[Politics] Economic Schools Debates

[Lago PARANOIA]

And of course: the United States had literally dozens of recessions before it got a central bank, making the entire ABC thing fucking laughable.

And quite a few depressions, too. What hard money idjits keep failing to realize is that a hard money policy is incredibly politically unstable. Sometimes you 'just' get the Depression of 1893 and you get Parliament leaders seriously considering Bolshevism and the Cross of Gold speech. Other times you get Nazis.

[CatharzGodfoot]

The full water plant analogy is this:

First you have a bunch of plants (economies) under observation. Then you give different amounts of water (government spending) to the different plants, and notice that the plants that get more water grow faster and bigger and that plants that get less water grow slower and smaller. The Austrians then assert that the reason plants aren't achieving their maximum potential is that they are getting watered at all.

So the analogy exists to explain that there are optimum levels of currency in in an economy, and it is the government's job to increase spending during drought and decrease it during monsoon?

I wonder how crop rotation fits in. And exhortation to regularly replace our capitalist economies with command economies, and then switch back?

[Ancient History]

Don't get into epileptic trees. The main thing to take away is that any extremist position, particularly any which ignores empirical data, is bad. Most mathematical models are valid only under certain conditions, and even then only accurate over a portion of their run; things get wonky near the extremes where you have things like real negative interest.

[Maxus]

So the analogy exists to explain that there are optimum levels of currency in in an economy, and it is the government's job to increase spending during drought and decrease it during monsoon?

I wonder how crop rotation fits in. And exhortation to regularly replace our capitalist economies with command economies, and then switch back?

The first is probably more like "During dry times, adding extra water to keep everything going is just practical. During the wet season, it isn't needed and you could spend the time pulling weeds and eliminating blights and diseases, cultivating new strains, and try to get your garden to the point where it can survive on its own by virtue of being sufficiently dug-in and immune to things that pop in and try to choke out all competition."

[CatharzGodfoot]

So the analogy exists to explain that there are optimum levels of currency in in an economy, and it is the government's job to increase spending during drought and decrease it during monsoon?

I wonder how crop rotation fits in. An exhortation to regularly replace our capitalist economies with command economies, and then switch back?

The first is probably more like "During dry times, adding extra water to keep everything going is just practical. During the wet season, it isn't needed and you could spend the time pulling weeds and eliminating blights and diseases, cultivating new strains, and try to get your garden to the point where it can survive on its own by virtue of being sufficiently dug-in and immune to things that pop in and try to choke out all competition."

Neat. So crop rotation doesn't fit, but otherwise the metaphor is pretty robust. It seems like a good way to explain Keynesian macro to someone who hates math and/or economics.

Don't get into epileptic trees.

The things that kids say these days... Makes me feel old.

[tussock]

The basic argument is that Keynes says Govt. needs to spend big in a recession, and it doesn't really matter what they spend it on. This is true, though it ignores that one can spend on good things, or bad things. Hayek says Govt. is retarded and will not stop spending when the recession ends, rather they will lower taxes and increase spending further, booming the next boom, and so driving the next bust even deeper. This is also true.

The classic Austrian argument was that government may as well do some mass wealth redistribution every time the poor people run out of money. That government should provide laws, protection from fraud, and very stable financial systems which do not change, and otherwise fuck off out of the economy, other than for that periodic redistribution. It notes as an aside that universal Laws work and industry Regulations don't.

It ignores how people undervalue things like preventive medicine and a broad-based education, which government can force on them for mutual benefit. Insurance, fire suppression, flood management, bla bla bla. Government is better at lots of things, though most of that spending can be captured by the capitalist class for profit, or fucked up on a grand scale by individual politicians too.


That somehow got turned around into how government spending should be funnelled through rich people and large private corporations because then it's not government spending, even though that's exactly what it is. 80's, fun times.


What we have now, is the rediscovery that everyone is stupid. Boom hits, governments loosen monetary policy and increase spending. Bust hits, governments tighten monetary policy and cut spending (especially cuts in aid of the poor). Same as everyone does. That's what the boom and bust thing is, mass stupidity. Oops, we forgot how to feed and house everyone, again.

[PhoneLobster]

Hayek says Govt. is retarded and will not stop spending when the recession ends, rather they will lower taxes and increase spending further, booming the next boom, and so driving the next bust even deeper. This is also true.

Oh really?

Actually NO. Stimulus spending tends to drop off hard and fast under pressure from the retarded "Austerity NOW and ALWAYS NOW!" crowd. We have multiple historic examples of this happening. Including you know RIGHT FUCKING NOW.

For added educational value we also have multiple examples of this not only happening but also plunging economies back into double dip recession.

[tussock]

Yes, really. Also, you just repeated my last paragraph up there. You watch, once the economy does pick up again (assuming gravity, etc), all this austerity shit will go away again, because governments are retarded just like everyone else.

Or this will be the great oil crash that never goes away because no one bothered building the next generation of solar infrastructure, but whatever, it'll still cycle on its way down.

Real governments spend up during booms, as they all did in the lead up to '08, generally while trying desperately to not run a surplus or regulate banks properly, because this current boom is always the new normal. Keynes reminds them to spend in the recession, and Hayek reminds them to stop afterward. Real governments typically fail at both. Including RIGHT FUCKING NOW. Largely because government policy is always captured by those who receive the most government money.

[Username17]

Real governments like to start programs because they can say they are doing something about a problem. But they also like to reduce funding for existing programs (either relatively or absolutely), because then they can show more "optimistic" debt numbers. You can see this shit over and over again. Old programs simply get less funding over time until they die out. The reality of government expenditures over time is that it looks like this:



That is: any new program you create now will fade away over time unless something comes in to expand or replace it later on. Any program. Meanwhile, automatic stabilizers like Unemployment Insurance will not just fade away, but aggressively and rapidly delete themselves automatically at the conclusion of any crisis.

The Republicans are deeply insane and cannot be allowed to touch any budget with a ten foot pole. But that is because they will create a bunch of loony programs (like "invade a random country or three" or "give everyone in the country a hundred dollars for no reason" or other Bush administration high notes). But the fact that conservatives are bad at economics isn't some universal thing about government spending. Even the Iraq and Afghanistan wars faded out in cost over time.

If you increase spending during a crisis, that spending will dissipate over time. Other future governments may find other things to spend money on, and those future things may be justified or not, but that spending right there is in fact going to fade out over time.

-Username17

[Ancient History]

This is so true of government programs that the US military builds it into their budgets when requesting funding - they don't just ask for the money they need now, they plot out how much cash they need for the entire lifetime of the project and do their best to lock the cash away in special accounts where Congress can't fuck with it for a couple years.

[tussock]

We (NZ) have the UK rather than US model, so each ministry gets allocated bulk funding by the finance ministry, and fund their individual programs and projects as they see fit (government only directly funds a few one-off projects each term, usually years ahead of time so the next government has to pay for it). Ministries get more funding in booms, and less in busts. Total government expenditure is the same way, only more, as tax cuts and rebates come on during the boom and go away during the bust.

The right cries "too many taxes" during the boom, and "too much spending" during the bust. The left (other right) cries "not enough spending" during the boom, and "too many tax loopholes" during the bust. Because everyone is retarded.


Yes, individual programs die out to provide space for new programs that do the same thing (usually via competing ministries here), normally based on scientifical hopishness, but gross government spending does not care. Nor does it in the US, where deficit reduction is the current catch-cry, nor in the Euro zone where people must be punished for being loaned more money than they could ever hope to pay back by the poor unfortunate bankers, again.

[Username17]

We (NZ) have the UK rather than US model, so each ministry gets allocated bulk funding by the finance ministry, and fund their individual programs and projects as they see fit (government only directly funds a few one-off projects each term, usually years ahead of time so the next government has to pay for it). Ministries get more funding in booms, and less in busts. Total government expenditure is the same way, only more, as tax cuts and rebates come on during the boom and go away during the bust.

The right cries "too many taxes" during the boom, and "too much spending" during the bust. The left (other right) cries "not enough spending" during the boom, and "too many tax loopholes" during the bust. Because everyone is retarded.


Yes, individual programs die out to provide space for new programs that do the same thing (usually via competing ministries here), normally based on scientifical hopishness, but gross government spending does not care. Nor does it in the US, where deficit reduction is the current catch-cry, nor in the Euro zone where people must be punished for being loaned more money than they could ever hope to pay back by the poor unfortunate bankers, again.

You are mistaking rhetoric for action. In terms of actual numbers, you are factually wrong.

New Zealand's debt/GDP ratio was reduced from more than 75% in 1987 to less than 40% in 1999. I haven't looked super carefully at how New Zealand's finances work, because I don't actually care about New Zealand. But even a cursory examination clearly shows that debt ratios go up during downturns and down during booms.

New Zealand politicians may be making public speeches that are retarded because they think that voters are swayed by the ass backwards "family budget" analogy, but their actual budgets are broadly Keynesian. Again and still: there is no place for Hayak in public discourse or economic theory in the 21st century.

-Username17

[Koumei]

I don't actually care about New Zealand.

You'd make a fine Australian with that attitude.

[koz]

I don't actually care about New Zealand.

You'd make a fine Australian with that attitude.

Yeah, pretty much.

[Draculmaulkee]

I have stopped lurking only to say that this thread was probably the most educational piece of writing I have read in forever. I feel smarter just reading it

[Maj]

I second that.

[Lago PARANOIA]

Well, now that I'm a MMT convert, I feel a continual sense of deception having to continue to advocate for higher taxes as though we ran on an economy with a fixed amount of wealth in production merely to reduce income inequality.

'Even though we don't 'need' their money to fund anything in any real sense, we should still tax the rich anyway so that they have less political power and less income inequality!' doesn't seem to be as politically actionable as 'Tax the rich so that we can use their money to fund schools and provide for the unemployed!'

Then again, it does seem like it can be used as a trump card to get the economically ignorant overclass to get onboard with creeping socialism. That is, 'look, if you let us remove taxes on Medicare and FICA and nationalize the banks, we'll reduce corporate taxes to 1% after closing the loopholes and also make the Bush tax cuts permanent' sounds a lot more politically palatable than what OWS is saying. Even though it has the same goals. That is, because people are total shitheads about the omission bias you can with the help of the Fed and the Treasury allow the money supply to inflate and remove taxes on the lower classes such that income inequality is reduced over the next decade -- despite the fact that you simultaneously reduced taxes on corporations and rich people in order to mask your true intent.

What do you think?

[Username17]

Even though government expenditures don't literally come from taxation in MMT, no MMT guy is going to agree that you can just permanently set corporate taxes to 1% or anything dumb like that. The federal government spends $3.6Trillion a year, you can't just do that on printing. Or rather, you can do that on printing alone, but you can't do it for very long. The US economy took $2Trillion of money printing with barely a burp in inflation, but it's quite debatable if it could have taken nearly double that. And asking it to absorb nine times that every five years is nothing short of crazy.

Honestly, I think this is where the "Grandma's Pension" thing actually can be a good rhetorical tool. If you don't tax people, then you have two options:

• The Bond Market. This is just like taxing in that Mitt Romney pays for your bridges and schools, but he only does this in exchange for the government promising him huge santa sacks full of money at some point in the future.
• The Printing Press. This pays for bridges and schools by reducing the value of individual dollars already in circulation. In effect "taxing" everyone who is holding money or who has a fixed income.

Now that assessment isn't super different from Krugman's analysis. The main point in MMT is that every option is the Printing Press Option, and your Tax and Bond options are simply things you do to (at least temporarily) reduce the inflation that would normally cause.

But basically by dialing in low low taxes, you're eroding the wealth of fixed income seniors in order to allow rich people to keep and spend more of their money. So you have to ask yourself: would you rather that bridges and schools were paid for by Mitt Romney having less Cadilacs or by your grandmother having less food?

-Username17

[mean_liar]

That Bond Market option only works if the Printing Press option doesn't. Otherwise, getting paid some marginal percent in a currency that could debase quickly when someone decides to pull the other lever isn't a risk anyone is going to take.

[Username17]

That Bond Market option only works if the Printing Press option doesn't. Otherwise, getting paid some marginal percent in a currency that could debase quickly when someone decides to pull the other lever isn't a risk anyone is going to take.

That is empirically not true. The US printed 2 trillion dollars in 2009 "just because", and the 10-year T-bill went for 2.06% yesterday. Spain cannot print Euros, and as of yesterday the Spanish 10-year bond note went for 5.98%.

It is an indisputable fact that the actual bond market regards the inability to print money (and thus run the risk of not having the bonds repaid) is a scarier risk than the ability to print money (and thus run the risk of having the nominal money you are repaid with be worth less than it otherwise would be).

This makes a lot of sense, since risking all of the value of your bond is probably scarier than risking some of the value of your bond.

This is consistent by the way. Finland is basically the same country as Sweden except that Sweden runs their own printing presses and Finland is on the Euro and is therefore essentially on the gold standard. Sweden borrows at 1.59% and Finland borrows at 2.11%. Having your own printing presses makes the bond market like you more. Empirically and objectively.

-Username17

[DSMatticus]

That Bond Market option only works if the Printing Press option doesn't. Otherwise, getting paid some marginal percent in a currency that could debase quickly when someone decides to pull the other lever isn't a risk anyone is going to take.

The U.S. could get hit by a giant meteor tomorrow, destroying its infrastructure and driving its currency to toilet paper levels. Yet people still trade in the U.S. dollar. What idiots, amirite?

The fact that it's possible to inflate a bond into worthlessness doesn't actually make that bond worthless. The actual statistical value of the bond is (percent chance you believe it will be NOT inflated into worthlessness) * (value of the bond).

And as Frank has pointed out, the people who buy bonds correctly assess that the risk of their bonds being inflated into worthlessness is less than the risk of the country in question refusing to print money and thereby collapsing their own economy and making their bonds worthless. Not running a printing press makes your bonds riskier than running a printing press, because the odds of destructive inflation are less than the odds of economic collapse in absence of a printing press. That is what actually happens in the real world market, and investors don't care about a theoretical worst case scenario that never happens in the real world (like meteors!).

[mean_liar]

Yes, printing money makes you pretty debt-resistant. I'm not arguing that.

America announcing a $3T stimulus package (I think that was Krugman's estimate, and I seem to recall at the time thinking that was about what was required) as a one-time deal is one thing. Doing it year-on-year because you don't want to tax the rich is how I'd interpreted the Printing Press option, and that's not a meteor from the blue. That's predictable policy, and one of the reasons why the Fed used to hold onto their minutes for what, a decade or so?

To address QE specifically, I think there's some difference between running a printing press for the sake of boosting liquidity and using it to buy needful trinkets for the masses. Like, if the US just decided to print out a few trillion to upgrade the entirety of existing US infrastructure ($7T or so), dumped it on contractors and told 'em, "have at it, boys", some unfortunate shit is going to happen to the US bond market when the next year it's, "here's $3T to create a new smart power grid, and another $2T to turn half of Arizona in a photovoltaic array". When it gets dumped into reserve accounts at the Fed and frees up banks to get some elbow room to allow them to chase returns in emerging markets (go Singapore!), that's got some sanctifying invisibility, like holding mass behind a curtain or something.

The fact that Zimbabwe exists in the same world as the US and one has bonds that are still being bought at negative real return and the other is as popular as a leper at an orgy is proof that clearly there's a continuum. I'm arguing that specific to America, leaning on the printing press is going to create a real problem when there are more less-active printing presses to act as reserve currencies - such as the Euro, precisely because they're willing to let things flame out a bit.

[Lago PARANOIA]

Does anyone really give a shit about reserve currencies? I mean, it's not completely pointless, but as far as I'm concerned it's like the international meal being sushi and Arashi beer instead of a hamburger and Coca Cola.

[mean_liar]

Reserve currencies enjoy significant deflationary pressures that allow a greater magnitude of Printing Press shenanigans and lower bond yields.

So, yes. People give a shit about them. I mean, maybe not on the Den. But in banks and the outside world, yes.

[Username17]

Zimbabwe is a real thing, which is why no economic theory I am aware of suggests that printing money for every single thing without taking money out of circulation at the same time is a good idea. There also no real argument that printing money into a growing economy is a bad thing. Everyone acknowledges that as an economy grows, it needs more money - both real and nominal.

The real argument is between Monetarists (like Friedman) who insist that when you print money into a growing economy you have to give it to banksters and wait for them to spend it and MMTers who insist that when you print money you should immediately spend it on things of social utility. Right now, we mostly do the former, as a result of some very weird compromises with plutocrats in 1913.

As for being a reserve currency - that is both good and bad. It's good in that it makes people want to invest in your treasury bills and therefore gives you a virtually limitless space for fiscal expansion in times of crisis. But it's bad in that if you don't actually do that fiscal expansion (perhaps because the conservatives in your government are demanding Austerity! Now!), it drives up your country's desired savings during crises, which exacerbates downturns.

-Username17