Yesterday I read an article by Noam Chomsky – Rustbelt rage – which documents the decline of the American dream and extends the malaise to Chinese workers. The hypothesis is that the workers in each country signed up for what they thought was a social contract where if they worked hard they would enjoy secure retirements. Then the meltdown undermines their jobs and they are forced to live on pitiful pensions. And while they watch the top-end-of-town enjoying the benefits of billions of bailout money from government the beneficiaries of these bailouts are leading the charge to take the pensions of the workers and turn them into “financial products” (privatised social security). This raises the concept of doublethink (a term coined by George Orwell) – which “means the power of holding two contradictory beliefs in one’s mind simultaneously, and accepting both of them”. That was what interested me today (in blog terms).

In his famous novel, Ninety Eighty-Four, Part 1, Chapter 3, Page 32, George Orwell wrote about his concept of doublethink:

To know and not to know, to be conscious of complete truthfulness while telling carefully constructed lies, to hold simultaneously two opinions which cancelled out, knowing them to be contradictory and believing in both of them, to use logic against logic, to repudiate morality while laying claim to it, to believe that democracy was impossible and that the Party was the guardian of democracy, to forget, whatever it was necessary to forget, then to draw it back into memory again at the moment when it was needed, and then promptly to forget it again, and above all, to apply the same process to the process itself — that was the ultimate subtlety; consciously to induce unconsciousness, and then, once again, to become unconscious of the act of hypnosis you had just performed. Even to understand the word ‘doublethink’ involved the use of doublethink …

The power of holding two contradictory beliefs in one’s mind simultaneously, and accepting both of them … To tell deliberate lies while genuinely believing in them, to forget any fact that has become inconvenient, and then, when it becomes necessary again, to draw it back from oblivion for just so long as it is needed, to deny the existence of objective reality and all the while to take account of the reality which one denies – all this is indispensably necessary. Even in using the word doublethink it is necessary to exercise doublethink. For by using the word one admits that one is tampering with reality; by a fresh act of doublethink one erases this knowledge; and so on indefinitely, with the lie always one leap ahead of the truth.

The shorthand working definition of doublethink – “means the power of holding two contradictory beliefs in one’s mind simultaneously, and accepting both of them.”

I see a lot of that in the mainstream economics debate.

Chomsky’s article is about ordinary citizens who get shafted by a corporations who fail and they lose their entitlements and security that they built up through loyal service over their working lives. They end up only having the pittance that Social Security offers. Chomsky adds after describing the angst expressed by Joe Stack who committed suicide recently by flying a plane into a tax office building in Texas:

He could have added that the super-rich and their political allies continue to try to take away Social Security, too.

This is a familiar theme that I have touched on from time to time. The architects of the major deregulations and retrenchment of the Welfare State were often those who as children benefited from it.

I wrote several papers some years back (2002) about the pressure the big financial market institutions (particularly the Sydney Futures Exchange) were placing on the then federal government to continue issuing public debt despite the government running increasing surpluses. Nowhere did we read the contradiction of this position.

Which is: according to all the logic that the government and these institutions continually pumped out that the government was financially constrained and had to issue debt to “finance” itself – so if they are running surpluses, they should not be issuing debt! Of-course, the beginning logic is nonsense in the first place but they don’t know that or at least, admit to it publicly.

So the bottom line in this debate (which led to a Treasury Inquiry) was that the demand for continued public debt-issuance even though the federal government was running increasing surpluses appeared to be special pleading by an industry sector for public assistance in the form of risk-free public securities for investors as well as opportunities for trading profits, commissions, management fees, and consulting service and research fees.

In a Submission to Debt Review, that I wrote with my friend and sometime co-author Warren Mosler, we observed that:

Furthermore, and ironically, their arguments are inconsistent with rhetoric forthcoming from the same financial sector interests in general about the urgency for less government intervention, more privatisation (for example, Telstra), more welfare cutbacks, and the deregulation of markets in general, including various utilities and labour markets.

In other words, that is, in blog language, they were just self-serving greedy hypocrites.

That is the Chomsky theme (with further quotes from Stack):

Stack traces these ills to a social order in which ‘a handful of thugs and plunderers can commit unthinkable atrocities – and when it’s time for their gravy train to crash under the weight of their gluttony and overwhelming stupidity, the force of the full federal government has no difficulty coming to their aid within days if not hours.’

Recall a few years ago – September 16, 2008 to be exact – when the US government took control of AIG – one of the world’s biggest insurers – “in an $85 billion deal that signaled the intensity of its concerns about the danger a collapse could pose to the financial system” (Source).

And then the bailouts which saved the likes of Goldman Sachs and their ilk from collapsing and all assets nationalised.

The gold bugs complained – but they are just a sad lot who need to take a break and go to some peace and harmony revitalisation farm and find peace and love.

But the top-end-of-town didn’t complain. They had Uncle Scrooge $ signs in their eyes. Corporate welfare par excellence. And now it is the same cohort who are running the deficit terrorism with some help from the sad gold bugs.

Chomsky says:

Poignant studies of the U.S. rustbelt reveal comparable outrage among individuals who have been cast aside as state-corporate programs close plants and destroy families and communities.

An acute sense of betrayal comes readily to people who believed they had fulfilled their duty to society in a moral compact with business and government, only to discover they had been only instruments of profit and power.

He finds “(s)triking similarities exist in China, the world’s second largest economy” where “working-class outrage and desperation in the discarded industrial sectors of the U.S.” is being mirrored in “China’s rustbelt – the state socialist industrial center in the Northeast, now abandoned for state capitalist development of the southeast sunbelt”.

Chomsky also notes that this “moral indignation that lies behind the furious, often self-destructive bitterness about government and business power” is also exemplified in the the demise of California:

California today is a dramatic illustration. The world’s greatest public system of higher education is being dismantled. Gov. Arnold Schwarzenegger says he’ll have to eliminate state health and welfare programs unless the federal government forks over some $7 billion. Other governors are joining in.

Meanwhile a newly powerful states’ rights movement is demanding that the federal government not intrude into our affairs – a nice illustration of what Orwell called ‘doublethink’: the ability to hold two contradictory ideas in mind while believing both of them, practically a motto for our times.

California’s plight results in large part from anti-tax fanaticism. It’s much the same elsewhere, even in affluent suburbs.

The point here is that the “anti-tax sentiment has long been a staple of business propaganda”. We have become trained to accept and repeat the propaganda spread by the artful right-wing “think-tanks” that have proliferated over the neo-liberal period of dominance.

The California plight is the same sort of cant that I noted above in relation to the public debt enquiry in Australia in 2002.

I will come back to doublethink soon.

As an aside, it was reported today that the right in Australia are busily creating yet another right-wing attack dog (think-tank!) – the John Howard Institute. For overseas readers John Howard was the last conservative prime minister who was defeated at the 2007 election. I should qualify the term “conservative”.

The current prime minister is only marginally to the “left of Genghis Khan” and looks like a traditional conservative. But Howard was the man who tried to deregulate the entire wages system and was defeated in the process.

But the development is rapidly uniting the right wing in Australia and a notable shock-jock radio announcer is “confirmed … to join its advisory board”. Apparently, “former US president George W Bush might be approached to launch the venture”.

As Chomsky notes, the right-wing are very good at organising.

Given the extent of this crisis and the sources of it, you might have expected that the left-wing would have come together to fund similar organisations. You would be disappointed. The left are pathetic at developing this sort of capacity and that is the reason the ideas and agendas get steamrolled in the public debate.

Not to mention, of-course, that a vast amount of so-called progressive economic commentary is reducable back to mainstream neo-liberal thinking anyway such is the level of economic literacy out there.

Please read my blogs – The enemies from withinWhen you’ve got friends like this … Part 1When you’ve got friends like this … Part 2 and When you’ve got friends like this … Part 3 – for more discussion on this point.

Chomsky says:

People must be indoctrinated to hate and fear the government, for good reasons: Of the existing power systems, the government is the one that in principle, and sometimes in fact, answers to the public and can constrain the depredations of private power.

However, anti-government propaganda must be nuanced. Business of course favors a powerful state that works for multinationals and financial institutions – and even bails them out when they destroy the economy.

But in a brilliant exercise in doublethink, people are led to hate and fear the deficit. That way, business’s cohorts in Washington may agree to cut benefits and entitlements like Social Security (but not bailouts).

At the same time, people should not oppose what is largely creating the deficit – the growing military budget and the hopelessly inefficient privatized healthcare system.

I won’t go into why the Social Security debate in the US is so off the rails that it would be laughable if it wasn’t so serious. I have written about that before – see this blog for example – On voluntary constraints that undermine public purpose

I also won’t attack Chomsky’s implied worry about the deficits. He is probably ignorant about these matters like most other commentators. The only thing that matters in these debates are the real resources usage that the deficits imply. Last time I thought about it, I don’t see a problem providing enough food and shelter for the pensioners in the US.

That is, there is no “fiscal problem”.

But the more general point is how the public debate is skewed by these powerful vested interests. That has been a common theme in the public debate as the crisis has unfolded. The AIG bailout was quickly forgotten and as the “protected” corporations regained a semblance of financial stability the campaign started.

Initially, it was hyperinflation given the significant rise in bank reserves created by central bank intervention. That message started to appear wan and deflation emerged as the more like trend in price levels around the world.

Then it was the burden that our children would bear as tax and interest rates would spiral towards the stratosphere. Well interest rates remain low and, mostly, yields on public debt remain low – Japan has had yields on long-term debt below 2 per cent for more than a decade – but then “Japan is different” … as they say. And children still seem to be smiling …

Then it morphed in the sovereign debt crisis as Reinhart and Rogoff were relentlessly wheeled out on TV and radio and in the press – spewing out their ratios of doom and failing to correct the commentators who seized on their work and generalised it in inappropriate and inapplicable ways.

But the “Greece becomes the US” theme gathered traction. Hardly anyone in the public debate has got to the bottom of the Greece meltdown.

How often do the commentators actually trace the crisis to its source – the faulty design and implementation of the EMU?

How often do you get sophisticated analysis of the way in which the voluntary constraints that the Europeans imposed on themselves – totally to satisfy ideological and racist goals – made it impossible for the individual EMU nations to withstand an aggregate demand shock (sourced in a financial crisis) of the magnitude that the world has faced in recent years?

Answer: very rarely will anyone get down to this level of analysis. They prefer to ape Reinhart and Rogoff’s mindless mantras and chant “sovereign debt crisis”. The Greek situation is not a sovereign debt crisis. The debt issue is just the manifestation. The Greek government would not have a sovereign debt crisis if it was truly sovereign!

And how many people are actually encouraged to understand that the Greek situation has no relevance to the US or Australia or the UK or Japan – except that if the EMU collapses financially – the spillover effects may worsen aggregate demand in the sovereign nations. This would require further and increased government fiscal intervention.

But then we have been continually told that this intervention is not possible because the governments in these countries have “fired all their shots” and there isn’t any capacity left for further fiscal policy initiatives. That proposition is so palpably wrong – sovereign governments can spend whenever there is something for sale in their currency irrespective of the accounting statements that record their past fiscal conduct.

Whether the government has been running surpluses or deficits in the past is irrelevent for its capacity to spend now. It may not be wise to spend now but that would require an assessment of the real capacity of the economy to respond to it.

When I look at the official data provided by statistical agencies around the world I see millions of people who want to work who are currently idle. Every day, billions in lost income (real GDP) is being lost – forever – as a result of our failure to utilise this productive labour. These workers are idle not because there is not enough work for them but because no-one will fund that work. A sovereign government can always fund that work and should do so if no-one else will.

I know the arguments – but this labour will not be productive if the government just creates jobs. The obvious response is that they wouldn’t have to do very much to be more productive than they currently are being idle – which is zero productivity. But moreover, properly designed public works programs can be very productive. I have had direct experience with these programs as a consultant and they work very well if the planning and operational infrastructure is sound.

We put a person on the moon in 1969 – that was 41 years ago. How hard is it to organise some productive labour? This is why I support a Job Guarantee as an essential minimum step all sovereign governments should take to advancing public purpose.

Today I read that Japan the land of the rising debt was walking the Greek-line. The moronic journalist tried to start of with a serious – deep – question:

Could Japan be the next Greece?

Answer: No! Back to front page to see if there is a better story to read!

Apparently “global bond markets” are asking this question and the “markets” are now “wondering how long it will be before attention shifts to Japan, where government debt stands at close to 200 per cent of GDP, the highest level among industrial nations”.

Please list your sources and let us see which other so-called professionals are as moronic!

The line being run by this journalist is another one of the snowballs. It goes like this: Yes, Japan has had no trouble with deficits and issuing debt for 20 years. They have a loyal domestic market that likes to save in the form of low-yielding government bonds. They also didn’t issue any foreign currency-denominated debt.

But things are about to explode. Why? Because the Japanese are ageing and will stop wanting to save and will instead start spending. Then they will not want to buy the debt and so foreigners will have to buy it and they “force Japan to pay significantly higher interest rates for its borrowings, which will put further strains on the gaping budget deficits”.

What? First, if the Japanese consumers start to spend big-time and relinquish their savings the Japanese economy will grow more quickly and there will be a significantly reduced need for public deficit support.

Second, the Bank of Japan working in tandem with the Ministry of Finance could agree to control yields for short-maturity debt (for sure).

Third, the Japanese government could just get wise and stop issuing debt and come fully into the world of currency sovereigncy. The freedom of jettisoning all those gold standard vestiges (the debt issuance) would soon see them smiling as the sun continued to rise over their fair land and stayed nice and high in the sky each day. Nothing bad would happen. They would soon discover that. And the paradigm shift would be complete.

But our commentator has a different solution: “the Hatoyama government … [must] … outline credible measures to bring country’s deficit under control when it unveils its fiscal reform plans next month”. Yes and kill the economy like the government did in 1997.

Upon reflection I think using the descriptor “moronic” is being too polite here.

And what about the “The We’re-Not-Europe Party” proposal from Wall Street Journalist Daniel Henninger in his Wonder Land column on May 13, 2010? I should add that Henniger also works for Fox News and is a right-wing dolt!

Maybe using the term “dolt” is being too polite. I will have to review my descriptiveness I think to get the point across better (-:

Apparently Henniger graduated from “Georgetown University with a bachelor’s degree from the School of Foreign Service”. So I went to their home page to see what he might have studied there. They offer some economics. Further examination reveals that if I was empowered I would just close the program down. It is a total disgrace and teaches economic propaganda rather than any enduring understandings of how the modern monetary system operates.

But Henniger is “the boy”. His article begins:

One of the constant criticisms of Barack Obama’s first year is that he’s making us “more like Europe.” But that’s hard to define and lacks broad political appeal. Until now.

Any U.S. politician purporting to run the presidency of the United States should be asked why the economic policies he or she is proposing won’t take us where Europe arrived this week.

In an astounding moment, to avoid the failure of little, indulgent, profligate Greece, the European Union this week pledged nearly $1 trillion to inject green blood into Europe’s economic vampires.

For Americans, this has been a two-week cram course in what not to be if you hope to have a vibrant future. What was once an unfocused criticism of Mr. Obama and the Democrats, that they are nudging America toward a European-style social-market economy, came to awful life in the panicked, stricken faces of Europe’s leadership: Merkel, Sarkozy, Brown, Papandreou. They look like that because Europe has just seen the bond-market devil.

So I am calling on all my US friends out there to please help. I read the news every day and have too many RSS feeds and other information sources coming in (it is nearly time to go cold-turkey and abandon having an E-mail address!). I try to keep up with current affairs and the financial news. I even read the literary columns to convince myself that I am well read – the Renaissance man sort of thing. Yes, I ride a bike a lot and go surfing and play in a loud band but I still sort of manage to keep up.

So when did I miss President Obama announcing that the US was going to enter a monetary union with Mexico, Canada, Australia, New Zealand and Suva; scrap the Federal Reserve Bank system; create a common currency; and give an independent central bank stationed in Suva the rights to issue that currency and set interest rates that would apply across the monetary union?

Such a big announcement and I missed it?

Alternatively, what would Henniger know? Answer: SFA (for soccer fans I wasn’t alluding to the Scottish Football Association).

Henniger claims that the Europeans “pushed a good bargain into a Faustian bargain, which the world calls a sovereign debt crisis”. So they overspent and indulged until the good folks in the bond markets called their time:

A fortnight ago, the bond devil arrived and asked for his money.

My regular trips to Europe don’t give me the impression that they are into mass consumption indulgence. People mostly live relatively modestly. I have also observed persistent mass unemployment for years and plenty of opportunities for productive work. I doubt that Europe has exhausted all the other real resources that it might have available.

In fact, it wasn’t long ago that the right-wing neo-liberal argument was exactly the opposite. That Eurosclerosis was choking the place – too much regulation and not enough market-based freedom – and the result was stagnant growth and persistently high unemployment. That was the basis for the OECD 1994 Jobs Study attack on the welfare systems across Europe and elsewhere.

The Hartz reforms in Germany which have devastated the working conditions of German labour were part of that ideological attack on the welfare consensus.

So what happened? How did we go within a few months from having a region dramatically constrained into under consumption and investment to one which is living high on the hog – indulgent and wasteful? Answer: whatever suits their political agenda on any particular day. There is no consistency in their attacks – they shift and slither and creep as facts get in the way.

Henniger thinks that the so-called argument in the US that the Republicans are “the party of obstruction, which won’t vote for things the nation “needs,” such as ObamaCare” is false and the opposition, instead, reflects a sophisticated understanding by some Republicans that “the Democrats have pushed far beyond the traditional centrist comfort zone of most Americans” and the US is “headed toward the euro zone”.

This is why he suggests the Republicans market themselves as the “The We’re Not Europe Party.”


Henniger invokes Faust – indulgence, over-living etc.

Then says;

The state of Europe can be summed up in one word: stagnation … [quoting Trichet] …. “over the period from 1996 to 2005, euro area output grew on average 1.3 percentage points less than in the U.S., and the gap appears to be persistent.”

He then quotes Angus Maddison:

The most disturbing aspect of West European performance since 1973 has been the staggering rise in unemployment. In 1994-8 the average level was nearly 11% of the labor force. This is higher than the depressed years of the 1930s.

Okay I agree with those quotes – they are based in the empirical reality. But then how can you run the Faustian line? Doublethink!

Henniger’s real aim is to perpetuate the case against any progressive reform in the US and says taxes are rising and the Obama government:

… revels in “keeping a boot on the neck” of a struggling private firm. Wall Street’s business is being criminalized.

A We’re-Not-Europe Party would promise the American people to avoid and oppose any policy that makes us more like them and less like us.

And then we should reflect back on the Chomsky article about the rust belt and the disenfranchised US citizens. Then we might ask what exactly does “us” look like?

And finally – doublethink again.

This concept comes up all the time in these discussions. A classic example is the claim by commentators that want the private sector to “delever” (that is, reduce their debt exposure after the year of credit-bingeing) and the public sector to do the same.

You hear these claims all the time in the public discussions. This also translates in to full-on attacks on the public sector deficits and the call for austerity programs.

But these claims are compartmentalised. That is, they are never put together in a “systems” manner. Macroeconomics is about understanding the system. You cannot theorise or speculate about one part of the economy in isolation because what happens there will impact back on what happens elsewhere via feedback loops etc.

So given most countries run current account deficits, a full understanding of the national accounts and the behavioural relationships that put the numbers into the various accounting boxes, tells us that if the government sector cuts its deficit and goes into surplus, then it is impossible for the private domestic sector to “delever”.

It is doublethink to say otherwise.

The austerity programs are also being sold as the way to recovery. How can that be?

If you read the Greece: Staff Report on Request for Stand-By Arrangement published by the IMF on May 9, 2010, you will come across this assessment under the section “Transitioning toward a more sustainable model for the Greek economy”:

Transitioning toward a more sustainable model for the Greek economy will take time. Fiscal consolidation needs are large, and will have to be sustained over several years. With no recourse to the exchange rate to kick-start relative price changes, Greece needs to rely on internal devaluation – usually a long and painful process. Given the relatively closed economy, fiscal multipliers are bound to be large and the foreign sector too small to bring about a quick export-led growth response. In addition, the external environment is expected to remain weak in the short term, and structural reforms to boost the supply response will take time to be implemented and bear fruit.

This is just a statement of a religious hope that by seriously undermining aggregate demand and living conditions and pension entitlements – the so-called “internal devaluation” – you will pave the way for future prosperity.

Greece will surely resume growth in the future. But it will be because aggregate demand has improved. The internal devaluation approach is going to have minute demand effects given the “the relatively closed economy” in Greece. So in the meantime you inflict harsh punishment on the citizens with no guarantees that the medicine you are dishing up will deliver the recovery.

Greece’s recovery will not come via the austerity. That will just worsen the short-term situation and undermine long-term prosperity. The best long-term strategy for the Greeks is to leave the EMU and restore sovereignty and start exploiting those fiscal multipliers that “are bound to be large”. Then their destiny is in their own hands. If they stuff up, they can truly blame themselves for demanding more real resources than there are available.

But, my bet is they will be much better off in 10 years time having regained their independence than following the path they are now on.

So the claim that austerity will deliver prosperity is also doublethink.

Digression: Travel in Austria – always interesting

A regular commentator is currently visiting his birthplace in Vienna and was out on the underground yesterday. He reports that the Viennese public transport company (not privatised yet) publishes a free publicationfor travellers. He flipped through the magazine and on Page 2 he came across a large advertisement from the Austrian Treasury. You know, Treasury Departments like to keep in touch with travellers!

Our friend armed with a mobile phone camera took this photo and then added some English translation for our convenience. You can click the photo to make it bigger.

He also kindly translated the main paragraph in the advertisement:

Did you know, that each and everyone of us has about 24.000 Euro debt – you, your grandma, your neighbour, each child? Why? Because, today, the overall debt of Austria is 198 Billion Euro. The interest rate servicing costs of this debt costs us more each year, than we spend on education, family services, police and health care per year. Each tax payer pays about 1.100 Euro yearly only for the interest on the debt. What was usual and possible the past years and decades, can’t go on in the future. The interest on our debt eats up our future. Therefore we must reduce our debt burden, instead of piling up more debt. We all must save. So that your tax money can be used again for the purpose of the country and it’s people.

So you Austrians you could pay it off in past years and decades but the game is now up. Start saving!

Of-course, the Austrian government is within the EMU and therefore has a funding constraint because it is not sovereign. That is why it is harder for them to service the debt.

Digression: Why I love the IMF

That is right. I am very happy at present with the way the IMF is helping citizens in Australia. No, I haven’t gone mad.

Today I joined the huge class action being funded by IMF Australia against the major banks in Australia, who have been using their market power to gouge huge and seemingly unlawful fees from their customers.

IMF Australia is a “publicly listed company providing funding of legal claims and other related services where the claim size is over $2 million” and are the largest litigation funder in Australia. They are not doing this out of altruism. They get a cut of the damages if successful but lose completely if the class action is unsuccessful.

The extent of the unlawful gouging is around $A5 billion and thousands are joining the action per day.

So this is one IMF that is helping community lawyers take on the undeserving banks in Australia. If you are thinking you might like to get involved go to the class action home page and see whether you are eligible.

Saturday Quiz

The Saturday Quiz will be back sometime tomorrow – even harder than last week!

That is enough for today!

This Post Has 29 Comments

  1. Bill,

    Thanks for highlighting the “Moron” at the BS Site. ( as I sent you )

    I have actually started a series of post on the fictional land of CentralBankopia at my blogspot site to attempt to educate people on the reality of modern monetary theory. If anyone has some time please add some comments to

    This is obviously a paridy on reality, but my feeling is that the average joe cannot handle the truth, so I am attempting to make this seem fictious at this point so I can drag people along for the ride. Lets see how this goes.

    I am very happy for input from people who have a clue. So if you want to provide some thoughts ( including F* U I hate your ideas) please e-mail at

  2. Thanks for the link to Chomsky. Some days ago I bought an obscure little book titled “history of economics” with essays starting from Martin Luther (1524) to Adolph Wagner (1893). Yesterday night I read an essay from Gustav Schmoller – eventually his opening speech on a 19th century equivalent of a teach-in on the social question in Eisenach, Germany. One paragraph:

    “Not a leveling in the socialist sense, is our ideal society, but we consider that society for the most normal and healthy, that represents a ladder of different existences, but with easy transition from one rung to another; now our society today threatens more and more to resemble a ladder, that grows on the bottom and top rapidly, with the middle rungs more and more breaking away, where there is only a hold at the very top and bottom of it.”

    It’s a little bit disturbing to realize, that I only need to substitute some words in a speech (like Neo-liberal for Manchester School, Noam Chomsky for Gustav Schmoller and 2010 for 1872 πŸ˜‰ and I think nobody would realize, that this speech is more than 130 years old.

  3. Bill,
    I’ve noticed an increase in attention – in the U.S. – to the old social credit ideas; Douglas, Gesell even Ezra Pound’s poetry seems to be finding more readers. It seems particularly shaped to take the wind from MMT’s sales in certain (u.s.) states because it attacks full-employment from a “green” standpoint, suggesting that full-employment is environmentally unsustainable which plays really well in the anti-social western states. Thus their proscription (here’s an example: is “economic democracy” or “the purchasing power franchise” or some variation of that. What is the best way to differentiate MMT from these ideas, and demonstrate its advantages over them other than a simple guilt by association (considering social credit’s sullied past involvement with fascism and antisemitism)?

  4. Yes- something to add to the Job guarantee program is fully nationalized pensions. Asking workers to rely on companies whose thinking extends to the next quarter for pensions or any other retirement assistance is a fool’s errand. All pensions and similar retirement benefits should be handled by the state, or by the workers themselves.

  5. Do the Greeks live beyond their means?

    By accident I surfed in to an Indian site – News Click, Sovereign Debt Crisis in Greece – and did se some numbers:

    income inequality has been growing in Greece where the real wages of workers have grown at a much lower rate than the growth of productivity. This means the share of wages in GDP has been declining.

    despite declining unit labour costs, aimed at increasing export competitiveness, Greece, among other European countries like Spain, Portugal and Ireland, lost out to Germany. In an era of export-led growth, it is the relative nominal labour costs that matter. A comparison between Greece and Germany would make the matters easier to understand. Heiner Flassbeck shows that while unit labour costs in Germany rose only by 5 percent between 2000 and 2010, it increased by 30 percent in Greece.

    Must be weird system if like the Greeks do have a above average growth during it’s euro period and have much lower increase in real wages than growth of productivity but still lives beyond their means if they have relatively higher increase than in Germany. What does neo-liberals say on what this do to incentives, it means that it’s really no point for Greek workers to strive for productivity growth, they wouldn’t be able to get any of it in real wages if that exceeds the German level.

    According to IMF the Greece “currency exchange rate” is overvalued by 30%, and predicts that their recipe to “remedy” the Greeks economic problems will cause them to have 13 – 15 % unemployment the coming 5 years. The neo-liberal world is a strange place, the salvation for debt and economic misery is to work less.

    It would have been interesting to see figures on Greek tourism (estimated to be ΒΌ of inflow of foreign money) and the rest of their export sector and potential production of this, with a 30% overvalued “currency” it would have been in deep misery for years. Can one suspect that the Greek export sector isn’t perfect but does have been doing fairly well but the real problem is imports? In EU, the euro and with the common market there is not so much Greece can do to stop neither cheap credits nor free flow of foreign goods in to their country. If so one can guess that increased export is not all that easy remedy to fill the gap despite an estimated 30% internal devaluation. The basic thing is that they have to stifle their entire domestic economy to get the imports down.

    Ill guess the Mediterranean countries share many export features e.g. tourism and a common brand of agricultural products. Now when all of them are going to be more “competitive” by internal devaluations is there going to be a internal Mediterranean slugger fest to take market shares? How will it affect other countries, often poorer, around the Mediterranean, how will it affect the environment?

  6. @/L
    Just to supplement your argument: according to the OECD Greece share of employees who work more than 45 hours per week is No. 3 after Mexico and Turkey. The countries with rare workaholics are in order from last to … Netherlands, Norway, Luxembourg, Austria, Switzerland, Germany. Some of the main culprits complaining about the lazy Greeks, who are idling in the sun while they are so hard working and now are forced to pick up the Greek bill.

  7. We all harbor contradictory beliefs. Doublethink is Orwell’s brilliant way of exaggerating and highlighting this flaw, and to show the danger of its political exploitation. The original title that Orwell had for “1984” was “1948”. He did not intend it as a futuristic fable, but as an obvious commentary on his times.

  8. How about this for the name of the new Mexico – U. S. currency? The Taco Bill. πŸ˜‰

  9. This is off topic, but the Governor of the Bank of England has made pro-MMT noises of a sort. According to a Wall Street Journal article (see below) he advocates a deficit reduction combined with a continuation of Q.E. where necessary. This amounts to a small move in the direction of functional finance/MMT. Under functional finance (as I view it anyway) the national debt is whittled down and any deflationary effect of doing so is countered by expanding the monetary base (in the U.K. to date all Q.E. has involved government bonds rather than (as in the U.S.) a significant amount of private sector bonds). Reducing the deficit is not the same as reducing the national debt, of course. But I think the governor’s announcement a hopeful sign.

    WSJ article:

  10. /L and Stephan,

    You are right about real wages, productivity and work hours in Greece! The myths that Greeks live beyond their means are perpetuated to hide the real reasons. The business sector, after the adoption of the euro, that reduced currency risk, decided to import rather than produce because of transfer and market power pricing that exploit domestic demand and limit exports. This was induced further by tax evasion and avoidance that led to a capital outflow. Public waste and corruption was mantained by “capture” of public projects by state dependent corporations interconnected with politicians and supported by corporate welfare. Furthermore, foreign banks were very busy buying Greek public debt (82% of total) as part of globalization and European banking “integration”. Greek tax evaders, primarily professionals (doctors, lawyers, etc.) and small/medium businesses invested the funds they did not transfered abroad in real estate reported as “purchased” at below market prices. Currently, nearly 14% of GDP in uncollected taxes is owed to tax authorities, waste/corruption is about 20% of the state budget and 30-40% of GDP is unreported income, generated in the informal sector. The private sector has one of the lowest debt to GDP ratios among developed economies (90%) and is a net saver.

    Obviously, the austerity program was needed and the cut in wages and pensions and the rise in VAT and other sales taxes is the wrong policy!

  11. Hey Bill,

    Just a quick thought… If one country (say the UK) stopped debt issuance to match deficit spending what would the effect be on its currency under a floating exchange rate system? Would I not be right in saying that there would be a quick depreciation in the value of its currency?

    If, however, all countries did this then the exhange rates would stay relatively stable?

    So perhaps that is part of the reason politicians ‘in the know’ do not attempt such things? Because they know the financial markets would destroy the value of their currency unless they could get all countries to act (which clearly they couldn’t). In fact, wouldn’t it be fair to say that the international financial system is like a straitjacket on the world?

    I see it very regularly mentioned here that a sovereign country can issue whatever currency it likes (without matching debt issuance) but I never see a follow through on the outcome for the exchange rate value of its currency. If traders sell the currency off its value would drop. For a country dependent on imports inflation and a lower standard of living would result. No?

    I’d love to hear a proper MMT analysis of unilateral non-debt currency issuance by one country. If it s
    would only work if every country did it that’s going to be a lot harder to fight for!

    All the best,


  12. It’s good to see Chomsky alive and kicking! I haven’t heard much from him recently.

    But the statement that California is “dismantling” higher education is hysteric. To put things into perspective, I attended a community college in another state, and the cost was $500/semester at the time — 1991. I thought that was ridiculously cheap, and of course financial aid more than covered it.

    Lo and behold, after I move to California, what is the current cost of attending community college in 2010? $500/semester. And my city has a median income double my home city, yet almost 20 years later, the nominal education costs in CA are the same as they were in other poorer states in 1991. Meanwhile, incomes are such that to rent a 1 bedroom apartment costs 1200/month, but in my home city it’s 500/month.

    And students are rioting at how they are made to suffer πŸ™‚

    Same thing with the university system. The transplants are stunned at how cheap education is. After the cruel “dismantling”, CSU tuition and fees will be 4800/year, and U.C. fees will be 10.000/year. And if you make less than 70,000 and qualify for financial aid, that will be covered by the state. Wouldn’t it be great if there was a similar “dismantling” of health care? πŸ™‚

    Really the problem with california — other than not being a currency issuer πŸ™‚ — is that there are powerful special interests that paralyze the budget process and suck revenues away from other needs. And in California, higher education and prisons are among the biggest of these special interests on the spending side, and property owners are the biggest special interest on the revenue side.

    The state spends way too much on higher education and too little on K-12 education and vocational training. It’s a shame. We also spend too much on prisons and not enough on basic infrastructure — sewers, water treatment, electricity, etc. And we obtain too much money from fees paid by the lower classes — e.g. auto registration fees and use fees — and too little money from property taxes.

    In general, the state is not so much broke as it is politically paralyzed. You need 2/3 votes to agree on a budget — and there isn’t enough cohesion to make anything happen unless you can pour a lot of money into lobbying.

  13. Dear Bill,

    Often there is a palpable level of frustration expressed over the sheer stupidity and injustice of the economies and supporting ideologies around the world, which started me thinking:

    Primitive Tribal

    Hunter-warrior / Medicine-man / Chief

    Slave Owner / High Priest / Emperor

    Lords & Knights / Pope / King

    Bankers / Churches & Psychologists / Government
    New Age

    Humanitarians / Fully independent & evolved human personality / Self


    The above are meant to be contained in columns. I found it interesting to contemplate what constituted the ‘capital’ of each of these classes, their utilisation of such to exercise power, the kudos they carried and the lessons extant in the chaotic relations between. For example, in the LH column capital as survival skills, slaves, serfs, consumer debt peonage, and service. Things change slowly, but human nature remains very much the same.

    Of course, from the last line you will see I am optimistic.

    I thought it was really apt to talk about ‘doublethink’ – in this day and age it’s all that we get! You watch them lying through the whites of their eyes, ambitious and hungry – and then you have to laugh. As for the harm they do – well lets hope that all that pain and suffering leads eventually to an awakening. Life is more, in the essence of each existence, than a simple play of who’s got the biggest nose!

    Cheers …


  14. Mr Clueless strikes again:

    It’s worth noting, by the way, that Britain – which is in worse fiscal shape than we are, but which, unlike Greece, hasn’t adopted the euro – remains able to borrow at fairly low interest rates. Having your own currency, it seems, makes a big difference.

    We’re Not Greece
    Published: May 13, 2010

  15. In connection with the above comment by Angelo, I found the link was incorrect; I suspect that the link which he may have meant to use might be:
    Richard Cook has some interesting ideas which do not seem to contradict MMT and which are understandable in the context of the cultural aspirations of many who had been bombarded with the propaganda 40-60 years ago to the effect that technological progress was some sort of potential panacea for the mindless, repetitive manufacturing work activities which are very labor-intensive; you know, those very activities at which the Japanese, Koreans, Chinese and other Far Easterners have demonstrated their proficiency-jobs which were lost from the American scene. Admittedly, the auto-makers in the Far East could take advantage of a number of technological precedents, economic advantages, cultural idiosyncracies, etc. to facilitate their current advantages. I think that Richard’s analyses are reasonable and I agree with his argument that had the US given perhaps $1-2 trillion to consumers rather than banksters, military, and other crony capitalists our economic situation could no worse than it is currently; perhaps, even much better! Of course, has the SEC actually been interested in their ostensible mandate – to regulate the financial sector, many of the disasters which now face the USA might have been avoided. As regards modern money theory/practice, the ideas/concepts seem rational and reasonable, but, unatainable in today’s world.

  16. I would like to second Alex’s question, Saturday, May 15, 2010 at 10:15 about devaluation, and further ask this:

    “Third, the Japanese government could just get wise and stop issuing debt and come fully into the world of currency sovereigncy.”

    But then it would have to relinquish a target rate i.e. the overnight interbank rate would have nowhere to go but bottom. Please, is this correct?

    It does seem, though, that this must be in part what they have done in the past 20 years : bank reserves have accumulated, and interest rates were rock bottom. So Tsy’s must have been issued in lesser amounts than deficits, each year. Did they do it throughout CB purchases, RATHER than stop issuing debt? Are these two equivalent?

    Here, again, a clarification would be appreciated.


  17. As an addendum to my prior comment, see:

    February 3, 2009
    A Bailout for the People:
    Dividend Economics and the Basic Income Guarantee

    By Richard C. Cook

    Prepared for a Presentation at the 8th Congress of the U.S. Basic Income Guarantee Network and
    2009 Eastern Economics Association Annual Conference
    Sheraton New York Hotel and Towers
    New York, N.Y., February 27

    The existing monetary system is not free enterprise, and it is not capitalism. It is cancer.

    Richard’s comments appear to be concerned with the USA domestic economic dilemma foisted upon this country by the banksters and other powerful interests via activities of their lobbyists/agents in the Executive and Legislative branches.

  18. Let me think aloud about this:

    “”Third, the Japanese government could just get wise and stop issuing debt and come fully into the world of currency sovereigncy.”

    But then it would have to relinquish a target rate i.e. the overnight interbank rate would have nowhere to go but bottom. Please, is this correct?”

    I think the answer is not necessarily (Studying macroeconomics – an exercise in deception):

    “Exactly the same outcome would occur if the government just paid a return on overnight (excess reserves). This would accomplish all the central bank operational requirements to stop competition in the interbank market from driving the overnight interest rate away from that targeted by the central bank.”

  19. William,
    Thank you for the correction. Also, I appreciate your point. I was trying to be brief, but perhaps I was more glib. Apologies. I respect Cook and I do think his proposal would have been much better than what we got. However, what I was trying to point out is that when it comes to direct policy proposals, I see potential conflict with MMT. For example the job guarantee vs. guaranteed income can be an ideological powder keg – not necessarily between Modern Monetary Theorist and Social Creditors but from outside this discussion, specifically the right opposition. I noticed the \”loser homeowner\” brand of animosity underlying even some sympathetic commentators on Cook\’s blog. The deep rooted puritanical morality in this country has done much to preclude even thoughts about a guaranteed income and the potential for its realization seems even more distant. I might be wrong, but for me the job guarantee is much more plausible. I hope we can find common ground with Cook and other like minded people, but I also hope that moral disgust with usury (though totally understandable) won\’t prevent them from consenting to a job guarantee. My question to Bill was for some intellectual points on the real differences between MMT and the ideas of Major Douglas that might give us reason to believe that MMT can succeed where social credit failed.

  20. At least as far as MMT is concerned, Labor is a “can’t-think-tank” and the Greens a “don’t-wanna-think-tank”

  21. The logic of the advertisement is that if the Austrian public — and in this case, magazine readers — spends less (and saves more), then this will reduce the deficit of the Austrian Government. Financial osmosis? It’s a bit like a fat man telling everyone else that they need to exercise more. Perhaps their thinness will somehow leak into him.

    I guess this is the flipside of viewing the government as on the same side of the balance sheet as the household. If the households save more, then the government does, too, by a type of obverse parallel-universe-evil-Kirk analogy.

    On the other hand, spending less on advertising really would reduce the Austrian Government deficit.

  22. @RSJ
    Eventually the Republic of Autria is a good old-fashioned household. The treasury somehow forgot to read the latest balance sheet release by the Austrian Central Bank. Austria’s citizens are well prepared to help out their broken government with their 440 billion € of financial assets not including real-estate. However the central bank is also worried given, that from 2008 to 2009 the private sector only put away 20 Billion € for future financial disasters. So grandma, neighbours and each child only saved 2.500 € after wiring 1.100 € to the treasury for debt service.

  23. Dear Angelo at 12:47 am

    It seems particularly shaped to take the wind from MMT’s sales in certain (u.s.) states because it attacks full-employment from a “green” standpoint, suggesting that full-employment is environmentally unsustainable which plays really well in the anti-social western states

    I hope that is MMT sails because we are an un-commercial lot in the main. There is no contradiction between MMT, full employment and being green. The JG is green. It is about the composition of aggregate demand that matters. One of the advantages of expanding public production is that if the legal framework is binding it can be more green in my view.

    We have written a lot about this in the past.

    best wishes

  24. Dear Bx12 at 9:51 pm

    You wrote:

    Mr Clueless strikes again … We’re Not Greece By PAUL KRUGMAN

    Yes, it was a terrible article. He just doesn’t get much about macroeconomics at all and should stop writing about it. The result is embarrassing.

    best wishes

  25. Dear Alex at 10:15 am

    Good questions and I will answer them next time I do a blitz on catching up on all the comments.

    best wishes

  26. @RSJ
    One more note: Putting aside MMT for the moment, which certainly isn’t a priority on the Rogoff Agenda, I’m always wondering what Rogoff’s concept of a sovereign nation is? Looking at Austria (Germany, … the same story) for me it’s 8 Million people holding an Austrian passport and electing every 4 years a government. This government issues debt on behalf it’s people. Which is a fraction of the wealth of the sovereign. I’ve never heard him talking about this? He cruises through the Austrian and Germany media predicting financial disaster waiting just on the next corner without even touching the subject, that after taxes for debt service and expenditure people are still saving like they will live forever?

  27. Alex at 10:15 a.m.

    If a fiat currency issuer that doesn’t issue bonds wants to stop any undesired currency depreciation, it can do so easily by increasing the overnight policy rate and the rate it pays on bank reserves

    That will do the trick (at some point) and certainly make up for any effect due to the absence of bonds

  28. Hey Anon,

    I hadn’t thought of that… Paying increased interest sounds workable up to a point!; wouldn’t changing the base rate of interest still affect the interest rate debtors in the economy (like mortgage holders) pay?

    Bill; I look forwards to reading your future blog entry πŸ™‚



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