I am still catching up after being away in the UK last week. I will…
Destructive economic myths
As a service to humanity, I decided to rip off the title for today’s blog from an article that was published on Monday (February 7, 2011) in the Washington Times – Destructive economic myths. My blog is highly rated by Google so if some innocent bystanders happen to go searching for that article they might also bring up my blog, get confused, click my link instead of the Washington Times and learn some facts that will help them oppose the political nonsense that both sides of politics in the US is engaged in at present – as the vote to change the debt ceiling approaches (March 1, 2011). I might be too late but it is worth a try*. Anyway, the austerity push is being justified by recourse to the same misinformation and lies that was used to deregulate the world economy (particularly the financial system) which led to the financial and then economic crisis that still endures. Talk about destructive economic myths!
The article was written by a character affiliated with the awful and dangerous right-wing Cato Institute which is based in Washington. They are a $US25 million odd a year outfit (revenue) and have a lot of “scholars” pushing out Austrian School lies into all the major media outlets. I think Modern Monetary Theory (MMT) proponents need to expand their revenue base somewhat to catch up – like very somewhat! Any thoughts?
Anyway I must admit to being thoroughly confused today. I am used to reading about deficits black holes and mountains of debt that we are about to fall down or off depending which and will drown or enslave our children and their children. The terminology makes a bit of sense in economic terms – that is, the imagery is consistent with concept – deficits are about flows and so the idea of a flow pouring is okay (hole in bucket!) and outstanding debt obligations are a stock so a mountain sounds okay.
I am not thinking that there is any common-sense in the arguments that use this imagery – just that there is some consistency in term and concept.
But the confusion hit me when I read in a Washington Times article (February 9, 2011) – Deficit diggers now vow to fill hole – that:
While Democrats and Republicans say they are ready to begin filling in the nation’s deep borrowing hole, budget hawks remain skeptical of lawmakers’ ability to fulfill their vow, given that many of them did the digging in the first place.
So is the borrowing hole a mountain or what? The article added further confusion by claiming that US gross federal debt has “mushroomed since 1981.
It also thought it was making a telling point when it said that “with Democrats at the helm … ‘between 2008 and 2010 we had the single worst Congress on spending – period'”. Surprise surprise … ever looked out the window over to south-east suburbs of Washington lately … there is plenty of Go Go but even more unemployment and poverty. Given the scale of the crisis, if we didn’t have the single highest period of spending then I would have been surprised, notwithstanding that the article doesn’t differentiate between nominal and real spending.
Almost every year is a record year in nominal terms!
The article quoted the president of the Committee for a Responsible Federal Budget, which is a “non-partisan organisation” (don’t you just love that term – they are rabid neo-liberals and allow no alternative view in their published output but are non-partisan) that is seemingly always on the verge of an hysterical outburst about something to do with government. Anyway the quote is very amusing:
… the coming debate over raising the debt limit will offer party leaders another shot at convincing voters that “we can’t have tax cuts and spending increases because the math does not work …
How come there are so many right-wing think tanks in the US? I guess it is better to confine them to one location so they leave the rest of us alone although Australia has a few of our own.
But is this another example of the failure of public education in the US (due to inadequate government spending) – the “math does not work”. I went to a state school in Melbourne, Victoria (my home town) and learned by maths quite well. But I also learned that when we are talking about tax cuts and spending increases for a sovereign government mathematics doesn’t come into it.
Distribution issues aside (not that they are unimportant) the US government can always lower taxes and increase spending if it wanted to and the budget would add up to what it was. The maths would be impeccable.
Whether it would want to do that is another question and has to be considered in the context of the other spending aggregates (private domestic and net exports) and the state of capacity utilisation at the time.
At present, the US has massive excess capacity including millions unemployed and underemployed, a negative contribution from net exports and a stagnant private spending growth horizon. It would look to me that increasing spending and/or lowering taxes would be a good policy option in that context.
I favour stimulus via public spending increases at present because I think the Government needs to restore services that have been cut (even if the spending is some per capita demogrant to the states) and directly provide jobs to millions of unemployed. They could integrate a refurbishment of their declining public infrastructure with the direct job creation.
Cutting taxes is unlikely to be targetted enough to achieve a public infrastructure/public employment focus. But either way, the US government has no mathematical constraint – or rather it should not have.
But the point is that I didn’t see one mention of aggregate demand (spending) in the article or how demand was tracking aggregate supply (the output potential of the economy). That is a basic starting point for any reasonable macroeconomic analysis but is usually absent from these austerity rants.
So I knew what I was in for when I read the other Washington Times article – Destructive economic myths. The author Richard W. Rahn is a serial offender when it comes to spreading anti-government propaganda. He invented this curve which claims that the smaller is government the stronger the growth. The reasoning is seriously adrift and I might analyse the papers that have been written by others to support the “curve”. They tell a dismal story of wasted lives – locked up in university offices – typing up lying and distorting articles – in the hope of a promotion! It is a sad state. But I wonder why China is growing at rates that make the advanced nations red with envy?
Anyway the opening paragraph of the “Destructive economic myths article sets the scene:
Wildly inaccurate statements from news commentators, financial analysts, politicians and even administration officials have most people believing that if Congress does not increase the debt limit in March, the U.S. government will default on its debt obligations, thus ending the government’s ability to borrow. Nonsense.
Yes it is nonsense.
The true statement is that if the US Congress does not increase the debt limit in March then the US economy will slow down, unemployment will likely rise, poverty rates will rise, and the opportunity to put in place an ambitious public infrastructure-led revival will be gone. Further even more young Americans will join the ranks of those who will never prosper and many of them will turn to crime, drugs and suicide. More families will breakdown and the strains on the health system will increase.
But Rahn thinks otherwise. What do you call a myth that is a myth? Rahn starts of with the Household-Government budget analogy myth although he thinks it is a useful approach.
He introduces a person (household) who has nominal mortgate commitments and other expenses “including $2,000 per month traveling to sporting events and going to expensive restaurants” who finds they are over-spending relative to income. They have two choices – “default on … mortgage and ruin … credit rating or cut back on sporting events and expensive restaurants.”
I love the inherent dishonesty of this example. The choice of discretionary spending is not an accident. Sporting events and “expensive” restaurants. Not too many people would consider cutting back there to be a hardship. But when the analogy is extended to the sovereign US government you appreciate the crookedness of the choice. He wants us to believe that the government is indulging in largely unnecessary “sporting event” spending and wasting money on “expensive restaurants” (luxuries).
Of-course, the household is financially constrained and has to “fund” its spending either by earning income, running down prior saving, borrowing or selling previously accumulated assets. Bonnie and Clyde found another way but it is not to be recommended.
Further, it is obvious that when a household is overspending and can no longer “fund” that excess by non-income sources then it has to cut is spending – that is clear. Interestingly, it was this type of example that led Keynes to argue that workers do care about money wages rather than real wages which was one of the elements he debated with the neo-classical economists during the Great Depression.
The mainstream textbook model believes that workers only worry about real wages. But Keynes and others argued that given our debt obligations are all written in nominal terms (so many dollars per week/month or whatever) then if our real wage is cut (by prices rising faster than wages) then we can still maintain our debt obligations (that is, keep our house) while trimming discretionary expenditure.
So far so good.
Rahn then applies this logic to the US government budget and that is his first “destructive economic myth” although he is blind to it.
The U.S. government is in exactly the same position. If the debt ceiling is not raised, government officials will have a choice to default on the interest payments (less than 10 percent of the government’s total income) or cut spending … the Full Faith and Credit Act (S.163) … would require the Treasury to make interest payments on U.S. government debt its first priority if the debt ceiling is not raised. This legislation would require the federal government to reduce spending on other activities and/or sell assets, as any business or family would need to do when faced with a similar problem.
There are two points. First, under current government legislation this is true. If the US government is bound by the debt ceiling and further legislation enforces a proration of existing revenue by debt then other spending then the government can cut elsewhere.
But this would not be for the same reason “as any business or family would need to do when faced with a similar problem”. The financial constraint faced by a business or family is intrinsic to their status in the monetary system. They use the currency that the US government issues as a monopoly provider. They are always financially constrained.
Rahn should admit that the US government has chosen to be voluntarily constrained. The constraint is not intrinsic to the status of the US government as the issuer of the currency. That status confers sovereignty on the Government and means they are never revenue constrained intrinsically. The fact that they choose to be so is a nonsense which could be changed by appropriate legislation.
By creating these voluntary constraints the US Congress is denying its government the capacity to defend the interests of its citizens in a range of ways which I will come back to later.
Rahn’s thinks the second myth is that:
The big-government crowd claims huge hardships would result from the mandatory spending reductions. Again, nonsense. Spending would only have to be reduced to roughly the 2006 level to avoid an ongoing deficit. The government receives a little more than $70 billion a day, or more than $2.5 trillion a year. Much of what the government spends is downright destructive and should be stopped ...
So why is there a deficit in the first place?
Does Rahn think that the deficit is a thing from outer space that is not integrated into the economy?
Does Rahn think that you can take the deficit away and that there will be no negative consequences?
Those questions have to be answered first. Where does this “downright destructive” spending go? Well we know it is going into a range of services which will be cut. We know it is employing people either directly or indirectly via multiplier effects.
I would never say I was happy with the composition of any fiscal position. I would severely cut military spending in the US right now. But I would make sure that overall aggregate demand was expanded at the same time given the massive excess capacity that is being carried at present.
So you might run a line that government spending is poorly prioritised but you still have to face up to the fact that spending equals income – and when you are running external deficits (which subtract from domestic demand) and the private sector is not wanting to ramp up their spending then the only other source of demand stimulus is public spending (wasteful or not).
We have to differentiate levels and composition. Hacking away at the level of public spending to address compositional concerns is no way to go unless you also want to damage the overall level of real output and employment.
That is the biggest lie – that cutting public spending will somehow stimulate growth. It will not in the present situation.
Rahn’s thinks the next myth is that:
… if the government reduces its spending, that will cost jobs. This myth is being promulgated by many Democrats and their allies in the media. The fact is that the percentage of adults in the labor force has fallen to its lowest level in three decades even as the government has grown by a quarter in relative size in the past three years. If government spending could bring about full employment, the socialist countries would have been great successes rather than basket cases. Remember, the money government spends on “creating” jobs comes from either taxing or borrowing – both of which take money and jobs out of the more productive private sector – thus reducing the total number of jobs.
It is hard to know where to start with this sort of tripe. First, spending whether public or private creates a demand for labour which means it creates jobs. Cutting spending destroys jobs. Cutting public spending and not replacing it with private spending will destroy jobs.
Second, the trends in the participation rate (percentage of adults in the labor force) is a supply-side phenomenon and do not tell you about the demand for labour. It is nonsensical to think you can conflate supply trends with demand trends.
Third, the socialist countries did maintain full employment as did the non-socialist nations during the period from 1945 to 1975 (or thereabouts). It was done by public spending supplementing private spending in the latter group of nations. The fact that the socialist nations came unstuck says nothing about their capacity to create full employment.
Fourth, Rahn has it backwards. The “money” we use to pay taxes and buy public debt comes from government spending not the other way around. Without government spending we cannot pay our taxes at the current level.
The reality is that if the US government starts cutting along the lines advocated by the Republicans (15.4 per cent) there will be many jobs lost overall – both in the public and private sector. It is a lie to argue otherwise.
Rahn finishes by quoting Ronald Reagan:
Government is the problem, not the solution.
Reagan was a B-grade actor unless I am mistaken.
Government is a problem in many areas of life – censorship, prohibition of drugs, military invasions, spying on us, lying to us, and more. I agree. I am a libertarian.
But unlike the Cato-type libertarians I also realise that in a fiat monetary system the government has a special place as the monopoly issuer of the currency we use. In its fiscal operations, the government becomes the solution to ensuring we all have access to work and income security.
I advocate no government interference in a range of social activities. But I advocate very strong public guidance of the expenditure system to ensure aggregate demand doesn’t fail (fall below the level required to create work for all) as it is now.
The Austrian School libertarians cannot understand that distinction because they are besotted with all the destructive economic myths that neo-liberal economists promote which include:
(a) Just like a household, governments have to live within their means. They falsely claim that budget deficits have to be repaid and this implies higher taxes in the future. So our children and their children will be forced to carry the burden of our profligacy.
(b) Neo-liberals further argue government borrowing (to “fund” the deficits) competes for scarce available funds and drives up interest rates, which reduces private investment – the so-called “crowding out” hypothesis. They also assert that governments waste resources because they are not subject to market discipline and so the use of scarce resources by the public sector at the expense of the private sector leads to what economists call sub-optimal outcomes.
(c) The final part of the scaremongering narrative is that the deficits push too much money into the economy which leads to inflation.
So the Armageddon predictions are of governments creating hyperinflation, defaulting on their debt obligations and imposing punitive taxation regimes on future generations. These are the destructive economic myths. Rahn and his Cato mob perpetuate them daily. Pity there jobs are not dependent on the national unemployment rate. Like they lose their jobs if the national unemployment rate rises!
Please read this suite of blogs – Deficit spending 101 – Part 1 – Deficit spending 101 – Part 2 – Deficit spending 101 – Part 3 – for further discussion.
Then you might benefit from reading this suite of blogs – Fiscal sustainability 101 – Part 1 – Fiscal sustainability 101 – Part 2 – Fiscal sustainability 101 – Part 3.
On this theme, I found this analysis – House GOP Plan Cuts Non-Security Discretionary Programs 15 Percent Through End of Fiscal Year – by the Center on Budget and Policy Priorities (CBPP) to be very helpful and, for a change, analytical and reasoned. It suggests that none of the (massive) cuts (15.4 per cent overall) that are being proposed by the US Republicans at present have anything to do with bailout or stimulus spending. That is, the Republicans are lying when they say they are only proposing cuts to non-security discretionary spending which would take:
… this category of spending back to pre-stimulus , pre-bailout 2008 levels …
If you examine where they plan to make the cuts (see CBPP Table) you start to understand how the US is about to be trashed even further. A Japanese-style lost decade here we come! Courtesy of lying, self-aggrandising politicians who swear by God but do the devil’s work.
In the New York Times article (February 7, 2011) – A Terrible Divide – you get a feel for what the impact of the proposed cuts would be:
In the real world, schools and libraries are being closed and other educational services are being curtailed. Police officers are being fired. Access to health services for poor families is being restricted … basic public services that one would expect in an advanced country like the United States …
These are core elements of a sophisticated society.
A society can never become rich by impoverishing the poor and depriving them of access to the resources that the rest of us have – health care, education, information, etc.
America has had a couple of revolutions (well one and a civil war). Americans have guns. You simply cannot demolish the hopes and aspirations of millions of people and not expect some revolt.
I thought the conclusion of this article was apposite:
We have not faced up to the scale of the economic crisis that still confronts the United States … Standards of living for the people on the wrong side of the economic divide are being ratcheted lower and will remain that way for many years to come. Forget the fairy tales being spun by politicians in both parties – that somehow they can impose service cuts that are drastic enough to bring federal and local budgets into balance while at the same time developing economic growth strong enough to support a robust middle class. It would take a Bernie Madoff to do that …
The U.S. cannot cut its way out of this crisis. Instead of trying to figure out how to keep 4-year-olds out of pre-kindergarten classes, or how to withhold life-saving treatments from Medicaid recipients, or how to cheat the elderly out of their Social Security, the nation’s leaders should be trying seriously to figure out what to do about the future of the American work force.
Surely!
Conclusion
Pretty depressing really. Let’s hope my crafty Google ploy works and readers learn that you cannot cut spending and expect there to be growth. It doesn’t work like that – ever.
But as one of my US mates wrote today – Rahn is setting himself up to be a prospective Nobel Prize winner. His ideas certainly qualify him for that award!
* American readers – this is my attempt at humour – stay calm.
That is enough for today!
“The Austrian School libertarians”?
I doubt that they would agree that “property is theft!” They would probably agree that “property is despotism” but consider that, unlike genuine libertarians, a good thing (keeping unions out, “management’s right to manage”, and so on). They would probably agreed with Proudhon that the state exists to defend property rights and the rich but would disagree when Proudhon argues that is precisely why we need to get right of both state and property!
“the socialist countries”?
State-capitalist would be a better description — they were based on workers selling their labour/liberty to the boss, just that in this case the boss was the state and its appointed managers. Suffice to say, libertarians like Proudhon, Bakunin and Kropotkin have been proven right both in terms of their critiques of capitalism and state-socialist schemes. The Stalinist regimes were not remotely socialist so confirming Bakunin’s argument that socialism needs to be anti-state/libertarian to work.
“Reagan was a B-grade actor unless I am mistaken.”
Apparently all you need to be to be president of a nation.
Blair was a third rate barrister.
This is the same cycle that the US has been going through since before the Civil War. They seem to be slow learners, but then so are the rest of us.
Bill, You’ve taken a swipe at Austrians today and yesterday. I’m with you on that. Coincidentally I had a swipe at them yesterday:
http://ralphanomics.blogspot.com/2011/02/austrian-economics.html
For some real low grade Austrian drivel, see under the heading “The Core of Austrian Theory” at:
http://mises.org/etexts/why_ae.asp
Re your claim that “I favour stimulus via public spending increases at present because I think the Government needs to restore services that….”. Can I suggest you don’t mix politics with economics? The proportion of GDP taken by the public sector is a choice for voters at election time, not something economists should make too much noise about.
George Washington’s blog a day or two ago expressed irritation with Americans’ tendency to mix economics with politics.
Neil: B.Liar, I mean Tony Blair would have made a brilliant barrister. He’s a charlatan, lier, fraud, etc. And when it comes to contrived sincerity, not one can touch him: all qualities needed by a good barrister. As the American politician said “The important thing in politics is sincerity. If you can fake that, you’ve got it made”.
Is it not also true that it has been shown that the best way for households in debt to get out of that problem is to increase their income, not cut back on spending?
Of course that is predicated on other things like the availability of additional employment, or educational opportunities to move enable a move to a better-paid job. Neither of which are likely to improve in the near future.
Bill,
Instead of writing an article for you blog why not write an article that will get published? What I don’t understand is that everyone that talks MMT only does it to each other.
You need a marketing group.
Dan
“I think Modern Monetary Theory (MMT) proponents need to expand their revenue base somewhat to catch up – like very somewhat! Any thoughts?”
Let’s create formal organisation with membership, program, paid staff….
MMT needs bigger commitments from more people now.
Check out this link to an article from the Independent today in the UK about the cuts to services that will take place in Manchester. It is devastating stuff and the UK government seems hell-bent on bringing about a truly impoverished socety.
http://www.independent.co.uk/news/uk/politics/services-what-services-manchester-in-shock-at-163109m-cuts-programme-2208613.html
It’s news like this that really ought to get people to think, and I mean really think about all this austerity and what is really behind it. The services that are being cut are, by and large, pretty much basic stuff that all civilised societies provide. It also ought to make people really think that it really is about mobilising and allocating resources that we as a society CHOOSE….and that in a modern sovereign currency issuing nation it should NEVER be about money. It ISN’T about money. Cameron, Osborne & Co. ought to be ashamed of themselves. They understand nothing about economics.
A minor quibble with your Bill. In your point ‘b’ should have been split into two points I. E
. the neo- liberals use state one potential deception( the crowding out theory) and one possible partial truth of wasteful spending. Both deserve a seperate rationale to address, especially the crowding out theory, as that is one of their key arguments for dangerous inflation. Other than that, this was an inciteful article…
Thank you for your insights. Now… If I could only convince
my friends in finance to consider MMT theory.
My main two problems with MMT are one economical and other political:
1) perpetual growth (same than any other economic theory) and obsession with “useless” indexes like GDP
2) how you prevent mailinvestment by politics due to conflict of interest
There are also some contradictions that I would like to know how you solve: in a society with increasing productivity, why we must keep creating artificial employment just for the sake of it, instead of reducing working time for example, and getting better standards of living in other senses (it must be influence like good old calvinism).
Also why don’t you advocate for concepts like free-of-debt money and elimination of the current credit system as it exist. Is like you know the issues, but you want to keep being not-so-disturbing to the status quo so you could stand a chance.
Talking of destructive economic myths, it appears the IMF have investigated – er – themselves, and found (according to the BBC):
IMF downplayed risks ahead of 2008 crisis, says report
http://www.bbc.co.uk/news/business-12406718
“However the IEO said measures should be taken to encourage alternative views and diverse opinions both within the IMF and from outside experts.”
But will they actually the change?
“2) how you prevent mailinvestment by politics due to conflict of interest”
sure, there will be some malinvestment, there always will be, but it’s not at all obvious that the public sector is more guilty of malinvestment than the private sector. furthermore, what is bill talking about here? he talks about libraries, education, better and more equally distributed health care services, etc. this bogey-man of ‘o goodness what if we accidentally put the unemployed to work doing useless things’ just reeks of timorous hand-wringing
Dear silvio gesell,
“perpetual growth” of what? And where do you see MMT requesting perpetual growth?
In which documents do you find MMT “obsessed with “useless” indexes like GDP”?
MMT does not advocate “creating artificial employment just for the sake of it”. MMT is about macroeconomics and how a modern fiat money system actually functions. The Job Guarantee (JG) is a somewhat separate issue and is concerned about a more equitable distribution of the products of the economy by providing work for everyone who wants to work. Bill Mitchell shows how the JG can fit into and complement MMT without detrimental effects on the money system whilst still fulfilling its purpose. There is nothing artificial about the JG employment. People who have jobs on a decent wage (and not like Hartz IV) will be “getting better standards of living”.
A proper understanding of MMT makes it clear that a government sovereign in its own currency (not like the current German one which is tied into the Euro zone) does not have to borrow money.
If you read and study the blogs under the categories “Debriefing 101” and “Economics” listed on the right margin of Billy Blog you will find the answers in full to your questions.
I thought that Silvio Gesell was dead.
all the best
Graham Wrightson
Dear Bill,
A general comment re techniques of presentation of MMT:
Using your blog above as an example, I find I read it both visually and conceptually. Images such as ‘helm, holes, mountains, mushrooming, think-tank’s, household, crowding-out’, even the more recent ‘Nobel prize-winner, Bernie Madoff’, spring from the page. Each image carries meaning and significance, and is called into being by writers for a purpose. These images may have very powerful immediate and long-term effects, especially if well-known. Used blindly or selfishly they can obscure logic; used correctly enhance it.
There are a plethora of images used randomly or habitually for effect in journalism these days, but I know of only a few topics where the images are part of an overall design strategy for presentation. Perhaps this is reason for the chronic persistence of the neoliberals’ agenda, arising from their hazy use of negative images and fear.
Textually, concepts build on each other, and in a good blog article follow the standard intro-body-conclusion format, evident above.
So, my suggestion is not new, but simply – combine both deliberately for presentation of MMT – in a simple organisation.
For example, the analogy of a ‘key’ is well known: Master-key (unlocks building and all subsets), Pass-key (unlocks zones and all subsets), Latch-key (unlocks rooms), Turn-key (now means ready to go, but used to mean for a locked cell – good holding place for neoliberal garbage).
Continuing the MMT as ‘building’ analogy there are zones of discussion just as there are rooms within zones, similar to the categories in billy blog. There are zones fitted out for people on the street as well as zones for business or academics.
Clear repetitive images could be associated with the keys, rooms, zones and building, so that people could quickly learn their way around the building and become familiar with the overall layout, zones and rooms. Images are powerful foci and carriers of concepts. These images should be linked to each other and unfold pictorially; making as much sense as the logic and description of real events unfolding with them.
The current global presentation of MMT I read as conceptually obscure in that it is not organised as a building is organised and that there are very few strong images employed that would give people an immediate ‘feel’ for the building; its purpose, content, functions etc. and what sets it aside from other buildings. New arrivals stand in front and get confused, not knowing what to make of it! This is the age of the ‘image’ – so to use them well is essential.
Am also wondering whether a global Foundation with its own website, perhaps the current main developers of MMT in charge of their own zones and building collectively might help? Same amount of energy expenditure on your part but with a better result (the productivity solution)? Then volunteers could help you; maybe some more funding might be possible to develop the presentation?
Cheers,
jrbarch
More often than not there is a comment section today on online-articles. Usually they accept also web links, so, would it be too much to ask from active readers of this blog to mention Bill’s relevant blogposts in the comment section of those articles?
There is so much passivity around it makes me sick. We either recover world economy or descent to the dark ages. Stakes could not be higher. Yet, what does average reader of this blog do? Nothing. It used to be that people gave up their lives for ideals they believed in. In modern days, making a difference could be as easy as making a comment to widely read website. Yet, 99% of readers can not be bothered to make one singe argument. It’s Sad.
“Let’s create formal organisation with membership, program, paid staff….
MMT needs bigger commitments from more people now.”
Nah. It needs to be cleverer than that.
What we need to do is convince a large amount of people to buy a small amount of shares in very large global corporations and then assign them to a foundation. Then force those companies to pay out dividends which are used to fund the appropriate political structures.
Own the problem, then the hearts and minds will follow.
Hi graham,
MMT as any other economic theory promotes growth (and measures growth pretty much using the same economic indexes than most economic theories). I’ve nothign against growth per se, but… ¿what growth? ¿and what if you can’t growth due to finite resources? Exponential function, thermodynamics and energy come to mind.
I guess the JG would have a part to say in ‘what sort of growth’. Now about malinvestment, I don’t know about USA or Australia, but I know how my country (Spain) works, and I guarantee that I don’t want more government investment that just favours private interest (and there has been loads of public investment over th years here, indeed we have full regions living of public investment and spending even without monetary soveringty). So this may work in countries like Switzerland, with good democratic tradition and solid citizens, but not in many other places. There are political, with deep cultural and social roots about how economic works locally. Don’t fall into the same mistake of of placing the economy (or even macroeconomy) as something apart of the social sphere, because is a subset of the second.
And anyway, why understanding that government can create (and indeed does) their own money, what’s the pourpose of the private credit system? You can’t have stable economy with ever-growing debt whcih credit money is all about in the end. And governments joining the MMT praxis, may as well go full ahead and promote pure fiat money systems.
Please don’t take this as an offense, I agree on pretty much thinks the MMT says and the description of monetary and fiscal systems, but I still can see some problems and limitations within it and I’m curious about these.
P.S: posted before as Gesell, but you’re right, he is dead and I shouldn’t borrow his name 😀 Wonder about all these people who post as keynes or von mises in other places hehe.
silvio gesell, I’m totally with you on all your points. However Bill has said previously in a comment that he personally has no problem with the idea that in developed countries the ideal rate of economic growth might be zero. He actually wrote “we need to produce less and distribute it more equally”. I think MMT seems in a muddle because it is so hard/impossible to separate politics and economics. MMT claims to be aloof from politics and just a description of the workings of fiat money much as geology is a description of rocks. This comes unstuck when MMTers assert that certain policies are self evidently a good idea and that anyone who does not concur could not understand fiat money. A lot of such policies also seem to me politically nasty and economically misguided. The JG seems to me a way of using collective resources to direct people towards doing the bidding of JG directors rather than what they would otherwise do. The economic argument for dishing out money so as to maintain aggregate demand seems sound. Tying that in with a link to obeying a JG director seems pure political oppression. I also think the MMTers ideas with regard to limiting the destructive power of the finance industry are totally inadequate in the face of continuous liquidity injections that superpower the finance industry.
Dear stone,
Thanks for your comment, to be honest I can’t keep up with the so productive Bill posting so I may miss things (same with other MMT authors). Indeed the problem, not specifically with MMT but with economy as a whole is that is linked with politics nevertheless and sometimes is hard to separte policy from description. There we have neoliberals trying to present their theories as something objective and scientific regardless of the political and social context, which is nonsensical to anyone with scientific formation.
I don’t doubt MMT’ers are noble in their objectives but I’ve difficulties trying to imagine how things would work in real world (as they say, paper stands anything). Beware I’m not saying that the current situations may be better, and evolution requieres changing and experimentation, but allways taking in mind we are talking about real human beings. And in the end I allways end thinking about foundational issues like the political system, civil society, morality, etc.
I agree a lot of the MMT prescriptions are straigh fordward, but some of them are straigh fordward in the current monetary context which may not be the best to start with (indeed IMO increasing financial power is natural to the current monetary system and any attempt to regulate it would only be a patch up which in the long run won’t fix things).
Anyway, these were just some concerns and observations I’ve done, but any counterbalance to the mainstream school of though is wellcome. And any effort to increase visibility is therein good.
JRBarch @ 11:26:
Intriguing comments but a little too abstract for me. What specific examples do you have in mind?
Chaos @ 21:30
MMT provides a clear understanding of the possibiliites our economy permits us which are much greater than the neo-classicals would allow. However political issues still remain, as ever, and in the end are the most important thing that needs to be resolved. The Republican leadership in the US, when in power, uses MMT principles to enrich the wealthy and pay for a vast military machine. It is inequitable and murderous but it creates jobs and social stability at home.
Bill,
You only need convince one person to get your message out – Michael Moore. I’m sure he’s come up with a creative documentary that would skewer neo-liberal ‘logic’.
Pz…
I sometimes post a comment based on MMT principles when there’s an opportunity.
I posted a comment under Jessica Irvine’s article on middle class welfare (in the SMH) this morning, with a link to Bill’s recent essay on Australian Labour Force data.
Here’s the link if anybody has the stomach to scroll down to my comment at 8.44am:
http://www.smh.com.au/opinion/politics/its-time-to-cut-payments-to-the-well-off-20110210-1aojg.html?comments=17
Except for one or two comments, it got buried under an avalanche of ignorance and stupidity.
We have a lot of work to do !
Only when you start spouting off Ayn Rand will you ever be a libertarian in the American sense of the word.
Jexpat, I think that the libertarians of the right have cornered use of the term “Libertarian,” at least in the US. However, libertarianism is much broader than that and includes libertarians of the extreme right and extreme left, and many position along the spectrum between the extremes. See the Wikipedia article on Libertarianism for an overview of the many positions. Many of these positions are well thought out. Rand’s Objectivism is not.
Tom:
I’m aware of the difference between big “L” and little “l” libertarians- though I submit in either case that their philosophy leads inexorably to neofuedalism dominated by robber barons.
Keith Newman@February 11, 20110:53:
No intrigue: an open accountable transparent organisation that will fight for the economy as GreenPeace does for the environment; full of well prepared and synchonised academics, activists and volunteers!
Cheers ….
jrbarch
Jexpat: I’m aware of the difference between big “L” and little “l” libertarians- though I submit in either case that their philosophy leads inexorably to neofuedalism dominated by robber barons.
And I submit that opposite views lead to a police state. 🙁
Tom,
Have you ever studied the concept of “Free Will”, as it relates to the philosphical/theological? ie somehow people are not really in control of their actions like they think they are..
This Wiki page goes into some of this:
link_http://en.wikipedia.org/wiki/Free_will
I have never looked at this before in any depth, it is hard for me to understand, and looks like some of it is related to Philosophy. But the actions/decisions of many people involved at the highest levels of economic policymaking often leaves me scratching my head. Most are highly educated, but it is often as though they are not in control of all of their faculties, they seem absolutely zealous. They often seem to lose all objectivity whatsover. This is disturbing.
Some people around the blogs have made recent observations that these people often look as I call it like “zombies”. Ramanan made a recent observation about the look of Senator Sessions in a video I posted, and recently Stephan made a comment here at Bill’s that the CPAC thing was like a B grade sci-fi movie with aliens. They were sort of joking perhaps but maybe we are actually seeing some form of physical manifestation or psychological phenomenon where these people are sort of out of their own cognizant control for lack of a better description. And it looks like something is taking control of them, or perhaps they are in great internal conflict and this manifests itself by these people having very strange looks about them (stress? dunno..)..
I’m a spiritual person, and a have my own suspicions related to this, but in Philosophy, have you ever come across anything sort of ‘secular’ as related to how perhaps these people reach their decisions or how they make their supposed ‘free’ choices? Their decisions, deep down, are often not in their own best interests imo… this is very odd to me.
Resp,
Tom,
For instance this is an excerpt from the Wiki article:
“Metaphysical libertarianism is one philosophical view point under that of incompatiblism. Libertarianism holds onto a concept of free will that requires the individual to be able to take more than one possible course of action under a given set of circumstances.
Accounts of libertarianism subdivide into non-physical theories and physical or naturalistic theories. Non-physical theories hold that a non-physical mind overrides physical causality, so that physical events in the brain that lead to the performance of actions do not have an entirely physical explanation. This approach is allied to mind-body dualism in philosophy. According to this view, the world is not believed to be closed under Physics. An extra-physical will is believed to play a part in the decision making process. According to a somewhat related theological explanation, an independent soul is said to make decisions and override physical causality.”
This type of thing. Resp,
Tom,
Ive noticed Bill’s latest post identifies these types of phenomenon :
“an irrational economic absurdity ….. which no man could believe who had not had his head fuddled ….. policies that ignored the reality …… this irrational economic absurdity …… has yet to trickle down, but both parties proceed on the assumption that it eventually will (ED: isnt this one persons def. of insanity?) …. If that doesn’t give pause for reflection then I am not sure what will. …. Given the CBS Poll I referred to yesterday why is the US government scared of implementing a Job Guarantee …. The alternative is a slow, muddling recovery with millions left behind …..
How come we can see this and they cant? Years ago, I heard Warren Mosler on Mike’s show and in about 15 minutes I had probably about 90% of what I needed to really know in this regard, yet I do not believe myself to be as intelligent as many of the policymakers who just cant seem to get this. Pete Peterson actually owns healthcare companies thru Blackstone and he is working 24/7 to gut healthcare? How does that work for him? He cant be just self-serving as he is actually damaging himself financially.
Does the Field of Philosophy cover any of this? Maybe it’s like the paragraph above: “a non-physical mind overrides physical causality” and they end up sabotaging themselves ? I think we may be witnessing a historic occurrence of these types of phenomenon if they exist.
Resp,
Matt, free will is a deep subject that has been debated for millennia without a logically compelling or empirically testable solution forthcoming. Philosophically, the free will versus determinism debate revolves around moral responsibility, those arguing for free will holding that freedom of choice over action is required for moral responsibility, while determinists hold that the brain is shaped by nurture as well as nature and that environment affects behavior. While this philosophical aspect is not usually argued explicitly, it lies at the basis of a major difference between left and right. The right views human beings as free moral agents by nature, and the left views human being as largely shaped by nurture.
The most promising avenue for resolving the controversy empirically lies through greater understanding of brain functioning on the part of cognitive scientists, but we are long way away from understanding comprehensively how the brain works to control behavior. Nevertheless, the present level of research tends to favor those holding that human action is shaped to a great extent by nurture and that humans are much less “free” than they suppose, if at all. We are simply carrying out instructions, like a well-functioning computer, unbeknownst to us.
How the process works logically is fairly well understood. Every person has a worldview (Wittgenstein). This worldview is shown in the way a person uses language. Logical analysis of language-use reveals humans view the world (“reality”) through the lens of their ideology. This ideology is implicit rather than explicit, although certain aspects of it may be made explicit, e.g., religious beliefs, or political persuasion. When humans assert something as certainly true without having either a logical pedigree (tautology or contradiction) or an empirical warrant (factual basis that can be checked publicly), then the assertion is most likely functioning as a norm. Some norms are behavioral and make up the person’s notion of morality. That people do not always act iaw the norms to which they subscribe is taken, on one hand, as evidence that people have freedom of choice over action, therefore, free will and responsibility. Wittgensteinian logicians would say, on the other hand, that it simply shows the meaning people assign to “free will” and “responsibility” in a specific context based on the norms to which they subscribe.
But this is not the end of the story. According to the perennial wisdom found in the testimony of mystics and the teaching of masters worldwide from time immemorial, humans are the culmination of a long process of individual evolution that parallels the evolution of species. We know this biologically, in that more complex organisms build on the more primitive. According to spiritual teachers, humans develop across many lifetimes and gather impressions over those lifetimes that are stored in deep memory. These impressions manifest in a cycle of impression (subliminal impulse > desire (prod to action) > thought (plan) > action (behavior) > further impressioning, and so on.
According to this teaching, humans act in terms of the uppermost impression that surfaces at any time, although most people are unaware of this. Where freedom of choice enters is whether to act on the desires that the deeply impressions bring to the surface of the mind. So there is no choice regarding the initial impulse, but some choice regarding how to deal with it. Ordinary humans are not completely free in their choices about action, either, because of the strength the desire based on the psychic energy inherent in the impression. The enlightened as said to be truly free since they are liberated from this cycle, having exhausted the psychic energy of latent impressions. spiritual teaching is about how to realize this intertemporally through proper life-management. This is explained in detail in Meher Baba’s Discourses, ch. 6-9, beginning here.
Matt: How come we can see this [the logic of MMT] and they cant?
There are probably a lot of reasons, but some are more prominent that others. I think a big one is capture. As Upton Sinclair famously said, “It is difficult to get a man to understand something, when his salary depends upon his not understanding it!” (I, Candidate for Governor: And How I Got Licked (1935), repr. University of California Press, 1994, p. 109). People of substance look at any expansion of money as inherently inflationary. Since they regard the primary purpose of money as a store of value, they detest inflation. Pensioners are also fearful of inflation, and even ordinary people have an irrational fear of it, even when it would benefit them.
A bigger reason though is ideology or worldview. People have been trained (nurtured) to see the world (structure their perception of reality) in a certain way and experience reinforces this. The false analogy between government (currency issuer) finance and household finance (currency user) is so powerful because personal debt makes a strong impression on most people. One’s worldview is a powerful cognitive-emotional bias that is difficult for most to transcend.
It is said that conversion requires a change of heart as well as mind. When one has hardened one’s heart, it is very difficult to change.
These are difficult cognitive-emotional obstacles to surmount. Most people are driven by strong and narrow self-interest, deeply held ideology, and previous impressions colored with emotion, regardless of class. Many people are also woefully short of critical thinking skills, even supposedly well-educated people.
Such people won’t change until there is a critical mass supporting it. That’s what the last mile is all about.