From Sky News:

Elon Musk to give Trump campaign jaw-dropping funding boost

Billionaire Elon Musk plans to donate around $US45 million a month to a new pro-Trump super political-action committee, according to the Wall Street Journal.

The X owner aims to support former President Trump's presidential campaign through the America PAC.

Formed in June, America PAC focuses on voter registration and encouraging early voting and mail-in ballots in swing states.

Despite plans to start donations in July, Musk was not listed in the PAC's Monday filing, which shows over $US8 million raised.

Donors include Lonsdale Enterprises ($US1 million) and the Winklevoss Twins ($US250,000 each).

Saturday saw Musk publicly endorsing Trump, hours after the former president was shot in the ear at a campaign rally.

The move cements Musk's shift towards right-wing politics and aligns him as a high-profile backer in Trump's White House bid.

A move to the Right?

Let's see if Trump can reduce ghetto poverty while MakingAGA.

Trump himself knows deficits don't matter, so long as the nation remains productive and doesn't need to import  essential  goods and services. That means he can cut taxes.

But entrenched poverty and homelessness won't MAGA, does Trump know that?   

63 pages and wadda ya get?
Never a dollar and still in debt
dividie don't you call us
'cause we can't go
Cause we sold our souls
For a few dollars more.

The meme that is destroying Western civilisation—Part III

(cont.)

STEVE KEEN
JUL 05, 2024

Yesterday’s UK election has repeated the pattern of the last 40 years: a Neoliberal-Heavy Party—the Conservatives—have lost in a landslide to a Neoliberal-Lite Party—Labour. The victor will set about implementing the same economic policies as the party it routed, but more nicely.

Jeremy Corbyn—the previous anti-Neoliberal leader of the Labour Party, who held onto his seat as an independent, after Labour’s current pro-Neoliberal leader Kier Starmer banned him from standing for Labour—put the election result in context when he commented that Labour “has put forward a manifesto that is thin to put it mildly, and doesn’t offer a serious economic alternative to what the Conservative government is doing.”

The root problem, as I noted in my previous post (Substack;Patreon), is that both parties—and almost all of the bureaucracy, the media, and economic thinktanks, as a reader pointed out—have Neoliberalism “embedded in them”. They all think that Marshall’s meme of intersecting supply and demand curves describes how the real-world works. So, despite vast differences between political parties on issues like culture and immigration, when it comes to the economics, all you get is a different brand of the same old breakfast cereal.

It's the breakfast cereal that is the problem.

The easiest place to prove that supply and demand analysis is false is the area where its application does the greatest harm: the belief, derived from supply and demand analysis, that the government borrows from the private sector when it runs a deficit, and that, therefore, a deficit reduces total savings.

Here’s the way that Mankiw’s Macroeconomics textbook** puts it: there’s a stock of money that people have saved—shown by the line labelled S1. A government deficit takes some of that, leaving less for investment by the private sector—shown by the line labelled S2.

(graph)

Mankiw explains that the move from S1 to S2 is caused by government spending exceeding taxation:



If this were true, then it should be easy to show by looking at bank accounts, since the vast majority of our savings today is in the form of bank deposits, rather than cash. Even if you’ve put your own money into stocks and bonds, that money is still in bank deposit accounts: it’s just in the bank deposit accounts of stockbrokers and pension funds, rather than your own.

Mankiw claims that a government deficit moves the savings curve to the left: it reduces Deposits. A government Deficit is the difference between government spending and taxation, and both spending and taxation operate through bank deposit accounts. Government spending increases bank deposit balances; taxation reduces them. So, what happens when the government runs a deficit; what happens when government spending exceeds government taxation? Bank deposits rise: a deficit doesn’t reduce the stock of savings, it increases them.

In other words, Mankiw’s textbook (and all other mainstream economics textbooks) moved the supply curve the wrong way: he should have shown that the deficit increases savings.

(graph)

Why does the textbook get it wrong? Partly because the supply and demand diagram is just a drawing: you can draw a line on it anywhere you like. To know where you should draw the line, you have to know how whatever you’re talking about—be it breakfast cereal or money—is created. Mankiw might ultimately be right in his claim that government borrowing imposes “an unjustifiable burden on future generations” (Mankiw 2016, p. 557), but you’ll never know by drawing lines on a diagram. You have to look at how money is created—and that involves the potentially dry and boring topic of double-entry bookkeeping, which I’ll discuss in the next post.

**Mankiw, N. Gregory. 2016. Principles of Macroeconomics, 9th edition (Macmillan: New York).

cont. from #936

Table 1: A bank creates money by double-entry bookkeeping.

That action simultaneously creates debt and money: as the Bank of England says, “bank lending creates deposits”

{McLeay, 2014 #5066, p. 14}.

The government uses a very similar mechanism to create money too. And just as mainstream economists don’t understand how banks create money, they don’t understand how the government creates money either.

I’ll cover how the government creates money in the next post in this series.

Meanwhile:

(Daily Mail)

Sir Keir Starmer set to give teachers and nurses bumper payrise

The Daily Telegraph reports that the government could support an above-inflation wage rise but experts have warned that if the 5.5 per cent pay rise was given to every worker in the public sector it would cost £10billion.

Paul Johnson, the director of the Institute for Fiscal Studies, said if implemented the recommendations 'can only come from higher borrowing than they're planning, higher taxes than they're planning or cuts in spending elsewhere. There is no fourth option.'

Johnson - the real villain in the piece:  there IS a fourth option (see this thread).

Meanwhile Sunak is saying only the private sector can create wealth - lies, and damned lies...

(cont)

PART VI

The meme that is destroying Western civilisation
How government spending creates money.

In the last post (Substack; Patreon), I showed how private banks create money, by marking up their Assets (Loans to the Private Sector) and their Liabilities (Deposits of the Private Sector) simultaneously. I also pointed out that in a pure private sector economy, since banks must be in positive financial equity, the private non-bank sector is necessarily in negative financial equity: in the aggregate, the private non-banking sector will have financial liabilities that exceed its financial assets.

This isn’t an impossible situation: firms and households can service their debts, so long as the money they’ve borrowed into existence is used to create and sell goods and services that enable them to pay the interest on their debts. But it’s an uncomfortable situation: no-one likes having negative net financial worth.

Is there a solution? Let’s look at the double-entry bookkeeping.

If government spending exceeds taxation, we call the difference a Deficit. As I explained in the second post (Substack; Patreon): a Deficit increases the bank deposits of the private sector, so it adds to the money supply, just as new Credit money does.

What it does differently is it doesn’t increase Loans on the Asset side of the banking sector’s ledger—which is what private bank lending does—but instead, it increases what are normally called Reserves (these are better described as “Settlement Accounts”, but I’ll stick with the Reserves name for now). This is shown in the final line in Table 1.

Table 1: Bank Lending and a Government Deficit from the banking sector's point of view

Table 2 shows the non-bank private sector’s perspective, and there are two essential differences between this system and the private-sector-only one shown in the second post (Substack; Patreon):

·         The non-bank private-sector’s financial equity is now a positive $100 billion, rather than the negative $100 billion of the private-banking-only system; and

·         Unlike a loan from a bank, the government deficit adds to the non-bank private sector’s net worth.

This is obvious from the double-entry table for the non-bank private sector, as shown in Table 2. Its Assets—Bank Deposits—have risen by Deficit dollars per year; there is no offsetting Liability for the Deficit—unlike the situation for a bank loan; therefore, the Deficit has increased the net worth of the private sector.

Table 2: Bank Lending and a Government Deficit from the non-bank private sector's point of view

This is the exact opposite of what mainstream economists claim. Citing a first-year economics textbook—which is where most politicians and journalists learn what they think is sound economics—mainstream economics claims that a government deficit reduces national saving:

"the government finances the additional spending … by reducing public saving. With private saving unchanged, this government borrowing reduces national saving".

(Mankiw 2016, p. 73)

Remarkably, this statement is half-right: it is true that a government deficit reduces public saving—as I’ll show in the next post. But Mankiw’s statement that private sector saving is unchanged by the deficit is false: the deficit increases private saving.

He—and all other mainstream economists—get this wrong because they don’t check the double-entry bookkeeping, but instead draw silly supply and demand diagrams, and move the lines around the wrong way. In the next post in this series, I’ll show the government’s eye view of a deficit, using the only tool that makes sense of money creation: double-entry bookkeeping.

Venezuela explained:

Michael Roberts

In 1970 Venezuela had become the richest country in the region and one of the 20 richest countries in the world, ahead of countries like Greece, Israel, and Spain. But this wealth was almost entirely based on one commodity, oil; Venezuela has some of the largest proved reserves in the world.  Then came the downturn in the world economy during the 1970s.  Between 1978 and 2001, Venezuela’s economy went sharply in reverse, with non-oil GDP declining by almost 19 percent and oil GDP by an astonishing 65 percent.  Government revenues plummeted.

A succession of corrupt pro-capitalist governments came and went.  There was a growing movement to end this nightmare among sections of the military, intelligentsia and the organized working class.  This eventually led to Hugo Chavez gaining power and attempting to switch the country’s resources from the rich towards the poor.

To begin with, as oil prices rose, Chávez presided over years of robust and sustained economic growth in Venezuela, averaging 4.5 percent a year from 2005-2013.  Chávez reasserted state control over the state oil company, PDVSA, and directed enhanced oil revenues to the poor, with Venezuela’s social spending doubling between 1998 and 2011. The government used price controls, direct state provisioning through newly created missions and subsidies into health care, education, social services, housing, utilities, basic goods and other economic sectors.

This helped bring about major social gains. Poverty was nearly halved between 2003 and 2011, with extreme poverty cut by 71 percent. School enrollments rose and university enrollments more than doubled, with unemployment cut in half. Child malnutrition was cut by nearly 40 percent, and Venezuela’s pension rolls quadrupled. Inequality declined steeply, with Venezuela’s gini coefficient of inequality dropping a full tenth of a point, from 0.5 to 0.4 from the early to late 2000s. By 2012 (and through 2015), Venezuela had become Latin America’s most equal country.

But Chavez’s programme was one of redistribution of the value gained by Venezuela’s non-oil capitalist sector, the oil industry and multi-nationals.  The ownership and production of the non-oil sectors was not brought under state control to plan the economy.  Víctor Álvarez, an economist who was part of the government under Chávez, notes that private industry actually increased under Chávez, despite the government nationalizing a number of important industries. Most important, Chávez failed to wean Venezuela from oil dependency, with the percentage of government export revenues derived from oil increasing from 67 percent in 1998 to 96 percent in 2016.

This was nothing new.  Venezuela was not able either before or after Chavez to change this one-trick pony economy.  This was not the case to some extent in other energy-rich economies like Mexico and Indonesia.  Their non-oil export sectors grew somewhat to compensate for any decline of oil export revenues, even if those sectors were dominated by multi-nationals from the US and Japan. Venezuela’s growth rate of non-oil exports is just one-sixth that of Mexico and one-fourth that of Indonesia.  Venezuela’s participation in non-energy-intensive sectors has not increased since the early 1990s.

Between 1999 and 2012 the state had an income of $383bn from oil, due not only to the improvement in prices, but also to the increase in the oil royalties paid by the transnationals. However, this income was not used transform the productive sectors of the economy.  There was no plan for investment and growth.  Venezuelan capital was allowed to get on with it – or not as the case may be.  Indeed, the share of non-oil industry in GDP fell from 18% of GDP in 1998 to 14% in 2012.

The good years came to an end when oil prices started to fall. Oil exports fell by $2,200 per capita from 2012 to 2016, of which $1,500 was due to the decline in oil prices. This situation worsened just as Maduro took over in 2014 when oil prices declined by nearly 75% in a matter of months. Although oil prices began recovering in 2017 and output stabilized in other oil producers, it did not in Venezuela – because that was the year that sanctions by the US and other countries were imposed.

Between 1999 and 2012 the state had an income of $383bn from oil, due not only to the improvement in prices, but also to the increase in the oil royalties paid by the transnationals. However, this income was not used transform the productive sectors of the economy.  There was no plan for investment and growth.  Venezuelan capital was allowed to get on with it – or not as the case may be.  Indeed, the share of non-oil industry in GDP fell from 18% of GDP in 1998 to 14% in 2012.

The good years came to an end when oil prices started to fall. Oil exports fell by $2,200 per capita from 2012 to 2016, of which $1,500 was due to the decline in oil prices. This situation worsened just as Maduro took over in 2014 when oil prices declined by nearly 75% in a matter of months. Although oil prices began recovering in 2017 and output stabilized in other oil producers, it did not in Venezuela – because that was the year that sanctions by the US and other countries were imposed.  (cont)