One of the striking aspects of the furor over Thomas Herndon, Robert Pollin and Michael Ash’s dissection of the considerable flaws in the Carmen Reinhardt and Kenneth Rogoff austerity-justifying paper are the “the earth is still flat” efforts to salvage the theory, which was that high levels of government debt kill growth. Some of the recent sightings: James Hamilton entered the fray and are batted back by Pollin and Ash. Matt Yglesias comes remarkably close (as did Paul Krugman) to questioning the integrity of Ken Rogoff (remember, elite economists are members of a protected class, so this is about as much opprobrium as one can expect to see coming from Very Serious People).
Warren Mosler is more straightforward in his assessment and demands.
By Warren Mosler, an economist and co-founder of the Center for Full Employment And Price Stability at the University of Missouri-Kansas City. Cross posted from his blog
The intellectual dishonesty continues. As before, it’s the lie of omission.
R and R are familiar with my book ‘The 7 Deadly Innocent Frauds of Economic Policy’ and, when pressed, agree with the dynamics.
They know there is a more than material difference between floating and fixed exchange rate regimes that they continue to exclude from their analysis.
They know that one agents ‘deficit’ is another’s ‘surplus’ to the penny, a critical understanding they continue to exclude.
They know that ‘demand leakages’ mean some other agent must spend more than its income to sustain output and employment.
They know federal spending is via the Fed crediting a member bank reserve account, a process that is not operationally constrained by revenues. That is, there is no dollar solvency issue for the US government.
They know that ‘debt management’, operationally, is a matter of the Fed simply debiting and crediting securities accounts and reserve accounts, both at the Fed.
They know that if there is no problem of excess demand, there is no ‘deficit problem’ regardless of the magnitudes, short term or long term.
They know unemployment is the evidence deficit spending is too low and a tax cut and/or spending increase is in order, and that a fiscal adjustment will restore output and employment, regardless of the magnitude of deficits or debt.
Carmen’s husband Vince was the head of monetary affairs at the Fed for many years, serving both Alan Greenspan and Ben Bernanke. He knows implicitly how the accounts clear and how the accounting works, to the penny. He knows the currency itself is a case of monopoly. He knows the Fed, not ‘the market’ necessarily sets rates. He knows that, operationally, US Treasury securities function as interest rate, and not to fund expenditures. He knows it all!
Carmen, Vince, please come home! I hereby offer my personal amnesty- come clean NOW and all is forgiven! As you well know, coming clean NOW will profoundly change the world. As you well know, coming clean NOW will profoundly alter the course of our civilization!
Carmen, Vince, either you believe in an informed electorate or you don’t!?
Is home a place where the class system still exists?
I am all for flipping the religious gate keepers of our bankrupt social system to expose the inherited and elite rich for the parasites they have become and the genocide they are causing.
Will any step forward to expose the folks behind the curtain?
It may seem trite but our future depends on it.
Yes, it would be wonderful if one of the billionaires came forward and confessed to his chicanery. Can’t see it happening, however. Even when billionaires may lose a billion or two, it is too big a loss for them. It’s the pathology of greed at work. If he confessed, would he have to give up something?
Confessions are quite easy to obtain. The technique has been well developed at places like Guantanamo. The tricky part is capturing the bankster so he can be brought to the confessional altar and waterboarded.
Yes – confessions are quite easy to obtain. The technique has been well developed in places like The Soviet Union, North Korea, Cambodia, Red China.
Reinhard and Heydrich, they were on top of the world there for a little while.
I almost feel sorry for them. Now they gotta eat extra helpings of humble pie. Gobble, gobble, gobble.
Man, you know things are bad when Matt “Thing are Looking Up for the Slaves of Bangladesh!” Yglesias is calling you scumbags –in so many words.
I’ve always said, if you’re going to pick an arbitrary number, pick a good one. 90%? What the hell is 90%?
110% would’ve been much better. 110% of something is a lot. Also, the number has a religio-mystical significance. For instance, by mutual agreement of the sages, 110% is the amount of effort required if you expect to win athletic victories on a consistent basis.
Not to mention, 110% works out to be six/fifths. Get it! The numerator is actually larger than the denominator!
If Reibolt and Rigglehoffer had come with 110%, they never would have been found out. All would have accepted it. Their made up figures would never been checked.
90%. Jeesh, what a couple of 15 minutes of fame dummies. And to think, for want of an extra 20% they could have been immortal.
Oops, I made a math error. My figures are not quite correct. I hope no one catches it!
Did you use excel to come up with your thesis? That software sucks, so hard to use :(
Good point. If they’d picked a number over 100 percent, at least a few more folks would have been convinced just based on the idea that it’s important to not borrow more than you can make in a year. It would sound like “you shouldn’t throw on first down more than 100% of the time”. I mean, how can you have more than 100% of something? As it is, any idiot could see that we still had 10 percent to play with.
And by “any idiot”, of course I mean any idiot. That’s a mental classification that seems to include quite a few of our pundits lately.
My thinking would’ve been, if I was Reibelhoff and Rogaine, if we choose 100% no one will panic.
100% implies balance. Stasis. Total and complete neutral-ness. A full cocktail with an umbrella that is close to –but not quite!– overflowing.
That type of thing.
But 110% is bound to put the scare into somebody. It always did me. When my coach said … Max424, you better give me hundred and f*cking ten percent out there! … I would panic.
And with good reason. If I give the bastard one-hundred-ten this time, who’s to say he’s not gonna ask for one-hundred-twenty next time? Or one-hundred-thirty. Right?
Where would it end? Where could it end?
On second thought, they probably should have gone bigger than 110%. After all, the best athletes always give 110 percent, don’t they? (Well, they do in the U.S. of A., let me tell you.) Clearly, we’ve already established that this level of achievment is within the limits of human performance.
Better make it 120.
There’s a serious problem in the UK with sporting effort inflation these days.
Here, football managers routinely demand up to 120% effort in even standard matches. Where will it all end? We need a footballing Ron Paul.
Actually, one fifth — 1/5 — is .2, or 20%. Thus six fifths — 6/5 — would be 6 x .2 = 1.2 or 120%, not 110%.
We know of course that world-renowned economists can make mistakes like this, and far worse and more glaring mistakes, and other world-renowned economists will never question the errors, at least until they have caused global mayhem.
But you, Max424, are not amongst the high priests anointed by what psychohistorian (above) so aptly calls “the inherited and elite rich parasites.”
So you are not allowed to make the sort of mistake that world-renowned economists make with impunity every day.
So as the Queen of Hearts said: “It’s of with your head!”
At this stage R&R have been found to be fatally wrong. Their reputation is shot and no amount of dancing will change their death march. The horse is dead. I see no point in kicking it some more.
Those who are familiar with science are not surprised by selective data and even arithmetic mistakes. Just another day at the office.
I’ll bet a ten spot that one or both of Reinhart and Rogoff end up serving in the next Republican administration. Any takers?
This seems the most fundamental truth of the ones listed. If we have the resources to do something, and all we lack is money, why don’t we make more? Fiat money isn’t a thing, not at the level of a nation that has its own currency, at least.
We citizens need to stop thinking of our economy as being money. It’s really all the stuff we have, and what we can make with it. The money’s just the way we make paying everyone convenient.
The powers that be are creating plenty of money. None of it, however, is minted for the trickling down.
Yup, 30 years ago they fooled us. Americans thought they were going to be the grateful recipients of Trickle Down Economics, instead, they’re just helpless indebted bystanders watching Up Like a Torrent Economics.
This is a distinction that I think receives entirely too little attention, and that is the difference between non-productive debt and productive debt.
We hear a little bit from dissident economists these days about public vs. private debt. But other than Steve Keen and Michael Hudson, how much do we hear about productive vs. non-productive debt, be it public or private?
Here are a couple of the rare articles that I have seen which discuss the distinction between productive and non-productive debt:
Debt is no longer incurred to finance production; it is incurred by business to finance consolidation and speculation, by government to finance war and favored boondoggles, and by individuals to finance consumption. The debt can’t be serviced, only continually rolled over. Meanwhile, insiders are looting the proceeds as fast as they can.
This is a Ponzi economy which can only create asset bubbles and crashes. Right now we have a bubble in stocks, bonds and selected commodities. How long any of them will last is anyone’s guess.
jake chase says:
But if individuals were paid enough to pay for the nation’s production without borrowing, there would be no need for consumer debt.
The present economic system produces goods which cannot be absorbed without the debt peonage of the unwashed. It is income inequality which creates superfluous capital and the massive, unequal distribution of wealth.
It’s a little-known fact that the original phrase was “tinkle-down economics” but it was deemed unsavory (as were “sh!t-flows-downhill, eventually anyway, economics” and “table-scraps for the prolies economics”) and so became “trick-le down economics.” That preserved an inside joke.
Seriously, I recall first hearing this term and even then, as a jejune teen, I thought “who would be satisfied merely with what trickles down?” Obviously, legions of ‘murkins were perfectly okay with it.
Alexandru Minea and Antoine Parent in their February 2012 paper: ‘Is High Public Debt Always Harmful to Economic Growth? Reinhart, Rogoff, and some complex non-linearities, in which they analyzed the RR data (using RR’s data sets, though not the spreadsheet) and found it wanting.
Recognizing their dilemma (contradicting two of the most austereian-orthodox economists) they, opened their analysis with deference towards agreement by stating: “…similarly to RR, average economic growth is lower for countries with debt levels between 90 and 115%, compared to countries with debt levels between 60 and 90%.”
They discovered from the same data that: “Average economic growth is higher for countries with public debt above 115%, compared to countries with debt levels between 90 and 115%”, and more importantly “That average economic growth is not statistically different for the former group compared to countries with debt levels between 60 and 90%.”
Effectively they discovered a debt to GDP donut- the hole at the 90-115% range right where RR had stipulated the debt to GDP tipping point to be – and an almost certain statistical impossibility.
In order not to appear ‘RR’ “heterorthodic” they showed deference in their statement: “Although one should reasonably refrain from concluding that governments should adopt loose fiscal policies, leading to high public debt levels, to foster economic growth, this latter result provides a new perspective on the “debt intolerance ratio” emphasized by RR.”
Further, emphasizing that: “Additional evidence is needed before suggesting policy recommendations regarding growth effects of fiscal policy in such high debt regimes, which may be subject to complex non-linearities. Similar to RR, we find that a debt-to-GDP ratio over 90% is reducing average economic growth. However, contrary to RR, the contraction ineconomic (sic) growth is much less obvious”.
Unable to close the hole in the econometric donut (‘shortcomings, including: a.) the specification of exogenous thresholds in the public debt-to-GDP ratio, b.) the absence of econometric tests for the relevance of the régimes, and c.) the presence of brutal transitions in the debt-growth relation around the debt thresholds’), they attempted to apply a technique called the ‘Panel Smooth Threshold Regression (PSTR) method’ (a statistical fudge factor).
Still, despite this statistical deference to orthodoxy (as they call it, “In the spirit of RR”) they still find that: “… Compared to countries with a debt ratio between 60 and 90%, countries with a debt ratio between 90 and 115% experience a decline in their average economic growth rates.” And…
“Although this decline is statistically significant, (we) notice that the economic growth contraction is much less pronounced than acknowledged by RR. In addition, contrary to RR, we find that countries with a public debt ratio above 115% present an average growth rate which is higher compared to the average growth rate of countries with a public debt ratio between 90 and 115%”.
In addition: “….the growth rate of countries with a debt ratio above 115% is not found to significantly decline compared to the growth rate of countries with a debt ratio between 60 and 90%”, and “In addition, we even show that raising public debt can even increase economic growth, in a context of high debt levels, namely when the public debt-to-GDP ratio is above a threshold level estimated at around 115%.”
Their apprehension is apparent in their conclusion: “Consequently, additional evidence is needed before suggesting policy recommendations regarding growth effects of fiscal policy in such high debt regimes, which may be subject to complex non-linearities“.
WP – Purgatory
I’ve gone and found your comments in the Spam filter and approved the recent ones.
However, I TOLD you not to use a bunch of different e-mail addresses in the e-mail address line, yet looking over the last two weeks, I see you’ve used at least 10 different ones. So you’ve continued to engage in the behavior that runs afoul of WP and you’ve gotten the expected results. You have tried sticking with one in the last couple of days, but I’m not sure how long it will take for Askimet to decide you aren’t a spammer.
Yves, completely NOT true. Since you last responded to me on this issue (end of March) I, respectfully, have posted comments using only the same real email address and “name” (as per your request), consistently. The last two weeks (ten days after affirming your request) cannot, possibly, ALL be different names or email addresses.
Look, there is no real complaint! In posting to NC I have become philosophical as to whether a comment will be successfully posted or not – it’s the trade-off for being engaged in so many interesting articles and opinions.
Commenting, “WP-Purgatory” is just a gentle acknowledgement that there was a posting problem with a particular comment; AND it both affirms that I can “actually” post a comment (so it’s not an issue of spam, name, email, IP or any combination thereof) and tells me it was most likely combination of factors related to a particular comment. What it is, who know? C’est la vie!
But of note, perhaps, is the odd dynamic by which WP/Askimet appears to be content sensitive (beyond the usual spam-banned words, phrases, comment length, etc). E.g. I tried on separate occasions, at different times (across a period of days-week) to post one particular comment related to each of the three separate ‘Carmen Reinhardt and Kenneth Rogoff ’ articles. For each of the completely separate articles I, subsequently, redrafted the previous draft’s content and layout (in an attempt to modify ‘something‘ in the text) all to no avail. Yet, all the while being able to post any other comments on the same article and post any other comments on different articles at that time and within the same period. And, there are other experiences of this type. So, if WP/Askimet decides I’m a spammer based on email and name alone, it’s doing a bad job ; if its decides I’m a spammer based on name, email and “benign” content, it’s doing a bad job.
However, it’s not a complaint; as more often than not – much like this comment – I can post without problem.
Along the lines of your introductory comments, Professor James Galbraith has commented on how heterodox views are suppressed by the elite economics departments and elite economics publications. This is insidious because the budding economist needs to be published in elite publications in order to advance his/her career in academia.
If I may, a short (5 min), succinct discussion of this issue by Professor Galbraith from 2010:
I see some people are coming close to questioning other people’s integrity.
I am afraid I think considerations like that belong to another era.
WC; ‘I see some people are coming close to questioning other people’s integrity. I am afraid I think considerations like that belong to another era.’
The next one? The era when the ability and urge to critically question more widely and with scant regard for authority holds sway? I sure hope so.
By the way, you may think your language confers gravitas (‘I am afraid I think ..’) but in fact if taken at face value would betray an inner turmail; are you really afraid to think?
Think you missed some snark.
First we had this:
Next we had this:
As a result, with the Modern economist and other scientists who embrace Modernist metaphysics, ontology and epistemology as sure truth, we now again have this:
Taken our current financial/economic/political/cultural crisis how far should we go in our skepticism?
Probably 95% of the commetariat on NC seems happy to limit the scope of potential contingency in the world for the sake of being able to do science.
Science believes in the objective world around us and Science also believes that this objective world is consistently ordered and it is this order which Science seeks to discover.
Aristotelian logic based on the principle of non-contradiction, in turn, seems to imply a standard applicable to all statements about the ordered universe. This logic provides a dimension along which arguments can be placed, related and compared.
The consequence of this logic seems to mean that we are capable of deciding arguments on grounds that move beyond force or intimidation.
Only logic based on the principle of non-contradiction makes it possible to formulate hypotheses so that they can be tested–contradicted–by evidence.
Karl Popper articulates the crux of the issue in the following manner: “We must tell the dialectician that he cannot have it both ways. Either he is interested in contradictions because of their fertility: then he must not accept them. Or he is prepared to accept them : then they will be barren, and traditional criticism, discussion and intellectual progress will be impossible.”
I would argue that all State-centered political perspectives (like MMT) are attempts to limit skepticism and that MMT– as well as the belief in science itself–wants to downplay the role of circularity in its arguments because it is extremely uncomfortable with contingency as the dominant mode of understanding the world.
They must have considered Mark 10:18 to be only a theoretical conjecture, not to interfere with progress. haha.
It makes you realize Ivan Karamazov wasn’t exaggerating,
not to be too inferential . . .
“The Catholic Church holds it better,” wrote a Roman thologian, “that the entire population of the world should die of starvation in extreme agony…than that one soul, I will not say should be lost, but should commit one single venial sin.”
That is contrary to Scripture (but with the RCC, what’s new?):
1) Do not be excessively righteous and do not be overly wise. Why should you ruin yourself? Ecclesiastes 7:16 [bold added]
2) but I say to you that everyone who divorces his wife, except for the reason of unchastity, makes her commit adultery … Matthew 5:32 [bold added]
Jesus apparently exonerates the divorced woman by saying she is forced. And adultery in the RCC is far worse than a “venial” sin.
But according to the RCC, the wrongly divorced woman should starve to death rather than remarry.
I’m not sure what you mean–but here’s the thing you should know: corruption exists! Sometimes it is obvious sometimes more subtle–I’ve seen it everywhere and, today, it exsits at every level in most our cultural institutions. Economists and scholars often spin their findings towards the interests that fund them or get them promotions–most pretend, even to themselves, they are doing it but they are–I’ve seen it and some are honest about it. Norman Mailer once said something to the effect that all Americans believe they are doing the “right thing” even when they are pursuing their own self-interest.
Why would Mailer single out Americans?
This sort of hubris and self-deception is ubiquitous amongst the rich and powerful, and especially the denizens of great empires. As John Adams put it:
Americans tend to believe they want to do the right thing. People in other cultures are much less that way. They may bs people just as much but, in private, they don’t believe they are saving the world, at least that’s been my experience–less self-deception because they don’t believe in Exceptionalism–we in American, even on the left are obsessed with American Exceptionalism.
I am seeing a lot of triumphalism here, as if Economics as a science has been vindicated. It hasn’t and its still crap science. There’s no evidence that employment in a financed dominated, globalized kleptocracy will benefit from large deficit spending. In fact the last five years of unprecedented deficits seem to prove the opposite. The kleptocracy has gotten richer, the trickle down now comes in the form of food stamps instead of jobs and people have left the labor force in droves. Economics loves easy answers like spending more, but making our economy support a middle class again is going to require real change.
All you have to do is produce evidence that employment will suffer from deficit spending in a downturn. The efforts to do that by examining the data have proved to be either bad calculation, bad faith, or both. The efforts to do it by demonstration, through stubborn deficit-reduction policies, have proved to be disastrous failures. It shouldn’t be that hard, if what you say is true.
Like R+R, you seem to have fallen back on “Okay, so the facts haven’t worked out for me, but I’m right, whatever the facts say!”
Printing works if the new money goes into the right hands. No one seems to know what should get funded.
Every country’s solution involves increasing its use of energy.
The more we print, the bigger the houses get and the larger the number of cars in the driveways… and this would last until there is no emerging market left to exploit and country to deforest.
Agreed. I wonder if income inequality is not a blessing in disguise that retards ecological destruction significantly. I get vexed with the excessive focus on token shuffling between sectors, the calls for deficit spending (seen as permissible in the presence of a GDP output gap), and the near complete absence of any attempt to understand the proper relationship between GDP and the environment. Keen and some NC commenters excepted.
Debt, GDP levels, and GDP growth rates occur within an environment that must ultimately be able to support them. The permaculture principles, IIRC, are; 1. take care of the earth; 2. take care of the people; 3. return the surplus to the earth. There is some evidence of 2 (create more tokens so everyone can have a better income), but nary a whiff of the others.
Regarding the RR issue, it may be premature to cry victory – if the relationship between debt and growth is recurrent (e.g. debt spurs growth spurs more debt spurs more growth etc.), then sorting out causality may be difficult. Note that debt can be incurred with a keystroke, growth only with sweat. One is much faster than the other. Growth cannot accelerate as quickly as debt, there must eventually be diminishing returns.
To conclude the rant, I fear that deficit spending will primarily benefit the rich and the connected: “There is no alternative: Governments now answer to business, not voters.” (Links 4/25/13) “Outflows from one sector of the economy show up as inflows elsewhere, and government deficits are an important source of corporate profits.”(stephanie-kelton-making-the-case-against-austerity)
Don’t feed the beast with deficit spending, donate to the food bank instead.
Simply put, it is economically pointless to rush the spending of non-renewable resources such as oil, while it is economically vital to use up renewable resources such as labor hours.
As uch, you want to fund labor heavy work that either are light on resources or investments into future resource savings or renewable resources.
Capitalism is broken beyond repair. MMT MIGHT make Capitalism’s failure less painful for the 99%, but it won’t fix the fundamental problem.
When elites capture nearly all the benefit of the current deficit spending, why do we believe that increasing the size of the deficit will benefit anyone but those same elites?
Yes, we definitely need fundamental structural change to go along with deficit spending. The fed has shown itself capable of creating trillions of dollars but this has gone to rebuild a fraudulent financial sector and fueling further asset appreciation, mainly real estate and equities and given fuel to speculative trades such as interest rate and currency swaps.
We need to end this creditor friendly attitude and write down these fraudulently created debts.
As the Fed can act as a lender of last resort we also need the fiscal side where the govt can act as employer of last resort and put this money to better use.
This can act as a counterbalance to avoid us going into debt deflation. And instead of asset appreciation we need education that doesn’t impoverish new workers, research and development, basic medical care, etc. This can actually lead to price stability rather than inflation.
The coherent description of an appuratus that could replace the fed, with a treasury which promotes “productive” spending and hence monetary growth, can be found in the HR 2990 of the 112th congress, which was called “The NEED Act”, as was proposed by dennis kucinich.
I can’t help but harp,on this.It is a real prospect.It is something extremely interesting,It has the possibility of being our best hope.It is in no discussions.That is what I don’t get.For All the posters here.Everyone is talking about things that don’t work.Some are offering useful points to what will work.These things are already laid out.If for no ohter reason than to go through the mind exercise of seeing a concrete example of what a proposal is.Then critique it.Thus opening discussion.
If what mosler has laid out is accepted by at least heterodox economists(since we all seem to agree that orthodox economists are akin to snake oil salesmen in their public discourse);then “the NEED act” is right up his alley(maybe)
Were we to attempt to “build” something.We must plan. But at some point. those best laid plans need to be implemented.The “cornerstone” must be set.The Need act could be a cornerstone.From there, the rest of the needs of society can be organized.For right now, the creation of money looms largest in problems,because the mis-allocation and competitiveness of said money restricts good growth, and promotes useless,un-sustainable growth.Obviously all the sectors of human needs are not in the scope of the “Need Act”,But it starts with Money for the common good.
Indeed this R&R fracas is a classic example from elite theory of a Speculator vs. Rentier ruling class fight in which the people really don’t have a dog.
Unfortunately in recent years there has been far less attention given to elite theory or studies, instead divide and rule imperatives have meant outlandish attention is paid to gender and various ethnic or racial theories and studies to help keep the masses at each other’s throats. The very existence of a ruling class is sometimes denied and called a conspiracy theory.
Vilfredo Pareto, sometimes called the Karl Marx of Fascism, wrote often about elite theory. Parento correctly saw that humans were rarely motivated by logic, reason or even self interest, but were instead driven by “sentiments” and he divided these sentiments into six classes, the first two being the most important for the study of elites.
These two archetypes bear more than a passing resemblance to Machiavelli’s Fox and Lion.
Since Pareto tended towards Class II sentiments he obviously preferred a more conservative regime. But his preferences are not at issue here, I am certainly not saying one elite gang is better than the other. What is interesting is that a hundred years ago he fairly closely described the current state of affairs in the US.
But just to be clear, the Speculator and Rentier types are only pure in text books; in reality every Speculator will have some Rentier interests and tendencies, and vice versa. In the US we see the two political parties split on the surface at least into Speculator and Rentier. This struggle can be further distilled down to a battle of billionaires, with George Soros, archetypical Speculator locked in a heated struggle with the Koch Brothers, classic Rentiers. Speculators want change, progress, inflation, and movement. When some sort of activity is placed in motion, the Speculator then looks for niches and opportunities to make their fortune. Rentiers on the other hand are happy with the status quo, they want stability, tradition, hard money, and are inflexible. Over time the Speculator always gains control due to their genius and flexibility, but eventually they overextend and destabilize the society when their speculative flurries come crashing down. And true to type, Soros backs MMT and the Koch’s back the gold bugs.
In Europe after the 2008 crash, Class II Rentiers are imposing austerity as would be predicted by Pareto. What is interesting in the current US situation is that after the speculative crash of 2008, Obama, supposedly a representative of Class I Speculators came to power. This could just be the inevitable political pendulum swinging against the party in power when the crisis hit. But it could also be a raw display of Speculator power in that they are dominant enough in both parties that they could provoke a speculative frenzy with the “Rentier” party in power and then be in the sweet position to have their “Speculator” party come in to clean up the mess. And true to form Obama has steadfastly refused to move even in the slightest against the Speculators.
Contrast this with the Labour Party in Britain in the late seventies. Labour was a political party of neither Speculators nor Rentiers. Their job was to represent the interests of the working class and labour unions against management. But given that many industries over time became nationalized, once Labour became the government of the nation they basically became management and were therefore sitting on both sides of the negotiation table during the strike crisis. They never resolved this internal contradiction (if they were tough on the unions they were labelled traitors, if they let the unions have anything they wanted then the nation as a whole would suffer and the opposition party could take over) and paved the way for Margaret Thatcher and her scorched earth approach to working class demands.
Speculators in the US have avoided the fate of trade unions in Britain by learning the hard lesson of never putting all your political eggs in one basket. Obama has never felt the internal contradiction between Speculator interests and the nation’s interest as a whole because Speculators have enough influence in their “opposing” party, the Republicans, to avoid any frontal attacks on Speculator interests and so by common consent the interests of the entire nation suffer instead. And in order to keep this peace among the two sectors of the elite Obama must compromise with Rentiers by cutting social security and agree to mild forms of austerity to appease them. In other words the two parties have “intermarried” their interests enough that neither Speculator nor Rentier has much to worry about irrespective of which party is in power. And the fruits of this common interest approach has been an increasing percentage of the nation’s wealth going to both rich Speculators and Rentiers.
What is missing in these ruling class debates are the interests of the ruled. In the British example pre-Thatcher there was at least one party looking after working class interests–this is no longer the case as Labour has chosen a “third way” that is really just a euphemism for being taken over by Speculators. In the US while the ruling class have their debates, the interests of the ruled themselves are always ignored. On the surface the Speculators seem to have a bit more in common with the interests of the people than Rentiers. For example Speculators want to increase government spending. But the reason they want to do this is not some misplaced altruism towards the ruled; no the more revenue streams the government gushes out, the more opportunities for Speculators to tap into these sources of free money. Look at Obama Care and the continuing attempts by Speculators to divert public education funds into their own private coffers. Speculators have been quite dominate over the past thirty years during as wealth has concentrated. It would indeed be a mistake though to think this trend would necessarily reverse if Rentiers became dominant again.
The endless Speculator vs. Rentier debates over monetary and fiscal policy really only serve the purpose to veil the real reason the ruled are losing ground in the US and Europe: trade issues, globalization, the disconnect between production and consumption, the oversupply of low-skilled labor, and the limits of growth due to resource depletion. But by framing the debates to their interests, ruling class Speculators and Rentiers avoid discussions that could result in policies that reverse the ever increasing concentration of wealth in their favour. If the ruled were able to start addressing the important issues that actually are resulting in their impoverishment, then the MMT vs. Goldbug debates will fade into the irrelevancy to which they deserve.
Fascinating comment! Pareto is someone I’ve intended to get around to reading but haven’t yet. Soon.
• Working Class Nero says:
You might want to take a look at Peter Skerry’s chapter titled “Elite-Network Politics” in Mexican Americans: The Ambivalent Minority.
Both elite special-interest cultural and elite special-interest material politics are advanced with the same mechanism: the marriage of elite-network politics with protest politcs. It cuts the participation of rank and file people completely out of the political caluculus. Skerry believes the only way regular people ever get representation is through organizational politics, which of course is anathema to both elite-network and protest politics.
• Working Class Nero says:
It seems like we’ve come full circle back to the late 18th century, the crucible in which classical economic “science” was formulated. It was an era that pitted the interests of the landed aristocracy against the burgher oligarchs (aka bourgeoisie), and in which the workers and the peasantry didn’t even have a place at the table (politically and intellectually speaking). The Christian socialists (not to be confused with the Christian aristocrats) did what they could, but the old theology proved impotent in the face of the new “science” of economics. It wasn’t until Marx came along that labor got its first great “scientific” advocate.
• Working Class Nero says:
I’m not sure I agree with that. The faster the obsolete metalist dogma dies the better.
However, the MMTers seem to have been sufficiently infiltrated by those who believe all public debt creation is good, regardless of what the newly created money is spent on, whether it is put to productive or non-productive use, that it has all but compromised the more conscientous MMTers. And my assesment of the MMT crowd is that it is generally weak when it comes to talking about, as you say, “trade issues, globalization, the disconnect between production and consumption, the oversupply of low-skilled labor, and the limits of growth due to resource depletion,” not to mention MMT’s real soft underbelly, its complete ignoring of the militarization of US foreign and monetary policy.
I think Michael Hudson does a good job of bringing these issues to the forefront and talking more about the FIRE sector. His “The Bubble and Beyond” and ‘Trade, Development and Foreign Debt'” make good companion reading to a more pure MMT reading such as Randy Wray’s primer.
Your two classes remind me of the British Corn Laws of the nineteenth century, when liberal, free trade capitalist factory owners and conservative, protectionist landed aristocrats fought over whether to allow importation of cheap wheat from Europe. One group wanted to keep profiting from the high price of bread, and the other group wanted not to have to pay their factory workers so much. Neither group cared whether the workers (the majority of people) saw the slightest benefit from any fall in food prices.
“One group wanted to keep profiting from the high price of bread, and the other group wanted not to have to pay their factory workers so much.”
The echo is particularly clear in the US healthcare debate. How do we balance the profit-margin requirements of the health insurance industry against the broader business community’s need for lower labor costs? By subsidizing both elite groups instead of simply providing care at lower cost…the health of the general public be damned.
Nero, the ‘institute for historical review’ you linked to is an organization promoting antisemitism and holocaust denial.
John in Boulder says:
That is an empirical claim which is demonstrably false.
Argentina, and the anti-neoliberal polices implemented by the Kirchners, provide one of the best counterfactuals to the dogmas and tautologies proselytized by the hard money faithful.
Since Argentina defaulted on its debt back in 2002, inflation has been quite high by many standards. The yearly clip has varied between 6.1% and 41%. But in spite of this, GDP growth has been robust, around 9% per year except in the depths of the GFC, when in 2008 to 2010 it registered 6.8%, 0.9% and 7.5%. In 2011 it rebounded to 8.9%.
The population below the poverty line has fallen from 37% in 2001, under the old neoliberal regime, to 30% in 2012.
The unemployment rate has dropped from 25% in 2001, under the old neoliberal regime, to 7.2% in 2011.
Industrial production growth has also been robust, racking up health gains between 4.3% and 16.2% every year except 2009, when it fell 1.2%.
And perhaps just as important, none of this is being financed by foreign hot money. Externnal debt has fallen from $155 billion in 2003 to $136.8 billion in 2012. From 2004 to 2011 Argentina ran a positive current account balance.
Here are the charts:
Argentina has had an amazing run, brought about by defying the neoliberal juggernaut. “The government shuns orthodox policies and spends heavily to stoke swift economic growth,” Reuters reports.
It’s of course unclear whether it can keep it up, for no one can predict the future, even though the neoliberal harbingers of doom are convinced they have a crystal ball. But I think actual past performance speaks louder than mere speculation. As Jose Ignacio De Mendiguren, head of the Argentine Industrial Union (UIA), put it: “Our main concern is competitiveness. People know devaluing (the peso) is bad but you need to look at why we’ve gotten to this point.” And as Reuters goes on to report:
He did premise his statement with the words “finance-dominated, globalized, kleptocracy.
As for finance-dominated, the finance share of GDP in the US is 8.4% while in Argentina it has moved from 4.2 % in 2000 to 6% now. Those percentages correspond to the financial share of the US economy in the years 1970 – 1990. So I think we can argue that Argentina is not as financed dominated as the US although the trend lines are worrying.
As for being “globalized” I think we can assume he means being part of the Neoliberal Globalization system as defined by Dumenil and Levy in their paper “The Crisis of Neoliberalism”. And in this case Argentina is one of the top ten most hostile nations on earth to the Neoliberal Globailization system. Argentina is also by international standards very protectionist, blocking cheap Chinese products flooding their country. They do have a illegal immigration problem, although it is much smaller than in the US.
But most important of all, Argentina has been running budget surpluses until recently and their percentage of debt to GDP is in the high 30% range. Keynes always said that you needed to run austerity during the booms so that you can safely run deficits during the down times when you need them most. So you cannot really refute his statement about large deficit spending by giving as a counterexample the recent success of a country that has been hardly deficit spending at all.
The lesson I take from Argentina is that opting out as much as possible from the Neoliberal Globalization system, protecting their industries, and moderate fiscal policies have all led to their relative success over the past few years. Of course just how successful they have been is difficult to measure due to the inflation issue.
• Working Class Nero says:
The unrestricted blowing of debt bubbles, unrestricted free trade and unrestricted free capital flows are without a doubt the first, second, and third Commandments of neoliberalism. Here’s how Naomi Kline said one Argentinian described his country in the wake of what Paul Cooney called “Argentina’s quarter century experiment with neoliberalism; from dictatorship to depression” :
But as Kline continues:
• Working Class Nero says:
But is there really a fundamental difference between the two metrics: public debt and governemnt money creation?
In the United States, for instance, the Fed has created trillions of dollars of new government money with its QE, cash for trash exchanges with the TBTF banks. The Fed lends government money for bank-created money (Asset-backed securities). Has this been marked up as “deficit spending” or “public debt” on the part of the federal government? I think not.
Likewise, as the Reuters article I cited explains, the Argentinian government is engaged in the creation of new money, but instead of this new government money being lent to the TBTF banks to be used exclusively for asset and commodity speculation as in the United States, it is “small- and medium-sized companies” who are designated to get loans with the money. None of this technically represents “deficit spending” or “public debt.” But there are nevertheless private beneficiaries of this newly created government money.
I see your point; I missed the part about them directly printing money. They can do that in part because they are net exporters of oil. The danger in their case is if they ever get into a situation where they start having trade deficits and then need hard currencies, and of course inflation. I still prefer their approach though.
Working Class Nerosays:
Argentina is not really a net oil exporter any more, as this graph illustrates:
Rapid economic growth has spelled increased oil consumption in Argentina, while at the same time oil production has declined.
Nevertheless, in the face of declining oil exports Argentina still maintains a healthy positive trade balance, though the trend is that, since 2002, the positive trade balance is slowly eroding:
The aspect that riles me is “it was a honest mistake, R&R are both reputable and serious economists”.
If they were scientists it would be the end of their careers.
I personally don’t think there is a fraud. R&R are so fixated on their own certainty that they didn’t notice their errors. That’s a much bigger problem directly relating to what should be considered “reputable and serious economics”. After reading Mr Mosler’s contribution I think R&R’s paper was really about morality; apportioning the blame.
A few years ago, psychoanalysis went from being a serious and reputable subject to one of ridicule; based lack of evidence and the speculative nature of its theory. Is the same likely to happen with speculative economics? Never. Speculative economics fulfills an essential role in society to bolster the self esteem and credibility of the elites.
Yes, when you get the result you expect, you’re less likely to check your math.
It is blatant fraud. Mosler is just getting started. He’ll post another list of grievances soon. Mexico (above) gives us the amusing account of the hubris of the catholic church just before people couldn’t take the racketeering any longer and the reformation exploded. Luther blew the church out of the water by nailing his grievances to their door. He didn’t pull his punches. He used blunt descriptions of their fraud with adjectives like crepancy and flatulence. Because of course the church was rotten to the core. We could use a few more Luthers. It’s gonna be a long fight.
As a mostly recovered Lutheran, keep in mind that the old boy had his own issues. There’s a reason Hitler cited Martin as one of his three mentors in German history. The other two were Frederick the Great and Wagner.
I’m uneasy that our own shadow government, like Hitler, cannot see its own contradictions.
For an economist to completely ignore the role of fiat currencies, would be the same as me, as a pool player, deciding to set aside my cue stick to pocket balls with my nose.
And then telling everybody: Hey, this is the only way to go! We must all play with our God given schnoz! There is one glitch though people, when you’ve worn down the cartilage in your proboscis by 90%, you are going to run into struggles.
So use your beak wisely and judiciously. Even austerely. If you do this, you’ll never miss again.
I guarantee it.
There are only two choices here. These men are either morons, who should not have been allowed to pass kindergarten, or they are fraudsters, who belong in jail.
“either you believe in an informed electorate or you don’t”
Pretty obvious what the answer is on that one. I find this whole charade interesting. In reading McBride’s recent post on the “success” of the HARP program. In the post he cites the fact most of the reps and warranties associated with all of those original loans were “eliminated”, without so much as a mention of the cover-up pursued to bury all the fraud.
Beautiful charts aside, it’s amusing to see someone take such a detached view from the social implications involved in current policy. Of course housing is going to recover (temporarily) when you engage in a systematic operation to bury mountains of fraud and then inject $trillions into the system to re-inflate it.
To get to McBride’s assumption that HARP has been a success, you first have to start with the assumption that bankers are a preferred social class. Then you have to assume that there’s no moral hazard in bailing out banks in full while decimating homeowners and refusing principal write-downs, encouraging a whole subset of the population to refinance and keep making payments on a bad investment. Would McBride or any of the banking class elite make 30 years of payments to finance an upside-down asset? I think we know the answer to that question.
During the high-tech bubble, Canadian and European investors were buying shares of Nortel and other high-tech companies instead of investing in their own economies.
The market tanked, investors lost their money and the US got to keep the fiber optic. This keeps on happening over and over again.
It’s the same thing with real estate. America built millions of houses. Many countries have huge American reserves because of that bubble. Americans lived beyond their means because the bankers let them and now the population wants the debt to be written off… essentially defaulting on the world.
The Americans’ lifestyle depends on exploiting the world, yet most still don’t see it and expect it to last forever.
Well, last time I was in Canada, the standard of living there seemed downright…American. Same packaged, processed food, same personal automobiles clogging the roadways, same everything pretty much (except for the funny-colored money, of course).
I’m not trying to defend American lifestyles, but I think you need to admit that it is the lifestyles in developed nations as a whole that are draining the rest of the world and destroying our planetary environment; not just in the US.
Canada and Europe may be on the periphery of the center, so to speak, but they’re still part of the center.
Yes. They’ve been trying to keep up with American consumerism and I think my fellow Candians are in for a rude awakening pretty soon.
No one seems to understand that the economic system is there to feed the American first and other developed nations are in tow.
I think a lot of Westerners do not seem to realize that the 1% lifestyles are based on exploiting the 99% and the emerging markets and the 99% lifestyles are based on exploiting the emerging markets.
The only way the 99% can keep up is if they keep on exploiting emerging markets. Even if we bring back the jobs, it will mean a huge drop in consumerism and a economic shock.
That’s why I keep on saying that our pension system is broken. It is based on the financing of materially unsustainalbe lifestyles.
As long as we keep on printing and paying those benefits as promised, there is no need to change our material lifestyles.
You seem to always manage to get the battle lines drawn in the wrong places.
The other day you were trying to make it a contest between the working young and the idle old (pensioners and retired folks). Now you’re trying to pit the rank and file of one nation against the rank and file of another nation. This is not where the battle lines are drawn, for the transnational capitalist class has no national loyalties. I hardly believe the US financial elite “wants the debt written off.”
As William I. Robinson explains here, the battle is one between a tiny, rich and powerful elite of the world against the poor majority of the world, regardless of which nation they hail from:
I never said the financial elite wants the debt to be written off. I wrote that the average American Joe wants his mortgage debt to get written off so he can get back on the path to his American dream. As if the only problem standing in his way is the lack of printed money.
I agree that the problem is the elite but it does not stop the fact that the big fish is eating the smaller fish from top to bottom.
The middle class is disappearing and now we probably only have 30% of the population with some relevant positive net worth and they are doing everything to cling to it… such as kicking the can down the road and indebting the young before they even start to work. The top 30% could not care less about the 70%.
In my mind, the top 30% are just as bad as the top 1%, because they are not doing anything to fix the problem. So my enemy is not only the elite, it is the deluded top 30%.
To put in a word or two about Canada. There was a time when the politicians of Canada tried to preserve some of Canadian culture (books, news, entertainment, etc.) and tried to limit some of the spread of US culture here. When there were no more political restrictions, the behemoth to the South decided to send everything North. For all intents and purposes, we have been properly invaded and didn’t even raise a hue and cry!
Now we have American everything (except the CBC and Canadian Tire and Sobey’s, and so far, our schools)–our movies and most of TV are American (we can’t even see Canadian movies in our main theatres); our stores and fast foods are American (Target, Wal-Mart, McDonalds, Burger King, Wendy’s, Costco, etc., etc.,) Even the Hudson’s Bay Company which has been Canadian forever now belongs to the US.
We now have a government that is essentially interested in the Tar Sands which again is mainly for American interests. Canada has one-tenth of the population of the US and we are being inundated. We look like the Americans except for our parliamentary politics. We didn’t have a chance to express our full Canadianness except for our unique home on this planet (and we have the Arctic). The French Canadians were wise and made language laws without compromise in order to preserve their unique culture.
Then came the financial crisis and our PM lied to us about not bailing out our banks and bragged to all the world, “What wonderful banks we have.” The banks in Canada were injected with “liquidity” to the tune of $114 billion which is more proportionally than the bailout of TARP. The Canadian banks also borrowed money (billions) at the US Fed Discount window which indicates more problems with Canadian Banks. One bank even profited from the AIG bailout that returned money to Goldman Sachs. Deregulation of the Canadian banks now makes Canadian banks TBTF (they can take deposits, sell insurance and do speculative investments). Canadians still believe in their neo-liberal government.
All of this information can be gleaned from documents on the Internet.
Thank you. I’m not the only one to see the farce!
Canadians don’t realize how many barrels of oil and how much lumber or, IOW, low added value resources they must export to import their high added value BMWs, Audis and Mercedes.
They are selling their souls to Mammon, thinking that their homes will make them rich.
We Canadians are the highest consumers of energy per capita in the wrold, and for some reason most Canadians still think they have avoided the real estate bubble.
Canada does not have the reserve currency and the average Canadian can not expect to be materially richer than the average American on a long-term basis, not as long as we try to live like Amercians.
Currenlty the average Canadian house has doubled to 350K in the last 5-10 years while US houses have cratered to 175K.
Canadians are in for a rude awakening as real estate deflates over the next few years.
Bailing out the banks and kicking the can down the road guarantees that the rest of the world keeps on funding your lifestyle.
‘They know federal spending is via the Fed crediting a member bank reserve account, a process that is not operationally constrained by revenues. That is, there is no dollar solvency issue for the US government.’
As soon as Mosler injects his Loony Tunes MMT agenda, he reveals himself to be no credible contemporary of Reinhart and Rogoff.
After all (pace Mosler), R&R didn’t take account of a possible extraterrestrial rescue of Earth’s economy. Or free energy either.
Innumerate true believers have no use for the corrected numbers published by Herndon et al, which show that growth declined from 4.2% at no debt, to 1.6% at debt levels above 120% of GDP (Figure 2, page 17).
3 problems with your post
1. The authors told us that 90% Was the doomsday level not 120%
2. Even at 120% there is still growth, albeit much reduced growth
3. Correlation does not equate causation, especially in this instance.
Does high debt lead to reduced growth as R&R allowed people to assert, our doors reduced growth lead to high debt as others assert? Or both? If the answer is both then which process is more important to our current situation?
I’ll tell you what, we won’t get the right answers using the method of R&R. (Sloppy data analysis, refusal to share data, misrepresenting your conclusions, allowing your conclusions to be used by politicians to say what it did not say, etc)
I agree this doesn’t give carte Blanche to the printers though.
A lot of MMT haters don’t seem to understand that the Fed and Treasury are already engaged in de facto MMT. It’s not something that might be possible in some alternate reality, it’s how things work right now.
Consider, the Fed targets an inter-bank interest rate, which varies depending on how many reserves are available in the system for lending relative to reserves being sought for borrowing. If Treasury sells enough T-bills to reduce the amount of reserves by a great enough amount to start to drive up the interest rate, the Fed has no choice but to add reserves back into the system through its Open Market operations, i.e. to fund the Gov’t debt after the fact.
The Fed creates new reserves by crediting reserve accounts (printing money with keystrokes), in order to (indirectly) fund the national debt right now. This isn’t a theoretical possibility, it’s a current reality, like it or not. Therefore it is totally correct to say that the US govt. faces no financial constraints on its ability to spend (even if it has to borrow every dollar it spends).
That’s correct technically. The problem is not the U.S. but the U.S. relative to other players in the world. The pressure for tamping down spending comes from the international community–we live in a global Empire of which the U.S. is the most important province (in large part because of the U.S. military) but it is, after all “only” a province.
You make sense when you suggest that we view our privilege to create money out of thin air in relation to those countries that do not have that privilege. Can you imagine how they feel that their countries can go bankrupt, yet the U.S. can always pay its bills?
Not only is this an unlevel playing field, it is also a game whose rules are highly suspect.
Jim you are a pain in the neck!
When you read Randall Wray, it seems obvious that no amount of debt can matter in a country that issues it own currency (as long as not too much of it is issued). What seems odd then is why doesn’t the BoE use its power to solve England’s problem once and for all? If the BoE can issue as much GDP as necessary for full employment, why doesn’t it do so? Surely they have read Wray last book: the primer on macro-economy.
There seem to be a big contradiction between MMT and what is seen in real life. Why??
Randy Wray doesn’t say that debt doesn’t matter. He just wants to avoid artificial measures such as a debt ceiling. He fully understands the problems of inflation and currency exchange devaluation. MMT can be purely descriptive as to how monetary policy actually works and is very useful for that purpose alone but it also offers policy options.
From his primer:
“Stephanie Kelton argues that the policy prescription of MMT is that government should pursue full employment without causing inflation. And no one has come up with a better program to do that than the JG/ELR. (job guarantee/employer of last resort). Hence we cannot separate that policy proposal from the description. I happen to agree with her.
Once we understand that affordability is not an issue for a sovereign currency issuing govt, then questions about what govt should do become paramount. And we can disagree on those.’
Changing a foundation is not easy and takes time. Thinking in terms of what is possible can give useful options.
Why must we depend on such an abstract behemoth as the government to run deficits to fund productive investments?
We have run deficits virtually every year since 1969. Saying the deficits are too small is a disingenious comeback in a futile attempt to win an argument.
Let’s get away from winning arguments, and move toward objective, logical remedies.
I would much rather depend on concrete individuals, real people, to use their gifts, talents, and abilities to, ideally, use surplus capital for productive long-term investments.
Don Levit says:
I think you’ve been reading entirely too much Ayn Rand.
In the video clip beginning here, Noam Chomsky takes to task the myth of the free market, a myth which you embrace as sure truth:
It isn’t in the interests of the powerful to have full employment. The labor market would tighten, allowing workers to demand higher wages, better benefits. There’s also the issue of class division: the ruling class doesn’t want the lower orders getting uppity and confident. People who feel security are much more difficult to dominate and control.
Americans don’t understand that our own debt will never have to be paid off because we supply the means of global security. Other countries are willing to allow greater debt in the U.S. in exchange for making the U.S. military the official Global Military/Police force insuring trade routes and the international rules on trade. We live in an international emergent Empire–each country has a job but the U.S. has the most important job–security and as a guarantor of the political status-quo around the world. Except in “bad” countries.
“What seems odd then is why doesn’t the BoE use its power to solve England’s problem once and for all? If the BoE can issue as much GDP as necessary for full employment, why doesn’t it do so?”
The Bank of England, although a nationalized institution, represents the interests of private banks of the UK, not the government, nor the countries people. Government created money would undermine the private banks current monopoly on money creation in the form of debt. There is no way that the BoE is going to undermine this monopoly power.
Full employment is a political issue and could be solved by government deficit spending. But you now how that would go down in a media dominated by austerity and the value to mass suffering for ‘sins’ of the past.
What hurts above all is that in getting it wrong, R&R have failed to put forward the need to change the ethos of excessive borrowing that must come to an end at some point.
It is true that in the long run we are all dead, it is also true that in the long run you cannot borrow your way to prosperity.
Despite the fact that in the current regime money can be created at will, there will come a time when created money will no longer be acceptable.
What money isn’t “created”? Money doesn’t grow on trees, it grows in the collective imagination of a people. Gold isn’t money until we all decide to accept is as universally valuable. If Chris Columbus had tried to buy goods from the Carib tribe he first encountered with gold coins (instead of just setting the hounds on them), he wouldn’t have gotten very far.
All money is social creation. The alternatives are straight barter (this for that) or general neighborliness (“I owe you one”).
Gold has very little inherent value.
Gold is given value because society views it as valuable. If society did not view it as valuable it would not BE valuable.
I fail to see how this is substantially different from fiat?
Gold has been around for thousands of years.
The U.S. has been around for 230 years, of which only a tiny percentage used this idea of the ability to provide an asset that others would “demand.”
The reason others demand Treasuries is they believe them to be safe. The rerason they are believed to be safe is not because we can print them at will.
That makes no sense – either from an intelligence standpoint, or from an emotional standpoint.
The reason people have faith in the dollar is due to our goodwill, which supposedly has been established and maintained over the years.
Just like a solid company, goodwill can be worth a lot.
But goodwill is an intangible asset which is earned through concrete hard work, not through abstract easy printing.
Gold has been around for thousands of years.
The U.S. has been around for 230 years, of which only a tiny percentage used this idea of the ability to provide an asset that others would “demand.”
No, Don, all of the USA’s 230 years used this idea.
The USA was blessed, from inception, with a population that would take less BS than most, and a few people who had some decent idea of how money really worked – Robert Morris, Alexander Hamilton, Henry Clay & the rest of the politicians and economists associated with “The American System”. Lincoln and Salomon Chase. FDR & too many New Dealers to mention. The last 3-4 decades has seen the worst and stupidest “economics” in our history guiding the economy. Not surprisingly, they have been the worst 3-4 decades for improving the American standard of living, since colonial times even. Even any multidecade period including the Great Depression is better than the Great Moderation = Great Stagnation. But because these idiots haven’t been able to do more than chip away at our still workable institutions, we did a lot better than Europe over that timespan! Europe had been catching up to the US before the Great Stagnation, fell behind during.
Those old guys might not have been the nicest or most socialistic or PC – but they knew roughly what they were doing, and didn’t believe their own lies if they told them, and wanted and worked for increaasing US power overall, which implied improving the lot of ordinary people.
“Fiat money” is much older than gold. Gold is only so valuable, was only so valuable, because you could get fiat money for it – NOT vice versa. And it was never really collective imagination but collective behavior, backed by raw power, that made fiat money valuable. And gold can only be a valuable commodity. It cannot be and never was money. A parallel to gold is the special paper that US currency is printed on. Good, expensive, hard to duplicate paper, which is only made for and sold to the US government. Its value over other paper to would-be counterfeiters is only because of its association with US currency. Thinking that coins were valuable because of gold content is like thinking modern currency is valuable because of the special, hard to duplicate, paper. Completely crazy.
The reason others demand Treasuries is they believe them to be safe. The reason they are believed to be safe is not because we can print them at will….The reason people have faith in the dollar is due to our goodwill, … But goodwill is an intangible asset which is earned through concrete hard work, not through abstract easy printing. Goodwill isn’t exactly the right word. Rational expectation is much better ( :-) ). The reason people demand treasuries = dollar bills, is because they rationally believe there is a demand for them, that they themselves might need them, because a really Big Guy called Uncle Sam might demand them. This won’t work unless Uncle Sam prints enough of them at HIS will. And it also won’t work unless Uncle Sam makes them hard to get, only gives up his treasuries/dollar bills for “concrete hard work”.
Every economic system ever has had some kind of JG embedded into it. All the MMT JG does is understand, rationalize and apply what was always there. And it really does work better if we use round, lubricated wheels rather than insist on square ones with sand and rocks in the axles.
These quarrels are loony tempests in jittering tea cups.
Teasing out relationships between two measures, such as GDP and Debt, or shoe size and IQ, wine-drinking and longevity, oil reserves and general living standards, etc. etc. rest on the assumption that the two measures have some validity or at least are a rough yardstick representing some parameter of interest to humans and society, and can be, at least ‘bounded’ numerically into some range. Then, analyzing the relationship offers other pitfalls, another story.
One term in the equation: GDP is a lousy measure. As argued and said by others more savvy.
> It is completely arbitrary: are movies included or not? – See the recent adaption or change in calculating GDP in the US. The well-worn ex. of husbands suddenly paying non-working wives for their services is always good value. Were hubbies to do so, the couple’s household budget and expenditure would not change, but suddenly a lot of money would have changed hands and GDP would jump up.
> A tally of: production of goods and services / income / consumption /exchanges – and see how confused that is, how is it all calculated? What sense does it make? Who can understand it in the details? Why are there different versions? Where do the numbers come from? …
…does not translate to well-being, the greater or common good, or even growth (economic growth), the lifting of all boats, and so on. Many exchanges and production of this or that are fraudulent, fake, or more alarmingly, destructive, unhealthy, oppressive, etc. Therefore, purging GDP of its mad -n bad component involves ethical choices or Gvmt. policy or ‘ppl’ decisions, which are outside of its scope. So GDP measures nothing of any real relevance.
For only one term of the comparison. The other is just as bad…
one link on GDP growth measurement in the US,
Good point. We need to start now to redefine our “economy” from the ground up, not from the top down.
Thank you! Every time I hear or read of Gross Domestic Product[!!!] ™ being touted, I’m reminded that the five States with the highest GDP (CA, TX, NY, FL, and IL), also have stunning inverse rates of: poverty; inequality; and highly Militarized Police ( see also ).
kisses and hugs, sweetie! stay strong!
Bigoted Religion ( My religion is better than your religion ) and Pete Peterson ( Austerianism is better than Keynesianism ) all forms of tribalism.
I haven’t seen this mentioned before.
What do Black, Hudson, Kelton, Wray, Tscherneva and Mosler (I think I’m missing one ) have in common?
A quick note on economics: it is a subset of politics. To put it another way, economics as a field is governed by political considerations, largely. Pro-austerity economists dance angels on the head of a pin consciously and unconsciously manipulate data (very easy to do) to meet a predetermined political position. The right-wing is where the money it so it will always attract plenty of scholars as anyone who has hung out in the DC area knows.
% OF GDP BY TERM
Rogoff and Reinhart were asked for their data from the beginning and refused to supply the data for 3 years which tells me all I need to know about lack of decency.
Look who’s behind Rogoff & Reinhart:
April 20, 2013 01:30 PM
Pete Peterson’s Fingerprints All Over That Bogus Economic Study
I have a response (actually two, near duplicate, responses) to Kim’s comment, in the spam filter.
Economics is a profession filled with charlatans propagandizing for the rich and their fellow elites and giving intellectual cover to their systemic looting of the rest of us.
Propaganda can be debunked a thousand times and still remain effective. It is all about the repetition. If Reinhart and Rogoff are debunked, so what? Austerity has only hit a minor bump in the road. It remains the dominant philosophy in the budget debate.
If Reinhart and Rogoff are momentarily tainted, then other spokespeople can be found to espouse the same austerity line. If their precise formulation isn’t selling as well, it can just be put in a new wrapper and sold as new, and this can be done again and again. Reaganomics, supply side economics, trickle down, job creators, they are all the same thing, but simple renaming/rebranding has kept this failed idea, indeed this con, going for 30 years.
Or one can pull a Cheney: put out a lie, watch it get debunked, and then repeat it, unchanged, a week or two later. The lie becomes established, despite the evidence against it and its own contradictions, because Serious and Important People like Cheney validate it.
As for Reinhart and Rogoff, they really haven’t backed off their major thesis. They have cited the work of other noted charlatans in their field to back them up. They may be treated a little less reverentially by the media. They may not be cited as often as they were, but they will retain their cushy tenured positions and can look forward to well heeled retirements.
It is hard to see that they or the austerians have lost all that much in this current debunking. A few of the peasants may jeer at Reinhart and Rogoff for a few weeks, or months, but neither they nor their class really care what the peasants think. So again where’s the damage?
This interview by Paul Jay confirms your point that Austerians have lost nothing in their own minds and will continue as if nothing had happened.
Joseph Minarik and Bob Pollin debate recent PERI report that debunked economic theory that supported austerity policies
Here is the link explicitly
Minarik’s only concession is that public debt at 90% can no longer be used as the exact number to determine when growth collapses. Minarik goes on to offer a classic apology for Obama’s economic policies;
1) Obama inherited a mess that is taking a long time to get out of. Once the economy improves, we must get a handle on debt. But as to why not stimulate now, he says,
2) Obama is constrained by the political “reality” in what he can and can’t propose so all stimulus is off the table and only cuts are possible
3) He defends Obama’s attack on SS as realistic in controlling long term debt since it addresses logevity gains that were previously not accounted for (I think Yves has debunked this more than once).
In essence, Minarik will not admit to being an austerian in the sense of immediate cuts with no stimulus but he’s intransigent in defending every such move Obama makes so it amounts to the same thing. He is obviously being disingenuous and part of the reason is because he is faced off with Bob Pollin who would make mince meat of him if he tried to argue the standard government is like a family at the table faced with a spending more than they earn crisis line.
One further note: Mosler’s critique doesn’t address what kind of a society we want. That is, afterall, what all of this is supposed to be about. It is the real measure of whether an economy is functioning well or not.
I call this the neoliberal bias of the MMTers. They practise the same scission between social purpose and economics as the rest of their charlatan brethren. As long as we accept the current terms of economic debate emptied of their social reasons for existing, the crooks, that is the rich and the elites, win. They can, as Reinhart and Rogoff have, make the numbers say anything. What they can not do is tell us that this society is the one we want or that anyone among the powers that gives a damn about what we want.
Why do these mobs always skirt ethos by building – seemingly – ambivalent machines… methinks its re-branding the same old formula aka someone – picks – the winners and losers.
skippy… that said… MMT – could be – a transitional bridge from the cognitive dark ages of hard money to an endogenous social ethos form of activity… which is more highly correlated… to the billions of years of life on this orb… instead of more banana flavored monkey grease.
Addendum… winners pick the next batch of winners… its a club thingy… idiopathic – sociaopathic award… methinks…
Is it not true that there are theories of economics,but not real “laws”, so there can be folks whose opinions based on their theories come to be proven wrong by events. It is probably difficult to analyze events of the past
And assign truth or fiction of a theory.
There are situations that come to be and then folks point to those and say “see my theory is correct”, but they cannot prove that the events may in reality have little to do with their theory.
Economics is not like hard sciences that have rules that are hard and fast.
An Alternative to Capitalism (since we cannot legislate morality)
Several decades ago, Margaret Thatcher claimed: “There is no alternative”. She was referring to capitalism. Today, this negative attitude still persists.
I would like to offer an alternative to capitalism for the American people to consider. Please click on the following link. It will take you to my essay titled: “Home of the Brave?” which was published by the Athenaeum Library of Philosophy:
“Insanity is doing the same thing over and over and expecting a different result.”~ Albert Einstein
As Shakespeare would have said if he were alive today “Reinhart and Rogoff were hoist by their own Peterson!”
“They know federal spending is via the Fed crediting a member bank reserve account, a process that is not operationally constrained by revenues. That is, there is no dollar solvency issue for the US government.”
you seem to be confusing the technical and legal functioning of the currency system with the economic function. even zimbabwe never went bankrupt. however its economy did collapse completely.
the technical financial system (“MMT”) is not the eventual truth. it is a system to keep people honest, because honest societies are stable, peaceful and happier and a robust real economy.
“The big question today is not how economies do with high debt after a war, but how to handle high debts in peacetime. After a war, when physical capital is destroyed, but human capital remains, it is often possible to rebuild faster. There are also many efficiency benefits from releasing wartime controls and bringing manpower to productive use. But the first few years of such experiences, in any event, might not necessarily capture the problem that one is interested in, of today’s peacetime deficits.” – Reinhart and Rogoff 4/25/13 NYT
Apparently not content with seeing their reputations savaged, R & R decided to commit credibility suicide by making it clear they don’t know when their country is at war. Perhaps they believe “this time is different” cuz they’re comparing wartime with peacetimes. Or is there some economic definition of “wartime” that our current $1 trillion-plus war doesn’t satisfy?