* This post was written in 2011 before Mr. Roche founded Monetary Realism, which was formed due to several disagreements Mr. Roche and many other former MMT proponents had with the school of thought.  For more info on the difference in views please see here.  For more on MR’s views please see here.


In a story on his blog today Mark Cuban discussed an idea to get the economy going. Mr. Cuban cites the fact that the US government is essentially borrowing money for free today. Now, we know that an autonomous nation with endless supply of currency in a floating exchange rate system never needs to borrow money to “fund” itself, but the implications of negative borrowing rates are important from a political/logical perspective. It highlights the fact that the USA should essentially be trying to benefit from this odd environment by leveraging itself up on free money. Cuban says the US government should offer loans to corporations willing to hire. This is pretty similar to the MMT jobs guarantee except that it uses the private sector to leverage the government’s resources. I think we should go even further.

America became great for one simple reason. We combined a democratic government with a capitalist economic environment that unleashed creativity, innovation and an unmatched entrepreneurial spirit. We are known for our great innovators. The combination of democracy, freedom and capitalism created an environment where outside the box thinking is rewarded like no other place on earth. What is missing in all of this though is an understanding of how our monetary system could be used to leverage this great system.

The recent market turmoil and extremely low borrowing rates on government bonds only prove one of the basic tenets of MMT – that an autonomous nation with endless supply of currency in a floating exchange rate system never needs to borrow money to “fund” itself, but we have fooled ourselves into believing that we are bankrupt due to the flawed monetary system of Europe or due to misconceptions that lead households to believe that a government balance sheet is somehow analogous to our own. And in believing these destructive myths, we are not actually bankrupting our own government, but we are bankrupting our society by neglecting it of one of its most powerful resources – the government that was created by us for us.

As an autonomous nation with limitless supply of currency in a floating exchange rate system there is no such thing as the USA “running out of money”. But I am not going to convince everyone in the USA of this overnight. And that’s where Cuban’s idea comes into play. This political environment where rates are negative might just be the right environment to convince people that we should be doing more to help this great nation of ours by taking advantage of the fact that we are essentially being paid to lend money to ourselves. It makes perfectly logical sense. Any sensible businessman would agree with the idea that, when people pay you to borrow money from them, you should leverage that loan up.

While Cuban is right that we need more jobs in this country, I think he is missing the key component in the jobs story. We are suffering from a cyclical economic problem that is a balance sheet recession. That can only be fixed by reducing private sector debt levels and getting aggregate demand back to normal levels. And that’s what most businesses are seeing today – a lack of domestic demand. So they’re protecting their margins in an uncertain environment and not leveraging up. Even those corporations who have been taking on extra debt at super low rates have not been turning around to invest because the demand just isn’t there. So, I don’t see why the government lending money to corporations would change any of this to any large degree. We need to get out of the balance sheet recession first.

What I would propose to the US Congress is an Innovation Initiative. As I’ve said before, the structural problem in the US economy isn’t JUST that we’re shipping our jobs overseas. The other side of the coin is that there aren’t more Apple Corps. Let’s create more Apples. And let’s use one of our most powerful resources to do so – the US government.

I believe the Federal Government should allocate ~$50B per year from the Federal budget into what would essentially become the world’s largest private equity firm. While it would be government funded, it could be entirely managed by the private sector. And its focus would be entirely based on increasing private sector output and productivity. I would propose that we hire 10-20 private equity firms to manage the program on behalf of the government. In return, they would get an equity slice in any of the companies that are approved for the Initiative.

I would break the program down into several sectors – energy, environmental, infrastructure, technology, defense, healthcare, etc and allocate a specific amount of funding to each sector via monthly awards ceremonies. We would reward private sector entrepreneurs, start-ups or existing corporations with funding to go out and create new companies, new jobs and capitalize on their vision. I would promote the program vigorously. The key here is to get the creative juices flowing. I want college students sitting in their dorm rooms dreaming of winning this month’s contract. Or boardrooms at major corporations bouncing ideas around about how they’re going to obtain this month’s ~$500MM energy contract. The key here is that we are creating a specific entity funded by the government, run by the private with one sole purpose – to unleash a whirlwind of innovation on the world.

I am sure that much of the money would be “wasted” (at least we’re paying people to do real work as opposed to collecting a paycheck sitting on their couch), but for all the failures we might just look back and say, “wow, that program helped put a man on Mars and helped contribute to solving the energy crisis”. Besides, most new businesses fail. We can’t expect all of these to be winners. Call me crazy, but I see this making an incredible lasting impact on the country despite what ideologues would likely describe as another big government failure….

The USA might be suffering a short-term balance sheet recession, but the problem facing our economy today is much larger. We are suffering from a shortage of Apple Corporations. And we have the resources, talent and entrepreneurial spirit to fix it. We’re just not utilizing the resources and organizing our efforts in a way to benefit from it all because we choose to let politics and ignorance of our monetary system stand in our way….It’s like we’re sitting on a winning lottery ticket and we just refuse to cash it in….

I’d love to hear some thoughts about how insane this idea is or how it could be improved upon….

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  1. I think it’s genius, but it will never happen. We think we’re bankrupt and despite what MMT says the politicians just don’t understand how the monetary system works.

  2. Not such an insane idea Cullen. It’s what the Nordic countries did after the war (though without the explicit private equity angle) – and now they are world leaders in industrial design. Watching Australia become one big mine shaft, the same idea has occurred to me – and we already have the pool of funds to do it (compulsory pension schemes). If you get it up in Washington, maybe we’ll follow…

  3. The big government people will hate it. But I am sure you know that. The key would be convincing those people to get onboard. I don’t think you’ll be able to. Even though it would be run by the private sector and likely generate a pretty higher government spending multiplier the tea party people will still call it another bureaucracy.

    • I was thinking the same thing, though if this was positioned as a “supply side” application of “keynesian” spending without mentioning keynes perhaps it might be palatable. I’m twisting definitions and a few economist will take exception to the statement but this program in some ways is more about lowering barriers to creating products for entrepreneurs, that big government bashers are supportive of (though they prefer the barrier lowering to be in the form of tax breaks or less regulation).

    • I’m a big government type. But I don’t completely hate this idea. It depends on the size of the equity slice and the degree of public control. I believe the public has already gone way too far in the direction of ceding power to private capital. It’s time for the public sector to pump up its muscles again and assert some governing authority and democratic sovereignty over the private sector. If these private equity firms are essentially contract employees for the government, I think that’s great. But I worry about our bought off and corrupted government not driving a hard enough bargain in the process of setting this up, however, and allowing these firms to skim too much unnecessary profit from the money flow.

      Venture capitalists, OK. But how about giving some venture socialists a chance? That is, let’s have a “public option” in investment manned by people who work for the public sector and the American people, and draw a reasonable salary for their work in identifying promising venture, instead of demanding Midas fortune shares for that work.

  4. Not sure if you are too short sighted or just never thought of it: the easiest and surest way for a corporation to lever up is stock buybacks. And no one would possibly invest in spare capacity when utilization rates are in mid seventies.
    Your innovation idea is good, certainly better tha QE N^n and it favors PE so it may even get lobying support.

    And please make distinction between running out of money and out of credit, U.S.’s biggest export is the USD, if you debase it, no one would want it.

      • Agree with you in principle, but the C suite perspective is slightly different, buybacks increase the value of their options.

          • It all depends when a company’s BoD’s authorizes the buy-back of shares.

            If they do so when the stock is over-valued, the shareholders receiving the money are doing so at the expense of the shareholders who hang on to their shares.

            If the BoD authorizes the buy-back of shares when the stock is fairly valued, then it is an even transfer of money to shareholders for value received. Remaining shareholders are left intact.

            Finally, if they buy-back shares when the stock is undervalued, then those receiving cash for their shares are being short-changed and the company and remaining shareholders are receiving superior value for putting these shares into the Treasury. (Which can later be redistributed for potentially a much greater value when the market return the proper price to the stock.)

    • Scientific innovation will put more people out of work unless it is combined with financial reform to “share” the productivity gains.

  5. I love this idea. People forget that the things that make the greatest improvement in their lives were actually the result of the government taking the initiative to fund completely crazy things.

    If you ask anyone what the greatest invention of the last 25 years was, it’d arguably be the internet. Many of those projects enabling the internet started because the Soviet Union decided it might be fun to put a giant basketball into space. Then Kennedy decided to one up them with the even crazier (and expensive!) task of walking on another natural body.

    The resulting innovation in material science, satellites, microprocessors more than paid for itself.

    While I am not advocating that we spend $50 billion dollars a year extra on NASA, I would like to point out that we’ve spent $150 billion on Fannie and Freddie as of this date (in just over 2 years). It will likely cost us anywhere from $240-$360 billion dollars to rescue Fannie and Freddie when all is said and done. $150 billion is already enough to fund NASA’s yearly budget for 7 years.

    If we consider the ROI of bailing out financial entities over investing in science, medical research, infrastructure, education, or even hated poverty combating initiatives, it isn’t even a fair fight.

  6. I’m just lazy I know but Cuban’s plan sounds, well, overengineered. Why would the the govt loan money to employ people? Why would it would it expect to be paid back? The borrower already on the hook for federal employment taxes, dollars are tax credits and tax credits are dollars. Uncle Sam could give a tax credit (tapering down as wage rate goes up) to employer, who’d simply deduct it from his own tax liability.
    Your venture funding idea is first rate. I suppose a start is throwing more money at DARPA.

    • I like Cuban a lot. But any idea that involves fiscal stimulus to create jobs without creating additional demand from the consumer for those jobs is a prescription to solve a symptom, not the disease causing the symptom.

  7. We should be throwing every relevant scientist and engineer we have at nuclear fusion research.

    A ‘Manhattan’ programme with practical nuclear fusion technology as the goal would be the greatest achievement since the Moon shot.

    But it needs vision to push these things through. The only vision modern politicians have is ‘stay in power at all costs’.

  8. I am sure that much of the money would be “wasted” (at least we’re paying people to do real work as opposed to collecting a paycheck sitting on their couch), … Cullen Roche

    Remember the Ancient Greeks? They had slaves to free up their time for leisure activities. And what did they do with that time? Some wasted it to be sure but others invented logic, mathematics, natural science, astronomy, etc.

    Remember Albert Einstein? He worked as a patent clerk because he needed the money. Wasn’t it a waste of Albert Einstein’s time to have to work for a living? In fact, he cheated. He worked on his ideas by stealing time from his employer. But how much was humanity cheated by the fact that Albert Einstein had to work for a living?

    The problem in the US is unjust wealth and income concentration. Fix that and eliminate the causes for it and the innovation will take care of itself.

    Righteousness exalts a nation, but sin is a disgrace to any people. Proverbs 14:34

    What are you asking for a new job-protectionism legislation.. or how you going to avoid to overseas jobs?
    “What I would propose to the US Congress is an Innovation Initiative. As I’ve said before, the structural problem in the US economy isn’t JUST that we’re shipping our jobs overseas. The other side of the coin is that there aren’t more Apple Corps. Let’s create more Apples. And let’s use one of our most powerful resources to do so – the US government” Paid 900USD for connecting to internet when you have nice tablet for 200USD?? We need another debt-party wave for that.
    No way, when you have your own “balance sheet recession” with your competitor manufacturing overseas as 1/3 cost your production… you are over.
    But agree there should be ways to downgrade our countries without drawing wealth from middle and poor’s classes… we are the consumers, who support all this stuff, they cannot just go like that… I guess…

  10. perhaps you should add immigration to the list of things that made america such a strong country in a technological sense; it can’t hinder you when tesla, bell, fermi, einstein and von braun rock up.

    perhaps if america spent less on military research and more elsewhere they may achieve more success. the cold war was won as much by a disparity in quality of life than a disparity in numbers of nukes and tanks. in other countries it is perhaps more common to spend on ‘green technologies’ (europe) or direct government intervention in bank credit allocation (japan) than the US.

  11. You want to see spending on Innovation and Science with the Tea Party essentially in control of congress? Not gonna happen, sadly. The House even wants to cancel the James Webb Space Telescope, probably one of the most awesome things since the Large Hadron Collider…

    Well what is there to learn from looking at the creation of stars and galaxies when we all know the earth is 10,000 years old and men and dinosaurs walked among the earth together. Yes, there are enough people in Congress who believe that kind of horseshit. Oops, I’m ranting again.

  12. Cullen,

    Good post, and I am in agreement. If the idea is promote hope and change, then we need to realize two things: 1) Chronic unemployment destroys hope, as Bill Mitchell often says but I don’t think has ever said any better or clear as he did in this post, and 2) change is by doing things differently, and the last 30 years has been thinking that monetary policy is all powerful and the unemployment can be used as a buffer stock (NAIRU). We can absolutely ‘afford’ to change that mindset, *especially* now.

    The sectoral balance for our current economic environment is clear: The private domestic sector desires to net save and we have a current account deficit => The Government *must* run a deficit to allow the private domestic sector’s savings desires to be realized.

    This means a Federal Government budget deficit is required in this environment. It does not pose any ‘solvency’ risk, and because the economic environment is weak does not pose a significant inflation risk. But while the sectoral balance tells us a deficit is needed, it doesn’t say how it needs to be implemented. This is where we draw on previous observations regarding how money from Government spending moves through the economy and how unproductive (and dangerous) the financial sector is.

    The biggest obstacle in the current environment is the no current direct spending paths to help Main Street. In particular all stimulus plans have been ‘jobs poor’ (propping up financial institutions spends a lot of money but does not create jobs).

    So like your ideas proposed above, I have a few ‘big ideas’ as well, as elaborated in Section 6 of this post.

  13. Reminiscent of Dylan Ratigan’s rant about an “Infrastructure Bank.” He didn’t develop the idea, but I would support it if it involved something about renewable energy infrastructure.
    I’ve written about this notion extensively over at my website for the past 2 years. I fully support innovation investments kindled by the government. With population demographics waning, innovation is the only source of organic demand, the only cure for structural issues. Alt/Renewable energy is under our noses. Use it domestically; reroute the fossil fuels to make us a net exporter.
    I also wrote a lot about a Time Magazine article that investigated allocations from ARRA that turned the DOE into the world’s biggest Venture Capital fund back in 2009.,8599,2013683,00.html

  14. It sounds good in principle. But the money invested should not be a grant that the government just throws out there in the hopes that some percentage of it actually results in new innovations. The would-be Edisons who take this money must assume commensurate risk for taking it, otherwise most of it will be wasted. One of the reasons we got into this mess is because we removed risk from borrowing, which makes money worthless––until, that is, you have to pay the bill for your profligate spending.

    But even before such a program should be launched, we have to reform the entire financial system so that the banks can’t keep sucking money out of the tax payer so that they can continue with their fraud. Also, American companies have to have some reason for creating jobs in the US, rather than shipping them all to the lowest cost region. This is a political issue, not a financial one. But until these problems are addressed and government once again represents the people, no amount of money in an innovation fund will turn American around. The problem is not a lack of innovation. It’s that there is no reason to be innovative when the system is corrupt.

    • > The problem is not a lack of innovation. It’s that there is no reason to be innovative when the system is corrupt.

      Exactly. If you ahve brains for innovation in the US you just go into financial services or itnernet/ social media because it is so much easier making money there than trying to do something real.

      • Equity stakes. Guarantee them a minimum of 10% equity in whatever legal entity owns the rights to the innovation.

  15. we can’t afford this.

    just kidding, awesome idea. i think you would need some type of criteria in place where the entrepreneurs would have to show why hiring expansion would need to take place in America for the most part and not be shipped overseas or automated.

    • Jobs shipped overseas may mostly be low wage jobs. I think that’s fine. What we need to focus on in America is our edge in innovation.

  16. “…We are suffering from a shortage of Apple Corporations.”
    Perhpas Apple deminish more jobs than it create(i.e. Those company beat up by Apple lay off more people than Apple hire.)
    But we do need many small company doing well like Aplle did.

  17. I see some problems with your proposal. You suggest that you would allocate funds in several “sectors – energy, environmental, infrastructure, technology, defense, healthcare, etc and allocate a specific amount of funding to each sector.” The key is who allocates the funds and what criteria are used. The current regime would likely favor management of the program by people from “green energy,” proponents for government-sponsored medical care, union officials from public employee unions, etc. Such individuals would fund “innovators” favorable to the regime and supporting of regime policies. The end result would be more wasted time and money.

    For your program to be a success, it is essential to use a profit motive for those funding the “innovators.” To the degree that the government can control who gets the funds, that is the degree to which the funds would be wasted.

  18. I think that is a very smart idea. The government is already doing this (state and at the federal level) for start-up companies in the alternative energy sector, mostly wind through tax credits and tax breaks. The government seems to be fine taking this extremely high risk as well, as only a minute percentage of wind farms actually make it and with investment payback taking at least 9-10 years!

    So, I agree with you, why cant we do this for start-ups in all sectors of the economy. Like you conceited, there would be a lot of failures, but there is bound to be at least a few home runs and maybe even a few apples.

    But because of the hatred towards the business world that has been created nowadays, there is no way American people or democrat politicians would allow this to happen. That is something I really do not understand. Corporations invest large sums of money, through PACs, lobbyists, etc into politicians every election year. Moreover, this is a huge investment risk because there is still a large chance that “investment”, or politician will not get elected! So, why don’t the politicians return the favor of all the money they have received over the years from businesses and put forth government funds for an idea just like the one you’ve outlined here?

    But that would only make too much sense right?

  19. While your idea is a welcome change from the politicized ideas of this administration, I fear that it will also be politicized and eventually be of little or no value. Better to have the government set up a program to deal with the mortgage debt issue, have banks take their losses and clear up their books a la S&L crisis of the early 80′s. Also: repeal Obamacare; repeal all new government regulations relating to crippling our oil and energy sectors; and abandon the government’s baseline budgeting ‘sacred cow’. These actions would restore stability to our economy and allow businesses to function without the fear of more government interference, not to mention the huge jump start unleashing our oil & energy sector would have on our economy while bringing down consumer energy costs. And this is exactly why this administration won’t entertain any such ideas.

  20. If I understand correctly, free market capitalism appears to have failed to create sufficient economic innovation because of lack of aggregate demand. Additional government spending does not address the demand problem directly (granted a portion of the population will benefit from the new jobs). However unlike corporations that have solvency, profitability and loan servicing limitations the government has a unique solvency, profitability and borrowing advantage because they are the monopoly issuer of the currency (not a household). Therefore in the face the lack of aggregate demand the government can attempt to stimulate demand (in the current low growth economy) by providing access to startup capital to entrepreneurs who can create innovative products that spur spending and improve the overall productivity and quality of life of corporate or individual interests beyond the outlay of the product’s cost.

    • Therefore in the face the lack of aggregate demand … ocean

      Aggregate demand is stolen by the so-called “credit-worthy” and the banks via credit creation in the government enforced monopoly money supply for private debts and used to outsource and automate away the jobs of workers. No wonder then that there is a shortage of aggregate demand!

      Why do we even have banks? The government has no need for them since it can just create, spend and tax its own fiat. As for the private sector, why should some, the so-called “credit-worthy”, have the privilege of stealing purchasing power from their neighbors?

      • I think we agree that banks have right to be compensated a credit risk spread beyond the risk free rate they source fund at, for the service of lending money. As regard to the fractional reserve part it seems to me that “competition” should drive excessive profits from this activity. Though I agree a monopoly can and will probably find ways to abuse this.

        The State Bank of North Dakota has helped the state government largely eliminate interest cost from borrowing by funneling the interest payments from the issued state bond back to the North Dakota. They also provide no frills small business and personal banking service based on a fractional reserve banking model. This might be a better model? Thoughts?

        • My thought is that government should get entirely out of the private money creation business because:

          1) The government has no need to be concerned with private monies.

          2) Any interference (besides enforcing laws against fraud and insolvency) is bound to be unjust.

          3) The private sector is quite capable of coming up with its own money solutions.

          • Beard,

            It’s a lovely thought, but not realistic. Who would regulate the pvt sector money supply? In many ways, this is similar to the anarcho capitalist dream. It works in theory, but collapses in reality because men are inherently self serving…..Just look at our bankers, lobbyists and politicians. They can barely be contained by the world’s most powerful govt :-)

            • Who would regulate the pvt sector money supply? Cullen Roche

              There would be any number of private money supplies regulated by the respective private issuers, of course. And think about trade policy: Each issuer could decide for itself if it wish to strengthen or weaken its currency. The US would therefore have optimally tailored foreign trade.

          • One of the greatest presidents in our country’s history, Abraham Lincoln, completely disagrees, to the point of taking the polar opposite opinion:

            “The government should create, issue, and circulate all the currency
            and credits needed to satisfy the spending power of the government and
            the buying power of consumers. By adoption of these principles, the
            taxpayers will be saved immense sums of interest. Money will cease to
            be master and become the servant of humanity.”

            It’s not just a matter of who creates the money, but how it gets distributed. I agree with you that the government being in bed with the banks is problematic, but I don’t think complete privatization is the answer.

            • … but I don’t think complete privatization is the answer. Jonnyblaze

              Nor do I. The government would still create, spend and tax its own fiat. Furthermore, the government could deficit spend at will, confident in the knowledge that excessive spending would not harm the private sector but only the government and its payees.

              • I’ve said this before on these boards, but I really like Bernard Lietaer’s work on multiple currencies. You should take a look too — I think you would appreciate it:


              • And its payors. Even if you earned all your money in a private currency, you’d still need to exchange it for dollars to pay your taxes. That exchange rate (which Tsy would surely control) would establish the value of your currency.

                • That exchange rate (which Tsy would surely control) would establish the value of your currency. beowulf

                  That would defeat the purpose of private currencies. Instead, the free market should determine the exchange rates. People who received government money – Federal workers, the military, SS recipients, Federal contractors, etc. – would sell that money on the open market for goods and services or for private currencies if they desired.

          • Beard,

            Central banks came into existence because of general public frustration with free market private banking solutions that were be prone to bank runs and/or outright fraud (that is your point 2). Granted their role expanded to include management of international money flows and monetary concerns.

            Legality aside, I’m open to alternative currencies (be it bit coins/facebook credits, gold as tender or berkshares local currency etc) and letting users and sellers decide which currency to honor. I even have some of these currencies, but at the end of day all taxes will be settled in USD. And I suspect the majority of people would avoid replacing the bulk of their currency holdings with a non-soveriegn currency (maybe except gold bugs).

            • And I suspect the majority of people would avoid replacing the bulk of their currency holdings with a non-soveriegn currency (maybe except gold bugs). ocean

              Probably true since government money is so convenient and necessary (for paying taxes) but ONLY so long as the government managed it well enough.

  21. I think the basic infrastructure for such an idea already exists in the form of universities and their research programs and subsequent spin-offs, but, since it’s a supply-side remedy, it won’t take off until the balance sheet recession has been overcome. In fact, with demand weak, a spike in productivity could have a negaticve effect on the unemployment level. Not that that should be used as an excuse for complacency.

    • I correct myself, employing people obviously isn’t a supply side remedy, but the intended effect is geared towards supply, not demand.

  22. I don’t think this idea will work. Without any accountability and risk this money will just go into CEO salaries and may generate few powerpoint presentations to impress people who are runnng the private equity (PE) funds. Fund managers won’t care because they know it is not their money and CEOs won’t care because they know it is not PE’s money. When there is no real risk money will always be wasted. Something personal must be at stake else it is mini-China that is what you are proposing.

    To resolve balance-sheet recession you need people to have real jobs so that they can pay-off their debts. It is better that govt create news jobs by funding new infrastructure projects such as high-speed rail, natural gas exploration, educate more doctors and nurses for cheaper health-care. Let the firms earn that money from the govt.

    Mr. Roche I respect your opinions but this one is a chapter straight out of China’s book!

  23. While ALL socialist concepts sound good, they do NOT work and are NOT productive. in fact, they are counter productive. FED intervention into the housing market is what created this fiasco in the first place! The FREE MARKET is absolutely perfect, if left alone to work!!! The risk takers that fund private enterprise are best suited for the job… it’s THEIR MONEY and they are going to invest it as wisely as possible! NO government funded entity can compete, nor should they, in a FREE society. However, if you are a socialist, this concept will work very well for you. The LESS the FEDS have to do with anything in the market place, the better for the market and the people thereof, period!!!

    • The FREE MARKET is absolutely perfect, if left alone to work!!! innertrader

      Then let’s have one and abolish the government backed and enforced counterfeiting cartel, otherwise known as the banking system.

      The risk takers that fund private enterprise are best suited for the job… it’s THEIR MONEY and they are going to invest it as wisely as possible! innertrader

      It might be their money but the purchasing power for it was likely stolen, one way or another.

    • Public goods like police, courts and infrastructure cannot be provided by the free market. R&D in terms of alternative energies / ecology may be seen as a public good, which the free market cannot provide.

  24. “Give me control of a nation’s money and I care not who makes it’s laws” — Mayer Amschel Rothschild

    Cullen, you have been a proponent of the “definancialization” of our economy and I think this is a well-intentioned but ultimately misguided attempt at pushing toward that end. I like your outside the box approach, but I think it has been colored by our technocratic society.

    I fear that the real issue in the United States is not a lack of innovation, but a moral bankruptcy among our leaders (and many average citizens as well) which is underlied by unquenchable greed and lust for power. I included the quote above because I think it speaks to what has happened amongst our elected officials. Though they themselves continue to ostensibly make the laws, they have adopted the attitude that control of the money/credit supply is the only thing that REALLY matters (“It’s the economy, stupid!”). This couldn’t be further from the truth.

    The past 20 years have brought unprecedented changes in the pace of technological advancement. To suggest that solving our economic woes can be achieved simply by accelerating this pace of innovation seems to ignore the fact that this whole mess has come to a head during this very same period of rapid technological innovation. Our economy doesn’t have AIDS, it has Cancer!! Just look at the derivative financial system for proof of how innovation run amok actually leads to further problems rather than being a cure-all.

    I’m not saying that we need to revert to the stone age by any means. But I think that the real remedy for our current issues is not solved by looking JUST at the technological aspect of the problem. Rather, I think we need to shift our focus to the moral/ethical implications of our technology. Take for instance food production — there is more than enough techonological savvy in the world today to feed the entire global population, and yet we have BILLIONS of people basically starving to death their whole lives. This is a problem not solved by technological means, but only by appropriately harnessing the technology that already exists.

    What societal good has a company like Apple really promoted? Sure they have all sorts of neat technology, but does my iPod angstrom really make the country or the world a better place to live? Probably not, but maybe it could. Perhaps all that money you want to throw at VC firms that fail really would be “wasted” after all, when it could be used instead to promote a more equitable society by funding initiatives aimed at ethical advancement rather than technological advancement.

  25. Socialism is inevitable, it has been stifled by right wing rhetoric and lies for years. We should just model ourselves after Switzerland and get it over with.

  26. I agree with beowulf on Cuban – why not just do a tax cut for companies that employ people. Oh wait, we’ve already done that – pushing on a string. Adding the “loan” dimension doesn’t help much, unless the government is going to pay 0.25% on what it “lends” – wait that is just for banks :)

    As much as I support increases in government spending – I don’t believe the government is going to fund ventures better than hedge funds, venture capital, etc. At least ventures that deliver returns that can be monetized/realized.

    If you want infrastructure built and long-term R&D in this environment – you need government spending that creates public returns – these are not (by design) easily monetized because returns are shared across society. So any funding the government would undertake in such an environment would be toward that end as opposed to something that could be brought to market quickly.

    So that brings up the political risk. The government has no special crystal ball – it will have its share of investment failures just as the private sector. But the private sector has much less transparency – any government investment failure would be magnified and used as another excuse to undermine public purpose.

    The old fashioned way to implement government supported R&D was funding secondary education (university research, etc.) – IMHO, that would be a good use of government spending. And that actually worked, so why not try that again?

    I think there is more than enough work out there fixing bridges and highways, along with providing the private sector (business & households) spending power to make up for the gap in private spending – but that is going to take a helluva lot more than $50 billion per year.

    • > The old fashioned way to implement government supported R&D was funding secondary education (university research, etc.) – IMHO, that would be a good use of government spending. And that actually worked, so why not try that again?

      Exactly. This is what other countries do, germany, Finland, Sweden. Making secondary education more available but also setting expectations for being QUALIFIED to receive it is the dirver of innovation because it lifts the education level of the population.
      In the US K-12 system is horrible because it is non-competetive, everybody can get into some college, anybody can get a credit. In Germany, if you don’t work hard you are not getting into taxpayer financed college, end of story.
      That teaches responsibility and hard work from young age.

  27. My idea is based on the simple idea that demand creates jobs, not the other way around. So any prescription that targets the symptom (employment) and not the disease/virus (private sector debt & need for furhter deleveraging before demand can be increased) is no where near as effective.

    That being said. The political environment is not one where a properly massive Tax Cut/Holiday can be acheived (Or wage increase subsidy).

    ‘My’ idea would be that any fiscal stimulus should get more money to consumers it should be enough for them to ‘fully’ deleverage and then have increased ability to spend(consume). If it makes it politically more tenable for it to be linked to something that directly creates new jobs then I am 100% with Cuban. He’s a smart, successful, bastion of capitalism and if simple job creation is the goal then I stand behind him. But the vast majority of the fiscal stimulus should go to the consumer.


    • (I can be rather terrible at organizing my thoughts). Left out the specific notes for ‘My’ idea. Income Tax holiday and/or wage increase subsidy. If you want to also create jobs directly, make it a a corp tax cut where X amount of the cut is earmarked for hiring and Y amount is earmarked for wage increases.

      I would argue Y needs to significantly outweigh X, but that’s just me!

    • But there is plenty of unsatisfied demand, it’s just all in the emerging markets. Problem is, corporations only care to exploit that demand for enhancing their own bottom line. There is absolutely no regard for how their actions fulfill the implicit social contract that they have with the citizens of their own country… I’m convinced there has to be a way in which we can promote some balance in the “global economy” if we truly are committed to that proposition.

      • Well you let me know when you find that idea. I’d love to read it.

        Until then, let’s create some demand here.

        • Ha I wish I had the perfect answer, but I know there are much brighter economic minds out there than my own. I’ll keep searching and thinking anyways though :)

          My main point for the purposes of this discussion is that we are operating in a global economy but trying to implement policies based on an isolated view of our own economy. This strikes me as completely inconsistent and probably leads us into danger of exacerbating imbalances that already exist.

          Let’s cut the crap and really be an isolationist nation again, with all the protectionist trappings, or really commit ourselves to a globalized economy and address the issues with globalized solutions. Personally, I wouldn’t even mind the former but I doubt we’ll go that direction…

          • Johnnyblaze,

            “My main point for the purposes of this discussion is that we are operating in a global economy but trying to implement policies based on an isolated view of our own economy.” Well, the body that implements our policies does not extend (directly, we could argue about this, but on paper at least and ABSOLUTELY interms of currency control) outside our “borders”.

            I understand your view and agree with the sentiment, but in the current environment- the one where BO said during his last State of the Union address that corp tax cuts were coming, among other things- I think the idea of affecting the US to affect economic change in a positive direction is much more viable a possibility. This is why I say give a huge, massive corp tax cut where (making this up as I go, haven’t crunched any numbers) 80% of the cut is earmarked for wage increases to employees beyond some pay level (which we can argue) and 20% is earmarked for’new’ payroll creation (new jobs).

            That being said, I hate politics so the more beltway savvy could probably give 100 reasons why my idea is ‘impossible’.


            • “wage increases to employees beyond some pay level”

              Yikes! Should be ‘below’ not beyond.

            • If the govt uses the tax code to create a virtual wage subsidy (instead of an EITC subsidy being sent to employee, employer gets tax credit for wages paid). There are three variables. 1. Percentage of wages (that could be deducted against employer– or its payroll company’s– tax liability), 2. Percentage of pass-through (ex. does worker get 100% of credit as a way to hike effective minimum wage, or employer get 100%for temp jobs for LT unemployed as a privatized MMT”job guarantee”) and 3. Percentage of phase-out (as wages increase above minimum wage, ex. every $1 of add’l income, SSI phases out 50 cents, EITC by 21 cents).

              Congress could set formulas, or they could give Secretary platinum coin-like discretion to adjust wage credit. A floating payroll tax holiday would be the same as a tax credit with a variable percentage, half pass-through and zero phase out on the first $106k of wages.

              I should note the Full Employment Act dual mandate set goals for both unemployment and inflation rates as below 4.0%. Congress would never give the Secretary that kind of discretion until they figured out as the Fed has, you can target quantity or you can target price but you can’t target both. Instead of Congress targeting budget deficits (quantity), it should order the Secretary to target the dual mandate (price) by adjusting taxes and allow the quantity of the budget deficit to float. Second best option, set formulas to target price by adjusting virtual wage subsidy and payroll tax rates automatically. While they’re at it, they should lock in current Fed rates, 0.25% IOR/FFR, 0.50% discount. :o)

              • beowulf- I think you need a picture on this site. I hope you get one. I have my own thoughts what it should look like. But something resembling a large brain or simple yet super complicated imagery.

                I’ve said this before but your one smart dude. To that end..I’d just like to see what image you come up with.

                I really enjoy your posts. I’m not versed in alot of what you write. It’s above me. But has helped me

                • Thanks for your kind words. I should set up an account to put a picture of either Uncle Rico or Johnny Canal (from Napoleon Dynamite and awesome John Malkovich SNL skit, respectively).

                  Set in the post revolutionary period USA where the new government is planning how to set up the new nation. They are on the topic of a national transportation system. In walks Johnny Canal.
                  He proceeds to tell the committee about his idea of interconnecting towns and
                  cities with a huge system of canals. He pulls out a ridiculous map of the plan that has most of the country’s space taken up by canals.

                  Part of his idea is that the canals would not be connected to each other. Each town would have its own singular canal to each other town.
                  Whenever a committee member asks a question that points out the difficulty in logistics or the sheer ridiculousness of the plan, Johnny gets confused, pulls out his knife and lunges threateningly at the inquisitor, only to be pulled off before killing him. This happens several times.


              • Beowulf,

                I’ve read that twice now and kind of understand about half of it.

                My idea was very simplistic, as I am a simpleton. Whatever the mechanism is, I simply prefer getting more money into the pockets of those who will utimately consume and therefore generate more demand (and therefore sustainable jobs). I actually prefer a ‘straight forward’ income tax holiday to my own idea, but the wage subsidy being linked to the corp tax cut seems more politically tenable to me.

                Can you speak more to, or provide a link to your ‘floating budget deficits’ idea. I like it I just don’t think I fully understand the mechanisim.


                • Chris, my comments usually don’t make sense but if you notice– every other line rhymes! (no no just kidding)

                  By floating budget deficit simply that the govt should spend as much or as little as is required to hit dual mandate targets, instead of focusing on budget deficit number.

  28. I wouldn’t object to such a plan. I wouldn’t expect it to generate much more than rent-seeking, cronyism and fraud, but what’s $50 billion in an MMT world?

    But I’d much rather see the government reduce the enormous regulatory burden it places on our entrepreneurs, especially in the healthcare and education sectors. You could foster a lot more innovation in those industries by easing up on red-tape and mandates, than you could with any pie-in-sky “Innovation Initiative.”

    IMO, we do NOT need more Apples making handheld computers or flying cars or X-Ray specs or whatever this program would produce. But we could really use a few more Apple Universities training new engineers and more Apple Pharmaceuticals synthesizing new drugs.