Ann Pettifor on Combatting the Despotic Power of Finance

Economist Ann Pettifor discusses how economies around the world moved from using borrowing to support productive investments to fueling speculation and consumption, and how that led to the financial crisis. She also describes how the post-crisis response to the debt overhang isn’t merely ineffective but in fact counterproductive.

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  1. JGordon

    “Economist Ann Pettifor discusses how economies around the world moved from using borrowing to support productive investments to fueling speculation and consumption..”

    So according to Ann Pettifor it matter what kinds of things economies spend on; i.e. there are good way to spend and bad ways to spend. Is it possible then, when considering government fiscal stimulus, that how the stimulus is spent matters? For example investing in a nice interstate highway or bailing out an insolvent politically-connected bank or building more FEMA internment/concentration camps might all have similar price tags, but investing in one or the other may have different consequences to the economy. That is, whether we choose to spend stimulus on consumption (activities that reduce economic resources) or investment (activities that increase economic resources) matter, even when governments are doing it.

    I’m saying that because I had the impression (maybe mistaken) that MMTers don’t care what governments spend money on, as long as they spend it–which strikes me as a rather bizarre and offensive idea.

    1. Moneta

      It’s interesting to see that credit for cars has ballooned, while housing is still wobbly. Americans are increasingly opting for depreciables.

      I believe in deficits to kickstart the economy but IMO, these deficits are being completely malinvested. For example, it is mind boggling that 50% of American produce is grown in California, a state that needs to appropriate its water from everywhere else. Some would look at this as a model of efficiency, others would look at it as an unstable complex system that could snap at any moment.

      So, do we keep on adding to California or do we start diversifying? Something tells me that more dollars will be spent to increase systemic complexity because I have yet to see a change in paradigm emanate from the American psyche.

      1. Jerry

        It’s interesting to see that credit for cars has ballooned, while housing is still wobbly. Americans are increasingly opting for depreciables.

        The fact that housing is appreciating asset is not caused by it being productive investment, but by monetary and fiscal policies of government. At the rate things are going cars and bread will become appreciating assets and we all will become millionaires, then economy is fixed, right?

      2. Cynthia

        This financially driven recovery seems really sloppy this go around. The ingredients were the same: no interest rates too low, no bank too big to fail, no business or industry too important to be downsized or outsourced. With all the debt created to finance “basic services,” the only solution offered has been ultimately “the creation of more debt.” The game changer, as I see it, is the shale revolution. I don’t know how long it will at last. I’ve read ten years, but this does give a comparative advantage beyond belief to those who are frugal with their energy resources. It has already moved the dollar substantially higher relative to all world fiat save the pound, euro and yuan. What it hasn’t done is lead to massive production gains or outsized trade advantages that the USA can roll over into real economic growth and an increase in real wages. The failure of the ACA is definitely a move backwards as well. The system continues to reset. Detroit going Chapter 9 is the way forward I think for much of the country. As the Fed winds down “stimulus,” the reality of those flush with riches versus those simply headed into oblivion will become as stark as it is real. The bottom line is, we don’t have a lot of breadwinners this go around. The irony is we truly have massive amounts of cash simply lying around doing nothing — “stranded capital” in the sense that it never gets used in the first place. That’s what’s gotta change for there to really be a “light at the end of the tunnel.”

        1. Moneta

          From my POV, it looks like the US would like to stick it to China and other creditors by printing and therefore devaluing its dollar but we are now stuck in a currency war where a big chunk of the world’s elites are exporters who will not let the dollar tank.

          Important events are happening outside the US…

          1. rps

            Devaluing the dollar??? Nixon unilaterally ended the Bretton Woods system; the convertibility of the US dollar to gold. Since 1971, the US dollar is based on The good faith and credit of the USA. The dollar value is what other trade countries determine/agree upon, whether it’s China needing to run its factories at current levels to maintain or increase employment levels; and therefore, must export the excess finished goods. FDR recognized these similar dynamics of the USA as a major exporter back in 1932, “Every man and woman who gives any thought to the subject knows that if our factories run even 80 percent of capacity, they will turn out more products than we as a Nation can possibly use ourselves. The answer is that if they run on 80 percent of capacity, we must sell some goods abroad. How can we do that if the outside Nations cannot pay us in cash? And we know by sad experience that they cannot do that. The only way they can pay us is in their own goods or raw materials…”
            Undoubtedly with current technology, factories running at 50% of capacity may be turning out more products than their own citizens can purchase.

            Many of our trade agreements are not dollar based but security based -country A can exports goods to USA, in exchange the USA builds military bases under the guise to protect and defend country A but truly to maintain our world military power that ensures the US dollar as the world’s reserve currency.

            of course the fall-out is high unemployment in the USA with corporations moving to these locales in search of slave wages.

            1. Moneta

              Here in Canada, I doubt we control the value of our dollar.

              We are stealthily forced into the American model which will probably run us to the ground.

              I think more Americans need to live in other countries to see how their country bullies the world around.

            2. Moneta

              And I’m not sure the US of today can produce like the US of yesteryear… if you started producing all your own goods again, you’d realize how much energy and resources you’d need to import and the pollution that goes with it.

              1. rps

                One more reason American factories moved to other locales -EPA standards. China is a cesspool of deadly contaminants due to the governments collusion with foreign corps in their willful negligence of the populace health and safety. That’s until the populace revolts and they will. USA Congress is always working on behalf of USA dirty corporations always looking to marginalize the EPA unless its in their own backyard. They pollute from fracking to mining run-off that’s until the citizens revolt. Activist groups and individuals still are fighting the David and Goliath battles with victories. Lake Erie and the Potomac were cesspools in the 70’s, but no more.

                There’s also the Canadian model; According to Wiki, a recent report found that Canadian companies contributed 73% more to air pollution than companies in the United States; Canadian oil sands pollution increased by 20%. Arctic water pollution, untreated sewage pollution into the ocean and waterways, and the Great Lakes basin was home to 45% of all toxic air pollution in Canada, in turn affecting the Great Lakes’ water. Seems the Canadian titans of industry are given much latitude over your environment….

                WE have enormous open spaces as does Canada. The USA has the energy resources to restart production; don’t negate green energy; plenty of sun, water and wind along with coal, natural gas and oil -Tulsa was the world’s oil capitol not that long ago… Until foreign countries reign in pollution, the factories will stay put using up resources and destroying land and waterways while expending finite energy in transporting goods around the globe.

                1. different clue

                  The whole point of free trade was to move production to countries which have anti-environmental and anti-safety counter-standards like Mexico, China, Cambodia, Vietnam, Bangladesh, etc.
                  The only way to bring production back to America where a unit of production emitted less pollution than a unit of production in China does . . . is to abolish free trade and restore protection. Withdraw from NAFTA, WTO, MFN for China, withdraw from all the anti-American GATT rounds, etc.
                  Free trade was designed on purpose to create the results you describe on purpose.

                2. moneta

                  We are the largest energy consumers per capita in the world for a number of reasons.
                  We have to heat ourselves. We have a large country and small population and we exploit natural resources which are requiring an increasing amount of energy.

                  In many ways, we can’t compete… While we get 1 or 2 harvests, many other geo areas are getting 3 or 4.

                  But in our globalized world where Chinese business men are required to wear ties and Canadians required to wear shoes in the dead of winter, we are set to fail. Everyone is being homogenized a la America and if we don’t okay by the rules our currency will get arbitraged away.
                  I dont see how countries can control pollution as long as the us controls the economic model.

          2. Calgacus

            The US and other countries print money all the time, whenever they run a deficit, which is most of the time, throughout history. Whether it prints the kind of money called “bonds” or not is relatively unimportant. Printing need not be inflationary, now or ever. It need not devalue the dollar relative to other currencies. Of course spending should be efficiently directed toward public purposes, and the better this is done, the greater the currency’s fx value, the more disinflationary / deflationary.

            But frequently, as right now across the world, governments spend so little – particularly on sane public-purpose spending – that even spending for useless hole-digging purposes or even slightly destructive ones can be better than doing nothing. The multiplier effect of the spending can outweigh the initial uselessness or destructiveness, make it non-inflationary.

            If the US dollar devalues relative to Chinese currency, this is in no way “sticking it to the Chinese.” The implicit obligation of any currency issuer – to any holder, domestic or foreign – is low or zero domestic inflation. NOT maintaining the same foreign exchange value. The first is possible, reasonably within US control. The second is not within US control and is an absurd and ridiculous demand. It is a simple, basic point, but few enough understand it.

            1. EconCCX

              @Calgacus Whether it prints the kind of money called “bonds” or not is relatively unimportant.
              Bonds are the engines of financial hegemony. They’re a narrow money that is leveraged forever in financial institutions, supporting asset bubbles and privatization. In exchange for a sum that government gets to spend exactly once, augmenting a deposit currency with a debt deflation characteristic, and a multiplier of less than one.

              MMT is for Wall St., not Main St., and I’m cynical enough to believe that a number of its most vocal proponents understand this perfectly well.

              1. Calgacus

                “No bonds” or variants are a standard MMT recommendation, so it is hard to see the sense in an accusation of MMT being for Wall Street because MMT likes bonds so much. Sure, treasuries may be leveraged more than base money; so maybe they’re more inflationary.

                Some time ago I noted, and Scott Fulwiller agreed that (a) most adherents of MMT believe that MMT is all about “printing money” – the opposite of the accusation above. and (b) wrongly think that there is a magical difference between printing money (good) and printing bonds (bad). Just like the mainstream, except good and bad are reversed.

                But in reality we have “an MMT system” already. As I have said before, I like the way you characterize it and think about it, but where you err is in thinking your proposals are not a current reality. The government can and does spend whatever it wants, and the economic difference between low interest rates like now and no bonds forever is negligible.

                There is no magical difference. The real action is and always was with fiscal policy, what spending and taxing is, not on the particular form of government debt used for payments to the government and to base the financial system.

              2. EconCCX

                @Calgacus “No bonds” or variants are a standard MMT recommendation, so it is hard to see the sense in an accusation of MMT being for Wall Street because MMT likes bonds so much

                And it’s hard to see where I made that accusation. I brought up bonds because you brought up bonds. The macro effects are the same with a trillion dollar coin. In each case, after one USG spend, who ends up with the real and permanent money, and who ends up with bank IOU “deposit currency” that diminishes in the aggregate with each payment to a bank, be it principal, interest or fee?

                The trillion dollar coin would be a gift in that amount to Wall St. under the populist flag of monetary sovereignty. Absent coin or bond, FRB’s cannot be compelled to credit the UST directly, as they’re privately owned banks. But if they did, the effect would be the same, to concentrate wealth rather than support production and exchange. One USG spend, and that TGA asset is a bank-owned reserve.

                This is why Public Banking proponents are seeking to put government into the deposit currency game as well as the reserve game. Also a terribly flawed solution, but with a somewhat greater understanding of the problem.

                1. Calgacus

                  Pardon me for misunderstanding. I got that from “Bonds are the engines of financial hegemony” and “MMT is for Wall St., not Main St”

                  It is easy to answer who ends up with real and permanent money. Nobody, because there can be no such thing as permanent money. The value of money, of all debt, a social relation, is its impermanence, its redeemability, its ability to be cancelled against another social relation, another debt. If it is permanent, it is not money.

                  “Permanent money” is just another way of sneaking the pernicious commodity theory of money in the back door. Many MMT fans, some at the NEP site, do just that, in their zeal to “improve” and “explain” real MMT thinkers like Mitchell-Innes and Lerner and Wray.

                  Who ends up with the (base) money = government debt depends on the structure of the economy. Today, a bunch of rich people, financial institutions and foreign central banks. If we want a more equal distribution of wealth, #1 is to spend including through a JG, enough for full employment. #2 is to raise taxes on the rich.

                  But we already have an MMT system, an EconCCX system. Playing around with pointless “new” monetary reforms just distracts from the real problem – and is a true gift to Wall St. The only sensible bank reforms are to – either have completely publicly owned banks or have a 1940s-50s regulated boring banking system. Not much different, and neither includes monetary “reform”. Who cares if the bank has all the T-bonds, all the “permanent money” = reserves = dollar bills, if it is just an intermediary, like a bond fund, with an equal amount of liabilities to depositors, who could “cash in” their accounts into T-bonds or dollar bills whenever they want?

                  One USG spend, and that TGA asset is a bank-owned reserve. Of course. So what? How could it be otherwise? Neither the US government nor anybody else can spend more than once each time it spends. But directed Keynesian/MMT spending will cause a great deal more economic activity, production and exchange, through the “multiplier”, in addition to its highly beneficial initial effect. It will disperse, not concentrate wealth, and nothing else can or will do these good things.

        1. Moneta

          We can split hairs about who owns the upstream, downstream or underground. The point is that it suffers from water issues and production could be more diversified across the country.

    2. Teejay

      Where to begin? There’s no “maybe” about it, your “impression” is a “rather bizarre and offensive idea”. FEMA internment/concentration camps? Yeah, bizarre and offensive
      impressions. Of course there are smart and cost effective ways to spend money (stimulus and otherwise) and not. Duh! It would serve you well to examine where and how you get your impressions about MMT and FEMA internment/concentration camps. Heh, I once thought
      Obama was a liberal and cared about the middle class. Ain’t that a knee slapper?

    3. Cynthia

      Bailing the banks out really worked out for them while Main Street, USA looks like a war zone wasteland. Every city in America looks like a third world slum, except for the few blocks of center city that house lawyers, politicians, and financial services.

    4. RepubAnon

      In an economy limited by the zero lower boundary on interest rates, any spending has a stimulative effect. However, spending on useful things, such as previously-deferred maintenance on existing infrastructure, has a far better return on investment than bailing out the gambling addicts currently running our financial markets.

      Your division of spending on consumption versus investment is somewhat odd: increased consumption means that someone needs to produce more goods to be consumed, thus stimulating investment in the creation of goods for consumption. Perhaps a better way of looking at spending is whether the money is flowing to long-term investors, or to short-term speculators. There’s a difference between someone who buys a business with the idea of operating it at a profit (an “Investor”) versus someone who buys that business with the intention of extracting large management fees while running the business into the ground (an “Extractor”). True, the Extractor ends up with some big bonus checks, but the damage caused by Extractors ultimately outweighs any short-term stimulus resulting from their champagne/caviar/yacht purchases. Investors, on the other hand, actually create jobs.

  2. craazyman

    holy smokes, talk about sailing a confusion boat straight into stormy gray green waves of money-meaning-mind-storm chaos. it’s an amazing sight to behold. the shattered shards, the foundering hulk, the sodden sails, the foaming flailing futility of aphoniacally abstract reasoning. The vessel was half right and the crew were craftsmen of a shallow lucidity, but the half that was wrong was no match for the sea.

    here it is if you wanna see it:

    economics is a mental disorder.

    faaak I’ve gotta get something serious done today. no laying around wasting time all day. Just most of the day. unless things can be postponed until tomorrow, of course.

      1. craazyman

        that’s even better! I might have picked that if I’d found it first.
        But Ms. Pettifor is less a slave ship captain, unless it’s at the wheel of her own Cartesian mind box, and more the helpful steerer of a well-meaning rescue vessel. Yet lacking a more robustly cultivated perception, the end result is still the same crackup.

        I’ve gotta get something useful done today somehow.

        I hope you don’t get shot Lambert. for God’s sake, find a beach and a bar and have some brewskis with your fried crickets.

      2. Susan the other

        Looks like a Winslow Homer. In the end he just gave up putting people in his seascapes and painted only the sea. I don’t think Ann Pettifor is lost at sea as much as most people. She is just saying that today money should be very cheap and available and used for productive purposes that do not harm the environment. I do think the ocean is a little stormier than that because the old prescription to restructure and grow will be suicidal if we dedicate growth to today’s standards of equality for 7 billion souls. The worn out logic of the growth model is so hard to give up almost nobody suggests we just chuck it. Since money is a political artifact, why not? I wish Ann Pettifor had suggested it. The best model we could use is extreme conservation and clean-up, which of course is not productive of money and profit, but very positive for people and the planet if done equitably. Unfortunately, everybody at Davos thinks they can have their cake and eat it too. And the rest of us are confused.

        1. Cynthia

          Growth or not, our central problem is the shift of wealth upward and the loss of the middle class in America. However, there is pessimism among the moneyed class regarding economic growth and that is why they have been so intent on privatization of public functions and raiding the public treasury. As Jesse James is reputed to have said: “Because that’s where the money is…”

          1. susan the other

            I agree that the rich are in panic mode. They are just pretending that they are not. Funny.

            1. RepubAnon

              I expect that the rich will next propose a proactive solution, involving legalizing preemptive violence against those that the rich think may at some point prove a threat:

              ‘Bulletproof’ Arizona security team raises hackles at Gogebic mine site

              Two members of the Wisconsin Legislature are asking Gogebic Taconite to remove masked security guards who are toting semi-automatic rifles and wearing camouflaged uniforms from the mining company’s site in the Penokee Hills forest.

              Photos of the guards surfaced over the weekend on the websites of mine opponents.

              Sen. Bob Jauch, D-Poplar, said Monday the guards are from Bulletproof Securities, an Arizona company that boasts a “no compromises security force.”

  3. Doug Terpstra

    Pettifor is stating the obvious, certainly necessary when addressing economists, but she’s missing the point (or is too polite to say it out loud), that productivity isn’t really the goal of those in power at all. Their goal is more power, and concentrated wealth and inequality are the means to that end. Once we clearly define the problem and correctly diagnose the disease, the moral depravity of present leadership, we’re better able to prescribe an effective cure, including sensible, demand-side, energy-wise public investment.

  4. bob smith

    what about desalination plants? Is there any excuse not to provide fresh water to the world?
    look to the san diego desal plant as an example.
    imagine what desalination plants could do, if we coupled them with water pipelines (just like oil pipelines) to provide fresh water to everyone.

    i’ve heard it said that the yearly budget for the pentagon is enough to feed the earth. we have the technology to feed the world, what does it mean that we would rather spend that money on the imperial war machine.

    a rhetorical question. If we started food and water co-op that we had to volunteer for once every six weeks or so, would people volunteer for free in order to provide free or very cheap food and water for their local communities?

    1. RepubAnon

      Desalinization is very expensive, both in equipment and in energy. It’s one thing to have a reverse osmosis plant on one’s boat floating in the ocean – itself quite energy intensive. For a community, the larger expense would be to pump that water back uphill into a distribution chain.

      It may be practical (if very expensive) for a seaside community such as San Diego to use desalinization if the Colorado River runs dry. However, pumping that desalinized water from the ocean to, say, Las Vegas or Palm Springs would be another entire layer of massive, energy-intensive expense.

      They’re also discussing “toilet to tap” as an alternative. Yummy! But, those golf courses need that water – so why worry about completing parasite life cycle chains?

  5. Chauncey Gardiner

    Look forward to reading Ann Pettifor’s book. IMO electronic media interview format didn’t enable her to adequately develop her observations pertaining to the title of the post, perhaps due to inherent brevity of the format. I particularly appreciated her few remarks regarding developments in the Euro zone; emerging economies, peak cheap-and-abundant oil, environmental issues, and the gradual channeling of money away from productive purposes over the past three decades and into speculative activities.

    However, if I understood her correctly, I had difficulty reconciling her credit card example and remarks regarding declining average real incomes in the West with low cost money under existing private monetary system structures. I believe it is common among monetary and political economists to largely ignore or materially underestimate the probability of impaired capacity by private sector and non-monetary sovereign public borrowers to repay their debts, including interest, regardless of their character, or “trust” as Ann put it.

    I would more sharply distinguish between public and private issuers of debt. Setting aside fiscal policy and money distribution issues, I view public debt issued by the USG and funded with Fed QE purchases as a soft and relatively benign form of MMT. However, I do not consider private credit or debts similarly.

    Appreciated craazy’s metaphor above, but hope for an outcome somewhat more akin to the conclusion of the film “Master & Commander”:

    … Re today’s show intro: So GS to SLC, huh? Gotta luv the culture, particularly “Respect for Authority” and a strong work ethic… Message in a Bottle: Better start plowing the upper East Side. They’re playing the districts off against each other.

  6. impermanence

    Money is a scam, and ALWAYS has been.

    After all, would bankers be dealing with it if it wasn’t?

  7. James

    “I’m saying that because I had the impression (maybe mistaken) that MMTers don’t care what governments spend money on, as long as they spend it–which strikes me as a rather bizarre and offensive idea.”

    It is remarkable how subjective people are in our day. Ideas are not “offensive” or “bizarre”, they are either adequate to reality or not. If an idea isn’t true in this sense, of what value is it?

    As for MMT, it is is for the most part descriptive, not prescriptive. It’s not that it “doesn’t care”, it’s that it is not part of the description of monetary operations. What money should be spent on is a political decision; that is prescriptive.

  8. JCC

    “It is remarkable how subjective people are in our day. Ideas are not “offensive” or “bizarre”, they are either adequate to reality or not. If an idea isn’t true in this sense, of what value is it?”

    I suppose that all depends on your frame of reference.

    For example, there is the frame of morality, immorality, or in the above case, the modern, in our day, notion of economic amorality.

    The statement reminds me of Jeffery Dalhmer. If he had amorally analyzed his own lifestyle he would have realized that his ideas of good sex and a healthy meal were “inadequate” to his long term survival. For most others these ideas were offensive and bizarre.

  9. James

    Re: “The statement reminds me of Jeffery Dalhmer. If he had amorally analyzed his own lifestyle he would have realized that his ideas of good sex and a healthy meal were “inadequate” to his long term survival. For most others these ideas were offensive and bizarre.”

    You really think this reply represents a sufficient understanding of the statement that true ideas represent an adequation to the real? Or more to the point, that it has anything whatsoever to do with the the specific example regarding MMT?

  10. chas

    In a more practical vein, IMHO the dollar is no longer a “medium of exchange” but a “ticket to buy stuff”. Originally, the only way to acquire some “medium of exchange” was to produce something to be exchanged. Now these new “tickets” are created out of thin air without anything having been produced by the fed & the banks. The only “exchange” taking place is a “ticket” for some “stuff”.

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