I’ve been in 4 very heated debates in the comments section already. I had to explain to someone (in at least 50 posts) that RPM was making a point about oil price vs interest rates, in the sense that they communicate information. And then there is a routine attack made that claims one can’t compare federal budgets with household budgets. But RPM was comparing constraints (inflation vs jail). That is what an analogy is, illustrating the similarities in different things.
Mosler also misrepresented things RPM said. RPM said that the gov’t was taking resources out of the economy, and Mosler later attacked that position, but claimed RPM said money instead of resources.
Stephanie Kelton also has a video (same video uploader) in which she harps on the point that you can’t spend USD unless the gov’t first spends it. She makes it sound like trade can’t exist unless USD existed. This ignores some obvious points. When I exchange 1 USD for 1 lettuce head, and that farmer in return spends 1 USD for one of my tomatoes, we have exchanged lettuce and tomatoes. The USD just made the transaction easier. The underlying transaction can exist using any currency, notes etc, or barter itself. The USD just represents the Government’s wish to take command of resources that it PREVIOUSLY WAS NOT IN COMMAND OF.
MMT’ers like to say that they are using idle labor and resources, ignoring the fact that there is no such thing. 10 heads of lettuce on store shelves has an effect on the relative price of lettuce. 10 unemployed people has an effect on wage rates. In every sense, regardless of MMT denial, Mosler and Keltonomics want redistribution of wealth(purchasing power). and there was a VERY good question asked, that Mosler did not answer. This person asked Mosler why not just add zeroes to all USD…….and stated that this would do nothing. Prices would go up accordingly and no one is richer or poorer. This person then told Mosler that he(mosler) wanted to alter the distribution of money. (command of resources they otherwise would not be). If a public company issues a forward split (2 for 1), the distribution of the market cap remains unchanged. If the company ISSUES new shares, doubling the share count, then 1/2 of the market cap was instantly transferred to the company. People(public) still hold the same # of shares, but the percentage has been altered in favor of the company(equity financer owns the new shares that they may or may not sell). This is point completely debunks Mosler’s prescriptions as he words them. A company may or may not use the new command of resources wisely. in Mosler’s case, he is arguing to let the US gov’t issue new shares for the purpose of commanding ever more resources. One only need to look at welfare inefficiency for proof of why Mosler’s prescriptions are fatally flawed. http://www.bizpacreview.com/2012/12/08/money-spent-on-welfare-recipients-exceeds-average-u-s-income-10673
MMT loses the instance we mention “purchasing power”. They constantly try to drag us into the nominal nonsense they thrive in. We talk about economics in real terms. Food stamps for a family of 4 is not a promise of $668/mo. It is a promise of feeding 4 people. Meeting the promise of $668 is meaningless in mass inflation, or exceedingly generous in a period of mass deflation(that is another reason they fear any amount of deflation). Every liability of the gov’t has real terms attached to it. And any contract, like a mortgage loan, has real terms attached to it. The bank is expecting to command more purchasing power in 30 years than they do today with the “loaned” funds.
MMT is not an economics theory, as it only deals with the “facts” of inflation. The only time something even approaching theory plays a role in MMT is when really horrible analogies are mentioned. Analogies are used precisely because of the lack of an economics theory in MMT.
Conant did a fine job demolishing MMT’s attempt at theorizing.
Bob Murphy noted that the MMTers seem to rely upon the alleged obvious truth of a generalized Keynesianism, that fiat money growth and deficits cause economic activity and thus prosperity. Beyond that, they seem to deny virtually every economic principle. They do not understand voluntary exchange or economic calculation (but no Keynesian does). The only reason to follow them is the learn their latest line of nonsense.
As an MMT’er I thin it is wise for Austrians and MMT’ers to come to a general consensus on government interference, for it does interfere in the wrong way all the time!
The issues come down to understanding currency, especially fiat, in its role in government and trade.
Also can RPM or someone else explain the argument over the own-rate and Fed “manipulating” rates by having the fed funds rate above zero?
I’ve never heard it argued as mosler did, so I want to make sure I am not misunderstanding him. Do we need to word our position on interest rates differently?
I was thrown by that as well. I think he was arguing that only monopolies yield own-rates above zero, which I’ve never heard before. It’s definitely not a true statement (assuming I understood him).
my understading of his argument is as follows: as the monopoly supplier of a free-floating currency the state has to provide the currency so people can pay taxes, and more if people want to save the currency. When the government provides the currency in excess of what is needed to pay taxes this is called a budget deficit, which pushes interest rates down towards zero unless the government intervenes by selling bonds. Selling bonds drains the excess currency and puts upward pressure on interest rates.
so according to Mosler the ‘natural’ situation is a budget deficit (i.e. the monopoly supplier accomodates excess demand), and that this puts downward pressure on interest rates (towards zero) unless it intervenes by selling bonds to prop up interest rates.
Mosler made the same point in one of his articles “A General Analytical Framework for the Analysis of Currencies and Other Commodities”:
The State is effectively the sole issuer of its currency. As Lerner and Colander put it, “if anything is a natural monopoly, the money supply is” (1980, p. 84). This means that the State is also the price setter for its currency when it issues and exchanges it for goods and services. It is also price setter of the interest (own) rate for its currency (Keynes, 1936, ch. 17) The latter is accomplished by managing the clearing balances and securities offered for sale.
Perhaps someone could clarify. Is Mosler making the point that money supply is fixed in the short-run by the monopolist and hence the ratio of intertemporal exchange of present monetary units versus future monetary units is nil (own-rate of zero)?
Enjoyed the debate. I was really glad to see you close out the debate the question of why do we want a system of monopoly where a gun is held to our heads. Every time I argue with an MMT advocate they seem to devolve into a system of economic marshal law.
” Every time I argue with an MMT advocate they seem to devolve into a system of economic marshal law.”
>> Right, but isn’t that what they depend on? Does the entire MMT theoretical framework rest on the assumption that money acceptance is predicated on a monopoly issuer backed by the threat of force, and unravels otherwise?
Yes. MMT depends on the application of force and intimidation. Several MMT advocates claim to be free market advocates, but then argue for a system that is the equivalent of economic marshal law.
It is an endless argument where MMT wants to use accounting to argue economics and they always want to start the story in the middle.
The entire argument required that money be exogenous to the system.
The second proposal given by Mosler for a “Federally funded transition job” is another point I wish Professor Murphy would have addressed. A job doing what? MMT’ers just want to wave the wand and put people to work, but they never seem to have any real idea how to accomplish that. They jump on the Keynesian ditch digging bandwagon.
Stephanie Kelton has made a few goofy statements too.
She said “why cut spending if it costs jobs”
-Then admits inflation is THE constraint.
-Then admits that you “can’t go spending willy nilly”
-Then admits that policy makers are in charge, as they are now, of spending the stimuli.
Mosler Economics and Keltonomics depends on a gigantic IF.
That if is:
Government investing their purchasing power efficiently. If they cause inflation, or offset deflation, then this IS a tax, even though they decreased the tax rate. This transfer of wealth means that WE have less resources under our command, and thus less to invest, spend etc.
This goes back to Hazlitt’s well stated position on the seen vs the unseen. They can champion the new jobs they bought with printed money, but can never calculate how many jobs were lost or how many jobs would have been created otherwise.
One interesting thing that I noticed is that ABCT from the point of view that all of these businessmen are being duped by the artificial interest rates, well why don’t they get wise to the game if they know the Federal Reserve is artificially lowering interest rates.
Then at the same time MMT describes the business cyle by saying that private markets are pro-cyclical in that if the economy is going up people want to buy and if it’s going down people want to sell etc. However, if that’s the case, shouldn’t businesses get wise to the fact that the market is cyclical?
I might not be articulating this in the best way but I found it interesting all the same.
… well why don’t they get wise to the game if they know the Federal Reserve is artificially lowering interest rates.
If your competitors are able to fraudulently gain resources that you want, what choice do you have but to try to take advantage of some of the artificially low interest rates.
You’d go out of business, otherwise.
All you can hope, if you understand ABCT is that the new money doesn’t go into YOUR industry.
The best thing would be for people to simply abandon non-commodity money, then there won’t be this problem.
They’d have to abandon concept of benevolent and necessary government first, which is a delusion of religious sort. Otherwise goons with guns will make people use whatever government wants them to use. Implantable chips included.
I did get a good chuckle out of seeing former Fox Business talking head Mike Norman there looking like he just got off work as a bouncer at a strip club. They guy is amazingly bitter towards Austrian economics. After the Youtube clips from 2005-2008 started circulating where Peter Schiff makes Mike look like and ignorant ass…. well, actually Mike makes himself look like an ignorant ass….. Mike went off the deep end.
It took me all of 2 minutes to not give a shit about Mike Norman. The guy is full of shit. Even if you took away any question of economics or money, he’s still just full of shit. It’s the essence of his being.
Mike Norman does not understand and appears to have no familiarity with the fact that price controls after a hurricane cause shortages. And he is so polite.
The answer to Mike Norman’s objection that, under a gold standard, because the value will keep going up, the supply eventually becomes easier to take out of circulation through hoarding (paraphrase) is:
1: You will need less gold to buy what you want, as the value of gold goes up, and
2: People can just use a less valuable, but still highly desired, commodity alongside gold and silver.
Goods BECOME the money; Government doesn’t create money.
In a sense, yes; But that would depend on whether or not you think indirect exchanges can occur using only goods.
The purpose of money is to solve double coincidences of wants. If there’s no link to the subjective values of the traders, then that currency cannot solve that problem.
Only another good can solve double coincidences of wants, because it already has a trade value.
Not necessarily. Lots of different “goods” have been used as currency at one point or another. Tobacco leaves, rum, peppercorn, gold, silver….. all of these are goods that have been used as a currency. A good can evolve into a currency over time.
“… they do make it sound like the businessmen are fooled. And I think strictly speaking that’s not necessary to the theory – it’s the fact that prices do work, and there are incentives, and if you lower the price, that’s going to cause people to borrow and invest more than they really ought to be doing.that’s going to cause people to borrow and invest more than they really ought to be doing. And so, yes, even if you had a whole population wholly versed in Austrian Business Cycle theory . . . it would mess things up”.
That seems to undermine the austrian theory. This generally claims that if market participants receive the ‘correct information’ in the form of ‘free-market’ prices then they will ‘correctly coordinate’ their plans and actions, leading to optimum outcomes as the result of unfettered market processes, because markets are basically perfect.
But Murphy is arguing that even if market participants know or suspect that market prices (i.e. interest rates) are actually ‘wrong’, they will nonetheless choose to act in a way which ultimately leads to bad outcomes.
This isn’t because they are ‘misled’ or ‘confused’, but simply because they are able to get away with it – i.e. they are tempted by low interest rates and choose to borrow more than they “ought to”, even though they know or suspect that in the end this will lead to bad consequences.
So Murphy’s version of austrian theory could be summarised as follows: “the problem with low interest rates is that they allow people to borrow more than they should be allowed to borrow, and people will inevitably borrow more than they should because people are basically irrational, crazy and stupid, and just out to make a quick buck. Therefore we need high interest rates to stop people from borrowing more than they should”.
In other words it has nothing to do with ‘correct information’.
Two things. First, even if I know interest rates are lower than they would otherwise be, I have no way of knowing how much higher they should be. Second, even if I know they are wrong, there is no reason that I might not accept that I should take advantage and try to get out before the bubble bursts – especially if the alternative is going bankrupt because my competitors take advantage of the easy credit.
Would someone please explain to me what in the world is supposed to be “Modern” about “Modern Monetary Theory”? To me it sounds like a rehash of old Keynesian monetary theory.
The “pure fiat monetary system” in action is new. From that, they jump to “therefore, the government can never run out of dollars and is not ‘revenue constrained'”. Therefore, there is no reason that social security, medicare and the $220 trillion in unfunded liabilities for baby boomer diaper changing services are not easily affordable. Concepts like the capital structure, the pricing process, economic calculation, public choice problems and/or cantillon effects do not exist in their universe.
I’m pretty sure John Law, Silvio Gesell, and other historical monetary cranks have said the same thing at some point, which is why I fail to see anything “Modern” about “Modern Monetary Theory”.
Another point that I wish had been raised is around the 1hr mark. Mosler refers to the government as the score keeper for the economy. He argues that the government has to have a monopoly on currency just as only a score keeper can give out points. I would have like to have seen one question asked.
What happens when the score keeper starts to help his friends, or penalize those people with whom he has a disagreement? What if the score keep awards extra points to those who support him?
That is among the numerous IF’s that Mosler relies on you not bringing up. Or maybe Mosler would say that crony capitalism funded by a monopoly issuer “reduces drag”.
“What happens when the score keeper starts to help his friends, or penalize those people with whom he has a disagreement? What if the score keep awards extra points to those who support him?”
>> After listening to the debate, it seems that Mosler would have responded in a couple ways based on his answers to other questions: “either you believe in representative government or you don’t” and paraphrasing: “we obey the scorekeeper because they have a gun.” That’s what Mosler kept falling back on when pushed. Unless I’m missing something, he doesn’t really account for these risks posed in your questions except for individuals petitioning their government if the scorekeeper gets out of line.
Yes, but if the score keepers have been bought, then petitioning the score keepers to change is a flawed argument. Once the score keepers have been corrupted, you no longer have a representative government.
Paul, I agree with you. I’m not defending Mosler by any means. Quite the contrary. I’m trying to make sense of what to me seems like a monetary “theory” conceding the current political arrangement with respect to monetary affairs as a starting point and refusing to confront any challenge on whether that arrangement is the best framework within which to operate. That seems like where Murphy was going at the end of his concluding remarks.
I’ve always stated that the monetary system functions to provide govt. with real goods and services- the transfer of real goods and services from private to public domain.
Yes, oil prices communicate information, but when there is imperfect competition- in this case the Saudis are ‘price setter’ as they are for all practical purposes the only supplier with ‘immediate’ excess capacity- whats communicated is the price they are setting (directly or indirectly), with their output telling you how much residual demand there is at that price.
In a fixed fx regime, where the currency is necessarily ‘reserve constrained’, interest rates communicate the intersection of supply and demand for the convertible currency, including the risk of default with regard to conversion.
In a floating fx regime, like the US, Japan, UK, etc. etc. etc. the currency is not operationally reserve constrained, and hence the ‘risk free’ rate will remain at 0% unless the govt. takes action to support a higher rate. For the US that means utilizing Treasury securities (aka securities accounts at the Fed’ or via the Fed paying interest on balances in what are called the reserve accounts at the Fed.
Of course trade can exist without the $ or any other currency!!!
Yes, 10 unemployed people have an effect on ‘the wage rate’ as you state. And to that point I state that we use unemployment, a labor buffer stock, as the ‘price anchor’ for the $. However, like with any buffer stock policy, the buffer stock has to be ‘liquid’ to be effective. If your 10 heads of lettuce go bad they no longer have their prior influence. Likewise with labor. That’s why I propose a ‘transition job’ as a voluntary alternative to unemployment, where the federal govt. will fund a $10/hr job for anyone willing and able to work to assist in the transition from unemployment to private sector employment. The fact is private sector employers find it too risky to hire someone who’s been unemployed for too long, but they will hire people already working where they can get at least some information from a supervisor. Additionally, as a more effective and more liquid buffer stock than an unemployed buffer stock, a fewer number of people in this transition job will likely be a better price anchor than a larger pool of unemployed.
Right now my lead proposal, as stated in the video upfront, is for a full fica suspension, which is hardly a proposal for larger govt!!!! And the transition job moves people away from unemployment and into private sector employment. So please have another look thanks!
$’s are not a contract with the govt. for real goods and services. That would be true with convertible currency, but not with a floating exchange rate, unless specifically indexed, such as tsy tips securities.
Maybe you would like $ to be convertible by govt. decree, but what I’m saying is that today’s reality is that they are not.
It’s not that deficit spending causes growth. It’s that the underlying economy already has the growth potential, but overly tight govt. policy is constricting it. It’s like putting a plastic bag over the head of a runner, and then saying you are adding stimulus when you remove it. ‘Fiscal balance’ is achieved when spending is sufficient to cover the need to pay taxes and any residual desires to net save financial assets of that currency. And unemployment is the evidence that for a given size govt. the economy is being overtaxed.
hence my current lead proposal to suspend fica taxes.
A monopolist is price setter, and sets two rates- the ‘risk free’ own rate and the terms of exchange for other goods and services. So a water monopolist sets the terms of exchange for other goods and services by setting a price for his water, and most always leaves the own rate at 0. That is, if you give him water to store he won’t give you back more water later plus some extra. but he could set an own rate, and give you more water later in exchange for you giving him water today. So the fed setting a positive interest rate is giving you more of its dollars later than you give it today to hold them for you (in securities accounts at the fed)
Yes, they current system is coercive. There are severe penalties for non payment of taxes. I don’t much like it but it’s what we have and can tell you how it works, for better or for worse.
how would I implement the transition job? First I’d allow all federal agencies to hire as many people as they wanted and could get for the fixed $10/hr wage, knowing that my fica suspension would likely mean the private sector would be hiring most all of them away over the next year or so. I would then extend that to state and local govts and then to non profits as well, and then take another look to see if anyone was being left out before starting a new govt. program, which I don’t think would be needed.
Yes, corruption and cronyism is highly problematic, and I have numerous proposals to address the issue ‘from the bottom up’ rather than just going after the symptoms.
Representative govt. still looks to me better than the alternatives, but I’m open for suggestions!
And not today’s version, which is rotten to the core, with both political parties run like organized crime syndicates, in my humble opinion.
I work in the construction industry. We actually have a shortage of skilled and unskilled labor willing to work right now. We have plenty of unemployed people and plenty of work that pays more than $10.00 per hour. We just don’t have enough people willing to work at the available jobs. We have illegal immigrants making more than minimum wage off the books, and we have a shortage of them.
How do you connect people with the right skills to jobs that they are willing to perform for a wage they are willing accept?
We don’t have a real shortage of jobs. We have a shortage of people willing to work for what the market is willing to pay. We have a vacuum that is being filled by illegal immigrant labor.
I know lots of people who have claimed that they are willing to work, and will do anything. When you hand them a hammer and tell them to get on a roof in August they realize they aren’t quite as willing as they thought.
And if the economy tries to expand with the fica suspension and there is a labor shortage/bottleneck we’ll get a one time adjustment in demand and some prices, and the ‘automatic fiscal stabilizers’ will automatically raise taxes and cut spending to cool things down some. And if excess demand persists a tax hike or spending cut is in order. And in real terms pretty much nothing is lost by the attempt as long as real output doesn’t go down from the tax cut, which is highly unlikely?
What I do think is more likely to happen, however, is that private sector real output and employment will go up with a fica suspension, lubricated by the offer of the transition job, and that our real terms of trade and real investment will increase as well. That is, my best guess is that there is an ‘output gap’ at the present time due to, for the size govt. we have, being grossly over taxed.
Thank you for the reply. I know your time is valuable.
Several times in the debate you refer to “automatic fiscal stabilizers”. What exactly are they. What makes them “automatic”? Fiscal policy is not automatic so I must be missing something or taking this out of context.
I am not yet through the debate yet, but I want to thank you also for the great debate with Bob (also thanks to Bob!).
This is how economics and especially economic debates are really a pleasure and then it even feels almost like a worthwhile hobby. This civilized and polite discussions just take so much pressure of your own ego and makes you automatically much more open minded and generous in the interpretation of what is being argued.
The Austrian position on prices is that they are merely an expression of subjective valuations. Therefore the Austrian position on money, given that its purpose is to facilitate indirect exchanges, always has subjective valuations in mind.
That is, if the money doesn’t express subjective valuations, then it’s not really money.
I need the money to do the same thing that barter would do for me, except indirectly so. I need the money to represent the [subjectively determined] value I am willing to give up for the goods and services I ultimately want.
I am willing to give up a certain amount of eggs for bread, but I can’t find anyone with bread who wants eggs; So I need a medium of exchange that ultimately communicates that ratio of bread to eggs through voluntary exchange.
Only a medium of exchange that is, itself, a good, can communicate that ratio.
Now, I noticed that your motive for embracing MMT is because you care about the unemployed in recessions.
The Austrian position is that its actually central planning that causes the distortions which create the artificial booms which then must necessarily result in a recession.
So we see the recession as the cure for the unsustainable projects which were induced by prior government interventions.
How can we know they are unsustainable? Because if people didn’t think it was profitable to engage in those projects before monetary stimulus, then printing up artificial purchasing power isn’t going to change that.
All that the stimulus is doing is redirecting resources to projects which don’t meet the subjective valuations of individuals. The artificially stimulated projects, while they give some people artificial purchasing power, since it involves coercion, necessarily reduces wealth, the definition of which is subjective to the individual.
For example, more iPhones doesn’t necessarily mean more wealth. The more iPhones I have, the less utility I can derive from each unit.
I can do the same things with all of them, but I only need a few, maybe, at any given time; So, I would actually be wasting my money were I to buy more than a certain amount of iPhones.
And that’s what artificial stimulus is doing. It’s wasting resources, even though more of certain things will be created. On net, it’s a loss.
As an aside, I thought the moderator did a good job; Some moderators want to act like it’s their job to make a case.
I did think you got cut off by the moderator a couple of times, though.
Why does the private sector need net financial assets?
Does MMT detail the numerous problems with GDP as an indicator of economic strength?
How does the public deal with ever changing tax rates under Mosler approved policy?
“And unemployment is the evidence that for a given size govt. the economy is being overtaxed.
hence my current lead proposal to suspend fica taxes.”
So your prescription is to buy a tank with printed money instead of from taxes……
ANY inflation or offset deflation is a tax. A loss of purchasing power is the same no matter how you take it. This hits the low paid workers harder than wealthy individuals. In effect, you are arguing for an invisible tax that is progressive from the bottom-up instead of the inverse.
IF your prescriptions pay off and lead to higher productivity than would have otherwise occurred, then the population as a whole is of course better off. Entirely unable to be proven scientifically. Again goes back to Hazlitt’s seen vs unseen. You can tout all of the jobs that were directly created, but is impossible to measure what would have happened otherwise, and what jobs were lost as a result of said policies.
Like any public stock, USD has a market capitalization; the value of all USD in terms of ‘global stock of goods’.
Value of each USD x quantity
Cutting taxes and doubling the money supply overnight doesn’t double the market cap. It is just a redistribution of the market cap. The USD market cap can increase or decrease based on decisions made by the new % holders of market cap. It could also have increased or decreased if policy remained unchanged.
“And not today’s version, which is rotten to the core, with both political parties run like organized crime syndicates, in my humble opinion.”
Exactly why we are so critical of your prescriptions. If/when they fail, do you admit defeat or do you say (like RPM on Krugman) “phew it’s a good thing we did that, otherwise the economy would have been much worse”
What is the trigger for admitting defeat? High inflation? Your policies might have offset even higher inflation(assuming they worked in this scenario). In this scenario, many would wrongly assume that your policies created the high inflation. Kelton’s “inflation is THE constraint” statement under this scenario would not apply.
I do think MMT is helpful for describing the current banking system – it is useful to challenged the Rothbardian “money multiplier” for instance. I think it provides a good explanation why excessive reserves of banks have not exploded into inflation.
But it does fail the same way Keynesian economics fails, which is with the economic calculation problem. At one point Mosler said something to the effect of “the point of money is to fund the government”. Even if one assumes a benevolent government of perfectly well-meaning people (no cronyism or regulatory capture), it is still in the long run worse than a system of decentralized planning through prices
I do think MMT is helpful for describing the current banking system – it is useful to challenged the Rothbardian “money multiplier” for instance. I think it provides a good explanation why excessive reserves of banks have not exploded into inflation.
The Rothbardian challenge to your MMT challenge can be found here:
Basically, the inflation is manifesting in artificially high Treasury, stock, and housing prices.
Eventually, all that money will make its way into the rest of the economy, at which point there will be general inflation even as measured by the rigged CPI.
Sure, the government is capable of doing things that can’t be done through only voluntary interactions. That still doesn’t mean that the things that they do are socially beneficial, or the best use of scare resources.
What are your views on entrepreneurship? It wasn’t referenced in the debate, and is a critical piece of the Austrian story
But why would they need to furnish a currency monopoly to do this? They could, and many governments have in the past, take whatever is used as currency in the market, even if multiple goods are used to facilitate trade. The American colonies used to take tobacco along with gold and silver, for instance.
if you were to keep the central bank interest rate permanently low, as you advocate, how would you stop unsustainable asset bubbles and real estate bubbles from occurring?
Why would I care if the government wanted a military, legal system, etc.?
If I wanted a government that did that for me, I would offer to join with like-minded individuals and contract with them. Then all the individuals that were party to that contract would pay for it with their own money.
And if the government couldn’t do the job I wanted it to do with the money I was willing to contribute to it, then the government would have to wait for instructions, suspending certain operations indefinitely.
At no point does the government get to presume the authority to fund itself.
Then, when an individual wanted to leave that contract, they would give up any privileges that were part of the agreement.
But I can’t make someone ELSE be subject to a contract. If they want to be a party to the contract, they can attempt to do so as an individual; If they no longer want to be a party to the contract, they may leave as an individual.
Guest: I agree prices are subjective valuations. And recognizing the $ is a public monopoly the govt is ‘price setter’ on a subjective basis.
And I’m ok if you want to say the $ ‘isn’t really money’ as in general I tend to entirely shy away from the word ‘money’ anyway.
And yes, what you ‘need’ might be at cross purposes vs what govt. ‘needs’ 😉
And I agree it’s ‘central planning’ that causes booms and busts with regard to employment.
I think we all recognize that excess capacity is caused by a monopolist restricting supply?
The examples that comes to mind is the labor union that causes unemployment, and the diamond monopoly that restricts supply and has a mountain of excess diamonds on hand. In fact, the ‘keynes vs the classics’ argument was about the classics saying there can’t be unemployment without some form of imperfect competition/monopoly operating somewhere, and keynes saying there could be persistent unemployment even without monopoly due to various issues with the currency.
So seems to me what has been overlooked is that, for better or worse, the $ itself is a public monopoly, and therefore excess capacity/unemployment is a consequence of the monopolist restricting supply (in this case, the supply of net financial $ denominated assets monopolized by govt.)
And seems that this is all entirely consistent with Austrian theory?
So let’s take a look at ‘creative destruction’. No one would say that a labor union periodically jacking up wages and causing business to fail would be what’s meant by ‘creative destruction’ would they?
So likewise, the govt. causing a ‘$ shortage’ by letting the deficit get too low and causing the collapse of pretty much the entire economy is not what’s meant by ‘creative destruction’
to me creative destruction is about companies failing because they can’t sell their output or because their costs are too high and can’t sell their output profitably (sort of the same thing, most of the time).
And I agree that the ‘stimulus’ was ‘ill directed’ at best. I couldn’t even read about the details, which kept getting worse the deeper you got into it. That’s why I supported a full FICA suspension to get the deficit up to where it needed to be.
Cosmo- the reason the private sector needs net financial assets is largely due to misguided govt. policy (who would have thought!… ) Govt gives all kinds of tax breaks not to spend income, including pre tax $ going to pension funds, ira’s, insurance reserves, etc. etc. And corporations like to build cash, as do foreign central banks. All of these unspent incomes are called ‘demand leakages’ and cause the need for some other agent- public or private- to spend more than his income or else the output doesn’t get sold in the first place.
So it the gdp was 16t, that much was spent and that much was received as income by someone. and if anyone didn’t spend all of his income someone else must have spent more than his income.
Yes, I recognize GDP mainly serves an accounting purpose and is not a measure of well being or ‘economic strength’ as you put it.
We already deal with ever changing tax rates as congress bumbles along from one adjustment to the next as they perceive ‘needed’ whatever that means. Seems it can’t get any worse? With my proposals in place, they would just count bodies in the ‘transition job’ and the other usual indicators and decide if an adjustment is appropriate. Suggestions welcome!
My proposal to suspend payroll taxes isn’t buying a tank? I don’t follow?
the ‘real tax’ is the real resources the govt shifts from private to public domain (including the unemployed who would otherwise have been working and producing real output without govt. interference). Inflation is a distribution issue that yes, has serious consequences to be dealt with. But the total real wealth is a function of total real output, which is where productivity and investment come into the picture.
Also, the current distribution of income is in a big way already a function of govt. interference. Why does a wall st. trader of govt. bonds make 100x what the guy who cures cancer makes, when close examination shows there’s no need for the govt. to issue those bonds in the first place? Govt- the monopolist- has created vast quantities of ultra high paying jobs that have nothing to do with allocation by merit or anything else even half rational. this includes FiCA, which is a highly regressive, punishing ‘flat tax’ with a cap. To me removing that removes govt interference. no?
If my proposals don’t increase real output and employment yes, they will have been for nothing. but only if they reduce output or employment would I regret it. Nor do I think that increasing output and employment will itself make our govt. more corrupt, though I could be completely wrong on that for sure!!! But even so, given it’s corrupt either way, seems we’d be better off at the higher levels of output and employment and income? Maybe not! I propose and you push back. That’s how it works!
Ben, I agree govt policies can be total disasters!!!
entrepreneurship is a human trait that not only happens be can’t be contained when the incentives are in place. therefore my proposals are also about replacing disincentives and putting constructive incentives in place.
Matt, once a tax is put in place the deed is done. Taxes are coercive, non market forces that change everything!
james, note japan has had 0 rates going on two decades and no bubbles yet? And a strong currency and no ‘headline’ inflation to speak of. The interest income channels tell me that 0 rates are less inflationary than positive rates with a floating fx policy. so if there is an unwanted bubble, I’d deal with it in some other way than with messing around with rates.
Guest- you are certainly entitled to that opinion, and if you can get enough people to go along with you it could be put up for a vote, etc. Personally, it’s not convincing, but I have an open mind! And in any case we have to play the cards we’re dealt until the ‘rules’ change. 😉
“So seems to me what has been overlooked is that, for better or worse, the $ itself is a public monopoly, and therefore excess capacity/unemployment is a consequence of the monopolist restricting supply (in this case, the supply of net financial $ denominated assets monopolized by govt.)”
I disagree with this… unemployment occurs because a person is unable to sell their labor at a price they desire. Why does the total amount of money matter?
I think the Arnold Kling PSST story is really helpful. Unemployment occurs when a certain pattern of trade no longer becomes profitable. Then there is an entrepreneurial reconfiguration of resources to find a new sustainable pattern. Increasing the money supply does not help this as it masks the truly sustainable patterns.
The Austrian policy response to unemployment should be to reduce the barriers to forming new businesses, and to reduce the advantages that established business have
The normal way government receives purchasing power is from taxes. It forces us to use USD, goods are then priced in USD. If USD supply remained constant, then the only way for govt to receive purchasing power would be to force us to pay taxes in USD.
You propose cutting taxes, and running the printing press.
It doesn’t matter how you received the ability to buy a tank. You bought a tank. That purchasing power came from somewhere. This is why we focus on spending as the problem primarily. Ignore # of USD, just look at te underlying transactions as stated up top. I don’t see how you are removing drag when the same transaction took place.
I tried my best to put it in terms an MMT’er would understand. Although the tax “income” originated at the printing press before the public received it.
You want the economy interfered with (Austrian terms), and you wish to use Abilities described in MMT to achieve it. I don’t think ‘inability to default in own currency’ has much to do with your agenda(see my market cap analogy). You are certainly free to opine on what will and won’t benefit society as a whole.I just think it is pretty misleading as Mike Norman puts things when he says that increasing USD = increase in goods and services, mitigating any inflationary response.
I elaborated on why this is misleading in my previous comment. This will remain true until time machines allow us to test economies scientifically.
I couldn’t even read about the details, which kept getting worse the deeper you got into it.
Apologies, if I wasn’t clear.
This is a very important concept, and I’d like to try to revisit it.
Where I think maybe we’re all talking past each other is on the concept of “output”.
In Austrian theory, output is not the same as wealth. Output is stuff, while wealth is utility as subjectively determined by the individual.
So, if someone increases output that doesn’t serve to fulfill individual ends, then that output is net destructive to wealth. Wealth is decreasing as that particular output is increasing.
And this is what artificial stimulus does. It increases output, but decreases wealth. This is why there will be a crash in those artificially stimulated sectors of the economy.
To paraphrase Ron Paul: When government invests in housing, there’s a housing bubble and crash; When government invests in education, there’s a student loan bubble and a crash.
This is why Austrians consider stimulus to be “papering over” the crash. It doesn’t change the destructive nature of the project, it just allows the destruction to continue for longer, at the expense of those who did not get to use the new money first.
You said: “And I agree that the ‘stimulus’ was ‘ill directed’ at best.” We say that all stimulus is necessarily ill directed, because it is always net destructive of wealth, no matter the size of the output.
Even from an Austrian perspective, there must be a difference between printing money or borrowing to increase the share of government spending in the economy-
OR holding the share constant, but cutting taxes and financing existing government by using the printing press.
Surely one is less distortionary then two, even according to faith based austrian dogma?
Warren although I’m leery of the JG (job guarantee) because it sounds to much like central planning, I can certainly agree with your FICA proposal!
Neither is necessary, and both are net destructive to wealth.
Borrowing is just permitting one group of people to make claims on another group of people’s wealth, to be forcefully extracted by government issuing the bonds.
Printing money is permitting the first users of new money to socialize the costs of their purchases onto later users of the new money.
“I disagree with this… unemployment occurs because a person is unable to sell their labor at a price they desire. Why does the total amount of money matter?”
I should rephrase the question, how do people go from an employed state to unemployed – an unwillingness to accept a lower salary may explain why people stay unemployed, but not how they got there
In the same way that I would not choose being shot either in the leg or in the arm, I would not choose either government borrowing or government printing; even though in both sets one choice would be worse than the other.
Why choose at all? I reject that others have the authority to impose their will on me, either directly, or through an intermediary.
let’s focus on monopoly.
monopoly interferes with market clearing.
for a simplified example just to make the narrow point,
if on day 1, where no one had any $,
the govt imposed a head tax of $1 per person,
and there were 300,000,000 people,
the total tax liability would be $300 million.
But if the govt then only spent $250 million,
there would be at least 50 million people unable to get a $ to pay their head tax.
even if wages fall, the ‘labor market’ for $ won’t/can’t clear,
unless the govt either cuts the tax or increases spending.
That’s what imperfect competition is all about- interference with market clearing.
let’s focus on monopoly.
monopoly interferes with market clearing.
I actually tried to respond to this before, but my comment isn’t clearing. Heh.
Let me try again, with some alterations to the URLs:
I tried to say:
Also, monopolies are created by governments, not the free market:
Tom Woods on Big Business, Monopoly, and Predatory Pricing
[WWW]http://www.youtube.com/watch?v=-q1fSNzYNhg
Dominick Armentano: The Case for Repealing Antitrust Laws
[WWW]http://www.youtube.com/watch?v=xBT-fnJsfo0
You said:
… even if wages fall, the ‘labor market’ for $ won’t/can’t clear,
unless the govt either cuts the tax or increases spending.
But if government didn’t impose the tax in the first place, this issue would be moot.
Government is claiming to be a rescuer for problem that it caused.
That’s what imperfect competition is all about- interference with market clearing.
A head tax is not a market imposed cost, and so the problem isn’t with market clearing.
“Perfect competition” is a self-defeating concept. It actually works out to “zero competition”.
The point of trading is to lower the costs of acquiring wealth. If I’m able to do that at all, without coercion, it’s because I was able to provide a good or service that was more agreeable than what someone else was willing to provide.
We’re *competing* for customers. It’s rivalrous by definition.
“Perfect competition” means that people are NOT permitted to improve upon their business such that customers choose one business over another (because if they DID choose one, it’s because they believe that one business IS better than another in some way, and we’d have rivalry again).
One of the points that’s going to be made in that second video, by the way, is that anti-trust laws actually CAUSE crony capitalism.
I’ll leave you with a paraphrase from Ron Paul: “If a business charges a price that’s higher than other businesses, the anti-trust regulators will say it’s gouging; If a business charges the same as other businesses, it will say that there’s collusion; If it charges a price that’s lower than other businesses, it will say there’s predatory pricing. Therefore the anti-trust laws are arbitrary and nonsensical.”
The rule of law, in complex times,
Has proved itself deficient.
We much prefer the rule of men!
It’s vastly more efficient.
Now, let me state the present rules.
The lawyer then went on,
These very simpIe guidelines
You can rely upon:
You’re gouging on your prices if
You charge more than the rest.
But it’s unfair competition
If you think you can charge less.
A second point that we would make
To help avoid confusion:
Don’t try to charge the same amount:
That would be collusion!
You must compete. But not too much,
For if you do, you see,
Then the market would be yours
And that’s monopoly!”
Price too high? Or price too low?
Now, which charge did they make?
Well, they weren’t loath to charging both
With Public Good at stake!
In fact, they went one better
They charged “monopoly!”
No muss, no fuss, oh woe is us,
Egad, they charged all three!
Everything was fine, he thought?
He reckoned not with fate.
Note the sequence of events
Starting on the date
On which the business tax went up.
Then, to a slight extent,
The price on every loaf rose too:
Up to one full cent!
“What’s going on?” the public cried,
“He’s guilty of pure plunder.
He has no right to get so rich
On other people’s hunger!”
Monopoly is a government grant of privilege, not a single seller. So monopolies are created by government, not the free market.
But in the case of a single seller (or a few sellers) on the free market, there are alternative products which can be used in competition, so the single seller has to price his goods below what the alternative would cost.
The notion that single sellers were ever an impediment to competition is wrong; it was only where government was granting privileges or attempting to combat the non-disaster of “wealth inequality” (thus resulting in crony capitalism) that real competition was squashed.
Predatory pricing, for example, was never the issue people thought it was:
Tom Woods on Big Business, Monopoly, and Predatory Pricing
[WWW]http://www.youtube.com/watch?v=-q1fSNzYNhg
Dominick Armentano: The Case for Repealing Antitrust Laws
[WWW]http://www.youtube.com/watch?v=xBT-fnJsfo0
The Politically Incorrect Guide to American History, Lecture 8 | Thomas E. Woods, Jr.
Myths and Facts About Big Business
[WWW]http://www.youtube.com/watch?v=SGeA1Sbd4XM
>> Sure there is. The tax itself is an imposition. A tax cut is just the state taking a bit less than it was previously. Short of a full repeal, a cut doesn’t remove the state imposing itself on private individuals.
Nobody is entitled to a job, which only existed so that the employer could make more money. The reason the worker took the job is because it was better than not taking the job at the time, in his own estimation.
“Austrian response to the sticky prices argument:
Answering the Same Old Arguments Against Sound Money | Thomas E. Woods, Jr.”
Tom Woods didn’t answer the question, He just made a POINT IN FAVOR of Sticky prices! But that doesn’t negate their costs, And he spouted the same, tired old gibberish of ABCT to answer why inflation supposedly will not work in the long run
No, what he said was that sometimes “sticky wages” isn’t a problem at all, so there’s no point in complaining about it.
Another thing he said was that government is imposing the sticky wages when they grant unions special privileges. Get government out of the economy, and people will compete with those unions by lowering the price for their labor.
But, regarding a recession scenario, the government caused the artificial boom that necessarily resulted in a crash, to begin with.
If people only think a business is prosperous and sustainable because government had given it artificial purchasing power, then obviously those businesses will have to be liquidated before the resources can be used profitably again.
So the short-term unemployment was the result of government interference. More stimulus will prolong the recession, and, no, causing a bubble with that stimulus is not the recession ending.
“the government caused the artificial boom that necessarily resulted in a crash”
Booms and crashes occurred during the 19th century ‘laissez faire period’. If you’d been around then you would have had to look around for someone else to blame.
Booms and crashes occurred during the 19th century ‘laissez faire period’.
While Austrians are against the Fed, we don’t blame the Fed, PER SE.
We blame artificial credit expansion, per se. Right now, for the US, that’s happening because of the Fed. Before the Fed, it was the government permitting the banks to get away with fractional reserve lending.
Here’s a couple of videos addressing some of the pre-Fed panics:
Economic Cycles Before the Fed | Thomas E Woods, Jr.
[WWW]http://www.youtube.com/watch?v=TxcjT8T3EGU
Monetary Lessons from America’s Past | Thomas E. Woods, Jr.
[WWW]http://www.youtube.com/watch?v=91OIBnrjzLU
But the government isn’t actually the monopoly supplier of ‘money’ in the current system – the private sector is able to increase the money supply on its own. The main way this happens is by banks creating deposits when they make loans, but there are other forms of privately-created ‘money’ too.
So unemployment isn’t necessarily caused by the government restricting the supply of ‘money’ in the form of currency or other government liabilities like treasury bonds. If the private sector is in need of more money, or dollar-denominated financial assets, it doesn’t necessarily need the government to provide them, it can create them itself.
Furthermore, an increase in the supply of currency, T-bonds, or bank deposits, is not necessary for the private sector to autonomously increase demand. It can do this by simply spending more of its current income, or by spending more of its accumulated savings.
This all suggests that unemployment is not simply the result of the government currency monopolist restricting supply, but rather is the result of a general shortfall in demand relative to the supply of labor, which could be due to a number of different reasons.
This demand/supply imbalance is perfectly possible in a theoretical situation in which there is no government currency monopoly, so it makes little sense to say that “no govt currency, no govt tax = no unemployment”.
When the government restricts the supply of $ after a stimulus, the unemployment is happening in sectors of the economy that were net destructive of wealth.
It’s good for the $s to stop being printed, otherwise the destructive activities would continue.
Better still if people just stopped using fiat money, altogether, but I think that more directly addresses your concern.
Government spending is not necessarily ‘net destructive of wealth’, though you could argue some forms of spending are. It can be very beneficial. Printing money can have either good or bad effects depending on the context. I think that fiat and credit money is here to stay, no matter what silly arguments people come up with to try and convince themselves that an imaginary metal barter system would be better.
Since the definition of wealth is subjectively determined by the individual, and since government spending coercively suspends the individual’s pursuit of his own ends, government spending is always net destructive of wealth.
Government spending and printing IOUs in excess of specie work against what people are trying to do in the economy.
And what people are trying to do is to gauge the profitability of their transactions using a currency they THINK represents the ratios of subjective utilities involved in any given transaction.
So for government to tax people is to forcibly prevent the pursuit of their own ends – a loss of wealth.
And for IOUs to be printed in excess of specie is to entice people to engage in projects they wouldn’t have otherwise, because it was considered to be unprofitable.
Printing money doesn’t change the fact that the project is unprofitable; All it does is allow the owner of the project to spend at the expense of later users of the new money – a loss of wealth.
It’s the difference between “output” and “wealth”, as I was explaining before.
What is being foregone is all those projects that people would have otherwise used their money for, absent the coercion.
Since government spending is always net destructive of wealth, there will necessarily be a crash in those artificially stimulated sectors.
The unemployment that necessarily follows is the effect of individual preferences reasserting themselves, which is the whole point of trading.
Taxation reduces people’s financial resources, and government spending increases people’s financial resources.
If taxation and government spending are equal, then the reduction and increase in people’s financial resources is equal. There is no net reduction in financial wealth.
James
Here’s an example. I value two $5 bills at $10. Call me crazy. I value a copy of The Complete Works of Tom Woods with a $5 bill as a bookmark at $6. That’s its value to me, what I’d pay for it on my own. The govt institutes a TW4All plan, taxes me $10 and gives me those complete works, with the $5 bill as a bookmark. I am $4 worse off for this intervention. Now assume the same happens for everyone.
guests claim is that is this is what always happens, of necessity. He’s wrong, but he’s right sometimes.
Note james the destruction caused is quite widespread. Rather than 300 million copies of various books being printed, books people wanted and would have bought (or alternative goods like CDs toilet paper) ,300 million copies of the Complete Woods are printed. That is the result of the govt spending.
Assume you are holding $100. Why are you holding it?
You are holding it because you don’t see anything to buy you want *more* than you want the $100.
Now assume I force you to spend it. I threaten you with Bob Murphy karaoke.
*By hypothesis* you will buy something you value less than $100.
So you lose.
OK, now let’s assume you know better than I do what you want.
This is a pretty fair assumption, especially when you apply it to 300 million people.
So rather than forcing you to spend I take your $100 and buy something with it.
Which I give to you.
Let’s look. Is what I bought as desirable as what you’d have bought? No.
Is what you’d have bought as desirable as keeping the money? We answered that: no.
So the net result is I have made you worse off *by your own standards*.
You maintain that cannot happen. Well I just gave you an example.
guest maintains it *must* happen.
Well he’s often right, but there are situations where he is missing a point, so he’s wrong too.
So the net result is I have made you worse off *by your own standards*.
Yes.
And since “one’s own standard” is subjective to the individual, all coercion results in a net loss – if not to me, then on my behalf at the expense of others (cronyism).
If I thought I’d be better off spending the money on what the government wanted to spend it on, I’d have spent it that way, myself.
I didn’t say that. I’m sure it’s possible for people to be disappointed with the goods, services, and investments that their taxes are supposed “provide”.
I would suggest that if you are deeply unsatisfied with the things the government does, you should try to change either the government itself or the things that does.
I recognise that you currently have some very real problems in the US with the structure and functioning of your democracy, but I don’t think that is a reason to give up on the ideal of democracy in itself.
So youre an anarcho-capitalist then? Perfect. But in the real world, tell me with a street face, that the state taking less money from you is not better than the state previously taking more.
Replacing lost purchasing power through higher taxes with lost purchasing power through dilution isn’t better.
Crawl out of your nominal dungeon.
Instead of just pouring 1/2 of my 8oz of Kool Aid into gov’ts cup, you did that and then added 4 oz of distilled water to each cup. Yet you would say “Gov’t didn’t take anything, you still have 8oz”. Volume is not the point. Quality per oz is.
Purchasing power comes from somewhere. Gov’t didn’t summon purchasing power when it first created a new currency, and doesn’t summon purchasing power when it creates additional currency.
“Another thing he said was that government is imposing the sticky wages when they grant unions special privileges. Get government out of the economy, and people will compete with those unions by lowering the price for their labor.”
Its actually incredibly difficult for workers even without the presence of government to admit to the need to cut their wages. Its called the money illusion, Its also a pride thing. Would you rather have workers rioting in the streets, or face a little more inflation.
Im taking a little thing called REALITY as it is, without economic fantasies
Theres an easy way to do things, and theres an INCREDIBLY HARD way. So naturally, the Austrians choose the incredibly hard way, that causes massive unneeded suffering and pain.
You can demand that people get up one hour earlier in the spring and summer months, , and change schedules and deadlines, which would cost a lot more money. Or you just adjust the clocks.
“Its called the money illusion, Its also a pride thing.
…
Im taking a little thing called REALITY as it is, without economic fantasies”
Wait. What?! That’s a contradiction.
I’m to suffer because of other people’s illusions, and *I’M* the one not taking in a little thing called reality?
How about people just stop thinking they’re entitled to other people’s things? Why not just show people that their “money illusion” is an illusion?
Would you rather have workers rioting in the streets, or face a little more inflation.
Two can play that game.
Would you rather I shot rioters that were attempting to destroy my property, or face a little more education?
You can demand that people get up one hour earlier in the spring and summer months, , and change schedules and deadlines, which would cost a lot more money. Or you just adjust the clocks.
Why would people be getting up one hour earlier? Changing your sleep cycle by one hour over the period of six months wouldn’t disadvantage anyone.
Besides, changing the clocks doesn’t change the fact that people are being forced to get up one hour earlier.
Also, it’s the sun cycle that is reality, not the clock, believe it or not.
Daylight savings is government imposed, not market imposed.
“Its actually incredibly difficult for workers even without the presence of government to admit to the need to cut their wages. Its called the money illusion, Its also a pride thing. Would you rather have workers rioting in the streets, or face a little more inflation.
Im taking a little thing called REALITY as it is, without economic fantasies”
Those that face inflation are paying for it. So we just need to fool everyone into thinking they are better off…… Lie to them and tell them they are better off nominally, but not in real terms. WHO FACES INFLATION THE MOST? Poor people.
This is exactly why the free market needs to function uninterrupted. You either take a lower wage, work harder, or get fired. Or you find better work. It is not to be imposed NOW, this climate should exist before any downturn micro/macro. We are talking about conditions that haven’t existed in many decades. In a deflationary environment, workers would see their standard of living rise at a stable wage rate. This would be part of the common sense, as is needing higher wages in persistent inflation. Your proposals are like giving a child HIV and giving him a Tootsie Roll labeled “HIV cure”. I’d rather deal with the problem, not perpetuating flawed economic policy.
“Theres an easy way to do things, and theres an INCREDIBLY HARD way. So naturally, the Austrians choose the incredibly hard way, that causes massive unneeded suffering and pain. ”
We don’t choose to DO anything. It is an employee and employer decision. That statement of yours is entirely unproven. We wouldn’t screw up the system in the first place. Another analogy. You get drunk. You show up to work with a hangover making it impossible to function. Your boss tells you to liquor up because that hangover will cost you your job. Get it?
“You can demand that people get up one hour earlier in the spring and summer months, , and change schedules and deadlines, which would cost a lot more money. Or you just adjust the clocks.”
“Its actually incredibly difficult for workers even without the presence of government to admit to the need to cut their wages. Its called the money illusion”
What you call the “money illusion” is merely a refusal to accept the basic fact that in a non-inflationary monetary system, individuals will learn, adapt, and becomes accustomed to deflationary pressures, in which case they will no longer conflate higher nominal wages over time with higher standard of living. They will instead learn that a constant wage rate, or perhaps a gradually falling wage rate, will nevertheless enable them to purchase more and more goods over time as productivity increases.
You are, like every statist, depending on the crucial assumption that people are morons and idiots, so that you can pretend in your own minds that your solving an otherwise unsolvable problem that gosh darn it, only some central banking oligarchy can solve.
“Theres an easy way to do things, and theres an INCREDIBLY HARD way. So naturally, the Austrians choose the incredibly hard way, that causes massive unneeded suffering and pain.”
You are ignoring the unnecessary pain and suffering caused by your very own central banking advocacy, which is responsible for the volatile swings in business activity which sees millions of people foisted into unemployment.
Austrians are the ones with the solution to the problems that YOU and YOUR ilk cause. The economy is not run according to Austro-Libertarian ethics. It is run by YOUR ethics, and because of that, you have only yourselves to blame. You people who screw the economy up, and then blame those who had NOTHING to do with it, is textbook arrogance and ignorance on a widespread scale. You are so incredibly destructive in the world that you are even destroying your own capacity to grasp the very destruction you yourselves are unleashing.
Of course, the only reason why you are trying to make it seem like Austrians are the destroyers, is because at some unconscious level you accept, but don’t admit to others, that you are responsible, and rather than accept that responsibility, you instead act like little children, and try to deflect attention away from yourselves, and make it seem like the only alternative is even worse. You’re like alcholics who refuse to admit they have a serious problem.
Oh, but what can you do, you say? With all the problems that exist, why not try to tinker, instead of some drastic change? Well, that very mentality is precisely why you are intellectually responsible, and why Austrians are innocent. It is because you don’t have the intellectual courage to delve into drastic changes, lest you violate your actual goal, which is to benefit yourselves using existing coercion because you believe there is no way to reduce it or stop it. Opportunists, that’s what you are.
People, if they are educated by people like Austrians, who will not settle on destructive third or fourth best solutions, will not have to live in a world where there seems to be an objective law that says if prices don’t rise, then we’re screwed. Austrians recognize the nature and power of the human mind, to change the world, and to adapt to it, so that we aren’t misled into the false notion that if money and spending don’t rise all the time, then we’re doomed to perpetual depression.
If people can adapt to rising prices all the time, then there is no reason whatsoever why they can’t adapt to falling prices all the time. You have to stop confusing your own inability to accept that constant deflation is possible, with that being a law of the universe. Your ignorance is not something that applies to the rest of us. It is your responsibility to change your mind in this regard.
That’s the classical model of unemployment. prices fall to clear the labor market.
Major Freedom,
As usual you attack straw men. No, prices don’t HAVE to rise all the time for growth to happen. Productivity deflation can lower prices and increase growth. (One of the good contributions of Austrians by the way) but when prices are not quick to adjust, (which has been confirmed countless times theoretically and empirically and even by Tom Woods.) and nominal spending falls, you get a recession. Yes, EVENTUALLY, prices will adjust, by going to 30-40% unemployment, and by shooting rioters in the street, you can so demoralize and terrify workers into accepting wage cuts that they will go back to work.
But that seems excessive to anyone not infected by MF’s sadism, dont you think?
Education?
Good luck. Good luck telling workers that they have to work longer hours for less, after a sub-quality boom, during the Bush years, with stagnating real incomes. They’ll be howling for your blood.
Cosmo Kramer and Guest, both of you are idiots. Daylight savings time may be government imposed, but longer days and shorter nights are part of earths orbital cycle.
… and nominal spending falls, you get a recession.
If there’s a recession as government spending falls, it’s because those jobs were the result of government interventions and shouldn’t have been created in the first place.
What’s happening is that people stop having access to other people’s money, as stolen by the government in the form of taxes or credit expansion.
If a thief is kept from stealing, all the businesses he used to frequent will lose business. The solution does not entail giving the thief government-granted privileges so he can continue to spend what was stolen.
The business needs to take a loss on the goods and capital it bought in anticipation of being able to sell them to the thief.
Daylight savings time may be government imposed, but longer days and shorter nights are part of earths orbital cycle.
Nothing keeps private businesses from just having people come into work at the same time, regardless of how light or dark it is.
It’s not a big deal.
And if employers wanted people to come into work an hour early due to the position of the sun, those businesses would either succeed or fail, those workers would either stay or leave, and then the profit motive would cause people to adopt those actions which best benefit them as individuals.
But at no time are we entitled to force someone to employ us.
“Cosmo Kramer and Guest, both of you are idiots. Daylight savings time may be government imposed, but longer days and shorter nights are part of earths orbital cycle.”
Proud to be one, if that is all your argument amounts to.
Are you in the belief that every 6 months the night/day length suddenly shifts? GEE GOLLY!!! We manage just fine in between don’t we?
There was good deflation all around the 1920’s. Workers didn’t adapt to that, Neither did they adapt to the 1873-1896 period, There were still recessions and depressions in that period.
“Workers didn’t adapt to that, Neither did they adapt to the 1873-1896 period”
>> How so? Working conditions didn’t improve at any point during this time period as compared to conditions pre-1873? Or if you’re speaking strictly in terms of wages, weren’t nominal wages during this period steady (if not increasing) as the overall price level fell?
“There were still recessions and depressions in that period.”
>> Perhaps by some measures, but while real output and wages increased coinciding with the period where the economy transitioned from one primarily consisting of agricultural subsistence to an urbanized, industrialized, mass consumer market economy.
I think recession/depression gets thrown around carelessly at times. For instance, in 1946, technically the US was in a sharp recession with a 10+% drop in GDP … at the same time unemployment dipped to around 4% despite integrating 10million people into the civilian workforce, domestic private investment finally broke ’29 levels, and private production soared. Compare that with GDP/employment during say 1943 and yea, ’46 looks pathetic. But were conditions for private individuals better in ’43 than in 46?
The Forgotten Depression of 1920
[WWW]http://mises.org/daily/3788
The years preceding 1920 were characterized by a massive increase in the supply of money via the banking system, with reserve requirements having been halved by the Federal Reserve Act of 1913 and then with considerable credit expansion by the banks themselves.
Total bank deposits more than doubled between January 1914, when the Fed opened its doors, and January 1920. Such artificial credit creation sets the boom–bust cycle in motion. The Fed also kept its discount rate (the rate at which it lends directly to banks) low throughout the First World War (1914–1918) and for a brief period thereafter. The Fed began to tighten its stance in late 1919.
You said:
… Neither did they adapt to the 1873-1896 period …
There was no Long Depression; People only thought it was a depression because prices were falling:
Answering the Same Old Arguments Against Sound Money | Thomas E. Woods, Jr.
[WWW]http://www.youtube.com/watch?v=h-PxMzSyujw#t=14m50s
Smashing Myths and Restoring Sound Money | Thomas E. Woods, Jr.
[WWW]http://www.youtube.com/watch?v=HAzExlEsIKk#t=33m58s
On deflation in general:
Answering the Same Old Arguments Against Sound Money | Thomas E. Woods, Jr.
[WWW]http://www.youtube.com/watch?v=h-PxMzSyujw#t=18m59s
Right… there was no depression, people only thought it was a depression, and people can’t be trusted because Tom Woods says so. And Tom Woods is a highly respected and trustworthy scholar… not.
NOONE said it was not a depression. He said “long”.
Gov’t spending (mostly military) was dramatically cut. A painful depression ensued for a very very short period of time.
I guess the optimistic model for depressions is the great depression. What a great track record you interventionists have……
This is exactly what Austrians say will happen. Governments screw up the economy and a recession is the cure to get it back to sound footing. Deal with the problems before they get too big, etc. Deal with the hangover, don’t consume more alcohol.
NOONE said it was not a depression. He said “long”.
Exactly.
Tom Woods: “There was a recession in 1873, but there was no six year depression or, in some of the more outlandish forms of the argument, 23-year depression. Nobody believes this, anymore. This is a misconception.”
You’re wrong that the people who are harmed the most by inflation are poor people. The biggest cash holders are rich people and corporations. Inflation would “harm” them the most if they took no action to protect themselves by investing in other assets. Of course that option is available to them. And the poor and middle class are nt debtors who would benefit from rising nominal incomes
“You’re wrong that the people who are harmed the most by inflation are poor people.”
Wealthy individuals can diversify. They can OWN assets. Think of the farmer in Weimar.
The poor sop working at Wendy’s has no options. He receives $8/hr and much of the % of his income is devoted to food, gas etc.
“And the poor and middle class are nt debtors who would benefit from rising nominal incomes”
Why pervert value? Contracts are meant to anticipate the future to a certain degree. What does it do for our economy if we can no longer reasonably anticipate the future price level?
True, but you’re talking about purposefully creating inflation out of nowhere.
Natural forces vs price level changes instantly and purposefully caused.
Just look now at all of the hyperinflationistas, hyperdeflationistas etc. Both sides and everyone in between has reason to believe that their prediction will come true. Whereas you saw MUCH stabler price levels in the 1800’s. Just look at cpi from 1800 to now.
(not endorsing everything that happened in the 1800’s)
I am super swamped with work for at least another month. I want to carefully read up on your point about 0% interest. I’m sure I won’t end up agreeing with you, but I also don’t think I’m understanding yet where you’re coming from.
Yes I feel the same. As far as I got it now it is basically just the point you made in the debate already that, well, you need interest rates to allocate recourses over time. You need a mechanism for this which in my view is the interest rate. It is the same with monopolizing all the iron supply and setting its price to zero (and not only setting it to zero yields problems, obviously every arbitrary value deemed by the forced monopoly yields problems). You just cannot efficiently allocate iron.
I think his point about 0% interest has to do with a belief that there can be no interest rate, without exploitation, for the same good received at a later time.
And I think he’s factoring in also a scenario in which there is only one seller (which he calls a “monopoly”).
I take these to mean he doesn’t believe there will be interest rates for a good where there is only one seller of it.
I would offer this video in response:
Basic Economics Lesson 4 – Time Preference, Interest Rates, and Production
[WWW]http://www.youtube.com/watch?v=g2OK5D_3TzM
Basically, the argument is: While it’s true that it would be nonsensical to say that an interest rate is the price of a loan (because a $100 is worth $100), what needs to be taken into consideration is time.
If I believe I will be better benefitted by $100 now than later, then I believe that enticing someone to loan me that money now if I offer to pay him more in the future will result in profit for me if, at the time the loan is due, I have made a profit that exceeds the price I was willing to pay for the loan.
Both parties will benefit if we both guess correctly.
As far as a scenario in which there is a single seller of paper money which can be printed forever, that would actually not fulfill the purpose of money, which is to calculate the ratio of the subjective values people place on scarce goods.
If the currency can be created out of thin air, then it can’t serve the role of money.
If I didn’t care what form the money took, I wouldn’t need a government to monopolize it – I could just pick up dirt and hand it to people in exchange for goods, and if they thought the same way they’d accept it.
We couldn’t do that for very long because you couldn’t tell whether you were profiting or not, but individual transactions could happen that way, if we really wanted to do so.
Yes, how do you measure the inflationary or deflationary effect of your policy as it progresses. If net inflation increases (1% now and 10% in 2016) then what effect do you deem was due to President Mosler’s policies?
Inflation could have been 15% absent of Mosler’s policies, making your effect on net inflation -5, not +9.
If you have decreased inflation, then inflation is not the constraint. If you have decreased inflation, then seemingly more of Moslernomics is needed, not less. The economy being “good” isn’t the test. It could have been better, worse, and everything in between with other economic policy at the helm.
Absent a time machine, and considering that correlation does not imply causation, how do you know? if you could reasonably prove it, what would you convey to the public that is blaming your for the increase in inflation(under my scenario not your fault)
It’s just the way it is with a floating exchange rate and no ‘govt. interference’ with regard to interest rates.
So in every nation with a floating fx rate policy- US, Japan, Canada, UK, EU, whatever, if the govt doesn’t ‘interfere’ by selling treasury securities, paying interest on reserves, or anything functionally similar, the ‘risk free’ rate simply sits at 0 when that govt spends more than it taxes.
It’s like this- govt spending is accomplished by the Fed crediting a member bank’s reserve account at the Fed.
There’s no way for that dollar balance to earn interest in that Fed account unless the Fed pays it.
“the ‘risk free’ rate simply sits at 0 when that govt spends more than it taxes”.
Doesn’t that depend on banks’ demand for reserves?
As banks make more loans their demand for reserves will increase. If the quantity of reserves doesn’t increase then the overnight rate of interest will rise over time. To stop this from happening either (a) the government will have to deficit spend more without issuing bonds, until the rate falls back to zero, (b) the central bank will have to lend freely at zero interest, or (c) the central bank will have to buy enough assets from the private sector to hold the overnight rate down.
In each case this is a ‘government intervention’ to stop rates from rising.
first, a reserve requirement is govt. intervention, and it’s about govt. intervention causing the rate to rise.
second, in the first instance the requirement is an overdraft in a fed account, and the rate will be what the fed charges for that overdraft. if the fed doesn’t charge for it, the rate is 0. if the fed does charge, that’s the govt supporting a higher rate- again, govt intervention to set a higher rate.
Reserve requirements would exist without government intervention, expressed by people’s unwillingness to do business with a bank with reserve requirements below a certain level.
If I don’t think the bank has the reserves to pay me back when I want it, then I will withhold my money from them – which is a de facto reserve requirement [of probably around 100% on the free market – an inelastic currency].
that is true with no deposit insurance, another govt. interference that doesn’t work as hoped for with fixed fx policy.
the problem is the liability side of banking as a practical matter is not the place for market discipline.
so with floating fx there can be credible deposit insurance and regulation (required with insured deposits to remove moral hazard) of the asset side, including capital requirements.
Regarding non fed member banks, think the likes of GE capital, GMAC, etc.. They take ‘deposits’ via the sale of commercial paper and other debt instruments and make loans. They have no reserves at the Fed and there are no govt. required liquidity provisions. They manage their own liquidity independently. The problem is their ability to fund themselves is a function of the perception of the value of their assets. So in 2008, for example, GE Credit, with a 20% capital ratio, couldn’t fund themselves without help from the Fed, which bought their commercial paper, in might have been the most questionable bailout of the year. My point here is that even the top rated AAA non member bank can be faced with what could be called an ‘irrational’ funding crisis and fail due to blind fear of the private investors.
Ok, so the Fed in that example is lending at zero interest.
What I find strange is the way that you describe government intervention – such as lending at zero interest, buying assets to keep interest rates down, and government deficit spending, as “non-intervention”.
Why argue that zero is the “natural” base interest rate when it is patently obvious that the base rate can only be kept at zero if the government constantly intervenes to keep it there?
So in 2008, for example, GE Credit, with a 20% capital ratio, couldn’t fund themselves without help from the Fed …
But why is it a problem if GE Credit fails? That’s what’s supposed to happen to businesses that aren’t able to serve consumer preferences.
If it wasn’t made to be propped up by so-called “deposit insurance” (more on that below), then those who worked there, and the projects that were undertaken because of loans made by it, would have never happened to begin with, and there would be no unemployment to worry about as far as GE Credit is concerned.
Further, after it crashes, there would be people who would buy up their assets at a discount; So new owners would take over and it would provide jobs.
… that is true with no deposit insurance …
Deposit “insurance” is a problem. All it is is expansion of the currency supply. It’s fraud. It’s cronyism.
Those who use the new currency first are being permitted, through government force, to benefit at the expense of later users.
It’s a fraudulent transfer of wealth.
Bank runs were always a good thing, because it meant that you could tell when a bank was increasing its notes in excess of specie.
Deposit insurance masks that process, but it’s still being done. It permits distortions that are nationally and globally wide, rather than just for those dealing with a particular bank.
Anticipating an objection, here; On the issue of instability under the pre-Fed “gold standard”, there’s this:
Answering the Same Old Arguments Against Sound Money | Thomas E. Woods, Jr.
[WWW]http://www.youtube.com/watch?v=h-PxMzSyujw#t=9m51s
your comment begs the question: why is it ok for banks to expand the supply of money, whilst it is supposedly not ok for the government to do the same?
My impression from reading about the ABCT, is that you make no real distinction between an expansion of the money supply based on private debt (which, ultimately is unsustainable), and an expansion of the money supply based on public debt (which in a floating-exchange rate regime is sustainable)..
When you talk about about yourself as being an “austrian”, what you actually mean is that you are some sort of ‘Rothbardian’, who has an obsession with shiny metal objects.
Various “austrian” economists have actually debunked, in their own terms, your juvenile obsessions. But you have no real interest in understanding such arguments, as for you it’s all just about justifying your irrational obsessions.
guest, here is an Austrian who disagrees with you.
MmYeah, that’s unfortunate, huh?
😀
I’ve actually seen a video he did where he defended bitcoins, so this isn’t a surprise.
He highlights two arguments in favor of bitcoins (in that particular link), both of which are necessary for something to be money, but not sufficient.
The first aspect he presents is mathematically guaranteed scarcity.
That aspect is useful if each of the bitcoins correspond to a specific unit of something that actually has utility.
In the case of gold, the scarcity of the unit is the scarcity of the good.
Unless the bitcoins mean something, I have no way of knowing what they’re worth.
Which brings us to the next objection.
Instead, I will make the modest point that if Mises is used to rule out Bitcoin’s acceptance as money, then it seems that Mises has already lost. If this logic is correct, then Bitcoin should never have been adopted as even a medium of exchange because it served no useful role as a regular commodity.
It is necessary, but not sufficient, for people to agree to trade an intermediary … something … in order for that something to be money.
As I was telling Warren Mosler, we could trade handfuls of dirt for goods for any given transaction, if we really wanted to, but that wouldn’t last because the dirt isn’t communicating the ratio of subjective utilities between that which is sold with, and that which is ultimately bought with, the dirt.
When we’re talking about money, we’re not talking about trading for trading’s sake, we’re talking about profit and loss as subjectively determined by the individual.
And that can only be done with something that also has subjective utility to someone.
Further, if the money could be anything, then you don’t need it to be scarce. It’s not like the units are counting, or represent anything, as I noted before.
A loan made in an inelastic currency might not earn interest in the way you’re used to thinking about it, but it does.
Rather than earning interest in nominal terms, an inelastic currency gains interest in the form of greater purchasing power over time:
Interest Rates in a Gold Coin Standard
[WWW]http://news.goldseek.com/LewRockwell/1324562820.php
On the other hand, some depositors may agree to be paid less interest. They may agree all the way to zero or very close to it.
Why would they hand over their gold coins to the banks at zero percent? Because, in a free market economy, the production of goods and services constantly increases.
…
People get richer even though the have no extra money.
So, in a free market economy, the money (gold coins) paid by borrowers to lenders may not be more than the money borrowed – zero percent – but the real income of the lenders rises. Interest is still being paid to lenders, but it is concealed. The interest rate is the same as the decline in gold-denominated prices.
So it is not necessary for a $ monopolist to make interest possible.
As an aside, here is a resource on phony gold standards:
Warren, in response to one of your comments above:
The government isn’t actually the monopoly supplier of ‘money’ in the current system – the private sector is able to increase the money supply on its own. The main way this happens is by banks creating deposits when they make loans, but there are other forms of privately-created ‘money’ too.
So unemployment isn’t necessarily caused by the government restricting the supply of ‘money’ in the form of currency or other government liabilities like treasury bonds. If the private sector is in need of more money, or dollar-denominated financial assets, it doesn’t necessarily need the government to provide them, it can create them itself.
Furthermore, an increase in the supply of currency, T-bonds, or bank deposits, is not necessary for the private sector to autonomously increase demand. It can do this by simply spending more of its current income, or by spending more of its accumulated savings.
This all suggests that unemployment is not simply the result of the government currency monopolist restricting supply, but rather is the result of a general shortfall in demand relative to the supply of labor, which could be due to a number of different reasons.
This demand/supply imbalance is perfectly possible in a theoretical situation in which there is no government currency monopoly, so it makes little sense to say that “no govt currency, no govt tax = no unemployment”
Right, I didn’t say the govt was the monopoly supplier of ‘money’ in general.
I do say it’s the monopoly supplier of the thing it demands for payment of taxes,
and that the dollars to pay taxes come only from govt and/or its designated agents.
furthermore, the ‘non govt sector’, and for that matter any sector as a whole can’t create net financial assets, only gross financial assets.
loans create deposits, loans are the short and deposits the long position, and they net to 0. same for all credit. just like open interest in futures markets
I don’t know if this will matter for you, but does it help clarify things to say that it would be fraud to loan deposits?
I’m guessing at what you mean by the word “deposits” because all that would be required for a bank to loan money is for someone to loan the bank money. No government required.
Anyone who saves is in a position to loan, so, initially, a bank would have previously had to have gone through a process of saving/underconsumtion so that it would be in a position to loan.
Anyway, maybe I’m overthinking what you mean by “deposit”.
a bank deposit is a bank account held on behalf of the depositor.
the causation is that loans ‘create’ deposits as a matter of accounting.
Assuming there’s only one bank for the moment, when you borrow 200,000 to buy a house the bank puts 200,000 in the account of the seller at the house.
Your loan is the bank’s asset and the seller’s deposit is the bank’s liability. No govt. funding or saver’s funding was involved. The loan and deposit are created by the act of lending.
“Right, I didn’t say the govt was the monopoly supplier of ‘money’ in general.
I do say it’s the monopoly supplier of the thing it demands for payment of taxes”
Doesn’t that contradict your statement that unemployment is the result of the currency monopolist not supplying the currency (or its interest-bearing equivalent – i.e. T-bonds) in sufficient amount?
If the private sector can produce its own money, why does it need the ‘currency monopolist’ to achieve full employment?
Assuming there’s only one bank for the moment, when you borrow 200,000 to buy a house the bank puts 200,000 in the account of the seller at the house.
…
No govt. funding or saver’s funding was involved.
Unless we’re talking about printing money out of thin air (or making accounting for transactions that never took place), then yes there needed to have been funding involved.
The bank has to have something to loan out in order to offer the loan.
The owner had to either save some money, or to have been repaid prior loans plus interest to have the money (not bank notes) to loan out.
If I make a loan to the bank, that money actually belongs to the bank until the payment is due – it doesn’t belong to me in the interim.
If I make a deposit, I would have to pay the bank to hold my money because it’s not going to perform a service for nothing.
Maybe there is an assumption here that deposits can be loaned, which would be fraud. That money wasn’t given to the banks for that purpose.
“The private sector can’t generate net financial assets, but only gross financial assets- loans and deposits together. asset/liability pairs”.
Isn’t it the case that the private sector doesn’t necessarily need ‘net financial assets’ if there is no external deficit…?
It could be argued that the government budget deficit ultimately creates the external deficit, which then requires either a larger private sector deficit or a larger government deficit…
So in other words, it could be argued that a government deficit, in the context of an external deficit, creates in itself the justification for an even larger government deficit, ad infinitum…?
I don’t think the system is necessarily ‘detached from subjective utility’… it’s just not the system you consider to be ideal.
A currency that does not associate the subjective values of the goods I sell for money and the goods I buy with money, is detached from subjective utility.
And because it is, I am mislead, by the phony prices that result from that currency’s use, to invest that currency in unsustainable ways.
The boom-bust cycle is caused by fraudulent credit expansion.
“A currency that does not associate the subjective values of the goods I sell for money and the goods I buy with money, is detached from subjective utility”.
Well if you’d ever done any actual trading instead of just talking about it in the abstract, you would know that current money *is* actually valuable, and that decisions regarding your willingness to part with it in exchange for other things are closely associated with valuations of potential utility both in the present and the future.
Unfortunately you seem to be incapable of understanding that a piece of paper or base metal with symbols on it can have a real value to real people.
You’re stuck in an almost adolescent obsession with shiny metal objects, sadly.
Well if you’d ever done any actual trading instead of just talking about it in the abstract, you would know that current money *is* actually valuable …
The current “money” is not money – it doesn’t represent anything.
It’s not even a note FOR money at this point.
Unfortunately you seem to be incapable of understanding that a piece of paper or base metal with symbols on it can have a real value to real people.
The base metal IS a good – that’s WHY it can function as a money.
It doesn’t matter what symbols are on it. The symbols simply aid my assessment of the quantity and quality of the gold.
Obviously it does represent something. It can be exchanged for goods and services and used to pay obligations such as private debts and taxes.
You can take a bar of gold to the shops and try to exchange it for goods, but in most cases you’ll find that people won’t accept it. They want to be paid with money, not gold. If they wanted gold they would buy it with money. You only have to log on to a site like bullionvault.com to find people who are willing to sell you gold for money, it’s not complicated.
You’re making up your own definitions again. People who deposit money in banks know that banks lend money. They don’t think the bank just takes their money, puts it in a box, and doesn’t do anything with it. They’re not stupid.
There’s nothing fraudulent about a bank making loans.
James,
Correct, the private sector doesn’t necessarily need net financial assets.
Ours happens to reveal itself as needing heaps of them, however, due
to tax advantages for not spending income-pension contributions, corporate reserves, etc-
and foreign central banks accumulating our financial assets to drive their exports.
And so all these ‘demand leakages’ mean some other agent must spend more than his income,
and for all practical purposes that leaves govt. to ‘fill the gap’ when private credit expansion falls short.
“And so all these ‘demand leakages’ mean some other agent must spend more than his income,
and for all practical purposes that leaves govt. to ‘fill the gap’ when private credit expansion falls short.”
This is incorrect. Government only taxes a portion of (prior) SPENDING.
If spending falls, so will taxes. Total spending will always be greater than total taxes, as long as the tax rate is less than 100%, which it always is.
Your claim here, and the one you made in the video with the 24 business card tokens, is flawed. The government does not tax the people in such a way that you can analogize this with stories like “The government wants 25 tokens, but there are only 24 in the room, so that means the government has to spend money into existence.”
If spending collapsed tomorrow, the government’s taxation will collapse accordingly.
There is no such thing as “demand leakage.” All money is always being held by someone, at any given moment. Sometimes a person waits longer, sometimes shorter, before they spend their money. There is no objective law of the universe, even within our monopoly monetary system, that says spending must continue to grow.
There is no “gap”…ever. If private spending falls, then THAT is the standard.
yes, an income tax is a moving target, and in fact won’t ‘drive the model’ without taxing imputed income, which the govt. does, at least in theory.
but in any case, using the extreme only to make the point, if no one spent any of their income (complete demand leakage) there would be no sales and soon after no jobs and no income. it’s called the paradox of thrift in mainstream texts.
… if no one spent any of their income (complete demand leakage) there would be no sales and soon after no jobs and no income. it’s called the paradox of thrift in mainstream texts.
Income is not a function of government, so it is not necessary for government to provide a currency with which to make income possible; The market would provide the currency just fine.
Also, people don’t need a government to teach them that the division of labor is cost reductive, so people would just find each other and trade their goods and services.
Also, if people were quite happy providing for themselves, there wouldn’t NEED to be any jobs.
A lack of jobs does not necessarily equal a lack of wealth – ESPECIALLY after the government enticed people to engage in unprofitable projects.
After a crash in unsustainable projects, there MUST be unemployment; The job was unsustainable!
So people can get jobs and income completely without the aid of government. Government can only hinder that process.
But finally, no one is entitled to anyone else’s property, so no one is entitled to a job. Do job seekers have to provide something that another person considers adequately valuable before they are compensated with something in return?
Or do the valuations of only one party matter in a trade?
The Paradox of Thrift isn’t: Underconsumtion provides wealth with which to trade; If both parties didn’t expect to benefit from the trade, it wouldn’t happen.
If both parties guess correctly about the utility of that for which they trade, then new wealth has been created.
If the government stopped taxing people, no one would have a tax advantage. Problem solved.
Foreign central banks are able to buy our financial assets because our government keeps writing checks on our wealth and then paying them off with an elastic currency that our government forces us to use.
Get rid of government interventions and the Treasury can’t write checks on our wealth.
Get rid of government interventions and the Fed would not have a monopoly (government granted privilege) over IOU [“IOU Nothing”] creation with which to enrich some at the expense of others (Cantillon Effect).
Get rid of government, and we would have stopped using USD in 1933.
Get rid of government interventions, and global trade would entail trading actual goods for actual goods – one of those goods being a commodity money. Trade deficits become meaningless:
Classic Ron Paul – 1988 Campaign Interview (part 2)
[WWW]http://www.youtube.com/watch?v=Tpp5XOJPGlM
“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States”.
“Moreover, government debt is not true debt either. At the macro level, the reserves that are transferred to banks through government disbursement are used to buy Tsy’s. That is, when a Tsy is bought, this involves a transfer of reserves from the buyer’s bank’s reserve account at the Fed to the government’s account (consolidating CB and Treasury as “government”).
When the Tsy’s are sold or redeemed, the reserves that were “stored” at interest are simply switched back, creating a deposit again. It’s pretty much the same as buying and redeeming a CD. It’s just a switch from demand to time back to demand in a bank account, and a switch between reserves and securities at the government level. That is to say, the government doesn’t have to draw on revenue, borrow, or sell assets to cover its “debt,” as households and firms do. It’s just a matter of crediting and debiting accounts on the (consolidated) government books, even though it may appear that there is a financial relationship occurring between the CB and Treasury due to the accounting. However, it’s just a fiction.
Therefore, the key to understanding MMT is this vertical-horizontal relationship. When one understands this, then Abba Lerner’s principles of functional finance become obvious. (1) Currency issuance through government disbursement is used to increase nongovernment net financial assets, and taxation withdraws net financial assets from nongovernment. (2) Debt issuance by the Treasury is a monetary operation for draining reserves to permit the CB to hit its target rate.”
Debt is a promise, they are completely equivalent concepts but a promise is a slightly broader term (although these days, debt is also a very broad term).
A promise can either be fulfilled, or it can be broken. Those are the only outcomes possible.
Debt can either be repaid, or it can be repudiated, those are the equivalent outcomes for financial systems.
You may believe that promises don’t exist, and in purely physical terms that’s true. You can’t drop a promise on your foot, you can’t tip promises into your car to get it started of a morning. However, your statement that promises don’t exist is in itself a moral declaration… and that’s your choice to make such a declaration.
I for one take promises seriously and do my best to keep them.
Not sure if you were aware of it when it happened, but in early 2012 a bunch of blogging economists had a huge debate on this issue of “does the federal debt burden our grandkids?” Believe it or not, I initially agreed with Krugman and Dean Baker, but then Don Boudreaux (relying on Jim Buchanan’s work) and Nick Rowe up in Canada changed my mind.
It’s long, but I wrote up what some consider an entertaining summary of the whole thing here.
Declaration of Independence
[WWW]http://constitution.org/us_doi.htm
… Governments are instituted among Men, deriving their just powers from the consent of the governed …
…
But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.
The Law by Frederic Bastiat
[WWW]http://www.constitution.org/cmt/bastiat/the_law.html
If every person has the right to defend—even by force—his person, his liberty, and his property, then it follows that a group of men have the right to organize and support a common force to protect these rights constantly. Thus the principle of collective right—its reason for existing, its lawfulness—is based on individual right. And the common force that protects this collective right cannot logically have any other purpose or any other mission than that for which it acts as a substitute. Thus, since an individual cannot lawfully use force against the person, liberty, or property of another individual, then the common force—for the same reason—cannot lawfully be used to destroy the person, liberty, or property of individuals or groups.
Such a perversion of force would be, in both cases, contrary to our premise. Force has been given to us to defend our own individual rights. Who will dare to say that force has been given to us to destroy the equal rights of our brothers? Since no individual acting separately can lawfully use force to destroy the rights of others, does it not logically follow that the same principle also applies to the common force that is nothing more than the organized combination of the individual forces?
When Did I Sign This ‘Social Contract’?
[WWW]http://www.youtube.com/watch?v=nTqEePlZiqk
If You Don’t Like Being Expropriated, You Can Always Leave
[WWW]http://www.tomwoods.com/blog/if-you-dont-like-being-expropriated-you-can-always-leave/
Ron Paul Right, Thought Controllers Wrong, on Secession
[WWW]http://www.youtube.com/watch?v=oPn-vYH2eYc
… But not before we can starve the state by switching, as individuals, to a commodity money:
War and the Fed | Lew Rockwell
[WWW]http://www.youtube.com/watch?v=Tl9lS5k7H5M
Only a minuscule number of people subscribe to your fringe ideology so I doubt you’ll be bringing down the US any time soon. So in the real world the government will continue to have the constitutional power to “lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States”, regardless of what commenters on Bob Murphy’s blog have to say about it.
So in the real world the government will continue to have the constitutional power to “lay and collect Taxes, Duties, Imposts and Excises
A constitution which violates individual rights is illegitimate, since the ratifiers never had the authority to give up someone else’s individual rights.
The constitution doesn’t violate your individual rights though.
Perhaps if you stopped making up your own definitions of words all the time other people might take you more seriously and you wouldn’t just be a tiny fringe group of angry loons.
@james
My own belief is that many prefer being an angry fringe to actually making progress. It’s more fun to feel like a persecuted voice in the wilderness than to improve things. So while preaching free trade Ron Paul voted against actual free trade agreements. Instead of a policy that by his lights can make things better, and thereby build support for even more free trade, he chose rigid ideological purity.
Lot of that round here.
In your completely imaginary ancap ideal world, if I wander onto someone’s land they have the right to charge me a fee, so long as it’s clear beforehand that such a fee will be charged. But what right do they have to claim that land and to charge a fee? According to you it’s because that land was previously unoccupied and then ‘homesteaded’. But we know for a fact that that’s not how the ownership of land was actually established in reality. So in reality there is no moral justification for that fee in your imaginary ancap world, even according to your own arguments.
Aside from problems with historicity homesteading is a *mystical* notion. It’s one thing to argue that if I plant and raise corn I should own the crop, I that way own the product of my labor, the excess over what bare land would yield; it’s quite another to argue that that somehow gives me ownership of the *land* itself.
guest: “That government would be involved in trade is a big clue that it’s not free.”
See? That’s exactly what I eman. Ron Paul could have made trade FREER. Doing so, if the Free Traders are right (and they are) would have provided evidence for EVEN MORE OF IT. But lily white purity is what guest admires. People like this james *do not want their policies implemented*.
But we know for a fact that that’s not how the ownership of land was actually established in reality.
If you don’t own something, you can’t tell people what to do with it.
So, authority over unowned land is not something that non-owners can give to government.
Unless you think that someone can just claim the fruits of your labor, logic compels you to accept that homesteading is the only legitimate means of claiming ownership of unowned resources.
… it’s quite another to argue that that somehow gives me ownership of the *land* itself.
Your argument proves too much.
One isn’t really *creating* anything, per se, when they transform seeds such that nature grows food from them.
So by your logic, you shouldn’t be able to own the crops, either. Whether we’re talking about the land or the crops, all that’s happening is someone is transforming a resource.
The logic behind ownership of land is that your transformation of the seeds requires land. By planting seeds, you’ve transformed the land into something that supports the growing of your food.
And because no one has the authority to tell you what to do with the fruits of your labor, another person can’t tell you what to do with that land or crops.
For example, people have fought over land for thousands of years.
So your ‘homesteading’ principle is not relevant to the real world.
Sure it is, even under conditions where land is stolen and both the owner and the thief are dead.
If the owner is still alive, the land belongs to him, though it was stolen, and he has a right to defend his property.
If the owner is dead, but the thief is still alive, the land becomes abandoned and may be homesteaded; If the homesteader of the abandoned land is the thief, then the land belongs to the thief. There’s no owner left alive to whom restitution can be owed.
(Property must be offered by the owner, and then accepted by someone else, in order to be legitimately passed on. You can’t force ownership of something onto someone.)
And if an owner, whose land has been stolen, passes on his land to someone of his choosing, then, even though that land has been stolen, the rights of ownership belong to the one the owner chose.
“If the owner is dead, but the thief is still alive, the land becomes abandoned and may be homesteaded; If the homesteader of the abandoned land is the thief, then the land belongs to the thief”.
are you saying I can steal someone’s land, kill the ‘owner’ and then the land belongs to me according to the ‘homesteading principle’?
So if I can kill the previous owner, and not get killed by other people (or kill anyone who tries to kill me), then I can claim that the land is ‘abandoned’ and as such can “homestead” it?
I’m finding it difficult to believe that this is what you actually believe.
… then I can claim that the land is ‘abandoned’ and as such can “homestead” it?
The land would, in actual fact, be abandoned by virtue of the fact that there are no living owners.
Having become unowned, it may be homesteaded.
This is actually preferable to a bunch of non-owners claiming all non-private land as so-called “public land”, and then preventing people from homesteading it. Talk about aggression.
Well by your definitions the ‘owners’ could be a bunch of thieves, so your arguments necessarily collapse into a pile of incoherent contradictory nonsense
Well by your definitions the ‘owners’ could be a bunch of thieves, so your arguments necessarily collapse into a pile of incoherent contradictory nonsense
First, the state is doing this now, and, in addition, is stealing land and the liberty to homestead from people who are currently alive. Yet, this is what you prefer.
By your logic, your argument collapse into a pile of nonsense.
The reason it’s wrong for the state to do so is because the state cannot be given authority which the specific individuals who set up the state didn’t already have.
A non-owner may not confer ownership – it isn’t his to give.
Second, a thief could only legitimately own the land after the owner has died.
The reason is because it is no longer owned, and may now be homesteaded.
Since nobody owns it, nobody is in a position to prevent the thief from homesteading it, himself.
The paper that we pay them with is fraudulent. We are handing them useless paper for actual stuff: This is how we are exporting our inflation to the rest of the world!:
Why the Meltdown Should Have Surprised No One | Peter Schiff
[WWW]http://www.youtube.com/watch?v=EgMclXX5msc#t=1h13m57s
The Pound Gets Pounded
[WWW]http://www.lewrockwell.com/2013/02/peter-schiff/the-pound-gets-pounded/
While the American media has poked fun at the Bank of England’s backtracking, they somehow do not understand that the Federal Reserve would be doing the same if not for the advantages given to us by the dollar’s reserve status. Our ability to monetize the vast majority of the annual government deficit while exporting our inflation through half trillion dollar trade deficits and the overseas sale of hundreds of billions of Treasury bonds annually means that we do not yet face the pressures bearing down on the Bank of England.
America is benefitting at the expense of those who hold the USD as their reserve currency. This is NOT the fault of the free market but of fraudulent credit expansion, enabled by the government.
Foreigners are quite capable of deciding for themselves whether they think the USD is money or not.
So are Americans.
So you acknowledge that no coercion is required for someone to be capable of determining what is or is not money?
Then the Government doesn’t need legal tender laws, right?
What’s actually happening is that foreigners believe the American government will aggress against its citizens, such that they are forced to attempt to exchange it as if it were money.
Just because I steal a car from you doesn’t mean that the price of a car, for you, is two cars (because you had to buy a replacement).
You said:
Obviously the USD does function as money as people accept it in payment, as money.
And obviously the USD is not “useless” as it can be used to buy things and to make other payments.
The only reason it can be used to acquire things is because the government forces us to use paper.
Besides, as I noted before, if you think anything can be money, then I can find lots of stuff that I consider crap to hand you in exchange for, say, all of your stuff.
All you would have to do is BELIEVE hard enough that it’s actually worth all of your stuff, and we could trade, right?
OK Murphy. Here’s what kills me about you. You get into that debate with Mosler and pretty much admit that his economic views and models make sense in a world with fiat money, and that your views don’t. Your main point is that we shouldn’t be living in “Mosler’s” world because it involves an element of coercion — you must pay your taxes. Really your point there is fine as far as it goes.
But, then you proceed to utilize your limited economic models — designed for a non-fiat money world — on our current fiat money situation. The result of such an approach is your constant inability to predict the results of policy and a sense that you never really showed up to the debate.
If you want to debate Mosler on what to now, then do so without wussing-out into a “bring back the gold standard” requirement to participate. If you find that you must wuss-out, at least quit pretending that your “gold standard” platitudes apply mindlessly to any and all fiat money scenarios.
This came out way more strident than I had hoped. Maybe a little long winded, too.
You get into that debate with Mosler and pretty much admit that his economic views and models make sense in a world with fiat money, and that your views don’t.
Scott, do you agree that in “the real world,” households shouldn’t worry about earning enough income to pay their bills? That really, the true tradeoff is between spending and going to prison for robbing liquor stores?
If you think so, then I can understand why you think I conceded Mosler is right and I am wrong. But, I’m hoping you wouldn’t agree that families should stop worrying about budgets because they have the option of robbing liquor stores.
Your “robbing liquor stores” analogy seemed like an inadequate response to Mosler’s claim that your analysis paradigm was not suited to a fiat currency. Especially since you then went on to analyze policy within a fiat currency regime.
If you want to debate Mosler on what to now, then do so without wussing-out into a “bring back the gold standard” requirement to participate.
Wait a second: Mosler and I are allowed to talk about “what to do now,” but only if his proposals are the only ones on the table? Seems kind of a pointless debate, doesn’t it?
Your comment goes back to the fundamental fuzziness of the Mosler fans (not so much Mosler himself): He gives a laundry list of things he would like the government to do differently–i.e. things that aren’t true right now–and everyone says, “Ah, he’s just talking about the world as it is, whereas Murphy talks about the world as he wants it to be.”
So e.g. Mosler can call for a $10/hour federally funded transition job; none of his fans bat an eye. I say “I think the gold standard was better than fiat” and people go nuts over my moralizing.
Well, I guess that I should go and “yell” on Mosler’s blog too, because I thought his laundry list of inane policy recommendations was a terrible way to start that debate.
I began with a list of proposals as we were both instructed to do by the organizers.
Dr. Murphy, as he explained, decided to do otherwise.
I very much welcome Dr. Murphy laying out his proposals for an alternative monetary system.
And note that the prior context was with regards to his criticism of the Fed’s current policy within our current institutional structure. Specifically, that they were not allowing rates to go to levels ‘signaled by the markets’ and hence the Fed was promoting mal investment, etc. To repeat from earlier on this page, I pointed out that Dr. Murphy would be correct a fixed exchange rate policy in place, as with HK, as markets do indeed ‘send interest rate signals’ with fixed exchange rate policies. But he was not correct with regard to today’s floating exchange rate policy. It was only after not further engaging on that point that Dr. Murphy decided instead to ‘change the subject’ and begin to discuss his ideas or an alternative monetary system. The net effect was to concede by omission that at least that aspect of Austrian Economics- the Fed and interest rate signals from the market- is inapplicable with today’s floating exchange rate policies.
I’ve been in 4 very heated debates in the comments section already. I had to explain to someone (in at least 50 posts) that RPM was making a point about oil price vs interest rates, in the sense that they communicate information. And then there is a routine attack made that claims one can’t compare federal budgets with household budgets. But RPM was comparing constraints (inflation vs jail). That is what an analogy is, illustrating the similarities in different things.
Mosler also misrepresented things RPM said. RPM said that the gov’t was taking resources out of the economy, and Mosler later attacked that position, but claimed RPM said money instead of resources.
Stephanie Kelton also has a video (same video uploader) in which she harps on the point that you can’t spend USD unless the gov’t first spends it. She makes it sound like trade can’t exist unless USD existed. This ignores some obvious points. When I exchange 1 USD for 1 lettuce head, and that farmer in return spends 1 USD for one of my tomatoes, we have exchanged lettuce and tomatoes. The USD just made the transaction easier. The underlying transaction can exist using any currency, notes etc, or barter itself. The USD just represents the Government’s wish to take command of resources that it PREVIOUSLY WAS NOT IN COMMAND OF.
MMT’ers like to say that they are using idle labor and resources, ignoring the fact that there is no such thing. 10 heads of lettuce on store shelves has an effect on the relative price of lettuce. 10 unemployed people has an effect on wage rates. In every sense, regardless of MMT denial, Mosler and Keltonomics want redistribution of wealth(purchasing power). and there was a VERY good question asked, that Mosler did not answer. This person asked Mosler why not just add zeroes to all USD…….and stated that this would do nothing. Prices would go up accordingly and no one is richer or poorer. This person then told Mosler that he(mosler) wanted to alter the distribution of money. (command of resources they otherwise would not be). If a public company issues a forward split (2 for 1), the distribution of the market cap remains unchanged. If the company ISSUES new shares, doubling the share count, then 1/2 of the market cap was instantly transferred to the company. People(public) still hold the same # of shares, but the percentage has been altered in favor of the company(equity financer owns the new shares that they may or may not sell). This is point completely debunks Mosler’s prescriptions as he words them. A company may or may not use the new command of resources wisely. in Mosler’s case, he is arguing to let the US gov’t issue new shares for the purpose of commanding ever more resources. One only need to look at welfare inefficiency for proof of why Mosler’s prescriptions are fatally flawed. http://www.bizpacreview.com/2012/12/08/money-spent-on-welfare-recipients-exceeds-average-u-s-income-10673
MMT loses the instance we mention “purchasing power”. They constantly try to drag us into the nominal nonsense they thrive in. We talk about economics in real terms. Food stamps for a family of 4 is not a promise of $668/mo. It is a promise of feeding 4 people. Meeting the promise of $668 is meaningless in mass inflation, or exceedingly generous in a period of mass deflation(that is another reason they fear any amount of deflation). Every liability of the gov’t has real terms attached to it. And any contract, like a mortgage loan, has real terms attached to it. The bank is expecting to command more purchasing power in 30 years than they do today with the “loaned” funds.
This is one of the best articles that illustrates Mosler’s falsehoods.
http://conant.economicpolicyjournal.com/2010/10/refutation-of-mosler-economics-and.html
MMT is not an economics theory, as it only deals with the “facts” of inflation. The only time something even approaching theory plays a role in MMT is when really horrible analogies are mentioned. Analogies are used precisely because of the lack of an economics theory in MMT.
Conant did a fine job demolishing MMT’s attempt at theorizing.
Bob Murphy noted that the MMTers seem to rely upon the alleged obvious truth of a generalized Keynesianism, that fiat money growth and deficits cause economic activity and thus prosperity. Beyond that, they seem to deny virtually every economic principle. They do not understand voluntary exchange or economic calculation (but no Keynesian does). The only reason to follow them is the learn their latest line of nonsense.
Jörg Guido Hülsmann’s work demolishes Moslernomics and Keltonomics.
“MMT is not an economics theory”
yeah it is. Basically the theory is ‘post -Keynesian’, with some significant disagreements with the more “mainstream” PKers.
Any theory that only deals with money and spending is not an economics theory.
whatever.
Outstanding.
So the debate here has been great. There are some that are far to radical and impolite, but that will happen within any group.
MMT had posted the same video here with a similar lively discussion back in June, with some other great points brought up.
http://hereticaldruthers.wordpress.com/2013/06/12/summary-and-critique-of-the-warren-mosler-mmt-vs-bob-murphy-austrian-debate/
As an MMT’er I thin it is wise for Austrians and MMT’ers to come to a general consensus on government interference, for it does interfere in the wrong way all the time!
The issues come down to understanding currency, especially fiat, in its role in government and trade.
Also can RPM or someone else explain the argument over the own-rate and Fed “manipulating” rates by having the fed funds rate above zero?
I’ve never heard it argued as mosler did, so I want to make sure I am not misunderstanding him. Do we need to word our position on interest rates differently?
http://www.youtube.com/watch?v=tDkNPNSgiaY&noredirect=1
Thanks in advance.
I was thrown by that as well. I think he was arguing that only monopolies yield own-rates above zero, which I’ve never heard before. It’s definitely not a true statement (assuming I understood him).
my understading of his argument is as follows: as the monopoly supplier of a free-floating currency the state has to provide the currency so people can pay taxes, and more if people want to save the currency. When the government provides the currency in excess of what is needed to pay taxes this is called a budget deficit, which pushes interest rates down towards zero unless the government intervenes by selling bonds. Selling bonds drains the excess currency and puts upward pressure on interest rates.
so according to Mosler the ‘natural’ situation is a budget deficit (i.e. the monopoly supplier accomodates excess demand), and that this puts downward pressure on interest rates (towards zero) unless it intervenes by selling bonds to prop up interest rates.
I thought he was saying just the opposite–that a good produced by a monopoly has an own-rate of zero. Obviously nonsense.
Relevant part of the video is at 38:30. But I think he later contradicts himself at 39:15 when he says that a monopolist *sets* its own own-rate.
Mosler made the same point in one of his articles “A General Analytical Framework for the Analysis of Currencies and Other Commodities”:
The State is effectively the sole issuer of its currency. As Lerner and Colander put it, “if anything is a natural monopoly, the money supply is” (1980, p. 84). This means that the State is also the price setter for its currency when it issues and exchanges it for goods and services. It is also price setter of the interest (own) rate for its currency (Keynes, 1936, ch. 17) The latter is accomplished by managing the clearing balances and securities offered for sale.
Perhaps someone could clarify. Is Mosler making the point that money supply is fixed in the short-run by the monopolist and hence the ratio of intertemporal exchange of present monetary units versus future monetary units is nil (own-rate of zero)?
Enjoyed the debate. I was really glad to see you close out the debate the question of why do we want a system of monopoly where a gun is held to our heads. Every time I argue with an MMT advocate they seem to devolve into a system of economic marshal law.
” Every time I argue with an MMT advocate they seem to devolve into a system of economic marshal law.”
>> Right, but isn’t that what they depend on? Does the entire MMT theoretical framework rest on the assumption that money acceptance is predicated on a monopoly issuer backed by the threat of force, and unravels otherwise?
Yes. MMT depends on the application of force and intimidation. Several MMT advocates claim to be free market advocates, but then argue for a system that is the equivalent of economic marshal law.
It is an endless argument where MMT wants to use accounting to argue economics and they always want to start the story in the middle.
The entire argument required that money be exogenous to the system.
The second proposal given by Mosler for a “Federally funded transition job” is another point I wish Professor Murphy would have addressed. A job doing what? MMT’ers just want to wave the wand and put people to work, but they never seem to have any real idea how to accomplish that. They jump on the Keynesian ditch digging bandwagon.
Stephanie Kelton has made a few goofy statements too.
She said “why cut spending if it costs jobs”
-Then admits inflation is THE constraint.
-Then admits that you “can’t go spending willy nilly”
-Then admits that policy makers are in charge, as they are now, of spending the stimuli.
Mosler Economics and Keltonomics depends on a gigantic IF.
That if is:
Government investing their purchasing power efficiently. If they cause inflation, or offset deflation, then this IS a tax, even though they decreased the tax rate. This transfer of wealth means that WE have less resources under our command, and thus less to invest, spend etc.
This goes back to Hazlitt’s well stated position on the seen vs the unseen. They can champion the new jobs they bought with printed money, but can never calculate how many jobs were lost or how many jobs would have been created otherwise.
Yes, excellent close.
By the way, does “Edited” mean that we didn’t get to hear all of Mike Norman’s contributions?
I really enjoyed the debate as well.
One interesting thing that I noticed is that ABCT from the point of view that all of these businessmen are being duped by the artificial interest rates, well why don’t they get wise to the game if they know the Federal Reserve is artificially lowering interest rates.
Then at the same time MMT describes the business cyle by saying that private markets are pro-cyclical in that if the economy is going up people want to buy and if it’s going down people want to sell etc. However, if that’s the case, shouldn’t businesses get wise to the fact that the market is cyclical?
I might not be articulating this in the best way but I found it interesting all the same.
oops, meant to say that ABCT is attacked from the point of view that…
If your competitors are able to fraudulently gain resources that you want, what choice do you have but to try to take advantage of some of the artificially low interest rates.
You’d go out of business, otherwise.
All you can hope, if you understand ABCT is that the new money doesn’t go into YOUR industry.
The best thing would be for people to simply abandon non-commodity money, then there won’t be this problem.
They’d have to abandon concept of benevolent and necessary government first, which is a delusion of religious sort. Otherwise goons with guns will make people use whatever government wants them to use. Implantable chips included.
Wanna hear a good cop?
http://www.youtube.com/watch?v=rg6GvWgWRRc
I did get a good chuckle out of seeing former Fox Business talking head Mike Norman there looking like he just got off work as a bouncer at a strip club. They guy is amazingly bitter towards Austrian economics. After the Youtube clips from 2005-2008 started circulating where Peter Schiff makes Mike look like and ignorant ass…. well, actually Mike makes himself look like an ignorant ass….. Mike went off the deep end.
This is the guy who attacked RPM…… this guy
https://www.youtube.com/watch?v=ap0c0W7RpGc
If you get past the title, then the first 2 minutes of pure ad hominem attacks, he spews the general MMT drivel.
Although he does make a few correct points.
Yeah. I know who Mike is.
http://www.youtube.com/watch?v=yoZV5jt9puc
He is pretty famous for his total miss on the housing bubble.
and his call for Euro-USD parity since 2003, which he repeatedly doubled down on.
It took me all of 2 minutes to not give a shit about Mike Norman. The guy is full of shit. Even if you took away any question of economics or money, he’s still just full of shit. It’s the essence of his being.
Mike Norman does not understand and appears to have no familiarity with the fact that price controls after a hurricane cause shortages. And he is so polite.
http://tinyurl.com/ck4om47
“I certainly agree with the crux of that.” – Warren Mosler, after Murphy finished summarizing ABCT at approximately 1h:19m:15s.
The answer to Mike Norman’s objection that, under a gold standard, because the value will keep going up, the supply eventually becomes easier to take out of circulation through hoarding (paraphrase) is:
1: You will need less gold to buy what you want, as the value of gold goes up, and
2: People can just use a less valuable, but still highly desired, commodity alongside gold and silver.
Goods BECOME the money; Government doesn’t create money.
“goods become the money” = barter economy.
In a sense, yes; But that would depend on whether or not you think indirect exchanges can occur using only goods.
The purpose of money is to solve double coincidences of wants. If there’s no link to the subjective values of the traders, then that currency cannot solve that problem.
Only another good can solve double coincidences of wants, because it already has a trade value.
Not necessarily. Lots of different “goods” have been used as currency at one point or another. Tobacco leaves, rum, peppercorn, gold, silver….. all of these are goods that have been used as a currency. A good can evolve into a currency over time.
Joe, so you prefer that money be a bad?
in the US the ‘gold standard’ was imposed by the government. It was a political choice.
The US codified an already existing silver and gold standard, so the market had already chosen silver and gold:
“What is Constitutional Money?” with Edwin Vieira — Ron Paul Money Lecture Series, Pt 2/3
http://www.youtube.com/watch?v=k6gMkKmQSW4
But yes, technically, the moment they presumed legal tender laws over them, it was an imposition:
What Has Government Done to Our Money? – III. Government Meddling With Money – 5. Gresham’s Law and Coinage
http://mises.org/money/3s5.asp
Great find. Another MMTer admission that destroys their silly “state theory of money”.
When I show them this picture, they respond that gold makes people kill.
http://www.flickr.com/photos/bob_roddis/8525140770/
So did the Spanish Conquistadors conquer the Aztecs and Incas while lusting for gold just to pay their taxes?
Regarding the ABCT, Bob Murphy said:
“… they do make it sound like the businessmen are fooled. And I think strictly speaking that’s not necessary to the theory – it’s the fact that prices do work, and there are incentives, and if you lower the price, that’s going to cause people to borrow and invest more than they really ought to be doing.that’s going to cause people to borrow and invest more than they really ought to be doing. And so, yes, even if you had a whole population wholly versed in Austrian Business Cycle theory . . . it would mess things up”.
That seems to undermine the austrian theory. This generally claims that if market participants receive the ‘correct information’ in the form of ‘free-market’ prices then they will ‘correctly coordinate’ their plans and actions, leading to optimum outcomes as the result of unfettered market processes, because markets are basically perfect.
But Murphy is arguing that even if market participants know or suspect that market prices (i.e. interest rates) are actually ‘wrong’, they will nonetheless choose to act in a way which ultimately leads to bad outcomes.
This isn’t because they are ‘misled’ or ‘confused’, but simply because they are able to get away with it – i.e. they are tempted by low interest rates and choose to borrow more than they “ought to”, even though they know or suspect that in the end this will lead to bad consequences.
So Murphy’s version of austrian theory could be summarised as follows: “the problem with low interest rates is that they allow people to borrow more than they should be allowed to borrow, and people will inevitably borrow more than they should because people are basically irrational, crazy and stupid, and just out to make a quick buck. Therefore we need high interest rates to stop people from borrowing more than they should”.
In other words it has nothing to do with ‘correct information’.
Two things. First, even if I know interest rates are lower than they would otherwise be, I have no way of knowing how much higher they should be. Second, even if I know they are wrong, there is no reason that I might not accept that I should take advantage and try to get out before the bubble bursts – especially if the alternative is going bankrupt because my competitors take advantage of the easy credit.
I should probably reword that as: “… because it already has utility to someone.”
Nice debate. This is the first I’ve heard of MMT.
The first guy to comment afterwards was clearly rustled! I got a good laugh out of that.
Would someone please explain to me what in the world is supposed to be “Modern” about “Modern Monetary Theory”? To me it sounds like a rehash of old Keynesian monetary theory.
It is actually a revival of Chartalism. It seem there are quite a few post-Keynesians who have become Neo-Chartalists (MMT).
The “pure fiat monetary system” in action is new. From that, they jump to “therefore, the government can never run out of dollars and is not ‘revenue constrained'”. Therefore, there is no reason that social security, medicare and the $220 trillion in unfunded liabilities for baby boomer diaper changing services are not easily affordable. Concepts like the capital structure, the pricing process, economic calculation, public choice problems and/or cantillon effects do not exist in their universe.
I’m pretty sure John Law, Silvio Gesell, and other historical monetary cranks have said the same thing at some point, which is why I fail to see anything “Modern” about “Modern Monetary Theory”.
Another point that I wish had been raised is around the 1hr mark. Mosler refers to the government as the score keeper for the economy. He argues that the government has to have a monopoly on currency just as only a score keeper can give out points. I would have like to have seen one question asked.
What happens when the score keeper starts to help his friends, or penalize those people with whom he has a disagreement? What if the score keep awards extra points to those who support him?
That is among the numerous IF’s that Mosler relies on you not bringing up. Or maybe Mosler would say that crony capitalism funded by a monopoly issuer “reduces drag”.
Paul –
“What happens when the score keeper starts to help his friends, or penalize those people with whom he has a disagreement? What if the score keep awards extra points to those who support him?”
>> After listening to the debate, it seems that Mosler would have responded in a couple ways based on his answers to other questions: “either you believe in representative government or you don’t” and paraphrasing: “we obey the scorekeeper because they have a gun.” That’s what Mosler kept falling back on when pushed. Unless I’m missing something, he doesn’t really account for these risks posed in your questions except for individuals petitioning their government if the scorekeeper gets out of line.
Yes, but if the score keepers have been bought, then petitioning the score keepers to change is a flawed argument. Once the score keepers have been corrupted, you no longer have a representative government.
Paul, I agree with you. I’m not defending Mosler by any means. Quite the contrary. I’m trying to make sense of what to me seems like a monetary “theory” conceding the current political arrangement with respect to monetary affairs as a starting point and refusing to confront any challenge on whether that arrangement is the best framework within which to operate. That seems like where Murphy was going at the end of his concluding remarks.
Hi,
From top to bottom.
I’ve always stated that the monetary system functions to provide govt. with real goods and services- the transfer of real goods and services from private to public domain.
Yes, oil prices communicate information, but when there is imperfect competition- in this case the Saudis are ‘price setter’ as they are for all practical purposes the only supplier with ‘immediate’ excess capacity- whats communicated is the price they are setting (directly or indirectly), with their output telling you how much residual demand there is at that price.
In a fixed fx regime, where the currency is necessarily ‘reserve constrained’, interest rates communicate the intersection of supply and demand for the convertible currency, including the risk of default with regard to conversion.
In a floating fx regime, like the US, Japan, UK, etc. etc. etc. the currency is not operationally reserve constrained, and hence the ‘risk free’ rate will remain at 0% unless the govt. takes action to support a higher rate. For the US that means utilizing Treasury securities (aka securities accounts at the Fed’ or via the Fed paying interest on balances in what are called the reserve accounts at the Fed.
Of course trade can exist without the $ or any other currency!!!
Yes, 10 unemployed people have an effect on ‘the wage rate’ as you state. And to that point I state that we use unemployment, a labor buffer stock, as the ‘price anchor’ for the $. However, like with any buffer stock policy, the buffer stock has to be ‘liquid’ to be effective. If your 10 heads of lettuce go bad they no longer have their prior influence. Likewise with labor. That’s why I propose a ‘transition job’ as a voluntary alternative to unemployment, where the federal govt. will fund a $10/hr job for anyone willing and able to work to assist in the transition from unemployment to private sector employment. The fact is private sector employers find it too risky to hire someone who’s been unemployed for too long, but they will hire people already working where they can get at least some information from a supervisor. Additionally, as a more effective and more liquid buffer stock than an unemployed buffer stock, a fewer number of people in this transition job will likely be a better price anchor than a larger pool of unemployed.
Right now my lead proposal, as stated in the video upfront, is for a full fica suspension, which is hardly a proposal for larger govt!!!! And the transition job moves people away from unemployment and into private sector employment. So please have another look thanks!
$’s are not a contract with the govt. for real goods and services. That would be true with convertible currency, but not with a floating exchange rate, unless specifically indexed, such as tsy tips securities.
Maybe you would like $ to be convertible by govt. decree, but what I’m saying is that today’s reality is that they are not.
It’s not that deficit spending causes growth. It’s that the underlying economy already has the growth potential, but overly tight govt. policy is constricting it. It’s like putting a plastic bag over the head of a runner, and then saying you are adding stimulus when you remove it. ‘Fiscal balance’ is achieved when spending is sufficient to cover the need to pay taxes and any residual desires to net save financial assets of that currency. And unemployment is the evidence that for a given size govt. the economy is being overtaxed.
hence my current lead proposal to suspend fica taxes.
A monopolist is price setter, and sets two rates- the ‘risk free’ own rate and the terms of exchange for other goods and services. So a water monopolist sets the terms of exchange for other goods and services by setting a price for his water, and most always leaves the own rate at 0. That is, if you give him water to store he won’t give you back more water later plus some extra. but he could set an own rate, and give you more water later in exchange for you giving him water today. So the fed setting a positive interest rate is giving you more of its dollars later than you give it today to hold them for you (in securities accounts at the fed)
Yes, they current system is coercive. There are severe penalties for non payment of taxes. I don’t much like it but it’s what we have and can tell you how it works, for better or for worse.
how would I implement the transition job? First I’d allow all federal agencies to hire as many people as they wanted and could get for the fixed $10/hr wage, knowing that my fica suspension would likely mean the private sector would be hiring most all of them away over the next year or so. I would then extend that to state and local govts and then to non profits as well, and then take another look to see if anyone was being left out before starting a new govt. program, which I don’t think would be needed.
Yes, corruption and cronyism is highly problematic, and I have numerous proposals to address the issue ‘from the bottom up’ rather than just going after the symptoms.
Representative govt. still looks to me better than the alternatives, but I’m open for suggestions!
And not today’s version, which is rotten to the core, with both political parties run like organized crime syndicates, in my humble opinion.
Warren Mosler
Thank you for responding to this thread. I enjoyed watching the debate.
I regard to jobs.
I work in the construction industry. We actually have a shortage of skilled and unskilled labor willing to work right now. We have plenty of unemployed people and plenty of work that pays more than $10.00 per hour. We just don’t have enough people willing to work at the available jobs. We have illegal immigrants making more than minimum wage off the books, and we have a shortage of them.
How do you connect people with the right skills to jobs that they are willing to perform for a wage they are willing accept?
We don’t have a real shortage of jobs. We have a shortage of people willing to work for what the market is willing to pay. We have a vacuum that is being filled by illegal immigrant labor.
I know lots of people who have claimed that they are willing to work, and will do anything. When you hand them a hammer and tell them to get on a roof in August they realize they aren’t quite as willing as they thought.
Hi Paul,
I hear you!
If no one shows up for my $10/hr job, no problem!
And if the economy tries to expand with the fica suspension and there is a labor shortage/bottleneck we’ll get a one time adjustment in demand and some prices, and the ‘automatic fiscal stabilizers’ will automatically raise taxes and cut spending to cool things down some. And if excess demand persists a tax hike or spending cut is in order. And in real terms pretty much nothing is lost by the attempt as long as real output doesn’t go down from the tax cut, which is highly unlikely?
What I do think is more likely to happen, however, is that private sector real output and employment will go up with a fica suspension, lubricated by the offer of the transition job, and that our real terms of trade and real investment will increase as well. That is, my best guess is that there is an ‘output gap’ at the present time due to, for the size govt. we have, being grossly over taxed.
Does that help?
Warren
Thank you for the reply. I know your time is valuable.
Several times in the debate you refer to “automatic fiscal stabilizers”. What exactly are they. What makes them “automatic”? Fiscal policy is not automatic so I must be missing something or taking this out of context.
Hi,
as gdp grows federal tax receipts automatically rise and transfer payments automatically fall
Warren
I actually am a carpenter, but I still don’t do roofs in August! I’ll melt!
Hi Warren,
I am not yet through the debate yet, but I want to thank you also for the great debate with Bob (also thanks to Bob!).
This is how economics and especially economic debates are really a pleasure and then it even feels almost like a worthwhile hobby. This civilized and polite discussions just take so much pressure of your own ego and makes you automatically much more open minded and generous in the interpretation of what is being argued.
Cheers
*take pressure off”
Hello, Warren Mosler,
The Austrian position on prices is that they are merely an expression of subjective valuations. Therefore the Austrian position on money, given that its purpose is to facilitate indirect exchanges, always has subjective valuations in mind.
That is, if the money doesn’t express subjective valuations, then it’s not really money.
I need the money to do the same thing that barter would do for me, except indirectly so. I need the money to represent the [subjectively determined] value I am willing to give up for the goods and services I ultimately want.
I am willing to give up a certain amount of eggs for bread, but I can’t find anyone with bread who wants eggs; So I need a medium of exchange that ultimately communicates that ratio of bread to eggs through voluntary exchange.
Only a medium of exchange that is, itself, a good, can communicate that ratio.
I found this video helpful, if you’re interested:
Smashing Myths and Restoring Sound Money | Thomas E. Woods, Jr.
http://www.youtube.com/watch?v=HAzExlEsIKk
Now, I noticed that your motive for embracing MMT is because you care about the unemployed in recessions.
The Austrian position is that its actually central planning that causes the distortions which create the artificial booms which then must necessarily result in a recession.
So we see the recession as the cure for the unsustainable projects which were induced by prior government interventions.
How can we know they are unsustainable? Because if people didn’t think it was profitable to engage in those projects before monetary stimulus, then printing up artificial purchasing power isn’t going to change that.
All that the stimulus is doing is redirecting resources to projects which don’t meet the subjective valuations of individuals. The artificially stimulated projects, while they give some people artificial purchasing power, since it involves coercion, necessarily reduces wealth, the definition of which is subjective to the individual.
For example, more iPhones doesn’t necessarily mean more wealth. The more iPhones I have, the less utility I can derive from each unit.
I can do the same things with all of them, but I only need a few, maybe, at any given time; So, I would actually be wasting my money were I to buy more than a certain amount of iPhones.
And that’s what artificial stimulus is doing. It’s wasting resources, even though more of certain things will be created. On net, it’s a loss.
As an aside, I thought the moderator did a good job; Some moderators want to act like it’s their job to make a case.
I did think you got cut off by the moderator a couple of times, though.
I saw you as personable.
Why does the private sector need net financial assets?
Does MMT detail the numerous problems with GDP as an indicator of economic strength?
How does the public deal with ever changing tax rates under Mosler approved policy?
“And unemployment is the evidence that for a given size govt. the economy is being overtaxed.
hence my current lead proposal to suspend fica taxes.”
So your prescription is to buy a tank with printed money instead of from taxes……
ANY inflation or offset deflation is a tax. A loss of purchasing power is the same no matter how you take it. This hits the low paid workers harder than wealthy individuals. In effect, you are arguing for an invisible tax that is progressive from the bottom-up instead of the inverse.
IF your prescriptions pay off and lead to higher productivity than would have otherwise occurred, then the population as a whole is of course better off. Entirely unable to be proven scientifically. Again goes back to Hazlitt’s seen vs unseen. You can tout all of the jobs that were directly created, but is impossible to measure what would have happened otherwise, and what jobs were lost as a result of said policies.
Like any public stock, USD has a market capitalization; the value of all USD in terms of ‘global stock of goods’.
Value of each USD x quantity
Cutting taxes and doubling the money supply overnight doesn’t double the market cap. It is just a redistribution of the market cap. The USD market cap can increase or decrease based on decisions made by the new % holders of market cap. It could also have increased or decreased if policy remained unchanged.
“And not today’s version, which is rotten to the core, with both political parties run like organized crime syndicates, in my humble opinion.”
Exactly why we are so critical of your prescriptions. If/when they fail, do you admit defeat or do you say (like RPM on Krugman) “phew it’s a good thing we did that, otherwise the economy would have been much worse”
What is the trigger for admitting defeat? High inflation? Your policies might have offset even higher inflation(assuming they worked in this scenario). In this scenario, many would wrongly assume that your policies created the high inflation. Kelton’s “inflation is THE constraint” statement under this scenario would not apply.
I do think MMT is helpful for describing the current banking system – it is useful to challenged the Rothbardian “money multiplier” for instance. I think it provides a good explanation why excessive reserves of banks have not exploded into inflation.
But it does fail the same way Keynesian economics fails, which is with the economic calculation problem. At one point Mosler said something to the effect of “the point of money is to fund the government”. Even if one assumes a benevolent government of perfectly well-meaning people (no cronyism or regulatory capture), it is still in the long run worse than a system of decentralized planning through prices
The Rothbardian challenge to your MMT challenge can be found here:
So Where’s the Inflation? Tom Woods Talks to Mark Thornton
http://www.youtube.com/watch?v=n0RusrwYsRE
Basically, the inflation is manifesting in artificially high Treasury, stock, and housing prices.
Eventually, all that money will make its way into the rest of the economy, at which point there will be general inflation even as measured by the rigged CPI.
Hi Ben,
What I say is the point of the currency monopoly is to provision the govt. with real goods and services.
the govt. wants a military with soldiers, guns, ammo, etc, a legal system, etc. and asking for voluntary contributions is at best unreliable
😉
Warren
Sure, the government is capable of doing things that can’t be done through only voluntary interactions. That still doesn’t mean that the things that they do are socially beneficial, or the best use of scare resources.
What are your views on entrepreneurship? It wasn’t referenced in the debate, and is a critical piece of the Austrian story
But why would they need to furnish a currency monopoly to do this? They could, and many governments have in the past, take whatever is used as currency in the market, even if multiple goods are used to facilitate trade. The American colonies used to take tobacco along with gold and silver, for instance.
They could do that. Is that better?
Well, no, but if they can, then the MMT explanation of money is lacking. And they obviously can – they have historically.
Warren,
if you were to keep the central bank interest rate permanently low, as you advocate, how would you stop unsustainable asset bubbles and real estate bubbles from occurring?
Why would I care if the government wanted a military, legal system, etc.?
If I wanted a government that did that for me, I would offer to join with like-minded individuals and contract with them. Then all the individuals that were party to that contract would pay for it with their own money.
And if the government couldn’t do the job I wanted it to do with the money I was willing to contribute to it, then the government would have to wait for instructions, suspending certain operations indefinitely.
At no point does the government get to presume the authority to fund itself.
Then, when an individual wanted to leave that contract, they would give up any privileges that were part of the agreement.
But I can’t make someone ELSE be subject to a contract. If they want to be a party to the contract, they can attempt to do so as an individual; If they no longer want to be a party to the contract, they may leave as an individual.
Guest: I agree prices are subjective valuations. And recognizing the $ is a public monopoly the govt is ‘price setter’ on a subjective basis.
And I’m ok if you want to say the $ ‘isn’t really money’ as in general I tend to entirely shy away from the word ‘money’ anyway.
And yes, what you ‘need’ might be at cross purposes vs what govt. ‘needs’ 😉
And I agree it’s ‘central planning’ that causes booms and busts with regard to employment.
I think we all recognize that excess capacity is caused by a monopolist restricting supply?
The examples that comes to mind is the labor union that causes unemployment, and the diamond monopoly that restricts supply and has a mountain of excess diamonds on hand. In fact, the ‘keynes vs the classics’ argument was about the classics saying there can’t be unemployment without some form of imperfect competition/monopoly operating somewhere, and keynes saying there could be persistent unemployment even without monopoly due to various issues with the currency.
So seems to me what has been overlooked is that, for better or worse, the $ itself is a public monopoly, and therefore excess capacity/unemployment is a consequence of the monopolist restricting supply (in this case, the supply of net financial $ denominated assets monopolized by govt.)
And seems that this is all entirely consistent with Austrian theory?
So let’s take a look at ‘creative destruction’. No one would say that a labor union periodically jacking up wages and causing business to fail would be what’s meant by ‘creative destruction’ would they?
So likewise, the govt. causing a ‘$ shortage’ by letting the deficit get too low and causing the collapse of pretty much the entire economy is not what’s meant by ‘creative destruction’
to me creative destruction is about companies failing because they can’t sell their output or because their costs are too high and can’t sell their output profitably (sort of the same thing, most of the time).
And I agree that the ‘stimulus’ was ‘ill directed’ at best. I couldn’t even read about the details, which kept getting worse the deeper you got into it. That’s why I supported a full FICA suspension to get the deficit up to where it needed to be.
Cosmo- the reason the private sector needs net financial assets is largely due to misguided govt. policy (who would have thought!… ) Govt gives all kinds of tax breaks not to spend income, including pre tax $ going to pension funds, ira’s, insurance reserves, etc. etc. And corporations like to build cash, as do foreign central banks. All of these unspent incomes are called ‘demand leakages’ and cause the need for some other agent- public or private- to spend more than his income or else the output doesn’t get sold in the first place.
So it the gdp was 16t, that much was spent and that much was received as income by someone. and if anyone didn’t spend all of his income someone else must have spent more than his income.
Yes, I recognize GDP mainly serves an accounting purpose and is not a measure of well being or ‘economic strength’ as you put it.
We already deal with ever changing tax rates as congress bumbles along from one adjustment to the next as they perceive ‘needed’ whatever that means. Seems it can’t get any worse? With my proposals in place, they would just count bodies in the ‘transition job’ and the other usual indicators and decide if an adjustment is appropriate. Suggestions welcome!
My proposal to suspend payroll taxes isn’t buying a tank? I don’t follow?
the ‘real tax’ is the real resources the govt shifts from private to public domain (including the unemployed who would otherwise have been working and producing real output without govt. interference). Inflation is a distribution issue that yes, has serious consequences to be dealt with. But the total real wealth is a function of total real output, which is where productivity and investment come into the picture.
Also, the current distribution of income is in a big way already a function of govt. interference. Why does a wall st. trader of govt. bonds make 100x what the guy who cures cancer makes, when close examination shows there’s no need for the govt. to issue those bonds in the first place? Govt- the monopolist- has created vast quantities of ultra high paying jobs that have nothing to do with allocation by merit or anything else even half rational. this includes FiCA, which is a highly regressive, punishing ‘flat tax’ with a cap. To me removing that removes govt interference. no?
If my proposals don’t increase real output and employment yes, they will have been for nothing. but only if they reduce output or employment would I regret it. Nor do I think that increasing output and employment will itself make our govt. more corrupt, though I could be completely wrong on that for sure!!! But even so, given it’s corrupt either way, seems we’d be better off at the higher levels of output and employment and income? Maybe not! I propose and you push back. That’s how it works!
Ben, I agree govt policies can be total disasters!!!
entrepreneurship is a human trait that not only happens be can’t be contained when the incentives are in place. therefore my proposals are also about replacing disincentives and putting constructive incentives in place.
Matt, once a tax is put in place the deed is done. Taxes are coercive, non market forces that change everything!
james, note japan has had 0 rates going on two decades and no bubbles yet? And a strong currency and no ‘headline’ inflation to speak of. The interest income channels tell me that 0 rates are less inflationary than positive rates with a floating fx policy. so if there is an unwanted bubble, I’d deal with it in some other way than with messing around with rates.
Guest- you are certainly entitled to that opinion, and if you can get enough people to go along with you it could be put up for a vote, etc. Personally, it’s not convincing, but I have an open mind! And in any case we have to play the cards we’re dealt until the ‘rules’ change. 😉
Lots to read if you’re interested at http://www.moslereconomics.com under ‘mandatory readings’
warren
“So seems to me what has been overlooked is that, for better or worse, the $ itself is a public monopoly, and therefore excess capacity/unemployment is a consequence of the monopolist restricting supply (in this case, the supply of net financial $ denominated assets monopolized by govt.)”
I disagree with this… unemployment occurs because a person is unable to sell their labor at a price they desire. Why does the total amount of money matter?
I think the Arnold Kling PSST story is really helpful. Unemployment occurs when a certain pattern of trade no longer becomes profitable. Then there is an entrepreneurial reconfiguration of resources to find a new sustainable pattern. Increasing the money supply does not help this as it masks the truly sustainable patterns.
The Austrian policy response to unemployment should be to reduce the barriers to forming new businesses, and to reduce the advantages that established business have
Regarding my tank comment.
The normal way government receives purchasing power is from taxes. It forces us to use USD, goods are then priced in USD. If USD supply remained constant, then the only way for govt to receive purchasing power would be to force us to pay taxes in USD.
You propose cutting taxes, and running the printing press.
It doesn’t matter how you received the ability to buy a tank. You bought a tank. That purchasing power came from somewhere. This is why we focus on spending as the problem primarily. Ignore # of USD, just look at te underlying transactions as stated up top. I don’t see how you are removing drag when the same transaction took place.
I tried my best to put it in terms an MMT’er would understand. Although the tax “income” originated at the printing press before the public received it.
You want the economy interfered with (Austrian terms), and you wish to use Abilities described in MMT to achieve it. I don’t think ‘inability to default in own currency’ has much to do with your agenda(see my market cap analogy). You are certainly free to opine on what will and won’t benefit society as a whole.I just think it is pretty misleading as Mike Norman puts things when he says that increasing USD = increase in goods and services, mitigating any inflationary response.
I elaborated on why this is misleading in my previous comment. This will remain true until time machines allow us to test economies scientifically.
Apologies, if I wasn’t clear.
This is a very important concept, and I’d like to try to revisit it.
Where I think maybe we’re all talking past each other is on the concept of “output”.
In Austrian theory, output is not the same as wealth. Output is stuff, while wealth is utility as subjectively determined by the individual.
So, if someone increases output that doesn’t serve to fulfill individual ends, then that output is net destructive to wealth. Wealth is decreasing as that particular output is increasing.
And this is what artificial stimulus does. It increases output, but decreases wealth. This is why there will be a crash in those artificially stimulated sectors of the economy.
To paraphrase Ron Paul: When government invests in housing, there’s a housing bubble and crash; When government invests in education, there’s a student loan bubble and a crash.
This is why Austrians consider stimulus to be “papering over” the crash. It doesn’t change the destructive nature of the project, it just allows the destruction to continue for longer, at the expense of those who did not get to use the new money first.
You said: “And I agree that the ‘stimulus’ was ‘ill directed’ at best.” We say that all stimulus is necessarily ill directed, because it is always net destructive of wealth, no matter the size of the output.
Also, monopolies are created by governments, not the free market:
Tom Woods on Big Business, Monopoly, and Predatory Pricing
http://www.youtube.com/watch?v=-q1fSNzYNhg
Dominick Armentano: The Case for Repealing Antitrust Laws
http://www.youtube.com/watch?v=xBT-fnJsfo0
guest:
Youre a fool.
Even from an Austrian perspective, there must be a difference between printing money or borrowing to increase the share of government spending in the economy-
OR holding the share constant, but cutting taxes and financing existing government by using the printing press.
Surely one is less distortionary then two, even according to faith based austrian dogma?
Warren although I’m leery of the JG (job guarantee) because it sounds to much like central planning, I can certainly agree with your FICA proposal!
Neither is necessary, and both are net destructive to wealth.
Borrowing is just permitting one group of people to make claims on another group of people’s wealth, to be forcefully extracted by government issuing the bonds.
Printing money is permitting the first users of new money to socialize the costs of their purchases onto later users of the new money.
Ben Kennedy.
“I disagree with this… unemployment occurs because a person is unable to sell their labor at a price they desire. Why does the total amount of money matter?”
Sticky prices, Sticky prices, Sticky prices.
I should rephrase the question, how do people go from an employed state to unemployed – an unwillingness to accept a lower salary may explain why people stay unemployed, but not how they got there
Austrian response to the sticky prices argument:
Answering the Same Old Arguments Against Sound Money | Thomas E. Woods, Jr.
http://www.youtube.com/watch?v=h-PxMzSyujw#t=27m21s
guest.
“Neither is necessary”
that wasn’t what I asked. I asked if you were to choose when that was RELATIVELY less harmful, which would you choose
“and both are net destructive to wealth.”
By the same amount or degree?
In the same way that I would not choose being shot either in the leg or in the arm, I would not choose either government borrowing or government printing; even though in both sets one choice would be worse than the other.
Why choose at all? I reject that others have the authority to impose their will on me, either directly, or through an intermediary.
let’s focus on monopoly.
monopoly interferes with market clearing.
for a simplified example just to make the narrow point,
if on day 1, where no one had any $,
the govt imposed a head tax of $1 per person,
and there were 300,000,000 people,
the total tax liability would be $300 million.
But if the govt then only spent $250 million,
there would be at least 50 million people unable to get a $ to pay their head tax.
even if wages fall, the ‘labor market’ for $ won’t/can’t clear,
unless the govt either cuts the tax or increases spending.
That’s what imperfect competition is all about- interference with market clearing.
I actually tried to respond to this before, but my comment isn’t clearing. Heh.
Let me try again, with some alterations to the URLs:
I tried to say:
You said:
But if government didn’t impose the tax in the first place, this issue would be moot.
Government is claiming to be a rescuer for problem that it caused.
A head tax is not a market imposed cost, and so the problem isn’t with market clearing.
“Perfect competition” is a self-defeating concept. It actually works out to “zero competition”.
The point of trading is to lower the costs of acquiring wealth. If I’m able to do that at all, without coercion, it’s because I was able to provide a good or service that was more agreeable than what someone else was willing to provide.
We’re *competing* for customers. It’s rivalrous by definition.
“Perfect competition” means that people are NOT permitted to improve upon their business such that customers choose one business over another (because if they DID choose one, it’s because they believe that one business IS better than another in some way, and we’d have rivalry again).
One of the points that’s going to be made in that second video, by the way, is that anti-trust laws actually CAUSE crony capitalism.
I’ll leave you with a paraphrase from Ron Paul: “If a business charges a price that’s higher than other businesses, the anti-trust regulators will say it’s gouging; If a business charges the same as other businesses, it will say that there’s collusion; If it charges a price that’s lower than other businesses, it will say there’s predatory pricing. Therefore the anti-trust laws are arbitrary and nonsensical.”
The rule of law, in complex times,
Has proved itself deficient.
We much prefer the rule of men!
It’s vastly more efficient.
Now, let me state the present rules.
The lawyer then went on,
These very simpIe guidelines
You can rely upon:
You’re gouging on your prices if
You charge more than the rest.
But it’s unfair competition
If you think you can charge less.
A second point that we would make
To help avoid confusion:
Don’t try to charge the same amount:
That would be collusion!
You must compete. But not too much,
For if you do, you see,
Then the market would be yours
And that’s monopoly!”
Price too high? Or price too low?
Now, which charge did they make?
Well, they weren’t loath to charging both
With Public Good at stake!
In fact, they went one better
They charged “monopoly!”
No muss, no fuss, oh woe is us,
Egad, they charged all three!
http://mises.org/daily/3801/
I liked this part, too:
I think we agree? The currency monopoly is a non market govt. intervention. and it’s the monopolist restricting supply that causes excess capacity.
no?
That depends on what you mean by “monopolist”.
Monopoly is a government grant of privilege, not a single seller. So monopolies are created by government, not the free market.
But in the case of a single seller (or a few sellers) on the free market, there are alternative products which can be used in competition, so the single seller has to price his goods below what the alternative would cost.
The notion that single sellers were ever an impediment to competition is wrong; it was only where government was granting privileges or attempting to combat the non-disaster of “wealth inequality” (thus resulting in crony capitalism) that real competition was squashed.
Predatory pricing, for example, was never the issue people thought it was:
Tom Woods on Big Business, Monopoly, and Predatory Pricing
[WWW]http://www.youtube.com/watch?v=-q1fSNzYNhg
Dominick Armentano: The Case for Repealing Antitrust Laws
[WWW]http://www.youtube.com/watch?v=xBT-fnJsfo0
The Politically Incorrect Guide to American History, Lecture 8 | Thomas E. Woods, Jr.
Myths and Facts About Big Business
[WWW]http://www.youtube.com/watch?v=SGeA1Sbd4XM
Your example pre supposes an economy to tax from, but one that doesn’t already use money?
guest,
even for the sake of a hypothetical scenario, you wouldn’t choose?
you’re a coward.
(Im a runner, so i would choose the arm, if I had to choose)
“you’re a coward.”
This isn’t mikenormaneconomics.blogspot.com/
Take your personal attacks elsewhere.
” I reject that others have the authority to impose their will on me, either directly, or through an intermediary..”
theres no imposition of will in a tax cut
“theres no imposition of will in a tax cut”
>> Sure there is. The tax itself is an imposition. A tax cut is just the state taking a bit less than it was previously. Short of a full repeal, a cut doesn’t remove the state imposing itself on private individuals.
Ben Kennedy,
Businesses know that workers will resist wage cuts, so layoffs have become engrained as as standard business practice.
Nobody is entitled to a job, which only existed so that the employer could make more money. The reason the worker took the job is because it was better than not taking the job at the time, in his own estimation.
“Austrian response to the sticky prices argument:
Answering the Same Old Arguments Against Sound Money | Thomas E. Woods, Jr.”
Tom Woods didn’t answer the question, He just made a POINT IN FAVOR of Sticky prices! But that doesn’t negate their costs, And he spouted the same, tired old gibberish of ABCT to answer why inflation supposedly will not work in the long run
No, what he said was that sometimes “sticky wages” isn’t a problem at all, so there’s no point in complaining about it.
Another thing he said was that government is imposing the sticky wages when they grant unions special privileges. Get government out of the economy, and people will compete with those unions by lowering the price for their labor.
But, regarding a recession scenario, the government caused the artificial boom that necessarily resulted in a crash, to begin with.
If people only think a business is prosperous and sustainable because government had given it artificial purchasing power, then obviously those businesses will have to be liquidated before the resources can be used profitably again.
So the short-term unemployment was the result of government interference. More stimulus will prolong the recession, and, no, causing a bubble with that stimulus is not the recession ending.
“the government caused the artificial boom that necessarily resulted in a crash”
Booms and crashes occurred during the 19th century ‘laissez faire period’. If you’d been around then you would have had to look around for someone else to blame.
While Austrians are against the Fed, we don’t blame the Fed, PER SE.
We blame artificial credit expansion, per se. Right now, for the US, that’s happening because of the Fed. Before the Fed, it was the government permitting the banks to get away with fractional reserve lending.
Here’s a couple of videos addressing some of the pre-Fed panics:
Economic Cycles Before the Fed | Thomas E Woods, Jr.
[WWW]http://www.youtube.com/watch?v=TxcjT8T3EGU
Monetary Lessons from America’s Past | Thomas E. Woods, Jr.
[WWW]http://www.youtube.com/watch?v=91OIBnrjzLU
I agree- no govt currency, no govt tax= no unemployment
unless there is some other monopoly
my point is that the $ itself- a govt monopoly- is the cause of unemployment, which is the evidence the monopolist is restricting supply
But the government isn’t actually the monopoly supplier of ‘money’ in the current system – the private sector is able to increase the money supply on its own. The main way this happens is by banks creating deposits when they make loans, but there are other forms of privately-created ‘money’ too.
So unemployment isn’t necessarily caused by the government restricting the supply of ‘money’ in the form of currency or other government liabilities like treasury bonds. If the private sector is in need of more money, or dollar-denominated financial assets, it doesn’t necessarily need the government to provide them, it can create them itself.
Furthermore, an increase in the supply of currency, T-bonds, or bank deposits, is not necessary for the private sector to autonomously increase demand. It can do this by simply spending more of its current income, or by spending more of its accumulated savings.
This all suggests that unemployment is not simply the result of the government currency monopolist restricting supply, but rather is the result of a general shortfall in demand relative to the supply of labor, which could be due to a number of different reasons.
This demand/supply imbalance is perfectly possible in a theoretical situation in which there is no government currency monopoly, so it makes little sense to say that “no govt currency, no govt tax = no unemployment”.
When the government restricts the supply of $ after a stimulus, the unemployment is happening in sectors of the economy that were net destructive of wealth.
It’s good for the $s to stop being printed, otherwise the destructive activities would continue.
Better still if people just stopped using fiat money, altogether, but I think that more directly addresses your concern.
Government spending is not necessarily ‘net destructive of wealth’, though you could argue some forms of spending are. It can be very beneficial. Printing money can have either good or bad effects depending on the context. I think that fiat and credit money is here to stay, no matter what silly arguments people come up with to try and convince themselves that an imaginary metal barter system would be better.
Since the definition of wealth is subjectively determined by the individual, and since government spending coercively suspends the individual’s pursuit of his own ends, government spending is always net destructive of wealth.
Government spending and printing IOUs in excess of specie work against what people are trying to do in the economy.
And what people are trying to do is to gauge the profitability of their transactions using a currency they THINK represents the ratios of subjective utilities involved in any given transaction.
So for government to tax people is to forcibly prevent the pursuit of their own ends – a loss of wealth.
And for IOUs to be printed in excess of specie is to entice people to engage in projects they wouldn’t have otherwise, because it was considered to be unprofitable.
Printing money doesn’t change the fact that the project is unprofitable; All it does is allow the owner of the project to spend at the expense of later users of the new money – a loss of wealth.
It’s the difference between “output” and “wealth”, as I was explaining before.
What is being foregone is all those projects that people would have otherwise used their money for, absent the coercion.
Since government spending is always net destructive of wealth, there will necessarily be a crash in those artificially stimulated sectors.
The unemployment that necessarily follows is the effect of individual preferences reasserting themselves, which is the whole point of trading.
Taxation reduces people’s financial resources, and government spending increases people’s financial resources.
If taxation and government spending are equal, then the reduction and increase in people’s financial resources is equal. There is no net reduction in financial wealth.
This is silly James. I take from everyone $10, and spend it on something we each value at $6. Net loss.
guest’s comment is equally absurd.
if the government taxes $10, and spends $10 on something, that thing is being sold for $10. So why do you say it is valued at $6?
James
Here’s an example. I value two $5 bills at $10. Call me crazy. I value a copy of The Complete Works of Tom Woods with a $5 bill as a bookmark at $6. That’s its value to me, what I’d pay for it on my own. The govt institutes a TW4All plan, taxes me $10 and gives me those complete works, with the $5 bill as a bookmark. I am $4 worse off for this intervention. Now assume the same happens for everyone.
guests claim is that is this is what always happens, of necessity. He’s wrong, but he’s right sometimes.
Note james the destruction caused is quite widespread. Rather than 300 million copies of various books being printed, books people wanted and would have bought (or alternative goods like CDs toilet paper) ,300 million copies of the Complete Woods are printed. That is the result of the govt spending.
Here’s a more formal version of the argument.
Assume you are holding $100. Why are you holding it?
You are holding it because you don’t see anything to buy you want *more* than you want the $100.
Now assume I force you to spend it. I threaten you with Bob Murphy karaoke.
*By hypothesis* you will buy something you value less than $100.
So you lose.
OK, now let’s assume you know better than I do what you want.
This is a pretty fair assumption, especially when you apply it to 300 million people.
So rather than forcing you to spend I take your $100 and buy something with it.
Which I give to you.
Let’s look. Is what I bought as desirable as what you’d have bought? No.
Is what you’d have bought as desirable as keeping the money? We answered that: no.
So the net result is I have made you worse off *by your own standards*.
You maintain that cannot happen. Well I just gave you an example.
guest maintains it *must* happen.
Well he’s often right, but there are situations where he is missing a point, so he’s wrong too.
Yes.
And since “one’s own standard” is subjective to the individual, all coercion results in a net loss – if not to me, then on my behalf at the expense of others (cronyism).
If I thought I’d be better off spending the money on what the government wanted to spend it on, I’d have spent it that way, myself.
Ken,
“You maintain that cannot happen”
I didn’t say that. I’m sure it’s possible for people to be disappointed with the goods, services, and investments that their taxes are supposed “provide”.
I would suggest that if you are deeply unsatisfied with the things the government does, you should try to change either the government itself or the things that does.
I recognise that you currently have some very real problems in the US with the structure and functioning of your democracy, but I don’t think that is a reason to give up on the ideal of democracy in itself.
Mike T,
So youre an anarcho-capitalist then? Perfect. But in the real world, tell me with a street face, that the state taking less money from you is not better than the state previously taking more.
Replacing lost purchasing power through higher taxes with lost purchasing power through dilution isn’t better.
Crawl out of your nominal dungeon.
Instead of just pouring 1/2 of my 8oz of Kool Aid into gov’ts cup, you did that and then added 4 oz of distilled water to each cup. Yet you would say “Gov’t didn’t take anything, you still have 8oz”. Volume is not the point. Quality per oz is.
Purchasing power comes from somewhere. Gov’t didn’t summon purchasing power when it first created a new currency, and doesn’t summon purchasing power when it creates additional currency.
unfortunately for your example, money isn’t anything like a cup of Kool Aid with distilled water poured into it.
It is called an ANALOGY.
Noun
1.A comparison between two things, typically on the basis of their structure and for the purpose of explanation or clarification.
In the respect that I COMPARED, they ARE similar. Quality per oz is analogous to quality per dollar.
This isn’t complicated stuff.
My other analogy was market capitalization. Value per USD x quantity vs value per share of company XYZ x quantity.
This isn’t complicated stuff.
Unfortunately as an analogy your cup of Kool Aid still fails.
The $ is inherently nothing more than a tax credit.
It’s all about ‘trading tax credits’ that come only from govt or it’s designated agents.
“The $ is inherently nothing more than a tax credit. ”
Ahhh, so USD is immune to dilutionary effects.
It’s exactly similar, and no amount of ignorance can change that fact.
Just what exactly about my analogy of kool aid or market cap do you not understand?
“So youre an anarcho-capitalist then?”
>> Maybe, maybe not.
“that the state taking less money from you is not better than the state previously taking more.”
>> That wasn’t my objection. I was wondering how you consider a tax cut not an imposition against an individual.
Tell me with a straight face why you assume taking in the first place.
Roddis.
That’s cute.
Its actually a rare thing when I actually agree with what youre saying
“Another thing he said was that government is imposing the sticky wages when they grant unions special privileges. Get government out of the economy, and people will compete with those unions by lowering the price for their labor.”
Its actually incredibly difficult for workers even without the presence of government to admit to the need to cut their wages. Its called the money illusion, Its also a pride thing. Would you rather have workers rioting in the streets, or face a little more inflation.
Im taking a little thing called REALITY as it is, without economic fantasies
Theres an easy way to do things, and theres an INCREDIBLY HARD way. So naturally, the Austrians choose the incredibly hard way, that causes massive unneeded suffering and pain.
You can demand that people get up one hour earlier in the spring and summer months, , and change schedules and deadlines, which would cost a lot more money. Or you just adjust the clocks.
Wait. What?! That’s a contradiction.
I’m to suffer because of other people’s illusions, and *I’M* the one not taking in a little thing called reality?
How about people just stop thinking they’re entitled to other people’s things? Why not just show people that their “money illusion” is an illusion?
Two can play that game.
Would you rather I shot rioters that were attempting to destroy my property, or face a little more education?
Why would people be getting up one hour earlier? Changing your sleep cycle by one hour over the period of six months wouldn’t disadvantage anyone.
Besides, changing the clocks doesn’t change the fact that people are being forced to get up one hour earlier.
Also, it’s the sun cycle that is reality, not the clock, believe it or not.
Daylight savings is government imposed, not market imposed.
NOT government imposed education, by the way.
😀
“Its actually incredibly difficult for workers even without the presence of government to admit to the need to cut their wages. Its called the money illusion, Its also a pride thing. Would you rather have workers rioting in the streets, or face a little more inflation.
Im taking a little thing called REALITY as it is, without economic fantasies”
Those that face inflation are paying for it. So we just need to fool everyone into thinking they are better off…… Lie to them and tell them they are better off nominally, but not in real terms. WHO FACES INFLATION THE MOST? Poor people.
This is exactly why the free market needs to function uninterrupted. You either take a lower wage, work harder, or get fired. Or you find better work. It is not to be imposed NOW, this climate should exist before any downturn micro/macro. We are talking about conditions that haven’t existed in many decades. In a deflationary environment, workers would see their standard of living rise at a stable wage rate. This would be part of the common sense, as is needing higher wages in persistent inflation. Your proposals are like giving a child HIV and giving him a Tootsie Roll labeled “HIV cure”. I’d rather deal with the problem, not perpetuating flawed economic policy.
“Theres an easy way to do things, and theres an INCREDIBLY HARD way. So naturally, the Austrians choose the incredibly hard way, that causes massive unneeded suffering and pain. ”
We don’t choose to DO anything. It is an employee and employer decision. That statement of yours is entirely unproven. We wouldn’t screw up the system in the first place. Another analogy. You get drunk. You show up to work with a hangover making it impossible to function. Your boss tells you to liquor up because that hangover will cost you your job. Get it?
“You can demand that people get up one hour earlier in the spring and summer months, , and change schedules and deadlines, which would cost a lot more money. Or you just adjust the clocks.”
OR NEITHER!!!
“Its actually incredibly difficult for workers even without the presence of government to admit to the need to cut their wages. Its called the money illusion”
What you call the “money illusion” is merely a refusal to accept the basic fact that in a non-inflationary monetary system, individuals will learn, adapt, and becomes accustomed to deflationary pressures, in which case they will no longer conflate higher nominal wages over time with higher standard of living. They will instead learn that a constant wage rate, or perhaps a gradually falling wage rate, will nevertheless enable them to purchase more and more goods over time as productivity increases.
You are, like every statist, depending on the crucial assumption that people are morons and idiots, so that you can pretend in your own minds that your solving an otherwise unsolvable problem that gosh darn it, only some central banking oligarchy can solve.
“Theres an easy way to do things, and theres an INCREDIBLY HARD way. So naturally, the Austrians choose the incredibly hard way, that causes massive unneeded suffering and pain.”
You are ignoring the unnecessary pain and suffering caused by your very own central banking advocacy, which is responsible for the volatile swings in business activity which sees millions of people foisted into unemployment.
Austrians are the ones with the solution to the problems that YOU and YOUR ilk cause. The economy is not run according to Austro-Libertarian ethics. It is run by YOUR ethics, and because of that, you have only yourselves to blame. You people who screw the economy up, and then blame those who had NOTHING to do with it, is textbook arrogance and ignorance on a widespread scale. You are so incredibly destructive in the world that you are even destroying your own capacity to grasp the very destruction you yourselves are unleashing.
Of course, the only reason why you are trying to make it seem like Austrians are the destroyers, is because at some unconscious level you accept, but don’t admit to others, that you are responsible, and rather than accept that responsibility, you instead act like little children, and try to deflect attention away from yourselves, and make it seem like the only alternative is even worse. You’re like alcholics who refuse to admit they have a serious problem.
Oh, but what can you do, you say? With all the problems that exist, why not try to tinker, instead of some drastic change? Well, that very mentality is precisely why you are intellectually responsible, and why Austrians are innocent. It is because you don’t have the intellectual courage to delve into drastic changes, lest you violate your actual goal, which is to benefit yourselves using existing coercion because you believe there is no way to reduce it or stop it. Opportunists, that’s what you are.
People, if they are educated by people like Austrians, who will not settle on destructive third or fourth best solutions, will not have to live in a world where there seems to be an objective law that says if prices don’t rise, then we’re screwed. Austrians recognize the nature and power of the human mind, to change the world, and to adapt to it, so that we aren’t misled into the false notion that if money and spending don’t rise all the time, then we’re doomed to perpetual depression.
If people can adapt to rising prices all the time, then there is no reason whatsoever why they can’t adapt to falling prices all the time. You have to stop confusing your own inability to accept that constant deflation is possible, with that being a law of the universe. Your ignorance is not something that applies to the rest of us. It is your responsibility to change your mind in this regard.
“straight face”
Have you ever even attempted to prove why prices and spending have to constantly rise all the time in order to prevent depression?
Or have you not the intellectual ability to do it, and you only rely on authority and other irrational methods?
Edward,
why do you believe that ‘sticky prices’ (or ‘sticky wages’) is the cause of unemployment?
James,
That’s the classical model of unemployment. prices fall to clear the labor market.
Major Freedom,
As usual you attack straw men. No, prices don’t HAVE to rise all the time for growth to happen. Productivity deflation can lower prices and increase growth. (One of the good contributions of Austrians by the way) but when prices are not quick to adjust, (which has been confirmed countless times theoretically and empirically and even by Tom Woods.) and nominal spending falls, you get a recession. Yes, EVENTUALLY, prices will adjust, by going to 30-40% unemployment, and by shooting rioters in the street, you can so demoralize and terrify workers into accepting wage cuts that they will go back to work.
But that seems excessive to anyone not infected by MF’s sadism, dont you think?
Education?
Good luck. Good luck telling workers that they have to work longer hours for less, after a sub-quality boom, during the Bush years, with stagnating real incomes. They’ll be howling for your blood.
Cosmo Kramer and Guest, both of you are idiots. Daylight savings time may be government imposed, but longer days and shorter nights are part of earths orbital cycle.
If there’s a recession as government spending falls, it’s because those jobs were the result of government interventions and shouldn’t have been created in the first place.
What’s happening is that people stop having access to other people’s money, as stolen by the government in the form of taxes or credit expansion.
If a thief is kept from stealing, all the businesses he used to frequent will lose business. The solution does not entail giving the thief government-granted privileges so he can continue to spend what was stolen.
The business needs to take a loss on the goods and capital it bought in anticipation of being able to sell them to the thief.
Free markets didn’t cause this scenario.
Nothing keeps private businesses from just having people come into work at the same time, regardless of how light or dark it is.
It’s not a big deal.
And if employers wanted people to come into work an hour early due to the position of the sun, those businesses would either succeed or fail, those workers would either stay or leave, and then the profit motive would cause people to adopt those actions which best benefit them as individuals.
But at no time are we entitled to force someone to employ us.
“That’s the classical model of unemployment.”
It might be the classical model, but that doesn’t mean it’s correct.
The question is why a general fall in wages would lead to a general increase in demand.
This isn’t the same thing as asking whether, all else being equal, a fall in the price of oranges would lead to more demand for oranges.
You seem to be thinking about the first question as if it were the same as the second question.
“Cosmo Kramer and Guest, both of you are idiots. Daylight savings time may be government imposed, but longer days and shorter nights are part of earths orbital cycle.”
Proud to be one, if that is all your argument amounts to.
Are you in the belief that every 6 months the night/day length suddenly shifts? GEE GOLLY!!! We manage just fine in between don’t we?
MF,
There was good deflation all around the 1920’s. Workers didn’t adapt to that, Neither did they adapt to the 1873-1896 period, There were still recessions and depressions in that period.
“Workers didn’t adapt to that, Neither did they adapt to the 1873-1896 period”
>> How so? Working conditions didn’t improve at any point during this time period as compared to conditions pre-1873? Or if you’re speaking strictly in terms of wages, weren’t nominal wages during this period steady (if not increasing) as the overall price level fell?
“There were still recessions and depressions in that period.”
>> Perhaps by some measures, but while real output and wages increased coinciding with the period where the economy transitioned from one primarily consisting of agricultural subsistence to an urbanized, industrialized, mass consumer market economy.
I think recession/depression gets thrown around carelessly at times. For instance, in 1946, technically the US was in a sharp recession with a 10+% drop in GDP … at the same time unemployment dipped to around 4% despite integrating 10million people into the civilian workforce, domestic private investment finally broke ’29 levels, and private production soared. Compare that with GDP/employment during say 1943 and yea, ’46 looks pathetic. But were conditions for private individuals better in ’43 than in 46?
Caused by prior inflation of the money supply:
The Forgotten Depression of 1920
[WWW]http://mises.org/daily/3788
You said:
There was no Long Depression; People only thought it was a depression because prices were falling:
Answering the Same Old Arguments Against Sound Money | Thomas E. Woods, Jr.
[WWW]http://www.youtube.com/watch?v=h-PxMzSyujw#t=14m50s
Smashing Myths and Restoring Sound Money | Thomas E. Woods, Jr.
[WWW]http://www.youtube.com/watch?v=HAzExlEsIKk#t=33m58s
On deflation in general:
Answering the Same Old Arguments Against Sound Money | Thomas E. Woods, Jr.
[WWW]http://www.youtube.com/watch?v=h-PxMzSyujw#t=18m59s
Right… there was no depression, people only thought it was a depression, and people can’t be trusted because Tom Woods says so. And Tom Woods is a highly respected and trustworthy scholar… not.
it was a reasonably typical gold standard implosion
the govt ran surpluses from 1927-1930 that ‘drained the gold’ out of the economy
This is short; 7 minutes:
Neoconservative David Frum Hearts the Fed
[WWW]http://www.youtube.com/watch?v=1d1rcaX-lzU
The government printed money, stimulating unsustainable projects.
Those projects needed to be liquidated or else the destruction would have continued.
You WANT people to stop doing net destructive projects.
NOONE said it was not a depression. He said “long”.
Gov’t spending (mostly military) was dramatically cut. A painful depression ensued for a very very short period of time.
I guess the optimistic model for depressions is the great depression. What a great track record you interventionists have……
This is exactly what Austrians say will happen. Governments screw up the economy and a recession is the cure to get it back to sound footing. Deal with the problems before they get too big, etc. Deal with the hangover, don’t consume more alcohol.
Exactly.
Tom Woods: “There was a recession in 1873, but there was no six year depression or, in some of the more outlandish forms of the argument, 23-year depression. Nobody believes this, anymore. This is a misconception.”
Cosmo Kramer,
You’re wrong that the people who are harmed the most by inflation are poor people. The biggest cash holders are rich people and corporations. Inflation would “harm” them the most if they took no action to protect themselves by investing in other assets. Of course that option is available to them. And the poor and middle class are nt debtors who would benefit from rising nominal incomes
“You’re wrong that the people who are harmed the most by inflation are poor people.”
Wealthy individuals can diversify. They can OWN assets. Think of the farmer in Weimar.
The poor sop working at Wendy’s has no options. He receives $8/hr and much of the % of his income is devoted to food, gas etc.
“And the poor and middle class are nt debtors who would benefit from rising nominal incomes”
Why pervert value? Contracts are meant to anticipate the future to a certain degree. What does it do for our economy if we can no longer reasonably anticipate the future price level?
“What does it do for our economy if we can no longer reasonably anticipate the future price level?”
That could be a problem with either inflation or deflation, if the rate of change is unpredictable.
True, but you’re talking about purposefully creating inflation out of nowhere.
Natural forces vs price level changes instantly and purposefully caused.
Just look now at all of the hyperinflationistas, hyperdeflationistas etc. Both sides and everyone in between has reason to believe that their prediction will come true. Whereas you saw MUCH stabler price levels in the 1800’s. Just look at cpi from 1800 to now.
(not endorsing everything that happened in the 1800’s)
any more discussion/questions about the debate?
Warren,
I am super swamped with work for at least another month. I want to carefully read up on your point about 0% interest. I’m sure I won’t end up agreeing with you, but I also don’t think I’m understanding yet where you’re coming from.
Yes I feel the same. As far as I got it now it is basically just the point you made in the debate already that, well, you need interest rates to allocate recourses over time. You need a mechanism for this which in my view is the interest rate. It is the same with monopolizing all the iron supply and setting its price to zero (and not only setting it to zero yields problems, obviously every arbitrary value deemed by the forced monopoly yields problems). You just cannot efficiently allocate iron.
I think his point about 0% interest has to do with a belief that there can be no interest rate, without exploitation, for the same good received at a later time.
And I think he’s factoring in also a scenario in which there is only one seller (which he calls a “monopoly”).
I take these to mean he doesn’t believe there will be interest rates for a good where there is only one seller of it.
I would offer this video in response:
Basic Economics Lesson 4 – Time Preference, Interest Rates, and Production
[WWW]http://www.youtube.com/watch?v=g2OK5D_3TzM
Basically, the argument is: While it’s true that it would be nonsensical to say that an interest rate is the price of a loan (because a $100 is worth $100), what needs to be taken into consideration is time.
If I believe I will be better benefitted by $100 now than later, then I believe that enticing someone to loan me that money now if I offer to pay him more in the future will result in profit for me if, at the time the loan is due, I have made a profit that exceeds the price I was willing to pay for the loan.
Both parties will benefit if we both guess correctly.
As far as a scenario in which there is a single seller of paper money which can be printed forever, that would actually not fulfill the purpose of money, which is to calculate the ratio of the subjective values people place on scarce goods.
If the currency can be created out of thin air, then it can’t serve the role of money.
If I didn’t care what form the money took, I wouldn’t need a government to monopolize it – I could just pick up dirt and hand it to people in exchange for goods, and if they thought the same way they’d accept it.
We couldn’t do that for very long because you couldn’t tell whether you were profiting or not, but individual transactions could happen that way, if we really wanted to do so.
Yes, how do you measure the inflationary or deflationary effect of your policy as it progresses. If net inflation increases (1% now and 10% in 2016) then what effect do you deem was due to President Mosler’s policies?
Inflation could have been 15% absent of Mosler’s policies, making your effect on net inflation -5, not +9.
If you have decreased inflation, then inflation is not the constraint. If you have decreased inflation, then seemingly more of Moslernomics is needed, not less. The economy being “good” isn’t the test. It could have been better, worse, and everything in between with other economic policy at the helm.
Absent a time machine, and considering that correlation does not imply causation, how do you know? if you could reasonably prove it, what would you convey to the public that is blaming your for the increase in inflation(under my scenario not your fault)
http://www.youtube.com/watch?v=K8E_zMLCRNg
It’s just the way it is with a floating exchange rate and no ‘govt. interference’ with regard to interest rates.
So in every nation with a floating fx rate policy- US, Japan, Canada, UK, EU, whatever, if the govt doesn’t ‘interfere’ by selling treasury securities, paying interest on reserves, or anything functionally similar, the ‘risk free’ rate simply sits at 0 when that govt spends more than it taxes.
It’s like this- govt spending is accomplished by the Fed crediting a member bank’s reserve account at the Fed.
There’s no way for that dollar balance to earn interest in that Fed account unless the Fed pays it.
“the ‘risk free’ rate simply sits at 0 when that govt spends more than it taxes”.
Doesn’t that depend on banks’ demand for reserves?
As banks make more loans their demand for reserves will increase. If the quantity of reserves doesn’t increase then the overnight rate of interest will rise over time. To stop this from happening either (a) the government will have to deficit spend more without issuing bonds, until the rate falls back to zero, (b) the central bank will have to lend freely at zero interest, or (c) the central bank will have to buy enough assets from the private sector to hold the overnight rate down.
In each case this is a ‘government intervention’ to stop rates from rising.
first, a reserve requirement is govt. intervention, and it’s about govt. intervention causing the rate to rise.
second, in the first instance the requirement is an overdraft in a fed account, and the rate will be what the fed charges for that overdraft. if the fed doesn’t charge for it, the rate is 0. if the fed does charge, that’s the govt supporting a higher rate- again, govt intervention to set a higher rate.
does that help?
Reserve requirements would exist without government intervention, expressed by people’s unwillingness to do business with a bank with reserve requirements below a certain level.
If I don’t think the bank has the reserves to pay me back when I want it, then I will withhold my money from them – which is a de facto reserve requirement [of probably around 100% on the free market – an inelastic currency].
that is true with no deposit insurance, another govt. interference that doesn’t work as hoped for with fixed fx policy.
the problem is the liability side of banking as a practical matter is not the place for market discipline.
so with floating fx there can be credible deposit insurance and regulation (required with insured deposits to remove moral hazard) of the asset side, including capital requirements.
Regarding non fed member banks, think the likes of GE capital, GMAC, etc.. They take ‘deposits’ via the sale of commercial paper and other debt instruments and make loans. They have no reserves at the Fed and there are no govt. required liquidity provisions. They manage their own liquidity independently. The problem is their ability to fund themselves is a function of the perception of the value of their assets. So in 2008, for example, GE Credit, with a 20% capital ratio, couldn’t fund themselves without help from the Fed, which bought their commercial paper, in might have been the most questionable bailout of the year. My point here is that even the top rated AAA non member bank can be faced with what could be called an ‘irrational’ funding crisis and fail due to blind fear of the private investors.
“if the fed doesn’t charge for it, the rate is 0”
Ok, so the Fed in that example is lending at zero interest.
What I find strange is the way that you describe government intervention – such as lending at zero interest, buying assets to keep interest rates down, and government deficit spending, as “non-intervention”.
Why argue that zero is the “natural” base interest rate when it is patently obvious that the base rate can only be kept at zero if the government constantly intervenes to keep it there?
But why is it a problem if GE Credit fails? That’s what’s supposed to happen to businesses that aren’t able to serve consumer preferences.
If it wasn’t made to be propped up by so-called “deposit insurance” (more on that below), then those who worked there, and the projects that were undertaken because of loans made by it, would have never happened to begin with, and there would be no unemployment to worry about as far as GE Credit is concerned.
Further, after it crashes, there would be people who would buy up their assets at a discount; So new owners would take over and it would provide jobs.
Deposit “insurance” is a problem. All it is is expansion of the currency supply. It’s fraud. It’s cronyism.
Those who use the new currency first are being permitted, through government force, to benefit at the expense of later users.
It’s a fraudulent transfer of wealth.
Bank runs were always a good thing, because it meant that you could tell when a bank was increasing its notes in excess of specie.
Deposit insurance masks that process, but it’s still being done. It permits distortions that are nationally and globally wide, rather than just for those dealing with a particular bank.
Anticipating an objection, here; On the issue of instability under the pre-Fed “gold standard”, there’s this:
Answering the Same Old Arguments Against Sound Money | Thomas E. Woods, Jr.
[WWW]http://www.youtube.com/watch?v=h-PxMzSyujw#t=9m51s
your comment begs the question: why is it ok for banks to expand the supply of money, whilst it is supposedly not ok for the government to do the same?
My impression from reading about the ABCT, is that you make no real distinction between an expansion of the money supply based on private debt (which, ultimately is unsustainable), and an expansion of the money supply based on public debt (which in a floating-exchange rate regime is sustainable)..
It is not OK for either to do so. This is why Austrians don’t blame the Fed, per se, for the boom-bust cycle.
It happens under fraudulent credit expansion.
Remember, though, that when Austrians speak of sound money, we’re speaking of commodity money, which is not vulnerable to fraudulent expansion.
If a commodity money’s supply is expanded, then it’s marginal utility goes down for each additional unit, and it becomes less valuable.
Also, the supply of an ACTUAL commodity would be growing in such a case, so it would be cheaper to use as a commodity, rather than a money.
People would eventually just choose another commodity money if the supply became too large. No ill effects.
Here’s an Austrian assessment of pre-Fed panics:
Economic Cycles Before the Fed | Thomas E Woods, Jr.
[WWW]http://www.youtube.com/watch?v=TxcjT8T3EGU
When you talk about about yourself as being an “austrian”, what you actually mean is that you are some sort of ‘Rothbardian’, who has an obsession with shiny metal objects.
Various “austrian” economists have actually debunked, in their own terms, your juvenile obsessions. But you have no real interest in understanding such arguments, as for you it’s all just about justifying your irrational obsessions.
The shiny metal object has utility as a non-money. That’s why it can be used as a money.
Money doesn’t HAVE to be gold or silver; It DOES have to be something with a pre-existing trade value.
No, they’ve tried to with bitcoins, but they fail.
We can talk about that, if you like.
According to your arguments what everyone currently calls money and uses as money is not money. Everyone is wrong and you are right, in your mind.
Rai stones.
guest, here is an Austrian who disagrees with you. http://consultingbyrpm.com/blog/2013/06/my-econlib-article-on-bitcoin.html
MmYeah, that’s unfortunate, huh?
😀
I’ve actually seen a video he did where he defended bitcoins, so this isn’t a surprise.
He highlights two arguments in favor of bitcoins (in that particular link), both of which are necessary for something to be money, but not sufficient.
The first aspect he presents is mathematically guaranteed scarcity.
That aspect is useful if each of the bitcoins correspond to a specific unit of something that actually has utility.
In the case of gold, the scarcity of the unit is the scarcity of the good.
Unless the bitcoins mean something, I have no way of knowing what they’re worth.
Which brings us to the next objection.
It is necessary, but not sufficient, for people to agree to trade an intermediary … something … in order for that something to be money.
As I was telling Warren Mosler, we could trade handfuls of dirt for goods for any given transaction, if we really wanted to, but that wouldn’t last because the dirt isn’t communicating the ratio of subjective utilities between that which is sold with, and that which is ultimately bought with, the dirt.
When we’re talking about money, we’re not talking about trading for trading’s sake, we’re talking about profit and loss as subjectively determined by the individual.
And that can only be done with something that also has subjective utility to someone.
Further, if the money could be anything, then you don’t need it to be scarce. It’s not like the units are counting, or represent anything, as I noted before.
Edit: “… between that which is sold FOR, and that which is ultimately bought with, the dirt.”
I think I see where you’re at.
A loan made in an inelastic currency might not earn interest in the way you’re used to thinking about it, but it does.
Rather than earning interest in nominal terms, an inelastic currency gains interest in the form of greater purchasing power over time:
Interest Rates in a Gold Coin Standard
[WWW]http://news.goldseek.com/LewRockwell/1324562820.php
So it is not necessary for a $ monopolist to make interest possible.
As an aside, here is a resource on phony gold standards:
Counterfeit Gold Standards
http://www.garynorth.com/public/8282.cfm
Warren, in response to one of your comments above:
The government isn’t actually the monopoly supplier of ‘money’ in the current system – the private sector is able to increase the money supply on its own. The main way this happens is by banks creating deposits when they make loans, but there are other forms of privately-created ‘money’ too.
So unemployment isn’t necessarily caused by the government restricting the supply of ‘money’ in the form of currency or other government liabilities like treasury bonds. If the private sector is in need of more money, or dollar-denominated financial assets, it doesn’t necessarily need the government to provide them, it can create them itself.
Furthermore, an increase in the supply of currency, T-bonds, or bank deposits, is not necessary for the private sector to autonomously increase demand. It can do this by simply spending more of its current income, or by spending more of its accumulated savings.
This all suggests that unemployment is not simply the result of the government currency monopolist restricting supply, but rather is the result of a general shortfall in demand relative to the supply of labor, which could be due to a number of different reasons.
This demand/supply imbalance is perfectly possible in a theoretical situation in which there is no government currency monopoly, so it makes little sense to say that “no govt currency, no govt tax = no unemployment”
James, Warren considers all banks to be basically to be government agents. Watch that video:
http://www.youtube.com/watch?v=Z78laYouy8M
It’s always the same. Rewriting sentences and then forgetting to delete those words in excess..
Yes, and if nothing else the Fed agrees to accept member bank balances in Fed reserve accounts for the payment of taxes.
Right, I didn’t say the govt was the monopoly supplier of ‘money’ in general.
I do say it’s the monopoly supplier of the thing it demands for payment of taxes,
and that the dollars to pay taxes come only from govt and/or its designated agents.
furthermore, the ‘non govt sector’, and for that matter any sector as a whole can’t create net financial assets, only gross financial assets.
loans create deposits, loans are the short and deposits the long position, and they net to 0. same for all credit. just like open interest in futures markets
I don’t know if this will matter for you, but does it help clarify things to say that it would be fraud to loan deposits?
I’m guessing at what you mean by the word “deposits” because all that would be required for a bank to loan money is for someone to loan the bank money. No government required.
Anyone who saves is in a position to loan, so, initially, a bank would have previously had to have gone through a process of saving/underconsumtion so that it would be in a position to loan.
Anyway, maybe I’m overthinking what you mean by “deposit”.
a bank deposit is a bank account held on behalf of the depositor.
the causation is that loans ‘create’ deposits as a matter of accounting.
Assuming there’s only one bank for the moment, when you borrow 200,000 to buy a house the bank puts 200,000 in the account of the seller at the house.
Your loan is the bank’s asset and the seller’s deposit is the bank’s liability. No govt. funding or saver’s funding was involved. The loan and deposit are created by the act of lending.
“Right, I didn’t say the govt was the monopoly supplier of ‘money’ in general.
I do say it’s the monopoly supplier of the thing it demands for payment of taxes”
Doesn’t that contradict your statement that unemployment is the result of the currency monopolist not supplying the currency (or its interest-bearing equivalent – i.e. T-bonds) in sufficient amount?
If the private sector can produce its own money, why does it need the ‘currency monopolist’ to achieve full employment?
It’s about the need to pay taxes and net save financial assets, as I believe I specified?
The private sector can’t generate net financial assets, but only gross financial assets- loans and deposits together. asset/liability pairs.
like any room full of people, net savings for the room has to come from outside the room
But wealth is subjective to the individual, so “outside the room” is everyone else.
The room is the individual.
The individual produces, and then finds another individual with which to trade, voluntarily, and both parties profit.
There is no reason to conceive of a room of multiple people, so there is no place for government intervention into financial assets.
Unless we’re talking about printing money out of thin air (or making accounting for transactions that never took place), then yes there needed to have been funding involved.
The bank has to have something to loan out in order to offer the loan.
The owner had to either save some money, or to have been repaid prior loans plus interest to have the money (not bank notes) to loan out.
If I make a loan to the bank, that money actually belongs to the bank until the payment is due – it doesn’t belong to me in the interim.
If I make a deposit, I would have to pay the bank to hold my money because it’s not going to perform a service for nothing.
Maybe there is an assumption here that deposits can be loaned, which would be fraud. That money wasn’t given to the banks for that purpose.
guest,
we don’t live in the sort of metal barter system you would like, I think we can agree on that.
As such you have to ask yourself, where does the money in my account come from?
basically there are only two fundamental sources of the digits in your account:
1) bank loans.
2) central bank purchases
yes, correct. bank deposits are just accounting information in today’s world
OK, so there’s no link to subjective utility and therefore absolutely no reason to participate in such a system.
Just stop using that system. Adopt a commodity money standard.
Why would I just assume that I must live in a system in which bank deposits are just accounting information.
We’re saying that THAT’S where the problems are caused.
A monetary system that is partially, or wholly, detached from subjective utility is why the boom-bust cycle happens.
Warren, you said:
“The private sector can’t generate net financial assets, but only gross financial assets- loans and deposits together. asset/liability pairs”.
Isn’t it the case that the private sector doesn’t necessarily need ‘net financial assets’ if there is no external deficit…?
It could be argued that the government budget deficit ultimately creates the external deficit, which then requires either a larger private sector deficit or a larger government deficit…
So in other words, it could be argued that a government deficit, in the context of an external deficit, creates in itself the justification for an even larger government deficit, ad infinitum…?
At what point do you say: “enough is enough”?
guest,
I don’t think the system is necessarily ‘detached from subjective utility’… it’s just not the system you consider to be ideal.
A currency that does not associate the subjective values of the goods I sell for money and the goods I buy with money, is detached from subjective utility.
And because it is, I am mislead, by the phony prices that result from that currency’s use, to invest that currency in unsustainable ways.
The boom-bust cycle is caused by fraudulent credit expansion.
“A currency that does not associate the subjective values of the goods I sell for money and the goods I buy with money, is detached from subjective utility”.
Well if you’d ever done any actual trading instead of just talking about it in the abstract, you would know that current money *is* actually valuable, and that decisions regarding your willingness to part with it in exchange for other things are closely associated with valuations of potential utility both in the present and the future.
Unfortunately you seem to be incapable of understanding that a piece of paper or base metal with symbols on it can have a real value to real people.
You’re stuck in an almost adolescent obsession with shiny metal objects, sadly.
The current “money” is not money – it doesn’t represent anything.
It’s not even a note FOR money at this point.
The base metal IS a good – that’s WHY it can function as a money.
It doesn’t matter what symbols are on it. The symbols simply aid my assessment of the quantity and quality of the gold.
Obviously it does represent something. It can be exchanged for goods and services and used to pay obligations such as private debts and taxes.
You can take a bar of gold to the shops and try to exchange it for goods, but in most cases you’ll find that people won’t accept it. They want to be paid with money, not gold. If they wanted gold they would buy it with money. You only have to log on to a site like bullionvault.com to find people who are willing to sell you gold for money, it’s not complicated.
The only reason this is so is because the government is forcing us to trade for paper.
Take away the legal tender laws and see what happens; People DON’T want to use paper to trade with.
You said:
That’s only because the government forcibly taxes its use such that it is artificially cost prohibitive to use it.
And if paper were money, you wouldn’t need government to monopolize it’s printing; People would just write numbers on pieces of paper.
You’re making up your own definitions again. People who deposit money in banks know that banks lend money. They don’t think the bank just takes their money, puts it in a box, and doesn’t do anything with it. They’re not stupid.
There’s nothing fraudulent about a bank making loans.
So, the government should stop defining what money is for other people, right?
You said:
There’s nothing wrong with lending. I never said that.
There’s also nothing wrong with individuals doing the lending.
In fact, that’s what you’re doing with a savings account. The bank is the borrower.
But people are trying to exchange promises as if they were money. That’s what’s causing the boom-bust cycle.
James,
Correct, the private sector doesn’t necessarily need net financial assets.
Ours happens to reveal itself as needing heaps of them, however, due
to tax advantages for not spending income-pension contributions, corporate reserves, etc-
and foreign central banks accumulating our financial assets to drive their exports.
And so all these ‘demand leakages’ mean some other agent must spend more than his income,
and for all practical purposes that leaves govt. to ‘fill the gap’ when private credit expansion falls short.
“And so all these ‘demand leakages’ mean some other agent must spend more than his income,
and for all practical purposes that leaves govt. to ‘fill the gap’ when private credit expansion falls short.”
This is incorrect. Government only taxes a portion of (prior) SPENDING.
If spending falls, so will taxes. Total spending will always be greater than total taxes, as long as the tax rate is less than 100%, which it always is.
Your claim here, and the one you made in the video with the 24 business card tokens, is flawed. The government does not tax the people in such a way that you can analogize this with stories like “The government wants 25 tokens, but there are only 24 in the room, so that means the government has to spend money into existence.”
If spending collapsed tomorrow, the government’s taxation will collapse accordingly.
There is no such thing as “demand leakage.” All money is always being held by someone, at any given moment. Sometimes a person waits longer, sometimes shorter, before they spend their money. There is no objective law of the universe, even within our monopoly monetary system, that says spending must continue to grow.
There is no “gap”…ever. If private spending falls, then THAT is the standard.
yes, an income tax is a moving target, and in fact won’t ‘drive the model’ without taxing imputed income, which the govt. does, at least in theory.
but in any case, using the extreme only to make the point, if no one spent any of their income (complete demand leakage) there would be no sales and soon after no jobs and no income. it’s called the paradox of thrift in mainstream texts.
Income is not a function of government, so it is not necessary for government to provide a currency with which to make income possible; The market would provide the currency just fine.
Also, people don’t need a government to teach them that the division of labor is cost reductive, so people would just find each other and trade their goods and services.
Also, if people were quite happy providing for themselves, there wouldn’t NEED to be any jobs.
A lack of jobs does not necessarily equal a lack of wealth – ESPECIALLY after the government enticed people to engage in unprofitable projects.
After a crash in unsustainable projects, there MUST be unemployment; The job was unsustainable!
So people can get jobs and income completely without the aid of government. Government can only hinder that process.
But finally, no one is entitled to anyone else’s property, so no one is entitled to a job. Do job seekers have to provide something that another person considers adequately valuable before they are compensated with something in return?
Or do the valuations of only one party matter in a trade?
The Paradox of Thrift isn’t: Underconsumtion provides wealth with which to trade; If both parties didn’t expect to benefit from the trade, it wouldn’t happen.
If both parties guess correctly about the utility of that for which they trade, then new wealth has been created.
If the government stopped taxing people, no one would have a tax advantage. Problem solved.
Foreign central banks are able to buy our financial assets because our government keeps writing checks on our wealth and then paying them off with an elastic currency that our government forces us to use.
Get rid of government interventions and the Treasury can’t write checks on our wealth.
Get rid of government interventions and the Fed would not have a monopoly (government granted privilege) over IOU [“IOU Nothing”] creation with which to enrich some at the expense of others (Cantillon Effect).
Get rid of government, and we would have stopped using USD in 1933.
Get rid of government interventions, and global trade would entail trading actual goods for actual goods – one of those goods being a commodity money. Trade deficits become meaningless:
Classic Ron Paul – 1988 Campaign Interview (part 2)
[WWW]http://www.youtube.com/watch?v=Tpp5XOJPGlM
“If the government stopped taxing people”.
It’s not going to though, is it.
“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States”.
There is no such thing as debt.
“Moreover, government debt is not true debt either. At the macro level, the reserves that are transferred to banks through government disbursement are used to buy Tsy’s. That is, when a Tsy is bought, this involves a transfer of reserves from the buyer’s bank’s reserve account at the Fed to the government’s account (consolidating CB and Treasury as “government”).
When the Tsy’s are sold or redeemed, the reserves that were “stored” at interest are simply switched back, creating a deposit again. It’s pretty much the same as buying and redeeming a CD. It’s just a switch from demand to time back to demand in a bank account, and a switch between reserves and securities at the government level. That is to say, the government doesn’t have to draw on revenue, borrow, or sell assets to cover its “debt,” as households and firms do. It’s just a matter of crediting and debiting accounts on the (consolidated) government books, even though it may appear that there is a financial relationship occurring between the CB and Treasury due to the accounting. However, it’s just a fiction.
Therefore, the key to understanding MMT is this vertical-horizontal relationship. When one understands this, then Abba Lerner’s principles of functional finance become obvious. (1) Currency issuance through government disbursement is used to increase nongovernment net financial assets, and taxation withdraws net financial assets from nongovernment. (2) Debt issuance by the Treasury is a monetary operation for draining reserves to permit the CB to hit its target rate.”
sigh
yes!
😉
Debt is a promise, they are completely equivalent concepts but a promise is a slightly broader term (although these days, debt is also a very broad term).
A promise can either be fulfilled, or it can be broken. Those are the only outcomes possible.
Debt can either be repaid, or it can be repudiated, those are the equivalent outcomes for financial systems.
You may believe that promises don’t exist, and in purely physical terms that’s true. You can’t drop a promise on your foot, you can’t tip promises into your car to get it started of a morning. However, your statement that promises don’t exist is in itself a moral declaration… and that’s your choice to make such a declaration.
I for one take promises seriously and do my best to keep them.
US federal debt promises they will debit your securities account at the fed (aka ‘the debt’) and credit your bank’s reserve account at the Fed.
no big deal, really.
no grandchildren or taxpayers anywhere in sight when they do it each month when $billions ‘mature’
Hey Warren,
Not sure if you were aware of it when it happened, but in early 2012 a bunch of blogging economists had a huge debate on this issue of “does the federal debt burden our grandkids?” Believe it or not, I initially agreed with Krugman and Dean Baker, but then Don Boudreaux (relying on Jim Buchanan’s work) and Nick Rowe up in Canada changed my mind.
It’s long, but I wrote up what some consider an entertaining summary of the whole thing here.
… With promises.
The Treasury is promising to make a promise in the future.
Sure it will:
Declaration of Independence
[WWW]http://constitution.org/us_doi.htm
The Law by Frederic Bastiat
[WWW]http://www.constitution.org/cmt/bastiat/the_law.html
When Did I Sign This ‘Social Contract’?
[WWW]http://www.youtube.com/watch?v=nTqEePlZiqk
If You Don’t Like Being Expropriated, You Can Always Leave
[WWW]http://www.tomwoods.com/blog/if-you-dont-like-being-expropriated-you-can-always-leave/
Ron Paul Right, Thought Controllers Wrong, on Secession
[WWW]http://www.youtube.com/watch?v=oPn-vYH2eYc
… But not before we can starve the state by switching, as individuals, to a commodity money:
War and the Fed | Lew Rockwell
[WWW]http://www.youtube.com/watch?v=Tl9lS5k7H5M
Only a minuscule number of people subscribe to your fringe ideology so I doubt you’ll be bringing down the US any time soon. So in the real world the government will continue to have the constitutional power to “lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States”, regardless of what commenters on Bob Murphy’s blog have to say about it.
A constitution which violates individual rights is illegitimate, since the ratifiers never had the authority to give up someone else’s individual rights.
The constitution doesn’t violate your individual rights though.
Perhaps if you stopped making up your own definitions of words all the time other people might take you more seriously and you wouldn’t just be a tiny fringe group of angry loons.
Sure it does. For example, it presumes the authority to tax me against my will.
@james
My own belief is that many prefer being an angry fringe to actually making progress. It’s more fun to feel like a persecuted voice in the wilderness than to improve things. So while preaching free trade Ron Paul voted against actual free trade agreements. Instead of a policy that by his lights can make things better, and thereby build support for even more free trade, he chose rigid ideological purity.
Lot of that round here.
That government would be involved in trade is a big clue that it’s not free.
Free trade agreements are actually government interventions, not free trade.
I can trade with people on my own, for my own purposes. No government required.
In your completely imaginary ancap ideal world, if I wander onto someone’s land they have the right to charge me a fee, so long as it’s clear beforehand that such a fee will be charged. But what right do they have to claim that land and to charge a fee? According to you it’s because that land was previously unoccupied and then ‘homesteaded’. But we know for a fact that that’s not how the ownership of land was actually established in reality. So in reality there is no moral justification for that fee in your imaginary ancap world, even according to your own arguments.
Aside from problems with historicity homesteading is a *mystical* notion. It’s one thing to argue that if I plant and raise corn I should own the crop, I that way own the product of my labor, the excess over what bare land would yield; it’s quite another to argue that that somehow gives me ownership of the *land* itself.
guest: “That government would be involved in trade is a big clue that it’s not free.”
See? That’s exactly what I eman. Ron Paul could have made trade FREER. Doing so, if the Free Traders are right (and they are) would have provided evidence for EVEN MORE OF IT. But lily white purity is what guest admires. People like this james *do not want their policies implemented*.
If you don’t own something, you can’t tell people what to do with it.
So, authority over unowned land is not something that non-owners can give to government.
Unless you think that someone can just claim the fruits of your labor, logic compels you to accept that homesteading is the only legitimate means of claiming ownership of unowned resources.
Your argument proves too much.
One isn’t really *creating* anything, per se, when they transform seeds such that nature grows food from them.
So by your logic, you shouldn’t be able to own the crops, either. Whether we’re talking about the land or the crops, all that’s happening is someone is transforming a resource.
The logic behind ownership of land is that your transformation of the seeds requires land. By planting seeds, you’ve transformed the land into something that supports the growing of your food.
And because no one has the authority to tell you what to do with the fruits of your labor, another person can’t tell you what to do with that land or crops.
But government is not required for freer trade.
Just go trade.
“homesteading is the only legitimate means of claiming ownership of unowned resources”
According to your ideology.
The problem for you is as follows:
In reality land ownership was not established by imaginary pure ‘homesteading’.
For example, people have fought over land for thousands of years.
So your ‘homesteading’ principle is not relevant to the real world.
Sure it is, even under conditions where land is stolen and both the owner and the thief are dead.
If the owner is still alive, the land belongs to him, though it was stolen, and he has a right to defend his property.
If the owner is dead, but the thief is still alive, the land becomes abandoned and may be homesteaded; If the homesteader of the abandoned land is the thief, then the land belongs to the thief. There’s no owner left alive to whom restitution can be owed.
(Property must be offered by the owner, and then accepted by someone else, in order to be legitimately passed on. You can’t force ownership of something onto someone.)
And if an owner, whose land has been stolen, passes on his land to someone of his choosing, then, even though that land has been stolen, the rights of ownership belong to the one the owner chose.
“If the owner is dead, but the thief is still alive, the land becomes abandoned and may be homesteaded; If the homesteader of the abandoned land is the thief, then the land belongs to the thief”.
are you saying I can steal someone’s land, kill the ‘owner’ and then the land belongs to me according to the ‘homesteading principle’?
“then the land belongs to the thief”
LOL.
I can’t help myself, I have to say it again:
LOL.
ROTFLMFAOAYOSCAS
(rolling on the floor laughing my fucking ass off at your obvious self contradiction and stupidity)
If you killed the owner, you’d probably be killed, yourself.
But, if not, then, since the owner isn’t alive, it no longer belongs to anyone.
Therefore, it may be homesteaded, again.
Logic.
Sorry for calling you stupid. I got carried away.
“Logic”
So if I can kill the previous owner, and not get killed by other people (or kill anyone who tries to kill me), then I can claim that the land is ‘abandoned’ and as such can “homestead” it?
I’m finding it difficult to believe that this is what you actually believe.
The land would, in actual fact, be abandoned by virtue of the fact that there are no living owners.
Having become unowned, it may be homesteaded.
This is actually preferable to a bunch of non-owners claiming all non-private land as so-called “public land”, and then preventing people from homesteading it. Talk about aggression.
Well by your definitions the ‘owners’ could be a bunch of thieves, so your arguments necessarily collapse into a pile of incoherent contradictory nonsense
First, the state is doing this now, and, in addition, is stealing land and the liberty to homestead from people who are currently alive. Yet, this is what you prefer.
By your logic, your argument collapse into a pile of nonsense.
The reason it’s wrong for the state to do so is because the state cannot be given authority which the specific individuals who set up the state didn’t already have.
A non-owner may not confer ownership – it isn’t his to give.
Second, a thief could only legitimately own the land after the owner has died.
The reason is because it is no longer owned, and may now be homesteaded.
Since nobody owns it, nobody is in a position to prevent the thief from homesteading it, himself.
You appear to be incapable of understanding that your arguments are fundamentally nonsensical and self-contradictory.
foreigners sell us things and get paid with dollar deposits.
dollar deposits are financial assets.
(tsy secs are dollar deposits at the fed)
The paper that we pay them with is fraudulent. We are handing them useless paper for actual stuff: This is how we are exporting our inflation to the rest of the world!:
Why the Meltdown Should Have Surprised No One | Peter Schiff
[WWW]http://www.youtube.com/watch?v=EgMclXX5msc#t=1h13m57s
The Pound Gets Pounded
[WWW]http://www.lewrockwell.com/2013/02/peter-schiff/the-pound-gets-pounded/
America is benefitting at the expense of those who hold the USD as their reserve currency. This is NOT the fault of the free market but of fraudulent credit expansion, enabled by the government.
“The paper that we pay them with is fraudulent”
Please describe in detail why you think it is fraudulent, using the following standard definition of the word (not your own made-up definition):
Fraudulent: Obtained, done by, or involving intentional deception, esp. criminal deception.
The claim is that the USD functions as money. It does not.
😀
Foreigners are quite capable of deciding for themselves whether they think the USD is money or not.
Obviously the USD does function as money as people accept it in payment, as money.
And obviously the USD is not “useless” as it can be used to buy things and to make other payments.
So are Americans.
So you acknowledge that no coercion is required for someone to be capable of determining what is or is not money?
Then the Government doesn’t need legal tender laws, right?
What’s actually happening is that foreigners believe the American government will aggress against its citizens, such that they are forced to attempt to exchange it as if it were money.
Just because I steal a car from you doesn’t mean that the price of a car, for you, is two cars (because you had to buy a replacement).
You said:
I’ve already addressed this:
[WWW]http://consultingbyrpm.com/blog/2013/07/edited-mmt-debate.html#comment-70329
You said:
The only reason it can be used to acquire things is because the government forces us to use paper.
Besides, as I noted before, if you think anything can be money, then I can find lots of stuff that I consider crap to hand you in exchange for, say, all of your stuff.
All you would have to do is BELIEVE hard enough that it’s actually worth all of your stuff, and we could trade, right?
OK Murphy. Here’s what kills me about you. You get into that debate with Mosler and pretty much admit that his economic views and models make sense in a world with fiat money, and that your views don’t. Your main point is that we shouldn’t be living in “Mosler’s” world because it involves an element of coercion — you must pay your taxes. Really your point there is fine as far as it goes.
But, then you proceed to utilize your limited economic models — designed for a non-fiat money world — on our current fiat money situation. The result of such an approach is your constant inability to predict the results of policy and a sense that you never really showed up to the debate.
If you want to debate Mosler on what to now, then do so without wussing-out into a “bring back the gold standard” requirement to participate. If you find that you must wuss-out, at least quit pretending that your “gold standard” platitudes apply mindlessly to any and all fiat money scenarios.
This came out way more strident than I had hoped. Maybe a little long winded, too.
You get into that debate with Mosler and pretty much admit that his economic views and models make sense in a world with fiat money, and that your views don’t.
Scott, do you agree that in “the real world,” households shouldn’t worry about earning enough income to pay their bills? That really, the true tradeoff is between spending and going to prison for robbing liquor stores?
If you think so, then I can understand why you think I conceded Mosler is right and I am wrong. But, I’m hoping you wouldn’t agree that families should stop worrying about budgets because they have the option of robbing liquor stores.
Your “robbing liquor stores” analogy seemed like an inadequate response to Mosler’s claim that your analysis paradigm was not suited to a fiat currency. Especially since you then went on to analyze policy within a fiat currency regime.
If you want to debate Mosler on what to now, then do so without wussing-out into a “bring back the gold standard” requirement to participate.
Wait a second: Mosler and I are allowed to talk about “what to do now,” but only if his proposals are the only ones on the table? Seems kind of a pointless debate, doesn’t it?
Your comment goes back to the fundamental fuzziness of the Mosler fans (not so much Mosler himself): He gives a laundry list of things he would like the government to do differently–i.e. things that aren’t true right now–and everyone says, “Ah, he’s just talking about the world as it is, whereas Murphy talks about the world as he wants it to be.”
So e.g. Mosler can call for a $10/hour federally funded transition job; none of his fans bat an eye. I say “I think the gold standard was better than fiat” and people go nuts over my moralizing.
Well, I guess that I should go and “yell” on Mosler’s blog too, because I thought his laundry list of inane policy recommendations was a terrible way to start that debate.
I began with a list of proposals as we were both instructed to do by the organizers.
Dr. Murphy, as he explained, decided to do otherwise.
I very much welcome Dr. Murphy laying out his proposals for an alternative monetary system.
And note that the prior context was with regards to his criticism of the Fed’s current policy within our current institutional structure. Specifically, that they were not allowing rates to go to levels ‘signaled by the markets’ and hence the Fed was promoting mal investment, etc. To repeat from earlier on this page, I pointed out that Dr. Murphy would be correct a fixed exchange rate policy in place, as with HK, as markets do indeed ‘send interest rate signals’ with fixed exchange rate policies. But he was not correct with regard to today’s floating exchange rate policy. It was only after not further engaging on that point that Dr. Murphy decided instead to ‘change the subject’ and begin to discuss his ideas or an alternative monetary system. The net effect was to concede by omission that at least that aspect of Austrian Economics- the Fed and interest rate signals from the market- is inapplicable with today’s floating exchange rate policies.
Let me add that today’s $US is inherently nothing more than a simple tax credit, as is the yen, euro, etc.
I don’t think there is anything ‘unaustrian’ about that?
Yes, there may be viable alternatives to using tax credits as we do.
But that’s a different matter that I’m always exploring as well.