Letter to the Editor - New York Times

To the Editor:

Let me offer Paul Krugman (The Money Pit, Mar 18) a model that Recognizes the Federal Govt.'s special position as issuer of the currency.

Imagine a candidate for mayor stating that, in addition to current benefits, he would support giving away 20 subway tokens per month to all pensioners over age 70.  And, he would pay for this new expense by making sure NYC collects more tokens than it issues, thereby running a surplus of tokens, and put them in a trust fund that holds them in a lock box for future payment.  Many would support the granting of tokens, but most would intuitively see that even considering pre funding the new liability is absurd, and, in fact, would be highly disruptive.

We can understand how subway tokens function.  The fare is a tax, payable in tokens. This 'tax' allows NYC to exchange it's  otherwise worthless tokens for $US, or, if it so desired, other goods and services.  Analogously, the Govt. levies taxes payable in $US. The private sector then acquires the needed $US by offering real goods and services in exchange for needed $US.

The appearance to an outsider could be that NYC collects tokens from riders so it can 'buy' $US with them.  This would be analogous to the prevailing assumption that the Feds collect $US in order to spend them.  Obviously, both cases have the paradigm backwards, and therefore, just as obviously, Mr. Krugman's fiscal contentions are simply not applicable. A Federal budget surplus inevitably leads to economic disruption as it depletes our nominal savings.

Warren Mosler
Principal
AVM L.P.
250 Australian Ave. So.
West Palm Beach, Florida  33401
561-655-4900
561-818-4039

March 18, 2001