Marshall Auerback and David Franklin Debate Whether Stimulus Works on BNN Posted on August 20, 2010 by Yves Smith As readers may know, Marshall Auerback is a portfolio manager and strategist, as well as a fellow of the Roosevelt Institute; David Franklin is a research analyst at Sprott Asset Management. Click here to view the segment. Enjoy! Post navigation ← Links 8/19/10 Guest Post: Top Oil Expert Says Geology is “Fractured”, Relief Wells May Fail and Oil May Leak for Years … BP is Using a “Cloak of Silence”, and Refusing to Share Even Basic Data with the Government → Subscribe to Post Comments 11 comments Deus-DJ August 20, 2010 at 12:50 am God…I really hate debates where the two sides come into it with two completely different objectives. Mr. Auerback, while noting that he is a very smart and educated man, likes to see himself on BNN strictly as an economist giving his opinion on the economy…and of course touts MMT whenever and wherever he can. This guy from Sprott came into this with the perspective of what he or we should invest in…not as a serious economic analysis. In other words, this interview annoyed me. I wonder though, as an aside, whether I will ever see Marshall Auerback the portfolio manager rather than the economist. Yves Smith Post authorAugust 20, 2010 at 12:58 am I think that’s a bit unfair. The “debate” was clearly framed as an economic one, the interviewer started out by talking about Keynes. Deus-DJ August 20, 2010 at 1:11 am I should be more clear…I’m annoyed at BNN, not the two being interviewed. Either you bring on a true deficit scare-monger either in the form of an economist or “advocate”, or you bring in someone other than Auerback who discusses it (as does the Sprott guy) to emphasize where you should invest. You don’t do both. Vangel August 20, 2010 at 7:51 am I do not believe that you understand the Sprott people. They are from the Austrian School and are very serious about economic analysis. Their economic analysis allowed them to be right about the housing bubble, energy, gold silver, etc., and to avoid the great losses that those who followed the Keynesian view of the world experienced. The biggest difference that came out of the interview to me was Marshall’s insistence that just because the government can keep printing money it cannot go ‘bankrupt.’ The Sprott people argue that Marshall is right but that printing money and dropping it out of helicopters will mean a massive loss of purchasing power due to bad fiscal and monetary policies. We do not have to guess about who won this argument because we should know within a year or so. If gold is over $1,800 and the US economy is still weak we will know that Franklin’s Austrian analysis was right. If we have deflation that takes gold down or if the US economy is booming than Marshall is right. I have put my money on the Austrian School. The long run is here for Keynesiansim and it is dead, even if Marshall does not know it. GAS MAN August 20, 2010 at 10:11 am First off its quite chic to mis-characterize Keynesian these days. Any time a centralbank /treasury does any kind of intervention its called “Keynesian? even though CBs had done interventions for about 20 yrs before the GD and Keynes’ ideas. Secondly I agree that the Austrians were at the forefront (with the MMTers BTW) with calling the collapse of ’07/’08. Anyone who is leary of private credit (both MMT and Austrians) could see this would end badly. Trouble is the ideology of the day saw credit as “self limiting”, credit markets as “self correcting”, credit issuers as “self regulatory” (why would THEY want to risk the health of their bank……hoooocudanooooode) and generally treated debt as not really money so if debt deflated it was a good thing and not contractionary on the economy……………….WRONG!!! But the Austrians are dead wrong about the way forward AND the affects of already applied stimulus. Peter Schiff was calling hyperinflation by NOW right after Bush passed the first bailout. HE was dead wrong! And HE is probably the leading Austrian economic voice in America. He’s a smart guy and I loved this takedown of Art Laffer and Fox Noise a few years ago http://www.youtube.com/watch?v=IU6PamCQ6zw but the problem ,as I see it, with him is that he equates all debt as the same. Consumer debt and govt debt are nothing alike. We shouldnt even call govt debt debt. This is not to say we should give away as much money to everyone as they want, but you cant analyze the fundamentals of the system without properly characterizing them and this, I think, is the primary flaw of Austrian economics. To me Austrians and MMTers agree on almost everything EXCEPT 1)What money is. Austrians seem to think money is or should be a commodity while MMTers recognize that it is much much more and different than that. 2) What savings are Austrains love saving while MMTers realize that in our current system there is NO PRIVATE SAVING WITHOUT GOVT DEBT. Your wrong about “we’ll know in a year or so”. All the austerity plans are causing falls in employment, falls in spending, worsening of the ratios and general lack of growth, except in one place….. Germany which didnt really have a problem in the first place so they have not been “relatively” affected. And relatively is the only way that matters. FredB August 20, 2010 at 1:03 am I like David Franklin. Sundog August 20, 2010 at 2:51 am Marshall did a good job, but in his place I would have set the stage by asking what we really mean by stimulus in the case of catastrophic financial meltdown; major decline in the percentage of working-age people who are employed; very ugly prospects for young people entering the workforce with high debt burdens and especially for young minorities; vast numbers of homeowners underwater on their mortgages; extended Fed zero rates; etc. In other words, make very clear that even though the terminology is confusing we’re not talking about a typical business cycle recession. The current problems are of an entirely different nature. Then I would have mentioned the Spring ’08 Bush tax cut stimulus, which I think was around $150 billion and was almost entirely “saved” rather than used as consumer spending. Again the terminology is problematic, but I believe this means the money went to pay down debt (in other words, a hidden bailout for troubled financial institutions which hold onto it thus decreasing velocity and economic activity; this amounts to “pushing on a rope” while pushing up bankers’ bonuses). Then, just because many people don’t know it was proposed and created by the Bush administration, I would have mentioned the $700 billion TARP and clarified that it was not stimulus spending but rather an enormous slush fund to prop up a failed industry (bailing out both domestic and foreign participants). Next, I would have tried to clarify just what went into the $800 billion Obama stimulus package. I believe tax cuts (again likely ending up as hidden bailouts of the financial industry) were nearly half. There was a dog’s breakfast of half-thought policy-oriented spending and pork, and a bit of infrastructure spending that probably for the most part ended up enabling construction companies to keep paying on their loans and leases for heavy equipment. I would have said that support for preserving jobs through aid to states and intervention in the auto industry was beneficial if by no means ideal. (Recently even Tyler Cowen has recognized that once the toothpaste is out of the tube it’s tough to get it back in.) Probably a large amount of unemployment compensation goes directly into consumer spending, and even if a portion hence leaks abroad at least it’s not tremendously distortionary and supports economic activity. I would have tried to fit in the misguided, expensive and counter-productive support for housing prices and said something about how it’s clearly in the public interest to avoid an extreme over-shooting on the down side but we very much need the housing market to discover clearing prices in order to minimize the uncertainty which dulls animal spirits. People who believe that public spending can be effective under the circumstances in which we find ourselves should not shy from the fact that such spending can be wasteful and even counterproductive. DownSouth August 20, 2010 at 5:41 am Sundog, Nice comment. Sundog August 23, 2010 at 2:09 am This is the first time in many months I’ve gone back to see if anyone responded to a comment I wrote. Cheers DownSouth. Stay safe. Check @mexicorojo. Maybe the winds of change are coming; let us hope so. page August 21, 2010 at 3:42 am I am so tired of these MMT kooks. They are little more than apologists for the current insane system, like modern-day Professor Panglosses. Has anyone looked at RAB Capital’s performance? Why would anyone listen to Auerback? Yves Smith Post authorAugust 21, 2010 at 4:06 am To quote reader Aliena, “So now MMT is responsible for the deregulation of the financial sector, the great moderation and stupid monetarist policy? Are you nuts?” And Marshall has nothing to do with the parts of RAB that are imploding. His fund is doing well, contrary to your aspersions. He also consults to the top people at one of the biggest fund management groups in the world, his immediate clients are people you see quoted in Bloomberg and the Wall Street Journal all the time. Comments are closed. Tip Jar Please Donate or Subscribe!