Deficits Don’t Matter, Until They Do

Republicans under Trump last year raided the candy store, committing us all to borrow trillions of additional dollars to fund massive tax cuts for wealthy families and corporations. As usual, they promised that the tax cuts would pay for themselves and as usual, they didn’t. In February we racked up the largest monthly deficit in our history. Government borrowing has skyrocketed in the midst of an economic boom, promising to limit our options in the event of a downturn.

For decades Republicans have been lying in public and laughing in private about the rank stupidity of supply-side economics. Their strategy was a response to their long-term frustration over fiscal politics. Our political system won’t tolerate fiscal discipline. Since we can borrow from the future, politicians never have an incentive to keep their hands out of the kitty. Supply-side gave Republicans a cynical angle to turn a broken game to their own material benefit.

Supply-side was a remarkable political innovation. Turns out, voters like to get money from tax cuts even more than they like money sent back to their districts in pork. Republicans pitched tax cuts as free money, and their bonkers economic theory provided rhetorical cover for the scam. Did it work? Since Reagan, the national debt has always risen under Republican Presidents and declined under Democrats. In other words, yes, supply-side has been a success if you understand what problem it was meant to solve.

Did federal tax cuts generate enough economic growth to “pay for themselves” in rising tax receipts. As evidenced by our skyrocketing federal debt and every other mathematical measure, no. However, as rhetorical cover for a program to cripple the federal government it has been a remarkable success. Democrats aren’t supposed to be deficit hawks, but each Democratic Administration has inherited an economic and fiscal crisis which they are then preoccupied with resolving, leaving little time or most critically – money – for core Democratic priorities. Republican Administrations then walk in after the wreckage as has been removed and proceed to build the next disaster.

As our political failures add up in dollars, a new monster is stirring. Hard-left Democrats energized by the boldness of Republican scams are preparing to go one-better. Alexandria Ocasio-Cortez has been promoting “Modern Monetary Theory.” MMT is the Brawndo of theories, in which nothing matters because something and something else and “it’s got what plants crave.”

Our national debt is mathematical evidence of our declining interest in the public interest. No one cares about the debt, because it is shared. Americans no longer value anything we share with each other.

Government borrowing is good until it isn’t. It is a valuable, wise investment in our future, until it isn’t. So far we’ve piled up our peacetime national debt to wartime levels with few visible consequences. We’ve begun to foolishly imagine that no consequences will come. Rest assured, deficits don’t matter until one day they do.

Government borrowing is a wealth transfer from taxpayers to bond holders. At current rates, despite our massive borrowing, it remains an extremely small transfer. What the taxpayers gain from this exchange, in theory, is the opportunity to make investments that would otherwise not be possible. However, if the government is borrowing money just to pay its bills, then things get dicey.

The US is borrowing staggering sums of money, yet we continue to successfully sell this debt at interest rates below 3%, barely ahead of inflation. Why is the US able to borrow so much money so cheaply? First of all, it’s considered a very safe investment. Unlike almost every other nation, the US has never defaulted on its sovereign debt and has only rarely used inflationary tactics to cheapen that debt.

Second, everybody needs dollars to do business. If you’re buying commodities anywhere in the world, you probably need US dollars to pay for them. That produces demand for our currency which drives down the cost of our borrowing.

Third, and perhaps most important, our debt is payable in our own currency. In theory we could reduce it to pennies fairly quickly by stimulating inflation. In theory. In fact, the same forces that make the dollar ubiquitous in world trade would likely complicate an effort to inflate away our debt, or perhaps turn it into a global wrecking ball.

Finally, concentration of wealth in fewer and fewer hands has produced greater demand for low-yield, high-safety investments. In other words, demand for our bonds is driven in part by a form of capital inflation.

You don’t invest $10m into a venture capital fund for safety. You do it because you have a small fortune, and you’ll place a gamble to convert it into a large one. By contrast, if you inherited more money than you can comprehend, you probably aren’t interested in starting a business, buying a company, or wading into the shark-tank of high-yield, high risk capital investment. You just want the accountants to keep paying the pool boy. Your hired nerds could double your money in a bold investment, and you’d never know or care. But if, as a consequence of their risk taking, you had to spend several months flying commercial, you’d be furious. Hello, US treasury bonds.

Adding to this dynamic is a global looter economy, in which elites in places like Russia, the Gulf States and Latin America are piling up billions through scams, drug trafficking, or politically-backed looting of state industries. They’re not looking to invest their money in real businesses. Most of these people have no idea how a legitimate business works. They just need ways to launder more money than they can count into the legitimate economy in dollars, then drop it into something safe. After they’ve moved enough drug money or mafia rubles through their Trump brand condos, they take the rest and put into the most boring investment they can find. Increased wealth concentration and the increased safety of the rentier class has discouraged risk-taking, propping up the value of safe and unproductive investments like government debt.

Imagine if there was much less government debt available to buy, such that yields on truly safe investments like US currency were consistently around zero or even negative. And also imagine that steep marginal income taxes, inheritance taxes and wealth taxes were constantly biting into big pools of wealth, so that staying wealthy required some fraction of the level of talent and effort as earning it in the first place. In that scenario, people who held wealth would be looking for riskier, higher-yield investments to help them keep up.

Progressive taxation and careful law enforcement drive up the price of staying rich. Those higher prices force wealthy people into riskier and more productive investments, fueling innovation and real economic expansion. That would nice, but that’s not the world we live in.

It sounds crazy now, but this was a real fear of investment professionals in the late 1990’s. The US government had started to run budget surpluses, fueled by a tax hike reluctantly signed by Bush I and a booming economy. In other words, for a few years at the end of the 90’s, the amount of new Treasury bonds available for auction declined, with a looming threat that in the future, the tap could practically run dry. Rates for US treasuries began a spike in 1998, with yields on that new debt going negative in 1999. That condition was interrupted by the dot-com crash. Then, of course, the second Bush Administration fixed the glitch. They slashed taxes, causing a spike in US debt that turned the taps back on, making cheap US Treasury bonds once again abundant.

How much government debt is too much? The honest answer is nobody knows. The market will absorb our new debt until it won’t. What will happen if we ever reach this threshold? Again, nobody really knows. It is a difficult question to answer because it has no historical precedent and the complexity of the global economy is almost beyond our capacity for modeling. Even when the British ruled the globe, they did not enjoy the power of a single currency that the US possesses today.

This you can be sure of – there is a volume, or a set of global conditions, at which the market demand for our debt will decline and the price we have to pay in interest will spike. That happens occasionally in small bands based on the volume of debt available and global economic conditions. However, if we continue to test the markets, we will find a point at which we simply cannot clear our debts at prices we can afford to pay.

We experienced this rare occurrence last February. After the Trump tax cuts passed, the Treasury was forced to issue a much larger round of debt and their first auction attempt failed to clear their inventory. A “wall of treasury buying” helped resolve the issue as the US government quietly hoovered up its own bonds, but interest rates were pushed higher. Stocks responded with a long slump as borrowing prices rose, but a crisis was averted. What would this look like if it spiraled out of control? The most honest answer, again, is no one knows, but we’re setting ourselves up to explore that question as we try to sell more than $1tr in new Treasury debt this year into an already glutted market.

It is actually possible to run modest deficits indefinitely, as long as economic growth outpaces the growth of that debt. Almost anyone who has ever bought a house has put themselves deeper in debt than they have income to cover. That works out as long as the investment pays off in time. But what if you borrowed that money just to pay for vacations and cocaine? Well, the US is trying to find out.

A debt crisis in the US would be a currency crisis for the dollar. And a currency crisis for the dollar would be a cataclysmic global economic disaster on a scale impossible to predict. Right now, the world is at the mercy of American Idiots. Unless the EU, Japan and China are able to insulate the global economy from the power of the US Dollar, we’ll all bear the consequences together of a fiscal crisis born in the US. If we keep borrowing money we can never hope to service or repay, that crisis is as certain as the sunrise.

How would we reverse the growth of our debt? First we’d have to raise our tax rates, which are among the lowest in the developed world. If we still had the very low tax rates we enjoyed during the boom years of the 90’s, we’d still be running surpluses like we did then.

Over the longer term there are structural issues we need to address, related to an aging population and declining population growth. Tax increases could help, but it would be smart to also attack these problems at their source. We should be working hard to attract a lot more immigrants. We should also adopt a universal health care system, thus driving down our spectacular health care costs, a burden not carried by any other country.

None of this can happen in a broken political system in which everyone distrusts everyone else and each dollar invested in taxes is treated like theft. Our fiscal problems would be stupidly simple to fix in a healthy democracy. Our problem isn’t that we can’t afford our government, it’s that we don’t want to share anything with each other. For the richest country on the planet to face a fiscal crisis is absurd. Our debt is a measure of our political and moral failure.

82 Comments

  1. Chris,

    Earlier you wrote…

    If this was 1980, I would vote for Ronald Reagan. Thing is, I’m still a classic Republican.

    I have far more faith in commerce and individual enterprise than in government. Like most old-world conservatives, I take a dim view of human nature.

    I really wanted to explore this further because it is a fundamental outlook.

    I, too, take a dim view of human nature yet that tends to make me a classic democrat.

    Some consider it almost a duty to take advantage of “suckers being born every minute”. Many take it even further to justify having earned everything they got and claim the moral high-ground.

    Personally, I have rationalized my need to be successful as being for the greater good. I can’t help anyone if I don’t help myself first.

    I consider myself “lucky” to be in a good financial position to help my family. I also have and use health-care coverage that would bankrupt the average person.

    I am embarrassed at the current state of the American public and wish I could help somehow.

    Corporate America will do just fine. Taking advantage of blood running in the streets is as old as blood running in the streets.

    Government might be a poor choice for trying the fix this but it may be the only thing we have.

    I suggest no answers, just offering another viewpoint.

    1. “I am a democrat because I believe in the Fall of Man. I think most people are democrats for the opposite reason. A great deal of democratic enthusiasm descends from the ideas of people like Rousseau, who believed in democracy because they thought mankind so wise and good that everyone deserved a share in the government. The danger of defending democracy on those grounds is that they’re not true. And whenever their weakness is exposed, the people who prefer tyranny make capital out of the exposure… The real reason for democracy is just the reverse. Mankind is so fallen that no man can be trusted with unchecked power over his fellows.” (C. S. Lewis)

  2. This article is a perfect “fit” for this post. It addresses the roll back of financial scrutiny and regulation of banks and lending institutions put in place in 2013. The goal was to discourage the kind of shenanigans that brought about the Great Recession. Instead, basic checks on financial lending and operations have created an opportunity for lenders that ignores history and the prudence of the regulations that were designed as guardrails for the industry. “Leveraged loans” have increased exponentially and it is causing concern among former regulators and others who remember the 2008 crisis. Well researched, scary article.

    https://www.washingtonpost.com/business/economy/how-regulators-republicans-and-big-banks-fought-for-a-big-increase-in-lucrative-but-risky-corporate-loans/2019/04/06/08c8cd58-4b1e-11e9-b79a-961983b7e0cd_story.html?

    1. The role back of regulations is precisely the reason I have little confidence in the long term health of the economy. Basically Wall Street and the financial industry are largely back to where they were in 2008 prior to the Great Recession. IMO, we are going through a period similar to the period between WWI and the Great Depression. During the Progressive Era following the Panic of 1893, some reforms were made. Though they were insufficient to really tame Wall Street, they did dampen the the situation. Then WWI occurred and postponed another panic. During the 1920s Wall Street was allowed to run amok again – regulations and reforms were circumvented, etc. Finally, 1929 occurred followed by three years of essentially no corrective effort on the part of the federal government. A tail spin ensued, culminating in the nadir that occurred in 1932.

      As they say, history never repeats but it certainly rhymes. Curiously, the Republicans and Democrats have switched places on many things, but when it comes to business regulation and economic controls there has been little change.

      1. Other articles I’ve read about concerns for our economy also state that unlike 2008, there is very little in the federal reserve toolkit to pull out of a repeat of conditions mimicking the Great Recession.

        There are some voices of reason beginning to speak out but those who given the damage being done to regulations designed to curb excesses and given appointments of people who either lack these concerns or competency (Ben Carson and Stephen Miller nominees for the Federal Reserve??), there is fear that a financial crisis under this administration would be disastrous.
        The underlying issue of income and wealth disparity are the focus of this hedge fund manager.

        https://apple.news/AbBr9NAyySKef5S44eq9a9Q

      2. The issues of income and wealth inequity have been covered extensively by numerous writers. Inevitably the power brokers, particularly in the ‘Republican Cult’ have ignored them. Even Piketty’s well researched tome was essentially dismissed because a minor error was found in his spreadsheets.

        The bright spot is that the millennial and younger generations have been severely handicapped by the inequity and many realize what is happening. When the next downturn occurs they will be ready to demand change. Hopefully, the next downturn will be severe enough to force T and his ‘cult’ from power in 2020, but not be a devastating crash. I hate to say it, but the fact that the situation in 1932 was so dire, was exactly what FDR needed to institute change. That gave him the super majorities required to get legislation through Congress.

        Seriously are Ben Carson and Stephen Miller being considered for the Fed? I thought T was considering two other yahoos, Herman Cain & Stephen Moore.

    2. The title of a new post that mimics this one: “Emoluments matter, until they don’t.”

      Quietly, lawyers within the DOJ have narrowly ruled favorably on foreign payments to Trump’s businesses while in office. Trump has pledged to donate any profits received to the federal government. That’s supposed to make it “ok”. How much money are we looking at? In FY 2017-18, that amounted to $342 M. Of course, far more valuable to foreign interests is the access and influence this money provides.

      “The Department of Justice has adopted a narrow interpretation of a law meant to bar foreign interests from corrupting federal officials, giving Saudi Arabia, China and other countries leeway to curry favor with Donald Trump via deals with his hotels, condos, trademarks and golf courses, legal and national security experts say.”

      What’s next?

      https://www.theguardian.com/us-news/2019/apr/09/dojs-new-stance-on-foreign-payments-or-gifts-to-trump-blurs-lines-experts?

  3. MMT gets a lot of misunderstanding because most of the people claiming it supports their ideas are wrong or are lying. MMT doesn’t lead to the conclusion that “the government can print as much as it want”, not by itself, and not combined with any legitimate school of economic thought.

    There are three levels to MMT:

    The first level is the simple, demonstrable fact that money is created by government and “not having enough money” is meaningless. The government can just make it. This does not have much in the way of actual policy recommendation because making more *can* be harmful or helpful, depending on the situation. It does show that typical austerity economics arguments are bogus, but that’s about it.

    The second level occurs when economists combine the simple “government make money” fact with typical bogus economic assumptions like perfect rationality. This leads to conclusions like “cash and bonds are perfect substitutes so we can just stop issuing bonds and print cash”. These are nonsense, but because they’re based on bogus principle of standard economics. (Remember this the next time you see recommendations by academic economists.) Note, though, that this level never says “the government can print whatever it wants” because that doesn’t follow from the principles of MMT + standard econ.

    The third level which everyone criticizes is that claim that “the government can print whatever it wants.” The most charitable interpretation is that it occurs from people misreading MMT essays criticizing austerity economics. A less charitable interpretation is that such “MMT” proponents are grifters who just make up BS to fleece the rubes – kind of a left-wing counterpart to right-wing goldbuggery. It does seem like most of these proponent hail from bad faith elements of the lefty political sphere.

    1. MMT doesn’t argue that the government can print $10T and then helicopter drop it without it affecting society.

      But the US government could easily print $1.5T for example (no borrowing from the Fed), pay off all student loan debt, and it wouldn’t cause runaway inflation.

      Q: Where did the money come from?
      A: The government.

      Q: Why won’t this cause inflation?
      A: If the government prints the cash without borrowing first, no new government debt exists, and all of that 1.5T is now…in banks. Always f-ing banks. Always.

      Q: If 1.5T was printed without borrowing, and used to pay off all student loan debt, what would happen?
      A. It would effectively allow tens of thousands of Americans to spend money on houses, cars, and other goods/services instead of having to scrimp and save to pay down debt that is backed by a piece of paper…debt that was only entered into so that those same Americans can be middle-class.

      Q: What’s the downside of doing all that?
      A: US conservatives, and economists of all stripes would be angry, confused, and ultimately let down when $1.5T in money is added into the economy, with ZERO debt attributed to it.

    2. Fair, more on point two being based on bogus principles of standard economics, please.

      US Government bonds are pretty much just “future money” that in practice is exchangeable for reserves with nearly perfect liquidity.

      Incidentally, what Warren Mosler (arguably MMTer #1) does recommend is that the gov only issue 30 day bonds at basically zero interest.

  4. I’m going to post this off topic article because it is the most comprehensive assessment of what is presently happening with accelerated senate nominations for judicial vacancies – vacancies that were deliberately held up during President Obama’s tenure and are now being rammed through faux hearings in record time.
    The purpose, of course, is to pack the courts with young, conservative ideologues who can protect conservative interests through court action. This will counter shifting demographics and political sentiment which is becoming less favorable to republicans. Many of these judges are appointed for life. How sadbut fortunate that America must find out these sordid details from an English journal. https://www.theguardian.com/commentisfree/2019/apr/03/trump-capturing-judiciary-alarming-ratehe long-term consequences are staggering.

  5. So one thing I’d like to point out is that despite our radically different economic theories, I think we’re in fairly close agreement on actual policy prescriptions (although for somewhat different reasons):

    1) Taxes should be raised on high income earners and assets, including higher estate taxes. You argue this is to pay back the deficit. I argue it’s to redistribute money from high earners (who consume less of their money than poor people) and inherited wealth (which, as you state, doesn’t really help the economy), into the hands of people who will use it better.

    MMT states taxes are used to establish the value of the currency (since if your citizens didn’t have to pay taxes, they wouldn’t be forced to use your currency) and to rebalance wealth to achieve policy objectives (lower income inequality, promote investment in new, risky industries vs. plowing it into safe treasuries, etc.). But either way, we’re actually in agreement in the policy position.

    2) More should be spent on improving economic productivity, including education, infrastructure, R&D, etc. Part of this will be from public sources (especially infrastructure and education), and some will be from private sources (R&D, although there’s a significant government component of that e.g. NSF, NIH).

    3) Increase immigration, to provide the manpower our economy needs to continue growing, especially in the face of Baby Boomer retirements.

    4) (this is the one that surprises me) universal healthcare. Does this mean you support Medicare-for-all, Chris? Because that’s essentially what you advocate, public payment for private care. It’s not a government take-over of health care. It’s a government take-over of health *insurance*. That’s a big distinction.

    5) Universal Basic Income. I think you’ll find many liberals would support this.

    I think the basic disagreement is this: if we did all of these things and as a result, the deficit went *up*, are you still willing to do them? I would say yes. The deficit doesn’t matter. A person without health insurance carries far more risk to his happiness from that, than from an extra trillion dollars in debt sitting on a ledger in the Treasury Dept. A young person who can’t go to college because he can’t afford it, faces a far more diminished future from that, than from an extra trillion in debt that his generation will be “forced” to pay back in the future. Refusing them health care and education because you don’t want to “burden” them with an increased share of public debt is not just cruel, but stunningly short-sighted even in economic terms.

    1. >] I think the basic disagreement is this: if we did all of these things and as a result, the deficit went *up*, are you still willing to do them? I would say yes. The deficit doesn’t matter. A person without health insurance carries far more risk to his happiness from that, than from an extra trillion dollars in debt sitting on a ledger in the Treasury Dept. A young person who can’t go to college because he can’t afford it, faces a far more diminished future from that, than from an extra trillion in debt that his generation will be “forced” to pay back in the future. Refusing them health care and education because you don’t want to “burden” them with an increased share of public debt is not just cruel, but stunningly short-sighted even in economic terms.

      If none of it mattered, then the markets wouldn’t slump when the Treasury has trouble selling its debt and borrowing costs rise. A crisis of the dollar is really a crisis of confidence – which, again, is exactly what precipitated the Great Depression and what caused Black Thursday.

      Even if economics itself might allow for us to spend money like drunken sailors, if the people themselves don’t believe it, it means less than nothing – and in a market-centered economy, that’s everything.

  6. We’re headed to Paris this evening for a week. It may be quiet around here, but I’ll try to stay connected.

    This post and comment thread is something I miss from the pre-Trump days. Interesting, constructive disagreements among people with fascinating perspectives. Cool.

    Anyway, be good. Back soon.

  7. If I could be indulged, I have developed an explanation of MMT for a money class I teach at Community Ed (about 8000 words, I think). It is intended for non-economists but is still, I hope, reasonably rigorous.

    MMT is two things: first, a description of what fiat money really is and how it works, at a level that an accountant would be forced to agree with (because MMT insists that monetary concepts must be in compliance with basic accounting principles* to be valid). Second, it is an analysis of the consequences of proposed or enacted policies that must necessarily follow from how money works.

    Here you go: https://docs.google.com/document/d/1VAyIXMpY1ZYz2ShUgdZf1IqifkmNWIbpxoviNngnSxU/edit?usp=sharing

    Questions and comments are highly encouraged (creigh.gordon at gmail.com)

    *The most basic accounting principle is this: a financial asset cannot exist without a corresponding financial liability. MMT says this means that the private sector cannot hold net US dollar financial assets without a corresponding–to the penny!–National Debt.

    1. Craig,

      Excellent work! I never really thought of sovereign-backed paper money as merely a form of promissory notes, but it actually makes a lot of sense.

      I’m curious however of what currencies like the Zimbabwean dollar, Venezuelan bolivar, or Argentine peso would be considered as. Unlike say, Greece and the euro, these countries have (or had in the case of Zimbabwe) sovereign control over their currency yet no one would dare use them for anything other than fireplace fuel.

      1. Salvatore, I’m not entirely sure that I understand those situations well. Inflation can be a policy choice, but absent fraud or complete mismanagement it is usually externally imposed by war or natural disaster that destroys productive capacity. Zimbabwe is an example of destruction of productive capacity by war. Inflation in Weimar Germany was externally imposed by war reparations payable in gold (Germany conspicuously lacks gold deposits). Our own stagflation in the 1970s was caused by Middle Eastern oil ministers making a good bit of our production capacity uneconomical.

    2. Creigh-
      Have you read the book “Debt: The First 5000 Years” by David Graeber? It’s been on my reading list for years, and I’m curious what you think of it, if you’ve read it.

      It’s interesting, because he’s an anthropologist, and views economics not as mathematical theory, but as the study of human relationships, and he places the centerpoint of economics as debt, not money. It’s very similar to the way you state in your paper that money is simply a way of recording debts we have with each other.

      1. I haven’t read Graeber, probably should. I have read a couple of books by Michael Hudson, who talks a lot about debt. For example, “Killing The Host; How Financial Parasites and Debt Bondage Destroy the Global Economy.”

        Incidentally, Hudson wrote the single clearest explanation of the Great Financial Crisis and the resulting recession, amazingly, before it occurred!

        “The New Road to Serfdom” (Harper’s Magazine, October 2006) https://michael-hudson.com/wp-content/uploads/2010/03/RoadToSerfdom.pdf

  8. Chris: Has the definition, and the actual functionality, of “the market” changed in the last 30, 50, or 100 years?

    Is the bond market the same beast it was 50 years ago? Does it operate in the same manner in the light of globalization? And I guess, by extension, are any and all markets different than they were prior to computers and the Internet?

    2nd Question: Who owns the U.S. public debt? Is the lender demographic different than other countries?

    1. Dins, a couple of points about bond markets.

      I’d say the bond market changed when we left the gold standard. Under a gold standard, bond buyers judged the ability of the bond issuer to pay in gold at maturity, and demanded an interest rate to accommodate the risk of non-payment. Absent a gold standard, bonds are paid in fiat (risk-free) money. The interest rate is totally under the control of the Central Bank, which as a buyer of last resort can and will determine a price for bonds (thus determining their yield although the mechanism is indirect).

      US bonds are very roughly held about 70% by private individuals mostly in the US, about 20-25% held by the Federal Reserve Bank, and the rest by foreign central banks. I’d guess that ownership of other countries’ government bonds by foreign central banks would be lower than holdings of US government bonds, for many reasons. Size of economy, stability, usability in foreign exchange…

  9. Chris – not to derail the conversation, but you are highlighting the problems with the GOP fiscal plans since Reagan, and we all know the GOP’s social policies and outright racism have always been problematic.

    Yet, you were “Lifer” for a long, long time through all that until Trump.

    What was the GOP appeal? Was it just the dislike of the Democrats’ ideas/plans and lack of a better home?

    1. If this was 1980, I would vote for Ronald Reagan. Thing is, I’m still a classic Republican.

      I have far more faith in commerce and individual enterprise than in government. Like most old-world conservatives, I take a dim view of human nature.

      The Kemp/Roth tax cuts were a little too large, and the supply-side logic used to sell them was rank horseshit, but that tax reform and the liberalization the federal government that followed it was the key to almost every good thing that’s emerged since. There are reasons that the Swedes and French and Germans and the rest of the developed world pulled their tax rates back from the confiscatory levels of the 1970s. We were strangling the golden goose.

      I’ve lived in London. I’ve lived Confederate Texas and Yankee Chicago. Much of what I’ve seen has reinforced some of opinions I formed in my 20’s. Life in Texas in many ways is easier for low-income people, despite the lousy safety net, than life in more “progressive” places, because it’s simpler. An environment thick with rules is an environment that naturally favors elites, no matter what the intent or purpose of those rules might have been. You just need a lot of sophistication to navigate life in California or France that isn’t necessary in the chaotic mess of relatively libertarian place like Texas or Georgia.

      There were racists in the Republican Party when I was a kid, because there were racists everywhere. It was much easier, though, to find noisy, obnoxious racists in the Democratic Party back then. David Duke was a Democrat. Roy Moore was a Democrat. The only serious racists in the Republican Party back then were former Democrats like Jesse Helms. Until about a decade ago, it was still possible to imagine that the Jack Kemp wing of the GOP was going to wrestle back control of the party. And if John McCain had won in ’08, I still think that might have happened. He didn’t, so a month later I started writing my blog.

      People over-estimate what you can accomplish with government intervention. I’m still basically a Republican, with the racism stripped back. I’d prefer a safety net that consisted of a weekly check and reliable access to a private health care provider. What makes me different from your average 1990’s Republican is my willingness to acknowledge the existence and importance of some ideologically inconvenient problems like racism and poverty, but I wasn’t alone back then. There was a segment of the party that was trying to tackle these issues. They just lost, but they didn’t. We’re still here, but without an organization to focus our voice.

      1. ” …more faith in commerce and individual enterprise than in government”…When the playing field is “fair”, I assume? It’s obvious with the huge income divide that this isn’t the case and hasn’t been for a very long time. Why not? It has to boil down to policies and regulations and the people who design and implement them. The Republican Party of yesteryear has been gone for literally decades. The monster that has been growing has consciously decided that profits and power are theirs alone. That is why there is a liberal uprising. That is why a man like DJT is now the leader of this Republican Party. Too few are benefiting at the expense of too many. This absolutely must change and will change if people cast informed votes. Complexity of issues is not a valid excuse for not making an effort to inform oneself before selecting candidates. If that was ever in doubt, it is no longer. The ugliness, irresponsibility, and selfishness of this president is no secret yet he holds 42M constituents in awe and may well be re-elected.
        Another point: private healthcare used to be affordable and comprehensive until for profit businesses made this sector an economic powerhouse. This led to the crisis of over 45 million people uninsured or underinsured. America is spending grossly more of its GDP on healthcare with poorer outcomes and millions of people left out. The ACA is imperfect but it could have been made much better had Republicans truly wanted to extend healthcare to all Americans. They didn’t and still don’t care about this if it means some people will get a “free ride”. That private health insurance is tied to employment and if the job ends, if one transfers to another job, or if the rules of the road change in Congress, healthcare is vulnerable. People shouldn’t have to worry about something so fundamental to quality of and necessity to life. Given the fact that US healthcare costs grossly more than any other developed nation in the world, and is straining not only the federal treasury but the savings and earnings of individuals, why not go with universal healthcare in which government regulates key areas, private entities still participate, and no one is priced or medically underwritten out of coverage? It’s selfish to deny that to everyone when it works and works well and for less cost and for all people.

        That annual deficit worry you? That 22 T debt concern you? Look at the percentage that goes to healthcare – VA, Indian, Medicare, Medicaid, CHIP, and so on. Then be willing to support universal healthcare that will reduce annual deficits and compounding debt by implementing universal health care that is already proven. Imagine how this savings could be better utilized and imagine how lives would improve. Imagine if people could just focus on their work and their lives. That is the measure of a great economy from my simple vantage.

      2. While we’re talking about dollars and cents, imagine if women were paid at full value for same work instead of 80 cents on the dollar? Think of what this would mean in their lives, their childrens’ lives and the economy writ large? Imagine if when Republicans passed their tax cut these corporations had been required to share this largesse with their workers instead of only their CEOs, shareholders, and boards?

        There is so much economic unfairness in the world right now in this most prosperous nation and it’s wrong. Any discussion of annual deficits and ballooning national debt and monetary systems must include social injustice or it’s pandering to the same old forces that make decisions to leave people out. There are indisputedly many people who don’t contribute because they refuse to do so, but many more who are simply locked out of the opportunity. I just emailed and called my LA legislators about a tiny bill, HB 302, that seeks to remove employment discrimination for age, disability, gender identity, and sexual orientation. To even get this bill to a committee, it had to include exemptions for: religious corporations, associations, educational institutions, or in “situations of learning or society that emply an individual of a particular religion to perform work connected to a religious activity.”

        Until America gets its values and morals in order, the economy will always reflect the same group that has controlled policy forever. The irony is that those who always bear the brunt of these discriminatory policies via those exempted above or those who get shitty educations and grow up in poor, dangerous neighborhoods. Equality of opportunity is basic to a fair and healthy economy. Anything else is serving too few.

      1. If GWB had been a better steward of the budget surplus he inherited and wall street et al hadn’t brought on the Great Recession, our debt/GDP would look very different. One thing about trump – we won’t be having budget fights as long as he gets everything he wants. He and the “new and better” GOP have decided deficit spending doesn’t matter at all. You just gotta spend it on the right people.

  10. Craig,

    While patents definitely need reforming, we should not forget it’s sibling: Intellectual Property.

    We are literally losing generations worth of knowledge due to the 1st world’s ridiculously long exclusivity rights. There’s absolutely no reason why IP rights needs to be literally centuries long.

  11. You are going to LOVE this – I’m going to quote a science fiction writer in a book that was written about 70 years ago

    Beyond This Horizon by — Robert A Heinlein

    One of the most important parts IMHO was right at the start A simple explanation that The money supply should increase as the economy does Which if you think of money in the economy as similar in function to blood in a body makes perfect sense
    The other side of this is that the increase in money supply is normally added directly to the basic living stipend (We could simply mail a cheque to all citizens)
    Directly from the book

    We call the system “finance” and the symbols “money” The symbolic structure should bear a one to one relationship to the physical structure of production and consumption . It’s my job to keep track of the actual growth of the physical processes and recommend to the policy board changes in the symbol structure to match those in the physical structure

    These two simple rules are the opposite of what we do
    Money supply is NOT linked to the physical economy
    The increase in money supply goes to those who hold assets (the 0.1%)

  12. I’m starting to understand how supply-side economics was able to gain so much traction. It may have had nothing under the hood in economic terms, but it was 1) easy to understand, and 2) fed into cognitive protective reasoning, in other words, it confirmed cherished biases.

    MMT was invented for advocacy. That’s it. There’s no economics in that theory, just politics. My original intention was to investigate the merits of MMT, but when you dig into it it’s like Theranos, just a bunch of slogans and hand-waving strung together. I couldn’t even find anything substantive enough to critique.

    What I love most about it is the fact that MMT’ers give away the game almost in the first sentence of their explanations. Will their technique, which is basically the economic/monetary strategy of every major country that’s experienced runaway inflation, cause runaway inflation? Answer: Of course it will cause inflation. That inflation just has to be managed by raising taxes and issuing bonds and so on, basically the same thing grown-up governments do to manage their finances. In other words, to make MMT work you have to abandon it about three weeks after you embrace it.

    MMT is political chicanery being deployed to counter the political chicanery of supply-side cultists. If it presses us to toward necessary economic reforms like tax hikes, then that’s great I guess. But you should never believe your own bullshit. If you think that money is magic and we can print it and hand it out infinitely without negative consequences, well… I really don’t know what to say.

    1. Chris-
      That’s incorrect. Every country experiencing runaway inflation has one thing in common: they are not monetarily sovereign. Even ones like Venezuela who nominally have their own currency are not monetarily sovereign because they have experienced “currency revulsion” i.e. even their own government must pay in a foreign currency for the services it needs. Venezuela’s debt crisis was brought on by its dollar borrowings.

      The key for MMT to hold is that you must be monetarily sovereign: if your economy runs on someone else’s currency, then you are essentially on a gold-based economy. Venezuela can’t “mine” more dollars any more than countries a hundred years ago could “mine” more gold. So for all intents and purposes, they are on a gold-backed, non-fiat economy. Which is why they are now experiencing runaway inflation and debt crises.

      For a stark example: compare Greece and Japan. Japan actually has a higher debt-to-GDP level than Greece. Yet Greece has been through a decade-long debt crisis, one that continues to play out, bankrupting the government and impoverishing its citizens. Meanwhile, Japan continues to issue debt at 0%. The difference? Greece is not monetarily sovereign: it uses the Euro, which is controlled by the ECB, which is controlled by Germany. That is the primary, and absolutely key, difference. If you believe in conventional economic theory, that shouldn’t make a difference: both countries should be facing debt crises. Yet that’s not the case.

      One of the key tethers that keeps MMT from drifting into fantasyland is that it *is* possible to mismanage an economy even under MMT. And when you do that, you lose monetary sovereignty.

      You might say that that’s a convenient tautology: that all I’m saying is that MMT works until it doesn’t. But that’s not true. There *are* constraints in an MMT system. It’s just that the constraints happen to not revolve around debt. The major constraint is the productive capacity of your economy. As long as your economy has slack, the government can continue to issue new debt and buy those services without causing inflation, or precipitating a currency / debt crisis.

      What happened to Venezuela is not a strike against MMT: Venezuela is a petrostate. While legally Venezuela has its own currency, it’s never ran its economy on it. The basis for its economy is oil, and oil is priced in dollars. It’s the same as Saudi Arabia: SA has its own currency, but it’s not monetarily sovereign, because a) the riyal is pegged to the dollar, and b) its main economic output is bought and sold in dollars. IOW, most of the transactions that SA engages in, both in the public and private sectors, are tied pretty much directly to the USD. Venezuela is the same. In those situations, both countries are vulnerable to classic debt crises. Venezuela succumbed to it, and KSA nearly did when oil prices tanked and they literally couldn’t pay their public contractors.

      1. This is frustrating and a little upsetting, but it sheds light on one of the cardinal weaknesses of a democracy. Some subjects which are fundamental to public policy are also maddeningly complex. These days we often scratch our heads in wondrous frustration at the stupidity of voters who fall for fake news and other crude scams. But the thing is, it’s a great big world out there. If we imagine that every voter is supposed to master every major public policy issue in order to make our system work, then we’ve built a system destined to fail.

        We have a pretty elite collection of commenters in this little community. It’s not Everytown USA. Some things are just hard.

        Back to your comments for a moment. No, it is not true that countries don’t default on debts denominated in their own currency. I don’t understand where this myth comes from. Most of Argentina’s series of debt defaults were on bonds issued in their own peso. Greece was brought to its knees a few years ago because it couldn’t pay bonds issued in its own currency.

        What’s that? Greece didn’t control it’s own currency? Neither does anyone else, not even us. Markets control our currency now, just as they did when we were on the gold standard. The only thing that changed is the mechanisms and their complexity (and flexibility).

        There is no magic money unicorn. There’s no trick we can pull that will create value out of thin air to be shared among our brethren at no cost. Yes, we can probably sustain more debt than we’ve taken on so far, but keep pushing at we’ll find the limits. Those limits exist. And we’ll probably only discover those limits by tripping over them and triggering a catastrophe. It might be better to just do some modestly politically difficult things like raising taxes rather than gamble on magic beans.

      2. I should probably point out one more important bit – I don’t understand this stuff either, just like I don’t understand the science behind climate change. What we’re faced with here is a choice much like the climate change scenario – Do I trust reliable people who’ve spent their lives investigating these matters, or would I rather bet on politicians who’ve endorse the opinions of cranks? You see where I’m going here.

      3. EJ

        In fairness to Greece, they could have printed money to pay their debts. They had the power to do so. They chose not to.

        The reason that they chose not to is that the rest of Europe held a metaphorical gun to Greece’s head and told them not to. In that sense, it wasn’t much of a choice; then again, in this unfair world, powerless people often have to choose between the terrible and the horrible.

        The reason why the rest of us held that gun is quite interesting. Please bear in mind that I am not an economist, so this is something of an oral history.

        For decades, German and Dutch (and to a lesser extent French) middle class people have been spending less than we earn, and saving the rest in a large number of small local banks. These local banks are vital to the local economy, and therefore politically powerful, but there’s only so much money that your local town bank can usefully put into that town. Because of the risk-averse nature of their savers, the banks generally put the rest of the money into government debt. When they ran out of German and French government debt to buy, they bought other € denominated debt, and eventually ended up owning the bulk of the debt of the mediterranean countries.

        What this means, inevitably, is that when Greece admitted that it couldn’t pay its debts, the bagholders were not large institutions or the hyper-wealthy; they were the penny-saving middle classes of middle Europe. These are people who vote, and who would not forgive any government who made them lose their savings. Hence the gun that was held to Greece’s head.

        There is, of course, no bad borrower without a bad lender, but it is very difficult to get people to admit that their monthly savings into their local town bank was a high-risk activity rather than the financial prudence they thought it as.

      4. Chris, you’re mistaken on two points here. The bonds Argentina defaulted on were payable in dollars, and Greece’s in Euros. Argentina can’t create dollars or Greece Euros, any more than you or I can. (Reuters: “Nearly 70 percent of Argentina’s debt is in foreign currency.”) *

        You echoed an idea above that I often remark on. The idea that the Government has to live within its (financial) means just like a business or household is an extremely powerful one; it’s easy to understand and appeals to personal experience. It’s also wrong.

        What MMT emphasizes is that monetarily sovereign governments like the US have to live within their *real* means; the actual constraints are availability of labor, materials, and technical knowhow, not money.

        And that point is the key to why MMT is important. Politicians and economists obsess about money. They really should be worrying about people and infrastructure, because people and infrastructure are the key to prosperity, not money.

        My favorite example on that last point is Social Security. Politicians and economists worry about Social Security running out of money. But money won’t take care of us when we get old, people will. People will raise the food we eat, build and maintain the homes we live in, produce the energy that keeps us warm, and provide the medical care we’ll need. If the right people with the right training and infrastructure (social as well as physical) are in place, we’ll be fine. If not, money won’t help.

        *https://www.reuters.com/article/us-argentina-economy-debt-explainer/explainer-how-argentinas-sovereign-debt-could-threaten-macris-program-idUSKCN1J31BH

      5. “People will take care of us when we get old….not money.” Literally, both are critical. Longevity means we need more money to simply live and for care as we age. Some cultures are more caring to their elders than others – mostly our people of color. Try managing a debilitating, chronic disease without personal resources reinforced by Medicare and social security. I know because I’ve been there and if we hadn’t had a strong nest egg, life would have been more difficult for both of us. An attendant problem is stripped savings following long spousal illnesses for the surviving spouse. This is reality for more seniors than younger and more affluent people appreciate. Working people in middle income jobs are struggling to pay the bills, educate their children, help aging parents, and prepare for their own retirement. The fact that millions of people can’t pay a $400 bill due to cash constraints is shocking, but it’s real.

      6. EJ, you’re simply wrong about Greece being able to print money. To do so, they’d have to leave the Euro and go back to the drachma . Only the ECB can print Euros, and they won’t.

        What Greece desperately needs to do is devalue their currency. That would effectively be a pay cut for Greek workers but it would put them back to work, because it would stimulate both exports and tourism. They can’t do that because they don’t control their currency, the ECB does. So instead Greece is exporting its best young people, part of a downward spiral.

        In the US, we deal with problems like Greece’s with fiscal transfers from states like California and New York to states like Mississippi. The Euro’s fatal flaw is that it is a monetary union without a fiscal union. Fiscal transfers from Germany to Greece, for example, are prohibited by the EU charter.

      7. Chris-
        I fully agree that there’s a stark difference between economic theory and economic policy. Economic policy is basically politics via other means. And so theories get used not because they’re the “best”, but because they best provide academic cover for political goals that their adherents want to accomplish anyway. If supply-side economics somehow told Reagan that he had to increase taxes on the rich and decrease taxes on poor black people in Chicago, he’d have shopped around for another theory rather than stay true to supply-side economics. And I’m under no illusion that AOC and many other liberals who are starting to espouse MMT understand it fully or that they regard it as anything more than useful cover for their political goals. That much, we’re in agreement.

        But there *are* a large number of people within institutions like the Fed and Treasury, relatively insulated from politics (at least used to be) who *do* care about the theory being right, and it’s critical that they’re using the right theory lest they make mistakes. And right now, they’re still basically using the same theories that have held since Rome used to mint gold aurei and silver denarii.

        Re: Argentina (did you mean to say Venezuela? Because that was who I was talking about, but Argentina is another great example). Creigh already listed a source that shows that most of Argentina’s debt was in foreign currency, which is what precipitated its debt crisis. Additionally, Argentina’s peso was loosely pegged to the dollar. They did this because, due to Argentina’s previous defaults, no one trusted them to manage their currency properly (not even its own citizens). They were in a state of currency revulsion (no one accepted their currency), and so they *had* to essentially give up their monetary sovereignty by pegging their currency to the dollar. Once they did that, they had to spend increasing amounts of their foreign exchange on maintaining that peg, and this became increasingly untenable as their economy declined (partly due to the peso being overvalued as the dollar rose in value and the peso had to follow). Then, once they broke their peg, all hell broke loose. But setting a peg to an external currency is a classic way of losing your monetary sovereignty. At that point, MMT does not apply.

        Re Greece. No, Greece does not control its own currency. It can’t issue euro’s, only the ECB can. Yes, technically every member of the EU is part of the ECB. But in reality, the ECB is controlled by Germany (with some influence by France). Heck, it’s located in Frankfurt next to the headquarters of the BundesBank (and Deutsche Bank…). So yes, the euro is nominally Greece’s is own currency, but they don’t control it, because they don’t control the central bank that issues it. Yes, they can issue debt denominated in Euros. Heck, the US can do so if it wishes to. That doesn’t mean they control the currency.

        But that doesn’t mean the US is not monetarily sovereign, because we satisfy two conditions: 1) we control the central bank that issues our currency and 2) the vast majority of our economic activity, both private and public, is transacted in that same currency.

        The markets do not control the USD. The fact that the federal government *allows* private players to influence the price of the dollar is due to a) govt officials still espousing gold-standard era economic theories and b) thoroughly captured Treasury and Fed officials manipulating monetary policy to satisfy the profit motives of Wall St. rather than actually formulating good economic policy (look up the Fed’s IOER program, or Interest On Excess Reserves).

        But when push comes to shove, the private players are tossed aside. In 2008, with the entire world on fire, interest rates were pushed to zero and below, even as all of the world’s global economies were contracting and trillions of new debt was being issued. No private player in the world thought Germany was in a stronger economic position in 2008 than it was in 2006, yet the interest rate on their bonds went negative even as it was issuing *more* debt than before. The fact that the ECB and BundesBank allowed private markets to influence the interest rate before does not in any way imply that they are not in iron-clad control if they wish to be.

        This is even the case in Greece. No one was touching Greece’s bonds in 2008/2009, and talks were on about defaulting vs. restructuring, etc. However, everyone realized that, even after restructuring, the interest rates being offered by the private market for Greece were astronomical and would basically condemn them to a debtor’s prison. What happened? The ECB announced they would buy Greece’s debt. Greece’s interest rates instantly came down (they didn’t go down low enough to let Greece dig itself out of its hole, because Germany wanted to do the bare minimum to keep Greeks from revolting or exiting the EU, but not much more than that).

        MMT seems really counterintuitive but it’s not when you grasp the fundamental principle that Creigh laid out: in a gold-backed economy, money is scarce, and production is assumed to be limitless (or at least, not the limiting factor to growth). Therefore, all theory is designed to hoard the value of money. Once fiat currencies came out, money is no longer scarce. What’s scarce is an economy’s production capacity, because that relies on proper economic policy, education, infrastructure, capital investment, etc.

        In a gold-backed economy, it’s a lot harder to mine an ounce of gold than educate a hundred citizens. Which is why all conventional theories focus on hoarding money. Even if the effort to educate a hundred citizens and make them productive is the same, in a fiat-based economy, that’s a lot harder than printing a $100 bill. Thus, the limits of the economy are now based on its productive capacity, not an arbitrary limit set by how much gold your mines produced that year, (or in the modern era, how many dollars your accumulated in your foreign currency reserves). Once you accept that, a lot of MMT principles start to make sense.

      8. EJ-
        You’re not going to like what I say next, but please hear me out:

        You’ve been sold a lie by your (German, I’m assuming?) politicians. They wish to sell this narrative that hard-working, penny-pinching northern Europeans sacrificed and saved while lazy, profligate southern Europeans spent their money recklessly. You can see the condescension in the acronym commonly used for southern European nations: PIGS (Portugal, Italy, Greece, Spain). That’s not the truth.

        The EU was bound to fail because, as Creigh mentioned, it is a monetary union without a fiscal union. A monetary union is when two countries link / join their currencies. A fiscal union is when they actually give money to each other. What does that mean?

        Think of it this way: imagine there are only two people in an economy. Each of you starts with $100. And you want to sell, sell, sell so that you can get rich. And you never buy anything from the other guy, saving all your cash. The other guy blows through his savings buying your stuff, and can’t get more because you won’t buy his stuff.

        After that, he has $0, and you have $200. But he can’t buy your stuff any more. There are only two options going forward: you stop selling stuff (i.e. your economy crashes), or you give him some of the money you’re hoarding so he can keep buying stuff (i.e. a fiscal transfer). Germany chose the third option: instead of giving him money outright, you “lend” him money, so that on paper, that money is still yours, even though it’s actually his. Now, he can buy more of your stuff with his “lent” money, giving you your money back, which you lend to him again.

        You keep playing this charade, with you giving him stuff in exchange for a bank ledger that tells you your “savings” are growing higher while his “debt” is growing higher. You feel rich, because you have all these “savings”. And he feels poor, because he has all that “debt”. But the truth is, you’re not rich, and he’s not poor, because that debt will never be repaid, and both parties know it. Not unless you wish to start buying stuff from him, which would reverse the balance sheet process but would kill off your economy.

        Does that make sense? It’s a very limited example, but that’s basically what happens with any closed system of economies with large trade imbalances. Both sides *need* each other, and money is transferred from one to the other to keep the imbalance going (sort of like vendor financing). Whether you wish to keep note of the money transfers with some fictional agreement that it will be repaid (it won’t, unless you want to reverse the flow of the trade imbalance), or an agreement that it won’t, doesn’t matter. That’s just a ledger entry. It has no effect on the actual flow of goods and money.

        When Greece signed up for the EU (it shouldn’t have, but that’s another matter to do with their own corrupt politicians), it basically gave up the right to set its own monetary policy to Germany. The EU worked exceedingly well for Germany. Because, due to the currency peg, Greece (and nations like it, including the PIGS) couldn’t devalue to remain competitive, ensuring that they would be forced to buy Germany’s exports, while none of that money would get recycled back in the form of fiscal transfers, only in the form of loans from German banks. Which is why countries like Spain, Greece, and Italy saw much of their industry hollowed out, until they became nothing more than retirement houses where young Britons and Germans came to party and old Britons and Germans came to die.

        Until just a few years ago, the biggest net exporter was not China. It was Germany. Because once the EU’s monetary union was in place, every other country within the EU lost their industry and began importing from Germany. Just like Americans rail on that our purchases at Walmart are the reason China has gleaming new buildings in Shenzen, it was the monetary union of the EU that allowed Germany to accumulate those savings that you mention. After all, if Germans are saving, then who’s buying what you’re making?

        You might ask, so what? Greece signed up for the EU of its own accord, so why should Germany care if they got buried by it? In many ways, that’s true. After all, no one in China cares that Americans were stupid enough to outsource so much of their economic strength in exchange for a few pennies off on plastic trinkets. But you can’t do this forever. At some point, it comes to an end. For Germany, that time was in 2008. Greece could no longer buy any more goods, and it could no longer pay back those debts.

        What Germany, the rest of the EU, and the ECB should have done, is debt forgiveness. Recognize that that debt was a charade anyway, it will never be repaid (and it should never have been accumulated; Greece should have been given fiscal transfers, not loans, in exchange for staying in the monetary union). But the problem was twofold: politically, it’s very hard for a German politician to tell Germans that those lazy, shiftless Greeks were going to walk away from their debt (it’s even harder to tell the *real* truth: if we don’t forgive that debt, our own export-oriented economy is going to crash and Germans will be facing the pain just as much as Greeks). And secondly, much of that debt was on the books of German banks, which meant debt forgiveness would bankrupt those German banks.

        What happened instead was a completely shameless, political ploy: the ECB “lent” Greece more money, not to spend on its own starving citizens, but *to pay back German banks*. The money literally went from a ledger on the ECB to a ledger in Deutsche Bank. IOW, the money never left Frankfurt. But Greece was somehow now on the hook for it, on top of the rest of its debt. This allowed German politicians to continue the fiction that they were taking a “hardline” on lazy Greeks, and protecting “industrious” Germans, while in truth, they were doing neither (Greece’s economy was still in tatters and they weren’t going to be buying German products). The only thing they were doing was protecting big German banks like DB from facing the “discipline” of the private markets on their Greek debt.

        At the end of the day, Greece is still in a generational depression, and Germany still is limping along (since their primary trading partners are still sick and not buying as much as they used to). But hey, at least DB got bailed out, and a bunch of vulture hedge funds in Wall St. got paid…

        It doesn’t have to be this way. As another example, consider the United States. We have a monetary *and* fiscal union. And the German analogs in the US, e.g. New York and California, love to bellyache about our own “PIGS”, i.e. the poor rural South. They’re lazy, shiftless, and subside on our generosities, while taking our hard-earned tax dollars. And the Southerners, for their part, rail about the northern bankers and predatory industrialists who keep them down. Sound familiar?

        But here’s the difference. California runs a consistent trade surplus with Alabama. But Alabama doesn’t owe California any debt. Instead, a big chunk of California’s federal taxes are spent in Alabama. We Californians rail about this all the time, complaining that we’re subsidizing those lazy, uneducated idiots (some might even call them pigs?). But it goes both ways. If it wasn’t for the monetary union, Alabama would devalue their currency (Call it the Alabama Dollar), until they were cheap enough to compete with California. At that point, industry would leave California (or we would buy more from AL) and our economy wouldn’t be the 5th largest in the world. And Alabama would grow and wouldn’t stay mired in poverty for so long.

        Yes, I know there’s another option. Why doesn’t Alabama just “pull itself up by its bootstraps”? I.e. Why don’t they invest in education, infrastructure, etc. and make their own economy great? They absolutely should. That’s why I don’t excuse Alabama or Greek politicians. They’ve mismanaged their state / country. But California can’t pretend that it doesn’t benefit from having a vast hinterland of people that it can sell its products do. Does California *really* want to see Birmingham Alabama grow to give Silicon Valley a run for its money? Quite frankly, paying 25% of our federal taxes in transfer payments to the poor South is a small price to pay for the massive benefits we gain from keeping Silicon Valley (and Hollywood, and defense spending, and… the list goes on) so dominant. Which is exactly the same thinking of exporters like Germany and China (except they don’t actually make that fiscal transfer).

        This is the compromise that a fiscal and monetary union entails. A monetary union benefits exporters (by forcing importers to not devalue their currency until they’re competitive). And a fiscal union benefits importers (by transferring money from savers i.e. exporters, to consumers i.e. importers). You *must* have both to maintain stability in the face of ongoing trade imbalances. Without it, you get disasters like the EU, which will ultimately end up hurting both Greece and Germany (if Greece is forced into a debtor’s prison because Germany doesn’t wish to forgive its debts, who will buy German products? How many unemployed Germans are worth saving Deutsche Bank from tanking from the loans it gave Greece to keep buying German products?)

        FWIW, China and the US have the same problem. China wishes to maintain a trade surplus (For its own reasons which we won’t get into here). When it accumulates trillions of dollars from it, it recycles those into buying U.S. treasuries and assets (e.g. houses in California and NYC). It has no other choice. What else can it do with USD? It could, of course, buy more American products, but that would expand the American economy and shrink the Chinese one. Which it doesn’t want. So it will keep recycling those dollars into American assets. Until those asset bubbles prick (e.g. house prices in California decline, the stock market goes down, and treasury prices go down). At which point, they’ll take a loss on their holdings. And this loss will constitute a fiscal transfer (since they will have bought from Americans at a high price, and then sell it back to them at a low price, sort of like what the Japanese did with trophy real estate like the Rockefeller Center in the 90s, when *it* was the dominant exporter). But it will be a fiscal transfer via stealth, which gives Chinese politicians cover to be able to tell their citizens that they didn’t actually just hand over a bunch of money to America.

        Eventually, the same will happen with Germany. Unless it wants to shrink its economy, it will come up with a way to transfer money to Greece and Spain and Italy, using some arcane, roundabout method that will allow them political cover to avoid having to tell their constituents that they did it, that they *had* to do it, if they wanted to keep the German economy going (usually, this roundabout method involves funnelling gobs of money through private banks, who will get a very nice cut of it).

        Or they will continue to cling to this myth of industrious German savers and lazy Greek spenders until all of Europe is destroyed.

    2. EJ

      Re MMT:

      Have you read Deirdre McCloskey? She argues, in essence, that economics is the cheerleader of power: that it is not used to make predictions to steer by, but rather to provide rhetorical justification for the acts of the powerful.

      In other words, the rise of MMT may be an indication of the rise of a new political power.

    3. Chris,

      Please check out Ben Hunt’s post on MMT where he (accurately, in my mind) describes it as a ‘post-hoc rationalization’ of how we government anyway. I think you two are in complete agreement but that you’ll enjoy the style and approach of what he’s saying:

      https://www.epsilontheory.com/modern-monetary-theory-or-how-i-learned-to-stop-worrying-and-love-the-national-debt/

      For context Ben Hunt is essentially writing the Political Orphans of the investment class.

      I also wanted to bring up Nancy McLean’s “Democracy in Chains”, which is a biography of the history of supply-side economics, starting with James McGill Buchanan’s decision to create an economic theory to support white elitism after Brown vs. the Board of Education. From there it traces supply-side as it’s slowly normalized, adopted in Chile by Pinochet, and pushed forward in American politics through advocacy trial and error all the way up through the Koch brothers.

      https://www.goodreads.com/book/show/30011020-democracy-in-chains

      Specifically important information is that the economic theory itself cannot be detached with the requirement that it is made a CONSTITUTIONAL requirement of the government, because ‘the people’ will never vote away their social security.

      It’s the type of history book clearly written with a bias and point of view looking for confirmation, but MacLean does disinterested a lot of concerning stuff that Buchanan explicitly sought to hide.

  13. MMT is the most useful way to describe how our economics works using a fiat currency. Others have already stated why.

    Quick thought experiment.

    If a rogue government agent printed $1,000,000,000,000 ($1T), and then immediately burned all of it, how much debt did the US government just create out of thin air? The answer is zero.

    Why? Because that $1T didn’t end up in an accounting column denoting new debt to some entity.

    Now, what if the rogue government agent kept the $1T. If that government agent spent the money at $1,000,000 a day on whatever, but there was no accounting column labeled as new debt from the printing, would “the market” (reification, of the abstract idea of “the market” by the way) even notice it by, uh, somehow creating higher interest rates?

    Nope. How would an abstract idea, “the market”, know that there is now another $1T in money floating around, if the US government doesn’t tell it so?

    Let’s be clear here. Yes, if a rogue government agent printed off 500 Trillion dollars and then helicopter dumped it over major population centers, there would be news reports about it, and likely price increases associated with the extra cash floating around. But we’re also talking about an absurd amount of money here.

    So, the real question is, how many trillions of dollars could be silently printed, and disbursed into the economy, before people start increasing prices enough throughout the market to have any real affect on interest rates on the US debt?

    I’d argue that it’d take tens of trillions of dollars before any interest rates get changed. Mostly because the money is going to be spent by poor people on things they need, want, and their personal debt, with it, of course ending up in a bank. Banks would probably lower interest rates on loans and deposits, because of the cash flow occurring in the economy without their loans, in order to attract people to use their loan services or park money in CDs.

    And inflation isn’t really all that important, when the economy the currency is essentially a receipt for, is as large as the US economy.

    Debt is just an accounting column that shows that the US government has to pay some other entity an amount of money in dollars…dollars in which it has sole authority to print whenever it likes. Minus the US government creating $10T in debt to an entity, and then burning the cash, $10T would get absorbed by the economy just fine without it doing any permanent damage. And, I’d argue, that just like WWII, it’d spur the everloving hell out of the private sector, flush with a bunch of cash it didn’t have before.

    Now just bump up taxes to help pull some of that money back in…after it’s been used by the poor people that the government typically ignores. Tax the people who hoard cash and other people’s debt, since they just got a massive windfall.

    Economic stimulation. Infrastructure. Hell, maybe a booster shot for the US Middle Class.

    What politics should be about, is how to spend that money to create a better society, rather than what we already do, which is ship Trillons of dollars of money off to oligarchs and the industries they own and operate, who then hoard it while paying virtually no taxes…all while we let the vast majority of Americans continuing to go fuck themselves.

    Weimar Germany didn’t have a $20T GDP and thousands of nuclear weapons. It is irrelevant to, uh, well, modern, monetary theory.

    PS: I am not an expert in MMT. But it’s pretty clear by now that the rich, who own and operate everything, have already adopted MMT for themselves, since they are the JobCreators™ and actors of the InvisibleHand™ of FreeMarket™.

    Or: it’s only class warfare when we fight back.

      1. Mary, class warfare has been around since forever, and will be around forever, as long as there are haves and havenots. The latest surge in the U.S. in the war by the uber-rich has been around for about 40 years now. 2020 will not address anything, unless the Dem’s sweep everything, and that is not going to happen. Voter suppression, more manipulation by the Russians, and the general idiocy of the voting public will ensure that.

        And that is based on the assumption there will be an election in 2020.

    1. >] Debt is just an accounting column that shows that the US government has to pay some other entity an amount of money in dollars…dollars in which it has sole authority to print whenever it likes. Minus the US government creating $10T in debt to an entity, and then burning the cash, $10T would get absorbed by the economy just fine without it doing any permanent damage. And, I’d argue, that just like WWII, it’d spur the everloving hell out of the private sector, flush with a bunch of cash it didn’t have before.

      The United States doesn’t have the luxury of being like Communist China – whether it’s in their iron grip over fiscal policy or that they’re just not the world’s reserve currency. People deal in the US Dollar on the expectation that it has effective value, and that when our debt is bought up, those buyers can take us at our word that we’ll pay it back.

      To put a bit of poetry on it, the Dollar has the people’s faith.

      What happens when that faith is shattered? Well, things like the Great Depression happen. Cataclysmic events like Black Thursday happened not because the economy was in a death spiral (although it was in serious trouble), but ultimately because investors lost faith and they all just decided they were going to jump ship – and that’s exactly what they did and this country came closer to collapsing than at any time since the Civil War.

      This is why it seems you can’t talk about monetary policy in a vacuum like this and pretend that we can just print our way out of any difficulty. Because even *if* that’s true in pure economic terms, actual people don’t buy that. The dollar being what it is, it has to maintain some semblance of comparative value – and the moment you snap your fingers and dissolve that, people will freak. Again.

      The world’s primary reserve currency has to maintain confidence, and you can’t have confidence with a currency that doesn’t mean anything. Economics may allow for it, but people do not.

  14. I don’t disagree with the political parts of this article (i.e. Republican and Democratic party motivations, the behavior of the rentier class, etc.). But on the economics, I humbly suggest you’re dead wrong. I used to believe the same things you did, but that changed after the financial crisis in 2008.

    You dismiss MMT, but the truth is, our economic orthodoxy is still based on the thinking surrounding the gold standard. Pretty much every country in the world for thousands of years ran on the gold standard (or its equivalent of nominating some random precious physical resource as the basis for “money”) and therefore, every line of economic thinking arose from that premise. But no one is on the gold standard anymore, and monetary systems based on fiat (i.e. no physically limited resource) behave vastly differently than monetary systems based on gold.

    We keep trying to run our systems like we’re still on the gold standard, except the Federal Reserve is the “mine”, and we expect it to only “mine” a limited number of dollars each year. MMT is an attempt to actually reform economic theory around the new reality of fiat systems.

    MMT is not the Brawndo of theories. It’s the only one that accurately explains and even predicted the following historical events:
    1) The recession following the Clinton surpluses. Why exactly did our economy swing into a (admittedly mild) recession almost as soon as Clinton began accumulating surpluses? If mainstream economic theory is right, the economy should have grown even faster since the government was no longer “crowding out” private investment by absorbing investment dollars into treasuries.

    2) Why did interest rates go *down* after the 2008 financial crisis in every major economy, despite every major economy issuing trillions of new debt very rapidly, to bail out their financial sectors? Our deficits ballooned in the immediate aftermath of the GFC. We were literally writing single pieces of legislation costing >$1tril apiece every month in a panic to prevent our financial sector from imploding. And yet despite that massive explosion of debt issued by the US, Europe, Japan, and China, interest rates in *every* country went down. MMT easily explains this (interest rates are set by the central bank, not by private investors, no matter how big or small the debt is, and no matter what the private demand may be). In contrast, conventional economists predicted we’d be facing so much stagflation that the Carter era would look mild by comparison.
    3) Final question: why isn’t Japan dead yet? Never mind their demographics. If conventional economic theory was correct, Japan should have faced a debt crisis decades ago, and be facing crippling interest rates. And yet their interest rates have been zero for a long time. This despite the fact that they don’t enjoy any of the advantages you list for why the dollar is still supported: it’s not a reserve currency (not really, although it does constitute some global reserves), no one needs Yen for external transactions, and no one outside Japan buys Yen-denominated bonds, not even money launderers within Japan. By all accounts, they should be worse off than Greece. And yet they’re chugging along with zero interest rates and no inflation (actually they’re facing crippling *deflation*) despite having >300% debt-to-GDP ratio.

    I agree that MMT sounds loony in theory, especially since we all start by learning conventional economic theory. But so was Einstein’s theory of relativity. You have to look at where the theory fails to explain the evidence. For me, that moment came after 2008, when I was convinced that all this increased global borrowing in the face of massive recession, with the money being borrowed thrown down the black hole of rescuing Goldman Sachs rather than the real economy, would boomerang back with crippling interest rates. It did not. Not for us, and not for any other monetarily sovereign country as well.

    When a theory fails as spectacularly as conventional economics did to explain the past decade of zero/negative interest rates in the face of exploding global government debt, it’s time to look for a new theory. And MMT seems to be on the right track.

    1. I’m willing to give MMT a try because the economic system we have is working for too few people. This could be a function of very selfish political power or it could be that the system of capitalism is no longer appropriate. Either way, change will only be possible if Dems sweep all branches of government with filibuster and veto proof majorities because those who are benefiting will not support change. There is that little challenge. Still, even with my basic understanding of the economy, I understand that sooner or later, the inability of the masses to buy the products and services that are generating such immense wealth for the top 400 most wealthy Americans, will destroy the economy for all. It just always hurts the little people first.

    1. I love AOC’s frankness, articulate, smart statement of the heart of issues, but I also hope she will temper the perception that she knows all the answers. I would love to see her rise within the ranks to lead a committee in the House where her forceful nature could really be employed, but can you imagine AOC becoming a member of the Senate where her freshness and honest audacity are so needed. Can you imagine McConnell dealing with this young whip-smart upstart? Or, for that matter, feckless other republicans? I would become a serial C-Span viewer!

      1. Mary-
        I agree. I like her because she at least has the guts to say things that “serious” politicians aren’t supposed to say anymore, thus expanding the landscape of debate. FWIW, some of her ideas are half-baked, or at least not fully thought out, but that’s okay, because at her level (freshman Congresswoman), she doesn’t have much power to actually get stuff passed, so her focus should absolutely be on setting terms for the debate.

        Hopefully, as she gains more experience, she’ll accumulate more staff that *do* know the intricacies of policy, and can manage the details of actually writing good policy.

  15. Rob

    Japan has a national debt at over 300% of GDP. The USA has around 110% GDP. This is not that bad, as long as it is denominated in US dollars, the only threat is inflation and devaluation vs other currencies, not default. This is not Argentina. At this point, deficits don’t matter. It would be better if these deficits were put into health, welfare, education, housing, infrastructure, R&D, instead of making the super rich into the hyper rich but that is the GOP for you. Deficits are not the problem, it is bad faith and bad governance. As long as the GOP plays the villain tearing everything apart, Americans are doomed.

      1. Budget priorities are of greater concern to me because I can feel and see right now the effects on the lives of people and our nation. I have no informed understanding of how much is too much debt except a very simplistic view that spending should be not exceed one’s ability to repay nor should it be shifted inordinately or unfairly to future generations. I have never believed in the balanced budget charade – but I do believe that just as with climate change, there is a tipping point.

      2. Debt that can’t be repaid is too much. It’s clear that the US Government can now and forever pay its obligations as long as those obligations are payable in dollars. Private debt obligations, and those of state and local governments, are generally payable in US dollars also. So these private (and state/local gov) debts are subject to default.

        A better question is how much deficit is too much. A money-issuing government that spends too much and/or taxes too little does risk inflation. The flip side is that a government that spends too little and/or taxes too much risks unemployment. As VXWall and I point out, take away too much of people’s money through taxation, and they spend less. Goods and services that are offered for sale go unsold, and the people who produce those goods and services become unemployed.

        If it is in your economic interest to have a large pool of people who are desperate for a job (and plenty of people with that interest do exist) then it appears that we need to get our deficit under control.

      3. The “borrowing from the future” trope is also wrong. Future generations will produce so many houses, cars, washing machines, cheeseburgers, and a bunch of other stuff, and all of that stuff will be distributed by people who are alive at the time, and none of it will be sent back into the past to pay for our deficits.

        Nor will future generations have to pay more taxes to pay back our deficits. The taxes they will need to impose on themselves will depend only on their decisions about public spending and their need to control inflation. (See the first comment below.)

      4. Here’s what traditional monetary policy would say: When the rate of interest required to find buyers for that debt is higher than the government’s revenue to pay

        MMT’ers would actually sort of agree with that statement but add a very important caveat: the rate of interest is set solely by the government, *not* by the private market for that debt. Because the Fed will *always* serve as the buyer of last resort, the Fed determines the interest rate at which that debt will be bought.

        If you put both principles together, then you get to the MMT’s position that there is no such thing as “too much debt” because the Fed will *never* set an interest rate that makes the government go bankrupt. It can even drive the interest rate *negative* (i.e. the government makes money on the debt it issues) if doing so serves the government’s purpose.

        IOW, while MMT nominally agrees with traditional economic theory about the relationship between interest rates and govt’s ability to pay, that becomes a non sequiter because, in MMT theory, the govt itself sets the interest rate it will pay (even negative, if it wishes), so it will never set a rate that bankrupts itself (no such thing can happen).

        If that sounds loopy, how else do you explain Germany? For the past ten years, German bonds have consistently yielded a *negative* interest rate for the first 5-10 years of maturities. It was not a one-off random blip. If you asked a mainstream economist 10 years ago whether a country could pay negative interest rates on its debt, even one as powerful as the U.S., they would have told you it’s absurd, and told you to go back to Econ 101. Yet Germany, and several other countries, have been doing it for nearly a decade now.

        Do private bankers wish to pay the German govt for the privilege of lending it money? Of course not. Yet they must acquire Euro reserves for their business transactions, and so they pay the negative interest rate necessary to acquire those reserves.

        In Japan, you can argue that after 20 years of zero interest rates on JGBs, there is *no* private entity willing to buy Japanese bonds. Entire days go by where a not a *single* Japanese bond is traded, a mind-boggling feat for such a large debt pool. As stated before, the Yen is not a significant reserve currency, is not required for most transactions, etc. Forget about sophisticated banks; even individual Japanese themselves sell the currency and trade in dollars and other interest-bearing currencies (the massive Yen carry trade, so-called Ms. Watanabe because literally Japanese housewives engage in this trade). Clearly, no private entity wants to touch Japanese debt at current interest rates. And yet, the interest rate is easily set by their central bank, and they have reliably maintained it at zero for decades with no end in sight. And the central govt has not had any difficulty in issuing new debt.

        With all that said, there *is* a concept of too high a deficit (note, I didn’t say debt). Basically, if the economy can’t produce the goods the government wishes to buy, then issuing new debt, having the Fed buy it, and using it to purchase more goods will lead to inflation, because the economy can’t supply the goods needed. In that situation, the government has 2 options:
        1) Don’t issue so much debt.
        2) Issue that debt, but don’t have the Fed buy it. Instead, offer it to the private market. If you do this, then that debt basically reduces private spending (since the private market is diverting funds from the economy to buy the new treasuries), so essentially, the govt can crowd out private economic activity to make room for its own spending. Of course, to do this, the government must set an interest rate that’s competitive in order to attract private money, which means it can be higher than what the government wishes to pay. But this is a deliberate policy decision, not something it’s forced to do.

        MMT doesn’t deny traditional economic policy. It just says that that policy is needlessly constrained by the old mindset of gold-standard monetary systems. If you wish to constrain your policy choices to option #2 above, and only #2, deliberately handicapping your monetary tools in service of some antiquated notion of scarcity built around our experience with gold, then fine. But we could do a lot better by fully understanding the implications of fiat monetary systems, something that, in truth, humans have only been using for the past 50-70 years, compared to the thousands of years of accumulated inertia from gold-backed systems.

  16. What is missing from this analysis is simple sectoral accounting. It’s an accounting principle that any financial asset (dollars are financial assets, bonds are financial assets) must have a corresponding financial liability. There can be no credit without a corresponding debt. You can not be owed something without someone else owing you the thing.

    The US dollar financial holdings of the private sector are $22 trillion. How do we know that? Because the total financial liability of the Federal Government–the only source of US dollars–is $22 trillion. If the National Debt was to be cut in half, the dollar denominated financial holdings of the private sector would be cut to $11 trillion. I can assure you that would be an economic catastrophe. Significant periods of Government budget surplus are always followed by recession because–by accounting identity–they are necessarily accompanied by significant private sector dissaving.

    When the Federal Government wants to buy something, it prints up “dollars” and offers them to us as payment for goods and services. To motivate us to accept those dollars, it requires us to pay our taxes using those “dollars.” This is a ridiculously simplified yet 100% accurate description of Federal Government fiscal operations.

    A consequence of this reality is that Government money (debt) creation has to be sufficient to cover the spending as determined by the political process. And Government taxation has to be sufficient to establish a value for the dollar that is consistent with a rate of inflation as determined by the political process. And there is no law or logic of economics or finance or accounting that says those two things (spending and taxing) have to balance, either over a fiscal period or a business cycle or ever.

    1. What are your ideas for our economy, Creigh? Do you believe all is well? As Chris posts above, is there a responsible limit to printing more dollars and deficit spending, and, if so, where does this line become dangerous? Trump stated he doesn’t care about budget caps. Is he correct under your economic philosophy?

      I worry because I’m in my twilight years and for my kids and grandchildren and their future security and happiness. Trust is being shattered as is responsible governance. You may perceive democrats as patsies – I don’t – but I do believe they need to play hardball, especially when the other side owns the umpire.

      I would appreciate some feedback on the attached link which principally is concerned about income inequality. For the record, I believe when capitalism forces destroyed unions that was the beginning of the end for economic and social equality for working people in America. It is certainly a situation that is getting more extreme.

      https://www.nytimes.com/2019/03/31/opinion/peter-georgescu-capitalism.html?

      1. Couldn’t agree more with Peter Georgescu. Capitalism is the greatest engine for prosperity ever invented, but unregulated capitalism will kill the goose that lays the golden eggs, and inequality is the weapon. You simply can’t have a healthy economy that is not broad-based. It’s the Monopoly game: when too few people get all the money it’s game over.

        The result of inequality (I think this is from Hannah Arendt) will be either redistribution of wealth by legislation or redistribution of poverty by revolution. That’s Georgescu’s warning to his fellow oligarchs.

        There are a few approaches we should take. One is obviously returning to a much more progressive tax structure. Another is reform of intellectual property. Patents last far too long and are too generous. Anti-trust is another big one. We’re too close to monopolies in many areas, including big tech. And at the end of the day, we may have to use the nuclear option–debt cancellation, especially for student debt. Private debt (not public debt) is strangling our economy.

      2. I totally agree with your suggestions. Add universal healthcare to the list and we’re in sync.
        BTW, the comments to this OpEd are really interesting. Some laudatory and many critical especially of ken lagonne.

    2. You are correct. Cain and Moore are being considered. My error, thanks for correcting.

      Trump continues to intrude into federal reserve business by inserting himself into decisions within their purview. This is behavior is being repeated throughout all areas of government. His breech of separation of power and breech of the independence of leadership within these agencies is one of the most offensive actions he is employing. Shocking, really. That republicans have chosen to cede him this latitude in brazen defiance of traditional norms is reprehensible. It’s causing major disruption in the ability of government to function. Trump’s pattern is : demand, then demean, then fire anyone who dares oppose him. The net result is that major departments and agencies are led by his appointments who do not go through congressional vetting and are expected to accede to his demands, legal or not. There is no end to this if the courts don’t hold. Republicans have made their choice. We hoped Mueller’s report would offer help but we may never see its full findings. That leaves 2020 which is frighteningly unpredictable.

      https://www.newyorker.com/news/our-columnists/the-high-stakes-battle-between-donald-trump-and-the-fed

      1. To add to your comment, Trump prefers acting department heads. He says that is the only way things get done. Basically, what that translates to is acting heads are completely beholden to him, whereas permanent heads have sworn an oath of office to protect and defend the Constitution and the laws of the nation. Thus, for those who take the oath seriously, they are beholden to the Constitution and not Trump. Trump demands total personal loyalty and the Constitution interferes with that. It demands total loyalty.

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