[Martin Lewitt 2011 Sep 30 0059 MDT]
[From Rick Marken (2011.09.29.0930)]
> Martin Lewitt (2011 Sep 28 1253 MDT)--
>> RM: Before I reply can you tell me how we can evaluate
success if your
>> programs are implemented. What are the aggregate
measures to look at
>> to see if this is working?
ML: 1) The net assets of the people due to
asset purchases, debt paydown and asset value increases such as
housing prices and the percent of mortgages that are underwater.
Can you tell me where I can find that measure so I can see how
it has varied over time. To see if your proposal is possibly
effective we would have to see if it changed the temporal
behavior of this variable. I myself would prefer to see a
measure of the proportion of the population that has any assets
at all. An increase in overall assets (like an increase in GDP)
could result from an increase in only a small proportion of the
population which doesn’t count for me as an improvement in the
economy (an improvement in everyone’s ability to control).
The measure exists, but I'm not sure where. Part of it is the
savings rate, which is not just the amount saved or invested, but is
the net of that and debt. So, someone paying down credit cards and
other debt is also increasing the “savings rate”. There are also
statistics on housing stocks and other assets such as stock
ownership, real estate values including commercial real estate.
Some people might purchase automobiles, more energy efficient
appliances, weatherproof their homes increasing their net worth and
reducing future energy and maintenance costs. Of course some may
just consume food, entertainment, etc. Early in the financial
crisis, the government attempted a fiscal stimulus, the checks we
all recieved in mail, and the cuts in payroll taxes. The analysis
that was done in the wake of that stimulous is the type of analysis
that would measure this. Because the money distributed to
consumers then, was debt financed, it was just taken out of another
part of the world economy through the sale of bonds. The
conclusion was that the stimulus was actually deflationary, because
people “saved”, reducing the supply of money. They were not
inclined to spend in a period of economic uncertainty. The pyramid
of fractional reserve credit and thus the money supply was
reduced. “Printing” the money does not have that problem, because
if money is printed to an inflation target, enough can be printed to
overcome deflationary saving.
Where you really see the difference in effectiveness is from a
micro-economic perspective. The Federal Reserve has already
accumulated 2 to 3 trillion dollars of “quantitative easing” during
the crisis. This printed money just purchased treasuries, giving
bond holders the benefit of first access to the newly printed
money. That money eventually reduced the amount of deflation and
actually resulted in inflation in certain sectors of the economy,
but didn’t do much for housing, employment or increasing demand.
For round numbers, consider that $2.4 trillion is $8000 for every
man, woman and child in the country,. Did the typical family of 4
receive $32000 in benefit from this quantitative easing? Under my
plan EVERY family of 4 would recieve first access to that $32,000 of
newly created money. Are these families going to be defaulting on
mortages, delaying home and auto purchases and maitenance? The
support for housing, auto and other markets is obvious. Even if
most of the first round goes to paying down debt, we have the
benefit of the consumers being less leveraged.
2) reduced unemployment levels and
foreclosure levels
3) increases in tax revenues (without increasing the tax rates
or taxing the Fed Reserve distributions)
4) improved dividend returns from corporations providing a more
fundamental rather that speculative basis for stock prices and
reduced overall volatility
5) a reduced "misery index" (inflation + unemployment), some
inflation is expected
6) enough deleveraging of the economy from reductions in
corporate and consumer debt to enable further Federal Reserve
distributions to the people without igniting inflation
7) increases in exports and imports, increased growth in China,
India, Korea, Japan, Indonesia, Europe, etc.
OK, so these are pretty standard measures of economic
performance though only unemployment is really important to me
– as well as a real wage level that supports a nice, decent
life. Again, my idea of a good economy is one where everyone
can control what matters to them, so that they don’t have to
resort to controlling each other through exploitation or
revolution.
They would have first access to and control of the newly printed
money.
So now to you proposal:
Reform the Federal Reserve to "print" money
direct to every citizen via debit card accounts. This would
make federal reserve actions transparent, and would not require
a pyramid of debt to increase demand and would more fairly
allocate the benefit of money creation. The resistance to
cutting spending even among republicans demonstrated by the
recent debt ceiling crisis demonstrate that we are going to have
to inflate our way out of this debt.
Debt = revenue - spending. Our current debt is a result of
revenue decreases (due to the Bush tax cuts) and spending
increases (the Bush unfunded wars ). The rational way to
eliminate the debt is to eliminate the Bush tax cuts and stop
the wars. No reform of the Fed is necessary; the Fed had nothing
to do with the debt. It’s completely a Rethugican creation.
That isn't "debt", that is "deficit". Inflation doesn't reduce
deficit, except if it results in increased economic activity and
employment, and thus increased tax revenues, which I think it will,
if the money goes direct to consumers. But we can inflate our way
out of “debt”. Not just the deficit but the whole dollar
denominated debt is reduced in value by inflation. we get to pay it
off in cheaper dollars because it is dollar denominated. The
burden of the debt is decreased by the inflated GDP in dollar
terms. Tax revenues from capital gains are increased by the
inflation component of the increase in asset prices and income tax
bracket creep. However, this moral hazard, the incentive for
government to inflate should be eliminated. Taxes on capital gains
and dividend distributions should be eliminated, since that revenue
stream has already been taxed once.
Simultaneously dial back fractional reserve
banking to increase stability and decrease leverage in the
economy. Allow interest rates to float so there is an
incentive to save again. Eliminate the double taxation on
dividends and capital gains, financing it by capping the
deductibility of interest at say $1 million, the would either
make dividend payments by corporations deductable or reduce the
personal income tax on dividends to zero.
I'm afraid that I can't let you implement any of these policies
because you right wingers have proven to be uninterested in
whether your policies produce the claimed results. The Bush tax
cuts were supposed to produce jobs and prosperity; in fact the
result was no jobs, flat wages and a huge deficit. So you don’t
get to play anymore (well, you shouldn’t get to play anymore but
it’s very tough to stop ideologues like you, especially now when
you have very wealthy supporters; you’re only a pawn in their
game, boobala).
I haven't met any of these wealth "supporters". The Bush policies
were doing pretty well keeping the economy going in the wake of 9/11
and the bursting of the dot-com bubble, until the housing asset
bubble burst. The housing asset bubble was caused by the way the
artificially low interest rates due to the quasi-governmental status
of FANNIE and FREDDIE combined with the current Federal Reserve way
of printing money through near zero interest rates and an unstable
pyramid of credit. Interest rates were so poor, that American
savings rates were at historical lows.
The overall plan is one of reducing
leverage in the private sector of the economy, increasing
demand, employment, investment and savings. The risk is greater
inflation,
It turns out that the Fed "printing money" has no effect on
inflation at all; the data show very clearly that the Fed’s
discount rate follows inflation rate (like a cursor tracking a
target in a pursuit tracking task). I’ve attached a graph of the
relationship. The idea that the Fed discount rate (the lower the
rate the more money goes into circulation – “is printed”)
influences inflation is clearly a myth. This fact doesn’t
necessarily invalidate your proposal though it would lead one to
suspect that your assumptions about the relationship between the
activities to the Fed and the behavior of economic variables are
questionable. But this point is really moot because, as I said
above, no policy proposal coming from a right winger should ever
be allowed to be implemented because there is no evidence that
it would ever be un-implemented if the evidence showed that it
was not working as advertised.
There is a record of other parties eventually gaining control of the
different branches of government. It is single party communists
and fascist governments that once “elected”, choose not to allow
un-implementation.
but that is reduced by the huge amount of
unemployed and underemployed labor ready to honor the dollars
that are printed.
Boy, the Fed's going to have a lot of people working for it.
China is still intent on manipulating its
currency for trade advantage, so it too must honor the dollar if
it intends to continue to artificially keep the value of yuan
low.
Inflation can be thought of as a tax on savings, i.e., the other
currency out there, and all dollar denominated assets like
treasuries and other bonds and mortgage securities. This form
of “quantitative easing” overcomes the problem of creating money
through credit that doesn’t work during times of economic
uncertainty. The money policy should continue to target 1.5 to
3% inflation, but initially should risk a bit more. I’d start
at $1.2 trillion, i.e., $4000 for every man, woman and child.
Even the men (and women) who don't need it and won't spend it?
Why not, they are a small percentage of the population, it would
probably cost more in paper work to do means testing than the money
it would save. The rich would be more likely to save the money
anyway, which would allow more money to be printed to others to
overcome that deflationary impact.
-- Martin L
···
On 9/29/2011 10:33 AM, Richard Marken wrote:
RSM
--
Richard S. Marken PhD
rsmarken@gmail.com
[www.mindreadings.com](http://www.mindreadings.com)
