Why does the U.S. government have to sell debt to finance a projected infrastructure program? Rather, do like Lincoln did to pay for the American Civil War: authorize the Treasury to issue legal tender that is used to pay contractors, vendors, and labor working on the infrastructure program: pay them in U.S. notes issued directly from the Treasury, usable as legal tender throughout the economy.
Besides not having to borrow a single dime to pay for the infrastructure program, this addition to the money supply is strictly related to the increase in the productive potentials of the economy since it is being used to pay the bills for building new infrastructure.
Lincoln's legal tender, which became known as "Greenbacks" amounted to 449 million dollars issued during the war. These notes continued to be issued until 1971, circulating in tandem with Federal Reserve Notes, and can be so circulated again.
Interestingly, the London Times editorialized strenuously against the Lincoln greenbacks:
"if that mischievous financial policy, which had its origin in the North American Republic, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off debts and be without a debt. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in th history of the civilized governments of the world. The brains and the wealth of all countries will go to North America. That government must be destroyed, or it will destroy every monarchy on the globe."
It's still money creation, and government debt in another form. At least it's better directed than sending it into the financial system for deleveraging. In the long run, we're all dead. John Maynard Keynes
Government debt on the other hand can be financed by progressive taxation. Peak oil is not an energy crisis. It is a liquid fuel crisis.
We've spent money we did not have. We won't solve that by spending more. In the long run, we're all dead. John Maynard Keynes
In my humble opinion.
When it comes to tax policy, during the Eisenhower years the highest tax bracket was around 90-95 %. Sounds good to me, even if only a handful (yes, really!) of people actually were in that bracket.
Like I've said before, being in that highest bracket should result in having the government give you a medal (knight commander of the golden purse?), and for the annual no.1 tax contributor of society, we'll throw in a cast bronze statue to be erected on some square. Seriously. Peak oil is not an energy crisis. It is a liquid fuel crisis.
...we'll throw in a cast bronze statue...
In most of Europe, they are indexed, and therefore the tax falls most on those who hold assets in the currencies being deflated.
Remember, we're not talking about hyperinflation (in the Eurozone, anyway). Fai de bčn a Bertrand, te lou rendra en cagant
Tax increases, especially given the current political environment in many parts of the EU, is not an argument that can be won in the next six months to a year; it requires elections. Yet, if no action is taken now, if you think yesterday's employment news from Insee was depressing, wait till you see what's coming.
Meanwhile, as Starvid points out, one way or another, the piper needs to be paid. Explicit taxes are better than inflation not because inflation is always regressive while other taxes are not necessarily so. Explicit taxes are better because inflation has been shown, empirically, to correlate to slower economic growth, as two things happen: people waste time avoiding the effects of inflation, and FDI suffers as foreigners increasingly require higher returns due to perception of this tax by assets holders in the currency being regularly inflated.
So, explicit taxes being better, here again, I find Starvid's proposal on income to be a good one - 90+% marginal rates like in the US immediately after the war or in much of Scandinavia in the post-war period, as well as Chris Cook's suggestion on wealth tax for the reason he gives. To these, I'd also add an international financial transaction (or so-called Tobin tax) to fund anti-poverty measures in the developing world.
If there's something in the PS programme which speaks specifically to these proposals, as do the other left parties, please link to them, because I haven't seen them.
But meanwhile, now is not the time to talk about balancing the budgets, the time is to act, and for left parties in opposition, propose what they would specifically do if in power, as Die Linke and the French left have been doing for some time now. Fai de bčn a Bertrand, te lou rendra en cagant
Here is a recent study on the subject and there are many others.
In view of this it is not hard to see whose interests are being represented by the ECB, whose only explicit charge is to keep inflation at a very low level which pretty much assures economic stagnation and wage-depressing levels of un- and under-employment. And they are certainly not doing it on behalf of workers, whatever Jerome's lofty rhetoric to the contrary might suggest. A lofty rhetoric which, when examined against the backdrop of what workers themselves actually want, is at the same time an expression of his own class interests as it is (to be charitable) patronizing of the interests of those his view purports to protect.
Adding in passing that working people tend to be much closer to, if not at, the SMIC, or have some other regularly indexed wage mechanism (mostly via regular negotiations in the framework of the various conventions collectives.) Small merchants and farmers are protected as weill, to the extent they pass on the impact to consumers via selling their wares at the higher prices. And while the RMI may not have a statutory indexing mechanism, as a matter of political course, it goes up every year, and it would, as a practical matter be extremely difficult (imagine the protests) if it were not raised in a given year. Same with the retraite de base.
On the other hand, cadres dirigeants, or those in the professions liberales, tend to be exposed, as are those who hold significant assets denominated in the currency being inflated.
Those are the people whose interests are being looked after by the ECB and well-meaning but (imho) mistaken partisans of tight money, tight fiscal policy and pay-as-you-go at any cost like Jerome here. Not workers, not by any means. Fai de bčn a Bertrand, te lou rendra en cagant
It's really disappointing to see you write this. In the long run, we're all dead. John Maynard Keynes
You purport to care about the workers and the least of our brothers and yet would rather dogmatically have a balanced budget than do something to help them. Forgive me if I find this curious, not to mention anti-worker. You provide criticism without constructive, specific and pragmatic proposals, call me an objective ally of Sarkozy one day and the neo-liberals another, and yet I'm the one out of line pointing out that your interests and your inflation preferences align well as the polling data show?
Unlike calling me an objective ally of Sarko, that's not ad hom, that's calling a duck a duck. Fai de bčn a Bertrand, te lou rendra en cagant
I've noted that debt-fuelled binges in recent economic experience have not helped but made things worse. Why would the 70s or the 90s be less relevant than the 30s? I've argued that the core problem is a lack of income, not a lack of consumption, so helping consumption is not likely to help. I've said where that income can come from (wage increases and tax increases).
I have provided arguments, proposals and have reacted to your arguments, but if you refuse to acknowledge this, I fail to see the point of continuing this conversation. I have called you an "objecitve ally" of people you don't like in response to you doing the same, to point out how stupid these arguments are.
And "class" arguments coming from you are laughable, and I think we should avoid the issue altogether, because it's plainly ridiculous.
As to my preferences, well I would certainly benefit from more bailouts of the financial sector, I would certainly benefit from lower taxes, I would certainly deal with inflation a lot easier than people with no ability to negotiate their wages or invest money in inflation-protected assets, I would certainly benefit from lower gas taxes, etc... Your claims of personal interest there are laughable. In the long run, we're all dead. John Maynard Keynes
That if there are no tax increases, you will do nothing.
Is this an accurate synopsis of your policy preferences? Because, over the past month or so, that's been the general theme. Fai de bčn a Bertrand, te lou rendra en cagant
And they are certainly not doing it on behalf of workers, whatever Jerome's lofty rhetoric to the contrary might suggest. A lofty rhetoric which, when examined against the backdrop of what workers themselves actually want, is at the same time an expression of his own class interests as it is (to be charitable) patronizing of the interests of those his view purports to protect.
redstar, as you read back through this discussion, you will likely find that there are quite esoteric disagreements on economic policy here. the comments regarding J do a disservice to the arguments you are trying to build. (to be charitable.) Fer chrissake, it's taken me a year to begin to digest some of Chris Cook's points. Could we tone down the rhetoric a bit... we're all trying to figure out how to react to the worst situation many of us will ever see. "Life shrinks or expands in proportion to one's courage." - Anaďs Nin
There are no governments (possible exception Spain on the periphery) who will do this until the next elections, Jerome knows this, therefore a pragmatic outcome of Jerome's principled opposition to "Anglo-Disease" is that we do nothing.
The likely result of this will be a severe, prolonged recession, if not the "d" word, in the Eurozone, with unemployment approaching 20% in many countries (and beyond in some, again thinking of Spain).
In my view and most moderately progressive economists (Krugman is often cited, as he was on this thread) this outcome, which as a logical result of Jerome's expressed policy preferences, this outcome, which will hurt workers now every bit as much as it did inthe 1930's, is potentially avoidable.
So actually, it's not esoteric, its a matter of one in five of your neighbors having a job at the end of 2010. Fai de bčn a Bertrand, te lou rendra en cagant
Since it looks that your preferences will be implemented, we'll be able to tell if I'm right or not, at least. In the long run, we're all dead. John Maynard Keynes
What are we fighting about, exactly? I've criticized the stimulus plans for various reasons (too much use of debt, too many tax cuts, too much focus on the financial sector, too much precipitation and too little oversight/thinking over) and especially one (the debt bit), and you seem to disagree with my criticism of the stimuli, but you are now telling me that your ideas are in fact NOT implemented.
so let's be precise: given that, is it fair to say that your position is that on balance the Sarkozy/Merkel plans are better than doing nothing?
My position on that is that I'm not convinced this is the case, because of the debt angle, and because of too much focus on consumption and the financial sector.
My position on what a stimulus plan should look like is not that different from yours, I think: tax increases on the rich and on oil, emergency spending on the poorest, investment in smart energy and transport infrastructure, more spending on social needs, education and healthcare (and adding, less police harassment of immigrants and subversives and less fearmongering). In the long run, we're all dead. John Maynard Keynes
So actually, it's not esoteric, its a matter of one in five of your neighbors having a job at the end of 2010.
That's rhetoric. What is esoteric is the complexity of the global economic condition. The fixes to prevent neighbors out of work demand strategic "out of the box" thinking. That means i will even have to use critical thinking of Krugman strategies, since he spends most of his time circulating in the world of the privileged Princeton elite.
You might as well attack me for spending more on travel, hotels and restaurants than most workers make in a year. There are no simple solutions to this crisis, other than views which haven't yet ever been tried. "Life shrinks or expands in proportion to one's courage." - Anaďs Nin
Absent such indexation, it is more protective for workers to focus on inflation. Indexation comes when you have strong unions, which is not quite what we have now.
It's easy to blame the Bundesbank for the 90s, but why don't you blame Kohl's decision to take in the Ost-mark at parity, the underlying cause of the Bundesbank's toughness, and the reason the whole East German industry became totally unable to be price competitive overnight - and indeed disappeared extremely quickly. That was a political choice to buy off unification by paying Eastern consumers a one off bonus - while destroying their jobs. In the long run, we're all dead. John Maynard Keynes
But this doesn't help explain why workers show a distinct preference for employment protection over protection of inflation. How to explain that?
Your neo-lib bogeymen haven't broken the indexation either, not even close and they can't right now either. But give Europe 20% unemployment again, and we'll see. That's what your policies will lead to.
Understood on the ost-mark conversion, that was a disaster. Which French President went along with that whole programme and used essentially political graft to get re-elected via illegal campaign financing? Fai de bčn a Bertrand, te lou rendra en cagant
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
Minimum wages in Europe Scroll down to find the chapter about adjustment. "Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
We have neither a minimum wage nor wage indexing. Instead we have collective bargaining by fair and responsible employers and fair and responsible labour unions. Peak oil is not an energy crisis. It is a liquid fuel crisis.
And well, union membership is something like 75-85 %. I mean, I'm about as hard right as you can be in Sweden, and even I'm a labour union member!
(not a member of the big soc dem labour union though) Peak oil is not an energy crisis. It is a liquid fuel crisis.
And don't say limit free trade, because then I'll scream! ;) Peak oil is not an energy crisis. It is a liquid fuel crisis.
Unfettered free trade has been a disaster for workers in both the developed and the developing world. Fai de bčn a Bertrand, te lou rendra en cagant
You can see the same template in effect in Africa too.
If workers are better off today, how to explain the gini coefficient, and the mass migrations of peoples? Happy people tend to stay put; people in distress migrate. Migration costs a lot of money, I know this first hand.
Ask a migrant if he'd rather be back home or in a Des Moines, IA meat packing plant doing grueling work for low pay and no protections as an illegal immigrant, I think you can guess the answer. But, ask him who's got the family plot of land now, and he'll say Dole or Del Monte or some other agro-alimentary concern, which flooded the market with low priced goods from subsidized and mechanized farms, drove him out of business and then bought his land cheap.
Collectivization in the interest of Capital rather than the people, that's what "free trade" has been primarily about. Fai de bčn a Bertrand, te lou rendra en cagant
The big story is China and India and the giant progress which has been made there (check it in Gapminder), and no amount of Mexican anecdotes is going to change that.
By the way, massive migration is in itself nothing bad. The hundreds of millions who have left the Chinese countryside hasn't done it because they've gotten worse off - you can't get worse off than a poor Chinese farmer without dying - but because they've gotten an opportunity to live a better life in the cities. It's the same thing which happened in Europe during the 20th century.
All your complaints about the results of free and unfettered trade is not due to the trade itself, but a sympotom of local problems. They are bugs, not features. Peak oil is not an energy crisis. It is a liquid fuel crisis.
I hve this in my "decline" article:
In the long run, we're all dead. John Maynard Keynes
On one hand you have the US were GDP has grown by X % over time Y, while median incomes have been stagnant. That's very bad and one can indeed question why the hell we should even care about economic growth at all in that situation.
On the other hand we have places like Western Europe where the elite might have increased their incomes by 100 % over time Y while median incomes have risen only 50 %.
While the first situation is horrible, the second is certainly not. Peak oil is not an energy crisis. It is a liquid fuel crisis.
Assume public investments undertaken pay back at roughly a 4% discount rate.
And, for the sake of the argument, you can ignore the currently moderately high risk of deflation if you do nothing. Fai de bčn a Bertrand, te lou rendra en cagant
If debt is used to fund investment, then usually the accompanying increase in economic activity makes it possible for no inflation to appear. If debt is used to fund consumption, then you will have inflation (of the asset price kind if wages and prices are constrained by other factors like brnging in China's workers in the equation).
So it is less unreasonable to argue for a debt-fuelled investment package by government, as opposed to a pure stimulus (giving money to households for them to consume). But that's not really what we're talking about here, is it? It's certainly not what Brown and Sarkozy are pushing, and which redstar is defending so ardently. In the long run, we're all dead. John Maynard Keynes
Enough of this. This is bullshit. It's your blog. I'll go build me own. Fai de bčn a Bertrand, te lou rendra en cagant
I supported Steinbruck's specific point that debt was dangerous today and you said that my Germanic (now Hooverian) obsession with balanced budgets was misguided in view of the tsunami coming towards workers in Europe.
We've been talking past one another ever since. In the long run, we're all dead. John Maynard Keynes
On more than one occasion it's been made clear to me that my perspective is far out of the mainstream of accepted views here, this is another ongoing one.
I don't mean to be supercilious or anything about this, really I don't. It's just pretty clear this is not a particularly fruitful debate. On this and many other subjects we are talking past another. I'd rather go and be productive elsewhere. Fai de bčn a Bertrand, te lou rendra en cagant
He thinks aiming for balanced budgets (via tax increases) and being careful like the Germans is a dangerous mistake. He points to the examples of the US in 1937 and Japan in 1996-1997. Peak oil is not an energy crisis. It is a liquid fuel crisis.
I read Krugman as saying that it's the wrong time to be careful and reduce the demand of the 80% of the population that consumes everything they earn and more.
But we know that in the case of USA, it's on the wealthy that the tax increase should go -they pay a lower rate than the median earners... Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi
At a certain point, when repeated, the general policy becomes the answer to the crisis.
Bonddad on kos, who I don't usually care for, has a good piece on what happens when you play it by the so-called "rules" and adhere to the general policy. Fai de bčn a Bertrand, te lou rendra en cagant
Granted you seem to agree on many occasions that public investment is needed on a number of fronts (housing, green energy, educational and transportation infrastructure). And I think you would also agree that these investments would be stimulative to the economy and thereby mitigate the severe recession (and perhaps the "d" word) which is gathering in Europe today and the absolutely certain stress it will put on the weakest among us, in particular workers who have had their protections bargained away, often by parties (like the SPD) who ostensibly represent them.
But you still insist on "pay-as-you-go" budget constraints, preferring a balanced budget environment to investment if both cannot be achieved at the same time, and you've never indicated what fiscal measures (and, of course, supporting non-fiscal measures to enforce those fiscal measures) you would specifically make in order to both have it your way, in the present environment, on the budget and also engage in stimulative, badly needed public investments in order to maintain employment and/or purchasing power of workers.
To me, this is simply Hayek with some high-sounding progressive principles to mask the deep, worker-damning conservatism which animates the underlying economic weltenshauung expressed here, and obviously, as expressed elsewhere, I think this is both deeply flawed and deeply anti-worker.
Fai de bčn a Bertrand, te lou rendra en cagant
The rot may have happened in more extremely unregulated financial markets like New York and London, but Paris and Frankfurt are not immune, not by any stretch of the imagination, because even the best front-end and back-end risk management and control systems can contain the damage that the system inevitably provokes via speculative bubbles which have been with us as long as their has been a bourgeoisie and the expression, via markets, of their economic interests.
We give unmerited cover to neo-liberalism in particular, and liberalism in general, by insisting there is a difference between a "financial" economy and the "real" economy. And even in a properly constituted socialist economy, command or otherwise, one sees cadres and decision makers who determine credit and capital allocation, who could not really be called anything else but financial analysts when observed in the present systems doing to much damage to workers today. Fai de bčn a Bertrand, te lou rendra en cagant
Having more socialism, regulation or whatever might well have the opposite effect. In for example Sweden, the stagnation did not begin with deregulation but with overregulation, which broke the back of the almost constant century-long rocket development of my country, between 1870-1970, perfectly exemplified by how both left and right politicians jointly destroyed the most high-tech industry we had.
It took a quarter of a century to deal with the fallout and get back on track. Peak oil is not an energy crisis. It is a liquid fuel crisis.
I much prefer the capital allocation of the French technocats after WWII than the current one. They took pride in building systems that worked, not just in accumulating money.
Finance distorts the incentives by allowing selfish personal ones to be fulfilled via macroeconomic tools. In the long run, we're all dead. John Maynard Keynes
Happy New Year to you too, by the way! Fai de bčn a Bertrand, te lou rendra en cagant
We give unmerited cover to neo-liberalism in particular, and liberalism in general, by insisting there is a difference between a "financial" economy and the "real" economy.
There is a difference.
The financial economy is an intermediary layer between producers and consumers.
The big change is the emergence of direct "Peer to peer" connections. This is about to change the game IMHO and will disintermediate what is now an unnecessary layer. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
The requirement is still there for providers of financial services. But as value adding partners, not as value extracting middlemen.
It's a market approach: but it's a market operating on a "Not for Loss" basis, rather than "For Profit". There is no "Profit" and no "Loss" within a partnership framework. "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
As starvid noted above, not increasign taxes now is akin to letting inflation deal with the revenue side of your stimulus, is a flat tax.
By pushing the notion that taxes cannot be increased, you sound like an objective ally of the neolibs. There - bonne année! In the long run, we're all dead. John Maynard Keynes
Taxes of course can be increased. But unless you know something I don't, the UMP, the CDU/SPD, the Berlusconi and Balkenende governments are not going to do it until they've been tossed out of office, which in France is a long ways off. So, if you are insisting on tax increases to pay, today, for investments which are needed quite urgently, today, then you are saying that no investment should be undertaken under present circumstances. Here, it is you who is not being pragmatic, but rather, dogmatic. Where you accuse me of supposedly being (again) the objective ally of Sarkozy all the while borrowing his rhetoric on the real economy versus financial speculation, I would say rather that you appear to be hell-bent on worsening the crisis by doing nothing, and thereby condemning workers to even lower living standards, precarious housing, declining working conditions and greater overall exclusion and precarity, especially of the young and of minority workers.
And in any case, where is your PS now on the subject, besides vague belly-aching about the bouclier fiscale which, even if repealed, wouldn't pay for anywhere near what what we are talking about. Fai de bčn a Bertrand, te lou rendra en cagant
A BBC poll has found that 71% of people would vote against Britain joining the euro if it was put to a referendum. The survey of 1,000 adults revealed that just 23% would vote "yes" to joining the European single currency, while 6% said they were unsure.
A BBC poll has found that 71% of people would vote against Britain joining the euro if it was put to a referendum.
The survey of 1,000 adults revealed that just 23% would vote "yes" to joining the European single currency, while 6% said they were unsure.
Teh stuped - it burns.
Euro entry for the UK might well be the cheapest option in the long run.
The dollar is increasingly money backed by financiers-manipulated debt. The euro is fundamentally money backed by real economic activity. The distinction will matter. And the finance industry will follow.
We may soon see losses in increasingly obsolete parts of manufacturing that rival those of the financial sector. Our advantage is that these seem to be in a worse shape in the US, and another is that in most of Europe we will see much less of a drop in housing prices.
Following a link from FT.com I find this article. Including for example Citigroup leverage ratio 2008: 56
There is a reason why Citibank got a lot of money from the US treasury.
Also included in the article is this important paragraph:
All of those leverage ratios are high. And they actually understate the truth. For instance, besides the $2.1 trillion of assets Citi has ON its balance sheet, it has another $1.2 trillion OFF its balance sheet. The only reason I didn't include these in my calculation is I wasn't sure how much off-balance sheet exposures the other banks have and I wanted the leverage calculations to be consistent. (I tried to look it up in their SEC filings, but disclosure varies by company. Citi is the only one of the bunch that spells it out clearly.)
I don´t know if the same is true for European banks too. I seem to remember that accounting rules are different in Europe? Anyway the numbers seem to indicate that the leverage ratios aren´t that different.
Their total assets compared to their capital base can be 30-50 times larger, compared to ratios in the 20-30 range for US banks. That's clearly going to change, but it does matter what kind of assets you hold.
Highly regulated mortgage loans to domestic households are clearly a better proposition in France and Germany than in the US or UK, even if they hold the same kind of rating and capital requirement.
You simply cannot get a loan where debt service is more than 35% of your documented income in France - it's illegal. In the long run, we're all dead. John Maynard Keynes
And it's not overwhelmingly inflationary in the context of an economy operating below full capacity and subject to strong deflationary pressures, as you well know -- again, if we're talking about productive assets. Some inflation down the road, of course, but that's not an altogether bad thing. It's part of the point.
Now, should taxes rise on the wealthy? Yes. But if you simply raise taxes by the amount of the stimulus, it's not a stimulus. The net effect is zero or near-zero. More progressive taxation is a general policy goal. It doesn't have much to do with the ins and outs of a stimulus package. It's more of a "Hey, while we're at it, let's rebalance the tax burden while we have political capital" kind of thing.
Operating under normal conditions or in the case of a mild recession, I'd agree with your view that fiscal prudence should be the priority. Maybe loosen a bit, but leave most of the heavy lifting to the central bank. That's not what this is, though. Conservatives want live babies so they can raise them to be dead soldiers. - George Carlin
But if you simply raise taxes by the amount of the stimulus, it's not a stimulus.
