The transitory view of the current inflation episode is getting more support from the evidence.…
What is it really all about?
I trawl the financial and economics news from all and sundry, write and think economics all day most days, get embroiled in the technical and political arguments about monetary systems and labour market dynamics, and ideological battles and all this energy is constructed and conducted at the “level of the debate”. But the debate at that level is largely irrelevant and we get sidetracked by it. So can sovereign governments do this or that? But my interest in unemployment and inequality started when I was young and was particularly honed during my student days in the late 1970s in Melbourne when I realised that governments were deliberately imposing joblessness on my fellow citizens by retreating under pressure applied by the ideological attacks of the emerging neo-liberals. I realised then that underneath all this monetary talk are people who suffer and get left behind. And so we have to keep reminding ourselves – what the hell is all this really about?
This graphic is a capture of part of the front business page of the UK Times today (May 25, 2010). It sort of got me rolling very early today. I thought Who is in charge in these countries?. Since when does an unelected and unaccountable institution based in Washington D.C., which regularly makes errors of such a magnitude that people die from the poverty that result, have any right to order nations around that have open elections?
Well the answer is that: (a) financial matters now take priority over everything; and (b) these nations are vulnerable on those grounds because their politicians took them on a fraught journey into an economic and monetary system that would always deliver hardship the first time a serious negative aggregate demand shock hit that system. It was obvious from day 1 when the Maastricht Treaty was signed and then the Lisbon rules were consolidated that this would be the case.
They were living a fool’s dream to think that the short-term prosperity – is a debt-fuelled vulnerable asset boom prosperity? – would survive the next negative spending shock. It was obvious that the cycle would turn and that the nonsensical deregulation of banking and German-rated access to credit for the weaker economies would only create conditions that amplify the in-built design faults in the monetary system once things turned south.
What was going on? The answer is that we have completely lost our vision of what an economy should be about. That question should be the starting point of the debate rather than fudging along about whether the German ban on short selling was sensible or not.
But the fact that the IMF now struts centre stage again with its bailout cash (which comes from the governments anyway) and its “axe” – when its modelling and policy stances leading up to the crisis contributed to the meltdown in the first place – exemplifies the skewed nature of our priorities. Institutions like the IMF should be low profile and supportive of human accomplishment and security. A person is never made more secure by deliberately and unnecessarily making them insecure.
The IMF and the EMU and all governments who embrace austerity when they have more than enough capacity to deal with all the present economic problems that are bringing down employment are deliberately and unnecessarily making the citizens of the world insecure and pushing them towards poverty. They are thus all terrorists.
In this 1991 article, Noam Chomsky writes about terrorism. He quotes the official United States Code which says an:
… act of terrorism” means an activity that — (A) involves a violent act or an act dangerous to human life that is a violation of the criminal laws of the United States or any State, or that would be a criminal violation if committed within the jurisdiction of the United States or of any State; and (B) appears to be intended (i) to intimidate or coerce a civilian population; (ii) to influence the policy of a government by intimidation or coercion; or (iii) to affect the conduct of a government by assassination or kidnapping.
While the intentions of the deficit terrorists fit the outcomes – “intimidate or coerce a civilian population”; “influence government by intimidation or coercion” – you might argue that they do not “violate criminal laws”.
But my take on it is this. The current institutional structure that mediates the relationship between the government and the non-government sectors and which, necessarily involves laws, rules and regulations about the conduct of the central bank and treasury and the way public spending and taxation is executed, and the way public debt is issued has been constructed in such a way that governments are forced (coerced) into intimidating their populations via economic threats.
In a capitalist society, where most of us have to work to make a material living, these economic threats impinge on our right to work. The neo-liberals deliberately undermine the right to work of millions and force them into a state of welfare dependence and then start hacking into the welfare system to deny them the pittance that that system delivers.
Do they want people to starve? What is this really all about?
I recall a story when I was a postgraduate student and tutor at Monash University in my hometown of Melbourne. It was the late 1970s and early 1980s and unemployment in Australia was very high after the fiscal retrenchment that followed the OPEC oil price hikes. These stupid governments attacked a supply-side price hike with a demand-side contraction and claimed it was sensible policy.
I know I have promised a dedicated blog to that era (the so-called stagflation era) and it will come in time. But hey, we have Europe on the brink of collapse and Financial Crisis Mark II – 2010 edition emerging and that needs analysis.
Anyway, we were sitting in the tea-room one day and one of the more obnoxious Monetarists (he was a senior staff member – highly paid and tenured and hadn’t published much at all in his “long” career – those were the days!) was waxing lyrical about market-based solutions to the unemployment crisis out in the real world.
His solution? He seriously explained how the unemployed could start gardening supply businesses. How? Well he got his idea from a visit to the municipal tip (garbage dump) at the previous weekend and noticed there were lots of prams abandoned. He mused that the unemployed could go to the tip and scrounge up some bits of wood, get a pram chassis with wheels and bolt the parts all together.
To do what? Well they could then get up early each morning and follow the milkman and his horse and cart (milko’s were male in those days!) around the streets and pick up the shit that the milko’s horses dropped and then package it and sell it as fertiliser.
Problem? Well he said the problem was that the unemployed were too lazy to get up that early to exercise entrepreneurship. He was dead serious.
I sat there bemused (you couldn’t get angry with this level of ignorance) and at that point said to the assembled group of staff.
Sorry, mate, milkos all use motorised vans these days. The horse and cart were replaced a few decades ago.
Response: Mitchell again! Always opposing market forces.
This character and others held centre-stage every morning tea-time and was typically surrounded by wannabee postgraduate student/tutors who were taking in all the neo-liberal/monetarist crap that the senior staff would serve up. They, of-course, then grow up, get academic gigs themselves, and perpetuate the insult to humanity.
Some, like myself, in a minority of about one, get through the system in a number of ways and take contrarian positions. My advice here to all those students around the world who I now know read my blog daily (including the groups at Harvard, Stanford and LSE) is that the mainstream stuff is so banal that you can learn it in a short-time and all the mindless academic staff are expecting is regurgitation to prove that you are fit to join them sometime to continue the game. But it leaves you with plenty of time to learn other things and develop broader skills of analysis.
Anyway, a digression.
So we first build this voluntary institutional structure that imposes “fiscal discipline” which really means it prevents the governments from actually doing what we elect them to do – that is, improve our welfare. We want them to manipulate the complex economy which mixes public and private spaces to make us all better off.
We want everyone in our community to gain access to the distribution system so that if they can work they can find a job and if they cannot they won’t feel under constant attack of having their pension entitlements taken off them or privatised.
We want to have first-class health care for when we need it – accessible to all.
We want a symbiosis established between the social, economic and natural spaces so that we sustain our prosperity.
So why would we create a set of institutions that by design undermine these genuine aspirations?
Think about what is happening in Europe at present. Cuts backs to child care, education, health, pension entitlements, wages – all the things that really matter to people and provide the support structure to pursue human enrichment. Are any public pensions going to be safe in Europe at the moment?
The question we have ask is whether the cut backs are necessary? How do we answer that? Well the neo-liberal bean counters answer it using their mindless pavlovian response functions to a couple of relatively meaningless financial ratios.
In the case of the EMU nations, these ratios are given meaning by the rules and structure the EMU bosses have imposed on the citizenry. So if you strip the national government of its capacity to spend freely to respond to private spending collapses and impose thresholds that have to be maintained then, of-course, a deficit or debt-ratio that breaks the threshold becomes a “problem”.
I realise that governments do break the Stability and Growth Pact thresholds and that France and Germany were the first some years ago to do so. But the signal that sends to the bond markets is the important point.
But the real way to answer the question about whether the cutbacks are necessary is to ask whether there are idle real resources that can be deployed to advance output and income. If there are then fiscal expansion is required. Cut backs just worsen the situation.
So the question must be contextualised by a debate about what really matters.
Summers says unemployment is the problem
This was done, in part, by Larry Summers, who gave a talk yesterday (May 24, 2010) at Johns Hopkins School of Advanced International Studies – Reflections on Fiscal Policy and Economic Strategy. Here is a shot of the audience and I guess the guy in the cowl was worried he might here some more deficit terrorism (Source).
But this is what Summers actually said (in part):
Yet the observation that the economy is again ascending does not mean that we are out of a very deep valley.
Far from it when we are nearly 8 million jobs short of normal employment and about $1 trillion – or $10,000 per family – short of the economy’s potential output and income and when recent events in Europe have introduced uncertainty into the prospects for global growth.
Shortfalls in output and employment stunt the economy’s future potential as investment projects are put off and as the skills and work habits of the unemployed atrophy.
This last point is especially important when for the first time since the Second World War the typical unemployed worker has already been out of work for more than six months.
And behind these statistics lie millions of stories of Americans who have seen the basic foundations of their economic security erode. Beyond the economic projections and equations we economists make lie the struggles of communities devastated by the impact of this recession.
Whatever the judgments of groups of economists about the official parameters of the recession and the growing signs of recovery, for millions of Americans the economic emergency grinds on.
The challenge we must thus confront is the imperative both to do everything in our power to accelerate the momentum behind recovery so that it addresses the imperative of job creation and also addressing the challenge to growth and prosperity of budget deficits in the medium to long term that cannot be ignored.
So these are the real values that should guide economic policy. Not the sham emphasis on financial ratios that just play into the hands of the financial sector and give the amorphous bond markets the imprimatur over government policy followed closely by the IMF when the bond markets get sick of pulling power trips.
The point that Summers didn’t follow up on is what are they going to do about it. It is very simple really. Unemployment is about a lack of jobs. If the private sector will not create enough jobs then there is only one sector left in town that can. Hellooooo! Its called the government sector.
They can do it directly (that is, hire the workers themselves and put them to work advancing public purpose – rebuilding community and environmental infrastructure; providing personal care services; etc). There is never a shortage of work – just a shortage of funding to pay the wages.
They can also do it indirectly by stimulating the private sector via tax cuts or targeted spending. Both approaches have advantages and disadvantages but the net effects are always overwhelmingly positive.
They also seek to undermine democracy
This article – The making of a better budget – which was in a right-wing Australian media outlet yesterday (May 24, 2010) also exemplifies the theme of today’s blog.
The author writes that:
In a potentially important development, which could presage future change locally, the UK government has transferred power over the setting of its budget forecasts to a new ‘Office for Budget Responsibility’ (OBR).
There has been talk of this in Australia.
In addition to independently supplying the economic projections on which any future budget would have to be based, the OBR will have a mandate to critically appraise the probability that the government will actually meet its own fiscal objectives (eg, cutting the deficit), which would be a useful innovation for all constituents.
While this sort of independent and unelected fiscal watchdog is already in place in the US and elsewhere the devil is in the detail. What power will this body have? If its staff is comprised of mainstream macroeconomists (surely) and it defines the fiscal objectives as above – “cutting the deficit” – then it will be another institutionalised dead weight on the ability of government policy to advance public purpose.
Apparently, it will have the “final say on budget forecasts”. That is, the Chancellor (the elected representative of the people) will be subservient to this body.
The point is why is “cutting the deficit” the policy objective? Why not ask what fiscal policy is really for? Answer: to improve economic functioning so that full employment and other socially useful goals can be met. Why is it a policy objective to cut a deficit when your economy has high and rising unemployment?
The reason: loss of priorities. What is this really all about?
The problem with institutionalising a bevy of unelected and unaccountable organisations is that it adds weight to the public debate when they issue reports etc. The policy debate will be influenced if the OBR proposes one direction or another. Essentially, government then becomes intimidated by the institutions that they themselves have set up.
Democracy then suffers. Why? Well the author of the article tells us that:
Back in Britain we are now seeing the last remaining weapon in the economic arsenal – fiscal policy – being slowly fire-walled from the pork-barrelling machinations of politicians.
Don’t you just love the terminology. I say democracy he says “pork-barrelling machinations of politicians”. Don’t get me wrong. Politicians are a pretty moronic lot and do dangle carrots in front of marginal electorates. But that is the game we play.
The author then says there “is no reason why the Rudd government should not follow suit”:
The prospect of an OBR-like-constraint on fiscal policy could be a powerful election idea that would be well received by a skittish electorate that is increasingly focussing on economic credibility.
Can you believe this rubbish?
The so-called skittish electorate gets bombarded by News Limited press and commentators like this into believing that budget deficits are bad and surpluses are good. The reasoning provided is always partial and never correct in analytical terms. The logic presented – or should I say rammed down our throats – is a mish-mash of inapplicable convertible currency ideas and erroneous household-government analogies all topped lavishly with the ideological dislike for government intervention.
How have we got to the point where an anti-democratic proposal is a “powerful election idea” in a so-called functioning democracy? What is this really all about?
As an aside, a reader sent me this link to a Youtube video of the US congress where a Democrat representative from Florida has introduced the War is Making You Poor’ Act. The bill “would eliminate the separate funding for the occupations of Iraq and Afghanistan, and eliminate federal income taxes for everyone’s first $35,000 of income (or $70,000 for couples) each year. And it would help pay down our national debt”.
While his macroeconomics is fundamentally flawed the sentiment is heading in the right direction. Advancing public purpose (reducing poverty) by putting increased spending capacity into the hands of the least well-off income earners.
The other point is that they could just abandon most of the military spending (his talk says that the US spends around 50 per cent of the total military spending in the entire world; NATO is next and China after that but small proportions of the total relative to the US) and introduce a Job Guarantee with a realistic minimum wage (not the pittance that the US currently offers at the bottom).
But it gets worse … those profligate governments will now repress the banks
And finally to complete the chain came the piece in the Financial Times by Martin Wolf (May 24, 2010) entitled – How likely is financial repression?.
This really relates to my theme today. This is the next neo-liberal terrorist campaign.
Financial repression is another one of those constructs that exists only because governments do not understand how the monetary system operates and are egged on by pressure groups that also share this ignorance or want to exploit the ignorance of others to advance their own ideological aims.
It arises because sovereign governments are obsessed with those meaningless financial ratios and start running scared when they rise.
What follows is as unnecessary as what went before it – by which I mean the linking of budget deficits to public debt issuance such that governments voluntarily constrain themselves to matching their net spending $-for-$ with debt issuance. As we know there is no need for a sovereign government that is not revenue-constrained to do that. This is a hangover from the gold standard and later convertible currency era that ended in 1971.
It has been perpetuated post-1971 because it serves the purposes of the top-end-of-town to keep unemployment relatively high and a hungry bottom quintile of workers who will resist unionisation and will work for nothing just to feed their families.
So first a major spending collapse occurs – it could be sourced in the financial sector which the current crisis was but it also could origination in the real sector by a investment collapse. Budget deficits rise even if the government doesn’t pursue any discretionary fiscal initiatives because the automatic stabilisers go to work to dampen the downturn.
Public debt ratios also rise because of the voluntarily imposed link between the deficits and the debt. The neo-liberals then start ringing the alarm bells. In Australia the conservatives actually have a debt truck which drives around the nation with a huge billboard on the back advertising how much public debt is outstanding. All I see when it goes by is a statement of the cumulative wealth held in the form of public debt by the non-government sector. That is, when they get the numbers correct. I think they are currently more than $A100 billion out. This lot is prone to exaggeration.
So we get what the media beats up as a “sovereign debt crisis” and austerity is all the talk. Nobody bothers to look out the window and see how many families are suffering or children growing up in jobless households and learning the culture of disadvantage so that as adults they perpetuate it.
No, ratio fever drives the public debate.
At this point, Wolf says in his FT piece “then comes financial repression”. He got the idea talking to Carmen Reinhart (Rogoff’s offsider) and Wolf calls their “This Time is Different” book a “masterly study”. My assessment of the book is that it is not even good enough to be put out on the remainders’ stand.
But the idea of financial repression goes back to the 1970s (McKinnon, R.I. (1973) Money and Capital in Economic Development, Washington, DC: Brookings Institution and Shaw, E. 1973) Financial Deepening in Economic Development, New York: Oxford
University Press – are the definitive texts).
So what is it? Financial repression is the idea that governments use various regulations, laws, and other rules and procedures (all non-market) to constrain the financial system from functioning freely. So things like increasing reserve requirements, interest rate ceilings, capital controls, rules on free entry to banking, credit ceiling restrictions, and public ownership of banks etc are all considered to be acts of financial repression.
So you get the drift. Repression invokes harshness – it is bad to be repressed. What is a non-repressed state? Free market allocation. Let the banks do what they like is the best strategy according to this paradigm.
Thus the government should be hog-tied with all these voluntary constraints and fiscal rules to stop it advancing public purpose but when the economy melts down and the “ratios” rise then you have to bolt it down harder while allowing the banks to do what they want – which includes acting incompetently and dishonestly and instigating the crisis in the first place.
Wolf claims that Reinhart predicts the response to the alleged “sovereign debt” crisis will be increased financial repression. He says:
Her argument is very plausible … What do governments do when it becomes expensive to borrow? They promise to mend their ways, of course. But, by now, it is often too late: nobody believes them. So they tell the central bank to buy their bonds, which starts a run on the currency. Pegged exchange rates collapse and floating exchange rates fall. Inflation becomes an imminent threat.
At this point, desperate governments look for ways to force institutions to hold their bonds, willy nilly. This is the point at which financial repression begins: banks are forced to hold government bonds, for “liquidity”; pension funds are forced to hold government bonds, for “safety”; interest rate ceilings are imposed on private lending; to prevent “usury”; and, if all else fails, exchange controls are imposed, to ensure nobody can easily escape from such regulations.
And if they do behave in this way then it is because of the dysfunctional system they have all voluntarily signed up to in the first place – the neo-liberal straitjacket.
If we abandoned this neo-liberal institutional structure then there would be no systematic fiscal crises; there would be no sovereign debt crises; and there would be no need for financial repression. All these pathologies are to be traced back by the nonsensical system of voluntary constraints that governments impose on themselves.
It is possible (and in some cases likely) that governments will mess things up from time to time. Overspend, underspend or whatever. But if we actually invested resources in making the ballot box an effective voice then these governments will not last long. The investment I am thinking about is advancing first-class public education which might help disabuse the future populations of the nonsensical propositions that the deficit terrorists parade out every day.
Then … some introspection
And while I am being introspective at present, this is my quote for today from the text of the Confessions of Augustine: Chapter 4.7.12 translated from Latin:
Where was my heart to flee for refuge from my heart. Whither was I to fly, where I would not follow? In what place should I not be prey to myself?
I am thinking about the sort of personal struggle that Augustine talks about in this part of his Confessions at the moment.
That is enough for today!
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The beasts of burden are shuffled from one paddock to another, then transported to where they know not, Fed substance that their ancestors would not recognize, some hear metallic chimes before their demise, where as others are milked by rubber gloves in unfamiliar acts, but all dream bovine heaven awaits if they heed their masters calling.
Good on you billy.
We want everyone in our community to gain access to the distribution system so that if they can work they can find a job and if they cannot they won’t feel under constant attack of having their pension entitlements taken off them or privatised. We want to have first-class health care for when we need it – accessible to all.
That’s what you want… that’s not what everyone wants. I want a government that provides infrastructure, manages public resources wisely, establishes good incentive systems, and punishes fraud.
Where was my heart to flee for refuge from my heart. Whither was I to fly, where I would not follow? In what place should I not be prey to myself?
I guess neoclassical ideology and public purpose are two sides of the one coin; but nowhere in a monetary system will you find anything that the heart can relate to, or even cares about. That is because the heart is simple: it just wants to be content. And it knows you should look within – even in the middle of the battles on the outside it is possible for the heart to be at peace!
So like Augustine could have if he had really understood, you could infer that the problem lies not within the heart, but the mind is at war with itself. In what place should I not be prey to myself? Where the mind cannot go. If you have ever felt peace in your life, if only momentarily – sitting on the swell, watching the dance of the clouds and the sun, happy and content just to be alive, at rest – then you will have touched upon where the mind cannot go. The mind can only conceptualise but never experience the longing and joy of the heart, and the heart cares not what the mind thinks. What matters in your life is which one gets the priority. And who is zooming who!
Now, sitting on a train, gazing out the window as scene after scene passes by – a seasoned traveller in the world. Here for just a short visit. Man what a crazy world – where even the monetary system is upside down. At least the trees and the sky are the right way up! How long did it take them to work out where the rain comes from?
You can bet the problems will still be here long after we are gone!
So, I really like the way you write your blogs and pepper them along the train track Bill; they make really good reading and they are seeds that spring up everywhere; just keep adding the water – but if some days you’re not enjoying the journey then take a deep breath – tomorrow is always a brand new new day! Dance lightly on their heads!!
“There is never a shortage of work – just a shortage of funding to pay the wages.”
I’d be interested to hear your views on technological unemployment. While there is plenty of truth in the correlation between funding and employment, shouldn’t we recognize that humanity’s ever increasing technical ability to replicate what the human animal can do is accelerating at pace? And while the lump of labour fallacy addresses a narrow view of technological unemployment, the broader view — namely that humans have a finite range of economic usefulness and that this range is to a very large degree replicable by machine and computer — is not addressed by providing funding, if the jobs that need to be done can be, both more cheaply and efficiently, by some combination of machine and software.
I’m a big fan of MMT and embrace wholeheartedly its drive to full employment and a more equal income distribution, but feel something like shorter work weeks will become increasingly necessary as humanity improves its technical prowess. Most important of all is human dignity. Can exchanging labour for a wage be the primary sustainer of this dignity in perpetuity? I think not, so believe we therefore need a debate about how we might feel needed by society, minus jobs, and what sort of measures can be taken to transition from “work=dignity” to “notWork= dignity”, if you get my drift.
And thank you Bill Mitchell for your tireless efforts here and elsewhere. I’m a long-time reader and lurker who has been enjoying your output.
when machines are ready to provide us with anything we need it will mean that human civilisation has run out of steam and that it has lost any sense of being and living on this planet in this universe. It can obviously happen but I would bet that there will be millions of other endeavours other than mechanical reproduction of basic goods and services that we can not think of yet. This civilisation has never been driven by its mechanical prowess but rather by its spirit and imagination. This is the way we bring our kids up and teach them. As soon as we stop doing it we will become mechanical fruits which can detach themselves from the ground, walk and even fly.
thanks for the comment.
I wasn’t equating all humany activity with economic activity, nor suggesting that full technological unemployment would result in a life of idle laziness and being waited on hand and foot by machine slaves. Indeed, I believe that there will never come a time when machines can provide us with everything we need. I also do not believe that humans can only be motivated by earning an income and the fear of poverty. However, we are getting better and better at replicating what the economy needs us to do. Not everything we do has wage-labour value. For example, I am a father, writer and do sports, all of which are good for society one way or another, but I am very unlikely ever to be paid for any of my efforts in those departments. My work in IT, for which I am paid, is increasingly automatable. I should know, I automate it! The idea of technological unemployment has a long tradition in western thought; Marx was very aware of it, as was Keynes, and recently Jeremy Rifkin has written a book called “The End of Work” which is an eye-opening read.
But of course in terms of imagination the sky’s the limit. The question is, can there be an economy in which we are all paid to use our imaginations, whether it be as designers, or scientists, or artists? That sounds unworkable to me, though I am happy to be convinced otherwise.
On fire here.
Thanks so much for all you do on a daily basis.
Yes, things are re-getting to near the edge, and we MUST keep a sustainable future within reach.
So, please, keep shouting out loud.
Especially, of course, thanks for again reminding everyone reading your blog that governments need not borrow the net-government-spending balances, what I call “balances formerly known as deficits”, when the reality of the private sector shortfalls place increasing burdens on the government sector – burdens of remedies for real people suffering, burdens that MUST be paid for.
Again, being a Soddy-ite, I must point out the truth that he discovered when attempting to apply scientific rigor to the field of economic, and the monetary system in particular.
“”I thought that, as a scientific man, I ought to know something about economics. So I studied the money system for two years and could make nothing of it. Then, one day, the truth dawned on me. What I was studying was not a system, but a confidence trick.” -Frederick Soddy
This Nobel Laureate, creator of nuclear fission, founder of the concept of social science, and outside-the-box thinker has a short, easy to read book called “The Role of Money”.
If we follow the principles for a sound monetary system that Soddy has laid out, we will be well on our way to transforming the most persistent pseudo-paradigm of our time – that whereby money MUST BE created as a debt.
You might be glad to know that the Modern Mystic has transformed his thinking so that the Neo-chartalists occupy Booth No II of what governments may eventually decide needs doing. Booth I is occupied by G-20-Redux.
MMT arises about 10:30 in.
Just for fun.
Best to you, Bill.
Please keep on keepin’ on.
I would argue that currently machines are ready to provide us with substantially everything we need. What we really need and cannot get is time. Our time is what is of value to others – both by being available for service, but also unavailable for ourselves. Freedom is another word for owning your time. We would still do things and create – but for ourselves.
Technological unemployment is a high-tech neo-liberalism – basically a mental exercise to avoid thinking about alternatives – such as eliminating the need for “earning a living” or that being “paid” becomes a obsolete, unnecessary human relationship. Instead, we live in a world where slavery is no longer an obscenity
We have more than enough productive capacity to provide for everyone in the world, slow down population growth and environment damage and free up time – but not under our current political arrangements, where the necessity to realize value forces destructive distribution schemes.
We are repeating the Great Depression sequence of events (1929 crash, short-lived economic uptick, 1931 European debt crisis), I fear a world war is in the making. But the ones taking us down this path are not ignorant of history – they are deliberately repeating the process, condemning the rest of us to its consequences.
Human quest to fill human wants and needs is endless; there will never be nay lack of something to do. In the beginning it’s said that hunters and gatherers spend a significant part of their time to play, storytelling, music, rituals and so on. A natural part of human life and probably necessary part of human life to be able to develop a sense of humanity and all kinds of development. With amount of work most people today have to but in to get what now is to sustain the basics it seems way to premature to forecast at time of complete idealness. The amazing productivity development in agriculture and foresting have in Sweden meant that today less than 2% is occupied with this, in the late 19 century it was about 75% of the work force. The trend for industry is the same, it produce more and more with less and less people. The service sector has grown. That have meant that the industry of culture have grown tremendously albeit the abdication of the state have put almost all of it in a pretty tacky form in music, spectator sports, movie and game industry. Even the mobile phone is more of a culture thing than a practical communication tool.
My conspiracy theory is that the capitalist is well aware of this, that why they fight so hard to obscure things on social security and other today public services and want it privatized. It’s not that we can’t afford it, there will not be recourses enough and so on, it’s where the future money making will be when conventional industry as a the dominant moneymaker will decline, they know this, that’s why they want to privatize. They know that Health care, culture and so on is a deep need and people want to pay for it. Already today people in welfare countries is prepared to pay confiscatory tax levels for it, they are of course cheated when politicians first overtax them and then say there is no more money.
“We want everyone in our community to gain access to the distribution of the system so that if they can work they can find a job and if they cannot they won’t feel under attack of having their pension entitlement taken off them or privitised.”
A deeper question is whether freedom is consistent with hired labor?
Your political analysis seems to be groping, in effect, for a moral and social equivalent of widespread property ownership once considered indispensable to the success of democracy. Your attempts to achieve a redistribution of income, to equalize opportunity in various ways, can be considered a 20th and 21st century substitute for property ownership, with none of your policies having much chance of creating the kind of active, enterprising citizenry envisioned, for example, by 1880s/90s populists in the U.S.
You say that you want ” a symbosis established between the social, economic and natural spaces so that we can sustain our prosperity.”
How does such a process come about taken that your policy solutions seem to undermine the initiative required?
Why not begin to give serious consideration to the petty bourgeoise critique of the market and the state which may be the only legitimate foundation for “radical” solutions.
Thanks for your comment.
I actually didn’t intend the specific blog to be a thorough statement of my own view on these matters. The short sentences I provided in no way represent a full account. Your starting point would easily be consistent with the generality I provided.
I guess I don’t these this blog as being a platform for me to expand on the more personal views I hold about politics and social organisation etc. I consider the blog in general to me a statement of my understandings as a professional economist with specialisations in the areas I write about.
In the sort of futuristic elaboration you hint at I would be just writing as a person with no particular expertise at all. But I think your earlier description of what you think I might hold forth – for example, that I espouse the “moral and social equivalent of widespread property ownership once considered indispensable to the success of democracy” – is way off the mark.
Thanks for all your work. I’ve learned a lot here and now start every day with your blog. My Mac “reads” it to me so I can go about the morning’s chores.
The neoliberals own the airwaves, the print media, the political debate and are securely ensconced in the halls of power. They may not understand monetary policy, but they do understand power and how to get their share – and everyone else’s. Up against that, it’s hard to have hope, but even harder to live in despair. So, onward….
I think you and your readers will appreciate Sam Seder’s latest effort. Don’t know if he’s familiar with MMT, but he does a pretty good job of calling B.S. on the deficit terrorists in this short video. Enjoy.
For non-Americans, he’s having a bit of fun with Sen. John Ensign, R-Nev. who had an affair with a married staffer then got his parents (I kid you not) to pay hush money to her.
I think Yevgeni Vinokurov has response to the Augustine’s prayers falling back on his head.
bill, I presume you know you’re regularly linked in now for other prominent blogs including naked capitalism and credit writedowns?
that’s good progress IMO. While I don’t agree with 100% of what your write, I agree with at least 80% of it and its great your message is starting to wash up against the tide of crud spilling into the ocean of public opinion from the broken well of neoclassical crude.
keep it up!
If you thought the times front page was bad, take a gander at this, and the associated article.
much confusion there about the difference between deficit and debt, let alone anythnig else!
so sad, and from the Independant as well!
Classical economics (political economy) was a branch of philosophy and it was about the nature of man in society, with all that implies. The classical economists were not principally interested in efficiency and effectives as a goal but as means to an end, the good for man with respect to how this expresses itself through individuals in social relationship. Therefore, political economy as initially conceived, e.g., by Plato and Aristotle millennia ago, and Adam Smith centuries past, was thought of as a branch of ethics. Adam Smith was also the author of The Theory of Moral Sentiments.Smith held the title of Professor of Moral Philosophy and Logic at Glasgow University. Jeremy Bentham, John Stuart Mill, and Karl Marx are known primarily for their contributions to social philosophy.
This type of comprehensive thinking based on the spectrum of human thought came to an end with the marginal revolution and the rise of New Classicalism aka Neoliberalism. Then the focus became “the economy,” as through the economy were the purpose for which society lives instead of the economy being the material life-support system of the society. Values became economic values. The end became “growth” measured in terms quantitatively. Quality was treated as being non-existent, or at least worthless, since it was not measurable.
Supply side thinking came to dominate, with investment considered the driving force and workers viewed as the servants of the capital on which their livelihood depends. As a result, it was taken as “obvious” that the economy had to be organized to preserve and augment capital at all costs. The “health” of the bond market was taken as the indicator of market sentiment of the wealthy that fund investment, so the bond market must be served by observing “fiscal discipline” and imposing “fiscal austerity” as “inflationary expectations” require. Equity indexes became the measure of expansion, along with GDP. The cause of both inflation and contraction came to be seen as workers being overcompensated, no matter the apparent contradiction.
Freed from “the fetters of philosophy,” many abandoned consideration of anything that they considered to be extraneous to economics. This group proliferated and became dominant in the academy. Since “socialism” was the bugaboo after the rise of Marxism politically, economic views that were not sufficiently “capitalistic” were marginalized and “extremists” were excluded, along with humanists in other fields that were suspected of being “pinkos,” or at least not sufficiently “scientific” or “formal” in their thinking.
The failed institutions of today are a consequence of this detour away from the classical enterprise. Keynes attempted to return the train to its track, but the mainstream viewed him as a nouveau classical thinker, that is, a throwback that lacked rigor since he “obviously” did not use enough numbers. Don’t worry, they would fix that with some numbers. Enter the New Keynesians. Now the mainstream debate rages between Neoliberals and New Keynesians over who has the best models, while the world burns.
What will it take to alter this direction, change prevailing universe of discourse and the norms that define it, and align institutions with reality? Given the magnitude of the task and the inertia involved, probably a catastrophe. Randy Wray has an interesting scenario here . There are many other scenario that can be envisioned, few of them good and the good ones unlikely. The sad thing is that it doesn’t have to be this way.
Unfortunately Chris Joyce’s article has got some space in the Drum section of the ABC website.
You also said that “The current institutional structure that mediates the relationship between the government and the non-government sectors and which necessarily involves laws, rules, and regulations about the conduct of the central bank and treasury and the way public spending and taxation is executed and the way public debt is isued has been constructed in such a way that governments are forced (coerced) into intimidating their populations via economic threats.”
Couldn’t agree more with that statement but the issue, for me, becomes the process through which a reconstruction of that architecture takes place. As a U.S. citizen and small business owner I don’t have open to me the potential channel of influence the MMT school of thought may have someday.
Let’s assume for a moment that your brilliant description of how a fiat monetary system operates under a flexible exchange rate system becomes persuasive in the U.S.(i.e. you are successful in exposing the the conservative morality behind your critics reasoning and justification for their interpretation of how the financial architecture works) and eventually some of yoiur collaborators become part of the Federal Reserve staff and one of your collaborators, in the U.S., is appointed Federal Reserve chairmen and another becomes head of U.S. Treasury.
Then your collaborators are in a position to change the rules in our financial architecture. MMT is now in a position to advance public purpose as you define it–you manifest goals become public policy.
From my position in the economy I would, of course, be skeptical of your manifest goals. My experience with powerful public bureaucratic structures(like the Federal Reserve) is that they tend to have a double agenda. There is the manifest agenda and then, of course, the latent agenda which usually focuses around more power, more status and less accountability. The pursuit of the latent agenda often tends to short-circuit the fulfilliment of the manifest agenda.
In addition the question of bureaucratic rationality is never merely a bureaucratic matter of internal organization and goals but one of the general context in which the bureaucracy operates. In my opinion the conditions presently in existence in the U.S. (Big market and Big State) foster a dependency on us that must first be broken before there is a reconstruction of the financial architecture.
MMT is a wory to me because it may end up increasing citizen dependency if its path to power is realized through the process described above.
But perhaps I misundertand how your manifest goals are to be realized?
Thanks for the reminder from home.
Scene 1. London Street. Snowing. Little match girl is shivering on the ground. The streets are filled with piles of garbage and cats.
Man in fur coat walks past. He stops to survey the match girl.
Little Match Girl: Please, Sir, I am cold.
Economist:[looking down] Tell me, Child, why are you so cold?
Little Match Girl: Because, Sir…
Economist: [looking up, as an idea dawns]
Aha! Because there are too many kittens, and not enough mittens.
Your utility would increase if you could make mittens out of kittens.
And why haven’t you?
Little Match Girl: Because, Sir…
Economist: [looking angry, waving his cane at air] I will tell you why! It is the government! The Government!
The government, in its desire to protect kittens, is preventing you from consuming mittens!
[Triumphantly waving his cain in the air]
It is introducing rigidities into the production function! Creating a dead-weight loss! And that dead weight loss is bearing down on you, Dear Child.
[Points cain at girl, who cowers]
Ce qu’on voit et ce qu’on ne voit pas.
[Straightens himself, and says to Girl.]
But I will do my best to lift this crushing weight from you; I will vote for the Tories on your behalf!
[Begins to walk away, as camera follows him. The girl receeds into a whirl of snow in the background] I think there is a paper here…
Little Match Girl: [Calling after him from the whirl of snow] Sir! May I at least have a knife?
Do you have a blog that specifically deals with the motives behind the self imposed political decisions of the neo-liberal and/or deficit terrorists?
While I think I understand the theoretical concepts of MMT, I’m struggling to understand what is stopping us from moving in that direction.
I feel that it has something to do with those in power wanting to maintain that power over those without it.
What would happen to Joe Average worker/taxpayer if he woke up one day to the Prime Minister on the morning news announcing that the government can buy anything the private sector has for sale and all our troubles are figments of our imaginations?
Would Joe Average still want to go to work, pay taxes and carry on as before?
Good article on the political consequences of the Euro area problems by Balibar: http://www.guardian.co.uk/commentisfree/2010/may/25/eu-crisis-catastrophic-consequences
This is one of the first opinion pieces I have seen for a while pointing out the lack of democracy in the European project and also that it would normally be the job of the ‘left’ to campaign to fix this. Unfortunately the left is totally bankrupt of ideas and motivation having bought the neolib BS hook, line and sinker (apart from maybe Die Linke?), just like New Labour in Britain.
KanucK, One should become more radical as one grows older
Toby said: “I’d be interested to hear your views on technological unemployment. While there is plenty of truth in the correlation between funding and employment, shouldn’t we recognize that humanity’s ever increasing technical ability to replicate what the human animal can do is accelerating at pace?”
I believe a better question would be if positive productivity growth and/or cheap labor produce price deflation, what should happen.
What I find most galling these days is the confusion among many non-economist commentators between Keynesian and Monetarist policies such as we’ve seen in response to the financial crisis. I don’t know whether it’s intentional or ignorance (see wiki on zero interest rate policy as one particularly egregious example) but it almost seems as though there’s a concerted effort to discredit Keynes entirely, re-write economic history in the 20th Century (as well as the nineteenth) and present ‘Austrian School’ and other Libertarian ideologies as the only viable alternative.
Words at the mention of which brain activity stops: “democracy,” capitalism, freedom, free market, choice, work ethic, work,government intervention, government spending, government deficits—und so weiter. Politicians become adept at timing knee jerks with these words. They no longer mean a thing. Mencius was right. Once the words in the language are debased everything falls apart. That and “democracy” means we have created a living tower of babel, where every garrulous fool has a “right to his opinion”–that is, thinks his opinion is as good and intelligent as anyone else’s, even if he is an intellectually lazy good for nothing tv addict and talk show lover. How else could idiots like Limbaugh and Beck have enthusiastic audiences if not for an irremediable yokel-bumpkin audience numbering in the millions? It’s time not to “kill all the lawyers,” but kill all the media moguls and all the politicians–well, all the lawyers too.
I can only speak for myself, my personal take away from reading this site is that the monetary system is constructed such that are in place very useful means at the disposal of the government/public, and those tools can be (and have been) used for progressive ends. MMT is descriptive of current reality. In many ways it is blind to political affiliation – you can be a right-wing ideologue and understand that “deficits don’t matter” (shows that certain information is dangerous in the wrong hands).
MMT is a reality, it is not some kind of theoretical program to be instituted once someone takes power. The politics of how the mechanisms are manipulated and used for very narrow private ends is a very different question (I admit to being very interested in this subject). But that is also the theme of US history for much of its existence.
The question of the type of political program needed to take wrest control of the monetary system isn’t much different than the question of what political program would be needed to reduce corruption in the federal government. Europe is and is going to be a VERY interesting battleground.
I’m reminded of the Critique of the Gotha Program, where a romantic view of how the world should be blinds us to the very real tools laying right in front of us that work perfectly well – we don’t need to construct some utopian scheme, we just need to figure out how to get take political control – our opponents have sure figured out how to do so.
My memory of the debt truck is that it confused public and private debt. Not many people apparently realise that private companies, usually through their banks, can borrow overseas, thus creating private foregn debt. All the neocons have to do is shout “foreign debt” without any definition and most people immediately jump to the conclusion that the whole lot represents Govt. borrowing.
More broadly on the “what is it all about” or “meaning of life” issue, people might like to read this article by J.Schmitt called “Inequality as Policy” from the CEPR website. Here is the Conclusion section (only 2 paras.):
“In the standard neoclassical economics framework, low wages are simply a symptom of low levels
of skill. Wage levels, however, are also a function of unionization rates; the level of the minimum
wage; the entire regulatory framework governing the terms and conditions of employment, from
job security legislation to paid time off; the size and scope of the public sector; the degree of
competition in national and international product markets; and other fundamentally political issues,
all of which have little or nothing to do with workers’ skills.
“The sharp and sustained increase in economic inequality in the United States over the last 30 years
is not a reflection of a national preference for inequality (discussed more blandly as “flexibility”),
and not the continuation of an inexorable increase in inequality from 1776 to the present. The last
30 years, in fact, mark a significant departure from a five-decade trend toward greater economic and
social equality. What changed was not the demand for skilled workers, but the balance of power
between workers and their employers”.