tag:blogger.com,1999:blog-35745362387570030812024-03-13T21:11:16.141-05:00Christian EconomicsA Ph.D. student's perspective on Catholic Social Teaching and economics.Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.comBlogger206125tag:blogger.com,1999:blog-3574536238757003081.post-1045715584876616762013-03-26T16:20:00.002-05:002013-03-26T16:20:30.105-05:00Faith in the Free Market? Part 1Should we have faith in the free market to deliver our common good?<br />
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This is perhaps the greatest economic debate of the past few centuries, and one of the more interesting things to talk about as an economist with non-economists, usually because they aren’t that interested in the nitty-gritty of economic discourse and instead prefer to dialogue about politics.<br />
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It is also interesting to me because there are Catholics on both sides of the fence: those who vehemently support the free market and those who vehemently attack it. I’ve already noted how CST approaches the battle between liberalism or capitalism and socialism or collectivism in <a href="http://csteconomics.blogspot.com/2011/02/socialism-vs-capitalism-part-1.html" target="_blank">this multipart series</a>. The case they present both against and for the free market is compelling and good, but there are other ways to prove or disprove its effectiveness in achieving the good for society. This is my purpose for this multi-part series. I wish to explore the arguments used to justify or rebuke the free market and point then toward the conclusions I take from this exploration of which we can engage in a friendly debate.<br />
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Two great mistakes in this debate must be noted at the outset. The first is that many treat this as a black and white problem. Those who advocate for the free market tend to argue that any measure against it puts us on the road to serfdom, or on the road to soviet communism which clearly had disastrous consequences for humanity. Those who attack the free market are usually less black and white, but are also guilty of putting the blame on the free market as a whole. There is no gray area, there is no middle option, there are no alternatives to communism or capitalism. Pope Pius XI called these the twin rocks of shipwreck—extreme individualism and extreme collectivism. The great mistake here is failing to see alternatives to these twin wreckers of ships. Rejection of “the free market” does not necessarily mean support for total communism and vice versa. We must be able to envision degrees of free market-ness or collectivism and we must direct them always to our common good.<br />
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The other great mistake is (logically) prior to the first mistake. It is failing to recognize that there is no such thing as a truly free market. That is, no market system is completely free from government intervention. Free markets fundamentally require private property and enforceable contracts, which require an enforcer. Absent of government, ‘free’ markets are closer to black markets where the market actors provide their own governance, which is why, for example, illegal drug markets are particularly violent. Absent of government protection of property and contracts, they must enforce it themselves with power, weapons, and violence. So a truly free market system is closer to anarchy, and most free market proponents are well aware of this (some seem to forget it though). However, since the government is involved in protecting property and enforcing contracts they are necessarily involved with defining property and legality of contracts and so their ‘intervention’ into markets is more of a degree than of a kind. They DO intervene, the question is, how much? This lends itself well to the lesson learned from the first mistake—free market-ness is a degree, not a black and white situation. <br />
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The danger or trap that is so easy to fall into, is putting your faith in the free market, this institution that is supposed to bring about our overall good out of the self-interested actions of individuals. We put our faith and our trust in a direction-less institution that does not see persons and does not consider their good. If we are to rely on a higher degree of free market-ness to provide the common good, then we should do so with good reasoning, but we should not expect our selfish actions to result collectively in the common good. To me, nothing could be more anti-Christian. Christ’s teaching is all about the two commandments upon which all the rest sit: Love your God, who is love itself, and love your neighbor as you love yourself. Love is an authentic gift of self, not a devotion entirely to one’s self-interests. <br />
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(There are those who argue self-interest does not necessarily equal selfishness. This of itself requires a long response, but quickly, my reply is: why risk confusing the two? Those who do not properly understand the distinction will think it’s valid to act selfishly when you argue for self-interested action. And why put the emphasis on negative freedom? Authentic freedom does involve freedom from coercion, but must always be directed toward the good which might mean a restriction of complete negative freedom, or complete self-interested action. Christian defense of the free market should make no reference to self-interested action, but rather to Christian self-giving actions. In this case, it is quite reasonable for a Christian to argue that greater free market-ness will allow self-giving actions to collectively bring about the common good).<br />
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So the task set to us then, is to decide the appropriate degree of free market-ness for a good society, or from the Catholic Social Teaching perspective, for the common good, which necessarily includes justice, truth, and charity. <br />
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How much should the government intervene? In which situations should the government intervene more rather than less and less rather than more?<br />
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Economists of all persuasions have researched the impacts of policy on the economy and economic relationships and worked to develop models to support their case on these very questions. Some have started with the data to support their conclusions. Some have started with their conclusions and worked to find data to support them. Others have largely ignored data and have instead constructed great mathematical models based on certain assumptions about human behavior to support certain conclusions. <br />
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This last group has been the dominant group in Economics for over a century now and so most of this post addresses their arguments, but I will also present data to support certain conclusions as well. The importance of this is that many politicians and the public in general take the advice of economists on matters of ‘free market-ness’. So if you’re going to listen to us, then you should know exactly what we are saying, the strengths and weaknesses of our arguments and models, and what conclusions we can then draw from them.<br />
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Part 2 will take a closer look at the model most often used to defend the free market which also happens to be the model everyone learns in principles of economics courses.<br />
Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-55158962362284083472013-03-01T15:06:00.000-06:002013-03-01T15:14:20.365-06:00Thank you Pope Benedict XVIThank you Pope Benedict XVI for your servant leadership! Here are some of my favorite quotes from your great encyclical <a href="http://www.vatican.va/holy_father/benedict_xvi/encyclicals/documents/hf_ben-xvi_enc_20090629_caritas-in-veritate_en.html" target="_blank">Caritas in Veritate</a>.<br />
<blockquote>Charity in truth, to which Jesus Christ bore witness by his earthly life and especially by his death and resurrection, is the principal driving force behind the authentic development of every person and of all humanity.<br />
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Charity is at the heart of the Church's social doctrine.<br />
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Charity is love received and given.<br />
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Charity goes beyond justice, because to love is to give, to offer what is “mine” to the other; but it never lacks justice, which prompts us to give the other what is “his”, what is due to him by reason of his being or his acting. I cannot “give” what is mine to the other, without first giving him what pertains to him in justice. If we love others with charity, then first of all we are just towards them. Not only is justice not extraneous to charity, not only is it not an alternative or parallel path to charity: justice is inseparable from charity, and intrinsic to it.<br />
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To desire the common good and strive towards it is a requirement of justice and charity.<br />
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It is not a case of two typologies of social doctrine, one pre-conciliar and one post-conciliar, differing from one another: on the contrary, there is a single teaching, consistent and at the same time ever new. It is one thing to draw attention to the particular characteristics of one Encyclical or another, of the teaching of one Pope or another, but quite another to lose sight of the coherence of the overall doctrinal corpus.<br />
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The truth of development consists in its completeness: if it does not involve the whole man and every man, it is not true development.<br />
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Progress of a merely economic and technological kind is insufficient.<br />
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Openness to life is at the center of true development. <br />
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Profit is useful if it serves as a means towards an end that provides a sense both of how to produce it and how to make good use of it. Once profit becomes the exclusive goal, if it is produced by improper means and without the common good as its ultimate end, it risks destroying wealth and creating poverty.<br />
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In comparison with the casualties of industrial society in the past, unemployment today provokes new forms of economic marginalization, and the current crisis can only make this situation worse. Being out of work or dependent on public or private assistance for a prolonged period undermines the freedom and creativity of the person and his family and social relationships, causing great psychological and spiritual suffering. I would like to remind everyone, especially governments engaged in boosting the world's economic and social assets, that the primary capital to be safeguarded and valued is man, the human person in his or her integrity: “Man is the source, the focus and the aim of all economic and social life.<br />
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The dignity of the individual and the demands of justice require, particularly today, that economic choices do not cause disparities in wealth to increase in an excessive and morally unacceptable manner, and that we continue to prioritize the goal of access to steady employment for everyone. <br />
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The human being is made for gift, which expresses and makes present his transcendent dimension. Sometimes modern man is wrongly convinced that he is the sole author of himself, his life and society.<br />
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In fact, if the market is governed solely by the principle of the equivalence in value of exchanged goods, it cannot produce the social cohesion that it requires in order to function well. Without internal forms of solidarity and mutual trust, the market cannot completely fulfill its proper economic function. And today it is this trust which has ceased to exist, and the loss of trust is a grave loss.<br />
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It is nevertheless erroneous to hold that the market economy has an inbuilt need for a quota of poverty and underdevelopment in order to function at its best. <br />
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Thus every economic decision has a moral consequence.<br />
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An overemphasis on rights leads to a disregard for duties. Duties set a limit on rights because they point to the anthropological and ethical framework of which rights are a part, in this way ensuring that they do not become license. Duties thereby reinforce rights and call for their defense and promotion as a task to be undertaken in the service of the common good. Otherwise, if the only basis of human rights is to be found in the deliberations of an assembly of citizens, those rights can be changed at any time, and so the duty to respect and pursue them fades from the common consciousness. <br />
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Denying the right to profess one's religion in public and the right to bring the truths of faith to bear upon public life has negative consequences for true development. The exclusion of religion from the public square — and, at the other extreme, religious fundamentalism — hinders an encounter between persons and their collaboration for the progress of humanity. Public life is sapped of its motivation and politics takes on a domineering and aggressive character. Human rights risk being ignored either because they are robbed of their transcendent foundation or because personal freedom is not acknowledged. <br />
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Secularism and fundamentalism exclude the possibility of fruitful dialogue and effective cooperation between reason and religious faith. Reason always stands in need of being purified by faith: this also holds true for political reason, which must not consider itself omnipotent. For its part, religion always needs to be purified by reason in order to show its authentically human face. Any breach in this dialogue comes only at an enormous price to human development.<br />
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The principle of subsidiarity must remain closely linked to the principle of solidarity and vice versa, since the former without the latter gives way to social privatism, while the latter without the former gives way to paternalist social assistance that is demeaning to those in need.<br />
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Technologically advanced societies must not confuse their own technological development with a presumed cultural superiority, but must rather rediscover within themselves the oft-forgotten virtues which made it possible for them to flourish throughout their history.</blockquote><br />
I eagerly await the next Pope's social encyclical(s)!<br />
Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-80641605854039669502013-02-24T22:07:00.000-06:002013-02-24T22:07:07.527-06:00Step 2: ???Many years ago, when I was 10 or 11 I had a friend of mine sleepover. My parents had something going on that night, so we had a babysitter for a few hours. She was quite lenient on us, and being young boys, we took advantage of the situation. I'm not sure I've drank more pop over a span of a few hours than I did that night. We also convinced her to let us watch a banned cartoon that night. <br />
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I'm not sure why I remember that night so well, but every time I hear a politician or pundit talking about reducing the deficit I can't help but think of the episode I saw that night. You see, the episode I saw was about the "underpants gnomes" who'd go around at night stealing underpants. <br />
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They had quite the business model (I'd offer a link here, but I could not find a clip containing no vulgarity, so peruse at your own risk if you like):<br />
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Step 1: Collect underpants<br />
Step 2: ???<br />
Step 3: Profit!<br />
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For these politicians and pundits, it seems that their modified plan for the economy could be:<br />
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Step 1: Reduce deficit by cutting social programs and raising taxes<br />
Step 2: ???<br />
Step 3: Growth!<br />
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I have yet to hear a solid explanation of what reducing the deficit would do for the economy to help it grow. The best, or most feasible explanation offered is that businesses would be more confident and would start spending and investing to create jobs. Yet, this magical step two (what Krugman calls the confidence fairy) has some problems with it.<br />
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What about reducing the deficit increases business confidence? Reducing the deficit will reduce their sales, because the deficit measures the amount of money leaving and entering the economy over time. A deficit is money entering the economy, a surplus is money leaving. Lower sales do not boost confidence.<br />
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What about more stable policies? Sure! Stability in Washington is very important, but you can provide stability without reducing the deficit.<br />
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Business investment relies greatly on expectations of future sales. For that, businesses need stability and expected stability. They need to know roughly what wages, resources, healthcare, etc. will cost. They also need to have a rough idea of what they can sell at what prices to make their investment worthwhile. Banks also form their expectations when deciding whether to give out loans or not.<br />
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For this, we need Washington to stop kicking the can down the road, to stop passing temporary measures while they continue to disagree over how to reduce the deficit, and they really need to stop threatening to go "over the cliff" or fall into voluntary bankruptcy. This is what makes businesses uncertain, not the deficit. Constant fiddling by Washington must stop if the private sector is going to have any confidence in their bottom line.<br />
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The deficit <i>should </i>be reduced, but not directly. It <i>will </i>be reduced with a growing economy. To grow the economy you need to boost spending, which means a higher deficit now. A higher deficit now will equal a lower deficit later with economic growth. <br />
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The deficit should be directed toward those who need it most and who will be most likely to spend it. Not big business and not big banks. Not those who own big businesses and big banks. Give it to those who need it and they will spend it. This, in turn, will boost the sales of businesses, small and big alike. They will be more confident of future sales and will invest in more jobs.<br />
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Remember that the public sector deficit is the private sector surplus. If we reduce the public deficit, then we reduce the private sector surplus. <br />
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There is no magical step 2 to get us growth if step 1 is reducing the deficit. Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-128222620815449422013-01-11T15:46:00.000-06:002013-01-11T15:46:13.058-06:00Should we #MinttheCoin?The trillion dollar platinum coin idea is making all the headlines these days.<br />
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Background on the Coin:<br />
<a href="http://www.dailykos.com/story/2013/01/08/1177211/-Co-author-of-platinum-coin-law-weighs-in-on-trillion-dollar-coin#" target="_blank">Co-Author of Platinum Coin Law Weighs In</a><br />
<a href="http://neweconomicperspectives.org/2013/01/what-is-it-about-money-that-scares-the-bejesus-out-of-people.html#more-4348" target="_blank">What about money scares everyone so much?</a><br />
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Background on where the idea came from: <br />
<a href="http://www.wired.com/business/2013/01/trillion-dollar-coin-inventor/" target="_blank">Trillion Dollar Coin Inventor</a><br />
<a href="http://tpmdc.talkingpointsmemo.com/2013/01/the-wild-origins-of-the-trillion-dollar-platinum-coin.php" target="_blank">Origins of the TDPC</a><br />
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The Fiscal Cliff was averted at the last second, as I expected. The deal struck was horrible for pretty much everyone. Bush income tax cuts were kept intact for everyone under $400,000/yr, but the payroll tax cut was allowed to expire. So, in reality, pretty much everyone's taxes went up. Yay, us.<br />
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Now the new point of argument is back on the debt ceiling. Congress reached an agreement to avert the point they created to provide motivation to get a budget done (fiscal cliff), but now they have a new point they created to provide motivation to get a budget done (debt ceiling). Economically, the debt ceiling serves no useful purpose. Hitting it would be disastrous, far worse and more unknown than the fiscal cliff.<br />
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If we allow ourselves to hit the ceiling, we will in effect declare voluntary default. This is like telling the bank you have the money to pay off your loan, but don't want to pay it off, except that you are a currency user and could actually run out of money to pay your loan and the government as currency issuer can never run out of money.<br />
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What are some of the effects of voluntary default?<br />
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1) Faith in the dollar would be gone or shaken severely. The safest assets worldwide are U.S. Treasuries. Failing to make good on them would shake confidence in them and the entire dollar system. All of which amounts to Global Financial Crisis, part II which is much, much worse than part I.<br />
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2) Spending would drop precipitously. Increased uncertainty and decreased confidence in worldwide financial markets would mean people would hoard money out of fear of losing more. Spending = someone else's income. So when spending decreases, income decreases. This is the good ol' paradox of thrift. We need to increase spending, not decrease it.<br />
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3) Unemployment would go back up. Perhaps faster and way worse than in 2008-9.<br />
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4) That deficit we're trying to close would get much bigger. So those wanting to close it wouldn't win in this scenario either.<br />
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5) Probable deflation, which further hurts household's balance sheet positions.<br />
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6) Interest rates would probably go haywire.<br />
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7) Stock market collapse, again. Any gains made since '08 would likely be gone again. Retirement savings and pension funds would be hurt badly, if not completely wiped out.<br />
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Basically, we can't and won't hit the debt ceiling. So why are politicians threatening to do so? <br />
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Economically, the ceiling is useless, which is why we should just get rid of it, but politically it is a tool to try to limit government spending or the size of government. But note that the size of the debt isn't a measure of the size of government. It IS the measure of the savings in US dollars of all those who hold treasury securities, which includes US citizens. So setting a debt ceiling doesn't usefully limit the size of government either.<br />
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Hitting the ceiling just isn't an option. We shouldn't even have a ceiling. If we expect our economy to grow, then we should expect the debt to get bigger and bigger forever and ever and this isn't a bad thing and won't cause hyperinflation.<br />
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So if the choice is between minting the coin and hitting the ceiling, the choice is easy. Mint the coin.<br />
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The Treasury can mint the coin because of a loophole in the law, but that doesn't mean doing so is invalid or not a viable option. It is very valid, real, and viable. It demonstrates very well that the issuer of the currency does not need to issue debt to spend. It issues debt in part to drain reserves from the private sector to avoid inflation and to control interest rates. It also issues debt to provide safe assets to the private sector.<br />
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Spending without issuing debt does not automatically mean inflation. To get inflation, we must spend past capacity. We have lots of unused capacity in our economy, we aren't going to cause inflation with the trillion dollar coin.<br />
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Minting the coin would only prolong the malaise of our moderate deficit providing low growth overall. It wouldn't fix the economy by itself.<br />
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That said, I am not in favor of using the coin. I would much rather our politicians come together and make a budget suitable for good growth and a strong economy with full employment and a robust financial system. They don't seem to want to do that. It is terrible that one party would unilaterally exploit a loophole in the law to support its own ends, but it is also terrible that a party would hold hostage the economy with a needless debt ceiling because they can't find common ground in the budgeting process. To me, it doesn't matter which party is which. If they were reversed, I'd feel the same.<br />
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It is all extremely disappointing. It is disappointing that they don't understand their own monetary system and it is even more disappointing they can't work together.<br />
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In summary, 3>2>1.<br />
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1) Hit debt ceiling. Voluntarily default on promised payments. Economic disaster.<br />
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2) Mint the coin. Avoid economic catastrophe, but continue low growth malaise.<br />
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3) Repeal the debt ceiling. Cut payroll taxes. Spend more on infrastructure and less on defense and porkbelly spending. Don't worry about the deficit and debt. Focus on unemployment, inflation, GDP, and poverty instead.<br />
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Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com1tag:blogger.com,1999:blog-3574536238757003081.post-86307731459184205642012-12-18T15:04:00.000-06:002013-01-11T14:29:10.812-06:00Fiscal Cliff NotesSome of my (somewhat well-educated) thoughts on the fiscal cliff:<br />
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<b>1) The fiscal cliff is NOT the point at which the government runs out of money.</b> Somehow this has become the widespread notion of what the Fiscal Cliff is, descriptively. Remember, the issuer of a currency cannot run out of that currency. The U.S. government, as issuer of the dollar cannot run out of dollars.<br />
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<b>2) The fiscal cliff IS the point at which spending cuts kick in and tax cuts expire so that the deficit closes.</b> That is, (G - T) becomes smaller. Every economist understands that this will hurt the economy because it contracts overall spending in the economy. GDP = C + I + G + (X-M). So if Taxes go up, our spending (Consumption and Investment) will go down and if government spending goes down, overall GDP will drop unless somehow we miraculously become a large net exporting nation.<br />
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<b>3) Knowing this, we still think we have to shrink the deficit.</b> I detailed this a couple of weeks ago, so I recommend <a href="http://csteconomics.blogspot.com/2012/11/fiscally-insane.html" target="_blank">reading that piece</a>. IF we let the fiscal cliff happen, the economy will shrink quickly. If we reach a deal, the economy will sputter and will likely fall some if not a lot--it depends on the magnitude of the deal.<br />
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<b>4) We need a larger deficit!</b> This can be accomplished through spending increases or tax cuts, but the only way to actually shrink the deficit is to increase GDP. The private sector is still deleveraging, the foreign sector--our trading partners--is in poor shape, and so the only institution that can help is the government. Otherwise we're in for a long, slow deleveraging period--see The Great Depression. This is needless because the government has policy tools to prevent it, and it doesn't necessarily have to mean a concentration of government power.<br />
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<b>5) What we spend money on matters!</b> Some spending has a higher multiplier effect or employs more workers. Much spending is extremely wasteful and so wouldn't do much to help our society or our economy. All spending will benefit some more than others. Some spending is immoral. We need to make these decisions as a society in the political arena, but note these decisions have economic effects--<a href="http://csteconomics.blogspot.com/2012/12/demand-signals.html" target="_blank">see my most recent post on this</a>.<br />
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<b>6) We have a particular duty to look out for those left behind or trampled on by the system.</b> We can do this personally and through institutions--including Churches, non-profit organizations, local governments, and the federal government. All have advantages and disadvantages, but all are needed according to the principle of subsidiarity, which is not a limiting principle (thinking of it solely as a principle that limits the size of government), but is rather a cooperative principle (thinking of it in terms of all institutions of all sizes working together to accomplish the common good).<br />
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<b>7) Gutting programs that benefit the poor for the wrongly perceived reason of the inability to afford them would not be beneficial to the poor.</b> We can argue over whether these programs are good for the poor aside from affordability, but that is the reason invoked by both parties and it is quite false. <br />
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<b>8) At a time of insufficient aggregate demand, why not give the poor more money to spend?</b> They need it the most and are most likely to spend it, which would stimulate the economy.<br />
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<b>9) Insufficient demand essentially means that government spending is too low or taxes are too high.</b> This is because they are the issuers of that which we use to demand things with, so they are keeping the supply of 'demand signals' too scarce. So instead of raising tax rates as Obama wants to do, why not just get rid of the highly regressive, middle-class and small business punishing payroll taxes?<br />
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<b>10) State budgets were hit hard by the Great Recession and many public employees were let go.</b> Why not give each state a block grant per capita to spend on preventing those cuts (or in this case rehiring those cut) to many useful jobs including teachers, police officers, first responders, etc.?<br />
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<b>11) When the economy gets back to full employment and the distortionary (is that a word?) effects of inflation start to rear their ugly head, we will need to cut the deficit down if it doesn't do so on its own.</b> If the increase in income taxes cause by an increase in income doesn't reduce the deficit enough to slow inflation, then the government will need to raise taxes or cut spending to curb inflation--assuming of course that this is demand pull inflation. Cost push inflation is a real constraint (as opposed to monetary constraint as is demand pull inflation) and is much more difficult and much less pleasant thing to deal with.<br />
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<b>12) My prediction is that a deal will be reached just in the nick of time, but before that happens markets will get spooked that a deal won't happen and will panic causing potentially large drops in the stock averages.</b> This will also cause drops in spending due to increased uncertainty among businesses and households. A credit rating drop might trigger this kind of event. But, again, it doesn't mean that we can go bankrupt, but that we are threatening to not make payments we have agreed to, effectively declaring needless voluntary bankruptcy. After the deal is reached we will return to a "barely there" growth economy or will fall into a sputtering economy of no growth or a little negative growth--again it depends on the magnitude of the deficit cut. The deal will also likely mean greater income inequality and poverty, and worsening political divisions with Republicans blaming the slow economy on the increase in tax rates on the rich and Democrats blaming cuts in entitlement programs. We will see if my prediction comes true, but I make this recognizing that there could by many mitigating factors, and frankly, I hope I am wrong--I hope we figure out that we need more demand and that we give it to those who need it most.<br />
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UPDATE:<br />
<b>13) Oh, and the debt ceiling should be eliminated.</b> It is completely arbitrary and totally useless. The U.S. debt is the world's (that is, all those people who hold treasury securities) savings in the U.S. dollar of account. So as our economy grows, we should expect our savings to grow, which means that the debt will go up forever! That ticking clock in Times Square that goes up and up and up is a good thing! If we set an arbitrary ceiling on the debt, we effectively set an arbitrary ceiling on our economy, because without the financial savings--the safe assets--we cannot sustain any real growth. (Again, this says nothing of the size of government, because bigger debt does not equal bigger government, it just means a larger stockpile of accumulated treasury securities--a good thing!).<br />
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But what are your thoughts? I want to know! Post a comment below!<br />
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Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-70593136864347450462012-12-11T18:28:00.000-06:002012-12-20T18:15:41.045-06:00Demand SignalsEconomics, in some sense, is the study of choices. The study of how your choices and my choices affect economic variables and economic outcomes. This is, in part, why economics cannot be completely separated from other social science disciplines concerned with human behavior, such as history, psychology, sociology, political science, and anthropology.<br />
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One advantage of capitalist economies over other modes of production is the freedom it gives to its citizens to participate in economic life--to make choices mostly free from constraints. This freedom isn't without necessary prerequisites, qualifications, or undesirable results, however.<br />
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Instead of being organized around a central planner, our economy is organized around 'demand signals'. Production decisions aren't made by the state, but by producers usually thought of as capitalists but are really more likely small business owners, CEOs, Boards of governors, etc. They obtain funds, at least initially, from banks through loans or from the public through sales of stock. In order to obtain those funds, they must have some prospects for selling their proposed product. This puts production decisions largely in the hands of bankers, who estimate the expected rate of return on the proposed investment, or stockbrokers who do the same. For the former it means getting the loan paid back, the latter a rise in the share price.<br />
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Yet both are looking at expected rate of return, a hard to gauge variable that because it is based on uncertain expectations of the future depends more on current sales or current demand. This is where our choices come in, or our demand signals.<br />
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You see, we demand with our money and the purchase of a good or service sends a signal to the producer or to the bankers making lending decisions. That signal is usually to invest more in that product or service--to increase investment, or to raise the price of that good or service to obtain more profits with which they too use to purchase goods and services to send signals to their suppliers. It is this interconnected web of demand signals using paper money (or money from bank accounts) that organizes real output in our economy.<br />
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We don't have a central organizer or planner who has to guess how much to produce, or to guess how much we want or need of any one product or service. We send signals through 'the market' and 'it' organizes production along those signals.<br />
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There are many implication or conclusions to be drawn from this. <a name='more'></a>Perhaps the most important are the moral implications. Demand signals are a choice made by persons and are thus subject to morality or, rather, have a moral impact as all decisions made by persons do. We need to consider the impact our economic choices are making on society writ large. Purchasing illicit material sends a demand signal to that supplier that more is needed. By purchasing immoral goods or services, we are telling the market to produce more immorality. To be sure, the suppliers that make it possible are also morally complicit, but where there is demand, you will often find a willing supplier.<br />
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We can also purchase too much of a moral good or service, making it immoral. This sends a demand signal to the market to produce more of a good or service for the society as a whole than would be morally acceptable. Purchasing goods from morally lacking companies--such as those who abuse laborers or support immoral causes--also sends demand signals to them validating their practices. <br />
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There are more purely economic implications, like purchasing goods from companies located outside the country or your state or city sends the demand signal to them to produce more and takes away the demand signal from the local business. That is, local business income drops and less money stays in the community if you shop at anonymous Big Box Store.<br />
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We should also consider that some persons or organizations have more power over these demand signals than others. Businesses set prices which can affect demand signals. Higher prices will often cause a drop in quantity demanded, unless that good is highly 'price inelastic' or a necessity, like healthcare, that we will demand no matter the price (assuming its life-saving healthcare). <br />
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Those who control the means by which we confer demand signals also have a lot of power. Here I am talking about banks and their control over the monetary system, and in particular the central bank and the state in conjunction with it. Banks have the power to create money and obtain state money from the Federal Reserve at the fed funds rate as needed. The state creates money when it spends and destroys it when it taxes. The decisions made by these entities can cause aggregate demand to fluctuate wildly from too much to too little. <br />
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If we don't have enough of the means of making demand signals--money, then production drops or ceases, companies fail, unemployment rises, and economic stagnation ensues. To boost aggregate demand signals, we need more money--the means by which we demand. We can get it from banks, but they aren't lending because they don't have high estimates for the expected rate of return. They are sitting on loads of cash or reserves and aren't lending because they don't have enough demand signals telling them they'll get their loan paid back.<br />
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The state could also spend more money into our pockets or tax us less to enable us to confer more demand signals to producers, yet they are threatening to do the opposite on the incorrect notion that they don't have the means to do so. <br />
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To be sure, the opposite can also happen. Too many aggregate demand signals will tell producers to produce more until they run out of real resources--no more labor, raw materials, or capital to use in producing more. They will then raise prices if they don't before getting to that point, which will cause inflation if this happens economy wide. At this point, our banks or government would need to decrease our ability to make demand signals.<br />
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Right now the economy as a whole doesn't have enough demand signals for a prosperous economy, but perhaps a worse problem is that there are many people who don't have enough of the means to make demand signals (again, money) to scrap a living consistent with human dignity. The means by which we obtain demand signals--work--isn't always available to everyone. Capitalist economies, although good at organizing production, have always left a portion of society unemployed, putting them into a poverty trap or cycle because poverty begets more poverty. Many say the opportunity is there for them, because it is provided by law, but there is no law to guarantee everyone a job or a basic living, only laws that establish that you can if you are so able.<br />
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Not everyone is given the same ability or freedom or opportunity to make demand signals consistent with human dignity, and many are denied that opportunity repeatedly. The supposed efficiency of capitalist economies, of the free market, has repeatedly throughout history shifted demand signals from poor to wealthy, giving some more than they need to live a life of dignity (and worse making it very difficult for them to live a life consistent with Catholic Social teaching (MT 19:24)) and leaving many without enough.<br />
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As Catholics, Christians more generally, and all people of good will, we must consider all this when making our daily decisions. We must think about the effects our demand signals will have on society and we must sculpt policy--the rules of the free market--to make sure everyone has the opportunity to live a life of dignity. There is no question the free market via our demand signals has shown its great ability to organize production in a free and mostly efficient way, but there is also no question that it produces immoral results of which these are just a few: production of immoral goods and services, production of too much of the wrong things, padding the pockets of multinational corporations mostly unconcerned with the well-being of the local community, too much power given to a few with selfish goals over the system of demand signals, not enough demand signals in the economy as an aggregate causing unneeded harm for many if not everyone, and great inequality in demand signals where those that have too much suffer from greed and avarice and those who have too little suffer from destitution and oppression.<br />
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This is the great lesson from Catholic Social Teaching, if there is just one. We must pervade all our choices with charity and concern for our neighbor striving for justice and the common good. Our demand signals must reflect our concern for our neighbor, our desire for their good and our own good. We must send signals to producers to produce the right things and the right amount of things for a good and just society. <br />
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It is not just policy that matters for living the Church's social doctrine, but ALL our decisions! For they all have an impact on the results and morality of our socioeconomic system.<br />
Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-88682076473882468052012-11-18T18:03:00.003-06:002012-12-20T18:16:14.497-06:00Fiscally InsaneThe recent elections kept in place the gridlock we've seen in recent years in Washington. One issue they have continually kicked down the road was the issue of the growing government debt due to recent high deficits. The gridlock is no doubt a serious problem, but the insane part is the premise upon which both parties are acting: the need to reduce the deficit. I have written much about this, but I thought it seemed appropriate and pertinent to review why reducing the deficit now is insane.<br />
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Many people forget that government debt is someone else's asset. That is, every government bond or treasury security out there is the government's IOU, but the holder's asset. So increasing government debt is increasing the non-government sector's assets or net savings. The non-government sector can't net save on IOUs/assets held against each other, so it relies on the government's securities to net save.<br />
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This means that the $16 trillion+ government debt is the world's net savings in the U.S. dollar of account. Since savings are good and since we would expect the economy to continue to grow, we should expect that savings and thus the debt will go up forever. This means 17, 18, 19 trillion and counting and that's a good thing! Not something to be worried about! So why are people worried about it?<br />
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Here are the usual arguments:<br />
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1) Bankruptcy<br />
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We know this is false and is easy to prove or show. The government can simply print more money to pay any debts it has promised to anyone. Now in practice they don't print much money to pay their bills, they just change numbers in bank accounts, but the basic idea is the same. They are the monopoly issuer of the U.S. dollar and can thus pay any debts denominated in U.S. dollars. In this way we are not like Greece. Greece's debts are payable in the Euro. They are not the monopoly issuer of the Euro. They cannot pay debts without accruing Euros first through taxing or borrowing. They can go bankrupt. They, again, are a currency USER. <br />
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The U.S. does not face those same difficulties as the ISSUER of the currency. They do NOT need to tax or borrow in order to spend. The only reason they do so is to limit the private sector's purchasing power in order to prevent inflation. If they didn't tax or issue bonds to drain the private sector's purchasing power, and spent the way they did, then we would likely have the third thing everyone is concerned about (see below).<br />
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2) Interest rates<br />
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Many are worried that the bond markets will turn on U.S. bonds by refusing to buy the U.S.'s debt and so interest rates will go up, like they did in Greece or Spain. This is a more hairy explanation, but the simple answer is that as a currency ISSUER, the U.S. doesn't face that possibility, that Japan is a better comparison, who is also a currency ISSUER and has had very low interest rates for over a decade.<br />
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The U.S. has had record high deficit spending and record low interest rates. The theory that makes people worry is that high deficits cause high interest rates because fear will grow over whether or not the government will be able to make good on its debts. After #1, we know it can always make good on its debts, bankruptcy is not a concern. It is possible that fear would still grow anyway, despite this most basic fact, but it is wholly unlikely and still has not come to fruition despite repeated warnings it will for several years now. Those who spend their life trading in markets know that U.S. debt is a safe asset to hold so long as they don't threaten to voluntarily declare bankruptcy (or stop making payments on IOUs it has promised), which they are doing unfortunately. <br />
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So, in sum, this hasn't been an issue and won't be so long as the US doesn't voluntarily declare bankruptcy, something it does not have to do, or otherwise threaten to not make promised payments. Unfortunately, this might be a tool used by either side to get their way on the new budget deal. And again, Japan has paved the way:<br />
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<div style="text-align: center;">Japan Debt-to-GDP</div><div class="separator" style="clear: both; text-align: center;"><a href="http://2.bp.blogspot.com/--LsRMMgakj0/UKlqoXBhasI/AAAAAAAAAFw/sBv8VlnJALk/s1600/Japan%2Bdebt%2BGDP.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="192" src="http://2.bp.blogspot.com/--LsRMMgakj0/UKlqoXBhasI/AAAAAAAAAFw/sBv8VlnJALk/s320/Japan%2Bdebt%2BGDP.png" width="320" /></a></div><br />
<div style="text-align: center;">Japan Interest Rates</div><div class="separator" style="clear: both; text-align: center;"><a href="http://4.bp.blogspot.com/-6k_6y_e9wEU/UKlqo77tIII/AAAAAAAAAF8/RH2pGErx_-g/s1600/JApan%2Bint%2Brates.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="192" src="http://4.bp.blogspot.com/-6k_6y_e9wEU/UKlqo77tIII/AAAAAAAAAF8/RH2pGErx_-g/s320/JApan%2Bint%2Brates.png" width="320" /></a></div><br />
Debt goes up, but interest rates go down in both.<br />
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<div style="text-align: center;">U.S. Debt-to-GDP</div><div class="separator" style="clear: both; text-align: center;"><a href="http://4.bp.blogspot.com/-ftBcNEHGmLI/UKlqpsz-_iI/AAAAAAAAAGI/94e6i2fgdBE/s1600/US%2Bdebt%2Bto%2BGDP.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="192" src="http://4.bp.blogspot.com/-ftBcNEHGmLI/UKlqpsz-_iI/AAAAAAAAAGI/94e6i2fgdBE/s320/US%2Bdebt%2Bto%2BGDP.png" width="320" /></a></div><br />
<div style="text-align: center;">U.S. Interest Rates</div><div class="separator" style="clear: both; text-align: center;"><a href="http://4.bp.blogspot.com/-0oMHA-lVAlI/UKlqp4bZgnI/AAAAAAAAAGU/ikIfnYlx2ak/s1600/US%2Binterest%2Brates.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="192" src="http://4.bp.blogspot.com/-0oMHA-lVAlI/UKlqp4bZgnI/AAAAAAAAAGU/ikIfnYlx2ak/s320/US%2Binterest%2Brates.png" width="320" /></a></div><br />
The proof is in the pudding. Interest rates are not going to go up without the voluntary and unnecessary threat to not pay its debts.<br />
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3) Inflation or even Hyperinflation<br />
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This is the most legitimate concern. The constraint to high deficit spending is not bankruptcy or spiking interest rates for currency ISSUERs, but is inflation. Public and private spending together may be too high for the current output if the government spends more than it taxes. There might be "too much money chasing too few goods." Fortunately, we have many signals to tell us if we're in danger of this happening. They are the unemployment rate, capital capacity utilization rate, and the inflation rate itself. So what does the pudding say here:<br />
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<div style="text-align: center;">Unemployment Rate</div><div class="separator" style="clear: both; text-align: center;"><a href="http://3.bp.blogspot.com/-EeqJzPlzT3E/UKlv70jU4kI/AAAAAAAAAHk/GPUk_R1OHH0/s1600/US%2BUnemp%2BRate.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="192" src="http://3.bp.blogspot.com/-EeqJzPlzT3E/UKlv70jU4kI/AAAAAAAAAHk/GPUk_R1OHH0/s320/US%2BUnemp%2BRate.png" width="320" /></a></div><br />
Still higher than we'd like it to be, but showing some improvement, but what about those who dropped out of the labor force?<br />
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<div style="text-align: center;">Labor Force Participation Rate</div><div class="separator" style="clear: both; text-align: center;"><a href="http://3.bp.blogspot.com/-euq-iRJhGRs/UKlv8zxw43I/AAAAAAAAAH8/RgtVwYQOJoM/s1600/US%2BLaborforce%2BParticipation%2Brate.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="192" src="http://3.bp.blogspot.com/-euq-iRJhGRs/UKlv8zxw43I/AAAAAAAAAH8/RgtVwYQOJoM/s320/US%2BLaborforce%2BParticipation%2Brate.png" width="320" /></a></div><br />
There are still many who haven't rejoined the labor force, who could potentially do so if the economy improves.<br />
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<div style="text-align: center;">Employment-Population Rate</div><div class="separator" style="clear: both; text-align: center;"><a href="http://2.bp.blogspot.com/-O-gGo5qaWdc/UKlv8JOmP0I/AAAAAAAAAHw/lh06XQFGNG4/s1600/US%2BEMPPOP%2BPercentage.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="192" src="http://2.bp.blogspot.com/-O-gGo5qaWdc/UKlv8JOmP0I/AAAAAAAAAHw/lh06XQFGNG4/s320/US%2BEMPPOP%2BPercentage.png" width="320" /></a></div><br />
Employment to population rate is expected to go down with an aging population, but really took a hit with the recession and hasn't rebounded either. Looks like there is excess capacity in labor utilization, what about capital?<br />
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<div style="text-align: center;">Industrial Capacity Utilization Rate</div><div class="separator" style="clear: both; text-align: center;"><a href="http://2.bp.blogspot.com/-bN-OAhuoAys/UKlv9FpmWCI/AAAAAAAAAII/xpELJuPePdE/s1600/US%2BCapacity%2BUtil.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="192" src="http://2.bp.blogspot.com/-bN-OAhuoAys/UKlv9FpmWCI/AAAAAAAAAII/xpELJuPePdE/s320/US%2BCapacity%2BUtil.png" width="320" /></a></div><br />
Capital utilization has rebounded some, with a slight downtick at the end there, but it looks like there is plenty excess capital capacity. And inflation?<br />
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<div style="text-align: center;">U.S. Inflation Rate: All Items</div><div class="separator" style="clear: both; text-align: center;"><a href="http://4.bp.blogspot.com/-jgjqgBshmJ8/UKlxvYrjvII/AAAAAAAAAIg/uvxd9owTy-s/s1600/US%2Binflation%2Ball%2Bitems.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="192" src="http://4.bp.blogspot.com/-jgjqgBshmJ8/UKlxvYrjvII/AAAAAAAAAIg/uvxd9owTy-s/s320/US%2Binflation%2Ball%2Bitems.png" width="320" /></a></div><br />
<div style="text-align: center;">U.S. Inflation Rate: Less Energy and Food</div><div class="separator" style="clear: both; text-align: center;"><a href="http://1.bp.blogspot.com/-TV-y574hXh8/UKlxvlO_ilI/AAAAAAAAAIs/nebREGZvN0s/s1600/US%2Binflation%2Bless.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="192" src="http://1.bp.blogspot.com/-TV-y574hXh8/UKlxvlO_ilI/AAAAAAAAAIs/nebREGZvN0s/s320/US%2Binflation%2Bless.png" width="320" /></a></div><br />
Both are still very low and stable, particularly compared to the oil shocks of the 70s and 80s.<br />
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These graphs tell us that aggregate demand is still too low, that we could increase purchasing power of public or private sectors or both and not cause demand-pull inflation. Our current deficits are not causing inflation, and there is no sign that inflation is getting higher, but we should expect that as labor and capital utilization increase that inflation may start to increase, and at that time it will be important to decrease the deficit. Hyperinflation doesn't happen overnight. We have the tools to see it coming and we have the tools to prevent and or squash it without causing economic ruin.<br />
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But instead we are letting these 3 fears dominate our decision making. We fear these things and let our fear tell us we can't do any better. It is widely accepted that we can't fall off the fiscal cliff, which is a major shrinkage in the deficit that everyone knows will ruin the economy. But out of fear people argue that we must still shrink the deficit, just more slowly. The gridlock is over how to do it, but both want to do it, and both are wrong or worse, insane. I do not mean to make light of any mental condition, but isn't someone mentally ill in some capacity if the let fear of something that hasn't happened and isn't likely to inflict pain or dictate their actions now?<br />
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Isn't that what we are doing?<br />
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This is not a political argument in the sense that I am favoring one side or the other (to be sure, I do have my opinions on politics, but they are not part of this argument). If you prefer smaller government, we can keep the deficit or increase it now with a decrease in taxes. If you prefer bigger government we can keep taxes the same and increase spending. And we should debate those things: what should the government do? Not: what can the government afford? Cause we know affordability is not an issue and inflation isn't one right now or in the near future.<br />
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Furthermore, any attempt to reduce the deficit directly will not end up reducing the deficit because the negative impact to spending will lower tax revenues below spending targets and more automatic stabilizers will kick in. If we then cut spending again in response to the lack of a decreased deficit, we'll end up in a downward spiral of austerity. And all of it would be needless because we are not USERs of our own currency, we are ISSUERS. The only way to reduce the deficit is to grow the economy by increasing the deficit now and letting it decrease later.<br />
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So don't buy the insane premise that we must reduce the deficit now or else! Just ask yourself: or else what? If it's one of these three arguments above, then you know why they are not a concern right now!Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com6tag:blogger.com,1999:blog-3574536238757003081.post-58337659457530035412012-05-24T12:21:00.001-05:002012-05-24T12:22:55.219-05:00China has all our debt!OH NO! But not really.<br />
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A lot of people are concerned with China owning so much of our country's debt. What if they make us pay it back all at once? Well they can't do that, and frankly, they don't want to. But there is reason to be concerned, or at least, to understand what it means that China owns so much of our debt.<br />
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First we must ask, how did they get that debt?<br />
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This is partially tied in with 'globalization' or cheaper labor costs in developing nations and relatively cheap transportation costs. China can manufacture goods more cheaply the United States can because China has been taking advantage of lower labor costs and labor standards to grow its economy, but it needs someone to sell it goods to. Domestic demand in China isn't enough to help it grow as much as it has, it needs a buyer abroad. That's where we come in. The U.S. has run a trade deficit (imports>exports) for a few decades now, and recently much of those exports have been coming from China.<br />
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When the U.S. gets goods from China, it sends its dollar to China. We get the goods we want, they get the dollars they want. Now they have excess dollars that they can either: A) convert to Renminbi (the Chinese currency), B) leave as US dollar cash, C) buy goods for sale in Dollars, or D) buy US bonds or other financial assets.<br />
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(A) causes appreciation of the Renminbi which China doesn't want, because it makes their goods more expensive relative to the rest of the world causing a decrease in their exports. They really want and need to be an exporting nation to grow fast enough to catch up to the US and Europe.<br />
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(C) also hurts their trade surplus (exports>imports) because now they are importing American goods with their dollars.<br />
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(B) allows them to hold down the value of the Renminbi (some think this is currency manipulation), but they earn nothing on those dollars and in fact lose value through inflation.<br />
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(D) allows them to hold down the value of the Renminbi and they earn interest on whatever the US Treasury is paying on its bonds.<br />
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If they cash in their treasuries (by selling them) they are back to holding cash and then have to choose A, B, C, or D. They will not change interest rates on US debt by doing so, because that is mostly controlled by the Fed.<br />
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So China takes the dollars they get from exporting goods to us and buys bonds with them to maintain their trade surplus and earn interest on their US financial assets. Their dollars essentially go from a checking account at the US Fed, to a savings accounts at the US Fed.<br />
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China cannot manipulate our interest rates with their US debt holdings, because interest rates are controlled by the Fed. Paying interest to China does increase their holdings of US financial assets (cash and bonds) but this acts to increase the supply of dollars, depreciating the dollar, which is basically trying to correct the trade imbalance. China is doing what it can to hold down the value of the Renminbi, because if it goes up they lose their trade surplus.<br />
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Really the only thing concerning to me is that Chinese capitalists will use their excess dollar assets to buy American assets like businesses, stocks, bonds, etc. <br />
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China can't destroy our economy holding our debt, but they can buy more of our assets if we continue to have a trade deficit.<br />
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US government spending isn't the culprit, then, it is rather the large trade deficit. US gov't spending could ameliorate this with a larger deficit, because this would act to depreciate the dollar, making it tougher for China to maintain their trade surplus.<br />
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For more on this process I recommend this by Warren Mosler: <a href="http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf" target="_blank">So how do we pay off China?</a> (go to p. 23-24 of the pdf, 36-40 of the book)<br />Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-43161398014509029042012-05-23T12:39:00.000-05:002012-05-23T12:41:01.700-05:00The Value of MoneyA couple weeks ago I wrote a post addressing the question <a href="http://csteconomics.blogspot.com/2012/05/why-does-money-matter.html" target="_blank">'why does money matter?'</a>. I hope I laid out a clear explanation of the role of money in our economy and how many mainstream economists misunderstand just what it is at its most fundamental level.<br />
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The basic insight is that money is credit or an IOU, and not a commodity nor a representation of a commodity (or commodities). So if money is credit, then what gives it value?<br />
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The metallists, those who believe money is like a commodity or a 'fiat' representation of commodities, believe money gets its value from that commodity or commodities. That is, they believe money gets its value from gold or in more modern times, from the bundles of goods a currency area produces.<br />
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I wondered about this question long ago, why is gold so valuable? I just didn't get why a mostly useless shiny metal would be so coveted by the Egyptians, Romans, or Europeans. Then I took a money and banking course in college that provided me with an explanation. Gold and other precious metals were used as money because they were easily molded into small, transportable coins. And because of its moldability, it could be divided into larger and smaller coins with varying values with markings to protect against counterfeiting. This mostly satisfied my curiosity. I though, 'oh, the people of Egypt (or wherever) were smart enough to figure out that this commodity, of all the commodities available to them, would serve best as money because of its inherent properties'.<br />
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Later in the course, however, I learned of an alternative approach to money that completely flips this view on its head. This is the Chartalist view that regards money as credit. To them, all money is an IOU or credit and anyone can then create money as long as someone is willing to accept it. Monies fall into a sort of hierarchy of acceptance with the most worthy creditors (or debtors) at the top and the worst at the bottom.<br />
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And it is here were we find the key to money's value. It isn't anything based on intrinsic worth of the commodity used to represent the IOU, it is rather the acceptability of the IOU. The most acceptable IOUs have more value!<br />
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Systems of IOU record keeping have long been used to ease trade. They were needed because of the division of labor. Farmers needed a way to obtain other goods and the same was true for all occupations. Usually some sort of commodity was chosen to represent the debts and credits, in early societies grain was used, but others used seashells, tallies, cattle, precious metals, really all kinds of things. And most often, the governing body chose the commodity used as the record keeper. So gold may very well have been chosen for its unique properties, but its unique properties are not what gave it value as money, rather, it was the acceptability of the debtor issuing those IOUs that gave them value. The people accepted the governing body's money (IOUs) when they believed they could obtain the goods they needed to live with that money. In some cases, the state had a difficult time making this happen and had to enforce arbitrary IOUs on its people to force them to accept the money they issued.<br />
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These 'arbitrary' IOUs we call taxes. This means that taxes weren't issued so that the government could collect 'money' from the people, they were issued so that the government could take real goods and resources from the people. The people sometimes wouldn't offer the government real goods and services if they didn't have to pay taxes. And almost each and every case, it is then the tax that determines the money to be used. If the state taxes in grain, grain will likely be the money. If they tax in gold, gold is likely to be the money. If they tax in pieces of paper, then pieces of paper are likely to be the money.<br />
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So to bring it full circle, people accept U.S. dollars because they think they can get something with them, but they first have to be able to get something with those pieces of paper. The logical beginning of this process first required the state to issue the dollars to the people and then to make them acceptable to the people, they had to enforce the tax. Citizens then needed these pieces of paper to pay the tax to avoid penalties for tax evasion.<br />
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Dollars now have value regardless of whether there is a gold standard or not. Dollars are needed to extinguish a liability enforced on us.<br />
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In the hierarchy of money I talked about earlier, the state's money is at the top, ultimately because it has the power to govern its people, to enforce contracts and hand down penalties if necessary. It is really the governing body's power to tax and to enforce that tax that gives money its value.<br />
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This may not go over well with some of you who think the state already has too much power, but please consider this. There must be a governing body to provide societal order, even if it is democratic. That body must have goods and resources to carry out its purpose. In order to obtain those goods and resources, it must get them from the people it governs which it does through taxation. Whatever it taxes will be needed by the people to pay the tax. That then likely becomes the money used by that society. So long as government is responsible and carrying out the good of the people there is not a problem in this process.<br />
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So if you don't like big government, fine, but you can't take away its power to tax and expect it to remain effective. If it taxes, then there will likely be a state money which will have the greatest value because of the government's ability to enforce it. In this way, the state always has a monopoly over the money. It may abdicate this right, as governments have done by adopting a currency board, common currency, gold standard, international gold standard, etc., but doing so undermines its ability to provide for the common welfare of the people. This really is the topic for another post, so if you are more curious about this, I will be glad to write about it later.<br />
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The main point is that ACCEPTANCE is the key to the value of money (which is always an IOU), and the ability to tax and enforce that tax make the state's money the most acceptable. <br />Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-20607017898455824652012-05-17T15:19:00.000-05:002012-05-17T15:19:21.943-05:00Monopoly and Modern Money TheoryThis is a brilliant post by J.D. Alt on how the economy is like the game of monopoly. It is kind of long, but really understands how the economy works, particularly from a MMT perspective.<br />
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Full Post: <a href="http://neweconomicperspectives.org/2012/05/playing-monopolis-monopoly-an-inquiry-into-why-we-are-making-ourselves-so-miserable.html" target="_blank">Playing Monopolis Monopoly</a><br />
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Highlights:<br />
<blockquote>Why does it seem like there isn’t enough money to pay for the things we really need? The headlines are filled with stories about our nation’s “debt problem” and dire warnings about our impending “bankruptcy.” As an architect who fills his waking hours thinking up all kinds of wonderful things we could be building, I’m alarmed by the idea there isn’t enough money to pay for any of them. Before wasting more time dreaming, I had to find out: Is it really true? Are we really too poor to put America back to work making and building the things we need to maintain a prosperous nation?<br />
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Searching for an answer, I discovered a small (but growing) group of economists (see here, here, here, here, here, here) who represent an emerging school of thought known as “modern monetary theory” (MMT). These men and women are valiantly trying to make us all understand a paradigm shift that occurred some forty years ago, when the world abandoned the gold standard. Their key insight shocked me: A sovereign government is never revenue constrained when it is the Monopoly issuer of its own pure fiat currency; it has all the money that’s needed to put its citizens to work building anything—and providing any service—that is desired by the public (provided the real resources are available). Even more remarkable, sovereign “deficits” in the fiat currency are just the accounting record of the surpluses that have been injected into the private economy. Eliminating the sovereign currency deficit by imposing austerity will not make the economy healthier; it will, in effect, bankrupt the citizens!<br />
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If this seems to defy logic, stay with me for just a few minutes. I’m going to propose a simple exercise that will help you “see” this reality for yourself. The exercise is simply that everyone join me in a familiar game of Monopoly. By the end of the game, I hope to convince you that MMT is correct<br />
and that we could be doing better, much better – for ourselves and future generations—if we just understood and took ad vantage of our modern monetary system.<br />
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Let’s begin.<br />
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<b>Playing Monopolis Monopoly</b><br />
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We’ll play by the normal rules (I’ll suggest some added features as we go along) except this time we’ll pay special attention to certain things that are happening. For example, you’ll recall that before the game can begin, one player has to agree to be the “banker” (a tedious task, but someonehas to do it.) But now choosing this person has a special importance: it must be done democratically, with the players voting to determine who will manage the game’s money. We’ll do this little exercise because we want to pay special attention to the fact that the Monopoly “bank” is an entity created by the players themselves for their mutual benefit. In fact, we won’t refer to it as the “bank” anymore, but instead will call it our “currency issuing government” (CIG). In a real sense, we all “own” CIG together, and taking a minute to democratically choose who will manage it heightens our awareness of this key fact.<br />
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To reinforce this awareness, the next thing we’ll think about, as we set up the Monopoly board, organize the Deed Cards, shuffle the Chance Cards and choose our tokens, is that what we are really doing is setting up, and getting ready to operate, a miniature nation-state. Let’s even give it a name: Monopolis. We, the players, are the new citizens of Monopolis. We have just established, through democratic consensus, our currency issuing government, and we are now getting ready to operate our economy. That’s what the game is about.<br />
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<b>Issuing the Currency</b><br />
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As we get ready to play, we immediately discover an odd dilemma: CIG has all the money! We, the players, are ready to go but we can’t start the game until we have some of CIG’s money. This is an awkward moment, which is dispensed with so quickly in regular Monopoly we hardly notice it. (The “banker” is instructed to make initial cash distributions in the amount of $1500 to each player). If we pay attention, we can see that this moment raises some interesting and crucial questions.<br />
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The first question is: are we not playing the game backwards? Isn’t it us, after all, who have to give our money to government before it has any money to spend on anything? Politicians are telling us this all the time: “Your tax dollars are going to pay for this or that.” And, as will become clear, at the state and local level, this is certainly true. But at the federal level—at the level of the sovereign state—the game of Monopoly provides us with our first clue that something is fundamentally different now from what we habitually imagine it to be.<br />
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The CIG we’ve created for our nation of Monopolis, in fact, has exactly the same purpose, and exactly the same unique and special power as any government that issues its own sovereign currency: Its purpose is to issue and manage the money we are going to play our game with, and the special power we’ve granted it is the ability to create as much money as necessary for our game to go on as long as we want it to.<br />
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Indeed, the rules of Monopoly specifically state that while players can run out of money (in which case they are bankrupt and out of the game) the Monopoly “bank” itself can NEVER run out. In the event the game unfolds in such a way that all the pink and green and blue and gold bills that come in the box are absorbed by the players, the Monopoly rule book instructs the banker to get out a pencil, paper and scissors and create new money as needed. (This is the definition of “fiat money”—money that gains its acceptance simply by decree.)<br />
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So it appears we aren’t playing the game backwards after all. The currency does flow from CIG to the players, and when we give some of that money back—in the form of taxes, or fees, or fines— by logic it cannot be because CIG needs that money. In fact, the CIG could take all the money it receives (in taxes, fees or fines) and simply shred it and throw it away: it has no need for it, because when it needs money it simply “issues” the currency. The first time I tried to wrap my thinking around this set of ideas my primordial brain-stem resonated with knee-jerk objections. (I’m not alone. See here)<br />
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Indignant as I might get, however, Monopoly forces me to realize that if I want to play the game, I have to accept the fact that the CIG gets to create the money, and I have to use the money it creates. I could insist otherwise, demanding that each player bring to the table his own private stash of gold and silver. In fact, it was just forty years ago that the real world played the game in exactly this way, and the long history associated with that experience is what implanted our brain-stems with Neanderthal beliefs about what money is and how it works. But as will become evident (if we can ever get started) the game proceeds with much greater efficiency and potential for economic growth (prosperity for more and more people) if we use our CIG’s fiat currency, which has an unlimited supply, as opposed to the player’s “gold and silver” which has a limited quantity.<br />
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<b>Monopolis Players have Jobs</b><br />
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As I mentioned, “plain-game” Monopoly glosses over all these issues by directing the “banker” to simply make initial cash disbursements of $1500 to each player. In our game of Monopolis Monopoly, however, we want to emphasize that people work for a living. So we begin our game by having our government buy something it needs from each of the players.<br />
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For example, I’m a writer-architect, and the government pays me $1500 to write the Monopolis rules. You are a builder, and the government pays you $2500 to build a network of roads that will allow lumber and materials to be transported to the Monopoly board properties. Sister Sue is an administrator, and the government pays her $2000 to create the Balance Sheet we’ll use to keep track of the game’s transactions. So now we’ve each done a bit of work, have modest cash positions, and we’re ready to begin the game. <br />
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Finally! We’re ready to roll the dice to see who goes first. As we play, we should begin to notice the fact that there are two different kinds of transactions occurring. One set of transactions takes place among the players themselves: I land on your property and have to pay you rent. Let’s say I land on Vermont Avenue and I have to pay you $50; then you land on Baltic Avenue and have to pay Sister Sue $75; then Sister Sue lands on Charles Street and has to pay me $150. Let’s think of these transactions as happening within something we can call the “private sector”, and update our Balance Sheet to look like this: <br />
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There are two things to notice here. First, the transactions within the private sector are a zero-sum game. That is, while the net balance in the account of any one player may change, depending on the play of the game, the total of these net balances will always add up to the total amount of currency in the game. The second thing to notice (if you hadn’t already) is that the total currency assets in the private sector—no matter how they are distributed based on the play of the game—are always equal to the debit account (the “deficit”) of our currency issuing government.<br />
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<b>Horizontal and Vertical Transactions</b><br />
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MMT economists refer to the transactions within the private sector as “horizontal” transactions. These include all transactions between households, businesses, corporations and state and local governments. What they call “vertical” transactions are those between the private sector and CIG.<br />
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Our government’s initial procurements of services from Me, You and sister Sue were vertical transactions. We can observe another vertical transaction the first time a player passes Go. When this happens, Monopoly stipulates that the “banker” will pay that player $200; it will then continue with the same payment to each player each time they pass Go throughout the game.<br />
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We can think of these “Go payments” as being analogous to many different things in the real economy—the federal government paying someone to mow the front lawn of the White House, for example, or sending out a social security check to our grandmother. At this point, it doesn’t really matter. What we do want to notice, however, is what these “vertical” transactions do to the Balance Sheet. <br />
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What we can clearly observe is that while the Private Sector continues to be a zero-sum game, the “vertical” transactions generated by the “Go payments” have increased the size of that sum. And, once again, the new total of currency assets in the private sector is exactly equal to the “deficit” debit account of our CIG. (Indeed, how could it be any different?)<br />
</blockquote>The full post is way more extensive and a great read!Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com4tag:blogger.com,1999:blog-3574536238757003081.post-30106925320253732652012-05-17T12:10:00.000-05:002012-05-17T12:11:50.505-05:00Approaching the 'Fiscal Cliff'My comments in red:<br />
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<a href="http://www.thefiscaltimes.com/Articles/2012/05/11/Congress-May-Toss-the-Economy-Over-the-Fiscal-Cliff.aspx#page1" target="_blank">Congress May Toss the Economy over the Fiscal Cliff</a><br />
<blockquote>We are barreling towards the year end “fiscal cliff” Federal Reserve Board Chairman Ben Bernanke has warned about.<br />
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Unless lawmakers and the President can agree on a slew of confounding budget and tax issues before the end of the year, a double whammy of sharp tax increases and deep cuts in domestic and defense spending will jolt the struggling economy beginning in early January. That’s because two Bush era tax cuts and a raft of other tax relief measures are set to expire by the end of the year, and Congress must implement the first installment of $1.2 trillion of long-term deficit reduction that lawmakers and the White House agreed to last summer.<br />
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While an abrupt surge in tax revenues of about $500 billion, and a steep cut in government spending of about $110 billion early next year would certainly put a big dent in next year’s deficit, many budget experts fear it would also undercut the economic recovery in the short run. <span style="color: red;">It would be extremely detrimental to the economy and would have no impact on solvency of the government budget.</span><br />
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Boehner said this week that Congress will be inviting a legislative “train wreck” if it leaves all these big- ticket fiscal issues to a lame duck session of Congress after the November presidential and congressional elections. He revealed plans to schedule a vote on the House floor before the fall election to extend the two Bush-era tax cuts that are very popular with his members. <span style="color: red;">I'm not opposed to extending tax cuts, but I think extending the FICA tax cuts will be much more helpful to the economy and those who are in need then will extending cuts for those who are doing just fine.</span><br />
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“The House is going to act to extend the current tax rates,” Boehner said in an interview on CNBC. “Whether we make them permanent or extend them for a year – that debate is still up in the air. Otherwise we’re going to have this mess all stacked up until after the election,” he added. “And you want to talk about a train wreck? You’re really talking about a big one.”<br />
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House Republicans, of course, are free to vote on anything they choose, and voting to extend the two generous Bush tax breaks makes for good election year politics. But President Obama has repeatedly sought to deny the Bush-era tax benefits to wealthy Americans making more than $250,000 a year. <span style="color: red;">I'm okay with rejecting the cuts for reasons of a more equal income distribution, but lowering the deficit will not be helpful to the economy.</span><br />
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Obama and Democratic Senate leaders have made it clear they would refuse to agree to extend even part of those tax cuts until the two parties agree on overall spending priorities more acceptable to their party and tax reform that would require millionaires to pay more in taxes. <br />
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The Republicans escalated that dispute on Thursday by pushing a plan through the House, 218 to 199 along party lines, to forestall automatic cuts or “sequestration” in defense spending by cutting funding for food stamps and other social programs and eliminating key pieces of the federal health care law. Democrats voiced outrage over the Republican action, which effectively repudiates the agreement Congress negotiated with Obama last summer to raise the debt ceiling. That agreement called for long term spending cuts to be divided equally between defense and domestic programs. <span style="color: red;">Cutting spending to social programs is absurd in my view. We do not face a solvency problem and the economy isn't doing well. The gov't needs to issue more money into the economy, but in the name of deficit cutting, they will cut programs for the poor who are in much need of them.</span> <span style="color: red;">I don't mind defense cuts, but I am a pacifist and dropping spending won't help the economy. It is really just absurd to cut funding to programs that need it when what we should be doing is giving them more money.</span><br />
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House Budget Committee Chairman Paul Ryan, R-Wis., and other Republican leaders have reconsidered and now say it would be too dangerous to the nation’s security if the Pentagon lost $55 billion in funding in January. And they have ruled out raising taxes to help achieve any of the long-term deficit reduction that both sides have agreed to.<br />
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“They [Republicans] come down here and talk about how we have this big deficit and debt problem,” said Rep. Chris Van Hollen of Maryland, the ranking Democrat on the Budget Committee. “But they have signed a pledge that says they’re not going to ask for one penny of additional contribution from people making more than $1 million a year to help reduce our deficit. Not one penny.”<br />
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The measure approved yesterday, the Sequester Replacement Act, is certain to be sidelined when it reaches the Democratic-controlled Senate. Majority Leader Harry Reid, D-Nev., refuses to consider a replacement for the defense cuts until Republicans show willingness to consider mixing some new revenues with spending cuts.<br />
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Alice Rivlin, the former Congressional Budget Office director and Clinton White House budget chief, said recently, “We should be looking for a very big [tax] reform” -- one that produces a fairer tax system while generating more revenue for the government to address the long term deficit. “Every once in a while we get a big opportunity to solve a problem,” she said during a budget and tax conference in Washington last week, and now may be the time. <span style="color: red;">Fairer tax system? Sure. But we don't need to raise revenue to address the long term deficit. It is such a myth that we have to raise funds to spend or that it will be a problem to pay back all our debt!</span><br />
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But that won’t be easy.<br />
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A new study by the Brookings Institution’s Hamilton Project warns that a daunting long-term deficit outlook, an increasingly competitive global economy, and rising income inequality will make it much tougher for Congress to overhaul the tax code this year than when it last reformed in 1986. <span style="color: red;">I definitely agree overhauling the tax code will be extremely difficult and that perceptions of a debt or deficit crisis may make it more difficult, but daunting long-term deficit outlook is so misleading. We need more spending in the economy, and the private sector can't do it without piling on the debt. They did that in the build up to the financial crisis and are now deleveraging. The gov't needs to provide the net financial assets and the spending flows to boost the economy. If you want smaller government, that is fine, this isn't about size of government. But the deficit needs to be larger. Gov't debt needs to go up, but again this is a good thing, not a bad thing. The gov't is sovereign in its own currency, it can handle it.</span><br />
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</blockquote><a href="http://www.thefiscaltimes.com/Articles/2012/05/14/The-Fiscal-Cliff-Looms-over-Taxes-and-Spending.aspx#page1" target="_blank">The Fiscal Cliff Looms over Taxes and Spending</a><br />
<blockquote>Just how the politically divided Congress and the Obama administration will muddle through the next six months is impossible to say, but their failure to come to grips with a raft of thorny spending and tax issues would pose hardships for millions of Americans reliant on government aid and possibly set back the economic recovery. <span style="color: red;">It would.</span><br />
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At the close of 2012 and the dawning of 2013, many major fiscal events are set to occur simultaneously. It’s what Federal Reserve Board Chairman Ben Bernanke has called “a fiscal cliff” of spending and tax changes of a high magnitude. These include expiration of the Bush era tax cuts, the payroll tax cut and other important tax provisions. They also include the activation of the first installment of the $1.2 trillion across the board cuts or ‘sequester” of domestic and defense spending. And, once again, Congress may have to raise the debt ceiling. <span style="color: red;">They likely will, but they should just get rid of the debt ceiling because it's a nonsense rule to begin with. They can't go bankrupt and have no constraint to borrowing or spending whatever they need as long as its denominated in dollars. Plus, all that debt is the private sector's net wealth.</span><br />
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If Congress and the White House decide to extend the Bush tax cuts along with scores of other tax breaks, that would increase the debt in 2022 by about $7.5 trillion above what it would be if the tax cuts were allowed to expire, according to the Committee for a Responsible Federal Government. This means the debt would rise from 70 percent of GDP today to 88 percent by 2022.<span style="color: red;"> Which isn't a problem if you understand basic accounting and modern money theory. In fact, it will likely help the economy.</span><br />
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Conversely, if those major tax cuts expire – a highly unlikely event – the Congressional Budget Office projected that the annual deficit would shrink from $1.1 trillion to $196 billion – an 82% reduction over the next six years.The resulting increase in tax revenues combined with spending cuts would nearly halve the deficit in 2013, lowering it to $585 billion. <span style="color: red;">But that would contract the economy severely, lowering incomes and subsequently tax revenues, preventing a reduction in the deficit as Greece is finding out with their (forced) attempts at austerity.</span><br />
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The CBO calculated in January that if the tax cuts were extended, the economy in fiscal 2013 would be more than two percent larger than if the tax cuts were allowed to expire, while the unemployment rate would be one percent lower than otherwise. On the other hand, the CBO concluded that over the long run, a continuation of the tax cuts would slow the growth of the economy and add to unemployment because of the substantial debt accumulation. <span style="color: red;">The CBO apparently doesn't understand basic accounting and fiscal currency sovereignty. U.S. debt accumulation will NOT cause slower growth, it adds to private sector wealth and is only a problem when the economy is a full capacity at which point we might begin to see inflation, which is then our cue to decrease our debt and deficit. Private sector debt is what we should look at, because too much of it <i>is </i>a problem! And as it turns out, more gov't debt helps the private sector reduce its debt.</span></blockquote><br />
<a href="http://www.thefiscaltimes.com/Articles/2012/05/14/The-Fiscal-Cliff-Looms-over-Taxes-and-Spending.aspx#page2" target="_blank">Here is a summary of important elements of the ‘fiscal cliff’</a>:<br />
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• Bush-era tax cuts: In 2001 and 2003, Congress approved major tax cuts proposed by President George W. Bush that significantly lowered the marginal tax rates for nearly all U.S. taxpayers. President Obama and the Democrats vowed to end the cuts for upper income households, but last December the president reached agreement with congressional Republicans to extend the cuts at all income levels through the end of 2012 as part of a larger economic package. Should these tax cuts expire, the top rate will rise from 35 percent to 39.6 percent and other rates will rise in similar fashion.<br />
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The child tax credit will be cut in half and no longer be refundable. The estate tax will return to what it was in 2001, with a $1 million exemption and a 55 percent top rate. Capital gains will be taxed at a top rate of 20 percent and dividends will be taxed as ordinary income. An additional 3.8 percent tax will be levied on all financial transactions as part of the president’s health care reform bill. Finally, marriage penalties will increase, and various tax benefits for education, retirement savings, and low-income individuals will disappear.<br />
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• Payroll Tax Cut: Last February, Congress approved legislation again extending the payroll tax cut to help boost the economic recovery, with the understanding it would lapse by the end of the year. About 160 million workers are benefiting from the 2 percentage point reduction in the normal 6.2 percent payroll tax rate. <br />
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• AMT Patches: Congress generally “patches” the Alternative Minimum Tax (AMT) every year to help it keep pace with inflation. As a result, just over four million tax filers currently pay the AMT, which was originally aimed at wealthy Americans. But over the years has affected many middle to upper middle income taxpayers. If a new patch is not enacted retroactively for 2012, that number will increase to above 30 million for that year and would exceed 40 million by the end of the decade.<br />
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• Tax Extenders: A raft of short-term tax breaks routinely reauthorized by Congress -- such as the research and development tax credit and the state and local sales tax deduction – will expired at the end of 2011. Congress must decide which, if any, to renew retroactively.<br />
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• Debt Ceiling: Last summer’s political battle between the White House and congressional Republicans over raising the debt ceiling almost triggered the first default on U.S. debt in history. A last minute agreement allowed a gradual $2.1 trillion increase in the country’s legal borrowing limit, which currently stands at $16.4 trillion. The Treasury could run out of borrowing authority again before the end of the year.<br />
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• Transportation and Infrastructure Spending: With the highway and bridge construction season well along, the House and Senate still can’t agree on a new two-year transportation and infrastructure spending bill. Senate Democrats and Republicans got their act together and approved a $109 billion reauthorization bill, but House Republicans are sorely divided over how to pay for the bill. State and local officials and contractors have had to stumble along under a series of temporary measures.<br />
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<a href="http://www.cnbc.com/id/47372436" target="_blank">Fed Worries 'Fiscal Cliff is as big a threat as Europe</a><br />
<blockquote>Federal Reserve officials are increasingly concerned about the coming “fiscal cliff,” putting it on par with the European financial crisis and the housing market as among the biggest potential threats for the U.S. economy. <span style="color: red;">It is a very serious threat.</span><br />
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And there appears to be a debate about what the Fed could or should do to counter the negative effects of the coming decline in federal spending and tax hikes.<br />
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At the heart of that debate is frustration within the central bank that Congress and the administration are relying too heavily on monetary policy to kick start the economy and keep the recovery going. <span style="color: red;">We are relying too much on monetary policy and it won't work. QE1 and QE2 did nothing for the economy because the theory it was based on is just bad.</span><br />
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Chicago Fed President Charles Evans, in remarks last week, noted that fiscal stimulus is already wearing off.<br />
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“The cliff at the end of this year is just that writ large. Whether or not calmer heads will prevail and avoid this or do something useful, you know that's about as big an uncertainty as I can imagine anybody facing,” Evans said at the Milken Conference.<br />
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The August debt ceiling debacle is fresh in the Fed’s mind, with Fed Chairman Ben Bernanke several times saying that threat of a default by the U.S. government created entirely avoidable market fears and economic weakness. <span style="color: red;">He's right.</span><br />
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That’s why Atlanta Fed President Dennis Lockhart, also at last week’s Milken conference, refused to label the fiscal cliff “an economic shock.” Instead, he called it “perfectly predictable” and threw the onus for solving it on the fiscal authorities.<br />
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“Congress and the administration understand that the perception is growing that if a transition isn't engineered that works well, that you're going to end up with a lot of mojo taken out of the economy in a very brief period of time,” he said. <span style="color: red;">I hope they understand this and do what is necessary to grow the economy, but I'm not seeing it, because all they talk about is cutting the deficit.</span><br />
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Lockhart wouldn't rule out using Fed policy to counteract the effects of a decline in government spending, but it clearly wasn’t his first choice. Evans, among the leading voices on the Fed for more stimulus, said it was another reason the Fed should ease. <span style="color: red;">Fed policy won't help.</span><br />
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But Fed Chairman Bernanke warned at his press conference two weeks ago that the size of the fiscal cliff is so large that “I think (there’s) absolutely no chance that the Federal Reserve could or would have any ability whatsoever to offset that effect on the economy. So as I have said many times before, it’s imperative for Congress to give us a fiscal policy.” <span style="color: red;">He's right.</span><br />
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Even if the Fed could partially offset the weakness, there seems to be little appetite by some members of the rate-setting Federal Open Market Committee to do so. Richmond Fed President Jeff Lacker, one of the Fed’s hawks, is actually in agreement with Bernanke that too much reliance has been placed on Fed policy to stimulate the economy.<br />
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Last week he noted, “The impediments to growth that I have discussed today are all quite real. That is, they are factors for which monetary policy is not the remedy. Monetary policy will not occupy vacant homes or give unemployed workers the skills to fill vacant jobs or reduce regulatory and fiscal uncertainty.” <span style="color: red;">Very true! Though it's not a matter of lack of skills for lack of jobs, it is a matter of lack of demand.</span><br />
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Bernanke is in a complicated negotiating position relative to Congress. On the one hand, he is not as extreme as Lacker in ruling out further quantitative easing. In fact, he’s been pretty clear that the Fed would act if the economy weakens. On the other hand, what if that weakness comes from fiscal policy? Assuring markets that the Fed would act could also take the heat off of Congress to deal with the fiscal situation. <span style="color: red;">But acting won't really help. They'd have to directly spend money, which I'm not sure they've ever done. They basically just keep giving banks reserves which don't do anything for the economy.</span><br />
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The “fiscal cliff” is shorthand for a series of stimulus programs and tax cuts that will expire toward the end of the year. It includes the planned wind down of extended unemployment benefits, the expiration of the Bush tax cuts and payroll tax cuts and the beginning of sequestration — the automatic spending cuts that take effect as a result of last year’s 11th hour budget deal. In total, it could mean up to a $500 billion hit to the economy.<br />
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Wall Street economists are divided over how real the threat is. Some believe politicians will work out a deal to keep federal spending from falling over a cliff as they have in the past; others worry the decline in spending could undermine confidence and cause the private sector to pullback as it did in August. <span style="color: red;">It would cause a terrible decline in overall spending and growth.</span><br />
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There are splits as well along political lines with one side arguing that the government needs to start someplace to reduce its trillion-dollar annual deficits and shouldn’t keep putting off the day of deficit reckoning. This group also argues that a large part of economic weakness stems from uncertainty over how and when the deficit will be reduced and from government spending crowding out the private sector. <span style="color: red;">They keep thinking the gov't is like a household that has to pay its debts and is revenue constrained. The gov't can issue however much it needs to pay its obligations. 'Deficit reckoning' is sheer nonsense.</span><br />
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From the other side, liberal economists contend that the initial stimulus spending by the government was never sufficient to kick start the economy and that the government can and should keep running high deficits to prop up the economy until the private sector takes the reins. <span style="color: red;">Yes!</span> <span style="color: red;">The best policy would be to directly hire labor: <a href="http://csteconomics.blogspot.com/2011/09/employment-for-all.html" target="_blank">An argument for Full Employment.</a></span><br />
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The Fed and Bernanke have waded only gently into that argument, urging Congress to put in place a long-term deficit reduction plan, but be careful not to hobble the economy with Draconian near-term cuts. Bernanke, however, has not been shy about letting his frustration be known over what happened in August.<br />
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But there’s only so far that the Fed will go publicly. It even drew criticism when it involved itself in the housing debate. Some politicians saw a paper the Fed published with a series of actions the government could take to fix housing as inappropriate meddling in fiscal affairs.<br />
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It’s not hard to imagine that the Fed would likely be concerned over temporary fixes that pushed the can down the road, avoiding the immediate threat but adding to uncertainty. <span style="color: red;">Just get rid of the ceiling, and end the threat.</span></blockquote><br />
<br />Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-69771629220396735582012-05-09T15:24:00.002-05:002012-05-09T15:25:50.556-05:00Preferential Option for the RichHere is yet another great post from <a href="http://catholicmoraltheology.com/" target="_blank">Catholic Moral Theology</a>. Charles Camosy points out the apparently missing preferential option for the rich from Catholic Social Teaching which has in many places written about the preferential option for the poor. CST has, I think, danced around the 'preferential option for the rich' but certainly hasn't explicitly named any such principle as it has the preferential option for the poor. For example one can find this passage in <a href="http://www.vatican.va/holy_father/paul_vi/encyclicals/documents/hf_p-vi_enc_26031967_populorum_en.html" target="_blank">Populorum Progressio</a>:<br />
<blockquote>We must repeat that the superfluous goods of wealthier nations ought to be placed at the disposal of poorer nations. The rule, by virtue of which in times past those nearest us were to be helped in time of need, applies today to all the needy throughout the world. <b>And the prospering peoples will be the first to benefit from this. Continuing avarice on their part will arouse the judgment of God and the wrath of the poor, with consequences no one can foresee. If prosperous nations continue to be jealous of their own advantage alone, they will jeopardize their highest values, sacrificing the pursuit of excellence to the acquisition of possessions.</b> We might well apply to them the parable of the rich man. His fields yielded an abundant harvest and he did not know where to store it: "But God said to him, 'Fool, this very night your soul will be demanded from you . . .' "</blockquote>I agree with Charles, that there should indeed be an explicit preferential option for the rich, particularly in our wealthy society. We should at once emphasize not only the need to help those who suffer from materially poverty, but all forms of poverty, including the poverty in virtue and faith that materialism or consumerism causes as Pope John Paul II makes clear in <a href="http://www.vatican.va/holy_father/paul_vi/encyclicals/documents/hf_p-vi_enc_26031967_populorum_en.html" target="_blank">Centesimus Annus</a>:<br />
<blockquote>Today more than ever, the Church is aware that her social message will gain credibility more immediately from the witness of actions than as a result of its internal logic and consistency. This awareness is also a source of her preferential option for the poor, which is never exclusive or discriminatory towards other groups. <b>This option is not limited to material poverty, since it is well known that there are many other forms of poverty, especially in modern society—not only economic but cultural and spiritual poverty as well.</b> The Church's love for the poor, which is essential for her and a part of her constant tradition, impels her to give attention to a world in which poverty is threatening to assume massive proportions in spite of technological and economic progress. <br />
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<b>In the countries of the West, different forms of poverty are being experienced by groups which live on the margins of society, by the elderly and the sick, by the victims of consumerism, and even more immediately by so many refugees and migrants. In the developing countries, tragic crises loom on the horizon unless internationally coordinated measures are taken before it is too late.</b></blockquote><br />
Charles's full post can be read here: <a href="http://catholicmoraltheology.com/should-we-have-a-preferential-option-for-the-rich/" target="_blank">Should We Have a Preferential Option for the Rich?</a><br />
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Highlights (my emphasis added):<br />
<blockquote>No, no. I’m not referring to a cleverly-worded smack down of Republican tax-plans. I’m talking about turning the preferential option on its head–at least as it is traditionally understood.<br />
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Why do Christians have a preferential option specifically for the poor? At least one reason is the fact that sin–social and otherwise–often conspires in a particularly powerful way against the poor such that they cannot flourish and participate in society, and even such that they cannot get their basic needs (like food, education, health care, etc.) met. We must therefore follow the example of Jesus, who gave special attention to the plight of the poor, in an attempt to push back against the forces which conspire against their flourishing.<br />
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But in doing so we should not fail to consider another group to which Jesus paid special attention: the rich. Indeed, his concern for the poor was often connected to a concern for the rich–though his words for the latter certainly had a different tone when compared to those directed at the former. Indeed, though Jesus rarely speaks of Hell, when he does so it is often connected to a rich person’s failure of one’s duties to the poor. <br />
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The early Christian community took this message very seriously, and as a result one could argue that the Church had skepticism even with regard to money-making itself. Pope St. Gregory the Great claimed that it stained one’s soul and Pope St. Leo the Great claimed that it was difficult to avoid sin when buying and selling. The usurious lending of money at interest was even punishable by excommunication and denial of a Christian burial.<br />
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This is not about politics: Jesus and the Church didn’t make a distinction between those who are “rich like George Clooney” and those who are “rich like Mitt Romney.” All the rich, especially insofar as their being rich indicates a failure to use one’s wealth to aid the poor, find their salvation seriously imperiled.<br />
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<b>Why don’t we take the vulnerable position of the rich more seriously? In short, why don’t we have a preferential option for the rich? We should, of course, be concerned with the flourishing of the poor. But flourishing in this life is only of proximate value, isn’t it? Our ultimate goal is salvation and ultimate union with God. And many of the rich among us–and many of us (who are surely rich by any reasonable standard), period–have put our salvation in serious danger. We abandon the poor in buying luxuries we don’t need. We abandon them in supporting usurious policies. We haplessly attempt to serve two masters…despite our true Master telling us that this is impossible.</b><br />
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It is important, even essential, to have a preferential option for the poor. But isn’t this often connected with having a preferential option for the rich–many of whom, if we take Jesus seriously, imperil their own salvation?</blockquote>Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-17048488659947520642012-05-08T15:56:00.002-05:002012-05-08T15:58:59.727-05:00Pope Quotes 5-8-12Sorry for the interruption in my series on Pope Quotes. There are still so many great quotes from the CST encyclicals to share, so let's get to it!<br />
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The socialist, capitalist debate is always a fierce one and so I always find the many quotes on this topic to be a good read. This debate is still largely and understandably emotionally charged and unfortunately the Church's stance is widely misunderstood. Many seem to know the Church condemned socialism, but less seem to know exactly why or that it is nearly as critical of capitalism/liberalism. Many take the Popes's quotes out of context, (which I understand I also run the risk of doing with this series and is why I recommend a full reading of the encyclicals!), or even use them to support a position they hold. Much of the debate has centered over the issue of private property versus state socialization of property. <br />
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Today I chose this excerpt from <a href="http://www.vatican.va/holy_father/john_paul_ii/encyclicals/documents/hf_jp-ii_enc_14091981_laborem-exercens_en.html" target="_blank"><i>Laborem Exercens</i></a>, which was written by Pope John Paul II in 1981, marking the 90th anniversary of <a href="http://www.vatican.va/holy_father/leo_xiii/encyclicals/documents/hf_l-xiii_enc_15051891_rerum-novarum_en.html" target="_blank"><i>Rerum Novarum</i></a>. It is an encyclical that addresses the question of 'work' and the issue of private property. I'd like to draw your attention to a few things: <br />
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1) CST is critical of both capitalism and socialism; <br />
2) Though defending the right to private property, CST makes clear that the right to common use, also known as the universal destination of goods, supersedes this right; <br />
3) Possession of goods, particularly capital goods, is only okay if it serves labor and is never okay simply for possession's sake; <br />
4) Socialization of means of production is not excluded completely, there is some legitimation for it;<br />
5) State socialization of means of production (capital goods) does not guarantee true socialization of those goods, that is, the state may use them for purposes opposed to the good of society;<br />
6) Rigid capitalism needs revision, particularly with profit-sharing or joint ownership forms of cooperation so that workers may share in the produce and not be pitted against the owners of the capital goods;<br />
7) Work is not only a means for material goods, but is more importantly a means for personal development and fulfillment and private or personal initiative is a key component of this developmental side of work;<br />
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Here is the excerpt from <i>Laborem Exercens</i> with highlights in bold/purple:<br />
<blockquote><div style="color: purple;"><b>The above principle [on private property], as it was then stated and as it is still taught by the Church, diverges radically from the programme of collectivism as proclaimed by Marxism and put into practice in various countries in the decades following the time of Leo XIII's Encyclical. At the same time it differs from the programme of capitalism practised by liberalism and by the political systems inspired by it. <br />
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In the latter case, the difference consists in the way the right to ownership or property is understood. Christian tradition has never upheld this right as absolute and untouchable. On the contrary, it has always understood this right within the broader context of the right common to all to use the goods of the whole of creation: the right to private property is subordinated to the right to common use, to the fact that goods are meant for everyone. </b></div><br />
Furthermore, in the Church's teaching, ownership has never been understood in a way that could constitute grounds for social conflict in labour. As mentioned above, property is acquired first of all through work in order that it may serve work. This concerns in a special way ownership of the means of production. Isolating these means as a separate property in order to set it up in the form of "capital" in opposition to "labour"-and even to practise exploitation of labour-is contrary to the very nature of these means and their possession. They cannot be possessed against labour, <b>they cannot even be possessed for possession's sake, because the only legitimate title to their possession- whether in the form of private ownerhip or in the form of public or collective ownership-is that they should serve labour, and thus, by serving labour, that they should make possible the achievement of the first principle of this order, namely, the universal destination of goods and the right to common use of them.</b> <br />
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From this point of view, therefore, in consideration of human labour and of common access to the goods meant for man, one cannot exclude the socialization, in suitable conditions, of certain means of production. <br />
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In the present document, which has human work as its main theme, it is right to confirm all the effort with which the Church's teaching has striven and continues to strive always to ensure the priority of work and, thereby, man's character as a subject in social life and, especially, in the dynamic structure of the whole economic process. <b>From this point of view the position of "rigid" capitalism continues to remain unacceptable, namely the position that defends the exclusive right to private ownership of the means of production as an untouchable "dogma" of economic life.</b> The principle of respect for work demands that this right should undergo a constructive revision, both in theory and in practice. <br />
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In the light of the above, the many proposals put forward by experts in Catholic social teaching and by the highest Magisterium of the Church take on special significance: proposals for joint ownership of the means of work, sharing by the workers in the management and/or profits of businesses, so-called shareholding by labour, etc. Whether these various proposals can or cannot be applied concretely, it is clear that recognition of the proper position of labour and the worker in the production process demands various adaptations in the sphere of the right to ownership of the means of production. <br />
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Therefore, while the position of "rigid" capitalism must undergo continual revision, in order to be reformed from the point of view of human rights, both human rights in the widest sense and those linked with man's work, it must be stated that, from the same point of view, these many deeply desired reforms cannot be achieved by an a priori elimination of private ownership of the means of production. <br />
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<b>For it must be noted that merely taking these means of production (capital) out of the hands of their private owners is not enough to ensure their satisfactory socialization.</b> They cease to be the property of a certain social group, namely the private owners, and become the property of organized society, coming under the administration and direct control of another group of people, namely those who, though not owning them, from the fact of exercising power in society manage them on the level of the whole national or the local economy.<br />
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<b>This group in authority may carry out its task satisfactorily from the point of view of the priority of labour; but it may also carry it out badly by claiming for itself a monopoly of the administration and disposal of the means of production and not refraining even from offending basic human rights. Thus, merely converting the means of production into State property in the collectivist system is by no means equivalent to "socializing" that property.</b> <br />
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We can speak of socializing only when the subject character of society is ensured, that is to say, when on the basis of his work each person is fully entitled to consider himself a part-owner of the great workbench at which he is working with every one else. A way towards that goal could be found by associating labour with the ownership of capital, as far as possible, and by producing a wide range of intermediate bodies with economic, social and cultural purposes; they would be bodies enjoying real autonomy with regard to the public powers, pursuing their specific aims in honest collaboration with each other and in subordination to the demands of the common good, and they would be living communities both in form and in substance, in the sense that the members of each body would be looked upon and treated as persons and encouraged to take an active part in the life of the body.<br />
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<b>Thus, the principle of the priority of labour over capital is a postulate of the order of social morality.</b> It has key importance both in the system built on the principle of private ownership of the means of production and also in the system in which private ownership of these means has been limited even in a radical way. <br />
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When man works, using all the means of production, he also wishes the fruit of this work to be used by himself and others, and he wishes to be able to take part in the very work process as a sharer in responsibility and creativity at the workbench to which he applies himself.<br />
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From this spring certain specific rights of workers, corresponding to the obligation of work. They will be discussed later. But here it must be emphasized, in general terms, that the person who works desires not only due remuneration for his work; he also wishes that, within the production process, provision be made for him to be able to know that in his work, even on something that is owned in common, he is working "for himself". This awareness is extinguished within him in a system of excessive bureaucratic centralization, which makes the worker feel that he is just a cog in a huge machine moved from above, that he is for more reasons than one a mere production instrument rather than a true subject of work with an initiative of his own. <br />
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The Church's teaching has always expressed the strong and deep conviction that man's work concerns not only the economy but also, and especially, personal values. The economic system itself and the production process benefit precisely when these personal values are fully respected. <br />
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While we accept that for certain well founded reasons exceptions can be made to the principle of private ownership-in our own time we even see that the system of "socialized ownership" has been introduced-nevertheless the personalist argument still holds good both on the level of principles and on the practical level. If it is to be rational and fruitful, any socialization of the means of production must take this argument into consideration. Every effort must be made to ensure that in this kind of system also the human person can preserve his awareness of working "for himself". If this is not done, incalculable damage is inevitably done throughout the economic process, not only economic damage but first and foremost damage to man.</blockquote>Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-7251734831491149022012-05-08T15:00:00.005-05:002012-05-08T15:12:54.839-05:00Why Does Money Matter?You may have noticed that I post a lot about money, particularly this "modern money" stuff and you may be wondering why I care so much about money. I have long been fascinated with money, particularly with what gives it its value. I remember way back in middle school wondering why green pieces of paper had value, or why gold was so valuable (a topic I wish to explore more in a follow up post). I never really got what I thought were adequate answers nor did I seek it further until my interest turned toward economics in college. Now after four years of undergrad and a couple years in grad school, I understand why money matters and I think you should too.<br />
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To be clear, I am not saying love of money (greed) is a good thing...it isn't, but rather understanding just what money is and how it affects our economy is crucial to achieving our economic, political, and social objectives.<br />
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So what is money? The most often told story is that money is a commodity that evolved out of a barter economy. For example, tradespeople in small villages started using seashells or gold or whatever to exchange for goods that each made so as to avoid the problem of barter economies. The butcher wants shoes, but the shoemaker doesn't want meat, so the butcher would have to trade meat to someone for something that the shoemaker wanted in order to obtain shoes. This problem is called the 'double coincidence of wants' and money is thought to have sprung up as a medium of exchange to eliminate this problem. All could exchange their goods for seashells or gold or whatever which could then be exchanged for any other commodity one wanted.<br />
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This story seemed plausible to me at first, it does seem logical, but as I learned more I quickly became unsatisfied with this explanation. This view hinges precariously on everyone accepting the commodity to be used as money. It also assumes barter economies existed and doesn't translate well to today's fiat money system because the commodity used as money is thought to be intrinsically valuable (gold) which also poses a problem for those who used seashells.<br />
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Another view believes that money is a social unit of account tracking credits and debts, just like an inch measures distance, or a gallon measures volume. One dollar is a unit of account, a measurement of credits/debts. Thus money is always a two-sided affair, it is an IOU, with a creditor and a debtor. Having money means that one has claims to another's goods/labor/cup of sugar/whatever that other gave in the IOU. From this view, one can see that anyone can create money, it is the matter of acceptance that is key. I can issue IOUs all I want, but in order for them to become 'money', someone must accept them. Which means they must accept that my word is good. If I don't my 'money' defaults.<br />
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There is proof of such IOU record keeping dating way back to Babylonia, Egypt, Greece, Rome, and other primitive societies. Some measured these credits/debts in grain, some in cattle or livestock, some in gold, some in 'tallies' and 'stocks', some in seashells, and a whole bunch of other 'things'. The one common thread between these is that the state or central organizational authority has played a large role in determining the money and in keeping the records, most often because taxes were involved. (If you would like to read more about these societies and monies, send me an email or leave a comment, and I will post some resources. I will also talk about this more in my next post on the value of money).<br />
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As capitalism developed in Europe in the 16th, 17th, and 18th centuries and then spread throughout the world, money began taking on an even more central role. Money, rather than goods, became the sole or main object of the economic process. Mercantilism specifically called for nations to export goods to import bullion/gold. Capitalist enterprises produced in order to sell to obtain more money or profits to produce more goods to obtain more money and so on. This became known as the 'capitalist ethic'--profit maximization--which dominant theorists believed to be a good thing because with self-maximizing behavior and competition the 'invisible hand' would lead us to prosperity.<br />
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Money was no longer desired simply as a medium of exchange (if it ever was desired solely for such a purpose), it became desired as a store of value, it became the end and no longer the means. The economics process was to obtain money to produce goods to get more money (M-C-M', where M'>M and M=money C=goods/capital), not to exchange goods for money to obtain more goods (C-M-C').<br />
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This isn't rocket science and you don't need to be an economist to get this fairly common sense proposition. Most everyone knows businesses want more money, that they want higher market share and profit margins, that it's all about the money. (To be fair, there are many small businesses, usually family businesses, that care more about the service or good they offer to people than the money they obtain, but this is not characteristic of the economy as a whole even though it would be nice if it were).<br />
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So why does money matter? Because it has become the end of the economic process. It is what brings forth production and therefore employment in the economy. Businesses need to sell goods to produce and workers need wages to work. The flows and stocks of 'money', the flows and stocks of credits and debts in the economy, is at the most basic level what determines employment, output, inflation, and nearly all the economic variables we look at. To understand how our economy works, we must understand money. <br />
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But unfortunately, many economists don't care that much about money and don't really account for it in their models. They think that money is a commodity or evolved out of a commodity. They don't account for debt levels, or understand government debt at all. They misunderstand inflation, and don't believe we can fully employ everyone who wants a job all because they misunderstand money. To many of them, money is simply the grease. They don't understand that it is a social unit of account and thus miss some very major points.<br />
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I care about the 'real' economy and more importantly the social and personal aspects of the economic process, such as the fulfillment of work and the obtainment of the material goods necessary to the development of oneself and one's family. And now I recognize that money, our system of accounting for debts and credits, is a major part of making that happen.Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-80365851075651876622012-05-03T16:21:00.000-05:002012-05-03T16:22:49.559-05:00Missing the Point on PovertyAnother great post by Meghan Clark from over at <a href="http://catholicmoraltheology.com/" target="_blank">Catholic Moral Theology</a>, which has become my favorite Catholic blog.<br />
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She has a very good understanding of the economy and of Catholic Social Teaching and I continually find myself in overall agreement with what she writes.<br />
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<a href="http://catholicmoraltheology.com/missing-the-point-on-poverty/" target="_blank">Full post here</a>.<br />
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Highlights:<br />
<blockquote>There has been a lot of discussion this week about the morality of the Ryan Budget. Since Paul Ryan’s statement on subsidiarity, the media and blogs have been full of posts either supporting or correcting Paul Ryan’s use of Catholic social teaching. <br />
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This week’s discussion heated up as the USCCB Committee on Domestic Justice and Human Development released 4 key statements/press releases pleading with Congress to “to draw a circle of protection around the programs that serve “the least among us.” when dealing with housing programs, SNAP/food stamps, agriculture and the Child Tax Credit.<br />
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There is a beautiful coherence and symmetry to the four statements – they all have one clear message – protect the poor and vulnerable. While they acknowledge (as do we all) that we live in difficult and complex economic times, we cannot in good conscience balance the budget or protect the economy through sacrificing the poor and vulnerable within our communities. In the Letter on Snap, Bishop Blaire reiterates the three key moral guidelines for evaluating the morality of a budget:<br />
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1. Every budget decision should be assessed by whether it protects or threatens human life and dignity.<br />
2. A central moral measure of any budget proposal is how it affects “the least of these” (Matthew 25). The needs of those who are hungry and homeless, without work or in poverty should come first.<br />
3. Government and other institutions have a shared responsibility to promote the common good of all, especially ordinary workers and families who struggle to live in dignity in difficult economic times.<br />
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Now the Bishop’s letters have gotten quite the response. <br />
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Speaker John Boehner acknowledged the Bishop’s moral authority but claimed they were being short sighted and did not get the “bigger picture.” <br />
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Congressman Paul Ryan claimed “These are not all the Catholic bishops, and we just respectfully disagree.” (In response to Ryan’s assertion that these letters do not represent all the bishops, USCCB spokesman Don Clemmer told The Hill that the letters do represent all Catholic bishops, as they were penned by members of the church that were elected to represent the bishops on policy matters at the national level).<br />
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In response to Speaker Boehner and Congressman Ryan, I would respectfully state, I do not think you get the bigger picture. Boehner, Ryan and their colleagues seem to grossly and dangerously miss the point regarding poverty and vulnerability. Yes, 1 in 6 Americans are living below the poverty line and millions of Americans are struggling, jobless, homeless, hungry and suffering. This is the bigger picture. Catholic social teaching promotes a people-centered economy not the reverse. As Catholics, we simply cannot sacrifice and scapegoat the poor. Hiding behind the debt/deficit and welfare reform attempts to do just that – to take our eye off the bigger picture (47 million people in poverty, a continuing homelessness/foreclosure problem, and high unemployment).<br />
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How is this hiding?<br />
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1. Debt/Deficit: Their assumptions about the budget, deficit, and national debt simply are highly contested by both well-respected economists and theologians. The evaluation of where we are, how we got here, how we move forward and what our economic plan should be is highly contested by economists. On the economic question – I once again recommend taking a look at Economist Charles M.A. Clark’s Commonweal piece “Truth Deficit: Four Myths about Government Spending” (disclosure: he is my father) or look at the many online writings by: L. Randall Wray, Paul Krugman, Joseph Stiglitz and others challenging the faulty economic ideology behind the Ryan budget and calls for austerity. (At some point, the economic ideology which lead to the 2008 financial crisis has to be rejected if we have any hope of rebuilding a sustainable community).<br />
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2. Welfare Reform: The big call for saving SNAP and other social protections through “reform like the welfare reform” presumes that welfare reform was a big success – this is highly contested. Was welfare reform a big success? Well that depends on what you’re definition of success is – is it enough that it “got people off of welfare?” From a the perspective of this moral theologian, getting people off of welfare is not sufficient. Are they out of poverty? Are they flourishing? These questions cannot be adequately answered because the periodic evaluation of welfare reform (called for in the law) has not taken place – as of 2010, it had not even begun. (The politics of this from 1996 up until the 2008 election is detailed by Thomas Massaro, SJ in “Unfinished Business”).<br />
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Are we willing to attempt to “save ourselves” by sacrificing the poor? This type of misdirection and scapegoating is not new and human societies are very good at this kind of self- delusion. But as Catholics, we are called to something very different. We are called to the bigger picture which is found in true solidarity with the poor and vulnerable. <br />
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Jesus is not like the poor. Jesus is the poor. Jesus is not like the unemployed father who cannot find work and for whom food stamps are the only thing preventing his children from going to bed hungry. Christ is not like single mother working two low-paying part time jobs surviving only through access to housing and child care subsidies. Jesus Christ is that father. Jesus Christ is that mother.<br />
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That is the bigger picture. The plight of the poor, vulnerable, invisible in our society is the bigger picture. It is estimated that 3 months of homelessness sets a child back in school 1 full year – that is the bigger picture.</blockquote>Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com2tag:blogger.com,1999:blog-3574536238757003081.post-48987030083927436392012-05-03T15:43:00.002-05:002012-05-03T15:44:22.672-05:00Sectoral BalancesPhew! After a tough April I am back in action! I hope to be blogging more regularly now, and I have a lot of ideas I am excited to share with all of you.<br />
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One area I will continue posting about is the still common misunderstandings surrounding government debt. At the heart of it is a misunderstanding of money. If we can understand money, then we can better understand government debt. I hope to make this more clear in the coming weeks, but for now I thought this video might prove to be helpful. <br />
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It was made by undergraduates at Lewis and Clark college in Portland, Oregon. The video explains sectoral balances using accounting identities and principles. It shows why the government cannot go bankrupt like a household or business can and subsequently that sound, responsible government finance means something different than sound, responsible household finance.<br />
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Enjoy!<br />
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<iframe width="500" height="300" src="http://www.youtube.com/embed/nBOxnpdCqds" frameborder="0" allowfullscreen></iframe>Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-2397522164468023992012-04-10T20:32:00.004-05:002012-05-17T12:12:56.802-05:00Healthcare DebateI am not saying I agree with 'Morning's Minion' over at <a href="http://vox-nova.com/" target="_blank">Vox Nova</a>, but I think <a href="http://vox-nova.com/2012/04/09/the-right-to-healthcare-and-the-supreme-court/#more-22305" target="_blank">this post he wrote</a> is something worth thinking about. CST does teach the universal right to healthcare and the duty of society to provide it. It is our role as the laity to come up with effective solutions to the problem of the uninsured members of society. I think Morning's Minion could open up to other possibilities other than the single payer system and regulated private provision, but doing nothing to help the uninsured receive healthcare is not acceptable in the eyes of CST.<br />
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We do need healthcare for everyone. We do need to debate what our options are. And so I think his post is something worth thinking about. <a href="http://vox-nova.com/2012/04/09/the-right-to-healthcare-and-the-supreme-court/#more-22305" target="_blank">Full post here</a>.<br />
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Highlights:<br />
<blockquote>Let me begin with a simple assertion: the Catholic Church views access to healthcare as a basic human right. To the extent possible, societies are obligated to provide healthcare for all people who live under their jurisdiction. This is a fundamental principle of justice. Consider some evidence for this:<br />
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<b>Catechism</b>: “Concern for the health of its citizens requires that society help in the attainment of living-conditions that allow them to grow and reach maturity: food and clothing, housing, health care, basic education, employment, and social assistance”.<br />
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<b>John XXIII</b>: “Man has the right to live. He has the right to bodily integrity and to the means necessary for the proper development of life, particularly food, clothing, shelter, medical care, rest, and, finally, the necessary social services. In consequence, he has the right to be looked after in the event of ill-health; disability stemming from his work; widowhood; old age; enforced unemployment; or whenever through no fault of his own he is deprived of the means of livelihood”.<br />
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<b>John Paul II</b>: “The expenses involved in health care, especially in the case of accidents at work, demand that medical assistance should be easily available for workers, and that as far as possible it should be cheap or even free of charge”.<br />
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<b>Benedict XVI</b>: “It is necessary to work with greater commitment at all levels so that the right to health is rendered effective, favoring access to primary health care…Justice in health care should be a priority of governments and international institutions” and “Justice requires guaranteed universal access to health care”.<br />
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<b>USCCB</b>: “Reform efforts must begin with the principle that decent health care is not a privilege, but a right and a requirement to protect the life and dignity of every person. All people need and should have access to comprehensive, quality health care that they can afford, and it should not depend on their stage of life, where or whether they or their parents work, how much they earn, where they live, or where they were born. The Bishops’ Conference believes health care reform should be truly universal and it should be genuinely affordable”.<br />
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What does this mean in practice? It means that we cannot simply assume people are responsible for their own healthcare, or that of their own family, oblivious to the needs of others. It means that we, as a society, have mutual obligations toward each other in this area, based on the principle of solidarity. It means that the governing authorities must provide enough help for all people to get the healthcare they need, based on the principle of subsidiarity.<br />
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In modern economies, there are really only two broad ways of attaining universal healthcare at reasonable cost. First is single payer – simply pool the entire population and spread the risk widely, so that the young and the healthy are subsidizing the old and the infirm, secure in the knowledge that they too will be helped in their hour of need. It is a social bond of justice. The second way to do it is through private insurance provision, again by pooling the risks among large segments of the population. But this needs proper regulation so that insurers cannot deny care or discriminate against those who need the most help. It also needs some form of mandate to make it work, as otherwise the social bond would be cut – younger and healthier people will opt out, leaving a much sicker and much more expensive pool. It won’t work.<br />
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There really aren’t any other viable options. Studies show the same thing: the Republican approach to health care reform, based on some form of individual subsidy without any change to the structure of the market, fails to make any dent in the number of uninsured. There is a good reason for this – it insists on making people responsible for their own care, which leaves those in most need high and dry. Of course, we can make this problem go away by throwing unlimited resources at it. But we do not have this luxury.<br />
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And so we are left with just two options – single payer, and regulated private provision. In very simple terms, the Affordable Care Act follows the latter course. It needs the individual mandate to make it work.<br />
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But it is precisely this mandate that drives a sharp wedge between the Catholic view of access to healthcare as a social bond of justice, and the more libertarian view which stresses individual responsibility and freedom from government compulsion. This is the defining issue.</blockquote>Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-58864743789044495662012-03-16T12:26:00.001-05:002012-03-22T11:25:51.912-05:00Subsidiarity and CooperationHere is another post I really enjoyed from <a href="http://catholicmoraltheology.com/" target="_blank">Catholic Moral Theology</a>.<br />
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The principle of subsidiarity may be among the most controversial topics of the doctrine of Catholic Social Teaching because it is often used by both the left and the right to justify either small government or big government.<br />
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I prefer Meghan Clark's interpretation, that it is a two-sided coin. We need a system of governance that allows for the common good with multiple levels of institutions and associations working together for that common good. We cannot rely only on big government, nor can we rely only on small government. It is clear that there are proper functions belonging to each, but that most functions necessary for the common good require cooperation from all levels--individuals, families, local governments and private associations all the way to national government and international associations.<br />
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Here is Meghan's full article: <a href="http://catholicmoraltheology.com/subsidiarity-is-a-two-sided-coin/" target="_blank">Subsidiarity is a Two-sided Coin</a><br />
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Here are some highlights:<br />
<blockquote>As a Catholic moral theologian, I must confess that the principle of subsidiarity is perhaps one of the most crucial and most misunderstood in Catholic social teaching. According to the principle of subsidiarity, decisions should be made at the lowest level possible and the highest level necessary. Subsidiarity is crucial because it has applications in just about every aspect of moral life. In medical ethics, subsidiarity helps guide decision-making. In social ethics, subsidiarity helps us prudentially judge not only decision-making but allocation of resources. Subsidiarity is an effort at balancing the many necessary levels of society – and at its best, the principle of subsidiarity navigates the allocation of resources by higher levels of society to support engagement and decision making by the lower levels. Despite how often it is stated – subsidiarity does NOT mean smaller is better.<br />
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The principle of subsidiarity is about the well-ordered society directed towards the common good and this requires the state, individuals, institutions, civil organizations and churches all work together in civil society (paragraph 56: “Both sides must work together in harmony, and their respective efforts must be proportioned to the needs of the common good in the prevailing circumstances and conditions of human life.”). Government in Catholic social teaching is not simply a necessary evil, government has a positive role in society – and here I would insert both federal and state governments as having their proper place. <br />
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The fundamental goal here is the common good. Thus, Catholic social teaching’s principle of subsidiarity actually includes within it a strong sense of the responsibility of the government for creating the conditions of human flourishing. <br />
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Participation at all levels is crucial for both subsidiarity and solidarity. A distinctive element of Catholic social thought is that the community and the government have a responsibility to actively promote the necessary conditions to support those families. <br />
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In CST, subsidiarity is a two-sided coin – the state has the responsibility to respect and promote the many levels of society. This means that the higher orders have the right and responsibility to intervene when necessary (And why it is not a violation of subsidiarity for CST to call for greater global governance as John XXIII and Benedict XVI have in both 1963 and 2012). That said – government programs must be evaluated for their effectiveness and necessity. This is why I previously wrote about why the new poverty measures including the supplemental measure were so important – they provide us with necessary data to evaluate the effectiveness of programs like SNAP (Supplemental Nutrition Assistance Program).<br />
</blockquote>Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-49895690907835551032012-03-16T10:57:00.004-05:002012-03-16T12:28:25.961-05:00Fishy FridaysI came across this blogpost at <a href="http://catholicmoraltheology.com/" target="_blank">Catholic Moral Theology</a> today and thought it was worth sharing.<br />
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Full post by Jason King here: <a href="http://catholicmoraltheology.com/fishy-fridays/" target="_blank">Fishy Fridays</a><br />
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Highlights:<br />
<blockquote>When I was in graduate school, I made the off hand comment to my roommate about how McDonald’s runs Filet-o-Fish specials every year during Lent. My roommate, a life long Methodist, was totally surprised by this revelation. He had never noticed it. (He recently used this tidbit to amaze his high school students by predicting an upcoming Filet-O-Fish special.)<br />
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This year I have noticed that even more places have taken to fish during Lent. My grocery store was the first place I noticed this phenomenon.<br />
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On [the] two mile drive home from the grocery story, I ran into five different fish specials. Maybe it is just me or maybe it is just this part of the country, but something seems fishy about fish on Friday. It strikes me as a perfect example of Vincent Miller’s characterization of the affects of consumer culture in his Consuming Religion. He argues that our culture teaches people to approach things, people, religious beliefs, whatever, as commodities, stripping them of their communal location and turning them into items of individual expression. Crosses become jewelry. Army jackets become fashion statements. Even critics of this process of commodification get turned into objects of consumption. Miller notes that while John Paul II issued warnings about the dangers of a free market economy, surrounding his visits to the U. S. were Popeners, Pope on a rope, Styrofoam pope hats, and John Paul II t-shirts. Based on Miller’s perspective, these examples demonstrate that the market economy co-opts everything in culture—even its supposed enemies—strips it of its communal, historical, and cultural roots and repackages it as a commodity that can be bought and sold and, through the purchasing, provide people with a way of making themselves distinct, standing out from others.<br />
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The Catholic Lenten practice of abstaining from meat on Friday becomes an occasion to buy fish, go out and eat, eat a lot, and eat only “premium” food. Moreover, the subtlety of the situation is the assumption that because one is buying fish and fish sandwiches one is practicing their Catholic faith.<br />
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I think we should reflect on whether buying a fish sandwich at a restaurant on Fridays captures what this discipline is about. <br />
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The result of the abstinence is not a piety that focuses on what ‘I’ am doing, like eating fish sandwiches on Fridays, but rather how these sacrifices, even small ones like the abstaining from meat for one day a week, are meant to connect each of us to each other. I think they should in someway reflect Christ’s sacrifice that reconciled us to God and one another.<br />
</blockquote>Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-43427141712519942802012-03-13T15:06:00.000-05:002012-03-13T15:06:12.476-05:00'Rule' for a Good LifeI have had the good fortune of a strong Benedictine influence in my life. I have a <a href="http://www.benedictine.edu/" target="_blank">Benedictine</a> education and spent a few summers at <a href="http://www.saintmeinrad.edu/" target="_blank">St. Meinrad Archabbey</a> learning from and making friends with people who have dedicated themselves to live by St. Benedict's teaching. <br />
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<a href="http://www.osb.org/rb/text/toc.html#toc" target="_blank">The Rule of St. Benedict</a> offers a great guide for a monastic way of life, but its applicability reaches far into our own lives. In particular the prologue and chapter 4 offer us teachings or 'tools for good works' to live Catholic Social Teaching in our everyday life.<br />
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Here are some of the teachings of St. Benedict that if we take to heart and practice frequently will make for a happier life not only for us but those we encounter on our journey:<br />
<blockquote>P.4 - First of all, every time you begin a good work, you must pray to Him most earnestly to bring it to perfection.<br />
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P.17 - If you desire true and eternal life, keep your tongue free from vicious talk and your lips from all deceit; turn away from evil and do good; let peace be your quest and aim.<br />
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4.11-13 - Discipline you body, do not pamper yourself, but love fasting.<br />
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4.14-19 - You must relieve the lot of the poor, clothe the naked, visit the sick, and bury the dead. Go to help the troubled and console the sorrowing.<br />
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4.20-21 - Your way of acting should be different from the world's way; the love of Christ must come before all else;<br />
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4.22-26 - You are not to act in anger or nurse a grudge. Rid you heart of all deceit; Never give a hollow greeting of peace or turn away when someone needs your love.<br />
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4.30-31 - Do not injure anyone, but bear injuries patiently. Love your enemies.<br />
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4.36-40 - Refrain from too much eating or sleeping, and from laziness. Do not grumble or speak ill of others.<br />
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4.42 - If you notice something good in yourself, give credit to God, not to yourself<br />
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4.47 - Day by day remind yourself that you are going to die.<br />
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4.51-52 - Guard your lips from harmful or deceptive speech.<br />
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4.59 - Do no gratify the promptings of the flesh.<br />
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4.64-69 - Treasure chastity, harbor neither hatred nor jealousy of anyone, and do nothing out of envy. Do not love quarreling; shun arrogance.<br />
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4.72-74 - Pray for your enemies out of love for Christ. If you have a dispute with someone, make peace with him before the sun goes down. And finally, never lose hope in God's mercy.</blockquote><br />
There are more great teachings from St. Benedict than what I offered here, but I believe these small snippets offer a great foundation for a good life, both materially and spiritually.<br />
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<br />Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-35884718176536706972012-03-07T16:57:00.000-06:002012-03-07T16:59:44.938-06:00Pope Quotes 3-7-12This is the second installment of my series entitled "Pope Quotes".<br />
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In commemorating Populorum Progressio, Pope John Paul II re-emphasized the concept of authentic human development as consisting of more than economic well-being or technological gain and that over-emphasized the 'economic' can lead to a society of consumerism which I think is still very prevalent today. He also distinguished "having" from "being" by reminding us that "having" must be directed toward and subordinated to "being" and that the reversal of these inhibits our development and leads quickly to dissatisfaction:<br />
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<blockquote>At the same time, however, the "economic" concept itself, linked to the word development, has entered into crisis. <i>In fact there is a better understanding today that the mere accumulation of goods and services, even for the benefit of the majority, is not enough for the realization of human happiness. Nor, in consequence, does the availability of the many real benefits provided in recent times by science and technology, including the computer sciences, bring freedom from every form of slavery. On the contrary, the experience of recent years shows that unless all the considerable body of resources and potential at man's disposal is guided by a moral understanding and by an orientation towards the true good of the human race, it easily turns against man to oppress him</i>. <br />
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A disconcerting conclusion about the most recent period should serve to enlighten us: side-by-side with the miseries of underdevelopment, themselves unacceptable, we find ourselves up against a form of superdevelopment, equally inadmissible, because like the former it is contrary to what is good and to true happiness. <br />
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<i>This super-development, which consists in an excessive availability of every kind of material goods for the benefit of certain social groups, easily makes people slaves of "possession" and of immediate gratification, with no other horizon than the multiplication or continual replacement of the things already owned with others still better. This is the so-called civilization of "consumption" or " consumerism ," which involves so much "throwing-away" and "waste." An object already owned but now superseded by something better is discarded, with no thought of its possible lasting value in itself, nor of some other human being who is poorer</i>.<br />
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All of us experience firsthand the sad effects of this blind submission to pure consumerism: in the first place a crass materialism, and at the same time a radical dissatisfaction, <i>because one quickly learns that the more one possesses the more one wants, while deeper aspirations remain unsatisfied and perhaps even stifled</i>.<br />
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The Encyclical of Pope Paul VI pointed out the difference, so often emphasized today, between "having" and "being," which had been expressed earlier in precise words by the Second Vatican Council. To "have" objects and goods does not in itself perfect the human subject, unless it contributes to the maturing and enrichment of that subject's "being," that is to say unless it contributes to the realization of the human vocation as such.<br />
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Of course, the difference between "being" and "having," the danger inherent in a mere multiplication or replacement of things possessed compared to the value of "being," need not turn into a contradiction. One of the greatest injustices in the contemporary world consists precisely in this: that the ones who possess much are relatively few and those who possess almost nothing are many. It is the injustice of the poor distribution of the goods and services originally intended for all.<br />
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This then is the picture: there are some people - the few who possess much - who do not really succeed in "being" because, through a reversal of the hierarchy of values, they are hindered by the cult of "having"; and there are others - the many who have little or nothing - who do not succeed in realizing their basic human vocation because they are deprived of essential goods.<br />
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<b><i>The evil does not consist in "having" as such, but in possessing without regard for the quality and the ordered hierarchy of the goods one has. Quality and hierarchy arise from the subordination of goods and their availability to man's "being" and his true vocation</i>.</b><br />
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This shows that although development has a necessary economic dimension, since it must supply the greatest possible number of the world's inhabitants with an availability of goods essential for them "to be," it is not limited to that dimension. If it is limited to this, then it turns against those whom it is meant to benefit.-- Pope John Paul II, Sollicitduo Rei Socialis, pp. 28 (emphasis added)</blockquote><br />
The political war between Republicans and Democrats, or between little government and big government, capitalism and socialism, etc., is constantly raging in the United States (and elsewhere). The two sides seem to rarely agree on anything; political gridlock and hostile language rule the day. CST has taught that rightly ordered government ought to be ordered according to the 'principle of subsidiarity' where the smallest and most immediate institution that is willing and able to handle the issues pertinent to it should not be infringed on by a larger institution. Or put another way, a larger institution should handle social problems only when a smaller institution is unwilling or unable to do so. <br />
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There is obviously much room for interpretation about 'willingness' and 'ability' (not to mention the proper solutions to the problems we face as a society), but implied in this principle is the need for cooperation between institutions at all levels of society. Pope John XXIII made explicit the need for cooperation between the individual and the State as well as for the need to protect the right of personal initiative for all individuals and the need for state intervention in the economic order in Mater et Magistra:<br />
<blockquote>It should be stated at the outset that in the economic order <i>first place must be given to the personal initiative of private citizens</i> working either as individuals or in association with each other in various ways for the furtherance of common interests.<br />
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But—for reasons explained by Our predecessors—<i>the civil power must also have a hand in the economy</i>. It has to promote production in a way best calculated to achieve social progress and the well-being of all citizens.<br />
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And in this work of directing, stimulating, co-ordinating, supplying and integrating, its guiding principle must be the "principle of subsidiary function" formulated by Pius XI in Quadragesimo Anno. "This is a fundamental principle of social philosophy, unshaken and unchangeable. . . Just as it is wrong to withdraw from the individual and commit to a community what private enterprise and industry can accomplish, so too it is an injustice, a grave evil and a disturbance of right order, for a larger and higher association to arrogate to itself functions which can be performed efficiently by smaller and lower societies. Of its very nature the true aim of all social activity should be to help members of the social body, but never to destroy or absorb them."<br />
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<i>The present advance in scientific knowledge and productive technology clearly puts it within the power of the public authority to a much greater degree than ever before to reduce imbalances which may exist between different branches of the economy or between different regions within the same country or even between the different peoples of the world. It also puts into the hands of public authority a greater means for limiting fluctuations in the economy and for providing effective measures to prevent the recurrence of mass unemployment</i>. <br />
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Hence the insistent demands on those in authority—since they are responsible for the common good—to increase the degree and scope of their activities in the economic sphere, and to devise ways and means and set the necessary machinery in motion for the attainment of this end.<br />
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But however extensive and far-reaching the influence of the State on the economy may be, <i>it must never be exerted to the extent of depriving the individual citizen of his freedom of action. It must rather augment his freedom while effectively guaranteeing the protection of his essential personal rights</i>. Among these is a man's right and duty to be primarily responsible for his own upkeep and that of his family. Hence every economic system must permit and facilitate the free development of productive activity.<br />
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Moreover, as history itself testifies with ever-increasing clarity, <i>there can be no such thing as a well-ordered and prosperous society unless individual citizens and the State co-operate in the economy. Both sides must work together in harmony, and their respective efforts must be proportioned to the needs of the common good in the prevailing circumstances and conditions of human life.</i><br />
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Experience has shown that where personal initiative is lacking, political tyranny ensues and, in addition, economic stagnation in the production of a wide range of consumer goods and of services of the material and spiritual order—those, namely, which are in a great measure dependent upon the exercise and stimulus of individual creative talent.<br />
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Where, on the other hand, the good offices of the State are lacking or deficient, incurable disorder ensues: in particular, the unscrupulous exploitation of the weak by the strong. For men of this stamp are always in evidence, and, like cockle among the wheat, thrive in every land. -- Pope John XXIII, Mater et Magistra, pp. 51-58 (emphasis added)</blockquote><br />Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-12148694285464010582012-03-01T14:34:00.003-06:002012-03-07T17:00:33.516-06:00Pope Quotes 3-1-12I have been as busy as ever, so I apologize for little posting lately. I also feel I have tended to emphasize economics more than Catholic Social Teaching lately, so strapped for time and desiring to spread the Church's teaching on economics and other social issues I decided to start a new series called "Pope Quotes". I hope you find the series informative and helpful!<br />
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On food shortages or famine, as <a href="http://news.yahoo.com/blogs/newsroom/somalia-famine--how-to-help.html" target="_blank">has been occurring in East Africa</a> and happens elsewhere around the world even outside of weather/climate-induced famines:<br />
<blockquote>"Life in many poor countries is still extremely insecure as a consequence of food shortages, and the situation could become worse: hunger still reaps enormous numbers of victims among those who, like Lazarus, are not permitted to take their place at the rich man's table, contrary to the hopes expressed by Paul VI. Feed the hungry (cf. Mt 25: 35, 37, 42) is an ethical imperative for the universal Church, as she responds to the teachings of her Founder, the Lord Jesus, concerning solidarity and the sharing of goods. Moreover, the elimination of world hunger has also, in the global era, become a requirement for safeguarding the peace and stability of the planet. <br />
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<i>Hunger is not so much dependent on lack of material things as on shortage of social resources, the most important of which are institutional. What is missing, in other words, is a network of economic institutions capable of guaranteeing regular access to sufficient food and water for nutritional needs, and also capable of addressing the primary needs and necessities ensuing from genuine food crises, whether due to natural causes or political irresponsibility, nationally and internationally</i>." -- Pope Benedict XVI, Caritas in Veritate, pp. 27 (emphasis added)</blockquote><br />
On inequality and protection of the working class for the good of society:<br />
<blockquote>"But although all citizens, without exception, can and ought to contribute to that common good in which individuals share so advantageously to themselves, yet it should not be supposed that all can contribute in the like way and to the same extent. No matter what changes may occur in forms of government, there will ever be differences and inequalities of condition in the State. Society cannot exist or be conceived of without them... We have insisted, it is true, that, since the end of society is to make men better, the chief good that society can possess is virtue. Nevertheless, it is the business of a well-constituted body politic to see to the provision of those material and external helps 'the use of which is necessary to virtuous action.'"<br />
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"Now, for the provision of such commodities, the labor of the working class - the exercise of their skill, and the employment of their strength, in the cultivation of the land, and in the workshops of trade - is especially responsible and quite indispensable. Indeed, their co-operation is in this respect so important that it may be truly said that it is only by the labor of working men that States grow rich. <br />
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<i>Justice, therefore, demands that the interests of the working classes should be carefully watched over by the administration, so that they who contribute so largely to the advantage of the community may themselves share in the benefits which they create-that being housed, clothed, and bodily fit, they may find their life less hard and more endurable</i>. It follows that whatever shall appear to prove conducive to the well-being of those who work should obtain favorable consideration. There is no fear that solicitude of this kind will be harmful to any interest; on the contrary, it will be to the advantage of all, for it cannot but be good for the commonwealth to shield from misery those on whom it so largely depends for the things that it needs." -- Pope Leo XIII, Rerum Novarum, pp. 34 (emphasis added)</blockquote><br />
On the true value of work (and the reason why I feel <a href="http://csteconomics.blogspot.com/2011/09/employment-for-all.html" target="_blank">full employment</a> is of greater importance than material well-being):<br />
<blockquote>"It only means that the primary basis of the value of work is man himself, who is its subject. This leads immediately to a very important conclusion of an ethical nature: <i>however true it may be that man is destined for work and called to it, in the first place work is "for man" and not man "for work". Through this conclusion one rightly comes to recognize the pre-eminence of the subjective meaning of work over the objective one. Given this way of understanding things, and presupposing that different sorts of work that people do can have greater or lesser objective value, let us try nevertheless to show that each sort is judged above all by the measure of the dignity of the subject of work, that is to say the person, the individual who carries it out</i>. <br />
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On the other hand: independently of the work that every man does, and presupposing that this work constitutes a purpose-at times a very demanding one-of his activity, this purpose does not possess a definitive meaning in itself. In fact, in the final analysis it is always man who is the purpose of the work, whatever work it is that is done by man-even if the common scale of values rates it as the merest "service", as the most monotonous even the most alienating work." -- Pope John Paul II, Laborem Exercens, pp. 6.6 (emphasis added)</blockquote>Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-40144374598356399422012-02-17T10:51:00.000-06:002012-03-07T17:01:05.094-06:00Scary? Facts about the DebtSaying these are facts about the debt is one thing, but to call them 'scary' is to put needless fear into Americans. My comments are in red.<br />
<blockquote>As President Obama unveiled the 2013 fiscal year budget, the nation's financial situation came back into sharp focus. Experts say partisan gridlock in Washington means the budget will probably go nowhere.<br />
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Considering this is an election year, however, expect politicians to harp on facts, figures and terms that most Americans weren't taught in high school. To help out, it's time to dredge up lots of scary facts to make you pay attention.<br />
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Before we get going, a quick primer on the number TRILLION:<br />
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$1 trillion = $1,000 billion or $1,000,000,000,000 (that's 12 zeros) <i style="color: red;">very true</i><br />
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How hard is it to spend a trillion dollars? If you spent one dollar every second, you would have spent a million dollars in 12 days. At that same rate, it would take you 32 years to spend a billion dollars. But it would take you more than 31,000 years to spend a trillion dollars.<br />
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And now, some scary <span style="color: red;">(</span><i style="color: red;">She still hasn't said <b>why</b> it is scary</i><span style="color: red;">)</span> facts about the debt and the deficit -- some basics:<br />
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Deficit = money government takes in -- money government spends <i style="color: red;">very true</i><br />
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2012 US deficit = $1.33 trillion <i style="color: red;">still see no problem here, it is not causing inflation and our economy is still not doing that well</i><br />
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2013 Proposed budget deficit = $901 billion <i style="color: red;">this may actually not be enough to grow our economy, still too far away to tell for sure</i><br />
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National debt = Total amount borrowed over time to fund the annual deficit <i style="color: red;">sort of true, the debt is meant to 'fund' the deficit, but isn't necessary to do so. Issuing debt is a way for the Fed to maintain interest rate targets, not a necessary means for raising funds. The government can spend without taxes or issuing debt.</i><br />
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Current national debt = $15.3 trillion (or $49,030 per every man, woman and child in the US or $135,773 per taxpayer) <i style="color: red;">True, but thinking of it this way is misleading. We will never have to fork over $49,000 to pay it off. Most of it isn't due for years to come and doesn't ever have to paid off at anyone one moment. Plus, the national debt=national savings. That means there is $15.3 trillion dollars of US bonds in the hands of the private sector, of which they are earning interest on.</i><br />
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OK, let's get started! <i style="color: red;">Here is her official list of "scary" facts</i><br />
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1. The U.S. national debt on Jan. 1, 1791, was just $75 million dollars. Today, the U.S. national debt rises by that amount about once an hour. <i style="color: red;">Which increases total savings and boosts the economy</i><br />
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2. Our nation began its existence in debt after borrowing money to finance the Revolutionary War. President Andrew Jackson nearly eliminated the debt, calling it a "national curse." Jackson railed against borrowing, spending and even banks, for that matter, and he tried to eliminate all federal debt. By Jan. 1, 1835, under Jackson, the debt was just $33,733.<br />
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3. When World War II ended, the debt equaled 122 percent of GDP (GDP is a measure of the entire economy). In the 1950s and 1960s, the economy grew at an average rate of 4.3 percent a year and the debt gradually declined to 38 percent of GDP in 1970. This year, the Office of Budget and Management expects that the debt will equal nearly 100 percent of GDP. <i style="color: red;">These numbers are meaningless. It doesn't really matter how much of GDP our debt is, what matters is the health of our economy. Increasing our national debt to improve our economy is a good thing, not a bad thing. It only becomes a bad thing when it causes inflation, but that will happen only when the economy is over-heating from doing too well. At that point we must stop increasing the debt, but the debt-to-GDP ratio is meaningless for a country sovereign in its own currency.</i><br />
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4. Since 1938, the national debt has increased at an average annual rate of 8.5 percent. The only exceptions to the constant annual increase over the last 62 years were during the administrations of Clinton and Johnson. (Note that this is the rate of growth; the national debt still existed under both presidents.) During the Clinton presidency, debt growth was almost zero. Johnson averaged 3 percent growth of debt for the six years he served (1963-69). <i>These administrations were followed by bad recessions in the early 70s and early 2000s. Decreasing the debt by going into surplus budgets or even just diminishing deficits takes away income from the economy which is likely to cause recession. </i><br />
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5. When Ronald Reagan took office, the U.S. national debt was just under $1 trillion. When he left office, it was $2.6 trillion. During the eight Regan years, the US moved from being the world's largest international creditor to the largest debtor nation. <i style="color: red;">Growth was pretty solid in the 80s too, but much (almost all) of that growth went to the top through tax cuts and defense spending.</i><br />
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6. The U.S. national debt has more than doubled since the year 2000.<br />
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Under President Bush: At the end of calendar year 2000, the debt stood at $5.629 trillion. Eight years later, the federal debt stood at $9.986 trillion.<br />
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Under President Obama: The debt started at $9.986 trillion and escalated to $15.3 trillion, a 53 percent increase over three years.<br />
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<div style="color: red;"><i>A lot of that went toward bailing out big banks and businesses and this still hasn't been enough to grow the economy.</i></div><br />
7. FY 2013 budget projects a deficit of $901 billion in 2013, representing 5.5 percent of GDP, down from a deficit of $1.33 trillion in FY 2012, which was the fourth consecutive year of more than $1 trillion dollar deficits.<br />
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8. The U.S. national debt rises at an average of approximately $3.8 billion per day.<br />
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9. The US government now borrows approximately $5 billion every business day.<br />
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10. A trillion $10 bills, if they were taped end to end, would wrap around the globe more than 380 times. That amount of money would still not be enough to pay off the U.S. national debt.<br />
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<div style="color: red;"><i>The only things scary about these numbers is that their enormous size still isn't big enough to grow the economy.</i></div><br />
11. The debt ceiling is the maximum amount of debt that Congress allows for the government. The current debt ceiling is $16.394 trillion effective Jan. 30, 2012. <i style="color: red;">A useless ceiling. Our national government cannot go bankrupt. It faces no insolvency issues because it is the issuer of the money it needs to pay its bills. So when that debt comes due, it has no problem paying it off. Capping it arbitrarily serves no useful purpose and often causes fear or even panic if it is taken seriously.</i><br />
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12. The U.S. government has to borrow 43 cents of every dollar that it currently spends, four times the rate in 1980.<i style="color: red;"> I'm assuming she means that the other 57 cents is paid for by taxes, but in reality taxes aren't collected by the government. Paying in taxes destroys money from balance sheets. Spending by government creates it.</i></blockquote><br />
Don't be scared by the national debt. Remember that it equals savings for anyone who holds that debt, that the government cannot go bankrupt, and that we never at any one moment have to fork over the money to pay it off. We should be worried about full employment and income distribution, not the debt. Don't be fooled by these scare tactics and this fear mongering. <br />
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And again, this doesn't mean I support 'big government'. The issue is the growth of the economy which relies on spending which in part relies on the deficit to plug any holes in aggregate demand caused by saving and other leakages. If the deficit isn't large enough to fill the gap caused by these leakages then we can expect a recession (or a debt driven bubble followed by a financial crisis and then recession). If you want smaller government, then you shouldn't support a balanced budget amendment, but rather a decrease in total spending and taxes.<br />
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<a href="http://finance.yahoo.com/news/12-scary-debt-facts-for-2012.html" target="_blank">Full article by Jill Schlesinger here</a>.<br />Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0tag:blogger.com,1999:blog-3574536238757003081.post-78482782051245177982012-02-16T14:55:00.000-06:002012-03-07T17:03:36.751-06:00Are we leaving our debt to our children?I think <a href="http://www.truth-out.org/debt-toll-roads-and-patents/1328538574" target="_blank">this article by Dean Baker at Truthout</a> explains fairly well how our national debt isn't a transfer of stuff now for debt later. Our lack of using all our productive capability is a real cost to our future generations. The (federal) debt only becomes a burden to future generations if paying the interest on that debt leads to inflation, where too much money is flooding the markets to compete for real goods and resources. The US debt clock is, to the penny, the amount of savings in bonds that the private sector holds and is not something we have to pay off out of our own pockets or that has to be taxed from us to pay off because the government doesn't need tax dollars to spend. The threat is inflation, not insolvency. We should focus on full employment growth and stable prices, not the mythical 'burden' of our debt.<br />
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Here are some highlights:<br />
<blockquote>It's budget time, again. This means that the deficit hawks will be out in force warning us about the devastating debt burden that we are passing on to our children. So that this Halloween fright gang doesn't needlessly cause any kids to lose sleep, here's what parents can tell their children.<br />
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First, it is important to tell your kids that the national debt is not in any way a measure of intergenerational transfers from the young to the old. Debt is also an asset to the people who own the bonds. At some point, everyone who is alive today will be dead, which means that the bonds they own will be passed on to their or someone else's children and grandchildren.<br />
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Our children and grandchildren might owe the debt, but they will also be receiving the interest paid on the debt. There can be an issue of distribution within future generations (e.g. Bill Gates' descendants own all the debt), but that is a question of inequality within generations, not between generations. So, when you hear the deficit hawks ranting about the $15 trillion debt that we are passing on to our kids, you can tell your children that we are passing on $15 trillion in government bonds to our children.<br />
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Of course, some of the debt is held by foreigners. Many of the deficit hawks have been harping on the China menace, running scary ads about how the Chinese are going to own the United States in 20 or 30 years.<br />
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While the debt service paid on the bonds held by foreigners will be a drain in future years, there are two important points to keep in mind. First, the outflow on interest payments on bonds held by foreigners is still quite small by any measure.<br />
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The second and more important point is that foreign ownership of government bonds and US assets more generally is determined by the trade deficit, not the budget deficit. It is our $600 billion annual trade deficit that gives China and other countries the means to buy up government bonds and other US assets.<br />
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The trade deficit is in turn primarily the result of an overvalued dollar. This means that if the deficit hawks were really worried about foreigners owning too much of the US economy then they should be railing about the overvalued dollar, not the budget deficit. When the deficit hawks rant about China owning the US, they are either confused or being dishonest.<br />
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There are certainly times when deficits can make our children poorer than they otherwise would be. If the economy were operating near its potential, and the deficits had the effect of raising interest rates and pulling money away from private investment, then the economy would be less productive in the future as a result of the deficit.<br />
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However, the relevant measure here is not the deficit or debt, but productivity growth: the rate at which the economy is getting more efficient. Productivity has continued to grow at close to a 2.5 percent annual rate, meaning that the economy is getting more efficient at a relatively rapid pace.<br />
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This is not surprising, since it is absurd to imagine that current deficits are pulling money away from private investment. Interest rates are at near rock-bottom levels. Given the huge amounts of excess capacity in most sectors, it is likely that the deficits are actually increasing investment by increasing demand. In this sense, deficits are making our children richer. This would be even more true insofar as the deficits are being run to build infrastructure or to finance education and training; all of which will make the economy more productive in the future.<br />
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Suppose that we eliminated $1 trillion of our debt burden by selling off public roads and allowing private companies to charge tolls. Are future generations better off by this huge reduction in the debt burden?<br />
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They aren't in any obvious way. In fact, depending on the terms of the deal, selling off public assets to reduce the debt could in fact lead to much higher economic costs for future generations. These costs just would not show up as public debt.<br />
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This point should sound familiar to people. There have been several prominent cases of asset sales of exactly this sort. For example, Indiana's Gov. Mitch Daniels sold off the Indiana toll road to reduce that state's debt. In my hometown, former Mayor Richard Daley sold off a 75-year lease of Chicago's parking meters to a consortium led by Morgan Stanley. This reduced the city's debt, but did not necessarily benefit either current or future generations of Chicagoans.<br />
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There are other ways in which the government imposes future burdens that are not at all captured in budget numbers. Patent and copyright monopolies are, in effect, a way that the government allows individuals and corporations to get a claim to future income flows to promote innovation and creative work.<br />
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The more items that are subject to such protection, the greater the burden will be on future generations. We pay roughly $300 billion a year for prescription drugs that would sell for $30 billion a year in a free market without patent protection. This is equivalent to a tax of $270 billion on prescription drugs (at 1.8 percent of gross domestic product) that is paid to the drug companies because of a government-imposed patent monopoly.</blockquote><br />
<br />Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com1tag:blogger.com,1999:blog-3574536238757003081.post-6477381587203421882012-02-15T16:34:00.002-06:002012-03-07T17:01:31.640-06:00Safety Net full of HolesLooks like our safety net has some holes in it and could use some repair:<br />
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From <a href="http://www.blogger.com/%0Ahttp://www.nytimes.com/2012/02/12/us/even-critics-of-safety-net-increasingly-depend-on-it.html" target="_blank">this article at the NY Times</a>:<br />
<blockquote>"...across the nation, the government now provides almost $1 in benefits for every $4 in other income. Older people get most of the benefits, primarily through Social Security and Medicare, but aid for the rest of the population has increased about as quickly through programs for the disabled, the unemployed, veterans and children.<br />
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The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits. A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement. The share of benefits flowing to the least affluent households, the bottom fifth, has declined from 54 percent in 1979 to 36 percent in 2007, according to a Congressional Budget Office analysis published last year.</blockquote>And from <a href="http://finance.yahoo.com/news/benefits-safety-net-163002159.html" target="_blank">this article also in the NY Times via Yahoo</a>:<br />
<blockquote>"...the new study suggests that the recent recession did not cause any significant increase in the share of benefits flowing to the poor, as might once have been expected.<br />
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The study found that older people received slightly more than half of government benefits, while the nonelderly with disabilities received an additional 20 percent. These benefits are not means-tested - indeed, better-paid workers get more in Social Security.<br />
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Furthermore, the study notes that politicians have shifted benefits away from the "jobless poor," through reductions in traditional welfare, and increased benefits for working families, for example through tax credits. The government also has steadily expanded eligibility for benefit programs.<br />
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"The safety net became much more work-based," wrote Arloc Sherman and his collaborators at the center, a left-leaning research group. "In addition, the U.S. population is aging, which raises the share of benefits going to seniors and people with disabilities."</blockquote><br />
Our safety net could use some reform and <a href="http://csteconomics.blogspot.com/2011/09/employment-for-all.html" target="_blank">I'm still in favor of a job for everyone who wants one</a>. It would do a lot more for the people its meant to help and for the country as a whole. I think it's a matter of justice and charity that we help the poor, but first of all justice, because we cannot give to the poor what rightfully belongs to them:<br />
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<blockquote>Charity goes beyond justice, because to love is to give, to offer what is “mine” to the other; but it never lacks justice, which prompts us to give the other what is “his”, what is due to him by reason of his being or his acting. I cannot “give” what is mine to the other, without first giving him what pertains to him in justice. If we love others with charity, then first of all we are just towards them.--Caritas In Veritate, pp. 6</blockquote><br />
What is just is a matter of debate, but I think it would be good to <a href="http://www.vatican.va/roman_curia/pontifical_councils/justpeace/documents/rc_pc_justpeace_doc_20060526_compendio-dott-soc_en.html#The%20value%20of%20human%20rights" target="_blank">start here</a>.Alex Binderhttp://www.blogger.com/profile/07081761484559249129noreply@blogger.com0