Inflation targeting

From Wikipedia, the free encyclopedia
https://en.wikipedia.org/wiki/Inflation_targeting

In macroeconomics, inflation targeting is a monetary policy where a central bank follows an explicit target for the inflation rate for the medium-term and announces this inflation target to the public. The assumption is that the best that monetary policy can do to support long-term growth of the economy is to maintain price stability, and price stability is achieved by controlling inflation. The central bank uses interest rates as its main short-term monetary instrument.

An inflation-targeting central bank will raise or lower interest rates based on above-target or below-target inflation, respectively. The conventional wisdom is that raising interest rates usually cools the economy to rein in inflation; lowering interest rates usually accelerates the economy, thereby boosting inflation. The first three countries to implement fully-fledged inflation targeting were New Zealand, Canada and the United Kingdom in the early 1990s, although Germany had adopted many elements of inflation targeting earlier.

History

Early proposals of monetary systems targeting the price level or the inflation rate, rather than the exchange rate, followed the general crisis of the gold standard after World War I. Irving Fisher proposed a "compensated dollar" system in which the gold content in paper money would vary with the price of goods in terms of gold, so that the price level in terms of paper money would stay fixed. Fisher's proposal was a first attempt to target prices while retaining the automatic functioning of the gold standard. In his Tract on Monetary Reform (1923), John Maynard Keynes advocated what we would now call an inflation targeting scheme. In the context of sudden inflations and deflations in the international economy right after World War I, Keynes recommended a policy of exchange-rate flexibility, appreciating the currency as a response to international inflation and depreciating it when there are international deflationary forces, so that internal prices remained more or less stable. Interest in inflation targeting waned during the Bretton Woods era (1944–1971), as they were inconsistent with the exchange rate pegs that prevailed during three decades after World War II.

New Zealand, Canada, United Kingdom

Inflation targeting was pioneered in New Zealand in 1990. Canada was the second country to formally adopt inflation targeting in February 1991.

The United Kingdom adopted inflation targeting in October 1992 after exiting the European Exchange Rate Mechanism. The Bank of England's Monetary Policy Committee was given sole responsibility in 1998 for setting interest rates to meet the Government's Retail Prices Index (RPI) inflation target of 2.5%. The target changed to 2% in December 2003 when the Consumer Price Index (CPI) replaced the Retail Prices Index as the UK Treasury's inflation index. If inflation overshoots or undershoots the target by more than 1%, the Governor of the Bank of England is required to write a letter to the Chancellor of the Exchequer explaining why, and how he will remedy the situation. The success of inflation targeting in the United Kingdom has been attributed to the Bank's focus on transparency. The Bank of England has been a leader in producing innovative ways of communicating information to the public, especially through its Inflation Report, which have been emulated by many other central banks.

Inflation targeting then spread to other advanced economies in the 1990s and began to spread to emerging markets beginning in the 2000s.

European Central Bank

Although the ECB does not consider itself to be an inflation-targeting central bank, after the inception of the euro in January 1999, the objective of the European Central Bank (ECB) has been to maintain price stability within the Eurozone. The Governing Council of the ECB in October 1998 defined price stability as inflation of under 2%, "a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%" and added that price stability "was to be maintained over the medium term". The Governing Council confirmed this definition in May 2003 following a thorough evaluation of the ECB's monetary policy strategy. On that occasion, the Governing Council clarified that "in the pursuit of price stability, it aims to maintain inflation rates below, but close to, 2% over the medium term". Since then, the numerical target of 2% has become common for major developed economies, including the United States (since January 2012) and Japan (since January 2013).

In 8 July 2021, the ECB changed its inflation target to a symmetrical 2% over the medium term. Symmetry in the inflation target means that the Governing Council considers negative and positive deviations of inflation from the target to be equally undesirable.

Emerging markets

In 2000, Frederic S. Mishkin concluded that "although inflation targeting is not a panacea and may not be appropriate for many emerging market countries, it can be a highly useful monetary policy strategy in a number of them".

Armenia

The Central Bank of Armenia (CBA) announced in 2006 that it will implement an inflation targeting strategy. The process of full transition to inflation targeting was supposed to end in 2008. Operational, macroeconomic and institutional preconditions for inflation targeting should have been met to ensure a full transition. CBA believes that it has managed to meet all the preconditions successfully and should concentrate on building a public trust in the new monetary policy regime. A specific model has been developed to estimate CBA's reaction function and the results showed that the inertia of inflation rate and interest rate are most vital in the reaction function. This can be an evidence that the announcement of the strategy is a trustworthy commitment. Obviously, there are people who claim that inflation targeting is too restrictive for dealing with positive supply shocks. On the other hand, the IMF claims that inflation targeting strategy is good for developing economies, however it requires a lot of information for forecasting.

The Central Bank continued to pursue a policy of tightening monetary conditions during the reporting period, increasing the policy interest rate by a total of 2.75 percentage points. At the same time, about half of the tightening, 1.25 percentage points, was carried out in 2022 in March, reacting to the high inflation situation formed in the case of unprecedented uncertainties.

Being constantly hit by external shocks to the national economy over the past three years, Armenia is still on the path of recovery thanks to economic management efforts. According to the 3-year Stand-By Arrangement, which came to its end on May 16, 2022, important structural and institutional reforms have been implemented. Those include improvement of tax compliance, budget process refinement, strengthening the stability of financial sector and most importantly fostering the inflation targeting framework.

Chile

Further information: Inflation in Chile

In Chile, a 20% inflation rate pushed the Central Bank of Chile to announce at the end of 1990 an inflation objective for the annual inflation rate for the year ending in December 1991. However, Chile was not regarded as a fully-fledged inflation targeter until October 1999. According to Pablo García Silva, member of the board of the Central Bank of Chile, this has allowed to attenuate inflation. García Silva exemplifies this with the limited inflation seen in Chile during the 2002 Brazilian general election and the Great Recession of 2008–2009.

Czech Republic

The Czech National Bank (CNB) is an example of an inflation targeting central bank in a small open economy with a recent history of economic transition and real convergence to its Western European peers. Since 2010 the CNB uses 2 percent with a +/- 1pp range around it as the inflation target. The CNB places a lot of emphasis on transparency and communication; indeed, a recent study of more than 100 central banks found the CNB to be among the four most transparent ones.

In 2012, inflation was expected to fall well below the target, leading the CNB to gradually reduce the level of its basic monetary policy instrument, the 2-week repo rate, until the zero lower bound (actually 0.05 percent) was reached in late 2012. In light of the threat of a further fall in inflation and possibly even of a protracted period of deflation, on 7 November 2013 the CNB declared an immediate commitment to weaken the exchange rate to the level of 27 Czech korunas per 1 euro (day-on-day weakening by about 5 percent) and to keep the exchange rate from getting stronger than this value until at least the end of 2014 (later on this was changed to the second half of 2016). The CNB thus decided to use the exchange rate as a supplementary tool to make sure that inflation returns to the 2 percent target level. Such a use of the exchange rate as tool within the regime of inflation targeting should not be confused with a fixed exchange-rate system or with a currency war.

United States

In a historic shift on 25 January 2012, U.S. Federal Reserve Chairman Ben Bernanke set a 2% target inflation rate, bringing the Fed in line with many of the world's other major central banks. Until then, the Fed's policy committee, the Federal Open Market Committee (FOMC), did not have an explicit inflation target but regularly announced a desired target range for inflation (usually between 1.7% and 2%) measured by the personal consumption expenditures price index.

Prior to adoption of the target, some people argued that an inflation target would give the Fed too little flexibility to stabilise growth and/or employment in the event of an external economic shock. Another criticism was that an explicit target might turn central bankers into what Mervyn King, former Governor of the Bank of England, had in 1997 colorfully termed "inflation nutters"—that is, central bankers who concentrate on the inflation target to the detriment of stable growth, employment, and/or exchange rates. King went on to help design the Bank's inflation targeting policy, and asserts that the buffoonery has not actually happened, as did Chairman of the U.S. Federal Reserve Ben Bernanke, who stated in 2003 that all inflation targeting at the time was of a flexible variety, in theory and practice.

Former Chairman Alan Greenspan, as well as other former FOMC members such as Alan Blinder, typically agreed with the benefits of inflation targeting, but were reluctant to accept the loss of freedom involved; Bernanke, however, was a well-known advocate.

In August 2020, the FOMC released a revised Statement on Longer-Run Goals and Monetary Policy Strategy. The review announced the FED would seek to achieve inflation that 'averages' 2% over time. In practice this means that following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time. This way, the fed hopes to better anchor longer-term inflation expectations, which they say would foster price stability and moderate long-term interest rates and enhance the Committee's ability to promote maximum employment in the face of significant economic disturbances.

Theoretical questions

New classical macroeconomics and rational expectations hypothesis can explain how and why inflation targeting works. Expectations of firms (or the subjective probability distribution of outcomes) will be around the prediction of the theory itself (the objective probability distribution of those outcomes) for the same information set. So, rational agents expect the most probable outcome to emerge. However, there is limited success at specifying the relevant model, and the full and perfect knowledge of a given macroeconomic system can be regarded as a comfortable presumption at best. Knowledge of the relevant model is not feasible, even if high-level econometrical techniques were accessible or adequate identification of the relevant explanatory variables were performed. So, estimation bias depends on the quantity and quality of information to which the modeller has access. In other words, estimations are asymptotically unbiased with respect to the exploited information.

Meanwhile, consistency can be interpreted similarly. On the basis of asymptotical unbiasedness, a moderated version of the rational expectations hypothesis can be suggested in which familiarity with the theoretical parameters is not a requirement for the relevant model. An agent with access to sufficiently vast, quality information and high-level methodological skills could specify its own quasi-relevant model describing a specific macroeconomic system. By increasing the amount of information processed, this agent could further reduce its bias. If this agent were also focal, such as a central bank, then other agents would likely accept the proposed model and adjust their expectations accordingly. In this way, individual expectations become unbiased as much as possible, albeit against a background of considerable passivity. According to some researches, this is the theoretical background of the functionality of inflation targeting regimes.

Empirical issues

Target band size

While most inflation targeting countries set their target band at 2 percentage points, the band sizes are wide-ranging across countries and inflation targeters frequently update their target bands.

Track record

Inflation targeting countries' track records in maintaining inflation within the central banks' target bands differ substantially and financial markets differentiate inflation targeters by behaviors.

Debate

There is some empirical evidence that inflation targeting does what its advocates claim, that is, making the outcomes, if not the process, of monetary policy more transparent. A 2021 study in the American Political Science Review found that independent central banks with rigid inflation targeting policies produce worse outcomes in banking crises than independent central banks whose policy mandate does not rigidly prioritize inflation.

Benefits

Inflation targeting allows monetary policy to "focus on domestic considerations and to respond to shocks to the domestic economy", which is not possible under a fixed exchange-rate system. Also, as a result of better inflation control and stability of economic growth, investors may more easily factor in likely interest rate changes into their investment decisions. Inflation expectations that are better anchored "allow monetary authorities to cut policy interest rates countercyclically".

Transparency is another key benefit of inflation targeting. Central banks in developed countries that have successfully implemented inflation targeting tend to "maintain regular channels of communication with the public". For example, the Bank of England pioneered the "Inflation Report" in 1993, which outlines the bank's "views about the past and future performance of inflation and monetary policy". Although it was not an inflation-targeting country until January 2012, up until then, the United States' "Statement on Longer-Run Goals and Monetary Policy Strategy" enumerated the benefits of clear communication—it "facilitates well-informed decisionmaking by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society".

An explicit numerical inflation target increases a central bank's accountability, and thus it is less likely that the central bank falls prey to the time-inconsistency trap. This accountability is especially significant because even countries with weak institutions can build public support for an independent central bank. Institutional commitment can also insulate the bank from political pressure to undertake an overly expansionary monetary policy.

An econometric analysis found that although inflation targeting results in higher economic growth, it does not necessarily guarantee stability based on their study of 36 emerging economies from 1979 to 2009.

Shortcomings

Supporters of a nominal income target criticize the propensity of inflation targeting to neglect output shocks by focusing solely on the price level. Adherents of market monetarism, led by Scott Sumner, argue that in the United States, the Federal Reserve's mandate is to stabilize both output and the price level, and that consequently a nominal income target would better suit the Fed's mandate. Australian economist John Quiggin, who also endorses nominal income targeting, stated that it "would maintain or enhance the transparency associated with a system based on stated targets, while restoring the balance missing from a monetary policy based solely on the goal of price stability". Quiggin blamed the late-2000s recession on inflation targeting in an economic environment in which low inflation is a "drag on growth". In practice, many central banks conduct "flexible inflation targeting" where the central bank strives to keep inflation near the target except when such an effort would imply too much output volatility.

Quiggin also criticized former Fed Chair Alan Greenspan and former European Central Bank President Jean-Claude Trichet for "ignor[ing] or even applaud[ing] the unsustainable bubbles in speculative real estate that produced the crisis, and to react[ing] too slowly as the evidence emerged".

In a 2012 op-ed, University of Nottingham economist Mohammed Farhaan Iqbal suggested that inflation targeting "evidently passed away in September 2008", referencing the 2007–2012 global financial crisis. Frankel suggested "that central banks that had been relying on [inflation targeting] had not paid enough attention to asset-price bubbles", and also criticized inflation targeting for "inappropriate responses to supply shocks and terms-of-trade shocks". In turn, Iqbal suggested that nominal income targeting or product-price targeting would succeed inflation targeting as the dominant monetary policy regime. The debate continues and many observers expect that inflation targeting will continue to be the dominant monetary policy regime, perhaps after certain modifications.

Empirically, it is not so obvious that inflation targeteers have better inflation control. Some economists argue that better institutions increase a country's chances of successfully targeting inflation. As regards the impact of the 2007–2012 financial crisis, John Williams, a high-ranking Federal Reserve official, concludes that "when gauged by the behavior of inflation since the crisis, inflation targeting delivered on its promise".

In an article written since the COVID-19 pandemic, critics have pointed out that the Bank of Canada’s inflation-targeting has had unintended consequences, with persistently low interest rates over the last 12 years fuelling an increase in home prices by encouraging borrowing; and contributing to wealth inequalities by supporting higher equity values.

Choosing a positive, zero, or negative inflation target

Choosing a positive inflation target has at least two drawbacks.

1. Over time, the compounded effect of small annual price increases will significantly reduce a currency's purchasing power. (For example, successfully hitting a target of +2% each year for 40 years would cause the price of a $100 basket of goods to rise to $220.80.) This drawback would be minimized or reversed by choosing a zero inflation target or a negative target.
2. Vendors must expend resources more frequently to reprice their goods and services. This drawback would be minimized by choosing a zero inflation target.

However, policymakers feel the drawbacks are outweighed by the fact that a positive inflation target reduces the chance of an economy falling into a period of deflation.

Some economists argue that fear of deflation is unfounded, citing studies that show inflation is more likely than deflation to cause an economic contraction. Andrew Atkeson and Patrick J. Kehoe wrote,

According to standard economic theory, deflation is the necessary consequence of optimal monetary policy. In 1969, Milton Friedman argued that under the optimal policy, the nominal interest rate should be zero and the price level should fall steadily at the real rate of interest. Since then, Friedman’s argument has been confirmed in a formal setting. (See, for example, V. V. Chari, Lawrence Christiano, and Patrick Kehoe 1996 and Harold Cole and Narayana Kocherlakota 1998.)

Effectively, Friedman was arguing for a negative (moderately deflationary) inflation target.

Numerical target

The typical numerical target of 2% has come under debate since the period of rapid inflation experienced following the monetary expansion during the COVID-19 pandemic.

Mohamed El-Erian has suggested the Federal Reserve raise its inflation target to a (stable) 3% rate of inflation, saying "There's nothing scientific about 2%".

Variations

In contrast to the usual inflation rate targeting, Laurence M. Ball proposed targeting long-run inflation using a monetary conditions index. In his proposal, the monetary conditions index is a weighted average of the interest rate and exchange rate. It will be easy to put many other things into this monetary conditions index.

In the "constrained discretion" framework, inflation targeting combines two contradicting monetary policies—a rule-based approach and a discretionary approach—as a precise numerical target is given for inflation in the medium term and a response to economic shocks in the short term. Some inflation targeters associate this with more economic stability.

Countries

There were 27 countries regarded by the Bank of England's Centre for Central Banking Studies as fully fledged inflation targeters at the beginning of 2012. Other lists count 26 or 28 countries as of 2010.  Since then, the United States and Japan have also adopted inflation targets although the Federal Reserve, like the European Central Bank, does not consider itself to be an inflation-targeting central bank.

Modern monetary theory

From Wikipedia, the free encyclopedia
https://en.wikipedia.org/wiki/Modern_monetary_theory

Modern monetary theory or modern money theory (MMT) is a heterodox macroeconomic theory that describes currency as a public monopoly and unemployment as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires. According to MMT, governments do not need to worry about accumulating debt since they can pay interest by printing money. MMT argues that the primary risk once the economy reaches full employment is inflation, which acts as the only constraint on spending. MMT also argues that inflation can be controlled by increasing taxes on everyone, to reduce the spending capacity of the private sector.

MMT is opposed to the mainstream understanding of macroeconomic theory and has been criticized heavily by many mainstream economists. MMT is also strongly opposed by members of the Austrian school of economics, with Murray Rothbard stating that MMT practices are equivalent to "counterfeiting" and that government control of the money supply will inevitably lead to hyperinflation.

Principles

MMT's main tenets are that a government that issues its own fiat money:

1. Can pay for goods, services, and financial assets without a need to first collect money in the form of taxes or debt issuance in advance of such purchases
2. Cannot be forced to default on debt denominated in its own currency
3. Is limited in its money creation and purchases only by inflation, which accelerates once the real resources (labour, capital and natural resources) of the economy are utilized at full employment
4. Recommends strengthening automatic stabilisers to control demand-pull inflation, rather than relying upon discretionary tax changes
5. Issues bonds as a monetary policy device, rather than as a funding device

The first four MMT tenets do not conflict with mainstream economics understanding of how money creation and inflation works. However, MMT economists disagree with mainstream economics about the fifth tenet: the impact of government deficits on interest rates.

History

MMT synthesizes ideas from the state theory of money of Georg Friedrich Knapp (also known as chartalism) and the credit theory of money of Alfred Mitchell-Innes, the functional finance proposals of Abba Lerner, Hyman Minsky's views on the banking system and Wynne Godley's sectoral balances approach.

Knapp wrote in 1905 that "money is a creature of law", rather than a commodity. Knapp contrasted his state theory of money with the Gold Standard view of "metallism", where the value of a unit of currency depends on the quantity of precious metal it contains or for which it may be exchanged. He said that the state can create pure paper money and make it exchangeable by recognizing it as legal tender, with the criterion for the money of a state being "that which is accepted at the public pay offices".

The prevailing view of money was that it had evolved from systems of barter to become a medium of exchange because it represented a durable commodity which had some use value, but proponents of MMT such as Randall Wray and Mathew Forstater said that more general statements appearing to support a chartalist view of tax-driven paper money appear in the earlier writings of many classical economists, including Adam Smith, Jean-Baptiste Say, J. S. Mill, Karl Marx, and William Stanley Jevons.

Alfred Mitchell-Innes wrote in 1914 that money exists not as a medium of exchange but as a standard of deferred payment, with government money being debt the government may reclaim through taxation. Innes said:

Whenever a tax is imposed, each taxpayer becomes responsible for the redemption of a small part of the debt which the government has contracted by its issues of money, whether coins, certificates, notes, drafts on the treasury, or by whatever name this money is called. He has to acquire his portion of the debt from some holder of a coin or certificate or other form of government money, and present it to the Treasury in liquidation of his legal debt. He has to redeem or cancel that portion of the debt ... The redemption of government debt by taxation is the basic law of coinage and of any issue of government 'money' in whatever form.

— Alfred Mitchell-Innes, "The Credit Theory of Money", The Banking Law Journal

Knapp and "chartalism" are referenced by John Maynard Keynes in the opening pages of his 1930 Treatise on Money and appear to have influenced Keynesian ideas on the role of the state in the economy.

By 1947, when Abba Lerner wrote his article "Money as a Creature of the State", economists had largely abandoned the idea that the value of money was closely linked to gold. Lerner said that responsibility for avoiding inflation and depressions lay with the state because of its ability to create or tax away money.

Hyman Minsky seemed to favor a chartalist approach to understanding money creation in his Stabilizing an Unstable Economy, while Basil Moore, in his book Horizontalists and Verticalists, lists the differences between bank money and state money.

In 1996, Wynne Godley wrote an article on his sectoral balances approach, which MMT draws from.

Economists Warren Mosler, L. Randall Wray, Stephanie Kelton, Bill Mitchell and Pavlina R. Tcherneva are largely responsible for reviving the idea of chartalism as an explanation of money creation; Wray refers to this revived formulation as neo-chartalism.

Rodger Malcolm Mitchell's book Free Money (1996) describes in layman's terms the essence of chartalism.

Pavlina R. Tcherneva has developed the first mathematical framework for MMT and has largely focused on developing the idea of the job guarantee.

Bill Mitchell, professor of economics and Director of the Centre of Full Employment and Equity (CoFEE) at the University of Newcastle in Australia, coined the term 'modern monetary theory'. In their 2008 book Full Employment Abandoned, Mitchell and Joan Muysken use the term to explain monetary systems in which national governments have a monopoly on issuing fiat currency and where a floating exchange rate frees monetary policy from the need to protect foreign exchange reserves.

Some contemporary proponents, such as Wray, place MMT within post-Keynesian economics, while MMT has been proposed as an alternative or complementary theory to monetary circuit theory, both being forms of endogenous money, i.e., money created within the economy, as by government deficit spending or bank lending, rather than from outside, perhaps with gold. In the complementary view, MMT explains the "vertical" (government-to-private and vice versa) interactions, while circuit theory is a model of the "horizontal" (private-to-private) interactions.

By 2013, MMT had attracted a popular following through academic blogs and other websites.

In 2019, MMT became a major topic of debate after U.S. Representative Alexandria Ocasio-Cortez said in January that the theory should be a larger part of the conversation. In February 2019, Macroeconomics became the first academic textbook based on the theory, published by Bill Mitchell, Randall Wray, and Martin Watts. MMT became increasingly used by chief economists and Wall Street executives for economic forecasts and investment strategies. The theory was also intensely debated by lawmakers in Japan, which was planning to raise taxes after years of deficit spending.

In June 2020, Stephanie Kelton's MMT book The Deficit Myth became a New York Times bestseller.

In 2020 the Sri Lankan Central Bank, under the governor W. D. Lakshman, cited MMT as a justification for adopting unconventional monetary policy, which was continued by Ajith Nivard Cabraal. This has been heavily criticized and widely cited as causing accelerating inflation and exacerbating the Sri Lankan economic crisis. MMT scholars Stephanie Kelton and Fadhel Kaboub maintain that the Sri Lankan government's fiscal and monetary policy bore little resemblance to the recommendations of MMT economists.

Theoretical approach

In sovereign financial systems, banks can create money, but these "horizontal" transactions do not increase net financial assets because assets are offset by liabilities. According to MMT advocates, "The balance sheet of the government does not include any domestic monetary instrument on its asset side; it owns no money. All monetary instruments issued by the government are on its liability side and are created and destroyed with spending and taxing or bond offerings." In MMT, "vertical money" enters circulation through government spending. Taxation and its legal tender enable power to discharge debt and establish fiat money as currency, giving it value by creating demand for it in the form of a private tax obligation. In addition, fines, fees, and licenses create demand for the currency. This currency can be issued by the domestic government or by using a foreign, accepted currency. An ongoing tax obligation, in concert with private confidence and acceptance of the currency, underpins the value of the currency. Because the government can issue its own currency at will, MMT maintains that the level of taxation relative to government spending (the government's deficit spending or budget surplus) is in reality a policy tool that regulates inflation and unemployment, and not a means of funding the government's activities by itself. The approach of MMT typically reverses theories of governmental austerity. The policy implications of the two are likewise typically opposed.

Vertical transactions

Further information: Sectoral balances

Illustration of the saving identity with the three sectors, the computation of the surplus or deficit balances for each and the flows between them

MMT labels a transaction between a government entity (public sector) and a non-government entity (private sector) as a "vertical transaction". The government sector includes the treasury and central bank. The non-government sector includes domestic and foreign private individuals and firms (including the private banking system) and foreign buyers and sellers of the currency.

Interaction between government and the banking sector

MMT is based on an account of the "operational realities" of interactions between the government and its central bank, and the commercial banking sector, with proponents like Scott Fullwiler arguing that understanding reserve accounting is critical to understanding monetary policy options.

A sovereign government typically has an operating account with the country's central bank. From this account, the government can spend and also receive taxes and other inflows. Each commercial bank also has an account with the central bank, by means of which it manages its reserves (that is, money for clearing and settling interbank transactions).

When a government spends money, its central bank debits its Treasury's operating account and credits the reserve accounts of the commercial banks. The commercial bank of the final recipient will then credit up this recipient's deposit account by issuing bank money. This spending increases the total reserve deposits in the commercial bank sector. Taxation works in reverse: taxpayers have their bank deposit accounts debited, along with their bank's reserve account being debited to pay the government; thus, deposits in the commercial banking sector fall.

Government bonds and interest rate maintenance

The Federal Reserve raising the Federal Funds Rate above U.S. Treasury interest rates creates an inverted yield curve, which predicts recessions.

Virtually all central banks set an interest rate target, and most now establish administered rates to anchor the short-term overnight interest rate at their target. These administered rates include interest paid directly on reserve balances held by commercial banks, a discount rate charged to banks for borrowing reserves directly from the central bank, and an Overnight Reverse Repurchase (ON RRP) facility rate paid to banks for temporarily forgoing reserves in exchange for Treasury securities. The latter facility is a type of open market operation to help ensure interest rates remain at a target level. According to MMT, the issuing of government bonds is best understood as an operation to offset government spending rather than a requirement to finance it.

In most countries, commercial banks' reserve accounts with the central bank must have a positive balance at the end of every day; in some countries, the amount is specifically set as a proportion of the liabilities a bank has, i.e., its customer deposits. This is known as a reserve requirement. At the end of every day, a commercial bank will have to examine the status of their reserve accounts. Those that are in deficit have the option of borrowing the required funds from the Central Bank, where they may be charged a lending rate (sometimes known as a discount window or discount rate) on the amount they borrow. On the other hand, the banks that have excess reserves can simply leave them with the central bank and earn a support rate from the central bank. Some countries, such as Japan, have a support rate of zero.

Banks with more reserves than they need will be willing to lend to banks with a reserve shortage on the interbank lending market. The surplus banks will want to earn a higher rate than the support rate that the central bank pays on reserves; whereas the deficit banks will want to pay a lower interest rate than the discount rate the central bank charges for borrowing. Thus, they will lend to each other until each bank has reached their reserve requirement. In a balanced system, where there are just enough total reserves for all the banks to meet requirements, the short-term interbank lending rate will be in between the support rate and the discount rate.

Under an MMT framework where government spending injects new reserves into the commercial banking system, and taxes withdraw them from the banking system, government activity would have an instant effect on interbank lending. If on a particular day, the government spends more than it taxes, reserves have been added to the banking system (see vertical transactions). This action typically leads to a system-wide surplus of reserves, with competition between banks seeking to lend their excess reserves, forcing the short-term interest rate down to the support rate (or to zero if a support rate is not in place). At this point, banks will simply keep their reserve surplus with their central bank and earn the support rate.

The alternate case is where the government receives more taxes on a particular day than it spends. Then there may be a system-wide deficit of reserves. Consequently, surplus funds will be in demand on the interbank market, and thus the short-term interest rate will rise towards the discount rate. Thus, if the central bank wants to maintain a target interest rate somewhere between the support rate and the discount rate, it must manage the liquidity in the system to ensure that the correct amount of reserves is on-hand in the banking system.

Central banks manage liquidity by buying and selling government bonds on the open market. When excess reserves are in the banking system, the central bank sells bonds, removing reserves from the banking system, because private individuals pay for the bonds. When insufficient reserves are in the system, the central bank buys government bonds from the private sector, adding reserves to the banking system.

The central bank buys bonds by simply creating money – it is not financed in any way. It is a net injection of reserves into the banking system. If a central bank is to maintain a target interest rate, then it must buy and sell government bonds on the open market in order to maintain the correct amount of reserves in the system.

Horizontal transactions

Further information: Monetary circuit theory

MMT economists describe any transactions within the private sector as "horizontal" transactions, including the expansion of the broad money supply through the extension of credit by banks.

MMT economists regard the concept of the money multiplier, where a bank is completely constrained in lending through the deposits it holds and its capital requirement, as misleading. Rather than being a practical limitation on lending, the cost of borrowing funds from the interbank market (or the central bank) represents a profitability consideration when the private bank lends in excess of its reserve or capital requirements (see interaction between government and the banking sector). Effects on employment are used as evidence that a currency monopolist is overly restricting the supply of the financial assets needed to pay taxes and satisfy savings desires.

According to MMT, bank credit should be regarded as a "leverage" of the monetary base and should not be regarded as increasing the net financial assets held by an economy: only the government or central bank is able to issue high-powered money with no corresponding liability. Stephanie Kelton said that bank money is generally accepted in settlement of debt and taxes because of state guarantees, but that state-issued high-powered money sits atop a "hierarchy of money".

Foreign sector

Imports and exports

MMT proponents such as Warren Mosler say that trade deficits are sustainable and beneficial to the standard of living in the short term. Imports are an economic benefit to the importing nation because they provide the nation with real goods. Exports, however, are an economic cost to the exporting nation because it is losing real goods that it could have consumed. Currency transferred to foreign ownership, however, represents a future claim over goods of that nation.

Cheap imports may also cause the failure of local firms providing similar goods at higher prices, and hence unemployment, but MMT proponents label that consideration as a subjective value-based one, rather than an economic-based one: It is up to a nation to decide whether it values the benefit of cheaper imports more than it values employment in a particular industry. Similarly a nation overly dependent on imports may face a supply shock if the exchange rate drops significantly, though central banks can and do trade on foreign exchange markets to avoid shocks to the exchange rate.

Foreign sector and government

MMT says that as long as demand exists for the issuer's currency, whether the bond holder is foreign or not, governments can never be insolvent when the debt obligations are in their own currency; this is because the government is not constrained in creating its own fiat currency (although the bond holder may affect the exchange rate by converting to local currency).

MMT does agree with mainstream economics that debt in a foreign currency is a fiscal risk to governments, because the indebted government cannot create foreign currency. In this case, the only way the government can repay its foreign debt is to ensure that its currency is continually in high demand by foreigners over the period that it wishes to repay its debt; an exchange rate collapse would potentially multiply the debt many times over asymptotically, making it impossible to repay. In that case, the government can default, or attempt to shift to an export-led strategy or raise interest rates to attract foreign investment in the currency. Either one negatively affects the economy.

Policy implications

Further information: NAIBER

Economist Stephanie Kelton explained several points made by MMT in March 2019:

• Under MMT, fiscal policy (i.e., government taxing and spending decisions) is the primary means of achieving full employment, establishing the budget deficit at the level necessary to reach that goal. In mainstream economics, monetary policy (i.e., Central Bank adjustment of interest rates and its balance sheet) is the primary mechanism, assuming there is some interest rate low enough to achieve full employment. Kelton said that "cutting interest rates is ineffective in a slump" because businesses, expecting weak profits and few customers, will not invest even at very low interest rates.
• Government interest expenses are proportional to interest rates, so raising rates is a form of stimulus (it increases the budget deficit and injects money into the private sector, other things being equal); cutting rates is a form of austerity.
• Achieving full employment can be administered via a centrally-funded job guarantee, which acts as an automatic stabilizer. When private sector jobs are plentiful, the government spending on guaranteed jobs is lower, and vice versa.
• Under MMT, expansionary fiscal policy, i.e., money creation to fund purchases, can increase bank reserves, which can lower interest rates. In mainstream economics, expansionary fiscal policy, i.e., debt issuance and spending, can result in higher interest rates, crowding out economic activity.

Economist John T. Harvey explained several of the premises of MMT and their policy implications in March 2019:

• The private sector treats labor as a cost to be minimized, so it cannot be expected to achieve full employment without government creating jobs, too, such as through a job guarantee.
• The public sector's deficit is the private sector's surplus and vice versa, by accounting identity, which increased private sector debt during the Clinton-era budget surpluses.
• Creating money activates idle resources, mainly labor. Not doing so is immoral.
• Demand can be insensitive to interest rate changes, so a key mainstream assumption, that lower interest rates lead to higher demand, is questionable.
• There is a "free lunch" in creating money to fund government expenditure to achieve full employment. Unemployment is a burden; full employment is not.
• Creating money alone does not cause inflation; spending it when the economy is at full employment can.

MMT says that "borrowing" is a misnomer when applied to a sovereign government's fiscal operations, because the government is merely accepting its own IOUs, and nobody can borrow back their own debt instruments. Sovereign government goes into debt by issuing its own liabilities that are financial wealth to the private sector. "Private debt is debt, but government debt is financial wealth to the private sector."

In this theory, sovereign government is not financially constrained in its ability to spend; the government can afford to buy anything that is for sale in currency that it issues; there may, however, be political constraints, like a debt ceiling law. The only constraint is that excessive spending by any sector of the economy, whether households, firms, or public, could cause inflationary pressures.

MMT economists advocate a government-funded job guarantee scheme to eliminate involuntary unemployment. Proponents say that this activity can be consistent with price stability because it targets unemployment directly rather than attempting to increase private sector job creation indirectly through a much larger economic stimulus, and maintains a "buffer stock" of labor that can readily switch to the private sector when jobs become available. A job guarantee program could also be considered an automatic stabilizer to the economy, expanding when private sector activity cools down and shrinking in size when private sector activity heats up.

MMT economists also say quantitative easing is unlikely to have the effects that its advocates hope for. Under MMT, QE – the purchasing of government debt by central banks – is simply an asset swap, exchanging interest-bearing dollars for non-interest-bearing dollars. The net result of this procedure is not to inject new investment into the real economy, but instead to drive up asset prices, shifting money from government bonds into other assets such as equities, which enhances economic inequality. The Bank of England's analysis of QE confirms that it has disproportionately benefited the wealthiest.

MMT economists say that inflation can be better controlled (than by setting interest rates) with new or increased taxes to remove extra money from the economy. These tax increases would be on everyone, not just billionaires, since the majority of spending is by average Americans.

Comparison of MMT with mainstream Keynesian economics

MMT can be compared and contrasted with mainstream Keynesian economics in a variety of ways:

Topic	Mainstream Keynesian	MMT
Funding government spending	Advocates taxation and issuing bonds (debt) as preferred methods for funding government spending.	Emphasizes that government fund spending by crediting bank accounts.
Purpose of taxation	To pay down debt from central banks loaned to the government at interest, which is spent into the economy and the taxpayer needs to repay.	Primarily to drive up demand for currency. Secondary uses of taxation include lowering inflation, reducing income inequality, and discouraging bad behavior.
Achieving full employment	Main strategy uses monetary policy; central bank has "dual mandate" of maximum employment and stable prices, but these goals are not always compatible. For example, much higher interest rates used to reduce inflation also caused high unemployment in the early 1980s.	Main strategy uses fiscal policy; running a budget deficit large enough to achieve full employment through a job guarantee.
Inflation control	Driven by monetary policy; central bank sets interest rates consistent with a stable price level, sometimes setting a target inflation rate.	Driven by fiscal policy; government increases taxes on everyone to remove money from private sector. A job guarantee also provides a NAIBER, which acts as an inflation control mechanism.
Setting interest rates	Managed by central bank to achieve "dual mandate" of maximum employment and stable prices.	Emphasizes that an interest rate target is not a potent policy. The government may choose to maintain a zero interest-rate policy by not issuing public debt at all.
Budget deficit impact on interest rates	At full employment, higher budget deficit can crowd out investment.	Deficit spending can drive down interest rates, encouraging investment and thus "crowding in" economic activity.
Automatic stabilizers	Primary stabilizers are unemployment insurance and food stamps, which increase budget deficits in a downturn.	In addition to the other stabilizers, a job guarantee would increase deficits in a downturn.

Criticism

A 2019 survey of leading economists by the University of Chicago Booth's Initiative on Global Markets showed a unanimous rejection of assertions attributed by the survey to MMT: "Countries that borrow in their own currency should not worry about government deficits because they can always create money to finance their debt" and "Countries that borrow in their own currency can finance as much real government spending as they want by creating money". Directly responding to the survey, MMT economist William K. Black said "MMT scholars do not make or support either claim." Multiple MMT academics regard the attribution of these claims as a smear.

The post-Keynesian economist Thomas Palley has stated that MMT is largely a restatement of elementary Keynesian economics, but prone to "over-simplistic analysis" and understating the risks of its policy implications. Palley has disagreed with proponents of MMT who have asserted that standard Keynesian analysis does not fully capture the accounting identities and financial restraints on a government that can issue its own money. He said that these insights are well captured by standard Keynesian stock-flow consistent IS-LM models, and have been well understood by Keynesian economists for decades. He claimed MMT "assumes away the problem of fiscal–monetary conflict" – that is, that the governmental body that creates the spending budget (e.g. the legislature) may refuse to cooperate with the governmental body that controls the money supply (e.g., the central bank). He stated the policies proposed by MMT proponents would cause serious financial instability in an open economy with flexible exchange rates, while using fixed exchange rates would restore hard financial constraints on the government and "undermines MMT's main claim about sovereign money freeing governments from standard market disciplines and financial constraints". Furthermore, Palley has asserted that MMT lacks a plausible theory of inflation, particularly in the context of full employment in the employer of last resort policy first proposed by Hyman Minsky and advocated by Bill Mitchell and other MMT theorists; of a lack of appreciation of the financial instability that could be caused by permanently zero interest rates; and of overstating the importance of government-created money. Palley concludes that MMT provides no new insights about monetary theory, while making unsubstantiated claims about macroeconomic policy, and that MMT has only received attention recently due to it being a "policy polemic for depressed times".

Marc Lavoie has said that whilst the neochartalist argument is "essentially correct", many of its counter-intuitive claims depend on a "confusing" and "fictitious" consolidation of government and central banking operations, which is what Palley calls "the problem of fiscal–monetary conflict".

New Keynesian economist and recipient of the Nobel Prize in Economics, Paul Krugman, asserted MMT goes too far in its support for government budget deficits, and ignores the inflationary implications of maintaining budget deficits when the economy is growing. Krugman accused MMT devotees as engaging in "calvinball" – a game from the comic strip Calvin and Hobbes in which the players change the rules at whim. Austrian School economist Robert P. Murphy stated that MMT is "dead wrong" and that "the MMT worldview doesn't live up to its promises". He said that MMT saying cutting government deficits erodes private saving is true "only for the portion of private saving that is not invested" and says that the national accounting identities used to explain this aspect of MMT could equally be used to support arguments that government deficits "crowd out" private sector investment.

The chartalist view of money itself, and the MMT emphasis on the importance of taxes in driving money, is also a source of criticism. In 2015, three MMT economists, Scott Fullwiler, Stephanie Kelton, and L. Randall Wray, addressed what they saw as the main criticisms being made.

Spider Robinson

From Wikipedia, the free encyclopedia
https://en.wikipedia.org/wiki/Spider_Robinson

 

Spider Robinson
Robinson at the 2004 Necronomicon
Born	November 24, 1948 (age 75) New York City, U.S.
Occupation	Author
Nationality	Canadian
Genre	Science fiction

Spider Robinson (born November 24, 1948) is an American-born Canadian science fiction author. He has won a number of awards for his hard science fiction and humorous stories, including the Hugo Award 1977 and 1983, and another Hugo with his co-author and wife Jeanne Robinson in 1978.

Early life and education

Robinson was born in the Bronx, New York City; his father was a salesman. He was an avid reader of science fiction, and it was his early childhood exposure to the juvenile novels of Robert A. Heinlein that later influenced him to become a writer. He attended a Catholic high school, spending his junior year in a seminary; this was followed by two years in a Catholic college, and five years at the State University of New York at Stony Brook in the 1960s, where he earned a Bachelor of Arts in English. While at Stony Brook, Spider entertained at campus coffeehouses and gatherings, strumming his guitar and singing in harmony with his female partner. It was at this time that his friends, at his request, stopped calling him his childhood nickname of "Robbie" (a simple contraction of his last name, Robinson) and gave him the nickname "Spider", which he eventually adopted as his official first name. Robinson adopted the name partially out of admiration for blues musician "Spider" John Koerner.

Career

In 1971, just out of college, Robinson took a night job guarding sewers in New York City, and wanting a career change, began writing science fiction. He made his first short-story sale in 1972 to Analog Science Fiction magazine. The story, "The Guy with the Eyes" (Analog, February 1973), was set in a bar called Callahan's Place; Robinson would, off-and-on, continue to write stories about the denizens of Callahan's into the 21st century. The stories have been collected into a number of published books.

In 1973, Robinson moved to Nova Scotia and began writing full-time. He made several short-story sales to Analog, Galaxy Science Fiction magazine, and others, earning the John Campbell Award for best new writer in 1974.

In 1975, he married Jeanne Robinson, a choreographer, dancer, and Sōtō Zen monk, with whom he later co-wrote the Stardance Trilogy.

He worked as a book reviewer for Galaxy magazine during the mid-to-late 1970s. In 1978–79, he contributed book reviews to Jim Baen's original anthology series Destinies. For several years after he reviewed books for Analog, including reviews of Heinlein's later work.

Robinson's first published novel, Telempath (1976), was an expansion of his Hugo Award–winning novella By Any Other Name. Over the following three decades, Robinson on average released a book a year, including short story anthologies.

In 1977, Robinson released Callahan's Crosstime Saloon, a collection of short stories in his long-running Callahan's series. These stories, and later novels, make frequent reference to the works of mystery writer John D. MacDonald; his character Lady Sally McGee reflects Travis McGee, the central character in MacDonald's mystery novels. The lead character in Lady Slings the Booze frequently refers to Travis McGee as a role model. In Callahan's Key the patrons make a visit to the marina near Fort Lauderdale where the Busted Flush was usually moored in the McGee series. Similarly important to Robinson is writer Donald E. Westlake and Westlake's most famous character, John Dortmunder.

In 1992, Robinson was master-of-ceremonies for the Hugo Awards at MagiCon, the World Science Fiction Convention (Worldcon) in Orlando, Florida. From 1996 to 2005, he served as a columnist in the op-ed section (and briefly in the technology section) of The Globe and Mail.

In 2004, Robinson began working on a seven-page 1955 novel outline by the late Robert A. Heinlein to expand it into a novel. The book, titled Variable Star, was released on September 19, 2006. Robinson had previously written of his admiration for Heinlein in his 1980 essay "Rah, Rah, R.A.H.!", in the 1998 "Mentors", and in his book The Free Lunch. In an afterword to Variable Star, he recounts the story of how reading Rocket Ship Galileo, and soon after, Heinlein's other Heinlein juvenile novels, helped set the direction for his life, and how he came to write the novel. The novel reflects the very different writing styles of both Heinlein and Robinson; reviews of the books were mixed, praising Robinson's handling of a difficult task and the lively story, but criticizing the unlikely plot twists and trite romantic scenes.

Personal life

Robinson has resided in Canada for nearly 40 years, primarily in the provinces of Nova Scotia and British Columbia. He and his wife Jeanne had a daughter, Terri Luanna da Silva, who once worked for Martha Stewart, and one granddaughter.

After living in Vancouver for a decade, he moved to Bowen Island in about 1999. He became a Canadian citizen in 2002, retaining his American citizenship. Jeanne underwent treatment for biliary cancer, and died May 30, 2010. Their daughter Terri died of breast cancer on December 5, 2014.

Robinson suffered a heart attack on August 31, 2013, but recovered. Due to the health issues faced by both himself and his family, he has not published a novel since 2008. In 2013, Robinson reported on his website that work on his next book Orphan Stars was progressing, albeit slowly. Concurrently, he has begun work on his autobiography.

He was named a Guest of Honor at the 76th World Science Fiction Convention in 2018.

Awards and honors

• John W. Campbell Award for Best New Writer (1974)
• Hugo Awards for:
  • Best Novella (1977) By Any Other Name (later expanded into Telempath)
  • Best Novella (1978) Stardance (with Jeanne Robinson)
  • Best short story (1983) "Melancholy Elephants"
• Nebula Award for:
  • Best Novella (1977) Stardance (with Jeanne Robinson)
• 2008 Robert A. Heinlein Award (for Lifetime Achievement)
• 2015 LASFS Forrest J Ackerman Award for Lifetime Achievement
• Named a Guest of Honor at the 2018 World Science Fiction Convention
• Inkpot Award, 2001

Published works

Novels and collections of linked stories

The following table can be sorted by any column.

Year	Title	Co-author	Series	Notes
1976	Telempath
1977	Callahan's Crosstime Saloon		Callahan's/Jake Stonebender	Collection of linked stories
1979	Stardance	Jeanne Robinson	Stardance Trilogy
1981	Time Travelers Strictly Cash		Callahan's/Jake Stonebender	Collection of linked stories; also contains several non-Callahan's stories
1982	Mindkiller		Deathkiller Trilogy
1985	Night of Power
1986	Callahan's Secret		Callahan's/Jake Stonebender	Collection of linked stories
1987	Time Pressure		Deathkiller Trilogy
1989	Callahan's Lady		Lady Sally's
1991	Starseed	Jeanne Robinson	Stardance Trilogy
1992	Lady Slings the Booze		Lady Sally's	An excerpt from Lady Slings the Booze was published in a special edition novella called Kill the Editor in 1991.
1993	The Callahan Touch		Callahan's/Jake Stonebender
1995	Starmind	Jeanne Robinson	Stardance Trilogy
1996	Callahan's Legacy		Callahan's/Jake Stonebender
1997	Lifehouse		Deathkiller Trilogy
2000	Callahan's Key		Callahan's/Jake Stonebender
2001	The Free Lunch
2003	Callahan's Con		Callahan's/Jake Stonebender
2004	Very Bad Deaths		Russell Walker
2006	Variable Star	Robert A. Heinlein		Based on an outline Heinlein prepared in 1955.
2008	Very Hard Choices		Russell Walker

Omnibus volumes

• Callahan and Company (1988) – (omnibus edition of Callahan's Crosstime Saloon, Time Travelers Strictly Cash, and Callahan's Secret)
• Off the Wall at Callahan's (1994) – (a collection of quotes from books in the Callahan's/Lady Sally series)
• The Callahan Chronicals (1997) – (retitled republication of Callahan and Company)
• The Star Dancers (1997) (with Jeanne Robinson) (omnibus edition of Stardance and Starseed)

Short story collections

• Antinomy (1980)
• Melancholy Elephants Penguin (1984 – Canada; 1985 – United States)
• True Minds (1990)
• User Friendly (1998)
• By Any Other Name (2001)
• God Is an Iron and Other Stories (2002)
• My Favorite Shorts (2016; e-book only)

As editor

• The Best of All Possible Worlds (1980) – collection of works by other authors edited and introduced by Robinson
• "Compostela" Tesseracts 20 – with James Alan Gardner

Discography

• Belabouring the Obvious (2000)

Collected essays

• The Crazy Years: Reflections of a Science Fiction Original (2004), a collection of his articles for The Globe and Mail

For Us, the Living

From Wikipedia, the free encyclopedia
https://en.wikipedia.org/wiki/For_Us,_the_Living

For Us, the Living: A Comedy of Customs

First edition cover
Author	Robert A. Heinlein
Language	English
Genre	Science fiction
Publisher	Scribner
Publication date	November 28, 2003
Publication place	United States
Media type	Print (hardback & paperback)
Pages	288 (first edition, hardback)
ISBN	0-7432-5998-X (first edition, hardback)
OCLC	53145408
Dewey Decimal	813/.54 22
LC Class	PS3515.E288 F67 2004

For Us, the Living: A Comedy of Customs is a science fiction novel by American writer Robert A. Heinlein. It was written in 1938 and published for the first time in 2003. Heinlein admirer and science fiction author Spider Robinson titled his introductory essay "RAH DNA", as he believes this first, unpublished novel formed the DNA of Heinlein's later works.

The novel's manuscript was lost until biographer Robert James traced down references to it. His research led to its rediscovery in a box left in a garage. Heinlein had apparently sent it to an earlier biographer, Leon Stover.

Plot summary

Perry Nelson, a normal 1939 engineer and Navy pilot, is driving his automobile when he has a blowout, skids over a cliff, and wakes up in the year 2086. Though he was apparently killed in the summer, he re-appears in extremely cold snow, nearly dies again by freezing, and is saved by a fur-clad woman named Diana. The exact circumstances of his being killed and reborn after a century and a half are never explained.

The later 21st century people seem strangely incurious, showing little interest in how he had come to be among them and rather take his appearance for granted and proceed to explain to him the details of the social and political set-up of their world.

Background

The book is akin more to a lecture series than a novel. A number of people have remarked on its resemblance to H. G. Wells' The Shape of Things to Come where the sleeper wakes into pseudo-utopia. The character Diana's background is clarified in a multiple-page footnote from the author. The future society has a version of a Social Credit structure with a central government-run bank exclusively controlling the monetary supply to prevent overproduction and remaining private banks prohibited from lending money they do not actually have on hand and which had been explicitly designated for investment risk.

The book does not tell precisely how the protagonist came to wake up a century and a half after being killed in a car accident, and find himself wandering in the snow in the body of a denizen of the future who had had enough of life and chose to commit suicide. It is mentioned that his last sight before crashing down and getting killed was a girl in a green bathing suit who had the same face as the Diana which he meets in the future; it turns out that her name had been Diana, too, and that to her fell the disagreeable task of finding Perry's broken body and reporting the accident. There is the clear implication that the later Diana was an avatar or reincarnation of the earlier one, but this is not stated explicitly. As noted by reviewer Nancy Green, this aspect of the book gives the impression of a draft which Heinlein intended to further work on, but never did.

Connections to other Heinlein works

Appearing already in this early stage of Heinlein's career is the fanatic and dictatorial religious leader Nehemiah Scudder. However, in Heinlein's later Future History Scudder succeeds in getting elected President and establishing a theocratic dictatorship dominating the U.S. for most of the 21st century. Conversely, in For Us, the Living, Scudder does establish for several years a de facto domination over the Mississippi Valley, and terrorizes much of the rest of the country by Ku Klux Klan–type thugs—but he is stopped at the last moment by the counter-mobilization of libertarians, and despite mass voter intimidation carries only Tennessee and Alabama.

In fact, the new regime seen in full bloom in the book's 2086 came into being in direct reaction to Scudder's attempt to impose Puritanical mores on the entire American society—for example, the complete abolition of the nudity taboo, which is an important aspect of the book's plot.

The abolition of the taboo on public nudity would re-appear as a major issue in Heinlein's The Puppet Masters—though under radically different circumstances to those in the present book.

A major difference between the time line of For Us, the Living and Heinlein's later Future History is the time when space exploration begins. In the Future History, Heinlein assumed that long before the end of the 20th century an extensive human exploration and colonization would take place all over the Solar System; the same assumption was made also in other works not fitting into the Future History's framework. However, in his earlier book dealt with here, Heinlein was far more cautious, placing the first circumlunar flight (not yet an actual landing) only in 2089.

Ward Carson wrote: "In For Us, the Living, space colonization waits until the end of the Twenty-First Century and Scudder is defeated; in the Future History it happens a century earlier and Scudder takes over the US. Heinlein made no explicit remark on this, but a causal connection could be made: in the Future History the bold individualistic Americans emigrated into space in the end of the Twentieth Century, and were not present in America to stop it from falling into the fanatic's hands".

Concepts and themes

The Second World War

At the time of writing, there was already a widespread expectation of a new war breaking out in Europe in the near future, and Heinlein followed this assumption. However, in the book's timeline the US stays out of the war, and it ends due to Germany's economic collapse rather than its military defeat (similar to the scenario given in H. G. Wells' The Shape of Things to Come, four years before). Heinlein did correctly guess that Adolf Hitler would end up committing suicide, once his schemes of conquest collapsed.

The timeline depicted in the book does not include a war between the US and Japan. However, in the context of a later war there is a depiction of Latin American aircraft carriers launching a devastating surprise attack on New York City, which bears some similarities to the methods which the Japanese would use at Pearl Harbor three years after the book was written. Heinlein, a former naval officer, clearly understood the strategic implications of the carriers' appearance and the revolution they would bring to naval warfare.

The recently abdicated King Edward VIII of the UK is very positively presented, his romantic image as "the King who gave up his throne for love" not yet, at the time of writing, tainted by pro-Nazi associations. In Heinlein's projected future, Edward returns to England at the outbreak of war and distinguishes himself in wartime service. After the war a European Federation is formed and Edward is made into a Constitutional Emperor of Europe, a task which he fulfills with great success. However, he dies without issue in 1970 (two years earlier than in actual history) and in the aftermath Europe is torn up in forty years of highly destructive war and is largely depopulated.

Secularism

As could be expected of a regime born directly of secular opposition to a religious fanatic's violent attempt to set up a theocracy, the regime depicted in the book has a clearly secularist inclination. All organized religious groups are defined as "sects", including what were considered "Churches" at the time of writing (and still are at present). Such religious themes as "the conspicuous depiction of a person suffering in great pain" (i.e. a crucifix) or the "wild aggressive behavior of ancient barbaric tribes" (i.e. the ancient Hebrews as depicted in the Hebrew Bible/Old Testament) is greatly frowned upon. While religious education is not outright forbidden, all youths typically undergo a minimum of two years at a "development center" (a kind of boarding school) where education is completely secular. An option for parents refusing to let their children have such an experience is to go to Coventry where they could do as they wish, and some "sects" have done exactly that, to their last member.

In this, Heinlein's vision of the future could be considered a watered-down version of that in Wells's The Shape of Things to Come where determined reformers completely suppress all organized religion for the explicit purpose of gaining a complete monopoly over education.

President Roosevelt

The book—written in the aftermath of the Democrats' heavy losses in the 1938 mid-term elections—assumes that by 1938–39 Franklin D. Roosevelt's New Deal had failed due to the constant attacks by his opponents, that in the 1940 election, Roosevelt would prove unelectable, that his downfall would drag the Democratic Party to ruin and that a sharp drift to the Right would culminate in an extreme-right dictatorship in the late 1940s—which would, however, prove short-lived and after which the pendulum would swing sharply to the Left again.

Heinlein assigned to Fiorello H. La Guardia—at the time of writing a reformer Mayor of New York and outspoken supporter of Roosevelt, despite being nominally a Republican—the role of picking up FDR's torch, as a militant reforming President in the 1950s who would lead a head-on confrontation with the banking system, effectively nationalize the banks and institute the system of Social Credit.

Several decades later, a John Delano Roosevelt is mentioned among the six highly regarded reformers who revise the US Constitution and institute the new regime seen in 2086.

Economic independence

At a number of points in For Us, the Living, Heinlein describes an environment in which individuals are able to choose whether or not to accept a job. Passing references are made to the large number of individuals who take up art or other careers that traditionally do not pay well. The book also points out the short working hours and high wages paid to employees. The book ascribes this flexible working environment to the social credit system (the "Dividend") adopted by the United States which provides enough new capital in the economic system to overcome the problems of overproduction while providing a guaranteed minimal income for all members of society.

For Us, the Living also depicts an early example of homesourcing in fiction. The character of Diana, a nationally renowned dancer, is shown performing in her own home for a broadcast audience, which sees her dancing on sets added by the broadcasting company to her original feed. The mechanism for this homesourcing is not described in much technical detail, but it appears to be similar to a high-definition video signal interfaced with something like modern chroma key technology.

The biggest economic impact in the book, however, is Heinlein's Social Credit system, that he takes many pains to explain: the Heritage Check System, an alternative form of government funding, in place of taxation. The heritage check system is a moderately altered Social Credit system. Its modification reflects Heinlein's more libertarian views and Heinlein's interpretation on how financial systems are affected by the relationship between consumption and production.

The system could be construed as a libertarian's approach to a socialist idea, creating an alternative to a tax system that puts fewer requirements on individuals, while simultaneously providing more for the common welfare. This is not too surprising, as Heinlein (a proclaimed libertarian) was also fascinated by the Social Credit plan that appeared in Canada in the 1930s. In this role, the government becomes less a part of the economy and more a facilitator of it.

The Heritage System in For Us, the Living can be summarized by four major actions:

1. A required end to fractional reserve banking. Banks must always have a 100% reserve for any loan they give out.
2. New money is printed only by the government, and then, only enough to counteract the natural deflation that would occur in a system without fractional reserve banking.
3. The government uses this money (and only this money), divided among all of its necessary roles. Any extra is divided evenly among citizens and businesses that over-produce, to offset the loss of not selling their over-production (the government buying the over-production for its own use, which can be bought by citizens later if they so desire at the same price.)
4. Goods bought by the government are later sold by the government (or used by it), and normal governmental services (such as postage) are sold. These goods and services provide the standard backing for the currency, similar to how gold is used to back the gold standard.

Dealing with government funding in this way is theorized to stabilize an economy, and deals with the production/consumption problem that Heinlein claims to exist with more conventional economic systems:

A production cycle creates exactly enough purchasing power for its consumption cycle. If any part of this potential purchasing is not used for consumption but instead is invested in new production, it appears as a cost charge in the new items of production, before it re-appears as new purchasing power. Therefore, it causes a net loss of purchasing power in the earlier cycle. Therefore, an equal amount of new money is required by the country.

In addition to stabilizing the economy, it is theorized to have the added benefit of being a system where Federal taxes would not be needed for Government function, and only be needed for regulatory measures (e.g. enforcing environmental standards, corporations being taxed for not meeting government requirements, tariffs that exist purely to discourage buying from certain locations, wealth redistribution, etc.)

The system also makes note of the fact that government spending and government taxing are not only not related, both can happen in the complete absence of the other (especially in a heritage check system), and that as far as market effect, taxing causes deflation and Government spending causes inflation. He notes this, and that as a result, the value of money can be completely and totally controlled, making the currency as stable as it is desired to be.

Social and governmental

For Us, the Living also depicts graphically the transition between the society that Perry left in 1939 and how it is transformed through a series of acts by the Government. Of specific note is the "War Voting Act". In this act, if the United States wished to engage in armed conflict with any other country, a national referendum was required to be held. Voting on a war is limited to citizens eligible for military service and not currently in the military. In the event that the article was passed and the country was to go to war, those who had voted for war were the first to be enlisted in the armed forces, those who did not vote were the second group conscripted, and those who voted "No" were the third group. Heinlein states that in the history of the "War Voting Act", the process had been enacted three times, and all three times the entire citizenry were actively engaged in very vocal debate as to whether the conflict was warranted. All three times, he states, the measures to go to war were defeated.

After the transition has been completed, the social norms of the society are effectively transformed. One of the most pervasive, is the distinction between "public sphere" and "private sphere". The society as a whole respects privacy in what are considered private sphere events, such as intimacy, closeness, interpersonal relationships and even identity in business and governmental transactions. As there is a great deal of information in the society, this becomes rather critical in moving the society toward a point away from information fetishism and toward a society where persons have respect for one another's privacy and work as a society for the betterment of all.

Feminist critique

Cynthia Brown noted in her review that

(...) Heinlein depicts a society where it is taken for granted that a woman may freely pursue a career, as well as choose her sexual partner(s) and live openly with a man without need of any sanction by a religious or secular authority. Already many decades before 2086, we live in such a society, and tend to forget that in 1939 when the book was written this was still quite a radical vision, and that this may well have been a major reason for publishers to reject it. We have not yet gotten to the point where possessiveness over another person and the use of even "mild" violence in pursuit of such possessiveness is regarded by society at large as an intolerable social and mental aberration; perhaps by 2086 we will get there, too. (...) Still, Heinlein was far from completely and unequivocally accepting the full implications of gender equality — neither in this book nor in his later written and earlier published ones. The retrograde side raises its head in the later part, dealing with Heinlein's pet subject of space exploration. The protagonist Perry, who can be said to stand for Heinlein himself, is astonished at seeing a woman about to take up an experimental rocket, and exclaims: "But that's man's work!". He does not get told — as might have been expected — that the utopian society of 2086 has long since abolished any such distinction as "man's work". Rather, his interlocutor lamely explains that this particular woman, Vivian, was given a special privilege because she had designed the fuel for the rocket. A few pages later, the rocket crashes and Vivian is very severely punished for trying her hand at "a man's work": she was "burned to a crisp" and lost her right leg, and Heinlein neglects to tell the reader whether or not the doctors managed to save her life. It is left to the male hero from the past to take up the mission to which the poor Vivian was not equal, design a new and better rocket fuel (with his engineering knowledge a century out of date?) and proceed to triumphantly take off to "Where no man had gone before". To Perry's two love interests, Diana and Olga, is left the ultra-traditional female role, to tearfully embrace and kiss their hero and then wait fretting at home for his safe return — and to this reviewer is left a quite nasty aftertaste from the ending which followed a rather promising prelude.