Bill Black: Howard Dean Wants to Continue Austerity’s Assault on the Working Class

Yves here. Some readers have objected to the use of the word “hyper inflation” with respect to the US housing market pre-crash. While they have a point, I regard this as artistic license. While it is clearly true that housing prices increases less than the well over 100% per annum considered to be a minimum threshold for “hyper-inflation,” the runup in most major markets in the US was way outside historical norms, which Yale economics professor Robert Shiller has stated is a mere average 0.5% real increase over the 100 years prior to the bubble era.

By Bill Black, the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. Jointly published at New Economic Perspectives

Howard Dean was attacked by the Democratic Leadership Council (DLC) for the high crime of opposing the second President Bush’s disastrous invasion of Iraq.  While I strongly support the candidacy of Representative Keith Ellison to chair the Democratic National Committee (DNC), I am not arguing that Dean is not a progressive voice that needs to be part of the leadership team transforming the Democratic Party. 

I write to urge him to learn the foundation of the economics of sovereign currencies.  I urge his progressive supporters to encourage him to undertake this study.  It is vital to his success and his input to transforming the Democratic Party. 

Dean has one enormous blind spot – his assumption that federal deficits are evil and that the answer is to continue to wage vigorously the long war – the repeated assaults on the working class through austerity.  I have been writing a series of columns about the fact that the Democratic Party must learn from the election that it has to stop this long war.  I have explained why austerity produces immoral results because it is economically self-destructive and politically suicidal.   

I researched Dean’s statements about austerity to try to understand why a man who opposed the DLC would be so enthusiastic about inflicting austerity on the working class.  I found part of the answer.  Dean was Vermont’s governor.  Dean explained to a conservative “Squawk Box” host why he supported austerity based on his experience as a governor.

There’s a balance sheet that has to be met here and every Governor knows that, both Republicans and Democrats.  And you got to do that when you’re the President. 

The first sentence is correct.  The second sentence is false.  States do not have sovereign currencies.  The United States has a sovereign currency.  A nation with a sovereign currency is nothing like a state when it comes to fiscal policy – or a household.  I cannot explain why Dean does not understand the difference and has apparently never read an economic explanation of the difference.  But we can fill that gap.  Again, I urge his supporters who have the ability to bring serious policy matters to his attention to intervene.  Dean is flat out wrong because he does not understand sovereign currencies.  The consequences of his error are terrible.  They would lock the Democratic Party into the continuing the long war on the working class through austerity.  That is a prescription for disaster for the Nation and the Democratic Party.

Progressive Democrats enlisted in the New Democrats’ austerity wars because they seemed to be politically attractive.  The political narrative was as simple as it was false.  The austerity creation myth was told first by Bob Woodward in the course of writing his sycophantic ode to Greenspan as the all-knowing “Maestro” of the economy.  Bill Clinton, as President-Elect, was given an economics lecture by Alan Greenspan.  The economics lecture – from an Ayn Rand groupie – was (shock) that austerity was good and New Deal stimulus was evil.  Bill’s genius was taking the “Maestro’s” words as revealed truth and turning his back on the New Deal.  Bill embraced austerity.  The economy grew.  Bill ran a budget surplus – the holy grail of austerity.  Bill was followed by Bush under whose administration economic growth slowed and the federal deficits reemerged.  There was a Great Recession. 

The creation myth was clear.  The newly virtuous New Democrats (after instruction in economics by Saint Greenspan) embraced austerity and all was good.  The vile Republicans, hypocrites all, had renounced the true faith of austerity and they produced mountains of evil debt that caused poor economic growth. 

Dean pushed this narrative in his Squawk Talk appearance.  When asked to explain the specific Bush policies that he claimed were to blame for poor growth continuing under President Obama, Dean went immediately and exclusively to Bush’s increases in the federal “debt” to answer the question.  “The biggest ones are the deficits that were run up…. The deficits were enormous.”

The New Democrats’ narrative, which Dean parroted, is false.  One of the definitive refutations of the Greenspan (and Robert Rubin) as Genius myth was by the economists Michael Meeropol and Carlos F. Liard-Muriente in 2007.  Their refutation was inherently incomplete because it was “too early” – the collapse of the housing bubble in 2007, the 2008 financial crisis and the Great Recession were vital facts that helped reduce the myth to the level of farce.  These facts were unavailable to academic authors publishing in 2007.  The authors discuss the enormous role that the stock bubble played in the Clinton expansion, but they do not discuss the housing bubble’s contribution.

Any tale that begins with Alan Greenspan providing Bill Clinton with the secret to economic success is justly laughable today.  Clinton was our luckiest president when it came to economics.  His expansion was largely produced by the high tech stock bubble.  When it collapsed, the housing bubble, explicitly encouraged by Greenspan as a means of avoiding a severe recession, took up much of the slack.  Bush eventually inherited from Clinton a moderate recession that led inevitably to moderately increased (not “enormous”) federal deficits.  The housing bubble then hyper-inflated, bringing the economy rapidly out of the moderate recession.  The hyper-inflation, of the housing bubble, however, was driven by the three most destructive epidemics of financial fraud in history and it caused a global financial crisis and the Great Recession.  A great recession leads inevitably to a very large increase in the federal budget deficit.   

Greenspan, Bob Rubin, and Bill Clinton were lucky in their timing – for a time.  The historical record in the U.S. demonstrates that periods of material federal budget surpluses are followed with only modest lags by depressions and, now, the Great Recession.  Fortunately, such periods of running material budget surpluses have been unusual in our history.  As my colleagues have explained in detail, the U.S., which is extremely likely to run balance of trade deficits, should typically run budget deficits. 

We all understand how attractive the myth of the virtuous and frugal Dems producing great economic results under Clinton while the profligate Republicans produced federal deficits and poor economic growth was to Democratic politicians.  But the Dems should not spread myths no matter how politically attractive they are.  The catastrophic consequences of President Obama and Hillary Clinton coming to believe such myths were shown when, as I have just described in several columns, they promised to lead the long war against the working class that is austerity.

If people like Dean focused on the origins of the Clinton creation myth they would run from its lies.  The original actual creation myth is found in the book of Woodward.  The brilliant Greenspan converted the young Bill Clinton by exposing him to the one true faith (theoclassical economics) and successfully calling on Clinton to renounce the devil (FDR) and all his work (the New Deal) and to sit at the (far) right hand of Ayn Rand.  The result was economic nirvana.  Politically, that’s a terrible creation myth for Democrats to tell around the campfire – or to voters.  Economically, it’s a lie, indeed, a farce.      






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  1. Soulipsis

    This is one of the arguments, the making of which I’ve never understood. How could Dean not know what he’s doing by supporting austerity? How could the 0.001% not know? Of course they know! Sometimes I think hyperacademics like who can be found trolling around this website are so involved in the prestige of their discipline that they lose track of the world of wordless import that makes up most of reality. This is why illiterate people are sometimes very wise, they have no choice but to remain immersed in the wisdom of the Creation. I think Black and others are wasting their breath on explanations and urgings such as this. And I think the brutality of Daesh and the Saudis is the brutality of the 0.001%, and it’s a delusion to think they don’t have the social model that is on display in Syria planned for the domestic U.S. market. What else is the 2012 NDAA for? NSPD 51, and the National Incident Management System. It’s coming, and Dean is just a little player. He probably got photographed doing something he shouldn’t’ve and now he’s stuck. Whatever, how could he not know? He knows. Bill Clinton doesn’t or didn’t know? Please.

  2. David England

    I am no economist, but it seems to me that this power of sovereign currency (to borrow increasing amounts indefinitely) only works so long as people believe that they will be repaid. If one continues to to rack up an exponentially growing debt, eventually that belief will be challenged. There are numerous areas of expenses which could be trimmed, but they generally involve a relinquishing of our empire.

    1. Skip Intro

      One key to maintaining the appearance of sustainability for increasing debts is making sure much of the deficit spending is going into productive infrastructure investments. In this case the increasing debt will be accompanied by actual growth.

      1. Ptolemy Philopater

        Development of productive capacity in re infrastructure, of course is the key. With sovereign money creation, not sovereign debt creation, the prevention of corruption, like we have now, is paramount. Sustainability of the environment are the only limits to growth. Any productive expenditures just add to the quality of life for all. Non productive expenditures would be the definition of corruption. What we have now is sovereign money creation, but it all goes to the .001%, who are busy buying up all the productive capacity of the economy with it and setting up rentier toll booths to loot the economy. The key to preventing inflation is maintaining productive capacity and preventing shortages that increase prices. For example, if the Bolivarian Revolution in Venezuela instituted a guaranteed income instead of price controls it would have stimulated productive capacity by increasing demand instead decreasing productive capacity as is the result of price controls. The shortages of labor that could result could be mitigated by premiums above the basic income for labor with access to luxury goods. We all know how much humans love their luxuries. Q.E.D.

    2. susan the other

      It puzzles me that private parties are allowed to buy sovereign debt. It changes the debt from sovereign to private. Making it no longer an instrument of use but of exchange. Selling sovereign debt destroys sovereignty. Much better to force the privateers to come up with their own investments for which they bond and trade with each other and leave sovereign money out of it. The banksters and their ilk like George Soros, King of the Vigilantes, should be detained until they pay back everything they embezzled. and etc. It’s just too easy for banksters to buy sovereign debt (with a commodity they are legally allowed to create at the sovereign’s expense) and then demand interest on it. So clearly Howie Dean is a ditz.

      1. John Zelnicker

        @susan the other – The money used by banks to buy sovereign debt is money that has been previously spent into the economy by the federal government which the bank has acquired in the course of its business. It is not new money created by the banks. The money they are allowed to create under license from the government is always matched by a liability, i.e., loans create deposits. The money used to buy Treasuries already exists and does not create a liability, it is simply an existing asset called cash which is exchanged for the asset called Treasury securities. See my reply to David England and you below.

    3. John Zelnicker

      @David England, @Skip Intro, @susan the other – A sovereign currency issuer like the US federal government has no need to borrow. Borrowing (technically the issuance of Treasury securities to investors in exchange for existing dollars) is completely unnecessary in a system such as ours. The government could simply continue to mark up bank accounts when it pays its bills, as it does now, without the additional procedure of issuing those securities. This is a holdover from the days of the gold standard that became irrelevant in 1971 when Nixon eliminated the last vestiges of the Bretton Woods system by ending our reliance on gold to back our currency. It is essentially a form of welfare for the rich and the banks.

      Think of Treasury securities as equivalent to a savings account. If you have money in your checking account and you want to earn some interest, you would transfer those dollars into a savings account or CD. The money still exists, it’s just in a different account. Later, when you need to spend that money, you ask the bank to move it back to your checking account. No new money is created or destroyed. The dollars just change location. Treasury securities work the same way. The dollars already exist. Repayment is only a matter of moving the location of those dollars from Treasuries to a more easily accessible account.

      Most people look at the federal debt as a liability, which it is, but never look at the over side of the ledger to see what is happening on the asset side. The federal government can pay off any amount of debt denominated in dollars by simply moving those dollars to a cash account. No new dollars needed, they already exist.

      1. Fco

        What if one borrows money from a bank, then uses this money (“deposit”) to purchase US securities. Wouldn’t this be considered newly created money purchasing US securities?

        1. zapster

          Money loaned by banks creates a corresponding deposit in the Federal reserve account–it creates money, albeit temporarily. When you pay back the loan, you have to give back the money they created, plus some additional issued by the government, and the reserve deposit is cancelled. So you are still simply swapping government-issued assets–and paying extra for the privilege.

      2. Kay

        So Grandma buys a US Treasury bond at the bank. Hands over $100 in cash from her mattress. The bank gives her the bond and banks the cash. The liability to the US government is the bond given to Grandma. The asset to the US government is the infusion of $100 cash.
        However, its all the Fed’s money. So as it comes off the press & goes onto the Fed’s books its really a liability that needs an asset to swap. If by merely printing it ad infinity you’re implying it instantly goes into the asset column as paper w/value where does the value come from unless it has a swap set up before hand? It does not. The Fed puts out UST’s to auction trying to find buyers so they’re pricetakers not pricemakers and as such UST’s are a liability first only switching to asset when some hapless person buys it, hoping it will pay out with cash worth the same value over time + a ROI as they try and get the UST/bond swapped back to usable form: cash (which the Fed just printed again to support ballooning UST/bond budget surpluses asked for by Congress & demanded by currency manipulators in the form of debt refinancing costs). The Fed’s balance sheet is owed by the US Citizen to UST holders. Or am I totally off base and rate hikes also don’t have an impact on new dollars needed? Thank You.

        1. John Zelnicker

          @Kay – You are a bit off base. Let me try to explain. The Fed creates dollars by instructing a bank to mark-up the balance in an account owned by the person or company whose salary or invoice is being paid. This creates new dollars added to the money supply. “Printing money” is a bit of a misconception. The piece of paper in your wallet is not really a dollar; it is the title to a dollar. It has no intrinsic value. The Bureau of Engraving and Printing (a unit of the Treasury Dept.) prints currency so you can take some of the dollars in your account and use them for exchange transactions outside of the banking system. These are sold to the banks at face value to distribute when you want cash, but they are not new dollars being added to the money supply. You already own the dollars in your account and you’re converting them from electronic bits to pieces of paper.

          Also, ultimately, the dollar has value because it is the only thing you can use to extinguish your tax liabilities. Since we all pay taxes, more or less, we all need dollars. It then becomes the most convenient medium of exchange.

          Although the Fed auctions Treasuries, it is actually the price setter. You are looking at the interest rate offered by the primary dealers who buy at the auctions, but that rate is actually determined by how much the dealers are willing to pay for the securities. If the demand is high, then the dealers are offering to pay a higher price meaning they receive a lower interest rate. (Interest rates move in the opposite direction from the price of the security.) Traditionally, this demand, called the bid-to-cover ratio is somewhere between 2 and 3 times the total amount of securities offered in the auction.

          The Treasuries are purchased with already existing dollars, so it’s really an asset swap and doesn’t change the total money supply. When the Treasuries mature, the Fed exchanges them for dollars, another asset swap.

          The whole thing can be a bit complicated, especially when we have all mostly been taught the wrong information about how our monetary system actually works. I recommend Warren Mosler’s Mandatory Readings.

          I hope this helps.

    4. Bill J.

      Nations that are monetarily sovereign don’t “borrow” the currencies that they issue at will. The US national “debt” is nothing more than the accumulated deposits in the Treasury Security accounts of the Federal Reserve and is completely sustainable. The United States can no more run out of dollars than a carpenter can run out of inches, or a score keeper of points. I hope this helps:

    5. zapster

      What does “repay” mean to you? “Borrowing” by government means swapping one government debt for another. You give the Treasury your cash–issued by the Treasury, for a bond, issued by the Treasury. Do you really want your pension to ditch it’s T-bonds? It’s all federal debt. Cash and bonds. Every bit of it.

      1. Bill J.

        “Repay” means to me what it means to everyone else. Under what scenario do you suppose that the US could be COMPELLED to default on Treasury Security obligations that it pays in the monetary unit of account that only it may issue?

  3. Steve C

    Dean as governor wasn’t known as particularly progressive. He emerged as such when he went national.

    1. divadab

      Yup – he was never the leftie he was presented as. He and Bernie are opposed on many issues.

      Also he’s worse on foreign policy than Bernie (who’s mediocre art best) and even Trump – he’s in the Neocon camp.

    2. Vatch

      I’ve read similar things in comments at NC and elsewhere about California Governor Jerry Brown, whose left wing moonbeam reputation doesn’t match his big business friendly actions.

    3. Michael

      Dean has his failings, but being the first Governor to sign a Civil Unions bill, implementing a 99%+ child health care access law, and creating a systematic way for elementary school teachers to get resources to families with kids that are in trouble is a pretty sound Progressive legacy.

  4. Ruben

    It is not clear to me that Austerity is a long war against the working class. It might be that Austerity turns out class neutral, or even pro-working class, depending on how gov’t expenditures shortages are applied across sectors? If Austerity is a war against the working class then the opposite of Austerity, Stimulus, necessarily is pro-working class but we have seen that Stimulus might be used to bail out non-working class sectors leaving working class wages and employment opportunities depressed.

    1. Dirk77

      I suspect it is the way it is applied. The shocking hypocrisy of the current pro-austerity people is what jars Black I guess. I mean these same austerity people were for tax cuts for the rich, giving trillions to Wall Street, forgiving their (real) crimes, and spending trillions more on wars whose result was to cause misery for millions of people and make the world an even less safe place. And then they talk about keeping a tight budget? Hell needs to add a ninth circle for these people.

      1. Dave

        Man, I love this site. I get more out of the comments than the articles sometimes. Your paragraph does more to encapsulate reality than do ten long pages of learned professors.

        Vatch, re “Moonbeam Brown”, just google

        “Something’s not right about this California water deal, L.A. Times”

    2. PlutoniumKun

      Austerity is primarily against the working class because it is deflationary. It benefits creditors over debtors. And creditors are invariably the wealthy (i.e. the owners of capital). A moderately inflationary fiscal/monetary policy with a focus on full employment puts power in the hand of workers. An austerity policy (by which I mean one which puts an emphasis on balancing the books over employment) gives power to the owners of capital.

    3. Ignacio

      Well, tell us a case in which austerity was inflicted against the richest…when the government cuts on private airports, ah no they are private.

    4. zapster

      When they only cut programs to the working class, while leaving huge corporate subsidies and tax breaks to the rich in place–it’s a war against the working class.

  5. Disturbed Voter

    Response to Ayn Rand … A doesn’t equal A … if you are in government. Politicians can talk out of both sides of their mouth at the same time.

    Response to Howard Dean … Dean who? ;-)

  6. knowbuddhau

    > But the Dems should not spread myths no matter how politically attractive they are.

    All myths are not created equal. I rue the day when “myth” became pejorative.

    I dare say Prof. Black lives by one. If Jung was right, and I think he was, we all do, albeit ignorantly, as in, we ignore their functioning (even my beloved science is mythological, but that doesn’t make it untrue). And his recasting of the myth of austerity in biblical terms is as potent as it is funny. Our denigration of myths is complete enough that Prof. Black can say the above, and yet do some very effective countermyth-making nonetheless.

    Do the high priests of economics and politics really believe their public myth-making? Or is their a private understanding that better fits the phenomena?

    I know I must sound like a broken record, but due to its regrettable unfamiliarity, this bears repeating.

    1. The first function of mythology [is] to evoke in the individual a sense of grateful, affirmative awe before the monstrous mystery that is existence

    2. The second function of mythology is to present an image of the cosmos, an image of the universe round about, that will maintain and elicit this experience of awe. [or] …to present an image of the cosmos that will maintain your sense of mystical awe and explain everything that you come into contact with in the universe around you.

    3. The third function of a mythological order is to validate and maintain a certain sociological system: a shared set of rights and wrongs, proprieties or improprieties, on which your particular social unit depends for its existence.

    4. The fourth function of myth is psychological. That myth must carry the individual through the stages of his life, from birth through maturity through senility to death. The mythology must do so in accords with the social order of his group, the cosmos as understood by his group, and the monstrous mystery.


    As we all know so well. the myth of neoliberalism is as succinct as it is brutal. “Because markets” and “Go die,” though, don’t fulfill all four functions. If I had the economic and financial chops, I’d examine Saint Alan and the Church of Neoliberalism’s mythology methodically and systematically with the intent to creatively destroy it. But that wouldn’t be enough. It’d be helpful to offer an alternative, but I don’t have that, either. Fat lot of good I am.

    That’s why I like Prof. Black’s retelling so much. It puts the absurdity of the pseudo-mythology of neoliberalism in terms familiar enough that that absurdity stands right out.

    And I also dare say what we desperately need now is a fully functioning and genuine mythology that leads us out of neoliberal hell and into a more perfect union of nature and society. First party to do so wins the future.

  7. Andrea Greenberg

    Surprised that Black refers to Dean as a “progressive voice”. That has never really been the case and it’s especially not true now. Also surprised that Black supports Ellison whose foreign policy includes support for a no- fly zone in Libya- mirroring the position held by Clinton.

  8. tegnost

    I sense a connection between this and the peak oil demand article. In the ’80’s and beyond, financial services have sought and gained a control economy effect with student loans and more recently the ACA, and feel that fracking, QE and the housing bubble all fit in there somewhere as well. Basically it boils down to being easier to make money at the top when they choose where the income stream comes from, i.e., in the New Deal citizens got money in some form of cash payment, from SS to welfare, and could choose to spend the money on what they wanted to spend it on, which in turn caused uncertainty in the finance arena, not so much that they couldn’t survive, but the financiers could envision a better world for themselves, enter student loans and now any kid without wealthy parents has a lifetime of unpayable debt, a drag on their professional income, or no advanced education with it’s implicit restriction on income, or a combo of all three. This same dynamic led us to the ACA which is, as opposed to a medicare style plan that could potentially curtail costs, become little more than a payment stream, a class marker, and has nothing to do with healthcare except in the sense that high costs make indebted heath industry workers able to pay their own student loan, and a class warfare tool such that those wealthy healthcare industroids can separate their offspring from the herd by being able to pay for their offspring’s education, as it does with the finance industry that manages the payment stream. I don’t currently see this dynamic changing, alas…but maybe the newfound vigor of the purple dems could be mobilized in this direction if they can ignore the payoffs for doing nothing.
    As to the hyper inflation comment, I think any renter who has struggled with the disruptions caused by increased rents would say yes, that’s hyperinflation, and indeed feels a lot like needing a wheelbarrow of cash to pay.

  9. sharonsj

    Let’s talk about reality. For most folks, more austerity is going to kill us. We are so squeezed now that we can barely pay our bills and save our homes. We have rampant price inflation, which both the government and the media pretend does not exist. And the latest figures for Xmas shopping show that although more people are buying stuff, they are spending less money. If the idiots running the country think tax breaks for the rich will boost the economy, then they have learned nothing from the last 30 years.

    1. Arizona Slim

      ISTR hearing that, if you want to grow your business, you need to get more people to buy more of your goods or services more often. Having more people buying less? Doesn’t sound like a recipe for success.

  10. Horatio Parker

    I’m glad someone is saying that a correct understanding of the economy is where the Democrats need to be. Imagine the impact if a candidate ran on payroll tax relief, expanded SS and a job guranteee.

    I like Keith Ellison as well, but I can’t find anything about his economic policies. If Dean’s economics are disqualifying, and Ellison suggested as an alternative, shouldn’t we know if he’s an improvement?

  11. Dave

    The Democrats are going to have to completely reinvent themselves if they ever want to get a vote or a dollar from me again.

    I went to a Democratic Party whine and cheese party the other day where the local “leadership” tried to harness some kind of crowd energy against Trump based on the mere fact that they had a D in front of their names.

    The delicious moment came in the Q&A. I waited until after the usual regurgitations of racismphobiahatethreatsdisaster about Trump to ask my question:

    “You had a winner in Bernie and your party chose that corrupt disaster Hillary–now we’re supposed to trust you to lead us?” I thought the moderator was going to have a stroke. Her face turned an appropriate shade of blue-purple.

    An agreeing buzz of people around me. It was positively sadistic watching the scrambling of the Democratic excusemakers shuffling their papers.

  12. larry

    It is worse than you say for the Dems. Trump has once indicated that he understands the nature of a sovereign currency. If he wasn’t bullshitting, then the Dems are in for an economic shock, at the very least.

  13. flora

    Thanks for this post. Great final paragraph. The DLC neolib Dems’ greatest achievement has been in presenting this terrible destruction as virtuous. ‘We have to destroy the 90%’s economy in order to save it.’

  14. Sound of the Suburbs

    We have been through a re-run of history.

    1920s/2000s – high inequality, high banker pay, low regulation, low taxes for the wealthy, robber barons (CEOs), reckless bankers, globalisation phase

    1929/2008 – Wall Street crash

    1930s/2010s – Global recession, currency wars, rising nationalism and extremism

    Milton Freidman used the old 1920s economics, neoclassical economics, as his base but didn’t fix any of its problems.

    Wall Street did exactly the same thing.

    Jim Rickards (“Currency Wars” and “The Death of Money”) has explained how the removal of Glass-Steagall allowed Wall Street to repeat 1929.

    In 1929, they carried out margin lending into the US stock market to artificially inflate its value. They packaged up these loans in the investment side of the business to sell them on.

    In 2008, they carried out mortgage lending into the US housing market to artificially inflate its value. They packaged up these loans in the investment side of the business to sell them on.

    The FED responded with monetary policy that didn’t work again, the “New Deal” pulled the US out in the end.

    Richard Koo explains:
    (In the first 12 mins)

    In 1929, the FED wasn’t quite so quick with monetary policy and stocks were a much more liquid asset and so the crash was so fast no one had a chance to deal with it as it was occurring.

    Monetary policy did stop the initial crash in asset prices but didn’t reflate the economy; you need a “New Deal” for that.

    The only real difference.

    Why are multi-nationals hoarding cash and not investing?

    Oh look it’s Keynes’s liquidity trap, its exactly the same.

    Keynes studied the Great Depression and noted monetary stimulus lead to a “liquidity trap”.

    Businesses and investors will not invest without the demand there to ensure their investment will be worthwhile.

    The money gets horded by investors and on company balance sheets as they won’t invest.

    Cutting wages to increase profit just makes the demand side of the equation worse and leads you into debt deflation.

    Fiscal stimulus is needed (the “New Deal”)

    1. John Zelnicker

      @Sound of the Suburbs – Great comment. Did you notice that all of your examples are approximately 80 years apart? It’s been said that it takes about 40 years for a new idea to obtain broad acceptance. Perhaps it takes twice that for a financial crisis to repeat itself and force us to take a new direction with (apparently) new ideas (although Keynes is not new, he was correct).

    2. Sound of the Suburbs

      Keynes looked at neoclassical economics and the Great Depression before and thought it was wrong as neoclassical economics thinks the only important thing is profit.

      Keynes thought wage income was just as important as profit.

      Wage income looked after the demand side of the equation and profit looked after the supply side.

      Central Bankers, your “savings glut” is actually Keynes’s “liquidity trap”, caused by just using monetary policy.

      The IMF, your shortage of global aggregate demand is due to a mistaken belief that the only important thing is profit; wage income is just as important as profit as Keynes found when he looked at this economics before in the 1930s.

  15. Sound of the Suburbs

    Austerity is neoclassical mumbo-jumbo put forward by economists who don’t understand money, debt and the money supply.

    It’s all in the Richard Koo video above.

    Richard Koo has provided us with a graph of how it was IMF imposed austerity that killed the Greek economy at about 54 mins.

    You can look at the IMF projection as well for a laugh.

    What the IMF know about economics you could fit on the back of a postage stamp, its full of neoclassical economists.

  16. susan the other

    Then there is the dutiful austerian Angela Merkel who stated that all members of the EU had “shared sovereignty” – and so… that was why they had to tighten their belts to the last notch so the bond buyers could be paid back?

  17. flora


    “Democrats don’t see a need to change policy – just the way they sell it”

    as Thomas Frank says:
    “What our modernized liberal leaders offer is not confrontation [with corporate corruption] but a kind of therapy for those flattened by the free-market hurricane: they counsel us to accept the inevitability of the situation.”

    Yep. Better PR will fix everything…. /s

  18. David

    I’m sure this is explained elsewhere but I still am perplexed; states have to pay their debts but sovereign money-printing governments print money. So why not shift state expenses (schools, police, garbage pickup, pensions ) to the sovereign government which can print the money to cover the expense?

    1. Yves Smith Post author

      That is what that great socialist Richard Nixon did with revenue sharing. The Federal government gave states block funding, with anti-fraud oversight. Nixon figured that lower levels of governments had a better sense of their needs than the Feds did.

      Ronald Reagan ended revenue sharing.

  19. Onlyindreams

    If the “best of the best” Stephanie Kelton couldn’t even get Sanders to break the cycle of mainstream economic “myths”, who you gonna call ? If a simpleton like me can understand and believe basic MMT principles, I can not imagine the “brainiacs” running the country ( or vying to run the country) are innocent of the crime (assault with a deadly myth).

    Who knows, with some luck, and he seems to be having a ton lately, the presumptive POTUS could be that accidental MMT’er. But I’m sure he would deny that luck had anything to do with it.

    1. Susan Nelson

      I am sure Bernie understood Kelton’s message or he would not have invited her to Washington to spend a year educating his colleagues. But what you have to say while making a presidential run and what Kelton can say are not the same. You have to bring the public along, and not start out by trashing what “everybody knows.” That is why he included “pay-fors” in his proposals. It moved the fight to the actual policies as opposed to arguing about where money comes from.

      1. Onlyindreams

        Honestly, that is the very reason why I found Sanders a disappointment. The simplistic beauty of MMT is the fact that government spending is not revenue constrained. His “pay for” message derailed that fact. The truth of the nature of money is so crucial for the electorate to understand that someone running for office has to eventually initiate that conversation. I guess Sanders made a political decision not to step up to the plate. Who then is brave enough , or foolish enough to face that daunting task…as of now, Trump is the only one that comes to mind.

        1. HotFlash

          Ah! Perhaps it’s just b/c I am BernieBeliever, but I thought his ‘payfors’ were genius. For instance, his plan to pay for free college was a transaction tax on Wall Street. Wow, I thought, a really attractive sell for a (much needed) transaction tax to damp down HFT.

          1. Onlyindreams

            And ah! On the other hand, I am surrounded by people who are the “don’t wanna pay for that” believers. The Flash boys may not even cherish the thought of being targeted or tempered.

            Perhaps if taxes were reframed in such a way, as in the truth, it may take some sting off the bite.

            What got me off the “don’t want to payfor that” high horse was the thought of mentally ill beggars camping at the gate. This line usually works on my well insulated neighbors who think this reality will never happen.

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