Explain Like I’m Five: Modern Monetary Theory

A while ago, I came across a comment from someone on r/collapse describing Functional Finance (MMT) concepts to someone droning on with the usual misinformed “we’re borrowing from the future” rhetoric. I thought those comments did a very good, succinct job of explaining some of the concepts, so I thought about posting them here.

Then I thought, in that same spirit of brevity and simplicity, what if I fleshed out those comments a bit more?

As some of you may know, Reddit has a section entitled “Explain Like I’m Five.” I wondered if there was one about MMT. There was, but it wasn’t very fleshed out.

So, I thought, here was a challenge. What you see below is the result. It’s far more wordy than I wanted, and necessarily a bit more complicated than I would have liked (maybe more “Explain Like I’m Fifteen”). I wanted it to to be no longer then a (long) Reddit comment, but I couldn’t quite do the concepts justice in that space, although, with a bit of clever cutting and pasting, it could form the basis of a suitable Reddit comment. I actually did that myself to respond to a particularly idiotic posting, and that in return helped flesh it out. Nevertheless, brevity and simplicity were the key goals here. I used more examples than I would have liked, but I really think they help in explaining the concepts.

*Plagarism alert!* A lot of this is lifted from other sources. I tried to avoid copying text word-for-word as much as possible, but there are some instances where I fell back on that because it was clearer and more accurate. I took a lot from Warren Mosler’s definitive work on the topic– “Seven Deadly Innocent Frauds of Economic Policy,” rephrasing and simplifying along the way, as well at the “Introduction to MMT” at New Economic Perspectives. I also stole a bit from David Graeber about the nature of money, along with some other authors. So don’t accuse me of plagiarism, because I admit it! Still, I hope this collection and simplification of their ideas will be of some merit.  In that spirit, I hope  the original authors will not object.

Of course, if anyone spots any severe inaccuracies or errors (bearing in mind that this is a simplified explanation), please be sure and point them out. I’m not an economist, nor do I even play one on TV, I’m just someone sick of all the misinformation and scaremongering I see out there.

Without further ado:

Introduction

Modern Monetary Theory describes the way the monetary system works for sovereign governments who control the issuance of their own currencies. It simply describes how our international monetary system actually works and what the ramifications of that are.

The great virtue of modern, fiat money is that it can be managed flexibly enough to prevent *both* deflation and also any truly damaging level of inflation – that is, a situation where prices are rising faster than wages, or where both are rising so fast they distort a country’s internal or external markets. The trick is for the government to spend enough to ensure full employment, but no so much, or in such a way as to cause shortages or bottlenecks in the real economy. These shortages or bottlenecks are the actual cause of most episodes of excessive inflation. If the mere existence of fiat monetary systems caused runaway inflation, the low, stable rates of consumer-price inflation we have seen over the past thirty-plus years would be pretty difficult to explain.

The government has no money! It can only take money from the private sector by force!!!

The government has no money? The government neither has nor does not have money. It spends by changing numbers up in our bank accounts and taxes by changing numbers down in our bank accounts. And raising taxes serves to lower our spending power, not to give the government anything to spend. Taxes do not finance government spending. As a sovereign currency issuer, the government does not need to “get something” from the private sector first in order to spend. If the private sector has to “earn” dollars, where are they to get the dollars that they must earn?

Imagine if we had a brand new country with a brand new currency. No one has any. Then the government proclaims that there will be a property tax. How can it be paid since no one has any money? It can’t, until the government starts spending. Only after the government starts spending the currency does the population have the money to pay the tax. The funds to pay the taxes, from inception, come from government spending (or lending). We need the federal government’s spending to get the funds we need to pay our taxes.

As another example, imagine if parents wanted their children to do certain household chores, so they printed up a series of coupons and gave them to their children coupons for each task completed–mowing the lawn, taking out the trash, and so on. To create a demand for the coupons, they require each child to pay them 10 coupons at the end of the week to avoid punishment. The children can trade the coupons among themselves if they wish; thus Suzy can have Jimmy clean her room by “paying” him with one of the coupons “earned” from mom and dad.

This creates a demand for these coupons. These coupons now function as the household’s “money.”

Do the parents have to somehow get the coupons from their children before they can issue them to the children for doing their chores? Of course not! In fact, the parents need to “spend” the coupons by paying the children to do the household chores if they want to collect the coupons at the end of the week. How else can the children get the coupons that they need?

If government spends currency into existence, it clearly does not need tax revenue before it can spend. Further, if taxpayers pay their taxes using currency, then government must first spend before taxes can be paid.

If you went to the local tax office and wrote a check for $1,000 to pay your taxes, the government would deduct that $1,000 from your checking account and hand you a receipt, extinguishing your tax liability. The government did not “get” anything from you–it just transferred sums in various bank accounts. If you were to pay your taxes with all one-dollar bills, the government would also extinguish your tax liability, hand you a receipt, and toss the dollar bills into the furnace. The dollar bills in this case function like a $1,000 concert ticket – once the ticket taker takes the ticket from you, she tears it up and throws it away because it is no longer needed.

Thus, the government does not need to “get” money from somewhere to give to someone else that they can then use to “spend.” The people at the U.S. Treasury who actually spend the money (by changing the numbers of bank accounts up) work in different offices than, and do not even have the telephone numbers of, the people at the IRS who collect the taxes (who change the numbers down), or the people at the U.S. Treasury who do the borrowing (by issuing Treasury securities).

Similarly, if the government owed you a tax refund of $1,000, it would simply add an additional $1,000 credit to your bank account.  It doesn’t take a gold coin or a dollar bill and stick in into a computer somewhere. All it does is change the number in your bank account by making data entries on its own spreadsheet, which is linked to other spreadsheets in the banking system. Government spending is all done by data entry on its own spreadsheet called “The U.S Dollar Monetary System.”

This is often referred to as “printing” money, although hardly any money exists in physical form such as cash or coins. Most of it exists in the various accounts through which money transferred from one account to the other via keystrokes, and the government can never “run out” of keystrokes. They are adjusting the numbers in various bank accounts either up or down.

In other words, the sovereign government that issues its own currency has unlimited spending power; it owns the currency. These credits/debits are recorded in various spreadsheets, so, the government can never “run out” of money, any more than a sporting event can run out of points, or a construction site can run out of inches. If the New York Yankees score twelve runs against the Boston Red Sox, and twelve runs get added to the scoreboard, they did not “steal” those points from the Red Sox. That is, the government is not “revenue constrained” (but does face other constraints)

If taxes are not used to raise the money the government needs to function, then what are they used for? Taxes create the demand for the government’s currency. Liabilities issued by the state will be considered ‘money’ if those are also the only thing you can use to satisfy tax obligations. The government can levy a general tax obligation on all citizens, and declare what it is payable in. That is sufficient to create a demand for their IOUs as money, and will basically drive its use even in most private transactions within the country.

To prevent the government’s spending from causing inflation, the government must also take away spending power via taxation not to pay for anything, but so that their spending won’t cause inflation. “Unprinting money” via taxation makes it more scarce and valuable, and leaves enough room for governments to spend without causing inflation.

Taxes can also regulate aggregate demand, and we can use taxation to modify market behaviors by taxing what we wish to discourage (like smoking and carbon emissions), and subsidizing what we wish to encourage (like health care and clean energy).  The amount of tax revenue has no effect on the spending power of the government. As previously stated, taxes function to regulate our spending power and the economy in general, and not to get the money for Congress to spend.

This is not to say that the government should just spend, spend, spend, without limit, but that the government’s budget constraint is the wrong constraint. The correct constraint is whether or not a particular budget position will raise inflation beyond an official target rate  (say, 2%, which seems to be the choice of most central bankers). The objective of the government should be to provide full employment while controlling inflation. This is done by investing (to increase employment) and taxing (to control inflation).  An inflation constraint provides more fiscal space than a budget constraint, but in no way does it provide unlimited fiscal space. Therefore, the government should not have deficits or surpluses as their primary objective. Rather, the conditions in the actual economy will dictate policy.

If the current economy has a lot of unemployment, than the government should invest to try and create jobs while taxing in a clever way to avoid inflation. In such a case, the government would possibly end up running a deficit. If, on the other hand, there is high employment and lost of revenue from the sales of goods abroad, then the government should tax a lot; it wouldn’t need to spend as much and might possibly run a surplus. In either case, the conditions of the actual economy determine the actions to take, not an artificial budget constraint.

The same goes for the overall amount of debt. When people say “future generations are going to pay for our debt,” they are really saying that in the future the government will be constrained and have less spending power because of the debts we run up today. This is not true; the government owns the currency and so the amount of overall debt has no impact on the government’s ability to spend. The government can always issue the money it needs to pay its liabilities.

But the National Debt is XXX TRILLION DOLLARS!!!!

The term “national debt” is deceptive, the “debt” is actually assets on the balance sheets of private entities. In the above example, are the parents, by issuing slips of paper to get their children to do their chores, in any sense “in debt” to their children by doing so? Of course not!

Similarly, in the property tax example, is the government now in “debt” as a result of issuing the coins needed to pay the property tax? Is the government how in hock to some third-party due to its “deficit spending?” Does it have to redeem those coins for wheat or pigs or anything else at some point in the future? Of course not. There’s just a bunch of money circulating out there that people can use for transactions. The treasury has made no promise to redeem those coins for anything. There’s really no reason to call those coins, or any other financial instrument the government chooses to manufacture out of thin air and swap for those coins, “national debt.” A debt that will never be paid off is a very questionable “liability.”

That’s essentially the situation with the U.S. national “debt.” The U.S. issues money by deficit spending. It puts more money into private accounts than it takes out via taxes. The private sector has more balance-sheet assets (but no more liabilities, so it has more “net worth,” the balancing item on the right-hand side of its balance sheet). The Treasury has made no promises to redeem that new money for anything (except maybe…different government-issued assets). It’s just out there. They, are only “liabilities” to the government in the most pettifogging accounting sense. If you “owed” some money that you would never, ever have to repay, would you put that on your balance sheet as a liability? Would it be anything beyond a pro forma entry designed to satisfy some obsessive impulse for accounting closure?

When government spends without taxing, all it does is change the numbers up in the appropriate checking account (reserve account) at the Fed. This means that when the government makes a $1,000 Social Security payment to you, for example, it changes the number up in your bank’s checking account at the Fed by $1,000, which also automatically changes the number up in your account at your bank by $1,000.

The U.S. and other sovereign currency issuers operate under a purely self-imposed accounting rule: their treasuries are required to issue bonds equal to that deficit spending. This is a straightforward asset swap: the private sector gives checking-account deposits (back) to the government, and the government gives bonds in return. Private sector assets and net worth are unaffected by that accounting swap; it just changes the private-sector portfolio mix — more bonds, less “cash.” In any case, issuance of these instruments represent a desire to save on the part of the private sector, otherwise they would not find willing buyers.

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It’s commonly said that the private sector is “holding government debt,” since the private sector is holding treasury bonds, but this is a misnomer. The private sector is holding assets on its balance sheet, whether they consist of bonds, “cash,” or reserves. But the “debt,” such as it is, only exists as an offsetting accounting liability on the right-hand side of the government balance sheet. It is not accurate to call these a “liability” since they will never be redeemed for anything. A better term to describe the things that we tally up on the left-hand side of our private-sector balance sheets might be “government-issued assets,” as opposed to ” government debt.” The private sector holds (owns) government-issued assets, not liabilities. And even the offsetting liabilities themselves are rather dodgy and iffy accounting entries. The government issues those assets as a public good.

The government has committed itself to issuing bonds for archaic reasons, and so it needs to roll over its “debt.” When old bonds mature, the government pays them off and issues new ones to replace them. The stock of government-issued assets grows over time, as it should and must in a growing economy. As the economy expands, the government issues more assets as a necessary lubricant, and to avoid transactional lockups for the operation of the private-sector economy (i.e. to avoid a ‘liquidity trap’). The “debt” grows over time as the economy expands. The U.S. and U.K. have been issuing debt for more than two centuries, and it has never been paid back. It cannot be, because otherwise there wold be no money. (see below)

The government should be run “like a household!!” If I ran my household budget the way that the Federal Government runs its budget, I’d go broke!!! We have to live “within our means,” so the government should too!!!!

A sovereign, currency-issuing government is NOTHING like a currency-using household or firm. The sovereign government cannot become insolvent in its own currency; it can always make all payments as they come due in its own currency.

Government debt does not have to be paid back. It almost never is. To pay back government debt, you have to run a budget surplus, and while there may be modest surpluses from time to time, they don’t add up to more than a minuscule fraction of all the accumulated debt. Governments that issue their own money don’t have to pay off their debts. They actually can’t. In fact,as we saw above, they issue money — the money that’s necessary for a growing economy to operate — by deficit spending.

We have seen that money is a credit/debit relationship, and the relationship between various sectors of the economy (public, private and foreign) must always sum to zero due to an accounting identity. If the government reduces its debt, everyone else has to go into debt in exactly that proportion in order to balance their own budgets. Debt consists of issuing liabilities that others are willing to hold as financial assets.  If there were no debt, there would be no money!

You can think of this as series of interlocking balance sheets between the the major sectors of the economy: public (the government), private (business in aggregate), and foreign (balance of payments), where the total assets = total liabilities. The numbers are zero sum—a surplus in one sector necessarily means a deficit in another sector due to accounting identities.

Since income has to equal expenditure for the economy as a whole (which is the same things as saying that saving equals investment), the sums of the difference between income and expenditures of each of the sectors of the economy must also be zero—a rise in the deficit of one sector must be matched by an offsetting change in the others. These differences can also be described as “sectoral balances.” Thus, if a sector is spending less than its income it must be accumulating (net) claims on other sectors. When broken into sectors, government deficits are non-government surpluses, to the penny.

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If the government declares “we must act responsibly and pay off the national debt” and runs a budget surplus, then it (the public sector) is taking more money in taxes out of the private sector than it’s paying back in. That money has to come from somewhere. So if the government runs a surplus, the private sector goes into deficit. If the government reduces its debt, everyone else has to go into debt in exactly that same proportion in order to balance their own budgets.  People just assume that the government running a surplus will somehow make it easier for all of us to do so too. But the reality is precisely the opposite: the less the government is in debt, the more everybody else is.

Why does anybody have to be in debt at all? Why can’t everybody just balance their budgets? Governments, households, and corporations; everyone lives within their means and nobody ends up owing anything. Why can’t we just do that?

Because if there were no debt, then there wouldn’t be any money. Money is debt. An individual household or business needs to get dollars to pay it’s debts, that’s true. The same is not true of the economy as a whole. Your spending is my income. Your debt is my asset. Banknotes are just so many circulating IOUs. (take out a dollar bill and read what it says: “This note is legal tender for all debts, public and private”). Dollars are either circulating government debt, or they’re created by banks by making loans. That’s where money comes from. Obviously if nobody took out any loans at all, there wouldn’t be any money. The economy would collapse.

They money that we use are liabilities issued by the central government that others are willing to hold as financial assets. For most people and firms, others are only willing to value and accept our IOUs if they promise to pay something (redeemability in say, an equivalent amount of government currency) and that the extent that our promise to pay is credible (which the banks are in the business of keeping track of).

On the other hand, almost everyone is willing to value and accept the government’s IOUs, because everyone needs to collect government IOUs to pay taxes. That valuation is so ubiquitous, we’re willing to hold far more of the government IOUs than we even need to pay taxes, because they’re a safe bet for holding value for the foreseeable future. So the government can issue more IOUs (cash, coins, reserve accounts, treasury security accounts) than they require back in taxes, and end up perpetually running deficits to satisfy private savings desires. Our money is the government’s liabilities; if there were no debt, there would be no money!

There is going to be a cascading hierarchy of money based on the government IOUs, such as bank IOUs (checking/savings account balances) that promise to pay government IOUs, and personal IOUs (checks, etc.) that promise to pay bank IOUs, etc. And those will all tend to be denominated in the main unit of account made up by the government (dollar, Yen, Pound, Euro, whatever).

So there has to be debt. And debt has to be owed to someone. Let us refer to this group collectively as “the One Percent.” If the government runs up a lot of debt, that means the One Percent hold a lot of government bonds, which pay quite low rates of interest. The government taxes you to pay that interest.

If the government pays off its debt, what it’s basically doing is transferring that debt directly to the public sector as mortgage debt, credit card debt, student loan debt, and so on. Of course the money is still owed to the one percent, but now they can collect much higher rates of interest. And this debt is accumulated by those least able to pay. There were three times in recent decades when the government ran a budget surplus, and each time the surplus was followed, within a number of years, by a recession. Every depression in our nation’s history was preceded by a big decline in nominal Federal debt.

The government can always print the money it needs via keystrokes to pay its obligations as we saw above. Private levels of indebtedness are a much greater concern, and a greater drag on the economy. Private borrowers (and non-sovereign-currency states like Greece and Alabama, for instance) do have to pay off their debts (or default). That’s why the level of aggregate private debt, not sovereign debt, is the big money management problem.

Government deficit spending creates nongovernment sector saving in the form of domestic currency (cash, reserves, Treasuries). This is because government deficits necessarily mean the government has credited more accounts through its spending than it debited through its taxes.

Austerity through government surplus means taxing/extinguishing more money than is created and injected through government spending. That either means increased private sector debt or reduced private sector savings. This is simply a fact due to double-entry bookkeeping.

The government has a monopoly on the currency!!

The government really has no need for legal tender laws, and many countries don’t use them. Neither do they need to criminalize issuing alternative currencies. Once you have paid your taxes, you are free to hold your money in dollars, Euros, Yen, gold coins, Bitcoins, local currencies, or exchange value directly through time banking. No jack-booted government thug will take  your money away from you. However, it is unlikely the corner grocery store will accept your Yen or gold coins; most domestic transactions are denominated in U.S. dollars because it is easier, and because dollars are needed to pay the tax obligation. In fact, people trade currencies all the time and these values tend to “float” against one another. Only the Federal Reserve can issue U.S. dollars however; if anyone could “print” dollars in their basement in whatever quantity they desired, a dollar wouldn’t be worth very much, and inflation would very quickly be out of control.

We are stealing from our children!! Future generations will have to pay it all back with interest!!!

The amount of debt incurred today will not stop future generations from producing and consuming all the goods and services they desire and are capable of producing. In the future, just like today, whoever is alive will be able to go to work and produce and consume their real output of goods and services, no matter how many U.S.Treasury securities are outstanding. We will not have to send real goods and services “back in time” to pay off the debt. All things being equal, and if we do not mismanage the economy, the economy will be larger in the future than it is today. Our children will change numbers on what will be their spreadsheet, just as seamlessly as we do today. Also, future generations are not just the debtors, but also the creditors. Otherwise, who would we owe all that money to?

Currently, the U.S. economy is still running well below potential output. When we operate at less than our potential – at less than full employment – then we are depriving our children of the real goods and services we could be producing on their behalf. Likewise, when we cut back on our support of higher education, we are depriving our children of the knowledge they’ll need to be the very best they can be in their future. When we cut back on basic research and space exploration, we are depriving our children of all the fruits of that labor that instead we are transferring to the unemployment lines. This is the real “stealing from our children!”

When the cost to borrow is low, it makes sense to invest in things that will pay a greater return down the line. Every business does this, and any CEO who does not know this would be fired. Like individuals, a government can increase its means in the long run by borrowing to invest in things that will make the economy more productive, and thus increase the tax revenue. If a government invests in improving the transport system, it will make the country’s logistics industry more efficient. Or if it invests in healthcare and education, that will make the workers more productive.

More importantly, unlike individuals, a government has the ability to spend “money it does not have”, only to find later that it had the money after all. The point is that deficit spending in a stagnant economy will increase demand in the economy, stimulating business and making consumers more optimistic.  If nominal interest rates are below long-run trend real GDP growth, a dollar of debt more than pays for itself in the long-run.

As we saw above, “austerity” means reducing the amount of money available and driving up the level of private indebtedness. The irony is that in order to somehow “save” public funds for the future, what we do is cut back on expenditures today, which does nothing but set our economy back and cause the growth of output and employment to decline. Currently, the misplaced fear of leaving the national debt to our children continues to drive policy, and keeps us from optimizing current output and employment.

The debt burden depends on the ratio of debt to GDP as well as the interest cost in servicing it. The way to reduce this burden is to have a combination of real economic growth, inflation and modest interest rates. If you want to show your concern for the well-being of future generations, demand macroeconomic policies that will boost demand and raise inflation a bit, consistent with continued low interest rates.

When Congress first imposed a debt limit in 1917, its intent was to limit the amount the Treasury could spend to finance America’s entry into World War I, not to control overall government spending. The basic structure of the debt limit hasn’t changed since 1940, and as a result, the debt limit is both arbitrary and static. It doesn’t take into account inflation or economic growth, and it has no relevance to the nation’s economic output or circumstances.

The Chinese “own” us thanks to deficits!!!

As a sovereign currency issuer, we do not need the Chinese to “fund” our deficits. A sovereign government does not need to “borrow” its own currency in order to spend. Indeed, it cannot borrow currency that it has not already spent! Functional Finance sees the sale of government bonds as something quite different from borrowing. As we saw above, the “debt” is nothing more than government-issued assets held at the Fed.  Whether they consist of bonds, “cash,” or reserves, it is unrealistic to call the money originally spent into private accounts a “debt.”

As we have seen, government deficit spending creates equivalent nongovernment savings (dollar for dollar). Some of the savings created will accumulate in the hands of foreigners. For many years (during the Clinton and Bush II presidencies) the domestic private sector was also running budget deficits—so foreigners also accumulated net claims on American households and firms. The US current account deficit guarantees—by accounting identity—that dollar claims on government will be accumulated by foreigners.

Net savings of financial assets is held as some combination of actual cash, Treasury securities and member bank deposits at the Federal Reserve. Normally, the nongovernment sector prefers to hold savings in government IOUs that promise interest, rather than in nonearning IOUs like cash.

The commercial banks we use for our banking all have bank accounts at the Federal Reserve called reserve accounts. This is where they acquire the money they use for loans – they borrow it. Lowering the interest rate at which banks must borrow from the Fed lowers the “cost” of money and makes loans easier to get, theoretically stimulating the economy. A reserve account is nothing more than a fancy name for a checking account. It’s the Federal Reserve Bank so they call it a reserve account instead of a checking account.

Foreign governments have reserve accounts at the Fed also. Foreigners earn US dollars from selling us real goods and services. What do they do with those accumulated dollars? Just like you do with your dollars, they either hold them as cash IOU’s (reserve accounts), or stick them in a savings account (by buying U.S. Treasury securities).

Treasury bonds are sort of like savings accounts at the Fed. Just like your checking and savings accounts at your local bank, your checking account probably offers a very low rate of interest, but you can draw against it any any time (it is “liquid”). Savings accounts are typically held for a longer period of time and pay higher rates of interest. They key thing to understand is that both are methods of saving.

A U.S. Treasury security is nothing more than a savings account at the Fed. When you buy a Treasury security, you send your saved dollars to the Fed, and then some at point in the future (maturity), they pay back the dollars plus interest. It is just like a savings account at any bank–you deposit dollars and get them back plus interest.

When government sells bonds, banks buy them by offering reserves they hold at the central bank. The central bank debits the buying bank’s reserve deposits and credits the bank’s account with treasury securities. Rather than seeing this as borrowing by treasury, it is more akin to shifting deposits out of a checking account and into a saving account in order to earn more interest. And, indeed, treasury securities really are nothing more than a saving account at the Fed that pay more interest than do reserve deposits (bank “checking accounts”) at the Fed. The government simply changes numbers on its own spreadsheet – one number gets changed down and another gets changed up. It is much like a transfer from a “checking account” (reserves) to a “savings account” (bonds). This is a straightforward asset swap: the private sector gives checking-account deposits (back) to the government, and the government gives bonds in return. Private sector assets and net worth are unaffected by that accounting swap; it just changes the private-sector portfolio mix — more bonds, less “cash.” (Treasury “forces” the private sector to make that collective portfolio-adjusting swap through the simple expedient of selling bonds at an attractive price — a point or two below similar deals in the private sector.)

The government bonds take the form of an electronic entry on the books of the central bank of the issuing government. Interest is paid on these “bonds” in the same manner, whether they are held by foreigners or by domestic residents—simply through a “keystroke” electronic entry that adds to the nominal value of the “bond” (itself an electronic entry). The foreign holder portfolio preferences will determine whether they hold bonds or reserves—with higher interest on the bonds. Shifting from reserves to bonds is done electronically, and just like above, it is a transfer from a “checking account” (reserves) to a “savings account” (bonds).

If an individual bondholder needs cash for real-goods transactions or whatever else, the necessary asset-swap transaction happens with a mouse click. Likewise holders of checking-account deposits: if they want physical currency, their bank stands ready to make the swap; it’s called “withdrawing cash.” If the bank runs short on physical currency, the Federal Reserve provides it on demand in exchange for the bank’s reserves, its account deposits at the Fed.

When the U.S. government does what’s called “borrowing money,” either domestically or internationally, all it does is move funds from checking accounts (the reserve accounts held by the banks) at the Fed to savings accounts (Treasury securities) at the Fed. In fact, the entire $13 trillion national debt is nothing more than the economy’s total holdings of savings accounts at the Fed.

What happens when the Treasury securities come due, and that “debt” has to be paid back? The Fed merely shifts the dollar balances from the savings accounts (Treasury securities) at the Fed to the appropriate checking accounts at the Fed (reserve accounts) – that’s it. To pay off the national debt the government changes two entries in its own spreadsheet – a number that says how many securities are owned by the private sector is changed down and another number that says how many U.S. dollars are being kept at the Fed in reserve accounts is changed up. That’s all, debt paid. All creditors have their money back. Paying off the entire U.S. national debt is but a matter of subtracting the value of the maturing securities from one account at the Fed, and adding that value to another account at the Fed. These transfers are non-events for the real economy and not the end of the world, as some fear.

As we saw, foreigners buy government bonds when they are more attractive than reserves, which pay little or no interest. Let us presume that sizable amounts of government bonds are held externally, by foreigners. What if low interest rates mean that foreigners decide they would rather hold reserves than bonds?

If the day ever comes when China demands that the Treasury securities which it holds have to be paid back, the Fed simply changes two numbers on its own spreadsheet. The Fed debits (subtracts from) China’s securities account at the Fed. And then it credits (adds to) China’s reserve (checking) account at the Fed. That’s all – debt paid! It’s essentially an asset swap. Paying off China doesn’t change China’s stated $U.S. wealth. They simply have dollars in a checking account rather than U.S. Treasury securities (a savings account) of equal dollars. China now has its money back. It has a (very large) U.S.-dollar balance in its checking account at the Fed. We will not have to sell off the Statue of Liberty or Mount Rushmore to pay off our “debt” to China.

If China then wants anything else – cars, boats, real estate, other currencies – it has to buy them at market prices from a willing seller who wants dollar deposits in return. And if China does buy something, the Fed will subtract that amount from China’s checking account and add that amount to the checking account of whomever China bought it all from. Refusing to “roll over” maturing bonds simply means that foreign banks will have more reserves (credits at the issuing government’s central bank) and less bonds. Selling bonds that have not yet matured simply shifts reserves about—from the buyer to the seller. Neither of these activities will cause pressure on the government to offer higher interest rates to try to find buyers of its bonds.

From the perspective of government, it is perfectly sensible to let banks hold more reserves while issuing fewer bonds. Or it could offer higher interest rates to sell more bonds (even though there is no need to do so); but this just means that keystrokes are used to credit more interest to the bond holders. Government can always “afford” larger keystrokes, but markets cannot force the government’s hand because it can simply stop selling bonds and, thereby, let markets accumulate reserves instead.

Now the private and foreign sector’s portfolio mix certainly has economic import (and even more so, changes in that portfolio mix). But that mix is secondary and subsequent to the total stock of various government-issued assets in play — be they bonds, checking deposits, whatever. Without a sufficient pool of those lubricatory assets, the financial economy binds up and freezes, as does international trade.

What happens if foreigners decide they do not want to hold either reserves or bonds denominated in dollars, and sell them off?

For the rest of the world to stop accumulating dollar-denominated assets, it must also stop running current account surpluses against the US. Hence, the other side of a Chinese decision to stop accumulating dollars must be a decision to stop net exporting to the US.  This is not going to happen, as China is very much dependent upon exporting to the U.S. for a number of reasons.

Furthermore, trying to run a current account surplus against the U.S. while avoiding the accumulation of dollar-denominated assets would require that the Chinese off-load the dollars they earn by exporting to the US—trading them for other currencies. That, of course, requires that they find enough willing buyers to take their dollars. That is, the dollars earned by China’s export surplus have to go somewhere.

This could—as feared by many commentators—lead to a depreciation of the value of the dollar. That, in turn,would expose the Chinese to a possible devaluation of the value of their US dollar holdings—reserves plus Treasuries that total over $2trillion.

If China’s central bank ceases buying its $200 billion a year of dollar denominated assets, and if nothing shocks the behavior of other central bank or collection of private foreigners, two things will happen: (1) the value of the value of the dollar will fall, and (2) U.S. interest rates will rise. The fall in the value of the dollar will boost U.S. exports and diminish U.S. imports, and the trade deficit will shrink. And–as long as the Federal Reserve is successful in avoiding recession–the rise in interest rates will reduce investment inside the United States and also lower asset values, which will make homeowners and investors feel poorer and increase their savings. It will thus reduce the gap between savings and investment, and so diminish the capital inflow.

What happens if China says, “We don’t want to keep a checking account at the Fed anymore. Pay us in gold or some other means of exchange!” They simply do not have that option under our current “fiat currency” system. Governments do not typically ship pallets of paper money or gold bars across the ocean. If they want something other than dollars, then they have to buy it from a willing seller, just like the rest of us do when we spend our dollars. In this case, they must find holders of other currency-denominated reserve credits willing to exchange these for the bonds offered for sale. It is possible that the potential buyers will purchase bonds only at a lower exchange rate, so it is true that foreign sales of a government’s debt can affect the exchange rate. However, so long as a government is willing to let its exchange rate “float” it need not react to prevent a depreciation.

Depreciation of the dollar would increase the dollar cost of China’s exports, making them more expensive, and lower the value of China’s dollar-denominated assets. US exports would become more competitive globally, which would be a boost to domestic industries, lowering the trade deficit and boosting domestic employment. For these reasons, a sudden run by China out of the dollar is quite unlikely. A slow transition into other currencies is only possible if China can find alternative markets for its exports.

The Job Guarantee

One ramification of the above is that a currency-issuing government can purchase anything that is for sale in its own currency, including the labor of every last unemployed person who is looking for a job. This is known as the “job guarantee.”

The government already creates millions of jobs, from combat soldiers, to IRS accountants, to elevator inspectors, to U.S. Congressmen (who enjoy benefits denied to most citizens). It also purchases goods and engages the labor of numerous private sector entities to accomplish various things that suit the public purpose, from building roads and bridges, to protecting the country, to basic research and development.

One key factor is that the job guarantee would hire “from the bottom,” not from the top to ensure that such programs don’t create real resource bottlenecks by competing with the private sector for highly-skilled or specialized labor. The job guarantee could also put a floor under domestic wages without costly regulations. Whether the job guarantee makes fighter planes or wind turbines makes no economic difference–the workers employed by it will spend their wages on the same things other workers buy. When you hand money over to a convenience store cashier to purchase goods, do they ever squint or turn the dollar bill sideways and ask, “Are you sure this money came from work that was performed in the public sector?” They don’t, because the money governments pay to public employees is the same money everyone else gets paid in.

What matters, economically, is whether there are sufficient real resources and labor available to produce these goods and services in line with the increased demand for them. If there are, no additional government intervention is necessary in order to mobilize them. The same private profit motivation which induces a company to produce one widget can be relied upon to produce the production of another one. If there are enough real resources available to produce the goods and services that are equal in value to the government’s job guarantee spending–if they are not already being used to produce something else–then the increased demand that results from the payment of job guarantee wages will not be inflationary, regardless of what they go to produce.

The only time the American economy ever achieved an extended, years-long period with zero unemployment, low, well-controlled inflation rates and with no significant financial aftershock at the end was the World War II era – broadly defined to include the Lend-Lease buildup of 1940 and 1941. This solution to the problem of mass unemployment worked in the 1940s and it would work today. In the 1940s, of course,the jobs were almost all war-related. But, economically, this makes no difference. Increased government spending is what ended the Great Depression, not the War per se. The former British politician Tony Benn regularly noted that if you can have full employment killing Germans, then there is no reason why can’t you have it doing other socially useful activities.

But Weimar Germany! Greece!! Venezuela!!! Zimbabwe!!!!

It should be noted that the above applies only to sovereign governments with control over the issuance of own currency. A user of the currency who does not control its issuance has no such prerogative; it needs to procure the currency from another source. Greece, as a member of the Eurozone, does not have control over its own currency. Its currency, the Euro, is used by a number of other countries with different economic conditions and is not allowed to “float,” Regulation of the currency is controlled not by the Greek government, but by the European Central Bank.

In Weimar Germany, the government was forced to pay extremely large war reparations in foreign currencies which it didn’t have, so it had to aggressively sell its own currency and buy the foreign currency in the financial markets. This relentless selling continuously drove down the value of its currency, causing prices of goods and services to go ever higher in what became one of the most famous inflations of all time. By 1919, the German budget deficit was equal to half of GDP, and by 1921, war reparation payments represented one third of government spending. On the very day that government stopped paying the war reparations and selling its own currency to buy foreign currency, the hyperinflation stopped.

In Zimbabwe, the conditions for hyperinflation were caused by the destruction of nearly half of the country’s domestic food production via misguided land reforms, plus a civil war which eliminated much of the economy’s productive manufacturing capacity. In response to food shortages, the Bank of Zimbabwe used valuable foreign exchange reserves to buy imported food, leading to a lack of foreign currency to purchase essential raw materials. Manufacturing output collapsed, but the government used much of the remaining foreign exchange to dole out political favors, rather than adding to the country’s productive capacity. The end result was inflation and then hyperinflation.

A sovereign-currency issuer might “have” to pay back their debt if they have committed to redeem their money for something else. For instance Argentina (dollar-denominated debt) and whole host of other countries who were on a gold standard had promised to give gold in return for their money. If they can’t or won’t do so, that is a default on their promise. The U.S. and the U.K. (among others) do not face that situation.

Yes, once the economy gets to full employment, then extra government deficit spending can start driving up prices, but with high unemployment and unused yet functioning factories all across the country, there is plenty of room to cut taxes and/or increase spending to get us to full employment. This is true no matter what the size of the federal deficit. Ultimately, inflation (and then hyperinflation) is about competing distributive claims over real resources, such as oil, gas, water, etc.

It is perfectly true that a poorly managed monetary system, or one which is experiencing something like an oil-price shock, can experience inflation. But people today simply don’t realize how much bigger a problem the opposite condition can be. A little bit of inflation is useful and normal. It discourages people from hoarding money and encourages healthy levels of consumption and investment. It promotes growth, provided that a country’s fiscal and monetary authorities manage it properly. Under the gold standard, and largely because of the gold standard, the capitalist world endured eight different deflationary slumps severe enough to be called “depressions.” Since the gold standard was abolished, there have been none.

The dollar is not “backed” by anything!!! Fiat currency is not “real” money!!!

Many people are unnerved by the thought that money isn’t “backed” by anything anymore – backed by gold, for example. They’re afraid that this makes money a less reliable store of value. Hasn’t money always been gold or silver, or at least backed by it? Nope. In primitive societies, people typically participated in gift exchanges, where the receiver was placed under obligation to the giver, who would then receive something back in return at a later date. Such reciprocity has even been observed in non-human primates. As societies grew larger and more complex, and more interaction was between strangers, this relationship became more formalized. Writing was invented to keep track of these relationships. Historical studies confirm that credit/debit relationships recorded on clay tablets were the earliest known form of “money.”

Coinage was invented much later as a way of raising large armies and paying mercenaries. Governments found the easiest way to provision soldiers was to issue them standard-issue bits of gold or silver and then demand everyone else in the kingdom give them one of those coins back again. Because soldiers have the coins which everyone needs to pay the tax, trade with soldiers becomes a necessity. These coins started circulating as money. Promissory notes, which recorded an obligation on the part of a third party (an IOU), passed from hand to hand in the Middle Ages as an early form of paper money. Tally sticks, upon which were recorded a farmer’s tax obligations to the crown, also circulated as money throughout medieval Europe.

The Bank of England was created when a consortium of forty London and Edinburgh merchants — mostly already creditors to the crown — offered King William III a £1.2 million loan to help finance his war against France. To this day, this loan has never been paid back. It cannot be. If it ever were, the entire monetary system of Great Britain would cease to exist.

One problem with defining the value of the dollar in terms of gold is that gold’s value fluctuates relative to all other goods and services as the supply or demand for gold changes. When economic growth was not accompanied by an increase in the supply of gold, it put downward pressure on prices. The result was deflation and rising real debt burdens. For example, news in April 1893 that the government was running low on gold was followed by the Panic in May and a severe depression involving widespread commercial and bank failures. As a result of the panic, stock prices declined. 500 banks closed, 15,000 businesses failed, and numerous farms ceased operation. The unemployment rate hit 25% in Pennsylvania, 35% in New York, and 43% in Michigan. Soup kitchens were opened to help feed the destitute. Facing starvation, people chopped wood, broke rocks, and sewed in exchange for food. In some cases, women resorted to prostitution to feed their families.

Functional finance emphasizes the role of money as a”unit of account,” and a “store of value,” rather than as a “medium of exchange.” Money is primarily a credit/debt relationship and always has been. There would scarcely be enough gold bars in the world to run a modern industrial economy. Besides, even though gold and silver have a long history of use as a medium of exchange, it is still a social convention based upon “faith” that gold and silver are valuable–rarely do people need actual gold or silver for anything, any more than they need pieces of paper. In fact, commodities used as a medium of exchange typically do not have very many practical uses, otherwise they would be far too valuable as commodities to be used for money!

Money is primarily a social tool that we use to mobilize real resources to ensure our collective long-term health and prosperity. It is not a “thing” that is inherently scarce like diamonds or gold bullion. It is not something for the rich and powerful to hoard in their bank accounts, or to hide in offshore tax havens. It should be noted that the reverse is also true: no amount of money creation can substitute for actual resources which do not exist in the real world. Used wisely, however, it can allow us to manage our existing resources more carefully, including making the best use of our natural and human capital.

Conclusion

To sum up, sovereign, currency-issuing countries are only constrained by real limits. They are not constrained, nor can they be constrained, by purely financial limits because, as issuers of their respective currencies, they can never “run out” of money. This doesn’t mean that governments can spend without limit, or overspend without causing inflation; or that governments should spend any sum unwisely. The government cannot mobilize resources that do not exist. What it does mean is that no sovereign government needs to tolerate mass unemployment because of the state of its finances–no matter what that state happens to be. Nor does it require foreign entities to finance its deficit. What this further means is that a prolonged slump or depression is, ultimately, a political choice.

Sources:

(I encourage you to read the original texts at the following locations):

https://www.reddit.com/r/collapse/comments/472285/sweden_on_the_brink_an_interview_with_dr_tino/d09ttyp

https://www.reddit.com/r/AskSocialScience/comments/3mhh05/eli5_modern_monetary_policy_mmt_the_economic/cvs1pbz

The 7 Deadly Innocent Frauds of Economic Policy (PDF)

What is Modern Monetary Theory, or “MMT”?

Britain is heading for another 2008 crash: here’s why

‘Living within our means’ makes no economic sense. Labour is right to oppose it

MMT Primer

MMP Blog #24: What if Foreigners Hold Government Bonds?

China and the Trade Deficit

Martin Wolf On Wynne Godley’s Sectoral Financial Balances Approach

Isn’t it Time to Stop Calling it “The National Debt”?

The Meme that Refuses to Die: Government Debt Must Be Paid Back

4 Ways to Fix the Debt Limit – Forever

Crisis Chronicles: Gold, Deflation, and the Panic of 1893

Panic of 1893

Randy Wray: The Value of Redemption (Debt Free Money, Part 3)

The Deficit: Nine Myths We Can’t Afford

Jane Jacobs and America’s Dysfunctional Urban Design

It’s the 100th anniversary of Jane Jacobs birth, even celebrated with a Google doodle, despite Google going against literally everything she believed in and wrote about.

So, it’s time for a quick overview of the urban environment.

Data mining has confirmed what Jacobs knew through observation:

Back in 1961, the gradual decline of many city centers in the U.S. began to puzzle urban planners and activists alike. One of them, the urban sociologist Jane Jacobs, began a widespread and detailed investigation of the causes and published her conclusions in The Death and Life of Great American Cities, a controversial book that proposed four conditions that are essential for vibrant city life.

In her book, Jacobs argues that vibrant activity can only flourish in cities when the physical environment is diverse. This diversity, she says, requires four conditions. The first is that city districts must serve more than two functions so that they attract people with different purposes at different times of the day and night. Second, city blocks must be small with dense intersections that give pedestrians many opportunities to interact.

The third condition is that buildings must be diverse in terms of age and form to support a mix of low-rent and high-rent tenants. By contrast, an area with exclusively new buildings can only attract businesses and tenants wealthy enough to support the cost of new building. Finally, a district must have a sufficient density of people and buildings.

Data Mining Reveals the Four Urban Conditions That Create Vibrant City Life (MIT Technology Review)

Lloyd Alter points out that this contradicts the dictums of the “market urbanists” who claim that building as many tall, dense buildings as we can in urban areas will solve all our house-pricing problems (who can afford them anyway?):

[Jane Jacobs’] words are an anathema to many in the so-called market urbanist school, who see all of this preservation of older buildings as an impediment to development; as Steve Waldman explains, these market urbanists…

…argue that cities should eliminate restrictive zoning and other regulatory barriers to development, then let the free-market create housing supply. In a competitive marketplace, high prices are supposed to be their own cure. Zoning restrictions, urban permitting, and the de facto capacity of existing residents to veto new development are barriers to entry that prevent the magic of competition from taking hold and solving the problem.

Which is where we are today, with economists like Ed Glaeser, Ryan Avent and writers like Matt Yglesias and Alex Steffen persuading many that Jane Jacobs was wrong, and Felix Salmon defending crappy towers filled with rich people by saying “Better we have a living city with a couple of less-than-perfect buildings, than a stifled one governed by nostalgists and Nimbys.” Glaeser has written that “An absolute victory for Jacobs means a city frozen in concrete with prices that are too high and buildings that are too low.”

In fact, in Toronto, the city where Jane Jacobs lived the last 37 years of her life, you can see what happens if you let this happen. Yes, there is a boom in housing, with lots of relatively affordable small units that are full of a monoculture of childless young people, with the ground floor plane filled with a monoculture of chain restaurants, banks and drugstores…

Someone posted this video on Reddit: Most of the problems that we face today in the United States, whether they are cultural, economical, social or environmental are rooted in poor urban design and planning. Due to America’s unique experience of economic growth during the 20th century (2015)

Okay, that’s clearly hyperbole. But despite that, it is a good overview about how badly our built environment contributes to a large number of problems. Every facet of living has become separated by miles and miles of land due to zoning restrictions originally intended to separate people from polluting industries. Here are just a few of the problems the video puts on poor urban design:

  • Corporate control and the loss of small business. Mom-and-pop stores which depend on social connection to the community were eliminated, because there was no more street life or mixed-use communities. Less stores mean less buying options and more power to the large corporations. Barriers to starting businesses are put in place by restrictive zoning and high rents.
  • Obesity  and food deserts As people had to drive everywhere, they relied on drugstores and gas stations for food. Fast food made it easy to get drive-through food. People were unable to walk anywhere, obesity rates increased.
  • Loss of community and civic participation With gas making it too expensive to drive, and unable to walk anywhere, people stayed in their houses, eliminating a sense of community. Children are poorly socialized since they can’t play or bike anywhere, and must be driven around.
  • High crime rates and incarceration. As people moved to sububs, urban areas lost revenue, tax base, and businesses. Those unable to move became trpped in cities. Loss of revenue caused jobs to disappear, leading to desperation and crime. This led to an expanded police presence, overcriminilization and mass incarceration.
  • Fragmentation of society. Americans are becomeing ever more segregated by income, race, and class, leading to more conflict mistrust, and suspicion.

“There is a populist notion that sprawl and suburban setting disperse people in such a way as to make things more peaceful between them. Simply separating people and resources from one another doesn’t make for a more peaceful society. Separating people and destroying the chance for social connection and communities makes people more stressed. Humans are inherently social creatures. If you try to take that away from them it makes for a tumultuous society.”

Let’s not forget other deleterious effects on health too. Maybe this is why our health care spending is so high: Commuting Takes Its Toll (Scientific American)

To the above list, we might add ADD. Boring buildings have a cost as well:

A growing body of research in cognitive science illuminates the physical and mental toll bland cityscapes exact on residents. Generally, these researchers argue that humans are healthier when they live among variety — a cacophony of bars, bodegas, and independent shops — or work in well-designed, unique spaces, rather than unattractive, generic ones. In their book, Cognitive Architecture: Designing for How We Respond to the Built Environment, Tufts urban policy professor Justin Hollander and architect Ann Sussman review scientific data to help architects and urban planners understand how, exactly, we respond to our built surroundings. People, they argue, function best in intricate settings and crave variety, not “big, blank, boxy buildings.”

And studies show that feeling meh can be more than a passing nuisance. For instance, psychologists Colleen Merrifield and James Danckert’s work suggests that even small doses of boredom can generate stress. People in their experiment watched three videos — one boring, one sad, and one interesting – while wearing electrodes to measure their physiological responses. Boredom, surprisingly, increased people’s heart rate and cortisol level more than sadness. Now take their findings and imagine the cumulative effects of living or working in the same oppressively dull environs day after day, said Ellard.

There might even be a potential link between mind-numbing places and attention deficit hyperactivity disorders. In one case, physicians have linked “environmental deprivation” to ADHD in children. Homes without toys, art, or other stimuli were a significant predictor of ADHD symptoms. Meanwhile, the prevalence of U.S. adults treated for attention deficit is rising. And while people may generally be hardwired for variety, Dr. Richard Friedman, director of the pharmacology clinic at Weill Cornell Medical College, makes the case that those with ADHD are especially novelty-seeking. Friedman points to a patient who “treated” his ADHD by changing his workday from one that was highly routine — a standard desk job — to a start-up, which has him “on the road, constantly changing environments.”

The Psychological Cost of Boring Buildings (New York Magazine)

As this Atlantic article points out, our dependence upon automobiles is insane from a practical standpoint:

What are the failings of cars? First and foremost, they are profligate wasters of money and fuel: More than 80 cents of every dollar spent on gasoline is squandered by the inherent inefficiencies of the modern internal combustion engine. No part of daily life wastes more energy and, by extension, more money than the modern automobile. While burning through all that fuel, cars and trucks spew toxins and particulate waste into the atmosphere that induce cancer, lung disease, and asthma. These emissions measurably decrease longevity—not by a matter of days, but years. ..53,000 Americans die prematurely every year from vehicle pollution, losing 10 years of life on average compared to their lifespans in the absence of tailpipe emissions.

There are also the indirect environmental, health, and economic costs of extracting, transporting, and refining oil for vehicle fuels, and the immense national-security costs and risks of being dependent on oil imports for significant amounts of that fuel. As an investment, the car is a massive waste of opportunity—“the world’s most underutilized asset,” the investment firm Morgan Stanley calls it. That’s because the average car sits idle 92 percent of the time. Accounting for all costs, from fuel to insurance to depreciation, the average car owner in the U.S. pays $12,544 a year for a car that puts in a mere 14-hour workweek. Drive an SUV? Tack on another $1,908.14
Then there is the matter of climate. Transportation is a principal cause of the global climate crisis, exacerbated by a stubborn attachment to archaic, wasteful, and inefficient transportation modes and machines…Total passenger miles by air are miniscule compared to cars. In any given year, 60 percent of American adults never set foot on an airplane, and the vast majority who do fly take only one round trip a year. Unfortunately, air travel is not the primary problem, contributing only 8 percent of U.S. transportation-related greenhouse gases. Cars and trucks, by contrast, pump out a combined 83 percent of transportation carbon.

And that’s not even counting cars’ most dramatic cost: They waste lives. They are one of America’s leading causes of avoidable injury and death, especially among the young. Oddly, the most immediately devastating consequence of the modern car—the carnage it leaves in its wake—seems to generate the least public outcry and attention…Car crashes are the leading cause of death for Americans between the ages of 1 and 39. They rank in the top five killers for Americans 65 and under (behind cancer, heart disease, accidental poisoning, and suicide). And the direct economic costs alone—the medical bills and emergency-response costs reflected in taxes and insurance payments—represent a tax of $784 on every man, woman, and child living in the U.S.

The numbers are so huge they are not easily grasped, and so are perhaps best understood by a simple comparison: If U.S. roads were a war zone, they would be the most dangerous battlefield the American military has ever encountered. Seriously: Annual U.S. highway fatalities outnumber the yearly war dead during each Vietnam, Korea, Iraq, Afghanistan, the War of 1812, and the American Revolution. When all of the injuries from car wrecks are also taken into account, one year of American driving is more dangerous than all those wars put together.

The Absurd Primacy of the Automobile in American Life. (The Atlantic) Considering the constant fatalities, rampant pollution, and exorbitant costs of ownership, there is no better word to characterize the car’s dominance than insane. But what isn’t insane about the way we live in America, hmmm?

The freeways clearly facilitated sprawl and cut the heart of America’s formerly-prosperous and glorious cities. So why were they built? A lot of it was intentionally destroying African-American neighborhoods in the interest of “urban renewal”:

State and city politicians accepted these plans for a variety of reasons. In an era when suburbs had just begun to grow, DiMento says, “local politicians saw urban freeways as a way of bringing suburban commuters into city.” Some local businesspeople supported them for similar reasons.

But an unmistakable part of the equation was the federally supported program of “urban renewal,” in which lower-income urban communities — mostly African-American — were targeted for removal.

“The idea was ‘let’s get rid of the blight,'” says DiMento. “And places that we’d now see as interesting, multi-ethnic areas were viewed as blight.” Highways were a tool for justifying the destruction of many of these areas.

Highways gutted American cities. So why did they build them? (Vox). A must-read on the history:

City planners…saw the crowded African American areas as unhealthy organs that needed to be removed. To keep cities healthy, planners said, these areas needed to be cleared and redeveloped, the clogged hearts replaced with something newer and spiffier. But open-heart surgery on a city is expensive. Highway construction could be federally funded. Why not use those federal highway dollars to also tear down blight and rebuild city centers?

The urban planner Robert Moses was one of the first to propose the idea of using highways to “redeem” urban areas. In 1949, the commissioner of the Bureau of Public Roads, Thomas MacDonald, even tried to include the idea of highway construction as a technique for urban renewal in a national housing bill. (He was rebuffed.) But in cities across America, especially those that didn’t want to—or couldn’t—spend their own money for so-called urban renewal, the idea began to take hold. They could have their highways and they could get rid of their slums. With just one surgery, they could put in more arteries, and they could remove the city’s heart.

The Role of Highways in American Poverty (The Atlantic) Syracuse, New York as case study. The fallout from this is what I touched on in my last posts on automation.

Lloyd Alter proposes the bringing back the Euroloaf building concept. I have to admit when I first saw this, I assumed Euroloaf referred to how Europeans spend their typical August.

Back in the 1970s a remarkable housing project was built in Toronto; The St. Lawrence neighbourhood has been described by journalist Dave LeBlanc as the “best example of a mixed-income, mixed-use, pedestrian-friendly, sensitively scaled, densely populated community ever built in the province”. Designed around principles espoused by Jane Jacobs (some even claim she had a hand in designing it; she didn’t), it was a mix of low street facing townhouses and long mid-rise apartment blocks of a relatively consistent height. They looked a lot like buildings from Paris or Scandinavia and were nicknamed “Euroloaf” because they are kind of shaped like loaves of bread.

Coincidentally, I was working on a post about Swedish prefab and looking at all their Euroloaves, still pretty much the standard typology…Right now wood is having a renaissance, and the point man is Vancouver’s Michael Green, with his Tall Wood…But perhaps he is trying to push a square wood peg into a round hole; perhaps it’s the wrong planning model for wood, where the Euroloaf is probably more appropriate…I have been arguing for Euroloaf planning for years without calling it that. I called it the Goldilocks Density,

 …dense enough to support vibrant main streets with retail and services for local needs, but not too high that people can’t take the stairs in a pinch. Dense enough to support bike and transit infrastructure, but not so dense to need subways and huge underground parking garages. Dense enough to build a sense of community, but not so dense as to have everyone slip into anonymity.

That’s what the Euroloaves are. The trouble with them is that developers like to build tall and thin; better views, (especially in Michael Green’s Vancouver) more repetition of elements vertically and cheaper costs per square foot (because of things like one plumbing stack serving more units).

When those Toronto developments were proposed in the seventies, the codes limited wood to three floors and they were built out of concrete. But now, building codes are changing to allow for six storey wood buildings. This changes the economics changes making low rise construction more affordable. Suddenly Euroloaves make a lot more sense.

Instead of Tall Wood, Let’s Bring Back the Euroloaf (Treehugger)

Various other readings:

Deferred in the ‘Burbs (Mike the Mad Biologist)

Finally! Tiny home subdivisions and developments are becoming a reality. (Treehugger)

How Burglars Commit Crime and Take Advantage of Cities by Hacking Architecture (Vice) Hey, I know architecture and programming! Is this my next career move?

Welcome to the Future: Middle-Class Housing Projects (New Yorker)

What Architecture Is Doing to Your Brain (Citylab)

Geography is making America’s uneven economic recovery worse (Quartz) Not geography, but urban planning.

Urban population growth and demand for food could spark global unrest, study shows (Los Angeles Times)

And finally, if you haven’t been reading the excellent series from The Guardian on the history of cities, it’s basically the equivalent of an entire book on urbanism in the proud tradition of Lewis Mumford:

The story of cities (The Guardian) Here’s the Jane Jacobs entry: Story of cities #32: Jane Jacobs v Robert Moses, battle of New York’s urban titans More here: Celebrating Jane Jacobs’ Birthday ’round the net (Treehugger)

Neoliberalism Shows Its Face

Neoliberalism is the ruling ideology of the post-Communist world, and yet no one knows what it is.

That’s the thesis of this George Monbiot column, who sheds light on the doctrine and its history. It’s a great explanation; it ties together the ideological construct of Neoliberalism with the political rhetoric which uses it as a justification, even as it denies it is an ideology at all.

Why is the private sector big business “efficient” but government spending always “waste?” Why must we turn everything over to “market forces?” Why must we always blame individuals for failure rather than systems? Why are regulations always seen as “distorting” the market? What’s up with all the “public-private” partnerships? Why should schools, hospitals, and governments be run “like a business?” Why are we forced to “shop around” for healthcare and fund our own retirements by gambling in the stock market? Why is education looked at through the prism of “return on investment?” Why have “citizens” been replaced by “consumers?” It’s all underpinned by a single ideology; an ideology maintained and elucidated by the economic priesthood:

So pervasive has Neoliberalism become that we seldom even recognise it as an ideology. We appear to accept the proposition that this utopian, millenarian faith describes a neutral force; a kind of biological law, like Darwin’s theory of evolution. But the philosophy arose as a conscious attempt to reshape human life and shift the locus of power.

Neoliberalism sees competition as the defining characteristic of human relations. It redefines citizens as consumers, whose democratic choices are best exercised by buying and selling, a process that rewards merit and punishes inefficiency. It maintains that “the market” delivers benefits that could never be achieved by planning.

Attempts to limit competition are treated as inimical to liberty. Tax and regulation should be minimised, public services should be privatised. The organisation of labour and collective bargaining by trade unions are portrayed as market distortions, that impede the formation of a natural hierarchy of winners and losers. Inequality is recast as virtuous: a reward for utility and a generator of wealth, which trickles down to enrich everyone. Efforts to create a more equal society are both counter-productive and morally corrosive. The market ensures that everyone gets what they deserve.

Neoliberalism – the ideology at the root of all our problems (The Guardian)

That’s a good summary. Neoliberalism is often referred to as “free market fundamentalism,” which is a good summary of its doctrine. This article details some of the history of how it became so predominant:

Free market economists believe that markets work best when left alone, and any type of government intervention to help the economy can only have harmful effects. Even after the Great Depression, they continued to argue that the government intervention would only cause further harm, and the free market would automatically resolve the problems. However, it was obvious to all that the massive amount of misery called for urgent action. [The Quantity Theory of Money] was discredited and mainstream economists accepted Keynesian ideas, rejecting free market ideologies. US President  Franklin Delano Roosevelt (FDR) started his campaign with orthodox promises to balance the budget but converted to Keynesianism when faced with the severe hardships imposed by the Great Depression. He later said that “to balance our budget in 1933 or 1934 or 1935 would have been a crime against the American people.” In the 1960’s, the aphorism that “We are all Keynesians now” became widely accepted.

Free market ideologues like Friedman and Hayek patiently bided their time, while preparing the grounds for a counter-attack. Their opportunity came when stagflation – high unemployment together with high inflation – occurred in the 1970’s as a result of the Arab oil embargo. They skillfully manipulated public opinion to create the impression that economic problems were due to Keynesian economic theories, and could be resolved by switching to free market policies. The rising influence of free market ideology was reflected in the election of Reagan and Thatcher, who rejected Keynesian doctrines. Milton Friedman re-packaged old wine in new bottles, and the [Quantity Theory of Money] went from being a discredited eccentric view to the dominant orthodoxy… monetarists succeeded in persuading many academics and policy makers of the pre-Keynesian ideas that money only affects prices, and has no long run effects on the real economy. Central Bankers were persuaded to abandon the Keynesian idea of using expansionary monetary policy to fight unemployment. Instead, they started to focus on inflation targets. Forgetting the hard learned lessons of the Great Depression led to The Global Financial Crisis. Excess money creation for speculation led to a boom in housing and stock markets, followed by a crash very much like that of the Great Depression. Chastened Central Bankers remembered Keynes and took some actions necessary to prevent a collapse of the banking system. A deeper understanding of money could have prevented the Great Recession which followed. The truth is exactly opposite of the QTM idea that money does not affect the real economy. In fact, money plays a central role in the real economy.

The Veil of Money (WEA Pedagogy Blog)

Chris Dillow thinks that defining Neoliberalism as any sort of coherent ideology is giving it too much credit. He points out all the inconsistencies between Neoliberalism’s supposed purpose to let the Market decide, and the huge salaries and profit margins of well-connected insiders and their political cronies. “It might be that “neoliberalism” is not so much a coherent intellectual project as a series of opportunistic ad hoc uses of capitalist power.”

Most leftists, I reckon, would describe all the following as distinctively neoliberal policies: the smashing of trades unions; privatization; state subsidies and bail-outs of banks; crony capitalism and corporate welfare (what George calls “business takes the profits, the state keeps the risk”; the introduction of managerialism and academization into universities and schools; and the harsh policing of the unemployed.

What do they have in common? It’s certainly not free market ideology. Instead, it’s that all these policies enrich the already rich. Attacks on unions raise profit margins and bosses’ pay. Privatization expands the number of activities in which profits can be made; managerialism and academization enrich spivs and gobshites; and benefit sanctions help ensure that bosses get a steady supply of cheap labour if only by creating a culture of fear. Ben’s claim that neoliberalism is happy with a big state fits this pattern; big government spending helps to mitigate cyclical risk.

All this makes me suspect that those leftists who try to intellectualize neoliberalism and who talk of a “neoliberal project” are giving it too much credit…. Perhaps neoliberalism is simply what we get when the boss class exercises power over the state.”

Over-estimating neoliberialism (Stumbling and Mumbling)

Dillow points out that many recent phenomena have nothing to do with markets, and everything to do with enriching a small elite. In fact, truly free markets would compete away excess profits. But if you sell off the commons to rent-seeking investors who can depend on taxpayer money and game the system, you would see guaranteed high profits supported by state money. And if markets were run by monopolies and oligopolies where barriers to entry and regulations kept out competitors, you would see excess profits as well:

…one feature of the neoliberal era has been the soaring wages of those claim to deny the power of markets. CEOs – who are in effect central planners – and financiers who aspire to beat the market have seen their pay increase massively since the 80s. That’s not something that would have happened if market ideology has triumphed.

That’s the point of this article: High Profits Mean Capitalism is Cooked (BoingBoing):

The efficient markets hypothesis holds that high margins attract competitors, who whittle them away to next to nothing, spurring firms to innovate to create new products, services, and methods that are more efficient, benefiting the wider society. This process is the whole moral and utilitarian basis for “free market” capitalism, the idea that if you let companies compete without limitations, they will force one another to ever-greater heights of innovation, efficiency, and productivity, giving all of us more for less.

When firms — and sectors — enjoy consistent high margins, there’s something wrong. The only way that’s possible is if the companies are cooking the process: securing monopolies, conspiring to fix prices, capturing their regulators and using regulation to keep new entrants out of the market. Collectively, these activities are called “rent-seeking” and preventing them is, in free market ideology, the most important function of the state. Without an extra-industrial referee to police rent-seeking, it will grow to dominate every industry, since investors and managers and employees tend to prefer to lay down their arms and use collusion and capture to secure their positions, rather than constantly striving. Without constant vigilance, there’s no markets, only crony capitalism.

So Neoliberalism in real life has been a way of cooking the markets, a way for managers to gain control of the state. But herein lies a paradox: capitalism needs a state strong enough to maintain it, but such a strong state can by captured. “Because Markets” is just an ideological smokescreen for the looting of society, what David Harvey calls a “new enclosure movement,” where the commons is sold off to the investor class for profits, and access is restricted to those most able to pay.

No doubt libertarians would be quick to label this as “crony capitalism”–their catch-all for when the market delivers lass than optimal outcomes for the majority of people.
As for the crony capitalism charge, this Reddit user makes some good points about the use of that all-purpose, “get-out-of-jail-free” card by defenders of the status quo:

I’ve been reading a lot of comments by people who wedge the word “crony” before “capitalism,” as if it somehow constitutes a meaningful defense of the neoliberal religion.

Capitalists seek profit by almost any means necessary. If it means corrupting the state (assuming the state wasn’t corrupt in the first place…), siphoning off money from “entitlement spending,” (ex: Walmart administering food stamps or hospitals over billing patients on Medicare/Medicaid), lobbying politicians for local development subsidies for the ostensible purpose of creating jobs and revitalizing industry, etc. (basically, whatever the fuck will help them realize additional profits), that IS the essence of the system. It’s not some distorted, deviant version of it; ergo, crony capitalism is the logical outcome.

If they want to play the “well, that’s not REAL []” game, perhaps they should accept the argument that the USSR/Maoist China didn’t represent “real communism.” I’d love to see how that goes.

Second, crony capitalism is the symptom, not the problem. Laws from a century ago in America were designed to curb/regulate the problems of capitalism. Those regulations did not cause the problems themselves. (Need to stress this point over and over again, some people seriously think it was unicorns and fairies before the evulllllll gubminttt stepped in)

An apt analogy for this level of delusional thinking is if someone contracts tuberculosis and visits a doctor, who prescribes antibiotics. The antibiotics work for a while, but a few resistant strains survive and return with a vengeance. The antibiotics no longer work…of course, nobody reasonable would say “yeah, the solution is to roll back on the meds, because then the Mycobacterium tuberculosis will die off.”

Or as I put it, crony capitalism IS capitalism. It always has been. But since history was purged from the field of economics in favor of abstract math and ideology, we are told to forget that fact. Michael Perelman’s “Railroading Economics” tells much of this sad story. Crony capitalism is the default mode.

A trenchant example of this is the dismantling of health care and higher education in the United Kingdom. The bleeding of higher education is described in this article by Trainspotting author Ian Welsh:

As with the economy, so too with higher education; Thatcher might have set up the Student Loans Company, but it was Blair’s government who introduced tuition fees with the Teaching and Higher Education Act of 1998. This was followed by the draconian act of 2004, which increased fees from £1,000 [$1,400] to £3,000 [$4,300] pounds.

Since then, paid higher education has remained a political consensus in English politics (a Liberal Democrat pledge to abolish fees when in coalition partnership with the Conservatives was swiftly reneged upon), though not in Scotland, where remarkably, in the devolved parliament, the SNP administration still supports free tuition.

So student loans and debts are not an incidental strategy. They represent the starting point of inducting people into a life package of debt-servitude, which includes mortgage and car loans. In more innocent and economically buoyant times, we used to call this credit. In the words of leading American-Canadian critic and social theorist, Henry Giroux: “Higher education is viewed by the apostles of market fundamentalism as a space for producing profits, educating a docile labor force, and a powerful institution for indoctrinating students into accepting the obedience demanded by the corporate order.”

When the US media, such as the New York Times or the Wall Street Journal, discuss student debt, it’s from a neoliberal perspective, with the question being: how can politicians prevent the banks from losing money on these debts? The invariable answer: by tightening the screws on the debtors. The banks got the government to guarantee such loans, which gives politicians the leverage to contend that they must protect the taxpayer and make these shiftless students pay. Even if the taxpayers in question are often the parents of the indebted students.

The Wall Street Journal recently described student loans as just another example of Obama’s socialism. A fairly ludicrous contention, as the American state neither runs the education system nor provides its financing. As in the UK, tuition fees in the US have risen steeply over the last decade. The socialism is reserved for the banks who benefit from this and other scams, as they are deemed “too big to fail” by Anglo-American capitalism. For everybody actually in the education system, the story is one of privatization and financialization.

How the Banks Stole Higher Education (VICE)

And the dismantling of Britain’s National Health system is described well by this comment to a Reddit discussion of the walkout strike of England’s emergency room doctors:

Step 1: Intentionally under-fund the NHS, transforming surplus creating hospitals into debt ladden hospitals ‘un-able to manage themselves’.

Step 2: Divide the workforce, for example a bad new contract for some staff.

Step 3: Push hospitals into crisis and paint staff in a negative light to gather public support.

Step 4: Effectively degrad personal morale to initiate highly skilled migration out of the NHS to value appreciating organisations (Private Practice and Overseas health services) with aim for a critical mass of vacant positions.

Step 5: Portray the NHS as failed and ‘not a fit for modern society’.

Step 6: Sell easily saleable/profitable hospitals to private management companies.

Step 7:Split the NHS emergency and elective services and allow private companies e.g. ABC Healthcare sell priority to healthcare for a price (Need a operation? Pay or have insurance to get operation straight away and not wait 12 months until it’s an emergency).

Step 8: Engage TTIP laws to allow American medical/pharmaceutical companies to force contracts under threat of lawsuit against the British Government, Crown and People.

Step 9: Keep the worst performing assets and hospitals, and proclaim that ‘We have saved the NHS’.

Step 10: Retire and profit.

To which some commenters added:

It really is phenomenal how much and how fast the conservative government strips and cuts through all that has been painstakingly built over the years. Afterwards one can then claim to have solved the deficit issue and help your friends in the private sector, while the average Joe is left with unaffordable, inadequate services. Yay…

Yep, the strategy is called “starve the beast” and has been used for decades by US Republicans.

England’s Doctors Walk Out of Emergency Wards in First Ever All-Out Strike(Reddit)

So Neoliberalism is still destroying and dismantling the world, heading us forward to a kind of neofeudal order. And it seems unstoppable. Yet we’re finally seeing a backlash all over the world:

The greater the failure, the more extreme the ideology becomes. Governments use neoliberal crises as both excuse and opportunity to cut taxes, privatise remaining public services, rip holes in the social safety net, deregulate corporations and re-regulate citizens. The self-hating state now sinks its teeth into every organ of the public sector.

Perhaps the most dangerous impact of neoliberalism is not the economic crises it has caused, but the political crisis. As the domain of the state is reduced, our ability to change the course of our lives through voting also contracts. Instead, neoliberal theory asserts, people can exercise choice through spending. But some have more to spend than others: in the great consumer or shareholder democracy, votes are not equally distributed. The result is a disempowerment of the poor and middle. As parties of the right and former left adopt similar neoliberal policies, disempowerment turns to disenfranchisement. Large numbers of people have been shed from politics.

Chris Hedges remarks that “fascist movements build their base not from the politically active but the politically inactive, the ‘losers’ who feel, often correctly, they have no voice or role to play in the political establishment”. When political debate no longer speaks to us, people become responsive instead to slogans, symbols and sensation. To the admirers of Trump, for example, facts and arguments appear irrelevant.

Judt explained that when the thick mesh of interactions between people and the state has been reduced to nothing but authority and obedience, the only remaining force that binds us is state power. The totalitarianism Hayek feared is more likely to emerge when governments, having lost the moral authority that arises from the delivery of public services, are reduced to “cajoling, threatening and ultimately coercing people to obey them”.

Like communism, neoliberalism is the God that failed. But the zombie doctrine staggers on, and one of the reasons is its anonymity…

Fun Facts

In the first decade of this century, America lost 56,190 factories, 15 a day.
http://inthesetimes.com/working/entry/18911/murdering_american_manufacturing_TPP

The scale of workers’ insecurity since the economic crisis is revealed in research showing that 32% believed that there was a risk of losing their jobs and 38% were anxious that their pay would be cut. Many workers also feared arbitrary dismissal and loss of autonomy and pay, as well as discrimination and victimisation by management.
http://www.eurekalert.org/pub_releases/2016-03/s-aat030116.php

China accounted for just 3 percent of global manufacturing output in 1990. Today it produces almost a quarter, including 80 percent of all air conditioners, 71 percent of all mobile phones, and 63 percent of the world’s shoes.
https://www.technologyreview.com/s/601215/china-is-building-a-robot-army-of-model-workers/#/set/id/601326/

Chinese steel production has expanded hugely. Over the past 25 years, output has grown more than 12-fold. By comparison, the EU’s output fell by 12% while the US’s remained largely flat.
http://www.bbc.com/news/business-36099043

Beijing now had 100 billionaires living in the city, 5 more than New York. China now has more billionaires than any other country
http://www.bbc.com/news/blogs-magazine-monitor-35672287

GM paid $904M more in taxes to China than the US in 2015
http://www.foxbusiness.com/markets/2016/03/31/wheres-presidential-debate-on-gms-crony-capitalism.html

About 16.1 percent of China’s land is polluted. This amount of land is equal to more than twice the size of Spain. 19.4 percent of arable land in China is polluted. 82.8% of contaminated lands are polluted by pollutants like Arsenic, Cadmium, and Nickel.
http://guardianlv.com/2014/04/pollution-a-huge-problem-in-china/

More than 80 percent of the water from underground wells used by farms, factories and households across the heavily populated plains of China is unfit for drinking or bathing because of contamination from industry and farming.
http://www.nytimes.com/2016/04/12/world/asia/china-underground-water-pollution.html?_r=2

Delhi has 8.5 million vehicles and with car sales soaring in India, 1,400 extra cars are added to the capital’s streets every day.
http://www.bbc.com/news/world-asia-india-36051628

Syria’s drought has likely been its worst in 900 years.
http://www.climatecentral.org/news/syrias-drought-worst-900-years-20087

Water availability in India’s 91 reservoirs is at its lowest in a decade, with stocks at 29% of their total storage capacity. Some 85% of the country’s drinking water comes from aquifers, but their levels are falling.
http://www.bbc.com/news/world-asia-india-35888535

Children spend less time outside than prison inmates.
http://www.treehugger.com/culture/children-spend-less-time-outside-prison-inmates.html

The United States’ Largest Public Schools Have More Police Than Counselors.
https://www.colorlines.com/articles/study-nations-largest-public-schools-have-more-police-counselors

The two largest private prison operators made a combined $361 million in profits in 2015.
https://twitter.com/SenSanders/status/703366272726208518

In 1988, 0.20% of the population of the USSR was police, and the US had 0.24%. Today, the US has 0.35% of the population acting as police.
https://www.reddit.com/r/collapse/comments/49jyor/in_1988_020_of_the_population_of_the_ussr_was/

At the current rate of decline in prison population (~1.8 per year), it will take until 2101 —88 years — for the prison population to return to its 1980 level.
http://marginalrevolution.com/marginalrevolution/2016/02/america-fact-of-the-day-5.html

The NFL makes more than $9 billion annually, is projected to make more than $25 billion a year by 2027, and pays its CEO more than $30 million a year. Yet sixty-eight percent of NFL stadium construction costs since 1923 have come from taxpayer money.
https://www.reddit.com/r/todayilearned/comments/43os83/til_that_despite_the_nfl_making_more_than_9/

Michael Jordan makes more money from Nike than all of the Nike factory workers in Malaysia combined.
http://www.letsrun.com/forum/flat_read.php?thread=5125929&page=1

Almost no industry would be profitable if environmental costs were included.
http://www.trucost.com/_uploads/publishedResearch/TEEB%20Final%20Report%20-%20web%20SPv2.pdf

When adjusted for inflation, wages for investment bankers and securities-industry employees, including salary and bonuses, increased 117 percent from 1990 through 2014, according to U.S. Bureau of Labor Statistics data. Over the same period, wages for all other industries rose 21 percent, to $51,029 in 2014, about one-fifth of the $264,357 that bankers and brokers earned that year.
http://www.bloomberg.com/politics/articles/2016-04-11/wall-street-wages-double-in-25-years-as-everyone-else-s-languish

The U.S. individual income tax will raise about four times as much as the corporate income tax ($1.8 trillion vs. $419 billion).
http://www.investopedia.com/articles/markets/042616/what-all-candidates-tax-plans-are-missing.asp

The first architect ever to appear on television was Albert Speer.
http://www.newcriterion.com/articles.cfm/The-architect-of-the-Reich-8384

A successful campaign for the Best Picture award could spend around $10 million to influence just 6,000 Academy members.
http://www.bbc.com/news/entertainment-arts-35613630

According to a 2012 survey in El Tiempo 82% of Colombian men and 42% of women say they have been unfaithful at least once in their lifetime.
http://www.bbc.com/news/magazine-35660047

Scientists in 1916 felt America was degenerating into a second rate nationality. They listed the Top 20 threats to USA: #8 America leads all nations in murders #12 Hearty eating without exercise #18 Remarkable cancer mortality increase.
https://www.reddit.com/r/todayilearned/comments/43zif0/til_that_scientists_in_1916_felt_america_was/

Collapse, Race, and Class

I’ve often been struck by the extent to which collapse-phobia is a predominantly white, middle-class phenomenon.

It seems that whites, many of whom have very comfortable lifestyles and significant dynastic wealth, are the ones most terrified of collapse, however defined – stock market crash, empty shelves in the stores, civil order breakdown, panics, natural disasters, resource depletion, etc. They are the ones in panic mode–buying gold, stockpiling guns, buying rural land, hoarding supplies, learning how to forage, installing solar panels, stocking up on rice and beans, etc. Many of the people I have met who are concerned about economic collapse and environmental unsustainability have advanced degrees (not cheap), and live comfortable lives that I could only dream about in terms of expensive houses, families, and job security. By contrast, most lower-income people I have dealt are totally were unaware of the issues surrounding collapse–economic fragility, environmental destruction and climate change, our dependence on fossil fuels for everything, the creeping police state–and probably wouldn’t care too much if they did know about them.

Now, you would expect the poorest people in society to be the ones most afraid of a potential collapse, not people who are quite privileged and well-off. After all, they are society’s most vulnerable people. Any collapse would surely hit them hardest, right? But that’s not what you see.

The reason I think poor people are not very well-represented in the collapse community (to the extent that there is one) is because for them, the wealthy, white, middle-class fears have already been realized in their day-to-day reality.

That is, they’re already living in the post-collapse world that middle-class collapsniks fear so much. The poor aren’t concerned about collapse because they’re already living it.

Unable to get a job, any job? Check. Random acts of violence? Check. Living out of your car? Check. Cash transactions in the underground economy? Check.

People in inner-cities are already growing food in urban gardens on abandoned lots all over the place–a perennial “future” scenario for collapsniks. The buildings around them are already decrepit and falling apart due to neglect. Copper wires are already being stripped from the local buildings. They already can’t afford to put gas in the tank, even at today’s prices. They are already squatting in abandoned houses and trying to avoid eviction and foreclosure. They are already wearing second-hand clothing and foraging in trash-bins for recyclable glass and aluminum. They are already out begging on the streets. They are already dumpster-diving for food. They are already routine victims of state violence via militarized police. As for stocking up on guns to defend yourself from theft and violence, well, for a lot inner-city folks, that’s been a reality for quite some time now. Gangs are already a feature of daily life there in the absence of a working economy. The inner-city already has warlords; they’re called gang leaders.

Now it’s true, there is still gas in the pumps and still food on the shelves. The issue is affording it. The food on the shelves isn’t much consolation if you can’t afford it. Poor people often live in so-called “food deserts”–places where the only food on offer and affordable is corn-syrup laden, heavily-processed human dog food. They’re alive-but sick. Getting healthy, nutritious food, especially protein, is difficult.*

I think it boils down to this:

You can’t be loss-averse if you have nothing to lose.

It’s also why it’s pointless to argue about when collapse will happen: for may of us, it’s already happened, as I’ve pointed out many times before. That’s why blacks, and poor people of any race, are more concerned with getting a job that pays the bills and staying one step ahead of the debt collector than whether humans are going to go extinct a hundred years from now.

This realization is what prompted my last series of posts.

See, most white people don’t ever set foot inside an inner-city, so they don’t know the extent to which a inner-cities already reflect a post-collapse reality. The government has already abandoned these people (except for locking them up, that is). I think that’s because of the racial divide. I’ve spent some time in places like these, so to me, collapse is a much more real phenomenon.

African-Americans have already been living with collapse for generations. That’s why collapse-phobia is largely a white, middle-class phenomenon. A lot of immigrants to the U.S. also come from collapsing countries, so, to them, the fears of most North Americans seem foolish given the conditions where they came from (Latin America, Subsaharan Africa, the Middle East, etc.). A common question you often hear in collapse forums is “how can I preserve my assets in the event of collapse?” For people who’ve never had any assets, this question is absurd. “What should I invest in given my collapse knowledge,” seems rather detached from people who are already living with it and who have nothing.

How did it get this way? Was there a war? Economic collapse? Secession? Natural disaster? Fuel shortage?

Well, in the case of Milwaukee, none of the above. In contemplating how the inner-city got to be the way it is, it’s pretty obvious that it was economic trends which caused the damage. Black people just aren’t needed in the economic order anymore. And, as I detailed in the last series of posts, automation is the ultimate culprit. It’s true that deindustrialization unfolded in different ways, including sending factories to China, Bangladesh, Vietnam, Honduras, etc., in addition to automation and suburbanization. But even when you suggest bringing factory jobs back, experts point out that manufacturing just won’t employ that many people anymore no matter what. There are already “lights out” factories that employ only a handful of technicians. The robot future is already here when it comes to making stuff.

So if automation caused America’s urban areas to become post-collapse hellholes, what does that bode for the rest of America? Blacks were only the first victims; the blind eye turned to that fact means that probably nothing will be done to help the latest series of victims who are being made equally redundant to the economic order.

You already see this attitude all over the place. The economists blithely assuring us that automation will create more jobs than it destroys. The “low” unemployment rate of five percent in the official government statistics. The redefining of more and more people as “not in the workforce.” The constant reports in the media of the economy “getting better.” The sneering derision of anyone without a STEM degree. The constant efforts to demonize and humiliate people on public assistance to the greatest extent possible. The fomenting of resentment toward “entitlements” and people “dependent upon government.”

What it ultimately means is that, to once again paraphrase William Gibson, collapse is already here; it’s just not evenly distributed. But just wait. If you want to know how to cope, my suggestion is to look at inner-cities. If you want to “collapse now and avoid the rush,” there are more places than ever to choose from.

It also means that the more lurid “zombie apocalypse” fantasies are just that–fantasies. People aren’t killing each other over gasoline (but do like to use the old “I just need a dollar for gas” line when begging). They aren’t starving, for the most part (but are living on McDonald’s and frozen pizzas). There’s no cannibalism in sight (unless you’re that bath-salts guy in Florida).

I think people want collapse to be a great reset applying to us all. That’s a lot more sexy than a life of poverty on the margins of society while a smaller and smaller number of privileged people continue to enjoy comfortable lives with all the modern conveniences for some time to come. Getting harassed by bill collectors and being unable to get (still available) medical treatments is a lot less enticing than fantasies about abandoned cities overgrown with weeds, bankers hanging from lampposts, and growing vegetables in your own self-sufficient homestead. I think the anxiety is really less about collapse than about falling into the poverty trap that white people have stubbornly ignored for so long in a feeling of misplaced superiority. I think a lot of collapse fear is really just fear of marginalization and poverty, and the idea that everything will burn when you do, so you don’t have to worry about it, is a comforting salve.

* Here, organizations like the Victory Garden Initiative and Will Allen’s Growing Power have helped in this regard. Both are pioneers in urban farming.