What MMT Gets Wrong, And Monetary Sovereignty Gets Right (Part Deux)

Recently, we wrote an article discussing the theoretical and practical differences between Modern Monetary Theory (MMT) and Monetary Sovereignty (MS).  But still, some may wonder why there is essentially no correlation between deficit spending and inflation, at least not in the post-gold standard era and not even during WWII.

Surely there must be some connection, right?  Well, there technically is, but essentially only at the extremes.  Why?  Because of the "velocity of money", spending (sources of dollars) need NOT be symmetrical with taxes (sinks of excess dollars), only that enough dollars are clawed back in the long run (with the definiton of "enough" being quite elastic).  And as the velocity of money increases along with actual or potential inflation, so too does the tax take, narrowing the gap between sources and sinks.

For example, if the velocity of money factor is 7 (i.e. newly created dollars changing hands seven times on average, before being destroyed), spending can theoretically exceed tax revenues at any given time by up to a whopping factor of seven (!) before the excesses begin to accumulate year after year to the point where inflation increases when demand for goods and services grows much faster than supply, all else being equal.  Of course, the velocity will vary, and all else may not be equal, but that only makes it even more of an automatic stabilizer overall.

(Of course, it sure didn't hurt that during WWII, taxes were collected in real time (i.e. withholding) and the tax base was greatly broadened as well, despite record-high yawning deficits.)

And of course, another major sink is the FERAL Reserve draining excess bank reserves, while raising interest rates increases the demand for dollars and thus the relative value of dollars.  And paying down debts of any kind is another major sink as well.  And of course, a growing economy requires a growing supply of money, just to prevent recession and/or deflation, so the sources can still exceed sinks of all kinds by quite a large margin before inflation begins to bite, and we are currently nowhere near that point.

And of course, banks create money out of "thin air" all the time every time they make loans.  The difference is they don't create the interest that is owed, which must come from somewhere when it is paid back.  And if this were the only method of money creation (which it would be, if federal "deficit" spending money into existence interest-free were zero or negative, that is, a so-called "balanced budget" or "surplus"), then there would NEVER be enough money to pay it back, leading to net destruction and artificial scarcity of money.  And that would be VERY harmful for any economy--it was, after all what turned the mild-at-first 1929 recession into the full-blown Great Depression by the time 1930 had come and gone.

So it's no wonder we don't see any robust correlation between deficit spending  (i.e. money creation) and inflation in either the short or long run.  Thus, another myth bites the dust.

We Wholeheartedly Condemn The New Zealand Shooting

"On March 15, 2019, a horrific racist, xenophobic, and Islamophobic hate crime and act of terrorism shook New Zealand as well as the world.  A white supremacist hatemongering terrorist launched a deadly attack on two mosques in Christchurch, New Zealand, killing 49 people and injuring countless others, including children, who were worshipping in those mosques.  Horrible as this unprecedentedly deadly mass shooting was, it would likely have been far worse still had the terrorist been able to set off his many bombs as well.  And we wholeheartedly condemn this horrific and cowardly act of hate and terrorism, and all other such acts as well as the virulent ideologies, including white nationalism, racism, xenophobia, and Islamophobia, that inspire and lead to such senseless violence."

This was literally all that Trump and his sycophantic lackeys would need to have said to avoid being unnecessarily tainted (as much) by having somehow inspired such horrific and hateful violence with his own virulently hateful rhetoric against (non-white) immigrants, refugees, and especially Muslims.  (Which, by the way, his rhetoric apparently DID inspire in part, according to the killer's own rambling manifesto.)  But apparently the Donald can't even do that, preferring instead to just punt on the issue altogether and give the usual pat answers.  And that, ladies and gentlemen is, in a word, "Sad!".

What MMT Gets Wrong, and Monetary Sovereignty Gets Right

Modern Monetary Theory, or MMT, is just starting to break into the edges of the mainstream now.  Progressives from the new rising star Alexandria Ocasio-Cortez to the venerable Bernie Sanders are now (correctly) starting to endorse, whether subtly or not-so-subtly, the core tenet of MMT, namely, that federal deficits don't really matter since the federal government can just print the money.  While few are bold enough to say out loud the corollary that federal taxes do not actually pay for federal spending (and that the "national debt" is literally nothing more than deposits in Treasury security accounts), it is nonetheless implied since it follows logically from the premise that the federal government has infinite money.  And Rodger Malcolm Mitchell's related offshoot theory, Monetary Sovereignty (MS), also contains these same truths as well.

But MMT is also seriously flawed in a way that MS is not, and that is how they deal with the inflation question.  MMT prefers to keep interest rates permanently at zero or close to zero, regardless of how much inflation there is, preferring instead to adjust tax rates in response to inflation.  MS, on the other hand, prefers to use interest rates as a way to prevent and cure inflation, as taxes are too crude, too political, and not quick enough to use for inflation control as it happens.  (Note that even modest federal taxes can still work for automatic inflation control in the background without changing the tax rates, as the tax take automatically increases with the velocity of money.)  MMT, in other words, paints itself into a corner, while MS retains the flexibility to deal with inflation as it happens.  Of course, raising interest rates only works to fight demand-pull inflation as opposed to cost-push inflation, but the former is much more sailent than the latter in regards to the (generally overblown) fear of "what if we print too much money?"  The FERAL Reserve can also drain excess bank reserves (i.e. where all excess liquidity eventually shows up sooner or later) and "sterilize" them, as yet another means of inflation control.

In other words, following MMT to the letter will ultimately take us back to where we started at square one in the same box, while MS represents a genuine way out of the box without the pitfalls of MMT.

Thus, while it is probably good to keep interest rates low or even zero as a rule, the flexibility to raise them as needed still needs to remain on the table.  And some sort of federal taxation would need to remain even if not for revenue-raising purposes.  Aside from a crude but automatic background method of inflation prevention, taxes can also give We the People leverage over the oligarchs by providing a handy "carrot and stick" means of controlling the economy to one degree or another.  So let's not box ourselves in with too pure a version of MMT, or throw out the proverbial baby with the bathwater.

Otherwise we will find ourselves, to quote Paul Krugman, "Running on MMT".

We Have A National Emergency, All Right--And It's Trump

Trump just made himself even more of a man without a country, if that's possible, by declaring a "national emergency" to try to force his stupid border wall to be built.  This is almost certain to be challenged and defeated in court.  Meanwhile, he clearly caved to the Democrats otherwise, yet again.  Thus, his "national emergency" is a sign of desperation and weakness, not strength.  Keep digging your own grave, Donald....

Oh, and by the way--this is literally the kind of stuff that DICTATORS do, NOT Presidents.  Abusing your power by usurping Congress' rightful "power of the purse" just because you don't get your way is absolutely NOT NORMAL in any democracy, especially when the so-called "national emergency" at the southern border is contrived and manufactured from on high by none other than the White House.

And if your are looking for the money to pay for that wall, perhaps the first place you should look is the missing $21 TRILLION (more than the entire US GDP, and until very recently, more than the entire gross National Debt) that the Pentagon somehow "lost" and can't seem to find or even account for.  To minimize it as just an "accounting error" is, albeit ironically, SO CLOSE to actually getting the point of Monetary Sovereignty.  Which is to say you could, you know, "just print the money", in your own words, Donald.  (And yes, he actually said that in reference to the National Debt in 2016.)  Trillion-dollar coins, anyone?

We never thought we would agree for once with the vile Ann Coulter, but apparently even a stopped clock is right twice a day:  "The only national emergency is that our president is an idiot".  Truer words have never been spoken.

State Of The Planet Address 2019

Today, Trump gives the State of the Union Address (spoiler alert:  it sucks.)  And the TSAP is giving our annual State of the Planet Address.  Yes, we know it is a bit of a downer to say the least.  So sit down, take off your rose-colored glasses, and read on:

Our planet is in grave danger, and has been for quite some time now.  We face several serious long term problems:  climate change, deforestation, desertification, loss of biodiversity, overharvesting, energy crises, and of course pollution of many kinds.  Polar ice caps are melting.  Rainforests have been shrinking by 50 acres per minute.  Numerous species are going extinct every year.  Soil is eroding rapidly.  Food shortages have occurred in several countries in recent years.  Weather has been getting crazier each year thanks to climate change.  We have had numerous and often record-breaking wildfires, floods followed by long periods of drought, and a "storm of the century" at least once a year for the past several years.   And it is only getting worse every year.  In fact, 2016 has been the hottest year on record, and 2017 was the hottest year without an El Nino.  Look no further than the three record-breaking storms in the past 15 years:  Katrina (2005, highest storm surge), Sandy (2012, largest diameter), and now Harvey (2017, a 1000-year flood, and overall worst hurricane on record), followed by Irma and Maria which devastated Puerto Rico, for a taste of the not-too-distant future.  And that was before Hurricane Michael devastated a rather large chunk of Florida recently.

In fact, on the other side of the world, just a little over a year ago, the worst monsoon season in recent memory has recently displaced 41 million people due to record flooding.  Thus for many, the future is sadly already here to one degree or another.

None of this is an accident of course.  These problems are man-made, and their solutions must also begin and end with humans.  We cannot afford to sit idly by any longer, lest we face hell and high water in the not-too-distant future.  Our unsustainable scorched-earth policy towards the planet has to end.  Yesterday.

While we do not invoke the precautionary principle for all issues, we unequivocally do for the issue of climate change and any other environmental issues of comparable magnitude.  In fact, for something as dire as climate change, as of 2015 we now support a strong "no regrets" approach.  With no apologies to hardcore libertarians or paleoconservatives, in fact. We are not fazed one bit by the naysayers' pseudoscience as it does not really "debunk" the scientific consensus on anthropogenic global warming. The only serious debate is about how fast it will happen, and when the tipping point (or points) will occur. It is not a matter of if, but when. And the less precarious position is to assume it is a real and urgent problem. We need to reduce CO2 emissions to the point where the CO2 concentration is at or below 350 ppm, ASAP.  And it is currently at an unsustainably high level of 400+ ppm, and growing rapidly every year.

Given the latest IPCC report, which is truly nothing short of horrifying, the general consensus among climate scientists is that we have only at most 12 years left (now more like 11) to act radically before truly catastrophic climate change is a foregone conclusion.   And 2030 will be here before we know it.  

Now THAT is a national emergency!  And a global one, in fact.  Thus, a full-steam-ahead, Green New Deal 2.0 is LONG overdue.

Solving the problem of climate change will also help to solve the other ecological crises we are facing, for they all ultimately have the same root causes, not least of which is our insatiable addiction to dirty energy.  However, there is a right way to solve it, and several wrong ways.  Technology is important, but it won't be decisive on its own (economics geeks may recall Jevons Paradox).  The real problem is the paradigm that our society has been following, and that system is based on wetiko, the parasite of the mind and cancer of the soul.  It often seems that the only difference between capitalism and cannibalism is the spelling.

The TSAP endorses the ideas embodied in Steve Stoft's new book Carbonomics, most notably a tax-and-dividend system that would tax carbon (i.e. fossil fuels) at the source, and give all Americans an equal share of the revenue generated from this tax.  (Note that our proposal to tax natural resources and pay out an Alaska-like citizen's dividend already includes this.)  Yes, prices for various things would undoubtedly rise due to this tax, all else being equal, but the dividend will allow Americans to pay for this increase. The average American would in fact break even, but those who (directly or indirectly) use less energy than average will effectively pay less tax, while the energy hogs will effectively be taxed more, as they should be. Thus it is certainly not a regressive tax, and may even be mildly progressive. This is both the simplest and most equitable way to reduce carbon emissions as well as other forms of pollution, not to mention waste of dwindling non-renewable resources. The real challenge is getting the feds to accept something that won't directly benefit them (in the short term).  Carbonomics also includes other good ideas, such as improving how fuel economy standards are done, and crafting a better verison of the Kyoto treaty.   

In addition to the ideas in Carbonomics, we also support several other measures to help us end our addiction to fossil fuels once and for all.  Our Great American Phase-Out plan would phase out all fossil fuels by 2030 at the latest, via alternative energy, efficiency, and conservation.  One good idea to further the development of alternative energy would be the use of feed-in tariffs for renewable power sources. 

Of course, it is not enough to stop emitting carbon dioxide, we also need to remove the current excess levels of it from the atmosphere as well, as that stuff can otherwise linger for centuries and continue wreaking havoc on the climate.  We support ending net deforestation completely, and putting carbon back in the ground through carbon sequestration. One method is known as biochar, a type of charcoal made from plants that remove carbon dioxide from the air, that is subsequently buried. This is also an ancient method of soil fertilization and conservation, originally called terra preta.  It also helps preserve biodiversity.  Another crucial method would be regenerative organic farming, which also turns the soil into an effective carbon sink as well.  And we will most likely also need to employ higher-tech methods of sucking carbon out of the air as well.

We've said this before, and we'll say it again.  Our ultimate goal is 100% renewable energy by 2030, but we need to hedge our bets.  We can phase out fossil fuels, or we can phase out nuclear power, but we can't do both at the same time--and fossil fuels need to be phased out first, and quickly.  Nuclear is doing a pretty good job of phasing itself out as it is.  So let's not get rid of it prematurely.  

But the biggest elephant in the room (make that the elephant in the Volkswagen) is overpopulation.  It does not make for pleasant dinner conversation, but it must be addressed or else all other causes become lost causes in the long run. We absolutely need to have fewer kids, or nature will reduce our population for us, and the latter will NOT be pleasant to say the least. The TSAP believes in voluntarily reducing the total fertility rate (TFR) to 1.5-1.9 children per woman to do so, but let us be clear that we do NOT support draconian and/or coercive measures of population control (like China has used).  We believe that more liberty is the answer, not less.   In fact, the two most effective means of reducing the birthrate are poverty reduction and female empowerment.

Fortunately, America's TFR has recently dropped to around 1.8, with no indication of rising back above replacement rate in the near term.  But clearly we cannot keep growing and growing, that's for sure (in fact, we need to shrink). And our insatiable addiction to economic growth (despite being decoupled from well-being) is also every bit as harmful as overpopulation as well, if not more so.  Growth for the sake of growth, the ideology of the cancer cell,  is clearly one of the most asinine obsessions our nation (and world) has ever had.  We clearly need to transition to a steady-state economy, most likely following a period of what Naomi Klein calls "selective degrowth" as well.  And to do that, we need a radical paradigm shift to happen yesterday.  Put another way, we need to leave room for Nature, lest Nature not leave room for us.  We have been warned, decades ago in fact.  Unfortunately, such warnings have largely fallen of deaf ears until very recently.

Yesterday is the time to jettison the Twin Big Lies that "everybody must work for a living" and "everybody must procreate".  Because doing so is the sine qua non of any realist plan to avert ecological catastrophe.

Last but not least, the TSAP now believes that as long as men remain in charge, we are all merely rearranging deck chairs on the Titanic.  Let's face it, it ain't gonna be us fellas who will save the world, as the past 7000 years or so have shown.  We paved paradise and put up a parking lot, we created a desert and called it peace.  We devoured and suffocated our own empire, and our proverbial 15 minutes of fame is almost up.  Only when women finally take over and reclaim their rightful position as the new leaders of the free world--and they will--will there be any real permanent solution.

Bottom line: we need to take the environment much more seriously than we do now.  We ignore it at our own peril.  And while the current administration in DC clearly doesn't care, We the People must act nonetheless.  With no apologies to the deniosaurs or Big Oil or Big Gas, or Dirty Coal.

Oh, by the way, wanna hear a joke?  Peak Oil.  Not saying it won't happen, of course--it will eventually peak and decline at some point--but climate change kinda supersedes it.  While conventional oil most likely has already peaked, there is more than enough total oil (including unconventional) to deep-fry the Earth--and most of which needs to stay in the ground if we wish to avoid catastrophic climate change.  Fossil fuels are, after all, what Buckminster Fuller referred to as our planet's "energy savings account", which we need to wean ourselves off of and save just in case of a planetary emergency--and he first said this in 1941!

So quibble all you want, but the truth must be faced head-on.  We have a planet to save.  So let's roll!

When Will This Groundhog Day End?

Today is Groundhog Day.  And every day if the past two agonizing years under Trump have been a different sort of Groundhog Day, much like the movie in which the same day keeps repeating itself. 

Hopefully Mueller is truly in his endgame now, and the Trump regime will be over very soon.  And then America's long, dark night of the soul will finally end.

The Government Shutdown Is Over, But the Damage Is Done

Yesterday, after 35 agonizing days of the partial federal government shutdown that he himself created just to manufacture chaos, Trump finally caved to Pelosi and reopened the government for three weeks with no funding for his border wall.  He made it seem like he won, but it is obvious that he caved, bigly.  Believe me.  And now after alienated most Americans, his caving now alienated his rabid base as well, making him a man without a country now.  Oh, and on the same day, his buddy Roger Stone was indicted in the ongoing Mueller investigation as well.  Things really don't look so good for him now at all.  Sad!

The shutdown may be over, but the damage is done.  And not just to Trump either.  The damage to federal employees, contractors, SNAP beneficiaries, and the overall economy will take a lot longer to recover from, as well as (most ironically of all) the immigration courts whose judges had been furloughed for so long.   Trust in the governments has also sank to a new low as well.  So this is basically a Pyrrhic victory at best for America overall.

In three weeks, Trump may decide to shut down the government yet again if they won't give him his stupid wall, or more likely he will declare a national emergency to try to force the wall to be built and that will backfire bigly on him when challenged in court.  Regardless, he is now running on empty, and the tide has fully turned against him.  (Let's hope he doesn't try to play "chicken" with the debt ceiling next.)

So Donald, do us all a YUUUGE favor and RESIGN, yesterday.  Don't let the door hit you on the way out.  Same goes for Mitch "Awkward Turtle" McConnell and the entire GOP in general. You will NOT be missed.

In other words, as you like to say:  "YOU'RE FIRED!"

Raise The Floor, And Also Trim The Top

It is well known that excessive inequality is very harmful to both the economy and society at large.  Even before we learned the truth about Monetary Sovereignty (MS) and Modern Monetary Theory (MMT) in 2018, the TSAP has long supported both a Universal Basic Income for all, and has also supported hiking taxes on the rich as well.  And even after learning about MS and MMT, we still support hiking taxes on the ultra-rich, and for good reason.

Some may be scratching their heads.  Why do we even need federal taxes at all, if our Monetarily Sovereign federal government has infinite money?  They clearly don't need taxes to pay their bills.  But taxes also have other useful functions as well:

• Taxes compel the use of the official currency, thereby giving it value in the first place.  
• Taxes automatically "claw back" excess liquidity in the money supply due to the "velocity of money", thus to an extent crudely preventing demand-pull inflation before it happens.
• Taxes can be used for social engineering (think vice taxes and Pigouvian taxes) in ways that are otherwise difficult, impossible, illiberal, illegal, and/or unethical to do by other means.
• And finally, progressive taxes can be used to "trim the top" when levied on the top 0.1%, thus reducing inequality without leading to runaway inflation.  Rodger Malcolm Mitchell compares this to a "trophic cascade", such as when wolves (i.e. the federal government) keep elk populations (i.e. the oligarchs) from getting out of control and devouring everything in sight.

So what sort of federal taxes would be suitable for this purpose, knowing what we know now?

• A rich-only, steeply progressive income tax like the kind that prevailed before WWII.  At least the first $100,000 to $500,000 would be exempt, and the new brackets would include marginal rates of 50% above the first $1 million, 70% above the first $10 million, and perhaps 90% above the first $100 million.  With NO LOOPHOLES this time. 
• Tax dividends and capital gains the exact same as ordinary income, but index the basis to inflation for capital gains.
• For the largest corporations, especially those who are "too big to fail", a top tax rate of at least 50%, with NO LOOPHOLES this time.  Tax only retained earnings.  Smaller corporations should not be taxed at all.
• The Universal Exchange Tax, i.e. a tiny tax of 0.1% or less on all electronic transactions.  It would actually be highly progressive in practice since the rich make a disproportionately high amount and number of transactions compared to the non-rich.  "The more you play, the more you pay."
• Various vice taxes (alcohol, tobacco, cannabis, etc.) and Pigouvian taxes (pollution and resource depletion).
• Land value taxes and severance taxes on natural resources such as oil and gas.
• And, of course, the estate tax needs to be made more progressive as well.

State and local governments, of course, are not Monetarily Sovereign, and thus need to raise revenue to pay their bills.  And they can piggyback on the aforementioned federal taxes and levy their own, especially the Universal Exchange Tax and the land value tax and severance taxes, and thus reduce or eliminate their currently regressive sales and property taxes.  Additionally, federal aid to the states should be increased for precisesly the same reason.

A UBI would indeed abolish absolute poverty, no doubt about that.  And that alone would have numerous individual and social benefits.  But without progressive taxation of the top 1% and 0.1%, it would do nothing to reduce relative poverty, and may paradoxically increase inequality.  And inequality in itself is harmful, over and above the effects of poverty.  Thus, it is not enough to either raise the floor or trim the top, we need to do both.  Yesterday.

Thus, Rep. Alexandria Ocasio-Cortez essentially has the right idea as far as taxes go.  And of course, the oligarchs and their sycophantic lackeys are coming down hard on her, but that just goes to show how effective her ideas are in terms of reducing the Gap between the haves and have-nots, which the oligarchs utterly depend on.  All the more reason to do it.

UPDATE:  Elizabeth Warren recently proposed a wealth tax of 2% on the assets of those with a net worth of $50 million and up (that is, on the top 0.1%), and up to 3% above the first billion.  Only the amount over the first $50 million would be taxed.  Controversial as it is, it actually makes a lot of sense, and the TSAP would certainly not oppose it.