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Friday lay day – government and central bank venality

Its my Friday lay day blog where I just wander around in the time I allocate to writing this blog. The venality of neo-liberal governments is never far from the surface. The more successful ones manage to mostly hide the nasty stuff they get up to from the general public or assuage public concern via their spin doctors. Sometimes, an outrageous decision breaks out of the cocoon of spin and demonstrates the sheer bastardry of the political elites. That happened in Australia over the last week when it was announced that the Australian government was providing $A4 million to the University of Western Australia to set up a new think tank under the influence of a Dane Bjørn Lomborg – who has been described as a “sceptical environmentalist” (Source). Our Prime Minister has favourably quoted Lomborg’s work in his own work and is the Australian leader who abandoned the carbon tax and thinks continued use of “coal is good for humanity” (Source).

The leading researchers in Australia are typically defined by how successful they have been in the National Competitive Grants program supervised by the Australian Research Council (for non-medical research) and funded by the Australian government.

A similar scheme operates for medical research. The grants are highly competitive and high status. They are hard to get – success rates – around 18 per cent of applicants and succesful applicants last year received on average 64.2 per cent of their bids.

I was successful last year (with two colleagues) and our funding request was cut back by 63 per cent. The funds are usually well short of what is required to run a vibrant research group. Senior professors who lead research groups in Australian universities have been forced to become ‘small business managers’ as they seek funding from a range of sources to supplement the scarce ARC funding.

One of the reasons our Modern Monetary Theory (MMT) textbook is still not completed is because my time is spent chasing funding and then delivering on the commissions. The textbook will earn nothing for my group. Priorities! Paying wages or getting the book out. That is always the dilemma.

Money doesn’t come easy, especially in the social sciences where I operate.

Leading researchers work hard during the typical Australian holiday period (January) to put together the large applications that have to be in late February and early March. The process is very onerous and time consuming. People ask ‘where are you going for your vacation?’ Reply: my computer desk to work up funding applications!

Then there is the concept of the ‘track record’. This is the researchers CV that accounts for a significant part of the panel’s assessment and ultimate decisions. As a researcher my track record is everything. It has to be built strategically over many years and is subjected to intense scrutiny.

No-one gets money from the ARC without a track record of international standing. The applications are subjected to peer-review – several assessors – who don’t spare the critical purview. It is a tough process and many potential researchers fall by the wayside because of the confronting nature of the system and the small chance of becoming one of the successful researchers.

Further, to get a senior position in most universities in a research capacity requires a strong track record with a demonstrated scientific standing.

I am not complaining about any of this. I went into it with eyes open and knew that once I got on the treadmill I would have to keep running or else fall off and never get back on. The track record is not something that one can add to one year and then rest of one’s laurels the next. It is a treadmill.

But that is the reality of our system. It is fairly transparent, peer-reviewed and generally, the better researchers float to the surface.

How then does a $4 million dollar handout to an Australian university to set up a research think-tank fit with that?

The money comes at a time that the Government is pursuing cuts to higher education and the ARC process in its erroneous pursuit of fiscal surpluses.

The money was not subject to peer-review or administered and allocated via the ARC.

The money was not subjected to any transparent process of review and assessment against competing projects.

The money appears to reward a person who would not be placed among the leading academic researchers in the nation. $4 million is a huge grant in our system.

Fairfax report (Source) that:

… former Australian of the Year Tim Flannery said it was “extraordinary” that the government had abolished the Climate Commission “which was composed of Australia’s best climate scientists, economists and energy experts” on the basis of lack of funding only to find the money to “import a politically-motivated think tank to work in the same space.”

UWA have appointed Lomborg as an adjunct professor. Even academics within UWA are questioning that appointment.

Fairfax reported (April 24, 2015) that one Academic Department Head at UWA wrote that:

Dr Lomborg did not have the necessary academic track record to justify his appointment as an adjunct professor. “The school would therefore like to know by what process the appointment was made and did it take the quality of Dr Lomborg’s research track record into account? (Source).

Lomborg was the subject of a hearing by the – Danish Committees on Scientific Dishonesty. It considered three complaints of “scientific misconduct” against Lomborg about the validity of the research reported in his book (The Skeptical Environmentalist) and, given the topic, the investigation received international attention.

In its – Annual Report – the Committee summarised the findings against Lomborg, that they had released earlier in the year (January 7, 2003).

They found:

… that by customary scientific standards, the defendant had acted at odds with good scientific practice in his systematically one-sided choice of data and in his arguments. If the book was intended to be evaluated as science and not as a contribution to the general debate, then in addition the scientific message had been so distorted that the objective criteria for establishing scientific dishonesty had been met. DCSD did not find a sufficient basis, however, on which to establish that the defendant had misled his readers with intent or gross negligence. DCSD noted, in this context, that in the preface to the book the defendant had himself drawn attention to the fact that he was no expert in environmental issues.

In other words, he wasn’t found guilty of scientific fraud because he was not considered qualified to be a ‘scientist’ within the field he was writing. Some let off.

Those who might be considered ‘scientists’, for example, the – Union of Concerned Scientists – (membership > 200,000 with HQ at MIT), assessed Lomborg’s work in its report – UCS Examines ‘The Skeptical Environmentalist’.

They noted that:

Lomborg accuses scientists and environmental organizations of making false and exaggerated claims about the world’s environmental problems. He concludes that population growth is not a problem, that there is plenty of freshwater around, that deforestation rates and species extinctions are grossly exaggerated, that the pollution battle has been won, and that global warming is too expensive to fix. A self-proclaimed environmentalist and skeptic, he claims that his reanalysis of environmental data measures “the real state of the world.”

The UCS assembled a broad group of scientists and statisticians (all world leaders in their fields) who concluded that:

Lomborg’s book is seriously flawed and fails to meet basic standards of credible scientific analysis. The authors note how Lomborg consistently misuses, misrepresents or misinterprets data to greatly underestimate rates of species extinction, ignore evidence that billions of people lack access to clean water and sanitation, and minimize the extent and impacts of global warming due to the burning of fossil fuels and other human-caused emissions of heat-trapping gases. Time and again, these experts find that Lomborg’s assertions and analyses are marred by flawed logic, inappropriate use of statistics and hidden value judgments. He uncritically and selectively cites literature — often not peer-reviewed — that supports his assertions, while ignoring or misinterpreting scientific evidence that does not. His consistently flawed use of scientific data is, in Peter Gleick’s words “unexpected and disturbing in a statistician”.

These reviews show that The Skeptical Environmentalist fits squarely in a tradition of contrarian works on the environment that may gain temporary prominence but ultimately fail to stand up to scientific scrutiny.

Other scathing reviews appeared in Scientific American, Nature, Science and a host of peer-reviewed scientific journals.

The Economist Magazine and a bevy of fan-boy anti global warming lobby groups supported the book. The support from the Economist is no surprise, given that it had co-sponsored the creation of the so-called – Copenhagen Consensus – which was headed up by Lomborg (then director of the Copenhagen Consensus Center) and created by the right-wing Danish government,

It was mired in controversy with accusations that its consultants held right-wing views and were opposed to the Kyoto process (Source).

In 2012, the Copenhagen Consensus Centre was forced out of Denmark when it was announced that the new Danish government had “cut its funding” (Source).

I don’t want to get into a debate about the climate change science that is associated with Lomborg and his lobby group funding groups.

The point of the blog is that the Australian government is distorting our research funding rules in favour of outcomes that it seeks to promote, where they have no solid scientific evidence basis.

In doing that they also lied to the public.

1. They said that the University approached the Government with the idea to fund a centre. It now turns out that the Government instigated the idea.

In the Fairfax article (April 24, 2015) – Creation of Tony Abbott-backed Lomborg ‘consensus centre’ has tarnished our reputations, say academics – we learn that:

On Thursday it emerged Mr Abbott drove the push to provide government funding, not Education Minister Christopher Pyne.

2. They lied about how much money was involved. The Education Minister claimed that UWA was putting in the majority of the cash and the $A4 million government contribution was about a third of the total.

We now know that UWA had put up no money. The whole deal was down to the Government’s contribution.

In the Fairfax article (April 23, 2015) – Bjorn Lomborg centre: leaked documents cast doubt on Abbott government claims – we read that “UWA says it does not plan to spend any money on the centre and that it believes government funding will largely cover its cost.”

3. The $A4 million was provided at the same time that the Government has imposed severe cuts on the credible scientific bodies charged with providing climate change research (Source).

It is also at a time the Government is crying about a ‘fiscal emergency’ and the need to cut its deficit. All those tears are political and it is time the public woke up it and rejected it outright.

The Government clearly uses its fiscal policy to advance the interests of itself and its high income funding lobbies – like the mining sector.

This is a venal Australian government.

And central banks can be venal too

It was reported this week (April 22, 2015) that the ECB was putting pressure on the Greek government again.

In the Fairfax article – European Central Bank tightens screws on Greek banks we learn that:

… Mario Draghi, the president of the ECB, has made it clear that if Greece does not strike a deal with Europe he will eventually stop backing the Greek banks – a step that would inevitably lead to capital controls and eventual default.

The myth of central bank independence.

Mainstream economists justified the increased separation of treasuries and central banks under the smokescreen that politicians would corrupt the inflation-fighting determination of central bankers if they created unemployment.

Now we have the ECB as a member of an obvious political elite – the Troika – and using its monetary policy powers, which are designed to engender financial stability with the relevant currency region, to enforce political outcomes relating to fiscal policy.

In doing so, they are undermining financial stability.


Music – I just want to get my kicks before the whole shithouse goes up in flames!

This is what I was listening to this morning while working.

The final studio Doors album – An American Prayer – was released on November 25, 1978 seven years after Jim Morrison’s death.

The three remaining members of the Door’s put music to the poetry of Jim Morrison from 1969 and 1970 and the album was the result. It was controversial (see wiki page) but the outcome was good for those who appreciated the music of the Doors.

One Track is American Night (starts around 25:15) and Morrison says:

All hail the American night what was that?
I don’t know sounds like guns thunder
Roadhouse blues alright, alright, alright
Hey, listen, listen, listen, man, listen, man

I don’t know how many you people believe in astrology
Yeah, that’s right, that’s right, baby, I, I am a Sagittarius
The most philosophical of all the signs
But anyway, I don’t believe in it

I think it’s a bunch of bullshit, myself
But I tell you this, man, I tell you this
I don’t know what’s gonna happen, man, but I wanna have
My kicks before the whole shithouse goes up in flames alright

With all these venal governments and agencies around, how long will it before it all goes up in flames.

China relaxes reserve requirements

The Guardian reported this week (April 19, 2015) that – China’s central bank cuts reserve ratio – to provide more funds to banks to stimulate lending activity as economic growth slows down.

It just tells me that too many young Chinese students are getting economics PhD qualifications from mainstream American universities and think that banks are somehow reserve constrained.

Please read my blog – Lending is capital- not reserve-constrained – for more discussion on this point.

Reserve requirements place not such limit on lending. Commercial banks hold reserve accounts at the central bank for the sole purpose of facilitating the payments system (clearing house). Many countries have no reserve requirements other than the accounts must not be in the red on a sustained basis. The US is currently considering eliminating the positive requirements.

Reserve requirements are an artifact of the old gold standard and are irrelevant in the current monetary system. They do not reduce bank risk nor do they comprise a buffer that can be drawn on when there is a run on a bank.

To understand why reserve requirements do no constrain lending you have to understand how a bank operates. Banks seek to attract credit-worthy customers to which they can loan funds to and thereby make profit. What constitutes credit-worthiness varies over the business cycle and so lending standards become more lax at boom times as banks chase market share (this is one of Minsky’s drivers).

These loans are made independent of the banks’ reserve positions. Depending on the way the central bank accounts for commercial bank reserves, the latter will then seek funds to ensure they have the required reserves in the relevant accounting period.

Please read my blog – The role of bank deposits in Modern Monetary Theory – for more discussion on this point.

They can also access funds in wholesale markets.

For short-term funds, they can borrow from each other in the interbank market but if the system overall is short of reserves these horizontal transactions will not add the required reserves.

In these cases, the bank will sell bonds back to the central bank or borrow outright through the device called the “discount window”. There is typically a penalty for using this source of funds. At the individual bank level, certainly the “price of reserves” may play some role in the credit department’s decision to loan funds.

But the reserve position per se will not matter. So as long as the margin between the return on the loan and the rate they would have to borrow from the central bank through the discount window is sufficient, the bank will lend.

So the idea that reserve balances are required initially to ‘finance’ bank balance sheet expansion via rising excess reserves is inapplicable. A bank’s ability to expand its balance sheet is not constrained by the quantity of reserves it holds or any fractional reserve requirements. The bank expands its balance sheet by lending. Loans create deposits which are then backed by reserves after the fact. The process of extending loans (credit) which creates new bank liabilities is unrelated to the reserve position of the bank.

The major insight is that any balance sheet expansion which leaves a bank short of the required reserves may affect the return it can expect on the loan as a consequence of the ‘penalty’ rate the central bank might exact through the discount window. But it will never impede the bank’s capacity to effect the loan in the first place.

Please read my blogs – Money multiplier and other mythsBuilding bank reserves will not expand creditBuilding bank reserves is not inflationary and Oh no … Bernanke is loose and those greenbacks are everywhere – for more discussion on this issue.

Saturday Quiz

The Saturday Quiz will be back again tomorrow. It will be of an appropriate order of difficulty (-:

That is enough for today!

(c) Copyright 2015 William Mitchell. All Rights Reserved.

This Post Has 27 Comments

  1. Very sceptical of capitalists ( including Bill) talking about green issues given the extreme need to consume capital goods so as to access purchasing power.

    I would like to remind you Ireland (perhaps one of the most extreme scarcity engine experiments ) has now a higher co2 emission then the days when coal and peat burning was the chief domestic heating and cooking fuel.
    The Nat gas green lobby was simply a method to entrap people in a monopoly while using both local and global green language.
    Meanwhile the bulk of the economy has become a giant racetrack.

  2. Dear The Dork of Cork (at 2015/04/24 at 17:04)

    The definition of a capitalist is a person who owns the material means of production and exploits that ownership to generate surplus value from workers they employ and convert that value into monetary profits through the sale of the goods and services in which the surplus value is embodied.

    I am not a capitalist. Just a worker, sorry.

    I also do not advocate the “extreme need to consume capital goods so as to access purchasing power”. I imagine you eat food, sleep under a roof, read books, have a modem and an internet computer, probably have some furniture and a TV, maybe a private means of transport, … you certainly access large jets given you have mentioned travels in the past.

    I guess I advocate nothing more than that for everyone.

    I also did not talk about green issues (I deliberately said the topic of the blog was not the climate change science debates).

    best wishes

  3. Anybody of average intelligence who has followed the climate change debate would know that Lomborg is a prize twit.

    That he has attracted support and funding from such retrograde twits like PM Abbott is hardly surprising.

  4. “China’s central bank cuts reserve ratio”
    “It just tells me that too many young Chinese students are getting economics PhD qualifications from mainstream American universities and think that banks are somehow reserve constrained.”

    – I would say that this just tells me that state-owned banks are told by CCP Politburo Standing Committee to start financing local government’s expenditure on a larger scale again to stimulate the sagging construction sector. How else can they convey this message to the so-called masses without raising unnecessary attention abroad?

    A similar story happened in 2009/2010:
    “When China publishes its budget report on March 5, Beijing may congratulate itself for achieving 8.7 percent GDP growth with a fiscal deficit that is just 3 percent of GDP. But the real cost of stimulating the economy has been much bigger – thanks to frantic borrowing by local governments.State media reported that China’s local governments borrowed 3.8 trillion yuan ($556 billion) from banks last year, to keep the economy humming. They also raised 450 billion yuan ($65.9 billion) indirectly via the bond market. Add those debts to Beijing’s own, and the real 2009 fiscal deficit could be 15 percent of 2009′s GDP”

    Source: Reuters blog, “China’s state budget deficit is tip of iceberg By Wei Gu March 3, 2010”

  5. Hello Professor Mitchell,

    I’m a bit confused regarding the influence of reserves on bank lending.

    You mention above that reserve requirements do not affect lending but price of reserves does and then that “So as long as the margin between the return on the loan and the rate they would have to borrow from the central bank through the discount window is sufficient, the bank will lend.”

    I’d imagine then that at the time of deciding the loan they would take into consideration the amount of reserves they have and the requirement set by the central bank alongwith the price of the reserves?

  6. Also, what is the point of banks taking deposits from customers for accounts such as current account, savings account, fixed deposits,etc and providing an interest on them if they dont lend them out? Are the funds in these accounts used in place of reserves?

  7. If banks dont lend out deposits like savings accounts, why do they provide such services?

  8. A question for Bill on the reserve requirements, since I was reading the China news the other day and was wondering these points:

    – It’s obvious reducing reserve requirements will not have any sizable impact if one has any understanding of how the banking system works.

    – That said, wouldn’t it be possible that, once freed from some reserve requirements, banks would make more profit from interest rate spreads (as they would be able to use the asset side of their balance sheets to buy financial products with higher returns than the central bank’s support rate, such as bonds) and competition might lead them to lower rates for their depositors? This would indeed lower rates in the economy then.

    – Of course, I realize the central bank already has a target base rate it needs to defend, so it would need to act to raise rates back up. But I was wondering if cutting reserve requirements couldn’t be another (albeit very ineffective) way of lowering interest rates.


  9. EconNewbie – Might help you understand it in more detail about reserves

    In answer to your question about deposits I was curious so I found this:

    “Loans are not funded by reserves balances nor are deposits required to add to reserves before a bank can lend. This does not deny that banks still require funds in order to operate. They still need to ensure they have reserves. It just means that they do not need reserves before they lend.

    Private banks still need to “fund” their loan book. Banks have various sources of funds available to them including the discount window offered by the central bank which I explained above. The sources will vary in “cost”. The bank is clearly trying to get access to funds which are cheaper than the rate they charge for their loans. So they will go to the cheapest funding source first and then tap into more expensive funding sources are the need arises. They always know that they can borrow shortfalls from the central bank at the discount window if worse comes to worse.

    So the profitability of the loan desk is influenced by what they can lend at relative to the costs of the funds they ultimately have to get to satisfy settlement. So the price that the bank has to pay for deposits (one source of such funds) impact on the profitability of its lending decisions. As noted in the introduction, at the height of the crisis, as wholesale debt funding sources became more expensive, the commercial banks in Australia turned to a greater reliance on fixed term deposits. The rate they were prepared to pay on these deposits also rose as competition for them increased”

    Same blog I linked

  10. Bill,

    I was recently invited to a local seminar, because of my known interest in Economic theory. I happened to make the point that Economic teaching would do well to put Keynes back on the syllabus. A young Chinese student attempted to correct me about that, saying that “New Keynesianism” was indeed taught.

    I said that New Keynesianism wasn’t really Keynesianism and the N in NK should really be for Not. What about Old Keynesianism, I asked? The answer was she’d heard of that but the theory was now largely discredited, in her opinion, but couldn’t explain why! Someone else said that it led to high inflation. I didn’t bother to utter the dreaded words Modern Money Theory!

    So, if that young woman goes back to a highly paid job in China’s government, things probably won’t be working out too well for them in the near future.

  11. Bill , capitalism is state sponsored usury in my little book although social credit expands on this concept in the modern industrial economy. ( not enough tokens are issued to compensate for the depreciation of industrial production)

    They are people who control the monopoly of credit and there are those on the receiving end of it.
    The ownership concept is false.
    Control of the money and indeed laws is what’s important.
    I guess the closer you are to this nexus the more capitalistic you become.

  12. The Social Credit position as outlined by Douglas is that the gap between prices and incomes is caused primarily by the ways in which real capital (factories, machines, equipment, etc.) are financed and the ways in which their costs are then accounted for under current financial (i.e., banking and cost accountancy) conventions. This means that even if you were to eliminate the charging of interest, a significant gap between prices and incomes would remain. N.B. Douglas never denied that profits derived from interest (like any other type of profit-making) can intensify or exacerbate the gap.

    There are many processes which are responsible for the “accountancy problem” related to real capital. Here is just one concrete example. A company borrows 1,000,000 (and let’s make it interest-free) from a bank (which creates the credit out of nothing) and uses it to erect a factory (including machines). Let’s further assume, for the sake of simplicity, that all of that money is used to pay workers and so the whole of the one million is transformed into wages and salaries. The company then issues shares in an “Initial Public Offering”. The workers buy those shares, which are collectively worth 1 million, with the 1 million they were paid. The company then uses the money to pay off its capital loan. The money and the debt cancel each other out of existence (every repayment of a loan destroys a deposit). At this point, however, the company will try to recover the price-value of the factory (one million) in the form of depreciation charges over the life of the industrial assets in question – these are some of the company’s overheads or operating costs. This will allow the factory to be replaced. But, no money has been issued with which these charges might be met. All of the money created and issued in the name or in virtue of the factory during its construction period has been prematurely cancelled, i.e., it is not available to offset the costs associated with the consumption of the factory. There is therefore an imbalance between what the company is trying to recover in costs and the income available to meet those costs. Notice that this particular imbalance has nothing to do with the charging of interest since we’ve assumed interest-free credit at the beginning of the thought experiment.

    If the financial system were properly designed, i.e., if it were constructed in such a way that it adequately reflected reality, it would automatically re-create sufficient money free of any debt in order to allow for the depreciation charges to be met as the company is consuming its real capital. It would distribute this directly to consumers as income because only consumers can liquidate final costs. This is what SC proposes to do via the dividend. The present financial system does not automatically register the real capital by representing it in terms of purchasing power because it is not designed to accurately represent the physical economic reality. Right now, we rely on increases in consumer debt (credit cards, mortgages, lines of credit, overdrafts, installment plans, etc.) to compensate for the lack of purchasing power, or on increases in government debt (to distribute incomes to government workers on government projects, esp. public works, while not simultaneously adding to the costs of goods that consumers must pay for, on an excess of exports over imports, or on business expansion (esp. in relation to capital goods). If the compensatory debt money cannot be raised, the company will have to take a hit in its prices and risk bankruptcy. This is all wasted effort from the point of view of the true purpose of economic association: the delivery of desired goods and services, as, when, and where required with the least amount of trouble to everyone. As an added bonus, fill the gap the Social Credit way and all of the interest that is charged on the compensatory debt would be completely eliminated as by-product.”

    Oliver Heydorn.

    I can’t see how you can refute Olivers observations.
    In a typical modern capitalistic countries energy balance most of the highest quality fuel is used to drive around in circles rather then cater for intrinsic demand.

  13. Not trying to be a holy Joe among fellow consumerist automans but I never had a car and generally do a long holiday of about 3 months every 2 years to maximise my stay in the mountains I love.
    My liquid fuel allowance / ration is therefore far below the current typical consumer war input.
    However this takes a fair amount of willpower on my part given current seemingly unstopable car centric dynamics

    I hold a general fascination for the capitalistic expansion of my city and others where there is a clear catastrophic breakdown of a urban rural connection.
    For example today while working in a typical car centric zombie burb 10 ~ miles from the city I was struck by the restart of house construction when 8,000 empty houses remain empty in the city proper.
    Understanding social credit is very easy in Ireland.
    The consequences of capitalism are embedded into the landscape for at least 400 years.

    The need to recover the costs of production by maintaining prices at a artificially high level is again forcing people out into zombie land.
    But there is no real physical shortage.
    For partially cultural reasons capitalistic waste is expressed in concrete overbuild in Ireland making physical observations easy but I am sure this waste dynamic is expressed in slightly different manifestations elsewhere.

  14. Mnementh’ s comments put into words what I was thinking.
    Response to those who wonder what the banks could get up to with money that they don’t have to loan?
    What could they possibly get up? Well I am not a financier But look at all they got up to bring on the GFC.
    Arbitrage, Libor, credit default swaps; you all can add piles more.

  15. “The January issue of Scientific American devoted many pages to a series of articles trashing “The Skeptical Environmentalist”. The authors, all supporters of the green movement, were strong on contempt and sneering, but weak on substance. The arresting thing about Scientific American’s coverage, however, was not this barrage of ineffective rejoinders but the editor’s notion of what was going on: “Science defends itself against the Skeptical Environmentalist,” he announced.”

    …”More is at stake here than a row about a book or the judgment of a magazine editor. Many of Mr Lomborg’s critics are respected scientists. Some seem to think that Mr Lomborg’s lack of training in their fields disqualifies him from debating environmental policy. E.O. Wilson, one of the world’s most distinguished scientists, and a dedicated green, deplores “the Lomborg scam” because of “the extraordinary amount of scientific talent that has to be expended to combat [him] in the media…[Mr Lomborg and his kind] are the parasite load on scholars who earn success through the slow process of peer review and approval.” That would be wrong even if all scientists shared Mr Wilson’s fear that the world will become a “hellish place to exist”, which they do not. Environmental policy involves politics and economics, compromises and trade-offs, a division of burdens geographically and over time. It could not be left to scientists, even if they agreed on the science. We parasites would even then be right to insist on having our say.

    …”Mr Wilson’s insufferable arrogance is bad enough, but there’s worse. The fuss over Mr Lomborg highlights an attitude among some media-conscious scientists that militates not just against good policy but against the truth. Stephen Schneider, one of Scientific American’s anti-Lomborgians, spoke we suspect not just for himself when he told Discover in 1989: “[We] are not just scientists but human beings as well. And like most people we’d like to see the world a better place…To do that we need to get some broad-based support, to capture the public’s imagination. That, of course, entails getting loads of media coverage. So we have to offer up scary scenarios, make simplified, dramatic statements, and make little mention of any doubts we might have…Each of us has to decide what the right balance is between being effective and being honest.” In other words, save science for other scientists, in peer-reviewed journals and other sanctified places. In public, strike a balance between telling the truth and telling necessary lies.

    Science needs no defending from Mr Lomborg. It may very well need defending from champions like Mr Schneider.”

  16. “Some seem to think that Mr Lomborg’s lack of training in their fields disqualifies him from debating environmental policy.”

    Most seem to think that Mr. Lomborg’s lack of training in their fields, combined with outright confirmation bias without openly admitting such, disqualifies him from debating environmental policy.

    I also note the deliberate misrepresentation of what Stephen Schneider said – it is very recognisable in leaving out the last sentence (“I hope that means both”), which allows the Economist to draw a false conclusion. They essentially did a Lomborg: leave out the part that contradicted their preferred conclusion.

  17. Further to Lomborg – I suppose that he may actually believe in his position on climate change but I suspect that he has seen his particular brand of denialism as a lucrative career opening regardless of the science.
    Abbott & Co are typically grabbing at any stray flotsam to support their sinking position on greenhouse gas emissions.

  18. ‘I don’t know what’s gonna happen, man, but I wanna have
    My kicks before the whole shithouse goes up in flames alright’

    Heh. That reminded me of a recent post by the Archdruid, John Michael Greer:

    ‘It occurred to me the other day that quite a few of the odder features of contemporary American culture make perfect sense if you assume that everybody knows exactly what’s wrong and what’s coming as our society rushes, pedal to the metal, toward its face-first collision with the brick wall of the future. It’s not that they don’t get it; they get it all too clearly, and they just wish that those of us on the fringes would quit reminding them of the imminent impact, so they can spend whatever time they’ve got left in as close to a state of blissful indifference as they can possibly manage’

    Also the rationale ‘Hand to Mouth’ author Linda Tirado gives for being a smoker, and making apparently ‘poor financial decisions’:

    ‘I will never not be poor, so what does it matter if I don’t pay a thing and a half this week instead of just one thing? It’s not like the sacrifice will result in improved circumstances; the thing holding me back isn’t that I blow five bucks at Wendy’s. It’s that now that I have proven that I am a Poor Person that is all that I am or ever will be. It is not worth it to me to live a bleak life devoid of small pleasures so that one day I can make a single large purchase. I will never have large pleasures to hold on to. There’s a certain pull to live what bits of life you can while there’s money in your pocket, because no matter how responsible you are you will be broke in three days anyway’

    Is this sort of feeling, which seems to me increasingly pervasive, properly termed fatalism, or is it nihilism? Whatever it is, it seems to have been on the march since Darwin, NIetszche and Einstein killed God and has sprouted wings in the last decade or so.

    I am over the Christianity I grew up with, so maybe Druidism is the go.

    Another of Greer’s pieces speaks to this part of Thomas Fuller’s quotes above about the dangers of scientism: ‘Many of Mr Lomborg’s critics are respected scientists. Some seem to think that Mr Lomborg’s lack of training in their fields disqualifies him from debating environmental policy’

    Greer’s thoughts on the dangers of scientific arrogance hinge around an old sci-fi story by Clark Ashton Smith called ‘The Dark Age’

    ‘First published in 1938, it’s among the earliest science fiction stories I know of that revolves around an organized attempt to preserve modern science through a future age of barbarism… The story’s worth reading in its own right, so I won’t hand out spoilers here. Still, I don’t think it will give away anything crucial to mention that one of the mainsprings of the story is the inability of the story’s scientists to find or make common ground with the neo-barbarian hill tribes around them.. (it) drew much of its force at the time of its composition from the widening chasm between the sciences and the rest of human culture that C.P. Snow discussed two decades later in his famous work “The Two Cultures”. That chasm has opened up a good deal further since Smith’s time..

    and the example he gives is an amusing column by the Dilbert guy Scott Adams. After limning the absurd vote-faces in health/diet/fitness pronouncements over the years Adams says:

    ‘If a person doesn’t believe climate change is real, despite all the evidence to the contrary, is that a case of a dumb human or a science that has not earned credibility? We humans operate on pattern recognition. The pattern science serves up, thanks to its winged monkeys in the media, is something like this:

    Step One: We are totally sure the answer is X.

    Step Two: Oops. X is wrong. But Y is totally right. Trust us this time.’

    As Greer says ‘There’s a certain poetic justice in seeing popular culture’s acknowledged expert on organizational failure skewer one of contemporary science’s more embarrassing habits, but there’s more to the spectacle than a Dilbertesque joke. As Adams points out, there’s an extreme mismatch between the way that science works and the way that scientists expect their claims to be received by the general public. Within the community of researchers, the conclusions of the moment are, at least in theory, open to constant challenge-but only from within the scientific community’

    He cites CC denial, anti-vaxxers and creationism as partly explicable by the growing vacuum of trust in science, but emphasises ‘I don’t agree with the anti-vaxxers, the climate denialists, the creationists, or their equivalents, but I think I understand why they’ve rejected the authority of science, and it’s not because they’re ignorant cretins, much as though the proponents and propagandists of science would like to claim that. It’s because they’ve seen far too much of the view from outside’

    Re the science elite being ‘strong on contempt and sneering, but weak on substance’, I had to titter at this from Greer: ‘It’s possible; these days, even committed atheists are starting to notice that whenever Richard Dawkins opens his mouth, twenty people who were considering atheism decide to give God a second chance’

    He ties it up with the thought that future generations may well find that ‘the burdens left behind by today’s science and technology are much more significant than the benefits… People living in such a future aren’t likely to remember that a modest number of scientists signed petitions and wrote position papers protesting some of these things…
    Unless something changes sharply very soon, their view from outside may well see modern science-all of it, from the first gray dawn of the scientific revolution straight through to the flamelit midnight when the last laboratory was sacked and burned by a furious mob-as a wicked dabbling in accursed powers that eventually brought down just retribution upon a corrupt and arrogant age’ which is of course the denouement of the Ashton Clark story.

    Maybe he’s just a doomer, but I reckon it is that fear for the future, the ‘guns and thunder and roadhouse blues alright’ (more or less acknowledged according to one’s personal disposition and based largely on the contours of the depressing present) that drives the nihilism and hopelessness behind the desire to get your kicks before the whole shithouse goes up in flames.

    Is the sun over the yardarm yet?

  19. Bill I know I have used up my bandwidth on this thread but I just noticed another pop at you on Naked Cap, in the context of a discussion on whether a move to new drachma in Greece would shrink the economy via massive depreciation.

    Mr G: ‘drachmatization is A dramatic wholesale reduction in the real value of the Greek Economy. It is not akin to austerity. It would be much worse with no clear outcome. A military dictatorship could not be ruled out were Greece to revive the Drachma. Do ordinary Greeks really want to risk living without say/vote in their country?’

    financial matters responds with several quotes to the contrary – Alain Parguez, Mosler, then you:

    ‘”This is a common claim. That the currency will depreciate so much it will wipe out any real prosperity as a result of the devalued savings (expressed in drachma).

    Why would that happen? Foreign exchange parities are determined by supply and demand.

    Who would be issuing the new Drachma? Answer: Only one institution – the Greek government via the central bank.

    What is the current volume (supply) of new Drachma in the foreign exchange markets? Answer: zero – it doesn’t exist.

    If the Greek government restricted its supply but were able to require people to demand it – to pay taxes etc – then why would the currency depreciate violently in the period after issue?”

    to which Mr G says:

    ‘So if I’m a business or individual in Greece and I get paid in new drachmas by the government, but all my debts are in Euros and my suppliers and business partners are requesting payment in Euros…then what do I do with my drachmas? I sell them to buy Euros. That’s the link that Bill Mitchell misses. He assumes that Greece becomes a closed economy and the world disappears. I concede that the amount of devaluation is debatable….but the notion that the drachma would stay at parity or appreciate relative to the Euro is not born out by history, and also brings into question what productivity value a newly issued drachma would give Greece?’

  20. norm de plume ,you may be over Christianity but you certanly ain’t over religion if John Michael Greer is your bag. This character has been preaching the delusional “it’s all over bar the shouting” gospel for years. Greer is just another variant on the USA tradition of far out tub thumpers. At least in the old days they didn’t have the reach of the Internet.

    By the way,just what the hell is an Archdruid anyway?

  21. Just on the issue of university funding. You, Bill, are in a unique position to make a difference!
    University funding can be entirely met, according to MMT, by a central government simply paying for it, directly.
    No taxpayers need be concerned. They are not relevant.
    So, instead of spending countless hours drumming up support for your programs. get your Uni to submit an invoice to the Reserve bank for the total yearly budget.
    See what happens. The uni cannot be in error as the CB does these payments anyway, every day.
    The politicians cannot say its wrong either, so they will be in a n uncomfortable position.
    The uni has to have the guts to stick to its guns.

  22. Schy,

    Thanks for your reply and the link.

    I still dont quite understand the role of retail deposits like savings accounts,etc. It is not clear from the post you linked to me. Could you or Prof. Mitchell please explain what exactly is meant by the phrase ‘Private banks still need to “fund” their loan book.’?

  23. EconNewbie,

    I think the word “fund” has thrown you off the scent. It suggests “intermediation” which is something banks definitely don’t do. The money they lend is simply created out of thin air. And how much they can create is governed by the bank’s capital (at its simplest, the $ value of the shareholder’s equity), leveraged according to various risk weightings of the loans, and regulated by the authorities.

    Banks want our deposits mainly to meet their reserve requirements, a “float” they have to keep with the central bank, even if the requirements are only to have positive balances. As Bill explains, they don’t lend reserves (except to each other).

    They also need our deposits (ie, “hard currency”, not bank “funny money”) to fund the mischief the back room boys get up to with their derivatives and currency trading (ie gambling).

    To the extent that bank lending also has a competitor from corporate bond issuance, I wouldn’t be surprised if some of their deposit taking wasn’t purely defensive.

    Google “Icelandic Economics: Banks: intermediaries or money-creators?” It might fill in a few gaps for you.

  24. Further confirmation that my understanding of “how China works” is correct (from The Telegraph, by AEP)

    “The central bank is acting as a lender-of-last-resort for debt-strapped local governments struggling to sell new bonds on the open market”

    “China is drafting plans for bond purchases to boost liquidity and shore up the country’s $2.6 trillion edifice of local government debt, becoming last of the world’s big economic powers to resort to quantitative easing.”

    “The People’s Bank of China (PBOC) is looking at menu of unconventional measures to expand its balance sheet, according to officials cited by Market News. These include the option of buying $160bn of local government bonds from the banks.”

    They can bury as many worthless local government bonds as they want on the balance sheet of the Central bank.

    The rest of AEP’s comment is probably not worth reading so much because of the flawed economic analysis. The Chinese are trying to rebalance the growth and may go for popping the bubbles but they don’t want and cannot afford to allow for higher unemployment or damaging the productive economy.

  25. John Armour,

    Thanks for your reply. I googled it and found –

    From what I understood from this post, the banks provide retail deposit services to satisfy their liquidity preferences. So one can say that the interest provided on the deposit is the price they pay for our deposit. This also explains why the deposit is a liability for the bank and an asset, and why legally the money is theirs once deposited. Am I correct?

    It would also be interesting to find out about this from a legal point of view as banks are fiduciaries too.

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