A review of Warren Mosler's Dallas address.
These first few excerpts summarize Mosler's economic plan:
"I believe that the surest engine for full economic recovery is a full payroll tax holiday."
"This fixes the banks and fixes the economy, from what I call the bottom up."
"And what all businesses need most to expand output and employment is people with spending money who can buy their products."
I agree with that one. One thing every business needs is customers with money.
"What I don’t see is how any self respecting Democrat can allow this tax to stand for a single moment. It is the most regressive, punishing tax we’ve ever had. It starts from the first dollar earned with a cap at $106,800 per year."
Okay, he's talking about a Social Security tax holiday. Hmmpf.
"Let’s now back up and review how we got to where we are at this moment in time. Headline unemployment is unthinkably high at 10%, and if you count workers who have given up looking for a full time job, it’s over 17%. As you all know, it’s about the financial crisis. The banks got in trouble when their loans went bad. Well, what makes a loan go bad? Only one thing- people who can’t make their payments. If people make their payments, the loans are AAA. If people don’t make their payments the loans are junk and toxic waste. No matter what the security is- a loan, a cmo, cdo, clo, or whatever, it’s all the same. If people are making their loan payments there is no financial crisis. Unfortunately, instead of attacking the problem from the bottom up with a payroll tax holiday, we have an administration that thinks it first needs to fix the financial sector from the top down..."
Yeah, yeah, yeah. First of all, "the financial crisis" is not "how we got to where we are at this moment in time." If you want to look at the problem and see how we got here, you have to start back when the economy was still good. The 1950s maybe.
Second, the blogosphere is full of concern about how high the unemployment number goes "if you count workers who have given up looking for a full time job." Where was all that concern, back when they decided to stop counting those people as unemployed? I remember it in the news, early in the Reagan years if memory serves. It was wrong, then. Similarly, in the Clinton years (again, if memory serves) they fiddled with the way they figure inflation, to make the inflation number sound not so bad. That was wrong, too. But I guess it worked, because nobody complained about inflation for a long time.
Third, Mosler is right -- finally! -- about the bottom-up thing. He is right that it's "people who can’t make their payments" that make loans go bad. And the payroll tax holiday, while it does not address the underlying cause of our troubles, certainly would provide some relief.
But remember: it does not address the underlying cause of our troubles. Suppose we go with Mosler's payroll tax holiday, and the economy recovers, and growth resumes, and debt growth resumes. Then what?
Pretty soon, another financial crisis. Then we'll need an income tax holiday. They again maybe the economy recovers, and debt grows for a while again. And then we have another financial crisis.
What do we holiday then, excise taxes?
Meanwhile, we've painted ourselves into a corner, and we're printing more and more and more money, and serious inflation is starting to become a reality.
The alternative that I see is to rely more on "printed" money, but also we must rely less on credit. We should use credit for growth, not for everything. In a static economy we shouldn't need any credit at all. In an economy that has grown too slowly for too long -- our economy -- we should have very little credit in use. Credit is for growth.
Actually, if our economy had very little credit in use, we would have very little debt. And if we had very little debt, our economy would be growing like crazy. And then, yes, debt would be accumulating. And we would need to deal with that.
Again, again, again I say: We must then use tax incentives to accelerate the repayment of debt. This will stabilize debt at a low enough level that debt does not hinder growth. And since debt repayment drains money from circulation, it will help us fight inflation.
But that's just me.
"This has been a trickle down policy where nothing has trickled down, because there is no connection between funding the banks, and the incomes of people trying to make their payments. The answer, of course, is instead of giving trillions to the banks, to simply stop taking away trillions from people still working for a living."
It's not the answer, but it is an answer. It does not directly address the problem because, contrary to everyone's pocketbook opinion, taxes are not the problem. Taxes are only a problem. But if we actually fixed the problem, taxes would not be a problem. Meanwhile, Mosler's solution would ease the pain as we draw closer to calamity.
Next, Mosler gets into the same "how government spends" thing that I criticized two posts back. He even uses the same Bernanke quote. And then he says
"All government spending is simply a matter of changing numbers upward in our bank accounts. It doesn’t come from anywhere. Just like when you kick a field goal and get 3 points. Where does the stadium get those points? Right, they don’t come from anywhere. It’s just scorekeeping."
Retard. The stadium doesn't get the points, the team does. And it is almost always a struggle to get them. The struggle is one of the great things about football. Nobody goes to the stadium to watch numbers change. People go for the game.
With football it's the struggle. With money it's the obligations. It's not just a number. It represents work, value, struggle, and achievement.
Mosler says; "Government can’t ‘run out of money’ ... There isn’t anything to run out of. It’s just data entry, it’s score keeping." Yeh, score-keeping, plus the struggle to get to the goal line. Plus the obligations. Mosler is just plain wrong about this.
What else? Well, Mosler says, "we are grossly overtaxed." And he wants a payroll tax holiday. But he doesn't say how he would pay for it. He doesn't say he's just gonna print money. He only keeps talking about "changing numbers up" and "changing numbers down."
He should be embarrassed to say such foolish things.