04/25/2013 archive

Punting the Pundits

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

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Jared Bernstein: The Preferences of the Wealthy and Their Role in Our Politics

A critical concern of our time is not simply our high levels of income inequality and their negative impact on opportunity and mobility. It’s how inequality and immobility become entrenched in the system — how they replicate.

In a nation like ours, where the flow of money into politics keeps getting stronger, one way this occurs is through the political preferences of the wealthy. Of course, at any point in our history, the disproportionate policy influence of the wealthy has been a serious problem for our democracy. But in today’s America, two factors intensify this threat: the increased concentration of economic resources, and the increased access those resources have to the political system.

There’s yet another piece to this puzzle, however, kind of a riff off the old F. Scott Fitzgerald line about the rich being different from the rest of us (i.e., besides “they’ve got more money”). What are the political preferences of the wealth and how do they differ from those of the rest of us?

Robert Sheer: 277 Million Boston Bombings

The horror of Boston should be a reminder that the choice of weaponry can be in itself an act of evil. “Boston Bombs Were Loaded to Maim” is the way the New York Times defined the hideousness of the weapons used, and President Obama made clear that “any time bombs are used to target innocent civilians, it is an act of terror.” But are we as a society prepared to be judged by that standard?

The president’s deployment of drones that all too often treat innocent civilians as collateral damage comes quickly to mind. It should also be pointed out that the U.S. still maintains a nuclear arsenal and, as our killing and wounding hundreds of thousands of innocent Japanese demonstrated, those weapons are inherently, by the president’s definition, weapons of terror. But it is America’s role in the deployment of antipersonnel land mines, and our country’s refusal to sign off on a ban on cluster munitions agreed to by most of the world’s nations, that offers the most glaring analogy with the carnage of Boston.

Eugene Robinson: Resolute, but With an Asterisk Resolute, but With an Asterisk

The nation demonstrated again last week how resolute it can be when threatened by murderous terrorists-and how helpless when ordered to heel by smug lobbyists for the gun industry. [..]

Shamefully, however, we have also shown that when alienated young men who are not foreign-born or Muslim do the same, we are powerless.

It is inescapably ironic that while Boston was under siege last week, the Senate was busy rejecting a measure that would have mandated near-universal background checks for gun purchases nationwide-legislation prompted by the massacre of 20 first-graders and six adults last December at Sandy Hook Elementary School in Newtown, Conn.

Richard (RJ) Eskow: Austerity’s Curveballs

Since the austerity crowd won’t own up to a mistake, I will: I engaged in a kind of thought experiment last week, after we first learned that austerity economics is partly based on a spreadsheet error. I wondered, What if you were a government leader who sincerely believed those figures, or an economist who made the mistake of a lifetime?

My empathy was misplaced. This discovery hasn’t changed government policy one bit — at least not yet. Economists Carmen Reinhart and Ken Rogoff seem surprisingly unremorseful. And austerity’s paid pitchmen are still hawking their wares.

It looks like we’re dealing with austerity’s “Curveballs.”

Robert Reich: The Xenophobe Party

The xenophobia has already begun. [..]

Immigration reform is not about national security, in any event. It’s about doing what’s right, and giving the estimated 11 million undocumented immigrants in America — many of them here for years, working at jobs and paying withholding taxes, and many of them children — a path to citizenship. [..]

The horror of the Boston Marathon is real. But the xenophobic fears it has aroused are not. I would have hoped United States senators felt an obligation to calm public passions than pander to them.

We need immigration reform, and we must protect our civil liberties. These goals are not incompatible with protecting America. Indeed, they are essential to it.

Wendell Potter: [The Higher Health Insurers’ Claim Denial Rate, the Higher the CEO Pay The Higher Health Insurers’ Claim Denial Rate, the Higher the CEO Pay]

When you’re shopping for health insurance, wouldn’t it be great if you could find out every insurer’s claim denial rate? And how much each one spent on lobbying and advertising — and how much they paid their CEO?

You can now find all of that information and more if you live in Vermont, thanks to a law that was enacted last year at the urging of the Vermont Public Interest Research Group.

In compliance with that law, the insurers that do business in Vermont have just disclosed data they’ve been able to keep secret for years. And that information should come in handy when Vermonters begin shopping for coverage at the state’s online health insurance exchange in October.

On This Day In History April 25

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

April 25 is the 115th day of the year (116th in leap years) in the Gregorian calendar. There are 250 days remaining until the end of the year.

On this day in 1859, ground broken is for Suez Canal

At Port Said, Egypt, ground is broken for the Suez Canal, an artificial waterway intended to stretch 101 miles across the isthmus of Suez and connect the Mediterranean and the Red seas. Ferdinand de Lesseps, the French diplomat who organized the colossal undertaking, delivered the pickax blow that inaugurated construction.

Artificial canals have been built on the Suez region, which connects the continents of Asia and Africa, since ancient times. Under the Ptolemaic rulers of Egypt, a channel connected the Bitter Lakes to the Red Sea, and a canal reached northward from Lake Timsah as far as the Nile River. These canals fell into disrepair or were intentionally destroyed for military reasons. As early as the 15th century, Europeans speculated about building a canal across the Suez, which would allow traders to sail from the Mediterranean to the Indian Ocean via the Red Sea, rather than having to sail the great distance around Africa’s Cape of Good Hope.

The Suez Canal, when first built, was 164 km (102 mi) long and 8 m (26 ft) deep. After multiple enlargements, the canal is 193.30 km (120.11 mi) long, 24 m (79 ft) deep, and 205 metres (673 ft) wide as of 2010. It consists of the northern access channel of 22 km/14 mi, the canal itself of 162.25 km/100.82 mi and of the southern access channel of 9 km/5.6 mi.

It is single-lane with passing places in Ballah By-Pass and in the Great Bitter Lake. It contains no locks; seawater flows freely through the canal. In general, the Canal north of the Bitter Lakes flows north in winter and south in summer. The current south of the lakes changes with the tide at Suez.

The canal is owned and maintained by the Suez Canal Authority (SCA) of the Arab Republic of Egypt. Under international treaty, it may be used “in time of war as in time of peace, by every vessel of commerce or of war, without distinction of flag.”

Construction by Suez Canal Company

In 1854 and 1856 Ferdinand de Lesseps obtained a concession from Sa’id Pasha, the Khedive of Egypt and Sudan, to create a company to construct a canal open to ships of all nations. The company was to operate the canal for 99 years from its opening. De Lesseps had used his friendly relationship with Sa’id, which he had developed while he was a French diplomat during the 1830s. As stipulated in the concessions, Lesseps convened the International Commission for the piercing of the isthmus of Suez (Commission Internationale pour le percement de l’isthme des Suez) consisting of thirteen experts from seven countries, among them McClean, President of the Institution of Civil Engineers in London, and again Negrelli, to examine the plans of Linant de Bellefonds and to advise on the feasibility of and on the best route for the canal. After surveys and analyses in Egypt and discussions in Paris on various aspects of the canal, where many of Negrelli’s ideas prevailed, the commission produced a final unanimous report in December 1856 containing a detailed description of the canal complete with plans and profiles. The Suez Canal Company (Compagnie Universelle du Canal Maritime de Suez) came into being on 15 December 1858 and work started on the shore of the future Port Said on April 25, 1859.

The excavation took some 10 years using forced labour (Corvée) of Egyptian workers during a certain period. Some sources estimate that over 30,000 people were working on the canal at any given period, that altogether more than 1.5 million people from various countries were employed, and that thousands of laborers died on the project.

The British government had opposed the project of the canal from the outset to its completion. As one of the diplomatic moves against the canal, it disapproved the use the slave labor of forced workers on the canal. The British Empire was the major global naval force and officially condemned the forced work and sent armed bedouins to start a revolt among workers. Involuntary labour on the project ceased, and the viceroy condemned the Corvée, halting the project.

Angered by the British opportunism, de Lesseps sent a letter to the British government remarking on the British lack of remorse a few years earlier when forced workers died in similar conditions building the British railway in Egypt.

Initially international opinion was skeptical and Suez Canal Company shares did not sell well overseas. Britain, the United States, Austria, and Russia did not buy any significant number of shares. All French shares were quickly sold in France

Boston Marathon, How They Saved So Many Lives

Last week I wrote about the use of tourniquets in a pre-hospital emergency to save someone from bleeding to death. Tourniquets were used very effectively in Boston and were a key factor in getting so many to the hospital alive. At the finish line there were two medical tents with cots, blankets and IV fluids to treat dehydrated, hypothermic runners. Both were staffed with doctors and nurses. An emergency-room physician from Georgia, Dr. Allan Panter, was waiting at the finish line for his wife. He was just 10 yards a way from the first explosion. He assisted with victims and after went to the tents to assist. He described the events:

While there was some initial chaos in a medical tent near the finish line, and some screaming and moaning by victims, it was generally an orderly scene, Dr. Panter said. He assisted others in wheeling in a female victim who died, he said. He described 20 to 30 cots in the tent with IV bags that had been intended for dehydrated runners.

At least eight doctors and what seemed to be 20 or more nurses were stationed in the tent. A man with a microphone stood in the center of the tent to coordinate medical care. Arriving victims were assessed and categorized as 1 for critical, 2 for intermediate, 3 for “can wait” and “black tag” for anyone who appeared to be dead, Dr. Panter said. An emergency medical technician outside the tent coordinated ambulance service to hospitals.

“All in all, it was a pretty controlled environment,” said Dr. Panter, who has been an emergency-room physician for 30 years. “I’ve seen a lot worse. They were without question ready – not ready for those type of injuries, but they were prepared.”

There usually aren’t those provisions or medical staff on site and this still required the actions of bystanders to help control bleeding and move patients to the tents and ambulances. The night after the bombings on MSNBC’s “The Last Word,” host Lawrence O’Donnell spoke with Dr. Lyle Micheli, the head physician at the finish line and Massachusetts General Emergency Room Nurse Meghan McDonald about their experience:

But what happened in the hospitals was even more critical. It wasn’t like the ER’s were empty and waiting for these patients. As Nurse McDonald described in the interview Massachusetts General hospital had 90 patients being treated, waiting for admission or discharge when the explosions happened. The other four other ER’s that would receive the bulk of the casualties were in not much better shape. Luckily they all have similar disaster plans in place and have frequent drills to keep the staff prepared. Prepared they were. Of the initial 170 patients the five level one trauma centers received that day only one patient, who arrived in cardiac arrest, died. The other two fatalities were pronounced dead at the scene. That is a quite a feat and a testament to the training and skills of the doctors, nurses and other support staff. This article in the New York Times describes how Massachusetts General Hospital handled the disaster:

The first priority for those who were severely injured was to prevent them from dying, often from bleeding to death. Many had tourniquets on their legs when they arrived at the hospitals. But that was just a temporary measure to slow the bleeding. They needed immediate surgery to get their bleeding under control and prevent muscles and nerves from dying for lack of blood. [..]

That requires a vascular surgeon to repair the torn blood vessels and restore blood to legs and feet that may no longer have a blood supply. To do those repairs, surgeons often sew in part of a vein from the other leg, if it is uninjured, or from an arm. Or they use a synthetic tube.

Meanwhile, an orthopedic surgeon must stabilize a bone that might be flopping because it is fractured in several places. Surgeons do that with a temporary solution – they drill into the bone from outside the leg and attach pins that they screw into a metal bar also outside the leg.

Plastic surgeons clean the wound. In this case, blast victims had BBs or nails or debris embedded in their legs and feet. Everything the surgeons took out of the wounds was placed in plastic bags for the F.B.I., said Dr. Samuel J. Lin, a plastic surgeon at Beth Israel Deaconess Medical Center who helped care for blast victims.

“The crime scene extends to the hospital,” Dr. Lin said.

It’s definitely an art. It might appear chaotic to the casual beholder as everyone seems to be moving and talking at once. Each staff member has his or her job and is looking and listening so as not to miss details. Usually there is one coordinator, in situations like this there are some times more, as the ER is sectioned off into areas that depend on the patient’s status. Life threatening are first, then go back to treat and repair everything else. The decision to amputate a limb is not made lightly and is done most often to save a patient’s life. The other reason is that the bone, tissue and vascular damage is so severe there is no other option. The doctors in Boston had the luxury of having an immediate second opinion, it doesn’t always happen that way in combat zones or parts of the third world.

MSNBC’s Rachel Maddow saluted the thorough, professional and remarkably successful performance of the medical professionals who responded to the emergency injuries of the Boston Marathon Bombings and kept the public informed with honest straightforward briefings.

“Who ever came in alive, stayed alive.”

Dr. George Velmahous, Chief of Trauma Surgery, Massachusetts General Hospital

Thank you to all. Well done.

Introduction to Modern Monetary Theory

Dale Pierce just published the last part of a 3 part introduction to Modern Monetary Theory and while I quote Krugman when I think his policy prescriptions are useful (which is frequently) and frame most of my arguments from a NeoClassical (Samuelson) perspective (because then I don’t have to waste a lot of photons justifying myself), I’m increasingly attracted to MMT.

It’s fundamentally based on generally accepted principles of accounting (who says accountancy is boring) that have been around (documented) since the 1400s so in its own way it’s the Magna Carta of Economics.

Now what makes MMT “Modern” is that it assumes Government issued fiat currency (money) not associated with any particular commodity or fixed exchange rate (into other currencies).  A lot of intellectual energy goes into justifying that historically because so many people are emotionally invested in the concept that Gold or similar bright and shiny objects == money and that arbitrary currency inevitably leads to hyper-inflation (which is not inherently a bad thing provided wages and returns on capital investment keep pace).

Told you I was radical.

It is posted at New Economic Perspectives which I heartily advise bookmarking if you are into economic policy.  These are serious dudes with chops of the same sort as Friedman/Randian/Chicago School Monitarists and NeoLiberal/Rubinite/Salt Water Free Trader Globalists.

Modern Monetary Theory – An Introduction: Part 1

By Dale Pierce

Posted on April 22, 2013

MMT explores the monetary- and fiscal-policy implications (of) fiat-money. And this is, or should be, a politically neutral line of inquiry. We don’t have one monetary system for Democrats and another one for Republicans. However, there are few areas of policy disputation that are more hotly contested in America today than the ones MMT is most interested in exploring. The top three things that MMT seeks to explain are tax policy, the government’s budgetary and other other fiscal policies, and monetary policy. Enough said. Neutrality isn’t really an option when we will be addressing such unavoidably controversial subjects.

For Americans, the history the 1970s is painful history. a lot of people would just rather not think about it. But somewhere in the fourth year of a decade whose first year was all about Viet Nam, and whose final year witnessed the hostage-taking in Tehran, Richard Nixon completed the process he began with the suspension of convertibility of dollars for gold in 1971. Nixon “floated the dollar” on international currency markets. Except for people who were itching to speculate on gold, the public hardly noticed any of it. The experts said not to worry. And, sure enough, there were no noticeable effects for individual citizens – with the emphasis on “noticeable”. Behind the scenes, and in ways not even financial experts understood at the time, this change would change everything.

But initially – who really cared? Gold and dollars hadn’t been convertible for American citizens since a Depression-era measure which was passed way back in 1935. A provision of it banned the private ownership of any more than jewelry-size amounts of gold. People were glad to see that restriction go away – it was an affront to tell people what they could or could not buy, including gold. As for whatever central banks did with the stuff – well, what did they do with, or do about, anything?

Most Americans who think about it at all blame the Great Inflation of the 1970s on the introduction of fiat money back then. This was, after all, a core thesis of Milton Friedman’s monetarist, anti-Keynesian counter-revolution. His updated version of the Quantity Theory of Money had every conservative pundit with a working larynx intoning that “inflation is always, and everywhere, a monetary phenomenon.” Which, if you think about it, is much like saying that obesity is  always, and everywhere, a weight problem. But if anyone noticed the tautological or non-informative character of this generalization at the time, they either didn’t say so or were drowned out by the then-rising tide of Monetarism.

Friedman’s one-liner had a straightforward, common-sense appeal back then and it still does. And the monetarist story hangs together quite convincingly too, even on the first hearing. Prices are stable. Until they are destabilized by the dilution of the money supply with new fiat-dollars. Fractional reserve banking then kicks in, so most of the new dollars (up to 90%) get re-lent by banks, over and over again, as the money-multiplier does its dirty-work. In the end, a purchasing power many times as great as the original money injection is chasing the same goods that existed before – so, prices go up. Bada-bing.

Most of the people Modern Monetary Theory is trying to convince – educated Americans who think about the economy – have been exposed to, and believe, some version of this story. So, we don’t start from a level spot. We start from a situation where the conventional wisdom, for all but a few Americans, is that the Keynesian deficit-spending of immoral fiat-dollars always-and-everywhere causes inflation. And always carries the risk that it will accelerate into a hyper-inflation.

A very large majority of people unconsciously fail to distinguish between what is merely financial and what is real.

And here’s one way to think about the short-form narrative:

The private sector creates wealth and value – real wealth – real goods and services. Think houses, cars, dry-cleaning, corn-on-the-cob. The public sector creates money – obviously. Who else would create it? The private sector needs the government’s money to pay its taxes. The government supplies it by fiat-spending it into the economy, which also has the effect of moving real goods and services into the public domain. A government may do these things well or badly – efficiently or inefficiently – in ways that advance the common good or in ways that do not. But under our modern, fiat monetary system, this is the way things must work. It is the way they already do work every day. We just aren’t accustomed to thinking about them in this way.

Every day, the monetarist narrative on inflation is contradicted by the empirical evidence – as it has been for the past three decades and more. For if there is one thing absolutely everyone understands about the spending of the U.S. government today, it is that it spends vastly more than it collects in taxes. That is what deficit spending is. If the rate of consumer-price inflation really was, in any way, a straight-line function of the size of the government budget deficit, the inflation rate for 2008 and 2009 should have been spectacularly higher than in 2006 or 2012 – and much lower in 1998, when the Clinton administration ran the largest of its famous surpluses. The rate was about the same in all five of these years, and has rarely either exceeded four percent or been less than two percent in any year since the Great Inflation’s high-water mark in 1982.

People deal with the 30-years-and-counting absence of any significant amount of consumer-price inflation in a variety of ways. Some say monetarism just “worked”, and, for some reason, only had to work once. Some claim that the government is hiding the real inflation rate through accounting gimmicks or that T-bond sales somehow make the fiat dollars so illiquid, the deficits aren’t “monetized” (as if it was difficult or labor-intensive to sell a T-bond). Other people single out oil or some other commodity where monopoly power and speculation are the real price-drivers. Some then point to artificially created monopolies like health insurance and various forms of access to the telecommunications infrastructure. Even if the reason why a price goes up is monopolist power – or because Congress has granted rent-extracting opportunities to some well-connected lobby – many people will still lump that in with every other increase in their personal cost of living and label it “inflation.” And blame it on deficits, Keynesians and the national debt.

Modern Monetary Theory – An Introduction: Part 2

By Dale Pierce

Posted on April 23, 2013

The wave of capitalist triumphalism that spread around the world from the 1980s on was, and remains, a very complex social, political and economic phenomenon. Future historians, if there are any, will marvel at the suddenness of its rise and the completeness of its victory. Margaret Thatcher and Ronald Reagan seemed to come out of nowhere. Working class Tories and Reagan Democrats rose up in their millions – to vote against the very parties and ideas that had made them prosperous. And which had also made it possible for many of them to send their kids to college for the very first time. The kids themselves graduated into an economy plagued by inflation and full of uncertainties and unknowable quantities that everyone, everywhere seemed determined to blame on some English guy named John Maynard Keynes. Him and his Welfare State. And all that reckless deficit spending. And all those high taxes. Who wanted to be for things like Welfare and taxes? So, a lot of those kids went ahead and took the logical next step and became Young Republicans.

But the institutions of Keynesianism were, for the most part, and in the advanced world at any raate, very deeply entrenched. The Welfare State was unpopular as a concept, not as the set of  policies through which it was concretely expressed. These everyone took for granted and scarcely noticed – until some politician was foolish enough to take himself seriously, move from the general to the particular and actually oppose a program like Social Security. In such political moments, the shallowness and insubstantiality of the Right’s propaganda and political economy were briefly revealed. But if it was only an inch deep, it was still at least a mile wide. Large numbers of Democrats and other progressives, afraid of the wild rise in popularity of “free-market” economic ideas, rapidly adopted those same ideas themselves. They became “centrists” and later “deficit hawks”. But as they moved to the right to appease their newly conservative-minded constituents, the Right itself moved relentlessly to the far-far-Right, culminating in the all-out craziness of today’s Tea Party.

Ironically, Democrats and liberals found it easy to forget their Keynesian roots precisely because those roots were as deep and strong as they were. In all Western countries, and most Asian ones, there was some version of Social Security – and, as a rule, far stronger and more universal state-insured medical systems than in the United States. Institutionally, these and other safety-net programs looked unassailable – from unemployment benefits to welfare (or “the dole”), and even to state-paid child care in some countries. By the time of the Thatcher-Reagan “revolution” – it was really a counter-revolution – no one was seen as actively opposing the safety net. So liberals didn’t feel much need or obligation to defend it.

It is not the whole answer, but one big part of it is that “neo-classical” economics is, in at least one important respect, quite similar to the original. Like the Adam Smith version of Economics, (though unlike either Marxism or Keynesianism), the “neo-classicists” have very little interest in how we came to center so much of our economic activity around the getting and spending of money. For money itself is useless. Even money that is made out of silver or gold can only become useful by losing its status as money – i.e., by being melted down or hammered out or somehow otherwise made into something else – something that is no longer money. Some people like to look at coins, of course, and some also collect rare coins and notes. But their interest is in the incidental (and even accidental) characteristics of what they collect – the artwork, the state of preservation, and especially things that get printed or stamped incorrectly, and which are therefore rarities. Numismatists aren’t interested in the “money-ness”, per se, of their collections at all. And neither are “mainstream” neo-classical economists.

Whether they have used this terminology or not, classical and neo-classical economists have largely concerned themselves, not with money, but with utility – that is, with usefulness. People “truck, barter and exchange” things (to follow Adam Smith’s terminology) because, at any given moment, they have more use for some things than they have for others. And so, from the first paragraph of the second chapter of the very first Enlightenment-era economics text, we find a line of reasoning which minimizes and marginalizes money. (I.e., “The Wealth of Nations“).

Money is not even strictly necessary, this line of reasoning stresses. We could very well have an economy, (and there have been some actual economies) without any kind of money. In many versions, Robinson Crusoe and man-Friday  wander through the narrative at this juncture, colorfully haggling over the price of fish relative to coconuts and vice versa. And so on, through unknowable centuries and millennia of pre-historic time (this Economics says), humanity trucked, bartered, exchanged – and groped for a better way to do business.

Different universal commodities were tried – from cattle to salt to circular stones so big no one could lift them. What tribe or culture first chanced upon the advantages of the precious metals is lost in the mists of time, but the advantages persisted and metal money was born. It was imperishable, portable, and uniform. It was ubiquitous enough to be found everywhere but still rare enough to represent value in a concentrated way. In short, it was perfect. As hunter-gathering and pastoralism receded and civilization commenced, gold, silver and copper coins became the markers of the new social wealth of the elites. The institution and the forms of metal money were then passed down, with the added force of tradition, all the way to modern times.

Apart from its being largely untrue as history, this very conventional classical account of the origins of money also suffers from the singular defect of saying nothing about the issuer of all this money. It offers no theory at all about the role of the state. Indeed, it is scarcely mentioned. This is very much in keeping with the neo-classical definition of Economics as the micro-examination of utility-maximizing behavior by individual “agents”. It is sometimes granted that these agents may be human beings, but this is regarded as largely unimportant and is rarely even mentioned. Money, having no utility, is unimportant to this version of Economics too – as are the institutions and operations of a country’s monetary authorities. Debt is another almost entirely ignored category for neo-classicists, as are the operations of banks, including central banks.

Modern Monetary Theory – An Introduction: Part 3

By Dale Pierce

Posted on April 24, 2013

The state’s money is a good store of value and a reliable medium of exchange because absolutely everybody needs at least a little of it. Even off-the-grid survivalists and doomsday preppers need it. Because when they pay for their hollow-point ammunition at Dick’s, or for their freeze-dried mashed potatoes at Costco, they not only pay for the goods – they also pay the sales tax. Now, Dick’s and Costco only take dollars or dollar-denominated credit anyway, but what makes the state’s money valuable is that every company has to collect the tax piece in dollars and cents – and pay dollars to the government at the close of each week or month or other accounting period. Between sales taxes, property taxes, income taxes and all other taxes, everyone knows that there will be a stable, long-term demand for the currency which the state alone can issue. If this currency is reasonably well-managed by the country’s monetary authorities, it will remain everyone’s preferred legal tender – unless a person really is a survivalist or some other kind of crank.

The federal government spends by crediting private bank accounts, creating U.S. dollars in real time, by fiat, when it does so. Almost every single dollar the U.S. government has spent since a day back in mid-1971 has been created in exactly this way. (Exceptions include those famous went-missing-in-Iraq pallets of hundred-dollar bills we learned about later. The oddness of the example makes the main point that much stronger). The federal government doesn’t have or need a hoard of dollars stored away somewhere. Money is almost entirely a set of spreadsheets now. Such money is just electrons. Just zeros and ones stored in the computer databases of banks and central banks.

Since its spending is by fiat, the U.S. government doesn’t have to collect taxes or borrow from the Chinese to get money to spend. The function and true effect of taxation in a fiat money economy is to regulate aggregate demand. (the bonds are for interest-rate management). Taxes destroy some of the fiat dollars the federal government creates when it spends. They don’t “go” anywhere. They just disappear from private bank accounts. When we pay our taxes, there are a few fewer zeros and a few fewer ones in our particular spreadsheet cell in our bank’s computer. That’s all. The rest – the receipt, essentially – is a formality. The U.S. government is not more able to spend another dollar after we have been debited a dollar. It is not less able to spend after someone is credited one. And this account of the matter is not theoretical or, to the operatives who actually run the banks, in any way controversial. This is just the way the banking and central banking system works every day. Completely routine.

The thing modern fiat money preserves and improves upon is simple to say, but a little complicated to explain. It doesn’t yield easily to the gold-standard version of common sense. But it’s something anyone can understand if they try: one way of unlocking the mystery of money is to think of it as really just being a tax credit. Easy to say, but needs some unpacking.

This starts with understanding that the state, clearly, has no use for its own money – for its own I.O.U., one might even say. The things a government needs in order to be a government are mostly the same kinds of real goods and services the private sector needs – and produces. From jet planes to ink-jet printers to new printing presses for the national mint, the things government needs differ in only quite minor ways from the things individuals and firms sell to, and buy from, each other. But when the government buys them, it is a quite special case.

When the federal government buys something (or a state government does, spending federal dollars) the transaction has a completely different character than when an individual or a company buys something. In the latter case, existing dollars change hands – dollars which were previously spent into existence by the state. These dollars have been saved – set aside by someone in anticipation of some expected future need. But when the government spends, it creates new  dollars by fiat, ex nihilo or “from nothing”. It doesn’t draw them from some hoard or store. It never needs one. And these transactions are completely voluntary. Companies and other private-sector entities compete with the same energy and determination for sales to government entities as they do for any other category of sales. If anything, governments are even more desirable as customers – because they can always pay, and they virtually always do.

The conundrum of fiat money is why anyone takes it in return for their real goods and services. The economist Hyman Minsky once, somewhat famously, remarked that, “Anyone can print their own money. The trick is getting someone to accept it”. But if we think of the government’s I.O.U. as a tax credit – as a ready means of eliminating any private party’s obligation to pay a tax imposed by government, the mystery disappears. We could just as easily think of the tax – the real tax – as having been “paid” when we surrendered our goods or rendered a service to our government – in the first place. The fiat-dollars we receive in return can just as easily be thought of as records – recording the fact and magnitude of our real-goods transfers for future recognition by the government at tax time.

Neo-classicists represent borrowing as a contrast between “patient” individual agents, who are willing to wait for the things they want, and “impatient” ones, who want immediate gratification. (Or who want to finance a new entrepreneurial venture). Interest is the price of impatience and the reward that patient agents are entitled to receive in return for waiting. Patient agents, (who are probably sentient humans) save money and deposit it in a bank. These savings are, thus, the “loanable funds” available to be borrowed at any given time. Even Paul Krugman talks like this (he’s a “neo-Keynesian” – i.e. a neo-classicist with a conscience, who therefore gives a damn whether the “agents” he studies live or die). Since our available “loanable funds” are limited – are a function of the patience supply – governments must take great care not to borrow too much of the patient agents’ savings, lest their borrowing come to “crowd out” impatient entrepreneurs seeking capital for new or expanded ventures.

Now, since it is a certified, bi-partisan Truth that “governments can’t create jobs – only the private sector can”, it follows that the one and only way for a country’s government to help employment and growth recover from a recession is to leave as many of the banks’ “loanable funds” un-borrowed as it possibly can. And the only politically viable way to do that is to spend less money. From this point of view, it doesn’t make much difference what part of the budget you cut (if this sounds like the Sequester, that’s because it sounds exactly like the Sequester). If the only cuts that are politically possible are random cuts, that’s still O.K. All you’re trying to do is leave more zeros and ones in the banks’ spreadsheets so that all those hordes of salivating, animal-spirited, would-be entrepreneurs will find enough of them waiting there to launch their piece of the Next Big Thing and thereby, finally, Create Jobs.

“Loanable Funds” is bunk, just like the Quantity of Money and all the rest of Whatchamacallit Economics. Deposits don’t create loans – loans create deposits. Banks don’t lend out deposits, and they obviously don’t lend out reserves. Their loans just confer purchasing power on borrowers, along with debt. Modern Monetary Theory calls this bank-created credit “horizontal” money-creation [Primer Link] to distinguish it from the “vertical” money-creation only the state can engage in. Private debt and credit “net to zero” – they cancel each other out, so to speak. But looking at the way banks and central banks actually operate renders the entire framework of “loanable funds” absurd. This justification for austerity in a recession is – or should be – laughable.

The U.S. budget deficit has not “crowded out” any private borrowing, because that’s not how money, banking and credit work in the real world. And since nothing was crowded out – since their was no bidding war for access to the patient peoples’ limited stash of dough – U.S. interest rates went down, not up, in the years that saw the biggest deficits. And Zimbabwe? Core consumer price inflation remains all-but-undetectable as we continue to flirt with an austerity-induced second-dip recession eerily like the one Franklin D. Roosevelt induced in 1937. By following exactly the same kind of bad, deficit-hawking advice we are getting from “moderates” and “centrists” today.

OK, so it might be a 4 part “Trilogy”.  Sue me.

Scott Adams- Sockpuppet

Yes, I used to think Dilbert was funny before I became radicalized and until recently I still felt it had some funny moments but, like South Park and Family Guy, it’s a franchise that has deteriorated over time.

I wonder how Matt Groening avoids it.

Still, I thought he was smart, or at least savvy enough to avoid a debacle like this-

Dilbert creator’s ever-worsening P.R. crisis

By Mary Elizabeth Williams, Salon

Tuesday, Apr 19, 2011 11:29 AM EDT

“It’s fair to say you disagree with Adams. But you can’t rule out the hypothesis that you’re too dumb to understand what he’s saying. And he’s a certified genius.” How fortunate for Adams there are people in the world not “too dumb” to understand the certified genius. It just happens that they’re all Scott Adams. On Friday, the cartoonist admitted on MetaFilter that he and plannedchaos are one and the same.  My tie! It’s curving upward in astonishment!

In Adams’ case, his exposure as a self-aggrandizing Internet troll who enjoys talking about himself in the third person brought no apologies or admissions of shame. He instead rationalized his stunt, pouting to the MetaFilter community, “I’m sorry I peed in your cesspool,” and adding, “smart people were on to me after the first post. That made it funnier.” Ah, yes, like when he posted, “I hate Adams for his success too,” when he really was that awesome, successful Scott Adams in disguise – hilarious! It’s like when Lois Lane gets all worked up about Superman, and Clark Kent is just standing around like, awww yeaaaah.

As MetaFilter moderator Cortex gently explained to the certified genius, “If you wanted to sign up for MetaFilter to defend your writing, that would have been fine. If you wanted to sign up for MetaFilter and be incognito as just another user, that’d be fine too. Doing both simultaneously isn’t; pretending to be a third party and high-fiving yourself by proxy is a pretty sketchy move and a serious violation of general community expectations about identity management around here.”

Adams further countered on Monday with a fabulously self-congratulatory blog post account of his actions, explaining, “Conflict of interest is like a prison that locks in both the truth and the lies. One workaround for that problem is to change the messenger. That’s where an alias comes in handy. When you remove the appearance of conflict of interest, it allows others to listen to the evidence without judging.” Oh, it was about the evidence! The evidence that, as plannedchaos wrote, “Everyone on this page is talking about him, researching him, and obsessing about him” – especially plannedchaos. Adams also draws parallels between his situation and that of Orange County Republican Party central committee member Marilyn Davenport, who has been attacked for forwarding an email with Obama’s head Photoshopped onto a chimp. (Both she and Adams, he argues, were victim of the Internet’s lack of “context.”)

Anyone can be anyone on the Internet, and for many, anonymity offers a freedom and safety necessary for self-expression. But when someone deliberately misrepresents himself, because he claims his own adoring “invisible friend” is an “unbiased messenger,” when he lies about who he is because it’s “fun” playing the “vigilante,” it’s a profound statement of cynicism about the nature of online community and contempt for his readers. Adams is right when he says his actions were funny, but I doubt he meant they were so funny-strange, instead of funny-ha-ha. He did, however, get one thing right in all of this. Writing on the nature of his little sock puppet, he said Monday, “A hammer can be used to build a porch or it can used to crush your neighbor’s skull. Don’t hate the tool.” Whether you’re hated now for your ego and dishonesty is up for grabs, Scott Adams. But I’m glad we can all agree you’re a total tool.

Which, my friends, is why while we allow and encourage anonymity here, sockpuppetry will get you banned.