seven economic frauds - possibly innocent but still frauds

The link refers to the book SEVEN DEADLY INNOCENT FRAUDS OF ECONOMIC POLICY by Warren Mosler. Here is a fast summary:

Seven deadly (yet perhaps innocent) frauds.

First,government finance is supposed to be similar to household finance:government needs to tax and borrow first before it can spend.

Second, today’s deficits burden our grandchildren with government debt.

Third, worse, deficits absorb today’s saving.

Fourth, SocialSecurity has promised pensions and healthcare that it will never be able to afford.

Fifth, the U.S. trade deficit reduces domestic employment and dangerously indebts Americans to the whims of foreigners - who might decide to cut off the supply of loans that we need.

Sixth, and related to fraud number three, we need savings to finance investment (so government budgets lead to less investment).

And, finally, higher budget deficits imply taxes will have to be higher in the future - adding to the burden on future taxpayers.

Mosler shows that whether or not these beliefs are innocent, they are most certainly wrong. Again, there might be some sort of economy in which they could be more-or-less correct. For example, in a nonmonetary economy, a farmer needs to save seed corn to ‘invest’ it in next year’s rop. On a gold standard, a government really does need to tax and borrow to ensure it can maintain a fixed exchange rate. And so on. But in the case of nonconvertible currency (in the sense that government does not promise to convert at a fixed exchange rate to precious metal or foreign currency), none of these myths holds. Each is a fraud.

The best reason to read this book is to ensure that you can recognize a fraud when you hear one. And in his clear and precise style. Mosler will introduce you to the correct paradign to develop an understanding of the world in which we actually live.”

Now comes Warren Mosler with a small book, setting out his reasoning on seven key issues. These relate to government deficits and debt, to the relation between public deficits and private savings, to that between savings and investment, to Social Security and to the trade deficit. Warren calls them “Seven Deadly Innocent Frauds” - taking up a phrase coined by my father as the title of his last book. Galbraith-the-elder would have been pleased.

The common thread tying these themes together is simplicity itself. It’s that modern money is a spreadsheet! It works by computer! When government spends or lends, it does so by adding numbers to private bank accounts. When it taxes, it marks those same accounts down. When it borrows, it shifts funds from a demand deposit (called a reserve account) to savings (called a securities account). And that for practical purposes is all there is. The money government spends doesn’t come from anywhere, and it doesn’t cost anything to produce. The government therefore cannot run out.

Money is created by government spending (or by bank loans, which create deposits). Taxes serve to make us want that money - we need it in order to pay the taxes. And they help regulate total spending, so that we don’t have more total spending than we have goods available at current prices - something that would force up prices and cause inflation. But taxes aren’t needed in advance of spending - and could hardly be, since before the government spends there is no money to tax.

A government borrowing in its own currency need never default on its debts; paying them is simply a matter of adding the interest to the bank accounts of the bond holders. A government can only decide to default – an act of financial suicide – or (in the case of a government borrowing in a currency it doesn’t control) be forced to default by its bankers. But a U.S. bank will always cash a check issued by the US

Government, whatever happens.

Nor is the public debt a burden on the future. How could it be? Everything produced in the future will be consumed in the future. How much will be produced depends on how productive the economy is at that time. This has nothing to do with the public debt today; a higher public debt today does not reduce future production - and if it motivates wise use of resources today, it may increase the productivity of the economy in the future.

Public deficits increase financial private savings - as a matter of accounting, dollar for dollar. Imports are a benefit, exports a cost. We do not borrow from China to finance our consumption: the borrowing that finances an import from China is done by a U.S. consumer at a U.S. bank. Social Security privatization would just reshuffle the ownership of stocks and bonds in the economy – transferring risky assets to seniors and safer ones to the wealthy – without having any other economic effects. The Federal Reserve sets interest rates where it wants.

All these are among the simple principles set out in this small book.

The book is a pdf of 63 pages, the first two of which are blank. Be sure you go down to the start of the document.