Part 1 can be found here.
Myth #2) Government deficits leave a debt burden to our children, or put in another way, deficits today mean higher taxes tomorrow.
In reality, debt or no debt, our children get to consume whatever they produce.
This is difficult to explain in terms understandable to a non-economist, but I'll try anyway. No matter what our government's debt is, our children get to use what they produce. When the government spends, it just adjusts the numbers in bank (checking) accounts. When it taxes, it does the same. When it sells bonds or Treasury securities it does the same except that bonds or securities earn interest, just like a savings account. When the security comes due, it 'transfers' the funds from the savings account to the checking account.
So our $13 trillion debt is nothing more than our savings account at the Fed, whether its owned by us, or banks, or the Chinese, or whoever. Government spending and taxation does influence distribution, but deficits will not cause us to go bankrupt and will not leave a burden to our children.
If deficits cause inflation and currency depreciation, then our children's dollars will have less purchasing power, but they still get to consume whatever they produce. They won't be any poorer or have to pay $40,000 to pay off their portion of the debt.
On the other hand, unemployment and underused factory equipment are detrimental to our children. We are losing output that could benefit us and future generations because of too little spending.
It is important to remember that all debt is someone's liability and another person's asset. When the government takes on liabilities, then that means someone else has an asset. As individuals or businesses we can't take on liabilities without limit, but the government can because it has power over its own currency. This can lead to inflation, but again, inflation is NOT a concern right now. We just set a record for the lowest core inflation measurement since it began in 1958.
The burden we are putting on our children's generation is not the debt, but the lack of employment, output, and the increasing income inequality gap.
Source:
http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/
A Ph.D. student's perspective on Catholic Social Teaching and economics.
Saturday, November 20, 2010
Against Vested Interests
Catholic social teaching should counter powerful vested interests, Pope says
The Pope is calling for us to take action in public life against the prevailing vested interests of big business and corrupt politicians to advance the vision of justice especially in defense of the dignity of the human person. We may soon see more institutions created for research and education of the laity. This would be a great step for the promotion and practice of Catholic Social Teaching!
The Pope is calling for us to take action in public life against the prevailing vested interests of big business and corrupt politicians to advance the vision of justice especially in defense of the dignity of the human person. We may soon see more institutions created for research and education of the laity. This would be a great step for the promotion and practice of Catholic Social Teaching!
Thursday, November 18, 2010
Immigration
The U.S. Bishops on immigration, including illegal immigration, from 10 years ago:
Welcoming the Stranger Among Us
A few highlights I would like to point out:
The ultimate resolution of the problems associated with forced migration and illegal immigration lies in changing the conditions that drive persons from their countries of origin. Accordingly, we urge the governments of the world, particularly our own government, to promote a just peace in those countries that are at war, to protect human rights in those countries that deny them, and to foster the economic development of those countries that are unable to provide for their own peoples. We also urge the governments of the "receiving" countries to welcome these immigrants, to provide for their immediate needs, and to enable them to come to self-sufficiency as quickly as possible.
We must never forget that many immigrants come to this country in desperate circumstances.
As Pope John Paul II has noted, "In many regions of the world today people live in tragic situations of instability and uncertainty. It does not come as a surprise that in such contexts the poor and the destitute make plans to escape, to seek a new land that can offer them bread, dignity and peace. This is the migration of the desperate. . . . Unfortunately, the reality they find in host nations is frequently a source of further disappointment
One reality remains constant in the American experience of immigration: the demand of the U.S. economy for unskilled labor—and the corresponding entrance of immigrants seeking work—in labor-intensive industries such as agriculture, construction, food processing, and services. Undocumented immigrants face special hardships in such areas. The Immigration and Naturalization Service estimates that three to four million undocumented workers hold jobs in this country, many of which are poorly paid, insecure, and dangerous.
They face discrimination in the workplace and on the streets, the constant threat of arrest and deportation, and the fear that they or their children will be denied medical care, education, or job opportunities. Many have lived in the United States for years, establishing roots in their communities, building their families, paying taxes, and contributing to the economy. If arrested and deported, they leave behind children and sometimes spouses who are American citizens.
While the changes in the law over the last several years have enabled many in this situation to adjust their status to that of permanent resident, the 1996 immigration legislation made this option more difficult for the vast majority. Without condoning undocumented migration, the Church supports the human rights of all people and offers them pastoral care, education, and social services, no matter what the circumstances of entry into this country, and it works for the respect of the human dignity of all—especially those who find themselves in desperate circumstances. We recognize that nations have the right to control their borders. We also recognize and strongly assert that all human persons, created as they are in the image of God, possess a fundamental dignity that gives rise to a more compelling claim to the conditions worthy of human life.
Accordingly, the Church also advocates legalization opportunities for the maximum number of undocumented persons, particularly those who have built equities and otherwise contributed to their communities.
My commentary:
It often irks me that so many well meaning conservatives, including good Catholics, are very against illegal immigration, thinking of them as job-stealers and welfare usurpers as well as believing they should be forced to assimilate and "learn our language" if they want to live here. These views often contrast starkly with upholding the dignity of the person, especially when they are referred to as "aliens." It is clear our immigration policy needs to be fixed, and no we can't just open up our borders to all who want to live here. For safety and stability it is necessary to have a well organized and documented process, but to think of our fellow men as "aliens" and treat them as such is not christian. The U.S. Bishops are clear on this in their letter from 10 years ago. Upholding the dignity and welfare of persons should be our aim with any policy, something we have not done so well on with our own citizens, let alone illegal immigrants.
Welcoming the Stranger Among Us
A few highlights I would like to point out:
The ultimate resolution of the problems associated with forced migration and illegal immigration lies in changing the conditions that drive persons from their countries of origin. Accordingly, we urge the governments of the world, particularly our own government, to promote a just peace in those countries that are at war, to protect human rights in those countries that deny them, and to foster the economic development of those countries that are unable to provide for their own peoples. We also urge the governments of the "receiving" countries to welcome these immigrants, to provide for their immediate needs, and to enable them to come to self-sufficiency as quickly as possible.
We must never forget that many immigrants come to this country in desperate circumstances.
As Pope John Paul II has noted, "In many regions of the world today people live in tragic situations of instability and uncertainty. It does not come as a surprise that in such contexts the poor and the destitute make plans to escape, to seek a new land that can offer them bread, dignity and peace. This is the migration of the desperate. . . . Unfortunately, the reality they find in host nations is frequently a source of further disappointment
One reality remains constant in the American experience of immigration: the demand of the U.S. economy for unskilled labor—and the corresponding entrance of immigrants seeking work—in labor-intensive industries such as agriculture, construction, food processing, and services. Undocumented immigrants face special hardships in such areas. The Immigration and Naturalization Service estimates that three to four million undocumented workers hold jobs in this country, many of which are poorly paid, insecure, and dangerous.
They face discrimination in the workplace and on the streets, the constant threat of arrest and deportation, and the fear that they or their children will be denied medical care, education, or job opportunities. Many have lived in the United States for years, establishing roots in their communities, building their families, paying taxes, and contributing to the economy. If arrested and deported, they leave behind children and sometimes spouses who are American citizens.
While the changes in the law over the last several years have enabled many in this situation to adjust their status to that of permanent resident, the 1996 immigration legislation made this option more difficult for the vast majority. Without condoning undocumented migration, the Church supports the human rights of all people and offers them pastoral care, education, and social services, no matter what the circumstances of entry into this country, and it works for the respect of the human dignity of all—especially those who find themselves in desperate circumstances. We recognize that nations have the right to control their borders. We also recognize and strongly assert that all human persons, created as they are in the image of God, possess a fundamental dignity that gives rise to a more compelling claim to the conditions worthy of human life.
Accordingly, the Church also advocates legalization opportunities for the maximum number of undocumented persons, particularly those who have built equities and otherwise contributed to their communities.
My commentary:
It often irks me that so many well meaning conservatives, including good Catholics, are very against illegal immigration, thinking of them as job-stealers and welfare usurpers as well as believing they should be forced to assimilate and "learn our language" if they want to live here. These views often contrast starkly with upholding the dignity of the person, especially when they are referred to as "aliens." It is clear our immigration policy needs to be fixed, and no we can't just open up our borders to all who want to live here. For safety and stability it is necessary to have a well organized and documented process, but to think of our fellow men as "aliens" and treat them as such is not christian. The U.S. Bishops are clear on this in their letter from 10 years ago. Upholding the dignity and welfare of persons should be our aim with any policy, something we have not done so well on with our own citizens, let alone illegal immigrants.
Two posts from Paul Krugman
On why inflation is NOT a problem at the moment and on the core of our economic downturn:
Disinflation
The root of the problem
Disinflation
The root of the problem
Wednesday, November 17, 2010
11/17 Excerpt from CST
From Caritas in Veritate:
Today the picture of development has many overlapping layers. The actors and the causes in both underdevelopment and development are manifold, the faults and the merits are differentiated. This fact should prompt us to liberate ourselves from ideologies, which often oversimplify reality in artificial ways, and it should lead us to examine objectively the full human dimension of the problems.
As John Paul II has already observed, the demarcation line between rich and poor countries is no longer as clear as it was at the time of Populorum Progressio. The world's wealth is growing in absolute terms, but inequalities are on the increase. In rich countries, new sectors of society are succumbing to poverty and new forms of poverty are emerging. In poorer areas some groups enjoy a sort of “superdevelopment” of a wasteful and consumerist kind which forms an unacceptable contrast with the ongoing situations of dehumanizing deprivation. “The scandal of glaring inequalities” continues.
Corruption and illegality are unfortunately evident in the conduct of the economic and political class in rich countries, both old and new, as well as in poor ones. Among those who sometimes fail to respect the human rights of workers are large multinational companies as well as local producers.
International aid has often been diverted from its proper ends, through irresponsible actions both within the chain of donors and within that of the beneficiaries. Similarly, in the context of immaterial or cultural causes of development and underdevelopment, we find these same patterns of responsibility reproduced. On the part of rich countries there is excessive zeal for protecting knowledge through an unduly rigid assertion of the right to intellectual property, especially in the field of health care. At the same time, in some poor countries, cultural models and social norms of behaviour persist which hinder the process of development.
Pope Benedict XVI, 2009
Today the picture of development has many overlapping layers. The actors and the causes in both underdevelopment and development are manifold, the faults and the merits are differentiated. This fact should prompt us to liberate ourselves from ideologies, which often oversimplify reality in artificial ways, and it should lead us to examine objectively the full human dimension of the problems.
As John Paul II has already observed, the demarcation line between rich and poor countries is no longer as clear as it was at the time of Populorum Progressio. The world's wealth is growing in absolute terms, but inequalities are on the increase. In rich countries, new sectors of society are succumbing to poverty and new forms of poverty are emerging. In poorer areas some groups enjoy a sort of “superdevelopment” of a wasteful and consumerist kind which forms an unacceptable contrast with the ongoing situations of dehumanizing deprivation. “The scandal of glaring inequalities” continues.
Corruption and illegality are unfortunately evident in the conduct of the economic and political class in rich countries, both old and new, as well as in poor ones. Among those who sometimes fail to respect the human rights of workers are large multinational companies as well as local producers.
International aid has often been diverted from its proper ends, through irresponsible actions both within the chain of donors and within that of the beneficiaries. Similarly, in the context of immaterial or cultural causes of development and underdevelopment, we find these same patterns of responsibility reproduced. On the part of rich countries there is excessive zeal for protecting knowledge through an unduly rigid assertion of the right to intellectual property, especially in the field of health care. At the same time, in some poor countries, cultural models and social norms of behaviour persist which hinder the process of development.
Pope Benedict XVI, 2009
Tuesday, November 16, 2010
Myths about the Deficit, Part 1
The hot topic in economics at the moment is certainly the enormous size of the deficit. Unfortunately, many of our politicians and even major economists are mistaken or are intentionally misleading the public about government deficits. This is mostly because of their ideologies or from being stuck in the past when we were on the gold standard. It is important, then, to understand how government spending works so that you can be an informed voter and engage in helpful dialogue with others who are misinformed.
So I will embark on a multi-part series on myths about the deficit (based on Warren Mosler's book the 7 Deadly Innocent Frauds of Economic Policy). Please comment or ask questions if you have them! This has very important implications for our political economy and is something that is vastly misunderstood!
Myth #1) The government must tax or raise funds through borrowing in order to spend.
The government can spend as much as it wants. It can print the money, or more accurately, change the numbers in bank accounts to meet its obligations. If it owes China $50 billion dollars for whatever reason, it can give China $50 billion dollars, without taxing the public or financing it through bonds. All it does is give China $50 billion U.S. dollars worth of credit to either spend in the U.S. or convert it to another currency.
This doesn't mean the government can spend what it wants without consequence. Over-spending can cause inflation or depreciate the currency, but it WILL NOT GO BANKRUPT!
So why tax us if the government doesn’t need it to spend?
Taxes create an on-going need to get dollars in order to pay them. They are what give our currency value. Our currency is no longer backed, partially or fully, with gold. It is a purely fiat money system and the way it maintains value is by the government demanding it to meet tax liabilities. If you don’t pay the government your U.S. dollars, then you will be thrown into jail.
Taxes also reduce our aggregate demand, or reduce our ability to spend. This allows the government to spend without causing inflation. Think of the economy as a big department store full of all the goods and services we produce and offer for sale every year. All together we earn enough wages and income to buy all of what we produce. But the government wants to spend money, too, in order to provide defense, infrastructure, etc. If it does not tax us then there is more money to buy than there are goods to be bought, this excess demand pushes prices up so that spending equals income, a necessary accounting identity.
If the government taxes us and does not spend, the output will not all get sold and prices will drop due to a lack of demand. But along with prices, businesses will cut costs by cutting employment because they didn’t make as much as they expected.
So the government taxes us in order to maintain currency value and allow it to buy the goods and services the people want it to buy.
Put simply, the federal government doesn't ever have or not have any dollars; it just changes the numbers in the bank accounts. It is more of a scorekeeper than a vault of money.
So how does that apply to today? The government wants to cut deficits amidst an underemployed economy on the verge of deflation. In order to boost spending, the government should increase the deficit to make up for our lack of spending.
Now this is where ideology and preferences come in. If you prefer smaller government, then you should demand lower taxes to improve private sector spending. If, however, we save the tax cuts and do not spend them, then they are no good. If you prefer a bigger government, then you should demand more spending.
Again, inflation and currency depreciation are our only concerns with high government deficits! But at the moment inflation is not a threat and unemployment is still terribly high. If the currency depreciates we should see a rise in exports and a fall in imports, another boost to our aggregate demand.
To be sure, this is not my own “opinion” or anyone else's “opinion,” but how it actually works. Opinions and ideologies can get in the way or be used within this framework, but do not change how the system works.
For more on this topic see:
http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/
http://neweconomicperspectives.blogspot.com/2010/11/keep-deficit-ditch-doves.html
http://tomgreenthumb.tumblr.com/
So I will embark on a multi-part series on myths about the deficit (based on Warren Mosler's book the 7 Deadly Innocent Frauds of Economic Policy). Please comment or ask questions if you have them! This has very important implications for our political economy and is something that is vastly misunderstood!
Myth #1) The government must tax or raise funds through borrowing in order to spend.
The government can spend as much as it wants. It can print the money, or more accurately, change the numbers in bank accounts to meet its obligations. If it owes China $50 billion dollars for whatever reason, it can give China $50 billion dollars, without taxing the public or financing it through bonds. All it does is give China $50 billion U.S. dollars worth of credit to either spend in the U.S. or convert it to another currency.
This doesn't mean the government can spend what it wants without consequence. Over-spending can cause inflation or depreciate the currency, but it WILL NOT GO BANKRUPT!
So why tax us if the government doesn’t need it to spend?
Taxes create an on-going need to get dollars in order to pay them. They are what give our currency value. Our currency is no longer backed, partially or fully, with gold. It is a purely fiat money system and the way it maintains value is by the government demanding it to meet tax liabilities. If you don’t pay the government your U.S. dollars, then you will be thrown into jail.
Taxes also reduce our aggregate demand, or reduce our ability to spend. This allows the government to spend without causing inflation. Think of the economy as a big department store full of all the goods and services we produce and offer for sale every year. All together we earn enough wages and income to buy all of what we produce. But the government wants to spend money, too, in order to provide defense, infrastructure, etc. If it does not tax us then there is more money to buy than there are goods to be bought, this excess demand pushes prices up so that spending equals income, a necessary accounting identity.
If the government taxes us and does not spend, the output will not all get sold and prices will drop due to a lack of demand. But along with prices, businesses will cut costs by cutting employment because they didn’t make as much as they expected.
So the government taxes us in order to maintain currency value and allow it to buy the goods and services the people want it to buy.
Put simply, the federal government doesn't ever have or not have any dollars; it just changes the numbers in the bank accounts. It is more of a scorekeeper than a vault of money.
So how does that apply to today? The government wants to cut deficits amidst an underemployed economy on the verge of deflation. In order to boost spending, the government should increase the deficit to make up for our lack of spending.
Now this is where ideology and preferences come in. If you prefer smaller government, then you should demand lower taxes to improve private sector spending. If, however, we save the tax cuts and do not spend them, then they are no good. If you prefer a bigger government, then you should demand more spending.
Again, inflation and currency depreciation are our only concerns with high government deficits! But at the moment inflation is not a threat and unemployment is still terribly high. If the currency depreciates we should see a rise in exports and a fall in imports, another boost to our aggregate demand.
To be sure, this is not my own “opinion” or anyone else's “opinion,” but how it actually works. Opinions and ideologies can get in the way or be used within this framework, but do not change how the system works.
For more on this topic see:
http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds/
http://neweconomicperspectives.blogspot.com/2010/11/keep-deficit-ditch-doves.html
http://tomgreenthumb.tumblr.com/
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