On May 9, 2013, The Republican House passed H.R. 807 the Full Faith and Credit Act. The Bill says in part:

(a) In General- In the event that the debt of the United States Government, as defined in section 3101 of title 31, United States Code, reaches the statutory limit, the Secretary of the Treasury shall, in addition to any other authority provided by law, issue obligations under chapter 31 of title 31, United States Code, to pay with legal tender, and solely for the purpose of paying, the principal and interest on obligations of the United States described in subsection (b) after the date of the enactment of this Act.
(b) Obligations Described- For purposes of this subsection, obligations described in this subsection are obligations which are–
(1) held by the public, or
(2) held by the Old-Age and Survivors Insurance Trust Fund and Disability Insurance Trust Fund.

The idea here is to keep the US govt from defaulting on T-bonds, but it has a few flaws.

1. Starting w/ subsection (b); the duty of the govt to pay its debts is broader than just Treasury bonds. Wages of federal employees, pensions of disabled vets, payment on Medicare invoices, among many other things, are all obligations of the federal government that must be paid out. If they aren’t, claimants can go to the Court of Federal Claims to seek payment. A court judgment too is an obligation to pay. Congress has already granted DOJ a permanent, open-ended appropriation for the Judgment Fund.

2. Jumping back to Subsection (a), as the House of Representatives seems curiously unaware that “the debt of the United States Government, as defined in section 3101 of title 31, United States Code” has a rather large loophole. If Tsy issued T-bonds without a maturity date (and it has before) there is no “face amount” of T-bond principal to count against the statutory debt limit.
“The essential feature of the debtor-creditor relation is the presence of a fixed maturity date at which time… [the creditor] bound itself to pay on a fixed and certain date the face amount of the instrument together with all accumulated and/or accrued and unpaid interest at the designated rate.” Commissioner of Internal Revenue v. HP Hood & Sons, 141 F. 2d 467, 471 (1st Cir. 1944).

Tsy could step up to the statutory debt ceiling and never cross it simply by using its existing bonding authority (31 USC 3102 has no shot clock for T-bonds) to issue perpetual consols. For more on this, see Don’t take consol in your fears.

3. Of course, Tsy could always issue the Trillion Dollar Coin (which is so January 2013, I know). The Fed doesn’t actually have the power to refuse a Tsy deposit of legal tender because of the Federal Reserve Act’s “tie goes to the runner” clause.
…and wherever any power vested by this Act in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary and every knee shall bend. 12 USC 246.

OK just kidding with the “every knee shall bend” part, but that’s kind of the subtext here. The dispute resolution mechanism is rather one-sided in Tsy’s favor. More on that here, Did the Fed have a legal basis for rejecting the Coin?

4. I’m an optimist, I believe the falcon CAN hear the falconer; Things DON’T fall apart; the centre CAN hold. But let’s assume the worst, HR 807 becomes law and the Administration ignores points 1 through 3. I’ll just point out the bill’s curious phrase, “to pay with legal tender”.

I’m skeptical the term “legal tender” is inclusive of Tsy drafts, or only means coins and currency. If the latter, that’d mean an awful lot of armored trucks going hither and thither.

United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. 31 USC 510

Well the answer is “NO”, and “yes”. SqueekyWheel makes a great point:

“I think you misunderstand the bitcoin version of fractional reserve – it’s a bit more like gold standard fractional reserve.

Let’s take “BitBank” which has 20 bitcoins. I go and take a 10 bitcoin loan from ‘BitBank’. BitBank credits my BitBank account with 10 bitcoins – but does not use the Bitcoin system to transfer them. If I spend those bitcoins outside the bank, BitBank transfers *its* bitcoins to the recipient. Now BitBank holds 10 bitcoins in reserve and my account says 0. So it’s just like normal banks, but using bitcoins as the reserve. Nothing in here creates fake bitcoins.

However, just like normal banks, low fractional reserves requires either/both 1) many/most transfers are between accounts at the same bank, 2) deposits store value for long time periods. Number 1 requires a large bank (tough for bitcoin); number 2 assumes either that ppl need a place to put their money (not true for bitcoin) or the bank pays interest (possible for bitcoin, but who is borrowing?).

So yes, in theory Bitcoin can serve as a reserve currency in a fractional system. But in practice it would need to be a practical currency first and it’s not.” [Bold mine]

I contend the current structure of bitcoin will not allow fractional reserve banking. Bitcoin (and other P2P payment systems) take huge steps to prevent the spread of non-validated bitcoins. It is possible to use bitcoins like gold was used under gold standard systems. However, the current transaction network for bitcoins would not allow it. An entirely different transaction confirmation network would have to be developed.

Here is my reply:

“I don’t deny bitcoin “could” work as base money. I just deny that bitcoin is setup to do that right now.

And I fear you’ve fallen into my trap, SW. Because the way banks worked during the free banking period was…wait for it…with each issuing their own currency!

http://en.wikipedia.org/wiki/Free_banking

They could not use a common currency. They all used gold as their base money, but each of them had their own currency which was issued against their supply of gold. These currencies traded against each other at different and varying values, and the currencies had different values depending on how far the bank notes were geographically from the issuing bank.

This is exactly what I was talking about earlier. I totally agree – bitcoin COULD be used as base money. It’s just today, bitcoin cannot be used as base money because there is no transfer mechanism for the pretend bitcoins in the real world. The creation of a fractional reserve banking structure would require setting up a network that is independent of bitcoin. Every fractional reserve bank would need to have it’s own, independent network, so it could monitor and control the money issued against base bitcoins. You’d need a different wallet and transaction system for each bank. These different bitcoinzzz would trade at different levels to each other and to real bitcoins.

I think this is impossible in the modern world, and needlessly complex. If you need a manual, the product is poorly designed. And hell yeah, you would need a manual for this kind of payment system.

In the free banking era, the network was “dudes with banknotes in their pocket. ” With bitcoin like products, the adoption of these networks would be far, far more difficult.

I had a twitterstorm with Steve Waldman over this exact issue. I have not seen a single thing which shows me otherwise. Fractional reserve banking is impossible in todays bitcoin environment. Building up the networks which would allow fractional reserve banking requries a transmission system which is nearly impossible to develop for bitcoin-like products, because it relies on adoption.”

Every bank would need its own bitcoin like transaction confirmation system. In effect, this would create individual currencies, each issued by a bank using bitcoins as a reserve. Banks would not allow rival banks into their network, because they would not be able to control the money issuance by the other bank.

Each bank would create it’s own private currency, and hold commonly accepted bitcoins in reserve.

The problem with this the creation of the transaction network is not something you can program. A network is something which needs to be adopted by multiple counterparties to be effective. You can give someone the network protocols, and the programming around this, but you can’t make them use it. You can see that separating the network which validates bitcoins from the network which validates bank-currencies would need to be different. For a bank to propagate its own private currency transfer network would be a huge task.

This is a fantastic real world experiment, and we will see how it plays out.

If bitcoin is to capture 10% of the U.S. transactions involved with GDP in 15 years, it needs to grow in value at 61%+ per year during that time.  I think 15 years is a good amount of time as a rough and ready indication of what can happen on the internet, given that Google is just about 15 years old.

Todays GDP is $15.09 T. The total value of bitcoin is $1B.  If bitcoin is to take 10% of the GDP transactions today, the value of bitcoins would need to grow in value to match the total amount, divided by the monetary velocity of bitcoins.

The way to value bitcoins in the future is the same, except we need to account for notional economic growth, and the number of bitcoins in circulation in the future.

To figure out how much bitcoins might appreciate in value, we need to estimate the velocity of bitcoins.

Most people don’t want to buy a pizza with something that will double in value every 17 months, so we can assume the velocity of bitcoins will be quite low, something lower than the current velocity of money. For example, do you think this guy is satisfied today with his 10,000 bitcoin pizza?  (Let’s see, I can either buy a pizza today, or a really nice house in 3 years – what should I do? I am pretty hungry right now.) I would imagine few people are going to buy pizzas with bitcoins today or in the future.

Therefore, we can assume a very low real world transaction volume for bitcoins compared to the total supply of bitcoins. The current velocity of money is 1.5. Assume 1.2 for the velocity of bitcoins. I think this is extremely high estimate of the velocity of bitcoins, because I do not think $2.3mm of exchanges of bitcoins for real world goods are happening everyday right now. Most of the transactions are exchanges of bitcoins for another currency, and the bitcoins are then hoarded and not used to purchase real world goods.

It is difficult to tell how many transactions involve real world goods for bitcoins, but the largest site where actual transactions take place with bitcoins is Silk Road. Silk Road is a place where you can easily buy illegal stuff, like MDMA and LSD. There is no way to know exactly how many transactions are taking place, but Silk road was only doing about $2m in transactions per month as of January 2013. That’s about 1/7th of the necessary volume to make bitcoins have a monetary velocity of 1.2 given the value of bitcoins in January.

Transactions for real world goods fall off extremely rapidly after the top few websites, but if we double the single largest site transactions to get the total real world transactions, we still end up with a very low velocity. Using this velocity of .35, bitcoins would have to gain in value by 75% per year, continuously compounded.

Then we need to adjust for future GDP and the number of bitcoins in the future, but this is all pretty simple math, which Wolfram Alpha was kind enough to do for us.

We have bitcoin appreciating at 61%+ per year, and the USD losing 2% per year. I don’t know which one you would prefer to use to purchase a pizza, but if I have a choice between using bitcoins or USD to purchase a pizza, I’d use USD.

The good thing is you can use this math to imagine if bitcoin was very successful and took over 20% of world GDP in 15 years. 2012 world GDP was $83T.  105% per year for the next 15 years, which as far as I know, would be the best investment in human history.

You can see how this is a huge problem with bitcoin. The success of bitcoin relies on it being used in real world transactions, yet if bitcoins actually gets used in real world transactions, a bitcoin rapidly becomes far too valuable to use in real world transactions for things like toilet paper. Let’s see, I can either use bitcoins or USD to buy this toilet paper today. If I use the USD, then I can buy a nice house, a car, and go on vacation in 15 years with exactly the same money. If I use the bitcoins, I’ll regret it for the rest of my life.

I did the calculations using estimates of the price drops shown in this chart for utility level solar. Q1 2011 is $3.80, and Q3 is $2.40.

One prominent example is in the area of distributed solar PV, where the threats to the centralized utility business model have accelerated due to:

• The decline in the price of PV panels from $3.80/watt in 2008 to $0.86/watt in mid-20121. While some will question the sustainability of cost-curve trends experienced, it is expected that PV panel costs will not increase (or not increase meaningfully) even as the current supply glut is resolved. As a result, the all-in cost of PV solar installation approximates $5/watt, with expectations of the cost declining further as scale is realized;
• An increase in utility rates such that the competitive price opportunity for PV solar is now “in the market” for approximately 16 percent of the U.S. retail electricity market where rates are at or above $0.15/kWh2. In addition, projections by PV industry participants suggest that the “in the money” market size will double the share of contestable revenue by 2017 (to 33 percent, or $170 billion of annual utility revenue);

In the first bullet point, they note that Solar has gone down in price by about 22.5% per year for the last 4 years up to mid 2012. Using 22% going forward, we can expect to see Solar competitive with coal across much of the country in just a few years.

In the second bullet point, they note that PV solar is cost competitive for 16% of the market today. And it will be cost competitive with 33% of the market by 2017!  

This is absolutely huge. In just 4 years, Solar will be competitive with current power for 100 for a huge part of the market.

But this is not all from this report. The real banger comes in that shifting even a small amount of generated power over to PV solar will cause coal prices to go up for consumers still using coal.

“Assuming a decline in load, and possibly customers served, of 10 percent due to DER with full subsidization of DER (distributed energy resources)participants, the average impact on base electricity prices for non-DER participants will be a 20 percent or more increase in rates, and the ongoing rate of growth in electricity prices will double for non- DER participants (before accounting for the impact of the increased cost of serving distributed resources). The fundamental drivers previously highlighted could suggest even further erosion of utility market share if public policy is not addressed to normalize this competitive threat.”

This is probably too high of an estimate, but they say coal/natural gas power prices could go up by 20% if Solar takes over 10% of the market, and the rate of future price increases will double. Ouch!

I did a quick chart in R to figure out how quickly Solar will be cheaper than even pretty cheap coal electricity, with a variety of cost per year reductions. It turns out solar will be cheaper than even cheap coal in 20 years as long as the price reductions are greater than 4% per year.  Solar will be cheaper than cheap coal in 10 years as long as price falls at more than 15% per year.

Remember, we’ve seen price reductions of more than 22% per year for the last 5 years. Solar will be cheaper than cheap coal if this keeps up for another 5 years. These price reductions add up very quickly. If we can keep up the 20% per year for 15 years, we are talking about essentially free power, because the cost of solar will be 3% of its current levels, and 1/10th the cost of current coal.

It’s remarkable. And it has implications for our monetary system.

I was totally wrong in asking if Matt Y would ever talk about automating fiscal policy, because it turns out he had just written an article on it. I had flagged this Matt Yglesias post for commenting a few weeks back, and somehow I forgot about it until now.

Still, MR has some of the few people out there talking about automating fiscal policy on a consistent basis. Both Carlos and I have suggested rules which would cause the government to give more money to people automatically if the economy is operating at less than full employment. Of course, I am really Peter Orszag who was also kinda talking about automating fiscal policy a few years back. Izabella Kiminska also has some ideas on automatic fiscal policy. Steve Waldman has a great post on automating fiscal policy, as you would expect.

I’ve proposed the strong economy rule – which gives a suggested deficit which should get us pretty close to full employment – and Carlos has proposed a full employment tax system which links the level of payroll taxes to the unemployment rate.

Matt Y. lays out a three pronged approach which is very, very close to my thinking on the economy.

“1. We should aim for a long-term inflation rate of four or even five percent so that the Federal Reserve is much less likely to hit the “zero bound” and lose confidence in its own ability to shape the economy-wide demand picture.

2. We should make specific statutory provision for Fed injection of “helicopter money” into the economy. The metaphysics of fiscal vs monetary policy are less important than the fact that the Fed has the right institutional setup to conduct a joint fiscal-monetary action when needed. A Fed that can order money-financed payroll tax cuts that have zero impact on the deficit is never going to “run out of ammunition” in the war on demand shortfalls.

3. We should beef up automatic stabilizers in the budget by creating some kind of national rainy day fund that automatically releases unrestricted funds to state governments in times of recession. Some elected officials will use the money to avoid pro-cyclical service cuts and furloughs, while others will use it to finance tax cuts and we’ll just live with disagreement about the best way to proceed.”

The first two proposals are essentially what I have been proposing since the very first post at MR.

The zero lower bound is a dangerous area, because it makes monetary policy less interest rate oriented and more asset price oriented. The fed right now is trying to kickstart the economy by buying real world assets. QE is perfectly understandable as a response to a stagnating economy at the ZLB, but it would be smarter to avoid the ZLB in the first place. QE and all monetary policy is hugely distortionary and doesn’t work great, and chooses winners and losers as directly as the most directed pork-barrel fiscal spending imaginable.

So how to avoid the zero bound? Keep inflation at 4-5% in normal times, so there is little chance that you’ll get anywhere close to the zero bound during bad times and need to resort to handing only rich people money. This is exactly what the Strong economy rule suggests, for exactly this reason.

Next, there needs to be some way to automate fiscal policy. Fiscal policy is far too important to leave to the political process on an ongoing basis. It’s simply too much to deal with over and over again. Then, we already automate fiscal policy with a combination of weak “automatic stabilizers” and the tax collection/pre-determined spending racket. It’s just our method of automating fiscal is almost completely arbitrary.

There needs to be some way to explicitly change fiscal policy as the economy changes. This is Matt Y’s point #2.  We need to know how much fiscal to use, and have a program already in place which can use that much fiscal policy.

So, apologies to Matt Y!  Also, Ramanan – can you give us some reasons this is a bad idea?

“But doing this by trying to engineer a stock market boom is insane. We should do something much simpler: print up a bunch of money and send it to American households.

…

The best thing about helicopter money is that it’s largely agnostic as to what lies at the root of our problems. As long as you think there’s some level of excess capacity in the economy, putting cash in the hands of households will help. Most obviously, if people had more money they’d buy more stuff. That means more jobs making, transporting, and selling the stuff. But not everyone would spend all of their helicopter money. Lots of families would use it to help pay off debts already accumulated, which would help speed the process by which we climb out of the debt hole of the boom years. Prosperous families without debts would just save a large share of their money. Increasing the size of the savings pool should drive borrowing costs down for firms that want to expand, while pushing up the value of stocks and other financial assets.”

It could be just coincidence, but Matt Y seems to follow what happens over here at MR pretty closely. If we have a good thread, you’ll see something on it just a few days later. I am glad to see Chris Hayes follow this idea as well.

We need to give the middle class piles of money. However, there is a huge problem with just giving piles of money to the middle class – it’s a political non-starter. ftm, stone, and Philip Deihl pointed this out and they are correct.

Here is Mr. Deihl:

“Giving piles of cash to the middle class” is a losing message. Even many, probably most, middle class voters would reject it as irresponsible or a cynical election ploy. Ask George McGovern how it worked for him. (Years later McGovern himself said his proposal to give $1000 to every American was a mistake. It wasn’t the GOP that killed the proposal as a vote-buying scheme; it was Humphrey.) Sure, the McGovern campaign was 40 years ago, but it says something that no Democratic candidate for the presidency since 1972 has made such a just-give-em-cash proposal. It’s always been middle class tax cuts or grants and loans for college tuition, and the like, not cash handouts.”

This is entirely correct. It’s a losing message. It’s a proposal which will be crucified (heh) in trial of public opinion. Yet, giving piles of money to the middle class is one of our best options for stimulating the economy at this particular moment. In general, it’s a great way to get the economy moving at any time!

I find it entirely offensive that this good solution is so politically un-possible. It shows the debate is being framed around the wrong ideas. If a good and worthwhile proposal which would increase our standard of living is not politically possible, there is a major problem with the discourse.

It’s good to see people talking about this helicopter drop – because talking about something repeatedly is a way to make people more likely to support an idea. But even a helicopter drop isn’t really enough. Helicopter drops structured like this are too one off – much like the stimulus checks Bush mailed out in early 2008 (! They freakin’ knew! The recession wasn’t called until much later that year – can you imagine the outrage if Obama did something like this?) - a very useful stimulus which went almost entirely down the memory hole.

These checks worked despite going against widely accepted economic theory, and going against what crazy people think about fiscal policy.

beowulf then proposed a technocratic way of delivering those piles of cash, entirely automatically, through a series of proposals:

1. Tie the level of the full employment (payroll) tax to the level of unemployment. Higher unemployment = lower taxes.
2. Close the trade deficit with Buffet’s import certificates so we don’t end up funding the entire planet’s demand problem.
3. Move fiscal authority to the fed – Make them responsible for both monetary and fiscal policy so they can fill their legal mandate of full employment and stable prices.
4. Have the Fed use the Trillion Dollar when necessary.

Carlos has a specific plan in mind. But his larger point is that unless you make this process almost entirely automatic, there is no way it will happen repeatedly when needed most needed. Even if you disagree with his specific proposal, it’s really hard to disagree with the automatic nature of his idea. If we have to negotiate a fiscal stance every year for the next 100 years, the fiscal stance will never get close to what we need to have a truly prosperous society.

We did this with monetary policy – where we’ve given the automatic nature to a group of “wise men” who decide what is needed for the economy at any given moment, and then implement this decision across the economy. No matter what you think of the fed, this process is largely automatic. We don’t need to negotiate, bargin, decide, or otherwise do anything – there is already a process in place to implement monetary policy across the wider economy. There is nothing like this at all for fiscal policy, no method or process, which automatically adjusts the amount of fiscal policy with any sort of pre-determined thought. Our automatic stabilizers are tiny compared to the size of our economy, and are so ill directed.

As Philip pointed out, if we need to campaign giving piles of money to the middle class, the idea will lose even among the middle class. Even though it is probably a good idea right now, and a decent idea even during normal downturns, this is a losing idea. So we need to find a way to bake it into the structure of the economy.

Right. This is the error in the thinking that balancing the budget will produce FE and optimize output. Tail wagging the dog. Rather a FE budget balances at FE. Under FE run the appropriate deficit to increase effect in order to offset demand leakage and over FE (inflation) run a surplus to damp down effective demand by creating leakage to govt saving. Now explain that to Paul Ryan.

I was at Easter mass today and I suddenly realized that explaining all this to Paul Ryan, Joe Scarborough or anyone who’d rather focus on trees north of the Brooks Range instead of the forest fire behind their house isn’t just pointless, its kind of mean (of course, there are no trees north of the Brooks Range). Its mean because if believing something brings them comfort and purpose and keeps their minds from failing into anomie and depression, are we doing them any favors waking them up?

In 1959, social psychologist Milton Rokeach wanted to test the strength of self-delusion. So, he gathered three patients, all of whom identified themselves as Jesus Christ, and made them live together in the same mental hospital in Michigan for two years.
Rokeach hoped the Christs would give up their delusional identities after confronting others who claimed to be the same person. But that’s not what happened. At first, the three men quarreled constantly over who was holier. According to Rokeach, one Christ yelled, “You oughta worship me!” To which another responded, “I will not worship you! You’re a creature! You better live your own life and wake up to the facts!” Unable to turn the other cheek, the three Christs often argued until punches were thrown…

See, that’s just cruel. Better I think to let sleeping dogs lie and work around their delusions. The idea isn’t changing their goals, instead we should be moving the goalposts. The first step is so obvious that I feel like I annoy readers bringing this up again but we should zero out the trade deficit with something like Warren Buffett’s import certificate plan. Our trade deficit must necessarily either swell the budget deficit and/or create a demand leakage by hundreds of billions of dollars a year. But it isn’t necessary to run a trade deficit. Its bizarre that we haven’t had current accounts in balance in over two decades and the CBO doesn’t even bother tracking the CAD in its budget projections (another case of the tail wagging the dog, I don’t think the CBO realizes trade deficit inflates budget deficit and not vice versa).

The second step is less obvious though perhaps equally annoying to the reader for me bringing it up again, simply move fiscal authority to the Fed and let the Fed governors decide whether to tighten of loosen the government’s fiscal stance off-budget. I’ve explained before my idea that Obamacare should be junked by universal Medicare and put it on the Fed whether to fund it with some combination of seigniorage and transaction fees. Say the Fed is obligated to put $1 trillion into Medicare trust fund, $1T in seignoirage (i.e. buying a TDC) and $0 in fees would be fully loose fiscal policy while $1T in fees and $0 in seigniorage would be fully tight fiscal policy and it’d be up to the Fed to use this lever to adjust the fiscal stance. Between balanced trade and off-budget Medicare funding, short of World War III, there’d never be a reason for Congress to ever run a budget deficit, allowing every Washington politician to keep on believing he’s Jesus.

Finally, I’ll share a story a Russian once told me about prisoners who’d escape from Soviet gulags in the wilds of Siberia; they’d come across people living in the forest who’d treat them kindly, giving them shelter and food. It was only after the escaped prisoners drifted off, well-fed and warm next to the fire, that their host would kill them in their sleep and then collect their dead or alive bounty. Do you know what I call that? Good Government.

Here is an “average of Average” chart for Gallup consumer spending. The chart shows 30 day average of the 14 day average, so it’s how the 14 day average performed over the last month. You can see it is much, much higher for 2012 than for 2009-2011, and 2013 is higher yet.

Consumer spending became much stronger in 2012 – averaging nearly $5 per day better than 2011, and $8 per day better than 2010. I think it is important to notice the late summer low in 2011 is much higher than the late summer low in 2010. While the average in 2011 is only a bit higher than it was in 2010, the extremes in the second half 2011 were much smaller. The low in early 2012 is higher than the lows in 2009 and 2010.

Here’s Wren-Lewis:

“when the market starts to punish fiscal profligacy, it is as if a parent has discovered the child’s guilty secret. (The market is seen by many as a mysterious deity.) The politician wants to repent (or at least be seen to repent), and atone for past sins. After eating too many pastries, we go on a crash diet. After deficit bias, we have austerity.

…

So here are we Keynesians, telling politicians that they don’t need to go on that diet just yet – they can put it off until times are good. Indeed, now is just the time to eat more pastries – it will make you feel better, they are very cheap at the moment, and you might even lose weight in the long run! It sounds too good to be true, and just the kind of tale the devil might spin. Give in, and the all seeing parent/god that is the market will find you out again. So the politician ignores these siren voices, and buckles down to austerity. “

This reminded Krugman of Obamas first speech as a president, but it reminded me of something a bit more obscure. Wilhem Reich wrote a book “The Mass Psychology of Fascism“, in which he makes the claim:

“Suppression of the natural sexuality in the child, particularly of its genital sexuality, makes the child apprehensive, shy, obedient, afraid of authority, good and adjusted in the authoritarian sense; it paralyzes the rebellious forces because any rebellion is laden with anxiety; it produces, by inhibiting sexual curiosity and sexual thinking in the child, a general inhibition of thinking and of critical faculties. In brief, the goal of sexual suppression is that of producing an individual who is adjusted to the authoritarian order and who will submit to it in spite of all misery and degradation. At first the child has to submit to the structure of the authoritarian miniature state, the family; this makes it capable of later subordination to the general authoritarian system. The formation of the authoritarian structure takes place through the anchoring of sexual inhibition and anxiety.^[5]“

I dunno if the reason behind the fascist mentality is psycho-sexual, but I can see how Austerity is attractive to many people – it’s how they run their lives on a day to day basis! Successful people tend to deny themselves the immediate pleasurable experience – for example, sleeping in and going to work late – in favor of doing the hard, difficult action which pays off in the long run.

It’s a good way to live your personal life if you want to do more. I suspect this has something to do with the reason the entire mainstream discussion favors Austerity even when the evidence is all pointing at just giving piles of cash to the middle class. Giving piles of free cash to the middle class would be the easy, lazy way to approach this problem, and does not involve a hard choice at all. It’s very difficult to understand the easiest approach would also be the most successful approach to solving our output gap.

(Wilhelm Reich was a crazy person or perhaps a genius, who had 6 tons of his writings and research burned by the American Government! He after he became a well respected psycho-analyst, he threw this away and researched UFOs, sexual energy, bions (!), and a host of other seemingly insane topics. The wikipedia article is worth a read if you have a few minutes.)

“This post has already run too long, so I’ll do the quantity theory of money in the next post.  We’ll see how the central bank can control the value of money (and NGDP), by changing the currency stock.”

I just don’t get the obsession with currency and other forms of government money.  It reminds me of the obsession with the gold standard in many ways.  As if we should focus on pegging the currency to some particular money.  But doesn’t this get the entire monetary system exactly backwards?  Of course, banks don’t create money by multiplying bank reserves or cash.  If we want to really understand our monetary system we need to better understand how inside money (bank money) “rules the monetary roost” and how government money facilitates the use of inside money.

This obsession with government money gets the entire money system backwards by focusing on the cane (the facilitating feature) when we should be focused on the leg (the actual banking system).  I’ll be curious to see what Sumner says because he’s explicitly stated in the past that he doesn’t much care for understanding how modern banking works.  To me, that’s like saying that you don’t much care how the monetary system works, yet you’ll continue to propose fixes for it (or describe how it works?!?).  That doesn’t make a lot of sense to me.  The world we live in is one built around private banking, but the world economists live in is one built mainly around the Federal Reserve, which is designed to facilitate its true master – the private banking system.