Ludwig von Mises 1, Abba Lerner 0
I am working on my article for this month’s Lara-Murphy Report. (Carlos had mentioned that he been reading Human Action lately, and noticed that Mises talks matter-of-factly about people saving via insurance policies, so I’m elaborating on that phenomenon.) I came across this passage (pp. 843-844) which made me feel dumb:
In the process of the unhampered market economy Bill saves one hundred dollars and deposits it with a savings bank. If he is wise in choosing a bank which is wise in its lending and investing business, an increment in capital results, and brings about a rise in the productivity of labor. Out of the surplus thus produced a part goes to Bill in the shape of interest. If Bill blunders in the choice of his bank and entrusts his hundred dollars to a bank that fails, he goes emptyhanded.
In the process of government interference with saving and investment, Paul in the year 1940 saves by paying one hundred dollars to the national social security institution. He receives in exchange a claim which is virtually an unconditional government IOU. If the government spends the hundred dollars for current expenditure, no additional capital comes into existence, and no increase in the productivity of labor results. The government’s IOU is a check drawn upon the future taxpayers. In 1970 a certain Peter may have to fulfill the government’s promise although he himself does not derive any benefit from the fact that Paul in 1940 saved one hundred dollars. Thus it becomes obvious that there is no need to look at Soviet Russia in order to comprehend the role that public finance plays in our day. The trumpery argument that the public debt is no burden because “we owe it to ourselves” is delusive. The Pauls of 1940 do not owe it to themselves. It is the Peters of 1970 who owe it to the Pauls of 1940.The whole system is the acme of the short-run principle. The statesmen of 1940 solve their problems by shifting them to the statesmen of 1970. On that date the statesmen of 1940 will be either dead or elder statesmen glorying in their wonderful achievement, social security.
In fairness to my younger self, Mises doesn’t go through and spell out exactly the Nick-Rowian-OLG-endowment-economy point; Mises couches the discussion in terms of capital accumulation. Still, everything he says above is right, including the nonsense of the “we owe it to ourselves” line.
He didn’t go into as much detail as you guys, but he made his point clear enough that he didn’t need to.
I think this is a message to everyone, its time to re-read Human Action.
I think if Excel had existed, Mises would have produced my apple scenario in an appendix.
I do not know why this this we owe it to ourselves discussion still is not settled, once and for alll. I mean, every CFA knows that an investment is only wealth enhancing if it is positive NPV, which is very unlikely for government investments and technically impossible if the government consumes the raised amount..Which is basically what Mises said above!!!
I wonder why Keynesians do not understand this point..I mean don’t they understand DCF Valuation? how can they consider them being scientific?
Perhaps it is because they overly focus on GDP Accounting which is after all only a proxy for wealth creation (broken window fallacy)
I have the feeling that your excel sheet argument is quite different from what Mises is saying here.
While I think that your argument is right, I am not so sure about Mises argument. I am not sure what my problem is, though.
It seems a little as if Mises story was closer to redistribution within one generation than to shifting between separate generations…
Mises wrote;
“The Pauls of 1940 do not owe it to themselves. It is the Peters of 1970 who owe it to the Pauls of 1940”
So, how are you concluding that he is talking about redistribution within one generation from this?
You hit the nail on the head. I do not understand how Mises can conclude that from his own assumptions. Peter of 1970 owes it to another Peter in 1970.
Now, I do understand how Dr. Murphy can say that we do not owe it to ourselves. His model is very different. He has overlaping generations, no economic growth and exponentially rising interest rates. Mises doesn’t have those in his model. What he is showing is very different from what Dr. Murphy is showing.
Just think of what happens if the government defaults in 1969 in Mises model. The Peters of 1970 are back to 0. But in Dr. Murphy’s model, Iris-or whatever the name was-still had a burden. That is a substantial difference and one of the key points to understand Dr. Murphy’s argument. And it’s completely missing in Mises model.
I think that Mises might have had the right intuition but he didn’t make a very good case for it.
Christopher, Mises “had overlapping generations” in his “model,” because he was thinking of the real world. The fact that he says the Peters in 1970 were taxed to pay back the Pauls of 1940 tells me he saw the big picture. I wouldn’t have said such a thing in November, before Nick blew my mind.
This debt debate shall be forever etched into my mind as the “2012 Nick Rowe Mind Blow”. While I always intuitively thought of it, Nick definitely fleshed it out for me far better than I could have done myself, that’s for sure.
Or maybe you are projecting…
Christopher,
You wrote;
“His model is very different. He has overlaping generations, no economic growth and exponentially rising interest rates. Mises doesn’t have those in his model”
I think one could argue that Mises covered no economic growth in his ‘model.’ Mises wrote;
“If the government spends the hundred dollars for current expenditure, no additional capital comes into existence, and no increase in the productivity of labor results.”
He saying that there is no increase in productivity in the scenario. That is where economic growth comes from.
I would agree that the rising interest point is less explicit. Still, other things being equal, interest rates would rise with each new gov’t demand for a loan to pay back the previous generation.
“While I think that your argument is right, I am not so sure about Mises argument.”
Mises is essentially just saying that loaning money to a Ponzi schemer instead of a producer of wealth will reduce the productivity of labor, and those costs will fall on people in the future.
MF,
“Mises is essentially just saying that loaning money to a Ponzi schemer instead of a producer of wealth will reduce the productivity of labor, and those costs will fall on people in the future”
No, I don’t think so. If no gov’t bonds were issued, and instead Paul lent $100 to a consumer, I think your interpretation would commit Mises to say that the costs of Paul not investing $100 have fallen on Peter in terms of reduced productivity.
I don’t think Mises would say that.
A consumer, say Paul, who is given a loan would have to contribute productively to the economy by earning money.
Mises would have likely said that while consumer loans do not add to the capital stock, they would not have been a burden on future taxpayers, i.e. Peter would not be obligated to pay the interest on a loan to Paul that did not benefit Peter.
So a consumer loan would not burden people the way a government IOU would burden people.
MF,
I agree that a gov’t IOU is a burden the way Mises described in the passage Bob posted.
But that is not what you originally wrote. You wrote that Mises was ‘essentially’ saying that loans to ‘ponzi’ schemers burdened future generations because it reduced future productivity.
But, Mises didn’t say anything about future productivity losses due to gov’t IOUs. He did write that the IOU did not add bring additional capital stock into existence. I think he did so to account for an objection to his point that the debt was a burden for Peter. If the IOU increased the capital stock and thus productivity, one might argue that there would be more goods for Peter (and Paul), and that this would offset Peter’s burden to Paul.
I think Mises only wanted to make the point that gov’t IOU’s for the purpose of wealth transfer (i.e. social security) were a burden because of the tax that future generations, who didn’t benefit from them, would have to pay for them.
So, in your last response where you wrote
“Peter would not be obligated to pay the interest on a loan to Paul that did not benefit Peter, so a consumer loan would not burden people the way a government IOU would burden people.”
I agree with you – but this is not what you said Mises was ‘essentially’ saying before.
(And, at least *some* people have to contribute productively to the economy to pay off gov’t debt, as would people who took out consumer loans. Again, I say the point is that, in the former case, the loans benefitted previous generations who do not now have to pay them).
But, Mises didn’t say anything about future productivity losses due to gov’t IOUs. He did write that the IOU did not add bring additional capital stock into existence.
When I said losses, I meant losses as compared to the counter-factual baseline of those savings going to interest earning capital investment, as per Mises’ argument, for that is why he emphasized that NO capital stock increase is had with government IOUs. It was to distinguish the IOU from an increase in capital stock which increases productivity of labor.
The capital stock is a core component of productivity. The IOU will not add to the capital stock, and so the productivity of labor will be lower than it otherwise would have been.
Mises was not arguing that IOUs are only a burden because of their wealth transfer characteristics.
Just as cement in Rochester is not the same as cement in Detroit, the citizen in 1940 is not the same as the citizen in 1970. “We” cannot owe it to ourselves, because the two “citizens” are not homogenous. They differ because of time and inherent individuality.
Can debt be defined as borrowing (at a discount) the saved fruit of someone elses’ labor in exchange for the fruit of another’s future labor, each party mutually benefiting? The government borrows for current consumption, a benefit for those receiving subsidy from government. The lender to government benefits from interest payments.
The individual citizen (present & future) is burdened by the consumption of government in two ways. First, the confiscated present private production that comprises taxes, and secondly, the distortion of free markets by the government’s consumption of goods and services, distorting prices and misdirecting the production of goods and services from that which individual citizen consumers (present & future) may ultimately desire.
“The Pauls of 1940 do not owe it to themselves. It is the Peters of 1970 who owe it to the Pauls of 1940.”
As usual, Mises nails it. Seems like there’s a parallel here with the difference between private and public unions.
The government’s IOU is a check drawn upon the future taxpayers. In 1970 a certain Peter may have to fulfill the government’s promise although he himself does not derive any benefit from the fact that Paul in 1940 saved one hundred dollars.
Only the saver might benefit from his saving. It is another story with investing, but not with saving.
I would have thought Lu would know the difference. Apparently he is just another idiot.
“Only the saver might benefit from his saving. It is another story with investing, but not with saving.
”
So are you saying here that an investor cannot benefit from his investing?
Maybe you should overthink what you have said here.
No I am not. Maybe you should overthink what I said there.
You said:
“Only the saver might benefit from his saving. It is another story with investing, but not with saving.
”
This clearly means that only the saver might benefit while the investor cannot. If it means something different please tell me.
It obviously means something different, I already told you. I thought you would be able to figure it out yourself.
Sorry I obviously am not able to do that. I may formalize it a bit for you.
You are contrasting “A” and “B”, saying that attribute “Y” ONLY applies to “A”, while it is different for “B”.
Now it seems you grant that it is possible to interpret it as I did. -> Attribute “Y” only applies to “A”, but not to “B”.
Now please tell me how else it is possible to interpret it? And in addition how in the world people should have understood it that way you mean it?
Sorry I obviously am not able to do that.
Agreed!
skylien, I think you correctly interpreted what Mammy said as he wrote it.
It is obvious that
“Only the saver might benefit from his saving.”
This means only savers and not investors might benefit from saving.
Then he says:
“It is another story with investing, but not with saving.
Clearly implying that investors do not benefit from investing, and he even reinforced this with “but not with investing.”
I think his mind is so warped by MMT’s cash fetishism, that he only sees “benefits” with holding, earning, or otherwise being the recipient of cash.
That is why “savers” (meaning cash accumulators) might benefit, and why investors (who make expenditures and thus “lose” cash) don’t benefit.
It’s like real income producing assets aren’t even real in the MMT world. All that matters is money.
My guess is that if people didn’t have anything except money, but lots of it, and people kept getting more and more money, he would believe that people are better off compared to if they had real wealth totalling what the average person has in the US, but they have less cash, or lots of cash but slowly declining sums of cash.
MMTers I think are the economics version of quantophrenia pathology.
“Only the saver might benefit from his saving.”
This means only savers and not investors might benefit from saving.
No, idiot, this means that only the saver himself (and maybe his heirs) but no one else might benefit from his savings.
“It is another story with investing, but not with saving.
Clearly implying that investors do not benefit from investing, and he even reinforced this with “but not with investing.”
No, idiot, it means that someone else than the investor might benefit from his investing.
Didn’t I already tell you were an idiot?
Mammy:
“No, idiot, this means that only the saver himself (and maybe his heirs) but no one else might benefit from his savings.”
Cash “savings” don’t exist in a vacuum, idiot.
If someone accumulates cash, then it’s because they are in fact benefiting others through their productivity that earned them that cash, idiot.
Whether or not they spend that cash after 1 second of earning it, or after 1 year of earning it, they already benefited others by virtue of them owning that cash, idiot.
But this is besides the point, because you incorrectly said that only cash holders might benefit from their abstaining from consumption (saving), but not investors, who also abstain from consumption but invest and not accumulate cash.
“No, idiot, it means that someone else than the investor might benefit from his investing.”
Someone else also benefits when someone earns cash, idiot.
Everyone who earns cash, is a cash holder, cash “saver”, by implication, idiot.
Just because some people hold their cash for a time period greater than the arbitrary time limit that you MMT fools consider to be “justified”, and not in need of parasites counterfeiting money for themselves and their friends, that doesn’t mean that you can say cash holders don’t benefit others, idiot.
“Didn’t I already tell you were an idiot?”
You say this like your single post here consisted of a back and forth conversation, which means you probably had me confused for those scary and uncomfortable voices in your head, idiot.
I have an idea! How about we don’t call each other “idiot” when discussing capital and interest theory? Bohm-Bawerk never did it, although I haven’t read him in the original German.
MF,
Yes you are absolutely right. He really seems to believe that someone who buys a company bond or stock would not be a saver… And vica versa someone who invests in a government bond is not an investor..
Not to forget that even if you grant him this strange definition it is still wrong. Even if someone saves in government bonds another person will benefit of that savings. The government obviously spends it on something and increases somebodies income, or/and the government might even make a more or less useful investment (e.g. roads).
And if he only saves in cash under the mattress all other people will benefit because of lower prices until that money is spent.
Finally it makes even less sense of how he concludes from all that that Mises is an idiot. But I guess he will not explain this mystery to us, probably because we wouldn’t understand it anyway..
@ Bob,
As far as I can tell (I have not read everything) Bawerk also didn’t do it in German.
Idiot is the same in German as it is in English.
No, idiot (with german pronounciation) no one else than the saver benefits from his savings, unless he reinvest them.
Whether someone benefited from what the person did to save (he might have stolen the money) is irrelevant. Once he has saved the money, no one benefits from it but himself.
Only an idiot (still pronounced in german) can think otherwise.
No, idiot (with german pronounciation). Only the saver might benefit from his own savings, unless he invest them.
The fact someone might have benefited from what the saver did in order to save (he might have stolen the money) is irrelevant.
Once he has saved the money, no one else would benefit from it.
Only an idiot (still german pronounciation) can think otherwise.
At least you have something in common with Lu, Major Freefall!
Mammy:
“Only the saver might benefit from his own savings, unless he invest them.”
Again, savings don’t exist in a vacuum. When someone holds money, it’s because they offered something of value to someone else. It doesn’t matter if they hold their earnings for 1 second or 1 year. They did their part to benefit others, and now they own new property, money property.
“The fact someone might have benefited from what the saver did in order to save (he might have stolen the money) is irrelevant.”
No, it is entirely relevant. Every earner of money does not exist in a vacuum. You can’t divorce them conceptually from others who paid them that money. Everyone who earns money is a money hoarder, money holder, cash holder, etc, for a positive period of time.
“Once he has saved the money, no one else would benefit from it.”
That’s always true for OWNED money. It’s a part of what money is. Money cannot be money unless it has value being held.
Others should not benefit from an individual’s money until he is willing to spend it. They benefit from their own money, and if they want his money, they can offer something of value to him in exchange. The individual cash holder, and all other individual cash holders, benefit from holding their money for whatever period of time they want. Some hold money for shorter periods of time, others hold it for longer periods of time. But everyone who earns money holds money for a positive period of time.
It is not consequential or significant that an individual cash holder is “not benefiting others by virtue of holding his cash.”
That same truth is true for all consumer goods. Every consumer good you own isn’t benefiting others by virtue of you owning them. But those consumer goods represent exchanges you made where you did benefit others by making exchanges.
Only the saver might benefit from his saving. It is another story with investing, but not with saving.
I would have thought Lu would know the difference. Apparently he is just another idiot.
Mammy:
“Only the saver might benefit from his saving. It is another story with investing, but not with saving.”
Again, savings don’t exist in a vacuum. When someone holds money, it’s because they offered something of value to someone else. It doesn’t matter if they hold their earnings for 1 second or 1 year. They did their part to benefit others, and now they own new property, money property.
the federal ‘debt’ is nothing more than data entry on the books of the Fed
treasury securities are nothing more than nominal dollars in what are called ‘securities accounts’ at the fed.
there is nothing to actually ‘pay back’ as when the tsy secs mature the securities account is debited and a member bank reserve account at the fed credited. and those dollar balances can only exist as a credit in one fed account or another. (actual cash is functionally a fed account)
MamMoTh,
Is this again a hidden way to claim, that the government can spend what it wants, and taxation only is needed to control inflation?
Do you really think Peter 1970 gives a damn if you gonna tax him because the government needs to pay it back actually or if it is only to keep inflation low?
It’s just a claim that the financial debt is no burden per se.
Government spending (as well as private spending) can obviously leave a real burden to future generations for instance when consuming non renewable natural resources. But this is regardless of whether government taxes, borrows or print in order to spend.
Moreover government not spending in education and R&D is as likely, if not more, to leave a real burden.
No one claimed that. If the government spends for something that only benefits Paul 1970, and he is the only one beeing taxed for it there is no issue at all.
You missed the point of this whole discussion…
sorry I meant Peter 1970 of course
I didn’t miss the point. There is no point.
No, you did miss the point.
The point is that, contrary to your belief, there is in fact a difference between taxation and borrowing, when it comes to future generations being burdened.
If the government borrows, then they are putting assets into the economy, the liabilities of which are incurred in the future if the government taxes future generations to buy back the debt by confiscating that generation’s money.
If you have a debt claim that promises to pay $100, and I confiscate your money to buy that same debt claim from you, then you incurred a net loss. You originally had money plus an asset. Then you ended up with only money.
Whether you see managing government debt as a means of keeping inflation in check or the more conventional view that taxes are used to pay off government debt, at some point someone in the future has to pay for government spending. They have fewer options regarding lower taxes or more government spending than they would have otherwise.
at some point someone in the future has to pay for government spending.
for today’s government spending? not necessarily, but could be, as they could also have a higher income because of government spending today.
one thing’s for sure, future generations won’t be sending any real goods or services back to the past.
government or private spending today on non renewable natural resources today will certainly be a real burden on future generations if they need them.
but government debt is no real burden, nor is cash or bank reserves.
In a real sense, future generations are sending goods into the past when the present generation borrows against that future generations expected earnings. Read Bob’s meteor example.
As far as higher income due to government spending today, it seems like that would depend almost entirely on the efficiency of the spending. Since government doesn’t rely on voluntary customers for funding like a private business, there is no feedback mechanism to figure out if their spending was valuable or worthless. That’s a very important point.
In a real sense, future generations will not, and cannot, send goods and services into the past.
In an imaginary sense, it doesn’t matter.
Mammy, are you Warren Mosler’s unpaid PR agent?
http://www.multiplier-effect.org/?p=3192#comment-10715
“Wood drastically underestimates the impact of social distinctions predicated upon wealth, especially inherited wealth…” You got that from Vickers. “Work in Essex County,” Page 98, right? Yeah I read that too. Were you gonna plagiarize the whole thing for us- you have any thoughts of- of your own on this matter? Or do- is that your thing, you come into a bar, you read some obscure passage and then you pretend- you pawn it off as your own- your own idea just to impress some girls? Embarrass my friend?”
“See the sad thing about a guy like you, is in about 50 years you’re gonna start doin’ some thinkin’ on your own and you’re gonna come up with the fact that there are two certainties in life. One, don’t do that. And two, you dropped a hundred and fifty grand on a [bleepin]’ education you coulda’ got for a dollar fifty in late charges at the Public Library.”
Unpaid?
Good catch. He might be a sock puppet instead of a plagiarizer.
Yeah I thought that was weird too. For those who don’t get it, check the link MF provides. MamMoTh verbatim posted Warren Mosler’s deep thoughts on this stuff above, as if they were his own comments.
MamMoTh, if you’re going to plagiarize, do it from somebody who doesn’t put “debt” in quotation marks as if the whole thing is nonsense. The government really does owe people money.
I made them mine.
The only relevant point is that also your scorekeeping sucks.
You’re right, MamMoTh. I shouldn’t have neglected Mises’ evisceration of Lerner’s “market socialism” approach in the great debate earlier in the century. Mises 2, Lerner 0.
I knew you would get what “also” referred to.
Bob, can I please use an urban dictionary link against mammoth-boy?
Don’t you want to hit my fists with your face too?
“I made them mine.”
Now that’s funny.
Even funnier when the context is someone else’s wives.
Something tells me that this is not an isolated incident. I thought that I had noticed it before (when I was reading Mosler’s book and his website), but I am horrible at remembering specific passages, so I let it go.
Good catch, MF.
Great response by MF over there:
some MMT tool: “Do you question that Treasuries are liquid?”
MF: “No. I question the claim that they are money.”
+1. Liquidity is not the same thing as purchasing power.
The difference between Krugman and the MMTers is that Krugman thinks we’re in a liquidity trap right now, whereas the MMTers think we’re in a liquidity trap always.
“The difference between Krugman and the MMTers is that Krugman thinks we’re in a liquidity trap right now, whereas the MMTers think we’re in a liquidity trap always.”
Hahahaha
No truer words.
That’s hilarious.
Sorry turning off italics I started now, I hope
didn’t work
For those saying Mises doesn’t get it: I agree he might not have seen how the effect could occur even in an endowment economy (with no physical investment), but nonetheless him talking about the Peters being taxed in 1970 to pay the expenditures that the Pauls financed through lending to the government in 1940, is more sophisticated than what I knew back in November. Also the stuff about the statesmen pushing the problem into the future, was not a point I would have been comfortable making back in November.
In my original understanding, I thought the action was all in 1940 (in this example), and that the guy in 1970 was only hurt because of the smaller capital stock he inherited. I didn’t realize that in a very real sense, he could be taxed to pay for something that happened in 1940. That seemed impossible.
Two things regarding Mises on public debt from HA, but I don’t have the exact quotes (I may go search for them later)
1. Mises clearly and explicitly says somewhere else again in HA, that every issue of government debt always entails an additional tax burden on the future. (not the Bill and Peter example)
2. Mises in HA also warns against the tempting but very fallacious thinking that the costs of the debt, therefore, incur solely on future generations. One cannot borrow future wealth! The resources the government bids away with new issued debt must be paid for NOW! And it is paid by today’s generation in the form of resources being shifted NOW from productive to non-productive activities.
If I were Daniel_Kuehn, I would come here and argue that Peter did benefit from Pauls non-spending of $100, in that the government got to provide (don’t laugh) $100 of infrastructure that it otherwise would not have been able to.
Silas, surely you don’t deny that the majority knows what the minority wants, more than the minority themselves, right?
I mean, if the majority says the minority is better off with [government imposed infrastructure] instead of [voluntarily produced infrastructure], then they’re right by definition. The truth about your individual value, and every other individual value, comes from the overlords of whom the majority have voted to hold society’s guns. It doesn’t come from you individually. Don’t be naive. You don’t know what you want, only the overlords know of such things.
How do they know? They went to some school I think. Anyway, don’t press me too much on this or else I’ll just say “That’s how things are SUPPOSED to work.” Of course I’ll then sweat, because you could ask me “Supposed by who?” Just stop asking so many questions and just coddle to my fears and obey the masters I have personally decided to be your masters. You don’t want to upset them.
What? No, I didn’t just time travel from 1933 Moscow. They had it wrong because their masters went overboard. We have a piece of paper saying our government can’t do wrong.
Just believe that wanting to give them more and more power over the economy can only have beneficial effects, because the free market collapsed the economy and it’s the job of the overlords to clean the mess up while they were away…on that date with that mean old person who thinks he’s my real dad. But he’s not, and so I trashed the house to garner attention. They should to clean it up, because they weren’t paying close enough attention to the more important problems while they were out, having fun and doing business like things. I hate business like things. You guys just want to break up the family by saying they should stay away forever. What am I supposed to do if I’m here all alone? Who’s going to make sure there’s food on the table when I can’t find any? Who’s going to make sure I have a roof over my head if I can’t find one? Who’s going to make sure there are roads if I run away? Who’s going to make sure there is water for me to drink Stop hating the government so much. Let them do just these good things for me, and you can stop them from fighting wars and things I don’t like. Why do you want to take away the food and water too? That’s too much! We can live without war, but we can’t live without food. You see, I just don’t TRUST anyone who says that the house can be run OK with only the children. They are troublemakers. They are scary, I mean “naive”, to believe that the house can be run without a daddy (republican, protector, conservative) and mommy (democrat, caregiver, free spirit).
Nice try Silas, but I think instead he would have said, “Bob, I don’t take Mises to be saying that at all. He’s claiming that fascists should get $100 from everyone named Peter. I have a track record in interpreting Austrians correctly.”
(We love you Daniel Kuehn, in case it’s not clear.)
An old saying comes to mind, “we wouldn’t poke fun at ya if we didn’t like ya”.
“If the government spends the hundred dollars for current expenditure, no additional capital comes into existence, and no increase in the productivity of labor results.”
Only if you subscribe to the view that government spending on public works/infrastructure or, say, social spending (like health care) does nothing to increase the stock of real public goods that do in fact help private business (e.g., cheaper transportation costs new technologies through public R&D ) or help individual productivity (e.g., wealth created by workers prevented from having illnesses through public preventive medicine or cured of illness).
Nothing but the lazy false assumption of anti-government cultists like Mises.
“Nothing but the lazy false assumption of anti-government cultists like Mises.”
So say the data-crunchers with meaningless equations and pretty Greek alphabet letters of pro-government cultists like Keynesians.
What is interesting is that somebody that goes by the name of “Lord Keynes” can call anybody a “cultist”. Hmm?!
Good call!
What should one expect of someone who makes nothing but a lazy false assumption…
Let’s see, we’ve rooted out one cultist and one plagiarist, I wonder what else we’ll find? Hypocrisy? No, no. Never that.
Plenty of cultists hypocritical idiots (french pronounciation here). What else do you want?
I am guessing that that was an original comment.
Try doing something original, for once.
“Try doing something original, for once.”
And this is coming from a plagiarist.
“And this is coming from a plagiarist.”
Haha, Mammy is a hypocrite on so many levels.
An unabashed hypocrite, at that.
Ha ha, this is the moron show?
Please form an ordely line, so I can deal with you one by one, idiots
Oh look, the plagiarizing hypocrite actually believes he is in a position of moral or intellectual authority.
How cute.
LK,
In the sentence Mises only makes clear under which condition his example is valid. It does not follow that he means that government is not able to invest in infrastructure or R&D… Come on, please be a bit fairer, and don’t imply things that really are not said there.
“Only if you subscribe to the view that government spending on public works/infrastructure or, say, social spending (like health care) does nothing to increase the stock of real public goods that do in fact help private business (e.g., cheaper transportation costs new technologies through public R&D ) or help individual productivity (e.g., wealth created by workers prevented from having illnesses through public preventive medicine or cured of illness).”
Clothes, food, medicine, and other consumer goods also “help” people, but that doesn’t mean consuming them are acts of investment, or in any way bring about an increase in productivity, you economically illiterate ignoramus.
Consumer goods are rewards for ABSTAINING from consuming, they are rewards people get for not consuming resources, but acting to invest resources in the production of wealth instead.
Government spending does not increase wealth because they don’t make expenditures that are self-sustaining. They only consume wealth.
You say the government brings about a “cheaper” cost for transportation. That’s just plain silly. The government consistently brings about HIGHER costs of everything they touch. Throwing money at something increases its costs, it doesn’t decrease its costs. If roads were private, then they would be far more cost effective, because the owners would have an incentive to reduce prices, not increase them.
You say the government “helps” people’s healthcare, and thus “helps” them in working to produce with more healthy bodies. But government increases the costs of healthcare, they don’t decrease it. Spending money increases the costs. Improving efficiency and technology and worker productivity, which is what government does not have an incentive to do, is what decreases costs and prices.
Your post is nothing but the lazy false assumptions of pro-government cultists like Stalin.
Now that we’ve boiled the impenetrable 10 inch thick MMT ball of lard down to its essential nothingness, I don’t find that I’m going to learn much of anything by “debating” MMTers. At least LK has interesting historical anecdotes that are informative and require examination.
Still, these guys haven’t the slightest comprehension of Austrian concepts which I continue to find astonishing. We’ve won.
You’ve never won anything Roddis.
Remember, you are just an old attorney, who has left a real burden to future generations by squandering stolen gas to give meaning to your life.
That’s something you should have learnt from debating MMTers.
Exactly right. Thanks for setting out the sum and substance of what I’ve learned from you guys.
Bob Roddis just beat the Freud out of Mammy.
What has Freud got to do with the fact he is an idiot like you who can only learn he has been a useless moron all his life spent squandering stolen gas on public roads?
Nothing.
Economics is beyond his understanding. He is just an old attorney. That didn’t happen by chance.
“What has Freud got to do…”
It has to do with Freud because you just explained exactly what MMT is all about.
“Economics is beyond his understanding.”
That’s funny coming from someone who has been refuted by him so many times one can no longer count.
Roddis has never refuted anyone.
He has just squandered stolen gas riding on public roads to give meaning to his life.
He is funny to play with though. Just like you.
Keep barking darling
He hasn’t refuted anyone?
Oh come on, you’re not a nobody. I mean, you probably think very lowly of yourself, but when he refutes you, he’s not refuting a “nobody.” You’re a somebody. You’re the resident village clown.
Those knucklehead MMTers aren’t dead yet.
Richard Koo, Paul Krugman, and the MMT economists, as well as Post Keynesians like John T. Harvey all cite private debt as the issue and say that the government’s fiscal balance has to increase to make space for increased private desire to save in the face of the external sector saving as well. This means larger government debt, since deficits are required by law to be offset with tsy issuance.
http://mikenormaneconomics.blogspot.com/2012/01/john-carney-why-does-bernanke-lie-to-us.html
Always striking to see these guys take accounting identities as gospel.
Always striking how Austrians don’t understand them so they chose to ignore them.
We live in a striking world!
Those sector balances are “infinitely more important than understanding what might be the meaning of a price.”, eh?
If there were no “governmental sector” and the perpetrators were all in jail, we wouldn’t have to worry about “balancing” against it, now would we?
The consistent MMTers would include “illegal” counterfeiters in their dogma, and advocate that these hoodlums print and spend money when the government allegedly fails to do enough of it themselves.
After all, when the “private but non-counterfeiter” sector wants to save more, there has to be a balance on the “private and counterfeiter” side of the private sector.
Why don’t they advocate for every individual to have the ability to print and spend money?
If you were shot we wouldn’t have to worry about you squandering stolen gas on pulbic roads to give meaning to your life, now would we?
Your subconscious is full of hate. You have some major psychological issues.
I just love reading this MMT stuff. These people are so detached from any semblance of morality or reality, it’s just fascinating.
While this is not the place for a complete elaboration of alternative views, there are at least two points to make regarding this “long run” stability assumption of orthodox analysis. First, Keynes, of course, rejected the view that the economy was self-stabilizing in the “long run” even if nominal prices or wages were flexible. Most, if not all, Post Keynesians similarly argue that insufficient aggregate demand or (equivalently) excessive desired aggregate net saving (as in Japan) is a persistent or at least frequent problem in modern capitalist economies, and therefore persistent federal government deficits may be required to fill the “gap.” These economists often subscribe to a Lerner-type functional finance approach in which it is the potential stabilizing effects of a government’s deficit—as opposed to whether the deficit is consistent with the orthodox principle of “sound finance”—that determine whether a deficit should be incurred (e.g., Arestis and Sawyer, 2003; Mosler, 1997-8; Nell and Forstater, 2003; Wray, 1998). Second, Minsky, like Keynes, viewed government deficits as frequently necessary for maintaining full employment, but viewed them as particularly important for the financial stability of the economy. Recent extensions of Minsky’s analysis—particularly by researchers at the Levy Institute—have made use of the national income accounting and flow of funds identities showing that government deficits are necessarily equal to non-government saving to demonstrate that persistent government deficits might be necessary to enable less fragile balance sheet structures in the non-government sector (e.g., Godley, 1999; Wray, 2006b). As Figure 10 shows, government and domestic non-government sector net saving are near mirror images of each other (because the non-government sector in Figure 10 excludes the net saving of the foreign sector, the two are not perfect mirror images); in other words, persistently positive financial balances in the domestic non-government sector (i.e., positive net saving) may require persistent deficits in the government sector (i.e., negative net saving).
Fullwiler @ p. 29
http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1722986_code444041.pdf?abstractid=1722986&mirid=1
I just love them calling the purchase of bonds “savings”. Amazing. There is no reason in logic or fact to suggest that the economy is not “self-stabilizing”. The fact that they have NEVER addressed anything we have ever said or written says it all.
It’s good that you unwillingly admit the Austrian Cult is a fairy tale about morality, not an amoral economic theory.
There is no such thing as amoral economics. Every economics theory presupposes an ethic.
Don’t believe me? Give my ANY economics principle that you believe is value-free, and I’ll show you that principle to presume an ethic that is not value free.
I see no evidence that Mises was thinking of anything like the OLG model. If money is raised by a debt that is eventually paid for via a tax then at that time the tax payer is (potentially) worse off and the bond holder (who has chosen to hold the debt) breaks even. You don’t need OLG for that to be true.
Rob, right, so the people who got the transfer in 1940 are better off, the bondholder finances the operation, and the people who are taxed in 1970 are worse off. Thus the old people in 1940 “steal” from workers in 1970, many of whom aren’t even born when the transfer payment occurs. It takes the overlapping generation of the lender to make it possible.
I think you can demonstrate the burden of debt without overlapping generations.
Period 1: Govt sells bond to A and gives the money raised to B
A and B die at the exact moment that the next generation C and D are born. A gives his bonds to C as a bequest, or sells them on his deathbed.
Period 2: Govt taxes D to pay off C.
A and C break even (they are just voluntary bond holders) B gains and D loses. But there are no overlapping generations.
I suppose you could say that A’s lifetime consumption was reduced by the fact that he held onto the bond – but everything he does he does by choice.
What OLG appears to add is that one can build a model where everyone alive at a certain time benefits, and then later everyone who is alive does worse (if one includes a utility function in the model). This is a nice twist nut I do not think it is essential to the big picture that debt can be a burden on future generations.
In fact it occurs to me that in period 2 the govt could tax D for half the amount of the bond and default on the other half. Both C and D lose. We have a model where everyone in a generation loses but no OLG.
I’ve always remembered this quote from Ralph Raico reviewing a biography of Trotsky in Libertarian Review, March 1979.
The nitty-gritty of how an economic system functions — how, in our world, men and women work, produce, exchange, and survive — was something from which they prudishly averted their eyes, as pertaining to the nether-regions. These “materialists” and “scientific socialists” lived in a mental world where understanding Hegel, Feuerbach, and the hideousness of Eugen Duehring’s philosophical errors was infinitely more important than understanding what might be the meaning of a price.
http://mises.org/daily/4515
He’s referring to the genocidal Marxist-Lenisists but it sure sounds like the MMTers too.
I think the big skunk in the woodpile of this passage is that, in formulating this argument, Mises appears to be explicitly dismissing the effects of 30 years of presumptive stability (assuming, that is, that deficit hounds haven’t been using debt ceiling debates to keep the government from servicing its $100 debt). In most real systems I see that the actual per-capita burden is lessened due to population expansion and inflation both spreading out and eating shares of the debt. I take the basic principle Mises is advancing to be sound, but I would pose it in this way: How much of a “gift” of debt from the past is too much?
Of course, I’ve noticed MMT proponents likewise dismissing the decade of a unified European currency seemingly without regard for the benefits to the economy (however, in their case the rationale is based on some democratic worries and mainly the worry of losing the lender of last resort).
As to whether the whole edifice of spending is sustainable, it doesn’t have to be $100. I haven’t yet seen the argument that government can’t keep spending down to levels where inflation is low.
One of the main arguments of MMTers against the Euro is that it lacks the fiscal transfers necessary to keep it stable, so it was prone from inception to the sort of crisis they are now experiencing.
Governments sovereign in their own currency can keep spending whether inflation is low or high. The only question is whether they should.
And the answer seems to be to cut spending in education and healthcare, in order to leave a real burden to future generations.
A striking world indeed!
If we simply separated school and state, medicine and state and money and state, we wouldn’t have these unnecessary statist problems. There is every reason to believe that free people would be able to locate and purchase these services without the help of a statist overseer.
I always love these statist proposals to violate the contractual terms of debt (la-di-da) with funny money because a system where honorable people actually pay their debts is “unstable“.
Keynesians, commies and progressives. Solving problems that do not exist with “solutions” that are the problem.
Roddis,
You might be interested to know that DK essentially admitted support for social democracy (aka socialism). I had never seen him come out and say it before, so it kind of surprised me when he did so. Esp. considering he views Austro-libertarians as wanting to reengineer society and tries to describe himself as part of the liberal tradition.
Just thought you’d like to know.
Interesting. 39 years ago, in January 1973, I learned that my beloved democratic socialism as played out in in multi-ethnic societies leads almost invariably to ethnic struggle and slaughter.
http://www.stanford.edu/~rabushka/politics%20in%20plural%20societies.pdf
[don’t click unless you want to download a 12 MB book]
Right after that, I realized that the “progressives” wouldn’t/couldn’t fight back on the merits.
As Yoko Ono might say, the dleam was ovah.
Just for the sake of clarity, this is the paragraph that caught my attention:
“The problem, once again, is that we all have different culprits in mind when we read something like this. When I read this, I immediately think of the mostly libertarian economists who want to radically alter and re-engineer the society that has naturally emerged and evolved in the United States by dismantling the social democracy that we have.”
He was saying this in response to Kling quoting Colander.
Then he gets all pissy anytime somebody calls him a statist.
Or anytime anyone tells him that he’s brilliant at smooth double-talk and he ought to be a lawyer at a big firm.
Bob: interesting. Do you think Mises changed his mind between TMC and HA? Or could both passages be interpreted as correct, if read carefully?
By the way, Lerner was Hayek’s student, right? Where did Lerner get his ideas from (on the burden of the debt)? Might it be from Mises?
There’s a neat little History of Thought paper waiting to be written here (not by me).
From my reading of Lerner’s RED BOOK entitled “The Economics of Control”, Hayek inspired Lerner to give up on his vision of a pure “war communism” totalitarian state so that the leash upon the masses might be loosened just a bit.
Chapter l. INTRODUCTION. THE CONTROLLED ECONOMY
The fundamental aim of socialism is not the abolition of private property but the extension of democracy. This is obscured by dogmas of the right and of the left. The benefits of both the capitalist economy and the collectivist economy can be reaped in the controlled economy. The three principal problems to be faced in a controlled economy are employment, monopoly, and the distribution of income. Control must be distinguished from regulation. Liberalism and socialism can be reconciled in welfare economics.
http://www.flickr.com/photos/bob_roddis/5560086644/in/set-72157626353319778/
David Colander, a co-author of a 1980 book with Lerner (born 1930, died 1982) has written:
Initially he [Lerner] toyed with various administrative wage and price control policies, but he found those lacking and soon gave them up. He replaced them, first, with a tax based incomes policy and ultimately, a market based[!!!] incomes policy in which property rights in prices are set and individuals have to buy the right to change prices from others who change their price in the opposite direction. It was this idea that formed the basis of our market anti inflation (MAP) book. (Lerner and Colander 1980) Under MAP, rights in value added prices would be tradable so that any firm wanting to change its nominal price would have to make a trade with another firm that wanted to change its nominal price in the opposite direction. Thus, by law, the average price level would be constant but relative prices would be free to change [page 12]
http://tinyurl.com/4rfk3jk
This is amazing. Two years before he died, Lerner was proposing that no one could change their price without trading with someone else the right to change the price in the opposite direction. It appears that Lerner had about as much understanding of the meaning of a price as Trotsky. (Of course, the MMTers now propose that inflation can be easily cured with taxes. No muss, no fuss.)
From the number one MMT site on the web!
Why Climate Change Will Make You Love Big Government
Such calamities, devastating for those affected, have important implications for how we think about the role of government in our future. During natural disasters, society regularly turns to the state for help, which means such immediate crises are a much-needed reminder of just how important a functional big government turns out to be to our survival.
http://mikenormaneconomics.blogspot.com/2012/01/why-climate-change-will-make-you-love.html
It’s just an “economics” theory, right?
From the number one MMT site on the web!
Why Climate Change Will Make You Love Big Government
Such calamities, devastating for those affected, have important implications for how we think about the role of government in our future. During natural disasters, society regularly turns to the state for help, which means such immediate crises are a much-needed reminder of just how important a functional big government turns out to be to our survival.
http://mikenormaneconomics.blogspot.com/2012/01/why-climate-change-will-make-you-love.html
It’s just an “economics” theory, right?
From the original “Truthdig” article linked by the MMTers:
To adapt to climate change will mean coming together on a large scale and mobilizing society’s full range of resources. In other words, Big Storms require Big Government. Who else will save stranded climate refugees, or protect and rebuild infrastructure, or coordinate rescue efforts and plan out the flow and allocation of resources?
It will be government that does these tasks or they will not be done at all.
Who else will subsidize people to live on uninsurable floodplains, build freeways with eminent domain hither and yon and induce a housing bubble? And then complain about “spawl” and blame it on the free market?
That is what “climate change” has always been about anyway. The usual totalitarian claptrap from the “progressives”.
Wow. There’s someone who slept through his economics classes!
> It will be government that does these tasks or they will not be done at all.
What are these people smoking? Do they have any data to back this up? I seem to recall the FEMA response to Katrina blocking civilian aid trucks from entering the area and “losing” a warehouse full of supplies for about a year. Contrast that with Walmart planning things down to the order of packing supplies into boxes (most urgent things on top).
It’s a real problem when blabbers can’t understand decentralized solutions to large problems. They’re stuck in a “if you want a bigger hole, you need a bigger shovel” mentality.