Tuesday, April 10, 2012

New book "as close to MMT as it gets"

The six myths: 
  • Asian nations are bankrolling the U. S. 
  • Treasury issued securities crowd out the private sector
  • If everyone tries to save more, the nation will save more, and investmentGDP, and employment will increase 
  • If the government reduces the deficit, then national saving and investment will increase 
  • Today’s deficits create great burdens of tax for our children 
  • If the U.S. does not get its deficit reduced soon, treasuries will face the same problems as Greece and Ireland
Frank N. Newman,  Six Myths that Hold Back America: And What America Can Learn from the Growth of China's Economy, Diversion Publishing (December 6, 2011)
(h/t Salsabob in the comments)

Wikipedia:
Frank N. Newman was born in Quincy, Massachusetts on April 20, 1942.[1] He was educated at Harvard College, receiving a B.A. in Economics in 1963.[2]
Newman joined Peat Marwick Mitchell & Company in 1966 as a manager.[3] In 1969, he moved to Citicorp as a Vice President.[4] He joined Wells Fargo in 1973, and worked there as a Vice President from 1973 to 1980, and then as an Executive Vice President and as Chief Financial Officer from 1980 to 1986.[5] He then moved to BankAmerica Corporation where he was ultimately Vice Chairman and Chief Financial Officer until his departure in 1993.[6 
In 1993, President of the United States Bill Clinton nominated Newman to be Under Secretary of the Treasury for Domestic Finance.[7] The next year, he became United States Deputy Secretary of the Treasury, holding that office until 1995.[8]
Newman then returned to the private sector, become Vice Chairman of Bankers Trust and then serving as President and Chief Executive Officer of Bankers Trust from 1996 to 1999.[9] In 2005, he became CEO of Shenzhen Development Bank.[10]

32 comments:

Anonymous said...

Yep, I have that book on my Kindle. I've been surprised that it hasn't come up before because when I read the first chapter in the bookstore one day, I thought he must be Warren Mosler's lost twin.

Salsabob said...

Dan that is funny; that was exactly my thought as well.

You would think this guy could get the ear of the Obama administration particularly through Hilary Clinton given he worked in her husband's administration and that he's the CEO of -

Shenzhen Development Bank Co., Ltd. (hereinafter referred to as SDB or the Bank) is the first public-listed commercial bank (Stock Name: SDB A; Stock Code: 000001) in the People’s Republic of China. The Bank launched its initial public offering in May 1987 and was formally established on December 22 of the same year, headquartered in Shenzhen.
  Over 20-plus years of robust development and with increasingly enhanced comprehensive strength, SDB has become a national commercial bank with approx. 300 branches/outlets in 22 developed cities in China, including Beijing, Shanghai, Guangzhou, Shenzhen, Hangzhou and Wuhan. It also has representative offices in Beijing and Hong Kong and a network of over 600 correspondent banks in a great number of countries and regions."

Not exactly a lightweight like Jim R.

Clonal said...

More details on the six myths at Forbes - Author Examines Six Myths About U.S. Economy

AndyCFC said...

If we are doing recommendations can I add this, alas only available in UK at moment, Micheal Hudson is in there.

http://www.fourhorsemenfilm.com

Matt Franko said...

In contrast to Obama who just said "the money has to come from somewhere" "you cant pay down the deficit by giving out tax cuts", etc...

He has morons on his team...

Anonymous said...

Well the fact that his team don't subscribe to an MMT way of understanding the world doesn't mean that they're morons. Plenty of very clever people who know about sectoral balances and MMT's views on the sustainability of fiscal deficits still disagree.

MMTers and others like them have yet to win the intellectual argument, let's not forget. Even if they're right (or even mostly/ partly right), plenty of non-ignorant people are still unconvinced.

Until the argument is 'won' to a greater or lesser degree, the ideas won't seep into the mainstream. MMT has yet to even penetrate into the 'higher' echelons of academia, though hopefully some day it will.

Matt Franko said...

Moron Sperling just bragged that the budget they just submitted contains the "largest cuts since the Eisenhower admin".

CNBCs Bartiromo is breaking his balls as if it is not enough!

Matt Franko said...

"plenty of non-ignorant people are still unconvinced"

Contradiction here Anon.... it's basic logic that spending must precede taxation, non-govt net savings can only exist with deficits, all nations cannot net export, etc.... it is the definition of being stupid (moron) to not be able to discern contradiction, logical sequences of events, do arithmetic, etc...

They are morons, I'm sorry. I harbor no ill will towards them. It's out of our hands at this point.

All we can do is to keep pointing out the truth and those capable of understanding it will get it.

Resp,

Salsabob said...

Regarding -

"Until the argument is 'won' to a greater or lesser degree, the ideas won't seep into the mainstream."

I think Newman's credentials more than qualifies him to go toe-to-toe with any macro academic or actual economic policy maker. Ergo, my suggestion of getting him honed-in on MMT so as to perhaps bring the discussion to the highest levels of policy makers.

mike norman said...

As bad as the Repubs are with their cuts the Dems are worse--they want tax increases AND large cuts. Double dose taxation. Guys like Sperling are so misguided it's sickening.

Anonymous said...

"it's basic logic that spending must precede taxation"

Is this actually true though?

The government can impose a tax and accept (temporary) payment in credit before actually spending, and then settle the difference.

Is it even true with regards to the historical development of our monetary system? Before the current age of 'pure fiat' money, we had the gold standard, etc, in which case the standard unit of account and medium of exchange were chosen by the government - but not exclusively created by the government. During the gold specie period, for example, the government would mint coins for anyone that handed in gold bullion, meaning that 'money' was essentially privately created (by mining) even though the unit of account was chosen by the govt.

When we switched over to 'pure fiat' the money already in existence could be redeemed for the new currency. This didn't involve government 'spending' as such, just an asset swap (through the Fed). Even now reserves can increase whenever the Fed buys gold or other 'privately created' assets - again an asset swap rather than a government fiscal deficit.

Anonymous said...

I guess "and then settle the difference" should read "and then settle" (assuming govt spending equals tax).

Dan Lynch said...

Newman does get one thing wrong in the Forbes article:

"Suppose the U.S. budget was balanced because of a tax hike of $100 billion. . . . This results in a net change of zero in private sector cash and a net effect of zero on national savings. "

MMT tells us that reducing deficit spending *WILL* reduce private savings. Taxation destroys dollars, deficit spending creates dollars.

Other than that, Newman does good.

Anonymous said...

"The government can impose a tax and accept (temporary) payment in credit before actually spending"

Essentially in this example the government imposes (presumably) a redistribution of assets within the private sector through the process of taxation - spending, without having to first of all spend the money that it then taxes back, if you see what I mean.

paul meli said...

"The government can impose a tax and accept (temporary) payment in credit before actually spending"

I would have to view this as an outlier occurrance that has no bearing on the greater argument.

Statistical anomalies are unimportant to the overall system operations.

Entropy for example is a property that states (from Wikipedia):

"the entropy of an isolated system always increases or remains constant… These processes reduce the state of order of the initial systems, and therefore entropy is an expression of disorder or randomness"

In other words, an ice cube placed on a surface at room temperature will always warm up and change state to liquid water, even though statistically it is not only possible but likely that some molecules in the ice cube will lose energy to it's surroundings, the opposite of what one would expect.

Adam1 said...

@Matt...

"largest cuts since the Eisenhower admin".

Did anyone point out to Sperling that the Eisenhower administration suffered through THREE recessions?

Not quite the track record I'd be aspiring to. Eisenhower at least had the benefit of a health private sector balance sheet.

Anonymous said...

"As bad as the Repubs are with their cuts the Dems are worse--they want tax increases AND large cuts. Double dose taxation. Guys like Sperling are so misguided it's sickening."

Mike, are you sure? In the aggregate I generally agree with you, but when push comes to shove… isn't the repub plan going to funnel more money upward? Even the repubs plan adds more money to the system, is that necessarily better?

I can't see how the the repubs plan is better. Sure, in the aggregate less money in the private sector's hands is worse. But…

1) Less money in total, but a more equitable distribution? or
2) More money in total, but a less equitable distribution?

I wonder if a good arugment could be made that there is plenty of money in existence, but the distribution of who "owns" the money is the bigger problem? Bare in mind I'm not calling for communism here. And I fuly recognize that Obama is talking ignorance right now: "we need to decrease the deficit"

Adam1 said...

@Anon:

"I wonder if a good arugment could be made that there is plenty of money in existence, but the distribution of who "owns" the money is the bigger problem?"

If there is balanced trade (or a surplus) and the private sector is content to not save more than is borrowed (bank lending nets to zero remember) then there is sufficient money. Banks don't lend out savings, therefore savings is a straight LEAKAGE to the economy - and bank lending is an INJECTION. The government deficit needs to be large enough to counter NET leakages in the monetary system (net of trade and internal banking) - nothing more nothing less.

In a non-political sense it should be irrelevant if the top want to accumulate more dollars - they are just pieces of paper. In a political sense (reality) its a problem because it gives them more influence than they already have which is a problem.

Anonymous said...

"The government can impose a tax and accept (temporary) payment in credit before actually spending"

"I would have to view this as an outlier occurrance that has no bearing on the greater argument."

The point is that private credit money is 'real money'. The government may demand that taxes be settled in its own currency, but the fact that it allows private credit to be used in payment (though not in final settlement) is significant. The MMT meme that the government must spend before it can tax does potentially distort the picture a bit, as in reality (in any market/capitalist economy) there is a constant interrelationship between private and government-created money. One is not necessarily prior to the other.

Government money is in the dominant position at present, but the situation has not always been so clear-cut throughout history. Also, the fact that banks are now effectively privately-owned extensions of the state (no matter how repugnant that may seem) also complicates the MMT worldview slightly. Not to say that it is necessarily wrong, only that it may sometimes present a picture that is simpler and purer than the actual underlying reality.

Greg said...

Lest we forget...... as "Under Secretary of the Treasury for DomesticFinance" he was there when we moved to those "Clinton surpluses"........... just sayin!

Tom Hickey said...

"I think Newman's credentials more than qualifies him to go toe-to-toe with any macro academic or actual economic policy maker. Ergo, my suggestion of getting him honed-in on MMT so as to perhaps bring the discussion to the highest levels of policy makers."

Marriner Eccles was a banker not an economics professor.

beowulf said...

That's really interesting. Apparently he was Deputy Tsy Sec under Lloyd Bentsen. I'm surprised I've never heard of the guy (instead of running a bank in China he should've started a blog like his Tsy colleague Brad Delong).
:o)

STF said...

We've been in contact with him already, btw. He sent his book to several of us. It's quite good, imo.

Leverage said...

This clears any doubt that a lot of people working within the system does know how the machine runs.

So the next question is: why then all the disinformation going around and the destructive memes? Is this 'disaster capitalism' in action? There is any agenda here?

Sorry to sound like a tinfoil hat guy, but something just do not compute.

wh10 said...

Scott, if you can share, what's the dialogue been like? Any chance of some sort of partnership or collaboration?

Anonymous said...

Just to clarify the point I was trying to make above regarding whether the government has to spend before it can tax.

Imagine a very simple scenario with just the treasury and a private bank with three accounts: Mr A, Mr B and the treasury's tax and loan account.

Mr A has $100 credit in his account, Mr B has $0.

The treasury demands $100 in tax from Mr A.

Mr A then asks the bank to transfer the money from his account to the treasury. So the bank debits $100 from Mr A's account and credits the T&L account with $100.

The treasury then orders the bank to transfer $100 from its account to Mr B (i.e. the treasury spends). So the bank debits the T&L account and credits Mr B's account with $100.

Conclusion: The treasury has taxed and spent, yet no money has actually moved between the treasury and the bank (or between the treasury and Mr B/Mr A). Credit has simply moved between different accounts held within the bank.

The treasury has not created/issued any money, nor did it have to, in this example.

There is no need in this case to settle any accounts in reserves/cash as taxation and spending are equal.

The treasury has simply ordered a redistribution of private assets (in this case private credit) by imposing a tax and then spending.

The example could also work without a T&L account but this makes it simpler.

Matt Franko said...

Lev,

"but something just do not compute"

I've no doubt at this point that what we are witnessing here is a significant spiritual operation.

To perhaps oversimplify; the vainglorious among us give themselves up to be made morons:

"21 because, knowing God, not as God do they glorify or thank Him, but vain were they made in their reasonings, and darkened is their unintelligent heart.
22 Alleging themselves to be wise, they are made stupid," Romans 1

I dont think you could describe any of us who are in the truth in this as 'vainglorious'. Rather, we subject ourselves to ridicule by TPTB by taking the stand in truth that we do.

Some, like our Mike here, expose themselves to this ridicule and put themselves at risk this way, on a national cable television broadcast, (let's not forget that Mike recently went on Bloomberg after the close and said "the deficit is a VIRTUE", just think about that!) while others perhaps just write a short blog or have 'uncomfortable' discussions with friends, family and acquaintances as the occasion presents itself; the degree is different, but this is all the same thing.

So certainly we are not vainglorious in this regard, to the contrary. Hence, we are not made morons.

So this guy Newman, I dont even have to meet him, and I could tell you that if you did meet him he is probably a level headed, self-effacing person, not vainglorious, has his ego in control, and is someone who is a truth seeker above all. Who has not been made blind to how these systems really operate.

(As far as the 'tinfoil', I'm not sure that even if we know these things that it is or could be a direct great advantage as we operate in the corrupt world of TPTB. Perhaps some advantage. I still have to be thinking this over... )

So that's why he was made to write this book, even though it takes positions that are contrary to those of TPTB. And he is putting himself at risk a bit, even though at 72 he is probably wrapping up his career, he still has a reputation. He obviously doesnt care at this point, his reputation has value to him that is secondary to his desire to dispense the truth on this.

I think all we can do is keep "telling it like it is" and see who is able to also see it. No matter where we find ourselves when we come into this realization. Beyond that it is out of our hands.

Resp,

Salsabob said...

In ref to Greg -

"Lest we forget...... as "Under Secretary of the Treasury for DomesticFinance" he was there when we moved to those "Clinton surpluses"........... just sayin!"

Yes, I was wondering exactly the same thing; no mention in the book about this. He does mention, in an unrelated aspect, his belief that the economy was near capacity (below 4% unemploy).

I,too, would be very much interested in what the dialogue has been with STF.

Just found out that he's retired from SDB. Found an update bio that starts with this -

"Mr. Frank N. Newman serves as the Chief Executive Officer of The Broad Center. Mr. Newman has been Regional President For Community Banking at Wells Fargo & Company since July 2011. He serves as a Co-Chairman of Group Division of Global Corporates and Institutions Deutsche Bank Trust Corporation. He serves as an Advisor for private equity firms. He served as the Chairman of Shenzhen Development Bank Co. Ltd. until May 26, 2010 and its Chief Executive Officer from May ... 2005 to May 26, 2010."

jason m said...

Anon, where did Mr A get the $100 credit?

Tom Hickey said...

Anonymous, this has already been dealt with ad nausean elsewhere. When MMT economists say that spending precedes taxes they don't mean temporally. For example, in the US, tsy issuance before expenditure is required by law, although it is operationally unnecessarily.

Rather the the idea is that government as the only issuer of its currency has to issue sufficient currency before it can collect taxes in that currency. This is logical priority.

An economy could be devised where only banks have access to currency and everyone has to borrow from banks to get the funds to pay their taxes. Without the country being a net exporter to offset, this would result in unsustainable private debt. In the US, the government generally injects more that it withdraws in taxes by running a deficit.

Jonf said...

The Prologue to his book is a god read. Maybe we should have a JG to fix the roads and such?

Salsabob said...

Newman is giving a lecture in NYC at SUNY on 4/25 -

http://levin.suny.edu/cibusiness/Frank%20Newman%20Distinguished%20Speakers%20Series%20Program%20Flyer.pdf