Why Can’t the U.S. Just “Print” All the Money It Needs?

Why can’t the U.S. just “print” all the money it needs?

It can.

It just can’t print all the money it doesn’t need.

In other words, the constraints on the ability of a government that is the issuer of its own sovereign currency (like the U.S. but unlike Greece, for instance) are not monetary constraints, they are resource constraints (needs). So long as the money can be put to work in productive fashion by creating goods, creating jobs, building infrastructure, etc, the creation of new money “out of thin air” is not inflationary.

These ideas are all tenets of a system called Modern Monetary Theory (MMT).

The following is an entertaining 14-minute animated primer on Modern Monetary Theory, which challenges everything we thought we knew about economics for the last 100 years, particularly the notion that big government deficits are always bad, and that the U.S. government has to first borrow money before it can spend it.

The $28 trillion bailout of the financial sector in 2008 by creating money out of thin air should have shown us that we’re not in Kansas any longer.

Why not for instance create $1 trillion out of thin air to solve the long-term fiscal issue with Social Security? Or to fund a jubilee (forgiveness of debt) for underwater homeowners? Or a jubilee for student debtors? Or to put millions of unemployed people to work?

The following primer on MMT shows that all these things are really possible:

The Planned 3 Percent Cut to Social Security; Obama and the Democrats Are on Board

Reprinted from Alternet

By Dean Baker

The bottom line is that President Obama and many leading Democrats are prepared to give seniors a larger hit to their income than they gave to the over $250,000 crowd.

 

According to inside Washington gossip, Congress and the president are going to do exactly what voters elected them to do; they are going to cut Social Security by 3 percent. You don’t remember anyone running on that platform? Yeah, well, they probably forgot to mention it.

Of course some people may have heard Vice President Joe Biden when he told an audience in Virginia that there would be no cuts to Social Security if President Obama got reelected. Biden said: “I guarantee you, flat guarantee you, there will be no changes in Social Security. I flat guarantee you.”

But that’s the way things work in Washington. You can’t expect the politicians who run for office to share their policy agenda with voters. After all, we might not like it. That’s why they say things like they will fight for the middle class and make the rich pay their fair share. These ideas have lots of appeal among voters. Cutting Social Security doesn’t.

While the politics of cutting Social Security are bad, it also doesn’t make much sense as policy. In Washington, the gang who couldn’t see an $8 trillion housing bubble until its collapse sank the economy, has now decided that deficit reduction has to be the preeminent goal.

They don’t care that we are still down more than 9 million jobs from our growth trend; deficit reduction must take priority. These whiz kids apparently also don’t care that the cuts that have already been made are slowing growth and costing us jobs.

If we actually did have to reduce the deficit it’s hard to see why Social Security would be at the top of the list. After all, the vast majority of seniors are not doing especially well right now. Our defined benefit pension system is disappearing and 401(k)s have not come close to filling the gap. Retirees and near retirees have lost a large portion of whatever wealth they had managed to accumulate when the collapse of the housing bubble destroyed much of their home equity.

From a policy standpoint it would make far more sense to tax Wall Street speculation. Congress’ Joint Tax Committee estimated that a 0.03 percent tax on each trade could raise almost $40 billion a year. Such a tax would also make the financial sector more efficient by eliminating a huge volume of wasteful trading.

It also is bizarre that Social Security would even be considered in the context of the deficit. In law and in practice it is a separate program, financed by its own designated stream of revenue. Cutting benefits as part of a deficit deal means that we will be making cuts to Social Security with zero quid pro quo in the form of increased revenue. That hardly makes sense if the point is to protect the program.

What’s more the cut in fashion in Washington is especially poorly targeted. The idea is to reduce the annual cost of living adjustment by 0.3 percentage points annually by using a different inflation index, the “chained CPI.” That translates into a cut in benefits of 3 percent for those who have been retired 10 years, 6 percent after 20 years, and 9 percent after 30 years. The people who have been retired the longest and therefore the poorest will see the largest cuts.

And remember those pledges not to cut benefits for those currently retired? Oh right, no one meant that to be taken seriously.

The benefit cutters argument is another nice piece of D.C. humor. The argument is that the current index overstates inflation. However, there is an experimental index produced by the Bureau of Labor Statistics that shows the current index actually understates inflation for seniors.

That is just an experimental index but if the concern really is accuracy then the obvious answer would be to construct a full index to examine the cost of living of the elderly. But that suggestion just draws contempt from the Social Security cutters.

In order to avoid feeling too badly about their plan to cut Social Security, many of the cutters want to protect some programs for low-income people. For example, Supplemental Security Income (SSI), a program for the disabled and low-income seniors, will be protected. The word is that SSI will continue to be indexed to the current inflation index.

If we believe the claim that the chained CPI is the more accurate measure of inflation, this is a proposal to increase SSI benefits each year by an amount that is 0.3 percentage points more than annual rate of inflation. That may make sense to inside Washington types, but anywhere else this is loon tune stuff. If SSI benefits are too low (they are), then raise them. What possible logic can there be to have benefits rise each year by a bit more than the actual rate of inflation?

The bottom line is that President Obama and many leading Democrats are prepared to give seniors a larger hit to their income than they gave to the over $250,000 crowd. And the whole reason it is necessary is that the Wall Street types who wrecked the economy say so. Is everybody happy?


Dean Baker is the author of The End of Loser Liberalism: Making Markets ProgressiveTaking Economics Seriously, False Profits: Recovering from the Bubble Economy, Plunder and Blunder: The Rise and Fall of the Bubble Economy, The United States Since 1980, The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer, Social Security: The Phony Crisis (with Mark Weisbrot), and The Benefits of Full Employment (with Jared Bernstein). He was the editor of Getting Prices Right: The Debate Over the Consumer Price Index, which was a winner of a Choice Book Award as one of the outstanding academic books of the year. He appears frequently on TV and radio programs, including CNN, CBS News, PBS NewsHour, and National Public Radio. His blog, Beat the Press, features commentary on economic reporting. He received his B.A. from Swarthmore College and his Ph.D. in economics from the University of Michigan.

Will the Human Race Survive Past the Year 2100?

Arizona Professor Emeritus Guy McPherson gave up his comfortable tenured position in his late forties and “went back to the land, where he raises goats and gardens and works with his neighbors.” Why would he do that? Here’s a clue:

MacPherson, who makes Bill McKibben sound like Dr. Pangloss, continues to travel and lecture in his area of expertise, which is climate change and what he sees as the likely destruction of most of the Earth’s oxygen and the extinction of the human race sometime between 2050 and 2100.

This probably sounds like a sick joke, right? It isn’t. See his latest talk below, and decide for yourself:


MacPherson mentions that the methane “torches” (vents) discovered in Siberia in 2010 (see video below) had by 2011 expanded from 1 foot in diameter to 1 kilometer in diameter.

Change is happening fast … MacPherson calls such phenomena “positive feedback loops” … and here “positive” is bad, very bad.


Acccording to MacPherson, referring to a graph from the Arctic Methane Emergency Group, “Arctic warming went exponential in 2010:”

Obama Signaling His Clear Desire to Reduce Social Security Benefits

Barak Obama, while addressing a luncheon at the Brookings Institute in 2009 (see short video excerpt below), had this to say about his desire to rewrite the New Deal:

“For those on the left — and I include myself in that category — too many of us have been interested in defending programs the way they were written in 1938, believing that if we admit the need to modernize these programs to fit the changing times, then the other side will use those acknowledgements to destroy them altogether.”

Aaron Swartz And The Obama Administration’s War On Public Access To Information

From Jonathan Turley’s blog:

The suicide of famed programmer and free access advocate Aaron Swartz shocked the world. However, the underlying story of the how the Obama Administration prosecuted — and, in the eyes of many, persecuted — Swartz for seeking to publish academic papers which were later released by MIT without charge. Nevertheless, United States Attorney Carmen M. Ortiz and the Obama Administration relentlessly pursued Swartz and sought an absurd 35 years in prison and $1 million in fines before he took his own life. His family blames the Justice Department and Ortiz for his suicide.

Swartz was one of this country’s most extraordinary individuals. At age 14, he helped create RSS, the tool allowing people to subscribe to online information. He later was a founder of a company that merged with Reddit where we get many of our daily stories.

Read the full posting here.

The Delights of Grass Valley and Nevada City (SF Bay Guardian Article)

Check out this article from the San Francisco Bay Guardian on the delights of living the good life in the vicinity of Grass Valley and Nevada City (and make sure to read through the reader comments for some additional delights the author missed):

Appetite: 12 reasons to love Nevada City and Grass Valley
By Virginia Miller

Saint Ronnie: “Social Security Has Nothing to do with the Deficit”

Right-Wingers Who Think They Got ‘Rolled’ by Obama In Cliff Deal Are Totally Crazy

Reprinted from Alternet

By Joshua Holland

I thought that by this point, I was beyond the capacity to be shocked by the delusions held by the American Right. But my jaw dropped when I read that a number of high-profile conservatives are outraged about the fiscal slope deal, and believe they have been “rolled” by Obama. The very notion is wildly delusional.

Despite the fact that big majorities of the population have consistently told pollsters that they want to see the “Bush tax cuts” end for the top 2 percent of households – and taxes kept low for the other 98 percent – it’s been quite clear that the GOP’s first priority was to hang onto those cuts for the wealthiest Americans. Let’s consider how they’ve done.

In 2008, Obama ran on letting the Bush cuts for high earners expire while protecting the middle class, and won a landslide victory over John McCain.

But those rates for the top earners remained for the entirety of his first term, including the two years when Dems held both chambers of Congress.

That brings us to 2012. Obama runs on the same promise again – let the Bush tax cuts for the top 2 percent expire, prevent a tax hike from hitting the other 98 percent. He defeated Mitt Romney decisively.

Two months later, we hit this contrived fiscal slope. And we started down it – at midnight on New Year’s Eve, the Bush tax cuts finally expired.

Some progressives have argued that one of Obama’s “wins” in the deal was breaking the Republican pledge never to raise taxes, ever. But because the Bush cuts expired a day before this deal was passed, that’s not technically true. No Republicans had to vote for a tax increase, and Grover Norquist’s pledge remains intact.

And the tax policy center has crunched the numbers on what are now the Obama tax cuts.

The deal made the Bush tax cuts permanent for 65 percent of households in the top 2 percent. They are now the baseline.

The cutoff for the estate tax increased from $1 to $5 million, and is now indexed for inflation. That’s permanent.

And the very richest households’ capital gains taxes were permanently cut from 35 percent to 20 percent.

As for the middle class and working poor, their modest share of the Bush tax cuts are now permanent as well, but because the Dems’ payroll tax cut was allowed to expire, their taxes will nonetheless go up.

So: after losing two elections against a candidate who promised to raise taxes on the top 2 percent while protecting the middle class, the fiscal slope resulted in the lion’s share of the Bush tax cuts for the wealthiest becoming permanent, and taxes went up on the middle class.

Meanwhile, the deal created another contrived fiscal cliff – or series of cliffs – in just two short months. First, the debt ceiling needs to be raised. Then, the deep “automatic” spending cuts known as the “sequester” kicks in. Finally, at the end of March, the budget resolution that keeps the government funded expires.

Obama says he refuses to negotiate on the debt limit, and that may be true, but that means little because of these other opportunities for the GOP to hold the economy hostage.

Senate minority leader Mitch McConnell promised that he’d use that opportunity to exctract concessions. “The moment that [Obama] and virtually every elected Democrat in Washington signed off on the terms of the current arrangement, it was the last word on taxes,” he said. “That debate is over. Now the conversation turns to cutting spending…. And the upcoming debate on the debt limit is the perfect time to have that discussion.”

Meanwhile, Obama has given up much of his leverage for the next round by taking high-end tax cuts out of the debate.

This is what conservatives see as being “rolled” by Obama. And you wonder why it’s so hard for the parties to come to an agreement.


Joshua Holland is an editor and senior writer at AlterNet. He’s the author of The 15 Biggest Lies About the Economy. Drop him an email or follow him on Twitter.

« Previous Page

Bitnami