The False Household Analogy

Periodically, we see the idea surface that the federal government’s budget should be compared to a household budget. We see what the debt is compared to yearly income.  We see how much the debt payments are, how much spending might be eliminated, etc.

Then people freak out.  And that makes sense. We have a large public debt, and we are spending more money than we take in. If the federal government’s finances are like those of a household, then we are in deep doo doo.  

But luckily, these are two completely different animals.   There are many differences, but I am presenting just a few here that show some of the substantive contrasts between the federal budget and a household budget.  Before we start, please remember that we are talking about the federal budget here.  State and local governments are a different matter. The analogy to a household in that context is certainly less wrong.

I have tried to be brief.  There are many extensions of each of these points that can be discussed, but I erased a lot of that in an effort to be clear and succinct......somewhat!  I hope that the points are clear.  Hopefully readers will point out any murky spots to me.

ONE:  Perhaps the main budgetary difference between a household and the federal government is this:  A household is a user of currency.  The federal government is an issuer of currency.

This means that a household needs an income in order to spend.  It must get money from somewhere else. The federal government does not, simply because it is the creator of the money to begin with!  

When the government spends money, it creates dollars out of nothing. This introduces currency into the economy.  So why does the government tax if it does not actually need taxes for the sake of revenue?  One reason is that taxation helps establish a currency.  If taxes are required in dollars, then people must obtain dollars through economic transactions.   Taxation insures that people will use dollars.

But the more important reason for our purpose here is this: The government taxes to reduce the amount of dollars in existence.  This offsets the dollars created by government spending in order to prevent inflation.  If government spending creates dollars, then taxation destroys dollars. 

Sure, people SAY that the federal government needs to tax in order to spend, but we also say that the sun rises and sets.  It is a helpful, shorthand way of talking about it.  But operationally, the most accurate way to describe government spending and taxation is to say that the government creates money out of nothing when it spends, and it destroys money into nothing when it taxes.

So federal spending must predate federal taxation, or else there would be no money in existence to tax.  Therefore the government does not need an income to spend.

Here is another way to put it:  A household must have money coming in before it can spend.  A government must spend before it can have money coming in!

So why does the government sell bonds?   I don’t want to stray too far off topic here, so I’ll just say that it sells bonds to “soak up” extra dollars in a similar way to taxation.  And the Federal Reserve buys and sells those bonds as a way to control interest rates, but that is another subject.

TWO - A household must pay its debts off or have them retired at some point.  The federal government does not.

I must pay my debts or my ability to borrow will be compromised.  I may even face legal action if I do not pay back my debts.  When I die, my debts will be paid out of my estate or retired if there is not enough money.

However, the federal government does not ever have to settle its debt. When bonds mature they are rolled over into other bonds. 

So is a more-or-less permanent public debt sustainable?   First of all, without the public debt there would be no dollars owned free and clear (often referred to as “net financial assets”) in the economy.  Without public debt, every dollar in existence would either be from a loan, and therefore owed back to a bank, or owed to the government in taxes.  Even if I had money that I owned free and clear, elsewhere in the economy someone else would owe the corresponding debt.  So in terms of the aggregate, of the whole dollar-based economy, there would not be any net financial assets.  One person’s money would be another person’s debt.

  

Another way to think of it is this:  The government debt equals the savings of the non-government sector.  For any net financial assets to exist, in the form of cash, bank reserves or bonds, the government must have a public debt.

We have run a public debt since 1837, and it has been added to almost constantly since then, so I suppose that is evidence of a fairly sustainable system.

THREE - The federal government does not borrow money in the same way a household does.

This is a continuation of the same idea, but I thought it would be good to explore it further.  When a household borrows money, it does so from another institution - a bank, credit union, etc. The US does not borrow from any institution.  Rather it creates money when it needs to spend.

But wait - everyone says that China loans us money, right?  It is true that China owns US bonds, but they do not lend us money like a bank would lend a household money. 

I repeat, the US does not really borrow from China, at least not in the way we think of a household borrowing.  How could it?  China has zero capability of making dollars.  China has decided to own dollars.  They sell us products and instead of spending the dollars they make on US products, they simply prefer to save those dollars for their own reasons.  Then, instead of sitting on cash, they invest in bonds.  That way, they make interest on their savings.

And if they wanted to convert those bonds to dollars, they are free to do so at any time.  Boom.  Debt to China paid off.

Here is a concrete example of how public debt is different that private debt. Let’s think back to World War II when the government’s debt, as compared to the gross domestic product (often referred to as “GDP”), was bigger than it is now.  Did the government pay back that debt?

When was the last time you thought, “Boy, it’s tough paying off all this debt we accrued during WWII”  or  “As soon as we get all these tanks and planes paid off, we can really start living it up!”?

Public debt does not work that way. It is not borrowing money from an outside institution.  It is the creation of net financial assets into the economy. 

FOUR:  It’s great for a household to run a surplus.  It’s not necessarily great for the federal government to do so.

If I have a surplus at my house, it means I brought in more money than I spent.  I can save the remainder, which is great!

However, when the federal government runs a surplus, it means it is taxing more money out of the private sector than it is spending into it.   It is destroying more money through taxes than it is creating through spending.

A public surplus is a private deficit. 

There have been seven relatively short periods of surplus since the current public debt began accumulating in 1837.   Every single period of surplus has been closely followed by a depression or recession.   This is not a coincidence.  Destroying money out of the economy, by taxing more than spending, is counter-stimulative.

This does not mean it should never be done.  Raising taxes could be a great way to cool off the economy if excessive inflation arises.   This is because taxation destroys demand and inflation is caused by demand outstripping our ability to create products.

But surpluses are certainly counter-stimulative.

So there are a few thoughts on how the federal government’s budget is different from a household's.  It is potentially dangerous to compare the two, as it can lead us to make decisions that will hurt our economy in the name of helping it. 

A well-meaning person may think we need to run a surplus to help the economy, but it might actually damage the economy.  A well-meaning person might worry about how we are going to pay back China, but we must ask ourselves what that even means when the government needs no income to spend.  A well-meaning person may worry that the federal government will go bankrupt, but the government spends at will with money created out of nothing.  It can never be forced into bankruptcy, because it controls the unit of currency in which all its “debts” are based.

Everything stated here is true (unless I have made mistakes) whether you believe in a bigger or smaller government than what we have in place now.  There are great debates to be had about what the proper level of balance is between the public and private sector.  But these are political arguments, and while they have bearing on economics, most of the economic arguments put forward these days are wrong, and are used (wittingly or not) to try to legitimize political arguments.

I owe a lot to the following sources (another debt that doesn’t need to be paid back, I hope?):

New Economic Perspectives - a blog by several ecomomics professors at the University of Missouri at Kansas City

"The Seven Deadly Innocent Frauds of Economic Policy" by Warren Mosler

“In Defense of Deficits” by James K. Galbraith

Also thanks to friends Burk Braun for his writing and references, and Eric Reitan for suggesting I write a little bit about this issue.

A Violation of Religious Freedom or a Prevention of Religious Domination?

The Obama administration has decided that large institutions run by religious organizations cannot be exempted from including birth control in the health insurance plans they offer.  The rule does exempt churches and other places of worship whose primary purpose is to facilitate the practice of religion.  However, if a religious institution runs a hospital, a university, or another organization that goes beyond religious services, thereby servicing and possibly employing many people outside that religion, then they must comply with this new ruling.  Making sure birth control is easily available to women is a feature of the Affordable Care Act.

The Obama administration’s reasoning is based on the position of many, many medical organizations that making birth control easily available to women is a good for the public health that cannot be compromised by an employer, even if the employer is affiliated with a religion that disagrees with the practice.  Once again, churches would be exempted, but not institutions affiliated with religion serving the greater community beyond the specific practice of religion.  Of course, the Catholic Church is very, very unhappy about this decision as they run many hospitals and universities which would fall under the birth control coverage mandate.

I had to think about this for a while.  Religious liberty is a foundation of our society and should never be taken lightly.  But after considering it for a couple of days, I agree with the administration’s position.

First, we must establish that there is a limit on the practice of religious freedom.  Few would argue that Native Americans should not be able to smoke peyote in their ancient religious rituals.  (Actually, I think anyone should be able to do this, but I suppose that is another subject!).   However, imagine a religion with an initiation ritual requiring five year old children to walk five miles barefoot in the snow.  Let’s call this religion Freezism.  And when practicing this Freezist ritual, hypothermia frequently sets in.  Would our society tolerate this tradition?  Probably not, because of how the religious practice would affect others - namely five year old children who are too young to choose this religious practice for themselves.   So this barefoot snow ritual would not be an exercise of religious freedom so much as it would be an exercise of religious domination because of the risk of severe physical injury to those too young to participate in a truly willing manner.

So religious liberty is not an absolute - just like freedom of speech does not cover threats of violence or yelling “fire!” in a crowded theater when there is no fire.

Now imagine a university or a hospital run by a religion that does not believe in treating heart disease.  Let's call this religion Coronism. Their theology posits that God’s relationship with man dwells physically within a person’s heart, therefore no medical treatment should directly interfere with a person’s ticker.  It is a danger to a person’s soul.  Now imagine that this institution, a hospital let’s say, employs many, many people not affiliated with Coronism, and the hospital tries to exclude heart disease treatment from the health insurance policies offered to its employees.

Surely this would be too great a burden on the public health to be allowed.  It would be religious domination rather than religious freedom.  The Coronists would be forcing their employees to go without heart disease coverage, or to pursue coverage elsewhere at much greater personal expense.  The Coronists would be forcing unwanted religious restrictions, or at least the hardship of bypassing (haha) them, onto employees, onto workers in the community.

By requiring the Coronists to include heart disease treatment in the health insurance policies they offer, no one is forcing any Coronist to receive heart disease treatment.  But no one is allowing the Coronists to make it difficult for their employees to get the treatments they may need and desire and which medical science tells us are associated with health and well-being.

Now imagine another religion that does not believe in fire alarms.  Pyroism? Surely if the Pyrists ran a hospital for the general public, they would not be allowed to subject their employees and clientele to that danger?

At the risk of changing the subject temporarily, I actually think the real problem with the Obama/Catholic conflict is the link between the employer/employee relationship and health insurance.  This link is terrible.  An employer should offer pay.  That’s it.  Then individuals should purchase their own insurance.  We would have greater job mobility for workers, and Catholics could create their own policies which do not cover birth control, while employees at Catholic institutions (Catholic and non-Catholic alike) could buy the insurance they want which provides the services they desire.

But that is not the world we live in.

So the issue of religious freedom means deciding when one person’s “freedom” infringes on the freedom of another.   And the Obama administration has decided that when a church operates an institution that goes beyond the specificities of religious practice, not covering birth control creates an undue burden on the health and well-being of employees.  It is not an expression of religious freedom, it is an expression, however big or small, of religious domination.

And I agree.  Do you?

GRO Some Cello!

Here is a tune that I played cello on over the summer.   Green River Ordinance is a super nice bunch of guys, and this is a great song.   Even if top-40 aiming rock/pop is not your thing, you might enjoy the powerful chorus, the sincere performance and the spectacularly layered production here.  Great job to the guys at Blackwatch Studios in Norman!


The cello is filling out the texture throughout the song (translation - you really can't make it out too clearly), but you can hear me swooping around a bit during the bridge.


I wish these guys the best.   I really enjoyed seeing some skillful pop music production during the sessions.

Catholic Sex Casually

Addition:  The following is not to suggest that there are arguments which are not worth engaging with.  I think all arguments are worth considering and responding to, because they come from people.  Rather, I just want to point out that we can really spin some webs when it serves our purpose. 




I will make up a moral.   

It is wrong to chew gum.  Sure, part of the purpose of chewing is for a person’s enjoyment.  The experience of flavor is a blessing from God, but the primary purpose of chewing is to eat - to gain sustenance for the body.  Chewing gum (particularly sugar-free gum which has no calories at all) divorces the enjoyment of taste from the gathering of sustenance.  It is a denial of the body and God’s created order.

How does one casually respond to an argument like this?  Perhaps with something like.... 

It’s OK....seriously.

The Catholic church acknowledges that sex serves the purpose of achieving intimacy between husband and wife, but it also believes that this intimacy must be married (haha) with the unfettered possibility of conception in order to be right.  Therefore, birth control is wrong and any type of sex besides vaginal intercourse is wrong.  Sexual intimacy must be married to procreation.  Chewing must be married to eating.

There are arguments used by the church to support this view, but I will not debate them too much here.  I am just pointing out that when a rather outlandish moral is offered up, it can be difficult to know where to begin when engaging with it.  

How would you begin to argue with my gum-chewing moral?  Surely there are numerous underlying assumptions, few of which anyone would deem obvious, that would need to be addressed.

Why is experiencing flavor wrong when divorced from consuming calories?  Isn’t this actually a nice thing, because one can have some enjoyment without gaining weight?  Why is it wrong to expand on nature’s “original” purpose for things a bit?  Aren’t art and sports and airplanes etc. all pretty great things which expand on nature’s original purpose?    

So sex using birth control?  Sex in a different way than just vaginal intercourse?     Chewing gum?

It’s OK....seriously.

Dance, Song and Composition part two

So what are the implications if it is true that music is created for different categories of experience?


It means that often when we are critical of music, we may not be listening to it under the same terms with which it was created.


If patrons are dancing at a club and a Harry Nilsson song comes on, then they will probably hate it.  It isn't produced with a strong enough beat for that setting.   However, if they listened to the song in their car or on their couch, they might love it.


If one goes to a small folk club and someone generates a beat that repeats over and over, without much in the form of melody or lyrics, then it might be really annoying.   But once again, in the club or in the dance studio, it might be acceptable.


If one is sitting in a concert hall, prepared to listen attentively to a symphony or chamber work, and a singer-songwriter begins strumming a guitar, it might seem really shallow musically, throwing our active ears back at us, no matter how good the lyrics are.


There is a converse situation too, which is very common, particularly in listening to composition.  People approach the concert hall, or the "close" headphone listen at home, with the attitude of listening to songs.  We seek immediacy, catchiness and repetition rather than a continuous aesthetic statement on all the elements of music and its organization, written to be worthy of, and to reward, a constantly attentive listen.   Composition is the unfolding of organized thought in sound form.


Once again, this is not to say that composition does not contain elements of catchiness and immediacy.  It's just to say that it is not necessarily its primary purpose.  Listening to Webern's symphony will give you almost zero in terms of memorable melody (but a Mozart or Dvorak symphony will).  But it will offer you a fantastic, short listen exploring the aesthetic of music when texture has completely and consciously supplanted melody and traditional harmony as the tool of communication.   There is no beat to dance to, no melody to sing and no stable musical wallpaper.  But it is a highly fascinating and rewarding listen. 


One way to think of it is this - I have listened to the Beatles album "Abbey Road" many times more than the Webern Symphony, but I think I have thought about the Webern Symphony just as much over the last several years.     And any time I have a chance to sit down with my headphones for eight minutes and listen to it, I enjoy it immensely.  And with subsequent listens, the sense of immediacy and familiarity and emotional connection grows.  


But listening to Webern in the car?   No way.  I can't even hear it over the traffic.  Give me "Abbey Road."

Dance, Song and Composition part one

I began writing music from a "classical" composition perspective.  Later, when I became interested in writing popular songs, I was confused as to how to approach that process.  Many of my first attempts were awkward.  The language didn't flow, and the melodies and arrangements were really square.   I knew I had to come up with a method to think about what I was trying to do.  What was it about popular song that appealed to me and was different than composition?  Did it have a different purpose all together?  A different set of premises from which to operate?  


I developed a way of thinking about music to help me find the aesthetic I was seeking.


I divided the function of music into three basic categories.


One - music to dance to
Two - music to sing to
Three - music to listen to


The first category is music that primarily seeks to stimulate movement and dance.  This is music that is first and foremost felt in the body.  


The second category is that of popular song.  It is music created with accessible melodies combined with vernacular words - lyrics rather than pure poetry.  Our primary experience with popular song is to sing along (even if just in our heads) - to participate in that unique combination of pitch, rhythm and the sound and meaning of words.


The third category is music that is meant to be experienced by a captive audience.  It is music as abstract, unfolding thought.  


If I made the list today, I might also include a fourth category - ambient music.   Music that exists, not to be listened to directly, but  to establish a mood - a kind of musical wallpaper or sonic landscape. 


All this said, I do not think that many pieces of music fall neatly into one of the categories above.  Rather, they favor one category more than the others.   A Bruckner symphony falls primarily in the last category, but it still has elements of beat and movement that we feel in our bodies.  A Mozart symphony has melodies that stick in our heads like popular song tunes, but their treatment and development go far beyond the song form.  The songs of the Beatles incorporate many elements of the third category, but their foundation is still the popular song form.


What about opera or art song?  They have words, right?   Sure, but is the voice working more as a communicator of words or as a musical instrument using words for timbre and effect?  More category three then.


Once again, almost all music falls a bit across the spectrum of the different categories.   A drum circle might be a fairly pure version of the first category.   An unaccompanied folk song might be a pretty straightforward version of the second category.  Webern's symphony, written in the serial/12 tone style, might exist almost primarily in the last category.   


However, some of the most interesting music in the world is that which firmly crosses borders.  Gershwin's Rhapsody In Blue appeals to all three categories.  What about Bernstein's score to West Side Story?  Same deal.  Mambo!  A captive audience listens attentively but can barely stay in their seats.

Theology From The Plain Part One - The Term "God"

I am a person who uses God language.  Atheism does not make sense to me given my approach to God.  You see, to me “God” is the word for “that which is” or for whatever is ultimate.  So it makes little sense to me to think that God doesn’t exist.  I can certainly criticize different concepts of God and be labeled an atheist because I don’t believe in this or that version of God, but “God” is my preferred term in seeking for a greater understanding and experience of existence.   I don’t want to use a term like “unfathomable mystery”, at least not exclusively.  I want to use the term “God”.   The former has too much of a connotation of being “out there”.  Rather, God (I am going to stop using quotes now) is more personable and encompasses me, and all things, more readily.

So what is God?   Well that’s the journey, isn’t it?  Is God a person in any sense?  Is God the selfless void from which all things spring - the ultimate expression of humility and giving love?  Is God the cosmos?  Is the cosmos in God?

I have ideas about all of this, but I am also pretty agnostic about many things.  In fact, I have come to love the label “reverent agnostic”.

But I am not agnostic in approaching existence through the interface of faith. And my idea of faith is not intellectual submission to specific claims about history or authority, but rather it is simple trust.

Perhaps I can be criticized for being too flexible with the idea of God.  I realize that in the culture wars of today, God has come to mean certain things, but throughout history God has meant many things.  Even to the deacon in the pew every week, how do we really know what associations he or she brings to the word God?  You see, I do believe that most people approach God in a way that is more personal than doctrinal.

In light of this, I could be criticized for making God an irrelevant term.  If it can mean anything to anybody, then what is its use?

This is simple.  God is a useful concept not because it unites us in what we see, but because it unites us in a common direction of looking.

I understand that for others the term does not work this way.  Perhaps it has been spoiled by the trappings of sectarian religion.  This is fine, of course.  I understand that for others, different frameworks might work better.  But for me, God remains at the epicenter of what it means to explore this life.

We argue about what we see and what we hope to see.  But, for those who employ the term, God is a finite crucible into which we try to pour the infinite.