Fresh Cup of M

An intersection of the Celestial Spheres: Warren Mosler turns up on the DemystifySci podcast here . Awesome.

Gotta celebrate podcasters prepared to upload over two hours with a guy like Warren talking about monetary operations 101!

A couple of issues raised by the hostess, Dr Anastasia Bendebury, piqued my interest, since Warren was not able to fill in all the gaps.

Stock Market

The issue is Warren (and most MMT’ers I suspect) favour ZIRP = zero interest rate Central Bank/Tsy policy. Which means any Tsy bonds issued provide zero interest, and serve the purpose only to maintain smooth reserve account operations. This is not strictly necessary, since the Act could be changed to permit member banks overdrafts. But to avoid a lot of legal Bill debate and drafting, the Tsy could just issue 3-month bills and repo operations so banks can clear payments without overdrafts. (Cannot do a reserve drain without a reserve add, stuff.)

What’s the issue again? Aside from getting Parliament to approve this elimination of the bond market (a complete waste of human lives) the concern raised by Anastasia was, “Wouldn’t money just plough into stocks?”.

A response (implicit I think by Mosler) was, “And…?”

Warren had already addressed the deeper problem of why there are such powerful savings incentives, which tend to the Paradox of Thrift, and force governments to run deficits, large deficits. If people really do not like large numbers, for whatever reason (numerophobia?), they (governments) should stop creating massive artificial savings incentives. Case closed.

However, perhaps Anastasia meant that it could be a concern that people put money into riskier assets? But again… “So what?”

What Warren did not have the time to mention was his proposal for eliminating the stock market casino.

The idea is to cap stock prices at say $20. If a firm needs more capital they can issue more shares. That’s it.

But it raised a question I emailed Warren: what about implementing the proposal: (1) eliminate the bond market, (2) implement the stock market stability proposal. It’s the same story for monopolists: you have options, you can set price and let quantity float, or fix quantity if you are prepared for the price to be volatile. I’ll make a note here if Warren offers a comment.

My guess is a minimal disruption could be simply on Day=1 the SEC dictates no stock can go above $20. All existing stock holders get new shares to match their current portfolio valuation.

My feeling is massive political backlash from the bond market bros and stock market phreaks, but again… so what? Let them cry. No one with stocks will lose any investments. Their methodology for analyzing the market will have to change, but … so what? They’re not all dummies, most can drive a spreadsheet.

Payroll Tax Elimination

This was the biggie. I think it is the grand daddy of all MMT ideas, besides the public sector employment proposals (+ Job Guarantee). Although even Warren seemed vague on the actual GDP fractions that we waste on useless human activity, but let’s suppose a ballpark is:

1. Tax compliance costs: around 10% of GDP on bullsh1t jobs.
2. Payroll Tax: about 15% of GDP on bullsh1t tax revenue (and tax avoidance accountants and all the rest).
3. Bond markets: around 3% of GDP on bullsh1t trading.
4. Stock market gambling: about 5% of GDP on bullsh1t investment gambling.
5. Financial sector: about 5% of humans are calling themselves financiers about are not financing anything, they are parasites, rentiers. we do not need 99% of the so-called finance sector.

((When I write “suppose a ballpark” you are correct in noting that’s a huge fudge and I have no idea what the percentages are to within $\pm 5%$ or even worse! My point today is more qualitative, and yet I recognize it must rest on some large percentages here.))

I mean… hellsbells, you can see how very rough estimates might even get to above 100% of GDP!!!! That’d just mean your estimates were way off, but in any case, it suggests we are losing an incredible tragic amount of human time and energy on pointless activity. Meaning pointless in the MMT context. I’ve no beef with people who see a need to trade bonds or invest in stocks because existing government institutional structure practically forces them to save. We are talking here about what could be and what should be. And through an MMT Lens.

Elimination Proposals

I am concerned here about the political process. MMT’ers need to give advice to policy makers and governments to make the transitions run smoothly. But some of them can be sharp.

I’m no expert on the elimination of bullsh1t strategies, but for starters I’d guess:

1. Tax compliance costs: just implement robust property taxes, no change to other taxes, just set the other non-pigovian (and reverse pigovian) tax rates to zero. Implement the Job Guarantee, so the newly unemployed have oodles of decent dignified things to do for income, while transitioning back to non-bs jobs.
2. Payroll and GST Tax: Just set these to zero. No need to go through the political hassle of changing the tax statutes. Since no GST and Payroll tax forms need to be submitted now, that GST hassle and family finance hassle disappears, freeing up a substantial amount of the government deficit for spending. Probably also, along with the other tax compliance eliminations, frees up around 20% of the workforce to do better things. (I think requires the JG again, because of all the tax attorneys and accountant put out of work.)
3. Bond markets: government moves to only issuance of ZIRP 3-month Tsy bills for payments clearing operations to run smoothly.
4. Stock market gambling: the Mosler proposal.
5. Financial sector: several proposals, but to my mind the big one would be to eliminate tax advantaged savings schemes, and increase the pension to a decent living income, and scrap national superannuation (total waste of human time).

With these simple policies (not saying they’d be easy political battles to win) we get something like 30 to 40% of GDP going towards raising standards of living and reducing work hours, with no economic downside. That’s massive! Just think about it!

Inflation from Oil Price

The other big issue raised by Anastasia was the fear over the “collapse of the dollar” due to a sequence of implausible events. Warren asked her, “Give me an example where that’s happened?” which although a bit flippant, is the best response.

We would not get a collapse of the dollar provided the government continues to enforce tax liabilities. Period.

Everything else (for the government deficit issuance) is a policy choice. Do we want to spend significant fractions of GDP in building bridges or on blowing up bridges?

Could there be inflationary episodes from those foreign monopolies setting price? Sure. No political process absent invading those foreigners or CIA assassinations, can prevent them. But we do not need the assassinations or invasions. Only the MMT Lens explains why not!

Eliminate the Stock Market Casino

The DemystifySci hosts asked about “money going into the stock market if bonds were eliminated (or zirp).” It reminded me of Mosler’s proposal for stocks: set a price cap at $20 per, and the companies can then just issue more. Eliminate the “casino”. I checked in with Warren to ask him about this proposal and if he had any revisions. He replied as courteously as usual:

Answer: Yes, new issues come at $\text{\small \$}$10, and the company is required to issue unlimited shares for sale at $\text{\small \$}$20.

I had a few related follow-ups, and Warren was generous to reply:

Question: how could you see a government implementing this practically in a transition period?
Answer: Immediately subject all new issues to this requirement. Immediately require all existing listed companies to offer unlimited shares for sale at a price maybe 25% above the latest closing market price. 

Question: I do not know how the exchanges are organized, but in most countries there is something like the SEC, right, so they’d just dictate the new terms coming from government direction/statutes? 
Answer: Corporations have charters that subject them to gov reg.s in exchange for limited liability. They can go back to partnerships and sole proprietorships any time and lose gov granted limited liability.

Question: Did you have any idea for how to make such a transition least disruptive?
Answer: As above, but open to suggestions. 
Say: for existing shares on the new day=1 the price goes straight to the last closing price + 25%, as above.