Self-seeking economists & their fans

by Serban V.C. Enache

A year ago, on Twitter, I called Ann Pettifor incompetent and Frances Coppola a bitch. I got a lot of flack because I stated my mind. I personally didn’t make a big deal of it, even though Steve Keen hopped on the thread, swearing at me, trying to get me to apologize and then blocking me and encouraging others to block me as well. Patricia Pino jumped in too to claim that I owe those two respect because reasons. And Stephanie Kelton contributed a single word, saying “shame” to me.

Now it’s been brought to my attention that there’s a big split between the heterodox camps. Pettifor and Coppola calling MMT a cult [well, there are cultists in every organization or behind any leader or set of ideas], picking various beefs with MMTers. Hacks like Jo Mitchell employing strawmen and ad hominems against people like Bill Mitchell via proxy. That sort of thing. People tried to do that to me too, labeling me a sexist because of the language I employed and the jokes I cracked. One can’t criticize the #METOO political phenomenon without being in league with the rapists, it seems. And apparently I was ruining MMT and being a racist too because I invoked Oswald Mosley’s Birmingham proposals in this post as evidence that he was one of the founders of modern money – and inside those quoted paragraphs, Mosley refers to modern money theory. I wonder if Friedman got such flack when he said “We are all Keynesians now.” As a result of all this, MMTers blocked me, many of them. And I blame them for why it’s no longer raining in Bucharest [drip, drip, rain].

Anyhow, due to this conflict on social media among and between self-seeking economists and their fanboys and fangirls, I thought I’d explain why I portrayed Pettifor as incompetent and Coppola a bitch.

Firstly, Pettifor wrote this tweet in 2015, “The concept of sectoral balances belongs to the sphere of accounting, not economics. I am not comfortable with it [using the equation in economic analysis].” I never heard a dumber thing from a professional economist. I thought she had taken down that nonsense, but she didn’t. In interviews or articles, she could never bring herself to say ‘deficit spending’ or ‘fiscal debits’ when talking about how a currency issuer funds its spending. She used expressions like “loan finance” [wuut?]. She claims “The sale of gilts provides the government with finance for investment and expenditure.” So the currency issuer funds itself by selling someone Gov debt in exchange for Gov debt? This claim violates logic and accounting. The sale of gilts has nothing to do with funding. Funding is secured through spending. I place an obligation on the public in sovereign fiat, I spend [purchasing labor and materials necessary for my goals], then I tax a portion of what I spent. Selling gilts is about draining liquidity from the buyers of the gilts and rewarding them with interest.

In one of her articles, Pettifor tries to address the issue of asset price inflation. She calls for a Tobin tax and for higher property taxes. A Tobin tax won’t fix the problem, it may dampen it by a soft measure, but it won’t stop or seriously curb speculation. Property taxes are regressive, as they penalize property owners who invest to develop their property. Property taxes incentivize idleness: less value in the property, smaller tax bill. Pettifor claims that higher land values dampen productivity. That is only partially correct, or partially incorrect. Untaxed land values are the problem. Privatized land values are the problem. But I don’t expect economists today, be they left, right, or center, orthodox or heterodox, to distinguish between Capital and the Natural Commons. It’s better to just conflate the two for some reason.

As for why I called Coppola a bitch? Well, isn’t it obvious? Because of her fake outrage. Because of the way she sets people up for drama, so she can get hits on her blog and become ‘important’ on social media. Arrogant. Preachy. Her self-entitled feminism, or faux feminism [depends on how one defines contemporary feminism]. Sore loser. Virtue signaler. The way she exaggerates things to make it seem like something extraordinary happened on her watch and only she had the wits to see it. Click-baiting. Like when she falsely advertised a few years ago that some person was debunking MMT in her blog’s comments section – but then Stelios Xanthopoulos had a looksy and it was all a bunch of strawmen. He asked where’s the actual debunking, and all Coppola was able to do was deflect – a ‘go ask him’ type of response. As for the plight of the WASPI women, Coppola’s answer “Go get a job.”

I could go on, but this is enough. At the end of the day, I have no stake in it. I don’t have books to sell you on finance and economic theory. I don’t have a career in this field, I don’t have steps to ascend. So notoriety of any kind on this subject matter earns me zero dimes. I’m not chasing University positions, book deals, or government positions. I can think, and feel, and say whatever I wish. And I hope that more people would think for themselves, instead of living their life as fanboys and fangirls, attending an endless game of soccer politics, engaged in permanent tribalism.

Land-Value Taxation & Farming

Dan Sullivan, from Saving Communities, talks on LVT and farming on his stay in Sweden in November 2014. Sullivan brings in a wide array of keen observations in terms of methodology and socio-economic consequences. Labor efficient and land inefficient firms vs land efficient ones. The different types of farmers. The different type of farms. The different interests among farm owners. Incentives and penalties. Land trusts. Appealing assessments. And much more. The video quality is only 240p, but the sound is clear.

Part 1
Part 2
Part 3

The folks from Saving Communities get everything right, especially from a moral standpoint, with a tiny observation in terms of banking operations, issue which can be tackled via asset side discipline reforms instead of full reserve banking, which has a regressive effect (doesn’t discriminate between lending for wealth creation and lending for wealth extraction) unlike the former. But I won’t get into that here – instead, I will quote their view on Money as a Common Medium and conclude this post with their Call To Action.

“Money is a common medium of exchange, without which modern production and exchange methods are impossible. Government, which demands money in taxes or as payment against necessary privileges, violates its charge if it forces taxpayers to resort to privately created money, and further violates its charge if it guarantees the value of privately created money or credit. Government’s demand for money requires that it issue enough money to satisfy the demand for money, and that newly issued money be distributed in a way that is fair to all citizens.

Government should issue enough money to maintain stable prices, with neither significant inflation nor deflation. However, it is even more important that government issue money directly into circulation rather than lending it to banks or granting banks the privilege of lending money they do not actually have.

Once money is rightfully issued, the exchange of that money is private matter, and the money itself is morally private property until it is redeemed by government.”

Justice Begins with You

“Each of us has an obligation, not only to advocate justice, but to be personally just toward ourselves and toward those with whom we interact. In this regard, charity without justice can be a device for sustaining injustice. That is, if you demand justice and another thing, you will get the other thing, and only the other thing.

In the aggregate, there is no such thing as ‘more than fair.’ That is, it is impossible to be more than fair to some without being less than fair to others, or to yourself. In every human interaction, other than that of punishment or restraint against those who had violated the rights of others, all parties should come out ahead. That is the minimum standard of justice.”

The Cure For Hyperinflation: Weimar and Venezuela

by Serban V.C. Enache

We frequently hear people bemoan the dreaded phenomenon of hyperinflation. We often hear only one explanation for it – the government printed money like crazy. We rarely hear the reasons behind the overuse of the currency press, which are: loss of output capacity [human and material] as a result of natural disasters or loss of a war, unfair war reparations, political instability, brazen corruption, the end of a fixed exchange rate with a strong currency. In this article I’ll focus on the cure for the phenomenon of hyperinflation – and this cure won’t entail brutal fiscal austerity that halts inflation by condemning much land and capital [buildings and machinery] to idleness and a great many souls to involuntary unemployment, poverty, and sickness.

The Weimar Republic. Background.

After WW1, life in Germany became hell. The political and economic burdens the creditors of the Versailles Treaty [Woodrow Wilson especially] imposed on the Germans created the conditions for the hyperinflation which soon followed. These impositions were highly unjust and impossible to meet. Meanwhile, the Ruhr Valley, Germany’s industrial heartland was occupied by the Allies. Workers responded to the occupation by organizing strikes. Crashing economic activity led to falling tax revenues and higher welfare payments. The Government, deprived of gold reserves and output capacity, had no choice but to print money to cover its costs plus the war reparations. Hyperinflation ensued. Farmers and manufacturers more and more refused to sell their output for the increasingly devalued Papiermark. This is the context of the phenomenon. Those interested in the facts will verify them, those interested solely in confirming their preconceived notions will dismiss them.

The Plan To Fix The Problem

Finance Minister Hans Luther, working together with Hjalmar Schacht [later head of the Central Bank], using Karl Helfferich’s idea of a currency backed by real goods, formulated a scheme to contain the rampant inflation of the Papiermark. In 1923, Berlin, the Rentenbank was created. The institution provided credit to agriculture, industry, and commerce.

The term “Rentenbank” stems from “annuity bonds”, fixed-income securities [bearer bonds] issued by the first pension banks during the 19th century. Since the Middle Ages the peasants were forced to provide easements to their landlords – various hand services and the like. In the early 19th century, though, agrarian reforms started in Prussia and other German states aimed to disband these obligations. The effort initially failed owing to a lack of a proper credit system.

To accelerate the agrarian reforms, pension banks were established as state-owned mortgage banks. They gave state-guaranteed, freely tradable and fixed-rate bonds (annuities) as money compensation for the expired privilege of the landlords. On the other hand, the peasants paid fixed income to the pension funds over a long period of time, from which the banks were able to service the principal and interest on the bonds. These reforms and the liberation of the peasants gained traction and agricultural productivity rose dramatically.

Enter the Rentenmark

Returning to the 1920s, November 1923 to be precise, the Rentenbank issued its own currency, the Rentenmark, which was covered by mortgages on the grounds of holdings. Total amount of mortgages and land imposts was valued at over 3.2 billion gold-marks. The Act creating the Rentenmark ensured twice yearly payments on property, due in April and October. In return for the real estate, Rentenbank issued interest-bearing bonds with a value of over 500 gold marks or a multiple thereof. The exchange rate between the Rentenmark and the Papiermark was set at 1:1 trillion, and with the US Dollar at 4.2:1.

The Rentenmark didn’t have legal tender status, so there was no legal obligation for private agents to accept it as a means of payment, however, all public institutions had to accept it. Even without legal tender status, the citizens embraced it right away. The Rentenmark’s value was relatively stable, while its quantity remained fixed, Shacht insisted on it. On August 30th, 1924, the newly-introduced Reichsmark became legal tender and was given equal value to the Rentenmark. It’s very important to note that this exchange rate was applied to two fiat currencies over which the Government had power of authority. It retained the right to alter the exchange rate if it wanted or needed to. The issued Rentenmark nominal remained in circulation up until 1948.

Tight Money Policy

In charge of the Central Bank, Hjalmar Schacht implemented a tight monetary policy, the institution ceased discounting Papiermark bills and, despite political pressures, he kept the volume of Rentenmarks strictly limited. As for fiscal policy, Finance Minister Hans Luther went on the austerity route, the correct choice given the circumstances. He brought forward due dates for taxes, increased prepayments of assessed taxes, raised the sales tax, and readjusted the fiscal burden between the regional governments [Lands] and the Reich [the Central Government]. Spending-wise, Luther shrank the number of Reich bureaucrats by a quarter over four months, froze bonuses and reduced their wages. These measures accompanying the issuance of the ‘land-backed’ Rentenmark succeeded; hyperinflation was brought to an end immediately. People spoke of the ‘miracle of the pension mark.’

Between 1926 and 1929 inflation hovered below 2 percent. In the early 30s, however, in reply to the Great Depression, the Government of Heinrich Bruning imposed harsh austerity measures needlessly [tightening credit, cutting wages, cutting public assistance, and increasing taxes], which exploded unemployment and poverty levels in the country and, in the process, made the once marginal Nazis incredibly popular with the people. The National Socialists opposed Bruning’s Government from the beginning, unlike the other right wing parties. Bruning and his policies became widely hated.

See the graph below.

The reader will rightly ask, why did fiscal austerity work for Schacht and Luther, but not for Bruning’s Government? Schacht and Luther applied counter-cyclical fiscal and monetary policy, while Bruning applied pro-cyclical policy. Excess demand relative to supply is eliminated via taxation [draining income from the private sector]. But during the Great Depression, there was too little demand relative to what was actually on the shelves. Bruning’s reforms collapsed aggregate demand levels even further.

Thoughts On Venezuela

The geopolitical aspect is very important, for it can greatly amplify minor or general problems very fast [See Turkey], or it can spark them. The State Central Bank’s dollars in non-cash form reside in accounts at the Federal Reserve, which are beyond Maduro’s control. The Government can’t access these funds. Recently, the US and the UK stole Venezuelan oil and bank assets worth about 30 billion dollars. More so, the US has imposed an outright embargo against Venezuela [trade sanctions levied since 2013 got harsher and harsher, depriving the country of hundreds of billions of dollars in economic activity]. Lastly, belligerent statements coming from Europe and Latin America [Brazil and Colombia especially] and Washington threatening with ‘all options on the table,’ which includes assassination, sabotage, coup, and invasion.

Footage from supermarkets in the capital, stores filled with produce, reveal that a shortage of goods isn’t the problem, but high prices. If it’s true that Maduro’s Government kept public spending high without re-adjusting it to falling prices of crude, then his policy is a key contributor to the bolivar’s dramatically reduced purchasing power. Currency pegs and indexation of wages and pensions with anticipated inflation feed the vicious loop. The Venezuelan Government announced that it’s accepting payments in Euros. In my opinion, this is a big mistake, because the ECB can pull the same stunt on Venezuela that the FED pulled. Maduro is much better off negotiating an entry into the Petro-Yuan with Beijing. Why? You can purchase virtually anything from China. China has made numerous investments across the developing world without asking for political concessions in exchange, in stark contrast to the likes of the IMF. Beijing doesn’t seek regime change or privatizations in exchange for its money. It does business with whoever is interested and it offers advantageous rates too. Trade-wise the Chinese are interested in two things: securing raw material imports and securing demand for their factories. It’s a win-win for both sides.

In my opinion, Venezuela will become Syria 2.0, because there’s no sign that Washington is going to accept any other outcome. The satanic crowd around Trump, the Deep State, and their servants in the corporate media are all pushing the same old hypocritical, war-mongering narrative. They spew it as if it’s a new dish too, not the same rotten thing, teeming with slime and worms. And before we blame it all on the Republicans, remember that 85 percent of journalists in the US are registered Democrats. Since this issue is bipartisan, we know it’s outright devilry. Bolton, Pence, Trump, and the rest – they want to cover up their failure to dismember Syria and Iran by picking on Venezuela, a more vulnerable target closer to home.

If I were in Maduro’s shoes, I’d escalate things ahead of my rivals. I would invite in Russian and Chinese troops and war-gear. Washington doesn’t like to cooperate or negotiate with sovereign regimes. For many decades now, the logic has been, you do as we say, otherwise we treat you as a rogue state. Against a rival who doesn’t wish to bargain and who has threatened [euphemistically or not] violence and murder, you’ve no choice but to take all measures required. Maduro has to choose the 2nd most extreme of defence options [2nd only to the preemptive strike, which doesn’t apply here] because in this context, it’s the wisest step.

If mainstream commentators are fine with US gangsterism, with countries purchasing protection from Washington and the Military Industrial Complex, then they should be fine with Venezuela purchasing protection from Russia and China. They can’t oppose it without being hypocrites and without being Monroe Doctrine apologists, defenders of imperialism, oppression, and mass-murder; not that that’s gonna stop them. Let’s not be naive, US hegemony is shaking. The 2nd Cold War is on.

So What’s The Cure, Dammit?

The recipe for a return to price stability is contingent on the factors which spawned the instability. This list of measures will hopefully cover all eventualities: 1) Counter-cyclical fiscal policy [drain excess money in circulation via taxation, while cutting superfluous spending.] 2) Land-value capture to replace taxation of buildings, labor, sales, and enterprise [taxing natural monopolies, the rent of location; the site-value tax carries negative dead weight – it brings efficiency to the marketplace]. 3) Buffer stock policies [the public authority buys seminal commodities during periods of excess production and sells these commodities domestically during times of dearth]. 4) Allow the national currency to float freely according to demand [drop any fixed exchange rate, whether it’s to gold or foreign currencies, and embrace a sovereign fiat regime]. 5) Negotiate with rival political factions to settle differences and produce a national accord that appeases all sides to a reasonable extent. 6) Ration basic resources to ensure no section of the population starves [hands and minds are precious and must be kept alive and functional to create goods and services for another day; there’s no sense in killing off one section of the population to feed another extra rations]. 7) Bring in a second or third great power in your region, in order to decrease the bargaining power of the established one/s and strengthen your own position in the process. 8) Link up the country’s regions through a comprehensive system of infrastructure, high speed rail especially [the points of resource extraction with the manufacturing centers, the latter with the marketplaces]. 9) Restrict bank lending for speculative purposes [do not permit banks to accept financial assets as collateral for loans, or to mark their assets to market prices.] 10) Discourage private and public agents from borrowing in foreign currency [always ensure loans in domestic currency are cheaper than in foreign currency; never subsidize the latter type of loans]. 11) Employ all available labor to achieve maximum output [Depending on the situation, participation in public works programs would be mandatory or voluntary. In case of emergency, working hours could be increased and holidays decreased.] 12) Don’t lose a war [or better said, don’t lose peace negotiations concerning your fate]. 13) War Bonds [While the role of War Bonds is to allegedly fund a war, in practice what they do is drain liquidity from those who purchase them. They can be denominated in foreign currency, domestic currency, or both. That being said, liquid or illiquid purchasing power is still purchasing power. People can still purchase things on credit, contingent on their own financial situation. War Bonds may have a psychological effect on the populace, reminding households that they must tighten their belts, deferring consumption to the future, so more supplies can be allocated to the troops in the now. The promise is that, after the war is won, bond holders get paid at a profit. 14) Retiring the currency and replacing it with another [Brazil did it several times in the last 77 years; the Government announces taxes and fines payable in a different currency. This method involves burning away people’s cash savings. To escape hyperinflation, Zimbabwe gave several foreign currencies legal tender status.]

The scam of Marginal Tax discourse

Don’t follow the herd…

by Serban V.C. Enache

Recently, a talk about the size of Marginal Tax rates has entered a part of public discourse. The claims are that higher taxation on the margin is morally acceptable, because people making more money than others pay more in taxes, and the body of citizens benefits from Public Services, which are thus ‘better funded’ in this situation. If you’re a regular reader of this website, you’re familiar with Chartalism, so I won’t bother to (again) debunk the orthodox myth of ‘tax more, so we can spend more’ in a context in which there’s plenty of idle land, labor, and factories to go around. I will instead focus on the fraudulent claims these politicians and leftist activists make regarding marginal tax rates in the USA and the so-called moral soundness behind them.

First of all, marginal tax rates ARE NOT effective tax rates. In the mid 1940’s, the effective tax rate for the Top 1% reached an all time high of 45% of income. Most of the fiscal drag, however, fell on the bottom 50%.

People claiming that the good times of post-WW2 were due to the 91% marginal tax rate are ignoring the geopolitical, financial, and economic climate of that period. Namely, Europe and Asia were left devastated by the war, and the USA’s production capabilities were unrivaled globally. In the 1950s, the effective tax rate on the Top 1% was about 42% of their income, albeit the marginal tax rate at the time was 91%. Today, the effective tax on the super rich is slightly lower than what it was in the 50s.

Statements from these leftist activists imply that the rich were somehow paying 91% of their income in the USA’s history. That implication is an outright lie, and the failure of these activists to make that clear is all the more proof of them pursuing an ideological agenda, facts be damned, not unlike their republican counter-parts. And as for the claim that higher marginal tax rates bring in more revenue for the Government [so it can fund more public services or fund existing ones better], that too is false. Since WW2, tax revenue in the USA, despite changes in taxation levels, has remained about 19.5% of GDP.

Now let’s address the moral claims of these leftist activists, useful idiots of the Establishment. The left and the right and center are taught by conventional wisdom to view moneys that people make only in terms of sums, figures. They never ask from what type of activities those moneys are obtained. If they bothered to ask this little question, they would see how utterly unjust and fallacious the former logic is. There’s a difference between earned income and unearned income. There’s a difference between a markup drawn up from actual competition vs a markup drawn up from cartelization. There’s a difference between making money from labor, from profit [enterprise], from rent [land and other natural monopolies / natural commons], and from usury. If we recognize the nature of these different economic activities, then we wouldn’t be taxing the former productive ones and allowing the latter parasitic activities to go untaxed and unhindered.

We would be taxing economic rents, we’d work to abolish patents, and we’d have a banking sector that loans at near zero markups for productive purposes (for businesses to expand output capacity, for people to fix up their homes, that sort of thing). We wouldn’t tolerate a banking system like we have today, with sky high markups, that gives out loans mainly for speculative purposes – predatory schemes that thrive off asset price inflation (rents of location), only to later on transform the populace into serfs and then having the Enlightened, Humanitarian, Bourgeois Intellectuals and Caviar Marxists sermonizing about the evils of populism, isolationism, and the need for decision making to be had at Trans-National level among the properly educated and wealthy few in the attempt to create another Tower of Babel in the satanic ambition that representatives of a degenerate offshoot of human culture shall become gods in heaven, not just on earth.

In truth, however, the rightists are regressive because they want to reduce taxes indiscriminately (trickle down economics), and from these efforts, the rent-seekers and usurers reap the highest gains. And the leftists are regressive because they want a higher tax burden, that, like previously shown, falls mainly on the working classes, and not at all on the super rich.

The income inequality issue gets most of public attention, especially in the mainstream media, precisely because it’s a debate from which both camps argue based on flawed assumptions. The issue gets turned into political soccer, devoid of any actual facts, devoid of any true emotion of righteousness – it all becomes an opportunity to proselytize, to signal virtue, to shame, and to feign outrage in the worst way imaginable.

In truth, however, mankind has been plagued by a more gargantuan and sinister specter throughout history: wealth inequality. One solely requires the curiosity to search and the wits to see this truth, as it rises from the antediluvian dirt beneath our feet. Land, the first factor of production. Land, nature-made, unlike capital. The site value, established by the labors and investments of the community (including the public authority), NOT by the idle classes, landlords and usurers. The working classes will reclaim the natural and social commons, or they will be content to live with the idea that the word “The People” only exists de jure on some scrawny piece of paper, and not at all in reality, past, present, or future.

Nowadays, the hope touted among so-called progressive circles is a false one: that these Democrats with some new adjective attached before that label are somehow the forces of radical change for good. As Nick Barrickman concisely states, their role is to fool youngsters (and in my opinion some old timers as well) to vote for the Democratic Party, to fool them into believing that this war-mongering, thieving, and undemocratic party can be reformed. Young people generally don’t vote, or if they do, they vote 3rd party or independent; so that’s a demographic segment coveted by the Establishment.

It’s always effective to present two options, one as evil, and one as the lesser evil to the public, and then have the audacity to claim ‘freedom of choice,’ ‘political pluralism,’ and ‘the will of the People, in accordance with the law, has spoken.’

In domestic affairs, what the Republicans and Democrats offer the American People is simple: Feudalism with borders and Feudalism without borders.

For further info on what the Government should and shouldn’t tax, see these videos.

Property Tax vs Site Value Tax

Site Value Taxation & Agriculture

Site Value Taxation and Buildings

Site Value Taxation & Public Infrastructure/ utilities

(S-I) in Sectoral Balances

by Joe Blackwell

I see a lot of confusion concerning why the private sector balance is represented by (S-I) in the sectoral balances equation. This is something that confused me for a long time when starting to learn about macroeconomics, so I thought it might be a useful resource to quickly explain what (S-I) means and why it represents the balance of the private sector. Continue reading “(S-I) in Sectoral Balances”