This is an updated version of a post which I originally wrote at Credit Writedowns.
Regular readers know that, while I have a little of what Marshall Auerback calls deficit terrorism in my DNA, I fully support fiscal stimulus as a means to arrest a deep downturn.
The horrendous Keynesian nightmare
My move into Keynesian mode came in December 2008 with Confessions of an Austrian economist. In fact, I have argued the Obama Administration needed to use more stimulus in early 2009, not less (see January 2009’s Obama’s stimulus bill is a tough sell so far as an example).
As early as February 2009, I argued that Obama took a middle road on stimulus and taxes that leads nowhere which would discredit stimulus as a policy tool. And that is indeed what has happened.
Now, of course many of you don’t feel that way because you share my visceral disaffection for deficit spending. But I laid out where the US economy is headed without stimulus in "The recession is over but the depression has just begun" six months ago. And right now we are heading exactly where I said we would. Witness my last post on the economy "US GDP growth rate is unsustainable; recovery will fade"
Anyway, the point is that the US economy will not be able to sustain recovery for long without stimulus. The likely result of withdrawing stimulus is a recession that is deeper than the last one aka a major depression.
Deficits as far as the eye can see
But right now, a lot of talking heads are trying to bamboozle people with tales of woe about hyperinflation and sovereign bankruptcy in the US to support specific claims about what deficit spending can and can’t do. Deficit hawks, in particular, are on the warpath – a completely predictable outcome since I anticipated it just as Obama was elected in November 2008 (see Beware of deficit hawks).
Of course the US deficits are too large. Come on: 10% deficits as far as the eye can see are unsustainable over the long-term. The key word, however, is long-term. However, no one seems to understand the difference between short-term and long-term and the debate has become an ideological free-for-all.
Last month, I told you I am throwing in the towel on policy makers because it’s clear that Obama has been captured by the deficit hawks and we are headed for a painful recession within the next two years (maybe even as soon as next year).
The politics of economics
So let’s stop talking about policy as if we are going to change anything. I started moving away from stimulus happy talk to focus on malinvestment in December of last year.
The policy debates aren’t working because the actual mechanics of a fiat monetary system are being obscured by ideological political debates. So, what I want to do is lay the foundations of modern money with you so we can strip away the politics and ideology from the economics.
Here’s an example of the politics. Yesterday, President Obama addressed University of Michigan graduates in what I would call a "Best and Brightest" or "Government is Good" narrative of government policy. reviewing the event, the Wall Street Journal wrote:
President Barack Obama delivered a passionate defense of government action to University of Michigan graduates on Saturday, as he appealed for civility amid the virulent partisanship that has flowered during his term.
In his first commencement address of the 2010 graduation season, Mr. Obama used the backdrop of the financial crisis, a deadly mine disaster and the looming environmental catastrophe in the Gulf of Mexico to defend his government activism against accusations of overreach and socialism.
"Government is what ensures that mines adhere to safety standards and that oil spills are cleaned up by the companies that caused them," he told an estimated 92,000 graduates, faculty and families packed into the Big House stadium, his largest audience since Inauguration Day. "We know that too much government can stifle competition and deprive us of choice and burden us with debt. But we’ve also seen clearly the dangers of too little government—like when a lack of accountability on Wall Street nearly leads to the collapse of our entire economy."
Mr. Obama chose a venerable setting to appeal for "a basic level of civility in our public debate." He cited John F. Kennedy’s 1960 address here that fostered the Peace Corps, and Lyndon Johnson’s graduation address that launched the Great Society.
The vision Obama set forth in the speech is of government as a agent of positive change. However, reflecting upon this Speech today, Arnold Kling wrote "Is Government a Menace?," espousing a view diametrically opposed to Obama’s with direct references to fascism. Kling writes:
Government is not "us." Government is a relatively small handful of people with far too much power. Their exercise of vast powers is neither moral, Constitutional, nor effective. The power of the people does not include the power to stop bailouts or to stop health care reform. The power to elect our leaders is a very weak power. Our laws are passed by a Congress that, rather than enjoying the support of the vast majority of Americans, is according to polls opposed by the vast majority of Americans.
The Washington Post headlined President Obama’s speech "a fiery plea for civility." Basically, he was calling on people to submit to his will and that of his party. But just as I would never donate money to a charity that gives to billionaires, I will not support the expansion of power for those who already exercise far too much.
I am willing to forego the use of the term "fascist" to describe our current government. The amount of physical intimidation that we face today is nothing compared to what people faced under Hitler.
However, Hitler did not just get the reluctant obedience of those who feared the violence of his government. He obtained most of his support from people who willingly looked up to him as representing the German "us." The shocking thing about German history is not the people who reluctantly submitted to Hitler’s authority under threat. It is the people who were attracted by his fiery pleas.
Yes, government is a menace. It is less of a menace in the U.S. today than it was in Germany in 1933. But it is a menace.
These are the ideological battle lines that are being drawn in the debate about government policy during this period of economic crisis.
Policy is exogenous and deficits are endogenous
My goal over a series of posts to be published here and at Credit Writedowns is to demonstrate that fiscal deficits and surpluses are endogenous to our economic system and depend on exogenous policy decisions which are inherently political and ideological.
Let me give you an example. What if we allowed the US economy to proceed without making one economic policy decision for the next two years? What would happen? The answer is that the government would have a fiscal deficit of X billions of dollars exactly matched by X billions of surpluses in the non-government sector (remember the sectors must balance). The deficit outcome is endogenous. It is a function of the inputs i.e. of the private sectors desire to save and the government’s spending decisions.
On the other hand, government economic policy decisions are exogenous. They are input variables which alter outcomes. This is an important point because if we know how the monetary system works, then we can get a much better handle on how different policy decisions actually affect deficits and surpluses. And remember, policy decisions are almost entirely political. That is they are driven by ideological positions.
So, if I say to you that I am against government spending and it must be cut, this creates a specific outcome path. On the other hand, if I say I am pro-stimulus, this too creates a specific outcome.
Modern Money
Here’s how I am going to go about this one:
I went to a conference on Modern Monetary Theory (MMT) on Wednesday. Over the next few weeks, I will present some ideas from the Modern Money people (Randy Wray, Marshall Auerback, Bill Mitchell, etc). I’ll start the post titles with "MMT:…."
I will take a somewhat antagonistic approach because I think that’s probably going to the best way to introduce this to people who have a more libertarian bent like myself.
Now, my bio says:
From an ideological perspective, Edward calls himself a libertarian realist: a firm believer in the primacy of markets over a statist approach. but not in an ideological way. Often government intervention and oversight is not just wanted but warranted.
What that essentially means is that when I think about government, I view it with suspicion and my inclination is to seek to limit its size and scope. That means I have an innate disaffection for big government, deficit spending, money printing, etc. – but not in an ideological way. It all depends on the circumstances. (For instance, see "A few thoughts about the limitations of government" which outlines my ideological positioning).
So, my goal in this is to separate the policy and the politics from the mechanics of how our fiat money system operates. That way it will be clear what is actually happening in our monetary system right now and what is pure political posturing. You will also then probably see a lot of congruence between how I see the economic mechanics and how Marshall sees them. The difference, of course, is ideology.
The way I intend to position this is that Modern Money Theory economists are really the True Modern Money Operations economists because they present the true mechanics of modern fiat money operation, which I will show you.
Now, policy decisions are largely political, exogenous decisions about which informed decision-makers can disagree. And it depends on one’s view of the role of government, which I outlined in late 2008 in "A brief philosophical argument about the role of government."
If we aren’t at least informed about the mechanics of how modern money works, it is very difficult to have an intelligent debate about deficits, social security, fiscal stimulus or anything else for that matter.
I know that I have learned a lot from what the likes of Randy Wray and Bill Mitchell have said (remember, I studied economics in a time heavily influenced by the prevailing economic orthodoxy). I don’t ‘buy into’ a lot of what they propose on policy, but on modern money they have it right.
The purpose is to present the underpinnings where we can all agree and separate it from the ideological piece. I will take the limited government side. My ideological foil in this will be Marshall Auerback. Afterward, I hope we can have a framework from which to talk about the political piece.
I hope you enjoy the debate and a presentation of the ideas.
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This should be an interesting debate. I’ve also just discovered MMT (go to the following blogs: New Deal v2.0; Billy Blog), and I am impressed by what they have set forth. The main message is that, under our current fiat money system, our approach to deficits is a political decision, not necessarily a financial and/or economic one. This brings the debate back to where it belongs: What kind of society do we desire?
One example of “throwing in the towel on policy makers” that I hope will happen is that people should reject any calls for a VAT, which is something TPTB are floating more and more, like again in today’s NYT.
We know how in theory the VAT, if it replaced certain elements of the existing tax system, and/or if the revenue were dedicated to the public interest, would render things more rational and equitable.
But any VAT passed by this kleptocracy wouldn’t be the good civics VAT of the textbooks. Its intent would only be to render taxation more regressive, and the revenue would simply be stolen.
The same is true of any other tax or expenditure this criminal system is even remotely likely to enact.
That’s what happened to the stimulus, and that’s what would’ve happened to a stimulus twice as large. So stimulus, however indicated in theory, isn’t indicated here, because no theory is any longer germane but the theory of organized crime and resisting organized crime.
So people need to throw out the textbooks and policy briefs. The only questions to ask regarding any proposal are:
Does it attack the rackets or further entrench them?
Will any revenue and/or expenditure be for the public interest, or will it be looted?
In our times, in every case, the answer to both these questions is always the latter. And wherever that’s the case, the people must reject the proposal, policy, bill, etc.
TPTB aren’t talking about the VAT. Conservatives are talking about the VAT (with an assist from Volcker who holds no power). It is clear that conservatives prefer the VAT to the income tax so they keep putting it out there as if it is an idea the democrats are considering. It’s not. It’s an idea the conservatives want to see implicated while being able to blame democrats.
TPTB aren’t talking about the VAT. Conservatives are talking about the VAT…
I’ll have to leave it to others to figure out that direct sequential contradiction. America’s power structure, of course, runs from right-of-center to hard right, and is trending rightward at all times on all fronts, as Obama steps up every Bush policy.
One of the mouth pieces for TPTB, David Ignatius, on the Chris Matthews show last week, said that the VAT would be seriously considered this year. He is used to leak policy from the White House from what I can gather. So it is not a “conservative” idea in the sense it is Republican. The current administration is as conservative as they come. They are the Rockefeller Republicans who took over the party of labor awhile back. So like the dismantling of Social Security and Medicare, the VAT is coming.
First off, the presumption that a purely pragmatic approach is non-ideological is erroneous. Pragmatism assumes that it differs from a purely principled position; a principled approach is considered ideological, a pragmatic position is non-ideological. However, such an assumption is itself ideological.
Separating economics from the political, while important analytically, serves more to conceal than reveal, thus the importance of taking a political economy approach. Taking this approach one can see that any notion of so-called ‘free’ market (the libertarian approach), serves an ideological position that conceals the real role government’s (and more importantly the state’s), role in supporting the privately owned economy. Libertarians believe in de-regulation, privatization, removing government intervention in the workings of the free market. Yet such intervention has always existed to one extent or another; it is just a matter of degrees of intervention. The libertarian position poses a position that does not and has not ever existed (e.g. massive US taxpayer subsidies directed towards the ag. industry).
The notion that government stimulus (taxpayer subsidies to private industry/commerce/households), for purposes of propping up consumer demand in the otherwise absence of that demand, does so under the assumption that said subsidies can be removed once the privately owned economy is able to run on its own. Thus state intervention is limited to this, a ideological stance if ever there was one, rather than state intervention aimed at re-structuring the economy that results in a substantive re-arrangement in existing ownership/consumption patterns. The later (while also ideological), is never really considered. Instead all we get is policy measures aimed at retaining the status quo.
Lastly, whatever is done within the US domestic economy is limited to its effectiveness because the US economy does not operate in a vacuum. The global economy is truly global, and the argument made here and that by others like Auerback fall analytically short to a purely domestic perspective.
don, I have not assumed that a pragmatic approach is non-ideological. I assume the opposite, that all policy decisions are ideological – that is the very point of the post, by the way.
When you read any commentator, they have their ideological biases. Yet, many fail to spell this out in making statements about policy. The result is a conflating of the mechanics of our fiat monetary system and the politics of the policy agenda.
What I will attempt to do is spell out exactly what the mechanics are. Afterward, I can take an ideological position of limited government which Marshall will counter with his of good government.
I should also point out that the narrative in regards to fascism works on both sides of the ideological spectrum: despite ideological differences, Kling, Marshall, Yves and I all think that crony capitalism is endemic in the US political system, that government is being used to forward the agenda of a select few. The question is what to do about it. And as with every policy decision, this is always going to be an ideological one.
Ed-
The ideology debate about policy is really a canard. All it does is sustain debate about things that are simply not true; it’s “Death Panels” redux.
Every serious, emphasis on serious, economist knows that stimulus is necessary for recovery from something this traumatic. There was an article awhile back that pointed out McCain’s economic adviser said the stimulus had a material impact. Even conservatives agree this is the case: Greenspan & Bernanke pushed for fiscal stimulus as well.
There really is no debate when it comes to economic calculus. The debate only really exists with vapid politicians who have ignorant, low-rent constituents to placate.
The economic profession & policy makers owe us better than letting these decisions be made on the basis of ideology, rather than fact & science. There is no other science on earth that would tolerate ideology as grounds for instituting or justifying an idea. The whole concept to me is madness.
Gag! You’re really part of the problem if you think economics is a science. Read EconNED, please, and review your base assumptions as a “serious economist”. Hint: it’s not all about equations & math, it’s about human behavior.
“the presumption that a purely pragmatic approach is non-ideological is erroneous”
As Ed said, both originally and in response to your post, there is no such thing as purely non-ideological approach.
Nevertheless I think there’s a simple distinction between a pragmatic and an ideological approach. A pragmatist is someone who’s more interested in results than in furthering his ideology.
if their being honest about their pursuit of pragmatism, maybe.
Or maybe the modern pragmatist is too in love with charting a “middle course” as a means in and of itself, instead of finding the best policy and fighting for it on the merits.
Perhaps that is also a major flaw in out pragmatist in chief. (Although I really suspect he uses pragmatism as an excuse to try conservative ideas because he is fundamentally conservative/neo-liberal).
A pragmatist is someone who’s more interested in results than in furthering his ideology.
That’s a real pragmatist according to the English language, of which we have none in American politics.
On the other hand, an Orwellian “pragmatist” like Obama and his hacks is simply a combination of corporatist and coward whose scam is to pretend to be seeking “progressive” “change”, but gosh darn it there’s always some obstacle in the way, even when they have the 60 votes they claimed for years was all they needed.
To the eternal shame and dishonor of “liberals”, the liberal teabaggers have so far brainlessly bought the “pragmatism” scam. So I guess it is, for the moment, pragmatic for criminal Democrats and their criminal hacks.
We’ll see how pragmatic it is in November.
Right on the money, so to speak, in my book. Obama’s act can also be described as passive aggressive. And I love that the Post called his speech “a fiery plea”. A perfect oxymoron. The Post has been trying to make the increasing shrillness of the Obama message feel “fiery”, but it is just loud.
It seems that MMT has become quite popular in numerous blogs, both in terms of entries and comments.
In general, I do believe in endogenous money, though I have some reservations about some of the claims being made by MMT proponents.
It is often noted that a government that is sovereign in its own currency and only borrows in that currency cannot default. It can always print money (devalue). This is strictly true. However, consider what happens when the citizens and businesses of such a country have borrowed heavily in other currencies and a devaluation of the local currency takes place.
MMT advocates also emphasize the fact that the textbook analysis of the money multiplier is exactly backwards – banks make loans first and then find the the required reserves to support them. This part is correct. They then go on to say that the Fed is thus forced to supply as much in the way of reserves as the banks demand in order to maintain a stable interest rate target. This is strictly true also, at least in the short run, but it hinges on the assumption of the Fed maintaining the interest rate target. In the medium to long run, the Fed Funds rate is anything but fixed, so no, the Fed is not forced to provide as many reserves as the banks demand over that time horizon.
My final criticism of MMT focuses on the view that expansion of the money supply can solve virtually all problems, that the only real concern is inflation, and that the appropriate mechanism for fighting inflation is to raise taxes. Tax rates themselves have numerous real effects on the economy, outside of the narrow MMT belief that taxes serve to give value to money (chartalism) and thus that increasing tax rates should be the primary tool to fight inflation. This completely ignores the incentive/disincentive effect of taxes, or more precisely the effect that widely variable tax rates as a policy tool will have. A sudden increase in tax rates in an attempt to pull money out of the economy and contain inflation will also lead to less real economic activity partially because of the deadweight loss effect of the tax itself, but also because of the future uncertainty of tax rates. If anything, pursuing a permanently accomodative monetary policy while using fiscal policy to fine tune seems to me to be precisely backwards when you consider the relative flexibility of monetary policy vs fiscal policy.
Thanks for saving me the trouble of writing my own questions about MMT – yours almost exactly mirror mine and are well phrased. I hope Ed addresses them in his series.
I may be niaive, but as far as I’m concerned, fiat money and the Federal Reserve system, where money is created by debt, is what the problem is and will not be fixed until the political will exists to do so. When every dollar created by the Fed is purchased by the Treasury at interest, thus creating the fiscal deficit and the need for our taxes to pay this deficit off, we have created a system that is doomed to fail. (we are already at the point where we are entirely incapable of just paying the interest owed) Add to this, the ability of banks to create money out of debt, again at interest and you begin to see the impossibility of the situation. When you see the trillions of dollars in the OTC derivatives market, you have to ask where did all that money come from. It came from debt and who ultimately is responsible for that debt is the debate we are currently having whether we realize it or not.
The solution is relatively simple, have congress take it’s constitutional responsibility for the money supply away from the bank owned private institution that is the Fed.
This is the politics of it I’m afraid, this won’t happen because there isn’t the political will to face up to the political systems reliance on the very industry that is destroying America as we speak.
“In general, I do believe in endogenous money, though I have some reservations about some of the claims being made by MMT proponents.”
You believe in endogenous money?? You believe it exists or that you believe it is good?
“It is often noted that a government that is sovereign in its own currency and only borrows in that currency cannot default. It can always print money (devalue). This is strictly true. However, consider what happens when the citizens and businesses of such a country have borrowed heavily in other currencies and a devaluation of the local currency takes place.”
Which is why MMTers always advocate to NEVER borrow in another currency.
Of course they cant limit what private parties do (they could but it might be draconian) but if a private party defaults its not the GOVT defaulting.
,” but it hinges on the assumption of the Fed maintaining the interest rate target. In the medium to long run, the Fed Funds rate is anything but fixed”
Its not?? The fed rate is fixed if they want it to be.
“My final criticism of MMT focuses on the view that expansion of the money supply can solve virtually all problems”
TOTALLY butchering what they say!! They do say that there is NEVER a problem of a lack of supply of funds. Two totally different statements.
“Tax rates themselves have numerous real effects on the economy, outside of the narrow MMT belief that taxes serve to give value to money”
No arguments by ANY MMTers there, although I must admit that the statement “taxes give value to money” is sometimes not clarified well. This is not the same as saying that there is a direct relationship between the tax rate and the value of money ( not sure YOU thought this but some have). It simply is a recognition of a fact (loathed by the libertarians) that if a body declares something legal tender and requires x amount in return to avoid some sort of penalty. You will almost surely worjk to acquire x amount PLUS whatever you need to support your lifestyle. If you are seeking it it has value to you. If everyone is seeking it…………its probably money.
“increase in taxation will also lead to less real economic activity partially because of the deadweight loss effect of the tax itself, but also because of the future uncertainty of tax rates.”
Dont really see this as a problem if everyone knew that taxes were simply going to be a thermostat device. Now evryone thinks of taxes being raised to FUND some govt project. Once that notion is dismissed people will likely be less hostile to taxation which is used to simply fight inflation and protect their savings.
” If anything, pursuing a permanently accomodative monetary policy while using fiscal policy to fine tune seems to me to be precisely backwards when you consider the relative flexibility of monetary policy vs fiscal policy”
Problem with monetary policy is that it is not precise enough. If inflation is from high oil prices why raise the interest rates to 10%?? Also any interest rate change has two sides the borrower side and the saver side. Raise rates and the rent seekers get risk free double digit returns, why invest in new potentially inflation fighting innovations?
“You believe in endogenous money?? You believe it exists or that you believe it is good?”
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I believe it is an accurate description of the monetary system as it exists. Money is endogenously determined by the supply and demand for credit, rather than being a strict quantity imposed from outside the system.
“Which is why MMTers always advocate to NEVER borrow in another currency.
Of course they cant limit what private parties do (they could but it might be draconian) but if a private party defaults its not the GOVT defaulting.”
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MMT advocates claim to be dealing with the REAL WORLD. Well, in the real world, private individuals and firms can and do borrow in other currencies. This FACT has to be accounted for when advocating devaluation as a solution. I agree that a government should never borrow in a currency other than its own, but government is not the only actor in the economic sphere.
“Its not?? The fed rate is fixed if they want it to be.”
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Historically, it has NOT been. I don’t see how it can be, again, in the real world. If inflation is accelerating, while you’re waiting for your tax thermostat to kick in, there will be enormous pressure to raise the Fed Funds rate. Conversely, in the face of an economic panic, there will be enormous pressure to lower it.
“TOTALLY butchering what they say!! They do say that there is NEVER a problem of a lack of supply of funds. Two totally different statements.”
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Yet when faced with a situation where banks are not lending, and are merely sitting on excess reserves (like, oh, say, last year) there is clearly a supply disruption despite the Fed offering unlimited supply to banks.
“Dont really see this as a problem if everyone knew that taxes were simply going to be a thermostat device. Now evryone thinks of taxes being raised to FUND some govt project. Once that notion is dismissed people will likely be less hostile to taxation which is used to simply fight inflation and protect their savings.
Problem with monetary policy is that it is not precise enough. If inflation is from high oil prices why raise the interest rates to 10%?? Also any interest rate change has two sides the borrower side and the saver side. Raise rates and the rent seekers get risk free double digit returns, why invest in new potentially inflation fighting innovations?”
——
My position is that while monetary policy is far from perfect, it is a much more effective and precise thermostat, with far fewer unintended consequences, than tax policy.
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“MMT advocates claim to be dealing with the REAL WORLD. Well, in the real world, private individuals and firms can and do borrow in other currencies. This FACT has to be accounted for when advocating devaluation as a solution. I agree that a government should never borrow in a currency other than its own, but government is not the only actor in the economic sphere.”
And MMT advocates take these factors into consideration when doing there analyses, understand it and explain it BETTER than the mainstream. Again MMT never says that people wont borrow in other currencies but they claearly say whatwill happen when they do and what policies will or wont improve the situation.
“Historically, it has NOT been. I don’t see how it can be, again, in the real world. If inflation is accelerating, while you’re waiting for your tax thermostat to kick in, there will be enormous pressure to raise the Fed Funds rate. Conversely, in the face of an economic panic, there will be enormous pressure to lower it.”
Again you are talking about POLITICAL PRESSURE not market forces. The Fed can (and Mosler and Mitchell make a VERY persuasive argument that they should) keep the rate at zero ….forever. It would free the fed governors from having worthles ineffective meetings an maybe allow them to actually oversee bank activity.
“Yet when faced with a situation where banks are not lending, and are merely sitting on excess reserves (like, oh, say, last year) there is clearly a supply disruption despite the Fed offering unlimited supply to banks”
DO you or dont you understand endogenous money?? The reaction to the credit crisis was absolutely counter to what MMT says should be done. Credit is never more or less AVAILABLE. Theres never a disruption of supply to banks. There is only a dearth of credit worthy customers.
Your not presenting a coherent analysis here.——
“My position is that while monetary policy is far from perfect, it is a much more effective and precise thermostat, with far fewer unintended consequences, than tax policy”
I understand your BIAS to monetary policy but your contention that it is more effective and precise than fiscal policy CANNOT be true since we’ve NEVER in our history used fiscal/monetary policy the way MMTers advocate.
You cant compare it to something that has never been used (in this country)
“I am willing to forego the use of the term “fascist” to describe our current government. The amount of physical intimidation that we face today is nothing compared to what people faced under Hitler.”
“The shocking thing about German history is not the people who reluctantly submitted to Hitler’s authority under threat. It is the people who were attracted by his fiery pleas.”
We are closer than Ed thinks on both counts. Much violence against Tea Party folk and others is not reported. MSM is still among the good Germans supporting this government in ways that are detrimental to a functional democracy.
Is this some kind of a dumb joke?
Don’t think it’s a joke to him.
“Much violence against Tea Party folk and others is not reported.”
Then how do you know about it? How much first hand knowledge have you amassed? If your sources are alternate media, please cite references.
So far I haven’t heard any serious suggestions to force Tea Partiers to wear a scarlet ‘T’.
“Violence against Tea partiers unreported”
HAHAHAHAHAHAHAHAHA
Fox is at EVERY Tea Party event. They would love to report jackbooted thugs oppressing real Americans.
Get lost MAD MAX
Thanks for the post Edward.
My initial thoughts on MMT is that it is too idealized a model of fiat-money creation and fiat-money destruction.
Questions to answer: Is the state really control of the currency when it has ceded control of credit creation to banks and bank-like entities?
How much of the private sector economy is actually dependent on credit-money rather than state-issued fiat money for its liquidity needs?
When the state tries to make up for a dramatic falling off of credit creation, due to the over indebtedness of the private sector, by increasing deficit spending, does this increase in fiat-money actually go into the economy in the same way as the credit-money would have? (Basically here the metaphor I have in mind is that the state, for historical reasons, has a different set of pipes into the economy than does the credit-money apparatus — therefore its deficit spending will not and can not “heal the economy” in any meaningful way — it merely creates new forms of malinvestments)
I think it is a mistake to equate Hitlers regime with fascism.
I am not a political scientist but in my understanding fascism is a political system in which political power is predominantly exercised by an upper-class, as the nobility in Rome did via Senate.
This upperclass might constitute itself by birth (nobility), education (Harvard, Science Po, Ecole National), conspiration (lodges in Italy, freemasons in Austria) or other membership of secret politce (KGB in Russia, Securitate in Rumania) or in some combinations thereof.
So all forms of democracy will contain some form of fascism, as it looks to be the most practical form of power execution once one rejects monarchy/dictatorship and looks beyond the Potemkimsche variations of democracy in most countries.
As power is in practice almost always differently exercised as in theory, most democracies do contain fascist elements.
There is no black-and-white form.
Corporations (most importantly Wall Street corporations) essentially ran the US for the last two decades, gaining more and more power by mismanaging it.
The US thereby might qualify as a mild form of fascism. Mild because you have still freedom of opinion and expression – though not in mass media.
Coming back to Hitler: In this sense Hitler in Germany has more in common with the regime of Louis 14 in France. “Ein Volk, ein Land, ein Führer” sounds similar to “l´état, c´est moi” to me. Hitler was a dictator with absolut powers as were Stalin and Mao. There was no power sharing. He was only vulnerable to Wehrmacht or (in his last days) SS coup d´états – but not to some NS-Politbureau chosing some other guy (as happened to Krustchew).
Fascism is a variant of socialism. It’s purest form was the Italian fascism of Mussolini. It is an extreme form of nationalism as exemplified by the slogan: “Everything for the state, nothing outside the state, nothing above the state.” The idea that Fascism is an economic arrangement, an alliance of big capital and big government is derived from the discredited superstition of a materialist dialectic promulgated by Marx. Fascism is a cultural concept. The conflation of Fascism and Nazism is also derived from the materialist dialectic. But Nazism is different from Fascism in that its basis of power is not the State but “The Race” (en espanol, La Raza, – just to be provocative to all you christian-roading, anti-Aztecs).
Gosh.
Fascism is Socialism and Naziism is not Fascism, ey? So why did the Nazis call themselves National ‘Socialists’ then? According to you, by identifying themselves as Socialists, they would automatically become Fascists, which leads to an immediate contratiction in your theory that Naziism is not Fascist.
The Nazis may simply have lied, of course, and where not Socialist at all (this happens to be the case in fact, they lied indeed on more than one occassion).
The fact that your definitions lead to an unresolvable contratidiction in your theory is a strong indicator that there is something wrong with your definitions. I think you should check your defintions.
Socialism has nothing in common with Fascism, and Naziism is indeed a form of Fascims. This is entirely contradiction-free and is – even better – supported by reality and historical facts.
Fascism is more accurately a variant of an authoritarian system of government.
It’s most important features rest in its political structure — not its economic ones.
To the extent that there was an economic ideology it was distinct from Communism (another variant of a modern authoritarian state). In Communist states the means of production were entirely controlled by the state. This was not the case in Fascist states. The Fascist states were happy to work hand in glove with private industries so long as the private industries supported the Fascists political ends.
Historical fascism is also a 20th century phenomenon.
Authoritarian states have existed before the 20th century, but it’s hard to envision a truly fascist state without the means of modern mass communication and technology. The Roman Empire was not a fascist state by any historical measure. It was authoritarian and highly centralized.
Hitler would have found no objections in being labeled as a “fascist”. He and Mussolini were fellow travelers.
I guess Hitler would not have cared if being called fascist or not. He had absolut power – that was all what was important to him.
Race was a pretext for directing his extensive hate unto others. He did not look very tall, blond, blue-eyed. Quite the opposite. Some say his real father might have been Jewish. We do not know.
As he spent 4 formative years in First World War he probably attrituted some higher sense to this senseless slauther – forming his ideology of “kill or be killed”, a kind of endless war. He was a charismatic, intelligent and totally ruthless individual but not an intellectual like Lenin.
His party was called National Socialist Worker Party.
He let the Socialists walk the plank to appease Reichswehr and Industrialists starting at 1931.
He was an artist first, then soldier and then revolutionary and in the end Fuehrer – never really doing any “work” in his life (if one does not count killing millions) – so no Arbeiter or Worker.
And party structure was certainly not fascist – more underclass and petit burgois – at least until 1934 – when he killed the SA leadership.
I have do not understand Italy enough to have an opinion about Mussolini – I guess he called himself fascist to draw the connection to old Rome, the FASCIES of the SPQR. But did Mussolini represent the upper class of Italy ?
According to historian Richard Steigmann-Gall, much is known about Hitler’s views on religion through Hitler’s book, Mein Kampf.[14] In Mein Kampf, Hitler wrote neither as an atheist, an agnostic, nor as a believer in a remote, rationalist divinity. Instead he expressed his belief in one providential, active, deity:
“What we must fight for is to safeguard the existence and the reproduction of our race…so that our people may mature for the fulfillment of the mission allotted it by the creator of the universe…Peoples that bastardize themselves, or let themselves be bastardized, sin against the will of eternal Providence.”[14]
In an attempt to justify Nazi intolerance he recommends militantism, which he associates with Christianity’s rise to Roman state religion, as a model for the Nazis in their pursuit of power, while simultaneously lamenting the demise of Pre-Christian Roman Religion,
http://en.wikipedia.org/wiki/Adolf_Hitler's_religious_views
I am not a political scientist but in my understanding fascism is a political system in which political power is predominantly exercised by an upper-class, as the nobility in Rome did via Senate.
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There are similarities, but it’s still not quite the same. Authoritarian regimes are based on some kind of superiority assumption that the ruling elite is supposed to be somehow superior to all others.
This superiority can be based on race, religion or anything else really – it mostly boils down to a certain type of personality.
In Hitler’s Fascism it was based on race and the assumption that because of social darwinism, one race would have to exterminate the other to survive, of course that was to be the German race, in his view.
In Rome it was based on genetics – or lineage. If you were from the right family, you were elite otherwise you were plebs, but there was no idea of extermination of a whole class of people.
While feudal regimes would normally not be classified as authoritarian – at least not all of them – they are also based on lineage and an elite being formed through ancestry.
I guess the shared characteristic of this superiority complex – of God complex, if you will – being present in all of these forms of government is a common trait among them. There is also a strong link of these authoritarian/feudal governments to Capitalism, which touts survival of the fittest (social darwinism) and claims the genetic superiority of an elite over all others – Capitalism is thus closely linked to Fascism as it shares the same view of the world.
If you’d define Fascism as an authoritarian form of government based on the assumption of superiority, racial, genetical or otherwise of the ruling class over all others, than many governmental forms throughout history would fall under the Fascist definition. However, Fascism has only be used for newer, 20th century and later, phenomena, and I think it should be kept this way.
While Fascism assumes superiority of a ruling class over all others, most Fascist regimes did no go as far as to exterminate the assumed ‘inferior lifeforms’, they subjugated and surpressed them, but did never go as far as wanting to completly physically eliminate them from the face of the Earth. It was Hitler’s Nazis who did take Fascism a notch further and did just that with Jews, Romas and dissidents in general – among them many Socialists and Communists.
So Hitlers NSDAP is very much Fascist and Capitalist (think of IG Farben, for example). Hitler’s National Socialist where as Socialist as the DPRK (Democratic People’s Rebublic of Korea) is a democracy.
“Capitalism, which touts survival of the fittest (social darwinism) and claims the genetic superiority of an elite over all others”
Oh it does, does it?
As one of my brothers married into the Daughters of the American Revolution in 2000 and went on to have 5 kids, I do so hope you’re proven right!
But I kinda doubt it.
I am afraid we are in a difficult place.
As I look at the large and very difficult questions presented by the role of government in the economy and the problems presented by large federal deficits, I believe the deficit will be dealt with one way or another by cutting spending or raising taxes. A US treasury default is not going to happen. I guess it could if someone like Sarah Palin was elected. What I see is that the deficit will be addressed by a substantial decrease in our living standards. That is the economic question. But the political economic question is how will this be done. By foisting the costs on the most vulnerable or upon all of us in some more or less equal manner? If the past is prologue, I expect the later. If so, I believe that the questions about the nature of capitalism that Marx proposed over 150 years ago will need to be asked again.
thank you ed!
i so agree with your priority of separating out the economics from the politics first. that way when we advocate for our politics we can hopefully try to ground them in economic reality. (fyi lefty libertarian here)
………………………
re the conference you attended. i’ve posted audio streams of all the sessions and the slide shows from the presenters. more coming — transcription of the session audios, video, etc — and sorry for the delay. we’re doing the best we can……
Selise,
Thanks for posting the audio + slides
1a. Kling’s use of congressional approval numbers as a measure of whether a federal, representative system of government reflects the popular will is odd to say the least. Congressional representatives are elected on the basis of local constituencies. They are not nationally elected. This is part of the federal design. It is embedded into the divided system of government that we have (consistent with the Framers intent). This is a pretty basic point. Whether or not constituents outside of any representatives district approve of the work done by someone else’s representative is largely irrelevant. The representative’s position is intended to reflect a local or state based constituency — not a national one. The presidential vote is the closest thing that we have to a national proxy.
1b. The measure of support of any given congress as a whole is a secondary to whether or not voters support a given political structure. The composition of any congress can change as the result of an election. The framers embedded a mechanism for change within the Constitution itself. If voters of a whole disapprove of Congresses work, but largely support the work of their representative, then the federal system is doing what the Framers designed it to do.
2. The separation of economics and politics is a fools errand. Economic structures always exist within a political structure. Even in the theoretical state of nature where there is no government, you would find an economic structure whose outcomes reflected the absence of a political structure (e.g. raw power, not law, or popular consent would dictate economic outcomes).
3. Policy decisions may always be politically based; however, it strikes me as a misunderstanding of the way that most representative political systems work to believe that ideology ultimately dictates policy outcomes. At the most fundamental level elected representatives mediate between competing interests and constituencies. The balance of those interests is what tends to determine outcomes. If the politicians incorrectly gauge the balance, or act in ways that a majority of constituents view as at odds with their interests (rightly or wrongly) those politicians lose their jobs. Political self-preservation is what dictates most policy decisions — not ideology.
5. Finally, anyone who throws around terms like “fascism” with respect to our current political system is at best extremely lazy in their historical understanding. The Nazis and the Italian Fascists used paramilitary groups to aid their ascension into power. They used elements of the democratic process (in Germany never receiving more than 35 percent of the popular vote in any parliamentary election before they ended elections altogether). There actually were “socialist” parties in Germany at the time of the ascension of Hitler — and they frequently came into violent conflict with the Nazis (quite a few were sent to concentration camps). The Nazis were also greatly aided in the early years thanks to the financial largess of big industrial interests within the country. The Nazi’s did enjoy some “elite” support, but by and large they enjoyed support across the political spectrum. The strength of their support also tended to be in more rural, southern parts of the country (e.g. the elite educational centers in Berlin tended to be hostile to the Nazis in their early political years). All of this is pretty much beside the point. Anyone who uses a charged term like “Fascism” to refer to our current system of government is playing fast and loose with terminology and history.
Sorry for posting twice but as I read down I think the comment fits better here:
I guess Hitler would not have cared if being called fascist or not. He had absolut power – that was all what was important to him.
Race was a pretext for directing his extensive hate unto others. He did not look very tall, blond, blue-eyed. Quite the opposite. Some say his real father might have been Jewish. We do not know.
As he spent 4 formative years in First World War he probably attrituted some higher sense to this senseless slauther – forming his ideology of “kill or be killed”, a kind of endless war. He was a charismatic, intelligent and totally ruthless individual but not an intellectual like Lenin.
His party was called National Socialist Worker Party.
He let the Socialists walk the plank to appease Reichswehr and Industrialists starting at 1931.
He was an artist first, then soldier and then revolutionary and in the end Fuehrer – never really doing any “work” in his life (if one does not count killing millions) – so no Arbeiter or Worker.
And party structure was certainly not fascist – more underclass and petit burgois – at least until 1934 – when he killed the SA leadership.
I have do not understand Italy enough to have an opinion about Mussolini – I guess he called himself fascist to draw the connection to old Rome, the FASCIES of the SPQR. But did Mussolini represent the upper class of Italy ?
You’re right to note that Hitler wasn’t an intellectual (e.g. a failed one perhaps). However, he was a master showman and understood how to make use of new forms of mass media. To the extent that he had any genius it was in his understanding of negative emotion and motivational power of fear-based appeals.
He was adept at projecting authority without being an authority (not unlike latter-day, more benign pseudo-authority figures like Rush Limbaugh).
In terms of the basis for his support in the 1920s in Bavaria Hitler and his political party were being bankrolled by industrialists and large landowners (e.g. Fritz Thyssen).
The “Nationalist Socialist German Workers Party” was just a catch-all moniker — a marketing slogan more than anything. Hitler et al were happy to actively court blue collar support, even as they were actively fighting traditional socialist and communist groups and organized labor unions (Thomas Childers explores this dimension in his academic work “The Nazi Voter”).
Like you, I’m less familiar with the Italian Fascist model. My understanding though is that both Mussolini and Hitler played up nationalistic and racial grievances while downplaying class based resentments (which were associated more with the Communists). Mussolini was a socialist in his earlier years who pivoted towards a more nationalistic bent in his early 40s.
In terms of political support both found support from industrial interests, both also went after private organized labor unions. It would probably be most accurate to say that some of the rich supported fascist movements as did members of other segments of the society. However, neither German nor Italian fascism was primarily a class-based movement.
You’re also correct to note the etymology of the word “fascism”. Italian fascist ascension proceeded German fascist ascension. Mussolini and Hitler though seemed to largely read from the same hymnal.
I think you’re wrong about the implied compatibility of racism and fascism. Fascism is intrinsically anti-racist because racism requires something outside and beyond the state, some alternate source of self-understanding and object of loyalty.
If one accepts that Mussolini and Hitler were fascists, which seems like a pretty reasonable historical understanding of the term, then it stands that fascism and racism are inter-twined (nationalistic appeals were part of the equation too).
This is just a matter of the historical record. Nazi political literature from the period is rife with the promotion of an ideology that justified German conquest on the basis of racial superiority. Their own particular brand of social darwinism justified the subordination of large swaths of Asia to the superior Japanese “race” — it also helped to provide a justification for the Holocaust and for the Nazi push to enslave Cossacks in captured territories as slaves.
It’s no accident that Mussolini promulgated the “Manifesto della razza” (Manifesto on race) and discriminatory racial laws in 1938. These laws established that Italians descended from the “Aryan” race. The laws targeted blacks and Jews for punishment. A racially informed agenda (or more accurately a “racist agenda”) was a fundamental organizing principle of fascist movements in both Italy and Germany.
“The Nazis and the Italian Fascists used paramilitary groups to aid their ascension into power.”
I guess they didn’t have a supreme court then.
Of course, there is Blackwater/Xe — although the chronology doesn’t quite fit the Bush administration ascension.
On a more serious note, even though SCOTUS’s ruling on a close election was based more on political than legal considerations, and even though the winner in 2000 was based on a highly contested election — the outcome was still reflective of a democratic process and a relatively “clean” vote (e.g. in a relatively healthy, stable democracy it’s possible to game close elections; what you don’t tend to find is massive and wide-spread fraud or voter intimidation on anything close to the scale that you’d find with an authoritarian state).
The peaceful transition at the end of the second-term too is not something that you’d expect to find in an authoritarian dictatorship. Of course, Cheney and some of his cohorts would have been perfectly at home in 1930s Germany. Still as corrupt, and inept as the previous administration was, and as much as some people label the last administration “Fascistic” — it wasn’t based on an reasonable historical understanding of the term.
Edward, I think it is great that you are initiating a discussion on “separating economics from politics” and the role of MMT in this issue.
I would argue that all descriptions of how our monetary system actually operates are also ideological or prescriptive–however this ideological dimension is well hidden– but can be revealed through a close analysis of MMT’s intial choices in presenting the logic and detail of how they believe our monetary system actually operates.
MMT starts its analysis with an emphasis on what they call strategic causality. They focus of the fiat money producer (the state) as being the vertical entity in charge in terms of rule-making and the architectual integrity of the entire monetary system.
The could have initially chosen to start with operatonal casuality–the horizontal part of our monetary system (the lending and deposit decisions of the private banking system) emphasizing that the operations of the fiat state system simply responds to the operation of this endogenous system in the sense that the fiat money producer satisfies the lending and deposit activity intiated by the private banking sector.
Why was their intial choice to start with and emphasize the state financial monetary architecture? I would submit that such an original choice for beginning with such a description reveals their value preference and is consequently embedded in their description. Their bias is toward the state and the positive role it should play in solving the economic crisis.
I believe that personal feelings and values are the foundation of all of our premises and all of our descriptions. Or stated another way all of our descriptions(from whatever ideology) are disguised prescrptions.
>Why was their intial choice to start with and emphasize the state financial monetary architecture? I would submit that such an original choice for beginning with such a description reveals their value preference and is consequently embedded in their description. Their bias is toward the state and the positive role it should play in solving the economic crisis.<
Because the entire monetary architecture is a construct of the state, including the horizontal part of it you mention. Banks are essentially a private – public partnership, given the special authority to create state money for the purpose of lending and to extract a profit in exchange for assessing and bearing credit risk.
There is no non-statist solution to the problem of state money.
The only way to get politics out of economics is to get government out of the economy. Not something most people reading this Blog agree with.
Impossible, as property itself is defined by government.
“Government is a relatively small handful of people with far too much power.”
This differs from the management of the banks that brought on the current disaster…how, exactly?
Why Are Japanese Wages So Sluggish?
IMF
http://www.imf.org/external/pubs/ft/wp/2009/wp0997.pdf
Economic survey of Japan 2008: Reforming the labour market to cope
OECD
with increasing dualism and population ageing
http://www.oecd.org/document/23/0,3343,en_33873108_33873539_40375191_1_1_1_1,00&&en-USS_01DBC.html
Long-Term Effects of a Recession at
Labor Market Entry in Japan and the United States
http://iserp.columbia.edu/files/iserp/2007_09.pdf
LABOR TURNOVER IN THE USA AND JAPAN: A TALE OF TWO COUNTRIES
http://www3.interscience.wiley.com/cgi-bin/fulltext/119957777/PDFSTART
Ed,
Good luck and thanks for taking this on in an open-minded effort.
But somewhere up there Ed Lowe raises the question that transcends the Modern Monetary THEORY and joins the issue of modern monetary practice.
Although the U.S. Constitution gives the exclusive power to create the nation’s money to the government – the Congress assembled – and although the Chartalists identify our present system as one of a sovereign government monopoly in money creation from which fiscal sustaiability and full-employment become possible, IN FACT, it is the private commercial bankers under the Fed that have created about half of all the money over the past generation, and it is the unregulated shadow bankers that have created the other half.
The Charatalists identify this reality as one of the many “voluntary constraints” of this nation against pursuing fiscal sustainability.
I see correcting this voluntary constraint as Job No. 1, because we cannot move to fiscal sustainability and full employment without the abandonment of the many so-called “voluntary constraints”.
Again, good luck on this effort, and thanks.
The problem I have with deficit spending and stimulus as a counter to a recession (or more particularly, this recession) is that it wasn’t lack of capital that got us in trouble in the first place. Instead it was capital being channeled into unproductive or outright destructive uses – most notably, creation of fictional wealth via inflating house prices to absurd levels by making mortgage loans that were never going to be paid back.
Forcing more capital into the same unproductive channels is likely to make our problems worse, not better. If we could fix the problem and get capital flowing into productive uses that provide sustainable economic growth in the long term, stimulus would work. But that’s easier said than done; many people have a vested interest in maintaining the current system (in many cases because a significant percentage of all dollars spent end up in their pockets) and have sufficient political influence to make it difficult to oppose them.
After past discussions on this blog I’m basically on board with the principles of MMT, so I’m not opposed to deficits in principle. But until the government finds something more useful to do than propping up failed banks, I’d rather they not spend any more of our money.
The issue is not monetary policy. The issue is: How can we regulate the creation of credit in financial networks?
The problem we all have when discussing this is that the issuance of credit is complicated by institutional factors and incentives that are not easy to model. The impact of these incentives is monstrous – as Yves Smith points out, one dollar of equity in a subprime CDO lead to $553 of credit creation. Yet our guidance system relies on models (such as “monetary theory”) that omits any complexities arising from institutional practices like negative-basis trades or special purpose vehicles. Furthermore, our guidance system relies on an assumption of “efficient markets” in which all agents know where their risks lie.
Even when institutions manage their own risk internally (and it can be done: Goldman Sachs has a superb financial risk management system) there will be systemic features, such as market crowding and correlations arising from fire sales, that cannot be managed by any single firm.
Systemic risk management can only be accomplished by collecting position data, analyzing it, and directing regulatory policy that ameliorates the buildup of systemic risk in the credit creation institutions — whatever they may be.
Currently, we cannot do this. Our regulatory agencies do not have the capabilities to collect and process position data from the financial system in the way that, say, Goldman Sachs does internally. Without these capabilities, we will not be able to develop the necessary guidance systems — and frankly, unless we can collect and process granular financial data then all the discussion about monetary theory just degenerates into the shouting matches with which we are all too familiar.
The disaster we have been living through for the past three years was avoidable. All the trading firms with really good risk management systems saw the crisis coming, and they were able to apply internal incentives to their traders to avoid the mess that others got into. Some in the Federal Reserve system saw it coming, but couldn’t prove their points. The conclusion to draw from this is that if regulators had a really top notch risk management system of the quality of Goldman Sachs then they would have seen it coming and they would have been able to apply incentives to avoid it.
A group called the Committee to Establish the National Institute for Finance (http://www.ce-nif.org/) has thought deeply about what is needed to manage risk in the financial system. We have succeeded in placing a proposal in the current Senate bill that calls for an Office of Financial Research. The OFR mission is to collect the data and support research to develop analytic tools needed to safeguard the U.S. financial system.
Until now, unfortunately, the OFR proposal has gone unnoticed. I say unfortunately because the OFR is a really great idea and deserves a lot of support. We definitely should have the capability to do financial system research like the we do in health, climate, electric power, and so forth. Most people, including the senators on the banking committee (Rep and Dem) agree with this idea.
But now that the GOP is back on the payroll of Wall Street, one of their objectives (introduced by Karl Rove in the WSJ last week) is to smear the OFR proposal as if it were a Patriot Act spying operation! I hope that readers of this blog will look into the facts and write their senators in support of the OFR proposal.
Edward,
I look forward to your ideas and discussion about MMT from the libertarian point of view. After coming across this a couple years ago and only learning it had a name about 6 months ago, I’m very satisfied in the description of just how MMT nails our fiat money system. From that understanding we can go on to then ask more questions. These questions can then actually be answered and pursued now that we know how the system really works.
Two areas I’d like to learn more about. 1) Other than impacting public policy, why do we need taxes? 2) And if taxes don’t provide income then why do we need to borrow to make up a “shortfall” in taxes?
Thanks.
Jeff 65 correctly points out that in our monetary system banks are essentially a public-private partnership. Based on his value system there is apparently no non-statist solution to state money.
But based on my value system the private dimension of endogeneous credit money creation offers the admittedly challenge possiblity of overturning the fiat component.
Jeff because of his value system, chooses to focus on the public dimension and dogmatically rules out any private solution. I, because of my value system, choose to focus on the private dimension of credit creation looking for a way to expand the operational casuality of private banking.
In either case our respective values determine where we each initially choose to start our “descriptions” of how our monetary system operates He goes with public I go with private.
Both of us inhabit a world in which premise, inference and conclusion feed into each other in a way that works to ensure that the prescriptive lurch of our stock of descriptions is realized and sustained.
And both of our positions are evocative of circularity
“based on my value system the private dimension of endogeneous credit money creation offers the admittedly challenge possiblity of overturning the fiat component.”
You can’t overturn the fiat component of state money without overturning the state. State money is that which is needed to pay taxes. This is decided by fiat even where the decision is made to accept gold or other commodities with real value for payment of taxes.
The only difference between state money based on commodities and chartal money (incorrectly known as fiat money) is that the government concedes control of the money available to the economy. It doesn’t concede this control to some mythical free market, but instead to private parties whose interests are not aligned with public purpose.
If we’re going to have a state and state money, better the state control the money supply than private interests. The major problem we have now is that private interests control the state. MMT isn’t going to solve anything before that is changed.
What if we allowed the US economy to proceed without making one economic policy decision for the next two years
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Governements are always economic actors with everything they do, be it raising/lowering taxes – even collecting taxes at all is has an economic influence.
In democracies, elected governments represent the state and the state is the collection of citizens living in that state.
So governments can simply not stay out, even if the wanted to.
In fact that would be akin to having no government at all, which is, I understand the wet dream of all libertarians, because even the fact of having a government at all is somehow Socialist in their eyes.
Ed,
While I am even more fiscally conservative than you (I don’t mind deflation, hate bailouts, handouts, stimulus, subsidies, & pork in general, and think rotten public accounting encouraged rotten corporate accounting), I think this upcoming analysis & subsequent debate will have great merit. You and Mr Auerback are both strong writers, even if I don’t agree with the conclusions … I’m looking forward to it!
I am glad to hear that, Vespasian. I especially look forward to seeing how Marshall responds because this is the kind of open dialogue that can really help all of us understand the core political issues. Right now, I expect the key difference to have something to do with Marshall’s stress on public policy’s obligation to foster full employment, something I don’t see as paramount. But, we will see. I think the first post will be on hyperinflation – which Marshall discussed on Wednesday in DC.
Cheers.
Edward