California Free Press

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

How to Pay for a Green New Deal

by John Lawrence

In 1940 British economist J. M. Keynes’s book, How to Pay for the War: A Radical Plan for the Chancellor of the Exchequer gave the economic guidance for financing the Second World War. Following Keynes, massive financial resources were devoted to the war resulting in full employment without inflation. There is a model here that can be used for the Green New Deal (GND) which is the Moral Equivalent Of War (MEOW). Bill Gates and J.D. Alt have put an upper bound of $5 trillion a year, but closer and more exacting estimates have put it at $1 trillion a year for 10 years. Yeva Nersisyan and L. Randall Wray write: "Instead of simply adding up estimates of the government spending that would be required, we assess resource availability that can be devoted to implementing GND projects. This includes mobilizing unutilized and underutilized resources, as well as shifting resources from current destructive and inefficient uses to GND projects. We argue that financial affordability cannot be an issue for the sovereign US government. Rather, the problem will be inflation if sufficient resources cannot be diverted to the GND. And if inflation is likely, we need to put in place anti-inflationary measures, such as well-targeted taxes, wage and price controls, rationing, and voluntary saving. Following Keynes, we recommend deferred consumption as our first choice should inflation pressures arise. We conclude that it is likely that the GND can be phased in without inflation, but if price pressures  do appear, deferring a small amount of consumption will be sufficient to attenuate them."

Their analysis is the most astute to date. We know that the money is available because the Federal Reserve can create it with a few keystrokes on a computer. This has been demonstrated time and time again from the bank bailouts of the Great Recession to the COVID relief bills. Modern Monetary Theory (MMT) has provided the theoretical framework that explains how the Fed creates money and the fact that the US can never run out of money. The US government which has a sovereign currency does not have to pay back loans whereas a private household or even a US state does have to pay back loans or else suffer the consequences. The only potential consequence when the Fed creates money for public purposes is inflation which can be controlled by a variety of measures. In How to Pay for the Green New Deal, the authors write: "Viewed from the MMT perspective, the government uses the monetary system to mobilize real resources and to move some of them to pursuit of the public purpose. Affordability is never an important question for a sovereign government—the relevant question concerns resource availability and suitability. There is thus a natural alliance between MMT and the GND. If we can identify technologically feasible projects that would achieve the GND’s goals, and if we can identify the resources to devote to these projects, then we can arrange for the financing of the programs." Bill Gates has identified a number of promising new technologies that he has invested in to address the GND issue.

As Keynes pointed out, it's a question of available resources to tackle any public problem. If the resources are available, the money is no problem although resources may need to be switched from the private to the public sector. Republicans who favor that all economic activity be confined to the private sector may have a problem with this. Nevertheless, this is exactly what happened during the Second World War. Resources, both human and material, were activated within the public sector to fight the war while at the same time were withdrawn from the private sector. Consumption was held to a minimum and deferred till the war's end. Then private resources, both human, financial and material, were unleashed so that the post war era was one of the most prosperous that the world has ever seen. The deflation brought about by wage and price controls and rationing during the war offset the inflation caused by the public money that was spent financing the war. The same tactic is necessary for a Green New Deal.

Yeva Nersisyan and L. Randall Wray write: "The approach is simple but also profound: total the resources available to prosecute the war while meeting the consumption needs of the population. If the available resources fall short of what is needed, the solution cannot be found in the finances. Government can always spend more to shift resources to the war effort; if consumption spending is not reduced, the result is inflation that generates a combination of “voluntary” saving and excess profits as real consumption falls. To prevent this undesirable outcome, government must reduce consumption demand by some combination of voluntary saving, taxes, deferred compensation, rationing, and wage and price controls. To be clear, the purpose of these actions is not to provide government with the financial means to “pay for” the war effort but rather to relieve pressure on scarce resources."

There will be much opposition from the America First crowd which is really a euphemism for Me First. The people who put their own freedom to do whatever they want whenever they want will probably not take too kindly to making any sacrifices so that future generations will have a habitable planet to live on. There will be demagogues ala Trump who will appeal to their baser instincts of solipsistic selfishness. They will be all about their First Amendment freedoms to resist any effort that is for the public good especially if it involves doing anything of a salutary nature for people in other parts of the world. I can visualize bars and restaurants complaining that they can't get enough hired help because everyone is employed by the Green New Deal. Let's hope that the better angels of mankind will prevail.

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

A Job Guarantee Would Win Over Trump Voters and Also Address Black Lives Matter

by John Lawrence, February 14, 2021

Joe Biden can win over disgruntled Trump voters with a job guarantee. There has been a lot of research indicating that, if government were the Employer of Last Resort (ELR) at say a wage of $15.00 an hour, this would save money on unemployment as well as setting a minimum wage. It's also the minimum wage called for in Biden's COVID relief bill. Robert Reich, Clinton's labor secretary says:

"[G]ive Republicans and independents every incentive to abandon the Trump cult.

"White working-class voters without college degrees who now comprise a large portion of it need good jobs and better futures. Many are understandably angry after being left behind in vast enclaves of unemployment and despair. They should not have to depend on Trump’s fact-free fanaticism in order to feel visible and respected.

"A jobs program on the scale necessary to bring many of them around will be expensive but worth the cost, especially when democracy hangs in the balance."

Dr. Martin Luther King Jr. said in his last letter requesting support for the “March on Washington for Jobs and Freedom”:

“It was obdurate government callousness to misery that first stoked the flames of rage and frustration. With unemployment a scourge in Negro ghettoes, the government still tinkers with half-hearted measures, refuses still to become employer of last resort. It asks the business community to solve the problems as though its past failures qualified it for success.”

It's clear that an ELT program would solve many problems not the least of which is wooing Trump voters to the Democratic party. Trump's appeal to them was partly that they had been left behind because jobs had been moved to China and Mexico and he was going to bring good paying manufacturing jobs back to America, something he never did or had a clue how to do. The ELR program will act as an automatic stabilizer adding jobs during a recession and eliminating them during an expansion when jobs will shift back to the private sector. All private employers would have to do is pay a wage slightly higher than the program wage of the ELR program which would effectively set the minimum wage. It has been thought that a certain level of unemployment was necessary to fight inflation, but that's not necessarily the case as jobs in the ELR program would not compete with jobs in the private sector. The program wage would be a floor below which wages could not drop.

The so-called "Phillips Curve" maintained that there was a trade-off between employment and inflation, that to achieve lower inflation you had to increase unemployment. The Bureau of Labor Statistics defines full employment as an economy in which the unemployment rate equals the nonaccelerating inflation rate of unemployment (NAIRU), no cyclical unemployment exists, and GDP is at its [full] potential. The Federal Reserve considers a base unemployment rate (the U-3 rate) of 5.0 to 5.2 percent as “full employment” in the economy. So government economists have been willing to trade off the misery of approximately 16 million unemployed people in order to achieve stable money. Those 16 million are mainly composed of African Americans. However, Modern Monetary Theory claims that this is not necessary. There are other policy tools to fight inflation. Taxes, for example, mainly targeted on the rich. Other countries such as Argentine and India have implemented ELR programs. The money spent would eliminate the need for food stamps, unemployment insurance and other government programs necessary to deal with poverty and homelessness. Anyone wanting a job could have one, and these jobs would be in areas like child and elder care where there is a need for additional workers.

Off the Top of My Head

Even With Unlimited Spending Some Problems Can't Be Solved

by John Lawrence

Modern Monetary Theory (MMT) has shown that unlimited Federal spending is no problem. The money is there, but it's a question if the productive capacity is there. For instance, since most products are manufactured in China, unlimited spending on products needed to counter the pandemic might only produce inflation. That's a problem of letting crucial industries be relocated to a foreign country and not manufactured here. If you can't ramp up production in a meaningful time frame, even though the finance is not a problem, the ability to produce needed products may be. In this situation MMT predicts inflation. Existing facilities to produce vaccines can only produce so many vials.You could go to 24 hour a day production, but beyond that you would have to build more factories and that takes time. Would the money spent to build more factories be well spent if the production facilities came online only after the crisis was over? No. MMT stands for spending money wisely to solve social problems like the pandemic and global warming, but the time frame within which the problems need to be solved is important. There's no sense in spending money to ramp up production if that production only is available after the problem has already been solved.

Yeva Nersisyan and L Randall Wray write:

"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."

So it may be necessary to shift production from pre-COVID endeavors to provide the necessary human and material resources to deal with the problem. For instance, the restaurant industry which filled the gap from lack of time for home preparation of meals due to both spouses working has suffered the most during the pandemic because more people have the time for meal preparation at home. Those workers are now available for deployment in other more crucial industries such as the renewable energy industry. Other hospitality and entertainment sector workers can also be shifted to more crucial endeavors just as they were during World War II. The economy as it existed pre-COVID was composed mainly of profitable private sector activities, many of which were not designed to deal with the most crucial social problems.

The solution of the pandemic at least in the US has an expected solution within the next year. Global warming has a somewhat longer time frame, but requires much more money to be spent because, from a finance point of view, it's a much larger problem. Changing the infrastructure of the whole world will require much more money but over a longer time span. The time span for solving global warming is approximately 10 years so we have ten times as long to solve global warming as we do to solve the pandemic. The pandemic may never be completely resolved because wiping out the virus everywhere in the world completely may not be possible just as it has not been possible to wipe out a number of other viruses. Over time, however, the problem can become treatable and manageable. The same can be said of the global warming problem. It may be impossible to eliminate every source of greenhouse gas emission in 10 years, but if most of them are eliminated, the remaining problems may be manageable in the sense that the earth may ultimately be salvageable.

What we have learned from the pandemic is that much more money needs to be spent on research and development in virology so that we are better prepared to deal with pandemics and epidemics. Two infectious diseases have successfully been eradicated: smallpox and rinderpest. The rest still exist somewhere in the world. There are also four ongoing programs, targeting poliomyelitis, yaws, dracunculiasis, and malaria. Five more infectious diseases have been identified as of April 2008 as potentially eradicable with current technology by the Carter Center International Task Force for Disease Eradication—measles, mumps, rubella, lymphatic filariasis and cysticercosis. What we have also learned is that there is more of a threat to Americans and human beings in general from viruses than there is from foreign nations, both state actors and terrorists. Therefore, the money spent on the defense department should be drastically reduced while the money spent on human health should be vastly increased. Let's deal with the real threats not the imagined ones.