California Free Press

Off the Top of My Head

Trump's Rationale Is Clear

by John Lawrence

Use tariffs and cuts to social services to justify huge tax cuts - mainly for the rich, but the middle class will get a pittance. Tariffs put money into the Treasury's account at the expense of raising taxes on consumers. Why didn't Kamala stress that she would do tax cuts for the middle class funded by tax increases on the rich? Obviously, tax cuts are a big thing for all Americans as was border security. The Democrats missed the boat by not countering Republicans on these two issues. Bernie Sanders has been blowing the truth for years. His positions need to become mainstream issues for the Democratic party, not left wing fringe issues. Counter Republican propaganda that Bernie is too extreme. So Trump is not too extreme? Medicare should be expanded. So should social security. Lift the cap on social security payments. In 2025, the maximum amount of earnings subject to Social Security tax (OASDI) is $176,000. Why should there be a cap on the maximum amount of earnings subject to the social security tax? Let the rich pay more.

Democrats need to make Bernie Sanders' positions on the economy the mainstream views of the Democratic Party. Expand the social safety net. Pay social security recipients more so that they can at least afford to put a roof over their heads. Too many seniors can't afford to pay rent. Child care needs to be free just like public education because it is public education. The costs of child care are putting a tremendous burden on the middle class. The US is the only advanced country that does not have a single payer system for health care with the result that we pay twice as much as people in other countries, and we get much worse results.

The Democrats must not be intimidated by accusations of socialism or communism so that they propose some middle of the road lukewarm policies that don't really solve the problems. Those epithets must be expunged. They're not applicable anyway. Should we shy away from health care for all or child care for all or enough social security so that seniors can live in a dignified manner? One of the most important issues is the fact that most middle class people will never be able to afford a home, and, since a home is an asset that increases in value, they will never be able to accumulate wealth. Because of that they will end up bereft in their old age. Only 50% of the people are invested in the stock market, but the entire middle class should be able to get into a home of their own. There are ways that the government could facilitate that. Otherwise, as more people live paycheck to paycheck (Bernie says this is 60 %), they will be life long renters with the result that only their landlords will be able to accumulate wealth.

‘Quantitative Easing with Chinese Characteristics’: How to Fund an Economic Miracle

From Web of Debt blog

Posted on February 11, 2025 by Ellen Brown

China went from one of the poorest countries in the world to global economic powerhouse in a mere four decades. Currently featured in the news is DeepSeek, the free, open source A.I. built by innovative Chinese entrepreneurs which just pricked the massive U.S. A.I. bubble. 

Even more impressive, however, is the infrastructure China has built, including 26,000 miles of high speed rail, the world’s largest hydroelectric power station, the longest sea-crossing bridge in the world, 100,000 miles of expressway, the world’s first commercial magnetic levitation train, the world’s largest urban metro network, seven of the world’s 10 busiest ports, and solar and wind power generation accounting for over 35% of global renewable energy capacity. Topping the list is the Belt and Road Initiative, an infrastructure development program involving 140 countries, through which China has invested in ports, railways, highways and energy projects worldwide. 

All that takes money. Where did it come from? Numerous funding sources are named in mainstream references, but the one explored here is a rarely mentioned form of quantitative easing — the central bank just “prints the money.” (That’s the term often used, though printing presses aren’t necessarily involved.) 

From 1996 to 2024, the Chinese national money supply increased by a factor of more than 53 or 5300% — from 5.84 billion to 314 billion Chinese yuan (CNY) [see charts below]. How did that happen? Exporters brought the foreign currencies (largely U.S. dollars) they received for their goods to their local banks and traded them for the CNY needed to pay their workers and suppliers. The central bank —the Public Bank of China or PBOC — printed CNY and traded them for the foreign currencies, then kept the foreign currencies as reserves, effectively doubling the national export revenue. 

Investopedia confirms that policy, stating:

One major task of the Chinese central bank, the PBOC, is to absorb the large inflows of foreign capital from China’s trade surplus. The PBOC purchases foreign currency from exporters and issues that currency in local yuan. The PBOC is free to publish any amount of local currency and have it exchanged for forex. … The PBOC can print yuan as needed …. [Emphasis added.]

Interestingly, that huge 5300% explosion in local CNY did not trigger runaway inflation. In fact China’s consumer inflation rate, which was as high as 24% in 1994, leveled out after that and averaged 2.5% per year from 1996 to 2023. 

Off the Top of My Head

A Comparison of US Democracy and Chinese Meritocracy

by John Lawrence

China has been characterized as an autocracy or a dictatorship by American media which is basically a misrepresentation of how their political system actually works. China has a long history going back 5000 years including a number of dynasties such as the Han, Tang, Song, Ming, Yuan and Quing. For most of its history China's political system has been primarily influenced by Confucianism which mandated that Chinese scholar-officials be chosen after submitting to a rigorous and extensive examination so as to choose the best and the brightest people and also those with the highest ethical standards to comprise the government. In one dynasty applicants had to show up at the examination site with their own food and sleeping bags and be locked into a cubicle for 3 days while they took the exam. China does have democracy at the local level. These local leaders then choose the government at the prefectural level who choose the leaders in the National Assembly so it is an indirect democracy in a sense just as parliamentary democracies choose their prime minister not by a vote of the people but by a vote of the people elected to parliament.

The US has a form of democracy where the people vote district by district for members of the House and state by state for members of the Senate. They also vote directly for the President. Because of the nature of the voting system which is first-past-the-post or plurality, the candidate with the most votes, even if not a majority, wins. The voting system is further complicated by the electoral college when voting for the President and by gerrymandering when voting for Congressional representatives. US voters get to vote for one Congress person representing their district and two senators representing their state so only three people at the national level at all. There are no standards of knowledge or expertise for any candidate so any fool or idiot can be elected President or a member of Congress. Because of the nature of the voting system, the US is a two party system as opposed to China which is a one party system. The best form might be a no party system in which at least one House of a bicameral legislature is chosen by sortition (random selection) which is what Aristotle recommended. This type of system would exactly mirror the society which arguably is what democracy is supposed to accomplish. That would at least reduce the divisiveness between elites and non-elites which both the US and the Chinese systems suffer from.

Some people have argued that the Chinese Communist Party controls the Chinese government. To some extent this is true since China is a one party system. However, China changed its economic system in 1980 When Deng Xiaoping became Chairman. China's economic success is largely due to Deng's abandoning the communist economic system in favor of capitalism. So while China is no longer communist, they have still stuck with the name. Many scholars have recommended a name change to eliminate the word communism such that the party is simply known as the Chinese party, not the Chinese Communist party. Due to private enterprise, more than 800 million people have been lifted out of poverty in the last 40 years. Both the Chinese one party system and the US two party system have their defects. In the recent US election the majority or voters had no interest in long term solutions to problems such as climate change. Their only interest was their own wallets. China is capable of long term planning and also of making big changes on an immediate basis while the US is stuck in gridlock on many issues due to divisiveness of the two parties. True the US has a one person, one vote democracy, but the quality and sophistication of the voters, themselves, determines to a great extent the quality of US democracy as a whole.

Perhaps the Chinese system could be broadened in such a way that the people voted on all those candidates who passed the Confucian style examinations. The American system could also be improved by requiring its candidates for office to have attained some level of expertise for the offices they seek. A combination of democracy and meritocracy might be the way to go.

Off the Top of My Head

The Economist Says the US Economy is the Envy of the World: How Dumb Can Half of Americans Be Who Think Trump Would Do a Better Job on the Economy?

by John Lawrence

The October 19, 2024 edition of the Economist headlines that the US economy is the envy of the world. Yet Biden is given hardly any credit for a good economy. Why that is? The only explanation is that at least half of US citizens are terribly ill informed which is another way of saying they're ignorant. Probably because they listen to news sources totally biased against Joe Biden, the Democrats and everything they stand for. The dumbing down of American is exemplified by the fact that at the Republican convention the high point was when Hulk Hogan ripped off his shirt. Dumbing down? To the max. The cultural divide between red states and blues states may be mutating, but, as Fareed Zakaria has characterized it, it is still there. It's a divide between college educated and non-college educated people and it's a divide between men and women. One could even go so far as saying it's a divide between the well-informed and the ignorant or between the smart and the dumb. Trump's cult of personality has drug all of one side of this divide into his camp. Kamala and the Democrats represent the other side of this divide.

The left right political spectrum makes no sense any more. Unless, that is, it can be said that the left represents an intelligent approach to the problems of American society and the right represents a bunch of angry, hateful people. The right, as represented by Trump, seems to be only interested in creating an alternative universe in which facts don't matter and only an entertaining form of spite does. Half of America seems to be complicit in Trump's lies and bellicosity. Half of America seems to be entertained by Trump's antics. Half of America seems to look no farther than a bunch of symbols of patriotism characterized by Trump flags and even Trump God Bless the USA Bibles (made in China).

The American economy has now been characterized as having achieved a "soft landing." "I think we should declare a soft landing now," said James Bullard, former president of the Federal Reserve Bank of St. Louis, in an interview with CNN earlier this month. 

American shoppers continued to fuel economic growth in the third quarter with their spending, according to the report. That marked the biggest contributor to GDP growth in the third quarter by far. Consumer spending accounts for about 70% of economic output. Spending accelerated sharply in the third quarter, driven by purchases of big-ticket items, while spending on services eased a bit.

So why are so many voters so concerned with the economy? Why is this the biggest issue for so many voters? The American economy is the envy of the world. However, just because "the economy" is doing so well doesn't mean that all those within it are doing well. We would have to look at the distribution of income and the distribution of wealth. Some well off people could be doing most of the spending while others have very little to spend. 31.3% of the households make less than $50,000 a year. 27.8% make between $50,000 and $100,000, and 40.9% make over $100,000. If a household is making less than $50,000 a year, they are certifiably poor. Those making $50,000 to $100,000 are probably lower middle class. They are those who probably cannot afford to buy a house, but are able to afford to pay rent. 40.9% are making over $100,000. Those making over $100,000 are probably the ones doing all the spending making the economy "the envy of the world". What about the distribution of wealth? The bottom 50% own 3% of the wealth. Obviously they don't own assets such as a house. They are renters and will remain so. Between 50% and 90% of the households own 31% of the wealth so 10% of households own approximately two thirds of the wealth. According to the latest Gallup poll, only about 54% of Americans own any stocks. Meanwhile, only about 63% of Americans own real estate according to the Census Bureau. So income and wealth are not evenly distributed over the American economy, and roughly the bottom 50% of American households have little wealth and meager incomes. The upper 50% are doing quite well, thank you.

Kamala Harris is a pragmatist. She's not ideologically driven. She combines both left and right pragmatically. But primarily she appeals or should appeal to the lower 50% in terms of income and wealth. The upper 50% traditionally vote Republican. However, Trump has attracted a cult following which includes a lot of lower income and lower wealth people. These people are voting against their self interest thinking that Trump is going to help them economically more than Kamala would. Then Kamala is attracting a lot of higher income people who want the US to remain a democracy governed by the rule of law and also want reproductive freedom. That's why traditional voting patterns are somewhat obsolete.

Off the Top of My Head

Kamala Equals Pragmatism

by John Lawrence

Last night on the Town Hall Kamala made it clear that she is a pragmatist. This makes a lot of sense since the old political left right spectrum in and of itself doesn't make sense any more. Take the border for instance. There is a consensus that no one should be coming across the border illegally. Even if applying for amnesty there is a legal and an illegal way to do it. Enough resources need to be applied to the border to make sure that the only option for people wanting to come into the US is the legal option. On this both Democrats and Republicans finally agree. Pragmatism is the penultimate American value. As Kamala said she just wants to "get stuff done."  As to whether or not her administration would be "just a continuance of the Biden administration," what difference does it make? Joe Biden did more for the American economy since Franklin Roosevelt. Most of this was directed towards sorely needed infrastructure improvement. American infrastructure has not kept up with most of the rest of the developed world. Now with the weather disasters caused by climate change, it needs to be hardened and improved that much more. However, all a lot of Americans, including those who can most afford it, seem to be fixated on is the price of groceries.

As for fracking, even under the Biden administration, there has been a capitulation to the fossil fuel industry and a realization that the American people will not sacrifice their lifestyles in order to combat climate change. Therefore, not only fracking but every other concession to fossil fuels has been made in order to keep gas prices low. The fact is that renewable energy production has fallen far short insofar as providing all of our energy needs. The demand for energy has outstripped the increase in renewable energy production. Hence, Kamala, not to mention Joe Biden, is now for fracking. So climate change continues apace. Weather disasters will get worse. Instead of describing floods as "1000 year floods," we should now be describing them as "twice a year floods." Americans seem to accept these weather disasters as long as the Federal government provides the money to rebuild after the disaster takes place. The insurance market is a different story. Private insurance will no longer be available in many regions of the country. Perhaps people who want to relocate out of disaster prone areas should study the insurance maps to see where insurance is available and where it is not, and then make their choices.

Romans were bought off from thinking critically by "bread and circuses." Americans seem to be following the same pattern. Instead of being concerned about climate change and infrastructure development to mitigate against climate change, Americans complain about grocery prices while attending concerts where the ticket prices are in the thousands of dollars. In fact the ones who complain about grocery prices the most are those who can well afford them, those for whom grocery prices are a minimum part of their budgets. Americans have been trained to only think about their own personal economic situation and not about the good of the world, not about helping those whose economic situations are much worse. People is Gaza are starving. People in Sudan are starving. People in Cuba don't have any electricity. UNHCR most recently estimated that, by the end of 2023, for the first time in recorded history, the number of people forcibly displaced is now over 117.3 million, with over 31.6 million refugees under UNHCR's mandate and another 6 million Palestinian refugees. These people have far more to worry about than grocery prices and that's if even groceries are available at all.

As for Kamala, sure her administration would be a continuation of the Biden administration and that's a good thing. Part of Biden's Build Back Better plan was to expand Medicare to provide for in home caregivers. That part was stripped out of the infrastructure bill due to compromises with Republicans. Now this is part of what Kamala wants to do - to pick up pieces previously rejected by Republicans. Of course she can't say that. She will be branded an extreme leftist by Republicans just for wanting to help people and improve the lives of Americans. In the final analysis though, Kamala is a pragmatist just wanting to "get stuff done" while Repiublicans are still down the Qanon rabbit hole palavering about inconsequential things that have nothing to do with anything.

Off the Top of My Head

Trump Doesn't Know the Difference Between Capitalism and Communism

by John Lawrence

The Trump campaign is saying that they will bring grocery and housing prices down. To address high prices, Trump said he would sign an executive order on his first day sworn in as president “directing every cabinet secretary and agency head to use every power we have to drive prices down, but we’re going to drive them down in a capitalist way, not in a communist way,” he said. Really? In a capitalist economic system, which the US certainly is, prices are set by the market, not by the government. Now Trump proposes to use government to interfere with the market to bring prices down. That's anti-capitalistic. So exactly how do you bring prices down in a capitalist way without interfering with the market? You can't. If you're a capitalist, you let the market set prices, whatever they turn out to be. So Trump, a purported capitalist, accuses Kamala for being a communist or a socialist while he turns out to be one himself. Kamala has proposed a Federal ban on price gouging. Exactly how that would work is unclear. So both Trump and Kamala are proposing to use government to interfere in the market to bring prices down.

So what could be done to bring prices down? Bringing down prices is not really the problem. Making sure that every American can afford groceries and housing is. There is precedent for government supported housing also know as public housing for people that can't afford a house in the market economy. Kamala's proposal to grant first time buyers $25,000 for a down payment is also a good idea. That doesn't interfere with the price setting mechanism of the capitalist economy. Government has also supplied food for poor people whether it be food stamps or SNAP. So the market still sets the price of housing and groceries for those who can afford to buy these things in the market economy. This amounts to socialism for the poor, capitalism for the rich in contrast to the situation that now exists which is socialism for the rich and capitalism for the poor. Trump's $7 trillion tax cut amounted to socialism for the rich.

The US has a mixed economy. It is partly capitalist and partly socialist as are most eonomies of advanced industrial nations. If Trump were a pure capitalist he would say that the market should set prices for housing and groceries, and that he as President would have nothing to do with that. But since he like most Republicans are hypocrites who will say anything to gain political power, he is all concerned about prices. Kamala by contrast does not claim to be a pure capitalist so she sincerely wants to help people at the low end of the economic spectrum to be able to afford adequate housing and nutrition. Exactly what programs she wants to implement do not have to be spelled out at this point in the campaign. The point is that she sincerely wants to help people at the lower part of the economic spectrum. Trump could care less about them. He only wants to help his rich billionaire friends.

Off the Top of My Head

Which Is Truer: The American People Are Hurting Because of the Cost of Eggs or The American People Are Well Off If They Can Spend Thousands on Taylor Swift Concerts and All the Airline Seats Are Filled

by John Lawrence

Apparently, there's a cutoff point above which Americans are all enjoying the good life and below which Americans are sweating their next rent payment. Kamala needs to get a graph which shows where this cutoff point is. Then she needs to appeal to the majority of voters not just a minority of Taylor Swift concert goers or those that can't pay their rent. According to the Fed's 2022 Economic Well-Being of U.S. Households survey ..., 37% of Americans lack enough money to cover a $400 emergency expense, up 5% from 32% in 2021 and back to 2019 levels. That means that 63% of Americans can cover a $400 emergency with no problems.Ticket prices to concerts and sports events are not cheap, and they sell out well in advance. Will the real American please stand up? Everyone complains about the cost of groceries, but does that include those filling airline seats, going to professional football games and paying big bucks filling seats at numerous events. Which is it? So, Kamala needs not to make a mistake by only appealing to 37% of Americans. She needs to appeal to the other 63% as well or at least a majority including both segments..

So what are the 63% of Americans concerned with? Reproductive freedom, for sure. It's very American to not want government telling you what you can and cannot do. They are also concerned about the border, and that includes Democrats as well as Republicans. Kamala should get out in front of Trump on this issue. Here's a policy for you: The goal should be not one illegal border crossing while increasing legal pathways for immigration. It's very simple. Forget all the ifs, ands, buts, whereases and other considerations. KISS: Keep it simple, stupid. That's the only thing Americans can understand. They don't read. They are only involved in politics to the extent that it is entertaining them, especially Trump voters. Kamala should go ahead and do what she did yesterday - make bold policy proposals without worrying about how we're going to pay for it. Leave it to the wonks to get down in the weeds about that. Most Americans don't care about the weeds. They just want to know what she will be trying to accomplish - where her head's at. It's all about getting elected. Did Trump ever get down in the weeds? He can't even make a coherent policy proposal. Kamala should outflank him.

It was a bold stroke to agree with Trump about not taxing tips. She neutralized that Trump initiative. Let Trump complain that it was his idea first. Who cares? Kamala is outsmarting Trump. It doesn't take much intelligence to do that. She should continue to out smart, finesse, outflank and do whatever it takes to get elected no matter how much Trump or the press or the pundits complain that she's not doing what they think she should do. It's not about doing what the pundits want you to do. It's about doing what will resonate with the American people and will get you elected. There is nothing that says you have to have a complete budget drawn up and every item accounted for before the election. Republicans have been relying on the fact that it's not illegal to lie yourself into a position of political power. They have been doing it for years. I don't advocate that Kamala should lie and for the most part Democrats have not lied, but they should not worry about accounting for every jot and tittle of the policy proposals. And she should do what she thinks she needs to do to get elected not what the pundits think she should do like give news conferences. If she thinks news conferences will advance her position, then she should do them. If not, then she shouldn't and the timing of everything is up to her. It's that simple.

Off the Top of My Head

Young People Need a Path to Home Ownership and Hence Wealth Creation

by John Lawrence

Kamala Harris needs to give young people hope that they too can be home owners. This has traditionally been the path to wealth creation for the middle class. When the GIs came back from World War II, they were able to get mortgages with no down payments although black GIs were not able to take advantage of this program due to redlining. This is the key to home ownership for young people today. There has to be a way to get a mortgage with no down payment. What is happening is that economic and  financial forces are driving the cost of home ownership out of sight. Corporations are buying up single family homes and turning them into rentals. With nothing to stop this trend America will become a nation of renters. Renters create wealth for their landlords not for themselves. Right now there is no path to home ownership for young people except if their parents help with the down payment.

The US is becoming a nation of modern day peasants who own no property just as medieval peasants did not. They created wealth for the nobility who were their landlords. Today as home ownership recedes from reality for young people, they are looking forward to living paycheck to paycheck with annual rent increases. Even with target inflation of 2%, rents will continue to rise at least by that amount as young people are saddled not only with student loan debt but car payment debt and credit card debt. They will never get ahead as the corporatization of home ownership results in wealth accumulation for corporations and the rich. Kamala needs to address this problem so that young people have a pathway to home ownership the way returning GIs from World War II did.

President Biden has already set up the American Climate Corps. This is the existential issue of our times. Young people who sign up for a two year stint in the American Climate Corps should get a no down payment pathway to American home ownership. I would like to see Kamala implement this in lieu of making this a perk of joining the military. There are already all sorts of perks for joining the military while hardly any for nonmilitary national service. There should be pathways for young people to succeed without joining the military. Right now you can get a free college education by joining the military. This perpetuates militaristic incentives to get ahead in this country. There are no such pathways for those who want to serve their country without joining the military. There should be. There should be a pathway to wealth creation and incentives for serving America by addressing the most important and impending issue of our time - climate change and environmental justice. We need important programs to put people to work in the environmental area and in return they should get a pathway to home ownership and wealth creation. Otherwise the US will become a neo medieval society with the majority of people enhancing the wealth of the already wealthy and living paycheck to paycheck with most of that paycheck going to paying rent and interest on debt.

Off the Top of My Head

Tax Cuts for the Middlle Class; Tax Hikes on the Rich

by John Lawrence

The two issues Republicans have are tax cuts and border security. Don't cede these issues to Republicans. A majority of Americans want a secure border. This has nothing to do with LEGAL immigration or even with amnesty. Limiting amnesty to those applying for it legally does not require any changes in the law. What it does require is reinforcing the border so no one can get over it illegally. This would then require more resources devoted to reinforcing the border.   In terms of tax cuts, Democrats have to stress tax cuts for the middle class paid for by tax hikes on the rich. Kamala should go right after these issues. She needs to be extremely tough on both of them. Let's face it: Democrats are going to vote for her no matter what. However, at this point in time, most voters are independents. She needs to co-opt Trumplican issues. And don't be too worried about a plan. Does Trump have a plan? No, he just asserts, "I will do this. I will do that." Kamala should take a page out of Trump's book. Just say, "I will do this. I will do that." She doesn't need to spell out HOW she's going to do it in detail. For sure, Trump doesn't.

Now that Joe Biden has dropped out of the race, he doesn't have to do two jobs - being President and campaigning - while Trump just has one - campaigning. That's why Mike Johnson wants Biden to resign: so that Kamala will be saddled with the responsibilities of President instead of devoting full time to campaigning. Democrats know what the Democratic agenda is in terms of providing for and addressing the needs of the middle class and the poor. But she has to address the sweet spot - where the majority of voters are and what the majority of voters are concerned about. Of course the abortion issue resonates well for Democrats and all Americans.

This whole thing about a short campaign season for Kamala is ridiculous. Most countries don't let political campaigns last more than a couple of months by law. In France political campaigns just last a couple of weeks. In Canada the longest political campaign was 74 days. In Australia, the longest political campaign lasted 11 weeks. In Japan campaigning is allowed for 12 days. In countries where campaigns are limited by law, elections aren't controlled by big money interests as they are in the US. The longer the campaign season, the more big money controls elections and politics. In the US, if we don't want the very rich to control elections, not only the campaign period, but also the amount of money spent on political campaigns needs to be controlled.

The US is becoming a neo-medieval society in which the majority have no hope of home ownership, but are destined to work paycheck to paycheck and be renters for life. This means no asset accumulation while their rents increase even with low inflation or target inflation of 2%. 2% target inflation means at least 2% rent increases over the course of a renter's life. In addition to not having any asset accumulation those living paycheck to paycheck are vulnerable to credit card and car payment debt so that they are supporting the banking system with interest payments for their entire life.

Off the Top of My Head

Why Are Democrats Not Hammering on the Trump Tax Cuts Which Need to be Increased for Middle Class and Eliminated for the Rich

by John Lawrence

American voters love tax cuts. That's the main appeal of a Republican administration. Biden has said he won't raise taxes for anyone making less than $400,000. This is not a strong enough statement. He, or whoever eventually is the Democratic nominee, should say that they will lower taxes for anyone making less than $400,000. Most of the Trump tax cuts go to those making over $400,000. CNN reported: "The highest-income households would receive more than 45% of the benefits if the expiring provisions of the 2017 Tax Cuts and Jobs Act are extended, according to an analysis released Monday by the Urban-Brookings Tax Policy Center." Why can't the Democrats see this? The Republicans' only appeal to the middle class are the tax cuts which give them a paltry $1000 or 1.3% of their income off their taxes while the rich households making at least around $450,000 – roughly the top 5% - would see their after-tax income increase by 3.2%. Democrats need to take this issue away from Republicans. Right now their rhetoric around this issue is too weak.

For those in the top 1%, who make at least $1 million, they get a tax cut of about $70,000, on average, in 2027. The top 0.1%, who make at least $5 million, would pocket a tax cut of nearly $280,000, on average, or about 3% of their after-tax income. Also extending the Trump tax cuts would have a big impact on the national debt, raising it by more than $4 trillion over the next 10 years – before interest costs are factored in, according to the Congressional Budget Office. Of course this will give power to Republican claims that the government can't support social security and Medicare any more. There will not be any more money available after supporting a one trillion dollar military budget and paying interest on the national debt.

What is wrong with the Democrats? There is already too much disparity between the very rich and the middle class. We are going back to a medieval society where the rich aristocracy run the political establishment and the middle class are nothing but modern day peasants. The peasants will not be able to build wealth because they won't be able to buy a house which is the main wealth builder for the middle class. They all will be renters for life living paycheck to paycheck. This is the reality for life in America today. People who have even one asset, a house, will get ahead by building wealth. People who are life long renters will only create wealth for their landlords. This is the way it was 500 years ago. Well, at least today, everyone has a cell phone.

Off the Top of My Head

Peace is Not Just the Absence of War

by John Lawrence

As an advocate for a Department of Peace, I do not advocate eliminating the Department of War (Defense Department) altogether. I think both are necessary but in a more balanced way. Most efforts toward peace in the world should take place outside the arena of war, that is as a preventative to war. This includes economic development in parts of the world that are liable to gang control. In fact I would advocate the use of the US military to go after the gangs that are controlling certain parts of the world, for example in Mexico where gangs are trafficking humans to the US border and controlling the inflow of drugs into the US. Haiti is another candidate for the use of the US military to eliminate the gangs while the Peace Corps is helping with economic development. In areas of the world that don't have mature institutions that can provide security for the populace, the US military could provide that while the Peace Corps is building infrastructure. The two should operate hand in hand. What China is doing with its Belt and Road Initiative is instructive. China is winning friends and influencing people by building infrastructure in many parts of the world. But much more needs to be done that China is not doing. Low level infrastructure such as clean water and sanitation needs to be built out. Approximately half the world does not have clean water or adequate sanitation facilities.  3.6 billion people are still living with poor-quality toilets that damage their health and pollute their environment. Inadequate sanitation systems spread human waste into rivers, lakes and soil, contaminating water resources.China is building high level infrastructure such as ports, railroads and trains. The US should complement their efforts.

There are around 750 U.S. military bases in at least 80 countries. Most of these bases are unnecessary and represent a waste of money. They are also sitting ducks for attacks by the likes of ISIS. They should be eliminated and the resources redirected elsewhere. With US sea borne and satellite military resources there is no need for land based resources. The efforts should instead be put into developing  infrastructure both in terms of economics and in terms of political institutions. What is important is helping to create stable institutions in parts of the world where instability results in chaos ^e.g. Haiti. Also if life was good in countries where there is a lack of stability and economic development, people would not be flocking to the US and European borders and asking for asylum. So military assets as well as Peace Corps assets could work hand in hand. Once war breaks out these efforts at creating peace in the first place are useless. A Department of Peace needs to have a diplomatic aspect as well as the Peace Corps division. Also person to person exchanges help to build understanding. In fact the largest efforts need to be made with those who are considered our worst enemies.

As an anti-war protester in the 1960s, I am still one today. Peace efforts or efforts at creating peace in the world today do have both an economic and a military component. In some countries peace workers would be slaughtered by gangs if they weren't adequately protected by the US military while they go about doing their jobs. So while I am anti war, I am not anti military. I just think that the balance of human and financial resources is completely out of whack. Less money and manpower (womanpower?) needs to be devoted to the military and more money and womanpower needs to be devoted to the Department of Peace which should include the Peace Corps (economic development), the diplomatic corps (institutional development)  and exchange corps ( person to person friendship). Less effort needs to be spent on proving to the rest of the world that the US way is the best way and more effort needs to be spent on creating stable societies with the economic and institutional resources so that people in all parts of the world can have comfortable and secure lives.

Bringing the rest of the world up to economic and institutional speed is of utmost importance today because, unless the whole world is operating cooperatively, it will be impossible to do much about our common enemy - global warming. In fact we have met the enemy and it is us. Economic development in the developed world has proceeded in such a way as to have created the global warming crisis. Now it must proceed in such a way as to eliminate it. Sustainable development and environmental responsibility should be the order of the day. Countries that have vast fossil fuel resources have no incentive to curtail the economic development of those resources if they are considered to be pariah nations by the rest of the world. Nations that are considered pariah nations have no incentive to convert from war time expenditures to peace time expenditures if they are not brought into the community of nations in a respectful way. Nations that are at war right now have no incentive to negotiate a peaceful resolution if their interests and concerns are not taken into account.

Off the Top of My Head

What I Didn't Hear in Biden's State of the Union Speech

by John Lawrence

President Biden went on and on about taxing the rich, but he didn't make the concomitant declaration of "middle class tax cuts." Those are the words I didn't hear - TAX CUTS. These are the code words that Joe Six Pack wants to hear. Joe Six Pack could care less about "child tax credits." While those are probably the most responsible words and the most responsible way to handle tax benefits for the middle class and the poor, those are not the words that the majority of uncommitted voters want to hear. Those are the code words. Republicans always promise tax cuts period. Of course most of those tax cuts always go to the rich as the Trump tax cuts did, but the Joe Six Packs of the world do not make that distinction. All they care about is that they will get their tax cut no matter how paltry. That's why Biden should promise not only taxing the rich but tax cuts for the middle class. Trump will promise tax cuts for everyone. Biden should make the easily understood distinction of tax increases for the rich - as Biden has repeatedly said, those making more than $400,000 a year - and tax cuts for everyone else. Whether or not this makes economic sense or the best use of the saved money, this is politically the best way to neutralize the only economic policy Republicans have.

While taxing the rich makes good red meat rhetoric, it doesn't register on or resound with the naive, unsophisticated average voter's mind the way tax cuts does, and we must assume that the majority of voters are naive and unsophisticated based upon the fact that polls indicate that the majority of voters favor voting for Trump at this point. Any American citizen who has any understanding of what President Biden has accomplished would almost certainly think that he deserves a second term. Even if he doesn't finish it, his administration will give a push for the continuation of his policies which are far more in the interests of the average American than are Trump's. If it's up to Kamala Harris to finish Biden's second term, Biden's policies will almost certainly prevail through out that term.

The policy of tax cuts for the middle class will go a long way towards guaranteeing that Biden will be elected for a second term. Certainly some of the money gained from taxing the rich could be used for tax cuts for the not so rich in addition to child tax credits. The other policy that President Biden should espouse has to do with the border. It's not enough to blame Republicans for the fact that recent bipartisan legislation that would supposedly "fix" the border has not been passed. Biden should just come out and say he wants the border to be fixed in such a way that no one will be able to come across the border illegally. Certainly this is possible for a country that has 800 military bases around the world and a trillion dollar a year military budget. It's almost ridiculous that the world's most powerful nation that purports to be the policeman of the world cannot even police its own border. Taking a much stronger position on the border - in particular the illegal crossing of the border - will take that issue away from Trump who will promise that under his administration not one illegal entry will be permitted. Let's get beyond the trivial issue of whether those crossing the border are "illegals" or "undocumenteds." It's not about descriptive words; it's about policies. Use the words that most Americans use, not those that are politically correct. Take a page out of Trump's book. Biden's words should be much stronger on this issue. This is what the American people want, and Biden should take this issue away from Trump.

In summary, Biden needs to be much stronger on these two issues - tax cuts and illegal border crossings - taking these issues which are the only issues Trump has, away from him. Whether or not Biden or Trump can get anything passed in Congress on these two issues depends on whether or not either President ends up with a Congress, both Houses of which are composed of their own respective parties. No President has complete control of what gets passed by Congress. The average voter, however, thinks these issues are entirely in the President's hands. No one know this better than Joe Biden. However, when running for President, a person can promise anything and can fight for it if elected. Biden needs a second term if for no other reason than to deny Trump a second term which might presage the end of democracy in America.

Off the Top of My Head

Biden Should Run on Tax Cuts for Middle Class

by John Lawrence

There are only two issues Republicans have: the border and tax cuts. The American people are expecting a tax cut if a Republican is elected to the Oval Office. That's the reason they are complaining about the economy. The American people have gotten a lot of good economic stuff out of the Biden administration. Now they want their tax cuts. Every Republican administration in recent history has promised tax cuts. Biden should steal that thunder and run on tax cuts for the middle class and tax increases for the very wealthy. He started sounding this note during the last election cycle. He needs to reemphasize this medley. Biden needs to take these issues away from Republicans. I wrote previously about the fact that Biden should go full Trump on the border issue. It's ridiculous that the US has 750 military bases around the world, and seeks to control every other country's borders but can't control its own. A majority of these bases are equipped with modern military equipment and airfields. According to a report, the U.S. had about 750 military bases across 80 countries in the world and had deployed 173,000 troops in 159 different countries as of July 2021.

Let's review the Biden record on the economy which is truly epic. Biden has added 14 million jobs in less than three years, bringing the Black unemployment rate to a record low and reducing student loan debt by billions. That's for starters. The astoundingly strong labor market is arguably the White House’s biggest victory. In some ways, the bump was inevitable — Biden took office at a time when millions were still out of work because of the pandemic. Even so, the rapid job gains in recent years have blown past economists’ expectations and have fueled the economy’s blockbuster growth. To date, the White House has canceled some $132 billion in student loan debt for more than 3.6 million Americans. It has also increased federal Pell Grants to low- and middle-income students, allowing them to take on less debt. As a result, outstanding student loan balances have been falling for six months. 

The American Rescue Plan passed in March 2021, injected a $1.9 trillion stimulus into the U.S. economy. It included financial safety nets like payments of $1,400 to households earning up to $75,000, extended unemployment benefits, and an expansion to the child tax credit. Collectively that cut overall poverty by 44%, according to the Brookings Institution, and lifted Americans’ financial health to new heights. Biden’s $1 trillion Infrastructure and Jobs Act was the next major spending package to win congressional approval in November 2021. It fulfilled the president’s campaign-trail promise to refurbish the country’s roads and bridges, while expanding access to clean water and broadband internet. It will support an additional 600,000 new jobs by the end of next year and 800,000 jobs in 2025, according to Moody’s Analytics.

 

The passage of the so-called “Chips and Science” plan allowed Biden to cement an industrial-policy legacy and fulfill a bipartisan desire to rely less on China’s semiconductor industry. More than 460 companies have shown interest in its $53 billion of research and production subsidies, the Commerce Department said last month. And the relationship between public and private investment is something to brag about. Micron Technology’s (MU.O), opens new tab $100 billion outlay for a New York chip factory is expected to create nearly 50,000 jobs in the state. Intel’s (INTC.O), opens new tab $20 billion expansion in Arizona is expected to support 3,000 new jobs. The Inflation Reduction Act gave Biden a chance to revive progressive proposals before the 2022 midterm elections. Though the final plan was whittled down from $1.8 trillion to $430 billion of new spending, it still included Biden’s plans for clean energy tax credits and Medicare drug price negotiation. Bank of America estimates it has already spurred $132 billion of investment across more than 270 new clean energy projects.

 

So what is the American people's response to these clear economic gains that Biden has been responsible for? Now we want our tax cuts so we will elect Trump since that is what he provided after his election in 2016. This is an ominous predilection for the reelection of Joe Biden. He can neutralize this threat by out promising Trump on the issue of tax cuts for the American people. At the same time he can balance this by his previous promise of not increasing taxes on anyone making less than $400 million a year. This would make Biden's policy on tax cuts more fiscally responsible than Trump's. Trump's tax cuts added $7 trillion to the national debt, something Republicans weren't too concerned about. Biden should take the wind out of Trump's sails on tax cuts while also providing a more responsible policy regarding the national debt.

Off the Top of My Head

Competition Leads to the Proliferation of Redundant Commodities. Cooperation is Necessary to Deal with Global Warming

by John Lawrence

Private enterprise fueled by competition is a great mechanism for creating products which can be sold in the market place to consumers. This has worked wonders for economies both in the western world and in China where private enterprise brought 800 million people out of poverty in 40 years, the largest reduction in poverty in world history. This was accomplished by private enterprise at the local level not by communism at the national level. However, private enterprise, while good at creating products to be sold in the market place, is not good at global cooperation which is what is needed to solve the problem of climate change let along create world peace. The problem of cooperation on a multi state level has not been solved let alone hardly addressed with the result that human society is hastening down the path to its own destruction, meanwhile trying to proliferate the sale of gadgets and the making of money and the regaling of competition as the solution to the world's problems. It's not. Unless national societies can learn to cooperate, the destruction of the earth's ecosystems necessary for human and animal well being is assured. While giving lip service to reducing the effects of climate change, no politician anywhere in the world wants to contemplate the fact that national GDPs might actually have to be reduced in order to reorient human energy and natural resources to the most important job of saving the planetary environment so that humans can safely live in it. Last year, 2023, was the hottest year on record and the year in which the most carbon dioxide was released into the atmosphere, just the opposite of the necessary conditions to save the planet for human habitation on a long term basis.

Meanwhile, advertising is supercharging the hawking of relatively worthless redundant products to individual consumers. Bolstered by the upcoming presidential election and attention-grabbing sporting events such as the Olympics, the U.S. will account for almost a third of the total ad spend, rising 2.2% to $303.6 billion in 2023 and 7.6% to $326.7 billion in 2024. Lingering macroeconomic concerns are not expected to hold back ad spending in 2024 amid a confluence of attention-grabbing events. Global ad spending is on track to top $1T for the first time, WARC (the World Advertising Research Center) says. Five companies — Alibaba, Alphabet, Amazon, ByteDance and Meta — will attract 50.7% of global spending in 2023 and 51.9% in 2024. Their ad revenues are expected to increase by 9.1% in 2023 and by 10.7% in 2024, while the rest of the industry remains stagnant. “High interest rates, spiralling inflation, military conflict and natural disasters have made for a bitter cocktail over the preceding 12 months, but the latest earnings season shows that the ad market has withstood this turbulence and has now turned a corner,” said James McDonald, director of data, intelligence and forecasting for WARC, in a release. “With the establishment of retail media as an effective advertising channel, the advent of connected TV as the next evolution of conventional video consumption, and the continued growth of social media and search, we are seeing once again the value advertisers place in leveraging first-party data to target the right message to the right person at the right time,” McDonald continued. WARC’s forecast suggests social media will account for $227.2 billion of ad spending in 2024, more than a fifth (21.8%) of the total spend. Meta, which owns Facebook, Instagram and Whatsapp and controls almost two-thirds of the social media market, can expect to see more than $146 billion in ad revenue, followed by TikTok owner ByteDance, which will see just under $40 billion in ad revenue (equating to a 17.6% share). It is to be noted that Meta does not produce one product necessary for human survival.

The force feeding of products to individual consumers is reminiscent of the force feeding of ducks to produce foie gras. It's relentless. United States Private Consumption accounted for 67.5 % of its Nominal GDP in Sep 2023. In other words without private consumption of individual consumer oriented products, the US GDP would hardly exist. Yet for the world to get climate change under control, it must reduce private consumption and individual competion for sales to consumers and redirect these resources to combating climate change. Instead human beings prefer actual combat and competition among nations to the global cooperation and cooperation between nations and the national efforts required to get climate change under control. It's a different mindset than the mindset that competition to sell products in the market place in order to get rich engenders. 2023 was the hottest on record by a long shot. Europe’s top climate agency released data showing 2023 global temperatures averaged 1.48 degrees Celsius above pre-industrial levels. Record-high temperatures are expected to continue this year. The planet didn't just set a new global annual heat record. It shattered previous records.

Greenhouse gas emissions from fossil fuels are projected to reach a record 36.8 billion metric tons in 2023, an increase of 1.1% over 2022, according to an annual report by the Global Carbon Project. While emissions of carbon dioxide (CO₂) are declining in some regions including Europe and the United States, they continue to rise overall, the authors said, adding that global action to reduce fossil fuel consumption is not happening fast enough to prevent dangerous impacts from climate change. The steep reductions that are urgently needed to meet global climate targets have yet to emerge, said Professor Pierre Friedlingstein of Exeter’s Global Systems Institute, who led the study. Atmospheric CO₂ in 2023 will likely reach 419.2 ppm, 51% above pre-industrial levels. Remember when countless scientists, climate experts, and governments officials agreed that 350 ppm was the “safe” level of carbon dioxide?

So the handwriting is on the wall. Far from an all hands on deck effort to prevent climate change so that future generations can live in peace and comfort on planet earth, global competition in both the commercial and military realms is the preferred and ongoing mode of human behavior, climate change and global warming be damned. Hey, humans seemingly say, we'll get around to preventing climate change just as soon as we win this war. Human greed and the competition among greedy individual participants is a far greater force than altruistic human cooperation to do what's right by future generations. Greed has outpaced morality in the competition for individual accumulation of economic and financial resources. The cooperation and sacrifice that the world saw in the 1930s and 40s to win the Second World War is nowhere to be found today. The US is still preoccupied with individual consumption and especially in entertainment venues which contribute nothing to the effort to make the world safe in terms of climate change. Instead of making the world safe for democracy we must change the paradigm to making the world safe and habitable for future generations by an all hands on deck effort to prevent global warming, an effort, objectively speaking, that seems doomed for failure unless our collective mindsets somehow find a way to change. By the way, U.S. oil production reached a record high of over 13 million barrels per day in September 2023, surpassing all other countries.

Off the Top of My Head

Hedge Funds Outbidding Average Americans for Single Family Homes

by John Lawrence

Want to know why single family homes are less affordable? Hedge funds are buying them up and turning them into rentals. The long term implications of this are that the American people will become a nation of renters. Home ownership has been the traditional way that Americans have increased wealth. A home represents an asset which increases in value over the years. Renters typically end up with no assets and very little to provide for themselves in old age. Those with fixed incomes are even priced out of the rental market as rents continue to increase. That's why so many seniors are ending up on the streets. This issue is even becoming noticed by Democratic politicians. In the Senate, the End Hedge Fund Control of American Homes Act of 2023 would force big investors to sell off all the single-family homes they own over a period of 10 years, and eventually ban hedge funds from owning any single-family homes entirely. "The housing in our neighborhoods should be homes for people, not profit centers for Wall Street," co-author of the bill, Senator Jeff Merkley, D-Ore., said in a press release. "Yet, in every corner of the country, giant financial corporations are buying up housing and driving up both rents and home prices. It's time for Congress to put in place commonsense guardrails that ensure all families have a fair chance to buy or rent a decent home in their community at a price they can afford."

If home ownership is taken off the table for most Americans, there is only one asset class remaining in order to build wealth - the stock market. Today about 58% of Americans are invested in the stock market in some form or other. That's a huge increase from 1990 when only about 20%of Americans owned stock. If the stock market continues to go up in value, those Americans so invested will have a nest egg in their advanced years. However, there is no guarantee that this will be the case. Money has been made in the stock market, and money has been lost. Home ownership by and large has always been a much safer bet. The dotcom bubble of 2000 was a rapid rise in U.S. technology stock equity valuations fueled by investments in Internet-based companies in the late 1990s. When the bubble burst, the Nasdaq, which rose five-fold between 1995 and 2000, saw an almost 77% drop, resulting in a loss of billions of dollars. Home ownership, however, maintained its value. It took 15 years for the stock market to regain its value.

This does not augur well for Americans who are placing all their bets on the stock market to provide for them in old age. Stock market based wealth can vary considerably over time based on economic conditions over which the average investor has no control. Sophisticated investors can buy and sell on an almost instantaneous basis. The average American, however, doesn't have the expertise to exit the market if a crash or even a downturn is imminent. The stock market does not represent a stable investment in the same way that real estate does. Even though real estate values collapsed during the 2007-2008 Great Recession, rents remained stable in that time period. Notably rents did not decrease. Between 2007 and 2011, the worst years of the 2008 Recession, rental prices increased. So an investor in rental property continued to receive the same or more rent, even if the underlying property value decreased temporarily. People should not look to the stock market for all their wealth building needs because it can collapse leaving one with nothing. A rental investment, however, will probably continue to produce rental income in perpetuity unlike a pension or social security which will terminate on the death of the recipient. "This [affordability] crisis [for home ownership] has been exacerbated in recent years by an increasing number of large investors purchasing a significant percentage of single-family homes, squeezing out prospective buyers," said Rep. Adam Smith, D-Wash., in a statement.

Off the Top of My Head

What To Do About Religious Intolerance Leading to War

by John Lawrence

The current situation in the Middle East is a reminder that throughout history war has been religious based. Think of the wars in Europe between Protestants and Catholics or the Crusades which were wars between Christians and Muslims or the persecution of Jews throughout history. If we are ever to have peace in this world, religious tolerance is paramount. So there should be religious studies in schools at all levels, but not studies about one religion. Students should be required to study all the major religions which are Judaism, Christianity, Islam, Hinduism and Buddhism. Not only that, but students should be required to attend religious services in all these religions. Only by understanding the different religions can one develop a tolerance for them all. Only when we come to a time when it doesn't matter what religion a person espouses will we be able to all get along. It shouldn't matter what one's religion is. They shouldn't be perceived as "the other." All human beings need to get to the point where they are human beings first and their religion is a matter of indifference.

I think this can only be accomplished by an educational system in which a student becomes familiar with all the different religions, has friends who are members of different religions and comes to see that, regardless of one's religion, human beings are all basically the same. In other words all societies should become secularized. It would help greatly if all students were required to attend religious services of all the five great religions mentioned earlier. What is more important than peace on earth, and to accomplish this tolerance of all religions must be inculcated in students everywhere. Tolerance of other religions is more important than the beliefs of any particular religion. As long as one perceives that someone is a member of a different religion than their own and is perceived as "the other," there will be suspicion, fear, tension, hatred and war. World peace is something that needs to be worked at to be accomplished and understanding and tolerance of religion is a good place to start.

In addition to tolerance of different religious views, an uplifting of the economic circumstances of the world's poorest citizens will do more to create peace than anything else. War is often the result of the perceived superiority of living conditions of one group of people by another group. One group is the downtrodden and one group has all the advantages and is living the good life. Everyone in the world needs to be brought up to at least a decent standard of living before there will be peace in the world. So religious tolerance brought about by education regarding all the world's religions and attendance at all religious services combined with an all out effort to bring all the world's peoples up to a decent standard of living will do much to bring about world peace. These efforts have to be done at the same time that the earth itself must be protected from environmental degradation especially with regard to climate change. The old paradigm in which earth's resources were to be exploited without consequence, in which humans were told that they had "dominion" over earth's resources, must go to be replaced with an ethic not of exploitation but of respect for the planet and all its resources including its human resources.

Rich Men North of Richmond

Republicans court cultural populism, while Democrats eschew economic populism. But economic populism is the key.

Robert Reich

Aug 21, 2023

Over the past week, Oliver Anthony’s video of his song “Rich Men North of Richmond” has gone viral, clocking more than 20 million views on YouTube. As it’s risen to the top of the streaming charts, it’s also become a theme song for reactionary conservatives (Marjorie Taylor Greene calls it “the anthem of the forgotten Americans”).

“Rich Men North of Richmond” expresses class resentment with words and music evocative of Woody Guthrie. But Guthrie aimed his fire at economic elites who oppressed hardworking Americans. Anthony is aiming at cultural elites who have reduced the status of white American-born men.

America is in a new populist age, but the new populism comes in two radically different forms: cultural and economic.

Today’s Republicans are wielding cultural populism on behalf of so-called “forgotten Americans” who are white, male, Christian, and nationalist.

For seven years, Donald Trump has rarely missed a day to blame all America’s problems on immigrants, Democrats, socialists, the mainstream media, the “Deep State” (including the FBI, Justice Department, prosecutors, and unfriendly judges), “coastal elites,” and, wherever possible (and usually indirectly), women and people of color.

Florida’s Ron DeSantis is basing his inchoate presidential campaign on a war against what he calls America’s “ruling class,” which includes bureaucrats, journalists, educators, and other supposed “woke” experts who, as DeSantis told the audience attending his campaign kickoff in Iowa in May, “are not enacting an agenda to represent us. They’re imposing their agenda on us, via the federal government, via corporate America and via our own education system.” DeSantis is shipping undocumented immigrants out of Florida, barring teaching about sex or America’s history of racism, blocking abortions after twelve weeks, requiring Trans young people to use bathrooms according to their gender at birth.

For Republican politicians these days, the culture wars are the central struggle of American public life. Why? Because cultural populism’s underlying political agenda is white male Christian nationalism. It aims to resurrect the social and racial hierarchy that dominated American life before the 1960s.

This not only fuels the Republicans’ mostly white, male, Christian, American-born base. It also reassures the fat cats bankrolling the GOP that working-class resentments are channeled away from economic populism — which could threaten the fat cats’ wealth.

What are Democrats doing with economic populism?

Some Democrats continue to talk about “forgotten Americans” who have been left behind economically. And Biden and his allies in Congress have made a good start at helping these Americans — even though most of the working middle class doesn’t seem to be aware of it.

But few Democrats are willing to blame what’s happened on economic elites. (When Bernie Sanders tried in 2016, the Democratic establishment squashed his presidential ambitions.)

Yet the Republicans’ cultural populism is bogus. The biggest change over the last three decades — the change lurking behind the insecurities and resentments of the working middle class — has nothing to do with identity politics, “woke”ism, Critical Race Theory, transgender kids, or any other current Republican bogeymen. It has directly to do with a huge shift in the distribution of income and wealth.

The nonpartisan Congressional Budget Office has just released a report showing changes in the distribution of family wealth from 1989 to 2019 (the first and the most recent years for which comparable survey data on family wealth are available).

Families in the top 10 percent of the distribution now hold more than two-thirds of all wealth. Families in the bottom half of the distribution hold only 2 percent of total wealth. (Families in the bottom quarter have negative net wealth — they’re in debt. Families in the top 1 percent — indeed, the top one-tenth of 1 percent — have a disproportionate share of the wealth of the top 10 percent.)

Look at the dramatic change over the last three decades. Although total wealth is much greater now than it was then, the distribution of that wealth is far more unequal. The bottom 50 percent hasn’t budged. Wealth at the top has exploded.

 

This change didn’t happen because of so-called “neutral market forces.” It happened because of policy decisions made over the last three decades.

What sort of decisions? To open the borders wide to imports from China. To deregulate Wall Street and allow it to make bets with other people’s money. To dramatically cut taxes on the rich. To let corporations bash unions and fire workers who try to organize. To encourage private equity to take over “underperforming” companies and then promptly fire workers and sell off assets. To allow big corporations to buy or merge with other big corporations. To bail out the biggest banks but not homeowners who get caught in the downdrafts. To encourage corporations to buy back their shares of stock rather than reinvest profits. To privatize higher education and push students into taking out massive college loans. And so on.

These policy decisions didn’t just happen, either. They were pushed by wealthy elites on Wall Street and in corporate C-suites, who made mammoth donations to politicians on both sides of the aisle — mostly but not exclusively Republican — to ensure that their wishes would be honored.

Donald Trump, Ron DeSantis, Marjorie Taylor Greene, and other Republican culture warriors don’t represent “forgotten Americans.” They’ve championed the very policies that have caused these Americans to be forgotten.

Biden and most Democratic lawmakers in Congress are advocating policies that will make the nation more equitable, such as student-loan forgiveness and negotiated drug prices. But they’re reluctant to push very hard for higher taxes on the wealthy, or labor laws that make it easier to organize, or to roll back any of the other big structural changes that wealthy elites have put in place over the last 30 years.

And they don’t want to blame the rich for what’s happened.

“I’ve been sellin’ my soul, workin’ all day / Overtime hours for bullshit pay,” Anthony sings.

Yes, you have — but not because cultural elites have replaced white Christian nationalist men with people of other races, genders, nationalities, and creeds.

It’s because America’s wealthy have turned their growing wealth into increasing political power to change the rules of the game in ways that further enlarge their wealth and power, while shafting the bottom half.

If Democrats don’t tell the economic truth about what’s happened and place the blame squarely where it’s deserved, the lies of Republican cultural populists will fill the void — not just with faux-populist lyrics, but with bad laws.

Off the Top of My Head

Government Deficit Spending Is Not the Problem: Lack of Labor and Physical Resources Is

by John Lawrence

Since the US dollar is a sovereign fiat currency, the US can never run out of dollars. The debt ceiling is a totally artificial limit which results in the US hoisting itself on its own pitard. According to Modern Monetary Theory (MMT) as espoused in The Deficit Myth by Stephanie Kelton, the only limit on government spending is inflation, and inflation is concerned with the amount and nature of resources available to soak up the money injected into the economic system by the government. According to this theory it makes sense that a lack of labor resources could lead to inflation. Consider that right now there is a shortage of air traffic controllers, and this is leading to a cancellation of flights. If there were more air traffic controllers available, the number of flights could be increased, and more economic activity would ensue. The constraint on flights available because of the lack of air traffic controllers leads to inflation because the money charged for each available flight can be increased. Essentially there is a bidding war for the available flights. If any resource including natural resources like steel and cement is not sufficient for the demand for those resources, then the price of those resources will increase leading to inflation. Right now in the US labor is becoming a scarce resource especially labor of the type necessary in the essential economy, that is the economy of goods and services necessary for the continuation and enhancement of everyday life. As more labor is developed for essentially useless services like the entertainment and social media industries, plumbers, electricians and carpenters are not available for useful services, and, therefore, the cost of those services increases.

Which brings us to Biden's Inflation Reduction Act which allocates $370 billion to rebuild infrastructure and fight climate change. These are all necessary and vital goals, but the question should be asked are the resources for this amount of spending sufficient or will this spending be inflationary. To put it more succinctly is the blue collar labor sufficient for the job? If not, the price of labor will be bid up and the spending will be inflationary. More and more these days students are encouraged to go to college where they end up after graduation working for Wall Street or hedge funds or in the entertainment/social media industry. They are not encouraged to go to vocational technical schools to become carpenters, plumbers and electricians. So they go into industries which are not essential to the real economy. There are shortages of labor for the real economy everywhere we look. In order to overcome these shortages, it would be necessary to step up legal immigration since immigrants by and large fill the jobs Americans don't want to do, and by and large Americans don't want to perform any kind of the less glamorous and remunerative type of labor necessary for production in the real economy. Also outsourcing has made it unnecessary for Americans to perform labor in the real economy. We rely either on immigrants or foreign workers for that.

The next thing is that all this infrastructure rebuilding is going to contribute to global warming as well as reducing it. Rebuilding all the bridges of America will require large amounts of steel and cement. Steel and cement production produce large amounts of carbon dioxide which is emitted into the atmosphere. The International Energy Agency estimates that direct CO² emissions due to crude steel production is approximately 1.4 tons of CO² per ton of steel produced. The cement industry is responsible for about 8% of planet-warming carbon dioxide emissions — far more than global carbon emissions from aviation. If the cement industry were a country, it would be the third-largest emitter of carbon dioxide in the world, after the U.S. and China. So rebuilding America's infrastructure will contribute to global warming while at the same time attempting to reduce global warming. The fact is that alternatives to steel and cement which do not produce greenhouse gasses are not available. Research on these topics needs to be stepped up. But more research in areas like artificial intelligence, of the kind which has no use in the amelioration of global warming, takes place while productive research into materials to replace steel and cement languishes. Also while more electric vehicles are being produced, the electric energy to power these vehicles is coming from power plants that still use fossil fuels to produce it. One form of greenhouse gas production is being traded for another. Nothing is gained unless all energy generating power plants are using renewable and non carbon dioxide producing fuels.

The problem is that limited resources both in terms of labor and physical resources will hamper efforts both in repairing American infrastructure and building infrastructure which reduces the amount of greenhouse gas production. Stephanie Kelton writes: "That's why MMT recommends a different approach to the federal budgeting process, one that integrates inflation risk into the decision making process so that lawmakers are forced to stop and think about whether they have taken the necessary steps to guard against inflation risk before approving any new spending. MMT would make us safer in this respect because it recognizes that the best defense against inflation is a good offense. We don't want to allow excessive spending to cause inflation and then fight inflation after it happens. We want agencies like the CBO helping to evaluate new legislation for potential inflation risk before Congress commits to funding new programs so that the risks can be mitigated preemptively. At its core  MMT is about replacing an artificial (revenue) constraint with a real (inflation) restraint." The artificial revenue constraint is the debt ceiling!

In the above passage the words "inflation risk" could also be replaced with "greenhouse gas emission risk." The CBO should evaluate both kinds of risks. So as the economy becomes more electrified in terms of electric cars and buildings, we need to think about the fact that the electricity generated by these increased demands needs to come from non carbon dioxide emitting sources. Also substitutes must be found quickly - in other words research needs to be stepped up - to find substitutes for steel and cement. To boot, non polluting energy sources must be found for ships and planes. Both human and physical natural resources must be taken into account. Have all these things been thought through?

Off the Top of My Head

The Solution to the Debt Crisis: Tax the Rich

by John Lawrence

Republicans want Biden to cut back spending. Democrats should want to increase taxation on the rich. The debt can be ameliorated either by reducing spending or increasing taxation. The debt is a result both of overspending and undertaxing. For all those who care about the size of the debt, they should be as concerned about undertaxing to the same extent they are concerned about overspending. Since the three wealthiest people in the United States — Bill Gates, Jeff Bezos, and Warren Buffett —now own more wealth than the entire bottom half of the American population combined, a total of 160 million people or 63 million households, the obvious culprit here is not overspending, it's under taxation of the rich. In addition to taxing the incomes of the rich, there needs to be instituted a wealth tax. Whoa, you say, this would discourage entrepreneurs who are responsible for inventing the next big thing which is what contributes the most to the American economy. We don't need another gadget; we need all hands on deck to fight global warming. This is being done by Joe Biden's infrastructure bill which is a government, not a private, solution. Private entrepreneurship is less important in a period of global warming than large scale government solutions. Therefore, discouraging entrepreneurship, except that which supports a solution to global warming, is actually a positive development.

America’s top 25 billionaires — a group the size of a major league baseball team’s active roster —together hold $1 trillion in wealth. These 25 have as much wealth as 56 percent of the population, a total 178 million people or 70 million households. The solution to government debt is to go where the money is and tap that. When asked why he robbed banks, Willie Sutton simply replied, “Because that's where the money is.” By the same token, the solution to the national debt is for the government to go where the money is: billionaires and Forbes 400 corporations. Americans don't need any new gadgets to spend their money on. In the World War II era consumption was both voluntarily and manditorily reduced in order to put more resources into the war effort. The war on global warming is even more important than World War II because, if we lose this war, the survival of the whole human species is at risk. Put simply we need to reduce consumption of the gadgets and entertainment provided by the private sector and increase expenditures on large scale projects which can ameliorate global warming. Of necessity those projects and that spending has to be initiated by government in cooperation with the private sector, but government has to lead the way and provide the money.

Income inequality is a major problem of American society. This problem can be resolved and the resources to prevent global warming provided for by taxing the rich. The problem is to reduce American consumption which is 70% of the US economy and increase government spending as long as that increased spending is spent on the solutions to global warming. At the same time the national debt can be reduced. The national debt in and of itself is not a problem, but interest on the national debt is. There are other solutions to decreasing the interest such as having the Fed create the money by quantitative easing. Instead of the Fed's depositing this money in the accounts of the big banks, it would deposit the money in the Treasury's account. "The whole idea of Modern Monetary Theory is that since a sovereign entity can borrow in its own currency, it can print more money when it needs to pay off all its debt. The central bank just needs to keep interest rates low," says Robert R. Johnson, professor of finance at the Heider College of Business at Creighton University. But there's the rub. As the Fed raises interest rates to control inflation, interest on the national debt also increases. That's why a mechanism needs to be found by which the Fed creates the money to run the government instead of the Treasury borrowing the money.

So in the meantime taxing the rich seems to be the best policy in order to bring the national debt down, to reduce economic inequality and to provide the money for government programs to combat global warming.

Off the Top of My Head

Nice Economy You Have Here. It Would Be a Shame If Something Happened To It

by John Lawrence

The debt ceiling is not mentioned in the Constitution. It's an act of Congress, the Public Debt Acts of 1939 and 1941. Congress authorizes the amount of spending that can be undertaken by the US government, and also that, if there is not enough money in the Treasury for this spending, the Treasury is authorized to borrow the money by issuing Treasury bonds. However, the amount of borrowing cannot exceed the debt ceiling. If the amount of money the government has already been authorized to spend exceeds the debt ceiling, there is no other alternative except to raise the debt ceiling. Otherwise, the US government will default on its debt. The question arises why is there a debt ceiling at all? If Congress didn't authorize the spending of the money in the first place, then there would be no need to borrow at all or if Congress wanted to limit borrowing, it shouldn't authorize a budget which exceeds that amount. This is just another double bind in the law which makes the US "rule of law" dysfunctional. The 14th amendment of the Constitution says, "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." So there you have it: the government by law must pay its bills and the government by law cannot exceed the debt ceiling. It's what you call a contradiction. You would think that the provisions in the Constitution would take precedence over an act of Congress.

So that gets us to the minting of the trillion dollar coin. Although it's up to Congress to raise the debt ceiling, the Treasury Secretary could order the mint to produce the trillion dollar coin which could then be deposited in the Federal Reserve and voila, the US government could pay its bills. The Federal Reserve transfers all money deposited with it for taxes and the sale of Treasury bonds to the account of the Treasury of the US. The legal basis for the concept of a trillion-dollar coin arises from the fact that the United States Mint is authorized to produce platinum coinage without any restrictions as to the number of coins produced or their face value. Alternatively, President Biden could declare that the 14th amendment authorizes him to pay the bills. This is a major dysfunction of the US government and the US version of democracy. Republicans are eager to use their power to disrupt the fact that money was authorized by the previous Democratic controlled House and now it's up to them to raise the debt limit. So you might ask why hasn't Congress gotten rid of the debt ceiling provision that it enacted in the Public Debt Acts?The reason is that even when both Houses of Congress were controlled by Democrats, as they were in the first two years of the Biden administration, Republicans in the Senate filibustered any attempt by Democrats to do that or much of anything else. The filibuster represents more dysfunction. US democracy is hamstrung because one party refuses to govern in a sensible and cooperative manner. Their interest is only in defeating Democrats not in doing what's best for the American people.

Paul Krugman wrote in the New York Times:

The issue at hand is whether to raise the federal debt ceiling. This ceiling is a peculiar — and destructive — quirk of the U.S. budget process. Here’s how it works: First, Congress passes legislation that determines federal spending and tax collection. This legislation may lead to a budget deficit. Whether that’s a good idea is beside the point: Congress made its choices, and the Treasury Department must do whatever is necessary to honor duly enacted legislation, which may require borrowing to cover the deficit.

But under current law Congress must also vote a second time to authorize federal borrowing by raising the limit on the allowed amount of debt. And we’re only a few months from the point where America won’t be able to keep paying its bills — that is, spend the money Congress has already told it to spend — unless Congress votes to raise that limit.

Yet now House Republicans aren’t willing to raise the limit unless they are given policy concessions they would never be able to enact via the normal legislative process. Basically, they’re saying, “Nice economy you have here. It would be a shame if something happened to it.”

The US Constitution needs a complete overhaul in which stupid conflicts like these over the debt ceiling are ironed out. Besides the Federal Reserve can just create money like it did with Quantitative Easing. The US dollar is a sovereign, fiat currency. It's only dysfunctional laws that prevents it from doing so. During quantitative easing the Federal Reserve bought Treasuries and other securties and gave the cash that was generated to the big banks to keep them afloat. So it could buy Treasuries and give the money to the US Treasury. It would be using the same quantitattive easing it used to keep the banks float in order to keep the government afloat. Problem solved and it wouldn't mean taking on more debt.

Off the Top of My Head

Why the Fed's Raising Interest Rates Won't Work

by John Lawrence

Inflation is a supply and demand problem. The Fed only sees it as a demand problem: there is too much demand. Therefore, it seeks to reduce the public's ability to demand by reducing wages and creating more unemployment. Problem is that businesses are short staffed. They are trying to hire more workers, not laying them off. There is no "industrial reserve army" of people competing for jobs. Businesses are competing for workers. The reason why prices are going up (hence inflation) is not that there is too much demand, but that there is too little supply. This is caused by supply chain problems which comes down to the fact that most things Americans consume are produced overseas, mainly in China. Also the sanctions on Russian gas and oil combined with Russia cutting off supplies even beyond the sanctions means that everything that is transported including consumer goods is even more expensive. The problem is that the US does not produce much of what it consumes. Again it's a supply problem. Container ships coming from China raise their rates because gas is more expensive. This makes the goods they transport more expensive. When the major things Americans consume come from China (consumer goods) and Russia (energy costs), America is at the behest of countries that it considers enemies. And so is Europe.

The traditional way of fighting inflation is for the Fed to raise interest rates and drive up unemployment. When unemployment increases, demand decreases because unemployed people don't have as much money to spend. In other words money is withdrawn from the economy. This is of course to the detriment of the unemployed people which are usually those on the lowest rung of the economic ladder. But as we've seen during the pandemic, those at the bottom of the economic ladder are usually those who are indispensable workers - grocery workers, agricultural workers, truck drivers, nurses, caregivers. The economy cannot function for anyone without their services. So the only way the Fed can achieve its goal is to drive businesses into bankruptcy. Then all those workers will be in the ranks of the unemployed and be forced to underconsume. Actually, the more that Americans consume, the more greenhouse gasses are created. Underconsumption could have a very salutary effect on the atmosphere and the environment.

Another way to withdraw money from the economy in order to reduce demand is to raise taxes. Again taxes are usually raised on the poor and middle class further immiserizing them. Congress refuses to raise taxes on the rich which Joe Biden has proposed doing. This would help inflation to some extent, but the rich don't consume basic items to the extent that the middle class and poor do. So in order to reduce demand to the point where it is more or less equal to supply, money must be taken out of the pockets of the poor and middle class. The other alternative is to increase supply. But since the US is dependent on supply from foreign suppliers, this is not that easy to do. Long range, the solution is for the US to make more stuff, but corporations have settled on a model of getting stuff produced where labor is cheapest and that means overseas.

Off the Top of My Head

Biden Could Solve the Gas Crisis Today by Taking Sanctions Off Russian Oil

by John Lawrence

Sanctions on Russian oil have been an abysmal failure. Russian oil profits are up 50% from last year! Just as American and British oil corporations have been scoring record profits, so has Russia. Oil prices are set on the world market and soaring prices result in record profits for Russia. If Putin had designed the sanctions himself, he couldn't have wreaked more havoc on the US and European economies. It's time for Biden to admit that his policy of sancti0ns against Russia has failed. They haven't deterred Russia from pursuing a war of attrition against Ukraine. They have demonstrated the abject failure of using US sanctions to control the actions of other countries. They are a total lost cause now and in the future. That's the lesson of the war in Ukraine for the west.

Bloomberg reported:

Russia’s oil revenues are up 50% this year even as trade restrictions following the invasion of Ukraine spurred many refiners to shun its supplies, the International Energy Agency said.

Moscow earned roughly $20 billion each month in 2022 from combined sales of crude and products amounting to about 8 million barrels a day, the Paris-based IEA said in its monthly market report. 

Russian shipments have continued to flow even as the European Union edges towards an import ban, and international oil majors such as Shell Plc and TotalEnergies SE pledge to cease purchases. Asia has remained a keen customer, with China and India picking up cargoes no longer wanted in Europe.

The IEA, which advises major economies, kept its outlook for world oil markets largely unchanged in the report. Global fuel markets are tight and may face further strain in the months ahead as Chinese demand rebounds following a spate of new Covid lockdowns, it said. 

Reduced flows of Russian refined products such as diesel, fuel oil and naphtha have aggravated tightness in global markets, the agency noted. Stockpiles have declined for seven consecutive quarters, with reserves of so-called middle distillates at their lowest since 2008.

But for all the disruption, Moscow has continued to enjoy a financial windfall compared with the first four months of 2021. Despite the EU’s public censure of the Kremlin’s aggression, total oil export revenues were up 50% this year. 

The bloc remained the largest market for Russian exports in April, taking 43% of the country’s exports, the IEA said.

So where is this "world market" that is setting the price of oil? Is it on Wall Street? I'd like to have a word with whoever is in charge of this "world market." Lord knows the US produces enough oil to supply all the US' gas needs so why not take US oil production off the world market and just sell it to the American people at a reasonable price? Oh, I guess that's not how capitalism works. Ironic, isn't it, that a formerly communist country like Russia is now profiting from capitalist markets! So even if the US, Canada and Europe are having record inflation with recessions predicted in the near future, Biden won't take the sanctions off of Russian oil, and basically this is all for spite, all because he hates Putin so much. Biden has staked American prestige on fighting a proxy war with Russia based on the almighty dollar and the power it supposedly possesses over every financial transaction going on in the world. Problem is that all the sanctions on Russia have only proven the weakness and futility of using sanctions to achieve policy goals. Russia has demonstrated that the sanctions just don't work. They haven't deterred Russia in the least. China and India have taken up the slack in Russian oil purchases.

Besides that, what Biden fails to understand is that like the US, Russia's currency, the ruble, is a fiat currency. That means that unlike China, it is not pegged to the US dollar. Russia's central bank can print as many rubles as it wants without asking US permission. The US can of course do the same thing - print as many dollars as it wants except the limiting factor is inflation. So the US can't print dollars right now, but Russia can still print rubles. That means that Russia controls Russian investment in Russia and Russian control of internal consumer markets. Imported products come mainly from China, and China is Russia's friend. Russia is demanding payment for its gas in rubles rather than dollars, and this supports the value of the ruble as a convertible currency just as Nixon's demand that the Saudis price their oil in dollars supported the value of the dollar and made the dollar the world's reserve currency.

All this boils down to the fact that Russia is in the driver's seat with respect to the war in Ukraine. It's hard to see how the unending supply of western weapons is sufficient to win the war for Ukraine now that the policy of sanctions has failed. Demonizing Putin is not a policy that is likely to have an effect on the war one way or other. Putin still has a lot of friends in the world and US inflation, while being primarily a function of sanctions on Russian oil, is also dependent on the supply chain of products coming from China, Russia's friend. Biden should be careful about whom he demonizes. After demonizing MBS, he's now about to get back in bed with him and the Saudis. Biden's Build Back Better policy could have helped the American people, and even now could fight inflation, but alas, after promising that it would be passed "in tandem" with the bipartisan infrastructure bill, it never was. What up with that?

Off the Top of My Head

Biden Alternately Fights, Fuels Inflation

by John Lawrence

Normally the government spending money into the economy is a good thing. It promotes economic growth and prosperity. But when the economy overheats causing inflation, the government needs to extract money from the economy. It does that by, among other things, raising taxes. Also the Fed, like it's doing now, raises interest rates. This puts a damper on major purchases because of interest costs. The American Rescue Plan injected a lot of money into the economy that kept the wheels turning during the worst parts of the pandemic. That was a good thing, but too much of a good thing is a bad thing. The traditional way the Fed controls inflation is to squeeze the economy in such a way as to cause higher unemployment. The Phillips curve is a theoretical economic tool that shows the relationship between inflation and unemployment, the higher unemployment, the lower inflation and vice versa. At present, however, businesses are begging for workers, not laying them off. This is good news for workers, bad news for inflation.

Biden is trying to blunt the cost of inflation to low wage workers by getting Congress to pass some of the remnants of his Build Back Better plan. However, some of these items would cause the government to spend more money into the economy causing even more inflation. Biden doesn't want to tell the truth about inflation which is that the traditional solution is to cause even more pain for low wage workers by squeezing the economy to the point that they will lose their jobs thus increasing unemployment as the Phillips curve dictates. So basically there is nothing Biden can do except to decrease government spending. Republicans would cut programs that benefit the poor and raise taxes on the middle class to do just that.

Biden is continuing to spend money into the economy by purchasing billions of dollars worth of weapons which are then sent to Ukraine. This is inflationary in and of itself. As of May 20, 2022, the US has spent $54 billion on Ukraine, and, evidently, even more will be allocated. Ukraine has become a ward of the US with the US taking responsibility not only for supplying weapons but also for keeping the whole economy afloat. All this money spent on Ukraine is money not spent on programs for the American people unless you are an employee of the military-industrial complex for which Ukraine spending has become a bonanza. Of course there are other causes of inflation than too much government spending. The loss of Russian oil is causing gas prices to rise. Chinese COVID lockdowns are exacerbating the supply chain crisis. This is not a traditional inflation, but too much government spending is certainly a part of it. Biden's good intentions of protecting the American people during the COVID pandemic by flooding the economy with money had the concomitant effect of also causing inflation. Biden will never, of course, tell Americans the truth which is that in order to fight inflation the government will have to turn around and cause them more pain especially low wage workers.

Off the Top of My Head

Joe Biden's Policy: Speak Loudly but Carry a Small Stick

by John Lawrence

As opposed to Theodore Roosevelt's policy: speak softly but carry a big stick. I think Biden's policy is correct. By all means we don't want World War III. As Ellen Brown makes clear on Web of Debt blog, sanctions will not do much except hasten the day when the US dollar is not the only world's reserve currency. There are so many workarounds to sanctions, and billionaires can always replace their super yachts. Russia has a fiat currency just like the US dollar. Modern Monetary Theory has shown that a country with a fiat currency can have its central bank print as much of that currency as it wishes. The only constraining factor is inflation. Right now the US is more constrained by inflation than Russia is. There is no need for Russia's domestic economy to suffer because of inflation. Businesses can continue to receive investment loans from the central bank. International trade will continue with friendly countries like India, China, Venezuela and Turkey. Turkey is a member of NATO by the way, and India is the world's largest democracy.

Daily Sabah reported on March 11, 2022 in Turkish businesses expect progress on using rubles in trade with Russia :

"Since the currency dispute with shipping companies is causing problems in the delivery of goods passing through customs, Turkey should actively work to develop a mechanism to facilitate trade with Russia in rubles, Istanbul Chamber of Commerce (ITO) head Şekib Avdagiç said Friday. Avdagiç stated that the companies working with Russia see the withdrawal of Western countries from Moscow as a new opportunity and emphasized that it is important to enable the use of the national currency of Russia. The issue was also brought up during President Recep Tayyip Erdoğan’s phone call with his Russian counterpart Vladimir Putin, he reiterated. Erdoğan told Putin that, apart from the euro and dollar, trade between the two countries can be carried out using the Russian ruble and Chinese yuan."

Aljazeera reported:

Mumbai, India–Indian authorities are actively considering dedicated payment mechanisms for trade with Russia to enable existing trade obligations in the wake of sanctions imposed on the Kremlin, a move that will also pave the way for cheaper oil imports to meet the country’s energy demands. In the past month, as sanctions have been imposed on Russia, the scope of a payment mechanism in local currencies has expanded from being a means to sustain ongoing trade to possibilities of deeper engagement, including increasing bilateral trade.

Of course, US authorities are managing the news here just as they are in Russia. They don't want you to know that our erstwhile ally, India, the world's largest democracy is doing workarounds to avoid US sanctions. As Ellen's article points out, we in the US may be better off once the US dollar is not the only world's reserve currency. At that point we may have to rely more on our domestic economy and infrastructure just as Russia is being forced to do now. So we won't have to be at the mercy of supply chains from other parts of the world. More stuff will be manufactured here in the good old USA, and that's a good thing.

The Coming Global Financial Revolution: Russia Is Following the American Playbook

Posted on April 5, 2022 by Ellen Brown from Web of Debt blog

No country has successfully challenged the U.S. dollar’s global hegemony—until now. How did this happen and what will it mean?

Foreign critics have long chafed at the “exorbitant privilege” of the U.S. dollar as global reserve currency. The U.S. can issue this currency backed by nothing but the “full faith and credit of the United States.” Foreign governments, needing dollars, not only accept them in trade but buy U.S. securities with them, effectively funding the U.S. government and its foreign wars. But no government has been powerful enough to break that arrangement – until now. How did that happen and what will it mean for the U.S. and global economies?

The Rise and Fall of the PetroDollar

First, some history: The U.S. dollar was adopted as the global reserve currency at the Bretton Woods Conference in 1944, when the dollar was still backed by gold on global markets. The agreement was that gold and the dollar would be accepted interchangeably as global reserves, the dollars to be redeemable in gold on demand at $35 an ounce. Exchange rates of other currencies were fixed against the dollar. 

But that deal was broken after President Lyndon Johnson’s “guns and butter” policy exhausted the U.S. kitty by funding war in Vietnam along with his “Great Society” social programs at home. French President Charles de Gaulle, suspecting the U.S. was running out of money, cashed in a major portion of France’s dollars for gold and threatened to cash in the rest; and other countries followed suit or threatened to. 

In 1971, President Richard Nixon ended the convertibility of the dollar to gold internationally (known as “closing the gold window”), in order to avoid draining U.S. gold reserves. The value of the dollar then plummeted relative to other currencies on global exchanges. To prop it up, Nixon and Secretary of State Henry Kissinger made a deal with Saudi Arabia and the OPEC countries that OPEC would sell oil only in dollars, and that the dollars would be deposited in Wall Street and City of London banks. In return, the U.S. would defend the OPEC countries militarily. Economic researcher William Engdahl also presents evidence of a promise that the price of oil would be quadrupled. An oil crisis triggered by a brief Middle Eastern war did cause the price of oil to quadruple, and the OPEC agreement was finalized in 1974.

The deal held firm until 2000, when Saddam Hussein broke it by selling Iraqi oil in euros. Libyan president Omar Qaddafi followed suit. Both presidents wound up assassinated, and their countries were decimated in war with the United States. Canadian researcher Matthew Ehret observes:

We should not forget that the Sudan-Libya-Egypt alliance under the combined leadership of Mubarak, Qadhafi and Bashir, had moved to establish a new gold-backed financial system outside of the IMF/World Bank to fund large scale development in Africa. Had this program not been undermined by a NATO-led destruction of Libya, the carving up of Sudan and regime change in Egypt, then the world would have seen the emergence of a major regional block of African states shaping their own destinies outside of the rigged game of Anglo-American controlled finance for the first time in history.

The Rise of the PetroRuble

The first challenge by a major power to what became known as the petrodollar has come in 2022. In the month after the Ukraine conflict began, the U.S. and its European allies imposed heavy financial sanctions on Russia in response to the illegal military invasion. The Western measures included freezing nearly half of the Russian central bank’s 640 billion U.S. dollars in financial reserves, expelling several of Russia’s largest banks from the SWIFT global payment system, imposing export controls aimed at limiting Russia’s access to advanced technologies, closing down their airspace and ports to Russian planes and ships, and instituting personal sanctions against senior Russian officials and high-profile tycoons. Worried Russians rushed to withdraw rubles from their banks, and the value of the ruble plunged on global markets just as the U.S. dollar had in the early 1970s. 

The trust placed in the U.S. dollar as global reserve currency, backed by “the full faith and credit of the United States,” had finally been fully broken. Russian President Vladimir Putin said in a speech on March 16 that the U.S. and EU had defaulted on their obligations, and that freezing Russia’s reserves marks the end of the reliability of so-called first class assets. On March 23, Putin announced that Russia’s natural gas would be sold to “unfriendly countries” only in Russian rubles, rather than the euros or dollars currently used. Forty-eight nations are counted by Russia as “unfriendly,” including the United States, Britain, Ukraine, Switzerland, South Korea, Singapore, Norway, Canada and Japan. 

Putin noted that more than half the global population remains “friendly” to Russia. Countries not voting to support the sanctions include two major powers – China and India – along with major oil producer Venezuela, Turkey, and other countries in the “Global South.” “Friendly” countries, said Putin, could now buy from Russia in various currencies.

On March 24, Russian lawmaker Pavel Zavalny said at a news conference that gas could be sold to the West for rubles or gold, and to “friendly” countries for either national currency or bitcoin.

Energy ministers from the G7 nations rejected Putin’s demand, claiming it violated gas contract terms requiring sale in euros or dollars. But on March 28, Kremlin spokesman Dmitry Peskov said Russia was “not engaged in charity” and won’t supply gas to Europe for free (which it would be doing if sales were in euros or dollars it cannot currently use in trade). Sanctions themselves are a breach of the agreement to honor the currencies on global markets. 

Bloomberg reports that on March 30, Vyacheslav Volodin, speaker of the lower Russian house of parliament, suggested in a Telegram post that Russia may expand the list of commodities for which it demands payment from the West in rubles (or gold) to include grain, oil, metals and more. Russia’s economy is much smaller than that of the U.S. and the European Union, but Russia is a major global supplier of key commodities – including not just oil, natural gas and grains, but timber, fertilizers, nickel, titanium, palladium, coal, nitrogen, and rare earth metals used in the production of computer chips, electric vehicles and airplanes. 

On April 2, Russian gas giant Gazprom officially halted all deliveries to Europe via the Yamal-Europe pipeline, a critical artery for European energy supplies.

U.K. professor of economics Richard Werner calls the Russian move a clever one – a replay of what the U.S. did in the 1970s. To get Russian commodities, “unfriendly” countries will have to buy rubles, driving up the value of the ruble on global exchanges just as the need for petrodollars propped up the U.S. dollar after 1973. Indeed, by March 30, the ruble had already risen to where it was a month earlier. 

A Page Out of the “American System” Playbook

Russia is following the U.S. not just in hitching its national currency to sales of a critical commodity but in an earlier protocol – what 19th century American leaders called the “American System” of sovereign money and credit. Its three pillars were (a) federal subsidies for internal improvements and to nurture the nation’s fledgling industries, (b) tariffs to protect those industries, and (c) easy credit issued by a national bank.

Michael Hudson,  a research professor of economics and author of “Super-Imperialism: The Economic Strategy of American Empire” among many other books, notes that the sanctions are forcing Russia to do what it has been reluctant to do itself – cut reliance on imports and develop its own industries and infrastructure. The effect, he says, is equivalent to that of protective tariffs. In an article titled “The American Empire Self-destructs,” Hudson writes of the Russian sanctions (which actually date back to 2014): 

Russia had remained too enthralled by free-market ideology to take steps to protect its own agriculture or industry. The United States provided the help that was needed by imposing domestic self-reliance on Russia (via sanctions). When the Baltic states lost the Russian market for cheese and other farm products, Russia quickly created its own cheese and dairy sector – while becoming the world’s leading grain exporter.

Russia is discovering (or is on the verge of discovering) that it does not need U.S. dollars as backing for the ruble’s exchange rate. Its central bank can create the rubles needed to pay domestic wages and finance capital formation. The U.S. confiscations thus may finally lead Russia to end neoliberal monetary philosophy, as Sergei Glaziev has long been advocating in favor of MMT [Modern Monetary Theory]. …

What foreign countries have not done for themselves – replacing the IMF, World Bank and other arms of U.S. diplomacy – American politicians are forcing them to do. Instead of European, Near Eastern and Global South countries breaking away out of their own calculation of their long-term economic interests, America is driving them away, as it has done with Russia and China. 

Glazyev and the Eurasian Reset

Sergei Glazyev, mentioned by Hudson above, is a former adviser to President Vladimir Putin and the Minister for Integration and Macroeconomics of the Eurasia Economic Commission, the regulatory body of the Eurasian Economic Union (EAEU). He has proposed using tools similar to those of the “American System,” including converting the Central Bank of Russia to a “national bank” issuing Russia’s own currency and credit for internal development. On February 25, Glazyev published an analysis of U.S. sanctions titled “Sanctions and Sovereignty,” in which he stated:

[T]he damage caused by US financial sanctions is inextricably linked to the monetary policy of the Bank of Russia  …. Its essence boils down to a tight binding of the ruble issue to export earnings, and the ruble exchange rate to the dollar. In fact, an artificial shortage of money is being created in the economy, and the strict policy of the Central Bank leads to an increase in the cost of lending, which kills business activity and hinders the development of infrastructure in the country.

Glazyev said that if the central bank replaced the loans withdrawn by its Western partners with its own loans, Russian credit capacity would greatly increase, preventing a decline in economic activity without creating inflation.   

Russia has agreed to sell oil to India in India’s own sovereign currency, the rupee; to China in yuan; and to Turkey in lira. These national currencies can then be spent on the goods and services sold by those countries. Arguably, every country should be able to trade in global markets in its own sovereign currency; that is what a fiat currency is – a medium of exchange backed by the agreement of the people to accept it at value for their goods and services, backed by the “full faith and credit” of the nation. 

But that sort of global barter system would break down just as local barter systems do, if one party to the trade did not want the goods or services of the other party. In that case, some intermediate reserve currency would be necessary to serve as a medium of exchange. 

Glazyev and his counterparts are working on that. In a translated interview posted on The Saker, Glazyev stated:

We are currently working on a draft international agreement on the introduction of a new world settlement currency, pegged to the national currencies of the participating countries and to exchange-traded goods that determine real values. We won’t need American and European banks. A new payment system based on modern digital technologies with a blockchain is developing in the world, where banks are losing their importance. 

Russia and China have both developed alternatives to the SWIFT messaging system from which certain   Russian banks have been blocked. London-based commentator Alexander Mercouris makes the interesting observation that going outside SWIFT means Western banks cannot track Russian and Chinese trades.

Geopolitical analyst Pepe Escobar sums up the plans for a Eurasian/China financial reset in an article titled “Say Hello to Russian Gold and Chinese Petroyuan.” He writes:

It was a long time coming, but finally some key lineaments of the multipolar world’s new foundations are being revealed.

On Friday [March 11], after a videoconference meeting, the Eurasian Economic Union (EAEU) and China agreed to design the mechanism for an independent international monetary and financial system. The EAEU consists of Russia, Kazakhstan, Kyrgyzstan, Belarus and Armenia, is establishing free trade deals with other Eurasian nations, and is progressively interconnecting with the Chinese Belt and Road Initiative (BRI).

For all practical purposes, the idea comes from Sergei Glazyev, Russia’s foremost independent economist ….

Quite diplomatically, Glazyev attributed the fruition of the idea to “the common challenges and risks associated with the global economic slowdown and restrictive measures against the EAEU states and China.” 

Translation: as China is as much a Eurasian power as Russia, they need to coordinate their strategies to bypass the US unipolar system.

The Eurasian system will be based on “a new international currency,” most probably with the yuan as reference, calculated as an index of the national currencies of the participating countries, as well as commodity prices. … 

The Eurasian system is bound to become a serious alternative to the US dollar, as the EAEU may attract not only nations that have joined BRI … but also the leading players in the Shanghai Cooperation Organization (SCO) as well as ASEAN. West Asian actors – Iran, Iraq, Syria, Lebanon – will be inevitably interested.

Exorbitant Privilege or Exorbitant Burden?

If that system succeeds, what will the effect be on the U.S. economy? Investment strategist Lynn Alden writes in a detailed analysis titled “The Fraying of the US Global Currency Reserve System” that there will be short-term pain, but, in the long run, it will benefit the U.S. economy. The subject is complicated, but the bottom line is that reserve currency dominance has resulted in the destruction of our manufacturing base and the buildup of a massive federal debt. Sharing the reserve currency load would have the effect that sanctions are having on the Russian economy – nurturing domestic industries as a tariff would, allowing the American manufacturing base to be rebuilt. 

Other commentators also say that being the sole global reserve currency is less an exorbitant privilege than an exorbitant burden. Losing that status would not end the importance of the U.S. dollar, which is too heavily embedded in global finance to be dislodged. But it could well mean the end of the petrodollar as sole global reserve currency, and the end of the devastating petroleum wars it has funded to maintain its dominance. 

________________________________

This article was first posted on ScheerPost. Ellen Brown is an attorney, chair of the Public Banking Institute, and author of thirteen books including Web of Debt, The Public Bank Solution, and Banking on the People: Democratizing Money in the Digital Age. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at EllenBrown.com. 

Off the Top of My Head

Oh No, Joe, Say It Isn't So

by John Lawrence

Despite prior commitments to Joe Biden and House Democrats, Joe Mancin is a "No" on Biden's Build Back Better bill which will provide child care, eldercare, universal Pre-K and more. Dr. No made his position clear yesterday. He's tired of farting around aka negotiating. Democrats need all 50 votes in the Senate to pass the bill. 49 are on board and this gives Mancin extraordinary power. It's his way or the highway. Mancin has said he would support a bill totaling $1.5 trillion, but the house and Senate Democrats have been gingerly "negotiating" with Joe for more. Here's an idea: take what you can get and go home. Cuz you ain't gonna get no mo. Let Mancin write the bill. Throw in voting rights as well, and pass both in the same bill by reconciliation. Mancin has already essentially written a voting rights bill he would support. Again it's not everything progressives want, but it's better than nuttin.

Conservatives have traditionally broken inflation on the backs of the poor. The Phillips curve which is gospel among conservative economists says that you need to increase unemployment in order to rein in inflation. Problem is at this time there is hardly any unemployment. So what else can you do to keep poor people poor? Don't give them any more government benefits. That's the ticket. Of course, progressives say the Phillips curve is hogwash. All you need to do is to extract money from the economy by taxing the rich. But tell that to rich corporation who are spending billions on lobbyists to convince quasi conservative Democrats like Joe Mancin otherwise. And then there is conservative activist Paul Weyrich who famously said, "“I don’t want everybody to vote . . . our leverage in the elections quite candidly goes up as the voting populace goes down.” Translate that into economic terms and you get, "I don't want everyone to be middle class. Who would do the necessary back breaking labor to keep the economy growing if not for the poor."

So conservatives don't want the poor to vote and they also don't want them to work their way into the middle class. They want to keep the poor poor so the economy has a goodly supply of backbreaking and menial labor which it badly needs, especially if you want to buy American. Otherwise, we would have to export the backbreaking labor to other countries where there is a plentiful supply of poor people. Right now conservatives are aghast at how the shortage of labor is fueling demands for higher wages. This is a blow to their very way of life which is predicated on keeping the poor poor. They don't want to be flooded with immigrants to take the menial labor jobs so those who came in 20 years ago can progress to the middle class like Joe Biden wants them to do. The best way to keep them poor is to not give them any more government benefits.

So progressive Democrats in the House and Bernie Sanders in the Senate have been screwed once again. The whole deal was that both the infrastructure bill and the Build Back Better bill were supposed to pass in tandem. Then after farting around (excuse me, "negotiating") for months and months, finally Joe Mancin has put the kibosh on Build Back Better after successfully delinking the two. Screwed again. Lucy with the football. So here's the solution. Stop negotiating. Let Mancin write the bill and then everybody genuflect. And while you're at it, throw  Mancin's voting rights, bill written by him, into the package and pass the whole ungodly stew by reconciliation and be done with it.

How Wealth Inequality Spiraled Out of Control

by Robert Reich

Wednesday, November 3, 2021

Elon Musk’s wealth has surpassed $200 billion. It would take the median U.S. worker over 4 million years to make that much.

Wealth inequality is eating this country alive. We’re now in America’s second Gilded Age, just like the late 19th century when a handful of robber barons monopolized the economy, kept wages down, and bribed lawmakers. 

While today’s robber barons take joy rides into space, the distance between their gargantuan wealth and the financial struggles of working Americans has never been clearer. During the first 19 months of the pandemic, U.S. billionaires added $2.1 trillion dollars to their collective wealth and that number continues to rise. 

And the rich have enough political power to cut their taxes to almost nothing — sometimes literally nothing. In fact, Jeff Bezos paid no federal income taxes in 2007 or in 2011. By 2018, the 400 richest Americans paid a lower overall tax rate than almost anyone else.  

But we can not solve this problem unless we know how it was created in the first place.

Let’s start with the basics.

I. The Basics

Wealth inequality in America is far larger than income inequality. 

Income is what you earn each week or month or year. Wealth refers to the sum total of your assets — your car, your stocks and bonds, your home, art — anything else you own that’s valuable.Valuable not only because there’s a market for it — a price other people are willing to pay to buy it — but because wealth itself grows. 

As the population expands and the nation becomes more productive, the overall economy continues to expand. This expansion pushes up the values of stocks, bonds, rental property, homes, and most other assets. Of course recessions and occasional depressions can reduce the value of such assets. But over the long haul, the value of almost all wealth increases.

Lesson: Wealth compounds over time.

Next: personal wealth comes from two sources.The first source is the income you earn but don’t spend. That’s your savings. When you invest those savings in stocks, bonds, or real property or other assets, you create your personal wealth —  which, as we’ve seen, grows over time. 

The second source of personal wealth is whatever is handed down to you from your parents, grandparents, and maybe even generations before them — in other words, what you inherit. 

Lesson: Personal wealth comes from your savings and/or your inheritance.

II. Why the wealth gap is exploding

The wealth gap between the richest Americans and everyone else is staggering.
In the 1970s, the wealthiest 1 percent owned about 20 percent of the nation’s total household wealth. Now, they own over 35 percent. 

Much of their gains over the last 40 years have come from a dramatic increase in the value of shares of stock. 

For example, if someone invested $1,000 in 1978 in a broad index of stocks — say, the S&P 500 — they would have $31,823 today, adjusted for inflation. 

Who has benefited from this surge? The richest 1 percent, who now own half of the entire stock market. But the typical worker’s wages have barely grown. 

Most Americans haven’t earned enough to save anything. Before the pandemic, when the economy appeared to be doing well, almost 80 percent were living paycheck to paycheck.

Lesson: Most Americans don’t make enough to save money and build wealth.

So as income inequality has widened, the amount that the few high-earning households save — their wealth — has continued to grow. Their growing wealth has allowed them to pass on more and more wealth to their heirs. 

Take, for example, the Waltons — the family behind the Walmart empire — which has seven heirs on the Forbes billionaires list. Their children, and other rich millennials, will soon consolidate even more of the nation’s wealth. America is now on the cusp of the largest intergenerational transfer of wealth in history. As wealthy boomers pass on, somewhere between $30 to $70 trillion will go to their children over the next three decades. 

These children will be able to live off of this wealth, and then leave the bulk of it — which will continue growing — to their own children … tax-free. After a few generations of this, almost all of America’s wealth could be in the hands of a few thousand families.  

Lesson: Dynastic wealth continues to grow.

III. Why wealth concentration is a problem

Concentrated wealth is already endangering our democracy. Wealth doesn’t just beget more wealth — it begets more power. 

Dynastic wealth concentrates power into the hands of fewer and fewer people, who can choose what nonprofits and charities to support and which politicians to bankroll. This gives an unelected elite enormous sway over both our economy and our democracy.

If this keeps up, we’ll come to resemble the kind of dynasties common to European aristocracies in the seventeenth, eighteenth, and nineteenth centuries.

Dynastic wealth makes a mockery of the idea that America is a meritocracy, where anyone can make it on the basis of their own efforts. It also runs counter to the basic economic ideas that people earn what they’re worth in the market, and that economic gains should go to those who deserve them.

Finally, wealth concentration magnifies gender and race disparities because women and people of color tend to make  less, save less, and inherit less.
The typical single woman owns only 32 cents of wealth for every dollar of wealth owned by a man. The pandemic likely increased this gap. 

The racial wealth gap is even starker. The typical Black household owns just 13 cents of wealth for every dollar of wealth owned by the typical white household. The pandemic likely increased this gap, too. 

In all these ways, dynastic wealth creates a self-perpetuating aristocracy that runs counter to the ideals we claim to live by.

Lesson: Dynastic wealth creates a self-perpetuating aristocracy.

IV. How America dealt with wealth inequality during the First Gilded Age

The last time America faced anything comparable to the concentration of wealth we face today was at the turn of the 20th century. That was when President Teddy Roosevelt warned that “a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power” could destroy American democracy.

Roosevelt’s answer was to tax wealth. Congress enacted two kinds of wealth taxes. The first, in 1916, was the estate tax — a tax on the wealth someone has accumulated during their lifetime, paid by the heirs who inherit that wealth. 

The second tax on wealth, enacted in 1922, was a capital gains tax — a tax on the increased value of assets, paid when those assets are sold.

Lesson: The estate tax and the capital gains tax were created to curb wealth concentration.

But both of these wealth taxes have shrunk since then, or become so riddled with loopholes that they haven’t been able to prevent a new American aristocracy from emerging.

The Trump Republican tax cut enabled individuals to exclude $11.18 million from their estate taxes. That means one couple can pass on more than $22 million to their kids tax-free. Not to mention the very rich often find ways around this tax entirely. As Trump’s former White House National Economic Council director Gary Cohn put it, “only morons pay the estate tax.”

What about capital gains on the soaring values of wealthy people’s stocks, bonds, mansions, and works of art? Here, the biggest loophole is something called the “stepped-up basis.” If the wealthy hold on to these assets until they die, their heirs inherit them without paying any capital gains taxes whatsoever. All the increased value of those assets is simply erased, for tax purposes. This loophole saves heirs an estimated $40 billion a year.

This means that huge accumulations of wealth in the hands of a relatively few households can be passed from generation to generation untaxed — growing along the way — generating comfortable incomes for rich descendants who will never have to work a day of their lives. That’s the dynastic class we’re creating right now.

Lesson: The estate tax and the capital gains tax have been gutted.

Why have these two wealth taxes eroded? Because, as America’s wealth has concentrated in fewer and fewer hands, the wealthy have more capacity to donate to political campaigns and public relations — and they’ve used that political power to reduce their taxes. It’s exactly what Teddy Roosevelt feared so many years ago.

V. How to reduce the wealth gap

So what do we do? Follow the wisdom of Teddy Roosevelt and tax great accumulations of wealth. 

The ultra-rich have benefited from the American system — from laws that protect their wealth, and our economy that enabled them to build their fortunes in the first place. They should pay their fair share. 

The majority of Americans, both Democrats and Republicans, believe the ultra rich should pay higher taxes. There are many ways to make them do so: closing the stepped up basis loophole, raising the capital gains tax, and fully funding the Internal Revenue Service so it can properly audit the wealthiest taxpayers, for starters. 

Beyond those fixes, we need a new wealth tax: a tax of just 2 percent a year on wealth in excess of $1 million. That’s hardly a drop in the bucket for centi-billionaires like Jeff Bezos and Elon Musk, but would generate plenty of revenue to invest in healthcare and education so that millions of Americans have a fair shot at making it. 

One of the most important things you as an individual can do is take the time to understand the realities of wealth inequality in America and how the system has become rigged in favor of those at the top — and demand your political representatives take action to unrig it. 

Wealth inequality is worse than it has been in a century – and it has contributed to a vicious political-economic cycle in which taxes are cut on the top, resulting in even more concentration of wealth there – while everyone else lives under the cruelest form of capitalism in the world. 

We must stop this vicious cycle — and demand an economy that works for the many, not one that concentrates more and more wealth in the hands of a privileged few. 

Off the Top of My Head

Why is GDP the Best Measure of a Healthy Economy?

by John Lawrence

GDP measures the amount of money spent on goods and services. The implication is that the more money spent, the better for the economy. GDP does not take into account money spent paying down debt which is something many Americans need to do rather than to consume more goods and services. So what if you devised a more general measure of economic activity including money spent to pay down debt and beyond that money saved. Traditional GDP would then be much less. Horrors, say the politicians and businessmen. People actually being encouraged to save and pay down debts? How unAmerican! You see only the wealthy are supposed to create and maintain wealth. The average slob is supposed to pay up to the limit of their paycheck and beyond. The average slob is supposed to go into debt. How else would Moneytree and other payday lenders make money?

All this talk about getting the economy back to normal. Why get a sick economy back to normal. Better to consume less and save the money. But economists, politicians and corporations don't want you to do that. The only measure they think of in terms of a healthy economy is maximizing GDP which means maximizing corporate profits. The American economy consists of 70% consumer purchases. Now economists are upset that the pandemic has made Americans spend less going to concerts, restaurants, baseball games and cruise ships. They are spending less on tourism and other services. Well, maybe that's a good thing. You can eat a lot healthier by cooking at home. Restaurant foods are loaded with sugar, salt and God knows what else to make them taste better. Taste is the ultimate value, not how the food contributes to your health or ill health.

The new post pandemic economy should look a lot different. Instead of consume, consume, consume, more thought should be taken about what to consume. Americans are privileged so much compared to the rest of the world where many people are barely eking out a living. Every day the ranks of refugees due to climate disasters and war grows by leaps and bounds. Every day more CO2 is pumped into the atmosphere due to Americans' propensity to consume. Americans binge on consumer products, contribute mightily to global warming and complain if they can't have what they want when they want it. In order to decrease global warming we need to consume less, manufacture less and plant more trees. In fact this would be a great idea to occupy the homeless and give them something to do in return for basic food and shelter. The Civilian Conservation Corps organized during the Great Depression did just that. It gave many people a constructive purpose in life in return for a modest paycheck. They planted trees, built camp grounds, trails and national parks and otherwise contributed to the betterment of society.

Today we have to orient ourselves away from consumerism and towards an economy of restoration of the planet. CO2 emissions and the buildup of greenhouse gasses in the atmosphere are never going to decrease until we consume less and focus our energies on mitigation of climate change instead of just selling products and services. It is time to stop going to Disneyland and to get serious about converting to a green economy before it's too late for our children and grandchildren to enjoy living on a habitable planet.

Off the Top of My Head

A Tree Planting Alternative for the Jobless

by John Lawrence

Modern Monetary Theory (MMT) proposes a Job Guarantee (JG) program that would employ the unemployed instead of just paying them unemployment insurance. This would be an automatic program whose numbers would very according to those employed in the private sector. When the private sector is supplying lots of jobs, the number in the JG would diminish and vice versa. So why not employ all those in the JG planting trees? This in no way competes with the private sector and doesn't require training or any skills whatsoever. The homeless could do it; the prison population could do it. The unemployed could do it. The pay would provide an automatic minimum wage, and the economy would be fully employed. There would be no wage inflation because people in the JG would not be competing for jobs with people employed in the private sector. When the private sector needed more workers, they could hire them out of the JG. Because these workers are employed, their work skills will not diminish like those sitting idle doing nothing but collecting unemployment insurance.

Conventional economic theory is based on the Philips curve which predicts that there must be a certain number of unemployed people in order to tamp down inflation. The inflation rate is contained based on the misery of the necessary number of unemployed people who are historically from minority communities. MMT replaces the Philips curve with an analysis that predicts that inflation can be contained and a full employment economy can be achieved because JG workers are not competing with those employed in the private sector, and, therefore, there is no wage inflation. Those workers are available for hiring out of the JG by offering them slightly more than the minimum wage which is set automatically by the government by the pay offered to those in the JG which would be a living wage, in other words enough so that they are above the poverty level. Therefore, a number of birds are killed with one stone. 1) The minimum wage is automatically set at the Federal level. 2) The unemployment compensation program and the money budgeted for it can be eliminated. 3) A full employment economy is achieved. 4) Climate change is addressed. 5) People's job related skills are not diminished as they would be if they were sitting idle.

This is from the Modern Monetary Network:

"A government job guarantee is a proposed program where the government would provide a job with a basic wage and benefits package to anyone willing and ready to work. The job guarantee is one component of an overall program to stabilize an economy. The job guarantee is financially feasible when a sovereign government’s currency uses a floating exchange rate.

"The job guarantee provides a floor for wages and benefits, creating a buffer stock of labor. The program is intended to “hire off the bottom,” i.e. those with less qualifications or skills. A job guarantee program hires people who otherwise cannot find employment. Once implemented, a job guarantee would be a permanent program, operating during good times and recessions alike.

"In times of recession, private sector employers typically lay off workers. This swells the ranks of the unemployed. Laid off workers cannot spend money, and this hurts the economy. With a job guarantee in place, laid off workers could take a job guarantee job. This would increase the size of the job guarantee workforce during recessions, and at the same time inject more money into the economy, helping to take the edge off of the recession. As the economy recovered, people would leave their job guarantee jobs and go to better-paying private sector jobs. As the number of people in the job guarantee workforce diminished, government spending would also fall.

"The job guarantee would also serve as a mechanism to ensure price stability within the economy by fixing the price of employed labor.

"The concept of a job guarantee dates back to at least the New Deal of the Roosevelt Administration. There were several programs that had job guarantee attributes, such as the Civilian Conservation Corps (CCC), and the Works Progress Administration (WPA). After the Second World War, many industrialized economies embraced full employment. For example, Australia had an implicit buffer stock of jobs that were always available, both in the private and public sectors. Hyman Minsky also conceptualized an Employer of Last Resort (ELR) program during the 1960s. Most recently, L. Randall Wray, William Mitchell, and Warren Mosler have proposed a job guarantee program in conjunction with their work in Modern Monetary Theory (MMT)."

So why not address climate change this way? There are never enough trees on planet earth, Workers in the Civilian Climate Corps (CCC) will never run out of work. The state governments will never have to pay unemployment compensation again, and the private sector will have a buffer stock of already employed working people to choose from when their needs arise for an increased work force. In effect the Federal government will take over the responsibility for unemployment insurance relieving the states of this burden.

Off the Top of My Head

The Infrastructure Bill and How to Pay for It Are Two Separate and Distinct Issues That Have Nothing to Do With Each Other

by John Lawrence

We know that the US government does not have to tax in order to spend since the US has a sovereign currency (See Modern Monetary Theory), and the Federal Reserve can just place the requisite amount of money for the infrastructure bill in the Treasury's account at the Fed. The problem is that, according to US law, if there is not enough money in the Treasury's account to pay for stuff, it must issue and sell Treasury bonds to make up the difference. These bonds then contribute to the deficit which is added to the national debt. We also know that the national debt never needs to be paid off, but Treasury bonds do need to be paid when the holder asks for the money when they come due. In addition interest does need to be paid on them. If the Fed keeps the interest rate for Treasuries at zero, this is not a problem. So why would anyone purchase Treasury bonds if they get zero interest? Well, countries that peg their currencies to the dollar (like China) need dollars in order to conduct business. Besides if someone comes to them with a basket full of renminbi and asks for US dollars, they have to be able to pay them the dollars and accept the renminbi. So there is always a market for US Treasury bonds. Even if there wasn't, the Fed would end up purchasing them and taking them onto its balance sheet where they would essentially disappear into a black hole never having to be paid back.

So what is the problem with just having the Fed create the money and place it in the Treasury's account without "paying for" it with taxes. No problem really. Joe Biden just wants to kill two birds with one stone. The first bird is the money for infrastructure. The second bird is doing something about the widening economic inequality by taxing the rich. There is no actual need to issue Treasuries in the first place except that US law requires it. The money could just go directly on the Fed's balance sheet without the intermediate step of selling Treasuries. There are however some good reasons for not taking too much advantage of this possibility. One is inflation. As more money floods into the economy through deficit spending, inflation could heat up whether or not the money comes from taxes. The other issue is that as other countries accumulate more and more Treasury bonds with or without interest being paid on them, they start to have the ability to use those dollars to purchase US assets. It's not inconceivable that a particular country - let's say China - couldn't accumulate enough Treasuries to buy up cities.

New York City has the most valuable real estate in the U.S. at $2.8 trillion — slightly more than the entire GDP of the United Kingdom for 2019. In fact, this is greater than the GDP of all but just five countries — India, Germany, Japan, China and the United States. The value of New York is comparable to the combined market value of tech giants Apple and Microsoft. China owns about $1.1 trillion in US Treasuries. If they demanded it all tomorrow, the Fed would have no problem paying them, but then they could buy up more than a third of New York City or almost all of San Francisco valued at $1.3 trillion. This could eventually become a problem so it would be better not to even make up the difference by issuing Treasuries in the first place. The alternative is for the Fed just to create the money and place it in the Treasury's account as authorized by Congress without the Treasury having to sell bonds to make up the difference between the amount of taxes and the amount of the authorization.

Then the issue becomes inflation. There is already wage inflation as employers are forced to pay more for employees, for a number of reasons, thus raising the price of products and services. This is "good" inflation since wage earners have not seen an increase in their income for 40 years. There is also "bad" inflation in that the increasing wealth of the upper 10% , and especially the upper 1%, is causing asset inflation in terms of the increasing cost of real estate and rent. Asset inflation is also happening in the stock market although it's hard to see how this is a bad thing except for the fact that about 50% of the people don't own stocks so that gap between rich and poor is only increasing. The third form of inflation occurs when there is too much money chasing too few goods and services. This could be caused by too much deficit spending. The fourth kind is the "super bad" inflation known as hyperinflation. This is the kind of inflation that affected the Weimar republic in Germany before the Second World War and also affects poor countries. It also recently affected Greece because Greece gave up its sovereign currency when it adopted the euro. Hyperinflation occurs when a country needs to borrow money from the capital markets subject to increasing interest rates. As their economy declines interest rates go up until finally they are paying more in interest than their economies can keep up with. The US can never be put in this position since it never has to go to the capital markets to borrow money. The Federal Reserve can just issue whatever money is needed and can set its own interest rate since the US dollar is a sovereign currency.

So while there are limits to the amount of prudent deficit spending, one of them is not paying for it through taxes. The US Federal government never has to tax in order to spend. It can pass a bill to build infrastructure with the only limitation being the physical and material resources that are available to do it.

https://www.cnbc.com/video/2019/03/01/stephanie-kelton-explains-modern-monetary-theory.html

 

Off the Top of My Head

How to Pay For Infrastructure

by John Lawrence

Modern Monetary Theory (MMT) points out that neither social programs nor tax cuts need to be "paid for." A government such as the US with a sovereign currency can issue the money without having to tax first. Taxes are only necessary to control inflation. The biggest amount of inflation in the economy right now is the inflation of billionaires' wealth assets because their increases in wealth are not taxable. The IRS only taxes workers' incomes, not billionaires increasing asset wealth. That's why economic inequality is growing by leaps and bounds, and we need a wealth tax. But as for infrastructure, the Fed can just create the money in the Treasury's account at the Fed with a few keystrokes on a computer like it did when it bailed out Wall Street in 2008.

In The Deficit Myth, Stephanie Kelton writes (circa 2015):

"No one [on Capitol Hill] questioned the significant need for infrastructure investment. A trillion dollars, while ambitious, would have only taken a bite out of the problem. No one blanched at the price tag, but there was considerable debate about whether (and how) to pay for it.

"Before I tell you about that debate, it's important to understand what those words mean to lawmakers and their staffers on Capitol Hill. In truth, there is only one way to pay for anything. All federal spending is carried out in exactly the same way - that is, the Federal Reserve credits the appropriate bank account(s). But in Washington speak, you "pay for" your spending by showing that you can "find" enough money to cover the cost of whatever it is you're proposing to spend. It's all a game, really, and it's rooted in the flawed mental model [that the government needs to tax and/or borrow before it spends] that holds back so much of our potential. To avoid adding to the deficit, lawmakers look for ways to cover the costs of their proposed spending without borrowing. That means they usually go looking for new tax revenue."

As Kelton points out, the US doesn't need to tax before it can spend. Biden's wanting to pay for infrastructure by taxing the rich is not necessary to pay for infrastructure per se, but it is necessary to get unbounded economic inequality under control.

Kelton continues:

"So back to the debate over the trillion-dollar infrastructure ill. The conversation began with staffers being asked whether we thought a so-called pay-for should be attached to the bill. It was my first week on the job, so I was relieved when another staffer spoke up first. "No," this person began, "I think we should just do it as a clean bill." A clean bill meant writing a spending bill that didn't include any language abut how to pay for it. Another staffer agreed, and soon I echoed their sentiments. Our country desperately needed to make these investments. There was clearly enough fiscal space to do it, and infrastructure is one of the things that has traditionally enjoyed bipartisan support. Since the GOP was in control of the Senate, we reasoned, the bill would need at least some support from Republicans to pass. [Ha. Ha] Proposing a tax increase would guarantee defeat. Not everyone agreed. Another staffer objected that the press wouldn't take the legislation seriously unless it specified exactly how it would be paid for. In the end, the bill included a proposal to raise revenue by closing a variety of tax loopholes that overwhelmingly benefit the rich. Needless to say, the legislation did not pass. Meanwhile, the latest ASCE [American Society of Civil Engineers] report card shows how deferred maintenance is catching up with us, as the cost of our needed improvements has climbed to a whopping $4.59 trillion."

Is it deja vu all over again? Is it gridlock or spinning our wheels as infinitum? Is it Republicans thinking it is more important to defeat Obama's and now Biden's agendas than it is to prevent bridge collapses?

Kelton's point is that the US doesn't really need to "pay for" anything by taxing first or finding the money first. "In 2017, a 1215-page bill, known as the National Defense Authorization Act, sailed through the Senate with a vote of 89-9. The White House had requested $700 billion, but the Senate had authorized $737 billion, kicking in another $37 billion without hint of concern about where to "find" the money. They simply voted in an overwhelmingly bipartisan way to increase the Pentagon's discretionary budget."

Yet the Pentagon budget has not protected us from international ransomware attacks nor domestic terrorists. May I submit that the money is misspent and misdirected? Instead of going where the money is really needed it goes to the vested interests in the military-industrial complex who continue to justify war in order to line their own pockets.

Kelton continues: "That might seem like a double standard. As Congresswoman Alexandria Ocasio-Cortez put it, "We write unlimited blank checks for war. We just wrote a $2 trillion check for the GOP tax cut, and nobody asked those folks, 'How are they going to pay for it?' She's right. Somehow, there's always money for war and tax cuts. For just about everything else, however, lawmakers are expected to show that they can "pay for" their spending."

As MMT has shown, the US government does not need to tax or borrow in order to spend. Taxation is necessary to control inflation, to extract money from the economy if there is too much of it out there chasing too few goods or services. Right now there is too much money out there in the hands of billionaires that should be extracted in order to prevent runaway financial inequality. But it is not necessary to tax before money can be spent on infrastructure or anything else. There are limits, and the limits are the material and human resources that are available to soak up that money by providing constructive economic activity like building infrastructure. Hyperinflation like what happened in the Weimar Republic or even Greece cannot happen in the US because the US never has to go to the capital markets to borrow money at prevailng interest rates. The US central bank, the Fed, issues whatever money is necessary to pay US bills and that includes any money appropriated by Congress whether for war, tax cuts or building infrastructure.

https://www.youtube.com/watch?v=a9pAPIUYXxQ

 

Off the Top of My Head

Joe Biden's Trillion Dollar Budget Plan

by John Lawrence

Don't worry about how to pay for it. Any nation with a sovereign currency (let alone the world's reserve currency) and a floating exchange rate can never go bankrupt. The Federal Reserve can issue the money. In fact in the real world this is exactly how it works for any budgetary legislation passed by Congress and signed by the President. Let's say, for example, Biden's $2 trillion infrastructure plan is signed by him into law. The US Treasury has an account at the Federal Reserve bank. Let's say there is only a trillion dollars in that account. What happens next is that the Fed just augments the Treasury's account by a trillion dollars by means of a few keystrokes on a computer. Bingo the government now has all the money it needs to spend on infrastructure. It didn't have to receive tax money in advance of the money it needed to spend. At the same time the Treasury Department creates a trillion dollars worth of Treasury bonds and sells them to the primary dealers who are required by law to buy them. These are mainly big Wall Street banks. These banks sell the bonds in the secondary market. If they can't find enough buyers, the Fed "adds liquidity to the market" by taking the Treasuries onto its balance sheet in return for marking up the Wall Street banks accounts at the Fed with the appropriate amounts of cash. Now everybody is happy. The US government has the money it needs in its Treasury's account at the Fed. The Wall Street banks have plenty of liquidity in their reserve accounts at the Fed, and the amazing thing is that it didn't require any money from additional taxes.

Another amazing thing is that most politicians are totally ignorant about how government financing actually works. The Republican Governor of Ohio, Mike DeWine gets on TV and opines about the fact that the US is going into too much debt and how will our grandchildren ever pay it off. "Here in Ohio," I'm paraphrasing," we have to pay our bills and pay down our debts. Every household has to be fiscally responsible and pay their debts." Well households and states are in a different category from the Federal government. They actually do have to pay their debts. So what he is claiming is a half truth. States and households cannot issue a sovereign currency whereas the Federal government can. States and households use the Federal government's currency. The big lie, however, is that the US government has to pay off its debts. It never does, and no entity can force it to do so. The other constraint that Larry Summers and others worry about is inflation or currency devaluation. Inflation could be a problem, and that problem, should it arise, can be dealt with by sucking money out of the economy by means of taxes. Biden's plan to tax the rich will suck some of their superfluous wealth out of the economy thus forestalling inflation while tending to reduce the runaway economic inequality that is now threatening democracy in the US.

The Federal government is not like a household or a state. Households and states actually do have to pay back the money they borrow plus interest. That's why it's so important that the various COVID rescue plans provide the states and municipalities with money. Otherwise, they could become financially insolvent and go bankrupt like Orange County in California did a few years ago. Birmingham, AL also got itself in hot water and went bankrupt. Countries in the Euro zone have the same problem as states in the US. They gave up their sovereign currencies when they joined the EU. So now countries like Greece and Italy have to beg the European Central Bank for relief, relief they could have provided for themselves if they had retained their sovereign currencies like Britain did. Britain will not have any problem with financial shortages because, like the US, its government can issue whatever currency is deemed necessary to weather any storm.

So in addition to the Big Lie that Trump won the election, politicians of both parties are perpetrating another Big Lie that the US actually has to borrow the money to pay for Biden's trillion dollar infrastructure and safety net programs. Some politicians, like Bernie Sanders and AOC, actually know the truth, and, evidently, they have convinced Joe Biden thereof as well although they won't actually come out and say it to the media: the US government can just issue money into the private economy. It doesn't need to borrow it or even tax for it in advance in order to spend. So the real policy of the Biden administration is not tax and spend. It's spend and maybe tax later, but target those taxes on the wealthiest among us. As opposed to the Republican philosophy of giving tax breaks to the wealthy and taking the social safety net away from the poor.

Off the Top of My Head

The Caring Component of Biden's Infrastructure Plan

by John Lawrence, April 6, 2021

It's about time that the need for a caring infrastructure is addressed. Caring used to be supplied almost entirely by wives when wives didn't work outside the house. However, they did considerable work inside the house caring for children, sick relatives and elders in addition to taking care of their husband's needs. Now that most wives are required by economic necessity to work outside the home, there is a need for child care for young children not old enough to attend school. There is a need for pre-K education plus babysitting services. Older family members have special needs for care giving as well. Who is to provide for this if wives are in the work force? Rich people can pay tuition for pre-K and child care as well as hiring caregivers for older relatives or paying for senior living facilities. For poorer people, wives have to do all this themselves in addition to working to provide income for the family.

That's why Biden's initiatives provides for a caring infrastructure. However, it is insufficient. The Guardian reported:

Just as our physical infrastructure is crumbling and requires substantial reinvestment in a 21st-century economy, our care infrastructure is fundamentally broken. As the only industrialized country in the world without a national paid family and medical leave program, only 17% of our people have paid family leave through their employers. Hundreds of thousands face daunting waitlists for essential home care. Childcare is the highest household expense for families in much of the United States. And the median annual pay of childcare and home care workers is $25,510 and $17,200, respectively, leading to high turnover and reliance on public assistance.

In the past most elderly people on Medicaid that needed care giving were forced into institutional care like nursing homes. There was no comparable funding level that provided care givers for people to stay in their own homes. Biden's care infrastructure corrects this anomaly by providing money for care givers to provide care outside of nursing homes and other institutions. However, the limitation is that people who qualify for either nursing homes or home care must be on Medicaid. Basically, this means that they have no assets. They could stay in their own home only if they don't own it. If they owned it, that would be considered an asset that would disqualify them from being on Medicaid. So older people on Medicare, but not Medicaid would not qualify under Biden's "care infrastructure" initiative. People with assets like home ownership usually want to pass those assets on to their children. It represents the intergenerational transfer of wealth. That's how white people have built wealth over the generations whereas black people, who were by and large prevented from owning their own homes after WW II, are by and large renters.

Elderly renters are mainly poor people who live off of social security which hardly provides for a decent living much less the intergenerational transfer of assets once the person dies. Biden's pre-election agenda called for an uping of social security payments so that people could have a decent existence just based on social security alone. It also called for an increased amount of social security for people who had been on social security for 20 years, in other words, the really old. The Boston Globe reported:

A critical part of Biden’s campaign plan was not only raising funds for Social Security but also expanding the benefits to reduce poverty among elderly Americans. It would, for example, ensure that benefits for workers who were in the labor force for 30 years or more would be at least 125 percent of the federal poverty line. The oldest beneficiaries would also receive a bump to offset dwindling retirement savings, and widows and widowers would receive a 20 percent increase so that their Social Security benefits don’t get cut in half when their partner dies.

The reason that Biden didn't include this in his "caring infrastructure" initiative is that the cap on wages subject to the payroll tax would (in the minds of politicians) have to be raised to "pay for" it, and Biden has promised not raising taxes on anyone making less than $400,000 annually. Right now, payroll taxes that go toward funding Social Security are capped at the first $142,800 of a taxpayer’s income. First of all the social security trust fund is basically a hoax. Money is available for social security in the same way that money is available for COVID relief, infrastructure and even tax cuts. As Modern Monetary Theory points out, the Federal Reserve creates the money without the need of taxes to pay for it. The same is true for social security. But Biden did not want to complicate the discussion around his infrastructure plan so he left his plan for social security increases behind presumably to be brought up at a later date.

There is much talk about enlisting the help of Republicans for Biden's infrastructure initiative, but it is a not a secret that Republicans will help with nothing Democrats want to do. The working across the aisle thing is a loosely held fiction. Democrats know that they must pass all Biden's bills just with the slim Democratic majority. That gives Joe Manchin of West Virginia, the most conservative Democrat, enormous power. You can bet your booty that West Virginia will get more than their fair share of roads and bridges. He wants to not raise the corporate tax rate to 28% as Biden as suggested. Big deal! Again tax money is not required for government spending. The Federal Reserve just issues the money, and then the Treasury Department sells the bonds. What bonds can't be sold to individuals or foreign governments end up on the Fed's balance sheet. The deficit between money spent and tax money collected is irrelevant. Taxes are only relevant to reduce income inequality as long as they are targeted on the rich. The Fed controls the interest rate, and as long as it keeps it at about zero, the Federal government can keep the amount of money it spends on interest under control.

Off the Top of My Head

Unlike Trump, Biden's New Deal Will Actually Make America Great Again

by John Lawrence, April 4, 2021

GDP is the measure of national economic activity and is composed of 4 components: private consumer consumption, business investment, government investment and net of imports and exports. America's economy is 70% consumption compared to about 50% for most of our western allies. Government spending is about 17% compared to 40-50% for most of our allies. In fact for Norway, Belgium, Finland and France it's over 50%. Joe Biden's infrastructure plan will change all that bringing government spending on infrastructure both material and human more in line with the rest of the developed world. While most of our allies spend around 50% on consumption, America is primarily a consumer economy at 70%. That's about to change under Biden's New Deal. Government consumption and employment will increase while private consumption and employment will decrease. This is a good thing, but Republicans and states' rights advocates disagree. American infrastructure is falling to Third World status while Americans entertain themselves to death. Nothing has been invested and everything has been consumed. Biden's attempted change in these dynamics, which Mitch McConnell has vowed to fight "every step of the way" is a bid to preserve first world status for the US which is rapidly diminishing.

The one thing the US has going for itself right now is the fact that the US dollar is the world's reserve currency. As such the US can spend large sums - trillions of dollars in fact - without fear of the dollar losing its value. So it might as well "go big" on spending because the dollar may not always retain that status. China is becoming the world's largest economy with major spending on infrastructure not only in China, but, with its Belt and Road Initiative, around the world. Meanwhile, what the US has to offer in that regard is using its bloated military to police the world. So if you were President of your country, which would you rather have - policing or investment. The answer seems clear to many, even to many US allies. China is consistent and values stability and unanimity of its citizens. The US government is subject to radical change every 2 or 4 years with deep divides among its populace, and more and more can't be counted upon by its allies even to the extent that a sizable number of US citizens invaded its Capitol! Autocratic countries may be brutal towards political dissidents, but they would never tolerate a threat to their very existence.

Some Americans will have to be brought kicking and screaming into the Biden economy. Just as they were cavalier about wearing masks, they could care less about good jobs at good wages. They just want good beer and football games. Cruises, spectator sports and abundant entertainment is what Americans have come to expect, and they prefer that to safer roads and rebuilt bridges. They are viscerally opposed to doing anything to prevent climate change or global warming. They don't want to work hard to make America great again. They want it all given to them on a silver platter preferably by an entertaining and charismatic President rather than a plodder who has their welfare at heart. There is a looming war between states rights Republicans who want the US to remain a private consumption economy and Democratic neo-New Dealers who want government to play a larger role in investing in American infrastructure, both material and human.There will be more and better paying jobs working in government infrastructure projects than there will be working in the entertainment industry. This infuriates some people.

Taxing the rich also brings Republicans out of the woodwork to proclaim that Biden will end up taxing the middle class as well "to pay for it" even though he has said that everyone making under $400,000 a year will not pay one penny more in taxes. Republican lawmakers will chomp at the bit to naysay that bit of profundity by saying over and over on their media outlets that it is not true. The truth is that Biden wants to construct a stronger safety net while rebuilding and extending American infrastructure, and a lot of Trump supporters just don't care about any of those things. They just want to be entertained and to eat out while watching spectator sports.

Off the Top of My Head

The Stock Market is Too Big to Fail

by John Lawrence, April 2, 2021

Just as the big Wall Street banks are too big to fail, so now is the stock market. The stock market will never take another radical dive downward because the Federal Reserve won't let it. The way the economy is shaping up Treasury bonds, which hardly pay any interest, are just a safe place to store your money and also for foreign nations which need the world's reserve currency (the US dollar) to have a savings account because they need dollars to conduct business. There is no worry that the US will have to pay off the trillion dollars in Treasuries that China owns because they need those dollars to do business with the US and other nations. If they did want to dump all their Treasuries for some reason the Fed could just create the money to pay them and effectively take the Treasuries on its own balance sheet.

So the stock market is the only game in town for those who want to actually "invest" their money. There is so much 401(k) money in the stock market that that is reason enough to never let it fail. Instead it will continue on its merry way upward while the Fed keeps interest rates at approximately zero so that not much in the way of interest will have to be paid on US debt. There is no reason to fear that Joe Biden's $2 trillion infrastructure plan will bankrupt the US. Since the US dollar is a sovereign currency, the Fed can print as much money as it wants. If international investors don't want to buy this debt, it ends up on the Fed's balance sheet which is an effective black hole from which it never has to emerge.

Then why is there all this kibuki theater about "how to pay for it," the $2 trillion infrastructure plan I mean. It's just that most Americans including most Congressmen are under the illusion that a country with a sovereign currency like the US faces any constraints in paying for anything. Well, there is one constraint - inflation. This is probably of little concern as long as the money is targeted at the lower middle class an the poor which haven't seen wages rise in 40 years. The real inflation in the economy is the asset inflation that the rich are mostly responsible for. That includes the stock market and real estate. Inflation in the stock market will be carefully controlled by the Fed. We've seen that the stock market moved up even during the pandemic. The real problem is inflation in the real estate market which has made housing unaffordable for many. It continues to get worse as the extra dollars the wealthy have to invest are driving up prices. That's why it makes sense to tax the rich ostensibly to pay for the infrastructure bill. The real reason, however, is that inequality is getting out of hand in the American and the world economy. Taxing the rich is the only effective means to reduce inequality to a reasonable level. It will also help to bring inflation in the real estate market under control.

The real problem that Biden's infrastructure bill will have to deal with is changing the nature of the US economy. When the economy was in full employment under Trump, there were still 4% unemployed. 5% unemployment is considered "full employment," but that still leaves about 15 million people out of work. Biden's infrastructure plan will put those 5% back to work. It had been considered by conservative neoliberal economists that 5% unemployment was necessary to ward off inflation, but that theory has been debunked by Modern Monetary Theory. While inflation will still be a concern with all of Biden's stimulus spending, the main concern is restructuring the US economy from an entertainment economy to a constructive labor economy. Trump's economy was arguably a full employment economy (except for the 4% unemployed), but it was an economy the jobs of which were mainly in the entertainment and military industries. In other words, in my opinion, it was an economy based on false unbeneficial values. An economy based on labor participation rebuilding American infrastructure will be an economy based on necessary and fundamentally beneficial values. This might mean that some of those presently employed in frivolous industries might be incentivized to change jobs. Reducing the entertainment and military sectors while increasing those employed rebuilding infrastructure would be, in my opinion, be a good thing.

 

Off the Top of My Head

Biden's Infrastructure Initiative: Don't Worry About How To Pay For It

by John Lawrence, March 30, 2021

Even Republicans agree that there is a need to upgrade the infrastructure of the US. But they don't want to raise taxes to pay for it. Good news! You don't need to pay for it with tax money. The US dollar is a sovereign currency. That means that the central bank, in this case the Fed, can just create the money. In fact this is how it's always been done. The deficit is just an accounting regime. Money created by the Fed need never be paid back. It just goes on the Fed's balance sheet. This is a fact known and agreed to by most economists but many politicians and the American public are totally ignorant of this basic fact about how the economy works. Modern Monetary Theory has attempted to explain it in books like "The Deficit Myth" by Stephanie Kelton. So why does Biden also propose tax increases on the rich to pay for it? These are really two separate issues. Taxes need to be raised on the rich to try to bring into balance the skyrocketing financial inequality that has been occurring, not to pay for the infrastructure bill. Why do politicians including President Biden continue to perpetuate the myth that appropriations bills need to be "paid for." Why don't they just come out and say the truth - that a nation with a sovereign currency can never run out of money?

When just a few people own most of the wealth, we're back in a neo-feudal society where the rich control the political process, and the rest of the people are merely peons who don't really have a stake in the society at all. The Republican attempts to change the voting laws to suppress the minority vote is a way to cement that fact in American society. That's why it's so important to liberalize the voting laws so that every American citizen is encouraged to vote, not discouraged from it. So the infrastructure initiative is really two or even three pronged: rebuild infrastructure such as roads, bridges, ports, rail lines, airports and broadband thus putting millions back to work in good paying jobs. Secondly, to build back better in the sense that, insofar as possible, address the problem of global warming, and, thirdly, to make a first step in addressing economic inequality. All these things are important.

The only thing to watch out for while spending all this money is inflation, and some economists like Larry Summers are already sounding alarm bells over that. By taxing the rich and corporations money will be sucked out of the economy thus tending to reduce inflation. If sucking money out of the economy reduces inflation, then the sucking must be addressed to those areas where excess money really exists: namely, the rich and corporations who have been getting away with murder for years under both Republic and Democratic administrations. Forbes reported that "The 3 Richest Americans Hold More Wealth Than Bottom 50% Of The Country." Forbes ought to know. Perhaps with Biden's plan to tax the rich, it'll take 10 of the richest to equal the bottom 50%'s share. As for inflation, so much money in so few hands has already produced asset inflation in the form of rising housing and rent prices making it problematic for the young and the poor to support themselves especially at a minimum wage that hasn't increased in 50 years. What Summers doesn't understand is that the inflation that has occurred has been in the money that has been made by the rich which is actually wealth inflation, not in the form of wage inflation of the poor and middle class. Therefore, in turning this process around Biden's infrastructure bill is actually pointing the American economy in the correct direction.

Off the Top of My Head

Inflation Probably Not a Problem If Biden Programs Are Carefully Targeted

by John Lawrence, March 14, 2021

Critics have said, "Oh, My your children and grandchildren are going to have to pay back all these trillions of dollars that have been spent by both the Trump and Biden administrations on COVID relief and to get the economy going again." Not True! Modern Monetary Theory has shown that the Federal Reserve can just create the money and the Treasury Department can just spend it without ever worrying about paying it back. Finance is not the problem. The problem is potentially inflation which economist Larry Summers has sounded the alarm about. Most of Biden's relief bill is targeted at the poor which means that that money will be sucked up to pay past due rent and mortgage bills as well as providing a decent lifestyle which should not be inflationary except if you believe the nonsense of the neoliberal Phillips curve which supposedly proves that a certain segment of the population has to live in poverty and penury in order to fight inflation. That has also been debunked by Modern Monetary Theory although most politicians are still on the wavelength of neoliberal economics which has been shown to be fallacious in this and many other regards.

State and local governments likewise will just suck up the money in the relief bill to bail themselves out of debt and provide an adequate level of social services. This also is not inflationary because the money will not be just sloshing around in the economy with nowhere to go. What is inflationary is tax breaks for the rich, but this money can be sucked out of the economy by taxing the rich. What Larry Summers fails to take into account is that the US and much of the rest of the world has a two tier economy. The rich and upper middle class are doing very well, thank you, while the lower middle class and the poor are suffering. The COVID pandemic illustrated this in even starker terms with the so-called K-shaped recovery. The upper classes made money; the lower classes are on the verge of losing whatever financial gains they had made during the Trump economy. Inflation is caused by too much money sloshing around in the economic system. Most of that inflationary money is held by the rich in assets like stocks and real estate. Money injected into the economic system targeted at the poor is immediately sucked out of the system to pay debts and to provide basic necessities. There is enough physical and material capacity in the system to provide basic necessities so this money is not inflationary.

Inflation is caused when there is too much money chasing too few goods. As long as there is the material and human capacity, money directed at those sectors of the economy will not cause inflation. The real problem in future Biden administration bills involving infrastructure and the Green New Deal is that the materials to build out infrastructure, namely, steel, cement and plastics, require fossil fuels to manufacture and the manufacturing processes themselves are inherently carbon dioxide emitting. This comes about from basic chemistry which involves the carbon and oxygen atoms every step of the way. Most basic materials are composed of carbon, oxygen, hydrogen and nitrogen, and the chemistry involved in manufacturing releases large amounts of carbon dioxide. The manufacture of solar panels requires mining high quality quartz and combining it with coal. It's hard to get away from fossil fuels as the Michael Moore movie, Planet of the Humans, pointed out. For this reason spending large amounts of money on infrastructure involving cement, steel, plastics and other materials could actually produce more global warming rather than preventing it. The finances are available; the proper materials are not. The manufacture of wind turbines and solar panels require the release of large amounts of greenhouse gasses.

Because of these fundamental limitations regarding materials, it doesn't make sense to throw trillions of dollars at either infrastructure or global warming mitigation. That would be either inflationary or misguided in the sense that large projects in these areas could produce even more global warming. As Bill Gates has pointed out, money should be invested in promising startups and research that can solve these basic problems and into digital nuclear which is the only renewable energy source that won't result in a lot of greenhouse gasses being created in the first place. Advanced nuclear is the most promising source of clean energy. Gates has invested in a company TerraPower which does research on advanced nuclear reactors. Their mission statement reads:

"TerraPower was founded by Bill Gates and a group of like-minded visionaries that decided the private sector needed to take action in developing advanced nuclear energy to meet growing electricity needs, mitigate climate change and lift billions out of poverty. Advanced reactors and other isotopic applications are now possible with technology and enhanced computing capabilities that were unimaginable a few decades ago. At TerraPower, we are innovating in nuclear to improve the lives of people everywhere and to build the clean energy of tomorrow – today."

So when the Biden administration gets around to their initiatives on infrastructure and global warming, they need to heed Bill Gates' warning about traditional manufacturing methods involving cement, steel and plastic. Energy from solar and wind are inadequate to solve the problem for many reasons. Large scale demonstration and build out of nuclear energy reactors should be the order of the day, They are the only clean energy source that has the potential for diminishing the world's reliance on fossil fuels.

Off the Top of My Head

Green New Deal: We Have a Problem and Its Not Money

by John Lawrence, March 5, 2021

Modern Monetary Theory has shown that a nation with a sovereign currency such as the US dollar need never fear running out of money, and that Federal spending does not depend on tax receipts. However, it does depend on whether the human and material resources are available. Just pouring money on the problem will cause inflation unless it is soaked up by available resources. The problem is that the material resources are not available. As Bill Gates has pointed out in his book, How to Avoid a Climate Disaster, the problem cannot be solved by the renewable energy resources that are now available, namely wind and solar. Building wind turbines requires immense amounts of concrete for the bases and steel for the turbines, and the manufacture of those resources emits tons of greenhouse gasses. Manufacturing solar panels requires mining of quartz sand and coating with ethylene-vinyl acetate. This manufacturing requires energy—most often derived from the burning of fossil fuels, as the Michael Moore film, Planet of the Humans, has pointed out.

Solving the problem of global warming can't be undertaken by using the available resources of concrete, steel and plastic the manufacture of which emits huge amounts of greenhouse gasses. So even though the financial resources are available, the material resources are not. The human resources, however, are arguably available. Wray and Tcherneva  write in a paper How to Pay for the Green New Deal:

"In the neoliberal era, we chronically operate below full employment. That is obvious in Euroland, which is probably operating 25 percent or more below full capacity. Even the US today has substantial excess capacity, in spite of claims that we have achieved full employment. Over the past quarter century, we have had to readjust our estimate for the natural rate of unemployment—the rate below which inflation is supposed to pick up—in every recovery, because inflation never arrives as unemployment falls. Most recently, in the immediate aftermath of the financial crisis, economists claimed that the natural rate of unemployment had increased to over 5 percent. Yet, the unemployment rate kept coming down, while inflation never materialized. We will not know precisely where the inflation barrier is until we ramp up aggregate demand."

So given that human resources are available, it is clear that the material resources are not. Bill Gates recommends spending the money on research to develop new non-greenhouse emitting substitutes for steel, concrete and plastic. That would require high level scientists who might be less available than low level workers. Assuming a full court press requiring large numbers of university and scientific human power, this project is probably feasible although it would not require trillions of dollars of financial resources at least in the initial phases. Later development would require more and finally building out renewable energy resources using these newly developed materials would require more money. So the problem is not that finance is not available. The problem is dispensing it in appropriate amounts over time. There is one promising energy source that would not require such a huge investment in research and development because that has largely been done and that is what we might call digital nuclear. Bill Gates has invested in a company called TerraPower which claims:

"With the growing demand for electricity, TerraPower entered the nuclear energy arena to lift billions out of poverty. Advanced reactors and other isotopic applications are possible with technology and enhanced computing capabilities that were unimaginable just a few decades ago. At TerraPower, we are ready to build the clean energy of tomorrow – today. TerraPower leads in advanced nuclear energy because it has spent the last decade investing in innovative technologies to solve some of the biggest challenges facing humanity."

Two things are clear. Much work has already been done on an advanced nuclear reactor that solves the problems of dangerous explosions such as Chernobyl, Three Mile Island and Fukushima and also the problem of spent fuel radioactive storage. Using high level computing power and advanced digital technology which wasn't available to previous generations of nuclear reactors, Gates maintains that a safe design for nuclear power generation is close to being available. Considering the problems with solar, wind and biofuels which have a longer time horizon before being solved, it seems that nuclear is further along in its development phase and also has greater potential for being a carbon free source of energy. “Nuclear has actually been safer than any other source of [power] generation,” Gates told [CNBC's Andrew] Sorkin. “You know, coal plants, coal particulate, natural gas pipelines blowing up. The deaths per unit of power on these other approaches are — are far higher,” Gates said, a fact he also references in his new book, “How to Avoid a Climate Disaster.”

In their section, “COSTING” THE GREEN NEW DEAL," Wray and Tcherneva write:

"Milton Ezrati, writing for Forbes, offers his own estimates for the various components of the GND, citing different sources (Ezrati 2019). Here we only use his estimates for “greening” projects. Based on estimates by physicist Christopher Clark, the cost of expanding renewable energy to 100 percent would be $2 trillion over 10 years. The smart power grid would cost an additional $400 billion over 10 years (estimate from the Electric Power Institute).13 Upgrading and retrofitting buildings would cost between $2.5 trillion and $3.9 trillion ($3.2 trillion midpoint estimate) over 10 years. The total cost of greening projects comes to $5.6 trillion over 10 years ($560 billion per year, or 2.87 percent of 2017 GDP)."

This is only one of the costing estimates that Wray and Tcherneva provide, but these costing estimates need to be further examined in terms of how much fossil fuels are necessary to build them out and manufacture them. Materials that require large amounts of carbon dioxide emission for their manufacture must be rejected. In the final analysis the Job Guarantee (JG) that Wray and Tcherneva advocate is partially limited to "what Tcherneva calls “care for community” and “care for people” projects: service projects related to senior and youth care, teacher’s helpers, neighborhood and park cleanup, artistic projects, and so on. Thus, the JG program can provide resources needed for green projects in an amount equal to 1 percent of GDP (and resources equal to another 1 percent of GDP for other care services). These would largely be in upgrading buildings and homes to improve energy efficiency, although some could be used in nontechnical maintenance of energy projects (landscape maintenance, for example)." So the mix of high level workers like scientists could be combined with a significant number of low level workers to provide a comprehensive approach."

The bottom line is that we had better get cracking, financing a Green New Deal is no problem because as Modern Monetary Theory has shown, the money is available, but resources must be carefully allocated to avoid the pitfalls of inflation and making the problem worse by using large amounts of traditional materials like concrete, steel and plastics. Nuclear is probably the best bet for power generation and it must be deployed quickly especially in India and China where coal fired power generating plants are still being deployed at a rapid rate.

https://www.youtube.com/watch?v=QwbDETx3zo0

 

Off the Top of My Head

Why Should Blue Collar Workers Have to Pay Taxes to Bail Out White Collar Student Loan Debt?

by John Lawrence

Short answer: There is no need for the Federal government to tax in order to spend. That has been demonstrated by Modern Monetary Theory. However, taxation, if imposed in order to fight inflation, needs to be imposed primarily on the rich and upper middle class, not on the poor or lower middle class. The smart thing for the Biden administration to do would be to decrease taxes on the lower middle class ^i.e. blue collar workers before 2022 thus drawing them away from the Trump camp. In general the American people need to be educated that deficits don't matter except just as accounting entries on the Fed's balance sheet. Biden's COVID relief initiative of $1.9 billion will not raise taxes nor will his follow-on trillion dollar initiative for the build-out of green infrastructure.

The question, "Can We Afford to Pay for the Green New Deal?" is equivalent to the question "Can We Afford to Pay the Costs of Avoiding Annihilation?". In the past we have been able to afford a massive build-up to pay for the Second World War. The climate challenge is the moral equivalent of war. If we lose this war we lose not just our freedom. We lose the habitability of the entire planet. Various attempts have been made to cost out the components of a Green New Deal. Green power generation and transportation are not sufficient in themselves to get to net zero carbon emission, but they are a start. As Bill Gates has pointed out in his recent book, How to Avoid a Climate Disaster, major industrial processes also generate much greenhouse gas emission. For instance, every ton of cement that is produced contributes one ton of carbon dioxide which goes into the atmosphere. Every ton of steel produced results in 1.8 tons of carbon dioxide emitted into the atmosphere, and every ton of plastics produced emits 1.3 tons of carbon dioxide. So it's not enough just to deal with green transportation (electric vehicles) and green power generation (solar and wind).

The cost of "greening" these industrial processes is pretty steep. Capturing carbon dioxide at the site of the manufacturing process is possible, but there is no cheap way to do it. Bill Gates is investing in promising start-ups and is counting on innovation to come up with new processes and materials which will not result in so much carbon dioxide being released into the air. Gates points out that we need to electrify every possible manufacturing process and make sure that all that electricity is generated cleanly. He advocates a new generation of nuclear power sources as wind and solar can not possible fill every energy need mainly because they are intermittent. Nuclear can fill the gap for consistent power generation when solar and/or wind are offline. Smart nuclear power which Bill Gates has been instrumental in developing would solve the problems encountered so far of explosion and what to do with nuclear waste. As a last resort Direct Air Capture of carbon dioxide from the air is possible but also costly.

What it all boils down to is this: we will need on the order of a trillion dollars a year for 10 years commitment to address climate change if we have a prayer for avoiding the worst consequences. What's more a lot of this commitment must be made in cooperation with China which is one of the worst polluters. Rivalry and even a Cold War must be set aside if the world is to avoid the worst outcome from global warming. India and China are building coal fired power generation plants at a rapid pace because coal fired power plants are so cheap comparatively and those countries are developing so quickly. It's not enough just to "green" the US. It has to be cooperation on a world wide basis. Competition has to be set aside and replaced by cooperation. The ownership of intellectual property is irrelevant when it comes to saving the planet.

A national budget for a Green New Deal shouldn't contribute to inflation since there are currently so many unemployed people available for work, and particularly because so many of the small businesses that were lost during the pandemic are not coming back. Also further robotizing of manufacturing processes will eliminate whatever blue collar workers are left working in those fields. In World War II there was some postponement of consumption in order to fight inflation. That may be necessary for the moral equivalent of war which the Green New Deal represents. If so, workers in certain nonessential industries may have to be repurposed and retrained for industries involved in combating climate change.

Off the Top of My Head

Former Energy Secretary Proposes Going to Capital Markets for Money to Upgrade Energy Grid Infrastructure: Is This Wise?

by John Lawrence, February 21, 2021

Clinton's Energy Secretary, Bill Richardson, proposes going to the capital markets since the government has been spending so much money on COVID relief. He suggests a public-private partnership. Evidently, Mr. Richardson, like most politicians and dignitaries, is totally ignorant of Modern Monetary Theory. The Federal Reserve can create interest free money with a few computer keystrokes while the capital markets will charge interest, and not only that. Once you enter the Wall Street casino you're subject to all the vagaries of the financial markets like securitzation, credit default obligations, interest rate swaps, betting against the success of various programs and much more. These are the kind of financial activities that caused the 2008 Great Recession and the bankruptcy of Orange County, Birmingham, Milan Italy and the misery in Greece. What's more going to the capital markets causes the same inflation risks as having the Fed create the money because inflation is caused by the amount of money sloshing around in the economy not who supplies it.

Larry Summers is worried about Biden's big spending bills causing inflation. What he doesn't get is that these bills are targeted. It's not just money pumped into the economy. The money going to states and municipalities, for example, is going to pay off debts. That holds for all the money going to families who are behind on their rents and mortgages. Paying off debts is deflationary not inflationary. Money going to unemployment insurance is just money that allows people to consume as if they had a job. That is not inflationary. Money going to businesses to prevent them from failing and putting employees back to work is not inflationary because having these businesses fail and employees without jobs is deflationary. All those flights and cruises not taken, all the money not spent going to movie theaters, all the money not spent on consumption when consumption is 70% of the economy - is deflationary. In fact there is so much deflation during a recession that that is the main worry - not inflation.

But reorienting priorities should also play a part in controlling inflation. Decreasing the trillion dollar budget of the military and military-industrial complex would help to offset inflation and pay for infrastructure repair. It would also free up the human resources needed for a build out of green infrastructure because wage inflation is caused by not enough human resources being available thus bidding up wages. The integrity of the US dollar could also be increased by eliminating sanctions on other countries. The US is using the fact of sanctioning other countries because the US dollar is the world's reserve currency causing the diminution of the use of the US currency as sanctioned countries find workarounds using other currencies. In America's Other Forever War, Peter Beinart explains that these sanctions do not accomplish anything except to hurt the people that happen to be living in the countries that are sanctioned. The chickens will come home to roost as the US dollar looses value in the international currency markets as the euro, yen and reminbi are used more for international trade. As Beinart writes, "“It is past time,” Joe Biden pledged last year, “to end the forever wars.” He’s right. But his definition of war is too narrow."

A careful analysis of Biden's spending plans  as well as reorienting current spending priorities needs to be carried out so that runaway inflation does not occur. Certainly putting people back to work is not inflationary. Federal money targeted toward paying off debts by states, municipalities and families is not inflationary. Federal money spent on infrastructure is not inflationary providing that the human and material resources are available. Since the Federal Reserve can create US dollars without the need for taxes, Modern Monetary Theory has shown and economists widely agree that the only limit on Federal so-called "deficit" spending is inflation. Stephanie Kelton has explained that Deficits Don't Matter in her book, The Deficit Myth. People like Bill Richardson and most liberal and conservative politicians need to study up on economics. Bernie Sanders and Alexandria Ocasio-Cortez are some of the few people that already have.

Off the Top of My Head

Despite All the Talk, Practically Nothing Has Been Done About Global Warming

by John Lawrence

Every year 51 billion tons of Greenhouse Gasses (GHGs) go into the atmosphere. There has been no decrease in that number despite the Paris Accords, despite more hybrid cars, despite the build up of solar and wind renewables. 197 countries adopted the Paris Agreement at the COP21 in Paris on 12 December 2015, over 5 years ago and yet there has been no improvement in the number of tons of GHGs dumped into the atmosphere per year. Well, a couple of tons less this year due to the pandemic. In general it is slightly increasing according to Bill Gates in his new book, "How to Avoid a Climate Disaster." At the rate we are going, there is no way that the earth can escape the dire consequences of global warming. Should we just give up and enjoy the few remaining years of a habitable earth? I don't think so. What will it take to forestall catastrophe? Basically, it will take a Green New Deal or should we call it the Green Equivalent of World War II?

During World War II there was a huge amount of government deficit spending. Modern Monetary Theory has shown that this is no problem because a government such as the US which issues its own sovereign currency can never run out of money whether or not there are tax receipts to cover the spending. The problem is inflation which occurred in WW I despite more modest outlays. In the WW II years there were wage and price controls which effectively controlled inflation. There was also rationing. These measures made sure that all resources both human and material were devoted to the war effort. Everyone was on the same page. Is that possible for a Moral Equivalent of War (MEOW) today? Would people be willing to give up anything so that resources could be devoted to a MEOW as far as Global Warming is concerned? Many Americans are not even willing to wear a mask during a pandemic, and many also believe that global warming is a hoax. Would they sacrifice for a MEOW?

Bill Gates has invested his money in a variety of start-ups which have some promise of addressing the global warming issue. One of them is Direct Air Capture (DAC) in which carbon dioxide is removed directly out of the air. This is a feasible alternative which is already in use on a small scale. The problem is that it's the most expensive alternative out there. A combination of other methods to ameliorate GHGs in the atmosphere would not only be more feasible but cheaper. He estimates that removing 51 billion tons of GHGs per year would cost $5.1 trillion per year. This would be an upper bound on the cost of getting to zero GHG emissions. Actually this does not seem too unreasonable given the fact that between 2008 and 2015, the Fed’s balance sheet, its total assets, ballooned from $900 billion to $4.5 trillion. That means that the Fed "printed" $3.4 trillion with its Quantitative Easing (QE) program. The Fed has "printed" $3.5 trillion just in the year 2020 in response to the coronavirus pandemic to keep the economy from falling apart. This is the amount of money authorized by Congress in several spending bills. Add to that Joe Biden's $1.9 trillion COVID relief bill and you get a total of $5.4 trillion. And yet there has been no inflation.

So there is a little hocus pocus going on in the relationship between the Fed and the Treasury. The Fed by law is not allowed to buy US debt directly from the Treasury department. How it works is Congress authorizes a spending bill. The Treasury issues a Treasury bond if there aren't enough taxes to cover it. That bond is sold to the "primary dealers" which are mainly big Wall Street banks, and then the Fed buys the bond on the "open market" which means it buys them from the primary dealers. So by a roundabout method, the Fed buys up US debt by means of "printing" money although it's actually by means of a few keystrokes on a computer crediting the Treasury's account at the Fed and the Fed takes the bonds onto its balance sheet from which theoretically it could sell them some day. One little distinction: this is not QE. QE was a term coined when the Fed "printed" money to bail out the big banks aka providing liquidity. The Fed took all the toxic junk of mortgage backed securities and other assets onto its balance sheet and gave the banks all the money they needed to cover bets on credit default obligations and interest rate swaps and other casino garbage. So while it amounts to the same thing - the Fed "printing" money and adding it into the economy - the money injected now is going into the real economy whereas the QE went into the Wall Street economy.

But I digress. So Bill Gates says it would require at most $5.1 trillion to get our GHGs down to zero on an annual basis. In other words keep the goddam fossil fuels, cow farts and Keystone pipeline and just get those DAC machines humming. Seems reasonable to me. The Fed can just print up that $5.1 trillion and we're home clear. J.D. Alt estimates that solving the global warming crisis will cost $60 trillion over 10 years which is about the same amount per year that Bill Gates estimates although supposedly we will reach some point at which renewables and other technologies will result in zero emissions so we will not have to go on spending that amount in perpetuity. So why don't we just go ahead and do it? The Fed could just print the money. No inflation is in sight. Modern Monetary Theory has shown that any country with a sovereign currency (such as the US dollar) can never run out of money and as long as the resources are available (both human and material) the financial resources will always be available. The only problem is the stupidity of most of the US Congress (mainly Republicans) whose only response to any Democratic initiative is just to Just Say No as well as their economic ignorance. So it is of paramount importance that next year after the pandemic is over and before Republicans take over (hope not) one of the branches of Congress in 2022, that Congress passes a $5 trillion per year Green New Deal or a $50 trillion GND spread over 10 years.

Off the Top of My Head

The Two Strands of Modern Economic Theory

by John Lawrence, February 12, 2021

Ellen Brown with her book Web of Debt pointed out that public banks could save states and municipalities millions in interest compared to Wall Street banks. She also pointed out that money is created by banks when they make loans with fractional reserve banking. They just create the money with keystrokes; it doesn't come out of deposits. Ergo, all money comes from debt, but that's only half the story. The other strand explains how the Federal Reserve just creates money by keystrokes. In The Deficit Myth, Stephanie Kelton explains how countries with sovereign currencies can create money that really is not debt, despite the fact that conventional thinking says it is. When households or states or countries in the Euro zone take on debt, they do have to pay it back. When countries with sovereign currencies create money, they don't have to pay it back. It's as simple as that.

When European countries gave up their sovereign currencies and adopted the Euro, they gave up the right to create the money they needed to pay bills so they need to borrow on capital markets which can charge them whatever interest they want. This is how Greece and Italy and other European countries got into problems. On the other hand the U.K. which never gave up its sovereign currency can just create the money it needs without going to the debt markets. In the same way Orange County and other US municipalities got into trouble with spiraling debt which had to be paid back. This can get out of hand because the more indebted a debtor gets, the higher interest rate they get charged so that in the worst case they are just borrowing money to pay interest. The US can never get in this debt trap because it never has to borrow money on the open market and the Fed can set interest rates however it wants. Once authorized by Congress and required by law Treasury bonds are issued and can always be paid because the Fed can just create the money to pay them.

Modern Monetary Theory (MMT) has established that deficit spending, whether that comes from tax breaks or government programs or currently for coronavirus relief, is just an accounting entry on the Fed's balance sheet. The national debt never needs to be paid off. Also any country that owns Treasuries - for instance, China - could have them paid off tomorrow if they chose to cash them all in by the Fed just debiting money from the savings account of the People's Bank of China at the Fed and crediting their cash account also at the Fed. Countries with sovereign currencies, ^i.e. the US dollar, the British pound, the Japanese yen etc, can all create money in this way by having their central banks do it with keystrokes on a computer. Greece, Italy, California and New York can't do this because they don't have sovereign currencies.

So there is a difference between debt acquired by households, firms and countries which don't issue their own sovereign currency and countries which have central banks that do. The US Federal Reserve can buy up Treasury bonds as necessary to provide as much money as is authorized by Congress to the US Treasury. By law they can't buy them directly from the Treasury but must buy them on the open market. However, US primary dealers - mainly Wall Street banks - are required to buy them and the Fed can buy them from the primary dealers by providing "liquidity" - dollars which the Fed creates with keystrokes - to the Wall Street banks. The Fed also controls interest rates which at this time are 0.25% or almost zero. So the $1.9 trillion relief package proposed by Biden is no problem either for the US Treasury or the Fed. That money could just end up on the Fed's balance sheet the way the trillions of dollars it created to bail out the Big Banks in the Great Financial Crisis of 2008 did. The fact is that, when the US government deficit spends, that adds money to the private economy, and right now the private economy is hurting because so many are out of work and not able to pay rent or mortgages or car payments. Money added to the economy by deficit spending (deficit being really a misnomer) can be readily absorbed by unemployed workers to pay their bills. The point is that taxes are not necessary for government spending.

So Web of Debt applies to the private economy and The Deficit Myth applies to the national economy. The first book advocates public banking which can save states and municipalities money on interest because they do have to pay their debts. The second book describes how governments with sovereign currencies can just create money which need never be paid off. However, this money creation facility should, like alcohol, be used responsibly; otherwise, inflation can occur. But when huge numbers of people are unemployed and states are having a hard time paying their bills, it is incumbent on the central government to help them. The same applies to European countries in the Euro zone. US lawmakers need to get up to date on how the real economy actually works. In truth Republicans have lost all legitimacy when it comes to their harping on deficit spending.

Coronavirus Has Destroyed the Myth of the Deficit

by Yeva Nersisyan and L Randall Wray

from the Guardian, April 17, 2020

No, federal government spending doesn’t have to be ‘paid for’. The crisis shows providing for our society is not a financial issue

‘Buying into the deficit myth, for generations we have been living below our means – paralyzed by the belief that finance is the constraint.’ Photograph: Evan Vucci/AP

Only a month ago, a stimulus bill of $2tn would have been unthinkable. Indignant deficit scolds would have asked how one planned to pay for it, and complained about burdening our grandchildren with debt and bankrupting our country. Bernie Sanders bent over backwards to explain how he was going to pay for a Green New Deal or Medicare for All. These programs don’t seem as expensive any more. Suddenly the government is planning “helicopter drops” of cash. Larry Kudlow, who relentlessly attacked the Obama stimulus during the global financial crisis, is touting the current stimulus as “the single largest Main Street assistance program in the history of the United States”.

Nobody is seriously asking how we are going to pay for this stimulus – and they shouldn’t. It took a global pandemic to explode the myth that federal government spending has to be “paid for”. The Covid-19 crisis has clearly demonstrated what should have been obvious already: provisioning society – whether with food, disinfecting wipes, toilet paper or medical supplies – is not a financial issue. If we can’t produce enough masks, ventilators or food, finance will not help. Society’s capacity to produce real output is what limits its ability to provision itself. And this is precisely what the virus threatens, as workers stay home, supply chains break down and businesses shut their doors.

On the financial side, a sovereign government can always afford to buy what is for sale in its currency, as Modern Money Theorists have long explained. It cannot run out of money because it simply credits bank accounts when it spends. This is not a prescription, but merely a description of what actually happens. In the United States, Congress passes the budget, while the Treasury, in cooperation with its fiscal agent, the Federal Reserve, makes the necessary payments. This happens through the thick and thin of the business cycle, crisis or not. If the US government wants to buy more ventilators or masks, finance cannot be an impediment.

But what happens when ventilators and masks are not available for sale even as companies are operating 24/7? More money may not solve the problem, but the government still has a role to play. During the second world war, the US quickly became “the arsenal of democracy” by repurposing its productive capacity to meet the needs of the war. Through diligent planning “[l]ipstick cases became bomb cases, beer cans went to hand grenades, adding machines to automatic pistols, and vacuum cleaners to gas mask parts”. We were able to cut “production time for Liberty Ships down from 365 days to 92, 62, and, finally, to one day”. We can mobilize our resources once again to build temporary hospitals, and to ensure a sufficient supply of medical equipment and whatever else is necessary to overcome the crisis.

Buying into the deficit myth, for generations we have been living below our means – paralyzed by the belief that finance is the constraint. Prolonged periods of slack and jobless recoveries have disincentivized investment and hurt our productive capacity and labor productivity. Even in good times our economy leaves millions unemployed or underemployed and a significant amount of our capacity idle (before the epidemic, our factories were only operating at three-quarters of capacity). We have underinvested in public healthcare, education and infrastructure and imposed extreme limitations on social assistance programs. As of this writing, the administration still plans to go through with its plan to kick 700,000 Americans off the food stamps program to save a measly $4.2bn over five years. We have been living in “poverty in the midst of plenty”, as John Maynard Keynes aptly noted in the Great Depression.

Once this crisis passes, the deficit scolds will be back at it again, trying to put roadblocks in front of progressive policies. We will be told we can’t afford Medicare for All, Jobs for All, College for All or halting climate change. The centrists will try to get us back to “normal” – ie an economy that leaves so many behind.

It is imperative that we resist. What progressives need to push for is creating a different kind of economy through a Green New Deal. To do so, we need to distinguish between the myths and real constraints, understanding “that what is technically feasible is financially possible” for a sovereign government. Affording the Green New Deal is about real resources and technology, not about finance.

The original New Deal was also dogged by concerns about excessive government spending. The second world war eliminated that obstacle, unleashing extraordinary economic mobilization and decades of prosperity. Hopefully the coronavirus crisis will not be as destructive as the Great Depression, but if there is one thing it should destroy, it’s the myth of the deficit.

• Yeva Nersisyan is associate professor of economics at Franklin and Marshall College

• L Randall Wray, author of Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems; Why Minsky Matters: An Introduction to the Work of a Maverick Economist; and Understanding Modern Money: The Key to Full Employment and Price Stability, is senior scholar at the Levy Economics Institute and professor of economics at Bard College

 

Off the Top of My Head

Contrary to Larry Summers Biden's Relief Bill Will Not Cause Increased Inflation

by John Lawrence, February 8, 2021

Joe Biden's almost $2 trillion pandemic relief deal will not be inflationary despite Larry Summers' opinion. Inflation occurs when there is too much money sloshing around in the economy chasing too few goods, services and human resources. That is not the case here. First of all it will reemploy the unemployed. This is a presently unused resource. Secondly, it will suck up unused or unsold goods and services funding things that are currently unfunded like child care, and thirdly, it will serve to pay off debt and replenish savings. Any money going into savings or paying off debt is not inflationary. It's deflationary in the sense that the banks will lose money due to interest they won't collect if loans are paid off. The middle class that did have savings or credit in many cases has had to use those to survive the pandemic. That's why giving money to higher earning, but not wealthy, families is a good thing. To hear some people talk only money should be given to those who are desperate and living from paycheck to paycheck. Yes, those are the families most in need who should be given money first, but higher earning families who have depleted their savings or gone into debt need to be resuscitated also.

So here is what Larry Summers says about inflation:

"First, while there are enormous uncertainties, there is a chance that macroeconomic stimulus on a scale closer to World War II levels than normal recession levels will set off inflationary pressures of a kind we have not seen in a generation, with consequences for the value of the dollar and financial stability. This will be manageable if monetary and fiscal policy can be rapidly adjusted to address the problem. But given the commitments the Fed has made, administration officials’ dismissal of even the possibility of inflation, and the difficulties in mobilizing congressional support for tax increases or spending cuts, there is the risk of inflation expectations rising sharply."

Summers fails to take into account the deflationary effects of the relief bill. Money going to states and municipalities will actually be deflationary because much of it will be used to pay down debts and loans. Many state budgets are in horrible shape and employees such as police, librarians and firemen have been laid off. People paying back rents and mortgages will have a deflationary effect on the economy. People on the lower end of the economic spectrum who are living paycheck to paycheck will be able to get a little ahead and also save. This will not add a lot to inflation. Also money can always be withdrawn from the economy by taxing the rich, those who actually added to their wealth and income during the pandemic. This is the only reason that taxes might need to be raised because the US government has the ability to spend without raising taxes. The only reason to tax would be to fight inflation and those taxes can be targeted towards wealthier families and individuals. The Federal Reserve has not been able to achieve its target rate of 2% inflation recently despite maintaining almost zero percent interest rates. It wants more money sloshing around in the economy.

There are other ways to suck money out of the economy to offset inflation. Modern Monetary Theory (MMT) recommends Medicare for All which would result in much less money spent on health care while providing better health outcomes. This would be deflationary which would counteract any inflationary propensities of government deficit spending. Conventional economic thinking is that there is a tradeoff between unemployment and inflation. The more people unemployed there are, the more inflation is diminished. Therefore, full employment as defined by economists is not really employment where everyone is employed. It is that level of unemployment which just keeps inflation in check. However, according to "The Trade-off between Inflation and Unemployment in an MMT World: An Open Economy Perspective" by Emilio Carnevali and Matteo Deleidi, MMT it is contended that inflation "occurs when the system reaches the point of full utilization of its productive capacity, both in terms of capital utilization and in terms of availability of workers. At this point, the government should curb inflation forces cooling down the effective demand. This is another fundamental task of taxes." As long as there is unused capacity in human or production terms, increased employment will not be inflationary. So Larry summers need not worry that putting all those unemployed people back to work will lead to inflation.

Biden's putting a $15.00 an hour minimum wage in the relief bill is also what MMT advocates in relation to a Federal job guarantee. Real full employment at a minimum wage of $15.00 an hour does not need to be inflationary especially if it is in areas that don't compete with already employed workers. Biden's relief bill will have the effect of putting almost everyone to work with at least an hourly pay of $15.00 an hour. People who are living paycheck to paycheck and employed at $15.00 an hour are not going to contribute to inflation since their demands on the economy are those that can be easily accommodated by existing production and easily increased production. Deficit spending is not a problem. Former Chair of the Federal Reserve Alan Greenspan said, "The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." So the real limit on government spending is inflation which can be controlled by taxes on those sectors of the economy which are not easily upscaled to provide more supply.

There is much unused capacity in the current US economy both in human and material or physical terms. People should be put back to work with a minimum wage of $15.00 per hour. A follow-on bill that would address infrastructure rebuilding and a Green New Deal also needs to be done. Resources may have to be managed by government to control inflation, but the important thing is that work needs to be done in these areas and people need to be put back to work. Inflation can also be offset by the deflationary effect of withdrawing funds form a bloated defense sector.

Off the Top of My Head

Republicans' New Definition of Socialism: Any Government Program That Would Help Black People

by John Lawrence, February 2, 2021

Republicans are worried that the US will become a socialist country. The public sector will come to dominate the private sector. Well, the private sector has been helpless at solving the big outstanding problems: global warming and the pandemic. If the private sector could solve these problems, well, that would be great, but they're not capable of doing it. Therefore, government is left by default to deal with global warming and the pandemic as well as a host of other systemic problems like health care, poverty, economic inequality and racism. So what does capitalism stand for at this point: fossil fuel dependency and business as usual which means more and more income and wealth inequality. With capitalism there is no "we" there, only an accumulation of "I"s.

What Modern Monetary Theory (MMT) has shown is that the Republican accusation of Democrats - "tax and spend" - is a discredited misnomer because US government spending does not depend on taxation. In fact a Green New Deal and Medicare for All could all be accomplished without increasing taxes on anyone. That's because the US central bank aka the Federal Reserve can just create money with a few keystrokes on a computer the way it did to save the banking industry during the Great Recession when it gave the Big Banks several trillion dollars without any consequences whatsoever for deficit spending or increased taxes to pay for it. This facility should be used responsibly, however, just like the use of alcohol. Used irresponsibly this money creation facility could increase inflation.

So what is the responsible use of government spending? Obviously, during a pandemic and incipient global warming, it would be responsible for the government to spend money to solve these huge worldwide problems which not only affect the US, but affect the whole world. One of the lessons of this situation is that, if we want to contribute to the solution of global warming, we must become friends with the world's biggest GHG emitter which is China. China and the US are the world's first and second largest GHG emitters and the first and second largest economies. We can't afford not to be partners in the solution of this problem. China and US continued rivalry even amounting to a Cold War will guarantee that the earth is destroyed as a habitable living place for humans. So we have no other choice. Either we can continue our petty squabbles with China or we can cooperate with them to solve problems. We are truly all in this together. Either we hang together or we hang as nations separately.

The second lesson of MMT is that Medicare for All (M4A) could be part of the solution for global warming. If M4A were to be implemented, the US could have a much better health care system with better outcomes health wise at a far cheaper price. This has been shown in study after study. What's more M4A would be deflationary in financial terms. Deflation as well as inflation is bad for the economy. The fight against global warming would be inflationary because of the huge expenditures that must be made so it could offset the deflation caused by M4A. In fact we find in How to Pay for the Green New Deal, working paper 931 by Yeva Nersisyan and L. Randall Wray:

"To be clear, we do recognize that implementation of the GND will shift spending from the private sector to the government sector. However, unless there is an a priori reason to believe this would—by itself—be inflationary, we take the position that in the general case it makes no difference in terms of inflation whether the dollar spent to hire resources comes from the government or from the private sector, which is also the method used by Keynes. As Stephanie Kelton says, cash registers do not discriminate. Indeed, as we report below, there is strong evidence that at least in the healthcare sector a dollar of government spending buys more care than a dollar of private spending—so shifting toward government as the single payer would produce disinflationary pressure."

So while the US government can create as much money as it needs for a GND by means of the Federal Reserve's money creation powers without increasing taxes, the need to forestall inflation could be offset by M4A which would in addition provide a health care system with better outcomes for Americans at a lower price. The only reason then to raise taxes would be to diminish economic inequality which could be ameliorated by only taxing the rich.

Off the Top of My Head

Mitt Romney Doesn't Want to Go Into More Debt With China: Is This a Problem?

by John Lawrence

In short: No. The trade deficit with China means that US consumers' dollars ended up in the People's Bank of China's account at the Federal Reserve. The PBOC has two accounts at the Fed which amount to a checking account and a savings account. The savings account consists of Treasuries which pay a small interest. Since the Fed controls the interest rate which is approximately zero, interest charges are very low. The US is not like Greece which had to borrow money on the open market which is subject to interest rate fluctuations. Greece, unlike the US, does not issue its own currency. It is part of the Euro Zone so when it borrows money it cannot just issue the money like it could have when it has its own sovereign currency, the drachma. Therefore, it got itself in a debt trap in which the more it borrowed, the higher interest rates it had to pay. The US can never be in that position because the US is a sovereign currency issuer.

China needs to keep US dollars in its account because the Chinese currency is pegged to the dollar. Therefore, it is pledged to exchange Chinese yuan for dollars in much the same way that the US dollar formerly had pledged US dollars to gold at the rate of $35 dollars to an ounce of gold. The US dollar, on the other hand, is now a fiat currency with a floating exchange rate so a dollar is worth a dollar and that's it. No one can demand that the US government exchange a dollar for something else. So the Chinese government needs to keep a lot of dollars on hand. So when China buys US debt (Treasury bonds), what happens is that China's checking account at the Fed is debited and its savings account at the Fed is credited. The money never leaves the Federal Reserve! Stephanie Kelton writes in The Deficit Myth: "To pay back China, the Fed simply reverses the accounting entries, marking down the number in its securities [savings] account and marking up the number in its reserve [checking] account. It's all accomplished using nothing more than a keyboard at the New York Federal Reserve Bank."

So what would happen if China or Japan refused to buy any more US Treasuries? If Treasury bonds cannot be sold to investors, domestic or foreign, they end up on the accounts of the "primary dealers", mainly big Wall Street banks, which are obligated to buy them. If this takes too much liquidity out of the system, meaning those banks don't have enough cash on their balance sheets because they have so many Treasuries, the Fed merely steps in and adds liquidity to the system meaning that they take the Treasuries onto the Fed's balance sheet and exchanges the Treasuries for cash paid to the banks. So by a roundabout process the US debt ends up on the Fed's balance sheet where it can stay forever. And don't worry about the interest paid on those Treasures. Any interest the Fed makes is remitted to the government which means that it is paid to the US Treasury account at the Fed by means of a few keystrokes. So it amounts to interest free debt. Those Treasuries may be sold back into the market at some time or they could stay on the Fed's balance sheet forever. There is absolutely no urgency for the Fed to get rid of them.

So Mitt Romney's concerns that the US might add more debt to China is unfounded. He should probably, like a lot of politicians, study up on Modern Monetary Theory and try to understand how the Federal Reserve, which is the US' central bank, really works. It is the loaner of last resort to the banks and, by a roundabout process, to the Federal government. It has the ability to create money by a few keystrokes on a computer because the US currency is a sovereign fiat currency. It is the loaner of last resort to the banking system, and, since the primary dealers are obligated to buy Treasury bonds, effectively, it is the loaner of last resort to the Federal government. The import of cheap products from China, which adds to the trade deficit, keeps the consumer price index low in the US. If those same products were produced in the US with higher priced labor, prices for US consumers would go up considerably. On the other hand, Chinese investors have been the biggest purchasers of U.S. residential real estate for six consecutive years. This drives up the asset price of US real estate and makes housing more expensive. This is the downside of the Chinese accumulation of dollars, but the same is true for trade deficits with other countries.

Off the Top of My Head

The Republican Game Plan is No Mystery: Obstruct Democratic Attempts to Help the Poor and Middle Class

by John Lawrence, January 24, 2021

The Washington Post article said it best: Right on schedule, Republicans pretend to care about deficits again. When they are in power, they run up the deficit by giving tax breaks to the rich. When Democrats are in power, they use the filibuster if necessary to deny Democrats any success in helping the American people who need help the most. They are deficit hawks, supposedly, but only when Democrats are in power. Knowing how this game operates by now, Democrats are prepared to do whatever is necessary to thwart it. The main tool at their disposal to get the COVID relief package passed is budget reconciliation which escapes the filibuster and only requires a majority vote in the Senate, exactly what Republicans have used to get their tax cuts passed. It seems clear that what the Republican party really stands for is aiding and abetting the rich while denying financial help and opportunities to the poor.

Even conventional economists like Larry Summers advocate for more Federal spending since interest rates are low. "We note that in a world of unused capacity and very low interest rates and costs of capital, concerns about crowding out of desirable private investment that were warranted a generation ago have much less force today. We argue that debt-to-GDP ratios are a misleading metric of fiscal sustainability that do not reflect the fact that both the present value of GDP has risen and debt service costs have fallen as interest rates have fallen." His point is, since interest rates are near zero, the US debt is not going to increase much as a result of paying interest on Treasury bonds. Furthermore, pump priming to get the economy up to full capacity as quickly as possible results in more taxes being collected by the Federal government which lowers deficit spending. Also, since the Fed sets interest rates, it can keep them at zero.

Furthermore, the piece de resistance is that in the final analysis deficits don't matter. The US Federal government can never run out of money since the US dollar is a sovereign currency. It can just be created by a few keystrokes on a computer by the Federal Reserve as it was when trillions of dollars were created to bail out the big banks. It is the same process that is used when the Federal government needs money. Instead of the Fed creating the money and moving it into the accounts of the big banks at the Fed, the money is created and moved into the account of the US Treasury which also exists at the Fed. This is the process that takes place when the amount of Federal government spending exceeds the amount the Federal government takes in from taxes. Republicans know this because of the $2 trillion that was created this way due to the Trump tax cuts.

So Republicans basically are lying to the American people as they have done so many times before when they pretend that money is not available to accelerate the COVID response or to provide relief to the American people or to rebuild infrastructure or to combat climate change. They are deluding the public. Democrats need to reeducate the American people about how the economy really works. Government debt just ends up on the Fed's balance sheet the same way that the trillions to bail out the big banks ended up on the Fed's balance sheet. Since the US dollar is a sovereign currency, there is never a need to pay it off. The US can never be in a situation of dependency on China or Japan or be constrained to pay off the Treasury bonds that they own since they could be paid off tomorrow again by a few keystrokes if necessary by moving money to their accounts at the Federal Reserve. Modern Monetary Theory has unmasked the way that the US economy really works in terms of how the US currency is created or destroyed by the US central bank - the Federal Reserve. In her book The Deficit Myth, Stephanie Kelton details this process.

So are there limitations on the creation of money by the Fed. Of course, but, as long as there is unused productive capacity in human or material terms, deficit spending can benefit not only the economy in general in terms of increasing GDP, but it can benefit the actual lives of people who are suffering because of food insecurity, rent and mortgage insecurity, health care insecurity, crumbling infrastructure and a desire to save the planet as a habitable place to live for their grandchildren. As the article points out, "the greater risk now, as Federal Reserve Chair Jerome H. Powell and others have warned in recent months, is that policymakers will do too little, rather than too much, to prevent permanent damage to the country’s productive capacity."  Janet Yellen, U.S. President-elect Joe Biden’s nominee to run the Treasury Department and former Fed Chairman, has also said that the government must “act big” with its next coronavirus relief package. So do Fed Chairmen and current and former Treasury Secretaries know more than Republican hacks who are spewing deficit hawk propaganda? You bet they do. They know how the relationship between the Fed and the US Treasury actually works. And it works how Stephanie Kelton outlines in her book.

Off the Top of My Head

Which is better: A Universal Basic Income (UBI) or a Government Job Guarantee (JG)?

by John Lawrence, January 22, 2021

Modern Monetary Theory (MMT) favors a JG where the government is the employer of last resort employing people that the private economy cannot accommodate. Now Larry Summers, Secretary of Treasury for Clinton, is coming around to the MMT view. Especially now when there is so much work that needs to be done (infrastructure, renewable energy) and so many idle workers, a JG makes much sense. One might ask where will the money for this come from? Answer: from the same place it came from for Reagan's $100 billion tax cuts, Bush 1's $125 billion tax cuts, Bush 2's $1.2 trillion tax cuts and Trump's $1.5 trillion tax cuts, all of which benefited the rich a lot more than they benefited the poor. Surprisingly, MMT maintains that government spending whether in the form of tax cuts or government programs benefit the private sector economy whether or not they are "paid for" out of tax receipts. Since the US dollar is a sovereign currency, the Federal Reserve can just create the money by a few keystrokes on a computer and move it into the US Treasury's account at the Federal Reserve. This process does not depend on tax receipts or money generated from the sale of Treasury bonds.

Either way - tax cuts or government programs - benefits the private economy. It's just that tax cuts benefit the rich more and government programs benefit the poor more. The fact that both entail deficit spending is irrelevant because the Fed can never run out of money. Don't believe me? Read: The Deficit Myth by Stephanie Kelton. She explains it better. Larry Summers says:

"The impulse behind the latest “big” progressive idea of creating a federal job guarantee is entirely valid. Studies show that those without jobs are much more likely to be dissatisfied with their lives, to become addicted to alcohol or drugs and to be abusive within their families than even those working at low wages they find inadequate.

"On this point, the U.S. economy is falling short of its potential. The fraction of the adult population between ages 25 and 54 that is working or seeking work has declined over the past 20 years. Despite America’s vaunted labor-market flexibility, the chance that a 25- to 54-year-old man will be out of work is much greater than it is in France and not very different than what it is in Spain . And in sharp contrast to the rest of the world, the fraction of adult women working in the United States has been declining since 1999 .

"These trends are important causes of the increasingly bitter nature of U.S. politics and of resistance to technological change and overseas trade. President Trump received disproportionate support in parts of the country where joblessness increased most.

"If the United States could guarantee jobs in even a modestly efficient manner and in a way that significantly increased employment, it would be a very good thing. I want to be enthusiastic about job-guarantee proposals. But at a time when cynicism about government runs strong, it is important for progressives to avoid making promises that they cannot keep. We must rigorously examine the practicality of a job guarantee."

Here's how the Fed's money creation process works. Tax receipts are deposited into the US Treasury's account at the Fed. The US Congress authorizes either spending programs or tax cuts. The US government spends money. When the Treasury's account at the Fed gets down to zero (spending equals tax receipts), the Fed injects money into the Treasury's account. It is impossible for the US government to ever run out of money. Then Treasury bonds are sold by the Treasury Department which are bought by "primary dealers" (mainly big Wall Street banks) which are obligated to buy them. Some are sold to investors whether they be private individuals or governments like China and Japan.

When the point is reached that the banks don't have enough liquidity (cash - because they've been buying up Treasury bonds)), the Fed creates liquidity by buying up the Treasury bonds from the Wall Street banks in return for cash. Where did it get the money to do this? It created it by a few keystrokes on a computer. So by a roundabout process the Federal Reserve makes sure that the US government has all the money it needs as authorized by Congress regardless of any considerations for deficit spending or the total amount of the US national debt. Those are just accounting entries on the Fed's balance sheet. The Fed buys and sells Treasuries every day as a means of setting the interest rate or of providing liquidity as it did in the Great Recession of 2008. The Fed is the loaner of last resort to the US banking system, and it stands ready to create as much money as is necessary to keep it running smoothly. It also stands ready to provide the same guarantees for the US government, but the money has to be authorized first by Congress.

The takeaway is that Deficits Don't Matter. The private sector benefits from government deficit spending whether those deficits are created by tax breaks or government programs. Government spending programs primarily help the poor while tax cuts primarily help the rich. A government Job Guarantee in which the government becomes the employer of last resort is better than a Universal Basic Income because a job provides one with more dignity than a handout and there is much work to be done. Congress - not taxes - is the limitation to government spending. Republican obstructionism is the only thing that can limit economic benefits to the American people because, while the Fed can directly benefit the Big Banks without Congressional approval, it cannot benefit the American people without Congressional approval. Democrats want to benefit the American people, convert to renewable energy, provide jobs and income for the American people and prevent the earth from burning up due to climate change. Republicans want simply to hold on to political power by preventing Democrats from being successful.

Off the Top of My Head

Fiscal Conservatism or Saving Prerogatives of the Rich?

by John Lawrence

Republicans in Congress don't want to grant Americans $2000 in COVID relief on the grounds of fiscal conservatism. But their idea of fiscal conservatism has been entirely debunked by Modern Monetary Theory (MMT). There are no negative implications for large deficits as Stephanie Kelton has shown in The Deficit Myth. Since the US dollar is a sovereign currency, it - not the market - sets the interest rate on US Treasury bonds. The money is just "printed" (with a few keystrokes on a computer) by the Federal Reserve and voila! there is money available for any good purpose with one caveat. The physical and human resources must be available to be utilized for constructive purposes in order to not increase inflation. Right now there are plenty of human resources available due to unemployment and there are physical resources which could be used for a green infrastructure program. There is no lack of resources, only a lack of the political will to use them. Since the US GDP is based on 70% consumption, if consumers don't have the mean to consume (money), the US economy will tank while China's economy is surging ahead due to the fact that they got COVID under control early on. Republican concerns about fiscal conservatism are ill founded and obsolete. They want the status quo because it works for the rich ceteris parabus. Here's why according to The Deficit Myth:

"After we examine the faulty thinking underlying these six [deficit] myths and counter them with solid evidence, we will consider the deficits that do matter.The real crises that we're facing have nothing to do with the federal deficit or entitlements. The fact that 21 percent of all children in the United States live in poverty — that's a crisis. The fact that our infrastructure is graded at a D+ is a crisis. The fact that inequality today stands at levels last seen during America's Gilded Age is a crisis. The fact that the typical American worker has seen virtually no wage growth since the 1970s [while China has pulled 850 million out of poverty] is a crisis. The fact that forty-four million Americans are saddled with $1.7 trillion in student loan debt is a crisis. And the fact that we ultimately won't be able to "afford" anything at all if we end up exacerbating climate change and destroying the life on this planet is perhaps the biggest crisis of them all."

Meanwhile, the tax bill signed by Trump in 2017 widened inequality and provided help to those who needed it the least. It also added to the deficit, but that is the least worst thing that it did. Republicans are totally oriented that they must fight against anything benefiting the poor and middle class on the grounds that it adds to the deficit while green lighting anything that benefits the rich and the military-industrial complex. It's really about who holds crucial political power — those representing the rich or those representing the poor and middle class. It's not at all about finding the money or adding to the deficit. The Federal Reserve can print money and give it to banks without any legal or political restrictions. They don't have to ask Congress for permission to do so, and it doesn't add to the deficit. They gave the Too Big To Fail banks $4.5 trillion after the Great Recession which started in 2008. This program was known as quantitative easing (QE). Sure they took onto their balance sheet "collateral" from the banks, most of which was worthless junk and asset backed securities which the banks wanted to get rid of in the first place.

So if the legal restrictions were changed, the Federal Reserve would be able to do Quantitative Easing for the People and not just free lunch for the banks.In the meantime we are stuck with this Kabuki Theater where Congress has to agree to providing the funds which just end up mainly on the Fed's balance sheet anyway and never need to be paid back despite the moaning and crying of Republican deficit hawks. Stephanie Kelton is a deficit owl. She believes in using deficits wisely. If they don't cause inflation (did the $4.5 trillion given to the banks cause any inflation?), deficits can be used constructively to achieve positive goals for the American people in terms of a widened safety net and 21st century green infrastructure.

Off the Top of My Head

Republicans Will Not Vote for $2000 COVID Relief Because of the Deficit But Deficits Don't Matter

by John Lawrence, December 28, 2020

Let's say the US Treasury offers a $100,000 bond for sale because the US government needs the money to pay $100,000 worth of obligations authorized by Congress, and there aren't enough tax dollars available to cover those obligations. Let's say China buys that bond. What actually happens is that the Federal Reserve "clears" this transaction. It does this by debiting the central bank of China's account at the Federal Reserve by $100,000 and crediting the US Treasury's account at the Federal Reserve by $100,000. All US banks and most foreign central banks have accounts at the Federal Reserve and US dollars called reserves never leave there. The Fed by means of a few keystrokes on a computer moves money from one account to another. The same thing happens when you write a check. Money is moved from your bank's account at the Fed to the account of the bank of your payee at the Fed. This is how checks "clear." There are fail safe mechanisms in place so that your bank and the US Treasury can never run out of money. Money can just be "printed" by means of keystrokes on a computer. That's essentially what happened during the "liquidity" crisis of 2008 when the big banks were bailed out by the Fed. The Fed just moved sufficient funds into the big Wall Street banks' accounts to cover their commitments.

Because the Fed can never run out of money, there is no need to worry that China will demand payment for the money we owe it because, if it did, the Fed would just print the money and say to China, "here." The money would be a debit on the Fed's balance sheet but so what. The Fed took on at least $4.5 trillion in debits on its balance sheet to add liquidity to the big banks during the Great Recession of 2008. Since the Fed can just print money and no one can ever demand that the Fed reduce the amount of debt on its balance sheet, the US Treasury which funds the US government can never run out of money. That's why deficits don't matter. The Fed could just move enough money into the US Treasury's account at the Fed to cover the $2000. COVID relief checks. The only concern is that flooding the economy with money will cause inflation, but, since so many people are out of work with no or little income, this is not likely to happen. What is likely to happen is that this money will prop up the US economy which might go into recession without it since 70% of US GDP is money spent on consumption. Without consumers spending money the US economy collapses.

Money is created by the US banking system when you apply successfully for a loan. The bank just creates the money without regard to whether or not the bank has the money in deposits. It's called fractional reserve banking. So all money out there is basically created when people go into debt or the government spends money. The relevant book on the subject is Ellen Brown's Web of Debt. The bank is, however, required to have enough collateral on deposit at the Federal Reserve in its reserve account. Since not everyone is going to demand their money from the bank at the same time, fractional reserve banking actually works. In rare cases, however, the Fed stands ready to step in if there is a run on the bank. The important thing to remember is that every check you write is cleared at the Federal Reserve when money from your bank's reserve account is moved into the account of the bank of the payee to whom you wrote the check. Every bank in the world that deals in dollars has an account at the US Federal Reserve, and, since the US dollar is the world's reserve currency and most transactions are conducted in US dollars, they are all cleared at the US Federal Reserve.

This understanding about how the US Federal Reserve works and why deficits don't matter is better and more fully explained in the best book on the subject, The Deficit Myth by Stephanie Kelton. Republicans who are deficit hawks are just trying to pull the wool over your eyes when they maintain that deficits will have to be repaid by our children or grandchildren out of taxes. Of course they don't have a problem when deficits are created by tax breaks for the rich. Another book that explains how the Fed actually works is Paying Ourselves to Save the Planet by J.D. Alt. He writes that the cost of combating climate change on a time scale that will actually save the planet from destruction is about $40 trillion:

"To that number we must add the cost of subsidizing the change in consumer decisions that will be necessary to reduce the carbon emissions the sequestration efforts are striving to soak up - replacing fossil-fuel engines with electric in all private and public transport, super-insulating buildings and replacing inefficient HVAC systems, establishing regional photo-voltaic micro-grid electric networks, replacing gas cooking ranges with electric induction units, buying regenerative-produced farm products and "meatless meats," replacing all small-engine appliances and tools with battery electric power, etc. It has been estimated that this process of transitioning toward zero carbon emissions will cost $1 trillion/year in consumer subsidies in the U.S. alone. If the rest of the world is also to adopt these consumer choices - rather than the old carbon-based choices - we could reasonably double that. This brings the total cost of avoiding the worst that climate change has in store to $60 trillion between now and 2030."

So if we are to address climate change in the time frame required and with the necessary resources, it will require a huge effort reminiscent of World War II. We cannot just deal in the mind set of normal left/right politics in which these measures are considered too extreme and not amenable to the normal political framework. We must go full steam ahead and Modern Monetary Theory as expounded by Kelton, Brown, Alt and others must provide the economic substructure to make it all work.