserve entirely and return the power of money creation to its rightful owners, our elected representatives in Congress and the Department of the Treasury.  America would then be "free and clear" for the first time in history since Thomas Jefferson.  And it would cost us NOTHING.

Not like it really matters, since as we already noted, the "debt" is not even really debt at all, but simply deposits in Treasury securities.  And as Mitchell notes, since the federal government has infinite money, it does not actually touch those deposits at all, but simply returns the existing money in those accounts to the account holders by transferring it, while adding newly-created interest dollars to whatever amount is there.  Thus, to "pay off" / extinguish the debt completely, the only new money that needs to be created is the interest, and that new money will stimulate the economy.  You read that right.

Alternatively, Joseph M. Firestone points out that the very same effect can also be had more gradually, with Congress passing an Act (such as the very next budget or appropriations bill) that removes those arcane and archaic rules entirely, and mandates/guarantees than any new deficits as well as any outstanding Treasury securities (i.e. national debt) be funded / paid for automatically with the very same ad hoc money creation that they already do in practice, but no longer needing to match it with new borrowing or tax revenues.  Thus, the federal government would no longer need to borrow even one penny (i.e. issue any new Treasury securities) unless they truly wanted to for reasons unrelated to the federal budget.  And according to Rodger Mitchell, such bonds do, in fact, have other useful, unrelated functions (i.e. providing a safe haven for investors to park their money, and an effective platform for the government to control both short and long-term interest rates, and thus the demand for dollars).  But the point is they would no longer HAVE to do so just to meet their current and future fiscal obligations, so the national debt would stop increasing and gradually decrease as any existing  Treasury securities mature and/or are redeemed. And thus the 100% contrived political issue (and cudgel) that is the national debt / deficit would quickly become a dead issue, and we can finally focus on other, real priorities for a change.

You know, things like Universal Basic Income, Medicare For All, free college, improvements to education, rebuilding our crumbling infrastructure, and stuff like that.  All of which can be readily "paid for" with the stroke of a pen and the click of a computer key.   No taxes or borrowing required.  And if the "inflation dragon" ever does happen rear its ugly head again, simply raising interest rates will quash it, as will the practice of draining excess bank reserves and "sterilizing" cash inflows at the FERAL Reserve (which again, really should be nationalized to to become truly FEDERAL) when the newly-created dollars pass through many hands and then the banks and make an inevitable pit stop there.  Problem solved.  And any inflation that is driven by food and energy shortages can be resolved by simply redirecting federal spending to incentivize the producers of such to produce more, by buying such products at a premium and selling (or giving them away) at a loss.  Hey, it's infinite money, remember?

So what are we waiting for?

When Will The Trump Bubble Burst?

With impeachment now a foregone conclusion, the trade war still ongoing and damaging the economy, and Trump generally making a mess of things, people are wondering, when will the stock market bubble finally burst?  Like a dog on a leash, it eventually has to snap back to reality sometime.  All the corporate stock buybacks in the world or FERAL Reserve machinations will not be able to postpone it forever.  As history has shown, what goes up, must come down.  And the bigger they are, the harder they fall.

The massive federal "deficit" spending (which to be honest, is really a non-problem for a Monetarily Sovereign government like ours) from 2018 onwards is of course fueling the economy right now in spite of Trump's general wrecking-ball economic and non-economic policies.  More federal "deficit" spending = more money supply = more growth dollars = more economic growth, as a general rule.  But eventually even that will not be enough to stop the damage being done by Trump's recklessness, especially since so much of that new money creation is going to the where in least needs to go (into the hands of the rich and mega-corporations, Wall Street instead of Main Street.  Especially if the Republicans decide to actually start cutting Social Security, Medicare, Medicaid, and other vital programs while cynically using the "deficit" hysteria as a cudgel.  Yes, they will actually have the chutzpah to try that at some point.

You can really only do so much damage before papering over it no longer works anymore.