It’s Hard Being a Bear (Part Six)?Good Alternative Theory?

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If the economy does in fact recover from the Global Financial Crisis—without private debt levels once again rising relative to GDP—then my approach to economics will be proven wrong.

But this won’t prove conventional neoclassical economic theory right, because, for very different reasons to those that I put forward, modern neoclassical economics argues that the government policy to improve the economy is ineffective. The success of a government rescue would thus contradict neoclassical economics just as much—or maybe even more—than it would contradict my analysis.

The actual reasons for this belief are arcane, but this choice quote from leading neoclassicals Thomas Sargent and Neil Wallace puts the dominant neoclassical case in a nutshell:

In this system, there is no sense in which the authority has the option to conduct countercyclical policy. To exploit the Phillips Curve [a relationship between unemployment and inflation], it must somehow trick the public. But by virtue of the assumption that expectations are rational, there is no feedback rule that the authority can employ and expect to be able systematically to fool the public. This means that the authority cannot expect to exploit the Phillips Curve even for one period. Thus, combining the natural rate hypothesis with the assumption that expectations are rational transforms the former from a curiosity with perhaps remote policy implications into an hypothesis with immediate and drastic implications about the feasibility of pursuing countercyclical policy.’ (“Rational Expectations And The Theory Of Economic Policy”, Journal of Monetary Economics, Vol. 2 (1976) pp. 177-78; emphases added)

The neoclassical confidence that the government can’t beneficially affect the economy is thus based on the insane assumption of “rational agents” who live in a world that is permanently in equilibrium, and whose expectations about the future are accurate—something that Ross Gittins’s recent column did a good job of critiquing. The real world is inhabited by real, fallible human beings, who are prone to bouts of irrational exuberance, susceptible to Ponzi Schemes disguised as investment, and who live in a world in permanent disequilibrium and with an uncertain future, in which their expectations are almost always wrong. They are therefore incapable of predicting and therefore neutralizing the impact of government policy, as neoclassical theory assumes that “rational agents” do.

There are other strands in neoclassical theory that argue there is some role for the government in controlling the economy—notably the so-called Taylor Rule which argues that the Central Bank can control the economy by fine tuning the interest rate. Taylor himself is arguing that deviation from his rule—when the Federal Reserve under Greenspan held interest rates at near zero after the burst of the DotCom bubble in 2000 – is what caused the crisis. I disagree, but that’s a topic for a later day.

The general proposition remains that in its overall bias, neoclassical theory argues that the government can’t beneficially influence the economy—and therefore that if there is a genuine, sustainable recovery as a consequence of the government stimulus packages, that contradicts neoclassical economics even more than it would contradict my approach.

That means that if there is a “winning” economic theory out there, then it must be one that argues that government action alone can help an economy recover from a crisis, and indeed maintain output growth at a level that will maintain full employment.

There is one “neoclassical” theory that argues this, which most economists—reflecting their non-existent training in the history of their own discipline—actually think is Keynesian. This is the so-called “IS-LM” model, which argues that the government can manipulate employment via fiscal policy. Neoclassicals are likely to retreat to this model—and declare themselves “Born Again Keynesians” in the process—without realizing that the originator of this model, John Hicks, rejected it on very sound grounds almost 30 years ago.

Hicks realized that his model attempts to represent the economy using just two markets—goods and money—when there is of course another important market: that for labour. He omitted the labour market from his model on the basis of what neoclassical economists call “Walras’ Law”. This is the proposition that, if all but one market in an economy are in equilibrium, then that final market must also be in equilibrium.[1]

Writing in 1979 in the non-orthodox Journal of Post Keynesian Economics, Hicks realized this flaw (and several others) in this logic: it can apply only when the economy is in equilibrium—when both the goods market AND the money market are in balance. That, in terms of the model, is where the two curves cross. But the model is used to simulate what is supposed to happen when one or both markets are not in equilibrium, or when one curve—normally the IS curve—is shifted by deliberate government policy, such as running a deficit during an economic crisis. Therefore it is used to try to describe what happens in disequilibrium.

But in disequilibrium—anywhere on the diagram apart from where the two curves cross—Walras’ Law can’t be used to ignore what’s happening in the labour market. So even working from Hicks’s model, neoclassical economists would need to consider disequilibrium dynamics of 3 or more markets. Hicks damningly concluded that:

the only way in which IS-LM analysis usefully survives – as anything more than a classroom gadget, to be superseded, later on, by something better – is in application to a particular kind of causal analysis, where the use of equilibrium methods, even a drastic use of equilibrium methods, is not inappropriate. (Hicks, J. 1981, ‘IS-LM: An Explanation’, Journal of Post Keynesian Economics, vol. 3, no. 2, p. 152; my emphasis)

Yet as Gittins pointed out, and as Paul Krugman himself recently confirmed, neoclassical economists are so obsessed with equilibrium methods that they will shy away from thinking in disequilibrium terms. As Krugman put it, right after critiquing neoclassical economics for being braindead, “I, for one, am not going to banish maximization-and-equilibrium from my toolbox”.

I’m sorry Paul, but stick with those tools and you’ll never come to grips with Minsky’s Financial Instability Hypothesis, let alone the actual disequilibrium dynamics of the real economy.

So there is no coherent neoclassical theory that can take solace from the success of the government stimulus packages, should they avert a deep recession and cause a sustained recovery without a rise in the private debt to GDP ratio.[2] If there is to be a winner in this debate, it has to be a non-neoclassical school of thought.

There is such a school of thought which has developed in Post Keynesian literature recently. Known as Chartalism, it argues that the government can and should maintain deficits to ensure full employment.

Chartalism rejects neoclassical economics, as I do. However it takes a very different approach to analyzing the monetary system, putting the emphasis upon government money creation whereas I focus upon private credit creation. It is therefore in one sense a rival approach to the “Circuitist” School which I see myself as part of. But it could also be that both groups are right, as in the parable of the blind men and the elephant: we’ve got hold of the same animal, but since one of us has a leg and the other a trunk, we think we’re holding on to vastly different creatures.

That said, I do have numerous issues with the Chartalist approach, but I haven’t studied its literature closely enough yet to write a critique. [3] I also could have distorted their arguments if I had attempted a summary of their views. So what I decided instead to do is to ask a leading Chartalist, Professor Bill Mitchell from the University of Newcastle, to write a précis of the Chartalist argument (Bill also has a blog on this approach to economics).

This précis follows. I emphasise in closing my own comments that, if there is a genuine recovery not involving rising private debt to GDP levels, then Chartalism is the only theory left standing. Neoclassical economics is dead.

The fundamental principles of modern monetary economics, By Bill Mitchell, Professor of Economics, University of Newcastle

The following discussion outlines the macroeconomic principles underpinning modern monetary theory (sometimes referred to as Chartalism).

The modern monetary system is characterised by a floating exchange rate (so monetary policy is freed from the need to defend foreign exchange reserves) and the monopoly provision of fiat currency. The monopolist is the national government. Most countries now operate monetary systems that have these characteristics.

Under a fiat currency system, the monetary unit defined by the government has no intrinsic worth. It cannot be legally converted by government, for example, into gold as it was under the gold standard. The viability of the fiat currency is ensured by the fact that it is the only unit which is acceptable for payment of taxes and other financial demands of the government.

The analogy that mainstream macroeconomics draws between private household budgets and the national government budget is thus false. Households, the users of the currency, must finance their spending prior to the fact. However, government, as the issuer of the currency, must spend first (credit private bank accounts) before it can subsequently tax (debit private accounts). Government spending is therefore the source of the funds the private sector requires to pay its taxes and to net save, and it is not inherently revenue constrained.

So statements such as “the federal government is spending taxpayers’ funds” are totally inapplicable to operational reality of our monetary system. Taxation acts to withdraw spending power from the private sector but does not provide any extra financial capacity for public spending.

As a matter of national accounting, the federal government deficit (surplus) equals the non-government surplus (deficit). In aggregate, there can be no net savings of financial assets of the non-government sector without cumulative government deficit spending. The federal government via net spending (deficits) is the only entity that can provide the non-government sector with net financial assets (net savings) and thereby simultaneously accommodate any net desire to save and hence eliminate unemployment. Additionally, and contrary to mainstream economic rhetoric, the systematic pursuit of government budget surpluses is necessarily manifested as systematic declines in private sector savings.

We often read that the appropriate fiscal stance is to balance the federal budget over the business cycle. Some economists claim the goals should be to run a surplus on average over the cycle allowing for deficits in extreme downturns. Both goals would be fiscally irresponsible in Australia’s situation where our current account is typically in deficit. If the government balanced the budget on average and the current account deficit was in deficit over the business cycle then the private domestic sector would on average be in deficit (dis-saving) over that cycle. The decreasing levels of net private savings financing the government surplus increasingly leverage the private sector. The deteriorating debt to income ratios which result will eventually see the system succumb to ongoing demand-draining fiscal drag through a slow-down in real activity.

In other words, adopting a growth strategy that relies on increasingly leveraging the private sector is unsustainable. The only way the private domestic sector can save if there is a current account deficit is for the government sector to run deficits up to the desired private saving. Government deficits “finance” private saving by ensuring that aggregate spending is sufficient to generate the level of output and income that will bring forth the private desired saving levels.

Unemployment occurs when net government spending is too low. As a matter of accounting, for aggregate output to be sold, total spending must equal total income (whether actual income generated in production is fully spent or not each period). Involuntary unemployment is idle labour unable to find a buyer at the current money wage. In the absence of government spending, unemployment arises when the private sector, in aggregate, desires to spend less of the monetary unit of account than it earns. Nominal (or real) wage cuts per se do not clear the labour market, unless they somehow eliminate the private sector desire to net save and increase spending. Thus, unemployment occurs when net government spending is too low to accommodate the need to pay taxes and the desire to net save.

How large should the deficit be? To achieve full employment net government spending has to be equal to the non-government desire to net save to ensure there is no aggregate demand gap. Unlike the mainstream rhetoric, insolvency is never an issue with deficits. The only danger with fiscal policy is inflation which would arise if the government pushed nominal spending growth above the real capacity of the economy to absorb it.

If governments are not revenue constrained why do they borrow? We have to differentiate voluntary constraints governments impose on themselves (which reflect ideological dispositions) from the underlying mechanics of the banking system in a fiat monetary system.

In terms of the latter, while the federal government is not financially constrained it still might issue debt to control its liquidity impacts on the private sector. Government spending and purchases of government bonds by the central bank add liquidity, while taxation and sales of government securities drain private liquidity. These transactions influence the cash position of the system on a daily basis and on any one day they can result in a system surplus (deficit) due to the outflow of funds from the official sector being above (below) the funds inflow to the official sector. The system cash position has crucial implications for the central bank, which targets the level of short-term interest rates as its monetary policy position. Budget deficits result in system-wide surpluses (excess bank reserves).

Competition between the commercial banks to create better earning opportunities on the surplus reserves then puts downward pressure on the cash rate (as they try to off-load the excess reserves in the overnight interbank market). So budget deficits actually put downward pressure on short-term interest rates which is contrary to all the claims made by mainstream economics.

If the central bank desires to maintain the current positive target cash rate then it must drain this surplus liquidity by selling government debt. In other words, government debt functions as interest rate support via the maintenance of desired reserve levels in the commercial banking system and not as a source of funds to finance government spending.

However, the central bank could equally just pay the commercial banks the target rate of interest on all overnight reserves which would achieve the same end without the need to issue debt. So there is no intrinsic reason for a sovereign government to borrow to “finance” its net spending.

The reality is, however, that the neo-liberal era has forced the governments to adopt voluntary constraints on its fiscal activity which are tantamount to those that operated during the gold standard period.

So the federal government now issues debt to the private markets via an auction system $-for-$ with net government spending (deficits). This allegedly imposes “fiscal discipline” on the government (it is totally unnecessary from a financial perspective) because the rising debt becomes a political issue. In conclusion, much of the deficit-debt hysteria that defines the current macroeconomic debate is based on false premises about the way the monetary system operates and the financial constraints on government spending.

Modern monetary theory provides a sound basis for understanding the intrinsic opportunities available to governments in a fiat monetary system and exposes most of the constraints that are imposed on the conduct of fiscal policy as being of an ideological origin.

[1] I reject this argument, but again that’s a story for another day.

[2] There is one Neoclassical School that Krugman believes is validated by the success of the stimulus packages, so called New Keynesianism. Yet again I think that’s wrong, and yet again it’s a topic for another day.

[3] This critique by a Spanish academic indicates that Chartalism is disputed within the broad Post Keynesian school of thought; however I should note that some Chartalists regard this critique as a caricature of their views.

PS if you’d like this essay in PDF format, click here.

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414 Responses to It’s Hard Being a Bear (Part Six)?Good Alternative Theory?

  1. scepticus says:

    Further to my gov bonds in horizontal derivative debt instruments question, it seems that if large amount of the national debt are tied up as derivatives, that if unwound, this horizontal credit trade would require that all these bonds be bought back by the government, which would inject a huge amount of liquidity into the system.

    I wonder, is this what elliotwave was banging on about?

  2. MMitchell says:

    GSM,

    I apologise in advance but I am going to take issue with your views in a big way here.

    The idea that people employed by government are inclined to slack off and take advantage of the public purse is simply not true. If it was all existing government services would be hopelessly inefficient. This would be true whether you are employed through a JG or not. You believe that only the private sector can induce people to work. What is so different about the private sector? These days it is probably just as difficult to get rid of inefficient workers both cases, and I am sure they exist in the private sector.

    The beliefs of our dominant institutions on what motivates people is in my view one of the most fundamental flaws in our society’s perspectives. This idea that people will only work if they are rewarded for working and/or punished for not working is totalitarian. It means all our systems are set up to effectively coerce people into doing things (for reward i.e profit or punishment i.e sacking) rather than accepting that people may do things for intrinsic reasons. It is a complete de-humanisation of people treating them as objects which are only of use when they are serving the “greater good”.

    Commonly examples such the USSR experience are given as demonstrations why state employment will always fail. I suspect they fail because, like our system, they do not address the intrinsic motivations of people. People will work when they are interested in their work, when their work is seen as meaningful and purposeful and they gain recognition for their role in this purposeful activity. Not having choice in what you do will instantly demotivate people from working. You may point to examples of people in our society who do not participate and I will argue that this is not normal for people (it may occur in rare cases) if this is happening on a large enough scale to matter then I believe it is because people’s past experience in our de-humanised system has turned them off.

    Increasingly in our work places we are seeing the application of the ideas that people cannot be trusted to work without either: having a commission or bonus based on performance (extrinsic rewards) or: being measured and assessed on every aspect of their work and interrogated (extrinsic punishment) if they do not meet set targets. Requiring people to focus on this assessment process rather than the intrinsic benefits of their work demotivates and dis-engages people. This attitude of measurement and assessment is a cancer that is increasingly spreading through our work and education systems and the effects, I believe, are an increasing dissillusionment and in fact, lower performance in many cases. Not only this, but the private industry incentive system you seem to so esteem does not even work. Rewarding people for their performance leads to them acting in ways that lead to those rewards, not necessarily doing a better job – the Banking collapse is an example of that.

    I am sorry but I think you are subscribing to a mistaken belief set that has been, and is been, indoctrinated into the population as it serves existing and emerging totalitarian segments of our community and is which is probably a hang-over from the West’s class-based past.

  3. Philip says:

    MMitchell,

    “This attitude of measurement and assessment is a cancer that is increasingly spreading through our work and education systems and the effects, I believe, are an increasing dissillusionment and in fact, lower performance in many cases.”

    I agree. Considering this, you may well be interesting a three part documentary series that was released in 2007. It was produced by Adam Curtis and is called The Trap: What Happened to Our Dream of Freedom.

    http://en.wikipedia.org/wiki/The_Trap_%28television_documentary_series%29

    The primary point of the documentary is that the authoritarian state management of society is being replaced by the authoritarian corporate management of society.

    A few well-known economists are interviewed: John Nash, Friedrich von Hayek, James M. Buchanan, Thomas Schelling, and Philip Mirowski.

    Essentially we are being taken off the state road to serfdom and placed on the private road to serfdom – von Hayek would be most pleased.

    “…and is which is probably a hang-over from the West’s class-based past.”

    This is curious. Under private capitalism, did class only exist in the past?

  4. MMitchell says:

    Philip,

    Thanks for the link. I agree that different classes still exist, I am saying that many of the same myths are being perpetuated to support them.

  5. Laurence says:

    Let us assume we have already sailed into unchartalisted water, ie, we have left inflation, deflation and stagflation and now floating in the middle of a dollar carry trade speculation. What to do? what to do?

  6. Lyonwiss says:

    MMitchell

    I agree with most of your observations. On Philip’s comment and your remark:

    “This attitude of measurement and assessment is a cancer that is increasingly spreading through our work and education systems and the effects, I believe, are an increasing dissillusionment and in fact, lower performance in many cases.”

    I have to say that it is not quite accurate. I must declare that I’m a Drucker fan: “What gets measured gets managed.” The problem with bureaucracy, whether public or private, is that measurement is not taken seriously; it is used as a poltical tool, to bully, to intimidate and to subjugate. The result is pschopathic workplaces full of disengaged workers. The so-called management science is another con or another scam. We need to measure the measurer.

  7. Philip says:

    Lyonwiss,

    Fair enough. I read Drucker’s work in my MBA, and I remember that quote.

  8. MMitchell says:

    The whole area of measurement needs a serious re-think.
    The trouble is that the things of most value to humans are very difficult to measure (eg: healthy living environments – both socially and physically). We cannot persist with measures that exclude things such as externalities for example. I don’t know the answer to this, but a revolution in measurement theory seems necessary, much like the revolution needed in economic thinking. Perhaps the two are linked. My brother is studying accounting. He says given the inability of accountants to measure the health of organisations and their assets (eg: Enron and many since), the whole profession is in question. With such revolutions in thought humanity could have a glorious future, provided it can survive our emerging crises.

  9. Anthony says:

    MMitchell

    way back at *340

    “If I try and take the Chartalist approach to its logical extreme, I first assume that governments can produce infinite deficits, Then I assume that due to some inexplicable event private sector employment falls to zero, in this case as I understand it government spending would employ everyone, but not in ways that would compete with the (now non-existent) private sector. This situation seems consistent with the fear of commentators here who are worried that the Chartalist approach will lead to big government and an erosion of work ethics. However, I am sure the Chartalists would argue that this could not happen (correct me if I am wrong) as deficit spending should only increase as a response to increased saving therefore lowered private economic activity.”

    The JG is not the only solution for employment. The JG is a safety net, it’s the last resort. Other ways of employment are non-JG public employment and private sector employment. It would be undesirable to have the entire workforce employed under the JG.

    In the event of a large downturn causing substantial private sector job losses, it is the government’s responsibility to increase its net spending to offset the demand deficiencies. Policies the government could undertake include payroll tax cuts, infrastructure investment, educational investment, investment in health, expand the JG pool, subsidies, one-off stimulus payments, etc. The decisions the government makes that impact on public and private employment is a political decision.

    Both left and right wing governments could achieve full employment with price stability by implementing completely different policies. A left wing government may decide to abolish the sales tax, increase spending on public education, public hospitals, public transport, public infrastructure, public housing, etc. A right wing government (like the left wing government, would be running budget deficits on average) may decide to cut government spending and revenue, abolish the progressive income taxation system, pay subsidies, privatise public hospitals, public schools, public transport, and almost all other government assets, etc. The share of private (public) employment would be much higher (lower) for the right (left) wing government. Modern monetary theory is neither left nor right wing.

    “What if the unemployment is not due to saving but some structural issue in the economy? Will this situation be treated the same as an increase in saving by Chartalists? How do you distinguish the two causes, particularly if they occur simultaneously?”

    Ways to deal with structural unemployment include the JG, having a good education system and training programs. No matter how low the level of skills someone might have, there will be a job available for them through the JG. The JG can be used to provide tailored training, education, skills and work experience. There should be adequate education and training places that are of high quality relative to demands for specific skills. Structural unemployment can be identified by unfilled job vacancies. DEEWR has data on skills shortages. http://www.workplace.gov.au/workplace/Publications/LabourMarketAnalysis/SkillShortages/StateandTerritorySkillShortagelists/

    “Is there a hidden assumption of 100% employment under ideal conditions? If so what are the process by which this equilibrium is reached?”

    Based on historical data from Australia’s full employment period from the mid 1940’s to the mid 1970’s, frictional unemployment is estimated to be around 2%. There would be an employment target of approximately 98% at any time. The unemployment rate would remain about 2%, but the JG pool would fluctuate due to changes in the economy. This has been termed ‘loose full employment’ as the JG provides a non inflationary alternative to unemployment as a way to deal with inflation.

    Here is an excellent paper on the difference between using unemployment and the JG to battle inflation
    http://e1.newcastle.edu.au/coffee/pubs/wp/1998/98-01.pdf

    “Say for example we have 10% of people employed under JG and there was a sudden rise in the costs of imports allowing opportunities for new employment in local manufacturing how would the Chartalist economy respond?”

    The JG pool would decrease. If the extra demand created from the additional private sector employment is inflationary (on top of the higher import prices) than the government should raise taxes and/or reduce spending. There may be a need for government intervention if there are supply side issues relating to the particular import competing domestic industry that is expanding.

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  11. Chris says:

    Laurence
    October 2nd, 2009 at 12:42 pm

    Let us assume we have already sailed into unchartalisted water, ie, we have left inflation, deflation and stagflation and now floating in the middle of a dollar carry trade speculation. What to do? what to do?

    Answer: Ignore Keen, read Marx.

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  13. X 2U says:

    MMT:

    I am not an economist, but I worked in investment bank for 15 years in trading and corporate finance. And I have some abstract thinking ability from the days when I was trained as a physicist before my banking career.

    You said: “Rewarding people for their performance leads to them acting in ways that lead to those rewards, not necessarily doing a better job – the Banking collapse is an example of that. ”

    You are totally right! I cannot agree more, with my own experience. The wall street awarding system over the years have produced literally armies of “monsters”, with NOT a shred of decency, honesty, shame or sense of value left in them. You are cheered for making tons of money, not from producing or creating goods, service or value, but simply ripping off some less informed, or most of time mis-informed pensioners or insurers or mid-size bank managers. You are padded in the back if you talk profanity, puff smokes, whoring every chance you got. The worst of all, young recruits, with zero real world experience, got sucked into the culture. I remember clearly how a young trader, from the same bank I worked at, cheated my client with the most outrageous scheme, It was outrageous not because it was elaborate, but rather it was so OBVIOUS and it completely stunned me that he had thought he could get away from this. But truth be told, I had no doubt that when he closed that trade, everyone on the trading floor had big high fives with him for the COURAGE he showed of ripping someone’s face off.

    You are so right that an incentive system single-mindedly focused on money does NOT work! I for one has benefited from that system, but my conscience tells me that it is wrong. This is not the America I came for as a teenager. I came because this is the country where people have values, honesty, fairness, respect, all the things I could not find in my motherland. I did NOT come to this country because as long as you make big buck, it doesn’t matter if you are the biggest assh*le

    When Goldman Sach’s CEO said they are doing God’s work, I really don’t know if I should laugh or cry. I had personally participated in the rise of the CDO market so I know even more than the US government at the time what was really going on. Goldman made WRONG bet on AIG. As simple as that. Hank Paulson, in his excuse of saving AIG, was really saving Goldman Saches, which surely means his entire life time savings. I cannot believe he threatened that if AIG was not saved, tanks would be on the street! They are cowards!!!!!!! When they rip someone off, they told the loser “hey take it, you made the wrong bet! That is the way it is!”. But when they made the wrong bet, they had no shame getting themselves off the hook with their contacts in high power places. I guess that when someone makes obscene amount of money, not through creating or adding value, but through really stealing, he becomes terrified for losing what he should not get in the first place. They are cowards!!!! I guess if your worth goes from 100 million $ suddenly to 7 million$, it is just so terrifying!!! But this is the incentive system has produced in America’s banking system. Thieves and Cowards!!!!

    I agree with you that people, I for one, will choose a job that I believe is meaningful and serves a purpose, even though it is not the best paid options. However, how can a society make sure that the people, who are willing to take on jobs that actually add value to the community, can survive? From what I can see, many manufactures or jobs that actually deliver goods and services just cannot survive without some kind of subsidy. Have economists done any work to examine this possible phenomenon? I believe that the surplus of capital that looks to produce pure financial returns rather than produce goods and service have some roles to blame. THe pure financial capitals distort, in fact they profit by making the distortion, of the real supply and demand and hence the market price, causing many real business cannot survive under the distorted market. I don’t know if any economists are paying attention to the distorting impacts pure financial capitals are playing now a days in the economy.

  14. Steve Keen says:

    Many thanks for those reflections X 2U,

    They confirm that the movie “Margin Call” really did capture both the ethos and the dangers of that financial culture–in fact it probably complimented the culture, compared to what you describe.

    You’re correct in your final surmise as well: the growth of the Ponzi economy directly undermines the profitability of real industry (though the collapse tends to come all at once, making it difficult to anticipate–whereas workers’ incomes decline directly as debt levels rise).

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