Archive for February, 2012

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Modern Monetary Theory’s Big Weekend: The Problem with Surpluses


The Washington Post ran a long and well-wrought article on Modern Monetary Theory over the weekend.

The piece, by Dylan Matthews, starts with Jamie Galbraith’s experience trying to explain to a large audience of economists in the Clinton White House that the budget surpluses the federal government was running was immensely destructive. Or, rather, it starts with those economists laughing at Galbraith’s attempt to explain this.

It was obvious to me way back before I had ever heard of MMT that government’s should probably never run a budget surplus–or should do so only in dire emergencies. When the government runs a surplus, that means it is taking more money out of the economy than it is spending back into the economy. It is making us poorer.

Anyone who worries about wasteful government spending should be all the more concerned about government surpluses. When corporations accumulate too much cash, investors rightly worry that management will lose discipline and engage in wasteful acquisitions or expansions. Better to pay it out in a dividend.

Likewise, excess cash flow for the government is an open invitation to waste. It tempts the would-be world improvers to devise new projects through which benevolence can be expressed. Almost always, these new projects will simply be a waste. If they were worth doing, they would have been worth doing without the surplus. Typically, a surplus just turns into an excuse to permanently expand the size of the government, which then adds to budget deficits when tax revenues fall due to economic slumps.

More importantly, even when it isn’t wasted on stupid government projects, the surplus itself is a waste. If it bothers you that the government spends tax money on bridges to nowhere, you should apoplectic when the government takes tax money and spends it on nothing at all. That, of course, is exactly what happens when our federal government taxes more than it spends. The financial assets of the people are simply confiscated.

The only people who I had encountered until recently who understood this last point were libertarians. In “The Mystery of Banking,” Murray Rothbard had written about the stock of money declining “if government retires money out of a budget surplus” and the possibility of a “a budget surplus where the government burned the paper money returning to it in taxes.”

Of course, at the time I assumed that I must be some sort of maniac. Everyone was celebrating the Clinton surpluses as a great economic and political triumph while I was in the stacks of my college library reading dusty books that were leading me to decide the surpluses were unjust and economically destructive. Fortunately, I was young and overconfident and perfectly comfortably with being a maniac. And fortunately, that stuck.

Another oddity that grew up in my economic thinking at the time–late 1990s–was one that I’ve explored a few times here at NetNet: the bias against debt. For me, it made no sense that many people assumed it was better to fund government spending through taxes rather than debt issuance. Taxes were necessarily coercive; debt purchase was voluntary. It was obvious to me that debt financing was preferable to tax financing.

The idea that taxes counted as the government “living within its means” was as absurd to me as claiming that a burglar lived within his means when spending cash he got from fencing stolen goods. It seemed to me that money that could be borrowed was more “within our means” than money that had to be taken by threat of force and imprisonment.

What’s more, many of the arguments marshaled against government programs seemed wrong-headed to me. The so-called “budget hawks” or “deficit hawks” always built their critiques of government programs on the premise that we couldn’t “afford” them. But this was largely absurd. The real problem with most government programs is that they are socially destructive and diminish our happiness and prosperity. The problem with the government programs wasnt what they cost; it was what they did.

There was one other idea I encountered during that period. Reading the works of Ludwig von Mises, I discovered that when he used the phrase “deficit spending” he was not talking about spending financed by borrowing. He was typically talking about government spending more than it either taxed or borrowed–that is, spending financed by the creation of fiat money. This was the really problematic type of “deficit spending” because of the inflationary consequences it could bring.

Years later I encountered the work of Galbraith and other MMTers. Much of this was thanks to Cullen Roche’s excellent website, Pragmatic Capitalism. Most importantly, probably, I read Warren Mosler’s “Seven Deadly Innocent Frauds of Economic Policy.”

Mosler, who is a former hedge fund manager turned MMT guru and financial backer, argued in his book that we should not grow the size of the government during an economic downturn. We should just have the right size of government to begin with. Government spending might be able to end a recession but it would be preferable to reduce taxes and just run a budget deficit, Mosler argues.

“Even worse is increasing the size of government just because the government might find itself with a surplus. Again, government finances tell us nothing about how large the government should be,” Mosler writes.

This is the type of stuff I can work with, I thought.

Since my first encounters with MMT, I’ve discovered that its adherents tend to be much more optimistic than I am about government programs. In particular, they believe the government could guarantee a job to everyone willing to work without deleterious consequences. Where I suspect that most government spending is socially destructive and economically malfeasant, and nearly all discretionary government spending is thoroughly corrupt, this seems to bother them less. My “right size” of government is far smaller–almost vanishingly small–than theirs. (Here’s Randall Wray, on of the leading MMT academics, arguing that government should spend 30 percent of GDP! Saints preserve us!)

But at least they recognize the destruction wrought by a government that confiscates more money than it needs to spend.

I’ll likely have more to say about the Washington Post piece later today or tomorrow.

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State of love and trust


But then again, I say I love people and things that I dont really trust. So how can that be?

Obviously theres a problem with the commonness of the word love. The one-size-fits-all generalness of the word diminishes its glory, reducing a rare and precious thing to an ordinary catchall for affection. I love muesli for breakfast. I love my mother. I love to make love to my lover.

I also love buying things. This love is rarely recognised aloud its embarrassing to admit – but my continued exchange of labour for money, money for things and things for happiness, which I love, proves it. Im not alone in this as were all tuned to the core message of the market; love to shop, shop for love (it love, not sex that sells).

In this way, love becomes an ownership thing. Saying you love something means you want something I love becomes I love-to-possess.

And so love is cheapened; so love becomes something less about truth and beauty and more about whatever.

Trust, on the other hand.

How hard is it to trust these days? (To wit, trusting is harder than loving.)

You cant trust photographs. You cant trust your bus will arrive on time, or that the person waiting next to you wont blow you up. You cant trust the media, you cant trust the government. You cant trust what you eat is actually food, or the prescription pills you take will help, or you can retire at 65.

You cant trust that the person youre talking to online is who they say they are, or that the measures you take to keep your private life private will work.

You cant trust teenagers. You cant trust your wife.

You cant trust yourself. This is particularly telling the product of people who favour excess over restraint, extremes over balance. Or if they dont, think they do, and overindulge accordingly.

So in this culture of anti-trust and gross-love, what notion is most attractive?

I stand by love. But that depends on my definition, for which trust is intrinsic. I may give the word love away freely but I dont intend to reduce its value. And the intent is important it implies consciousness, which is essential to truly loving anyone, yourself especially, in the wholly magnificent and utterly liberating way that we ought.

How about you?





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Berks Co. – Lane restrictions on various roads for miscellaneous construction …


PennDOT announced lane restrictions will be enforced on the following roads in Berks County:

Friedensburg Road between Route 73 and Antietam Road in Oley and Lower Alsace townships, 7 am-3 pm Jan. 23-27 for brush cutting;

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Lehigh & Northampton counties – Lane restrictions for miscellaneous road work …


PennDOT announced lane restrictions will be enforced on the following sections of Route 22 in Lehigh and Northampton counties for the week of Jan. 23:

Both directions between 13th Street and Route 248 in Easton, 7 am-3 pm Jan. 23-26 for median repair;

Westbound between Route 145 and Airport Road in Whitehall Township, 9 am-2 pm Jan. 24 for bridge inspection;

Westbound between Schoenersville Road and Route 512 in Hanover Township, Northampton County, 9 am-2 pm Jan. 24-25 for crack sealing; and

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Waynesboro reserve police chief meets with state agency mandating more reserve …


The Waynesboro Police Departments reserve officers chief met Friday with the director of the state agency that has mandated reserve officers receive the same training as full-time officers.

Reserve Chief Reo Hatfield said there was no resolution of the decision that has forced a suspension of Waynesboros reserve officer program as well as that of the Staunton police.

Hatfield is convinced the state Department of Criminal Justice Services is interpreting the law to its fullest extent.

He said that Waynesboro has had a reserve program for more than 40 years, and that the training reserve officers receive qualifies them to work with full-time paid officers.

This is a governmental, bureaucratic cover-your-backside with disregard to our citizens, cities and expenses, he said.

Hatfield said DCJS Director Garth Wheeler told him he would stand behind the ruling.

The decision means that reserve police officers would have to attend a criminal justice program that runs 16 weeks and is costly to the participating police department.

Beyond the cost to departments, Hatfield and Waynesboro police leaders say reserve officers work regular jobs and could not spare the training time a police academy requires.

Hatfield said that in his 21 years as a reserve officer in Waynesboro, he has garnered more than 3,000 hours of training inside a police car.

One of our reserve officers has 13,000 hours, and he teaches criminal justice, he said.

Hatfield said Waynesboros reserve program has spawned full-time careers with the Virginia State Police and other departments for some of its members.

Meanwhile, one Valley community decided to put its reserve officers back to work after the mid-December letter came from DCJS.

Mary Hope Vass, spokeswoman for the Harrisonburg police, told NBC29 that reserve officers in that city did not patrol for a week, but resumed work after that week.

She said the officers were allowed to return to work until a final state ruling was made.

The Harrisonburg department said the reserve officers donate 5,000 hours to patrol each year, saving the city $90,000.

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Training mandate proposal riles NH nonprofits


Does the live free or die philosophy of the New Hampshire Legislature pertain only to organizations making a profit? Thats what officials at many of the states nonprofit organizations are beginning to wonder after the Senate passed a bill mandating that state charitable organizations send at least one member to a training session with a heavy focus on fiscal management and ethics.

It continues to be irritating to us, said Michael Ostrowski, CEO of Manchester-based Child and Family Services, which does $7 million worth of business – about half of its budget – with the state. I thought this Legislature believed in less regulation. Its intrusive into a private organization, a business that happens to be nonprofit in structure.

However, state Health and Human Services Commissioner Nick Toumpas, who asked for the bill, insisted it was necessary.

Several organizations are failed, and when an organization just outright fails, there are concerns for the people being served by that organization, Toumpas told NHBR. If they are financially fragile, the boards need to be trained to understand what their fiduciary duty is.

The Senate passed Senate Bill 177 on Jan. 18 with a compromise amendment that stripped out some of the original measures most controversial requirements.

The original bill would have required that all organizations that receive a total of $250,000 from government at any level must provide third-party training to all board members as well as the CEO and CFO every four years. If they didnt comply, they would face getting cut off from public funding for two years or be fined $5,000 for each instance of noncompliance.

That bill was sent back to committee in March 2011 in the face of pushback from nonprofits.

The amended version — the one voted on Jan. 18 — now would require that one board member go through the training every other year, with penalties to be named later by the charitable trusts unit of the state Justice Department.

The four hours of training would have to include instruction on fiduciary responsibilities, financial controls, relative responsibility and authority of boards of directors and corporation employees, ethics and federal and state laws and regulations governing nonprofit corporations.

Michelline Dufort, advocacy director at the New Hampshire Center for Nonprofits, estimated the bill would affect about 300 organizations.

For and against

Most of the states larger nonprofits already have trained board members but routinely send them to conferences for more training, said Dufort, although some smaller organizations might find the extra requirement a bit of a hardship. Its more the members feel they should not be mandated.

Most of the organizations are highly professional, said Ostrowski of Child and Family Services. My CFO has an MBA. We have three or four accountants, a bunch of attorneys, a retired judge. This kind of legislation is sort of an irritation.

State Sen. Sylvia Larsen, D-Concord, voted for the bill in committee, because she was initially relieved at the changes, but she came out swinging on the floor of the Senate when it came up for a vote.

Many of New Hampshires employers are in fact nonprofits. We are a state that tries to not intrude on those businesses and a nonprofit is a business she said. We are not asking our for-profits to supply proof of financial training, but somehow we are moving to the nonprofit world and feeling that we can mandate they provide that information. This mandate will be burdensome on our nonprofits who already (have) lean staffs and cutbacks in revenues.

Nonprofits already have to file Form 990s with the Internal Revenue Service and register with the state charitable trust unit. And in seeking government contracts, they have to complete applications that ask about their financial expertise, said Larsen. Indeed, state agencies could include proof of training requirements in their request for proposal language, she said.

Besides, she said, its hard enough to get people to serve on the boards of nonprofits. This bill might have a chilling effect on those willing to lead a nonprofit, said Larsen.

While Democrat Larsen led the anti-mandate charge, several Republican senators defended the bill.

Its just a short number of hours of additional training which could be supplied by the charitable trust division, said Sen. Sharon Carson, R-Londonderry, sponsor of the bill. So you have one person who goes to this training that can give this training back to the other members of the board. We can get an organization that runs much smoother.

The training can even be conducted over the Internet, added Sen. Jim Luther, R-Hollis.

And Sen. Bob ODell, R-Lempster, a sponsor of the bill, said he was little bit dismayed at the debate.

We are talking about organizations that are willing to take money from the state of New Hampshire. I think they ought to be willing to have one of their board members go for a couple of hours of training every couple of years.

(According to the language of the bill, the mandate applies to organizations that contract with any governmental entity, not just the state.)

Larsen wanted the bill tabled, and she was joined by a few Republicans senators, who apparently were persuaded by concern about government mandates: Jim Forsythe of Strafford, Fenton Groen of Rochester and Senate President Peter Bragdon, of Milford.

SB 177 was sent to the House on a voice vote. How the training mandate will play out there remains to be seen.

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Neda unit okays P13.27B for miscellaneous projects


THE National Economic and Development Authority (Neda) Investment Coordination Committee (ICC) has recently approved P13.27 billion worth of projects for irrigation, flood control and education that are geared towards promoting agricultural growth, disaster-risk reduction and climate-change adaptation.

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Kasich will focus on job training



Gov. John Kasich has given a few hints about topics he’ll cover in his State of the State speech over in Steubenville.

The location, a high-ranking public school, means education issues will be front and center. That’s a no-brainer. It would be hard to get through a State of the State without some focus on education and school funding reform.

As he’s done in countless other speeches, Kasich will probably talk about the state’s dismal high school and community college graduation rates, about the need for a coordinated, noncompetitive system of public universities and about ways to keep more students in Ohio — employed in high-paying occupations — after they earn their degrees.

Kasich also will use the Steubenville site to tout the potential economic boon and the cautious approach his administration is taking to horizontal hydraulic fracturing, or fracking, an emerging means of extracting oil and gas from shale deposits deep underground.

(Though let’s hope he drops the “foreigners” joke that often goes along with those comments, foreigners being people from other states. It may have been funny the first 20 times, but it’s getting old.)

It’s hard to imagine a Kasich speech in which he doesn’t go over the growing list of accomplishments under his leadership — criminal sentencing reform, Medicaid reform, tax cuts. You’ll hear about the $8 billion budget hole he filled, the drop in unemployment rates, JobsOhio. He may take a few swipes at us media types for not writing enough stories on such issues.

Seminal issue

But one of the biggest issues Kasich could tackle in his annual speech to the Ohio House and Senate concerns job training, which he last week called his seminal issue of 2012.

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Family of missing Hamilton man becoming ‘increasingly concerned’ for his wellbeing


Missing: Ryan Stewart was last seen near a quarry in Hamilton.

The family of a missing teenager last seen near a quarry are increasingly concerned for his wellbeing.

Ryan Stewart has been missing since Monday night after he was last seen in South Lanarkshire.

A police helicopter and mountain rescue teams have been called in by police to help in the search for the 18-year-old.

The teenager was last seen by friends at open ground near a quarry off Carscallon Road in Hamilton.

Inspector Mark Leonard, of Hamilton Police Office, said: Ryan hasnt been missing before and this is completely out of character for him. His family and friends are becoming increasingly concerned for his wellbeing.

Extensive enquiries are ongoing in the local area however, despite searches involving the police helicopter, mountain rescue team, dog unit and specially trained search advisors, Ryan hasnt yet been traced.

Mr Stewart is 6ft, of slim build with short dark hair and a spotty complexion. When last seen he was wearing a black and red tracksuit.

Anyone with information on the teenagers whereabouts is asked to contact Hamilton Police Office on 01698 483300.

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