Business Is Not The Job Creator

In the age of neoliberalism, it is guaranteed that the public will be inundated with "free market" nonsense. One glaring piece of nonsense is the errant notion that business is the job creator. The currency-issuing national government is and in turn, consumers spend that currency which results in employment. 

All of us are consumers, including the national government which purchases goods and services with its own currency. 

When the business owner steps out of his or her's office to grab lunch, he or she transforms into a consumer. 

A Brief Note on Deficits

I’d like to take a moment to add something to Bill Mitchell’s excellent article “Iceland proves the nation state is alive and well” found here: http://bilbo.economicoutlook.net/blog/?p=33707 which, I feel, would make an excellent learning opportunity for the general public concerning deficits and the economy.

In the section “The public deficit supported growth until private domestic expenditure was strong enough”, we note from the chart that at the start of the Global Financial Crisis in 2008, Iceland was running a pretty large deficit in order to counter the collapse of the economy. As the years move ahead, we see the deficit gradually reduce until we reach 2015 where it is almost non-existent. Today, Iceland’s unemployment rate is very low and the economy is doing great. 

The Money Supply, the Price of Money, Monetary Policy and Inflation

Much confusion surrounds the items in this article’s title. Thanks to orthodox viewpoints we have nearly an entire populace that believes Jack and the Beanstalk is a true story. Now, of course, I’m not being literal. I am, however, trying to make a point. Like, say, Tolkien, orthodox economists fashion a fantasy world all their own. Unlike Tolkien however, these economists write their fantasies down and then push it onto the populace as reality. Much of it is mere assumption. 

Federal Deficit Spending is Money Creation

In addition to closing on a new house and moving over the next two weeks, plus dealing with allergies, I am pre-occupied with writing a series on the Gold Standard and why it was and always will be, a monumental failure. Therefore, I’ll keep today’s discussion brief with another look at how federal spending works. Before I begin, I wish to point out that for the sake of the layperson’s familiarity and understanding, I am going to use the word “money” in reference to federal spending rather than “currency”. We will also skip discussions of private debt and the sectoral balances.

The State of The Economics Profession Today

I've a brief musing that I wish to impart on the state of the economics profession using the history of astronomy as a comparison.

Universal Basic Income: An Economic “Destabilizer”

As an addendum to yesterday's article concerning the Job Guarantee versus the UBI, I’d like to clarify a couple of points concerning the inflationary aspects of a UBI and its inability to discipline inflation. In yesterday's article I chose to address the potential wage-price spiral effects caused by a UBI, because the point that all income maintenance programs such as a UBI only increase aggregate demand has already been hammered into the ground. However, today I will address this point from a different angle, hopefully providing some clarity to the layman.

A Few Words on UBI and the Job Guarantee

Members of the general public were probably unaware that several months ago, an intense debate raged between two differing camps on macro policy, namely those in the federal Job Guarantee camp and those promoting a UBI. Briefly, I wish to discuss the two proposals for the benefit of the public. Before I begin, however, I’d like to mention my approach with the public. 

Required Reading Material

Many of you who know me are aware of my admiration for Michal Kalecki. For those of you unfamiliar with him and his work, I'd like to share with you Kalecki's "Political Aspects of Full Employment". For those of you who are familiar, do enjoy!

Political Aspects of Full Employment

Inflation: Ad Nauseum

It just won’t stop. Oh, you can tell people to focus on long-term involuntary unemployment and the negative effects thereof, which make the effects of inflation seem like a walk in the park – and it should be the main topic of discussion – but, no. Some people must talk about inflation and, quite frankly, 99% of these “some people” have no idea what they’re talking about. Why is that, you might ask? Well, it’s all quite simple really. 

How To Tell The Difference Between Fiscal and Monetary Policy

As some of you are aware, I have spent the day in irritation at people who simply will not give up on inflation no matter what anyone tells them. In an article earlier today I pointed out that the errant thinking of one such person was due to their inability to understand the difference between monetary and fiscal policy. Whilst dealing with other things today, I thought for a while on how best to convey the difference between the two policies to the average person. I think I’ve found a solution:

Dog crap.

To Repeat: There's No Such Thing as "Printing Money" 

Confusion continues surrounding federal spending. I cannot blame the public since there is a constant barrage of the term "printing money" ever since Trump said it. Previously, we discussed some key issues surrounding printing money:

1. Printing Money relates to the gold standard.

2. There were three ways a government could spend during the gold standard:

- Taxes
- Borrowing
- Print Money

3. Printing Money doesn't occur in a free-floating, non-convertible fiat regime. (The US, UK, Canada, Australia, Japan, et al.)

4. Printing cash is a separate issue entirely from government funding operations. 

For the benefit of those who are still confused, I'll explain the concept of printing money in a different way. Let us suppose that you are playing the game Monopoly. Let us also assume that though you own properties, your income from rent isn't enough to fund your spending desires to buy more properties. So, you simply go grab some paper and scissors, cut out some rectangles and write any dollar amount that you like on the paper and everyone else agrees to accept them. Essentially, you've just printed money to fund your spending. Of course, this explanation is very simplistic, but we need to get you thinking in the right direction. 

There's No Such Thing as a Private Sector US Dollar

Currency is the product of the national government that issues it. In the case of the US dollar, that national government is the US Government. There is no issuance of US dollars among private entities. Every US dollar in existence is in existence, because the US Government brought it into existence. Many believe that or act as though there are two types of US dollars:

Postscript

As a postscript to my post "There's No Such Thing as a Private Sector US Dollar", I'd like to share with all of you a question that I received from a person who is trying to understand banking operations:

"When banks make loans, you say that they denominate or 'peg' their IOUs to the US dollar. Does that mean those IOUs become US dollars?"

Good question and the answer is no. The IOUs remain IOUs. They are only denominated in US dollars and never become US dollars. The "pegging" has the effect of making them "behave" or "act" like US dollars - better said, they act as money in the private sector. When you pay back that bank "loan", the IOUs (money) that were created in the initial transaction are then destroyed. At no point do bank loans ever involve actual US dollars lent out and at no point do bank IOUs become US dollars.

There's no such thing as a private sector US dollar.

If at any time you have a question for me, feel free to ask on Twitter @elliswinningham or on Facebook.

Macroeconomics: It’s Not About Scarcity. It's About Efficiency

“Money” cannot be scarce for any sovereign currency issuing government. The question is never about "money", ever. Mainstream economists, politicians, the media and "free market” advocates enjoy making economics a question of scarcity. A scarce supply of currency right along with scarce resources. When it comes to "money", we must first understand what we're talking about. When people in the US ask us if we have enough "money" to buy an apple, they're asking about US dollars. US dollars are a currency. 

A currency can be scarce for those who use it. You, me, Walmart, Wall Street, the individual fifty states are all users of the US government's currency and these private entities can run out of it. A user of currency can also be another nation. For instance, China is a user of US currency. China cannot issue US dollars, so if it wishes to have them, it must find a way to earn them. Also, the EMU nations are users of currency. Nations such as Spain, Italy and Greece are users of currency, because they do not issue the Euro. The European Central Bank issues the Euro for member nations to use. So, like Illinois and Ohio in the US, the EMU nations must tax or borrow. They must have an income to spend. Without a central fiscal authority (a federal government), the EMU nations can face very real debts and involuntary insolvency. 

The US Government Does Not “Print Money” to Fund Spending

On May 11, 2016, CNN ran an article by Heather Long with the headline, “How can Trump 'print the money'?”, filled with misinformation that only neoliberalism can conjure up, finishing strong with warnings about the U.S. becoming just like a small African nation called, you guessed it – Zimbabwe. Let’s debunk the article.

From the start, allow me to point out that I am not a Trump supporter. People who know me, know that this is true. In the article, Ms. Long asks, “So how exactly do you print money?” The actual answer is, you don’t. 

Introductory Series: On Private Debt and the Mismanagement of the US Economy

[Since this discussion is well over ten thousand words long, I have edited the complete text and in one case, rewritten the section on Minsky and financial instability in a language suitable for the general public, shortening it considerably, as well as broken the discussion down into three parts. I will finish editing and post parts II and III as time permits.]

On The National Debt: Is Trump Telling the Truth?

On Monday, CNN ran a story with the headline: “Trump: U.S. will never default 'because you print the money'” which raised some eyebrows. The general public, trained by mainstream “economists”, the media and politicians had a freak-out moment, claiming that Trump is nuts. Firstly, because the general public thinks that the national debt is an actual debt and secondly, the general public thinks that “printing money” is something the federal government does and that something will lead to hyperinflation. Among the populace who understands how the monetary system works, eyebrows were raised for a different reason: It’s unusual hearing any politician say something that is true. Well, sort of true. 

Inflation - Yet again and again and again and...

In reference to Social Security we see statements like this one floating around out there:

"with a ton of baby boomers retiring and not enough workers there will be more money chasing too few goods = inflation"

The subject making the above statement is conjuring up the words of Milton Friedman (more money chasing too few goods) to warn us all that "inflation" is something to fear when it comes to federal spending and Social Security. The whole premise is pure nonsense. Now, why am I saying that it's nonsense? Isn't it true that his assertion could occur? Yes, it is a possibility, but only given some very extreme factors. In other words, the chances of Social Security causing accelerating inflation right now or in the very near future is extremely low. Here's why.

GDP Redistribution and The Federal Job Guarantee Proposal

Today, I’ll be discussing what GDP is, how it is moved to profits (the 1%) and how we can reverse 35 plus years of GDP redistribution by initiating a federal Job Guarantee. For part of this discussion, we will review material from previous posts that are relevant to the topic at hand. 

Blame Neoliberalism, Not Each Other

What’s worse than listening to mindless deficit terrorism? Listening to people celebrate deficit reduction. Everyday people without any background in macroeconomics; who have no idea that there are three sectors in the economy and that federal spending depends quite a bit on what the external sector is doing; who have no knowledge of what monetary and fiscal policy are; who do not understand private debt; who cannot tell you what an inventory cycle is; who do not know that SNAP is an automatic stabilizer, let alone what an automatic stabilizer is; who could not explain to you what a demand leakage is: these people just “know” that the federal deficit must be reduced, because their political heroes in Washington D.C. said so. You will know these people by their lifestyle.

How Federal Budget Deficits Work

I will begin today’s discussion by stating what a federal budget deficit is not. A deficit is not:

When US Government spending is greater than its income from federal taxes. 

Now, why is this wrong? The word “income” is what makes it wrong. There is no such thing as an “income” for a sovereign currency issuer like the US Government. Therefore, the textbook definition of a federal budget deficit is wrong, even though it seems to be correct. The above definition leads to all kinds of misunderstandings and nonsense concerning federal spending which, frankly, every last one of us can do without.