Carrot Sticks

Disapproving of people who aren’t “Normal” went from a virtue to vice within my lifetime.

I still see a lot of baffled resentment about that shift in public morals.

I still read a lot of pushback, and a sense that something’s gone terribly wrong.

If you strip away all the rhetoric and conspiracy theories that call marriage equality and gender neutral restrooms a subversive attack on normative institutions in prelude for the ushering in of a totalitarian state that demands full ideological compliance at all times, you’re left with a portrait of some very simple, wrong, but simple feelings underneath:

People miss being socially rewarded for conformity.
People miss being socially rewarded for enforcing it.
People resent being punished for what they were once rewarded for.

The shift in public morals changed the rules on what it took to be seen as a good person.

It used to be about not doing anything weird, and looking down on anybody who did.

Now it’s about not doing anything cruel, and looking down on anyone who does.

There used to be people it was not only OK to be cruel about, but REWARDED to be cruel about.

People fear the loss of unity that a loss of conformity-as-a-public-moral represents to them. They don’t understand what that unity cost, and don’t understand that it was a facade that was no more true then, than it was now, and just required a lot more people to hide, pretend, live unsatisfying inauthentic lives, and often suffer anyway, because the people who fear this were the ones conformity came easily to. They were the ones around whom the idea of “normal” was designed.

They built their senses of self partially on a bedrock of pride at being “the right kind of person.”

They see the idea that there even IS a “right kind of person” going away, as a threat not only to the unity of their nation, but to the socialvalue of the principal virtue from which they’ve always derived their standing and self-worth. Public tolerance of nonconformity, and public intolerance of intolerance toward it, feel like an existential threat.

If you’re wondering what animates and underwrites some segments of the modern Conservative outrage over ostensibly harmless live-and-let-live tolerance being adopted as the norm, and why they cast objection to them as FreeSpeech issues on THEIR behalf rather than HumanRights issues on someone else’s, this is how that logic works.

Within their lifetimes, whole swaths of the belief systems they were raised with and feel religiously and culturally virtuous for espousing, changed entirely without their buy-in from things everybody was supposed to agree with Or Else, to something you’d be treated badly for asserting.

Practically Overnight, as far as they were concerned.

And since these changes came from outside their communities –

And since these changes regarded discrimination and basic human rights –

They were accompanied by changes to the law regarding who it was ok to shun and treat differently.

That answer used to be “Someone”
That answer is now “No One”

BUT

All they know is they got a taste of what it was like to suddenly feel like pariahs at the hands of people who suddenly asserted influence over the laws of the land and didn’t respect their values or beliefs, and accomplished all of this without their consent or agreement, practically overnight.

It became NOT OK to hold beliefs that they held dear, not just on a social level, but also on a legal level, where those beliefs meant engaging in discriminatory practices against “the people it’s morally appropriate to treat badly.”

And That Was Terrifying.

It was the closest thing they’d ever felt to persecution.

Legal protections granting equality to the people they felt dutybound to shun and look down on felt like the government, acting at the behest of radicals who “didn’t love this country” (read: love it exactly how it was) felt like an attack not just on the character of the nation but on their individual right to self-determination and free thought.

So the next time you’re on a comment thread and you encounter someone dashing off manifestos about liberal nazi thought police, while you still won’t (i hope) respect and agree with them, you’ll at least know how they came to be as freaked-out as they are by things that nobody should mind, and why they see nothing but tyranny and totalitarianism in a public morals shift that says cruelty’s not ok.

Meet Your Money – part 5: Spiderman’s Ship of State

The words “Economic Growth” used to refer to the overall wealth of the people, based on how much gold was in circulation between them an the crown.  If you wanted Economic Growth to enrich yourself (the crown) or your people, your options were simple – strike gold by mining, or pillage a neighboring kingdom, or some land across the sea, and bring back their gold to your vault.  But be careful not to flood the market with your new gold coins, since that would lower the value of each one in circulation, unless you also grow your population at an ideal pace, to match the rate of new gold coins you mint as well.  Your population numbers need to grow and shrink in time with your total amount of currency in circulation, or contend with starving peasants on one extreme, or wildcat inflation on the other, and so on.  And since you don’t control things like who breeds how fast or how long those people live, managing currency supplies can be tricky, even if you know you’re supposed to, and not many historical rulers even knew or cared to try.

For those rare rulers who saw improving the average standard of their citizenry BEFORE ModernMonetaryTheory made it basically their jobs to think that way as Issuing Authority of a fiat currency, there weren’t too many levers besides hamfisted lawmaking to ensure that any currency they minted ended up doing anything more productive than just acting as a semi-convenient vessel of exchange.  Under a fiat currency, as Issuing Authority, government has to start new money somewhere, essentially because they’re the entity that starts money.  This hands a coupled power and responsibility to the Issuing Authority that they never intended to sign up for, but are stuck with by default.

I sum it up as: The Responsibility to Invest ProSocially.

Those are big words, capitalized because their heft outweighs the importance of proper grammar.  The easiest way to think about this burden on an Issuing Authority can be expressed as a series of propositions:

ASSUMING that the Issuing Authority is acting in good faith, and at the very least intending goodwill toward its citizens, and

ASSUMING that the Issuing Authority is aware of both its powers of Gas and Brake, and meets the prior criterion of goodwill, and

UNDERSTANDING that money is no longer best understood as gold coins, but as abstract units of transaction, able to change hands many times, thereby “existing” many times, before their Retirement-By-Tax, and

UNDERSTANDING that the more times an individual unit of currency changes hands, thereby “existing,” the more beneficial economic activity that individual unit of currency can perform before its eventual Retirement-By-Tax, and

ASSUMING that this beneficial economic activity, movement-for-the-enrichment-and-betterment-of-economic-participants, is the intended and desirable purpose of this currency’s existence, then

IT BECOMES INCUMBENT on the Issuing Authority to make choices, both in the targeting of its initial Spending-Into-Existence and the targeting of its eventual Taxing-Out-Of-Existence, using the following questions as a rubric:

Those questions are:

“What recipient-targets of federal Spending-Into-Existence generate the largest number of transactions among the broadest number of participants, before they either come to rest in the holdings of an economic entity with more currency than it can/will spend back into the economy,”

And

“What are the areas of the economy where currency  routinely underperforms by coming to rest, causing economic drag which can be remedied by Retirement-By-Tax?”

A third question might be:

“Are there systems of incentives, either through Taxes or Spending, which prove themselves to prompt money which has come to rest, to return to productive circulation, negating the need for increases to Spending-Into-Existence or targeted Retirement-By-Tax?”

Which brings us back to the words “Economic Growth.”

I’d like to leave you with this thought about the function of money in a fiat based currency system.  Economic Growth is about household/individual buying-power more directly under this monetary system than under any prior system from our past.  I contend this, because the measure of the size of the economy is capped not by the finite store of gold in a central repository, but by the number of useful transactions a unit of currency performs in its lifespan, and the relative speed at which it performs them.  Every time that money changes hands, someone has gotten money, and someone has gotten something they can use for it.

The ideal economy is the one in which participants are encouraged without the need for external artificial pressure, to contribute their best labor, ideas, and beneficial economic activity in exchange for the means of gaining access to the things that motivate them to participate.  This builds healthy societies, healthy individuals, and defines efficient economies.

Therefore an economy in which an individual is both incentivized to seek currency, able to access sufficient currency through socially-non-destrucive activities to both sustain themselves and sustain adequate demand for the goods and services offered by the economy’s other participants while controlling for quality, competition, and needfulness, spending the bulk of that currency rather than hoarding or funding make-work or activity of a trivial cost/benefit outlay, is one that enhances the lives of all participants and remains self-sustaining.

These conditions can be created and maintained, and ought to be maintained, by a responsible Issuing Authority, for the health of any free-market capitalist economy they underwrite.

Economic Growth, therefore, in a fiat currency system, since the number of dollars is not finite, is best understood not in the way that we discuss it today, but as the measure of how many dollars that economy’s overall productivity and efficiency warrants maintaining in circulation at one time.

Good policymaking begins with an understanding of the fundamental mechanisms those policies will need to interact with.  And that good policy making only possible, paired with  representative governance, if not only those who are tasked with crafting those policies, but also those on whose approval and support their mandate-to-power rests, have a working comprehension of the systems they’re hiring policymakers to oversee and maintain.

One last contention – We need to know what good choices look like, before we’re qualified to elect people who will make good choices on our behalf.  There is a wealth of self-interest, greed, and other human ugliness, that exists alongside and preys upon the public’s general lack of education in the nature of our monetary system’s  fundamental mechanisms.

It is my hope, that as a person who’s now at least been exposed to a sense of how things currently work, that when you encounter the messaging of one of these crass actors, either from their own mouths or the mouths of those who didn’t know better than to adopt the picture of the world that they were painting, that you’ll see those messages in context, as artifacts of an outmoded and abandoned monetary system that we no longer live under, regurgitated either out of honest lack of exposure to current information, or the cynical desire to generate political will for a policy that people who understand Modern Monetary Theory wouldn’t fall for.

This is a survey course, the barest of explainers, and it sacrifices quite a bit of granularity for brevity and accessibility.  Economics is a complicated science, full of nuance and happy to admit its own unknowns.  And there are unknowns.  But I hope that what I’ve laid out for you today has lit a spark of curiosity and shielded you against misinformation.

To follow-up, if you’re interested in base-jumping this rabbit hole further, I’m linking to an excellent resource for learning more about the subject, by an eloquent, articulate professor of economics named Ellis Winningham.

He’s put together an invaluable resource with much more detail and substance than this one, available both at his website, here.

 

and via his frequent facebook updates for interesting explainers, exporations, and developments in experimental currency systems, here.

 

Cheers, and I hope this crash-course has been of some use.  Remember – Good Policy Makes For Terrible Soundbites 😉

Be good out there.

Meet Your Money – part 4: Breathe In, Breathe Out

In the last entry, I promised that we’d talk about the Brakes, and you can hold me to that.  One quick side-trip first.  We’ve touched on the idea, in passing, that without tangible backing, the very substance of what money is, has changed.  I’d like to dive into that part a little deeper, before going into the braking mechanism that an Issuing Authority has available in an economy that’s also committed to a capitalist free-market.  Prior to the switch from tangible-asset-backed currencies to fiat-currencies, a dollar was a thing.  It rested somewhere.  Even when the dollar was in the bank and out of circulation, it represented a parcel of molecules of gold, in an ingot, on a shipping palate, deep within some undisclosed location in a vault.  The move to fiat currencies turned all your little strips of linen into representatives of the idea of a dollar, whatever value that might have.

Without a mechanism guaranteeing the need to have dollars themselves, rather than just bottlecaps or any old thing we all kind of agreed we would exchange for stuff, and then hope for the best, we’d be exchanging sets of Emperor’s-New-Menswear, waiting for someone to call the bluff.  Its a system built on trust, and trust is fickle, or it would be, if it didn’t have a shared mutual incentive to agree that dollars meant something after all.  Enter the Brakes against inflationary spirals, and the most surprising unsung hero of economics.  I’m talking of course about Taxes.

See, in prior monetary systems – the monetary systems that our ideas about taxes, spending, money, and so-on are all still based in – government, as Issuing Authority of a currency had a WAY more familiar and recognizable role.  One we’re all still habituated incorrectly to believe it has now.  The mechanism in our heads – the one from prior monetary systems – goes like this:

Government mints money.  Money has intrinsic value, and exists tangibly.  Government uses that money to arrange for things to happen, whether that’s hiring soldiers for the common defense or buying fancy golden toilets to host  the king’s daily constitutionals, bought from citizens, sending money out into the realm, which citizens then trade among themselves.  When the government decides, “Hey, y’know what?  We need to do more stuff and bills are coming due,” government sends out tax collectors and reclaims some of the coins to spend on other things, sending them back out into the world in different hands, to pay for that stuff instead.  There’ve been as many different justifications and systems dreamed up as there’ve been countries, to rationalize the idea of taxation, but -mechanically- it always involved leaders reaching back into the pockets of the people who owned it, to take some of what they had, and spend it again.  We still talk about taxes this way.

It would be funny, if it wasn’t so embarrassingly wrong to apply this artifact of tangible-asset-backed systems of currency fish to the salamanders of fiat currencies.

For what it’s worth, I’m half-convinced this paradigm shift surprised the designers of the system as much as it’s about to surprise you, but here’s how Taxes work in fiat currencies like ours:

(The Federal) Government spends money into existence.  I’m not kidding.  The first time that money moves, thereby existing, is when government spends it out into the economy.  It buys fighter planes, it pays salaries for sanitation workers, teachers, V.A. doctors, senators and road crew contractors, agricultural subsidies, arts grants, studies on the racial consequences of gerrymandering, golden toilets for the WhiteHouse, web designers for the affordable care act’s enrollment website, soldiers, lines of credit for financial institutions, college loans, federal prisons, more bombs boats and satellites, Rascal Scooters for disabled medicare recipients, handouts to oil and gas producers, refugee resettlement expenses, rent for shelters for the homeless, roads, bridges, every sector of the economy you can think of; the dollar in the guitar case of the economy that gets the ball rolling.

Then it rolls.  Money moves around, and prices fluctuate based on supply, demand, and any weird competitive distortions that monopolies and profit-driven entries into parts of life where S&D can’t work, all have their sway.  Value fluctuates, but only so much, because at the end of every year, the tax bill comes due.

This is where things get weird.  Previously, like we’ve talked about, and the way I’m pretty sure we all still think it works, the government collects some money back from everyone, and spends again, effectively redistributing those hard-earned bills.

Say goodby to Kansas, puppydog.  The money they collect then goes away.  Effectively, taxes RETIRE money, rather than COLLECTING it.  Take a second to get your head around that one because it’s kind of a doozy.

Taxes.  Retire.  Money.  Rather.  Than.  Collecting.  It.

Government then spends entirely new and unrelated money into existence, and the cycle starts again.  By this mechanism, through the careful application of who is taxed, by how much, and where new money is spent back into the economy, both the Supply of money, and the Demand that stabilizes its value, are maintained.

Let’s talk this through, for modeling’s sake.  This gives an Issuing Authority immense maneuverability, so long as it understands the system it’s tasked with maintaining the health of, to essentially guarantee that – since you go to jail if you don’t pay your taxes, and since you can only pay your taxes in fiat-dollars, everybody needs dollars.  And just like that – Demand created.

If you don’t spend enough, as Issuing Authority, the economy sputters out, as currency accretes in the accounts of  economic entities that have collected more than they can-or-will reasonably spend back into circulation.  Those still-in-existence-but-no-longer-in-motion dollars act as a Deflationary drain on the economy, the longer they sit still.  Remember, even on the gold standard, money only matters when it’s moving.  This is much of what created the Depression in the first place.  It doesn’t do anything for anyone, while it’s sitting on its thumbs in the Caymans.  Federal Spending breathes new money into the economy to counter that Deflationary pressure with Inflation, and  to counter that Inflationary pressure, Federal Taxes pull money back out of the economy and out of existence, ideally via tax codes designed to target-and-expire money that’s most likely to sit still.  This is the inhale-and-exhale of a free-market economy that runs on a fiat-currency system.  This is where we live.

The problem is, that’s not the way we talk about taxes, spending, money, or the rest.  We haven’t adapted our thinking, or our political conversation, to the world we’ve lived in since 1933.

Now, what to DO with the Gas and Brake pedals of taxes and spending…

Check out the next entry to explore that.

Meet Your Money – part 3: Rewriting WHY

So what is money, if it can’t be traded-in for something “real?”

One of the first hurdles a monetary system needs to answer is how it navigates supply and demand – not for goods, but for the currency itself – and this is one place where this brand new salamander separates itself from the fish.

In a direct value system, you give someone a chicken and they give you a gold coin.  The coin has value because people have agreed that they like gold, and all gold has the same value as other gold, ounce-per-ounce.

In the tangible-asset-backed systems, like the gold standard that replaced this, when you give someone a chicken, what they hand you is a promissory note from a government or bank that owns some gold, that says, “if you go here, and bring this paper with you, we’ll exchange it for the value on the front, in actual gold, but in the meantime it’s both easier and lighter to use tokens whose only value is what we’ll give you for them, since it simplifies transactions.”

In this new fiat-currency, when you give somebody a chicken, what they give you looks just like the dollar bill, but what it gets you is its own supply&demand value on the open market.  Dollars are what you buy things with.  Things are what you make and do, to get dollars, which you then spend on other people making and doing things.  Its value is essentially what you can get for it from people who need dollars.  It has the value people place on it, rather than a value printed on it.

What this does, is turn a unit of money from an object, to an abstract fungible unit of exchange, and that’s no small reconceptualization of what money really is.  That small change in context is what gives an Issuing Authority real power to right wrongs – the power that stopped the Great Depression.

Go with me here, because we’re going to get back to the insecurity you’re probably feeling right now about the semi-ephemeral nature of the dollars in your pocket, in just a minute, but first we’re going to dip in to the relationship between the Issuing Authority of a fiat currency, and the economy, as mediator of supply&demand.  Y’see the problem  with a tangible-asset-backed currency is that, kind of like electricity, money only functionally “exists” when it’s in motion – Changing Hands.  When a few pockets get too much control of too much of the total currency in circulation – when they get more than they can practically spend, that money functionally drops out of existence.  This skyrockets the value of the currency remaining in circulation (a mechanism that’s commonly called Deflation.)

A word about Deflation, before we go on.  If there aren’t enough dollars to go around, the value of each one becomes less practical, and harder to acquire, and since the whole purpose of money is to give participants in an economy a convenient means of exchanging goods and services where no direct-barter-interest exists, an economy without enough money-in-motion is an economy that quickly falls apart, creating abject poverty for everyone shoved outside the shrinking sphere of available liquidity, and necessitating the creation of tiny pop-up inefficient barter micro-economies everywhere the official currency-based economy has pulled out of reach from.  The kinds of wildcat wealth consolidation that Capitalist economies encourage and permit as win-conditions, in a tangible-asset-backed monetary system is the kind of cancer economies don’t come back from.  Basically, if there’s only so much money, and only a few people have most of it, and those people don’t have enough to spend it on, that money essentially leaves the economy never to return, diverted out of circulation by merit of ending up in an eddy current.  In 1933, the U.S. Government, as Issuing Authority, needed to step in and solve the problem of not enough money in circulation by essentially creating more money for the average person to use, allowing them back into the economic system, and creating the virtuous-cycle we described in the last post.

All of which explains the problem that a fiat currency allows an Issuing Authority to solve.  Supply.  Where previously, the task of an Issuing Authority was to provide a means of abstract exchange by minting bills and tokens in convenient denominations, and vouching for their value through a tangible exchange, now, guaranteeing that there’s always enough money in circulation to permit undistorted economic activity to occur is the essential purpose of an Issuing Authority of fiat currency.  I’ll say that one more time, because this is a shift in paradigm.

Guaranteeing that there’s always enough money in circulation to permit undistorted economic activity to occur is the essential purpose of an Issuing Authority of fiat currency.

The Issuing Authority of a fiat currency is inherently responsible to the maintenance and health of the economy it supplies a means of exchange to.  This is, and was, a massive shift in both power and accountability for Issuing Authorities of currency.  It confers them the power to rebalance the game board when the supply of money in circulation becomes inadequate – a power they never had before, since previously supply of currency was inextricably bound to how much gold your country managed to collect.  (This also, incidentally, allowed for the possibility of massive and rapid economic distortions when new gold mines were discovered, but that’s another story for another time.)  Most importantly, the uncoupling of money from a tangible asset in storage somewhere, gave Issuing Authorities the power, and the mandate, to do something about it when conditions distorted the economy to the point of collapse, rather than just let the economy dissolve, let everyone starve, and start over someday with whoever was left.

So that’s the first difference.

The second is that, as we mentioned above, in an even more substantial shift than the move from direct trade in gold coins, to the tangible-asset-backed currencies, fiat-money is no longer a physical thing… anywhere.  Under the gold standard, sure what you passed around was worthless paper, but if you wanted to, you could get gold coins for it.  It was a safety net that provided money with perpetual demand.

The necessity to create Demand for money has to be one of the strangest ideas of this new way of thinking about what currency is.  If it can’t turn be turned back in for a non-negotiable quantity of… anything particular, what exactly is the point?  Sure, you can use it as a token of exchange, the way you could when those dollars were backed with gold, but what’s to guarantee people will even want these scraps of linen anyway?  Will people really be willing to part with valuable goods and services for notes divorced from their intrinsic worth?  It feels unsafe.

And it would probably be unsafe, without the other function of the Issuing Authority under fiat currency – the Regulator of Demand.  When not enough money is moving, and it’s kicking people out of the economy en-masse, it’s a supply problem, that you can fix by issuing more bills.  That’s the gas pedal.   But, if you print too much of a good thing, money loses its value, and people won’t trade goods or services unless customers pay greater and greater sums.  Wildcat Inflation results.  It’s not safe to operate a vehicle that doesn’t also have brakes.

The braking mechanism that keeps the ship righted will surprise you, as well as what this shift away from tangible-asset-backing (almost accidentally) means for the relationship between government, economy, and citizens.

We’ll get into it, in the next entry where we’ll dip a toe in the weird new (not new at all) world of MMT.

Meet Your Money – part 2: Looking Back

Before we talk about the way it works today, it might be handy to acknowledge how things worked and when they changed.  There was a point, within our living memory, when money was a simpler beast – one that behaved on more intuitive “fishy” rules, and largely worked the way you probably think today.  There was a fixed supply of gold, and every dollar was a share of that supply.  The dollar’s value was a simple arithmetical equation, that divided the number of dollars in circulation by the amount of gold the nation kept in vaults.  If individuals decided to turn money into gold, they could exchange their paper dollars for their portion of those stores.  This ability to exchange your slips of paper for a fixed quantity of a tangible, desirable and mutually-valued substance gave that money its “value” and made it something people would be willing to trade goods and services for.  In essence, this otherwise valueless printed paper money was “worth something” because it could be redeemed for something everyone agreed had actual value.

It’s worth pointing out at this point, that even this system represented a strange and innovative solution to problems intrinsic to prior economic models.  It solved the standard weights and measures problems of coin clipping, [link] and represented a massive improvement in liquidity over systems of money where the actual gold/valuable-metal was exchanged in person.  Basically, it’s much harder to make change when making change would require cutting coins in half and weighing them on scales that people would have to trust were accurate, so that an ounce of gold in England was the same size as an ounce of gold in France.  This is the stuff that wars are fought over.  It’s messy and it’s cumbersome for business, when transactions can’t happen because one party doesn’t have adequate silver or lower-value coins to make change.  Transitioning to a system of essentially valueless tokens and exchange notes, with their “values” written on them, while the material backing for that “value” was held in trust by an issuing authority, a bank or government, made the everyday transactions of commerce work more smoothly than they ever had before. It was a revolution in the history of currency.

But this was not without its flaws.  Chief among them was the notion of the bank-run; a major and economy-crippling vulnerability inherent to the nature of a tangible-asset-backed currency.  Basically, if everyone decides to take their bat and ball and go home, essentially turning in their bills and tokens for their own share of the gold supply, at once, the party’s over, and you’re right back where you started, with an economy that suffers massive opportunity costs from activity that would have happened, but didn’t, for want of convenient means of trustworthy and precise payment.  Another odd consequence of both tangible-asset-backed currencies -and- the direct value exchange currencies made of precious metals, was geopolitical.  There’s more incentive to go conquer your neighboring kingdom, if doing so means you get to loot their treasury and steal all of their gold.  Their money either all becomes yours or all becomes worthless, since its backing is the gold that you just stole, and in the meantime, you can increase either the relative value of your issued bills and tokens already in circulation, or just issue more of them, backed by your new increased heap of gold.  It’s not hard to imagine this looking appealing to an enterprising monarch or warlord.  It’s not a stretch to say that we can lay a great deal of the world’s most heinous instances of colonial conquest, exploitation and war-for-profit at the feet of monetary systems that made that kind of behavior essentially a really good idea. (At least for your own kingdom, and assuming that you won.)

This highlights one more problem with a tangible-asset-backed monetary system like the gold standard, that the U.S. discovered to its detriment in the late 1920s.  It doesn’t leave much room to course-correct.  The inability of -basically anyone- to stop a spiral of unemployment, speculation, and deflation caused by mounting wealth consolidation collapsed everything from liquidity in the banking sector to the household buying-power an economy depends on to function, becoming the event we colloquially call the Great Depression.  Essentially, the economic system broke, because there weren’t enough dollars in motion to sustain itself.

And so in 1933 we did something strange,  born of necessity, that changed what money was.  President Roosevelt uncoupled the value of printed money from the quantity of gold we had in stock, and put more into circulation, essentially restoring the ability of people pay workers, to get paid, to use the money they were paid to then buy goods, which in exchange allowed the hiring of more workers, and so-forward.  Until 1971 when then-president Nixon did away with this last echo of the past, in order to retain the dollar’s value to foreign governments and businesses, those outside entities were still, unlike the citizens at home, to trade their dollars for a fixed set weight in gold.  By then, the bulk of the world’s nations had all moved away from gold-standards as well, so there was very little consequence to doing so by then.  We’d ridden out the transition gracefully.

What this second currency revolution had created though was essentially a new kind of money – a Fiat Currency – which derived its value essentially from consensus that it had one.

Here’s the problem – although this seemingly semantic change from tangible-asset-backed to fiat-currency fundamentally changes what money is, where it comes from, and how AND WHY supply of it comes to exist in the first place, for the past 47 years, we’ve kept talking about it – and thinking about it – as if nothing had changed.

For the curious you can find some additional details and angles on the gold standard, especially from the perspective of international rather than intra-national finance, here.

For the rest of us, join me in the parlor where we’ll talk about some of the hurdles this new Fiat system needed to clear, if it was going to survive at all.  ->(next blog post)<-

Meet Your Money- part 1: Clearing the Air

There are all kinds of reasons to write about taxes, government spending, money, politics, and how they intersect.  Most of those start out from the premise that the author would like something to change;  the world, a system, or your mind.  That isn’t where I’m coming from.

Really simply, the reason I think it’s important that we talk about this is, almost every person I hear talking about debt, budgets, taxes and government spending, is operating on ideas of how those things work that don’t relate to the system the developed world has run on since successful economies (for very good reason) abandoned the gold standard. In an age where currency policy is becoming more and more important (pushes to return to gold, flirtation with decentralized cryptocurrencies, massive public debates around spending priorities that end up being completely out of touch with the mechanics of Modern Monetary Theory…) I feel like a general literacy upgrade for the general public is probably not a terrible idea. And nearly everyone I hear talking about this, like I said, is basically just flat wrong about how money really works and what it is, in the 21st century, so it bears looking at, I think.

I’m setting out to write this as a really basic primer, because as I talk with people about politics, the same mistaken themes always come up.  It’s important to begin right from the start by saying this is not about changing your mind.  I’m not concerned with the opinions that you come to in the end.  What matters most, to me, is that while you’re constructing them, you’re taking the real world into account.  And that’s not easy, given that we don’t cover this stuff in schools.  And so we’re stuck, as individuals, and a larger civilization, with the public thinking one thing about how their money works, and the financial mechanisms that sustain them working on a wholly different set of rules.  It’s not a recipe, as you can well imagine, for a robust public policy debate that lets a citizen form relevant opinions to compare.

To illustrate what I mean by relevant opinions, I’d like you to imagine a school of fish, moved onto land.  If you consider how this basic change of medium, from swimming underwater to existing on the land, would mean that lots of basic tenets of the fish-school’s prior doctrines on how to navigate, wouldn’t apply outside the world they were built for, you have a sense of what I’m saying here, I think.  In a way, this is what happened to us.  Our monetary system transitioned out of living in the sea, to life on land.  The thing is, no one bothered to tell the everyday fish about it.

Fish that vote.  Fish that want to have a voice in governance.  Fish that sometimes even feel so strongly about this or that, they run for office.  Fish of all political parties.  This is far from being a partisan divide.  It may be the one area where Democrats, Republicans, and Independents, are all equally confused.  The problem is, these are the voters.

We’re in a situation where a sense of how the monetary system works is only really taught in college economics courses, meant for specialists who’ll be working in the field, the way that rocket science only ever ends up being taught to folks who go to college to learn rocket science and pursue careers in putting things in space.  But it’s not dangerous for voters to be unclear on how a thing like rocket engine thrust works.  That’s knowledge only certain citizens will need – people who work on rocket engines, for a start.  But problems are inevitable when the thing we’re out of the loop or misinformed about is at the core of almost every national policy debate.  At that point, it means most of what we think and how we form our core beliefs on economics will be wrong, if we don’t have a working sense of the environment these policies we push for will be operating under.  Pressing “A” in one videogame means jump.  In another, it fires a gun.  It seems like it might be pretty important to be sure you know which game you’re actually playing, and so you’ll know what the button you’re being told to support pressing by some talking head pundit, is really going to create the outcome you expect.

And again, in our case, what we’re collectively mis-led and under-informed about here is nothing short of what money even -IS- in 21st century developed economies, and how it works.

So, nothing important or anything, right?  This has left us in an awkward situation where we’re all talking about money, all the time, when we talk politics, but when we picture that money, we’re still thinking of the way it used to work, under a whole different system of financial physics.  Our thinking hasn’t been updated since we changed what money was, under the hood.  We switched its fuel system, but didn’t change the paint, so it still looks the same, so we don’t really notice the difference as end-users, even though now it’s an entirely different animal than we’re used to thinking of, that follows very different fundamental rules, especially where it intersects with public policy.  Imagine writing laws to govern the behavior of a fish, without taking into account that for the better part of a half-century, the thing you’re still thinking of as a “fish” has had lungs and legs, walked on land, breathed air, and spent its time in trees; essentially becoming a salamander.  Imagine trying to predict the consequences of a particular policy or law, pertaining to that fish, if you weren’t up to speed on those developments.  That’s basically what we’re dealing with, politically, in the transition from the familiar fixed-currencies and gold standards of the past to Modern Monetary Theory.  You’d have opinions, but they wouldn’t be worth the comments sections they were printed on, because the fish had evolved.

So in this series of posts, I’m not here to push a point or an agenda.  I’m not here to tell anyone what to think.  But I do invite you to challenge your beliefs, as we go on – to reconcile them with what you learn about what your money is and how it works, compared to how you thought they did, and ask yourself whether your old math still applies, and if not, how it might adapt to take these new fish feet and legs into account.

C’mon inside ->(next blog post)<-