The preservation of archaic traits—monetary thinking

One of the great frustrations caused by the contemporary practices of economics is that while the world has actually converted to a fiat / electronic money system that would have utterly delighted the most loyal members of the Greenback Party, the people who run monetary policy and vote on publicly financed programs think and act as if we are still on the gold standard.

I once watched Ron Paul describe his thinking on money and his related critiques of the Federal Reserve.  He was surrounded by acolytes who were nodding their approval.  At one point, Paul said ominously, "the problem is that the money the Fed creates isn't backed by anything!"  (What makes money valuable is the issue the Greenbackers—and similar—addressed for years and is the primary focus of my chapter on money in Elegant Technology)  One follower started nodding so vigorously that it looked like he might literally lose his head.  This crowd was suffering from a theological attachment to the gold standard that was so irrational, anything that smacked of fiat money to these believers was certain to provoke the wrath of God himself.  In their minds, not only did they have reason, but virtue, on their side.

Well no!  The reason there is no more actual gold standard is that reasonable people have long understood that it is a primitive and incredibly stupid way to run an economy.  Smart people like Ford and Edison once said as much in public.  If reason actually prevailed, Paul and his acolytes would be escorted back to their padded cells.  But reason is a minor consideration compared to the arguments over virtue.  Gold standard thinking even in the absence of a real gold standard is the primary reason why the EU is absolutely crippled these days by people who actually believe that austerity leads to growth.  A whole generation of young people are being sacrificed on the alter of primitive monetary thinking and the ghouls who believe this ridiculous tripe are causing catastrophic levels of human misery.  These people are FAR from virtuous.

Veblen often bemoaned the preservation of archaic traits—human responses to the world that may once have been a part of a successful survival strategy but now just get in the way.  Pretty hard to top the attachment to primitive, pre-industrial thinking on money as a prototypical archaic trait.

Obsolete Dogmas about Government Budgets are Killing Us

Author: L. Randall Wray · November 15th, 2014

Sorry for the near-hiatus over the past weeks–I’ve been doing a lot of traveling.

Here’s a good post on the current sorry state of economic policy in the US and Europe. The author, Darrell Delamaide, gives a shout-out to MMT (the post is reprinted below)

MMT, which bases models on the reality that the U.S. dollar is a fiat currency created out of thin air through government spending, represents a Ptolemaic revolution for flat-earth economists mired in an 18th-century view of the world.

Short of a full-fledged catastrophe overtaking us, however, neither the political establishment nor the public are ready for this radical a change…. In the meantime, we will continue to suffer the travesty of citizens in the two richest economies in the world, the U.S. and the EU, thrust into poverty, stress, and lower standards of living by bumbling politicians using obsolete paradigms for understanding how the world works.

In the piece, he (correctly) attributes the fiscal hawk position to wayward morality–as if there is something immoral about a government deficit. There is only one scientifically justifiable position on government budgets: Abba Lerner’s Functional Finance approach, or what is now called the Deficit Owl view. A government’s budget should be formulated with a view to achieve the public purpose. The ex post budgetary outcome–whether surplus, deficit, or balanced–should never be a goal and should never be a measure of success.

Sure, we need an ex ante budget to prioritize, to allocate real resources, and to hold project management accountable. In some cases, it might even make sense to loosely link government spending on some projects to certain tax sources (bridge building to gasoline taxes or tolls). But there is no sense in gauging government policy effectiveness against the difference between total government revenues and total government spending.

Foregoing needed infrastructure, healthcare, pensions, education, housing, policing, or defense on the pretense that a sovereign government “has run out of money” (as our President says all the time) is just plain stupid. If we have unemployed resources domestically (or can hire and purchase them from abroad) then we can “afford” to put them to use.

The deficit hawk–and dove–stupidity is literally killing people. These are entirely avoidable deaths.

One more link.  Yep, a comic book to present Steve Keen’s economics. MMT also got a mention. I’ll let you judge whether that’s a good thing or not. more

Opinion: Obsolete dogmas are crippling the world economy

U.S., Europe suffer from bumbling leaders pursuing misguided policies

DARRELLDELAMAIDE  Nov 14, 2014

“We’re going to teach the Greeks a lesson,” he said, paraphrasing EU officials at a 2010 meeting of G-7 finance ministers. “They are really terrible. They lied to us. They suck and they were profligate and took advantage of the whole basic thing and we’re going to crush them.”

Geithner says he tried to counteract “this blood-curdling moral hazard-y stuff” with cautions about preventing any contagion to other peripheral countries. To little avail.

“I completely underweighted the possibility they would flail around for three years,” Geithner said, according to these transcripts. “I thought it was just inconceivable to me they would let it get as bad as they ultimately did.”

In an earlier batch of leaked statements reported by ProPublica, Geithner acknowledged that U.S. efforts to rein in the banks and mitigate the consequences of the mortgage debacle also fell far short of their goals.

It is well known that early in President Barack Obama’s administration, economic advisers who advocated an aggressive fiscal stimulus — one that might actually have jump-started the economy into more rapid growth — lost the internal White House debate to a more timid camp.

What is needed on both sides of the Atlantic are real leaders with political courage who have enough sense to find economists with new ideas about how to cope with the realities of the 21st century.

Don’t hold your breath.

In a blog post this week, Dean Baker, co-director of the progressive Center for Economic and Policy Research, urged Obama, who faces even more obstacles to legislation with a Republican majority in Congress, to use his last two years in office to change the economic conversation.

“He can use his bully pulpit to explain to the country how we need additional government spending to bring the economy back to full employment,” Baker writes. “Rather than being some burden on our children, additional spending (even financed by dreaded debt) will be a blessing to them.”

Obama could tell people how additional government spending could help rebuild infrastructure, improve education, reduce the cost of college and retrofit millions of homes and offices to make them more energy efficient — all while giving people jobs at higher wages.

Dream on. How can a president who still likes to compare government budgets to households with credit card debt be expected to embrace an enlightened view of deficit spending?

Who will teach him that? His chief economic adviser, Jeffrey Zients, is a former management consultant whose chief claim to fame is that he headed one of the groups trying to bring Major League Baseball back to Washington.

The most progressive experts even fault a populist firebrand like Sen. Elizabeth Warren of Massachusetts for being too timid in her economic views. Joseph Firestone found Warren’s post-election commentary on creating a full employment economy too vague on how to achieve that without relying on the flexibility provided by modern monetary theory.

MMT, which bases models on the reality that the U.S. dollar is a fiat currency created out of thin air through government spending, represents a Ptolemaic revolution for flat-earth economists mired in an 18th-century view of the world.

Short of a full-fledged catastrophe overtaking us, however, neither the political establishment nor the public are ready for this radical a change. If Warren or some other progressive politician is willing instead to take the advice of an estimable economist like MIT’s Simon Johnson, who remains anchored in traditional notions of fiscal probity, that at least would be a start.

In the meantime, we will continue to suffer the travesty of citizens in the two richest economies in the world, the U.S. and the EU, thrust into poverty, stress, and lower standards of living by bumbling politicians using obsolete paradigms for understanding how the world works. more