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Saturday Quiz – July 6, 2013

Welcome to the Billy Blog Saturday Quiz. The quiz tests whether you have been paying attention over the last seven days. See how you go with the following questions. Your results are only known to you and no records are retained.

1. In recent days, yields on Portugal government bonds have risen sharply and have once again raised the issue that Eurozone governments face insolvency risk. If, for example, Portugal was to leave the Eurozone and in re-establishing its own floating currency, it re-denominated all euro liabilities into this new currency, then they would eliminate that risk on all future liabilities.

2. Norway has accumulated one of the largest sovereign funds as a result of its North Sea energy endowments, which have allowed it to maintain high standards of living and still run budget surpluses. Once the resource wealth dissipates and Norway's external sector moves into deficit, the sovereign fund accumulation will have created more space for non-inflationary spending.

3. If a nation is running a current account deficit accompanied by a government sector surplus of equal proportion to GDP, the private domestic sector must to be in deficit.

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    This Post Has 20 Comments
    1. If the story about Mosler in the NYT is correct, then he is a class one hypocrite: “Warren Mosler is a card-carrying member of the 1 percent. A deeply tanned, tennis-lean hedge fund executive, Mr. Mosler lives on this run-down but jewel-toned Caribbean island for tax reasons.”

      For tax reasons! Whatever happened to paying your “fair” share? This is very disappointing indeed :(

    2. “Whatever happened to paying your “fair” share? ”

      I never understand why for some people ‘fair share’ appears to equal ‘more than is due under the tax code’.

      If the tax distribution is a problem for you then your anger should be directed at the people who have the power to change the tax code – the politicians.

    3. @Neil Wilson, I get your point about politicians and I agree they need to be better held to account (which is why I’m a huge supporter of transparency). I’m annoyed (not angry) that Mosler likes to dictate how taxes ought to be spent, yet he seemingly goes out of his way not to contribute any. You can bet your bottom dollar that he had all the benefits of government spending for a long while before he changed residency. I’m not for a minute saying he doesn’t have the right to contribute to the debate. It just seems hypocritical to me, especially in light of MMT arguments around vertical equity.

      I for one, and I’ve said this before, would love Bill to run for the Senate. I will vote for Bill and Assange. At least these two blokes are internally consistent. I wish I could say the same for Mosler.

    4. “I’m annoyed (not angry) that Mosler likes to dictate how taxes ought to be spent”

      You’ll be glad to know then that taxes aren’t spent.

      Taxes are destroyed. There is no direct connection between the taxation system and the spending system. What is spent determines what is net-saved which then determines what needs to be taxed. They are completely asynchronous from each other.

      “yet he seemingly goes out of his way not to contribute any.”

      He contributes precisely what he is required to do. Unless you are suggesting that Warren is committing tax evasion.

      If you have a problem with the distributional nature of the money destruction system, then you take that up with your parliamentary or congressional representative and get them to change it.

    5. Thanks for the close-minded reply, Neil. I understand the tenets of MMT, as well as Monetary Realism (you should attempt to familiarlise yourself with these) and other schools of thought. Your bid to obfuscate the issue does absolutely nothing shed light here. I could very easily make the very same argument using different terminology. And your reply would be equally poor.

      Tax evasion? That’s a stretch. Something is clearly evading you, however. If you want to make a sensible contribution to this topic then I suggest you look past ideology. And no, I’m not saying we have to agree. I will say nothing more on the matter.

    6. “I’m annoyed (not angry) that Mosler likes to dictate how taxes ought to be spent, yet he seemingly goes out of his way not to contribute any.”

      How do you know he doesn’t contribute any? You are making an enormous assumption about his tax liability. Did you ask him? Or do you prefer to go off half-cocked on the basis of a reporter’s two sentences that you obviously failed to verify? Do you know the name of the program that Mosler is participating in? Are you aware of the US government program that Mosler met the criteria for in order to get a reduced tax rate in St. Croix, a US protectorate (or something like that)? Incidentally, you are free to go down there and benefit from it yourself. Bring sunscreen.

      And, yes, you are accusing him of tax evasion. Tax avoidance is legal. Tax evasion is not, and that’s what your arch disdain is implying.

      Further, if you are still hewing to the ‘pay your fair share’ argument, none of this has got through to you. Read Beardsley Ruml, 1946.

    7. To all commentators discussing Warren Mosler

      I think the personal elements of the discussion should stop. If you want to know about Warren’s tax affairs write to him and ask him and if he chooses to tell you then you will be more the wiser, if he doesn’t then you will probably assume he is no different to most of us who keep things that are personal – well, personal.

      So end that part of the discussion please? I will delete otherwise.

      best wishes

    8. Dear Esp Ghia (at 2013/07/06 at 18:34)

      So-called Monetary Realism has no tenets that are separate from MMT. Everything they get right is in MMT and everything they get wrong is because they do not understand MMT.

      best wishes

    9. In the UK we have investment vehicles called Individual Savings Accounts (ISAs). Essentially they are accounts into which, each year and subject to the rules, small investors can place cash or shares or a combination of the two. At first sight the schemes look quite modest. But over time considerable savings can be built up. Their attraction is that no tax is payable on the gains. That is to say, governments of different stripes have encouraged tax payers to use them i.e. tax avoidance in action.

    10. @Esp Ghia, I just read that NYT article you mentioned and I don’t agree with what you are saying about Warren Mosler being a hypocrite. My impression was that he was always very upfront and honest about being very rich himself. I don’t think that him being rich detracts from what he says about how the economy could better cater for everyone else. He is similarly very open about how he gathered his fortune by bond trading yet considers government bonds are a waste and should be abolished.

      Personally I disagree with MMT (and Warren Mosler) that taxes are mainly needed to moderate demand and ensure use of the national currency. I think an even more important function of taxation should be to prevent wealth inequality so as to avoid political distortions (that function is currently being let slip). I guess if I was rich and lived on a tax haven, then I would be a hypocrite. I do have an ISA so I am to that extent :) . But Warren Mosler’s stated views IMO seem entirely compatible with him living in a tax haven.

    11. Bill, I’m struggling to get my head around the internal logic of your statement:

      “So-called Monetary Realism has no tenets that are separate from MMT. Everything they get right is in MMT and everything they get wrong is because they do not understand MMT.”

      Either they are saying precisely the same thing as MMT or they aren’t saying precisely the same thing.

      They can’t be both wrong and be saying precisely what you understand MMT to be can they?

      If they are saying precisely what you understand MMT to be saying and are mistaken only in thinking that MMT is saying something different then presumably they are saying what you want to be said but in a way that (at least to them) is clearer???

      Greg Mankiw could say that everything MMT gets right is in his textbook and everything MMT gets wrong is because we don’t understand his textbook.

    12. stone,

      “Monetary Realism” misunderstands net financial assets and also conflates real and financial assets in their analysis. Also, the last time I looked about a year ago, there was no attribution to MMT in their analysis which they copied directly from MMT. MR is not worth mentioning at all in my opinion, let alone to call it “school of thought”.

      To me, Bill’s statement is perfectly clear. They copied some parts of MMT which are correct, but on the other hand, there are severe misunderstandings on their part and the pieces they changed don’t hold water.

    13. @mladefer
      I actually linked to Cullen Roche’s “A critique of MMT” but Bill deleted my comment I guess.

      That link starts with,

      “This critique is not intended as an attack on MMT, but rather as an informative and constructive critique that will allow readers to better understand the monetary system for their own edification. Although we find that MMT is incomplete, it is important to note that their description of the monetary system has been influential in forming MR’s understanding and is far superior to the neoclassical models.”

      To my mind they raise valid questions and I take a dim view of any failure by the MMT community to coherently rebut or respond to those questions. Perhaps there is such a rebuttal somewhere and it would be very helpful to have a link to it.

    14. “To my mind they raise valid questions”

      To my mind they are trying to shoehorn the system into their world view.

      I see that a lot. Positive Money does the same thing. There are core beliefs there that will not and cannot be sacrificed.

      Then you start to push those incorrect beliefs and get caught in a position where changing viewpoint would mean erasing most of your PR. So you’re trapped having to push things that just aren’t so.

      MMT seems to avoid that mostly by stating clearly that it is not a theory of everything. It is just a description of the currency system that better describes how it works in a world where you have floating rate non-convertible currencies and identifies policy space that a government could use if it chose to advance the welfare of its people.

    15. I was referring to This paper is constantly changing (last revision April 2013) and as you can see, it’s only available in pdf now with comments deleted and closed. Incidentally, this was my first contact with MMT a few years ago, but now there is absolutely no mention of MMT in that Cullen’s paper, which is outright outrageous. However, you can find statements that weren’t there a few years ago such as this:

      “net household financial income = current account surplus + government deficit + Δbusiness non-financial assets” (mixing non financial assets with financial assets)

      S = I + (S – I) (with a preceding mind blowing derivation of this simple algebraic identity)
      “Although government can help to drive economic growth (if used properly) we
      should not forget that investment is the backbone of private sector equity. This simple rearrangement of the private sector component highlights this fact and helps to avoid thinking that I>S might be a negative for the economy…”

      “MR understands that consumption and production are two sides of the same coin and that both
      can help grow the coin. We highlight this point by expanding on the sectoral balances equation
      and showing that S = I + (S-I) in order to emphasize that I>S does not mean the private sector
      financial position is necessarily deteriorating.”

      “For instance, a farmer does not need the government to turn 2 cows into 10. The
      farmer has achieved real wealth creation regardless of the government’s spending position. The
      government can increase spending when milk sales are low (which will increase the farmer’s
      revenues) and increase the private net financial assets, but we should not assume that this is
      always the appropriate policy. It’s best to think of government as being a facilitator of wealth
      creation and not the driver. Hence, our focus on S=I+(S-I) with the emphasis on the idea that “the
      backbone of private sector equity is I, not Net Financial Assets.”

      In short, conflating real and financial assets and somehow believing that S = I + (S – I) implies that it is not a problem for the private sector to have overall losses. (S < I)

      This is amateur work. Wray had a rebuttal here:
      It would be valuable to see Bill's elaborate answer as well, but he's a busy man and he probably doesn't take it to be worthwhile to spend time on this. There are many many people around with their own economic theories, usually utterly incapable to acknowledge the mistakes they make, no matter what the arguments are.

      On a side note, I'd love to see Bill addressing the EU's newest acquisition, my home country. Probably of not much overall interest in the big picture, but maybe it would mean something for us living there. Most of the people are rejoicing, albeit with some reserves. The few supporting ideas like financial sovereignty either make some other conceptual mistakes, or are simply regarded as nutty advocates of the old socialistic regime not to be taken seriously.

    16. To Stone, Neil and mladefer

      With respect to so-called MR – I have no interest in this topic being discussed here. I have no incentive to promote material that has no educational value or in engaging in a critique of deeply flawed material which will also produce no educational value. I see it as just another group of charlatans trying to make a name for themselves.

      So please no more discussion of that topic.

      best wishes

    17. Bill, you clearly put enormous effort into educating us with your site. Thanks for that. But I think you are wasting an opportunity here. Bouncing ideas back and forth allows understanding to grow, flourish and develop. It is not about “rival” sites taking your territory; it is about development of everyone’s understanding. Who knows, if you engaged you might win the argument and clarify a lot of people’s understanding in the process.

    18. Dear stone (at 2013/07/10 at 18:10)

      If I engaged with every goldbug, Austrian schooler, MR proponent I would be down at the level of gossip, delusion and unschooled blustering with them.

      There has to be a level of dialogue and engagement below which it is not productive to venture.

      best wishes

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