California Free Press

Off the Top of My Head

America Has an Employment Problem, Not an Unemployment Problem

by John Lawrence

Wherever you look from air traffic controllers to fruit pickers to caregivers to teachers to police, there are not enough workers. That is why unemployment is so low - at 3.4%. The Health Services, Professional and Business Services, Trade, and Accommodation and Food Services industries have the highest numbers of job openings. The question is why there is a shortage of workers and what to do about it.The pandemic caused a major disruption in America’s labor force—something many have referred to as The Great Resignation. In 2022, more than 50 million workers quit their jobs, many of whom were in search of an improved work-life balance and flexibility, increased compensation, and a strong company culture. But a closer look at what has happened to the labor force can be better described as ‘The Great Reshuffle’ because hiring rates have outpaced quit rates since November of 2020. So, many workers are quitting their jobs—but many are getting re-hired elsewhere. In a game of musical chairs workers are seeking and getting better jobs, leaving high stress professions like nursing and teaching and getting paid more to do other things.

So America basically has a shortage of "essential workers," workers who do necessary work for traditionally low pay. America has developed so many ways to make money doing inessential work at higher pay so why should anyone who doesn't have to work in an essential job? There are two ways. 1) Pay more for essential work and 2) increase legal immigration because increasingly immigrants are doing the work that Americans who have been Americans longer don't want to do. The worker shortage has empowered workers. They are so to speak in the catbird seat. They are demanding more pay, shorter hours, better working conditions. This is all well and good, but, as the pandemic showed, essential work is necessary for people to live while so many other forms of work, while more lucrative, could disappear tomorrow without affecting much most Americans' quality of life. For instance, Facebook had 86,482 full-time employees as of December 2022, up from just 150 people in 2006. If Facebook disappeared tomorrow, nothing essential to life would be lost in my opinion. The same is true for other social media like Tik Tok. In fact considering the effects social media has had on the population, the world might be better off if all social media disappeared tomorrow. Then those workers would be available for more essential jobs.

If the advertising industry disappeared tomorrow, the world might be better off. For instance, I can find anything I might be interested in buying on Amazon. I don't need to be pounded on by TV commercials to be told what I should want or what I should need. In particualar, Facebook makes all its considerable revenues from advertising. It does not manufacture a product essential to life or any product at all. People are getting smart that there are cushier, safer jobs with better work-life balance than essential jobs. Caregivers like Certified Nursing Assistants (CNAs) are low paid but essential jobs. Anyone who has had a loved one in the hospital for any length of time realizes how essential they are. They do the dirty work like changing patients diapers and cleaning up when they haven't got to the patients' bedsides in time to prevent a tragedy. Nurses and teachers are overworked considering the nurse/patient ratio and the teacher/student ratio. Much essential work is done by non college graduates and, therefore, does not merit the esteem that college graduates' jobs garner. Nevertheless, they are more important jobs in an essential sense, than many jobs that require a college education. When you need a plumber, you will not usually be hiring a college graduate.

About half of Americans who lost their job during the pandemic and are still not working say they are not willing to take jobs that do not offer the opportunity for remote work. However, many essential jobs can't be done remotely. They are "hands on." It is about time that America values its essential workers and makes a distinction between what's essential and what is inessential. It's a question, to some extent, of values, of what kinds of work are valued. This is where unions come in. America cannot function without essential workers. Yet the only way they can get the pay and benefits they deserve is to unionize and withdraw their workforce if necessary to get what they deserve. For sure, they won't get a better paying job otherwise unless they quit and go to work for Facebook.

What Does the Fed’s Jerome Powell Have Up His Sleeve?

by Ellen Brown

Posted on December 10, 2022

The Real Goal of Fed Policy: Breaking Inflation, the Middle Class or the Bubble Economy?

“There is no sense that inflation is coming down,” said Federal Reserve Chairman Jerome Powell at a November 2 press conference, — this despite eight months of aggressive interest rate hikes and “quantitative tightening.” On November 30, the stock market rallied when he said smaller interest rate increases are likely ahead and could start in December. But rates will still be increased, not cut. “By any standard, inflation remains much too high,” Powell said. “We will stay the course until the job is done.”

The Fed is doubling down on what appears to be a failed policy, driving the economy to the brink of recession without bringing prices down appreciably. Inflation results from “too much money chasing too few goods,” and the Fed has control over only the money – the “demand” side of the equation. Energy and food are the key inflation drivers, and they are on the supply side. As noted by Bloomberg columnist Ramesh Ponnuru  in the Washington Post in March:

Fixing supply chains is of course beyond any central bank’s power. What the Fed can do is reduce spending levels, which would in turn exert downward pressure on prices. But this would be a mistaken response to shortages. It would answer a scarcity of goods by bringing about a scarcity of money. The effect would be to compound the hit to living standards that supply shocks already caused.

So why is the Fed forging ahead? Some pundits think Chairman Powell has something else up his sleeve.

The Problem with “Demand Destruction”

First, a closer look at the problem. Shrinking demand by reducing the money supply – the money available for people to spend – is considered the Fed’s only tool for fighting inflation. The theory behind raising interest rates is that it will reduce the willingness and ability of people and businesses to borrow. The result will be to shrink the money supply, most of which is created by banks when they make loans. The problem is that shrinking demand means shrinking the economy – laying off workers, cutting productivity, and creating new shortages – driving the economy into recession.

Demand has indeed been shrinking, as evidenced in a November 27 article on ZeroHedge titled: “The Consumer Economy Has Completely Collapsed – ‘It’s A Ghost Town’ for Holiday Shopping Everywhere.” But retailers have cut their prices about as far as they can go. While the rate of increase in producer costs is slowing, those costs are still rising; and retailers have to cover their costs to stay in business, whether or not they have customers at their doors. Rather than lowering their prices further, they will be laying off workers or closing up shop. Layoffs are on the rise, and data reported on December 1 showed that U.S. factory activity is contracting for the first time since the lockdowns of the Covid-​19 pandemic.

It is not just activity in shopping malls and factories that has taken a hit. The housing market has fallen sharply, with pending home sales dropping 32% year-over-year in October. The stock market is also sinking, and the cryptocurrency market has fallen off a cliff. Worse, interest on the federal debt is shooting up. For years, the government has been able to borrow nearly for free. By 2025 or 2026, according to Moody’s Analytics, interest payments could exceed the country’s entire defense budget, which hit $767 billion in fiscal 2022. That means major cuts will be needed to some federal programs.

Breaking the “Fed Put”

In the face of all this economic strife, why is the Fed not reversing its aggressive interest rate hikes, as investors have come to expect? Former British diplomat and EU foreign policy advisor Alastair Crooke suggests that the Fed’s goal is something else:

The Fed … may be attempting to implement a contrarian, controlled demolition of the U.S. bubble-economy through interest rate increases. The rate rises will not slay the inflation “dragon” (they would need to be much higher to do that). The purpose is to break a generalized “dependency habit” on free money.

Danielle DiMartino Booth, former advisor to Dallas Federal Reserve President Richard Fisher, agrees. She stated in an interview with financial journalist and podcaster Julia LaRoche:

Maybe Jay Powell is trying to kill the “Fed put.” Maybe he’s trying to break the back of speculation once and for all, so that it’s the Fed – truly an independent apolitical entity – that is making monetary policy, and not speculators making monetary policy for the Fed.

The “Fed put” is the general idea that the Federal Reserve is willing and able to adjust monetary policy in a way that is bullish for the stock market. As explained in a Fortune Magazine article titled “The Stock Market Is Freaking Out Because of the End of Free Money – It All Has to Do with Something Called ‘The Fed Put:’”

For decades, the way the Fed enacted policy was like a put option contract, stepping in to prevent disaster when markets experienced serious turbulence by cutting interest rates and “printing money” through QE [quantitative easing].

… Since the beginning of the pandemic, the Fed had supported markets with ultra-​accommodative monetary policy in the form of near-​zero interest rates and quantitative easing (QE). Stocks thrived under these loose monetary policies. As long as the central bank was injecting liquidity into the economy as an emergency lending measure, the safety net was laid out for investors chasing all kinds of risk assets.

… The idea that the Fed will come to stocks’ aid in a downturn began under Fed Chair Alan Greenspan. What is now the “Fed put” was once the “Greenspan put,” a term coined after the 1987 stock market crash, when Greenspan lowered interest rates to help companies recover, setting a precedent that the Fed would step in during uncertain times.

But the “free money” era seems to be over:

The regime change has left markets effectively on their own and led risk assets, including stocks and cryptocurrencies, to crater as investors grapple with the new norm. It’s also left many wondering whether the era of the so-​called Fed put is over.

Off the Top of My Head

The Mid Terms: Out of the Frying Pan Into the Fire

by John Lawrence

Voters are going to vote Republican because they don't like the economy. Really? What have the Republicans proposed to do about that? Cut social security and Medicare. Yeah, that'll fix the economy all right. Give more tax breaks to billionaires? That'll fix the economy for sure. Take away Biden's forgiveness of student loan debt? That'll really fix it. "Kitchen table" voters don't like inflation? What are Republicans proposing to do about that? The only tool in the arsenal for inflation cutting is the Fed's raising interest rates and the Fed is independent of both parties. Besides the only tool the Fed has is probably not the right tool for fixing this inflation. But it will eventually destroy what seems to be a pretty good economy despite inflation. The biggest way to fight inflation is to end the war in Ukraine which will bring gas prices down. Additionally, all the weaponry that is being "given" to Ukraine is really being bought from US weapons manufacturers and defense contractors like Lockheed Martin. This is pouring more money into the American economy at a time when money needs to be extracted from the American economy to fight inflation. The Fed's raising of interest rates is an attempt to increase unemployment which is the traditional way that the Fed fights inflation. The so-called Philips curve says that inflation is directly caused by too much employment, and, if you increase unemployment, it will bring inflation down. There is a direct correlation between unemployment and inflation. So the Fed, although no politician will say it, is trying desperately to increase unemployment. This hurts poor people the most, and, whether it will decrease inflation under the present circumstances, is debatable.

However, the war in Ukraine amounts to a protracted stalemate. As long as the west supplies Ukraine with weapons and North Korea, Iran and China supply Russia with weapons, the war will continue. No one on either side wants to talk peace. Each side wants to win at all costs. So the war will drag the world economy down into inflation and recession. Russia holds the winning cards in terms of its ability to literally destroy Ukraine from the air regardless of what is happening on the battlefield. This is not World War II where success on the battlefield was the key to winning the war. It's more like World War I where trench warfare and stalemate predominated. Territorial Russia remains virtually untouched since the rules are that the war will be entirely fought on Ukraine's territory, and the west to its credit doesn't want an expansion of the war. In the final analysis this gives Russia the advantage. Ukraine is fighting a defensive war, and Russia is fighting an offensive war. It's likely that neither party will run out of resources. That means the longer the war goes on, the more of Ukraine will be destroyed. There needs to be a peace commission and a peace process in which both sides can air their grievances and aspirations. What makes the most sense? I'm sure there is a possible way out, but neither side seems to want to compromise in the interests of ameliorating the lives of the Ukrainian people and getting back to normalcy. For each side their national pride is more important than the lives of their citizens.

Joe Biden could propose a solution to the war which would also go a long way to ameliorating inflation. Unfortunately, Biden is only interested in demonizing Putin. This is not a productive way to create peace. Biden is only fueling the war, and Putin won't back down due to pride. The more Putin is demonized, the more his hackles are raised. The west should be trying to lower Putin's hackles, not raise them. Ukrainian lives hang in the balance. Russian soldiers' lives are also in the balance although Russian civilians so far have escaped most of the suffering. Ukraine taking back real estate will not in the final analysis win the war because Russia can lob missiles into Ukraine ad infinitum. Only a peace process, compromise, consideration for civilian lives and reintegration of Russia into the world community will make it possible for people in that region of the world to again lead normal lives. Winning the war for either side is not a realistic option.

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

Did Biden Shoot Himself in the Foot by Putting the Kibosh on Russian Oil?

by John Lawrence

If Putin wanted to ruin the US economy, he couldn't have done it more successfully than if he himself had refused deliveries of Russian oil. The US and European embargo on Russian oil has driven the price of oil on the world market sky high, and Putin is benefiting from the price increase! In fact he has made more money from the sale of oil this year than he did last year! No wonder Putin is smiling. He's laughing all the way to the bank as his war in Ukraine not only devastates Ukraine but drives inflation in the US, UK and the rest of Europe while US sanctions on Russia's economy does little or no damage. Do they really need imports from Europe or the US when China is the world's manufacturer of practically everything, and China is an ally of Russia? Not every financial transaction in the world involves the US dollar. Furthermore, Russia's blockade of Ukrainian grain is causing food prices to rise which makes for another increase in inflation. But even worse than that, countries that depend on that grain consumption will likely find their citizens going hungry further contributing to world political instability.

Biden's insane pandering to Saudi Arabia after declaring them a pariah country will not do much to lower the price of gas even if Saudi Arabia increases production to their limit. They don't have the ability to fully replace the potential supply of Russian oil. So win or lose the war in Ukraine, Putin is having a debilitating effect on the US economy while there is not that much of a debilitating effect on Russia's economy. Another reason this is so is that the Russian ruble is a fiat currency not pegged to the US dollar so the Russian central bank can spend as many rubles as necessary to keep consumers and businesses going. Even MacDonald's has been "Russianized" so that MacDonald's pull out has had little or no effect on the Russian preference for US fast food. Furthermore, Russia and China, among a few other nations, have been hard at work to limit the US dollar as the world's reserve currency. The Asian Development Bank (ADB) envisions a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty in the region. China's Belt and Road initiative also is furthering the cause of dedollarization of the world economy. However, China's currency is pegged to the US dollar so China needs to hold dollars in its account at the Federal Reserve, but Russia's currency is fully convertible. That's how it can demand that Finland pay for its gas in rubles thus supporting that fully convertible currency. Russia, therefore, is not dependent on the US dollar. It just needs to import anything that it doesn't produce domestically and China can provide that.

Meanwhile, the US is dependent on the supply chain from China which has been disrupted lately causing more inflation. Dependency on China for most of its products while trying to cast China as an adversary is not a very good idea. The proposed Cold War with China is only pushing Russia and China closer together. Meanwhile the war in Ukraine is becoming a money pit for the US government which is spending billions and billions to give Ukraine a never ending supply of weapons. This is also inflationary because, whereas the product is shipped to Ukraine, the money is spent right into the US economy via the US weapons manufacturers. To fight inflation money needs to be extracted from the US economy hopefully by means of taxing the rich and not taxing anyone making less than $400,000 a year as Biden has proposed. Whatever the outcome of the war in Ukraine, Putin has proven that by withholding Russian oil from world markets, he can drive up the price of gas and cause inflation in car centric America.

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

Don't Be Fooled: The Chinese Communist Party Has Taken Capitalism to a Whole New Level

by John Lawrence

In 2021, Forbes listed Beijing with the most billionaires at 100 people, followed by New York City with 99 billionaires, and Hong Kong in third place with 80 billionaires. Does this sound like communism? But it is not traditional capitalism either. China has eliminated poverty among its 1.5 billion people while traditionally capitalist countries like the US tolerate large rates of poverty and homelessness. In the US in 2020, there were 37.2 million people in poverty, approximately 3.3 million more than in 2019. There were also 580 million people homeless living on the streets in unsanitary conditions. This is the price we've been taught that Americans have to pay in order for us to live in a free capitalist country. So what is the difference between the US version of capitalism and the Chinese version? It is basically that the Chinese central government directs the tools of capitalism while in the US there is little or no government direction. Whatever any individual can devise as a way to make money is acceptable. In China the government directs capitalist entrepreneurialism and energy. So Chinese society is much more unified; American society is much more diverse.

Stability and cohesiveness is very important to the Chinese government and Chinese society in general. That's why dissidents are cracked down upon. Their attitude is why risk the great progress Chinese society has made and is making in order that a few people can speak freely and perhaps create a dissident movement which could bring it all down around their ears. Hence the crackdown in Hong Long. Hence the crackdown on the Uighurs. Xi fears that what happened to the Soviet Union could happen to China. It could fall apart. The US tolerates unlimited amounts of free speech with the result that the US is a very unstable society as witnessed by the January 6 insurrection. The US came very close to a ooup d'etat and an overthrow of the elected government. The US definition of freedom is leading to a society which maximizes freedom at the expense of stability and cohesiveness while the Chinese limit freedom in the interests of stability and cohesiveness. Which model is better? The world is watching.

Perhaps there is a middle ground between Chinese authoritarianism and US anarchy. Is this the social welfare democracies of Scandinavia? Perhaps. While the US has divided itself into 2 tribes at total odds with each other, China has become not only very prosperous but they are all, for the most part, on the same page. They are unified while the US is divided. Perhaps China has overdone the limitation of individual freedom, but most Chinese would probably trade off some loss of freedom for the huge increase in prosperity that the average Chinese is experiencing. Would Americans trade off some loss of freedom in order to get out of the malaise they are experiencing? Even though there are more rich Chinese than rich Americans at least in terms of the relative numbers of billionaires, there are no poor Chinese while the economic divide in the US grows bigger with every passing day.

The question Americans have to ask themselves is is a society teetering on the brink of collapse worth the American definition of freedom or could perhaps a slightly less free society, say one with a corresponding ethic of social responsibility, lead to a better society in terms of a better and more humane quality of life for the greatest number of citizens? Has America taken the concept of individual freedom too far at the expense of social cohesiveness?

Off the Top of My Head

Use the National Guard to Free Up the Supply Chain

by John Lawrence

We are 80,000 truck drivers short. We should use the National Guard on an emergency basis to drive trucks to get the contents of those containers out of port and on their way to consumers. Then there will be room for the waiting container ships to offload their contents. Why not? The National Guard has been used in other emergency situations. Why not this one? Marx theorized that the "industrial reserve army" was a necessary part of capitalism, and was composed of out of work people looking for work. This kept the cost of labor down. Only now the reverse situation is in effect. There are more jobs than people looking for them. Therefore, labor is in the driver's seat. Capital needs to pay labor more in order to get them to work. However, at the present time, although wages have come up somewhat, they have not come up enough to attract the needed truck drivers back into the work force. This will all eventually be ironed out as self-driving trucks which are already on the roads will increase substantially.

While the US has been sitting on its duff investing in the world's biggest military, China has been investing in infrastructure - ports and container ships in particular. According to Wikipedia:

"In 1961 China established a state-run maritime shipping company and subsequently signed shipping agreements with many countries, laying the foundation for developing the country's ocean transport. That organization developed into the present-day China Ocean Shipping (Group) Company (COSCO). The Chinese government also invested heavily in water transport infrastructure, constructing new ports and rebuilding and enlarging older facilities. The number of container units handled by Chinese ports in 2011 reached more than 150 million. The country also manufactures 90% of the world's containers. The throughput of cargo and containers at China's ports has been the largest in the world for the past five years, with an annual growth rate of 35%."

China also manufactures more than 80 percent of the world’s ship-to-shore cranes, and own seven of the ten busiest ports in the world (including Hong Kong). The message is clear. While the US invested in battleships, China invested in container ships. The goods in those container ships are mainly manufactured in China. The US is addicted to them. Foreign demand for Chinese-made products has remained strong — both by companies’ accounts and official data. The customs agency said in the first half of this year, exports to the European Union rose 35.9% from a year ago to $233 billion, while those to the U.S. climbed 42.6% to $252.86 billion. The handwriting (and handwringing) is on the wall. The US can't continue to base its economy on a military-industrial complex while not producing the goods the American consumer economy wants to buy. By default China has sold many of the consumer goods into the ravenous American consumer economy which is 70% of the American economy while the US has invested in nothing but war. Now as the US has withdrawn from forever wars, the military is trying to gin up a Cold War with China. It won't work. Americans depend on China for consumer goods and get very mad when they're not readily available forcing prices up as we've seen from the container ship debacle.

The US has ceded leadership in many areas including ports, shipping and infrastructure while it has conducted its losing wars. Spending $300 million a day in Afghanistan only enriched defense contractors and corrupt politicians. With all that money being spent, today most Afghanis are simply begging for food. If that money had been spent on the Afghani people instead, today Afghani citizens would be enjoying a robust economy and a decent way of life. All that money was poured down a rat hole. Wasted money and time has only let China become the leader in the manufacture and transport of consumer goods. Climate change demands that the US and China cooperate - not compete - with each other. We need adults in the US government, and the only adults in the room are Democrats. Republicans have gone down the rabbit hole of Trumpism.

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.

The Week Ahead: Everything hangs in the balance, but the economy is a wild card

October 5, 2021

by Robert Reich

[Please subscribe to my newsletter for updates and analysis on power, politics, and the economy sent directly to your inbox.  You can find The Week Ahead and other recent posts at https://robertreich.substack.com]

I’m no soothsayer, but I can make a few confident predictions about the week ahead.

Funding for government spending is secure for now, at least through early December — at which time Congress will pass another continuing resolution. (Remember: neither party wants to be seen as being responsible for a government shutdown.)

But expect more fear-mongering this week over failure to raise the nation’s debt ceiling. Mitch McConnell and the Republicans won’t budge. What will happen? Over the next few weeks, the Treasury will stave off a default until Senate Democrats pass a debt-ceiling increase on a 50-vote (plus Vice President) reconciliation bill that won’t require any Republican votes.

What about President Biden’s ambitious social and climate “Build Back Better” package? The media is full of “Democrats in disarray” stories, but that’s simplistic. Actually, almost everything is on track.

Last Thursday, Joe Manchin declared that he’ll agree to no more than $1.5 trillion of spending for it, less than half what Biden is seeking (which itself was half what he originally promised). But this is just his opening position, signaling the start of negotiations between Manchin and the White House — which begin this week. Biden and Manchin know each other well and are experienced negotiators. I expect the final figure to be between $2.3 trillion and $2.6 trillion.

The biggest fight will be over which initiatives in the package are pared back. The most vulnerable are drug-price controls, tax increases on the wealthy, and expansion of Medicare to include dental, hearing, and vision coverage. That’s because these measures are most despised by the corporate backers of conservative Democrats. (Note that they’re also the most popular with the public.)

Other possible casualties are expanded pre-K, community college, paid family leave, child tax credits, and clean energy. They’re also popular – and important.  

But the public may never know any of these measures have been sacrificed because Democrats have several ways of keeping them in the bill while quietly paring them back: covering fewer years (4 instead of 10, for example), cutting back on who’s eligible (phasing out a benefit at $80,000 of yearly income rather than $120,000), and, on the revenue side, widening tax loopholes and carving out more exemptions.

If Manchin finally agrees to this, I believe Sinema will come around. After that, the whole package could get done quickly — possibly as soon as this week through a Senate reconciliation bill. Then it will move swiftly through the House, with progressives and conservative Democrats voting for the infrastructure bill as well. (Of course, Republicans will oppose both, but the Democrats have the votes to get them through.)  

The biggest uncertainty is the economy.

This coming Friday, the Bureau of Labor Statistics will report on jobs and wages for September. The August jobs report was a disappointment, mainly because of the negative effects of the Delta COVID variant. I expect the September report to show slow job growth, too. But keep your eye on wage growth. If wages continue to rise as fast as they have been, workers will have more money to purchase all sorts of things — thereby getting the economy back on track.

You’ll also be hearing lots of scaremongering this week about inflation and “labor shortages.” Last Friday, the Fed reported that prices climbed in August at the fastest pace in 30 years. This – along with uncertainty about jobs and the Delta variant – has already rattled the stock market. (But as I’ve said a thousand times, the stock market is not the economy! The richest 1 percent of Americans own half of all stocks, the richest 10 percent own over 80 percent.)

The major reason for inflation is supply bottlenecks, both in the US and around the world, which are pushing up prices of everything from crude oil to semiconductor chips. These bottlenecks should ease over the year. In fact, so-called “core” inflation (which excludes food and fuel) has been slowing somewhat.

But this hasn’t stopped Republicans from claiming that the spending Biden and the Democrats want to do will spur more inflation. Rubbish. It will expand the capacity of the economy to produce goods and services, thereby relieving shortages and reducing inflation over time. (When more people have childcare, for example, they’re freer to work – reducing “labor shortages.”)

Republicans also claim that the stronger safety nets in the bill will make people more reluctant to join the labor force. Additional rubbish. America has the weakest safety nets of all rich countries. Giving Americans slightly more economic security will help the economy, by allowing them to get additional skills, change jobs, and get better pay.

In many ways, Biden’s plan will improve the lives of the bottom 90 percent of Americans – people who don’t have much wealth and own almost no shares of stock. This is something the corporate backers of Republicans and conservative Democrats don’t seem to care about, but they should.

What do you think?

Off the Top of My Head

The US Debt Ceiling is Totally Artificial and Unnecessary

by John Lawrence

Fact: the US has a sovereign fiat currency and can create and spend as many dollars as it wants. Fiat means that the US dollar has value only because the government says it does. It is not redeemable for gold or any other precious metal. Sovereign means that is not pegged to any other currency. It can't be exchanged at a fixed rate for any other currency or anything else. The exchange rate for other currencies is floating. Fact: the US creates its own money and can spend it as it pleases. Fact: "deficit" spending adds money to the real economy which creates and enhances economic activity and adds to GDP. Fact: most recessions occur when the US tries to balance its budget. Long story short: the debt ceiling allows the US to hoist itself on its own pitard!

The Federal Reserve prints the money. That's why the dollars your are carrying around in your pocket say "Federal Reserve Note" on them. It can print as many dollars as are authorized by the US Congress. The US government budget is not dependent on having tax dollars to spend. When the US "deficit spends" it creates Treasury bonds which it sells to the public. However, the Federal Reserve and other central banks are buying back a lot of these Treasury bonds so, effectively, US debt just becomes a number on the Fed's balance sheet which is of no consequence. The Federal Reserve can create with a few keystrokes on a computer as much money as it wants and deposit it in the US Treasury's account. The moral of the story is that the national debt can not and should not ever be paid off. To do so would ruin the economy since it would extract money from the real economy which would lower GDP. The correct assessment of the national debt is that it is just a number on the Fed's balance sheet!

The conversation.com reports:

"There is no limit to the quantity of money that can be created by a central bank such as the Bank of England. It was different in the days of the gold standard, when central banks were restrained by a promise to redeem their money for gold on demand. But countries moved away from this system in the early part of the 20th century, and central banks nowadays can issue as much money as they like.

"This observation is the root of modern monetary theory (MMT), which has attracted new attention during the pandemic, as governments around the world increase spending and public debts become all the more burdensome.

"MMT proponents argue that governments can spend as necessary on all desirable causes – reducing unemployment, green energy, better healthcare and education – without worrying about paying for it with higher taxes or increased borrowing. Instead, they can pay using new money from their central bank. The only limit, according to this view, is if inflation starts to rise, in which case the solution is to increase taxes."

The addition of too much money by government to the real economy can cause inflation. Taxes extract money from the real economy. Joe Biden's Build Back Better human infrastructure bill is totally paid for so it will not cause inflation. It does this by extracting as much money from the real economy as the government is spending into the real economy, and it does this by taxing the rich which has the added salubrious effect of reducing economic inequality. This is one of the goals of the Biden administration: to reduce economic inequality which is what the human infrastructure reconciliation bill actually does. This is why a higher amount spent on this bill is better. The more spent on human infrastructure, the more money is transferred from the rich to the poor and middle class. Progressives know this. Republicans do their best to obfuscate this. Recognition of this fact will help to move the US and other countries with sovereign currencies into a post-capitalist world, and allow for more resources to be dedicated to fighting climate change.

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

Americans Getting Tired of All the Delays

by John Lawrence

Shit or get off the pot. Politicians of both parties are going round and round ad infinitum. A couple of Democrats are helping Republicans with their policy of making Joe Biden spin his wheels until they can take over again. They talk and talk or they don't even do that since they can't even vote in the Senate to debate something. Gridlock, political constipation and never-get-anywhereism. They just are not doing their job. They're letting 2 conservative Democrats control the party's agenda. Republicans are very pleased. They are carrying the Republicans' water. They will be even more pleased if Joe Biden gets nothing done other than what he's already accomplished which is considerable. Mitch McConnell wants to defeat Biden's entire agenda. Republicans are only too happy to sit back and let Manchin and Sinema do their dirty work. Meanwhile, China surges ahead not being restrained by any of these problems. After they delay and delay, they will be going on vacation for the August recess. They don't deserve a recess. They are proceeding at a glacial pace, and then finally they will have a vote which will not have enough Republican support to pass.

C'mon, guys. You're living in the pony express days. This is the age of computers. Expedite. Expedite. Don't spend so much time dialing for dollars. You can work remotely during your recess. These guys are overpaid for what they do, and then what they do doesn't amount to much. Juneteenth is a federal holiday. Clap. Clap. Symbolism is about as far as bipartisanship can go. MSNBC reported:

"Mitch McConnell's come under a lot of criticism for saying, at one point, he wanted to make sure that Barack Obama was a 'one-term president,'" [Wyoming Senator John] Barrasso said last Thursday at an event hosted by the Ripon Society, a centrist Republican think tank, which posted the remarks Tuesday. "I want to make Joe Biden a one-half-term president."

Problem with American Democracy: No sooner has one administration been elected, Republicans are getting ready for the next one in which they hope to regain power. So of necessity they have to do everything they can to make the current administration fail. No thoughts of doing something for the American people. It's all about defeating Democrats who just might do something constructive for the American people. Then when the Republicans get in power, they will reduce taxes on the rich which is about all they can think about doing, and they will do this without any worries or concerns about "pay fors." But anything Democrats want to do has to be covered by "pay fors."

Modern Monetary Theory explains that the US government doesn't need to tax before it can spend. The way the system works is that the Federal Reserve puts enough money into the US Treasury's account to cover any payments the US government has to make whether or not there is tax money to pay for it. The only thing to be concerned about is inflation if too much money in the economy is chasing too few goods and services or if enough human resources aren't available to soak up the spending. Most politicians are still living in the world that the US needs to tax before it can spend. They are totally ignorant in this regard. They don't know how the system actually works. The US has a sovereign currency. Therefore, it can never go bankrupt. It does not have to borrow money in the capital markets and pay the going rate of interest. It sets the interest rate on US debt. If no entity wants to buy US debt it ends up on the Fed's balance sheet where it can remain indefinitely. It never has to be paid off.

Forget about competing with China. The Chinese are running circles around the US because they don't have to deliberate ad nauseum before they act. They don't have to argue with states about states' rights. They don't go on August recess for a month when no work gets done. The US law stipulates that “unless otherwise provided by the Congress,” both Houses must adjourn no later than July 31 each year or the first Friday in August that occurs 30 days before the first Monday in September, until the second day after Labor Day. How many American get the entire month of August off?

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

Our Grandchildren Won't Have to Pay Back Money Spent on a Green New Deal, But They Will Pay With Their Lives if We Don't Do It Now

by John Lawrence

It's a myth that a sovereign country with a sovereign currency and a floating exchange rate has to borrow money to pay its bills. The US can just issue the money. It doesn't need to tax in order to spend. So why isn't the US as well as all the other nations with sovereign currencies such as Japan, Britain and China going all out to supply as much money as necessary to prevent global warming from "going viral" as they say? The only restraint is the question of whether the human and physical resources to do the work are available. In a society such as China, if the government wanted its people to stop whatever they were doing and become part of the work force to forestall global warming, it would be done. In the US it would not be so easy to commandeer workers to leave their jobs as servers, bartenders, chefs, dealers, workers at Disneyland, workers on cruise ships etc to leave their jobs and go to work in Joe Biden's global warming and infrastructure rebuilding work force. The businesses large and small would have a conniption fit like they're having now getting these workers back to work because their pandemic unemployment has not run out.

The only time when workers went all out to solve a major global problem was World War II. Rosie the Riveter and all the others joined the work force to defeat Hitler. They even were willing to defer consumption so that the financial and material resources that were necessary weren't spent in the consumption market thus letting the necessary physical resources be available for the war effort. Today we have a nation consisting of a bunch of spoiled brats who wouldn't do anything the government asked them to do crying that their "freedom" to do whatever they wanted was paramount. We live in a society composed of consumers who demand to be endlessly entertained by movies, TV, theme parks cruise ships, athletes, restaurants, social media and Las Vegas. Half the country works as servers, baristas, bartenders, housekeepers, actors, athletes, dealers, entertainers and such like jobs to entertain the top half. Some of these are highly paid; most are not. Such was the nature of the "full employment" society before COVID hit. It was a full employment society consisting of trivial jobs at minimum wages for the most part. Biden will have to persuade workers to leave their jobs in the "entertainment" industry in order to create actual results in the real world such as building green infrastructure. The entertainment industry will not be pleased nor will the upper half of society which demands to be continually entertained. 70% of US GNP is consumption and a lot of what people want to consume is encompassed by sports bars, travel and tourism, the leisure and hospitality industry in general. The spoiled brats think its their birthright to have such services available, and the last thing they want to do is to roll up their sleeves and join a union.

Together with the presumed right to be entertained, we have a large percentage of the country that has been processed through the military and developed this consciousness that military prerogatives should prevail uber alles. These are the insurrectionists and Trump supporters that want civilian society to reinforce military values such as command and control. They want an autocrat for President. Freedom is the only value that counts for them. Democracy, equality, fraternity, social equity don't matter. They want to preserve the American way of life which, in addition to a right to be entertained wherever and whenever they have the resources to consume, includes also the right to exclude the prerogatives of minorities for social justice. Is it any wonder that the insurrectionists in January 6 contained a large number of current and former members of the military and police forces? Their attitude is that whatever is good for the military is good for American society in general. The military has become a way of life and consciousness for them. They think that, because they served, they are entitled. Spoiled brat militarists I'll call them. The endless wars, bloated military-industrial complex budget and the military bases in practically every country in the world provides the economic and job base of the nation unfortunately.

Biden thinks he is out to prove that American democracy can compete in the civilian world on an equally competent basis with other countries. That will be a hard nut to crack. The US is dooming itself in two ways: the First and Second Amendments to the Constitution. Let's take the Second Amendment first. In no other major country in the world do citizens have a right to unlimited uncontrolled gun ownership including military style weapons. This is producing news cycles when, hardly is one mass murder out of the way, than another one comes along to dominate the news. The news channels can hardly keep up with them all. No other society including The US' major competitors would tolerate such a situation. The Second Amendment has become toxic and perverted, and in and of itself is enough to doom the US to second class status. In addition to that the First Amendment has become toxic and perverted, and the major reason for that is social media. Social media makes possible the vicious spread of toxic lies and untruths. Witness Trump's use of Twitter to corral and consolidate his followers around the thesis that he, not Biden, actually won the election. Social media allowed him to rally his supporters based on angry themes and memes connected with white supremacy and a return to the good old days when white, Protestant Anglo Saxons ran the country, the good old days when Negroes knew their place in society, the good old days when you didn't have multiple nationalities and religious groups asserting their rights under the Constitution to live freely and enjoy all the perquisites of American society, the good old days when gas guzzlers were the only vehicles in town and no one need be concerned about anything except maximizing their profits and living the American Dream, where the American Dream consisted of having more stuff than your parents did.

Joe Biden's first 100 days have been remarkable in that he has been able to get as much accomplished with slim majorities in both Houses of Congress. Is this enough though to move America forward at the pace that China, for instance, is moving? China is a more or less unified society. 99% or more of Chinese citizens are on the same page as the Chinese government. China is winning friends and allies all over the world with its Belt and Road initiative while the US withers away its resources on endless wars and confuses its allies with the possibility of radical swings with each change of administrations. China's military budget of $183.5 billion is dwarfed by a US military budget 5 times that amount. The US is a divided country where one of the major parties base their appeal on lies and deception, and its supporters are only too willing to eat it up because it's entertaining and represents military values of command and control. Good government, as Biden has illustrated, is somewhat boring because it is based on solving real human problems. Let's hope that Biden's version of reality based on truth and problem solving wins out over the lies based reality of the other side, and the US, even if it doesn't remain the world's dominant power, can become a constructive member of the world community helping to solve problems at home and abroad.

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

If Two Democratic Senators Were Not Elected in Georgia Run-offs, There Would Be No COVID Relief Package Under Biden

by John Lawrence, March13, 2021

It was crucial that the two Georgia Democratic Senators were elected. Not one Republican voted for Biden's $1.9 trillion bill. If there were one less Democrat in the Senate, nothing like it would ever have been passed. Republicans are the Party of No. Not one Republican Senator will ever vote Yes on any legislation put forward by a Democrat so that Georgia election was crucial. That's why Republican legislatures not only in Georgia but around the country are scrambling to put restrictive Jim Crow voting regulations in place on the belief that Republican operative Paul Weyrich was right. He said, "So many of our Christians have what I call the goo-goo syndrome: good government. They want everybody to vote. I don't want everybody to vote. Elections are not won by a majority of people, they never have been from the beginning of our country and they are not now. As a matter of fact, our leverage in the elections quite candidly goes up as the voting populace goes down."

So now economist Larry Summers is worried about inflation due to the fact that trillions have been added to the deficit. So far, lawmakers have enacted six major bills, costing about $5.3 trillion, to help manage the pandemic and mitigate the economic burden on families and businesses. Even those economists know that the Federal government doesn't need taxes  in order to spend money. The Federal Reserve can create it with a few keystrokes on a computer just the way they did to bail out Wall Street banks during the Great Financial Recession (GFR) of 2008. Of course the public wasn't suppose to know about this "secret" bailout by the Fed. Authorities wanted you to believe that the $700 billion bill passed by Congress provided the bailout. In reality it was much more. Rolling Stone reported: "Washington Post “Fact-checker” columnist Glenn Kessler disputes the numerous studies showing the real bailout outlay was through the Fed, which the Sanders campaign had said was anywhere from $7.7 trillion (the number Bloomberg used in its coverage of secret Fed lending) to $29 trillion (the number the Levy Institute at Bard College calculated, including guarantees and other forms of aid).

So how is it that  Larry Summers was not so worried about inflation due to the Fed's trillions of dollars created and given to Wall Street? The answer is that that money was given to rich people which has caused no inflation because rich people are not going to spend money in ways that drive up the Consumer Price Index (CPI). They are mainly going to invest their money in ways that aren't included in the CPI. They are going to purchase assets like stocks and real estate. Consequence: no inflation at least as measured by the CPI. Instead the Wall Street bailout during the GFR as well as the $2 trillion tax breaks of the Trump administration produced asset inflation. It's the reason that home prices and rents are becoming increasingly unaffordable. But Summers is worried about inflation as measured by the CPI which is what happens when poor and middle class people get a trillion dollar bailout. They will spend that money at least partly on consumer goods that are included in the CPI and potentially drive up prices. However, much of the bailout money will go to pay off debts like past due rent and mortgage payments. This is not inflationary. So the real moral of the story is that, according to economists like Summers, bailing out rich people is good, bailing out poor people is bad.

So two lessons are to be learned here. 1) The Fed doesn't need taxes to create money and spend it into the economy whether that money is to bail out banks or to bail out the poor and middles class. 2) Democrats need to enact at the Federal level voting laws which encourage as many people to vote as possible and roll back Republican enacted restrictions on voting at the state level. In order to do the latter, Democrats will have to eliminate the filibuster at least for particular types of legislation. The only reason Biden's $1.9 trillion relief bill passed is that it was done by a process known as "budget reconciliation" which only requires a majority vote in the Senate. A national voting rights bill cannot be passed by that process and is subject to the filibuster which requires 60 votes. The Party of No wouldn't hesitate to use the filibuster to doom any voting rights legislation at the Federal level which means essentially that Jim Crow voting rights would again be put in place to discourage black people from voting. And don't worry about your children and grandchildren having to pay off the national debt. The Federal Reserve doesn't need their money.

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

How to Throw Republicans for a Loop: Biden Should Propose Tax Breaks for the Middle Class and Tax Increases for the Rich

by John Lawrence, February 25, 2021

The proper use of taxation is to reduce income and wealth inequality. Instead Republicans use tax breaks to primarily benefit the rich. Democrats should modify this playbook. The increasing income and wealth inequality among American citizens cries out for redress. Robin Hood needs to come out and play. There's no law that says tax breaks have to go primarily to the wealthy or be based on some proportionate percentage over all incomes. Democrats should get into the tax break game too. We know that taxes aren't necessary to fund the government. Sure they're part of it, but the government can spend whatever Congress authorizes regardless of whether or not there is money from taxes to pay for it. The shortfall is made up with Treasury bonds most of which end up on the balance sheet of the Federal Reserve just like the Fed used Quantitative Easing (QE), a fancy name that signified that the Fed issued trillions of dollars to bail out the Wall Street banks in 2008. In that case the Fed took MBSs (Mortgage Backed Securities), most of which were worthless onto its balance sheet as "collateral." The Fed can lend money to any entity it likes as long as it takes collateral onto its balance sheet. Much of this collateral is worthless such as defunct MBSs and even old bicycles!

In the article, "Modern Monetary Theory and the Changing Role of Tax in Society," by Andrew Baker and Richard Murphy, published online by Cambridge University Press we find the following:

"Tax is traditionally viewed as the main funding mechanism for government spending. Consequently, social policy is often seen as something determined and constrained by tax revenue. Modern Monetary Theory (‘MMT’) presents a reversal of the tax-spend cycle, by identifying a spend-tax cycle. Using the UK as an example, we highlight that one of MMT’s most important, but under-explored, contributions is its potential to re-frame the role of tax from both a macroeconomic and social policy perspective. We use insights on the money removal, or cancellation function of taxes, derived from MMT, to demonstrate how this also creates possibilities for using tax to achieve social objectives such as mitigating income and wealth inequality, increasing access to housing, or funding a Green New Deal. For social policy researchers the challenge arising is to use these insights to re-engineer tax systems and redesign social tax expenditures (STEs) for creative social policy purposes."

MMT is a game changer. Conventional thinking is that government can only spend money collected from taxes. But that is not how the system really works. As a sovereign currency, the Fed can just create US dollars with a few keystrokes on a computer. The budget deficit and national debt just become accounting entries on the Fed's balance sheet. We are not mortgaging our children's and grandchildren's future. This is money that never needs to be paid back, that our children never need to pay back. China is not holding this debt over our heads; China could be paid back tomorrow if need be. The US government operates on a different set of principles than the US states, European countries in the Euro zone, and households. All these entities do need to pay back loans. The US government does not because it can just create or issue the money which is how the Fed operates on a daily basis. Even local banks create money when a loan is taken out without the need for deposits. They just have to have collateral - usually 10% of deposits - in their reserve account at the Fed. So money can just be created by the Federal Reserve, but, obviously, it does not do so willy nilly. Like alcohol, this facility must be used responsibly. So that is what the debate should be about, not the size of the deficit or the national debt.

The national debt was a problem when the US dollar was on a gold standard. The US promised to redeem dollars - paper currency - for gold up until 1971. Obviously, there was not enough gold if, all of a sudden, China, let's say, wanted to take all its US dollars and demand gold at $35 an ounce. But in 1971 President Nixon took the US off the gold standard. He said the US would forevermore not redeem US currency for gold. At that point the US dollar became a "fiat" currency. That means that a dollar was worth a dollar just because the US government said it was. The US dollar did not become immediately worthless. People continued to use it, and it continued to retain its value vis a vis other currencies. In fact it's the world's reserve currency as Nixon made a deal with the Saudis only to accept payment for oil in US dollars. That alone meant that the other countries of the world needed US dollars if for no other reason than to buy oil. As a matter of fact today most business dealings of foreign countries are settled in US dollars. So the US dollar has a bright future at least for now.

The conclusion is that US households, businesses, US states and European nations that use the Euro need to pay back loans when they borrow money. A nation with a sovereign currency such as the US, the UK, Japan, China and others creates its money when its central bank issues it by means of keystrokes. No one can demand repayment or exchange of dollars for gold or anything else. If China wants to be paid back for the Treasury bonds it holds, the money in its Treasuries (savings) account at the Fed will be debited and credited to its checking account at the Fed. It's as simple as that. That money can be exchanged for Chinese currency on the open market at the prevailing exchange rate. But probably the Chinese would want to keep much of their financial assets in dollars rather than renminbi since their currency is pegged to the dollar and many of their business dealings are settled in dollars.

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

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

Where Will the Republican Party Go From Here?

by John Lawrence

The Republican party is having an identity crisis. Will it be dedicated to the adulation of Donald Trump or will it be based on conservative principles? What are conservative principles? Is the US a Republic or a Democracy or an Autocracy? This whole situation comes about because of the shifting demographics of the US. Historically, the US has been based on rule by white European Americans who have been able to keep minorities including chiefly African Americans in check by various means including slavery, Jim Crow laws, domestic terrorism, red lining, exclusion from education opportunities, even unemployment which has been used by the Federal Reserve to control inflation. That is changing because now there are more educated minorities including immigrants from all over the world gaining positions of political and economic power. 216 companies on the Fortune 500 were founded by immigrants or their children.

Is it any wonder then that poor and middle class whites want to tamp down immigration and keep black people in their place which they have always successfully been able to do until now. A lot of Trump supporters are effectively saying to hell with democracy if it means a multicultural society in which we have to tolerate multiple religions and multiple ethnicities and multiple shades of skin so it's not a question for them of having a democracy or a republic or any kind of society based on some version of popular rule. They want white European American rule like they've always had. There is also the added impetus that most of the once good paying manufacturing jobs have gone elsewhere which leads to even more insularity. So Trump supporters are the real conservatives in the respect that they want to conserve a way of life in which white people and European Americans have all the advantages. They abhor a democracy in which their lifestyle, their religion and their prerogatives are not paramount.

The Mitch McConnell conservatives overlap with the Trump conservatives, but the former stand for the privileges not of the white majority necessarily but of the white elite, of the white wealthy. They are even liberal enough to let wealthy people of different colors into their club while assuring less fortunate Americans that they too, if they work hard enough, may one day gain privileged positions of power and wealth. Basically, they represent rich people and abhor the white rabble. The problem is that this branch of the Republican party is increasingly irrelevant to the problems that America and the world faces. They stand for a strong defense which has morphed into endless wars which have gone nowhere and have only made matters worse in areas of the world in which the US has inserted itself. They stand for a bloated military-industrial-intelligence complex which has proven its incompetence in that it wasn't even able to predict an insurrection at the US Capitol, much less even defend against it once the attack was underway. They have proven to be focused on the wrong problems despite having been lavished with trillion dollar budgets.

What else do "principled" conservatives stand for? Low taxes but modern economic theory has proven that government spending need not be predicated on or limited by tax receipts. They stand for maximizing the private sector and minimizing the public sector at a time when dealing with climate change and even traditional infrastructure rebuilding demands the opposite. They stand for aiding and abetting the rich which has driven economic inequality to new heights. So what would be the role of a revamped and principled Republican party? Probably just to be a Democratic party lite or a party that criticizes Democratic programs. But that wouldn't assuage the interests of most power hungry politicians nor would it excite many members of their base who demand an entertaining leader who is focused by means of dog whistle diplomacy on white power.

The Trump party is similar to the Know Nothing movement, formally known as the Native American Party (at that time meaning descendants of colonists or settlers, rather than Indigenous Americans) before 1855 and the American Party after 1855. It was a nativist political party and movement in the United States, which operated nationwide in the mid-1850s, originally starting as a secret society. It was primarily an anti-Catholic, anti-Irish, anti-immigration, populist and xenophobic movement. So naturally they would resent an Irish Catholic President even though now there have been two of them. Adherents to the movement were to simply reply "I know nothing" when asked about its specifics by outsiders, providing the group with its common name. Qanon anyone? Supporters of the Know Nothing movement believed that an alleged "Romanist" conspiracy was being planned to subvert civil and religious liberty in the United States, and sought to politically organize native-born Protestants in what they described as a defense of their traditional religious and political values. Sure enough sounds like the Trump base to me.

The question is will the US become a full fledged democracy and live up to its vaunted principles finally even though it traditionally never has or will it revert to some version of white European American rule by electing another entertaining autocrat. That may not be Trump who has been deplatformed from Twitter, his chief propaganda tool, and faces mounting legal challenges, but there are others waiting in the wings who will offer bells and whistles instead of sound programs that really benefit the American people as a whole. But do Americans want government based on democratic principles or neverending campaign rallies with flags, banners and chants? As my Dad used to say, we shall see what we shall see.

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

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.

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.

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

The Left/Right Political Spectrum Is Irrelevant at This Point

by John Lawrence

The Extreme Right position on the pandemic is just to let it rip. This would mean ongoing disaster for the whole world into the indefinite future. The Extreme Left would advocate government spending as much money as necessary to defeat the pandemic and get the economy back to normal. The middle of the road would advocate doing half as much as necessary to sort of but not really get the pandemic under control. Result: the coronavirus would be mutating and popping back up for years just as SARS COVID-9 is a mutation of the original SARS virus and is related to the MERS virus. Whether the mutations occur in animals or in humans, it doesn't matter. Viruses mutate and doing a half ass job in getting rid of this pandemic which is the political "middle" insures that there will be more pandemics in the future. Not allocating increased funding for the study and research of viruses insures that there will be more threats to human lives and economies.

The Extreme Right position on global warming is to do nothing about it. That includes encouraging consumption of fossil fuels and not caring how many greenhouse gasses are emitted into the atmosphere. This virtually guarantees that the earth will become uninhabitable in 50 years or less. The Extreme Left position would be to do as much government spending as necessary to reduce greenhouse gas emissions to zero in about 10 years. This would prevent global temperatures from rising more than the amount that would destroy the habitability of the earth. The middle position would be to spend a piddling amount to combat global warming. The result would be that the earth would become uninhabitable in a slightly longer time frame.

Republicans want to limit Federal government expenditures to solve problems while maximizing the private sector in the economy. Problem is that dealing with the pandemic and climate change are problems private enterprise is not capable of solving or even leading the way. Is there a role for private enterprise? Certainly, but government must play the leading role or these major problems as well as a number of others will not be solved. Private enterprise won't engage in any activity for which there are no profits to be made. Some problems like the pandemic and global warming are not likely to yield much in the way of profits. Ergo, private enterprise will not be interested in dealing with them.

The COVID relief package that Biden has put forward is totally dependent on Democrats controlling both Houses of Congress. That in turn was totally dependent on the Georgia runoff elections for two Senators which produced two Democrats. Otherwise, there would be no COVID relief package or follow on projects to deal with global warming because not enough Republicans will be voting for any of Biden's projected spending to solve these problems. So the Extreme Left position of these issues which are totally necessary if they are to be dealt with successfully would not have been possible. Even successfully dealing with these two existential problems was hanging by a thread because the election of two Democratic Senators from the state of Georgia was heretofore unheard of. But now there is a chance.

What really needs to happen with regard to government spending is that the public, and that includes Senators and Representatives, need to be educated on how the economy really works. Deficit spending is not really a problem. Read The Deficit Myth by Stephanie Kelton. Republicans rely on the ignorance of the public while suggesting that adequately dealing with global warming or the pandemic will raise their taxes. It does not have to increase taxes which is the conventional understanding about it. The Federal government does not need to pay back Federal deficits because the US dollar is a sovereign currency. The Federal Reserve can just "print" the money - although it doesn't actually print it - it creates it by a few keystrokes on a computer. A household or private firm must pay back its loans. Even US states must pay back loans usually by raising taxes. Th Federal government does not have to raise taxes nor does it have to pay back loans. Treasury bonds can just end up on the Fed's balance sheet where in fact most of them do end up. So a government, any government, which has a sovereign currency can create as much money as necessary to solve any problem. The only caveat is that money creation under certain conditions can induce inflation.

Too much money sloshing around in any sector can produce inflation in that sector. What the US economy has created recently is asset inflation but not inflation in the real economy. Tax breaks for the rich has resulted in the bidding up of assets. Take the stock market, for example. Major corporations have used their tax breaks not to build production facilities but to buy back their own stock. This raises the stock price: ergo, asset inflation. The same holds for the real estate market. People, with more money than they are willing to put to productive use, use it to bid up the value of real estate. Ergo, inflation. This makes housing less affordable. The real economy has under utilized capacity in terms of all the unemployed and underemployed labor. Government spending which soaks up this capacity and puts it to productive use in converting to a reusable energy economy and upgrading to green infrastructure should not produce inflation. Neither will more government money spent on research on viruses produce inflation. What else produces asset inflation is money spent on the military-industrial complex. Think $600 toilet seats.

The US public needs to be enlightened on how the economy really works at the macro level. That being understood would take all the wind out of the sails of Republican objections to government spending. It does not have to raise your taxes because the US government can never run out of money. An understanding of Modern Monetary Theory leads to that understanding.

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

Taxing the Rich Will Lessen the Need for Deficit Spending

by John Lawrence, January 29, 2021

Billionaires are upset because their hedge fund ploys in the Wall Street casino went awry when a group of average Joes countered their short sales of GameStop. Oh the tears that were shed. Billionaires losing millions gambling? Outrageous! Bernie Sanders tweeted: "Oh look, another billionaire is mad that he might have to pay more taxes while children in America go hungry and veterans sleep on the street. Cry me a river," Joe Biden's $1.9 trillion COVID relief bill will mean a lot of deficit spending which can be offset, however, by taxing these billionaires. A financial transaction tax would raise $2.4 trillion over the next decade—"enough to make public colleges tuition free and cancel student debt."

Casino Capitalism Lesson 1: Selling short. Here's how billionaire hedge fund managers planned to make a killing. They knew that GameStop was losing money and probably going out of business. GameStop closed 321 stores in 2019 alone and planned on closing even more stores by the end of 2020. So knowing that GameStop's stock was going down (it didn't take a big brain to figure that out), they sold its stock short. What that means is that they "borrowed" the stock from people that already owned it. Then they sold the stock at its value at that time. Some time later when they would have to "return" the stock to those they borrowed it from, they planned to buy it back at a lower price (it having gone down in the meantime) and pocket the difference. One might ask why the original owners of the stock would loan it in the first place since they must have known that the stock would be worth less when it was returned to them.

However, a group of "amateur" investors foiled the plans of the billionaires by buying GameStop stock thereby bidding up the price making it worth more when the short sellers had to return it, not less. That would mean that the short sellers would lose money instead of making money. That's when the billionaires cried, "Ouch!" Then the "amateurs" who bid up the stock could sell it at the higher price and make money. Woo Haa! Leon Cooperman, whose net worth is estimated to be around $3 billion, sniffed that "the reason the market is doing what it's doing is, people are sitting at home, getting their checks from the government, basically trading for no commissions and no interest rates." In other words average people trading stocks are making the money that billionaires like him should have made. Boo Hoo!

Modern Monetary Theory maintains that all the money for the COVID relief bill could be raised from deficit spending because deficits don't matter without any need for increased taxation. Yet it would be prudent to raise taxes on the mega rich in order to decrease economic inequality which represents an enormous chasm between the billionaire class and everyone else. A new report found that the world’s 2,153 billionaires have more wealth than 4.6 billion people, underscoring the degree of global inequality. This would also offset any decrease in the value of the dollar that large deficit spending might bring about. In The Deficit Myth by Stephanie Kelton, she points out that the Federal Reserve which creates US dollars can never run out of money since the US dollar is a sovereign currency, but there is a concern about inflation if too much money is created which doesn't have a productive purpose in the economy. Since so many are unemployed and since there is a huge infrastructure deficit, this is not in danger of happening any time soon. There is no lack of money for government programs since they don't depend on tax flows, and money created by the Federal Reserve that ends up on the Fed's balance sheet never has to be paid back.

While the Fed can create as much money as it likes to bail out the banks without Congressional approval, which it did during the 2008 banking crisis, money created for government spending, such as the $1.9 trillion COVID relief bill, must have Congressional authorization. Fortunately, there is a process known as budget reconciliation which only requires a majority vote and the Democrats have the majority in the Senate. Therefore, the COVID relief bill cannot be filibustered by Republicans which they surely would do if they were in the majority. So it's clear that Republicans only represent the interests of the rich who will contribute to their campaigns and enrich them in return as long as they vote to nullify everything that might help the average person or raise taxes on them.

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

Bernie Sanders, Budget Reconciliation and Modern Monetary Theory

by John Lawrence, January 18, 2021

Joe Biden will have no trouble from Congress in passing his $1.9 trillion relief bill. That's because Democrats control all 3 branches, and the filibuster is neutered due to "budget reconciliation." This allows a spending bill to be fast tracked through Congress without the possibility of a filibuster. According to the Center on Budget and Policy Priorities: "The Senate can consider and pass reconciliation bills relatively quickly and with only a simple majority, rather than the three-fifths majority often needed for controversial legislation. That’s because reconciliation legislation isn’t subject to filibuster. Under general Senate rules, legislation can be stalled by virtually unlimited debate and the offering of numerous amendments, with a three-fifths majority vote required to invoke “cloture,” thereby limiting debate and blocking non-germane amendments. For a reconciliation bill, however, the Congressional Budget Act limits Senate debate on the bill to 20 hours and limits debate on the subsequent compromise between the two houses to ten hours."

Modern Monetary Theory (MMT) has shown that deficits don't matter. At least George W Bush didn't think so when he used the budget reconciliation process to give huge tax breaks to the rich which significantly increased the deficit and reduced income to the Federal government from taxes. The use of budget reconciliation did an end run around PAYGO which requires the Federal government to balance its budget and the debt limit which also constrains Federal spending. Both conservatives and liberals will be enthused over the fact that MMT proclaims that either tax reduction or government spending is good for American society (up to a point) even though the debt limit or PAYGO may be violated. This is because government is effectively adding money to the private sector which drives economic activity.

Bernie Sanders and Alexandria Ocasio-Cortez are very familiar with not only budget reconciliation but also MMT because one of its chief adherents, Stephanie Kelton who wrote the book, The Deficit Myth, previously was a Senate advisor to Bernie on the Senate Budget Committee. On December 26, 2014, Kelton was designated as Chief Economist for the Democratic Minority Staff of the Senate Budget Committee, a post that she held in 2015 and early 2016, when she left that position to become an economic advisor to the Bernie Sanders campaign. So the American economy is about to get a shot in the arm that will mostly benefit poor and middle class people (whereas the Bush tax cuts primarily benefited the rich) much to the chagrin of conservatives that hold to the idea that government deficit spending should only benefit the rich through tax cuts.

MMT contends that, since the Federal Reserve creates money by keystokes on a computer and the US dollar is a sovereign currency, the US government can never run out of money. Treasury bonds can always be sold to cover deficits, and, if they can't be sold to the general public, they will end up on the Fed's balance sheet where they may remain forever as an accounting entry. Even the interest paid on Treasury bonds, which is now approximately zero, is not a consideration. Interest on Treasuries owned by the Fed is remitted to the Federal government anyway. So now is the time for massive spending by the US Federal government to 1) expedite recovery from COVID; 2) jump start the economy; and 3) expedite a global response to global warming by converting to renewable energy on all levels including:

"replacing fossil-fuel engines with electric in all public and private 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"

And this is not to mention that solar, wind and other forms of renewable energy need to replace fossil fuel electric generating plants.

There is no time to lose. The incoming administration has a lot on its plate. In addition to that they have to run an impeachment trial in the Senate. Let's hope it doesn't slow down any of Joe Biden's initiatives. With Bernie as the Chairman of the Senate Budget Committee, armed with a knowledge of MMT, we can look forward to restoring the US' standing in the world community as well as restoring an economy that works for the poor and not just the well heeled, getting the pandemic under control and mitigating climate change. Thank you Bernie and Alexandria Ocasio-Cortez.

Off the Top of My Head

Why Are Home Prices Are So Expensive?: Asset Inflation

by John Lawrence, January 5, 2021

The government measures inflation based on a basket of consumer items including rent but excluding the price of homes. However, rents are a function of the cost of homes. As home prices go up, so do rents, and rents continue to go up despite people's ability to pay. The Federal Reserve could tackle increased home prices by raising interest rates, but this would discourage home sales and more not fewer homes and apartments are needed. MarketWatch reported: "While the Federal Reserve is busy worrying that wages might be rising too fast, the rest of us have a different concern: The rent’s too damn high. If we have an inflation problem, it’s that the cost of housing is rising faster than our ability to pay." Although there is little wage inflation, it is not hard to understand why there is asset inflation. So much money has been injected into rich peoples' pockets in the last couple of decades by means of tax cuts and the Fed's bailouts of the financial system among other things that the rich have increased their wealth many fold while the financial situations of the poor and lower middle class have stagnated. All this money floating around in the pockets of the rich has to go somewhere, and where it goes is not into consumption so much as into investing. So the financial assets of the rich are increasing while the poor have all they can do to pay increasing rent. One of the main assets that rich investors invest in is real estate which bids up the price of homes and, subsequently, rents.

If the rapid accumulation of wealth by the already wealthy continues to increase (they have accumulated an additional $1.8 trillion dollars just during 2020), asset inflation in terms of home prices and rents will continue to increase. However, the government doesn't seem to be as concerned with this form of inflation as they are with wage inflation. They are concerned with keeping the wages of working people down because this increases profits for business owners and keeps the cost of most consumer items low. If Walmart has to pay a living wage to its employees, it might have to raise prices, and this is the kind of inflation the current government is most concerned about. Perhaps those concerns will be mitigated under a new Biden Democratic administration which is more concerned about the wages and welfare of the poor and lower middle class than it is about the prerogatives of the rich and business owners.

As Stephanie Kelton points out in her book The Deficit Myth, inflation should not be a concern as long as there are resources which are laying idle. If government provided the money to utilize those resources, whether they are human resources or physical resources, this will not contribute to inflation. What does contribute to inflation is putting more money into the economy than can be soaked up by productive efforts. So while the unemployed represent a resource that is laying idle, and there is no lack of physical or material resources, putting people to work would not contribute to inflation whereas all the money that the Federal Reserve has used to bail out Wall Street banks, and also by virtue of low interest rates, there is a great deal of money sloshing around in the economy in the hands of the rich. That's why there is asset inflation (think real estate) and not wage inflation. The Federal Reserve has the capacity to print money and hand it to Wall Street without any other entity authorizing it. However, if the government needs money, for example, for programs to employ the unemployed building infrastructure, for example, Congress has to authorize it. If Congress authorizes it and tax receipts are not sufficient to cover the needed funds, deficit spending takes place automatically which means that the Treasury Department must sell Treasury bonds to cover the expenditures. They will never have a problem selling them because primary dealers (mainly Wall Street banks) are obligated to buy them. And the Fed stands ready to take these Treasury bonds off the Wall Street banks' hands if there is a "liquidity crisis." So by a round about process US deficits end up on the Fed's balance sheet if no one else wants to buy them where they disappear in a black hole although people believe erroneously that taxpayers are still obligated to pay them off at some point. They're not.

Deficit spending is somewhat of a misnomer. The spending could take place just by the Federal Reserve creating the money by a few keystrokes in a computer the way it does for Wall Street. The $4.5 trillion so created to bail out the Too Big To Fail Wall Street banks during the Great Recession did not require deficit spending. Some collateral in the form of mortgage backed securities went onto the Fed's balance sheet, but that collateral need not ever be sold back into the private economy. It can stay of the Fed's balance sheet forever and no entity has the authority to do anything about it. That's because the US dollar is a sovereign fiat currency. The thing to note here is that bailing out the banks did not add to the deficit, but government spending beyond tax receipts must be authorized by Congress and this does add to deficit spending. This is because of legal and political restrictions, but the final result is that the Federal Reserve just creates the money in both cases so that deficit spending is nothing to worry about any more than spending to bail out the banks, which is not deficit spending, is something to worry about.

So while financial deficits are nothing to worry about, Kelton points out that there are some deficits to worry about:

"The real crises that we are 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 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.

"These are real crises. The national deficit is not a crisis."

As Modern Monetary Theory points out, as long as there are real assets (human and material) not being used, deficit spending will not cause inflation and deficit spending in and of itself is nothing more than an accounting entry on the Federal Reserve's balance sheet. The Federal Reserve will provide whatever money Congress authorizes or is necessary to bail out Wall Street because it, as the Central bank, has the authority to issue money in the US financial system. The Federal government spends whatever monies Congress authorizes before the money is even made available. If some of it is not forthcoming from taxes, the rest of it will be created by the Fed in the form of deficit spending.

Off the Top of My Head

K Shaped Recovery Calls For K Shaped Tax Structure

by John Lawrence, January 4, 2021

It has been well documented that the rich have gotten richer during the pandemic while the poor have gotten poorer. Over a roughly seven-month period starting in mid-March – a week after President Donald Trump declared a national emergency – America’s 614 billionaires grew their net worth by a collective $931 billion. Although the CARES Act led to a diminution of poverty in the early stages of the pandemic, poverty rates have risen since then to around 17% of the population. Among blacks and Hispanics the poverty rate is closer to 25%. The one thing that has benefited minority groups is the fact that for the first time many of them were able to vote by mail because of the pandemic. Before the pandemic many poor voters were not likely to stand in line on a week day to vote thus losing a day's pay. While the many techniques of voter suppression used by the Republican party kept the votes of blacks and Hispanics to a minimum, the last election proved that voting by mail allowed many more poor and especially black voters to cast a ballot

After Joe Biden is finally in office, we will see an increase in programs that will benefit poor and minority communities many of whom are essential workers who sacrificed in many ways to keep the economy going. While the rich got richer during the pandemic, it became clear that poor essential workers should be making more money while rich inessential workers deserve less. However, the results were the opposite of that. People invested in financial assets and people who could work from home by and large did well economically during the pandemic while those workers, without whom the economy would have come to a grinding halt, were working for minimum wage in many cases. Signs went up at nursing homes "Heroes work here", but what they forgot to add was the phrase "at minimum wage." Nursing homes are staffed with CNAs, Certified Nursing Assistants, who make little more than the minimum wage.

The K shaped recovery refers to the fact that the rich got richer while the middle class working from home did well while the bottom half of the economy, the lower half of the K, did worse financially. In any event the tax structure should reflect that fact in order to diminish economic inequality. The rich should be taxed more while the poor and lower middle class should be taxed less and actually subsidized. This is the enlightened purpose of taxation - to reduce economic inequality. According to Modern Monetary Theory, taxes are not important for raising money for government expenditures because the Federal Reserve can make any amount of money available to the government by means of a few keystrokes on a computer. Stephanie Kelton writes:

"But taxes are important in other ways. As the World Inequality Report notes,'the income-inequality trajectory observed in the United States' is partially explained by 'a tax system that grew less progressive.' Taxes can be used to curb astronomical accumulations of wealth. That's important precisely because the wealthy use their money to amass power and influence over the political process: they've rigged the tax code in their favor; they've rewritten labor laws, trade agreements, rules governing patents and protections, and much more. They've made public policy serve their economic interests."

This accumulation of economic and political power by the wealthy has been somewhat redressed recently by mail voting which tends to serve the interests of the poor and lower middle class. If it remains in effect, the voter suppression techniques of the past, used mainly by Republicans to suppress the African American vote, will have been counteracted with the result that the interests of the poor and lower middle class will have been elevated at the expense of the rich.This is what Donald Trump is so mad about - that the pandemic caused a revolution in mail in balloting at his expense. This is largely why he lost, and he's mad as hell about it. So what. The Republicans had it coming. Maybe the pandemic was a blessing in disguise at least in this respect.

Off the Top of My Head

We Need a World War II Kind of Effort to Combat Climate Change

by John Lawrence, December 30, 2020

Modern Monetary Theory (MMT) advocates that the government provide a job guarantee. If the private sector cannot provide enough jobs for full employment, then a temporary job would be readily available until employment in the private sector was found again. This is in lieu of unemployment insurance. Right now the Federal Reserve has the twin mandates of full employment and low inflation. But by full employment the Fed means that level of unemployment necessary to keep inflation in check. In other words the Fed deliberately intends to keep a certain percentage of people unemployed lest inflation get too big. It does this by twiddling with the interest rate which it sets. If the Fed wants to reduce inflation it raises the interest rate which reduces economic activity and more people are laid off. If the Fed wants to increase employment it lowers the interest rate resulting in more economic activity and people are rehired. MMT suggests a better way to control inflation and create full employment.

Inflation occurs when there is too much money sloshing around in the economy and not enough things to spend it on - a limited supply of goods and services. In this case either supply can be increased or money can be drained from the economy by means of taxes. This can be done without deliberately trying to increase unemployment. Be that as it may, we have the historical case of full employment demanded by the war time effort required to manufacture ships, planes, armaments etc necessary to win World War II. In that case employees were sucked out of the private sector into the public sector. People had to stop what they were doing in the private sector and come work for Uncle Sam in order to defeat the Nazis. Uncle Sam seems like a more personable guy to work for than the impersonal government, but they're really the same. Even MMT recognizes that private sector employment is primary. In other words if private sector jobs are available they should be filled first. The government job guarantee would only kick in for people who could not find jobs in the private sector.

However, in cases of national emergencies such as World War II, the government must take jobs away from the private sector. The national emergency we are now facing is climate change. Actually it is more than a national emergency; it's a worldwide emergency. As MMT points out, there will always be money to pay workers to address the issue of global warming and material resources are available so there should be no concerns over inflation. The other concern is where will the money come from to pay for the workers and materials necessary to combat global warming. Since the US is a sovereign currency issuer, this money does not need to come from taxes, but can come by means of the Federal Reserve just printing it like it did for the Quantitative Easing (QE) program when it transferred $4.5 trillion to the Too Big To Fail banks after the Great Recession. The Fed can just print money and give it to the banks, but Congress has to authorize the Fed to print money and make it available to the mainstream economy. The QE doesn't add to the deficit while money authorized by Congress requires the sale of Treasury bonds which does add to the deficit if enough money from taxes is not available. As an example, Trump's tax cuts were paid for by Treasury bonds which added $2 trillion to the deficit. MMT maintains that deficits don't matter. Stephanie Kelton writes in The Deficit Myth:

"In short, the job guarantee is the MMT solution to our chronic jobs deficit. Instead of trapping millions in unemployment as a sacrificial tribute to the "natural rate" of unemployment, the job guarantee insures that everyone who wants to work can have a job. ...it's also a better price stabilizer. It spends only enough to hire everyone who is prepared to work, and it maintains a pool of employable people from which the private sector can readily hire at a modest premium over the program wage. Further, by establishing the right to a living-wage job, the job guarantee strengthens the bargaining power of labor, reduces racial inequities, decreases poverty, and raises the floor on low-wage work while building stronger, more vibrant, more connected communities.

"Has anything like this ever been tried? No country has implemented a full-fledged job guarantee, but a number of countries have experimented with versions of the idea. In the 1930s. the US fought the Great Depression by directly creating millions of jobs under President Franklin D. Roosevelt's New Deal. The Public Works Administration (PWA) put hundreds of thousands of men to work building schools, hospitals, libraries, post offices, bridges, and dams. In its first six years, the Works Progress Administration created about eight million construction and conservation jobs as well as thousands of jobs for writers, actors and musicians. The National Youth Administration created 1.5 million part-time jobs for high school kids and 600,000 for college students. As MMT proposes, the jobs were federally funded, but the programs weren't permanent, and they didn't guarantee employment to all [only the unemployed]."

Kelton's book was written before COVID so she couldn't have foreseen how many people would become unemployed because of the pandemic. What is important to gather here is that combating the global warming crisis will require millions of workers and massive amounts of government spending. As has been pointed out in my previous articles, taxes need not be raised to get the money for this. The US Federal Reserve creates money by a few keystrokes on a computer, and the national debt need never be paid off since the US dollar is a sovereign currency. If the Fed takes debt onto its balance sheet it just stays there. No entity can demand that the Fed ever pay it off. Taxes are just tools to control inflation, not tools to get money to get things done. The Green New Deal will require massive amounts of human and material resources which can be paid for by the Fed's "printing" money - actually keystrokes on a computer. After global warming has been sufficiently dealt with - it will probably take a World War II effort for 10 years - the workers involved can return to their jobs in the private sector. In the meantime many inessential jobs will probably have to go unfulfilled just as required in the national effort to defeat the Nazis.

Off the Top of My Head

The US Central Bank Can Print Money; The State of California Can't

by John Lawrence, December 27, 2020

One of the central tenets of Modern Monetary Currency (MMT) as explained in Stephanie Kelton's book, The Deficit Myth, is that a nation with a sovereign currency can always pay its debts by a few keystrokes on a computer at its central bank - the Federal Reserve in the US' case. A nation or a state without a sovereign currency must pay its debts by taxes or out of income. She dispels the myth that the US government pays its debts out of taxes or by Treasury bonds. However, the state of California must pay its debts the old fashioned way out of taxes and income. This reality hit hard in recent years in the case of Greece which gave up its sovereign currency, the drachma, when its joined the European Union. Unlike the UK which maintained its sovereign currency, the pound, Greece has to borrow money from private investors and pay its debts from the collection of taxes. Eventually, after much hardship the IMF and the European Central Bank helped Greece get back on its feet.

It's a myth that the US national debt must be paid off by our children or grandchildren or that we must suffer because of all the money owed via US Treasury bonds to China or Japan. Unlike Greece which saw its situation go from bad to worse as private investors demanded higher and higher rates of interest, the US Federal Reserve sets the interest rate (currently around zero) on the bonds it offers for sale. Other countries buy them because most of the world's business is conducted in dollars, and those countries need dollars which they get from Treasury bonds to conduct business. The US government is not competing with private corporations for loans because, when it needs money, it just prints it. Right now the way the rules are written the Fed can print money and give it to the banks, the way it did during the Great Recession when it just gave the banking system $4.5 trillion, but it cannot print money and give it to the US government without Congressional approval. It can provide direct relief to the banks, but it cannot provide direct relief to the American people. That's why the COVID relief package is being held up because, even though Congress did give it its stamp of approval, the law also requires that the President sign the bill which he has not.

In "The Deficit Myth" Kelton writes:

You've probably already seen MMT's central insights in action. ... Whenever the topic of Social Security comes up, or when someone in Congress wants to put more money into education or health care, there's a lot of talk about how everything must be "paid for" to avoid adding to the federal deficit. But have you noticed this never seems to be a problem when it comes to the defense budget, bailing out banks, or giving huge tax breaks to the wealthiest Americans, even when these measures significantly raise the deficit.? As long as the votes are there, the federal government can always fund its priorities. That's how it works. Deficits didn't stop FDR from implementing the New Deal in the 1930s. They didn't dissuade John F. Kennedy from landing a man on the moon. And they never once stopped Congress from going to war.

In fact deficits don't matter as Kelton proclaims over and over again in her book. There are limits however. That limit has yet to be met as the huge bailouts of the 21st century for the Great Recession and COVID relief have yet to cause the least bit of inflation. Other big projects like a Green New Deal are pooh poohed by Congress because Congress is controlled by wealthy interests so tax breaks for the rich is no problem nor is going to war which benefits defense contractors, but anything that represents the interests of the average American is not favored by Congress. If and when Congress is controlled by the middle class, we will see large projects which promote the health and welfare of the American people in general and not just wealthy business interests.

The Chinese are building huge infrastructure projects all over China and even the rest of the world with its Belt and Road Initiative. They can do this because the Chinese renminbi is a sovereign currency and the money is available to keep the Chinese people fully employed doing constructive things. They have bought into MMT and know that Deficits Don't Matter. Besides they don't have to subject themselves to the whims of Congress. If the government wants to do it, it's full steam ahead. It seems to have worked for them as they have brought 850 million Chinese people out of poverty in the last 40 years. But as Pew Research reported, "But despite the strong labor market, wage growth has lagged economists’ expectations. In fact, despite some ups and downs over the past several decades, today’s real average wage (that is, the wage after accounting for inflation) has about the same purchasing power it did 40 years ago. And what wage gains there have been have mostly flowed to the highest-paid tier of workers." So to put a fine point on it, 850 million Chinese brought out of poverty in last 40 years; average Americans no wage growth in last 40 years.

It has become clear that the old way of thinking that national deficits have to be repaid out of taxes and Treasury bonds is incorrect. Any country with a sovereign currency can just print money by a few keystrokes on its central bank's computer. The US Fed does just that. The conversion to Green Infrastructure could easily be funded in this way if Congress approved. At the same time many good paying jobs could be created. Instead of competing with China by military threats or sanctions, we could instead compete by building Green infrastructure in the US and the rest of the world. Or maybe we could cooperate in saving the world from the ravages of global warming and also providing the same benefits to the average American which the average Chinese is increasingly able to enjoy.

Biden Needs to Spend Big—And Fast. Here Are 4 Immediate Priorities.

Published on Sunday, December 20, 2020

by In These Times

Forget about the debt. Boosting the economy and sending people money isn’t just good policy, it’s smart politics.

by Max B. Saw­icky

 

9 Comments

"There is a lot of new spend­ing we need, and ele­vat­ing the most urgent pri­or­i­ties is an impor­tant polit­i­cal task," Saw­icky writes. (Photo: Roberto Schmidt/AFP via Getty Images)

Expec­ta­tions are high for the incom­ing Joe Biden admin­is­tra­tion, not because the polit­i­cal cir­cum­stances are advan­ta­geous, nor because of Biden him­self, but because our trou­bles are so great. 

Tens of mil­lions of Amer­i­cans are unem­ployed. The death toll from Covid-19 in the Unit­ed States now tops 300,000. An avalanche of evic­tions and fore­clo­sures is on its way. And this is on top of our ongo­ing polit­i­cal cri­sis: A stub­born minor­i­ty of vot­ers refuse to rec­og­nize the results of the elec­tion, while many of Pres­i­dent Trump’s sup­port­ers remain unwill­ing to observe ele­men­tary safe­ty mea­sures to reduce the fur­ther spread of the virus. In Wash­ing­ton, D.C. last week, a ram­pag­ing mob of fas­cist goons assault­ed ran­dom passers-by and van­dal­ized black church­es — osten­si­bly as a way to show feal­ty to Trump. To put it mild­ly, Amer­i­ca is in bad shape.

"No cred­i­bil­i­ty should go to any Demo­c­ra­t­ic stuffed shirt who bleats about restor­ing norms. Work­ing peo­ple are des­per­ate. This is class war, folks."

Much of the Biden administration’s abil­i­ty to respond to the health and eco­nom­ic crises we face depends on the out­come of the Jan­u­ary 5 run-off elec­tions in Geor­gia that will deter­mine which par­ty con­trols the Sen­ate. But even with vic­to­ries in both of those races, cen­trist Democ­rats in Con­gress will con­tin­ue to oppose major pro­gres­sive poli­cies. And Democ­rats’ nar­row major­i­ty in the House (and, if we’re lucky, the Sen­ate) will make it dif­fi­cult for Pres­i­dent Biden to spend as much mon­ey as necessary. 

Nev­er­the­less, there is a lot of new spend­ing we need, and ele­vat­ing the most urgent pri­or­i­ties is an impor­tant polit­i­cal task: It applies pres­sure on cur­rent Demo­c­ra­t­ic offi­cials, includ­ing the pres­i­dent him­self, and edu­cates and moti­vates peo­ple who can vote for a new, more pro­gres­sive Con­gress in 2022. 

Here are four of the top priorities:

1. Send mon­ey now! When it comes to stim­u­lus, there are always dual objec­tives: boost­ing the econ­o­my, and pro­vid­ing relief for those in the great­est need. Send­ing checks to every­body, extend­ing unem­ploy­ment ben­e­fits, and bail­ing out belea­guered small busi­ness have already been shown to be effec­tive. The reces­sion and pan­dem­ic are far from over, so these poli­cies should con­tin­ue. The skin­ny com­pro­mise that might be struck in Con­gress pro­vides no more than a small respite. To speed up a return to eco­nom­ic health, the first step is to avoid sink­ing deep­er into the cur­rent rut. 

Just as impor­tant is pro­vid­ing relief to state and local gov­ern­ments, which pro­vide ser­vices of vital impor­tance to work­ing peo­ple. These gov­ern­ments nev­er quite recov­ered from the Great Reces­sion of 2007 – 2008. They are oblig­ed to bal­ance their bud­gets, so unlike the fed­er­al gov­ern­ment, their bor­row­ing capac­i­ty is restrict­ed. The triple hit to state and local finance — reduced tax rev­enue, added reces­sion-relat­ed spend­ing, and addi­tion­al virus-relat­ed expens­es — has deplet­ed their reserves.

2. Pub­lic invest­ment and the Green New Deal: do every­thing. A reces­sion is always an oppor­tune time to ramp up pub­lic invest­ment on a per­ma­nent basis. Many pos­si­bil­i­ties will com­pete for fund­ing. Two impor­tant angles should be kept in mind.

The tra­di­tion­al sort of invest­ment in ​“infra­struc­ture” — roads, bridges, school build­ings, air­ports and rail sys­tems — has been neglect­ed for decades. A revival, how­ev­er, needs to be done through the lens of cli­mate change aware­ness. Among oth­er things, this means a pref­er­ence for pub­lic, mass tran­sit rather than roads; the upgrade of pub­lic facil­i­ties (includ­ing rail sys­tems) with a view towards reduc­ing car­bon emis­sions; and the mod­ern­iza­tion of the nation’s pow­er grid. 

The oth­er con­sid­er­a­tion is to take seri­ous­ly what might be called an infra­struc­ture of care: work­ers and facil­i­ties devot­ed to hous­ing and car­ing for those unable to do so for them­selves, includ­ing the per­sis­tent­ly unem­ployed, the indi­gent elder­ly, the dif­fer­ent­ly abled, those in fail­ing men­tal health, those with­out hous­ing, the incar­cer­at­ed, and belea­guered immigrants.

3. The Peace Div­i­dend. Cur­rent­ly, the fed­er­al bud­get devotes $697 bil­lion to nation­al defense. When it comes to the fed­er­al gov­ern­ment actu­al­ly doing things oth­er than mail­ing checks to indi­vid­u­als and med­ical care providers — what is clas­si­fied as ​“dis­cre­tionary spend­ing” — defense takes near­ly half. Much of this mon­ey is devot­ed to sup­port­ing the capac­i­ty to wage war, and we have to ask, against whom? The inter­ven­tions in Iraq, Syr­ia, Libya and Yemen have not gone well, to say the least. 

It is pos­si­ble to over­state how quick­ly a peace div­i­dend could be pried out of the defense bud­get. Work­ers and uni­formed mil­i­tary can­not be sum­mar­i­ly dis­missed — they will need tran­si­tion assis­tance. Big-tick­et hard­ware con­tracts that are set for a peri­od of years can­not be instant­ly can­celed. Even so, there is an oppor­tu­ni­ty to redi­rect a large quan­ti­ty of fund­ing to non-defense purposes.

4. For­get about the nation­al debt. In a down­turn, the econ­o­my los­es more than it gains by fail­ing to ramp up fed­er­al deficit spend­ing. Of course, Repub­li­cans have shown them­selves to be com­i­cal hyp­ocrites when it comes to wor­ries about deficits. Unfor­tu­nate­ly, some influ­en­tial Democ­rats may actu­al­ly believe such non­sense. They would be well-advised to read a recent paper by Jason Fur­man, Obama’s chief econ­o­mist, and Lar­ry Sum­mers, omnipresent Demo­c­ra­t­ic Par­ty econ­o­mist, where­in they basi­cal­ly admit every­thing they used to say about bud­get deficits was hog­wash and is par­tic­u­lar­ly inap­pro­pri­ate under cur­rent cir­cum­stances. As far as elite eco­nom­ic think­ing is con­cerned, there should be no obsta­cle to mas­sive increas­es in non-defense deficit spending.

Biden will also have impor­tant tools that do not depend on Con­gress. A recent col­umn by Dave Roberts pro­vides a nice overview, both tech­ni­cal and polit­i­cal. Biden can issue exec­u­tive orders, make recess appoint­ments of nom­i­nees the Sen­ate refus­es to approve, fumi­gate Trump’s ter­mites from the wood­work of the fed­er­al civ­il ser­vice, re-reg­u­late what has been dereg­u­lat­ed, and un-fire good peo­ple who were dis­missed by Trump. 

Trump flout­ed every con­ceiv­able legal and infor­mal con­straint on his rule, to the utter silence of the Repub­li­can Par­ty. He has giv­en Biden a license to do like­wise. No cred­i­bil­i­ty should go to any Demo­c­ra­t­ic stuffed shirt who bleats about restor­ing norms. Work­ing peo­ple are des­per­ate. This is class war, folks.

Max B. Saw­icky is a Senior Research Fel­low at the Cen­ter for Eco­nom­ic and Pol­i­cy Research (CEPR​.net).

© 2020 In These Times

Tackling the Infrastructure and Unemployment Crises: The “American System” Solution

by Ellen Brown

Posted on December 18, 2020

 

from Web of Debt Blog

A self-funding national infrastructure bank modeled on the “American System” of Alexander Hamilton, Abraham Lincoln, and Franklin D. Roosevelt would help solve not one but two of the country’s biggest problems.

Millions of Americans have joined the ranks of the unemployed, and government relief checks and savings are running out; meanwhile, the country still needs trillions of dollars in infrastructure. Putting the unemployed to work on those infrastructure projects seems an obvious solution, especially given that the $600 or $700 stimulus checks Congress is planning on issuing will do little to address the growing crisis. Various plans for solving the infrastructure crisis involving public-private partnerships have been proposed, but they’ll invariably result in private investors reaping the profits while the public bears the costs and liabilities. We have relied for too long on private, often global, capital, while the Chinese run circles around us building infrastructure with credit simply created on the books of their government-owned banks.

Earlier publicly-owned U.S. national banks and U.S. Treasuries pulled off similar feats, using what Sen. Henry Clay, U.S. statesman from 1806 to 1852, named the “American System” – funding national production simply with “sovereign” money and credit. They included the First (1791-1811) and Second (1816-1836) Banks of the United States, President Lincoln’s federal treasury and banking system, and President Franklin Roosevelt’s Reconstruction Finance Corporation (RFC) (1932-1957). Chester Morrill, former Secretary of the Board of Governors of the Federal Reserve, wrote of the RFC:

[I]t became apparent almost immediately, to many Congressmen and Senators, that here was a device which would enable them to provide for activities that they favored for which government funds would be required, but without any apparent increase in appropriations. . . . [T]here need be no more appropriations and its activities could be enlarged indefinitely, as they were, almost to fantastic proportions. [emphasis added] 

Even the Federal Reserve with its “quantitative easing” cannot fund infrastructure without driving up federal expenditures or debt, at least without changes to the Federal Reserve Act. The Fed is not allowed to spend money directly into the economy or to lend directly to Congress. It must go through the private banking system and its “primary dealers.” The Fed can create and pay only with “reserves” credited to the reserve accounts of banks. These reserves are a completely separate system from the deposits circulating in the real producer/consumer economy; and those deposits are chiefly created by banks when they make loans. (See the Bank of England’s 2014 quarterly report here.) New liquidity gets into the real economy when banks make loans to local businesses and individuals; and in risky environments like that today, banks are not lending adequately even with massive reserves on their books. 

A publicly-owned national infrastructure bank, on the other hand, would be mandated to lend into the real economy; and if the loans were of the “self funding” sort characterizing most infrastructure projects (generating fees to pay off the loans), they would be repaid, canceling out the debt by which the money was created. That is how China built 12,000 miles of high-speed rail in a decade: credit created on the books of government-owned banks was advanced to pay for workers and materials, and the loans were repaid with profits from passenger fees. 

Unlike the QE pumped into financial markets, which creates asset bubbles in stocks and housing, this sort of public credit mechanism is not inflationary. Credit money advanced for productive purposes balances the circulating money supply with new goods and services in the real economy. Supply and demand rise together, keeping prices stable. China increased its money supply by nearly 1800% over 24 years (from 1996 to 2020) without driving up price inflation, by increasing GDP in step with the money supply.   

HR 6422, The National Infrastructure Bank Act of 2020

A promising new bill for a national infrastructure bank modeled on the RFC and the American System, H.R. 6422, was filed by Rep. Danny Davis, D-Ill., in March. The National Infrastructure Bank of 2020 (NIB) is projected to create $4 trillion or more in bank credit money to rebuild the nation’s rusting bridges, roads, and power grid; relieve traffic congestion; and provide clean air and water, new schools and affordable housing. It will do this while generating up to 25 million union jobs paying union-level wages. The bill projects a net profit to the government of $80 billion per year, which can be used to cover infrastructure needs that are not self-funding (broken pipes, aging sewers, potholes in roads, etc.). The bill also provides for substantial investment in “disadvantage communities,” those defined by persistent poverty. 

The NIB is designed to be a true depository bank, giving it the perks of those institutions for leverage and liquidity, including the ability to borrow at the Fed’s discount window without penalty at 0.25% interest (almost interest-free). According to Alphecca Muttardy, a former macroeconomist for the International Monetary Fund and chief economist on the 2020 NIB team, the NIB will create the $4 trillion it lends simply as deposits on its books, as the Bank of England attests all depository banks do. For liquidity to cover withdrawals, the NIB can either borrow from the Fed at 0.25% or issue and sell bonds. 

Modeled on its American System predecessors, the NIB will be capitalized with existing federal government debt. According to the summary on the NIB Coalition website:

The NIB would be capitalized by purchasing up to $500 billion in existing Treasury bonds held by the private sector (e.g., in pension and other savings funds), in exchange for an equivalent in shares of preferred [non-voting] stock in the NIB. The exchange would take place via a sales contract with the NIB/Federal Government that guarantees a preferred stock dividend of 2% more than private-holders currently earn on their Treasuries. The contract would form a binding obligation to provide the incremental 2%, or about $10 billion per year, from the Budget. While temporarily appearing as mandatory spending under the Budget, the $10 billion per year would ultimately be returned as a dividend paid to government, from the NIB’s earnings stream. 

Since the federal government will be paying the interest on the bonds, the NIB needs to come up with only the 2% dividend to entice investors. The proposal is to make infrastructure loans at a very modest 2%, substantially lower than the rates now available to the state and local governments that create most of the nation’s infrastructure. At a 10% capital requirement, the bonds can capitalize ten times their value in loans. The return will thus be 20% on a 2% dividend outlay from the NIB, for a net return on investment of 18% less operating costs. The U.S. Treasury will also be asked to deposit Treasury bonds with the bank as an “on-call” subscriber. 

The American System: Sovereign Money and Credit

U.S. precedents for funding internal improvements with “sovereign credit” – credit issued by the national government rather than borrowed from the private banking system – go back to the American colonists’ paper scrip, colonial Pennsylvania’s “land bank”, and the First U.S. Bank of Alexander Hamilton, the first U.S. Treasury Secretary. Hamilton proposed to achieve the constitutional ideal of “promoting the general welfare” by nurturing the country’s fledgling industries with federal subsidies for roads, canals, and other internal improvements; protective measures such as tariffs; and easy credit provided through a national bank. Production and the money to finance it would all be kept “in house,” without incurring debt to foreign financiers. The national bank would promote a single currency, making trade easier, and would issue loans in the form of “sovereign credit.” ’

Senator Henry Clay called this model the “American System” to distinguish it from the “British System” that left the market to the “invisible hand” of “free trade,” allowing big monopolies to gobble up small entrepreneurs, and foreign bankers and industrialists to exploit the country’s labor and materials. After the charter for the First US Bank expired in 1811, Congress created the Second Bank of the United States in 1816 on the American System model. 

In 1836, Pres. Andrew Jackson shut down the Second U.S. Bank due to perceived corruption, leaving the country with no national currency and precipitating a recession. “Wildcat” banks issued their own banknotes – promissory notes allegedly backed by gold. But the banks often lacked the gold necessary to redeem the notes, and the era was beset with bank runs and banking crises.

Abraham Lincoln’s economic advisor was Henry Carey, the son of Matthew Carey, a well-known printer and publisher who had been tutored by Benjamin Franklin and had tutored Henry Clay. Henry Carey proposed creating an independent national currency that was non-exportable, one that would remain at home to do the country’s own work. He advocated a currency founded on “national credit,” something he defined as “a national system based entirely on the credit of the government with the people, not liable to interference from abroad.” It would simply be a paper unit of account that tallied work performed and goods delivered. 

On that model, in 1862 Abraham Lincoln issued U.S. Notes or Greenbacks directly from the U.S. Treasury, allowing Lincoln’s government not only to avoid an exorbitant debt to British bankers and win the Civil War, but to fund major economic development, including tying the country together with the transcontinental railroad – an investment that actually turned a profit for the government.

After Lincoln was assassinated in 1865, the Greenback program was discontinued; but Lincoln’s government also passed the National Bank Act of 1863, supplemented by the National Bank Act of 1864. Originally known as the National Currency Act, its stated purpose was to stabilize the banking system by eradicating the problem of notes issued by multiple banks circulating at the same time. A single banker-issued national currency was created through chartered national banks, which could issue notes backed by the U.S. Treasury in a quantity proportional to the bank’s level of capital (cash and federal bonds) deposited with the Comptroller of the Currency.

From Roosevelt’s Reconstruction Finance Corporation (1932-57) to HR 6422

The American president dealing with an economic situation most closely resembling that today, however, was Franklin D. Roosevelt. America’s 32nd president resolved massive unemployment and infrastructure problems by greatly expanding the Reconstruction Finance Corporation (RFC) set up by his predecessor Herbert Hoover. The RFC was a remarkable publicly-owned credit machine that allowed the government to finance the New Deal and World War II without turning to Congress or the taxpayers for appropriations. The RFC was not called an infrastructure bank and was not even a bank, but it served the same basic functions. It was continually enlarged and modified by Pres. Roosevelt to meet the crisis of the times until it became America’s largest corporation and the world’s largest financial organization. Its semi-independent status let it work quickly, allowing New Deal agencies to be financed as the need arose. According to Encyclopedia.com:

[T]he RFC—by far the most influential of New Deal agencies—was an institution designed to save capitalism from the ravages of the Great Depression. Through the RFC, Roosevelt and the New Deal handed over $10 billion to tens of thousands of private businesses, keeping them afloat when they would otherwise have gone under …. 

A similar arrangement could save local economies from the ravages of the global shutdowns today.

The Banking Acts of 1932 provided the RFC with capital stock of $500 million and the authority to extend credit up to $1.5 billion (subsequently increased several times). The initial capital came from a stock sale to the U.S. Treasury. With those modest resources, from 1932 to 1957 the RFC loaned or invested more than $40 billion. A small part of this came from its initial capitalization. The rest was financed with bonds sold to the Treasury, some of which were then sold to the public. The RFC ended up borrowing a total of $51.3 billion from the Treasury and $3.1 billion from the public.

Thus the Treasury was the lender, not the borrower, in this arrangement. As the self-funding loans were repaid, so were the bonds that were sold to the Treasury, leaving the RFC with a net profit. The RFC was the lender for thousands of infrastructure and small business projects that revitalized the economy, and these loans produced a total net income of over $690 million on the RFC’s “normal” lending functions (omitting such things as extraordinary grants for wartime). The RFC financed roads, bridges, dams, post offices, universities, electrical power, mortgages, farms, and much more–all while generating income for the government.

HR 6422 proposes to mimic this feat. The National Infrastructure Bank of 2020 can rebuild crumbling infrastructure across America, pushing up long-term growth, not only without driving up taxes or the federal debt, but without hyperinflating the money supply or generating financial asset bubbles. The NIB has growing support across the country from labor leaders, elected officials, and grassroots organizations. It can generate real wealth in the form of upgraded infrastructure and increased employment as well as federal and local taxes and GDP, paying for itself several times over without additional outlays from the federal government. With official unemployment at nearly double what it was a year ago and an economic crisis unlike the U.S. has seen in nearly a century, the NIB can trigger the sort of “economic miracle” the country desperately needs.  

---

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

"We're Only going To Be Secure If Everyone Is Secure"

by John Lawrence, December 13, 2020

These words spoken by Fareed Zakaria regarding the pandemic could as well apply to war as well. What a novel idea! If everyone is secure with access to a vaccine, the pandemic will be gone. Perhaps if every nation is secure in their relations with other nations, war will be gone. Of course there will a colossal drop in GDP if the war industry goes away and an increase in unemployment if everyone in the military is civilianized. War and the threat of war is caused by mistrust and insecurity with regards to the intentions and good (or bad) will of other nations towards us. That's why it's important to build friendship and trust between and among nations instead of threatening other nations by economic means such as sanctions or in terms of direct military threats.

Nations who have solved the pandemic problem within their borders are surging back economically. This year the US will decline in GDP relative to last year while China will have positive growth in its economy. While Trump backed out of the Trans-Pacific partnership which would have brought about free trade among 12 countries, China has recently signed the world's largest free trade agreement - the Regional Comprehensive Economic Partnership Agreement - among 15 countries. The signatory states account for 30% of global GDP, larger than NAFTA or the EU. In addition China's massive Belt and Road initiative is an agreement with 70 countries for China to build infrastructure which will enable greater trade relationships among those countries benefiting China the most. Also China owns about $1.1 trillion in US debt. It seems that the only advantage the US has is the fact that the dollar is the world's reserve currency. But that situation is subject to change especially as nations find ways to outmaneuver US sanctions. It seems that China is becoming the world's preeminent nation not by virtue of its military prowess but by virtue of its aggressive trade and infrastructure building policies. Washington has not been able to respond except by threats and sanctions. Sanctioning Tik Tok and Huawei is a pathetic response to China's bid for world leadership.

Vaccine development for COVID-19 is a massive cooperative effort among scientists and companies throughout the world. Most of the PPE used in America was manufactured abroad. Global supply chains have been absolutely crucial in supplying the US with needed products which aren't manufactured here. One of the hallmarks of capitalism is free trade. It represents the idea of free markets applied to international trade. So while China has exemplified leadership in increasing free trade, the US under Trump has backed off from free trade, invoked protectionism, and hence negated its free market capitalist principles. However, that's about to change under a Biden administration. We can expect a lot more global cooperation and diplomacy rather than the bullying policies represented by Pompeo and Trump. It's especially important now that global warming is a looming global threat. Biden wants a $1.7 trillion deal to combat global warming.

China, the world's largest emitter of carbon, has vowed to achieve carbon neutrality by 2060. Joe Biden has vowed to achieve carbon neutrality in the US, the world's second largest emitter, by 2050. The EU has agreed to spend a half a trillion dollars on global warming projects. If all these massive commitments are actually followed through on, the world might limit the increase in global warming to 2.1 degrees Celsius which is about what they had agreed on in the Paris Accords was necessary to prevent disaster. A lot will depend on whether Biden can get his programs through Congress. If the Senate is controlled by Republicans, all bets are off. That is why the run-offs in Georgia for two Senate seats are so important.

https://www.washingtonpost.com/people/fareed-zakaria/

 

Off the Top of My Head

Why is the Stock Market Surging in the Midst of Huge Unemployment

by John Lawrence

Simple answer is that the stock market has nothing to do any more with the Main Street economy. There are two economies: Main Street and Wall Street. There's the economy of rich investors, and the economy of the 90% who aren't investors. The stock market is dominated by large multinational corporations like Apple and Google, and is invested in by rich people from all over the world. As COVID has shown, we have a bifurcated economy. Secondly, interest rates for Treasury bonds are zero so why would an investor buy them when investing in stocks amounts to a self fulfilling prophecy? The more money going in, the greater the rate of return, and rich people are continuing to make huge amounts of money. Business Insider reported that billionaires saw their net worth increase by half a trillion dollars during the pandemic. All that money has to go somewhere. Meanwhile, middle class people with 401(k)s are draining them to meet expenses. Thirdly, the Federal Reserve has all but gifted rich investors trillions of dollars.

More than 1 in 4 Americans are raiding their retirement accounts after a coronavirus-related job loss. The unexpected loss in income is causing many Americans to tap their retirement savings just to make ends meet. And many people who lost a job — or have a spouse or partner whose income has declined — didn’t have much money saved in the first place. Half of Americans who were recently furloughed or let go have saved less than $500 for retirement in the past year — and 70% have saved less than $1,000, according to a report by fintech firm SimplyWise. Of those who have an individual retirement account, 401(k) plan or retirement savings account, 1 in 5 now plan to tap those funds. Of course rich investors don't suffer job losses because they don't have jobs other than managing their money. That they can do from home.

Some has been written about a K-shaped recovery from the pandemic. In a K-shaped recovery, the economic bounce-back is bifurcated like a "K": The wealthiest Americans are quickly rebounding, even thriving, while the middle- and lower-income set are not. As of the first quarter of 2020, the wealthiest 10% of American households owned 87% of all stocks and mutual funds, according to the Federal Reserve. So where does that leave the other 90%? Struggling. Waiting in line at food banks. Getting evicted and foreclosed on. Losing their small businesses in droves. The fact that a second relief package has not been implemented and in all probability won't be for another 2 months till after Biden takes office will hinder those people in the lower part of the K even more.

So what does this say about essential workers? Are rich investors essential workers? I don't think so. Are doctors and nurses? You bet. But they are being shafted by the American people who won't obey simple guidelines in the midst of a surge upon a surge in COVID. Many of them are committing suicide. Others will soon throw up their hands and quit their jobs rationalizing that their own families are more important than taking care of sick patients which puts them at risk. Multitudes of Americans traveled during the Thanksgiving holidays ignoring pleas to stay home. Now doctors and nurses will pay the price for those who exercised their "freedom" as Americans to ignore the pleas of others and only think of themselves. Even family members of these will pay the ultimate price. Another ghastly statistic: the US with 4% of the world's population has 19% of the world's COVID cases. An in November there were an average of a million new cases per week.

Having a President for the past four years who has dumbed down the American people has not been a big help in contributing to a better society for Americans or those in the rest of the world who had looked up to America. Now the question is to what degree the Biden administration can recover some semblance of American democracy and respectability among other world leaders and also economic equity for all Americans. A lot of it will hinge on whether or not Democrats will control the Senate after the two runoff elections in Georgia. If Republicans continue to control the Senate, we can expect four more years of gridlock and straitjacketing of Biden's ambitious agenda. This will be devastating for America and the world. The US will continue to diminish in importance in the world community. Economic inequality will be exacerbated, and global warming will get even worse as hurricane and fire seasons become normal year round events.

Off the Top of My Head

How Joe Biden and the Democrats Can Attract Trump's Base to Their Side

by John Lawrence, November28, 2020

Aside from the entertainment value of the Trump Presidency, his main appeal and the main appeal of Republicans in general is that they stand for reducing taxes. Democrats can co-opt this issue. Here's how: before the next election, they announce that, if elected, they will reduce taxes on everyone making less than $400,000. Joe said he wouldn't raise taxes on that group, but he didn't go far enough. He needs to reduce taxes on everyone making less than $400,000 while raising them on everyone making more than $400,000. Trump's base, I assume, are people making less than $400,000. They are attached party wise to the wealthy Republicans who make up the top 1% with whom they have nothing in common economically. How will Joe pay for this? Simple: the money raised by raising taxes on the rich, making corporations pay their fair share, closing loopholes like the "carried interest" loophole and a financial transactions tax (FTT). And it wouldn't have to balance out equally. In other words the money raised in increased taxes on the rich would not have to equal the money spent on tax breaks for everyone making less than $400,000. It would represent the destruction of the Republican meme: "Democrats will raise your taxes."

The Federal budget need not balance out exactly. It hasn't done that since President Clinton balanced the budget in 2001. He had budget surpluses for fiscal years 1998-2001, the only such years from 1970-2020. Clinton's final four budgets were balanced budgets with surpluses, beginning with the 1997 budget. Since then Republicans, supposedly the guarantors of fiscal conservatism, have deficit spent by means of tax cuts going mainly to the rich. Even before Clinton, Reagan deficit spent with tax cuts in the 1980s. This meme that Republicans represent tax cuts and fiscal conservatism needs to come to an end and be exposed by Democrats for what it is. Evidently, the middle class Republican voters are satisfied with a meager tax cut and don't mind that the rich are getting a more hefty one. That's why Democrats have to take over this meme by giving tax cuts to the middle class and tax raises to the rich. This is the only way finally to get economic inequality under control.

Modern Monetary Theory and the Federal Reserve's own history prove that Deficits Don't Matter. The US dollar is a sovereign currency. The Federal Reserve can just print money and spend it into the economic system without adding it to the national debt. This is exactly what Abraham Lincoln did during the Civil War when he printed greenbacks instead of borrowing the money at interest which would have created huge debts for the United States. So there are two ways that money can be created by the Fed. 1) They can buy US Treasury bonds which would require Congress to deficit spend. 2) They can just print the money and pour it into Federal coffers. This does not add to the national debt but goes on the Fed's balance sheet. The bottom line is what is the money to be used for? If it's for a good cause like building green infrastructure and creating jobs in the process if the economy is less than fully employed, it probably won't create inflation. If it's just a gift to people in an already fully employed economy, it will most definitely create inflation or even hyper inflation.

So in the long run deficits do matter in the sense that, if the money is spent frivolously, inflation and potentially a loss in the value of the dollar on international markets could occur. However, if the money is spent constructively on building and repairing of infrastructure and other useful purposes, deficits won't matter. It boils down to prudent and responsible spending by government. Is Congress up to this task? Is the Fed? At this point a deal between the Executive branch and the Fed would seem more appropriate than running the whole thing through Congress where political ambitions of one party or the other can get in the way. The problem is that there is no consensus in Congress unless one party holds control over both Houses and the Presidency. Barring that, each party will try to limit the other party's spending goals which are tax breaks for the rich (Republicans) or government spending on social programs (Democrats). One way to break this stalemate is for Democrats to be the party of tax breaks for the 99% and tax increases for the 1% while maintaining their commitments to the social safety net.

Off the Top of My Head

Increase Taxes on the Rich. Reduce Taxes on the Middle Class

by John Lawrence, October22, 2020

Finally, the Democrats are getting smart. Republicans have won on one issue: reducing your taxes. Unfortunately, they reduce them a lot more on the rich than they do on the middle class. So now Joe Biden has introduced some nuance. Can the American people comprehend it? Reducing taxes on everyone making less than $400,00 per year and raising them on everyone making more than $400,000. What a great idea! What took them so long? It's absolutely necessary if we want to decrease economic inequality which is out of control. So Joe Biden would increase taxes only on the upper 1%. To be among the upper 1%, a family needs an income of $421,926. In terms of wealth the upper 1% owns 38.5% of the nation's wealth. The upper 1% owns more wealth than the bottom 90%. The bottom 80% of Americans are net debtors. Debt is negative wealth; that should be obvious, but many Americans are financially illiterate. Financial literacy should be a course in high school. Wealth and income are two separate but related issues. Middles class Americans who own homes pay a wealth tax: property taxes. Rich people don't pay wealth taxes on most of their assets which are in stocks and bonds.

Wealthier Americans don't spend all their income on consumption. A portion of it just goes to add to their wealth. Middle class and poor Americans spend all their income on consumption, even going into debt to consume. So the wealthy extract rent and interest from the middle class and the poor who devote a huge share of their incomes to rent and interest. Now more than ever, Americans are drowning in debt. Prior to the Great Recession of 2008, many Americans were struggling to keep their heads above water. When the bubble burst, those with the most debt were left drowning in a sea of financial insolvency. While the country has since recovered financially, the COVID-19 pandemic is threatening to derail the economy once more. In order to diminish not only income inequality but wealth inequality, policies should be undertaken to tax both the wealth and income of the wealthy while encouraging the middle class and poor to build wealth and get out of debt. A small financial transactions tax would tax the wealth of the rich which is mostly comprised of stocks and bonds and real estate. If every stock trade were taxed, this would create a huge pool of money which could be spent in more constructive ways than simply adding to the wealth of the rich.

While the rich can go bankrupt and bail themselves out with golden parachutes, most struggling student loan debtors have no such option. The laws preclude them from going bankrupt. They cannot discharge their debts in bankruptcy. In addition to student loan debt, most middle class people who own a home have a lot of mortgage debt. So they don't really own the home; the bank does. They have the privilege of making payments on a home which include a lot of interest. If they are successful in paying off their mortgage, they will have an asset which represents wealth. This is the main way the middle class creates wealth for itself. Unfortunately, this wealth takes a life time to create so is unavailable to most middle class people until it's too late to enjoy it. The good thing though is that their children can inherit it. This represents an intergenerational transfer of wealth so that their children or grandchildren start out not from zero, where most children of the poor start out, but from a positive accumulation of wealth no matter how small.

Since most Americans overconsume and under save in many cases by necessity but in some just by predilection, they have nothing to fall back on when there is a disruption in the economic system like a pandemic. Since American GDP is predicated on 70% consumption, the American economy cannot stay out of recession if people stop consuming. That's why the Republican controlled government, understanding this, came up with the CARES Act. It was not so much out of a concern for the middle class and the poor as it was a consideration to keep up consumption which is essential to maintaining GDP and hence a necessary economic statistic. A Joe Biden administration will get the economy back on the right track which will increase the income and wealth of the poor and middle class while diminishing that of the wealthy. Financial literacy should make clear the importance of not going into debt but of creating wealth no matter what your income statistics are at the beginning of this process.

Off the Top of My Head

Has China Won?

by John Lawrence, October 16, 2020

Ian Bremmer wrote in Time magazine: "You might think 2020 had been a pretty good year for China, at least when compared with the West. Though COVID-19 began its global march there, China’s recovery has been remarkable. The government’s unprecedented capacity for surveillance, large-scale testing, contact tracing and quarantine helped contain the outbreak inside China within two months. That success allowed for the restart of supply chains and enabled a state investment-led rebound. China could be the world’s only large economy to grow this year. And as second waves of COVID-19 appear in Europe and the U.S., China hasn’t had any serious outbreaks over the past month. Life there is nearly back to normal."

The Chinese and the US economies were neck and neck prior to COVID. The fact that China has handled its response much better than has the US means that China will emerge as the world's largest economy by 2021. In his book, "Has China Won?", author Kishore Mahbubani sums up the strengths and weaknesses of both societies. He contends that the "Chinese Communist Party" is a misnomer. It should be called the Chinese Civilization Party as it owes more to China's 3000 year civilization than it does to communism. China values stability over chaos. It has pulled 800,000 Chinese citizens out of poverty in the last 40 years, largely because it has privatized large swaths of its society. Chinese citizens are well satisfied with their lot in life because among other things they have access to as wide a variety consumer goods as do the developed western societies.

So what has been the US response to China's rapid economic growth and expansion particularly with regard to its Belt and Road Initiative (BRI) which is building infrastructure all over the world with the intention of recreating the ancient Silk Road trade route? Obama initiated the Trans-Pacific Partnership (TPP) which would have been a trade alliance rivaling the BRI. Trump immediately withdrew from the TPP as well as withdrawing from other global initiatives and alliances under his America First go-it-alone philosophy with the result that even US allies are giving Xi Jinping and China more credibility than the US. Under the Trump administration the response to China's rise has been to try and put roadblocks in the way of Chinese corporations. They had Meng Wanzhou, the CFO of Huawei, China's largest privately held company, arrested on December 1, 2018 in Canada under the pretext that Huawei had sold equipment to Iran violating US sanctions. Subsequently, she was extradited to the US. On February 13, 2020 Meng was personally indicted by the DOJ on charges of trade secrets theft which carries a maximum penalty of 10 years' imprisonment.

Similarly, the Trump administration sought to prohibit the popular Chinese app Tik Tok from being downloaded by American consumers. Tik Tok, however, received a reprieve in September 2020 from an American federal court when a judge put a temporary stop to the Trump administration's ban. The government had argued that Tik Tok may have a "back door" through which it could share American data with the Chinese government. A ban would “be no different from the government locking the doors to a public forum,” said John Hall, a lawyer for TikTok. “We’re pleased that the court agreed with our legal arguments and issued an injunction preventing the implementation of the TikTok app ban,” a spokesman for TikTok said after the judge’s decision.

The American response to the success of Chinese private corporations might have been to cheer the at least partial privatization of the Chinese economy, a laudable development in accordance with US free enterprise, capitalistic principles. Instead, the US under Trump has sought to hinder Chinese corporations every step of the way even when they have won competitions fair and square. It is what I would call the Tonya Harding response. In January 1994, skater Tonya Harding became embroiled in controversy when her ex-husband, Jeff Gillooly, orchestrated an attack on her fellow U.S. skating rival Nancy Kerrigan. Both women then competed in the February 1994 Winter Olympics, where Kerrigan won the silver medal and Harding finished eighth. Harding was later banned from the sport. The US response to China over China's pulling ahead of it is reminiscent of Tonya's response to Kerrigan. If you can't beat your opponent with your natural talent, try to injure them (in this case sanction or ban them) instead.

This leaves aside the legitimacy of the US use of sanctions to demand that another country (in this case China) must not do business with some other country if the US says it can't. A Biden administration would reenter the Iran nuclear agreement which reduced sanctions against Iran, and, supposedly, Meng would be released. Tik Tok also would be allowed to continue its ability to sell its app all over the world. The US should engage constructively and diplomatically with China to allay any fears about "back doors." Diplomatic treaties and agreements are the way to go, not retaliation over imagined and ill defined fears. It's important that the US and China cooperate especially when it comes to global warming. They are the 2 largest greenhouse gas (GHG) emitters, and their cooperation is necessary in working with the rest of the world (in particular India) in bringing GHG emissions to net zero in the shortest time. The destructive effects of global warming are manifesting themselves now all over the world in addition to the wildfires on the US west coast and hurricanes in the Gulf states.