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Cancel your subscriptions to Time Magazine

Ordinary citizens find it difficult expressing their dissatisfaction with the overall state of affairs in their nations. Sure enough we can vote a poor government out in many nations but the neo-liberal infestation is now so entrenched that the choices in terms of macroeconomic policy have narrowed to be no choice at all. At the corporate level, shareholders can cause trouble at annual meetings as they did last week in Australia when the bosses of the poorly-performed BP tried to push through a massive executive pay deal for themselves. 60 per cent of shareholders rejected the deal. But then not many of us a shareholders so that is a limited strategy. One thing we can do however is use our powers as consumers to punish corporations that lie to us in pursuit of profit. Consumers, united, do have power. Enough of us, pursuing a common goal, can send a corporation broke, just like the mainstream textbooks, which claim ‘consumer sovereignty’ drives the pattern of production, tell us. In this respect, I urge all readers of this blog to cancel any subscriptions that you might have to Time magazine and run a social media information campaign urging everyone you know (and everyone they know) to do the same. If you are a company who advertises in Time Magazine, I urge you to stop doing business with them. And then seek information on other products the owners of the magazine sell and boycott them too. That might given the company some reason to stop publishing erroneous material designed to distort the public debate.

I outlined the boycott strategy in this blog – Time for progressives to adopt more direct actions – which was in relation to the signing of the so-called Trans-Pacific Partnership.

I noted in that blog that Modern Monetary Theory (MMT) provides a consistent and coherent framework for evaluating the consequences of macroeconomic policy choices taken by government.

In that sense, policy justifications become more transparent. It is clear that austerity will damage growth and cause unemployment to increase. If the principles of MMT are widely understood, then, in that case, politicians who want to impose austerity cannot hide behind spurious claims that it enhances private confidence because future tax rates will be lower.

Rather, the austerity proponent is clearly demonstrating a preference for higher unemployment and that opens the public debate to a series of different questions, which conjecture would suggest would also lead to different policy outcomes (for example, a rejection of austerity).

But we assume that government is elected by the people and becomes an effective agent for the people to accomplish outcomes that individual libertarian action is incapable of achieving.

I often write that sovereignty means that the nation issues its own currency, sets its own interest rates, floats its currency, and desists from issuing foreign-currency denominated debts.

That is my emphasis as an economist. But it also requires that governments are not captured by corporations and/or trapped by multilateral arrangements which compromise their discretion to act in the best interests of their own population.

We know that often the public has very little influence on policy because governments do become captured by corporate interests and the lobbying capacity of the very wealthy (like the Koch Brothers in the US).

In the cited blog, I outlined ways in which the population might seek to defend their rights and ensure that policy is advancing general well-being rather than being ‘pro-business’ (which is code for pro profits).

We need to refine what power we actually have.

Mainstream microeconomics textbooks tell the students that consumers are sovereign, which is code for saying that what the consumers want, firms will supply unless they want to lose market share. It makes the ‘market’ look like it is the ultimate democratic arena – what we vote for is what we get by way of goods and services.

There are of course major problems with this conception.

First, the voting system is highly undemocratic because it is not one person one vote but rather one dollar one vote and the income distribution is so highly skewed in favour of the top-end that voting power is not even remotely distributed in a reasonable manner.

Second, consumer sovereignty assumes that the final pattern of goods and services produced and sold is demand-determined by consumer preference.

However, the reality is different. Advertising transcends the state of being pure information and becomes manipulation and brainwashing preying on the weak and vulnerable (which in terms of this mass consumption age is almost all of us).

That means that the final pattern of goods and services produced and sold is supply-determined and the demand-side is manipulated to accord with the preferences of corporations for profits.

The truth is somewhere between and it is this netherland that provides progressive activists with scope to really damage lying capitalists like the Time magazine, which produced this cover story (April 14, 2016) – The United States of Insolvency – that is tantamount to gross deception of the public.

Here is the front cover:

Time_Debt_Cover_April_2016

I recommend those responsible for the magazine and the publication of this particular article be prosecuted under US Code §52 and be subjected to both the maximum fine and imprisonment allowed for under that code.

If there are stronger violations of US law then they should also be applied.

Almost all inferences in this article including its much-feted calculation are wrong and heiniously so.

Start with the calculation – it divides all the outstanding US public debt by the population to get a per capita ‘debt’. Presumably, this is based on some misleading notion that each person has some tax liability equivalent to that per capita allocation.

But if you followed that logic then the per capita figure would be much higher because children do not pay taxes, retirees do not pay taxes and the top-end-of-town (as the Panama Papers tell us) do not pay taxes.

But I trifle here, really because the rest of the article is so bad that I consider it an example of white collar crime.

Even the introductory drumming up the scare defies its own logic.

We are told – to sensationalise what is just the normal operations of a government – that:

We conjure dollar bills by the trillions–pull them right out of thin air. I won’t insist that this can’t go on, because it has. I only say that it will eventually stop.

I don’t know the date, but I believe that I know the reason. It will stop when the world loses confidence in the dollars we owe. Come that moment of truth, the nation will resemble Chicago, a once prosperous polity now trying to persuade its once trusting creditors that it is actually solvent.

Get the problem. “We” is actually meant to be the US federal government, which is quite different from ‘us’ (‘We’) because the real ‘We” cannot “conjure” dollar bills out of thin air. Duh!

That is the crucial point in all this.

The household budget analogy is false. Households use the currency that the federal government issues under monopoly conditions and must finance their spending.

A sovereign government issues the currency and must spend first before it can subsequently tax or borrow in that currency.

A household cannot spend more than its revenue indefinitely because continuously increasing private debt is unsustainable.

The budget choices facing a household are thus limited and prevent permanent deficits.

A currency-issuing government can never be revenue-constrained in a technical sense and can sustain deficits indefinitely without solvency risk.

The Euro nations are an exception. They surrendered currency sovereignty and thus have to borrow to cover deficits, which make them dependent on bond markets (in lieu of European Central Bank support) and exposes them to solvency risk.

The city of Chicago is not a currency-issuing government and while it might have revenue-raising capacities (tax base) that a typical household doesn’t have, it can still become insolvent – it is financially constrained therefore and not like the federal US government in any way.

And what about the world losing “confidence in the dollars we owe” (we being the US government)? Presumably this would manifest in the bid-to-cover ratio at the bond tenders (that is, the $ volume of bids to purchase US-dollar denominated bonds to the volume to be auctioned) falling such that the authorised bond dealers no longer wanted to purchase the bonds.

What then? Not much. The federal government would just natter with the US Federal Reserve Bank and bank accounts would still be credited to reflect the government spending intentions and the balance sheet of the central bank would just show a new accounting entry reflecting a ‘book’ liability it holds against the Treasury department.

The right-hand of government owing the left-hand hand – not much to write homeabout really!

Of course, the non-government sector’s future income stream would decline as their ‘lack of confidence’ would lead it to surrender an income stream from the federal government.

It would also surrender its access to the only truly risk-free financial asset there is and various segments of the financial sector would have to find a new benchmark asset with which to price their own riskier products against. That is possible but inconvenient and you can imagine the howl from this sector if the government stopped issuing debt.

Please read my blog (specifically the section under the heading ‘Special Pleading Classic One’ – Bond markets require larger budget deficits – for more discussion on what happened in Australia when the Federal government actually started reducing the net outstanding government bonds between 1996 and 2001.

It is a hilarious display of public deception.

Anyway, the implications of using “We” instead of ‘them’ are clear:

1. The household budget analogy is inapplicable.

2. Our own personal budget experience generates no knowledge relevant to consideration of government matters.

3. An alternative narrative must highlight the special characteristics of the government’s currency monopoly.

The Time article should have stopped at that point and put a footnote in that the author didn’t know what day it was and they apologise for the attempted deception.

It proceeded to tell the readers that, in fact:

… the government is different from you and me (and Chicago). It has a central bank.

The Federal Reserve is the government’s Monopoly-money machine. It sets some interest rates and influences many others. It materializes dollars. It regulates–now regiments–the nation’s banks. It pulls levers to make the stock market go up.

Which means there is no issue. “We” actually do not own any debt at all. The Federal government is liable for it and has the US Federal Reserve Bank as its source of funds to meet any outstanding liabilities whenever it wants.

We also get a lesson in how the US government (like all national governments) spend money into existence:

Dollars aren’t so much minted these days. Rather, they issue from the Fed’s computers in billowing digital clouds. The cost of producing them is only the energy expended on tapping the keys. The Fed emits these electronic greenbacks to attempt to control the course of economic events.

Yes, out of thin air. A number typed into a computer which shows up in bank accounts that can then be drawn on to purchase real goods and services (including all the unemployed labour if their was the political will to do so).

So what?

There is an intermission in the article to drum up some fear:

So cast your eyes on the exact numerical rendering of that slightly smaller sum: $13,903,107,629,266. It is unmanageable.

And the US nominal GDP in 2015 was $US 71,788.00 billion … or in scary long-hand $US71,788,000,000,000. Which is very big if you are an ant comparing it with your size in millimetres!

So what?

But apparently, the US government debt is equivalent to a “chocolate cake” which if it “cost a penny a slice, the best of us would be tempted to break our diets. Well, government debt is priced at less than 2%, and Washington fell off the wagon years ago.”

Hmmm, metaphors. Governments needing to go on a diet because it will get fat! Crazy stuff really.

The author then warns the reader that:

The public debt will fall due someday.

Then realises how stupid that statement is and so follows it up with “Some of it falls due just about every day”. And has been doing that for as long as we have recorded data.

So saying it “will fall due someday”, by which the author means to scare the reader into thinking a great big rock is going to fall on our heads or Damocles Sword is about to slice our heads open, is irrelevant.

The outstanding debt is maturing and being paid frequently with no ‘to do’ at all. Bank accounts are credited and liabilities extinguished. New auctions are held and new liabilities incurred. They mature at some point (depending on the type of bond being auctioned). Bank accounts are adjusted.

So what?

And then we get to it: “The debt is ultimately a deferred tax. You can calculate your pro rata obligation on your smartphone.”

I would rather play chess on my smartphone because I might get the sum wrong given how many zeroes are involved.

But it is simply wrong to consider the public debt liabilities to be a deferred tax liability.

Even the Peter G. Peterson Foundation, one of those abhorrent lobbying organisations that lies on a daily basis to advance their agenda – smaller government for most of us (less services etc) and as much government for them as is needed to provide bailouts when they overstep the risk threshold, to provide lucrative supply contracts for the private corporations that feed off the public sector, and lax legislation to ensure tax havens are not closed down (which a legislative stroke of the pen could easily do) – sees through that ruse.

Last week (April 14, 2016), it produced a blog post – The US tax burden is low compared to most advanced economies – which said that:

The tax revenue collected by the federal, state and local governments in the U.S. each year is about a quarter of the nation’s gross domestic product (GDP). This is less, as a share of GDP, than the revenues collected in several other high income countries, including Japan, Canada, the United Kingdom, Germany, Italy and France.

But also square the ‘deferred tax liability’ against the author’s earlier statements that the US federal government just creates dollars out of thin air.

No taxes are therefore needed in order to spend.

So then the authors moves on and coins another scary term “squandermania” and wants to firms to hand out paychecks each week as cash and then physically “pluck its taxes” out of our hands. ‘Our’ being American wage and salary earners and certainly not the top-end of town who avoid taxes.

This would apparently engender a “tax revolution” and would “Make America solvent again”.

All it would do is to force the US government to actually employ more workers in the Inland Revenue Service to physically interact with workers each week as they line up to get their ‘taxes’ plucked.

Employment would rise and that would be a good thing!

Conclusion

I seriously hope all readers of this blog will cancel any subscriptions that you might have to Time magazine and run a social media information campaign urging everyone you know (and everyone they know) to do the same.

If you are a company who advertises in Time Magazine, I urge you to stop doing business with them.

And then seek information on other products the owners of the magazine sell and boycott them too.

Consumers, united, do have power. Enough of us pursuing a common goal can send a corporation broke, just like the textbook says.

Go to it.

Also recall that Time excluded Bernie Sanders from its shortlist of 8 finalist for their 2015 Person of the Year award despite him winning their readers’ poll for that award

That is enough for today!

(c) Copyright 2016 William Mitchell. All Rights Reserved.

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    This Post Has 20 Comments
    1. Many years ago, un the 1980’s, I had a subscription to National Geographic. They ran an article on Guatemala in which they praised the then president Efrain Rios Monty, well known for the numerous atrocities committed against the indigenous people, just because, well, he was an Evangelical Christian. I cancelled immediately my subscription and I have never again bought one for one of these glossy but superficial magazines always at the service of power.

    2. Dear Bill

      First, American GDP is about 17 trillion, not 71 trillion. If it were 71 trillion, per capita GDP in the US would be about 225,000, and that is certainly not the case.

      Debt should always be compared to income. Per capita GDP in the US is over 50,000, which is higher than the per capita debt reported by Time magazine. With interest rates being as low as they are, Americans would have no problem in paying the interest on their public debt if that were a debt comparable to a household debt.

      Some debt-phobic Americans like to show a graph which shows the explosive growth of American debt since their independence. Apart from the fact that they aren’t using constant dollars, this isn’t very scary since Americans today are much richer than they were in the time of Jefferson and Washington.

      What is especially annoying in these discussions about debt is that many people overlook that every debt is a financial asset to somebody else. Suppose that a church with 500 adult members borrows 1 million form its adult members. Then it is accurate to say that each member has an average debt of 2,000. However, it is just as accurate to say that the members have, on average, a financial asset of 2,000. Their net debt is precisely zero. In a closed economy, government debt can be compared to the debt of our hypothetical church, at least for a government that doesn’t have monetary sovereignty.

      Regards. James

    3. “A similar view is net wealth relative to GDP.  We hear lots of scary stories about high debt to GDP ratios, but we never hear about the asset side of the balance sheet.  And it turns out that net wealth in the USA relative to GDP is very high:”

    4. “Although the US government doesn’t calculate its assets and balance sheet every quarter like the private sector’s entities do, we do have at least a rough idea of the US government’s balance sheet. In fact, if you calculated just the value of federally owned fossil fuel resources these assets would dwarf the national debt by a margin of 8:1. And that’s not even touching the surface on the trillions in federally owned structures and land. The US government doesn’t have a positive net worth. It is possibly the wealthiest entity on the planet.¹”

    5. Here in Britain households are being encouraged to sustain unsustainable debt via credit cards and mortgages-I think average debt not including mortgages is set to be around £10,000 this year. it can’t be paid off and won’t be but it’s good at creating fear and subservience to the financial sector/Government (same thing).

    6. I’m so glad my eyes have been opened on this nonsense. I can say I probably believed it without really understanding any of it. Now I get it. I have my MMT textbook and I’ll be trying to get more into the theory in between my other masters studies which will be hard but hopefully possible.

      Glad I’m not subscribed to tie anymore and will try to spread the word for people to not read them. Unfortunately it seems they’re one of the most widely read magazines in the world according to wiki.

    7. I cancelled my subscription twenty some years ago and haven’t read the rag since. So, I didn’t read the article but I will be willing to bet that none of the solutions to the so called debt problem involved ending the never ending wars overseas, closing military bases overseas and bringing troupes home. I realized a long time ago that the magazine is owned and operated by unscrupulous people.

    8. Bill
      Would you please discuss, for the benefit of your economics-challenged readers like me, the pros and cons of a currency issuing government monetizing some or all of its debt as it comes due: e.g., to maintain an “acceptable” debt/GDP ratio. In MMT concepts, what are the practical, or desirable limits, if any, of this course of action? Thanks .

      Doug A.

    9. I am more afraid of the toothless, unshaven homeless man on the street corner than the federal deficit portrayed as the bogeyman looming around the corner. There is no deficit high enough to take care of the mental problems that painfully exists in this world. (or maybe there is?) But my biggest fear is that one day I become so immune to the frailties and ills of society, succumb to the luxuries of first class cabins, and worse of all, sell my vote to any Brioni suit who promises to offer or maintain this life style. After all, I am only human.
      But yes, if I had a Time subscription, I would cancel it.

    10. It is 15 US Code Section 52 (false advertising). Here is a better link:
      http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title15-section52&num=0&edition=prelim

      From my past experience in writing laws, I do not believe written opinions, however cloaked in supposedly unbiased reporting, filled with factual inaccuracies constitutes “false advertising”. It is either massive incompetence or purposely deceptive. It would be difficult to prove resulting financial gain.

      It is still grossly wrong and being widely commented on as wrong.

      It is, however, a political meme in the US which is constantly repeated and revived in political discourse by conservatives to the point where the general public is coming to believe it true and generally accepted, because they repeatedly hear it.

    11. Bill, don’t you mean to refer to Title 18 on Crimes and Criminal Procedure? Title 18, which your link refers to, is about trade and commerce with a section on Bankruptcy. Under Title 18, there are a number of chapters listing some offences that Time might be liable for. I like Racketeering, but I don’t expect that was what you had in mind.

    12. I mistyped the US Code Title. The Title Bill is referring to is Title 15, which deals with commerce and trade. Title 18 deals with criminality, which lists a lot of criminal activity. This is the one I think Bill meant, but I don’t know for certain, of course.

    13. This kind of thing is very infuriating. Only in politics do they look at liabilities without also looking at assets. Aside from the issue that so few people have a real understanding of how money functions in a floating currency system.

      Then you have people like a co-worker of mine, who has read all of the US Fed conspiracy theories. He has tried to get me to believe that the Fed is owned by the Rothschilds and their secret plot involves creating money and charging 6% interest — but because they never generate the money to pay back the interest, we all become debt slaves. (No, I’m not kidding — this is an otherwise very smart guy.)

      I don’t know how you keep your sanity in dealing with these kinds of goofiness day in and day out.

    14. Ha, ha! He manages to say that the government creates money, AND that the government borrows too much money – all in the same paragraph! Has all his bases covered.

      I wrote my letter to the editor, pointing out the obvious illogic and sleight-of-hand; who else has?

    15. Thanks Michael J Shussele!

      I agree; far more likely purposeful deception. The intensity of coverage of conservatives/neo liberals mouthing the neo lib memes always seems to increase almost the moment public opinion begins to wander from their fairly consistent set point. A widespread public knowledge of MMT would take many of the deceptive rhetorical tools away from all political organizations, leaving these groups without the cover that has allowed them to carry their devilry across visible party lines hamstringing the left in the process.

      What I find noteworthy, and particularly troubling, is that, even in publicly owned media, in countries were such things exist, there is yet to be any serious journalistic questioning of mainstream economic memes despite the growing knowledge of MMT.

    16. Bill :
      TIME magazine by itself is normally not a right-wing screed but tends to lean leftward. They have a fairly reasonable economics writer named Rana Foroohar, who makes far fewer errors than someone like John Taylor (whom you rightly castigate) … The piece in question caught my eye (as the magazine was brought in by my daughter from the mailbox on Friday) and then I noticed it was authored by James Grant (I was surprised you didn’t call attention to that). This individual is an unrepentant Austrian schooler and can be expected to draw predictable conclusions. Indeed, Mr. Grant was named by Ron Paul as his pick for Federal Reserve chairman … QED

      Regards, Melia

    17. The two great events of 1944 were my birth and a new high for Federal Debt.
      Jim Grant might be right about the deep do do about to hit but the big bill I
      must pay must come pretty soon or I will have died. Maybe my estate should
      be taxed for WW2 debt. WW2. Interestingly my parents died at 85 and 89 and
      they too did not pay for both the Great Recession debt or WW2 debt.

    18. For the Yanks among you type into your search engine Bearsdley Ruml a former chair of the NY Fed and one or Randy Wrays hero’s. He wrote a paper in 1946 about taxes being irrelevant and the lessons learned from WW11.

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