JHUS Staging

Tag: modern monetary theory

  • What Is The National Debt, And Why Does It Matter? (Part 2)

    The Gold Standard

    In part one of our series on the National Debt, we discussed what “debt” is and why in spite of well-intended contradiction the fact is that the “national debt” is a real thing and it has real meaning, just not at all the meaning we’re sold in political rhetoric.

    We left off with a brief note about the gradual decoupling of the US dollar from the value of gold, beginning with FDR’s expansion of the dollar in 1933. Remember, our core purpose here is discussing debt, specifically the “national debt,” with additional necessary examination of concept of value and trade.

    I don’t want to get into the weeds on side details or a bulleted list of dates, but once upon a time the US dollar was backed – that is to say, its value was derived from – a quantity of gold bullion held, physically, by the United States Government. That’s why the legendary vault at Fort Knox exists. This was known as the “gold standard,” and for centuries was the basis of money everywhere – how much gold (and other precious metals like silver and copper) did the issuer of the money have on hand?

    Moving off the gold standard unfortunately started making the picture of what money “is” less clear to the average person, because the dollar was no longer backed by a tangible object. “But,” you exclaim, “it must be backed by something!” You are both right, and wrong. An important part of the wrongness is the belief that “it must be backed by something real, tangible, and with uniquely and objectively identifiable intrinsic value.“

    Modern currency is backed by “the full faith and credit” of the issuer. In the US (and with some variability in any other sovereign currency system) that amounts to our GDP (gross domestic product: the sum total of value of all the holdings, goods, services, labor force, etc. created or held by a nation during a given period; if no period is given this is typically one year) plus whatever value is attached to expectations of future stability and growth.

    You’re not imagining things: this is a highly speculative and complicated series of educated guesses derived from abstruse calculations of arcane data to the point some would say it’s entirely made up

    They wouldn’t be wrong, but you’re also getting out of economics and into metaphysics at that point because the intrinsic value of gold is also “made up,” in the sense that human beings designated it valuable due to its properties which are useful to humans, e.g. not being prone to deteriorating through oxidation the way iron is, being easy to alloy, and being both malleable and attractive enough to work into fine art including coinage. Best not to let yourself get too deep in the weeds on what’s “made up” when you’re talking money. (If you think coinage isn’t fine art, take a good look at a nice new one through a jeweler’s loupe sometime.)

    The simple fact is, all modern money is created in this way: out of thin air, at will, by the owner of that currency denomination – US dollars, British pounds, Japanese Yen, etc. Nothing more than the individual integrity of the people running the systems stops any sovereign currency issuer from simply printing the money to pay off their debts.

    What induces them to maintain integrity is the impact that would have on the value of their currency and the trust placed in them by international trading partners who would be loathe to exchange goods and services with a partner known for either refusing to pay their debts or intentionally doing so in such a way that the essential value of the debt is seriously lowered. If I agree to buy your EU beef for $10US when $1 = 1 euro, but then when I pay you off $1 = .5 euro because I (as the US) arbitrarily decided to double my dollar supply thereby devaluing each dollar by half but not changing the dollar amount of our contract, you’ve lost half the EU money you thought you were going to have even though you have the same amount of dollars you expected. That’s dumb business, nobody wants to risk that.

    The Eurozone

    A Different Feather Of Fish

    The Eurozone is a bit of a strange duck that I frankly don’t have my head entirely around yet, but as nearly as I can tell for lay purposes one may think of the European Central Bank as being analogous to our Federal Reserve, with member EU states being similar to US states albeit with more sovereign power due to the EU being a confederation of previously existing nation-states rather than one large nation consisting of new subdivision states as US history imagines to be its own case. (In reality of course there were dozens of existing nation-states on the continent before Europeans arrived, and they were subjugated and dislocated by the Europeans for the sake of American expansion westward.)

    “Germany” doesn’t print its own money but “Europe” does, and “Germany” is a participating constituent part of “Europe.” I frankly don’t know how this works out in the interplay of how “your taxpayer euros are spent” – in the US at the federal level that’s a null string because “your taxpayer dollars” are never “spent,” they’re destroyed. I assume the Eurozone has a similar overarching taxation system for the same purposes of pulling Euros back out of the system, but I don’t know how that breaks down into e.g. federal infrastructure funding in the Netherlands.

    The Guardrails

    Each sovereign system has its own checks and balances to forestall bad actors. In the US, for instance, Section 4 of the 14th Amendment to the Constitution reads: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

    For the record, yes this means the entire concept of a debt ceiling is unconstitutional the moment that ceiling attempts to deny the validity of a public debt, which it does the moment it refuses to account for and settle any given debt. As that is precisely the purpose of a “debt ceiling,” it simply can’t exist constitutionally, but it does because it was originally implemented in 1917 and we didn’t have the proper information and experience to say “hey wait a minute, isn’t this the whole reason we’ve got a set of rules about these things? These rules, right here, the ones you’re egregiously violating?” The purpose of the debt ceiling as conceived is entirely obsolete and shouldn’t have been allowed in the first place.

    Additionally, it means all the games the Republicans play with refusing to sign off on the funding to pay the debt until they get the draconian social program cuts they want are also unconstitutional; they legally don’t have a chip on the felt. Yet this has been the operating dynamic of federal budget negotiations for at least half a century, long after the reasons for the original creation of a “debt ceiling” in 1917 were obsolete by our decoupling completely from gold in 1971 (Richard Nixon finalized what FDR started).

    Thus the underlying purpose of this series: to help you understand the extent to which this entire “debt ceiling” argument is nonsense, but also to fill that vacuum created in your fact library by the removal of that nonsense with information that’s accurate and useful instead.

    Also accurate and useful, ridding yourself of the notion that “central bankers” and “capitalists” are the same creatures. Believe it or not, the space most “central bankers” inhabit is at a computer staring at miles of data and doing their honest best to make sense of it, not some cigar-chomping back room where odious industrialists plot ways to rob people of their labor and freedom.

    That’s not to say such rooms don’t exist, but that’s not generally where you find a central banker; you find them poring over spreadsheets trying to figure out exactly what percentage of the currency we’ve sent out needs to come back in order to avoid devaluation while also ensuring there’s enough money circulating for people to live and do business.

    The influences of capitalism and corruption tend to be external; economists and macroeconomists (for the most part *cough* Friedman) love math and numbers and statistical trends, and tend to keep their ideology and work separated to avoid one unduly influencing the other. That’s not to say they don’t have beliefs, but like a doctor (a real one, not one in Florida) or journalist as a professional matter they must be able to set those beliefs aside and deal with manifest facts which contradict those beliefs, when such facts arise.

    It’s a science, speculative and diaphanous as it may seem from the outside…and the numbers work the same regardless of whether the dollars are capitalist dollars or communist rubles or anything else; sovereign currencies have observable behavioral tendencies which are predictable and are only reliant on ideological influence to the extent that influencers motivated by ideology attempt to disrupt the existing “natural” tendencies of money flow.

    This all adds up to a picture of modern economics in which a great deal of energy is expended determining just what the fair value of the “full faith and credit” of a nation really is, when denominated in currency, and those calculations, performed internally and reflecting among other things similar calculations based on known data relevant to other currencies from an “external” standpoint, constitute the guideposts for a central bank as to how much money they can safely create without risking devaluation (or having to raise taxes to avoid that risk) which functionally translates into inflation.

    All of this, balanced against the behavior and predictability and stability of several dozen other currencies all denominating the same core “values” (e.g. “the consumer price of a loaf of bread”) in ways that are culturally localized.

    It’s an act of juggling cats balanced on crystal wine glasses. A third of the cats are invisible and may be made of razor blades, a couple of them are marmosets, one appears to be a previously undocumented mating of a dachshund and a mountain goat, and you have an eyepatch on one side and the opposite hand tied behind your back.

    That, my beloved assembled guests, is what we call “macroeconomics.”

    In Part 3, we’ll talk more about that phrase “full faith and credit” and the nature of those cats!

  • What Is The National Debt, And Why Does It Matter? (Part 1 – What Is Debt?)

    A recent social media conversation brought forth the question, “what is the ‘national debt,’ really?”

    This came by way of one person’s well-intended insistence that the national debt isn’t “debt” at all, really…which, is almost right, but also so hugely wrong that deconstructing it in a useful way that wasn’t dismissive or confrontational required a good deal more than a simple comment.

    More to the point, when I realized the comment was approaching 700 words and not nearly done, I thought it would make a better blog post here…

    Exhibit “A” – we’re going to ignore the questionable assertion that bankers and investors no longer “control the money supply.” Pretty sure the governors of the federal reserve are still “bankers.” There’s a lot wrong here, and the problem is how much if it is based on misunderstanding or misrepresenting useful and factual information.

    So let’s talk about what’s wrong about our friend’s assessment, then why, then why it matters, and hopefully we’ll all walk away having learned something useful, and we’ll be better empowered to make well-reasoned decisions at the voting booth!

    We began with a comment I saw in my feed that said “the only debt the US has is treasury bonds” or something to that effect, to which I replied “not quite true; 78% of the national debt is the money in circulation.”

    This is a great place to note I was a bit wrong there. In a bit of synchronicity that number turns up in the current data, but the actual information I was communicating was something else and my communication was based on outdated data; the actual number is 76.6%. The information below is compiled from the most recent “Monthly Statement Of The Public Debt,” issued by the US Treasury Department.

    • 22% of the “national debt” is debt held by various departments of the government against other departments of the government. This amounts to money deliveries and exchanges that haven’t yet been completed for one reason or another.
    • Of the 78% (there’s that number) that remains – called “Debt Held By the Public” or “DHBP,” – 30% is held by foreign entities.
    • 78 * .3 = 23.4. 100-23.4 = 76.6% of the national debt is, one way or the other, money we owe only to ourselves.
    • That other 23.4% is the number on which our friend and I agree as being “debt.”
    • In the sense that it is not the same as a e.g. a household, personal, or business debt, the original poster is right, however it is debt, and it’s important to understand how and why that is, in order to understand more completely “how money works.”

    So with all of that said, it’s understandable that our correspondent insists that it’s “not debt.” That’s probably more correct than the general perception that this debt represents something that must be paid from some finite store of resources. Indeed, this debt will never be “paid off” or “balanced,” nor would you want it to be?

    Why? Because even though there are a lot of misunderstandings about what it means, and those misunderstandings are very much leveraged maliciously against those who subscribe to them (and the vast majority of the rest of us), in the end from a standpoint of economics a dollar bill is a debt instrument, it’s a token representing a legally binding agreement that someone owes someone for something, and unraveling that is much more important than simply engaging in some grand “pulling back the curtain AHA YOU SEE? NOTHING!” gesture. Plus the gesture’s wrong. There’s definitely something there, and it matters. Just not how you probably think…and it all adds up to the simple reality that if the national debt were “paid off,” that would mean there are no more US dollars.

    There are only two ways that’s going to happen: if the US unilaterally defines and adopts a successor currency (which it sort of already did, see notes further on in this series about the “gold standard”), or the US collapses entirely and ceases to exist as an operating entity.

    What your money’s really worth. Don’t get any bright ideas; destroying coinage is a more serious federal crime than you think.

    A “debt” is something that is owed; a “fiat” or “token” is something that holds the place of the debt in a way that’s generally accepted as valid and enforceable by the general public. All paper currency (and most coinage now) is “fiat” currency. Currency’s not valuable in and of itself, it’s just paper (well, cloth) and ink, but it’s still valuable because we all agree to let it represent value under certain conditions and for certain purposes. (Coinage may have intrinsic value depending on the composition of the coin, but as far as I know there is currently no nation producing coins whose metal content is equal to the face value of the coin. US pennies, for instance, cost about $1.07 per dollar’s worth at current (2:18pm 15-May-23) commodity prices.)

    In the case of your dollar bill (or its electronic representation in a bank computer somewhere), what it represents – what it is – is a token legally validating that “The United States” is owned, to the tune of 1/x where x= total $ in circulation, by the holder (or “owner”) of that dollar bill, whose ownership stake has not yet been converted to real property or services.

    Ergo, “The United States” owes that person or entity one dollar’s worth of real property or services, which they have not yet claimed. (Note to self: stretch this into a separate short piece about the international bond market…) Unavoidably, by definition, every dollar “in circulation” is a dollar of debt.

    NB: In this case ‘in circulation’ simply means it’s not in the government’s hands, nor is it in the hands of a governmental unit who is using it for trade, and includes ALL money, not just that which physically exists. About 95% of it doesn’t – around a trillion and a half of that debt is circulating currency and coinage, the rest is electronically recorded and doesn’t “really exist” at all. This is often used as a cheap-shot, elementary school rebuttal to the observation that the “national debt” is in point of fact the collected dollar savings of the United States, to the penny.

    Savings accounts, the values of stocks, commercial lending, are all dollars “in circulation” in this sense, and they all represent a debt, usually on multiple levels. But getting back to dollars, the only exceptions are those which make their way into the hands of those who collect coins or currency as a hobby, or trades in those items as collectibles as a business. Then they become a “real resource” rather than a representation thereof. Even at that, the US government will happily cash in your silver and gold certificates and coinage at face value, just take it to any bank and they will replace your old worn-out five dollar bill or twenty dollar gold coin with a nice crisp new Federal Reserve Note in the amount of your bill or coin!

    That is why a dollar bill is a debt, not because of some archaic and nefarious witch-doctoring by those mysterious bankers and businessmen. It’s literally a legally binding note saying the United States as a collective political entity owes you real property or services in the amount of that note, and there are very good reasons for that arrangement which are entirely without ideological or political cant; neither capitalism nor communism required.

    In Part 2, we’ll take on the question of The Gold Standard, why we’re not on it, and why we definitely don’t want to be. Later we’ll talk about how you get “real value” out of your pile of notes and those ‘very good reasons’ I mentioned. See you soon!

  • Why You Don’t Want To Restore The Fairness Doctrine

    Introduction

    Every six months or so, there’s another wave of clickbait and memes talking about “restore the Fairness Doctrine.”  From this, one can reasonably conclude that there’s widespread support for this doctrine, and the public believes it should be “restored.”  Even opportunistic politicians who know better will jump on this to give the impression they’re on the side of the people.

    The public is wrong, and today we’re going to explore why.

    “Wait,” some of you are thinking, “how can you possibly be against fairness?”  That’s not what this is about, at all.  Indeed, it’s the inherent lack of fairness that caused the thing to stop being enforced in the first place.

    From the earliest days of broadcast media in the US, the FCC has had control over the “public airwaves,” ostensibly in the public interest.  As part of this control, they developed and implemented the Fairness Doctrine.  The airwaves were seen as a public resource, and the legal logic determined that the federal government, acting as the defender of the people’s interests, therefore had a right to regulate the content broadcast on those airwaves.

    The wikipedia entry on FD summarizes it as well as I could:  by the time it was implemented as a formal doctrine by the FCC in 1949, FD was “a policy that required the holders of broadcast licenses to both present controversial issues of public importance and to do so in a manner that was—in the FCC’s view—honest, equitable, and balanced.”

    The important phrase in that summary is “holders of broadcast licenses.”  In the pre-cable era, all radio and television stations as well as the three major TV networks were required to purchase a license allowing them to broadcast on a given frequency.  Adherence to FD was a contingency of that license, and if a broadcaster violated FD they were at risk of losing their broadcast license.

    In the modern era, however, the majority of media is satellite radio, and cable and satellite television, and broadband internet.  These media do not hold FCC broadcast licenses.  You can’t revoke Fox News’ broadcast license (another empty pseudo-activist cry you’ll often see on social media), because they don’t have one.  Instead they literally purchase specific bandwidth from the federal government, and they are then considered the owners of that bandwidth.  It’s no longer “public airwaves,” but privately owned.  This is more obvious in the case of cable television, but does also apply to satellite service – indeed, it’s probably fair to say that from a legal standpoint there’s no difference between the two, assuming both are privately owned rather than being owned and/or operated by the government (i.e. publicly).

    Consequently, the FCC has exactly zero direct regulatory over content on these privately owned networks, and you do not want them to have that control.  This concept is why you can see nudity on HBO, why you can order pornography from your local cable station, and why you can see other forms of “adult content,” be it sexually explicit or explicit violence, on your cable TV channels.  It’s also what prevents the government from deciding that a Michael Moore documentary or a satire depicting national leaders in a bad light or a production of “1984” can’t be broadcast.

    Digging Deeper: Why & How

    The idea of protecting the “public airwaves” is based on the idea that, because that space is “public,” anyone with an operating receiver can access it, including children, with no further payment or access mechanism needed.  The idea of not protecting private media in this way is based on the simple reality that you have to make a deliberate effort, and usually pay money, to access that content; your ten year old is not going to “accidentally” run into pornos on terrestrial radio or traditional television.  Once you’ve paid for the service, the thinking goes, it’s up to you – not the service provider – to take the steps to ensure your kids (or you, or whomever) can’t access objectionable content.  As an adult, you can choose to avoid that content; as a parent, you can employ an endless range of techniques to prevent your children from doing so.

    It’s also well worth pointing out that the illegality of, for instance, child pornography or “snuff films” is not a function of FCC regulation but rather of other, existing laws.  Those things are illegal outside the jurisdiction of the federal communication commission, therefore there’s no need for the FCC to create additional regulation forbidding them.

    The FCC has no power at all to regulate the content on privately owned networks.  They can’t tell HBO to not show boobs, they can’t tell your cable operator they’re not allowed to offer you “Resperm Of The Jedi.”  That would be an egregious violation of the First Amendment; constitutionally, you have a right to create that content, and to view it, whether anyone else thinks it’s worthwhile or not, as long as other laws aren’t being violated in the process.

    This brings us to the difficult reality of fairness doctrine:  if you give the federal government the power to say Fox News can’t lie, you’re also giving them the power to say HBO can’t show nudity, or that I can’t criticize them on this website.  Constitutionally there’s no way to have one regulation without making the other possible.

    While we’re shutting down misunderstandings, the Fairness Doctrine was not “repealed by Reagan.”  The FCC stopped enforcing it during the Reagan administration because it was patently unfair to terrestrial broadcasters; their ability to speak would be limited, but someone with enough money to make their own cable TV station (like Ted Turner and his then-emerging CNN) wouldn’t.  Now you’ve created a money = freedom paradigm, and that can’t work in a free country.  Any FCC rule created to regulate political speech would only apply to broadcast media – terrestrial radio and television, and the three “real” networks who actually own stations and distribute content to them.  It would remain a free-for-all for everyone else.

    The Fairness Doctrine was formally repealed by the Obama administration, because it was archaic, useless, and out of date.

    If Not The Fairness Doctrine, Then What?

    The solution is making the personal effort to become genuinely literate in media and information; to equip yourself with the tools to “think back” at misinformation and disinformation, to train your own mind not to simply accept a statement as true because it appeals to your biases, nor to reject it simply because it doesn’t.

    Until we get our public education system back in working order so that this vital life skill is taught to all of us from the earliest age possible (for instance, we could start by teaching kids how to resist all the advertising aimed at them), the burden of that education is on each of us as individuals, and that can be a daunting task.  It means breaking ourselves of the habit of trying to find push-button solutions to complex and difficult problems.  It means admitting our fallibility and doing the hard work of setting aside our egos and pride, and it means spending a lot of time unlearning old falsehoods and re-learning some of the things we missed.

    Modern Monetary Theory provides an excellent example for illustration.  Most of us learned in middle school that Congress appropriates funding for all federal spending, but the reality that reveals went right past us.  We still think of federal spending in terms of “my tax dollars,” but federal tax revenue doesn’t fund federal spending.  Congress does.  We know this, but we’re taught to avoid putting the pieces together to make a whole picture.  We want to think of “our tax dollars” because we’re taught to believe that’s what gives us agency in government; that if we don’t pay taxes, we have no right to a voice.  Problem is, that’s not true.  Not only isn’t that true, but nothing that flows from that basic “spending my tax dollars” thinking is true.  It’s not necessary to lay a heavy tax on the ultra-wealthy “to pay for” anything; the reason for progressive taxation is to stop too much money, and the power that goes with it, into too few hands.  It doesn’t pay for anything; things are paid for when Congress says “pay for this,” and then the proper keystrokes are entered into the proper spreadsheets to create the dollars to “pay for this.”

    It’s not the purpose of this article to get deep into MMT, but it does provide an example of the problems at hand, and their solutions.  The primary problem at hand is we’ve been taught to think incorrectly; the primary solution at hand is to accept that reality and then do the work necessary to learn how to think correctly – to do the research, to be willing to admit to ourselves that we’ve been misled and misdirected, and to attain the knowledge necessary to fix it.

    Fortunately, there are some excellent tools to help you achieve this.  There are many, many books and websites out there dedicated to giving us those tools, but if I were to pick only one critical resource it would be a book by Robert Cialdini titled “Influence: Science and Practice. (disclosure:  affiliate link)”  This book not only gives an excellent foundation for identifying and neutralizing the compliance-gaining tactics employed by those who deliberately mislead, it’s also well-written to appeal to the casual reader as well as the academic, and the citations contained therein will take you through other important writing and writers like Korzybski’s theories of general semantics (a separate thing from basic semantics, the “meaning of meaning”), the theory of linguistic relativity (“communication creates reality”), and the work of philosophers and influencers like Edward Bernays (aka “the father of public relations.”)

    If you visit and make studied use of the links in the above paragraph, you will develop the tools necessary to successfully resist attempts to disinform and misinform you, not in the sense that so many internet know-it-alls who get sucked in to ridiculous nonsense like QAnon and other conspiracy theories, but in a genuine, powerful way that will have a profound positive impact on how you process the information you consume.

    That’s the solution to all of this, and it’s in your hands.  Use it, and you’ll quickly stop relying on empty and unworkable but seductive “quick fix” ideas like restoring the fairness doctrine, and start vaccinating yourself against the overwhelming flow of disinformation that surrounds us all in the modern world.