Answers to a Few Questions from Real Progressive’s Viewers

Q: “Wouldn’t a decrease in CEO salaries help job creation and could also decrease the debt THEN?”

What we need to do is ignore CEO salaries and focus on the macro level. Here, we understand that the market, business, and CEOs do not fund the US economy – the US Government does. Because the US Government funds the US economy, it also controls the unemployment rate. Once we understand this point, then we understand that a reduction in CEO salaries will not result in any meaningful reduction in unemployment, and our path is clear to understand how to reduce CEO salaries for equity reasons.

Taxation alone will not achieve desirable results. Yes, a CEO’s wealth in terms of US dollars is reduced, but the income of workers is unaffected by the taxation. So, it is clear that workers’ income must increase. The only stable means to ensure a higher wage share for workers is for the US Government to spend for and perpetually maintain a situation of full employment. The best way to achieve this is by eradicating involuntary unemployment with a Job Guarantee.

When full employment is assured, two things become clear: 1.) The business leader can no longer threaten workers with unemployment, and 2.) Wage suppression is eliminated.

GDP is the national income which both workers and capital share. The larger capital’s share of GDP is, the larger CEO salaries can be.

By eliminating wage suppression, we ensure that productivity is in line with wages and GDP will then redistribute back towards workers share, thus capital’s share grows smaller, and with that, over time, you will see smaller CEO salaries.

Again, this is not to say that we shouldn’t tax the rich for equity, but rather, to say that we must address wage concerns of workers. Simply taxing the rich will not fix anything.

As to the debt question, I am not sure if the reference is to private or public debt. If it is the national debt we are discussing, it is not a real debt, and so it is not a concern. If we want to eliminate the national debt, we simply shift the dollars in securities accounts back to reserve accounts and the debt is retired. No tax dollars involved.

Q: “Curious! The banks needs more cash at Xmas! Never considered this…”

Yes, precisely; because customers demand more cash. In fact, that’s the purpose of cash – to meet bank customer demand for the product.

Usually during the holiday seasons, the demand for cash is higher. So, banks will order cash from the Federal Reserve to ensure that they have enough paper US currency on hand to meet customer demand. Let us assume that Chase needs $5 million in paper US currency. It orders $5 million in cash from the Fed, and the fed deletes the number 5,000,000 from Chase’s reserve account at the Fed, and then ships $5 million in US paper currency to Chase. Chase receives it then stores the $5 million cash in its vaults instead of five million numbers in a reserve account at the Fed. US paper currency is now in the economy.

When a Chase customer goes to Chase and withdraws $20 in cash, first Chase checks the numbers in the customer’s account to ensure that they have enough in their account to withdraw. Then Chase dips into its vault and hands over $20 in paper US currency and at the same time, the numbers in the customer’s bank account drop by 20. The bank customer now walks out carrying around the number 20.

In short, $20 in US paper currency is the US government issued number 20 converted into a physical object that can buy stuff.

After the holiday season, Chase may find that it has more cash on hand than is needed and will ship the cash back to the Federal Reserve. If Chase sends back $2 million in US paper currency, when the Federal Reserve receives it, it will then go into Chase’s reserve account and type the number 2,000,000. And that, as they say, is that.

Q: “Someone told me just a few minutes ago how much the gov borrows from china. smh”

I know the feeling, believe me.

The answer for people who make these irrational statements, is China is not loaning the US Government any dollars whatsoever. China, like any US private entity, be it a person or Walmart, must earn US dollars in order to obtain them. China first earns US dollars by selling goods to the US. If they do not believe you, ask them to travel to Walmart and check the shelves for the label “Made in China”.

Once China has earned some dollars, it can do a few things with them: 1.) spend them in the US, 2.) leave them sitting in a reserve account at the Federal Reserve, 3.) convert the dollars to another currency at China’s expense, or 4.) it can purchase US Treasury bonds.

If it buys bonds with its earned dollars, the US Government simply shifts the dollars from a reserve account held at the Federal Reserve, to a securities account also held at the Federal Reserve where those dollars sit, unspent, earning interest. At maturity, the government will then shift the dollars back to a reserve account.

There simply is no loan to the US Government; there is no borrowing going on. China earned some US dollars and decided to open some savings accounts – nothing more.

In the 1980’s, the “big fear” was Japan. Japan earned some US dollars and bought some treasury bonds. Guess what it did with some of its earned US dollars? That’s right, it opened car factories, providing jobs for American workers. Look around today – Japanese cars are everywhere in the US, and in fact, are some of the best made cars in the world. So, by Japan investing some of its earned US dollars into the US economy, the act raised the standard of living for US citizens. Interestingly enough, few people really understand international trade beyond what politicians tell them.

The reality is that exports are a real cost for American citizens and imports are real benefits for American citizens. Imports raise the standard of living. Other nations take their production, which they could have consumed themselves, and then sell it to the US in exchange for a bank statement from the US Government. US citizens enjoy a huge variety of goods to purchase from all over the world, and the rest of the world gets a piece of paper that says how many US dollars they have in a bank account. And here’s the kicker: Those US dollars never leave the United States. They remain on a spreadsheet at the Federal Reserve.

At this point, I’d like to address some questions on taxation for equity and the misunderstanding of how inequity comes about.

Vengeance is usually the modus operandi of various persons on the left. The reason for this, is because orthodoxy is a message of doom. Because of that message, people see little hope but to tax the rich.

Those who understand that federal taxes don’t fund federal spending still fall prey to the mainstream argument though they do not realize it. This is a result of a myth propagated by the Democratic Party that tax cuts for the rich are the reason why there is gross income inequality. Tax cuts for the rich are not the reason – they are merely icing on the cake. The tax cuts just allow capital to keep more of the national income that they’ve stolen.

The root cause is forced involuntary unemployment and wage suppression. Combined, they drive national income towards capital and away from workers share. The tax cuts, then, as I mentioned, allow the rich to keep more of it. So, again, taxing the rich isn’t the primary solution – driving GDP back to workers share is the solution. Afterwards, if inequity is still too vast, tax the rich.

Right now, getting high tax rates on the rich is pretty much impossible, and even if it were, the Clinton era demonstrates conclusively that when you do raise taxes on the rich, they simply earn more money to offset the tax. So, with full employment, full stomachs, proper GDP distribution and prosperity for the 99%, it would reduce income inequality significantly. If there were still too much inequity, in such an environment, politically, it would be much easier to tax the rich and make it stick, because the rich can’t exactly increase their share of GDP. Overall, however, we should think less in terms of taxing the rich, and more in terms of preventing obscene amounts of income in the first place. We do that by ensuring a perpetual state full employment through a Job Guarantee and funding other public purpose initiatives.

Q: “So what happens to our taxes? I am lost.”

Put simply, the US Government enters a reserve account and then lowers the numbers in that account.

Grab a calculator. Subtract 1,000 from 5,000. Hit equals. The result is 4,000. The number 5,000 was simply lowered to 4,000. Now, you might ask yourself, “where did the 1,000 go?” Well, it went to the same place your federal taxes go – digital oblivion. But the point here is not to wonder where the 1,000 went. It’s irrelevant. The point is to notice that the number 5,000 became 4,000.

All federal spending is the raising up of numbers and all federal taxation is the lowering of numbers in accounts.

Q: “If we lived on a balanced budget just why do we all have credit cards?”

The answer to that is because the US imports more than it exports.

So, this means that the US Government issues dollars into the domestic economy, and then those dollars flow from the hands of US citizens to non-US residents to purchase imports. If the US Government then reduces its deficit, it is gradually reducing the US domestic economy’s income. In other words, a spending gap will exist and the only way to fill it outside of federal deficit spending is with private debt (bank loans, credit cards).

In an environment of federal deficit reduction, wage suppression and underemployment, what we produce as a nation cannot be sold to consumers. Making credit cards and loans more widely available to consumers means that the US Government prefers that consumers supplement their insufficient incomes with private debt and that debt expansion ensures that production can be sold. But such an idea is highly unstable. What we need to understand here is that the federal government must expand its deficit towards perpetual full employment through a Job Guarantee at a decent wage. Wages are the proper way to consume what is produced, not private debt.