Let's pick the path FDR chose

The continuous stream of Congressional "debt" crises has been crippling our main street economy, killing jobs, and creating unnecessary hardship for many Americans.  Every quote by a Republican politician regardless of subject always refers to "out of control federal government spending and unsustainable debt and the need to cut entitlements."  There not only is no push-back from Democrats, they seem go out of their way to pay homage to the "federal government debt" problem, which only  reinforces the myth that the federal government is no different than a family and must therefore balance its budget or go broke.

I wrote the following editorial published in the Helena Independent Record October 28, 2013.  The motivation was two especially scary editorials that had appeared in the same paper during the previous couple of weeks.
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FDR: "The only thing we have to fear is fear itself."

Have you noticed every time a politician speaks, we’re told we should be very afraid for our future?  “Our federal government is going broke, we’re going to have to borrow more money from the Chinese, inflation is just around the corner, and our children and grandchildren are going to be saddled with an unbearable debt burden.   Revenue is not the problem, taxes are already too high.  Spending is the problem, it’s out of control and “entitlements” are the reason.  You’re just going to have to sacrifice more.”

The fear stories range from the hyperbolic overreach (IR, October 1) of the uninformed like Joe Balyeat, the Montana mouthpiece for the fossil fuels billionaires Koch brothers, to a more respectable John Snow, former Treasury Secretary under President Bush II, who undoubtedly knows the above fear stories are not true (as reported  by Bob Brown in the IR, October 16).

We’ve just witnessed a manufactured 16 day government shutdown engineered by the U.S. Congressional Republicans that caused ~$30 billion in lost GDP, the furloughing of nearly one million federal government workers, and a narrowly averted globally catastrophic economic meltdown that would have resulted if the Republican Congress had refused to allow the government to make interest payments on holders of U.S. Treasuries.   

These fabricated crises have caused over $700 Billion in lost national GDP since the Tea Party emergence in 2010.  Republicans are intent on scaring us all into believing that the U.S. government is going broke unless we dismantle Social Security, Medicare, and Medicaid.  But it’s all nonsense.

Many have been duped into believing the “government is going broke” storyline we are being fed by this anti-government rhetoric.  But consider this: never in its entire history has the country gone broke, yet it has carried a so-called “national debt” every year of its existence except for three years between 1834 and 1837.

If Congress spending creates a heavy debt burden on future generations, why haven’t those of us alive today had to pay back past “national debt?”

Ask yourself this.  Where do the Chinese get their U.S. dollars to lend us, when the U.S. government is the sole producer of the dollar?

Also ask yourself how the U.S. government can afford to spend trillions to bail out Wall Street and its mega-corporations every time they create a private-sector bubble that bursts, yet they cannot help the citizens who were financially destroyed by the explosion.

A brief review of America’s past century is revealing.  The wealth inequities of the 1920s were remarkably similar to the wealth inequities of the decade preceding the 2007 market crash.   The real estate and stock market behavior of the 1920s was nearly identical to the markets behavior of the 1990s and early 2000s.  Market values were artificially high and the wealth gap between the ultra-wealthy and the rest of us were at all-time highs at the times of both crashes.  

The end result of both periods was complete collapse of the economy, the Great Depression of 1929 and the Great Recession of 2008 respectively.  We’re still trying to recover from the latter, and today we sit at a tipping point much like the one Franklin D. Roosevelt faced in 1933.  

Rather than cut federal spending, FDR took a different approach in taking office in 1933.  At the depth of the depression, he recognized that only the federal government had the capability to provide jobs so desperately needed.

In his inauguration speech, FDR spoke these famous words, “The only thing we have to fear is fear itself.”  

Then he brought a conservative Utah banker, Marriner Eccles, to Washington to serve as the architect of FDR’s financial markets regulatory reform and New Deal jobs Programs.  Under Eccles’ leadership, a tightly regulated financial market coupled with government deficit spending lead America into an era of unprecedented worldwide prosperity.  We built gigantic modern public infrastructures like dams, airports, highways, and schools in America while at the same time propping up the economies of war-torn Europe.  During the 1940s through the 1970s, the federal government funded public education for all, developed the atomic bomb, and sent men to the moon.  The government funded all these inspirational things that provided people with jobs and did it with so-called government “borrowing.”  

Today we again stand at a cross-road and our federal government is faced with two options: 1) continue the current path of job-killing austerity, or 2) take the FDR path to return to prosperity by directly funding job creation programs to modernize our infrastructures, fully fund our safety net programs, and fund public education and state sponsored research institutions.  

The so-called “national debt” problem is pure political fabrication.  The real crisis we face today is very same one created by the extreme wealth inequity in America of the 1920s.   It is the failure of our federal government to directly fund job creation programs to rebuild our great nation as FDR did in the 1930s.

The fact is that the private sector businesses are not the only creators of “real” jobs, regardless of what the “small government” ideologues tell us.

The choice of America’s path belongs to us voters because it is us who send our representatives to Washington to create “our future” we demand of them.  Is it job creation or is it job-killing “debt” reduction. 

The 2014 mid-term elections are looming large!

Make our monetary system work for us.

Today, I submitted this to the Albuquerque Journal. It is possibly too wonky, but I wanted to make a credible statement that there is another way to look at our national finances. The Journal published this on November 17, 2013 with the title "U.S. Monetary System Widely Misunderstood." 

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Recently Professor Stephanie Kelton, Chair of the Economics Department at the University of Missouri-Kansas City, cited an illuminating quote from a Federal Reserve document revealing that at least some people at the Fed understand our monetary system. The quote below rings quite differently from the prattle we hear incessantly from politicians and undiscriminating media, especially during the recent shutdown/debt ceiling fiasco.

“As the sole manufacturer of dollars, whose debt is denominated in dollars, the U.S. government can never become insolvent, i.e., unable to pay its bills. In this sense, the government is not dependent on credit markets to remain operational. Moreover, there will always be a market for U.S. government debt at home because the U.S. government has the only means of creating risk-free dollar-denominated assets (by virtue of never facing insolvency and paying interest rates over the inflation rate,...?" (St Louis Fed Publication 2157)

New York Fed Building

Professor Kelton is a leading member of a school of economists and fund managers, who realize that the monetary system changed when President Nixon defaulted on the gold standard in 1971. Since the early 1990’s this community, exploring Modern Money Theory, has published widely and has gained followers from around the globe.

Significantly, MMT followers foretold the monetary problems of the Eurozone, where members gave up their monetary sovereignty for a de facto gold standard. Thus, their debt was not in their own currency. MMTers were among those, who foresaw the private debt crisis that caused our Great Recession. Further, MMT explains why the Fed’s Quantitative Easing did not and cannot stimulate the economy and why federal deficits do not and cannot in themselves lead to high interest rates or inflation.

When we get away from the gold-standard thinking that dominates current fiscal discourse, we realize that as the monopoly issuer of the dollar the U.S. government does what monopolies do. It sets the price (short-term interest rate) of the dollar and issues dollars in the quantity desired at that price by government spending and private investment. Dollars enter the economy through bank loans, which must be paid back with interest, and through government spending. Government deficits are the only source of net saving in dollar-denominated financial assets in the non-government sector. Government debts are private assets to the penny.

Also, we realize that government spending is not contingent on our ability to borrow dollars from foreign lenders. China, for example, does not create dollars; it gets them because we buy stuff from Chinese manufacturers. With their earned dollars, China can purchase anything for sale in dollars. That includes AMC Theaters, Smithfield Hams, or U.S. Treasuries. We don't need China or anyone else to fund our government spending, they get dollars from our spending.

It is the same for Government taxes. In a fiat money system there are no dollars in the non-government sector until banks lend them or government buys goods and services. Taxes serve to retrieve money that has already been spent. Government deficits result in net saving of financial assets in the non-government sector. Likewise, government surpluses reduce savings in the non-government sector.

This is just basic accounting. If government happens to have a balanced budget (spending minus taxes is zero), the non-government sector (domestic plus foreign) will also  balance to zero. This would result in reduced savings for the domestic private sector to pay for the foreign trade deficit. Federal deficits help the domestic private sector keep its head above water.

Repeatedly, we hear both political parties extolling the virtue of reduced deficits, even balanced budgets. John Boehner, Speaker of the House of Representatives, often bellows that no household or business can spend more than its income, so neither should the government. President Obama and his bedfellows blindly accede to this demonstrable falsehood.

Because government creates the money, it is not constrained in spending like a household - not that government should spend more than is needed. Also, government is unable to save for future expenditures like a household can. Saving has no meaning for the currency creator.

Clearly, Government finances are distinctly different from household finances!

Government invests in the future by spending on research and infrastructure in the here and now and can continue until full employment is reached. Then our descendants get the benefits of real assets AND possession of the financial assets (Treasury bonds) that constitute the national debt (national net savings).

One need be neither nerd nor economist to understand the rudiments of our monetary system. Our fiat monetary system can facilitate domestic prosperity. We should demand it.

America's Main Street economy versus Wall Street

An article written by a local bank officer and published in the Helena Independent Record  on the relationship of the Fed to the rising mortgage interest rates stated that when the Fed buys Treasuries on the secondary markets it is "printing" dollars that  increase the number of dollars in the global economy.  The fact that a bank manager seemingly does not understand the Federal Reserves operation and is misleading the public from a position of supposed credibility caused me to write an article that was published on the Opinion page of the Helena IR on July 29.  My article was discussed on Professor Randall Wray's EconoMonitor blog site on July 30.

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America's Main Street economy versus Wall Street

You might have noticed that Wall Street no longer is a thermometer for measuring Main Street’s economic health.  While the stock markets have recovered from their 60% collapse caused by the 2007 Great Recession and are now at an all-time high, the health of the Main Street economy as measured by the quantity and quality of jobs is not doing so well.

Jobs being created tend to be lower paying with fewer benefits than the jobs that were lost as fallout from the Great Recession and the recent government budget cuts.  Most concerning of all is the fact that the income and wealth gap between the richest and the working American continues to increase even as the stock markets continue their advance to higher highs.

Politicians, analysts, and media pundits provide all kinds of rationale for these discrepancies between Wall Street and Main Street and the failure of the job market to improve.  Almost all are wrong.

A new branch of economics called Modern Money Theory (MMT) perfectly explains these discrepancies.  It emerged during the early 1990s and foretold the euro zone crisis and the recent 2007 Great Recession.  And, it explains why the Fed’s Quantitative Easing (QE) program has been insignificant in stimulating the economy.  QE did have an effect of stimulating the stock market’s recovery while continuing to accelerate the income and wealth gap.

MMT is actually not a theory and it has no political ideological basis.  It is an objective study of modern (fiat) money and the way a sovereign country with its own fiat currency works.  It has nothing to do with big government versus small government, and it has everything to do with our government functioning effectively as our forefathers intended, using the constitutionally mandated financial tools at their disposal.

Warren Mosler, a former hedge fund manager who made his billions from these insights, challenged the economics profession that the U.S. would be far more prosperous if we stopped basing our fiscal and monetary policies on theories designed for a country whose currency was still tied to the gold standard. 

Today, tens of thousands of professionals in academia, finance, business, and government also champion Mosler’s insights that (1) our fears about the national debt and deficit are the result of a failure to understand how modern money works and (2) that lack of understanding is holding back progress on all economic fronts in America.  

And recently, the mainstream media has begun to take notice of MMT and is beginning to print articles about the economy discussed in a MMT framework.

While the actual details of how the United States government’s financial management system works are complex, MMT describes the government’s basic financial management framework in a way that is simple and straight forward that most of us can understand.

• The U.S. government’s finances are nothing at all “like a family sitting around the kitchen table working its budget” as has been metaphorically described by countless politicians. 
• The U.S. dollar is not tied to a commodity.  It is only a medium of exchange backed by the strength and power of the United States economy.
• The U.S. government’s financial management system consists of two components, fiscal (spending and taxing) and monetary (monetary operations and interest rates control).  
• Effective financial management requires that both the fiscal and monetary parts of the government work together in sync. 

Congress is solely responsible for the fiscal part.  It literally puts U.S. dollars into the main street economy by its spending and taxing directives and policy decisions.   To be effective, Congress must put the dollars where they are needed and in the amounts needed, coupled with effective tax policies, to reach its economic and societal objectives.  

The Federal Reserve Banking system (the Fed) is responsible for the monetary part.  As the central bank of the U.S. government, it manages the federal government’s financial balance sheet.  The U.S. Treasury and all states and commercial banks, both foreign and domestic, that want to do business with the U.S. government must have an account at the Federal Reserve Bank.  

The Fed is the most misunderstood part of the U.S. government’s financial management system, and its power is greatly exaggerated.  It is only the U.S. Congress that has the power to create jobs and stimulate growth in the main street economy.  

The Fed does have the authority to change the supply of reserves in the commercial banking system by exchanging reserves with Treasuries on its central bank financial balance sheet as it is currently doing with its QE program.  This action by the Fed does have great influence on the stock markets by changing the supply of reserves in the banking system (the financial industry).  But, increases in bank reserves do not make it into the general economy until or unless banks give loans to credit worthy customers in the private sector of the economy.   Therefore, the Fed’s QE action artificially inflates Wall Street while doing nothing to grow the main street economy that we all depend upon.

Real job creation and main street economic growth comes only from U.S. government deficit spending at times when the private sector is not producing enough jobs to generate disposable income in family budgets.

Just as the Fed is the “lender of last resort” for commercial banks if they need reserves to balance their capital accounts, the U.S. Congress must be the “job creator of last resort” for our economy.  For the United States to regain its status as the most prosperous and socially mobile country in the world, Congress must create a modern work program similar to FDR’s New Deal Programs of the 1930s.

A Defense of Federal Deficits

Yesterday evening I submitted this to the Albuquerque Journal in hope of making the Op-Ed Page. Will report back later. 
This was printed in the Journal on the Op-Ed page for July 7 with the title "Build a modern version of WPA" with the subtitle "High employment is a symptom that the deficit is too small" This time I liked their title.
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As a convicted deficit denier, I offer the following as counterpoint to the Sunday, June 30 Op-Ed by Carroll Cagle.

A Defense of Federal Deficits
Preoccupation with federal deficits and debt is counterproductive. The $12 trillion national debt held by the public means that $12 trillion in assets are saved in the private sector predominantly in the form of Treasury securities. To reduce the debt, some of those savings will have to be given up. The national debt problem is minuscule compared to unemployment that has resulted in trillions of dollars worth of potential production being wasted never to be recovered.

It all comes down to customers’ demand to buy products. If demand is not sufficient for firms to sell what they produce, they will cut production by shutting down machines and laying off workers. Firms will not ramp up production without increased customer demand. That leaves government spending to prop up demand by getting money into customers’ pockets. Cutting government spending just makes matters worse. 

A photo taken during the Occupy Wall Street in New York in 2011 and posted on "The Center of the Universe"blog.

Yet, here we are with sequestration cutting government spending out of either an obtuse conviction to cut the size of government no matter the consequences or the simplistic logic that cutting spending while holding the line on taxes will reduce the deficit. Any government or private action that increases unemployment affects the deficit outcome, because tax revenue is decreased and unemployment benefits increase.

Three such actions are significant. Because these actions are beyond government control, the deficit is largely uncontrollable; it just happens. First, if a single household withholds consumption to save or pay down debt, that household benefits. If the whole private sector saves in aggregate more than usual, overall demand decreases and workers become unemployed. This is the famous “paradox of thrift.”

Second, imports bring the benefits of quality or cost to consumers. But, the spending outside our economy enriches a foreign one and results in unemployment here.

Third, increases in productivity bring benefits to the firm employing them and their customers. Again, unemployment is increased.

As we enjoy the benefits, we should have policies to deal with the resulting unemployment. Instead, we tend to demean the unemployed and let the economy languish.

Simply stated, high unemployment is a symptom that the deficit is too small. Increased federal spending increases demand by putting money into the pockets of customers. Many folks are convinced illogically that deficits inevitably lead to the dire consequences of profligacy, which are high interest rates and inflation, even hyperinflation. These are neither inevitable nor uncontrollable.

Importantly, short-term interest rates are set by the central bank in any country with a sovereign currency. Our central bank, the Fed, will increase interest rates when the economy is doing so well that the Fed decides to cool it off by making borrowing more expensive. In that case, employment will be up and the need for federal deficits reduced.

We usually think of inflation as the result of too much money chasing to few goods. Too much money in circulation can be remedied by taxing some money back out of circulation. Too little production could also cause inflation in which case the remedy is increased production. One thing the USA is (or was) famous for is its ability to rise to the demand for increased production. The two instances of hyperinflation in the modern world were after the fall of the Weimar Republic and Zimbabwe. In each, the means of production were ruined and could not be reestablished rapidly.

Around the globe economies are crashing because of ill-advised attempts to slash the deficit. Politicians have committed their careers to this mistake and must now wait it out while hoping for a miracle. The USA has been spared up until now because of it’s automatic unemployment benefits and a mini-stimulus about four years ago. Unfortunately, we now seem to be hell-bent to follow the course proven to fail.

To reverse course, we need to repeal the sequester and build a modern version of the WPA program that assisted our recovery from the Great Depression.

It’s the private not the public debt.

Today, I submitted the following as a letter to the Albuquerque Journal without the figure. Perhaps it tries to cover too much ground in too few words. But, once in a while it seems worth challenging a reader rather than just recite slogans, which is all too common in discourse.

Hey, the Journal did publish this on May 20 with the title "Austerity no panacea for U.S. debt crisis."

In his letter to Business Outlook on May 6, Paul J. Gessing took issue with those of us, who realize that federal deficits are inevitable by simple accounting rules as long as the nation runs a foreign trade deficit and the domestic private sector enjoys a surplus. We also understand that “crowding out” is not possible when unemployment is high. Then, only increased government spending or lower taxes will enable the private consumption necessary to restore jobs.

Mr. Gessing missed the point that federal R&D can bring new opportunities to private business as Business Outlook has headlined in recent issues regarding technology at the Los Alamos and Sandia National Laboratories. And, as federal R&D did in development of the space program, GPS system, Internet, weather satellites, and countless other programs.

While deficit “hawks” hyperventilate about federal deficits and debt, they overlook private debt that skyrocketed to 300% of GDP while the national debt held by the public rose to only 70%. Our financial crisis grew not from government spending but from unscrupulous, unregulated private lending. Nevertheless, all the hype is about a “Washington spending problem” while the big banks get a pass and many millions remain unemployed.

The deficit hawks repeatedly warn that someday deficits will cause high interest rates, and we won’t be able to afford interest payments on the national debt.

Having its own sovereign currency, our nation can always make its interest payments, which mostly go back into the economy. And, the short-term interest rate is not a market price but a policy variable set by the Fed. Consequently, the interest rate can be set below the GDP growth rate, which is the criterion for sustainable debt growth.

Unsustainable private debt crashed the economy, and government has the capacity to rescue it. Instead, a deluded Congress and clueless President opt for austerity.

Financial Sector Balance - Updated

In previous blog posts, we have discussed aspects of Financial Sector Balance here, here and here. We are now well into a slow recovery from the economic shock brought about by the housing bubble of 2007. This post is an update on data presented earlier and a few remarks.

Recapping, we recall that the FSB is an important macroeconomic relationship showing how financial flows balance among the Public, Private, and Foreign financial sectors. It could just as well be between Blondes, Brunets, and Red Heads, but we have no data on those sectors. Fortunately, the Bureau of Economic Analysis (BEA) has the pertinent data in its National Income and Production Accounts (NIPA).

By merely observing that when money flows between sectors an account in one sector must be debited and credited in the other sector by the same amount. So the sum of debits and credits will be zero, zip, nada, and we can write.

Public (Net Surplus) + Private (Net Saving) + Foreign (Net Imports) = 0

Alternatively, we can equate two expressions for GDP or national income 

GDP = C + G + I + NX

where C = household consumption, G = government spending, I = business investment in means of production, and NX = net exports, often written as (X - M).

Because all income devolves to households, we can write another expression as

GDP = C + T + S

where C is the same, T = household taxes, and S = household saving. Equating the two expressions for GDP and collecting terms we have

(T - G) + (S - I) + (M - X) = 0.

This expression conveys the general idea, but is oversimplified as it ignores some accounting conventions. For example, household "investment" in stocks is considered to be saving. Because business taxes are costs of production, they are included under consumption. We can assume that the BEA accountants get it right.

The figure below shows a stacked bar graph of the top-level NIPA data. This presentation shows that the terms of the FSB equation do balance to zero.

There are some interesting observations that become readily apparent.

• Net saving in the private sector requires a public deficit as long as there exist net imports.
• In the presence of large net imports and small public deficits the private sector must reduce savings and net borrow.
• As of the end of FY 2012 (September) private saving and public deficits are still abnormally high. Further, the rapid decline of saving and deficit has leveled out. 

Because the government has no direct control over imports and private saving desires, it follows that government has no direct control over the deficit. Evidence from around the world shows that austerity measures do not reduce deficits, but only make them worse. 

Finally, it must be clear that in the US a public deficit is a necessary for private net saving.

Revised April 18, 2013.



 

The piper is being paid

Previously, the Albuquerque Journal published a letter that I titled "A Nation Must Live Up to its Means." A response from one reader gave a standard conservative response that the Journal titled "Some day, the piper must be paid," but the writer never mentioned a piper. But, he did disdain the government support of Solyndra.  So, I figured that the Journal was doing its usual job of editorializing in writing titles to readers' letters and submitted the following response on April 10. To my surprise, the Journal published this letter on April 22 in the Business Outlook letters. 

The Pied Piper of Hamelin is famous for leading the children out of town after the town refused to pay him for leading the rats out. It follows, of course, that bad things will happen to our children if we don't pay the national debt.

In a letter to Business Outlook on April 8, to defend the zombie myth that federal finances must be managed just like a household, the Journal trotted out the old saw that “Some day, the piper must be payed.” 

Pied Piper - Another popular myth.

That old saw raises the questions: Who is the piper? Who will pay that piper and when? As the old saw is vague about the subject, we presume that it refers to national debt, which is an accumulation of federal deficits. Contrary to conventional wisdom, I have claimed that current federal deficits are not large enough.

Because the national debt is held by the non-government sector as assets called US Treasury securities, the piper must be the holders of the treasuries, mostly institutions and rich people, and the payer must be the federal government. The payments made are documented daily by the Treasury in its “Daily Treasury Statement.”

Looking at the statement for the last day of FY 2012 one sees that $67.4 trillion in public debt was redeemed, $68.7 trillion debt was issued, and $215 billion interest was paid over the year. This happens to the tune of over $250 billion per day. The piper gets paid every day as the public debt gets rolled over and necessarily increased. Our government can always meet its financial commitments.

Unlike a private mortgage that must be paid off, the national debt has no due date. As the nation’s economy has grown, that old debt from World War II has remained as an ever decreasing fraction of the total. Public debt is the only source of net private sector savings; it doesn’t make sense to pay it off under usual circumstances.

Rather than concern ourselves with numbers on a spread sheet, we should look at what  really matters, that is the real economy. Businesses downsized to make profits on sales to those who are employed. Demand is not sufficient for businesses, as a whole, to hire up. So, we are stuck with high unemployment and pitifully slow growth. When the private sector can’t, Government purchases from the private sector can support the demand needed for full employment.

Of course, deficits can be too large, but not until full employment is reached. Our government should make sure that all the nation’s productive resources are put to use, not cut them off as it is doing now. Then we would see GDP grow and both unemployment and deficits decline.

Rather than complaining about small, failed enterprises like Solyndra, the private sector should look to government for the high-risk R&D needed for future industry.


Daily Treasury Statements

Medicaid Expansion bill would provide access to affordable health care to citizens who currently have no hope of access, while creating new sustainable good jobs to strengthen the economy, yet Montana Republicans refuse to support it.

According to this morning's edition of the Helena Independent Record, one of the Governor's signature proposals, the Medicaid Expansion bill, HB 590, is "likely dead in the Republican controlled committees at the Legislature."  The House Human Services Subcomittee will hear testimony on the bill next Monday, but the article's author states that it is expected to be killed by the 10-6 Republican majority.  The chairman and his committee members are opposed to the Affordable Care Act and to expanding government-funded health care.  "We've opposed the ACA all along."

So what this all boils down to is that Republicans' primary objective to kill government supported services is more important than the well-being and economic security of the citizens of their state, no matter have badly the services might be needed or how much they would contribute to job creation.  

We must begin to clearly articulate the root causes of problems, the motives behind those that cause the problems, and make them crystal clear to the voters if we are to ever have any chance of reclaiming the American Dream for our children and grandchildren.  We "grey beards" were fortunate to have experienced the period of greatest American prosperity, from the 1940s through the mid-1970s when the American Dream was a reality. 

Conservatives' ideological "one solution fits all problems" twin objectives of (1) forced austerity government budgets coupled with (2) corporate tax breaks and deregulation to force privatization of  public services have repeatedly been proven to fail.  Their only result from this ideology is the sucking of wealth from the middle class into the atmospheric reaches of the ultra-wealthy.


Taking another try at using the Medicaid Expansion issue  as a "teachable moment," I wrote a guest editorial that was published by the Helena IR last Monday.

Accepting Medicaid Expansion is a win-win opportunity

The Montana legislature is considering a once-in-a-lifetime opportunity to approve the creation of the biggest jobs program of the past several decades, while improving the health of its citizens.  Medicaid Expansion, House Bill 590, has been introduced by Representative Chuck Hunter.   

According to a report by the UM Bureau of Business and Economic Research, Medicaid expansion will create 13,000 to 14,000 new jobs, and at the same time provide access for affordable health care insurance for as many as 78,000 low-income Montanans who would go without health insurance if Medicaid expansion were not approved. The program costs will be 100% funded by the federal government the first three years and 90% of the cost in each year thereafter. 

How is it possible that the Republican controlled legislature might reject this incredible opportunity?  Why would the legislature block the creation of sustainable good paying jobs and the improvement of health care for our state’s citizens?  

Montana’s Republican legislators have said they will not support Medicaid expansion because they are concerned about the program’s impact on the federal government’s budget. They claim the federal government is broke, the deficit is out of control, and it will have to borrow from China, burdening our children and grandchildren with huge debt the will have to pay off.

None of these claims are true.  All are myths and utter nonsense, propagated by small-government ideologues whose purpose is to scare citizens into accepting cuts to our safety net programs and privatizing our public services.  

The facts pertinent to our federal government’s role in our economy include the following:

·         After WWII, the federal debt-to-GDP ratio was 120%, much higher than the 70% debt-to-GDP ratio of today.  Yet, the government increased spending, the country’s economy grew, and unemployment decreased to near zero.  That period was the most prosperous period in our history.  That war debt has never been paid off, yet our economy has grown substantially and we have not been crippled by the WWII debt of our parents.

·         The United States government does not borrow money from China.  China obtains U.S. currency by selling Chinese-produced goods to American corporations that end up on our store shelves (like Wal-Mart).  They use their cash from these private sector transactions to buy U.S. bonds that earn interest.

·         When the federal government spends more in a year than it takes in from taxes, the excess money stays in our pockets.  We are never asked to pay it back!  During times of depressed economic activity like we have today, federal government deficit spending is necessary to put people back to work and put the economy back on track for growth.

·         Only our federal government can coin or print money and regulate the value thereof (U.S. Constitution Article I, Section 8).  As the sole source of all dollars in the world’s economy, the federal government can never go broke.

We must learn from history, stop obsessing over our national deficit, and recognize that the real crisis is the enormous wealth gap between the ultra-rich and the rest of us and the lack of good paying sustainable jobs that provide economic freedom for our citizens.  It is good paying jobs that create the demand to enable our local businesses to flourish and grow.  

Our leaders should be concentrating on funding real job creation as they did in the post-WWII economy.  Our federal government is strong and has the resources to move us forward; that is, unless our politicians choose austerity over infrastructure investments.

As a start, we must approve Medicaid expansion for Montana.   Medicaid Expansion will help ignite sustainable growth of Montana’s economy, bringing the right kind of new jobs to our state, jobs that improve the health of all Montanans and build a brighter future for our children.

Please ask your legislators to vote to accept Medicaid Expansion.

The 2013 Legislature should approve Medicaid Expansion: It's the right thing to do.

Responsible people in elected positions, who know better, have been allowing conservatives to get away with repeatedly telling us that “the federal government is just like a family, must balance its budget, and can’t spend money it doesn’t have."  The effect of that hoax on working Americans is devastating and is being used as justification by conservatives to prevent our federal government from investing in our public institutions and services  as our Framers intended when they wrote the Founding Documents.

The constant repeat of this conservative myth by the media each day, including TV, the newsprint, and the internet for the past three decades has fixed this myth as common wisdom.

It’s past time to begin calling a “spade” a “spade and to stand up for the truth even though it goes against the common wisdom.

I wrote the following letter to the editor of our local newspaper, the Helena Independent Record, in response to a published letter that claimed as his reason for denying Medicaid expansion in Montana was that "our federal government was broke and would not keep up its promise of funding support of the program."

Mr. Hull in his Friday letter “against Medicaid expansion” made several incorrect statements.

The projected benefits to Montana of accepting the Medicaid Expansion coverage were developed by a non-political University of Montana Research Center, not by Democrats as claimed by Mr. Hull.

The biggest error is his apparent belief that the federal government “has no money except what it gets from taxes from all the states and taking that money hurts the economy.” 

 Exactly the opposite is true. 

The United States government is the source of all dollars in circulation (see the U.S. Constitution, Article I, Section 8).  Therefore, the US government always has enough dollars to buy anything available for sale in US dollars. 

When the federal government spends money, it purchases goods and services from the private sector. So, it is income in your pocket book.  Only a portion of that new spending gets withdrawn from circulation by federal taxation.  The rest stays in circulation to fuel economic growth.

State governments, on the other hand, do require your tax money to fund the public services (see U.S. Constitution Article I, Section 10).

So, any public service not funded by the federal government must be funded through state and local taxes, which ultimately increases the tax burden on all Montanans.

Is this what we want?

Accepting Medicaid expansion is the right thing to do for multiple reasons.   Most importantly, it is a moral thing to do!

I applaud Governor Bullock and Democratic legislators for their commitment to Medicaid expansion for Montana.