A subject and a verb walk into a bar. They have a disagreement. They walks out

November 8, 2013 § Leave a comment

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To put things crudely, there are two ways to get the increase in total spending that we call “economic growth.” One way is for government to spend. The other is for banks to lend. Leaving aside short-term adjustments like increased net exports or financial innovation, that’s basically all there is. Governments and banks are the two entities with the power to create something from nothing. If total spending power is to grow, one or the other of these two great financial motors–public deficits or private loans–has to be in action.

For ordinary people, public budget deficits, despite their bad reputation, are much better than private loans. Deficits put money in private pockets. Private households get more cash. They own that cash free and clear, and they can spend it as they like. If they wish, they can also convert it into interest-earning government bonds or they can repay their debts. This is called an increase in “net financial wealth.” Ordinary people benefit, but there is nothing in it for banks.

And this, in the simplest terms, explains the deficit phobia of Wall Street, the corporate media and the right-wing economists. Bankers don’t like budget deficits because they compete with bank loans as a source of growth. When a bank makes a loan, cash balances in private hands also go up. But now the cash is not owned free and clear. There is a contractual obligation to pay interest and to repay principal. If the enterprise defaults, there may be an asset left over–a house or factory or company–that will then become the property of the bank. It’s easy to see why bankers love private credit but hate public deficits.

All of this should be painfully obvious, but it is deeply obscure. It is obscure because legions of Wall Streeters–led notably in our time by Peter Peterson and his front man, former comptroller general David Walker, and including the Robert Rubin wing of the Democratic Party and numerous “bipartisan” enterprises like the Concord Coalition and the Committee for a Responsible Federal Budget–have labored mightily to confuse the issues. These spirits never uttered a single word of warning about the financial crisis, which originated on Wall Street under the noses of their bag men. But they constantly warn, quite falsely, that the government is a “super subprime” “Ponzi scheme,” which it is not.

We also hear, from the same people, about the impending “bankruptcy” of Social Security, Medicare–even the United States itself. Or of the burden that public debts will “impose on our grandchildren.” Or about “unfunded liabilities” supposedly facing us all. All of this forms part of one of the great misinformation campaigns of all time.

The misinformation is rooted in what many consider to be plain common sense. It may seem like homely wisdom, especially, to say that “just like the family, the government can’t live beyond its means.” But it’s not. In these matters the public and private sectors differ on a very basic point. Your family needs income in order to pay its debts. Your government does not.

Private borrowers can and do default. They go bankrupt (a protection civilized societies afford them instead of debtors’ prisons). Or if they have a mortgage, in most states they can simply walk away from their house if they can no longer continue to make payments on it.

With government, the risk of nonpayment does not exist. Government spends money (and pays interest) simply by typing numbers into a computer. Unlike private debtors, government does not need to have cash on hand. As the inspired amateur economist Warren Mosler likes to say, the person who writes Social Security checks at the Treasury does not have the phone number of the tax collector at the IRS. If you choose to pay taxes in cash, the government will give you a receipt–and shred the bills. Since it is the source of money, government can’t run out.

It’s true that government can spend imprudently. Too much spending, net of taxes, may lead to inflation, often via currency depreciation–though with the world in recession, that’s not an immediate risk. Wasteful spending–on unnecessary military adventures, say–burns real resources. But no government can ever be forced to default on debts in a currency it controls. Public defaults happen only when governments don’t control the currency in which they owe debts–as Argentina owed dollars or as Greece now (it hasn’t defaulted yet) owes euros. But for true sovereigns, bankruptcy is an irrelevant concept. When Obama says, even offhand, that the United States is “out of money,” he’s talking nonsense–dangerous nonsense. One wonders if he believes it.

Nor is public debt a burden on future generations. It does not have to be repaid, and in practice it will never be repaid. Personal debts are generally settled during the lifetime of the debtor or at death, because one person cannot easily encumber another. But public debt does not ever have to be repaid. Governments do not die–except in war or revolution, and when that happens, their debts are generally moot anyway.

So the public debt simply increases from one year to the next. In the entire history of the United States it has done so, with budget deficits and increased public debt on all but about six very short occasions–with each surplus followed by a recession.  read more

PHOTOGRAPH: Michael Wolf

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They both wanted to exchange bodies, exchange faces. There was in both of them the dark strain of wanting to become the other, to deny what they were, to transcend their actual selves

October 21, 2013 § Leave a comment

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Because people hate to think they are receiving welfare handouts, we’ve all decided to pretend that Social Security is some kind of savings program. That way it can really be about you paying in and getting out. Hooray personal responsibility and individualism! But in reality, Social Security is really just a straightforward welfare handout. You tax the currently-working and then take the revenue and give it to the currently-old. It is a transfer program or, if you’d like, a “redistribution” program.

This aspect of old-age security programs is completely unavoidable. As I wrote earlier this year, if you can get currency out of your head for a moment, you should be able to see that — in real resource and real production terms — all retired people live off the production of the currently-working. This is vacuously and stupidly true. Retired people don’t produce anything. So where is the stuff they are consuming coming from? That’s right: the currently-working.

In non-money terms, our ability to support retired people is a function of how much stuff the currently-working are producing. It has nothing to do with how much money is in the Social Security Trust Fund. It has nothing to do with how much payroll tax the people who are moving into retirement paid over the last few decades. That’s all meaningless outside of the world of accounting.

For instance, suppose we had jacked payroll taxes 30 years ago such that the Social Security Trust Fund was much bigger at the present moment than it actually is. Would that change anything outside of the accounting world? No. Recall once again: the iron rule here is that the currently-retired are necessarily living solely off the production of the currently-working. Piling up a bunch of cash and then disgorging doesn’t change the mechanics of what is going on. The currently-retired would still be snatching up the exact same fraction of the currently-working’s production for their consumption. The real outcome would be exactly the same in this more “fiscally responsible” scenario.  read more

PHOTOGRAPH: Margaret Durow

Guardian reports that Ireland has fallen back into recession “despite” its multi-billion euro austerity drive

July 2, 2013 § Leave a comment

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When I returned home from my recent road trip, a letter from Blue Cross Blue Shield of Illinois (my health insurance company, also known as BCBSIL) was waiting for me. Even though I already knew they denied my appeal for last September’s biopsy, I was amazed at how quickly I transitioned from tired but happy traveler to enraged cancer patient.

The upshot of their message was this:

“You already have metastatic lung cancer. A biopsy won’t change the fact that you’re going to die from cancer.”

The statement probably came from the independent “physician who specializes in Internal Medicine/Pulmonary Disease” who reviewed my appeal. You can judge for yourself whether I’m overreacting from this excerpt. I bolded some words for emphasis.

” … in this case the member is already known to have progressive Stage IV Bronchogenic carcinoma even after therapy. Specifically identifying the histopathology of this right upper lobe lesion is not going to affect long-term health outcomes.”

When BCBSIL denied the claim, I appealed. I explained my treatment history, including that my cancer is aggressive, and we needed to know if the nodule were BOOP or cancer to give me appropriate treatment. My doctor reviewed my letter and wrote a letter of his own to stick in the packet. I included scan CDs and appropriate medical reports.

Evidently that wasn’t enough. Because, well, I’m gonna die anyway…

What frosts me about this letter is that a “specialist” decided there was no urgency to get a biopsy because it wouldn’t change my “long-term health outcome.” Did he expect me to go on steroids AND chemo (both of which have a significant impact on quality of life) in case one of them MIGHT work? Or do nothing, since I’m going to die anyway? Well, here’s a news flash: we’re ALL going to die! The purpose of medicine is to keep us as healthy as possible while delaying that inevitable long-term outcome as long as possible.  read more

ART: Andreas Bahn

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