By Stephanie Kelton. Cross posted from New Economic Perspectives
Steve Kraske of The Kansas City Star recently interviewed me for a piece about austerity. The story ran in today’s paper. It doesn’t provide much depth (unlike bloggers, journalists have strict space constraints!), so I followed up with a few comments on the Star’s website. I thought I’d share them here, since I’m always trying to improve the way I communicate these ideas with non-economists. So here’s my best effort to make the anti-austerity case in simple terms.
1. When we allow our economy to operate below full employment (as now), we are sacrificing trillions of dollars in lost output and income each year. We can never go back and recover it. It is gone forever. You’ve seen the debt clock? Here’s the lost output clock.
2. Capitalism runs on sales. In survey after survey, we find that the Number One reason businesses are slow to hire and invest in new plant & equipment is a lack of demand for the things they produce. Businesses hire and invest when they’re swamped with customers. See this story in The Wall Street Journal.
3. The two decades after WWII certainly aren’t the only time that robust growth reduced the DEBT/GDP ratio. During the late 1990s and early 2000s, the economy grew at an above average clip. Unemployment fell to 3.7%. Inflation remained modest. There was a job vacancy for every job seeker in America — genuine full employment. Because people were working, there was less spending to support the unemployed (food stamps, unemployment compensation, etc.) and more people paying income taxes. The deficit disappeared, and the national debt fell to around 40% of GDP. So you do not need post-WWII conditions to support the argument that economic growth is the way to reduce the debt.
4. The debt/GDP ratio falls when the denominator grows faster than the numerator. Right now, just about everyone is fixated on using austerity (raising taxes and slashing spending) to reduce the numerator (DEBT). The problem, as Europe has kindly shown us for years, is that austerity “works” by crushing incomes, which in turn crush sales (or what we call GDP). So instead of bringing the ratio down, austerity hampers growth, which causes deficits and debt loads to rise.
5. Although virtually no one bothers to mention it, the deficit is currently falling at its fastest pace since the end of WWII. Yes, right now in America, even before the sequester, the deficit was plummeting at a scorching rate. Why? Because the economy was recovering from the Great Recession. Unemployment was falling and growth picked up to around 2.5 percent. When people get jobs, they earn wages/salaries, pay income taxes and stop collecting unemployment.
6. Policymakers on both sides of the political aisle are moving us in the wrong direction. The fiscal cliff and the sequester both impose austerity (tax increases and spending cuts) at a time when there are vast unused resources (labor, raw materials, excess capacity in our factories) and inflation is running below the Federal Reserve’s target. These are exactly the wrong policies and they will hurt the economy.
7. Saying that austerity is bad policy ≠ saying government needs to spend more money. Businesses need customers, but the government does not have to be the one doing the buying. We have been advocating a full payroll tax holiday (extended to the employee and the employer) for 5 years now. That amounts to a 6.2 percent across-the-board cut in the wage bill, and the addition of almost $300/month to the take-home pay of the average worker. Businesses need customers, and customers can be created by leaving more money in the hands of those who work for a living.
8. We have a serious infrastructure problem in this country. The American Society of Civil Engineers just released its 2013 Report Card, and it is ugly. Our ports, roads, waterways, etc. are in serious disrepair. This makes it more expensive for businesses to produce/ship goods, which raises U.S. prices and reduces our global competitiveness. Meanwhile, we have millions of out-of-work construction workers and manufacturing workers — the people with exactly the kinds of skills that are needed to repair and rebuild our national infrastructure. So we have useful work that needs to be done, millions of people who want to contribute and policymakers with no plan to connect the two.
9. What holds us back? Fear of the Chinese? Fear of bond vigilantes? Fear of the ratings agencies? Fear of becoming the next Greece? Fear of turning into Zimbabwe? Fear of sticking our grandchildren with a huge tax bill? This is what they tell us as they impose austerity. None of it — I repeat — none of it has the slightest bearing on our reality.
10. Final (and most important) point: The United States of America has sovereign money. The US dollar comes from the US government. It cannot come from anywhere else. We can never run out of dollars or be forced into default like Greece, which does not have its own currency. We do not need to borrow from the Chinese to do the things that we decide to do for our economy. As long as the real resources (labor, raw materials, factory capacity) are available, the financial resources (money) can always be there. This can be done without causing inflation as long as the additional spending does not outstrip the economy’s capacity to produce. We can afford to cut taxes and spend more money to improve our infrastructure without burdening the next generation. Failing to get the economy back to full employment will burden us all for years to come.
* * *
Lambert here. Readers, Kelton sets herself this task:
So here’s my best effort to make the anti-austerity case in simple terms.
Assuming you accept Kelton’s analytical frame, are the terms simple enough? If not, how would you revise them?
lot of austerity crowed are in that camp because they dont trust politicians and government with any kind of spending. we have seen how easily the government can be biased or influenced – easy bailouts, auto industry, solyndra, Ben buying bad debt with his helicopter, the list goes on. Just look at California for how government can really screw up public spending. Lets not even think of accountability. The whole incentive structure is a mess with public spending. Its the opposite of capitalism (the good kind).
crowed are in that camp because they dont trust politicians and government with any kind of spending. redd
No problem. It’s government MONEY that is needed; who spends it could just as well be individual Americans, not government.
So, just distribute equal amounts of new fiat to all citizens until the economy recovers.
even that involves political games, vote politics and some form of government implementation/involvement. Abuse would be rampant. And they kind of do that already in the form of food stamps and other give outs. I support the intent…not the current implementation, the abuse (free phones ? jeez where does this end) and “street smart people” gaming the system.
the best way would be tax cuts and credits, cashback/free-cash (for low incomes folks who dont pay taxes).
I think you have gone to the heart of it. Many if not most people deeply distrust the federal government often for the wrong reasons–but I think they are right in distrusting it. I worked, as a contractor, for the government for some time and believe that the federal government is too wasteful, full of contradictory directives from Congress and the WH and overly influenced by increasingly powerful corporations who “consult” to the government such that, on balance, I think we can say that the government is now corrupt in the full sense of the word and ineffectual by design. Remember, for a generation Republicans have wanted to destroy the non-military part of the government.
You can’t revive the federal government at this point–it has gone too far. Washington is a Byzantine Imperial court that has little interest in anything as sill as helping the public. The right is right in the sense that our society is maintained by private industry and the technological innovations they are using (often they originally cam from federal dollars once upon a time).
Leftists must understand that this is not “their” government it is a government that serves its own interests and those of the most powerful lobbies and as such it needs to be avoided and not supported by progressives. What to do? I’ve often given suggestions over the years but the left is not ready to hear them because the imaginations of that part of the intellectual class, for complex reasons, is frozen.
I get the anti-austerity position but the problem is – the work people are paid to do must be useful to the general welfare. The hard part is figuring out what the best use is. It is obvious the trillions the FED is giving out is not in the best interests of the US general population. It is obvious that Washington, DC is not the place where the best decisions are made. A system is only as good as its ability to get the best person in a place to make the decisions that need to be made. We are in trouble.
I would simply disagree with the premise “we” need to do something, let alone “we” have the right to intervene in other people’s business, even if it is to “help.”
Let the economy be and it will do what it will do.
The economy will definitely do what it will do. Among the things it will do is select an idiot to manage your pension fund, and provide him with free consulting paid for by the thieves that want to manage that pension money.
Your advice about intervening reminds me of an analogous situation:
I know about people who talk about suffering for the common good. It’s never bloody them! When you hear a man shouting “Forward, brave comrades!” you’ll see he’s the one behind the bloody big rock and the wearing the only really arrow-proof helmet! — Terry Pratchett, “Interesting Times”
I spent the weekend reading about biocomputers and nanotechnology as they relate to cancer research.
I mention this because ocassionally there will be a magucal thinker, who jumps into the comment thread stating of the tech article and that person will say that we are meddling with the “good.design” of natural selection and evolution.
Like natural selection has a benevolent agenda or is something more than a mechanism for the passing along of genes- good or bad (including cancer)
I see what you are saying in a similar light
reviewing history defines some of your generalities-late 1990’s were a bubble economy, caused by new tech=computer-internet false “start-ups”…can’t use this as period of “growth”.
It is necessary to comprehend what those who benefit from austerity seek to impose and profit from-both political parties are playing the giveaway game to corporate contributors-bushitters gave away Medicare part D to big pharma-bushbama gave away healthPROFIT to insurers, who desired new customers, federally funded profits-this is the linchpin of selling-giving away taxpayer provided, government run-owned infrastructure, for corporate PROFIT. Those who read prolifically know how this game was played, South-Central America, 70’s-80’s.. “Confessions of An Economic Hit Man”, “The Shock Doctrine”, for just a pair of references. NAFTA and CAFTA elucidate, as does “Trans-Pacific Partnership”-truly egregious corporate giveaway legislation.
This means austerity is all about ripping off taxpayer provided infrastructure..
while ignoring actual CAUSE of economic disaster, while scapegoating VICTIMS of…follow the $$$$….ALL WAYS, always…
What comment of mine are you responding to?
Gregory Bateson pointed out that evolution actually needs two components. You need a more or less random source of new combinations and also a way of weeding out what doesn’t work. The weeding out is what “natural selection” does. Or, rather, it doesn’t “do” anything. It’s just the way the world works. Every living thing dies. If it produces offspring before it dies than it works well enough. No organism is perfect. To me, the important thing is, “Mother Nature DOESN’T CARE!” That’s why we see so much pain, which humans often view as cruelty. And, by the way, he was making the argument that human mental activity seems to have some of the same characteristics — we don’t know where new thoughts come from, they seem to be generated more or less randomly, and the filtering mechanism is reality, whether the thoughts help us or not.
Women stop reproducing in their 40s
There’s no reason for them to live evolutionary beyond the 40s (they arent going to pass on more of their genes) and yet we would argue quite rightly that someone dying at 50 is wrong even if nature set it up that way by chance considering the species can maximum live to 120 (but usually have a life expectancy in the 70s or 80s)
My point is that assigning good design to a process that’s really not about how something works out for is magical thinking
To know if a thing is good or bad you need a metric if what outcome you want from it
Not simply that it occurs
Markets being good or bad is determined by its effect on humans. Just like we treat cancer with medicine even if the genes fir it continue to be selected we need to ask about markets
This recommendation reminds of the story yesterday of the Indian pilots who put their plane on autopilot and retired t the first class lounge to sleep.
First, what makes you think the economy is self-regulating?
Second, don’t you think your first-class cabin is going to go down with the rest of the plane?
You don’t think that if on Monday morning, EVERYONE in the country closed out their Chase and BOA retail accounts, it would have an effect on the economy (or a significant section of it)?
Maybe I am naive, and it wouldn’t. I’m just asking (and pointing out how our public are enablers of the banksters – among others – who have bought out DC etc)
Sure but that can’t happen here. The point, if you are interested in real political action (progressives generally are not) you would start with certain smaller players first to begin to build solidarity and show that you can knock off a company or two if you decide to. Once that happens you won’t need to knock of BoA they’ll come to you and ask how they can please you–that’s how politics actually works–not shaking your fists and saying “bad, bad, bad” that just makes execs smile and makes their day.
“Let the economy be” assumes that the economy is a self-organizing system like natural systems. It is not. Economies are man-made systems – they are created, designed, maintained, managed, controlled by human beings.
It has also demonstrated an ability to hurt and kill on par with WMDs.
The recent building collapse is a perfect illustration of economy running wild.
not only, Nell, is the economy NOT “self-regulating”, I have seen Michael Hudson refer to 2001, “financial sector” amounting to 20% of U.S. economy, but by 2007, 40% of…
so the great majority of U.S. economic activity at this point is either large corporation and their franchises (travel much-lately??) or financial services (speculative activity-worldwide) oriented..Satyajit Das’ books are indicative…as are Shaxson’s, Naylor’s…corporations today hide profit$ off$hore, running as much as half their corporate profit$ through “$ecrecy jurisdiction$”, supposedly as “investments”…then return them back through “$ecrecy jurisdiction” phony
“loans” (Meyer Lansky bookkeeping) to themselves…which are also tax-deductible…first bury profits-then loan themselves their own profits…nice work, if you can get it…this along with hedge fund, private equity, commodity and derivative speculation, are largest financial transactions, and most prevalent..and ALL such transactions, without government oversight, transparency, accountability…
‘let it be’–we’ve done this for decadeS on every monetary and political level…hasn’t worked out too well or are you here out boredom?
“Let the economy be and it will do what it will do”
So no more patent protection for software companies? No more fighting piracy of media enterprises? Well, okay, if you say so.
I second this. The economy is not just the official, sanctioned transactions – as Matt Taibbi has recently pointed out. If we are to let the economy be, then that means we must also accept the shadow and black markets. But that will never happen…the big fat corp-cats will never accept losing profits.
Perhaps government has meddled too much with the economy. So let’s make sure wastewater conveyance and treatment, water supplies, subsidized railroads, the legal system (underway!), and even the military are all abandoned in place and replaced with free market versions.
Assuming you accept Kelton’s analytical frame, are the terms simple enough?
For a general audience(a group that does not include regular NC readers), no. And while the points above are nice list of current anti-austerity arguments, I don’t think it constitutes a framework. I think it’s hard for anyone who is informed about macroeconomic issue (with or without formal instruction on the subject) to understand just how uninformed the general audience is. For instance, the idea that what makes sense at the economy-wide scale does not necessarily make sense at the household scale is only briefly touched upon in the article, and isn’t in the list. I think that is one of the biggest stumbling blocks for a general audience trying to gain a better understanding of economics. (It doesn’t help that right-wing politicians continually emphasize that they are equivalent.) So that should be the first concept broached in any discussion intended for a general audience. I can’t say what all the misconceptions inhabiting people’s minds are, but Kelton would do well to identify them before building a case for more spending.
You are right, the “household” analogy is used by austerity defenders as one of their main weapons. Easy to understand, easy one-liners. And the second argument always follows : “we cannot leave our kids with our debt”.
So we have to explain why macro is different from micro ?
That’s almost impossible – at least not as effective.
We need to tell an other story.
Those who say this actually made a lot of money by getting us into debt. Into credit as a substitute for lacking real demand, caused by lagging incomes and expanding capital.
The rich and powerfull feasted upon the corps of the debt riddled masses. They cashed the profits on expanding debt and left us the bill of their speculation. That’s why they advocate austerity now : they let the states (us) save their banks, and they cry now that debt is unsustainable.
You cannot explain or make a case against austerity without telling this story.
or better yet (I) “hear here. Covered both your bases!
The household analogy is not their main weapon, its how they actually understand economics. The problem with neo-liberal economics is that they actually believe in what they are pushing, with all the fervor of any religion. The invisible hand is not just a metaphor to them. To them, it’s evidence.
I’m afraid you’re right. But ideologically speaking it still is an important weapon, because people are educated with this easily convincing analogy.
It IS religion. Trickle down economics is essentially tithing.
A bit off topic but invisible hand fetishists don’t even grasp Adam Smith’s metaphor. It’s far from an endorsement of laissez-faire. If neoclassical economists actually revered Adam Smith they wouldn’t reduce Wealth of Nations to “invisible hand” and misrepresent the surrounding context.
That’s no argument for neoliberalism. Although an investor might increase his profit by sending his capital abroad, the invisible hand would tend to restrain him from doing so which would benefit domestic industry (rather than hollowing it out). This is a symbiotic relationship, not a parasitic one.
As I noted below [before reading all the comments], Robert Kuttner’s got a new book that is MUCH better than Kelton, both in style and content.
After reading Kuttner, Kelton seems even more feeble.
Well, you’re not comparing Kuttner’s book with Stephanie’s, so that’s not quite fair. Try this one.
An economy is an aggregate governed by the laws of countries.
Contracts do not exist outside of the laws that govern them.
Corporations are nothing but bands of men. When they operate without charters that demand ethics they are sociopathic gangs. Pure and simple. Theft and fraud are always easier and always have a higher return on investment than production of honest goods and services if theft and fraud are allowed. And by legalizing naked shorts and asset stripping leveraged buyout scenarios we have legalized theft and fraud.
There is no such thing as the “economy doing what it will do” The economy like the market is a creature of the government, which is a creature that reflects the will of the people, or the lack there-of.
Excellent! I’ve been waiting around for people to understand that “the economy” is a political institution governed by political laws first. All markets and contracts require government of some kind to exist so there is no such thing as a “free” market.
I think that begs the question of, “Should there be a totally free market?” What you’re suggesting appears to be the economic of anarchy. Can you assert why it would not be?
Bah! That was supposed to be “economic equivalent of anarchy”. Too early, no coffee, etc.
Our problem is not an economic problem. It is a political problem.
Politicians have pursued two austerity programs–an anti-austerity program for the 1% and an austerity program for the rest of us. The anti-austerity program for the rich is working well beyond their wildest dreams.
It’s time to pursue an anti-austerity program for the 99%. It will flood the real economy with spending that will end the unemployment and under employment problems. What has been done for the rich can be done for all of us. Democracy is an empty concept without economic justice.
In the past this has been accomplished by political pressure groups, not politicians.
It is also a economic problem, or better, a problem with economic theory. Policy makers worldwide use models that are broken, that give no guidance anymore. They say that we are in unknown territory.
We have a demand problem indeed, although the supplysiders won’t admit it.So anti-austerity makes sense.
But we also have a huge debt problem, a massive growth of speculation, followed by a financial crisis.
This leads the economists and politicians into a false dilemma : fast death by austerity or slow death by debt strangulation.
Now, why do we have this debt-speculation-financial crisis problem in the first place ? This is were traditional economic models leave us in the dark – especially the dominant neoliberal ones, but essentially most of the theory. There is no theory of money and debt, there is no special place for the financial sector in those models.
Look at the neoliberal growth model. Is based on the assumption that lowering or restricting wages and augmenting capital income is good. That model was an answer to the crisis of capitalism (of profits) in the 70’s. And it worked well…for profits. But it caused a growing demand problem.
This was tackled by credit expansion… until collapse.
The demand problem also caused speculation. Profits kept coming, but profitable productive investment opportunities (other then production displacement) shrunk. So the rich and powerfull turned to speculation on a monstrous scale. They actually made al lot of money on the (our) expanding debt and they made it much worse with derivatives etc.
Now we have a financial sector that is about 4 times bigger than needed – an almost completely speculative economy AND a rapidly increasing unequality in income and wealth.
The world is drowning in free floating capital in the hands of few, and starving from lack of demand (income) from the indebted masses.
Some form of a massive redistribution will be needed. You have to adress inequality to solve the dilemma!
“But we also have a huge debt problem, a massive growth of speculation, followed by a financial crisis.”
Good point – then you go on to say..
This leads the economists and politicians into a false dilemma : fast death by austerity or slow death by debt strangulation.”
Here you need to make a distinction between public and private sector debt. Austerity is about decreasing public debt whilst simultaneously promoting an expansion of private sector debt (zero interest rates, QE etc). Yet it is private sector debt that has a stranglehold on the economy. It is private sector debt that is driving down demand. On top of that we have a political philosophy that promotes inequality in income distribution which further hampers demand.
I agree, good comment.
really….follow the $$$$…according to several sources, over $600 trillion in derivatives, by 2007, owned 95% by 6 U.S. investment banks, located largely in “City of London” secrecy jurisdiction…all, as noted by others, in “paper debt”…
and based upon that which Yves and others have shown (real evidence) to be falsely constructed “mortgage BACKED securities” or “toxic assets”-you know-those things bushbama FED is currently buying back from Wall $treet bank ledgers-those things bushpaulson said they were going to buy with TARP (but didn’t)-but bushbama is-QE3, $80 billion per month, WHILE complaining about
“The US dollar comes from the US government.”
Uh No … The dollar comes from the privately owned and operated Federal Reserve System …
It would be great if our money came from a Public Central Bank but it doesn’t …
Our money comes from the banksters monopoly on currency and credit …
Aside from the general gist of this piece,
in specific ,as to where the money comes from.The first step is the creation of money that is used as “US dollars”.
While the federal reserve is a conglomeration of the very TBTF banks that are at the heart of so many problems in this economy/world.Then throw in the extremely large financial players like the banking houses of the “old money families”,lazard freres,n.m rothschild,morgan grenfell, and the like..And I see no reason these same bad actors on the world stage should get ANYTHING, when the US dollar is created/spent into existance to further OUR economy.
The best plan to right this wrong I have seen In my lifetime was the Kucinich bill the “NEED Act”,HR2990 112th congress.This bill firstly would have replaced the function of creating dollars as federal reserve notes then used as US dollars,With A US dollar that is created by the treasury, and the treasury alone.
MMT may propose that taxation is the driver of the economy,but the money used in the production of work,and in the pockets of the people who buy things,is created.These things are a wheel.There is no first spoke in a wheel.
But we MUST take these banking/aristocratic families out of the equation.Let them get a real job.
The Fed and Treasury have an unnecessarily complicated relationship but the US dollar essentially comes from the US govt. Private banks are then allowed to leverage this money with loans. The purpose of a central bank is to monetize the debt and it has a legislative mandate to do this. In the EU the member countries have given up this mandate to a central power and can’t print their individual currencies.
When a person comes into a bank to get cash, then the bank IOU is turned into a govt IOU when that person is given cash. The bank gets that cash from reserves at the Fed. The Fed has those reserves because it holds Treasury bonds.
A better question is why are banks able to fraudulently make loans and then get off the hook for this criminality. And why is the Fed buying up mortgage backed securities to enable this fraud.
Here I think you have to look at the fiscal irresponsibility of Congress and the irresponsibility of our regulatory system and Department of Justice. Everything they’ve done has been bank friendly rather than take on the obvious corruption which would be to the benefit of the 99%.
The fed and the treasury have a relationship, whereby the fed gets to create the money, and the treasury is obligated to pay them for their services.Who “they” are is the devil in the details.These relationships, which are what is used to bribe,lobby,fund the campaigns of congress and everyone else, is where there is a “blackhole”. No one really knows what this means.Except those on the take.From the outside, it is the hotbed of corruption.Which is why there are no regulators,regulating. or lawmakers,making good legislation.or no executive offices, enforcing any laws.To assume everything is “above board”, because in this manual and that, there are “rules”, and guidelines…is too trusting.Considering that people really can’t even agree what rules are really in effect,Even the creation of the money supply,can’t really be agreed upon.Yes the federal reserve has manuals.Which should make the case as solid as any accounting standard,but it doesn’t.Point in fact was the infamous 16 trillion number that was sloshing around after the bailout.was it 13 trillion?, they say, well it never made it to the money supply, it was just on many big companies books. Which means they were all using bogus numbers to justify stock valuation,bonuses,credit applications,payments on account…That is a behemoth of a discrepency… in that there little “overly complicated relationship between the fed and the treasury”.Considering, these are the “big guys”. who collectively own most of everything.
I object to this characterization of the Federal Reserve as a “privately owned and operated” entity.
Its leadership is appointed by the President with the advice and consent of the Senate — how many “privately owned and operated” entities do you know of that have such a constraint?
Additionally, 90+% of the profits of the Federal Reserve go into the coffers of the US Treasury — how many “privately owned and operated” shops you know of that have to fork over most of their profits to the government?
Just because private banks capitalize the Fed in technical terms and get a 6% dividend, that doesn’t mean it’s “privately owned and operated” — that couldn’t be farther from the truth.
The Federal Reserve System is a privately chartered corporation not a government entity.
The selection of the Chairman of the Fed is from a list of candidates given the President by the Fed System itself.
The whole idea that there is oversight in either selection of members of the board or operations is poppycock.
Just look at Geithner’s actions at the New York Fed bailing out financial institutions …
Hovering in the shadows is a question which isn’t addressed because it would expose the corruption at the heart of this government: Why, when austerity is the antithesis of what’s needed, are our elected officials intent on ramming it down our throats.
Kelton’s anti-austerity case, no matter how simply stated, must go up against the bipartisan push to make austerity appear to be the only prudent, responsible course.
IOW, Kelton, as an economist, can make a clear and compelling anti-austerity case but the reason why austerity is being forced on the nation is political. Any anti-austerity case must be completed by addressing the political.
In a sense it’s always political–there is no such thing as “economics” as distinct from politics.
So what are the political forces then?
Good point, the argument accepts the premise that what they are doing is actually austerity, as opposed to the reality which is it is dressed-up theft by the elites of the rest of us.
This is like making a critique of a punch in the face based on its inadequacy as a handshake.
Fight the framing! Once they have us accepting their false premises, we have already lost, and are only quibbling over the details.
Re-framed: “is stealing for the middle class and giving to the rich good for the economy?”
Make them defend trickle down on the merits, not solely by re-branding.
I think that’s precisely the point we ought to be asking. There is no rational economic case for austerity and never was one.
The end of the Cold War forced the West to recalculate what sort of society they wanted. There is no reason for us not to cooperate and create and apply technologies that would make the Earth a party of world-music, dance and abundance. Or is there? The “enemies” we have created to make sure we are kept in fear are, in my view, largely fictional.
The issue is power. A class of people exists which require dominion and control over others–without it these people feel naked and afraid. These people require others to tremble a little when they walk into a room–I’ve seen it. They also believe that if they don’t pursue power someone will dominate them so it isn’t just the those moments of frisson that provide the actual or metaphorical erection but also fear that others will crush them. Seeking power, ultimately, is based on fear which is why nonviolence is the only sane course for those that want change even though the task seems impossible.
The above would be clearer if accompanied by an Info graphic.
Could you show us please, where are the “vast unused raw materials”?
Because Prof Kelton, if those raw materials were there and if the factories actually had spare capacity, congress and WH would have already spent the money as they have always done.
The reason they can’t do that now on a large scale, is because there is a shortage of raw materials and factories have moved to east asia.
Evidence on the raw materials point, please.
The professor is providing the evidence herself. She’s saying the infrastructure in USA is bad.
That means only one thing, shortage of raw materials. It’s self evident.
The mind boggles.
Governments exist only to spend. They spend as much as they can, meaning they use all raw materials they can, all labor they can, all capacity they can. That’s all govs do.
In communism that’s all the gov did, they only spend until nothing REAL was left to spend on and it collapsed.
Yup, Lambert. The mind boggles. Wrote a longish reply to Kris, but I wonder if he is being serious. Such self-evidently, spectacularly wrong things that have nothing to do with anything on planet Earth. The NC servers boggled, so they seem to have eaten my reply.
Planet earth has plenty of stuff and is not running out of commodities.
What I’m saying is that it takes people and technology and the US Military to get those commodities over here for use.
What I am talking about is ARTIFICIAL SHORTAGE, not natural shortage.
For a gov credit has never, nor is and never will be a problem. Gold is no longer legal tender. Numbers on a computer are legal tender.
Money is no problem and congress and WH always agreed to spend money.
Spare factory capacity is quite disputable. Shortage of raw materials in the extremely large quantities to engage in such hyper mega projects is simply self evident and the only reason that “congress cannot spend money it doesn’t have” meaning congress cannot build bridges with raw materials it doesn’t have.
It is this simple.
You’re right about money being no problem, but the people making budget decisions don’t know that, or (more likely) don’t want us to know it.
Infrastructure is bad because of years of underspending, for the above reason.
Money is, what money buys.
Cuba can print a lot of pesos, but they don’t buy much.
Other countries (e.g. China) are undertaking massive infrastructure projects, albeit often wasteful ones. They seem to have no problem obtaining the necessary materials.
You underrate the degree to which the U.S. political process is hamstrung by outdated economic thinking (it acts as though we’re still on a gold standard) and/or wants the rest of us to be hamstrung by it.
China has raw materials because manufacturing base has move there.
However, those raw materials not infinite and require a lot of chinese being enslaved into overproducing thus overexporting thus importing materials.
Hence, continuous overexport is required for materials to arrive into china.
Problem: Chinese no longer want to work in factories. Soon, you’ll see china won’t have immense amounts of raw materials to waste.
Come on Kris, you know that when you push against “big government” long enough, against social security and against “wastefull” local governments, you’ll reach a point where infrastructure will be completely starved to death.
You can’t seriously argue that this a the result of scarcety of raw materials (steel, stone, cement ?) !
It is the result of wrong priorities : to much private wealth above social needs, a defense bill of 50% of the worlds defense expenditure above good bridges and good schools.
“never WILL BE a problem?”…
considering most U.S. funds exist outside U.S., as dollar is basis of international monetary system, consider: If another currency became basis of international monetary system, (what do you suppose bankers gave up cross-border $ub$idies=exchange rates for in Europe=Euro) MOST of those funds outside U.S. would be returned TO U.S…..meaning U.S. dollar would be unfundable to perhaps a 50% degree…AND no more giant printing press would find itself at all relevant…Weimar Republic economics..
Money is, what money buys. Dollars can be created easy peasy. Who’s going to exchange those dollars with real goods? Iran? Saudi Arabia?
Economy is: I give you sth, you give me sth. USA has been paid with real stuff by providing the much needed service of world policeman. But that’s not enough service to import all those commodities in enough quantity to do all that Kelton is saying.
My problem with this explanation is more of a factual one also, or more accurately, its misleading nature in terms of debt in relation to gdp. Keen argues that isn’t public debt but private debt that devastates economies, and it was excessively high levels of private debt, not public debt, that preceded both the Great Depression and Great Financial Crisis. Furthermore, as shown in the chart on this post from Washington’s Blog, the huge run-up in private debt during the 90’s and early 2000’s (and even earlier, all the way up to 2008) served to absorb deficit spending into a lower public debt GDP ratio. Much of the apparent economic “robust growth” was more as a result of credit expansion than true wealth creation.
Good point !
The expansion in the 90’s was the expansion of debt, and therefore of the FIRE-sector. That’s the difference with the post-WOII periode.
The interesting question is : why ?
The answer is celar : neoliberal growth-model results in fast growing capital vs lagging incomes from labour, and therefore in a growing demand-problem. That’s why the masses were given access to cheap en cheaper credit – largely on the basis of real estate. Until is exploded in our faces.
It was not simply credit growth. It was credit growth for the masses with lagging purchasing power.
On thi creditboom was made a lot of profit, the damage was left to us in the form of a financial crisis and its aftermath of austerity.
Dr. Kelton never stated otherwise.
She fails to recognize the fundamental difference between post WOII and the ’90’s. The difference is DEBT.
Many neo-Keynesians try to paper over this debt-problem, as if it doesn’t is a problem.
We have to understand the reasons behind the creditgrowth and it’s effects on society to avoid the false dilemma between a fast death bij austerity and a slow death by debt strangulation.
Besides : if a deficit of more then 7% GDP results in growth of 2,5% GDP, it’s possible that normal fiscal stimulation won’t work – like in Japan.
If you adress the root-causes of this crisis you’ll see that only massive redistribution (and debt restructuring) can solve the dilemma.
That’s silly. We don’t paper it over, We prove that (a) the debt doesn’t matter economically and (b) show that it can easily be paid down in big chunks and then eventually paid off if that’s what we want to do and all without increasing taxes or cutting spending. Again, see: this e-book. It also covers the inflation issue and shows that it is non-existent.
In my view MMT can be very usefull in understanding the workings of fiatmoney. And I think they are right in their analysis of inflation and monetization of (state)debt.
But most debt is private debt and that debt is power.
MMT doesn’t analyse the tremendous inequality regarding incomes and wealth that have given birth to this demand-debt-financial crisis. Much of the unequality is caused by and cemented in (private) debt-relations. The FIRE-sector has unloaded large parts of their bad debt to the state – for a scandalous high price. The relationship of power is so preserved, because the wealth of the happy few is largely based on financial assets which retain most of their value this way.
The present day stimulation is also directed at the growth of wealth via these components (see stocks) and with the side effect of further loss of income from normal pensions and savings.
If you try to argue away the debt problem (and the political mechanisms behind it) , you argue away the most fundamental questions of power. That usually plays into the hands of the powerfull because their powerbase won’t be fundamentally challenged. We need redistribution – partly by forced debt restructuring.
professor Kelton probably never rides the bus or the subway or she’d already know the answer.
there’s always smelly criminal looking dudes with tatoos and hard faces, gold chains and a few missing teeth, casing you to rob you blind if they can. or a pack of 4 foot tall Mexicanos with T-shirts decorated with silks screened drawing of human skulls drenched in cologne that makes your eyes water your lungs choke with chemical assault. An obese woman with a mustache and greasy filthy fingers sprawling her butt across 2 seats eating fried chicken you can smell 7 seats away, and an old man who looks like he should have died already who makes the bus stop 5 minutes to lower the entry step so he can get off without breaking himself in half like a stick of wood.
when you think of spending govermint money you always think of virtuous avatars of a Godlike humanity insulted by the evil of an immoral abandonment, you think of a projection of your highest abstract self and soul multiplied by the millions. you think of close family and loved ones crucified.
You don’t think of the eternal and infinite void that separates souls so far it turns life into nature and into something closer to animals and trees than humans, something that needs to be managed responsibly, by titans of deserving cultivation (such as oneself), as if it were the plants on a farm
this is a hard vision. it’s the vision of the bus but not the vision of sentimental humanists in the economics faculty lounge lost in their moiling motes of numbers. If you convince people that no man is an island entire of itself, that the bell tolls for them, they will ring it — money be damned. Otherwise, they won’t lift a finger or an arm and pulling on the rope is an obscene, exhausting intrusion into their somnambulent self satisfaction. the argument isn’t one of logic, it’s one of intuition and instinct. this, of course, is very hard to do.
So you’re saying we shouldn’t spend, otherwise you’ll make racist remarks?
remember this is ‘creative writing’ for illustrative purposes
just cause a character in a story says something, it doesn’t mean the author himself thinks it. the author might think the opposite, but uses the character for creative purposes
you can also have several independent & mutually exclusive views speaking in a stream of consciousness narrative structure.
Well you’ve had me fooled. I’ve thought for some time you were nuts.
Let society decay and you’ll get what you describe.
Without restraining the “free market” criminals take over.
Without social policies you’ll get ghetto’s, gangs, a social jungle, big holes in the roads, schools that don’t dezerve that name.
Just what we’ve got it California. And I don’t have to tell you which political party owns California.
Very vibrant writing; here’s a new movie on a similar context with a humanistic hermeneutic:
Lost Angels: Skid Row is my Home Trailer (2010)
Your ‘Protestant’ slip is showing again.
skippy… Anywho the nones are coming….
Protestant slip. Haha! I was in need of a laugh, as usual.
Well, I think the danger posed by lower-class criminals is often exaggerated–they spend a lot of time cultivating their fearfulness and they really often aren’t as bad as they look particularly if you show no fear. When you look into to the eye of an upper-class killer (yes they exist in the corporate board room, i.e., they are perfectly willing to kill and occasionally do) there is something much scarier. By peculiar circumstances I’ve had the good fortune to know both kinds of criminals.
I’m so glad you were able to talk to the newpaper reading public! Thanks for your altruism!
“9. What holds us back? Fear of the Chinese? Fear of bond vigilantes? Fear of the ratings agencies? Fear of becoming the next Greece? Fear of turning into Zimbabwe? Fear of sticking our grandchildren with a huge tax bill? This is what they tell us as they impose austerity. None of it — I repeat — none of it has the slightest bearing on our reality. ”
I don’t think this paragraph helps the cause. It may just remind people of their [irrational] ideas to which they have certain attachments and trigger their impulse to cling onto them more strongly [albeit irrationally].
Perhaps the items can be rephrased more positively. I.e., “the way to avoid sticking our grandchildren with a huge tax bill is to …..”
If they can get onto the general gist of the message, these irrational fears should eventually fall away of their own accord.
Do you want to trade with a country that beats it population into submission (unstable) or one that embraces it with goodwill (stable).
Skippy… Personally methinks the later… it promotes ideological dominance… or the former will become dominate and visit – you or yours – some where down the road.
Good heavans man! Are you suggesting that “Engagement,” as defined by Nixon and Kissinger et. al. was a mistake? (I personally quite like “The Chairman Dances.”) [Given the results of said policy, I can sympathize. Chinese “Capitalist Robber Barons” look suspiciously like good old fashioned “Warlords.” I despair of reading something along the lines of “The CEO Died At Dawn” however.]
As for ideological dominance, well, there are plenty of historical examples of “The Hunger for Power” as a guiding ideology. It can be quite stable too. Just fool the populace into accepting it as a guiding principle. Gekkos Law for an example. The Emperor Maos’ Great Leap Forward and Cultural Revolution are object lessons in just how difficult it is to change a society in any fundamental way.
I’m not trying to be contrary here. Greed and stupidity are powerful forces, on the personal as well as societal level. Just as this site in particular seems to be promoting Modern Monetary Theory, we should be advancing the cause of Modern Political Theory. Discover how politics actually works in the ‘Real World’ and form our methods appropriately. Pragmatism, after all, is not so much an ideology as a system. We have to supply the morals and ethics. The rest follows.
Profits time must be banked, the event horizon of said time, moves at a pace never seen in humanity’s grock.
The Mfg name on the face of that clock is Anglophone LLC and those were some mighty fine CEO’s you mentioned. Watching China unwind will be an event for sure, it will be interesting to see who does it with the most compassion tho, that’s what – should be – remembered.
Skippy… hope it doesn’t devolve into more ethnic fiction writers screening history again.
Mssrs N and K as Anglophone LLC CEOs! I had to put my tea cup down for laughing.
Compassion is the missing word in the political discourse today. You nailed it to the tree there.
I flashed back to the mini essay at the end of Bronowskis’ “The Ascent of Man.” That and his disquition about the dangers of Certainty. The older I get, the more I realize I don’t know.
good that you brought this up…yes…more definitions are needed…
hmmnn…read “Red Star Rogue” and find out what Nixon-Kissinger actually based their “opening of China” upon…Soviet Union’s intent to play off China against U.S., as Soviets knew they couldn’t keep up in “cold war”…
Mao’s Great Leap Forward and Cultural Revolution are object lessons in just how hard it is to impose unnatural social objectives on hundreds of millions of people.
Currency devaluation (not austerity) has always been the key to reviving economic activity; it makes products competitive in the global marketplace and drives exports. The only problem is that this leads to a race where every nation aims to win at devaluation.
What use is a currency depreciation if you don’t actually manufacture anything anymore, i.e., most of the developed economies that are presently suffering ‘austerity’ are net importers. The classic example being the UK.
If you base your economy on finance, insurance and real estate (FIRE) and export services, usually of a financial nature that aid and abet massive global tax evasion, it does not take long to run your country down.
The sad fact of the matter, the UK has seen more than a 25% depreciation in sterling since its peak in 2007 – it was about US$2.05 to Sterling pound at its peak and is now hovering around US$1.50.
Indeed, as a result of the depreciation, we’ve actually seen large inflation in hydrocarbons and anything reliant on hydrocarbons – although, we are told inflation is only mild, which it is if you believe someone somehow can afford a home with an average price of £160,000, when the annual income is £27,000.
Whilst it may be true for the European periphery, and I include France in this, that exiting the Euro and devaluing may be a positive, can we really say this for the two Anglo-capitalist nations that propagate neoliberalism on the world hand-in-hand – remember, if you think Wall Street stinks, our great City of London is worse than a sewer.
Anyway, for exporting/manufacturing-based economies, devaluation is always an option to get out of a hole, but I think such an option no longer exists for either the US or the UK – time to get our outsourced jobs back, abandon the globalisation crud and erect barriers to rebuild our manufacturing sectors once more – with the added bonus of no more than a 4-day week of 32 hours and minimum wage above US$25.00 in each country – you’d soon see an end to the present economic malaise and it need not actually entail GDP growth, i.e., we could have a self sustaining recovery based on wealth distribution via the closing of all tax loop holes and making tax avoidance a hanging offence.
I don’t see how the U.S. is going to get back all the manufacturing jobs back, especially in the coming world of 3-d printing. Maybe the U.S. can export liquified natural gas, though. And ethanol and high fructose corn syrup, until the rest of the loess in Iowa erodes away.
With Obama care, I can see the U.S. getting an average work week of less than 30 hours, not because of any progressive impetus, but so that employers can avoid the obligation to pay for Obama care.
I always find the best way to analyse complex processes is to try to establish some simple principles based on idealized descriptions or metaphors and to then see how they translate back into the present day problem
For government spending one way to try to simplify the problem is to go back the origin of government. The first civilizations and even empires were often based on the surpluses created by alluvial agriculture. The surpluses were recycled into further improvements in irrigation and flood control, thus further increasing surpluses. Concentrated wealth attracted bandits and armies were formed and walls built with the surpluses.
The individual households paid taxes to the ruling elite in the form of grain and livestock. The surpluses of the society could be measured fairly well by looking into the government granary. During hard times the government could feed the population with its surplus. During the quiet winter months they could also use the surpluses for useful public works projects or less useful religious and dynastic vanity projects.
If we remember that Keynes called for austerity was during the boom, one way to see the business cycle would be that the boom corresponds to the growing season that ends in the fall while the bust is similar to the winter months were not much grows.
If we look at austerity as consuming less than you produce, the simple cycles of agricultural life match well with Keynesian economic theory; during the boom/summer we lower our potential standard of living by putting a surplus away and during the bust/winter we tap into the surplus to maintain our summertime standard of living.
And so austerity during a recession is kind of like trying to refill the granary during the winter months. You work your butt off but not much grows during this season. If anything you throw away your seed corn into the frozen soil of a recession.
On the other hand if during the summer months we consumed more than we produced then it kind of makes sense that we would suffer during the winter since the granary would be pretty much empty.
And there is the problem in returning to our present society; what represents the granary? How do we measure how much excess wealth we really have? The deficit doesn’t seem to be the correct way. And how do we really know when we have over-consumed for too long and have to cut back. Is it really possible for a government to “create wealth” in other words, filling the granary, by just printing money?
This model so far is fairly simple. We could further complicate matters by pointing out that a wealthy elite always arose with civilization. Some of these leading families, thanks to privileges granted to them by the state, would start accumulating enough power to start to rival the state. These rich people would eventually succumb to the ultimate internal contradiction; they would start to fight the government that gave them their power in the first place. These wealthy may also have their own private granaries but instead of simply giving the grain to the peasants during the down times; they preferred to use their grain holdings as a tool to extract resources and any residual wealth from the peasants in return for life sustaining sustenance during the down times. Or they would lock the peasants into debt bondage and in return for “loans” of grain during the hard times they would get access to the peasant’s future surpluses, and at the same time threatening the peasant’s ability to pay taxes.
Eventually the leading families and government had to resolve this internal contradiction. One result was often that the oligarchy of leading families would just become the government and thereby resolve end the conflict until another class of citizens eventually rose in power.
And to come back to the present; obviously full employment would be best for the masses if we only had a benevolent government. Unfortunately our granaries were taken over by a malicious elite long ago. It turn out that full employment is not at all in the interests of the oligarchs who today actually run our government and granary. One hundred and fifty years ago Marx explained the concept of a reserve army of labour:
Of course over time an increasing standard of living meant the proletariat were eventually able to control the rate at which it reproduced itself. After WW2 the welfare state and mass education gave opportunities for some proles to actually make the jump to bourgeois status. If we riff on Malcolm X’s Field and House Negro division, some Field Proles were invited up to the big house of elite universities and eventually earned the status of House Proles, like yours truly. Most House Proles ended up lording it over the Field Proles but occasionally they went the other way and became more Field Prole in their political views than Marx.
What all this meant was the supply of prole labor was now fixed and the reserve army of the unemployed started fading away into highly productive fully employed Western societies. The problem was under these conditions the oligarchs started losing their already exaggerated slice of the nation’s pie as the native proles started getting all uppity asking for higher salaries and better labor conditions. They were turning into a veritable aristocracy of labor and something had to give or an egalitarian society might result.
But the bourgeois had been hit hard during the period described by Marx by such anti-Bourgoies propagandists like Charles Dickens who denounced the societal results of the reserve army of labor. Modern day wealthy elites had a find a kindler and gentler way to go to Davos and call for the recreation of the surplus army of labor.
The answer was found of course in the Global reserve army of labor. The only way the bourgeoisie could bring their native labor aristocrats into line was by making them compete with third world labor. And so we see with Neoliberal globalization, the borders of the various wealthy nations states were smashed open so that factories and well paid jobs could flee and at the same time a literal reserve army of low-skill labor could invite themselves in.
And so any discussion of full employment needs to take into account in these basic labor supply and demand issues as well as the conflicting class interests associated with this policy.
And there is the problem in returning to our present society; what represents the granary? How do we measure how much excess wealth we really have? The deficit doesn’t seem to be the correct way. And how do we really know when we have over-consumed for too long and have to cut back. Is it really possible for a government to “create wealth” in other words, filling the granary, by just printing money?
A lot of good ideas in your post. The granary is the sum of public and private investment. The problem in modern economies is not overconsumption, but underconsumption compared to productive capacity, by those in need, at the bottom, who could perfectly well support themselves – if only the government let them, and let their JG work help the whole society. Basically, the natural problem of a peacetime economy is deflation, while the natural problem of a wartime economy is inflation. Inflation, genuine overconsumption, is really not something to worry about most of the time. It took a lot of hard work for the neoliberal era to create as much inflation as it did, along with the destructive unemployment it inflicted on its victims.
One cannot overestimate how much thinking about ancient economies, the Egyptians, the Mesopotamians, helps understand modern monetary economics. Keynes called it his “Babylonian Madness”. Such thoughts, like Benjamin Graham’s (Warren Buffett’s teacher) Storage and Stability: A Modern Ever Normal Granary underpinned Bill Mitchell’s buffer-stock approach to MMT. Your post inspired me to download Graham’s book.
Yes, in a modern monetary economy, it IS possible for governments to create wealth by printing money, for if they don’t the labor of those who would be employed by the printing of the money would simply be destroyed, vanish, as would all the additional demand and production that this would generate. This is an absolutely colossal waste and destruction of wealth. Over decades, it becomes the difference between a world with flying cars and space elevators, and … well, what we have now. By measures of the lot of the ordinary person – Stagnation, overall, even including the good times, like the roaring 90s.
Your conclusions are far too dependent on availability of abundant energy supplies (read: “Cheap” Fossil Fuels).
Not a good assumption until we able to do something like “cold fusion”.
mansoor h. khan
true…but only one portion of win-win-win…still, perhaps up there, in terms of important…William Blum’s, “Killing Hope” elucidates actual history of, South, Central America, versions…as do others. See these as fairly direct parallels:
“Throughout this book, there are dozens of instances of CIA and U.S. government operations designed to subvert even the most mildly social democratic governments or engaged in activities like funding innumerable newspapers and labor unions to help subvert the target country. There is the overthrow of the liberal democratic capitalist regime in Guatemala in 1954 after it tried to decrease the power of the United Fruit corporation in their country and permitted civil liberties to communists and finally after years of being denied it from the U.S. or any other source imported a small boatload of arms from the communist block at which point the maniac John Foster Dulles declared that the communists were establishing a beachead in Cetral America designed to overtake the helpless United States , since which Guatemala has turned into a hell on earth, with a series of U.S. backed tin-pot Hitlers. There is the story of the U.S. engaging in the assasination of at least 20,000 South Vietnamese in “Operation Phoenix”.
“Although many other books have been written about how U.S. aid policy has been used as a means of manipulating foreign countries, the fact remains that John Perkin’s book is from an insiders perspective. It exposes the truth behind how corporate greed has hijacked U.S. Foreign Policy. You can find many more books on the facts and history but for a sound, engaging critique read it.”
“The conclusion of the book focuses on how Wall Street has discovered how to profit from mega-disasters and financial melt-downs, and contrary to popular belief, Wall Street makes money from these economic down-turns. It is the individual, and the indigenous owners who are forced to sell below market, that lose, every time.
The author’s opening focus is on privatization, deregulation, and deep cuts in social spending, each as mandated by the International Monetary Fund and the World Bank, with other nasty triggers demanded by the World Trade Organization, that have been systematically used to loot entire nations and their commonwealths–this is apart from the immoral predatory capitalism that uses bribes to clear areas of indigenous peoples so they can steal all the gold or other natural resources, and their only cost is the bribe, while the host peoples lose billions in natural resources.
The author teaches us that “disaster capitalism” is the next step above immoral predatory capitalism, in which wars and disasters have been privatized and the global military-industrial-prison-hospital complex has moved one step closer to displacing all governments.”
Speaking from a Layman’s perspective, I would highlight # 10 as patently false:
“This can be done without causing inflation as long as the additional spending does not outstrip the economy’s capacity to produce. We can afford to cut taxes and spend more money to improve our infrastructure without burdening the next generation”
Who are we kidding here? This is where I believe the MMT crowd and others are misleading with the whole reserve currency thingy. You can run deficits and print money without a big problem…right up to the point where it blows up in your face! To suggest that you can have something for nothing is patently absurd, and we know it. Point # 10 only holds water if you assume the current government apparatus will make the right decisions on taxing and spending. Unfortunately, recent history suggests more a philosophy of self-preservation with a lot of can-kicking thrown in for good measure. Hardly a recipe for protecting the next generation.
We can print to infinity and devise all sorts of grand ideas for revitalizing the overall economy, but until we cure the infection, the disease will still continue to consume precious, finite resources that would otherwise contribute to our overall health. Until we get rid of the rot and corruption in the system, those with first access to capital in our current crony capitalist economy will continue to siphon off the profits.
although I think MMT is one of the best theories describing a modern fiat-money system we have, MMT itself does nothing to analyze the neoliberal growth-model, its resulting blatant inequality and its selfdefeating (debt) character.
We have to adress the debt-inequality-demand problem. In doing that the MMT can be of much help to guide government programs design.
Banks have been printing for centuries. Why is gov printing money a problem but banks printing money is not?
mansoor h. khan
….Because there’s no such thing as a free lunch. To assume otherwise is an exercise in folly.
“The banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.”
Each dollar government issues is the government sector’s liability. Of course nothing is free, and no one is suggesting it is. You need to dive deeper into the material because this idea that the money and resources are free and MMT doesn’t “get it” is an elementary mistake.
Perhaps you should read the comment again. Nowhere am I suggesting that MMT doesn’t “get it”. What I’m suggesting is that it’s more a remedy for the symptoms rather than a cure of the underlying cancer.
In cased you missed it, remarks by Jeffrey Sachs on problems with printing….
I think Aaron has it right. MMT’s greatest contribution is to reveal the subterfuge of Central Banking in the USA and to make people understand what money is and from whence comes its meaning. Beyond that I think looking to MMT for answers to the overall economic morass we find ourselves in is akin to handing over the car keys to someone who has plenty of experience pumping gas for a living in a gas station. The guy knows everything about what fuels the car and therefore its a sound decision to ask him to drive.
Good question Mansoor. And I agree with you. As for the fox-in-the-henhouse arguments about printing money, they really don’t make sense if we are spending that money directly to improve ourselves and our country. MMT is not a cure for corrupt politics. We will always have to have a functioning set of social policies.
Robert Kuttner’s new book, Debtors’ Prison, does a great job of dismantling the “austerity” arguments, demonstrating how they’re counter-productive, and identifying who’s promoting this insanity.
He participated in a book salon yesterday over at Firedoglake, if you want to see his additional comments.
I HIGHLY recommend his book!!!
The simplest and most effective way to challenge the Neo-Liberal view of the world is to question their superficial assumption that in its own right the domestic private sector, accounted for as a whole, creates a surplus when in fact it always runs a deficit and always needs a net money contribution from outside its sector to achieve economic growth. Both J.D. Alt and Randy Wray highlight the destructive inadequacy of the superficial “surplus assumption.”
Under capitalism, government serves the interests of a wealthy few. During the golden age of capitalism (1948-1971), there was a general consensus among the political handmaidens of this wealthy few, behind the idea that the wealthy few would prosper if the general interest in economic growth were to be promoted.
This consensus no longer exists, nor has it existed for four decades now. Nowadays, government exists to prop up immediate profits for those who pay the politicians for its services, while the rest of the world is asked to fend for itself. This general order is called “neoliberalism.”
Under neoliberalism, the world economy has been reorganized into a number of financial schemes whereby speculators can “game” the system. The elites who run these schemes want “austerity” at this point. Our politicians are politically aligned with them. How, again, are we to deny them their “austerity”?
The ironic thing here is that if govt did a big stimulus it would increase demand and therefore profits. So, why isn’t the private sector lobbying for stimulus? CEO pay is already obscene but more is never enough.
They want austerity because they fear higher taxes, and fear taxes that target passive earnings and rents-based income.
And also because they prefer direct transfers such as subsidies and crony deals to having to actually go out and earn thier wealth as CEOs of productive companies.
They want austerity because they enjoy torturing animals (which is part of the “moral pathology” Sachs spoke of). And make no mistake, they see the objects of their attention as animals, as cattle to be nudged, herded, and slaughtered.
The perceived value of the holdings of wealth hoarders is unambiguously increased by increasing general need and lack. Whether you look at it as increased leverage or simply a larger total differential, it’s the same. Making others poorer has nearly identical effect to increasing ones wealth holdings.
The wealthy are interested in relative (not absolute) wealth. They’d rather be kings of a dunghill than first among equals in a palace.
I would say there is dissonance between “the government doesn’t have to be the one to spend” in point 7, then saying “the government should spend on infrastructure” in point 8. Personally I would delete point 7 entirely, because I think cutting the tax that funds Social Security is a terrible idea. Lobby for a working-class tax cut but don’t touch the payroll tax.
You might also add a quick explanation about why we don’t have to worry about inflation right now, because wages are so depressed below productivity for instance. In fact, right now deflation is more of a worry than inflation.
Uh, but for many of the working class the payroll tax IS the main federal tax. Along with state/local taxes and fees it’s part of the reason that many working-class people pay a higher percentage of their income to taxes than the better-off do.
We can fund social security at any level without the payroll tax.
I applaud the attempt to bring economic discussions to the layman.I do think that no matter how simply anything is stated, there will be many who “don’t even want to go there”.Nothing will get to those people.Too bad that is at least half the population.
To combat the saturation of the media elite who are mouthpieces for the austerity crowd,is in itself a daunting proposition.For those who do listen ever so remotely,the austerity message,of;”tighten your belt” and “save for a rainy day”,or” get your house in order”,or”there is no free lunch”,etc; appeals to the people in this society who have worked for what they have,THese are “truisms”.These truths are used against people,because when it comes to creating money,they don’t apply.
The difficulty is going to be to figure out how to get people to know something that is NOT in their experience.Considering how truly impotant it is that we get our monetary sytem “tuned in”, so that it is as useful to us as it should be.Right now, it is an impediment to the daily intercouse of our lives.The powers that be, have run amok.
I think that the appeal must be this.
The powers that be have run amok.
This is WHO THEY ARE.And, THIS IS WHAT THEY ARE DOING.
People need tangible examples.I can understand the need to be somewhat vague when it comes to particular players,and actions since the players change and the tactics morph constantly,sort of.The posting of the concise 10 paragraphs,helps.It is easily digested.Easy to pick ones which appeal to what you know is true .Other ones would include what isn’t at stake.Like the fiat money system, does not effect anybodies actual workplace.There is no car dealership who chooses to take fiat money,OR “real” money.To drive home that we have a fiat money system.(as I know you do)But these boogeymen are constantly harped on by status quo types.
My issue is one of money creation.
What I understand is that the federal reserve actually creates the “money”,which the 16th amendment contractually obligates the treasury to then use.which then repayment of that “debt”, is the payment of the original sum of money created and the intrest to which the servicing of that debt entails.It is these “servicing’ fees that the federal reserve takes off the top before it “gives the remainder to the treasury”Which by then the treasury is still in need of more money, and this happens ad infinitum.There are “rules” that govern the transactions,and everything should be quite accountable.BUT in reality, no one seems to be able to agree what these “fees” are.just what is left over.And this doesn’t address the relationship between member banks who are given the “discount” on fund rates,when the rest of the working world pays the intrest.All of this seems too complicated for the creation of a fiat money.
The Kucinich bill, HR 2990 112th congress “the NEED act”,
This one legislation would end the federal reserve “black hole”, that all the money created ,then spent in this country must go thru.It could make the issueing of a currency transparent, thus opening up to “laypeople”, the simplicity, that in fact the social construct of money, actually is.
While I know that according to MMT dogma, taxation is a “driver”, of a currency.I see that stage as only a spoke in an ever-turning wheel.Money creation is another place and time.Having to “pick” which is supreme, doesn’t seem to make any real contribution.But right now, someone is making money off of creating money.Those same somones are engaging in commodity,market manipulations,political fundraising,lobbying,funding thinktanks,sponsoring academics,teaching children…owning media consolidations.
an example would be to illustrate the bail outs.Pick one, they all seem to have a load and a half of crap associated with them.Be it the bailout of banks that were recklessly and seemingly illegally engaging in fraud,like goldman sachs and greece,or the auto bailouts where the federal money was used to buy fund auto companies that were extorted by the like of ?singer, the billionaire who bought shares of delphi for $.65/then turned around and sold them for $22/share,when the gov’t bailed out gm…making @4 billion dollars in what ,a month.or like john paulson who arranged all those title insurance policies during the inflation of the market bubble, knowing many of these fraudulent loans would be forclosed upon, which left him as the “named” party to be repaid, so that he also made millions if not billions for inflating the bubble.
People want to know names,dates and companies.There has to be a picture, to go with the story.
This is akin to those who believe in a republican/democratic divide,liberal vs. conservative.They need to know there is really no ssuch thing. That is just the age old tactic of “playing both sides against the middle”.There are really just the right wing and left wing of the same establishment turkey.
I don’t know, maybe capitalism USED to run on sales, but it doesn’t seem to need sales any more. Now it runs on virtual money: profit from trading virtual money gained from rigged rates, money laundering, weird derivative “packages,” and other fraudulent, criminal financial cons that take place in cyberspace, with no real connection to actual products (except maybe exploitative-cheap garments and gadgets that provide too little profit to matter overall, or bad mortgages, which are products that hurt only their homeowners, so again, these don’t matter) and which never touch down in the physical plane anywhere. The virtual money just keeps getting virtually moved around in the stratosphere, like a cyber shell game. So all the arguments about underemployment and underconsumption and government (public) debt seem beside the point. Whether austerity is the right or wrong economic policy makes no difference: austerity is necessary to keep profit conditions optimal for the uber-wealthy trading in cyberspace, so that’s why it must not be changed.
Set aside for a moment the DEBT/GDP ratio and the deficit. The ratio to look at is Investment/Comsumption. What austerity does is cut investment to protect consumption. Indeed, for a person who loses their job, the ratio for them goes to zero. During the ‘90s and oughts we had low unemployment because we were making huge investments in housing and IT, for example, and the ratio was fairly high. I’m saying that it matters how money is spent all together, both publicly and privately, not merely how much government spends versus the private sector. There is a minimum amount of investment a society needs to flourish, and that must exceed the depreciation of assets already in existence. With private investment going overseas and public investment curtailed, depreciation will impoverish us.
This country has made huge, successful investments in clean water, clean air, soil conservation, recycling, and public safety. Now we are in thrall of politicians who denigrate public investment as “porkbarrel.” Rarely is this the case. Private investment follows public investment, and technology has demonstrated at least two areas that can pay off big in the future: renovation of existing homes to dramatically improve energy efficiency adds proven value; implementation of hybrid technology across the vehicle fleet will produce huge savings. Committing to doing just these two things would get the country back to work. It requires changes in laws, tax policy, and direct investment. Right now the people standing in the way are pointing fingers and saying “moral hazard!” So what? The commitment to doing nothing is not working.
But it IS working! It’s just that it’s working for a tiny, tiny number of super-rich profiteers, not the vast majority of the country. What’s that apt phrase I’ve seen on NC a lot?…”It’s not a bug, it’s a feature.”
I have overlooked the fact that doing nothing is working, and I’m sorry. Congress does care deeply about home values and unemployment rates in the District of Columbia. To show they also care about those pesky districts back home, I hear they have a sincere approach based on the Ford administration’s successful WIN (Whip Inflation Now) campaign. It is “Reduce Unemployment Now.” RUN!
No worries– I think the intelligent inclination of ethical people to provide common sense clothes for the emperor frequently still delays (although who knows why) the gobsmacking we feel when we’re reminded that the profiteers know exactly what they’re doing. As for WIN and RUN (!!) policies…as surreal as Marathon Week in Boston was….
At some point soon chasing efficiencies like building insulation and regenerative braking (the only unambiguous efficiency upside of hybrid vehicles), while stimulative insofar as they create jobs, will leave us short of the energy inputs required for first world existence. Only new terawatt scale “renewable”/non-depleting energy infrastructures will work longer term. The real question is to go with widely distributed generation–windfarms and solar arrays everywhere they can practically be sited local to demand–or essentially covering an area measured tens of thousands of square miles in the desert SW where the energy densities are the most favorable in solar collector arrays. NIMBYs and environmentalists won’t be happy either way.
Your argument has been around at least 35 years, that I know. While we now have some wind farms and some small solar attempts, progress has been slow. NIMBYs and environmentalists were not so much the problem, rather utility companies successfully demonstrated that they could meet demand by raising prices, so large capital investments in alternative energy were cancelled. I would also point out that uranium is an abundant natural resource, but research and projects to demonstrate safer technologies for its use have been abandoned as well.
I think it is a fact that we are far from diminishing returns on chasing efficiencies, as you say. Doing so advantages the individual, because it gives him or her a competitive advantage. Say, for example, you are an elderly person on a fixed income. If you can save enough money on the utility bill and on filling up your car, then you might be able to stay in your home longer, perhaps even pass it on to your heirs. This is a win for all, because if you can’t make ends meet, and have to move to subsidized housing or assisted living, then the cost to you is all you have, and the cost in taxes for your support at that point is dear.
Less Is More: Rogue Economists Champion Prosperity without Growth
A better way. The planet can’t support full employment in the industrial model. We need to move past that.
Bravo. Now there’s one of the few economists I can really get behind.
That only applies to production and manufacture of surplus trade goods. aka the life blood of capitalism. But nevermind the sea change. The point is well aimed. We can replace that surplus labor demnd with demand for the services, which is most of us anyway. Education; local farming; health care; recycling; the arts but not commercialized; local crafts like clothing and shoes; city services including sea walls; botany; wildlife…. clean up the mess we’ve made of the oceans… you know.
Hey cool! She used my clock :)
Awesome effort by Dr. Kelton to really hammer home the argument for working class individuals.
So many of them are bombarded with confusing RED ALERT con artists telling them the national debt is crushing the economy and that spending is the problem and government is causing them to be unemployed, etc. etc..
That’s why it’s important for everyone to reach out and explain to them in as basic terms as possible that government isn’t the evil that is causing these problems (only in their inaction is this true), but the corporatists who have hijacked our democracy and installed a de facto oligarchy are the true enemies.
The best point is (1), and it is forced to stand on its own. Because:
“Capitalism runs on sales.”
From this point onwards, we have left behind what matters, and are arguing within a system that is failing us. “Sales” and its older twin, “Jobs”, are means to an end. So are capitalism, markets, etc. We do not need sales, we do not need jobs, we do not need to maximize GDP any more we need to minimize debt. Kelton is correct in describing the inner contradictions of this self-defeating “economics” (not a science) “policy” (actually ideology), but she does this at the price of surrendering the real ground: That markets are failing us in a manner that will threaten not only our quality of life, but quite possibly the survival of our descendants, with the threshold beyond doubt likely crossed during our lifetimes.
If this is too abstract, take (8), the other outlier in her case. We invest in infrastructure not to support sales, but because we need it. TVA was not a cargo cult digging of holes.
Measured against climate change, and the decades-proven failure of markets and market-dominated societies to address the possible – maybe likely – outcome of not only our current policies, but the underlying economical “models” themselves – growth, growth of GDP, of jobs, of sales – Kelton’s case is just as useless as e.g. the Bernanke approach. Just like the competing imperatives of “jobs” and “price stability”, “sales” and quality of life (or equality, or sustainability, or fairness, or happiness, or whatever actually relevant yardstick you prefer to use) are inherently doomed to failure.
Maybe the case against austerity is stronger if argued within the flawed premises of the existing systems, but it is strengthened at the expense of strengthening the existing system itself, which will perpetuate its flaws, and, as it has repeatedly in the past, it will lead to the resurgence of the puritanism of ideological austerity. Those who do not care about the future are bound to dismiss today’s have-nots just as much as they dismiss tomorrow’s.
I would suggest taking (1) and (8) as a starting point, and attempt to make the case at a more fundamental level: what is best for our children and, ideally, hopefully, for us.
Right on. Sales/jobs/employment/whatever aren’t wealth. Actual productivity – making what we need to live fulfilled lives as human beings – that is wealth.
I’m more confident in markets than you for most transactions, but I so heartily agree with the weird liberal obsession over ‘jobs’ or ‘sales’ or ‘demand’ that I wanted to echo that sentiment.
Government shouldn’t implement full employment. It should make the transition periods from employment to unemployment to employment smooth.
One wonders why the payroll tax holiday seems so attractive even to people like Stephanie Kelton. Why can’t we simply take a sledge hammer to the Banks and raise taxes on the top 10% to what they were before that absent minded fraud Reagan? This really gives one pause about what MMT really is.
Probably because when people call for radical reforms it falls on deaf ears — a lot of MMT types are reduced to just calling for really modest, mainstream-palatable reforms to make some progress somewhere somehow.
Agreed. Current “palatable” proposals are akin to putting a Band-Aid on a severed limb and hoping that the folks in charge will suddenly develop a moral conscience. It’s a Comedy of Errors that should be fully appreciated for the farce it is.
“Money is created by the state* and should be used for public purpose” is at the heart of MMT and it’s a very big deal. It’s also exactly what Bernanke, Obama, et al. have not done.
As long as that foundational issue gets pushed, I think the policy details can follow. (Which is the tack I would take rewriting #10…)
* We might think of the state as “a snapshot of the political class,” where some do their work with the pen and others (ultimately) with the sword, at any given point in time. From that perspective, I don’t think the argument over whether the Fed is part of the government or not is very interesting (though MMT lives or dies by its description of the operational realities of money creation, so technically as opposed to politically this too is a big deal).
And the factual mentions of the state involvement in the monetary system and economy as a whole is what turns off a lot of people.
Case in point: Cullen Roche, who essentially “saw the light” when he was introduced to MMT, and promptly decided to hijack all the key concepts and then tried and put a neo-liberal-type spin on it to satisfy his own anti-government bias in formulating his own manifesto of monetary economics.
And that’s why I think MMT is so hard for a lot of Americans to absorb, the focus on the role of the state is really something that rubs most Americans the wrong way (even though, as you point out, it’s just a factual operational aspect of the theory).
But I think in an era where now we’ve got serious economists who are being pretty open about fairly radical reforms (Jeffrey Sachs, Lord Adair Turner in the UK, and you can even include Stiglitz/Krugman in there), and it’s probably worth sticking to more radical direct clear proposals rather than settling for minor gains/victories.
I think laypeople need to understand that our current economic problems (widespread unemployment, massive inequality) are problems that won’t be solved with tax reductions. It’s precisely the warped tax code that lets the rich get richer and keeps the poor getting poorer — and tax cuts won’t be enough to provide the shock necessary.
I understand why Kelton avoided that point in the article, but it’s really something most people don’t get — when Romney was on center stage and his obnoxiously low tax rate was publicized, it helped shine light on the problem of carried interest and other loopholes.
Also, the issue of tax havens and the way the rich get away with not only having more market power and a “first mover advantage” from having money, but they also avoid paying their fair share through avoidance and evasion schemes. If more people had this kind of story booming at least weekly in their readings or understanding of affairs, then the focus of policymakers just might be different.
So my point is, you can’t really undo the poison that is American working class counterproductive excessive pride and modern neo-liberalism’s impact on the new generations’ education and worldview, especially in the South. It’s almost a non-starter to suggest government can fix this with spending or systemic reforms. Too many people _hate_ the idea of the government fixing and helping people (a good tactic I use when engaging skeptics: NEVER use “state” or “government” stick to “public” when referring to government programs and initiatives).
But there are other angles — like rich people getting away with low taxes and off-shore shenanigans — where the focus doesn’t have to be on “state/government” and can be more on “those fatcats over there”. And i think that’s an angle that is sorely underutilized in this fight.
Good points. I would also echo Chris’s suggestion at more effective terminology.
AMERICAN ENEMY NUMBER ONE
He financed the election of 50 Tea Party members.
Two goals—Cut Government—Cut Taxes (for rich)
His uninformed followers responsible for Sequestering:
Cancer clinics—Planned Parenthood—Air Traffic Controllers—EPA Clean Air/ Clean Water-
50 year old sewer systems (one break took weeks to repair 100 years of pipe near my home)-
Head Start (keep em dumb they may vote Republican)–Wages are falling—20 million jobless–
The percent of working age with jobs lowest since 1979—child care—on and on on by each budget item.
No one questions cut waste and fraud but 80% of our budget is in 5 Groups—Defense-Social Security(pays its way)–Medicare-M edicaid-Interest.
Go Top down not 20% that cost 80% of our budget.
Many nations have tried the across the board butcher knife to their regret.
Prioritize Gentlemen. Top Down. Stop the butchering needed programs
Retiring Transportation Head said we will be calling it Pot Hole America due to cuts in already tight budgets.
Since pot holes are a political decision we should call this new america Pol Pot America. Since it has gone well beyond mere pot holes already. Democracy is hanging by a thread.
Austerity simply means less ‘something for nothing’ for regular people.
“never argue with an idiot; he will bring you down to his level and win from experience”
Austerity is a smoke screen behind which TPTB can keep the ponzi going a little bit longer while they steal the middle class’s wealth.
That is so much more closer to the truth Cynthia!
Just chiming in–there’s no rational economic reason for austerity. It is, as some have remarked, a political matter ad is, in the end all economics.
A more valid inquiry is why do the elites want to impoverish the world?
Answer: to enrich themselves.
It is simple indeed.
I don’t sense that is the answer. How are they going to enrich themselves? I say it it fear–the fear the power of the people, to put it crudely. More particularly they fear us connecting through social networking and finding out that we don’t really need the oligarchs to thrive that, in fact, we can do better without them. By creating scarcity they limit our options and access to technology.
The rich crave not riches but control and they are ruled by fear–otherwise why spend your time pursuing such stupid ends? Why relish the joy that comes from inspiring fear in others–that’s the main object of why they keep making money beyond what they need. They also believe that if they don’t keep struggling other rich a-holes will kick sand in their faces etc.
i agree banger. imo the highest price of power is its disclosure of fear…greed is one of its tooling byproducts
Well, speaking of what they might have feared and having observed this for some time now, I think we can say that the more time the chattering classes spent arguing back and forth about “austerity,” pro and con, the less time they spent on the biggest financial crime spree in the history of the planet.
At one point, Hank Paulson did look genuinely freaked out, but that moment seems to have passed. I would say that going on the austerian offensive helped them get past that through the generation of a distraction that happens to have some nice ideological properties, with a number of cultural war undertones. Or, if you prefer, is related to clashing economic theories, the proponents of which aren’t exactly innocent of ideology or culture war hatreds.
Sending the country into this spiral of mutual hatreds has been a winning ticket for a while now. A no-brainer.
If some of our technocrats, say Bernanke, knew they didn’t need to impose austerity on the public and knew that the austerity tack wouldn’t help the economy it wouldn’t have mattered because the primary concern was for perpetrators of fraud to elude prosecution and for the financial system they control to remain intact.
I read the NY Times comment section in the aftermath of the crisis in 2008-9 or so, and there was tremendous, vehement and articulate anger expressed toward the banks as the story unfolded in the MSM. There were no words minced. The NYT commentariat had these people pegged as criminals, and their continuing influence on the country and in the government defined as a systemic problem.
The outraged middle/ upper middle class was directing its anger in largely the right place at that time. So, these denizens of the FIRE sector and their agents in the government had cause to be afraid. But with the Fed blown bubble in the market and the austerity topic in the press, they’re now largely in the clear, if a little worse for wear.
I do think the takings of the health insurance industry when Obamacare hits for reals will likely raise some of these spectres once again. It will be interesting to see where the anger goes at that point.
Needless, to say, large corporations on the stock exchange don’t care so much about “sales,” when they’ve rigged their pay packages to the price of their stock and Bernanke has blown a bubble in the market.
Status quo to date.
Very good comments–I think you are mainly right about the distraction although I prefer the term “misdirection” because the system uses stage magic to sway the public. The meme that we just spent too much money and wasted our inheritance so we are bad, bad, bad and need to take our medicine makes sense.
But the anger had a focus during the Occupy period and then shifted rather dramatically against that movement and I don’t think that shift was entirely media-driven, as I’ve said many times, I think the majority dislike bohemian youth more than criminal bankers–not sure why but, other than the stunning naivite and born-yesterday political savvy of the movement it’s hard to understand the sudden turn-around.
I’m to the left of the left. Obamacare sucks ass. It’s a right winger’s wet dream.
And sadly this is the guy that’s going to capitalize on the Obamacare disaster:
People, there is a X amount of commodities being extracted all over the globe every year.
It’s is not nearly enough to satisfy all the globe. I never said that earth is running out of commodities, it never will. What I said, is that the RATE OF EXTRACTION IS WAY SMALLER THAN THE RATE OF DEMAND INCREASE.
That is the problem. We had that problem in communism.
Come on guys, do you think that if the gov said today that they will fix every single bridge and highway in USA, would all crude oil and copper and steel be available to be imported by USA?
so what is all that oil and copper for?bridges?
I think that what you percieve to be constraints,are largely mistaken.
I think it’s obvious. Not much extracted every year to meet the required humangous amount that would be required.
If Prof Kelton were to come up with a real, real research paper, not a theoretical one, it would look like this:
– X million miles of highways are required to be fixed
– Y billion barrels of crude oils are needed
– Z billion lbs of copper
– A billion lbs of steel
Out of these:
– B billion is inside USA
– C billion would have to be imported
– D billion of F-35s would have to be exported in order to import those commoditites
– F wars would have to be generated so the world pays USA with commodities for the service of being a world policeman.
Bottom line: Give me the numbers Prof Kelton.
That’s more of an allocation problem, exacerbated by exchange going on’s, than a availability issue.
Skippy… see rubbish tips…
We are saying the same thing but I guess I had a poor choice of words, potaito, potatoe
Bottom line: Carter Doctrine would not have existed if such “allocation” were easy to be implemented.
In my observations that had more to do with price than availability (red scare noted). To that input observation imo that the P-WW II winners market pathology (hegemony) worked only where buffers were to be erected, and no where else, see south – central Americas et al (points of extraction safe from color anxiety).
The thing is America still has abundant resources, yet, its a matter of price and legacy issues (Mr. Market disapproves thingy). MMT would negate much of that problem if applied openly and not just on speculative paper expectations backed by doggy theoretical math.
skippy… Fear of – losing control – seems to be the impetus methinks, more so than any other consideration.
PS. btw I saw your comment up thread – after – posting mine. Induced scarcity by the fearful… concur.
We need numbers, real numbers. How much iron ore does north america have, how much crude oil, how much copper, how much is needed to fix let’s dream here, 1 billion miles of roads and bridges.
Only numbers matter. Talk is cheap.
@kris… google census. gov natural_resources_and_energy.
skippy… Talk is cheap = T, and as someone that opines about such matters, it would behoove them, to understand the ease at which can be divined.
ps. filters set to de-atomizer again… lol
Anybody can opine until numbers are down.
Let the professor come up with numbers:
– Way to obtain it
– Hrs of labor
Etc, etc, etc, not dollars, but real stuff.
Until then, anybody who opines, can continue to opine at no risk of being proven right or wrong, again until……….numbers come by.
Hay ex builder of large Civil, Mfg and Processing projects T1 stuff – global, you want to talk about price[?] the projected, the built in exclusions, nesting, political grifting, cramdown of subbies, financing debt to profit margin, stock – bond influences ~ over the projected build time?
skippy… looking for a pinata much[?] with out showing your bat… first?
If I get proven right or wrong, it does nothing to me.
I am simply putting in doubt anything she’s saying and I think I have a strong point – show me the numbers then allow others to critique those numbers.
If the professor gets proven right or wrong, that matters to her.
Again, Carter Doctrine would not have existed and applied if those commodities were EASILY available and obtainable.
It seems you have a disconnect with reality ergo facts. The resources of america are a known, have been for a while. The problem ensues when it is observed through the optics of strategic reserves, legacy mitigation
[Larry for all his faults was not totally incoherent about 2nd and 3rd world country’s shouldering the burden, he just forgot they had been raped repeatedly before… or not]
, the financialization of resources
[the bits of writ substantiated by actual stuff – leveraged out the wazoo – till time travel maturity materializes = equals numerology + planets aligning – trumpets in the sky],
skippy… to boil down your optics, you seem to conflate cheap inputs (next to zero mitigation – tax on the future) with availability. Every war the USA has fought in refutes your premise.
I use data, you use feelings about Government (a tell) without any caveats for influence (private sector: see new commerce secretary et al).
Skippy… really can’t see your argument backed by anything but taste. Hint no gold standard any more, MMT, this ain’t the past, yes something is being done… the question is… what and why?
We can go on forever with reasons and arguments.
Fact is fact: Nothing is being done.
My take: It’s got nothing to do finance or policy, because govs have always spent whatever they had to spend.
This question is a trap because it asks for determinations that those who believe in the supremacy of markets insist can only be made by markets in real time. No answers could be more than estimates that would immediately be challenged and could not be defended. The Club of Rome forecasts were and are still widely disparaged.
The question should be turned around. Instead of proving that there are sufficient resources to repair or rebuild the infrastructure, the challenge should be to prove that the economy can operate adequately if that work is not done. This is a normal risk analysis question.
No one can provide numbers for much more than specific projects, or families of projects. Just in the infrastructure area, there are multiple ways to meet most needs. Will underground pipes be dug up and replaced? Will steel or plastic be used to replace them? Or will many of them be lined with plastic liners at a low cost? Will water conservation and reuse reduce the total amount of piping required? Will bridges be built primarily with steel, or will they be reinforced concrete. If steel, will the components be fabricated in this country, China, Korea, or some other place?
Other limits than inflation are also involved. For example, there are recent estimates that if the world’s proven carbon fuel reserves were consumed, the atmospheric effect would ensure catastrophic global warming.
And what is inflation? Is QE already inflating financial assets like stocks, and if so, how should that be included in inflation measures?
If we make the unlikely assumption that the US government becomes functional again in the near future, then the annual budgeting process would provide the best opportunity to make adjustments in spending and resource consumption as they are needed.
The question is a diversion that would involve everyone in a continuing cycle of useless activity while today’ winners continue to dominate the economy.
Dwight Esenhower did it a long time ago.
“We had that problem in communism.”
Kris, of which country are you speaking of?
Secondly, have you ever been to the US? Have you ever experienced their infrastructure?
Yes, I’ve traveled to Ohio and Buffalo, NY. Not that much.I’ve heard they’re not that good.
Number 6, the argument for a full payroll tax holiday for both employer and employee, is problematic. The payroll tax funds Social Security and Medicare; removing the funding stream means now you have unfunded social programs with neoliberals steadily pushing to kill/ privatize them. Secondly, the employer side of the equation is hardly hurting, what with record corporate profits and companies sitting on cash.
FICA is a regressive tax and I would love to see it retooled at the very least so that the contribution cap is removed- this would solve much of the future funding issues for Social Security. I would love to see it built more as a progressive tax as well. And I would surely love more money in the hands of consumers to increase demand and create jobs. But this is a sloppy solution as written.
Lifting the payroll tax limit will certainly raise more revenue.
All the additional revenue (as does all taxes) goes into the Treasury’s general fund.
The general fund of the Treasury pays for Social Security benefits, not the trust fund, not the FICA taxes.
Social Security is simply another general expense, like education or battleships.
There is no way, legally, to direct a tax to any expense, other than the general expenses paid by the Treasury’s general fund.
You do not even need a FICA tax to pay SS benefits, as expressed by a previous commenter.
You do need dollars to do so, and the full faith and credit which backs them.
Once the faith and credit is lost, the dollars mean very little – so tax away!
I guess dollars will always have some value, as long as the government is willing to accept them as tax payments. And as long as the legal system continues to force you to accept them as payment of damages in the lawsuits you win. They just may not be good for much else.
After taking in most of the comments to Kelton’s efforts to address austerity for the average Amurican to better understand the current economic mess, most comments were asking more of the intelligence of citizens who get most of their babble from the highly concentrated media. And comments were self-congratulatory in the details enunciated to show their undoubted prowess of a higher understanding than Joe Public. Some comments were scary, laughable, counting angels on a pinhead to greater irrelevance and more. Kelton is not perfect (whatever that means) but excellent.
Kelton’s case against austerity is Obama-like community organizing at it’s finest. The starting position is: “help us help you” to make *YOUR* economy better. (It’s not OUR economy because we wouldn’t have to beg to change what we control or what is managed via a fair, democratic process.)
TPTB KNOW what austerity does. It advantages THEM over YOU. It makes YOU easier to control.
Seriously, as long as everyone is drinking the kool-aid of individualism and careerism, TPTB can avoid a discussion that raises issues of fairness (disparity between rich and poor) and human rights.
The problem is our winner take all, go along to get along, and blame the victim culture. There Is No Alternative!
As a layman I can say I follows until ” As long as the real resources (labor, raw materials, factory capacity) are available, the financial resources (money) can always be there. This can be done without causing inflation as long as the additional spending does not outstrip the economy’s capacity to produce. ”
If you can explain this in more depth that would be great.
I’ll take a stab at it. I think it means once we essentially reach full employment then we have to watch out for inflation. This is where demand can start outpacing production.
The reason Kelton and MMT are simply theory or flat out communism as far as guaranteed employment idea is concerned, is that Prof Kelton fails to come up with numbers, not in dollars, but in actual tons or barrel of real stuff and how to procure those tons and barrels of real stuff.
Real stuff numbers is what matters? Can anybody here, can the brilliant Yves Smith come up with those numbers?
Prof Kelton better get together with the engineering departments at her university to come up with real calculations, not dreams.
I keep saying there is a shortage of commodities to achieve what Kelton is saying.
All I get in response is that “there isn’t”.
That is not a response. I don’t have to prove anything with blank statements.
However, Prof Kelton has to prove with numbers what she claims, it is her post, not mine.
All I do is critique.
Yes, you make a good argument. I’ve reached out for a response. I can’t believe we don’t have the raw materials to build highways or rail, for example, but I don’t know where to go to prove it. So, I’ve asked for help. We shall see!
Thank you, sir
No, the onus is on you to prove your commodity shortage. Please provide evidence of commodity shortages. If such shortages existed it would be constraining the infrastructure projects already being undertaken on the world market and in the US. Please provide evidence of this.
Please provide an example of a current infrastructure project that was cancelled due to lack of materials and resources as opposed to lack of money or collapse of a financing scheme.
Until such evidence is provided I will assume that no such shortage exists.
I am not the one pushing for policy change. All I’m doing is challenge policy presented by Kelton.
I don’t have to be right all the time, it’s like intellectual terrorism.
I shoot 20 times and if only once I hit, the whole policy push collapses.
With this one, I think I’m gonna hit it.
Also, I’m not talking about 1 street here or one bridge there.
I’m talking about hyper mega projects, millions and millions of miles of rails and bridges and highways
Read more at http://www.nakedcapitalism.com/2013/05/the-laymans-case-against-austerity.html#r2dB8ZBUXBxKIHaR.99
One more thing: This is not a new idea.
Based on my experience and reading, if gov could do that, they wouldn’t need Warren Mosler or Kelton to push them.
Gov is there to spend, if there’s something to spend on, no difference who’s in powers. Govs always spend up anything.
I am not qualifying this as good or bad, I’m just saying, that’s all gov does: SPEND ANYTHING YOU HAVE.
Kris, I don’t think you have enough experience to judge the US infrastructure; it is not like US has a Darfur landscape, with NO existing roads and bridges, where everything must be built from scrach on a red dusty mud road.
Agree. It’s not me talking about it. I’ts Kelton talking about it.
Highway from Toronto to Ohio was pretty good. Enjoyable driving.
All I get in response is that “there isn’t”
Because what you are saying is a joke and has nothing to do with life on planet Earth. We are running out of sand, limestone, gravel, iron ore etc etc for construction? No, we aren’t.
Most construction materials are obtained locally because they are very cheaply available in most places, and they are required in vast bulk. Haven’t you ever turned down a country road and seen a rock pit? They’re all over and usually are something of a local monopoly, because it is a money losing proposition to move such cheap stuff. Building is a bit more expensive if materials need to be moved, but – haven’t you ever seen a freight train moving hundreds of cars of construction material? It don’t cost that much to move them. We don’t do it with wheelbarrows and human or animal muscle power, like thousands of years ago. Since the bulk needed is so large, the human race uses very cheap, locally available stuff to build. All the Sumerians had was mud. They built ziggurats with it and invented writing and a ****load of other stuff. Ingenuity and common sense is the bottleneck, not materials.
We aren’t running out of oxygen or nitrogen or gravity either. A lot of MMT boils down to people telling other people that we aren’t running out of Big Numbers. This is necessary because the economic mainstream is ruled by the insane idea that humans can run out of numbers. (Hey, I once pointed out that governments might have a problem if we start printing Graham’s Number of dollars to Warren Mosler. He didn’t get the joke.)
We ain’t running out of nothing. The burden is on you to identify something that is a bottleneck, and which would constrain megaprojects. The only conceivable one is energy. A lot of countries are more energy efficient than the USA. This means there is a lot of room to redirect real resources to such real needs rather than simply wasting them. Moving more by trains than trucks would be a simple start, and I believe has already been happening, what with the price of fuel these days.
Gov is there to spend, if there’s something to spend on, no difference who’s in powers. Govs always spend up anything. I am not qualifying this as good or bad, I’m just saying, that’s all gov does: SPEND ANYTHING YOU HAVE.
In capitalist economies, this is almost NEVER true. It is wildly, wildly wrong. Not in the USA since 1945. The government has an infinite amount of its own credit to spend, but it almost always starves the country of the spending it creates at will. That is what unemployment is.
Many have correctly observed that the economics of the former “socialist” countries, Marxism, is more descriptive of the capitalist countries, while the mainstream economics of the capitalist countries, neoclassicism, which raves about almost invariably imaginary shortages and allocation problems, was a better description of the “socialist” countries. So if you are coming from one, your views are more understandable.
I never said that earth is running out of stuff, never ever. I’m the one always saying that we will never run out of crude oil or anything else.
What I’m saying is that USA(and USA only) does NOT have all commodities to make that hyper plan possible over a certain period. Give it a 10 year plan? 15 year plan?
It is blank statement, same as Kelton’s is a blank statement also.
I can live with blank statements, Kelton cannot, she’s a person running around pushing for policy change, but she doesn’t have the numbers to back it up.
I am simply trying to intellectually ruin her proposal. Until numbers come up, I will still have a point. It’s all fair, it’s not personal, it is simply a challenge.
Let me put it in a different way. Let’s imagine I am her student.
So, she teaches what is written above and I ask a question:
Professor, how many thousands of tons of iron ore, steel, crude oil, copper, cement etc etc etc would be required to complete the plan?
Would USA have all that quantity over 10 years period?
What is your answer professor?
But the problem is that your question lacks number sense. The sense of what numbers are relevant. Just the same way that people can say that oxygen is not a constraint on megaprojects. The megaproject might involve people working their muscles harder and breathing more O2 & exhaling more CO2. If we were talking about building on Mars or a space station, this might be a factor. On Earth, experience of life on Earth should tell anyone that it is not, without looking up numbers, which could hardly be exact. In the same way, your questions are basically from Mars. The burden is on you to identify any such constraint.
The USA has turned on a dime before, during the New Deal and even more, WWII. No giant problem for the USA, even enormously more constraints due to time, interruption of resource movement – lots of ships sunk. The USA is an incredibly resource rich country. The USA is the last country on earth (OK, maybe after Canada & Australia) to which such concerns apply. And the whole world is enmired in depression, where US dollar demand for resources would be welcomed with open arms.
We are using less materials than before the Great Recession. There is a tremendous amount of unused capacity, which could be exploited nearly instantaneously. A matter of weeks at most, not years. Above all, a lot of human labor, a lot of skilled human labor is not being employed. And the cost of these resources has been going down for centuries in terms of human labor hours. Unemployment is so rampant now that the cost to the economy as a whole of (even skilled) human labor is ZERO now, as it is NOT when full employment nears. NOT doing megaprojects is colossally wasteful and stupid. Especially Green New Deal type ones, which will conserve, not expend natural resources longterm.
Fine. Try to tell that to a politician whom you are trying to convince what you are proposing makes sense.
Only numbers convince can make a point, nothing else.
Another idea is to do what the pros do and hire other people to make your case to the respective audience. I.e.,
Contact George Nory (sp?) on Coast to Coast AM radio and have him interview you on air, by which process you will see how he will boil your points down for the audience (he does regular shows on the economy and pending end of civilization)
Write a grant for money to hire a professional PR firm and let them revise your script for the various “market sectors.” You would probably want to build in some kind of feedback system so you could assess your effectiveness and try to negotiate a performance-based fee with the PR firm.
I think it would be useful for Prof. Kelton to explain exactly what our national debt is/represents in MSM and MMT worlds and how the two can be reconciled to enlighten the debate.
Is there a national debt problem? What is “debt” operationally at the Treasury/Fed? Can the US Govt really borrow its own IOUs? When is debt a problem? Etc. …
By being too focused on Debt/GDP ratios, per austerity proponents, prof. Kelton’s lends some credibitlity to the belief that national debt is akin to household debt but that it can be reined in by stimulating GDP. That is the juggernaut that needs to be broken.
People need to understand and see proof that national debt is not the evil doer. Then maybe Prof. Kelton can do the same with “taxes”.
This is excellent that you are continuing this discussion. In case people are still checking this out Monday morning, I’d like to focus on a couple of the specific points you mention.
In point 4, you discuss people focusing on reducing debt. I would suggest you have fallen for the kabuki theater. What evidence do you have to suggest that anyone in power in Washington cares about budget deficits or the national debt? The actual legislation from the past decade quite clearly demonstrates the opposite. Politicians have spent trillions of dollars more than they have raised in taxes. Politicians care so little about this that they don’t even justify why something is worth the cost or explain who will pay for it. Ben Bernanke was reappointed by Barack Obama precisely because Bernanke will monetize every dollar the national security state and tax cuts for the wealthy and bailouts for the criminal banks require of him. The government quite literally is operating under the MMT paradigm – ignore the consequences, bail ’em out!
In point 10, you talk about not running out of dollars as long as we have real resources behind them. I’m grateful you acknowledge that inflation is possible if the financial resources outstrip the real ones. But, what is still unmentioned is the distribution of those resources. What does it matter how much we can spend if actual spending simply goes to the war criminals and financial fraudsters and prison overlords and pornoscanning sickos and all the other predatory actors destroying the country?
If you are defining austerity as meaning spending less money, then the theory has to incorporate the simple truth that a lot of government spending is wasteful and even harmful – we would be better off not spending that money (and remember, that applies to both direct outlays and indirect tax breaks). And the main problem in our system of political economy is that most new spending goes into these unproductive categories. That’s the main problem to solve, I would argue – how to spend money wisely. Not how to increase the total amount spent.
If austerity means something else, then it’s just a vacuous term with no fixed meaning in casual conversation (ie, outside of academic disputes).
But, what is still unmentioned is the distribution of those resources. What does it matter how much we can spend if actual spending simply goes to the war criminals and financial fraudsters and prison overlords and pornoscanning sickos and all the other predatory actors destroying the country?
If you are defining austerity as meaning spending less money, then the theory has to incorporate the simple truth that a lot of government spending is wasteful and even harmful – we would be better off not spending that money (and remember, that applies to both direct outlays and indirect tax breaks). And the main problem in our system of political economy is that most new spending goes into these unproductive categories. That’s the main problem to solve, I would argue – how to spend money wisely. Not how to increase the total amount spent.
The main problem is that productive sectors, the host , the ordinary person who is unemployed, or in fear of unemployment or homelessness, are starved of money. Yes, would be a lot better if the welfare for the rich parasites and their insane crimes stopped. But the problem is that we definitely do need to increase spending on the ordinary person, on the economy’s real needs.
The theory emphatically does incorporate what you think it should. But the problem is that your “simple truth” IS. NOT. TRUE.
Sure, it is better for governments to spend reasonably than wastefully. But when there is unemployment, WASTE IS GOOD, and improves overall economic efficiency. Thrift and efficiency are BAD and WASTEFUL. Especially so for government waste. All that thrift and efficiency do is create more unemployment, which is a waste which dwarfs all other wastes combined. For it to be bad overall, the spending has to be really, really bad – like spending on bombers to bomb your own country. Like subsidizing criminals to steal people’s houses, as after Katrina.
Even with the insane way the USA spends, we have had more real economic growth, less unemployment, than Europe in the last 40 years. Even with the productive, efficient welfare states of Europe, they have not been able to afford the even grosser government underspending, the unemployment that European austerity has forced on its people for 30-40 years.
Thanks for the description, this really captures where we differ.
“The main problem is that productive sectors, the host, the ordinary person who is unemployed, or in fear of unemployment or homelessness, are starved of money.”
“But when there is unemployment, WASTE IS GOOD, and improves overall economic efficiency”
I was debating a detailed response or keeping it simple. So let me just ask a question.
How does sticking hands down people’s pants at airports help the homeless?
How does sticking hands down people’s pants at airports help the homeless?
Of course I am not for this, not for increasing the National Security State. But analyze it objectively.
Several ways. A) The person doing the sticking would otherwise been unemployed, and therefore in substantial danger of becoming homeless himself. B) He spends the money into the economy, for food, rent, haircuts etc. Some gets leaked away into savings (domestic and foreign) and federal taxes. But that same money that he gets paid employs other people, who might otherwise become homeless. It keeps circulating in the economy. C) Having jobs, all these people might be able to spare a dime for their brother.
Thinking it doesn’t help amounts to thinking that there is a magical reason that there is always full employment. There isn’t. There is no magic. Institutional/Keynesian/MMT economics is hard-nosed reality. Neoclassicism is just magical thinking.
To reiterate a point above, Europe has done all / many of the (not so) little things right, efficient, superior, national health care, better infrastructure etc. The US does all these things crazily wrongly. But the US does the biggest things right(er). Spend enough overall and keep fundamentally sound institutions and structures. Europe has starved itself, spending-wise for 30-40 years, even worse than the USA, and has erected the most insane monetary institutions in the history of humanity.
Also, I’m not talking about 1 street here or one bridge there.
I’m talking about hyper mega projects, millions and millions of miles of rails and bridges and highways.
thanks for this – I am never able to state my economic views in an easy-to-understand way.