Why is Congress so dumb?

[The de-funding government so its functions can be privatized, or crippled has been actively pursued for generations now. Perhaps the real benefit of the "blue wave" recent elections will be to restore some sensible oversight to government as Rep. Pascrell describes below. 

In this connection here's some practical advice (from Anusar Farooqui aka Policytensor):
“Doesn’t Minsky offer the connection you seek between the financial cycle and muck? The corruption and swindling is not random but a systematic feature of every mature cycle. One is almost tempted to say it is diagnostic. Like the construction of the tallest building, it makes for an excellent systematic short signal.”] - MD

By Bill Pascrell Jr. Rep. Bill Pascrell Jr. (D-N.J.) was elected to Congress in 1996. He represents New Jersey's 9th Congressional District.


JANUARY 11, 2019

We lawmakers dumped our in-house experts. Now lobbyists do the thinking for us.  

In a year of congressional lowlights, the hearings we held with Silicon Valley leaders last fall may have been the lowest. One of my colleagues in the House asked Google CEO Sundar Pichai about the workings of an iPhone — a rival Apple product. Another colleague asked Facebook head Mark Zuckerberg, “If you’re not listening to us on the phone, who is?” One senator was flabbergasted to learn that Facebook makes money from advertising. Over hours of testimony, my fellow members of Congress struggled to grapple with technologies used daily by most Americans and with the functions of the Internet itself. Given an opportunity to expose the most powerful businesses on Earth to sunlight and scrutiny, the hearings did little to answer tough questions about the tech titans’ monopolies or the impact of their platforms.

It’s not because lawmakers are too stupid to understand Facebook. It’s because our available resources and our policy staffs, the brains of Congress, have been so depleted that we can’t do our jobs properly.

Americans who bemoan a broken Congress rightly focus on ethical questions and electoral partisanship. But the tech hearings demonstrated that our greatest deficiency may be knowledge, not cooperation. Our founts of independent information have been cut off, our investigatory muscles atrophied, our committees stripped of their ability to develop policy, our small staffs overwhelmed by the army of lobbyists who roam Washington. Congress is increasingly unable to comprehend a world growing more socially, economically and technologically multifaceted — and we did this to ourselves.

When the 110th Congress opened in 2007, Democrats rode into office on a tide of outrage at the George W. Bush administration and the Republican Congress, which had looked the other way during the Tom DeLay, Jack Abramoff and Duke Cunningham scandals. My colleagues and I focused our energies on exposing corruption. But we missed crucial opportunities to reform the institution of Congress. As my party assumes a new majority in the House, we confront similar circumstances and have a second chance to begin the hard work of nursing our chamber back to strength.

Our decay as an institution began in 1995, when conservatives, led by then-Speaker Newt Gingrich (R-Ga.), carried out a full-scale war on government. Gingrich began by slashing the congressional workforce by one-third. He aimed particular ire at Congress’s brain, firing 1 of every 3 staffers at the Government Accountability Office, the Congressional Research Service and the Congressional Budget Office. He defunded the Office of Technology Assessment, a tech-focused think tank. Social scientists have called those moves Congress’s self-lobotomy, and the cuts remain largely unreversed.

Gingrich’s actions didn’t stop with Congress’s mind: He went for its arms and legs, too, as he dismantled the committee system, taking power from chairmen and shifting it to leadership. His successors as speaker have entrenched this practice. While there was a 35 percent decline in committee staffing from 1994 to 2014, funding over that period for leadership staff rose 89 percent.

This imbalance has defanged many of our committees, as bills originating in leadership offices and K Street suites are forced through without analysis or alteration. Very often, lawmakers never even see important legislation until right before we vote on it. During the debate over the Republicans’ 2017 tax package, hours before the floor vote, then-Sen. Claire McCaskill (D-Mo.) tweeted a lobbying firm’s summary of GOP amendments to the bill before she and her colleagues had had a chance to read the legislation. A similar process played out during the Republicans’ other signature effort of the last Congress, the failed repeal of the Affordable Care Act. Their bill would have remade one-sixth of the U.S. economy, but it was not subject to hearings and was introduced just a few hours before being voted on in the dead of night. This is what happens when legislation is no longer grown organically through hearings and debate.

Congress does not have the resources to counter the growth of corporate lobbying. Between 1980 and 2006, the number of organizations in Washington with lobbying arms more than doubled, and lobbying expenditures between 1983 and 2013 ballooned from $200 million to $3.2 billion. A stunning 2015 study found that corporations now devote more resources to lobby Congress than Congress spends to fund itself. During the 2017 fight over the tax legislation, the watchdog group Public Citizen found that there were more than 6,200 registered tax lobbyists, vs. 130 aides on the Senate Finance Committee and the Joint Committee on Taxation, a staggering ratio approaching 50-to-1 disfavoring the American people. In 2016 in the House, there were just 1,300 aides on all committees combined, a number that includes clerical and communications workers. Our expert policy staffs are dwarfed by the lobbying class.

The practical impact of this disparity is impossible to overstate as lobbyists flood our offices with information on issues and legislation — information on which many lawmakers have become reliant. Just a few weeks ago, at the end of the session, I witnessed the biennial tradition of departing members of Congress relinquishing their suites to the incoming class. As lawmakers emptied their desks and cabinets, the office hallways were clogged with dumpsters overflowing with reports, white papers, massaged data and other materials, a perfect illustration of the proliferating junk dropped off by lobbyists.

Congress remade its committees in the 1970s to challenge Richard Nixon’s presidency and move power to rank-and-file lawmakers. Many segregationist chairmen were ousted and replaced by reformers, and committees and subcommittees were given flexibility to study issues under their purview. It’s no accident that some of the most significant legislation and oversight by Congress — Title IX; the Clean Water Act; the Watergate, Pike and Church hearings — came from this period. Congress had strengthened its pillars, hired smart people and accessed the best information available.

Following the reforms of the 1970s, the House held some 6,000 hearings per year. But eventually, the number of House hearings fell — from a tick above 4,000 in 1994 to barely more than 2,000 in 2014. On the tax-writing Ways and Means Committee, of which I am a member, oversight hearings are virtually nonexistent, as is developing legislation. We had no hearings in 2017 on the bill that would dramatically rewrite our tax code. And in the last Congress, we didn’t haul in any administration officials for a single public hearing on the renegotiation of the North American Free Trade Agreement. Assessing this state of affairs in a 2017 report, the Congressional Management Foundation noted that committees “have been meeting less often than at almost any other time in recent history.” This neglect has become the norm. Instead, leadership, lobbyists and the White House decide how to solve policy problems.

Indeed, Congress has allowed the White House to dominate policymaking. Trade is a perfect illustration. Despite our current president’s braggadocio, most Americans would be surprised to learn ultimate trade power rests with Congress. But over and over we’ve willingly, even eagerly, handed off that responsibility given to us by Article I, Section 8 of the Constitution. President Trump’s power to renegotiate NAFTA was granted by Congress, as was his power to issue tariffs, allowed under the Trade Expansion Act of 1962. I disagreed with the decision in 2015 to give President Barack Obama — a member of my own party — fast-track power to advance the Trans-Pacific Partnership. During that debate, I sat stupefied as some members of our committee sought to award not only Obama but also future, unknown executives an extended and open-ended authority to make other deals. Congress was prepared to simply abdicate our job.

Perhaps the most striking instance of political interference I’ve seen in my career occurred in the Ways and Means Committee in 2014. Then-Chairman Dave Camp (R-Mich.) had toiled for months with Democrats, Republicans and budget experts to craft a comprehensive tax reform bill. I may not have loved the final product, but I respected the process. Republican leadership killed the proposal almost immediately after it was unveiled. The reason? They wanted to deny Obama a legislative accomplishment.

For decades, nearly every piece of legislation would reach the floor via committee, but beginning in the 1990s, the rate began to drop. In the 113th Congress, approximately 40 percent of big-ticket legislation bypassed committees. Before 1994, Camp would have informed the speaker of his proposal and brought it to the floor. Now, a chairman has much less power to realize meaningful legislation. Meanwhile, longstanding House rules have essentially blocked the amendment process on the floor, meaning bills can’t be modified by members of the wider chamber.

In addition to committee weakness, House lawmakers collectively employ fewer staffers today than they did in 1980. Between 1980 and 2016, when the U.S. population rose by nearly 97 million people and districts grew by 40 percent on average (about 200,000 people per seat), the number of aides in House member offices decreased, to 6,880, and total House staff increased less than 1 percent, to 9,420.

The first lobe of Congress’s brain we can bulk back up is the Congressional Research Service. The CRS provides studies from talented experts spanning law, defense, trade, science, industry and other realms. Some of our greatest oversight triumphs — Watergate, Iran-contra, the Freedom of Information Act — were achieved with the CRS’s support. Great nations build libraries, and much of the CRS is housed in the Library of Congress’s Madison Building.

But the CRS has become a political target. In 2012, a CRS report finding that tax cuts do not generate revenue enraged my Republican colleagues, who had the report pulled and began browbeating CRS experts. According to figures supplied by the CRS, the next year, the service saw its funding cut by $5 million, nearly 5 percent, recovering to previous levels only in 2015. (The CRS did get big funding bumps in recent years.)

The Congressional Budget Office and the Government Accountability Office, crown jewels of our body that provide nonpartisan budget projections, are similarly ignored or maligned for partisan purposes. Last year, when the CBO debunked claims that the GOP tax plan would create jobs, Republicans savaged the agency instead of improving the law. It reminded one of my colleagues, Rep. Jim Himes (D-Conn.), of an episode of “The Simpsons” in which Springfield residents, rescued from a hurtling comet, resolve to raze the town observatory.

The GAO also furnishes rich information to Congress on virtually any subject. Last year I requested and obtained a study on the live-events ticket market. It was a probing report with fresh data. Former senator Tom Coburn (R-Okla.), one of the most conservative lawmakers of the past generation, praised the GAO, estimating that every dollar of funding for the agency potentially saved Americans $90. Nonetheless, from 1980 to 2015, GAO staffing was cut by one-fifth.

While I never had the pleasure of collaborating with the Office of Technology Assessment, its reputation is legendary. Like the GAO, it operated as a think tank for Congress, tasked with studying science and technology issues. The OTA was Congress’s only agency solely conducting scholarly work on these issues until Gingrich disemboweled it. Today, few members of Congress know it ever existed.

The congressional hearings on big tech showcased my colleagues’ inability to wrap their heads around basic technologies. But our challenges don’t stop at Silicon Valley. Biomedical research, CRISPR, space exploration, artificial intelligence, election security, self-driving cars and, most pressingly, climate change are also on Congress’s plate.

And we are functioning like an abacus seeking to decipher string theory. By one estimate, the federal government spends $94 billion on information technology, while Congress spends $0 on independent assessments of technology issues. We are crying out for help to guide our thinking on these emerging areas. I have backed motions to bring the OTA back to life, and I was heartened last year when the House Appropriations Committee approved funding for a study on the feasibility of a new OTA.

The creation in the House rules of a Select Committee for the Modernization of Congress in this new session is a terrific beginning — and a signal that Speaker Nancy Pelosi (D-Calif.) and Rules Committee Chairman Jim McGovern (D-Mass.) understand the importance of these issues. Providing capital and staff to the institution should be a major priority in the 116th Congress. The budgets we approve fund 445 executive departments, agencies, commissions and other federal bodies. But for every $3,000 the United States spends per American on government programs, we allocate only $6 to oversee them.

After decades of disinvesting in itself, Congress has become captured by outside interests and partisans. Lawmakers should be guided by independent scholars, researchers and policy specialists. We must recognize our difficulties in comprehending an impossibly complex world. Undoing the mindless destruction of 1994 will take a lot of effort, but with investment, we can make Congress work again.

MMT’s Opening

Posted on January 21, 2019 by J.D. Alt

I recently read in the WSJ that Modern Monetary Theory is defined as the proposition that the federal government can borrow as much money as it needs so long as the interest rate it pays is less than the growth rate of the GDP. The short article, by Desmond Lachman, went on to argue why this was a dangerously false premise. Thus, MMT got shot with two bullets in one paragraph: first by defining it in a way that negates its most fundamental principle (that the federal government doesn’t need to “borrow” fiat currency in order to spend fiat currency), and second, by declaring MMT to be not only false, but dangerous.

It’s remarkable how stubbornly tenacious mainstream economic thinking is about misunderstanding and fearing MMT. The fundamental belief that refuses to be shaken is that for a sovereign government to spend, it must first claim—either through taxation or borrowing—some portion of the profits of private commerce. This immediately sets in motion complex calculations about what percentage of those profits can be claimed for government spending before the profit-making capabilities of private commerce, itself, are harmed (because the capital that would otherwise be used for expansion, is being appropriated for government spending). When that point is reached, the calculations insistently predict, private commerce will cease to grow—perhaps even shrink—which perversely will then reduce the amount of currency available for the government to claim a portion of; if, under those circumstances, the government continues nevertheless to increase its spending (by insistently increasing its taxing or borrowing), private commerce will be driven to shrink even further, setting in motion a disastrous downward spiral. The calculations, in other words, are structured to demonstrate that government spending per se strangles the goose that lays the eggs—and, therefore, it is rational to argue that government spending should be limited, and specifically that it should not exceed some calculated percentage of GDP (which, of course, in most calculations of this sort, it already does)!

Why is it so difficult for MMT to get itself properly understood—and, once understood, to get itself over the hump of this narrative calculation? Part of the problem was revealed to me on New Year’s Day at McGarvey’s Saloon at City Dock in Annapolis when a neighbor—who is a retired banker, sharp as they come, and who understands quite well what fiat money is—said to me, “Yes, yes, that’s all well and good, but the fact is the federal government does not own the Federal Reserve. It is owned by the private banking industry.”

Whether or not he was technically correct (and the reality of it is so ambiguous that arguing the point on one side or the other is futile) what he meant, of course, is that it is meaningless for MMT to argue that the sovereign U.S. government creates U.S. dollars by fiat and then spends them into the private economy—because it is the Federal Reserve, in fact, that creates U.S. fiat dollars, and it does so only to service the needs of private commerce. The Federal Reserve cannot, by law, create U.S. fiat dollars for government spending. It can create them, as necessary, to maintain the liquidity of the reserve banking system—which generates the loans that support the profit-making enterprise of private commerce—but it cannot create fiat dollars and deposit them in the U.S. Treasury’s spending account. Therefore, the fundamental belief that cannot be shaken (as described above) is unshakable because it is, apparently, based in reality: Operationally, it seems, the sovereign federal government really does have to claim—through taxation or borrowing—some portion of the profits of private commerce (fiat dollars created by the Federal Reserve) in order to have dollars to spend.

MMT therefore is made difficult not because it must disprove a false “truth,” but because the “truth” which it is trying to replace cannot seem to be disproved so long as one accepts words to have their conventional meanings. This dilemma is often brought to light with the question: if the Central Bank and the Treasury are really two components of the same sovereign entity, why are they not set up that way? If the Federal Reserve can create sovereign fiat dollars at will, why limit this ability only to the meet the “demands” of the operations of the reserve banking system in support of private commerce? Why is it not structured to also enable the Federal Reserve to create fiat dollars as “demanded” by the spending needs of the federal government in support of the collective good—as is implicitly (and often explicitly) suggested by the advocates of MMT?

Again, the answer most likely lies in my neighbor’s perspective: because the banks—despite the fact they grudgingly allowed themselves to be “regulated” by a federal agency— “own” the banking system. And being “owners,” they have a natural prerogative to guard against what they fear most, which is dilution of the value of the fiat currency they use: i.e. that they might loan out dollars that have one value, and then be repaid with dollars having a lower value. In other words, inflation. Fiat dollars created in support of private commerce, the thinking must go, will not produce inflation because the money supply increases commensurate with the production of the goods and services private commerce produces for people to buy. More dollars = more goods and services, therefore the value of the dollars relative to the goods and services to be purchased remains more or less constant. (A good argument, but not a proven explanation of the dynamics of inflation.)

On the other hand, fiat dollars created directly for government spending (the argument continues) would not typically create more goods and services for people to buy; instead, after the government spends them (for example, to make a welfare payment) they simply increase the number of fiat dollars competing for the existing goods and services produced by private commerce. In other words, creating fiat dollars for the purpose of government spending inevitably must dilute the value of the currency—and the banks will realize their greatest fear: getting repaid with dollars less valuable than what they loaned out. Therefore, the banking industry, from the very beginning, when the Federal Reserve system was created, made sure it was structured so this could not happen; i.e. the federal government, if it is short on spending money, is required to issue treasury bonds to make up the short-fall—an operation which became known by the pejorative term “deficit spending.”

Given the context of this understanding, it seems perfectly reasonable that mainstream economic thinking (which is primarily the thinking of the banking and financial industries) clings so tightly to the unshakable belief that a sovereign government, in order to spend, must first claim, through taxation or borrowing, a portion of the profits of private commerce—as well as all the other “rational” axioms that build upon that belief:
That to avoid the appropriation of too much capital from private commerce, government taxing and borrowing must be limited to some small percentage of GDP;
That limited government is, therefore, implicitly desirable—and expanded government implicitly to be feared as endangering the profits of private commerce;
That to keep government limited, social welfare and safety net services should primarily be the responsibility of voluntary private charity and philanthropy rather than federal spending;
That any federal regulation hindering the ability of private commerce to generate profits hurts the collective good, because hindering profits ultimately hinders the profit-share the collective good can claim or borrow;
Any kind of federal welfare payments are inherently inflationary because they give people money to spend without producing anything for them to spend the money on;
etc.

Is there a chink in the armor of this narrative that might give MMT an opening? Is there a seed of misunderstanding in the “truth” that it presents? The place to look, I think, is the fundamental notion that federal spending absorbs and threatens the availability of capital for private commerce. If that is true, then it is, indeed, reasonable that federal spending should be curtailed and limited—which means it is reasonable that the activities and responsibilities of the federal government, itself, should be curtailed and limited. If it is not true, however, a completely different rationale is required to argue that the sovereign government’s efforts, responsibilities, and spending on behalf of the collective good of its citizens, should be limited.

In other words, to look from a slightly different angle, is it possible for the sovereign government’s spending, in the interest of the collective good, to expand by orders-of-magnitude beyond current spending—without increasing rates of taxation or diluting the value of the currency—while private commerce remains fully and happily capitalized to pursue its profit-making enterprises?

MMT answers “yes.” The key to this answer lies in seeing a flaw in the conventional “truth” of treasury bonds, the reality of what treasury bonds legally represent and, consequently, the value and usefulness they have in the operations of private commerce.

To uncover the flaw, begin with the question: why would a private bank (or anybody else in private commerce) trade real, genuine, “spendable” sovereign fiat dollars for a treasury bond representing fiat dollars that can’t actually be “spent” for, say, ten years? Does the U.S. Treasury coerce the purchase of its bonds? In fact, banks and big spenders and players in private commerce pretty much line up to trade their fiat dollars for the Treasury’s bonds like cattle line up at a hay-trough. Why? Hunger—not for the crunch of hay, but for safe, guaranteed, no-work-required profits. Safe, guaranteed, no-work-required profits are not something easily found in the world of private commerce. They are much appreciated and sought after, however, because the biggest headache in private commerce, if the truth be told, is figuring out what to profitably do with profits. There is a staggering amount of profit in private commerce that hasn’t figured out what to do next. If it does nothing, it simply shrinks due to “background” inflation. If it rushes to invest itself recklessly, without the concerted and creative efforts required by successful private enterprise, it risks being lost completely. Thus, the U.S. treasury bond is a godsend for private commerce: the players trade their excess capital (sovereign fiat dollars) for the interest-bearing treasury bonds and make a profit without having to creatively exercise their brains or worry about anything at all—except, perhaps, whether the United States is going to collapse as a sovereign government.

What makes the treasury bond even more magical, however, is that if, say, a big opportunity comes along to invest real sovereign fiat dollars in a killer profit-making venture—no problema! The secondary market for U.S. treasury bonds—other folks who can’t imagine, right now, what to do with their private commerce profits—provides instantaneous liquidity: the treasury bond can be traded for the real sovereign fiat dollars needed to make the killer investment.

Given this transparent and virtually seamless interchangeability between U.S. fiat dollars and U.S. treasury bonds, it is clear the treasury bond represents something fundamentally different than the government’s “borrowing” of dollars from private commerce. The fiat dollars supposedly “borrowed” are, in fact, replaced with another kind of fiat dollar represented by the treasury bond. Therefore, it is INCORRECT to imagine or say that the issuing of treasury bonds subtracts capital from private commerce. In fact, the opposite occurs: first, the fiat dollars represented by the bonds are greater than the fiat dollars private commerce traded for the bonds (because the bonds are interest-bearing); second, when the federal government subsequently spends the fiat dollars it received in trade, they are spent back into the market of private commerce. The net result of the entire operation, therefore, is that private commerce now has substantially more capital available to invest than it had before the trade.

The conventional meaning of the term “borrow”—as applied to the U.S. Treasury’s operation of issuing treasury bonds—then, is the seed of misunderstanding that lies at the heart of MMT’s dilemma. Correcting the misunderstanding shouldmake it possible for MMT’s logic not only to be accepted, but for that logic to prevail in future dialogs about what the federal government can undertake to accomplish—and pay for—in the collective interests of society:
U.S. fiat dollars are promissory notes for federal tax credits—of which the federal government has an infinite supply (and for which there is infinite demand)—so long as U.S. citizens and businesses are required by law to pay federal taxes.
The federal government does not “borrow” fiat dollars from private commerce; it trades new fiat dollars, issued by the U.S. treasury in the form of treasury bonds, for existing fiat dollars in the private market (created by the Federal Reserve); the government then spends the fiat-dollars it has traded for back into private commerce.
What is called “federal government borrowing,” in the lexicon of mainstream “truth,” is actually and operationally the issuing of new fiat dollars by the U.S. treasury—and these new fiat dollars are what, operationally, enable the government to purchase goods and services for the collective benefit of society.
“Deficit spending” by the federal government, therefore, does not increase something called the “national debt” because the holders of treasury bonds already “have their money.” (This is why no one is knocking on the federal government’s door asking for the “national debt” to be repaid.)
Federal spending, therefore, does not require the government to claim a portion of the profits of private commerce; and increasing federal spending, therefore, does not require increasing that claim—either through taxing or “borrowing.”
Federal spending, through the issuing of treasury bonds, in fact results not only in the creation of useful public goods and services, but in the expansion of capital in the private markets.

It is therefore possible to understand that fiat money creation by the sovereign government has two sources—the Federal Reserve, which creates fiat dollars as necessary to meet the liquidity demands of private commerce, and the U.S. treasury, which creates fiat dollars (in the form of treasury bonds) to meet the demands of federal spending beyond what can be covered by tax collections.

Mark Twain on The Two "Reigns of Terror"

(From “A Connecticut Yankee in King Arthur’s Court”)

It is not generally realized that America’s most beloved humorist was deeply stirred by the sight of social injustice, and many times went out of his way to give voice to his feelings. His recently published biography shows that influences were at work during his lifetime to repress him, and it would seem that such influences are still active after his death. It was found impossible to obtain the publishers’ permission to quote a passage of 176 words, which was to have appeared at this place in the Anthology. The passage in question is from the thirteenth chapter of “A Connecticut Yankee in King Arthur’s Court.” It points out that there were two “Reigns of Terror” in France; that the evils of the “minor Terror,” that of the Revolution, have been made much of, although they lasted only a few months, and caused the death of only ten thousand persons; whereas there was another, “an older and real Terror,” which had lasted a thousand years, and brought death to hundreds of millions of persons. We consider it horrible that people should have their heads cut off, but we have not been taught to see the horror of the life-long death which is inflicted upon a whole population by poverty and tyranny.


THERE were two “Reigns of Terror,” if we would but remember it and consider it; the one wrought murder in hot passion, the other in heartless cold blood; the one lasted mere months, the other had lasted a thousand years; the one inflicted death upon ten thousand persons, the other upon a hundred millions; but our shudders are all for the “horrors” of the minor Terror, the momentary Terror, so to speak; whereas, what is the horror of swift death by the axe, compared with lifelong death from hunger, cold, insult, cruelty, and heart-break? What is swift death by lightning compared with death by slow fire at the stake? A city cemetery could contain the coffins filled by that brief Terror which we have all been so diligently taught to shiver at and mourn over; but all France could hardly contain the coffins filled by that older and real Terror—that unspeakably bitter and awful Terror which none of us has been taught to see in its vastness or pity as it deserves.

(from here)

What's the point of the shutdown? Answer: The goal is the shutdown

[Thomas Frank's] Wrecking Crew theory gives an account of why Trump didn’t do whatever he needed to do with The Wall when Republicans controlled the House, where spending bills originate. But if the goal is the shutdown, for which The Wall is a pretext, that incongruity disappears.

--Lambert Strethner of nakedcapitalism.com 

 1/20/19 update:

A letter writer to the Bee notes the same thing, but goes no further.

Why just shut down the government? Because the government is the medium of collective action. Only collective action can solve systemic problems, but government can also confiscate private property, so the Kochs fear it, of necessity. Nancy MacLean's Democracy in Chains: The Deep History of the Radical Right's Stealth Plan for America describes the Kochs' pursuit of anti-collectivism in depth. This includes funding right-wing think tanks, and resurrecting John Calhoun's defense of slavery, the modern version provided by (Nobel Laureate!) James Buchanaan in his "Public Choice" theory. Executive summary: government solutions are always inferior to private sector solutions because of the inevitability of corruption and regulatory capture.

That's why PG&E, Enron, etc. are so uncorrupt! Yow!

Anyway, the object in shutting down the government is to discredit government. We don't need 'em!

Debunking Money Myths: Modern Money Theory’s ancient origins

[Chico to Harpo]: I need-a money! I'll do anything for money! I'll steal-a for money! I'll kill for money! But hey!...You-a my friend! I kill you for free.

Human understanding depends on stories far more than facts...and stories can be very useful. You'll look first at your own personal narrative, or that story in your head, when you're looking for your keys before you retrace your steps. So the narrative saves a lot of energy.

This is bias that's hard-wired, too. Your brain's visual cortex gets only 10% of its input from data (the optic nerves). The other 90% of inputs are connections to language and memory. You don't even see the world; you see a story you tell yourself about it.

Once we believe a story, it lets us make sense of the world around us, but it also may deceive us by guiding our attention past some inconvenient truths. This kind of (self-)deception is common, throughout human history.

Humans have believed the sun and planets revolve around the earth, for example. The truth is not always welcomed, either. Copernicus wisely decided to publish his theories after he died, but the Pope banned even those posthumous publications, and put Galileo under house arrest for contradicting the official narrative of the time.

The following debunks some common, and still powerful myths about obligation, credit, and money. These myths have been repeated by scholars from Aristotle to Adam Smith and beyond, but myths are not true just because they are repeated. These stories are really plausible explanations that history shows are false. Contradicting the popular narrative is irritating, too. But no irritation, no pearls. Ask an oyster.

Myth #1: Money was invented to enable barter...

This myth says societies first had barter economies, then invented money, and finally relied on credit to transact their economic business. One version describes how Robinson Crusoe and Friday agreed to settle their accounts in seashells rather than rely on the coincidence of needs in their two-person, barter economy.

Notice that if it appears at all, the state's money--or the temple's--is an afterthought in this story, and the invention of money is independent of any connection to the rest of society, state or religious authorities. This myth also implies that markets do best if they embrace unregulated "free" commerce, minimizing the role of the state--the contention of Neo-liberals, nowadays.

The truth...

Tracking obligations with precision--credit--appears in Bronze Age Mesopotamia, predating even writing. Writing appeared in roughly 3500 BCE.

Money first appeared as coins in the fifth or sixth century BCE--literally millennia later. Clay tablets specifying obligations, often alehouse bar tabs, tracked what was consumed, and workers paid off debts recorded when the harvest came in.

A pay stub from Uruk...Workers were paid in beer!

In such economies, sales were not exchanges of goods for some universal commodity, but an exchange for units of credit.  Anthropologist Caroline Humphrey concludes that "No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing".

Even when economies like the one that succeeded the the fall of Rome did not have state-issued money, they calculated the value of exchanges based on previously available money values.

“Money was no more ever ‘invented’ than music or mathematics or jewelry. What we call ‘money’ isn’t a ‘thing’ at all; it’s a way of comparing things mathematically as proportions…” [David Graeber]

Notice that Mesopotamia--the “fertile crescent”--also required labor to maintain the irrigation that made its agriculture so productive, so the presence of the state organizing and maintaining this system was critical. A state like California, so dependent on irrigated crops, appears to understand this.

Mesopotamian irrigation, recreated.

Slave labor was a component of the maintenance crew, and acquiring slaves was one of the main reasons for wars of conquest, but labor on public works and monuments also provided social cohesion. Archaeology found the work gangs who built the pyramids ate not slave food but feasts as meals. So the pyramids and the floats in the Rose Parade have that much in common.

Myth #1 [continued]:...Money is economic, not moral or religious

The myth: No social values and certainly no religion appears in the myth of money as an enabler of barter, just willing buyers and sellers. Robinson Crusoe and Friday agree seashells will stand in as tokens of obligation, and the obligation is strictly an economic matter, nothing to do with morality, reciprocity or religion.

If nothing else, the myth asserts that money (debt) has nothing but economic value, even if the creditor-friendly statement "Surely one must pay one's debts!" implies implicit morality.

The truth...

In ordinary usage, tokens (money) as a means of repaying one's debts originated as a moral obligation for reciprocity, not part of some economic transaction. In fact, money originally appeared as a way of repaying "un-payable" debts. Examples include things like: sacrifices to repay the gods for their favors, bridewealth (like dowries), and weregild (social justice payments). All of these are meaningless without social context, and were not denominated in an abstract unit of measurement of debts.

Payment of this kind of early "money" was typically a specific item, usually something of no practical use and could not be substituted by anything else. Some economists limit their definition of money to exclude such impractical tokens, and only apply the term "money" to a socially approved unit of account used to measure debt. There are many kinds of debt and obligations, some we cannot measure with a specific unit of account. Those were the occasion for the first appearance of what became our modern money.

King Phillip with a wampum belt

In this context, money had practically magical powers. "The Iroquois believed tribal money (wampum) was so spiritually powerful it could bring back the spirit of dead loved ones. [One Jesuit account describes] the Huron practice of hanging wampum around a captive Native’s neck; if the captive accepted the necklace, he became the living embodiment of a deceased loved one. [from Toward an Anthropological Theory of Value; The False Coin of Our Own Dreams-- David Graeber]

Similarly, sacrifices repay the gods (or bribe them) for favors granted or requested. The bigger the favor, the bigger the sacrifice. The firstborn of the tribal leader or royal family would be the biggest sacrifice...and sacrifice and assassination were rife throughout the royal families of the ancient Middle East.

Note: Part of the point of the story of Isaac and Jacob is that Jehovah does not require the sacrifice of the leader’s first-born. The religious dimension of money also explains those money changers in the Temple whose tables Jesus upset. In fact, a common term for anyone paying to release a debt slave was the "redeemer." This is also a term for messianic figures, demonstrating that obligation to the gods extends all the way from credit to religious feeling.

Another social money, weregild, compensates a family injured by murder. Notice that this type of payment is first socially useful, not a market convenience. It prevents blood feuds that would destroy society otherwise.

In other words, money first appeared not as a market / barter enabler, but as a way to heal societies, and rectify man's position relative to God or the cosmos (i.e. religion). Only later was money the enabler of markets. The ambiguity of whether debt signifies economic or moral/religious obligation persists even today, though, with some problematic results.

Myth #2: "Surely one must always repay one's debts!"...

In Debt: The First 5,000 Years, David Graeber's treatise on the anthropology of obligation, he begins with the story of a cocktail party encounter with a charitable organization's attorney. Graeber starts telling the attorney how he has been lobbying to forgive third world debt, and the she replies: "Surely one must always repay one's debts!"

The myth embodied in that statement assumes all debts are legitimate, and simple reciprocity requires the borrower to repay any debt undertaken. The power of this myth also lies in the moral/economic ambiguity. To understand the myth, and the condemnation of non-paying debtors, one must also understand that the borrower's obligation goes beyond mere economics, extending into morality.

People who do not pay their debts are bad!

The truth...

The moral obligation to repay overlooks several things. For example: the lender's responsibility to underwrite the loan. Should debts incurred to bet on a hot tip at the race track be considered legitimate? Should the state enforce repayment if the loan was so unrealistic that it really was a pretext for foreclosing on the security? (Something illegal in even pre-1776 American colonies).

Credit / debt is a way of giving “I owe you one” precision, but exact, standardized units of debt led to many other problems that persist even today. One example from ancient times: pledging one’s spouse, child or even oneself as security for debt was possible. So what happens to debts that are unpayable? Debt slavery? Debtors' prison? Bankruptcy?

The connection of money and debt to ethics and religion is deep, too. The Latin root for “credit” is credere -- to believe. Never mind that the Temple / Palace complex regulated and blessed obligations, credit requires faith.  In many ways, ”the value of a unit of currency is not a measure of the value of an object, but the measure of one’s trust [in others]”

“After all, isn’t paying one’s debt what morality is supposed to be all about? Giving people what is due them. Accepting one’s responsibilities. Fulfilling one’s obligations to others, just as one would expect them to fulfill their obligations to you. What could be a more obvious example of shirking one’s responsibilities than reneging on a promise, or refusing to pay a debt?”

Yet history shows that colonizers often saddled their colonies with debts they could not possibly pay as a way of dominating them. Even without a colonial master, crooked rulers could incur the debts, embezzle the money, then leave, leaving the population to deal with the debt repayment. Tom Perkins' Confessions of an Economic Hit Man describes how his economic studies let international underwriting make loans he knew could not possibly be repaid.

Graeber describes some of the consequences: The IMF’s stringent budget restrictions made Madagascar cut back on its mosquito abatement program and roughly ten thousand people died of malaria “to ensure that Citibank wouldn’t have to cut its losses on one irresponsible loan that wasn’t particularly important to its balance sheet anyway.”

The dark side of that statement about the ethical/religious obligation to repay is this: ”...there’s no better way to justify relations founded on violence, to make such relations seem moral, than by reframing them in the language of debt--above all, because it immediately makes it seem that it’s the victim who’s doing something wrong…violent men have been able to tell their victims that those victims owe them something. If nothing else, they ‘owe them their lives’...because they haven’t been killed.”

Myth #2 [continued]:...although forgiving debts is a nice, optional thing.

The myth: If a debtor is morally reprehensible when s/he does not pay debts owed, then it takes an exceptionally nice person to forgive debts. In this story, religion exists to encourage "nice," but not necessary, behavior.

The truth....

Interest payable on debt compounds in a geometric progression, growing without limit, while the means of repayment in the real economy are strictly limited by the environment, and/or the available technology.  For this reason, Einstein famously called compound interest the most powerful force in the universe.

Debt grows infinite while the means of repayment (the real economy) lags

For an equitable society to exist in which creditors and debtors can meet at least as quasi-equals, and debt is not an obligation undertaken at gunpoint, ways of forgiving debts must be built into the economic system supporting such obligations. Bankruptcy and "clean slate" jubilees are ways of preventing an economy from producing a population of debt peons or debt slaves. Such remedies have existed from the earliest times in Mesopotamia.


Debt Jubilees were common in this time, too. They include debt forgiveness, freeing the debt slaves, and amnesty for exiles.

The Rosetta Stone includes a debt jubilee

Law codes formalized the role of money in civil society. They set amounts of legal interest payable on debts, forbidding usury, and set fines for wrongdoing, and compensation in money for various infractions. 

Babylon’s Legacy in the Hebrew Bible / Old Testament Law

About 25% of the population of Judah was deported to Babylon in 600 BCE, so the Babylonian traditions were integrated into the Hebrew Bible (AKA the Old Testament).  Other legacies of the Babylonian exile: Prophets (e.g. Ezekiel, Isaiah) Church-going (Synagogues keep the Jewish culture alive with periodic meetings).

Preventing debt slavery was particularly important in ancient times since the debt slaves could not serve in the army. To ensure military readiness, ancient rulers would often declare "clean slates," or debt jubilees that wiped out agricultural debt, freed debt slaves, and allowed exiles to return.

Modern Debt Jubilees

Debt jubilees were not just ancient practice. They successfully revived the post-World War II economies of Japan and Germany. Their “miraculous” post-War recoveries included such jubilees, releasing the population from their obligations to the previous, ruling oligarchs.

On the other hand, colonial powers were reluctant to embrace such jubilees for their colonies. France continued to demand payment from Madagascar, and Haiti. Haiti took from 1804 through 1947 to repay.

The U.S. intervention in post-World-War-II Vietnam also propped up a French-sponsored oligarchy of creditors in that country. The Vietnamese understood that the future only held debt peonage if that structure remained in place, so were very motivated to fight even a far better-armed opponent until victorious.

Myth #3: Markets appear and thrive without state initiative or interference.

In this myth, Robinson Crusoe and Friday need no governing authority to tell them what is money, or to dictate its value in retiring obligations, or really to tell them what amounted to a legitimate obligation. A state would only interfere with commerce.

James Buchanan (1919-2013), a Koch-funded economist and Nobel laureate author of "Public Choice" theory, takes this one step further, asserting that state interference in markets is doomed to failure and corruption ("regulatory capture"), so the private sector is always preferable to state regulation. (For more about Buchanan, see Nancy MacLean's Democracy in Chains: The Deep History of the Radical Right's Stealth Plan for America)

The truth...

Economic money and markets appear only in societies with state institutions. Stateless societies exist, but they don’t have money (as we use it) or markets. So...“States create markets. Markets require states.” [Graeber]

Stateless societies did have a kind of money. Such money was really a token  to produce social cohesion--like sacrifices to the gods, bridewealth, and weregild--not money for economic purposes or markets. (See Myth 1 [continued] above)

From earliest times, states (or city-states) blessed credit arrangements, legislating to distinguish legitimate from illegitimate obligations. The Code of Hammurabi (1750 BCE) is where we first read about "an eye for an eye, and a tooth for a tooth"--retributive justice. Reciprocity is a kind of morality that amounts to debt repayment. The Code also limited the obligation of commercial borrowers (if thieves stole the goods for which they obtained credit), and the term of debt slavery (the consequence of not paying a loan for which the borrower himself was security).

How could a state create a market? In a basic example, imagine the king wants to employ an army of 10,000. This would be a logistical nightmare to feed, house, train and equip. But if the king pays his army in the official currency ("crowns"), then demands crowns in payment for taxes from the rest of the economy, then he encourages his subjects to make a market that first serves the soldiers, and then serves each other.

This is a simple example, but even in its simplicity, one can see the market created would require regulation, if only to specify what makes a legitimate crown, not a counterfeit.

So the opposition between markets and the state is a myth. Markets do not exist without states to specify what legitimate transactions or means of payment look like. States understand and encourage markets, or markets do not exist.

(See Aeon’s Dark Leviathan for a cautionary tale about the libertarian fantasy of a stateless, law-less market.)

Myth #4: If it can’t be measured or monetized, it doesn’t exist.

The confusion between economic and moral values lets people make purely monetary calculations stand in for morality, sometimes taking that law "An eye for an eye" too far. Gandhi says "An eye for an eye [without forgiveness] only ends up making the whole world blind."
 
In service to this myth, MBAs learn to measure and compare goods and services, optimizing the productive economy in strictly monetary terms. One of their main tools in this optimization is money-as-measurement. This still includes the quasi-religious belief that pursuing profit excuses any damage done to society, because ultimately, the "invisible hand" of the market will right any wrong done.

The truth...

The yearning for certainty is an all-too-human tendency. I'd suggest social scientists envy Newton's physics, the purest of cause-and-effect machines, as the standard for their discipline. And Newton's physics solved some very large problems, too--everything from the shape of the cosmos to the trajectory of artillery shells. In tribute, Alexander Pope wrote: "Nature and nature's laws lay hid in the night. God said, Let Newton be! and all was light!"

An interesting coincidence with this conversation about obligation, money, religion and values: Newton himself wrote more about Christian theology than about physics, and supervised the royal mint.

But Newtonian physics has its shortcomings. Quantum physics addresses those, and in doing so re-introduces uncertainty and probability in its calculations.

So...while markets are very efficient allocators of resources, and physics is a model science, they include inexact measurement. Economics speaks of "externalities"--factors outside the calculation of costs and benefits with conventional accounting. One example: pollution.

Finally, measuring and managing economies strictly by bean counting often overlooks fraud. In deference to the pretense that such crimes do not exist, or are not important, criminal activity still does not appear in the calculation of Gross Domestic Product. In fact, the value of questionable activity like speculation, remains undifferentiated from productive action in that calculation. (See Marianne Mazzucato's The Value of Everything for a discussion of this)

Scams about economics itself are not new, either. In fact an MBA education is founded on the quasi-religious belief that God has an invisible hand, and management can be a "science," like physics, with immutable laws that describe and predict behavior. As it happens, one of the evangelists for this belief--Frederick Winslow Taylor, the  man whose thinking encouraged the founders of Wharton Business school to employ him as part of its original faculty--altered his data to fit his preconceptions about time-and-motion studies. Rather than doing real science, and altering his hypotheses to fit the data, by Taylor's own admission, his "adjustments" to data ranged from 20% to 225%!

As much as it can include calculation, management really is a liberal art, not science. [See Matthew Stewart's The Management Myth for more about this.]

If nothing else, one cannot call raising children, caring for the elderly, or building long-lasting infrastructure "profitable" according to most MBA calculations, which typically focus on short-term, money return and profitability.

How influential is this myth? The financial sector now claims 40% of the American economy's profits. Its values pervade decisions from the productive part of the economy, too. It was more profitable to tolerate a Pinto gas tank and pay damages to those injured than to fix it. GM saved 97¢ on an ignition part that killed people.

So yes, money lets us calculate the value of things, and may even stand in as payment for debts that are unpayable, but money is not the only measurement that matters.

Myth #5: Government “Debt” is harmful, even for future generations (“Debt” impairs savings!)

The myth: America's National Debt looms over its economy like the sword of Damocles, casting a shadow of unpayable debt across the current economy and generations to come.

Mainstream media promotes the myth, too.

In its bold misstatement of reality, this myth conflates such (currency creator, National) 'Debt' with (currency user) household debt.

The truth....

Government 'Debt' is nothing like household debt. It's more like bank debt.

If you have a bank account, that's your asset...but the bank's liability (debt). When you write a check, you are assigning a portion of the bank's debt to the payee. Currency is checks made out to "cash" in fixed amounts, and appears in our central bank's bookkeeping as a liability.

A "note" is a legal term for an IOU (see "Federal Reserve Note" on your dollars)

Notice how government liability mirrors private sector (and foreign trade / capital account) asset

The common name for all the dollar financial assets out in the economy: National 'Debt.'


Imagine a crowd demanding their bank give them smaller accounts, charge bigger fees, pay lower interest. Why?...because they are worried about the bank’s indebtedness (to its depositors).


Not a very sensible picture, is it? Yet it’s a commonplace for the press and American public to encourage just that.

Significant National ‘Debt’ reductions have occurred seven times since 1776. Such "surpluses" are always followed by a Great Depression-sized hole in the economy. The root of the problem is that National 'Debt' is typically the citizens' savings. Diminishing savings injects fragility into the economy. Debtors can't rely on reserves to pay their debts, so waves of asset forfeitures and foreclosures follow.


The state - a currency creator - is distinct from the individuals / households - currency users.

Private debt peaks in 1929 and at the beginning of the Great Recession, just before massive downturns

This is a systemic (not individual) problem, too. Collective action offers the only solution feasible.

Myth #6: Printing money causes inflation.

The myth: Inflation inevitably has its source in central banks issuing too much money. We must restrict even issuers of the technically unlimited fiat money, otherwise all that money will cause [hyper-]inflation, debasing the currency.

The truth...

In theory, a sovereign, fiat currency issuer could issue unlimited money, and outbid the private sector for (limited) goods and services in the real economy, making prices rise. But a Cato Institute study of 56 hyperinflations throughout human history discloses that none were caused by central banks run amok. Shortages of goods, and balance of payments problems preceded any excessive money printing or hyperinflation.


Notice that bidding must occur before inflation occurs, too. The state could deposit some trillion-dollar coins and our central bank, but that act alone would not trigger inflation.

At the onset of the Great Recession, in 2007-8, according to its own audit, the Fed extended $16 - $29 trillion in credit to cure the frauds of the financial sector. (For only $9 trillion it could have paid off everyone's mortgage, but apparently it was more important to save the banks.) In this case money was not bidding for goods or services, it was retiring liabilities, so despite the enormous amount of money issued, no surge of inflation occurred.

Saying more money causes inflation is roughly like saying printing more inches on tape measures make things longer.

About national bankruptcy: 

Since money is a measurement, not a commodity, sovereign, fiat money creators with a floating exchange rate, and debts payable in the money they create can never actually run out of money. That means the U.S. government can never be "bankrupt" (involuntarily insolvent). Greece is not a monetary sovereign; it can't make drachmas any more, and must rely on externally-produced euros. That situation is the origin of lots of Eurozone problems.

So...could government offer a job to everyone who is unemployed without raising taxes or causing inflation? Government makes the money by fiat, not by collecting taxes (see Myth #7 below), and no one else is bidding for the unemployed, so no bidding or inflation would occur.

Even the “good old days” when we had gold-backed money, we had less gold than currency--only 25% of dollars actually had gold backing when Nixon “closed the gold window” in 1971.

David Graeber notes that, historically, currency has had gold backing for less than two centuries in the five millennia he covers. Gold backing would also disappear whenever war came along. Lincoln fought the Civil War with greenbacks, for example. FDR eliminated the dollar’s conversion to gold in World War II.

Interesting fact: Historically, Graeber notes that people value money as only its commodity value if it’s distant from its issuing state. The state simply declares its value regardless of the commodity, but that declaration grows less important with distance.

Myth #7: Taxes fund government programs. (and Social Security is in peril!)

The headlines regularly remind us: We're out of money! We're insolvent! We cannot possibly pay off that national 'debt' because we can't issue more currency (see myth #6)!

If we need a government program, we must cut government spending elsewhere, or raise taxes.This is Nancy Pelosi's "Pay-Go" policy.

The truth....

Government is the monopoly provider of (non-counterfeit) dollars. Government cannot be provisioned by taxes. Where would people get dollars with which to pay those taxes if government didn't spend them out into the economy first?

Government first spends, then asks for some money back in taxes. What do we call the dollar financial assets it leaves behind, untaxed? Answer: National 'Debt'!

Governments with sovereign, fiat currency and floating exchange rates are the only fiscally unconstrained players in the economy.

Why get more money to the bulk of the population (one example: eliminate FICA taxes)? Answer: Currently, 40 percent of adults can’t cover a $400 emergency expense without borrowing. We continue to have a money shortage. Who profits from this shortage? Creditors.

Conclusions

This account began with a reminder of how important narratives are to human understanding. If nothing else, you now have some alternatives to the conventional narratives. What are the alternatives?

1. Credit / Money is a social construct. Rather than enable barter, it first served to prevent feuds over unpayable debts, or repaid gods for their favor. Credit preceded money, not barter.

2. Lenders have a responsibility to make loans that can be repaid, just as much as debtors have a responsibility to pay them. The mathematics of interest compounding means that debts can become unpayable, too. Clean slates, jubilees, or at least bankruptcy must exist or borrowers become debt peons, effectively slaves of lenders.

3. Markets are possible thanks to state encouragement and regulation. They do not exist without a state to sponsor and maintain them.

4. Money measures and compares things, but some things are unmeasurable. Relying strictly on accounting to always produce good outcomes is unrealistic.

5. Government 'Debt' is like bank debt, not household debt. Bank debts are depositors' asset. National 'Debt' is the common term for the dollar financial assets out in the private economy.

6. Shortages of goods and balance of payment problems initiate inflationary periods--like the oil shortages in the '70s. Shortage, not money printing, is the critical element in inflation.

7. Taxes make money valuable, they don't (and can't) provision governments that make the money.

Spending money is how society allocates resources. This alternative narrative leads to at least the possibility of a dramatic change, opening up a whole world of possibilities. Excuses or anxiety-provoking warnings citing money shortages are not valid in most modern economies. Government does not have to raise taxes to provision new programs. Society can realistically tackle systemic problems ranging from unemployment to global warming. 

Now...what will you do with this knowledge?

....The above is based on the work of Michael Hudson, David Graeber, and the Modern Money Theorists (among them Warren Mosler, Randall Wray, Stephanie Kelton, Steve Keen and Bill Mitchell). Thanks to Randall Wray and Warren Mosler for reviewing and correcting the above.