Friday, June 28, 2019
Wednesday, June 26, 2019
The Obama Presidency
Any time one of my Democratic friends gets bent out of shape by Trump's criminality, or his sexual predation, I have to remind them how Clinton and Obama paved the way for legitimizing those things.
Perhaps the worst is Obama (see the Twitter thread below). Not only did he not prosecute the war crimes of Bush 43/Cheney, he promoted the torturers and prosecuted the whistle blowers (more than all previous administrations combined).
But to really appreciate the corruption of the Obama administration, one has to compare its behavior with the previous biggest-ever bank scandal, the Savings & Loans. At its time, the S&Ls was the biggest scandal in American history, in terms of dollars, people involved, amount of theft... you name it. So what happened during Reagan / Bush 41? Answer: The regulators did their jobs. They filed 30,000+ referrals for criminal prosecution, and the Justice Dept. prosecuted 1200+ cases with a 90% conviction rate. They got really big fish, too: Mike Milken and Charles Keating among them.
Fast forward to the scandal Obama inherited, the subprime/derivatives scandal enabled by Clinton's deregulation of Wall Street. The latest bank scandal was about 70 times larger than the S&Ls. Just bailing out a single bank (IndyMAC in Southern California) cost more than the entire S&L bailout.
So...how many referrals for criminal prosecution from the Obama regulators? Answer: zero!
The crookedest Attorney General in American history, Eric Holder, prosecuted about a dozen cases, all small fish. Instead, he chose to settle with the malefactors in what is perhaps the largest theft in human history--U.S. net worth declined 40% in the wake of Lehman's bankruptcy--for dimes on the dollar of their loot. These cost-of-doing-business fines included no admission of guilt, so the civil cases against the thieves were harder to prosecute.
So any time someone asks me whether I'd vote for Joe Biden, I have to respond "What difference would it make?"
Recommended reading: Thomas Frank's Listen Liberal: Whatever Happened to the Party of the People?
Perhaps the worst is Obama (see the Twitter thread below). Not only did he not prosecute the war crimes of Bush 43/Cheney, he promoted the torturers and prosecuted the whistle blowers (more than all previous administrations combined).
But to really appreciate the corruption of the Obama administration, one has to compare its behavior with the previous biggest-ever bank scandal, the Savings & Loans. At its time, the S&Ls was the biggest scandal in American history, in terms of dollars, people involved, amount of theft... you name it. So what happened during Reagan / Bush 41? Answer: The regulators did their jobs. They filed 30,000+ referrals for criminal prosecution, and the Justice Dept. prosecuted 1200+ cases with a 90% conviction rate. They got really big fish, too: Mike Milken and Charles Keating among them.
Fast forward to the scandal Obama inherited, the subprime/derivatives scandal enabled by Clinton's deregulation of Wall Street. The latest bank scandal was about 70 times larger than the S&Ls. Just bailing out a single bank (IndyMAC in Southern California) cost more than the entire S&L bailout.
So...how many referrals for criminal prosecution from the Obama regulators? Answer: zero!
The crookedest Attorney General in American history, Eric Holder, prosecuted about a dozen cases, all small fish. Instead, he chose to settle with the malefactors in what is perhaps the largest theft in human history--U.S. net worth declined 40% in the wake of Lehman's bankruptcy--for dimes on the dollar of their loot. These cost-of-doing-business fines included no admission of guilt, so the civil cases against the thieves were harder to prosecute.
So any time someone asks me whether I'd vote for Joe Biden, I have to respond "What difference would it make?"
Recommended reading: Thomas Frank's Listen Liberal: Whatever Happened to the Party of the People?
[Thread] Obama years, in no particular order .... pic.twitter.com/jCdg0m8liU— Esha🌹🌷🌹 (@eshaLegal) December 19, 2017
Tuesday, June 25, 2019
David Harvey's overview of our current economic situation
Harvey reinstates classical economics' adoption of land as one of the units of production.
3/28/16
It is David Harvey’s contention that the production of space,
especially the distribution and organization of the territory,
constitutes a principal aspect of capitalist economies. His writings on
this theme have contributed to the ongoing political debate on
globalization and on the different spatial strategies associated to
global processes. A foundation of Harvey’s intellectual project is his
“close reading” and interpretation of Karl Marx’s Capital, which he has
taught and read for decades and documented in his Companion to Marx’s
Capital (2010). But Harvey’s work is distinguished by the way he has
brought Marxism together with geography with productive results for each
discipline. For instance, he has approached the overaccumulation of
capital by way of its reflection in spatial expansion in order to
demonstrate its causative role. His book Limits to Capital (1982), which
traces this argument, is a mainstay of the contemporary understanding
of capitalism’s perennial economic crises (among others are Ernest
Mandel’s Late Capitalism (1972), Giovanni Arrighi’s Long 20th Century
(1994) and Robert Brenner’s Economics of Global Turbulence
(2006)).
Among other ideas, Harvey is known for his critical
interpretation of the ideas of Henri Lefebvre and his own formulation of
the “right to the city.” His book Spaces of Hope (2000) explores a role
for architecture in bridging between the human body and the uneven
development that is characteristic of globalization. Asked to single out
a favorite of Harvey’s books, Dean Mohsen Mostafavi refers to Harvey’s
book Social Justice and the City (1973) as “an important articulation of
the relationship between the city as a physical artifact and its social
consequences. His writings have provided an acute analysis of our
society and provide an indispensable framework for new forms of spatial
imagination."
David Harvey, Distinguished Professor of Anthropology
& Geography at the Graduate Center of the City University of New
York (CUNY), is the 2015–2016 Senior Loeb Scholar.
Today's Bee Letter: Affordable Housing
6/25/19 RE: We need to break down root causes of California's homeless crisis to find solutions
The Bee’s “influencers” say we need to increase the supply of housing to make it more affordable, maybe cut some red tape, and perhaps contemplate why people end up on the street, and provide them with therapy. No mention that government closed the asylums without funding halfway houses to replace them.
No mention of increasing taxes on the rentiers--finance loves real estate--to curtail the rise of home prices and the epidemic of land speculation in the region--things that raise costs for everyone.
No mention of removing the restrictions on boarding houses or multi-family in the midst of single-family homes, you know, as in McKinley Park, the most valuable real estate in the region. No mention that maintaining infrastructure in compact development is roughly half as expensive as maintaining it in sprawl.
My question: Does “influencers” mean “people with their heads in the sand”?
The Bee’s “influencers” say we need to increase the supply of housing to make it more affordable, maybe cut some red tape, and perhaps contemplate why people end up on the street, and provide them with therapy. No mention that government closed the asylums without funding halfway houses to replace them.
No mention of increasing taxes on the rentiers--finance loves real estate--to curtail the rise of home prices and the epidemic of land speculation in the region--things that raise costs for everyone.
No mention of removing the restrictions on boarding houses or multi-family in the midst of single-family homes, you know, as in McKinley Park, the most valuable real estate in the region. No mention that maintaining infrastructure in compact development is roughly half as expensive as maintaining it in sprawl.
My question: Does “influencers” mean “people with their heads in the sand”?
Wednesday, June 19, 2019
Modern Money Theory (MMT) and Climate
The following appears in the New Economic Perspectives blog.
With great interest, I’ve been reading about the “Terraton Initiative”—a program designed to enlist farmers to sequester one trillion tons of carbon in their soil using innovative and “regenerative” planting techniques. The initiative was recently rolled out by Indigo AG—a young and rising Boston company recently named by CNBC as “the world’s most innovative company.” Indigo AG’s mark has been the establishment of a sophisticated platform enabling grain-farmers across the country (and around the world) to differentiate the quality-characteristics of their harvest (e.g. organic, non-GMO, heirloom varietal, etc.) and connect directly with buyers seeking those quality-characteristics. What got my attention was the fact that Indigo AG, with its recently announced “Terraton Initiative,” is now proposing to help farmers deploy strategies to maximize carbon sequestration in their fields—and then pay the farmers $15 for each ton of carbon they sequester. (Current agribusiness farming techniques, promoted by Archers Daniels Midland and Monsanto—now Bayer—add 4 billion tons of greenhouse gas to the earth’s atmosphere each year.)
To put this in perspective, one trillion tons of CO2 is what human civilization has pumped into the earth’s atmosphere over the past 250 years. Indigo AG is proposing to take it all back—and sequester it in the world’s 3.6 billion acres of agricultural soils. End of global warming—end of the threat of climate change! (Of course, it wouldn’t be that simple since many of the changes are “baked-into” the foreseeable future by mechanisms already set in motion; nevertheless, pushing atmospheric carbon counts back toward pre-industrial levels would obviously be a considerable step in the right direction.)
There is, of course, another perspective: At $15/ton, achieving the goal of the “Terraton Initiative” will require paying farmers $15 trillion for their services. Indigo AG says it has already lined up a group of “buyers” who will get the ball rolling by purchasing (from Indigo AG) “carbon credits” which they can then use to offset their own carbon footprints—and even claim their products are carbon negative. Presumably, Indigo AG is making a profit in this transaction; if they’re paying farmers $15/ton they might be selling a credit to that ton for, say, $17. So, to achieve their goal, they’d have to sell $17 trillion worth of carbon-credits.
The only way this sounds long-term plausible is if the entire consumer world got on board with the idea of buying only carbon-zero—or carbon-negative—agricultural-based products. Which is unlikely—especially within the ten-year time frame scientists are telling us we are up against to make a significant move to limit atmospheric carbon build-up. Nevertheless, what Indigo AG is undertaking is intriguing (and highly laudatory) for several reasons:
The initiative is clearly part of a rational, large-scale climate-change solution that is founded on current and reasonably projected technological capabilities. One North Carolina farmer who has already been experimenting with existing “regenerative” techniques has sequestered 1.5 tons/acre in his fields. If that efficiency were doubled, the 3.6 billion acres of cultivated land, world-wide, would be capable of sequestering 10.8 billion tons of carbon per year through agricultural practices alone.
The initiative is not top-down, but a genuine, diverse, bottom-up endeavor. It will “employ” thousands of individuals and small businesses in creative efforts to develop and deploy agricultural carbon-sequestration strategies and techniques. The initiative includes additional monetary awards for innovative ideas that can be used by others to increase the efficiency of their sequestration efforts. It puts the true “initiative”—and the financial rewards—squarely in the hands of people on the ground.
No one is coerced to do anything. The only enforcement is a measuring regime to document actual sequestration levels achieved. The motivation to participate is wholly “market-driven.” The same North Carolina farmer who’s sequestering 1.5 tons/acre on his 1000 acres will earn an extra $22,000/year “for doing,” he notes, “what I’m already doing.” Others would likely be motivated to start “doing” the same thing—and earn the premium, as well, on what they’re already growing and selling.
There are profound collateral benefits to the initiative. The “regenerative” farming techniques will replenish the fertility and water-holding capabilities of the world’s top-soil—capabilities which have been virtually destroyed by the intense chemical fertilizer-insecticide regimes promoted, and insisted upon, by the major agribusiness suppliers. One can imagine the ghost of Masanobu Fukuoka (One Straw Revolution)—who resolutely demonstrated that “regenerative” farming techniques can, in fact, outproduce chemical-intense methodologies—rising in celebration!
The ubiquitous “only one problem” ….
The stickler, of course, is: Where is the $17 trillion going to come from to pay the sequesters? It seems reasonable to presume that Indigo AG’s carbon-credit “buyers” will, at some point, fall short of that number. The “profit-motive,” in other words, will soon fail to motivate the creation of the necessary dollars by the Federal Reserve banking system. This seems—by definition—a perfect application for the principles of Modern Monetary Theory: The federal government, in other words, would instigate the creation of the dollars necessary to pay for the carbon sequestration efforts.
To be quite specific, the payments for the sequestered carbon would not come from tax collections. Nor would the payments come from money “borrowed” from the private sector. The payments would be made by the appropriation of new dollars created by the Federal Reserve for the purpose of funding the Treasury’s payments to the participating sequesters. The necessary deposits would be made to the Treasury’s spending account by the process of trading future Reserves (i.e. treasury bonds) for existing Reserves—and then trading the future Reserves for new Reserves created by the FED. (The same process, it should be noted, by which the Treasury has been getting its “deficit” spending money for a long, long time.)
But why limit what I’m now thinking of as the “MMT Carbon Initiative” to only agricultural carbon-sequestration in support of Indigo AG’s admirable efforts? Why not propose that the federal government will buy sequestered carbon—or its equivalent—from anybody?
For example, a kilowatt of electricity produced by a solar panel can be calculated to be equivalent to 1000 lbs. of sequestered carbon (carbon that would have been emitted to produce the same electricity with fossil fuels). Families and businesses that install solar panels, therefore, would earn their share of the $15/ton payments.
Importantly, there are many less obvious endeavors that would also be motivated (and financially assisted) by the sequestration payments. Two examples: The Salk Institute for Biological Studies in San Diego is developing plant species and hybrids with enhanced capability for storing carbon in their roots. Their success could be financed by the market established by farmers looking for plant varietals that enable them to increase their carbon sequestration payments.
The Marin Carbon Project is a group located in the San Francisco Bay Area that seeks to enhance carbon sequestration not just in cultivated soils, but in unoccupied rangeland and forest soils, by the large-scale recycling of organic waste—including food waste—into compost. When dumped into landfills, organic waste emits methane (a more potent greenhouse gas than CO2) into the atmosphere. When it is recycled into compost—and the compost is spread on soils whose capacity to absorb carbon has been severely depleted—the project has determined the revitalized soil can sequester up to 1 ton of CO2 per acre. Right now, this group is a non-profit sponsored by charitable fund-raising. The MMT Carbon Initiative could go a long way to help them expand their efforts.
How does the MMT Carbon Initiative differ from a carbon tax—or cap-and-trade system?
A carbon tax sets a price that emitters must pay for each ton of CO2 emissions they create. This cost-of-doing business is passed on to consumers who would, presumably, gravitate to products least affected by the tax (i.e. with lower prices)—creating an incentive for businesses to switch fuels or adopt new technologies to lower their emissions. This would create a virtuous cycle that would, through a decentralized, market-based process, reduce CO2 in the atmosphere. All good if you can politically get business to swallow a new tax that intentionally disrupts their existing business models.
In a cap-and-trade system, the government sets an emissions cap and issues “emission allowances” to meet that cap. Businesses must acquire and hold allowances for every ton of CO2 they emit. Companies buy and sell the allowances, establishing a price per ton of CO2 emitted. The net result, presumably, is that businesses are motivated to develop strategies and technologies to reduce their emissions—and are paid to do that by selling their unneeded allowances to other companies which must continue to emit more than their allowance. This has always seemed to me a round-about and complicated way to create the appearance that markets are magically undertaking the mitigation of climate-change.
The MMT carbon initiative seems superior to either a tax, or a cap-and-trade system, on at least two accounts:
It doesn’t disrupt anybody’s existing business plan. Instead (as illustrated by the examples cited above) it underwrites and incentivizes a lot of new and expanded business plans across a wide spectrum of economic endeavors.
It incentivizes, right from the start, a great many people (e.g. farmers) to take specific, concrete actions (“regenerative” planting and harvesting techniques) which will result directly in the immediate sequestration of carbon from the earth’s atmosphere. No waiting around for complicated cap and trade market-structures to be negotiated.
Will the MMT Carbon Initiative generate run-away inflation?
At first blush (which is usually how far economic pundits go on the topic) it would seem that adding $17 trillion to the world economy (by paying people newly created dollars to sequester carbon) is—almost by definition—going to create run-away inflation. Right? How could it not? One day, everyone is buying stuff with X no. of dollars, the next day they’re buying the same stuff with X+17 trillion dollars—so how is the price of everything in the world not going to explode off the charts requiring people to carry money around in wheelbarrows to buy a loaf of bread? Man the barricades against MMT! Prepare for America’s decent into the realms of Venezuelan chaos!
But please put these visceral ideological juices aside, and give some thoughtful, rational (and, above all) self-interested consideration of what is really going to unfold with the MMT Carbon Initiative I’ve just outlined:
Dollars are not going to be “dumped” into people’s bank accounts. They’ll be deposited incrementally—and only in exchange for the accomplishment of real, useful tasks. And it’s the real tasks—and the outcomes they achieve—that are the most important things. We’re trying to confront, here, an existential threat to human society. So what if one of the residual effects of accomplishing that goal is that a can of Coca-Cola ends up costing $2 instead of $1? When I was a kid, a bottle of soda only cost ten cents! And, in the process of getting from 10 cents to $1, I’ve never once carried money around in a wheelbarrow. In other words, so long as prices rise incrementally—reflecting the incremental expansion of human endeavors and accomplishments—inflation doesn’t matter. And the MMT Carbon Initiative embodies the very idea of the incremental expansion of useful human endeavors.
Keeping fossil fuels in the ground
The final argument I’ll make for the MMT Carbon Initiative is that it is potentially a passive (i.e. non-regulatory) strategy for keeping fossil fuels in the ground. To have a profound effect, the initiative doesn’t need to accomplish this—but it is enticing to play with back-of-envelop calculations that suggest it plausibly could accomplish it. And there probably wouldn’t be a bigger game-changer in the race against global warming than significantly limiting—for a period of, say, 10 years—the extraction and refinement of fossil-fuels.
My back-of-envelop calculations are based on the presumption that oil and gas companies want to figure out a profitable way to transition to alternative fuels and energy systems. The MMT Carbon Initiative—paying anyone $15/ton for sequestered carbon—could get their attention (and participation). Here’s the calculations (using quick, google-search numbers):
A barrel of crude oil = 0.5 tons of carbon emissions. Leaving a barrel of crude oil in the ground, therefore, would earn $7.50 from the MMT Carbon Initiative.
Average cost to extract a barrel of crude oil from the earth = $25/barrel. Average cost to refine that barrel of crude oil into burnable fossil-fuel = $3/barrel, for a total cost of $28/barrel extracted and refined.
Assuming an average net profit of 20%, oil and gas industry earns $5.60/barrel of crude it extracts and refines.
Therefore, if the crude oil were left in the ground, under the MMT Carbon Initiative, the oil and gas industry would earn the same $5.60/barrel profit plus a nearly $2/barrel premium!
If the $2 premium (from the MMT Carbon Initiative) were applied to research and development, $127 billion/year would flow into the development and deployment of zero-carbon energy systems.
Over ten years, this would amount to a $1.2 trillion investment in zero-carbon energy solutions by the oil and gas industry—an investment which, hopefully, would secure a transition to a zero-carbon business model for the energy sector.
There would, therefore, be virtually zero need to recommence the extraction of fossil-fuels after the ten-year research and development effort. The entire world-economy would now be operating on a new business model—and, according to the IPCC’s latest reports, just in time.
It should be noted that the MMT Carbon Initiative, itself, for the same reason just illustrated, could be given a ten-year time limit. Ideally, at the end of that “decade of sequestration,” not only would the world be operating on a zero-carbon energy model, but atmospheric carbon would be re-established near pre-industrial levels. An astonishing collateral benefit would be the transformation of world agribusiness into a “regenerative” process that builds topsoil, conserves water, and produces healthier food.
Perhaps, a decade hence, the experience of accomplishing all this will have brought us together around the realization that we can, as a collective society, use a modern understanding of money to accomplish things we didn’t think possible. At that point perhaps we could genuinely—and with an effort equal to what we’d just undertaken—focus on saving the other species on the planet that we’ve put gravely in danger.
MMT Carbon Initiative—a modest proposal
Posted on June 18, 2019 by J.D. AltWith great interest, I’ve been reading about the “Terraton Initiative”—a program designed to enlist farmers to sequester one trillion tons of carbon in their soil using innovative and “regenerative” planting techniques. The initiative was recently rolled out by Indigo AG—a young and rising Boston company recently named by CNBC as “the world’s most innovative company.” Indigo AG’s mark has been the establishment of a sophisticated platform enabling grain-farmers across the country (and around the world) to differentiate the quality-characteristics of their harvest (e.g. organic, non-GMO, heirloom varietal, etc.) and connect directly with buyers seeking those quality-characteristics. What got my attention was the fact that Indigo AG, with its recently announced “Terraton Initiative,” is now proposing to help farmers deploy strategies to maximize carbon sequestration in their fields—and then pay the farmers $15 for each ton of carbon they sequester. (Current agribusiness farming techniques, promoted by Archers Daniels Midland and Monsanto—now Bayer—add 4 billion tons of greenhouse gas to the earth’s atmosphere each year.)
To put this in perspective, one trillion tons of CO2 is what human civilization has pumped into the earth’s atmosphere over the past 250 years. Indigo AG is proposing to take it all back—and sequester it in the world’s 3.6 billion acres of agricultural soils. End of global warming—end of the threat of climate change! (Of course, it wouldn’t be that simple since many of the changes are “baked-into” the foreseeable future by mechanisms already set in motion; nevertheless, pushing atmospheric carbon counts back toward pre-industrial levels would obviously be a considerable step in the right direction.)
There is, of course, another perspective: At $15/ton, achieving the goal of the “Terraton Initiative” will require paying farmers $15 trillion for their services. Indigo AG says it has already lined up a group of “buyers” who will get the ball rolling by purchasing (from Indigo AG) “carbon credits” which they can then use to offset their own carbon footprints—and even claim their products are carbon negative. Presumably, Indigo AG is making a profit in this transaction; if they’re paying farmers $15/ton they might be selling a credit to that ton for, say, $17. So, to achieve their goal, they’d have to sell $17 trillion worth of carbon-credits.
The only way this sounds long-term plausible is if the entire consumer world got on board with the idea of buying only carbon-zero—or carbon-negative—agricultural-based products. Which is unlikely—especially within the ten-year time frame scientists are telling us we are up against to make a significant move to limit atmospheric carbon build-up. Nevertheless, what Indigo AG is undertaking is intriguing (and highly laudatory) for several reasons:
The initiative is clearly part of a rational, large-scale climate-change solution that is founded on current and reasonably projected technological capabilities. One North Carolina farmer who has already been experimenting with existing “regenerative” techniques has sequestered 1.5 tons/acre in his fields. If that efficiency were doubled, the 3.6 billion acres of cultivated land, world-wide, would be capable of sequestering 10.8 billion tons of carbon per year through agricultural practices alone.
The initiative is not top-down, but a genuine, diverse, bottom-up endeavor. It will “employ” thousands of individuals and small businesses in creative efforts to develop and deploy agricultural carbon-sequestration strategies and techniques. The initiative includes additional monetary awards for innovative ideas that can be used by others to increase the efficiency of their sequestration efforts. It puts the true “initiative”—and the financial rewards—squarely in the hands of people on the ground.
No one is coerced to do anything. The only enforcement is a measuring regime to document actual sequestration levels achieved. The motivation to participate is wholly “market-driven.” The same North Carolina farmer who’s sequestering 1.5 tons/acre on his 1000 acres will earn an extra $22,000/year “for doing,” he notes, “what I’m already doing.” Others would likely be motivated to start “doing” the same thing—and earn the premium, as well, on what they’re already growing and selling.
There are profound collateral benefits to the initiative. The “regenerative” farming techniques will replenish the fertility and water-holding capabilities of the world’s top-soil—capabilities which have been virtually destroyed by the intense chemical fertilizer-insecticide regimes promoted, and insisted upon, by the major agribusiness suppliers. One can imagine the ghost of Masanobu Fukuoka (One Straw Revolution)—who resolutely demonstrated that “regenerative” farming techniques can, in fact, outproduce chemical-intense methodologies—rising in celebration!
The ubiquitous “only one problem” ….
The stickler, of course, is: Where is the $17 trillion going to come from to pay the sequesters? It seems reasonable to presume that Indigo AG’s carbon-credit “buyers” will, at some point, fall short of that number. The “profit-motive,” in other words, will soon fail to motivate the creation of the necessary dollars by the Federal Reserve banking system. This seems—by definition—a perfect application for the principles of Modern Monetary Theory: The federal government, in other words, would instigate the creation of the dollars necessary to pay for the carbon sequestration efforts.
To be quite specific, the payments for the sequestered carbon would not come from tax collections. Nor would the payments come from money “borrowed” from the private sector. The payments would be made by the appropriation of new dollars created by the Federal Reserve for the purpose of funding the Treasury’s payments to the participating sequesters. The necessary deposits would be made to the Treasury’s spending account by the process of trading future Reserves (i.e. treasury bonds) for existing Reserves—and then trading the future Reserves for new Reserves created by the FED. (The same process, it should be noted, by which the Treasury has been getting its “deficit” spending money for a long, long time.)
But why limit what I’m now thinking of as the “MMT Carbon Initiative” to only agricultural carbon-sequestration in support of Indigo AG’s admirable efforts? Why not propose that the federal government will buy sequestered carbon—or its equivalent—from anybody?
For example, a kilowatt of electricity produced by a solar panel can be calculated to be equivalent to 1000 lbs. of sequestered carbon (carbon that would have been emitted to produce the same electricity with fossil fuels). Families and businesses that install solar panels, therefore, would earn their share of the $15/ton payments.
Importantly, there are many less obvious endeavors that would also be motivated (and financially assisted) by the sequestration payments. Two examples: The Salk Institute for Biological Studies in San Diego is developing plant species and hybrids with enhanced capability for storing carbon in their roots. Their success could be financed by the market established by farmers looking for plant varietals that enable them to increase their carbon sequestration payments.
The Marin Carbon Project is a group located in the San Francisco Bay Area that seeks to enhance carbon sequestration not just in cultivated soils, but in unoccupied rangeland and forest soils, by the large-scale recycling of organic waste—including food waste—into compost. When dumped into landfills, organic waste emits methane (a more potent greenhouse gas than CO2) into the atmosphere. When it is recycled into compost—and the compost is spread on soils whose capacity to absorb carbon has been severely depleted—the project has determined the revitalized soil can sequester up to 1 ton of CO2 per acre. Right now, this group is a non-profit sponsored by charitable fund-raising. The MMT Carbon Initiative could go a long way to help them expand their efforts.
How does the MMT Carbon Initiative differ from a carbon tax—or cap-and-trade system?
A carbon tax sets a price that emitters must pay for each ton of CO2 emissions they create. This cost-of-doing business is passed on to consumers who would, presumably, gravitate to products least affected by the tax (i.e. with lower prices)—creating an incentive for businesses to switch fuels or adopt new technologies to lower their emissions. This would create a virtuous cycle that would, through a decentralized, market-based process, reduce CO2 in the atmosphere. All good if you can politically get business to swallow a new tax that intentionally disrupts their existing business models.
In a cap-and-trade system, the government sets an emissions cap and issues “emission allowances” to meet that cap. Businesses must acquire and hold allowances for every ton of CO2 they emit. Companies buy and sell the allowances, establishing a price per ton of CO2 emitted. The net result, presumably, is that businesses are motivated to develop strategies and technologies to reduce their emissions—and are paid to do that by selling their unneeded allowances to other companies which must continue to emit more than their allowance. This has always seemed to me a round-about and complicated way to create the appearance that markets are magically undertaking the mitigation of climate-change.
The MMT carbon initiative seems superior to either a tax, or a cap-and-trade system, on at least two accounts:
It doesn’t disrupt anybody’s existing business plan. Instead (as illustrated by the examples cited above) it underwrites and incentivizes a lot of new and expanded business plans across a wide spectrum of economic endeavors.
It incentivizes, right from the start, a great many people (e.g. farmers) to take specific, concrete actions (“regenerative” planting and harvesting techniques) which will result directly in the immediate sequestration of carbon from the earth’s atmosphere. No waiting around for complicated cap and trade market-structures to be negotiated.
Will the MMT Carbon Initiative generate run-away inflation?
At first blush (which is usually how far economic pundits go on the topic) it would seem that adding $17 trillion to the world economy (by paying people newly created dollars to sequester carbon) is—almost by definition—going to create run-away inflation. Right? How could it not? One day, everyone is buying stuff with X no. of dollars, the next day they’re buying the same stuff with X+17 trillion dollars—so how is the price of everything in the world not going to explode off the charts requiring people to carry money around in wheelbarrows to buy a loaf of bread? Man the barricades against MMT! Prepare for America’s decent into the realms of Venezuelan chaos!
But please put these visceral ideological juices aside, and give some thoughtful, rational (and, above all) self-interested consideration of what is really going to unfold with the MMT Carbon Initiative I’ve just outlined:
Dollars are not going to be “dumped” into people’s bank accounts. They’ll be deposited incrementally—and only in exchange for the accomplishment of real, useful tasks. And it’s the real tasks—and the outcomes they achieve—that are the most important things. We’re trying to confront, here, an existential threat to human society. So what if one of the residual effects of accomplishing that goal is that a can of Coca-Cola ends up costing $2 instead of $1? When I was a kid, a bottle of soda only cost ten cents! And, in the process of getting from 10 cents to $1, I’ve never once carried money around in a wheelbarrow. In other words, so long as prices rise incrementally—reflecting the incremental expansion of human endeavors and accomplishments—inflation doesn’t matter. And the MMT Carbon Initiative embodies the very idea of the incremental expansion of useful human endeavors.
Keeping fossil fuels in the ground
The final argument I’ll make for the MMT Carbon Initiative is that it is potentially a passive (i.e. non-regulatory) strategy for keeping fossil fuels in the ground. To have a profound effect, the initiative doesn’t need to accomplish this—but it is enticing to play with back-of-envelop calculations that suggest it plausibly could accomplish it. And there probably wouldn’t be a bigger game-changer in the race against global warming than significantly limiting—for a period of, say, 10 years—the extraction and refinement of fossil-fuels.
My back-of-envelop calculations are based on the presumption that oil and gas companies want to figure out a profitable way to transition to alternative fuels and energy systems. The MMT Carbon Initiative—paying anyone $15/ton for sequestered carbon—could get their attention (and participation). Here’s the calculations (using quick, google-search numbers):
A barrel of crude oil = 0.5 tons of carbon emissions. Leaving a barrel of crude oil in the ground, therefore, would earn $7.50 from the MMT Carbon Initiative.
Average cost to extract a barrel of crude oil from the earth = $25/barrel. Average cost to refine that barrel of crude oil into burnable fossil-fuel = $3/barrel, for a total cost of $28/barrel extracted and refined.
Assuming an average net profit of 20%, oil and gas industry earns $5.60/barrel of crude it extracts and refines.
Therefore, if the crude oil were left in the ground, under the MMT Carbon Initiative, the oil and gas industry would earn the same $5.60/barrel profit plus a nearly $2/barrel premium!
If the $2 premium (from the MMT Carbon Initiative) were applied to research and development, $127 billion/year would flow into the development and deployment of zero-carbon energy systems.
Over ten years, this would amount to a $1.2 trillion investment in zero-carbon energy solutions by the oil and gas industry—an investment which, hopefully, would secure a transition to a zero-carbon business model for the energy sector.
There would, therefore, be virtually zero need to recommence the extraction of fossil-fuels after the ten-year research and development effort. The entire world-economy would now be operating on a new business model—and, according to the IPCC’s latest reports, just in time.
It should be noted that the MMT Carbon Initiative, itself, for the same reason just illustrated, could be given a ten-year time limit. Ideally, at the end of that “decade of sequestration,” not only would the world be operating on a zero-carbon energy model, but atmospheric carbon would be re-established near pre-industrial levels. An astonishing collateral benefit would be the transformation of world agribusiness into a “regenerative” process that builds topsoil, conserves water, and produces healthier food.
Perhaps, a decade hence, the experience of accomplishing all this will have brought us together around the realization that we can, as a collective society, use a modern understanding of money to accomplish things we didn’t think possible. At that point perhaps we could genuinely—and with an effort equal to what we’d just undertaken—focus on saving the other species on the planet that we’ve put gravely in danger.
Sunday, June 16, 2019
Some Answers about Affordable Housing
Pundits, public policy mavens and environmentalists are working overtime to describe how to make California's housing affordable. Here's the latest from the Davis Vanguard, for one example. Typical policy recommendations include "streamlining" the permitting process, reducing building fees, and a dog's breakfast of public and charitable institutions to provide subsidies or discounts for the (worthy) occupants of such affordable houses.
Ironically, even my environmentalist acquaintances have told me they want fewer environmental regulations to inhibit affordable home developments, and more California Environmental Quality Act (CEQA) exemptions for such housing. Unfortunately, like "streamlining" the tax code, such "simplifications" and exemptions open the door for gaming the system, and seldom provide relief on the scale needed.
Economists are often the high priests who bless public policies, yet current, conventional, neoclassical economics amends classical economics to omit land as one of the elements of productive enterprise. Neoclassicals also ignore the mechanics of money and credit, saying the entire economy is, in effect, a barter economy and money simply enables barter. History says otherwise, but mere facts do not impede such myth making.
Following neoclassical conventions, economists fold the economic input of land into capital, so their modeling reduces classical economics' inputs (land, labor, capital) to labor and capital only. Ignoring land and money meant the gigantic crisis at the confluence of money and land in the subprime / derivatives meltdown in 2007 blindsided conventional economists. Only unconventional economists predicted it (e.g. Steve Keen).
Yet land and credit are critical to understanding our current situation. Rethinking the Economics of Land and Housing (by Josh Ryan-Collins, Toby Lloyd and Laurie Macfarlane) explains recent housing price inflation and income inequality, primarily in the UK, by re-integrating land and money/credit into their economic models. The authors conclude that ”it’s clear ... a major driving force in UK house price increases in the last thirty years has been a relatively elastic supply of credit meeting a fixed supply of land along with increased speculative demand for home ownership. Without the existence of a credit- and money-creating banking system, it is impossible to envisage how such huge increases in prices would have been possible given the slower pace of income growth.” (p. 117) They say: “the increase in the wealth-to-income ratio observed in recent decades which has underpinned the rise in inequality has been driven not by productive activity, but rather by increasing residential land values.” (p. 162)
So income inequality, unaffordable housing, even homelessness, are not bugs, they are features! This outcome is baked into the design of the current system. Without examining, and ultimately revising that system, we are only rearranging the deck chairs on the Titanic.
California's property tax system is part of that unhelpful system. Since Proposition 13 reduced revenues, local governments have had to increase building fees to cover their infrastructure costs. If they do not collect such costs up front, their services and infrastructure languish as inadequate maintenance revenue starves them. Another factor seldom mentioned in these conversations: infrastructure for compact infill is roughly half as expensive to maintain as sprawling outlying development.
Speculation inflates land prices in California, too. The speculators can purchase outlying agricultural land for a few thousand dollars an acre, then after persuading local government to bless their development plans, speculators can sell the land to builders for 50 to 100 times more than they paid for it. This also gives the speculators a perverse incentive to develop the worst possible land.
One example: North Natomas is deep floodplain surrounded by weak levees. It is so unsuited to development that a grant to increase regional sewer capacity included a $6 million penalty if that capacity served North Natomas. The speculators were unfazed; they went to then-Vice President G.H.W. Bush and got that penalty payable in installments, and got a $43 million grant to bring those weak levees up to pre-Katrina standards.
There are alternatives. In Germany, developers must sell the land to local government at the ag land price, then re-purchase it at the upzoned price before they can develop such land. All of that 5,000% - 10,000% gross profit--the "unearned increment"--benefits the public rather than lining some plutocrat's pocket.
Germany's public realm is very nice, too. Their infrastructure is first class, college tuition is free even for foreigners, and the arts budget for the City of Berlin exceeds the National Endowment for the Arts for the U.S. of A. Meanwhile, our system reduces Americans to begging for crumbs from the plutocrats' table.
Even residential house price inflation is deceptive. People think they are growing rich as home prices rise--as long as they ignore how their offspring cannot afford homes. But the truth is that banks profit the most from property price inflation since their loans are often 90% or more of the purchase price.
Taxing bank profits, or land itself would eliminate this incentive for house / land price inflation. In California, Proposition 13 does just the opposite. The evidence is that increasing taxes on the monopoly rent implied by land ownership actually decreases prices by discouraging speculation (see realestate4ransom.com for more about that).
One bit of good news is that a revision of Proposition 13 to eliminate its loophole for commercial properties will soon be on the ballot (see makeitfairca.com). The current Prop 13 loophole lets commercial propery transactions avoid reassessing to current values. Thanks to this loophole, a Silicon Valley billionaire can buy a Santa Monica hotel, splitting ownership with his wife and son, without changing the tax assessment. The hotel remains taxed at its 1978 price, in effect. This costs the state roughly $11 billion a year. It also discourages new businesses who want to build their own facilities--they cannot get that tax discount grandfathered into new construction.
So California has CEQA exemptions for plutocrats building stadiums, and loopholes for commercial property, but can't even discuss the real means to make housing affordable. Finland has significantly reduced homelessness--they give people homes--but we're too busy favoring billionaires to do that.
And it's not because California can't afford such solutions. The evidence says "housing first" (the Finnish solution) is actually cheaper than hassling people with police and treating them with emergency rooms, which is what we do now. The problem exists because current practice is designed to shovel money to the billionaires, while impoverishing the public realm. The fact that most of the "solutions" ignore the basis of the problem is a symptom of the systemic failure of civic design and discourse...even when Democrats run the state.
More from Rethinking the Economics of Land and Housing
p. 73: “In the heyday of laissez-faire liberalism itself, it became apparent that only collective intervention into the land market could provide the infrastructure that society and the economy required.":
p.186 “...increasing household debt-to-GDP ratios may repress consumption demand and lead to less demand from firm for borrowing for capital investment…. Empirical research has found that this phenomenon played a key role in causing the Great Depression and the 2008 financial crisis….”
P. 196 “In South Korea, around half of all residential land development and almost all industrial land development is carried out by the Korean Land Corporation (KLC)”
Note: A version of this appeared in the Davis Vanguard.
Ironically, even my environmentalist acquaintances have told me they want fewer environmental regulations to inhibit affordable home developments, and more California Environmental Quality Act (CEQA) exemptions for such housing. Unfortunately, like "streamlining" the tax code, such "simplifications" and exemptions open the door for gaming the system, and seldom provide relief on the scale needed.
Economists are often the high priests who bless public policies, yet current, conventional, neoclassical economics amends classical economics to omit land as one of the elements of productive enterprise. Neoclassicals also ignore the mechanics of money and credit, saying the entire economy is, in effect, a barter economy and money simply enables barter. History says otherwise, but mere facts do not impede such myth making.
Following neoclassical conventions, economists fold the economic input of land into capital, so their modeling reduces classical economics' inputs (land, labor, capital) to labor and capital only. Ignoring land and money meant the gigantic crisis at the confluence of money and land in the subprime / derivatives meltdown in 2007 blindsided conventional economists. Only unconventional economists predicted it (e.g. Steve Keen).
Yet land and credit are critical to understanding our current situation. Rethinking the Economics of Land and Housing (by Josh Ryan-Collins, Toby Lloyd and Laurie Macfarlane) explains recent housing price inflation and income inequality, primarily in the UK, by re-integrating land and money/credit into their economic models. The authors conclude that ”it’s clear ... a major driving force in UK house price increases in the last thirty years has been a relatively elastic supply of credit meeting a fixed supply of land along with increased speculative demand for home ownership. Without the existence of a credit- and money-creating banking system, it is impossible to envisage how such huge increases in prices would have been possible given the slower pace of income growth.” (p. 117) They say: “the increase in the wealth-to-income ratio observed in recent decades which has underpinned the rise in inequality has been driven not by productive activity, but rather by increasing residential land values.” (p. 162)
So income inequality, unaffordable housing, even homelessness, are not bugs, they are features! This outcome is baked into the design of the current system. Without examining, and ultimately revising that system, we are only rearranging the deck chairs on the Titanic.
California's property tax system is part of that unhelpful system. Since Proposition 13 reduced revenues, local governments have had to increase building fees to cover their infrastructure costs. If they do not collect such costs up front, their services and infrastructure languish as inadequate maintenance revenue starves them. Another factor seldom mentioned in these conversations: infrastructure for compact infill is roughly half as expensive to maintain as sprawling outlying development.
Speculation inflates land prices in California, too. The speculators can purchase outlying agricultural land for a few thousand dollars an acre, then after persuading local government to bless their development plans, speculators can sell the land to builders for 50 to 100 times more than they paid for it. This also gives the speculators a perverse incentive to develop the worst possible land.
One example: North Natomas is deep floodplain surrounded by weak levees. It is so unsuited to development that a grant to increase regional sewer capacity included a $6 million penalty if that capacity served North Natomas. The speculators were unfazed; they went to then-Vice President G.H.W. Bush and got that penalty payable in installments, and got a $43 million grant to bring those weak levees up to pre-Katrina standards.
There are alternatives. In Germany, developers must sell the land to local government at the ag land price, then re-purchase it at the upzoned price before they can develop such land. All of that 5,000% - 10,000% gross profit--the "unearned increment"--benefits the public rather than lining some plutocrat's pocket.
Germany's public realm is very nice, too. Their infrastructure is first class, college tuition is free even for foreigners, and the arts budget for the City of Berlin exceeds the National Endowment for the Arts for the U.S. of A. Meanwhile, our system reduces Americans to begging for crumbs from the plutocrats' table.
Even residential house price inflation is deceptive. People think they are growing rich as home prices rise--as long as they ignore how their offspring cannot afford homes. But the truth is that banks profit the most from property price inflation since their loans are often 90% or more of the purchase price.
Taxing bank profits, or land itself would eliminate this incentive for house / land price inflation. In California, Proposition 13 does just the opposite. The evidence is that increasing taxes on the monopoly rent implied by land ownership actually decreases prices by discouraging speculation (see realestate4ransom.com for more about that).
One bit of good news is that a revision of Proposition 13 to eliminate its loophole for commercial properties will soon be on the ballot (see makeitfairca.com). The current Prop 13 loophole lets commercial propery transactions avoid reassessing to current values. Thanks to this loophole, a Silicon Valley billionaire can buy a Santa Monica hotel, splitting ownership with his wife and son, without changing the tax assessment. The hotel remains taxed at its 1978 price, in effect. This costs the state roughly $11 billion a year. It also discourages new businesses who want to build their own facilities--they cannot get that tax discount grandfathered into new construction.
So California has CEQA exemptions for plutocrats building stadiums, and loopholes for commercial property, but can't even discuss the real means to make housing affordable. Finland has significantly reduced homelessness--they give people homes--but we're too busy favoring billionaires to do that.
And it's not because California can't afford such solutions. The evidence says "housing first" (the Finnish solution) is actually cheaper than hassling people with police and treating them with emergency rooms, which is what we do now. The problem exists because current practice is designed to shovel money to the billionaires, while impoverishing the public realm. The fact that most of the "solutions" ignore the basis of the problem is a symptom of the systemic failure of civic design and discourse...even when Democrats run the state.
More from Rethinking the Economics of Land and Housing
p. 73: “In the heyday of laissez-faire liberalism itself, it became apparent that only collective intervention into the land market could provide the infrastructure that society and the economy required.":
p.186 “...increasing household debt-to-GDP ratios may repress consumption demand and lead to less demand from firm for borrowing for capital investment…. Empirical research has found that this phenomenon played a key role in causing the Great Depression and the 2008 financial crisis….”
P. 196 “In South Korea, around half of all residential land development and almost all industrial land development is carried out by the Korean Land Corporation (KLC)”
Note: A version of this appeared in the Davis Vanguard.
Tuesday, June 11, 2019
Yoga: An Alternative to Detention
This school sends students to yoga class instead of detention, and the results are incredible pic.twitter.com/OLH2z747jK— NowThis (@nowthisnews) June 10, 2019
Sunday, June 9, 2019
If you thought politics was contentious, try...diets!
I've written about diets previously (here). The misinformation about diet is everywhere. Channel surfing I saw this guy (Josh Axe)
touting the keto diet on PBS. There's a lot more about that keto diet in the first sentence's link. According to "Doctor" Axe, it'll do everything but open that tight pickle jar. Read the link and/or look at the video, you'll see Axe is clearly a charlatan, yet he is what passes for diet authority
nowadays.
Even worse, the chronically-underfunded public broadcast system can't afford to turn him down! Talk about fake news!
Similarly, a friend of mine lost a bunch of weight, doing Wheat Belly (essentially avoiding wheat and grain in his diet). The doctor promoting that diet is another medical outlier, promoting unsubstantiated claims. The link provides the details.
The trouble with just counting pounds lost is that low-calorie, low carbohydrate diets effectively program your body for famine. More of what you eat goes to fat. If you lose seven pounds on such a diet, only two will be fat, the rest is lean body mass--in other words, the stuff that burns the fat disappears two and a half times faster than the fat.
Normal healthy body fat for men is 15% body fat, for women is 22%. In an odd twist, the people who starve themselves may look thin, but they have the fat marbled throughout their muscles. Anorexics are often as much as 41% fat!
So...take care, my readers. Grifters and con men are not just running for political office.
Even worse, the chronically-underfunded public broadcast system can't afford to turn him down! Talk about fake news!
Similarly, a friend of mine lost a bunch of weight, doing Wheat Belly (essentially avoiding wheat and grain in his diet). The doctor promoting that diet is another medical outlier, promoting unsubstantiated claims. The link provides the details.
The trouble with just counting pounds lost is that low-calorie, low carbohydrate diets effectively program your body for famine. More of what you eat goes to fat. If you lose seven pounds on such a diet, only two will be fat, the rest is lean body mass--in other words, the stuff that burns the fat disappears two and a half times faster than the fat.
Normal healthy body fat for men is 15% body fat, for women is 22%. In an odd twist, the people who starve themselves may look thin, but they have the fat marbled throughout their muscles. Anorexics are often as much as 41% fat!
So...take care, my readers. Grifters and con men are not just running for political office.
Tuesday, June 4, 2019
A few drops of wisdom
Shroedinger's Douche Bag -- A person who disagrees with you until you change your mind, then disagrees with your new position.
"Old age is not a battle; old age is a massacre" -- Phillip Roth
"Uncertainty is uncomfortable, but certainty is ridiculous." -- Chinese proverb.
"Old age is not a battle; old age is a massacre" -- Phillip Roth
"Uncertainty is uncomfortable, but certainty is ridiculous." -- Chinese proverb.
JAPAN DOES MMT? (from neweconomicperspectives.com)
Posted on June 4, 2019 by L. Randall Wray
In recent days the international policy-making elite has tried to distance itself from MMT, often going to hysterical extremes to dismiss the approach as crazy. No one does this better than the Japanese.
As MMT began to gather momentum, its developers began to receive a flood of calls from reporters around the world enquiring whether Japan serves as the premier example of a country that follows MMT policy recommendations.
My answer is always the same: No. Japan is the perfect case to demonstrate that all of mainstream theory and policy is wrong. And that it is the best example of a country that always chooses the anti-MMT policy response to every ill that ails the country.
Reporters find that shocking. Biggest government fiscal deficits in the developed country world? Check. Highest government debt ratios in the developed country world? Check.
Isn’t that what MMT advises? No.
Nay, it is the perfect demonstration that all the mainstream bogeymen are false: big deficits cause inflation? No. Japan’s inflation runs just above zero. (See graph https://asia.nikkei.com/Economy/Growing-Modern-Monetary-Theory-debate-rattles-Japan-officials.)
Big debts cause high interest rates? No. Japan’s policy rate is about -0.10 (negative rates).
Big debts cause bond vigilante strikes? No. Japan’s government debt is hoovered up as fast as it can be issued. (All the more true with the BOJ running QE and creating a “scarcity” in spite of the quadrillions of yen debt available.)
Critics of MMT counter that Japan is “proof” that big deficits kill investment and growth.
Well, it is true that Japan has been growing at just 1% per year—certainly nothing to write home about. However, investment grows at about a 2% pace, but is pulled down by lack of consumption growth—which has averaged just about zero over the past few years.
Yet, unemployment clocks in at only 3%–in spite of slow growth—as the labor force shrinks due to an aging population. Per capita GDP has been stuck at about $38,000 for years (not so bad, but not growing). And Japan’s current account surplus has surged from under 1% to 4% of GDP over the past few years (considered to be good by most commentators).
Unfortunately Trump’s trade war seems to have already hurt Japan’s exports and the prognosis for growth this year is rather dismal. The April survey of consumer confidence showed it collapsing to the lowest level in three years. (https://www.focus-economics.com/countries/japan)
From the MMT perspective, what Japan needs is a good fiscal stimulus, albeit one that is targeted.[i] Japan has three “injections” into the economy: the fiscal deficit (which has fallen from 7% of GDP to about 5% over the past few years—still a substantial injection), the current account surplus, and private investment. But what it needs is stronger growth of domestic consumer demand—which would also stimulate investment directed to home consumption. So fiscal policy ought to be targeted to spending that would increase economic security of Japanese households to the point that they’d increase consumer spending.
So what is Prime Minister Abe’s announced plan? To raise the sales tax to squelch consumption and reduce economic growth.
You cannot make this up.
This has been Japan’s policy for a whole generation. Any time it looks like the economy might break out of its long-term stagnation, policy makers impose austerity in an attempt to reduce the fiscal deficit—and thereby throw the economy back into its permanent recession.
Clearly, this is the precise opposite to the MMT recommendation. And yet pundits proclaim Japan has been following MMT policy all these years.
Why? Because Japan has run big fiscal deficits. As if MMT’s policy goal is big government deficits and debt ratios.
No. We see the budget as a tool to pursue the public interest—things like full employment, inclusive and sustainable growth. To be sure, by many reasonable measures Japan does OK in spite of policy mistakes. Certainly in comparison to the USA, Japan looks pretty good: good and accessible healthcare, low infant mortality, long lifespans, low measured unemployment, and much less inequality and poverty. But Japan could do better if it actually did adopt the MMT view that the budgetary outcome by itself is not an important issue.
But, no, the Japanese officials are falling all over themselves to make it clear that they will never adopt MMT. Finance Minister Taro Aso called MMT “an extreme idea and dangerous as it would weaken fiscal discipline”.
One wonders how a reporter could listen to that without bursting out in laughter. Japan’s “fiscal discipline” would be threatened by MMT? The debt ratio is already approaching 250%! By conventional measures, Japan has the worst fiscal discipline the world has ever seen!
But, wait, it gets even funnier. “BOJ policy board member Yutaka Harada kept up the attack on MMT. The approach proposed by MMT will ‘cause [runaway] inflation for sure’. “ https://asia.nikkei.com/Economy/Growing-Modern-Monetary-Theory-debate-rattles-Japan-officials
The BOJ has done everything it could think of for the past quarter century to get the inflation rate up to 2%. Quadrillions of QE. Negative interest rates. And the BOJ thinks MMT could produce runaway inflation? I doubt that even Weimar’s Reichsbank could cause high inflation in Japan.
OK, that’s a cheap shot at Japan’s policymakers.
What they do not understand is that there are two ways to produce a high deficit (and debt) ratio: the ugly way and the good way. MMT has been arguing this for a long time, but with little progress in promoting understanding. I think that the main reason is because we’ve been using plain English. Economists are not good at reading for comprehension. They need pictures and math. Perhaps the following will help.
[i] Note: I am presuming that Japan is unhappy with zero growth, and that the country faces many unmet domestic needs. I am not an advocate of “growth for growth’s sake”—especially in light of the growing recognition that humanity may well have only a decade or so left on planet earth unless we very quickly change our ways. However, “changing our ways” will require major investments in a Japanese Green New Deal—so even with zero growth, there is a role for ramped up fiscal policy.
Yes, I gave it a name. There’s the Laffer Curve, the Phillips Curve, and now the Wray Curve. I didn’t draw it on a cocktail napkin at a bar, but, rather, jotted it down on a note pad before bed last night.
Assume the economy is at Point A—for Japan this would represent a 5% deficit ratio and a 1% rate of growth. Now PM Abe imposes a consumption tax, or the USA plummets into a downturn, reducing Japan’s growth rate. The economy moves up and to the left toward Point B as growth slows and the deficit ratio rises.
Slower growth reduces tax revenue even as it scares households and firms, which reduce spending in an effort to build up savings. The slower growth also reduces imports so the current account “improves” somewhat. From the sectoral balance perspective, the government’s balance moves further into deficit (to, say, a 7% fiscal deficit), the current account surplus rises (say from 4 to 5%) and the private sector’s surplus grows to 12% (the sum of the other two balances).
That’s the ugly way to increase a fiscal deficit. It is the Japanese way. It is like a perpetual bleeding of the patient in the hope that further blood loss will cure her ills.
What is the MMT alternative? Measured and targeted stimulus designed to restore confidence of firms and households. Ramp up the Social Security safety net to assure the Japanese people that they will be taken care of in their old age. Recreate a commitment to secure jobs and decent pay. Either promote births or encourage immigration to replace the declining workforce. Undertake a Green New Deal to transition to a carbon-free future.
In that case we move along the curve from Point A toward Point C. The fiscal deficit increases in the “good” way, while growth improves.
Note, however, that the boost to the deficit will only be temporary. Households and firms will begin to spend and their surplus will fall. The current account surplus will fall, too, as imports rise. Tax revenues will increase—not because rates rise but because income increases. The fiscal deficit will fall as the domestic private surpluses decline. Precisely how much the deficit will fall depends on the movement of the private surplus and current account surplus—with the deficit falling to equality with the sum.
In terms of the graph above, the Wray Curve shifts out to the right. Point A will be consistent with a higher rate of growth for a given deficit ratio. There’s nothing “natural” about the deficit ratio at Point A—as it depends on the other two sectoral balances.
For the USA, Point A is consistent with a higher growth rate but probably a similar deficit ratio to that of Japan. Our current account balance is of course negative—which implies a higher fiscal deficit. However, our private sector’s surplus is smaller than Japan’s for any given growth rate—which implies a lower fiscal deficit. The two essentially offset one another to leave the US deficit ratio at about 5% but with higher growth than Japan.
Note that we are not proposing a sort of Reverse Laffer Curve. Recall that the Laffer Curve says that tax cuts more than “pay for themselves”—trickle-down growth boosts revenue sufficiently to close a fiscal deficit. I am not arguing that the stimulative increase of government spending will increase tax revenue so much that the deficit ratio returns to its original level (or less). Where it actually ends up depends on movements of the two other sectoral balances.
Not that the size of the deficit—by itself—is important. What is important is whether government budget policy helps in the pursuit of the public and private interests. The deficit will always adjust to be “just the right size” to balance the other two sectoral balances. But that equality can be consistent with any growth rate—including a rate that is too low (deflationary) or too high (inflationary).
And the sectoral balance equality holds with any fiscal deficit ratio. So while it is likely that a successful stimulus will shift the Wray Curve out to the right, we cannot predict exactly where the new fiscal deficit ratio will settle as the growth rate rises.
What is most important about this graph is the recognition that there are (at least) two different growth rates consistent with a given deficit ratio. We can achieve a particular growth rate either in the “ugly” way or in the “good” way—while generating the same deficit ratio. Japan continually operates its economy to produce “ugly” deficits—precisely because it fears fiscal expansion.
For further discussion of fiscal deficits along these lines, see the new textbook by Mitchell, Wray and Watts, Macroeconomics (Macmillan International, Red Globe Press), Chapter 8, and especially pp. 124-128.
[1] Note: I am presuming that Japan is unhappy with zero growth, and that the country faces many unmet domestic needs. I am not an advocate of “growth for growth’s sake”—especially in light of the growing recognition that humanity may well have only a decade or so left on planet earth unless we very quickly change our ways. However, “changing our ways” will require major investments in a Japanese Green New Deal—so even with zero growth, there is a role for ramped up fiscal policy.
In recent days the international policy-making elite has tried to distance itself from MMT, often going to hysterical extremes to dismiss the approach as crazy. No one does this better than the Japanese.
As MMT began to gather momentum, its developers began to receive a flood of calls from reporters around the world enquiring whether Japan serves as the premier example of a country that follows MMT policy recommendations.
My answer is always the same: No. Japan is the perfect case to demonstrate that all of mainstream theory and policy is wrong. And that it is the best example of a country that always chooses the anti-MMT policy response to every ill that ails the country.
Reporters find that shocking. Biggest government fiscal deficits in the developed country world? Check. Highest government debt ratios in the developed country world? Check.
Isn’t that what MMT advises? No.
Nay, it is the perfect demonstration that all the mainstream bogeymen are false: big deficits cause inflation? No. Japan’s inflation runs just above zero. (See graph https://asia.nikkei.com/Economy/Growing-Modern-Monetary-Theory-debate-rattles-Japan-officials.)
Big debts cause high interest rates? No. Japan’s policy rate is about -0.10 (negative rates).
Big debts cause bond vigilante strikes? No. Japan’s government debt is hoovered up as fast as it can be issued. (All the more true with the BOJ running QE and creating a “scarcity” in spite of the quadrillions of yen debt available.)
Critics of MMT counter that Japan is “proof” that big deficits kill investment and growth.
Well, it is true that Japan has been growing at just 1% per year—certainly nothing to write home about. However, investment grows at about a 2% pace, but is pulled down by lack of consumption growth—which has averaged just about zero over the past few years.
Yet, unemployment clocks in at only 3%–in spite of slow growth—as the labor force shrinks due to an aging population. Per capita GDP has been stuck at about $38,000 for years (not so bad, but not growing). And Japan’s current account surplus has surged from under 1% to 4% of GDP over the past few years (considered to be good by most commentators).
Unfortunately Trump’s trade war seems to have already hurt Japan’s exports and the prognosis for growth this year is rather dismal. The April survey of consumer confidence showed it collapsing to the lowest level in three years. (https://www.focus-economics.com/countries/japan)
From the MMT perspective, what Japan needs is a good fiscal stimulus, albeit one that is targeted.[i] Japan has three “injections” into the economy: the fiscal deficit (which has fallen from 7% of GDP to about 5% over the past few years—still a substantial injection), the current account surplus, and private investment. But what it needs is stronger growth of domestic consumer demand—which would also stimulate investment directed to home consumption. So fiscal policy ought to be targeted to spending that would increase economic security of Japanese households to the point that they’d increase consumer spending.
So what is Prime Minister Abe’s announced plan? To raise the sales tax to squelch consumption and reduce economic growth.
You cannot make this up.
This has been Japan’s policy for a whole generation. Any time it looks like the economy might break out of its long-term stagnation, policy makers impose austerity in an attempt to reduce the fiscal deficit—and thereby throw the economy back into its permanent recession.
Clearly, this is the precise opposite to the MMT recommendation. And yet pundits proclaim Japan has been following MMT policy all these years.
Why? Because Japan has run big fiscal deficits. As if MMT’s policy goal is big government deficits and debt ratios.
No. We see the budget as a tool to pursue the public interest—things like full employment, inclusive and sustainable growth. To be sure, by many reasonable measures Japan does OK in spite of policy mistakes. Certainly in comparison to the USA, Japan looks pretty good: good and accessible healthcare, low infant mortality, long lifespans, low measured unemployment, and much less inequality and poverty. But Japan could do better if it actually did adopt the MMT view that the budgetary outcome by itself is not an important issue.
But, no, the Japanese officials are falling all over themselves to make it clear that they will never adopt MMT. Finance Minister Taro Aso called MMT “an extreme idea and dangerous as it would weaken fiscal discipline”.
One wonders how a reporter could listen to that without bursting out in laughter. Japan’s “fiscal discipline” would be threatened by MMT? The debt ratio is already approaching 250%! By conventional measures, Japan has the worst fiscal discipline the world has ever seen!
But, wait, it gets even funnier. “BOJ policy board member Yutaka Harada kept up the attack on MMT. The approach proposed by MMT will ‘cause [runaway] inflation for sure’. “ https://asia.nikkei.com/Economy/Growing-Modern-Monetary-Theory-debate-rattles-Japan-officials
The BOJ has done everything it could think of for the past quarter century to get the inflation rate up to 2%. Quadrillions of QE. Negative interest rates. And the BOJ thinks MMT could produce runaway inflation? I doubt that even Weimar’s Reichsbank could cause high inflation in Japan.
OK, that’s a cheap shot at Japan’s policymakers.
What they do not understand is that there are two ways to produce a high deficit (and debt) ratio: the ugly way and the good way. MMT has been arguing this for a long time, but with little progress in promoting understanding. I think that the main reason is because we’ve been using plain English. Economists are not good at reading for comprehension. They need pictures and math. Perhaps the following will help.
[i] Note: I am presuming that Japan is unhappy with zero growth, and that the country faces many unmet domestic needs. I am not an advocate of “growth for growth’s sake”—especially in light of the growing recognition that humanity may well have only a decade or so left on planet earth unless we very quickly change our ways. However, “changing our ways” will require major investments in a Japanese Green New Deal—so even with zero growth, there is a role for ramped up fiscal policy.
Yes, I gave it a name. There’s the Laffer Curve, the Phillips Curve, and now the Wray Curve. I didn’t draw it on a cocktail napkin at a bar, but, rather, jotted it down on a note pad before bed last night.
Assume the economy is at Point A—for Japan this would represent a 5% deficit ratio and a 1% rate of growth. Now PM Abe imposes a consumption tax, or the USA plummets into a downturn, reducing Japan’s growth rate. The economy moves up and to the left toward Point B as growth slows and the deficit ratio rises.
Slower growth reduces tax revenue even as it scares households and firms, which reduce spending in an effort to build up savings. The slower growth also reduces imports so the current account “improves” somewhat. From the sectoral balance perspective, the government’s balance moves further into deficit (to, say, a 7% fiscal deficit), the current account surplus rises (say from 4 to 5%) and the private sector’s surplus grows to 12% (the sum of the other two balances).
That’s the ugly way to increase a fiscal deficit. It is the Japanese way. It is like a perpetual bleeding of the patient in the hope that further blood loss will cure her ills.
What is the MMT alternative? Measured and targeted stimulus designed to restore confidence of firms and households. Ramp up the Social Security safety net to assure the Japanese people that they will be taken care of in their old age. Recreate a commitment to secure jobs and decent pay. Either promote births or encourage immigration to replace the declining workforce. Undertake a Green New Deal to transition to a carbon-free future.
In that case we move along the curve from Point A toward Point C. The fiscal deficit increases in the “good” way, while growth improves.
Note, however, that the boost to the deficit will only be temporary. Households and firms will begin to spend and their surplus will fall. The current account surplus will fall, too, as imports rise. Tax revenues will increase—not because rates rise but because income increases. The fiscal deficit will fall as the domestic private surpluses decline. Precisely how much the deficit will fall depends on the movement of the private surplus and current account surplus—with the deficit falling to equality with the sum.
In terms of the graph above, the Wray Curve shifts out to the right. Point A will be consistent with a higher rate of growth for a given deficit ratio. There’s nothing “natural” about the deficit ratio at Point A—as it depends on the other two sectoral balances.
For the USA, Point A is consistent with a higher growth rate but probably a similar deficit ratio to that of Japan. Our current account balance is of course negative—which implies a higher fiscal deficit. However, our private sector’s surplus is smaller than Japan’s for any given growth rate—which implies a lower fiscal deficit. The two essentially offset one another to leave the US deficit ratio at about 5% but with higher growth than Japan.
Note that we are not proposing a sort of Reverse Laffer Curve. Recall that the Laffer Curve says that tax cuts more than “pay for themselves”—trickle-down growth boosts revenue sufficiently to close a fiscal deficit. I am not arguing that the stimulative increase of government spending will increase tax revenue so much that the deficit ratio returns to its original level (or less). Where it actually ends up depends on movements of the two other sectoral balances.
Not that the size of the deficit—by itself—is important. What is important is whether government budget policy helps in the pursuit of the public and private interests. The deficit will always adjust to be “just the right size” to balance the other two sectoral balances. But that equality can be consistent with any growth rate—including a rate that is too low (deflationary) or too high (inflationary).
And the sectoral balance equality holds with any fiscal deficit ratio. So while it is likely that a successful stimulus will shift the Wray Curve out to the right, we cannot predict exactly where the new fiscal deficit ratio will settle as the growth rate rises.
What is most important about this graph is the recognition that there are (at least) two different growth rates consistent with a given deficit ratio. We can achieve a particular growth rate either in the “ugly” way or in the “good” way—while generating the same deficit ratio. Japan continually operates its economy to produce “ugly” deficits—precisely because it fears fiscal expansion.
For further discussion of fiscal deficits along these lines, see the new textbook by Mitchell, Wray and Watts, Macroeconomics (Macmillan International, Red Globe Press), Chapter 8, and especially pp. 124-128.
[1] Note: I am presuming that Japan is unhappy with zero growth, and that the country faces many unmet domestic needs. I am not an advocate of “growth for growth’s sake”—especially in light of the growing recognition that humanity may well have only a decade or so left on planet earth unless we very quickly change our ways. However, “changing our ways” will require major investments in a Japanese Green New Deal—so even with zero growth, there is a role for ramped up fiscal policy.
Saturday, June 1, 2019
Understanding the Alt-Right
Ian Danskin's videos (there are lots more)
Introducing the Alt-Right
Controlling the conversation:
Never play defense:
The ship of Theseus (disguising one's point)
Some insights into the minds of our conservative friends:
...and the follow-up:
Introducing the Alt-Right
Controlling the conversation:
Never play defense:
The ship of Theseus (disguising one's point)
Some insights into the minds of our conservative friends:
...and the follow-up:
Teachers Raises Are Not a Panacea
(c) by Mark Dempsey
Teachers' salaries have lost ground, even as the plutocrats have prospered, so teacher strikes are in the news. Some states' (Oklahoma) school districts even implemented a four-day school week to cut costs. And teachers are not alone in the U.S. Investigative reporter David Cay Johnston reminds us that the bottom 90% of median, inflation-adjusted incomes have increased only $59 since 1972, while expenses for housing, healthcare and education increased far more than wages.
Productivity and real incomes have increased, though. As evidence of that, if $59 were an inch on a bar graph, the bar for the top ten percent's income increase would be 141 feet high; the bar for the top 0.1% would be five miles high. In non-newsworthy words: income increases in the U.S. have gone almost exclusively to the wealthy.
That increased income for plutocrats seldom translates into funding for public institutions, though. So school districts respond to teacher strikes by pleading they don't have the money in their budget for higher salaries or benefits--even though our local schools spent enormous amounts pre-paying for vacation time and for high salaries for administrators. Budget shortfalls threaten not only current teacher pay, but also retirement benefits.
Yet salary disputes remain a symptom, not a cause, in the ongoing political war between the plutocrats and the educators. Teachers are a prominent target because they have a powerful union that prevents our wealthy plutocrats from dominating all public policy.
For their part, the billionaires want education "reform," and have funded education movements with the likes of Michelle Rhee, former superintendent of Washington D.C. schools. There, she made her bones as a "Tiger Mom" reformer / administrator who fired teachers she deemed incompetent.
Typically, these well-funded "reformers" promote three strategies to improve education: 1. (Union busting) charter schools 2. Merit pay for teachers (because they're motivated by money!) and 3. Constant testing--to demonstrate whether teachers are providing "value added" in their classrooms. Unfortunately, frequent testing often means teachers "teach to the test," teaching only what tests cover, and sometimes teachers even cheat by providing students with answers. After all, their employment depends on those test results.
Science validates none of those three strategies as producing better educational outcomes. Nevertheless, the education "reform" billionaires funded Waiting for Superman, a film featuring Ms. Rhee, which also touted the Finnish schools as the ones to emulate. Don't get me wrong, in Finland, schools are very good indeed. Oddly enough, though, Waiting for Superman omits mentioning that Finnish teachers are tenured, unionized and well paid.
But if the charters / merit pay / testing strategies do not correlate with better educational outcomes, what does? Answer: childhood poverty. Only two percent of Finnish children are poor. In the U.S. that figure is 23%.
That is why, however important it is, better teacher pay is not all that needs to occur to improve educational outcomes. Even if the teachers are victorious in getting higher pay, the impact on childhood poverty is likely to be minimal.
Even with more teacher pay, the plutocrats next move is to say "OK, we've paid you more, where are the improvements in educational outcomes?" None will be forthcoming, demonstrating to the public that teachers are no better than those welfare bums. The fact that this educational "reform" movement ignores systemic problems like childhood poverty will not even appear in the editorials written to the tune of clucking tongues by the plutocrats' hired pundits.
The cultural revolution needed to turn this around is painfully slow to develop. Better to manage our expections to be modest, then, rather than wishfully thinking that returning education to its better-funded past will be a panacea.
...
Thanks to notwaitingforsuperman.org for many of the above facts.
Teachers' salaries have lost ground, even as the plutocrats have prospered, so teacher strikes are in the news. Some states' (Oklahoma) school districts even implemented a four-day school week to cut costs. And teachers are not alone in the U.S. Investigative reporter David Cay Johnston reminds us that the bottom 90% of median, inflation-adjusted incomes have increased only $59 since 1972, while expenses for housing, healthcare and education increased far more than wages.
Productivity and real incomes have increased, though. As evidence of that, if $59 were an inch on a bar graph, the bar for the top ten percent's income increase would be 141 feet high; the bar for the top 0.1% would be five miles high. In non-newsworthy words: income increases in the U.S. have gone almost exclusively to the wealthy.
That increased income for plutocrats seldom translates into funding for public institutions, though. So school districts respond to teacher strikes by pleading they don't have the money in their budget for higher salaries or benefits--even though our local schools spent enormous amounts pre-paying for vacation time and for high salaries for administrators. Budget shortfalls threaten not only current teacher pay, but also retirement benefits.
Yet salary disputes remain a symptom, not a cause, in the ongoing political war between the plutocrats and the educators. Teachers are a prominent target because they have a powerful union that prevents our wealthy plutocrats from dominating all public policy.
For their part, the billionaires want education "reform," and have funded education movements with the likes of Michelle Rhee, former superintendent of Washington D.C. schools. There, she made her bones as a "Tiger Mom" reformer / administrator who fired teachers she deemed incompetent.
Typically, these well-funded "reformers" promote three strategies to improve education: 1. (Union busting) charter schools 2. Merit pay for teachers (because they're motivated by money!) and 3. Constant testing--to demonstrate whether teachers are providing "value added" in their classrooms. Unfortunately, frequent testing often means teachers "teach to the test," teaching only what tests cover, and sometimes teachers even cheat by providing students with answers. After all, their employment depends on those test results.
Science validates none of those three strategies as producing better educational outcomes. Nevertheless, the education "reform" billionaires funded Waiting for Superman, a film featuring Ms. Rhee, which also touted the Finnish schools as the ones to emulate. Don't get me wrong, in Finland, schools are very good indeed. Oddly enough, though, Waiting for Superman omits mentioning that Finnish teachers are tenured, unionized and well paid.
But if the charters / merit pay / testing strategies do not correlate with better educational outcomes, what does? Answer: childhood poverty. Only two percent of Finnish children are poor. In the U.S. that figure is 23%.
That is why, however important it is, better teacher pay is not all that needs to occur to improve educational outcomes. Even if the teachers are victorious in getting higher pay, the impact on childhood poverty is likely to be minimal.
Even with more teacher pay, the plutocrats next move is to say "OK, we've paid you more, where are the improvements in educational outcomes?" None will be forthcoming, demonstrating to the public that teachers are no better than those welfare bums. The fact that this educational "reform" movement ignores systemic problems like childhood poverty will not even appear in the editorials written to the tune of clucking tongues by the plutocrats' hired pundits.
The cultural revolution needed to turn this around is painfully slow to develop. Better to manage our expections to be modest, then, rather than wishfully thinking that returning education to its better-funded past will be a panacea.
...
Thanks to notwaitingforsuperman.org for many of the above facts.
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