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Cabinet brainstorms quick fixes for the cost-of-living crisis to avoid the real solution

Published by Anonymous (not verified) on Sun, 01/05/2022 - 3:51am in

“When people live in a fair, caring society, where everyone has equal access to social goods, they don’t have to spend their time worrying about how to cover their basic needs day to day – they can enjoy the art of living. And instead of feeling they are in constant competition with their neighbours, they can build bonds of social solidarity.”

Jason Hickel – Less is More.

Boris Johnson holds a meeting of UK Cabinet minstersPPicture by Simon Dawson – No 10 Downing Street on Flickr. Creative Commons 2.0 license

According to the Telegraph this week, the Treasury has ‘raked in more tax than ever before’, thus putting the UK, it says, on course to have the ‘highest tax burden since the aftermath of the second world war’. The Chancellor, still counting his beans, was not in the slightest bit apologetic, making clear his assertion that he had no other option but to get the public finances back on track after the vast amount of public money that had been spent during the pandemic. Keeping the £12,570 personal allowance for income tax at its current level would, the author of the Telegraph article indicated, generate an extra £20bn for the Treasury over the next five years, thus reinforcing, yet again, the plainly wrong idea that government relies on tax to spend, or balance the public accounts. A government spokesperson called on for comment, said, wiping a tear away, that it had been forced to make ‘tough decisions’, but not to worry, in 2024 we can expect a tax cut bonanza just before the next election.

The Guardian took another tack, not taxes, but borrowing. In an article by Larry Elliott entitled, ‘UK government borrowing halves but is still close to record high’, he quotes figures from the ONS which reported that the gap between the state’s revenues and its spending was down on the previous year, but that despite the improvement over the year, the total deficit for 2021/22 was more than £20bn higher than forecast by the OBR. All as if borrowing figures were a sound measure of the government’s management of the economy. The Chancellor, trying yet again to sell his agenda of fiscal discipline, was quoted by Elliott, reiterating yet again, that ‘Public debt is at the highest levels since the 1960s and rising inflation is pushing up our debt interest costs, which means we must manage public finances sustainably to avoid saddling future generations with further debt’.

They are all at it! Whether it’s former or current Chancellors of the Exchequer, journalists or orthodox economists, they all have one thing in common: their addiction to the false narrative of household budgets. The idea that governments are limited in their spending policies by how much tax they collect or what they can borrow. The false corollary of all that, is that without careful management of the public accounts, either we face the prospect of the UK going bankrupt, as former Chancellor George Osborne suggested to the public, or future generations will pay the price in higher taxes. All nonsense, of course, but it keeps the public in their place, meaning acceptance without question, that the government has limited fiscal capacity, and the message that government has no option but to impose belt-tightening policies, completely ignoring the fact that a government deficit represents a private sector surplus, in layman’s terms, the money in our pockets. Taxing away more doesn’t give the government more to spend, or to pay down public debt as is implied, and it certainly doesn’t help an economy to navigate difficult times.

We are now witnessing in the most distressing way, the terrible consequences of those narratives which are having a direct effect on the economy, or more precisely, the people who do the work to keep it functioning. Not just the effects of the last 2 years on people’s lives but the ongoing consequences of decades of successive government spending policies. Policies which have ranked fiscal discipline over economic health and public well-being, seen wealth distribution skewed to favour ever fewer people and overseen the selling off or privatisation of key public assets with vast amounts of public money syphoned off for private profit, along with the underfunding of vital publicly run and paid for public infrastructure which has left it in a state of ongoing decay. We have paid a heavy price as a nation for the economic ideology which prevails and dictates policy and spending.

From every corner, the warning signals have been ringing loudly. Last month, Martin Lewis, the Money Saving Expert, said that he was running out of tools to help people manage the cost-of-living crisis. He said that ‘it’s not something money management can fix, it’s not something that for those on the lowest incomes telling them to cut their belts will work, we need political intervention.’

Phil Andrew, the CEO of the StepChange Debt Charity, echoing Lewis, said that their advisers had been taking increasing numbers of calls from people who fear they won’t be able to keep up their debt repayments. With eleven million households facing Covid-related debt, and four million using credit to pay for essentials, he was clear:

‘For these households, rises in energy bills and the increasing cost of essentials are not things that make the difference between being able to afford luxuries or not. They are the things that genuinely make the difference between heating and eating.’

The Trussell Trust, which runs more than half of UK food banks, says it is witnessing an accelerating crisis across the UK as more and more people are unable to afford the absolute essentials necessary to eat, stay warm and dry, and clean. Figures released this week show that the Trust’s network provided more than 2.1 million parcels to people facing financial hardship from 1st April 2021 to 31st March 2022, which represents a 14% increase over 2019/20 – before the pandemic. And more than 830,000 parcels were provided for children, which represents a 15% increase from 2019/20, when 720,000 were provided. The Trust, again echoing Martin Lewis, said that there is still time for politicians to turn this situation around, saying that, governments at all levels must use their powers and take urgent action now to strengthen our social security system so it keeps up with the true cost of living and helps prevent hundreds of thousands more families being forced through the doors of food banks.’

These figures are a shocking indictment of a government that does have the fiscal tools to put in place solutions to mitigate the economic shock of Covid (although imperfect, already demonstrated), the effects of the war in Ukraine and last but not least to address a climate crisis which threatens humanity, but which seems to have been put on the back burner even as the planet’s life support systems continue to degrade and the social injustices intensify globally.

Our government has the legislative and fiscal tools, should it choose to use them, not only to mitigate this economic crisis in the short term, but also to challenge the market-driven ideology of decades. An ideology which has led to an increasing divide between the rich and the poor, with an ever-increasing share of wealth going into fewer hands, as wages have stagnated. A pernicious ideology that has created increasing reliance on an unfair social security system which punishes people rather than supporting them, whilst it has made the concept of real full employment a dirty word and allowed the corporate sector to get away with murder by paying low wages and setting working people against each other in the dash for a job and a modicum of security.

We may, as the Trussell Trust says, need a fairer social security system for those who cannot work, or who are caught in economic straits not of their making, but we also need a government with the political will to implement a Job Guarantee, not just to provide the vital cyclical economic automatic stabiliser at such times as these, but also to reverse the unfair advantage capital has had for decades over labour, which has been responsible for wages being driven down in a fight for competitive supremacy with all that entails in human deprivation.

However, apparently, the government is right out of tools, out of ideas, out of everything except perhaps its propaganda machine, which is working just fine. This week’s Cabinet ‘blue sky thinking’ exercise left many scratching their heads as Boris Johnson was reported as asking for proposals for tackling the cost-of-living crisis without actually spending public money. Ministers have been ordered to find new ‘non-fiscal’ solutions. Grant Shapps suggested making the MOT test biennial instead of annual. Is that a joke? If so, it’s in the worst possible taste, ignoring as it does the very real effects of higher energy and food costs on families across the country. Their problems won’t be solved by such crass intervention. And Johnson is said to have revived the Liz Truss proposal to cut childcare costs by lowering England’s legal limit on adult supervision for nursery children, even though such a move could well endanger the safety of these children. As we said – right out of ideas, well at least sensible ones like using fiscal policy to address the current crisis and indeed future ones. Meaning, spending newly created money as only a currency-issuing government can do.

Even Torsten Bell from the Resolution Foundation think tank, which has its roots in orthodox economic thinking, commented that he thought the government had ‘lost the plot’, if it believed that such ideas would improve people’s lives substantially.

It is quite shocking and disingenuous of a Chancellor who can afford a £600 pair of trainers, has an extensive property portfolio and will think nothing of spending £13,000 a year on heating a swimming pool, to tell listeners on Mumsnet this week, that it would be ‘silly’ at this moment in time to give poor families any further help with rising bills, when people are already feeling the pinch from record rises in energy price and steep increases in the cost of food and essentials. Sunak’s Spring Statement and previous budgets have been a kick in the teeth for ordinary people who have paid the price in living standards and rising private debt, caused by inadequate spending, not just by Sunak but also by previous Chancellors wedded to economic orthodoxy, and the lie that government spending is just like our own household budgets. People who have already been subjected to government policies which have driven growing poverty and inequality and decimated the public and social infrastructure over the decades which preceded the current emergency. They need help now, not later, when things are likely to be infinitely worse.

The Chancellor has at his disposal the fiscal tools he needs to address the current cost-of-living crisis and create a fairer and more sustainable society. But while he adheres to his fiscal discipline message that puts the household budget narrative of tax and spend, paying down debt, reducing public deficits or the objective of achieving balanced budgets or surpluses at the top of his agenda, regardless of the economic conditions that prevail, the lives of ordinary people can only get worse, and recession will be just over the hill. We are not all in this together under this regime.

There is an alternative. It’s just that we don’t have a government or other political parties willing to challenge the economic orthodoxy which drives spending and legislative decisions. The system has been corrupted to serve global corporations, whilst politicians have been bought, as a result, by benefiting through the revolving door. At the same time, the media plays out the narrative like a broken record, to keep the illusions going that governments are powerless to intervene when economic instability threatens, hamstrung as they are by scarce monetary resources, when the reverse is actually true.

What hinders government is not scarcity of money, but the recognition that it must align its spending to the available resources and the productive capacity of the nation, and make the political decisions about who gets the pie based on that. That is the real balancing act and the real starting point for a true understanding of what governments can do, with the political will, to create the sort of society which benefits everyone, by serving public purpose instead of corporate greed.



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The needs of people must prevail over myths of a duty to balance the books

Published by Anonymous (not verified) on Mon, 11/04/2022 - 1:39am in

Chancellor Rishi SunakImage by HM Treasury on Flickr. Creative Commons 2.0 license

“Any intelligent fool can make things bigger, more complex, and more violent. It takes a touch of genius — and a lot of courage to move in the opposite direction.”
E.F. Schumacher


Illusionists with their smoke and mirrors and monetary make-believe rule the roost. After the Chancellor spent big, doing only what a sovereign currency-issuing government can do to stop an economy from collapsing, the message now being promoted by that same Chancellor is that fiscal discipline must take precedence; that getting the public finances under control is vital to the future health of the economy, but noting at the same time, that his £30bn ‘fiscal headroom’ could be threatened by energy market volatility. Sunak, still in household budget mode, has also been clear that he is not prepared to sacrifice his fiscal target of keeping debt falling, supposedly to protect future generations from excessive tax burdens.

The nonsense keeps coming. Here we have it yet again. Sunak claiming that he’s got a difficult job divvying up scarce monetary resources when nothing could be further from the truth. Or suggesting that too much spending now will burden future taxpayers.  All this is artifice and trickery and represents self-imposed and unnecessary targets for the public finances, not monetary reality.

The reality is that it is only real resources, not monetary ones, that give life to and sustain an economy.  From people to the physical resources employed in providing the things that keep society functioning. That is what must be managed for the public purpose. And the only burden that will be faced by future generations will be the one caused by insufficient government spending today to ensure a productive and sustainable future tomorrow.

Others, like Boris Johnson, alluding to the household budget narrative of how government spends, said this week that he had no problem with raising National Insurance contributions to help fund the NHS. The banker from the Department of Health, backing up his leader, suggested similarly that this increase was both right and a fair way to fund it.

In the light of the Chancellor raising the NI threshold, after the rise had been sold to the public as being necessary to fund the NHS and social care, it reveals a simple truth. It demonstrates the nonsensical position that taxes (of any sort) fund spending. Since, according to the prevailing myths about how government spends, the Chancellor will now have to find the funds to make up the shortfall arising from raising the NI threshold, and begs the logical question, where will the money come from to plug the gap? The Guardian suggests that it will come from general taxation, and yet again, we have the media, unsurprisingly, pushing a defunct model of government spending.

The government will, instead, as it did for the banking crisis in 2008, and the pandemic, create it out of nothing, as it always does. Because, quite simply, taxes do not fund government spending. But of course, it is not in the interests of the powerful for the general public to know that – they might in Oliver Twist style, revolt and ask for more.

This tax will do nothing to fund the NHS or social care, or any of the other things being claimed for taxes as a whole. Furthermore, it is a regressive tax which, regardless of the threshold rise, will do nothing to help the low paid, as inflationary pressures bite and the cost of living rises, taking as it does, more from the poorest than from the wealthiest.

The government, Johnson said this week, has to do ‘difficult things, … take big decisions.’  Gosh!  Really? So, when pressed about the cost-of-living crisis he agreed that people would have to choose ‘cheaper food, old clothes and no heating.’   It seems that hurting the poorest, sickest, and most vulnerable in our society, whilst at the same time driving the economy further into the ground and affecting everyone, is the price we must pay for the government’s economic mismanagement.

What government chooses to impose further harm on those who have suffered the consequences of government policies over a decade by suggesting again that there is no alternative to austerity? What responsible government chooses book balancing over national economic well-being at a time of economic uncertainty? This is a government with its currency-issuing powers shifting avoidable pain onto a nation already burdened and facing worse to come. As Michael Marmot noted this week ‘Poverty is literally a matter of life and death for those on the margins, and the government has so far failed to step in.

And yet, the illusion of truth continues to keep the public blindfolded and compliant to the message that fiscal discipline trumps human well-being. When there is an alternative.

As a result of insufficient government support, recession, which will affect individuals and businesses alike, cannot be far behind. These are not the actions of a government that has the interests of its citizens at the forefront of its mind, or a functioning economy. Without sufficient spending support, the economy will shrink. As people have less in their pockets to spend, businesses will stop investing and reduce their inventories, unemployment will rise and living standards will continue to fall. It becomes a vicious circle. Many think tanks, even while they promote the household budget model of the state finances, acknowledge that the Chancellor’s actions or lack of them will cause further harm to the poorest.

Clearly, Government ministers have also been on the orthodox economics induction course. Sajid Javid, the Secretary for Health, fresh from his 101 class said this week:

“When we spend money on public services, whether it’s NHS or anything else, for that matter, the money can only come from two sources. You raise it directly for people today, that’s through taxes, or you borrow it, which essentially you are asking the next generation to pay for it.’

For forty years, Margaret Thatcher’s dictums have guided the spending policies of both the right and left of the political spectrum. Whilst the right wing pushes its fiscal discipline message (with jam tomorrow, maybe, possibly, let’s see), the left wing embraces a false narrative by talking incessantly about raising revenue to pay for its programmes from taxing the rich, or most recently imposing windfall taxes on the fossil fuel corporations that have exploited the current economic instability to increase profits and CEO pay. Whilst it was shocking to learn last month that the CEO of Shell took home a monstrous £6.1 million pay package, it doesn’t change the fact that such ‘windfall’ taxes would not fund anything, let alone provide better public services or a fairer distribution of wealth. Indeed, taxation has quite a different purpose.

And yet as corporations price gouge and rake in higher profits, as reported in the MMT Lens two weeks ago, the Resolution Foundation forecast that the fall in real incomes would push a further 1.3 million people in the UK into absolute poverty, including 500,000 children, bringing the total to 12.5 million. When we talk about the cost-of-living crisis, it fails to convey what this means to some of the poorest and most vulnerable who are having to choose between heating and eating, a situation which, in fact, preceded the pandemic and is evidenced by the huge growth in food banks. Austerity has a lot to answer for. It is the difference between a good life without want and living in fear of it.

The blame lies with a government that has not only had an empathy bypass but also plays the blame game by dividing workers into the deserving and undeserving. But worse still, it has deliberately chosen this path, when it has the fiscal tools to avoid it. Currently, we have a prime minister who thinks that there is no alternative to more suffering. Whatever happened to the concept of ‘levelling up?’ And this is before we factor into the picture the effects of climate change on the poorest, who without action, will pick up the real bill, whilst the rich continue to live off the fat of the land, while it lasts, at any rate.

While the human suffering continues by government choice, the climate crisis seems to have been displaced on the front pages by the war in Ukraine and the associated consequences related to rising prices and shortages of oil, gas, food, and other vital resources. But it hasn’t gone away. It is the elephant still stalking the room.

As the IPCC (the Intergovernmental Panel on Climate Change) published its third and final report this week which draws on the work of thousands of scientists, the Cabinet Minister Jacob Rees Mogg suggested that the government wanted to extract, ‘every last drop of oil and gas from the North Sea,’ saying that ‘2050 is a long way off’. He said that the profits of the fossil fuel companies had to be protected from the prospect of windfall taxes, so that they could invest in further North Sea drilling for oil and gas. So much for COP26 and any hope that we can avoid the worst effects of climate change. The political priorities are clear.

Antonio Guterres, the UN secretary-general said this week, Nations and corporations are not just turning a blind eye to planetary disaster but adding fuel to the flames,’ and added that ‘it is a file of shame, cataloguing the empty pledges that put us firmly on track towards an unliveable world.

We are in the last chance saloon, and yet, western style, neoliberal oriented governments, that put markets and profit above people and the planet, are fixated with economic development, and uncontrolled growth at whatever cost, not to mention ramping up the war machine with public money, to keep the distorted economic system going, and the profits rolling in.

Remind us from where the money is coming for that dead-end exercise? When Rishi Sunak cuts spending on public and social infrastructure or fails to support the economy with adequate spending to match the economic conditions, or indeed allocate sufficient funding for climate action, all predicated on the lie of monetary scarcity and paying back debt, there seems to be an endless porridge pot for arms and killing people. When so much is at stake shouldn’t the public be demanding answers at the gates of Parliament? Monetary reality is displayed in those choices.

The fancy rhetoric of COP26 has been short-lived, and the promises watered down or swept away if indeed it was ever intended to fulfil them. The corporate body, which includes the damaging fossil fuel industry, dictates its terms using its huge wealth, power and influence, and governments around the world cosily comply as politicians stand to gain through the revolving door.

As the former astrophysicist and climate scientist Peter Kalmus noted in a Guardian Op-Ed piece this week:

‘Earth breakdown is much worse than most people realise … The science indicates that as fossil fuels continue to heat our planet, everything we love is at risk. For me, one of the most horrific aspects of all this is the juxtaposition of present day and near-future climate disasters with the ‘business as usual’ occurring all around me.  It’s […] surreal.  If everyone could see what I see coming, society would switch into climate emergency mode and end fossil fuels in just a few years.’


Kalmus joined over 1000 other scientists protesting around the world about the lack of urgent action and was arrested for locking himself onto an entrance of JP Morgan Chase in Los Angeles. They warned that the IPPC’s report language had been ‘watered down at the behest of governments unwilling to rapidly phase out fossil fuels.’

If we are to act at all, it cannot be piecemeal. It cannot be left to individuals, communities, or businesses to do their bit, however committed, without an overarching strategy in place. It must start with government serving its citizens as the planner, legislator, and currency issuer, to address the climate crisis and deliver a just green transition. Everything that comes next stems from that. This government has so far abdicated its responsibilities.

Based on current conditions, it is depressing to realise that we might be waiting forever for that, or that what is delivered is a greenwashed world, based on the same toxic and unjust economic model. But never let it be said it was not possible to change the very basis upon which our society operates and where the power lies.

As David Graeber, co-author of the Dawn of Civilisation, and Five Thousand Years of Debt, wrote  just before he died:

“… the crisis we just experienced was waking from a dream, a confrontation with the actual reality of human life, which is that we are a collection of fragile beings taking care of one another, and that those who do the lion’s share of this care work that keeps us alive are overtaxed, underpaid, and daily humiliated, and that a very large proportion of the population don’t do anything at all but spin fantasies, extract rents, and generally get in the way of those who are making, fixing, moving, and transporting things, or tending to the needs of other living beings. It is imperative that we not slip back into a reality where all this makes some sort of inexplicable sense, the way senseless things so often do in dreams.”

 The pandemic opened our eyes to a different way of thinking and doing things.  We cannot turn our backs on it, facing as we are the next great crisis, climate change, which, coupled with the human dimension of already existing gruelling poverty and inequality can only get worse if we carry on as we are. We must grasp the moment and push for concrete action, not half-hearted promises that are designed to go nowhere. Understanding how governments really spend offers us the framework for that change.



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The 2022 Alberta budget

Published by Anonymous (not verified) on Thu, 10/03/2022 - 10:46am in

I’ve written a ‘top 10’ overview of the recent Alberta budget.

My overview can be found here:

The 2022 Alberta budget

Published by Anonymous (not verified) on Thu, 10/03/2022 - 10:46am in

I’ve written a ‘top 10’ overview of the recent Alberta budget.

My overview can be found here:

Make bitcoin cheap again for cypherpunks!

Published by Anonymous (not verified) on Tue, 01/03/2022 - 11:44pm in



[For CoinDesk's Tax Week, I wrote about taxing proof-of-work, the mechanism used to secure Bitcoin. I'm still not 100% sure how to design the tax. In my CoinDesk article I suggested a one-time tax on purchases made at regulated exchanges. Another option is a continual tax on holding bitcoin, like a property tax. Give it a read and tell me what you think.]

The Case for Taxing Proof-of-Work

Bitcoin is an energy-intensive protocol designed for serious cypherpunks. Alas, bitcoin has been mobbed by unserious speculators, pushing up its price and blowing up its electricity usage. It’s time to enact a tax on proof-of-work. The tax would drive the tourists away, bring proof-of-work consumption back to a balanced level and make bitcoin cheap again for cypherpunks.

The Bitcoin network provides bitcoin owners with a unique sort of security – proof-of-work. Proof-of-work, or PoW, is a method for securing a network in a decentralized manner. The process, however, is incredibly energy-intensive, requiring thousands of competing processors, or miners, to perform redundant calculations. Other forms of security, say that underlying instruments listed on the Nasdaq stock exchange, rely on cheaper centralized methods.

Think of bitcoin as an M1 Abrams tank. A Nasdaq-listed stock is a zippy little Toyota. Most of the time a cheap Toyota works fine. But there are times and places when an expensive M1 Abrams is needed.

There is a small community of cypherpunks – hobbyists and technologically informed individuals – who like to consume bitcoin's tank-like security. They make PoW-secured transactions and eschew non-PoW-secured transactions. These cypherpunks are well-versed in self-custody. They have a deep understanding of what bitcoin is and can clearly articulate why they prefer PoW-based security.

Then there is the great unwashed.

Most of the people buying bitcoin these days are not cypherpunks. They are casual users. These “tourists” don't particularly want to make peer-to-peer bitcoin payments. They don't care about the Bitcoin network's tank-like level of security. They are quite content to keep their bitcoins lodged at Coinbase or Binance. They couldn't write a lucid paragraph on PoW if their lives depended on it.

What these casual users are after is "number goes up" – they want to get rich. And it's because of this influx of speculators that a tax on proof-of-work could end up being necessary.

We can all agree that it'd be overkill to routinely drive an M1 Abrams tank to shop at the local corner store. The odds of getting held up just for one's butter and eggs just doesn't justify the costly security of an M1 Abrams. A Toyota will do just fine, thank you. The same goes for proof-of-work. For most people, consuming expensive proof-of-work security is akin to using an M1 Abrams to go shopping. It's unnecessary, even frivolous. A cheap Nasdaq penny stock should suffice.

The sheer physical cost of filling up an M1 Abrams with gas is a major impediment to casual tank usage. Alas, this "brake" doesn't operate with proof-of-work. Casual bitcoin users get to enjoy bitcoin’s tank-like security without incurring any out-of-pocket costs.

The reason that casual bitcoiners don't feel the immense expense of bitcoin security is because the mining bill is (mostly) paid for with new bitcoin. Every 10 minutes, 6.25 new bitcoins are created to compensate miners. Issuance of new bitcoins doesn't hurt the price of the bitcoin in tourists’ wallets. The timetable of new bitcoins was built into the price of bitcoin ages ago.

And so the casual bitcoin tourist gets bitcoin's gold-plated security without having to endure any associated costs. It's as if they get to drive an M1 Abrams tank to Walmart, for free. If you could drive an M1 Abrams to Walmart for free, wouldn’t you?

Proof-of-work should never have been more than a neat niche product used by cypherpunks and other associated outsiders. Thanks to an influx of casual buyers, the Bitcoin network now uses a massive 141 terawatt hours per year of electricity, about 0.63% of the world's electricity, according to the Cambridge Centre for Alternative Finance. That’s more electricity than many countries and industries.

Bitcoin’s energy consumption could grow to much larger proportions. Say that casual buyers push the price of bitcoin up to $380,000 in 2023. That's 10 times the current price, a move that bitcoin has done many times before. With bitcoin at $380,000, the total market value of all bitcoin ever mined would be $7.8 trillion, just a little less than the value of all gold ever mined.

As the price of bitcoin rises, the real value of the 6.25 BTC mining reward increases, attracting more miners that burn ever more electricity. With bitcoin's price at $380,000, the Bitcoin network would be consuming a whopping 1,400 terawatt hours or so of electricity, around 6% of the world's electricity (I'm using a simple linear interpolation from today's price and energy consumption.)

That would be a tragic mistake. We shouldn’t be sacrificing 6% of the world's energy to produce tank-like levels of security for speculators who don’t need that security. There are far better uses for scarce energy resources than pure price speculation.

That's where the tax comes in.

Sometime before bitcoin hits $380,000, a tax on bitcoin purchases should be implemented. It would apply at regulated venues like Coinbase and Kraken and on large professional actors, like hedge funds. Casual speculators would finally feel some of the burden of producing bitcoin's security. To avoid the tax, they would likely select other types of volatile instruments, ones with a much lower electricity requirements. They might, for instance, purchase proof-of-stake cryptocurrencies, Nasdaq penny stocks, three times-levered exchange-traded funds or out-of-the-money Tesla options.

The tax would make most people better off than before (or at least just as well-off).

Casual tourists would remove bitcoin from their menu of bets. But there are hundreds of thousands of speculative instruments offering wild price gyrations, and so the tourists are effectively no less well-off than before. They would get Nasdaq levels of security rather than Bitcoin-levels of security, but for casual bettors that's fine.

Cypherpunks are better off. By purchasing their bitcoin on unregulated venues like Bisq, they wouldn’t have to pay the tax. They would also benefit from casual buyers being pushed out of the bitcoin market, and the subsequent decline in the price of bitcoin. When copper or lead falls in price, users of these commodities benefit: They can consume more metal than before. Likewise for bitcoin. A tax-induced plunge in the price of bitcoin would allow cypherpunks to acquire and consume bitcoin-the-commodity at a far cheaper price than before.

Finally, the rest of the world would be better off. Pushing casual bitcoin tourists away from unnecessary consumption of PoW would free up huge amounts of electricity – both renewable and non-renewable – to be consumed by other industrial purposes. It’s win-win-win.

A tax on proof-of-work

Published by Anonymous (not verified) on Wed, 05/01/2022 - 10:38pm in



The world is overpurchasing proof-of-work (POW) blockchains. How do we fix this? 

Let me quickly outline the argument for why the world is buying too much POW. Blockchains such as Bitcoin, Dogecoin, and Ethereum provide coin buyers with a special sort of security – proof of work. POW requires huge amounts of electricity, so much so that Bitcoin and Ethereum together currently use up more energy than Italy.

It's not the energy-intensity of POW that's problematic. The issue is that the biggest buyers of POW coins – speculators and gamblers – care very little about POW security. What they value is the thrilling price movements that blockchain coins provide.*

Coin gamblers also have the option of buying non-POW blockchains. Non-POW coins offer gamblers the same wild price movements as Bitcoin, Dogecoin, and Ethereum. However, the security that these non-POW coins rely on requires far less electricity. 

On net, the world would be better off if all blockchain gamblers migrated away from POW coins and onto cheaper non-POW coins. The gamblers themselves would not be any worse off. They'd still get all the crazy up-and-down fun & entertainment as before. But the rest of us would benefit, since far less of the world's energy would be burned. That's what I meant at the outset when I said that we have a POW overpurchasing problem. Coin speculators are unwittingly over-gambling on energy-heavy POW blockchains and under-gambling on energy-lite non-POW chains.

Left to their own devices, it is unlikely that coin gamblers will migrate away from POW coins like Dogecoin and Bitcoin towards cheaper coins. (See here for why). Might it be worthwhile to adopt a policy that nudges speculators away from POW and into cheaper non-POW blockchains? 

A targeted tax on POW coins is one option. But how would we design this tax? I suppose we could tax people's holdings of POW coins while exempting their holdings of non-POW coins. Or we could tax POW coin purchases & sales on exchanges like Coinbase. Or would we could tax the POW miners.

The economics of taxation is not my strong point. So I'm going to farm this out the comments section: if we want to shift speculators away from POW blockchains, how should we design a POW tax?

*There is also a community of hobbyists and technologically-informed individuals who do indeed consume POW. That is, they can put out a coherent argument for what POW is and why they prefer it over other types of blockchain security. Unlike the gambling class, they are less interested in coin price fluctuations. But the size of the hobbyist community is dwarfed by the gambling class.

Rendezvous in Mallorca: a conversation with Warren Mosler

Warren Mosler and Stuart Medina Miltimore portaitsWarren Mosler and Stuart Medina Miltimore

By Stuart Medina Miltimore. Extract from a long interview with Warren Mosler held in Mallorca on October 14, 2021. Originally published by Red MMT in both English and Spanish


Stuart Medina Miltimore (SMM): A good starting point is your inflation and interest rates story. Let’s start with inflation. You frequently argue that inflation is not always driven by demand. Indeed, you could argue that [demand driven inflation] is a rare event. After that, we can talk about interest rates.

Warren Mosler (WM): Inflation academically is defined as the continuous increase in prices that is faced by agents today looking to purchase things for delivery in the future, whether it’s next week, next month, next year or five years forward. But they want to purchase it now for those dates. And they’re facing what I like to call a term structure of prices. The continuous increase of that term structure of prices is academically the rate of inflation. And, with floating exchange rates, it’s also a direct function of the central bank policy rate.

So, if you have a permanent zero-rate policy, something like Japan has now, where [the Central Bank] controls up to ten years at zero, the term structure of prices is flat. And so the inflation rate under the academic definition — the way I read it — is zero, because agents are looking at flat prices relative to spot prices. So, if I’m a gold manufacturer, I can buy gold today for jewellery manufacturing at $1,800 an oz. But I have other choices: I could buy it a year from now for $ 1,800 or ten years from now for $ 1,800 plus some storage, insurance and other sundry charges. But effectively it’s the same thing.

Now, if the central bank raised rates, say to 1% from zero, the term structure of rates would now be locked at 1% instead of zero. Then the price of gold for every year forward I want to buy would go up. Prices would continuously go up at a 1% compounded rate, so the rate of inflation would be 1%. By the academic definition of inflation — as I read it — the central bank sets the policy rate, which is the rate of inflation, the structure of the policy rate.

The Fed only sets overnight rates, as in the European Union, and allows the term structure to adjust to what market participants anticipate that the Fed is going to do. That’s their policy choice. So today, with a one and a half per cent ten-year note, you could say the forward structure of prices is increasing linearly at an average of one and a half per cent a year for ten years. For people looking today to purchase things for delivery next year or the year after —and this could be somebody who wants to buy a house which is going to take a year to build, or who wants to build a factory which is going to take three years to build — they have to look at the forward prices of those things. The term structure of prices, which is set by the policy rate, is the rate of inflation.

According to that definition, you would not see a headline today saying inflation is at 4%, right? Because that’s what the CPI did versus a year ago, which is a very different thing. What we have today is what’s called a price level. And if the rate of inflation is zero, as it is in Japanese yen, that’s not to say that the price level won’t change, go up, go down, go sideways for the next ten years. It is to say that, right now, if I want to buy something for one-year delivery, the forward price is the same as the spot price.

The next question is, what does determine the structure of prices? And one of the questions it brings up is why the central banks won’t even consider this, or put any time or effort into trying to see what the relationship is between the term structure of prices and their policy rate. Because central banks think they’re in control by using the reference rate.

Well, they’re looking at changing the price level, not realizing that when they raise rates, which presumably causes the price level to go down, they’re establishing a higher inflation rate. They haven’t looked at it from this point of view, nor done the research on it. So, it’s not that they’re right or wrong, it’s just that it doesn’t even occur to them to look at this.

Let’s look at the price level. Why are prices where they are? Why does this thing cost $10 or €9? Where does this price come from? The mainstream [economists] do not have a theory of the price level or a way of determining it independently from what it was yesterday. So they just say it’s historic, because they don’t have anything better and their math doesn’t work to determine the price level as they claim.

SMM: It’s an infinite regress story such as the Marxist labour theory value. Prices are determined by the amount of [socially useful productive] work that you need to get that gold out of a mine, yes, but how much was that hour of work worth in your first place?

The currency is a simple public monopoly.

WM: They don’t understand the source of the price level. What I recognized with MMT, since inception, is that the currency is a simple public monopoly. The economy needs the government’s funds to pay taxes and the government is dictating the terms of exchange when it spends, — whether it knows it or not. So, what markets can do, and that is what the mainstream recognizes, is set relative value. And all their models do is try to determine relative value. They can tell you why peaches cost twice as much as apples or 1 hour of labour earns enough for three pizzas or one pizza per hour of labour. Markets can determine relative value, but markets can’t determine absolute value. They can’t determine whether the hour of labour should be $10 or eleven and a half euros per hour.

SMM: It’s like saying I can tell that this distance is twice this other distance, but somebody has to define a measuring rod.

WM: That’s what I call absolute value. The only information the markets get on absolute value comes from the government through its institutional structure.

SMM: What we’re seeing with the electricity market in Europe right now, is that an institutional structure is determining the pricing in the market. It has nothing to do with production cost.

WM: Exactly. And the institutional structure has a large effect on relative value.

If the government needs to pay for soldiers and nobody else wants them, then it’s setting their value. They get what we pay for them. These soldiers can say, “We need the money to pay the tax”, and we say, “This is what we will pay”. They’re kind of stuck with those terms right now. The government, of course, is setting some price in terms of currency supply and demand.

The demand comes from the tax liability, which then causes the private sector to need the government’s money. So, nothing happens without the tax liability. The story begins there. The mainstream money story begins with the government collecting taxes and what they don’t collect, they have to borrow.

But we see it the other way around, the actual way it works, where the government spends first and then taxes are paid. But they can’t spend first without creating the tax liability. Once the tax liability is established, then the government is in a position to dictate terms of exchange. So, the price level is necessarily a function of prices paid by government when it spends. And, I used to add, also the collateral demanded when it lends, because, if the government lent, open-ended, with no collateral, anybody could borrow all the money they wanted and become the agent for government spending. If you’re getting it in exchange for nothing, it has no value and you would just get hyperinflation. Money would be worth nothing. You could borrow the money, pay the taxes, and nobody would care about it anymore.

However, if you look carefully, when a bank lends, the debtor signs a note and they give you a balance in their account. They give you a cheque; they’re buying a note. It’s a purchase of a signed note. So lending is a [financial] asset purchase by a bank. And any purchase by a bank is paid for by increasing the balance in someone’s account. That creates a new deposit or addition to an existing deposit. This is new money, so to speak, if you define bank balances as money, which everybody does.

Banks in the commercial banking system are agents for the state because they are chartered members. They have an account at the central bank. They’re fully regulated. Regulation includes who they can lend to, what collateral they have to provide, their management, how much they can pay their management, whether they can pay a dividend on their profits… everything. The Regulators have an acronym, CAMELS[1], which explains what they regulate, which is everything. If the banks are agents of the state, I can now say that bank lending is a subset of government spending in the purchase of financial assets.

Then we can just stick with the simple statement. The price level is a function of prices paid by the government when it spends. We don’t have to qualify further with regard to lending. That’s the only source of absolute value. So, the price level doesn’t change without some change in the absolute value information coming from the state.

SMM: How do you put into the equation the fact that the government buys an assortment of goods and not a single uniform homogeneous commodity?

WM: So it’s determined by what needs to be offered at the margin: what the population has to do to get that next dollar from the Government. But it’s not the same offer for everyone. For someone, it could be one hour of labour and for someone else an additional mile of highway.

The government is not only influencing the absolute price level. It could also be influencing the relative price level. If they decide they want apples for everybody in the army, then the price of apples goes up. If they want everybody in the Army to wear a Rolex watch, the price of Rolex watches goes up.

The government creates a notional demand but there isn’t any aggregate demand until the government spends first. It is the source of aggregate demand. I call it the ‘demand filter’. How do the dollars get from the government to the taxpayer? If they just hired everybody —let’s say they tax everybody’s house — then everybody would work for the government and it would give you a job. In this case, the demand filter just has one layer. But if they took the whole $5 trillion [budget], or whatever it is, and gave it to one contractor and said: “here you go; run the economy”, then you would get very different results. He might keep a bunch for himself and you get a whole different distribution.

SMM: Then this person would be the price setter instead of the Government.

WM: Exactly. Especially if he wasn’t given any instructions. Now, if you give him money without instructions, then he becomes an agent of government spending in terms of price level. If the Government pays you a Social Security cheque, you can go out and tell people what they have to do to get this money. But if they say, “here’s money to buy a car”, or “here’s money for food only”, then that’s a different story.

SMM: When you talked about banks, you said they are buying those promissory notes from their borrowers. Presumably, those borrowers will pay back their loans and the promissory note will be cancelled, as well as the deposits that were created when the promissory note was first given out to them. What happens when a borrower goes bankrupt and is not able to pay back?

WM: So that deposit is still outstanding. The bank capital has been reduced and that’s a loss for the shareholders. So it all balances out in the end.

SMM: Recently the European Central Bank redefined their inflation target. They used to say, less than, but close to, 2%. And now they say that they will allow inflation to overshoot that target a bit. However, do you expect the Fed or the European Central Bank will be raising interest rates [in response to the recent price increases]?

WM: They’ve got the interest rate thing backwards. So the answer to that question is, if they believe that inflation, the way they define or report — the CPI, the core, all these things — is somehow ahead of their targets, whatever that means, then their response will be to raise rates because they believe that the cause-and-effect sequence is “we raise rates; inflation comes down”. They don’t have any hard evidence nor supporting theory for that anymore, but they believe it. That’s their story and they’re sticking to it.

We can give them all the theory and evidence to the opposite. [However] they fear that if they’ve got their money and interest rate stories backwards, then the logical conclusion is that central banks really cannot do that much about inflation in the first place. They never have, indeed. That’s why they will never believe this story because they know they will be out of work.

In the meantime, MMT has pointed out several things that the economics profession totally got backwards to the detriment of the economy and the standard of living for a long time. One of them is the sequence of spending. They think that they have to take money in at the federal level to be able to spend. We pointed out that’s backwards. It’s the economy that needs the government’s money. Every mainstream economics model gets that backwards. And that’s a lot of models for many years that have won a lot of Nobel Prizes for having it backwards.

SMM: Their models were designed under the assumption of a gold standard [monetary system].

WM: Now they’re coming around on the realization that government at least prints the money or creates the money when it spends. They haven’t taken the next step: which means accepting that all their models are wrong, but they do know that all their models are broken. And that includes their interest rate models because, when you look at all their forecasts which are based on their models, they’ve all been wrong. So, they recognize their models are broken. So that’s a good start.


Interest rates

WM: The second major thing that we’re saying is they’ve got the interest rate thing backwards. They haven’t gotten anywhere near as close to seeing that our way — at least in public — as they have on the fiscal side. They’re no longer worried about default, but they’re worried about inflation. And of course, the reason they worry about inflation is because it’ll cause the central banks to raise rates to fight it, which is backwards. So now it’s in their best interest to be able to do the countercyclical spending without concern that central banks are going to raise rates, because that’s only going to make matters worse.

Once they know it’s in their best interest to leave interest rates at zero, they should just leave them there forever, which is what we’ve been saying for 35 years now and Japan has proven for 30 years.

SM: There’s also a twisted logic in thinking that by raising interest rates and causing the economy to slow down, they’re actually decreasing capacity and increasing productivity. They’re actually making things worse by slowing down the economy.

WM: Let’s look at their thinking. Remember the situation with Greece. They were not right about the Greeks being lazy and not wanting to work. It was shown that Greeks actually work harder than anybody else. But let’s just concede that they were right. So here you have a population that’s lazy and doesn’t want to work. How do you punish them? Well, you impose austerity and put them out of work. What sense does that make? So even on their own terms, which are completely wrong, their whole internal logic has always been completely flawed since the beginning. But it’s always worked politically and only things that work politically actually happen. If it doesn’t work politically it doesn’t happen.

Unfortunately, they’re not anywhere near as close to the idea that they’ve got the rate thing backwards.


Export-led growth model

SMM: What do you think about this obsession with the export-led growth model, which a lot of countries pursue?

WM: The old textbooks show that it is absurd. Imports are a real benefit; exports are a real cost. It couldn’t be more obvious.

SMM: Yes, even Paul Krugman or Milton Friedman or any classical economist would have said that some years ago.

WM: But not anymore.

SMM: They are just thinking in terms of export-led growth models.

WM: That’s just rhetoric demanded by fixed exchange rates to build reserves so that you can maintain that fixed exchange rate. That is what the IMF was created for: to help countries in the fixed exchange rate system to maintain reserves. So they would recommend these export-led growth models. Not because it served your population or standard of living or terms of trade or anything like that, but because, under the Bretton Woods system, that’s what had to be done to sustain that system for better or for worse.

The system is long gone, but they’re still doing it and the whole understanding is still there. People are doing that unilaterally without even being pressured by the IMF.

SMM: I’m hoping some of the readers of this interview will be Latin Americans, where there’s a long tradition, or obsession you may call it, with fixing the exchange rate or pegging it to the US dollar or managing it some way or another to stabilize the exchange rate. What would you tell them? What’s the point of doing that?

WM: The place to start is to look at the real wealth of the nation. And then you can look at the distribution of that real wealth. So the real wealth is what I call your pile of stuff [for consumption] and everything you produce domestically makes your pile of stuff bigger. All the goods and services you produce, and the more people working, the bigger your pile of stuff that you have to allocate somehow, through market forces or whatever, to everyone.

So, if you want anything less than full employment, you’re sacrificing your pile of stuff. So why would you ever do that? Why don’t you just get as large a pile of stuff as possible? Whatever you’re producing, you don’t want to give that up to adjust your prices, which is an allocation. You probably want to deal with your allocation problem separately. Don’t sacrifice your workers and your production of real output. Domestic real output, is yours, right? And that’s your wealth. Real wealth, plus anything you import from China, or Japan, or Korea, makes your pile bigger.

Your imports minus your exports, which make your pile smaller, are your real terms of trade. Just making your pile larger or smaller. Now, once you understand that, then you can go on to ask if fixing the exchange rate will help make my pile larger or smaller. And what happens if you use fixed exchange rates to maintain your foreign exchange reserves, that requires periodic episodes, sometimes extended periods, even forever, of unemployment to stay competitive. It requires you to keep your people working for fewer calories and you can’t afford to eat your own meat, so that you can maintain your exchange rate. When your target is your exchange rate and your reserves, you’re at less than full employment. So your domestic pile of stuff is smaller than otherwise; you’re giving up that much real wealth.



WM: With a World unemployment rate that is probably 15%, the losses of real output in one year are probably much larger than all the destruction of real goods and services done by all the wars in the history of the world. It’s unbelievably staggering!

SMM: Some of the economists who argue for these sorts of exchange management policies would say that, given that your output capacity is limited and that employment or unemployment is determined by your productive capacity, we need to manage exchange rates so we can afford the capital goods that we need to increase the productive capacity of our economy [in the future].

WM: Two hundred years ago, when we were a totally agricultural society and 99% of people worked in the fields or they would starve, what was the unemployment rate?

SMM: Zero.

WM: Then we started inventing tractors and everything else, creating unemployment in the process. So those people didn’t need to do [that work any longer]. And then manufacturing came along so we went from 99% in agriculture to 1% today. But unemployment is not 99%. Then people went to manufacturing but now manufacturing in the US is 7% of the employment. So at 8% in Agriculture and Manufacturing, unemployment is not at 92%, it’s 3%.

SMM: There is a twisted logic in the idea that, since we can’t create more employment, we have to create unemployment.

WM: The point is there’s always more to do than people to do it. Every day we start off with too many things to do and not enough time to do it with everybody working. So there is never a shortage of jobs. There’s only a shortage of funding.

SMM: I was reading a paper by the Reserve Bank of New Zealand, which was published some years ago when they decided to float their currency. One of the arguments they gave for free float is that managing the exchange rate creates more abrupt changes in the exchange rate, and hence more disruption to the economy and the financial system. Whereas the floating system makes for smoother adjustments in the exchange rate to changes in response to the trade imbalances.

WM: You can always use countercyclical fiscal policy and a Job Guarantee to support full employment. But you can’t do that with fixed exchange without losing your reserves from time to time, which means you have to float.

SMM: The argument these economists retort with is that’s not real employment. You are not creating real jobs nor creating real output.

WM: Well, no, but it’s only short term, because if you have a job guarantee or a transition job guarantee, you then either hire them in regular public service out of the pool, or you relax fiscal policy and the private sector will hire them, which they will. Yes, on day one, it’s not full employment, but on day two and day three it is and those people immediately transition out of there. And it’s a process where you’re keeping the number of people in the job guarantee somewhere between 2% or 5%, something like that, on a continuous basis. So, in that sense, over time you’re at full employment-

SMM: What is your view on the proposals to use the job guarantee as part of the Green New Deal and employ those who are going to be rendered unemployed by shutting down coal mines or oil rigs in the ocean and employ them, presumably in a job guarantee program? Do you think that makes sense?

WM: I consider myself a progressive, okay. To me, that’s not a progressive way to provision the public sector with labour. If you want to hire these people, just hire them! Hire the coal miners to do whatever you want them to do. Don’t put them in a job guarantee at ten Euro an hour. If the regular public service job is €30, just hire them at €30. The whole point is not to undercut the base scale of the public sector. Once you fully provision the public sector with the green new jobs wherever you want, then the rest of those people you want to transition into the private sector, they’re the ones in the job guarantee.

And then you conduct a fiscal policy, you give government grants, loans or whatever you want to do to get the private sector to hire them. If you don’t want them in the private sector, if you want them in the public sector, just hire them.

SMM: The size of the public sector is a political choice that depends on the preferences of the electorate or the elected representative.

WM: I met with a guy from the Pentagon in 1999 or so and, in about three minutes, everything that’s wrong with hiring in the public sector came out. He said, “We really need to build the military up so we’re going to do that.” And I said, “Well, look, unemployment is at 3% right now. We’re at full capacity. You can do it, but you’re going to be taking those people away from the private sector right now. It’s going to be transfer of real resources and you’re going to be competing with them for those. You should have done that seven or eight years ago when we had high unemployment because of the recession. That would have been the time to do it if you’re going to build up the military.” He said “Well we could not do that then because we were running a budget deficit. We didn’t have the money. Today, with a surplus, we can get this done.

So, that little story tells you everything wrong with how the public sector operates right now. The monetary system gives them no information as to what they should be doing. What gives the public sector information is the real economy. How many people do we want in the military? If we have too many then there’s nobody to grow the food and build cars. If we don’t have enough, we’re going to lose the war. That’s how you make your decisions.

What’s our budget and what balance do we have has nothing to do with it. The thing that gives them no information is where they get 100% of their information.

SMM: I think it was Keynes who understood this in his famous treatise How to Pay for this War. He understood that it is the real resources that matter. He just wanted people to spend less and make sure that they were either taxed or put their money away in patriotic bonds or whatever

WM: Which is true, but at the same time he has the government spend by getting money through taxes or borrowing to be able to spend, right? You could argue that under the fixed exchange rate those policies were true, and, although he wasn’t a supporter of those, he still was operating under that context.


The trillion-dollar platinum coin and the debt ceiling

SMM: Speaking of government deficits and debt, let’s talk about the trillion-dollar platinum coin. What’s your take on that?

WM: Well, as you know, it came off a discussion by blogger Carlos Mucha (Beowulf), which was a very good comment and led to a discussion that I had with him at the time. He pointed out that under the Constitution, or whatever, the Treasury could mint a platinum coin, which would be an asset at face value and the Fed would be obliged to buy to it. That would put those funds in the Treasury’s account. My response to that wasthat’s nice, but they really don’t need it. The treasury can sell three month bills and that is what it always has done. But it’s certainly valid and it’s something they could do if they wanted to. And I don’t have any objection to it or anything like that. I thought it was a good find on his part. It was very perceptive on his part to pick that up as an option.

Not much happened since then, except that it was seen as some sort of a cool thing. Then now we ran into the debt ceiling and we said the Treasury can sell all the three month bills at once. But Congress is saying; “No, we don’t want you to sell three month bills. We don’t want you to pay your bills.” So the will of Congress is for the Treasury to not make its payments. Yes, we approve the spending, but we’re not approving you the means to get the money, presumably because we don’t want you to actually spend the money we appropriated.

So now the question is, what does the Treasury have to do: do they abide by the will of Congress immediately? Do they look at the Constitution, which says the government has to honour all its obligations? And President Obama said: “It’s the will of Congress”. I think President Biden is saying the same thing: “It’s the will of Congress”, and we are going to let Congress figure this out and then tell us what to do. We’re not going to try and undercut the will of Congress.

In the meantime, he could have said “We have a constitutional requirement to pay our bills. So, we’re going to mint the coin.” But the political decision was made to go by the will of Congress. And Congress came back kicking the can down the road until December. You can argue which is right or wrong or what they should or shouldn’t do, but their position is a legitimate position.

My issue with this is they’re not well informed as to what happens if we do hit the debt ceiling limit. They’re saying that we would default on our bills or the Treasury bills won’t mature, or that we won’t make payments on the bonds and our credit would be bad and so we wouldn’t be able to borrow.

That’s not the problem though. None of that actually matters. They just start trading arrears like they did in Russia in 1989 and we get through that and they say, well, the government shut down.

We’ve had government shutdowns before. Nothing particularly bad happens. The national parks are closed, etc. The reason nothing bad happens is because, although workers don’t get paid – not because of the debt ceiling, but because the government is closed and there’s no budget – other things get paid and it causes spending to go on. A lot of automatic spending goes on, such as Social Security cheques. And the deficit goes up.

SMM: Yes, automatic stabilizers kick in because there’s more unemployment.

WM: Yes. So the automatic stabilizers kick in and the deficit is allowed to go up. But when you hit the debt ceiling, you suspend all the stabilizers. A better way to explain it is that, when the government stops spending, tax revenues fall off. Before, that was okay, but this now means that you’ve got to cut more. Which means within about three days, you’ve watched 25% of GDP wiped out. It’s unimaginable how pro-cyclical deficit spending is. And also, a lot of spending comes from bank lending. The banks can’t lend when the government shuts down and people are losing their jobs, because their lending is pro-cyclical. So now the automatic stabilizers required to get through are much higher and they’re accelerating. What you get is this accelerating race to the bottom.

I’ve never seen it described in any [analysis] of the consequences of hitting the debt ceiling. They assume the consequences are the same when the government shuts down, so they kind of slough over them. But they’re much, much more severe. If those consequences were understood, I think they wouldn’t think of going anywhere near it, because it’s seriously catastrophic; much worse than they think. It’s like nuclear weapons. One of the dangers is that we might hit it because they don’t understand the consequences.

SMM: One of the implications of MMT and political theory is that really Parliament, or Congress, or whatever your legislator is called, is the creator of money.

WM: It’s the source of money. It’s the government that levies a tax liability and then it establishes what the tax credit is, the dollar or the Euro, that can be used to pay it.

SMM: In fact, in the Spanish [Government] budget, the items in the budget, the Appropriations for the government are called ‘budget credits’. I don’t know if it’s the same in the US. So that means the government has credit to spend and it’s authorized to spend to whatever limit is set in the budget.

WM: Very good.



SMM: So there’s political theory implications that derive from MMT, which I think are profound and transcend economics.

WM: The whole system is based on coercive taxation. That’s not well understood, because that taxation creates a not well understood anxiety in the population. It creates greed and people being money-hungry who then can’t sleep and start taking all kinds of medications and everything else. That’s the anxiety created by ongoing tax liabilities. It’s like you’re in a bathtub with the water continuously going out and you’ve got to work to keep water coming in. And it literally drives people crazy and mad. And it’s a very powerful force to provision government, and it wins the war and creates this largest standard of living but it creates massive psychological consequences for the population. I’ve never seen it discussed.

SMM: You wouldn’t see that sort of behaviour in the premonetary sort of tribal society. They would have other problems like finding food, but that wouldn’t have those psychological effects that you described.

WM: That’s not to say that there isn’t a better way to do it, whatever better means, or a different way to do it. There are probably alternative ways and the results are going to be very different. Maybe this is the desired way, but that doesn’t mean you don’t recognize it, understand it, and look into it to see what you’re doing and how you can modify some of these effects.


Monetary sovereignty

SMM: I mentioned the words monetary sovereignty previously, and you reacted by asking “what do you mean by monetary sovereignty?” What is your position regarding the notion of monetary sovereignty?

WM: Before MMT, the meaning of monetary sovereignty was a sovereign government that issues its own currency. But right now, the meaning has been extended to include other meanings such as non-convertible currency, or no foreign debt, or food independence, or something else. So now I have no idea what they mean anymore.

SMM: I would understand it as a government that issues its own non-convertible IOU.

WM: Right. But let’s say you are the Franklin University, and you’re issuing the Franklin franc, which is your tax credit of which you are the sole issuer and which the students need to pay a tax. Do you have monetary sovereignty?

SMM: Well, no. They are only the sole issuer of that currency.

WM: When you said ‘sole issuer of the currency’ I wouldn’t have questioned you when you say that they have monetary sovereignty. But you don’t need to be a sovereign to be the sole issuer.

So, what are you trying to say when you use the word monetary sovereign? Well, you could be just referring to countries that do this or that. And some of the proponents have a list of eight things you need to have, or you don’t have monetary sovereignty.

SMM: It muddles the issue.

WM: Yes, it muddles the issue, and it opens you up to criticism that sidetracks the issue for no reason. It’s hard enough to have enough time to focus on the actual points, without having to put out all these fires all around the edges which using that word creates.

So, it’s like using the word money. I don’t ever use the word money unless it is in a casual conversation.

SMM: What do you use?

WM: If you go back, you will remember that I said bank loans create bank deposits. It’s the same thing. The definition of ‘money’ is so casual that it is not constructive.

SMM: It’s more a taxonomy sort of issue, or rather about being precise about the definition of what we’re talking about.

WM: You want to get your point across. And this concept makes it more difficult to get a point across, not less difficult. It works against you getting the point across. So when I say bank purchases create bank deposits, I’ve got my point across. If I say bank purchases create money, you might raise all kinds of questions and start discussing those, maybe even arguing about them.


The European Union

SMM: Now that you’ve been in Europe for a few weeks, what would you recommend the European Commission, the European Council or the ECB do regarding the end of the pandemic and the gradual return to normal? Employment rates have bounced back, not completely to their pre-epidemic levels, but they have recovered; activity is almost back to normal. Would you recommend them to continue with the €1.5 trillion program that Christine Lagarde announced a year and a half ago?

WM: Let’s just review the last thirty years quickly. Twenty-five years ago, we were sitting in a Bretton Woods conference on the European Monetary Union, recognizing what was going to happen this whole time, discussing what the end game would be. The Endgame would be a permanent zero rate policy. There would be a central bank guarantee of all national debt, and they would have to use the deficit as a policy tool, rather than as a constant deficit limit. So now here we are. And we also discussed that they were going to need a credible central bank guarantee which is necessary for deposit insurance. Without that, the banking system is going to collapse. They are forced to have one because there’s no other way to do it. This is a point of logic.

So here we are 25 years later. I would say it’s time to declare victory and move on. They’ve got a 0% rate. Just make it permanent! They’ve got the central bank guarantee of all member nations. They’ve got the credible deposit insurance. Just put it in writing. Don’t make it a Mario Draghi policy that we are continuing.

And, as of last year, the Commission decided to change the 3% limit.

SMM: Yeah. The escape clause.

WM: Make it a policy tool!

SMM: But you know that this is temporary.

WM: But temporary and crisis means it’s a policy tool, right? It’s a policy for a crisis. It’s a policy, temporary or permanent. So what they’ve decided is that it’s not fixed at 3%. It’s a tool to use to obtain a result: to get out of the crisis. To solve the energy crisis, the natural gas price crisis, whatever, they’ve recognized that you have to do this. Before that, there was no discussion about this. We went through a lot of crises and they never changed it. They tried to enforce penalties, and then the central bank enforced the rules by letting people up from under the umbrella to let your spreads widen if you didn’t comply with what was always a hard limit. Now it’s a policy tool.

Now, they can move it back if they think that’s beneficial. If they think it isn’t beneficial, they don’t have to move it back. And that’s what they’re trying to decide. Is it a trillion and a half, or isn’t it? It’s a policy tool now. Otherwise, there’s no discussion like before. Three per cent, there is no discussion! Where did we get that?

Now they’ve got the correct policy tool.

What’s left is to recognize that raising rates causes inflation, in which case they will leave interest rates permanently at zero. Because why would you raise rates if you don’t want to cause inflation? Use the other policy tool. Let everybody have lower taxes or higher public services. Raising rates is a totally regressive way to regulate the economy: basic income for people who already have money. There’s nobody in favour of that! Right? Even the basic income people are against that kind of basic income.

So, their economists now have data that show what this deficit limit of 11% or 6% or 3% or 20 % or whatever does. They can give the Commission a spectrum as to what their forecasts are when they put the policy tool at those levels, and they can also get forecasts from private-sector economists, like they already do.

Where do we want it to be next? Should we be back to 3% or not? Well, what do our forecasters say is going to happen at these various levels?

We know that with the central bank guarantee, even Greek debts are at zero %. There’s no credit risk anymore. They used to have credit risk but now that’s all behind them. It’s not there for the banking sector. It’s not there for the government. The debt to GDP ratio is what it is. And with permanent zero rates, why should they sell long term securities at all? They should all just sell three months securities at zero per cent. Now they have no debt service.

The tool of fiscal policy is where all the impact comes from. Use your technocrats to determine what it should be. And then the Commission would decide which one is the most appropriate for the European Union.

SMM: Well, this would still be a rules-based determination of what the deficits should be. The reasonable alternative might be that we want a rule that requires as low an unemployment rate as possible and let the deficit be whatever it needs to be.

WM: The technocrats can tell them that, so they have to make the decision. They’ll tell them what the corresponding inflation rate will be. They’ll tell them what the currency will do. They’ll tell them everything.

SMM: Unfortunately, my impression is that next year they’ll start tightening the belts again.

WM: They might. If they recognize it as a policy tool and that they’re not bound by historical limits, but by future outcomes, then the European Union could do enormously well. It could be the most prosperous Union of all time. They can figure that out. And they’re right there. They’ve already got the things in place now, which they didn’t have two years ago. I say they’re on the edge of greatness. Right?

SMM: Except some people are closer to that edge than others. Not all the technocrats have the same understanding. They have the guarantee from the central bank. They’ve suspended the deficit limits. But they’re still anxious about the consequences of that.

WM: But they have data on what the consequences are, right? They have data on what happens with 11%. They didn’t have that before. They might have been afraid that the currency would collapse, hyperinflation, etc. Well, now they know it doesn’t happen.


The Biden administration’s proposals for tax increases

SMM: What’s the deal with the Biden administration’s proposals for tax increases and wealth taxes and so forth? Do you think it’s necessary?

WM: Trump was the price that the voters were willing to pay to keep the Clintons out of office. Now, with Biden, the price voters are willing to pay to keep Trump out of office [laughs]. There isn’t anything positive about the last couple of US elections, it has all been about the lesser of two evils.

So, Biden is in there in the middle of the road, finding ways to pay for things, looking for legislative compromises.

SMM: Do you think it’s just tweaking the tax rates a bit to satisfy part of his progressive electorate, rather than an actual policy?

WM: Satisfy the headline progressives; not the real progressives, the MMTers. It satisfies people like Robert Reich who say that you could tax the rich and get enough money to feed everybody. That’s what a lot of voters want to hear.

SMM: Are you concerned about the hike in oil and gas prices having consequences in terms of prices and demand?

WM: Isn’t that what triggered the 2008 debacle? Oil just went straight up.

SMM: That year was the maximum for oil prices. I was looking at a time series of natural gas and oil prices. And the last peak was around 2007-2008. I have been hearing comments of people saying, oh, prices of natural gas are an all-time high. No, they’re not! They are higher than they were a year ago, but not at an all-time high.

WM: Yes, but that can drain demand and money goes to places that don’t spend it.



SMM: Before we began recording, you mentioned something which I thought was interesting about the European official trade surplus perhaps not being as high as recorded in the official figures. You said one proof that the official statistics are not picking up the real imports could be that the Euro is not appreciating.

WM: Yes, because you never see a case where trade surpluses keep going on and on without the currency appreciating. According to purchasing power parity, the rate should increase; although there are other things that determine the value of the currency.

There are several articles about how trade figures from different customs offices don’t add up.

SMM: Well, if you add the trade surplus or deficits of all the nations in the world, there’s always a huge gap. Those missing exports must be going somewhere. It’s not going to another planet, for sure. But the statistical discrepancy is very large indeed.


The future of MMT

SMM: What is your opinion on where MMT is headed?

WM: It’s just nice to see the proliferation of MMT discussions. Anybody who gets involved in the discussion can go right to the source material. My Seven Deadly Innocent Frauds book was written for readers with a third grade level. All the knowledge is there.

The interesting thing is that MMT has become a grassroots movement. We might have created our own celebrity with Stephanie Kelton, but we certainly didn’t have a celebrity promoting it in the beginning. Nor did we have any central banks promoting it.

Somehow, people like yourself just sprung up all over the world. For what? It wasn’t for say animal rights, or women’s rights, or the green movement. Who would have heard of a movement to get central banks and governments to understand that they have fiscal policy backwards, that they spend first and then tax? How is that the stuff of a grassroots movement that not only spread to millions of people but also filtered up? And none of them were senior economists, even junior economists. There were zero mainstream economists participating.

But now — there might be one or two reluctant ones — they’ve all started changing their models because they could see that they weren’t right. And MMT is now mentioned and studied at every central bank of the world and discussed in every legislature. How improbable was that!

SMM: And there have even been some attempts to declare MMT a pernicious and dangerous idea.

WM: Yes. The US Congress has a resolution condemning a theory describing monetary operations.

When I talk to senior people at the Fed they go: “Well, yeah, of course. That’s how it works. Everybody knows that!” Then why don’t you say anything? “Well, it’s not our job”.

So, it’s nothing except monetary operations. So how do you get a grassroots movement to instruct the central banks and the legislatures on monetary operations and how it’s done? How improbable is that? It is quite improbable in this channel.

SMM: You didn’t expect this when you started writing about this, did you?

WM: This started purely as an exercise of logic.

SMM: Well, I think it has to do with the pain that standard neoclassical economics has caused to a lot of people, especially in countries like in Southern Europe, where you have high rates of unemployment, which wasn’t necessary.

WM: Yes, but that is not how it started. It wasn’t the unemployed who started this. It came in kind of out of nowhere, off on a tangent somewhere, and filtered its way in through regular working people. It wasn’t like we started addressing the unemployed and getting them all whipped up. People we talked to were already working. And it was just me at first and my partners in ‘92 or ‘93 and then some people in the financial sector followed. I tried to introduce these ideas to the academic community in ‘96 without much success. Later, Bill Mitchell, Randy Wray got involved and then we met Stephanie Kelton.

SMM: What is the issue with the academic community? Why are they so reluctant to embrace MMT? Because the logic is impeccable. It’s hard to contest it. But you get these, sometimes, visceral reactions from some of the academic economists. It is true that some post-Keynesians seem to be more sympathetic to these ideas. But in general, a lot of the neoclassical economists are just plain hostile. They will claim that MMT is nothing new, nothing that we didn’t know already, and if it’s new, then it’s false. I don’t know if you’ve ever reflected on why there’s so much hostility on their side.

WM: I take it personally (chuckles). I worked in the financial sector for 20 years, been out of it for 30, but that doesn’t seem to matter.

SMM: They don’t like an outsider telling them how it actually works, right? Ivory tower complex, I guess.

WM: Yes. Maybe they just resent having been wrong, but they won’t even agree to realize that they were wrong. Maybe that is just what the type of people that go into that field are like, and it has less to do with anything that I or anybody else did to them. They are like that towards life in general.

SMM: They’re just bitter with life (laughs). It took them a long time to realize they didn’t understand anything about how the currency and the system work.

WM: That’s going to come around eventually. I’m not going to be around to see it, but history is not going to be kind to them.

SMM: That is what happened with Darwin’s theory. There was a lot of hostility towards it initially. Nowadays few people would reject the theory of evolution or even Einstein’s theory of relativity, which was probably not well understood initially.


[1] CAMELS is an international rating system used by regulatory banking authorities to rate financial institutions according to the six factors represented by its acronym. The CAMELS acronym stands for “Capital adequacy, Asset quality, Management, Earnings, Liquidity, and Sensitivity.”











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