Invi­ta­tion from 141 econ­o­mists to join the World Eco­nom­ics Asso­ci­a­tion

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We, the 141 econ­o­mists from the 40 coun­tries listed below, invite you to join the World Eco­nom­ics Asso­ci­a­tion which we are launch­ing today.

Two com­mit­ments listed in our Man­i­festo sum up the project.

1. To plu­ral­ity. The Asso­ci­a­tion will encour­age the free explo­ration of eco­nomic real­ity from any per­spec­tive that adds to the sum of our under­stand­ing. To this end, it advo­cates plu­ral­ity of thought, method and phi­los­o­phy.

2. To global democ­racy. The Asso­ci­a­tion will be demo­c­ra­t­i­cally struc­tured so as not to allow its dom­i­na­tion by one coun­try or one con­ti­nent.

The cre­ation of the WEA addresses an obvi­ous gap in the inter­na­tional com­mu­nity of econ­o­mists – the absence of a truly inter­na­tional, plu­ral­ist asso­ci­a­tion. Today’s dig­i­tal tech­nol­ogy makes it fea­si­ble to close this gap quickly and cheaply through a bot­tom-up, grass-roots approach.

The WEA has been legally con­sti­tuted in the United King­dom as a “Com­mu­nity Inter­est Com­pany”, a spe­cial legal cat­e­gory (with an asset lock) for non-profit orga­ni­za­tions whose pur­pose is to serve the pub­lic inter­est.

Mem­ber­ship of the World Eco­nom­ics Asso­ci­a­tion is free. To join, all that you need to do is go here and then enter your name, email address and coun­try and then click. You will also be given the option of pro­vid­ing us with a few pro­fes­sional details, but none of these are required. You will receive an email con­firm­ing your mem­ber­ship of the WEA. You will also be given the oppor­tu­nity to make a dona­tion to the run­ning of the WEA. We want to empha­size that the WEA has no major donors, nei­ther insti­tu­tional nor indi­vid­ual, behind it.

The WEA will ini­tially pub­lish three jour­nals, two of them new. Online access will be free to mem­bers, with print copies avail­able to libraries and indi­vid­u­als for a fee. The WEA’s very large mem­ber­ship from which to draw papers will ensure a high stan­dard of schol­ar­ship. The gen­eral-pur­pose flag­ship jour­nal will be the World Eco­nom­ics Jour­nal. The other new jour­nal, Eco­nomic Thought, will focus on the his­tory, method­ol­ogy and phi­los­o­phy of eco­nom­ics. The Real-World Eco­nom­ics Review will hence­forth be pub­lished under the umbrella of the WEA. If you wish, you may read a doc­u­ment detail­ing the struc­tures and pro­ce­dures, which include an open review process, for the jour­nals.

From its web­site, the WEA will also run online con­fer­ences.

Help eco­nom­ics and your­self. Become a WEA mem­ber now.

Hop­ing you will join us as mem­bers,

Africa

Ethiopia

Fantu Cheru,
Nordic Africa Insti­tute

Ghana / Kenya

Charles Abu­gre,
United Nations Mil­len­nium Cam­paign in Africa

Malawi

Thandika Mkan­dawire, Lon­don School of Eco­nom­ics

South Africa

Lucien Van Der Walt, Uni­ver­sity of the Wit­wa­ter­srand

Salim Vally, Uni­ver­sity of the Wit­wa­ter­srand

Asia

China

Ping Chen, Cen­ter for New Polit­i­cal Econ­omy, Fudan Uni­ver­sity

Xiao­qin
Ding,
Chi­nese Acad­emy of Social Sci­ence

Shulin Gu, Tsinghua Uni­ver­sity

Kainan Huang, Shan­dong Uni­ver­sity

Yanli Huo, Chiba Insti­tute of Tech­nol­ogy

Dic Lo, Ren­min Uni­ver­sity of China and Uni­ver­sity of Lon­don

Henry C. K. Liu

Ying Ma, Wuhan Uni­ver­sity

Yougui Wang, Bei­jing Nor­mal Uni­ver­sity

Dapei Zuo,
Insti­tute of Eco­nom­ics, Chi­nese Acad­emy of Social Sci­ences

India

V. Bhaskar, Uni­ver­sity Col­lege Lon­don,

C. P. Chan­drasekhar, Jawa­har­lal Nehru Uni­ver­sity
Jishnu Das, World Bank

Jay­ati Ghosh, Jawa­har­lal Nehru Uni­ver­sity

Prab­hat Pat­naik, Jawa­har­lal Nehru Uni­ver­sity

Japan

Toru Iwami, Uni­ver­sity of Tokyo

Richard C. Koo, Nomura Research Insti­tute

Korea

Ha-Joon Chang, Cam­bridge Uni­ver­sity

Lebanon

Ali Kadri, United Nations and Lon­don School of Eco­nom­ics

Malaysia

Rajah Rasiah, Uni­ver­siti Malaya

Pak­istan

Akmal Hus­sain, Bea­con­house National Uni­ver­sity

Thai­land

Pasuk Phong­pai­chit, Chu­la­longkorn Uni­ver­sity

Turkey

Eyup Özvveren, Mid­dle East Tech­ni­cal Uni­ver­sity

- — - — - — - — - — - — - -

Aus­tralia

Peter Earl, Uni­ver­sity of Queens­land

Steve Keen, Uni­ver­sity of West­ern Syd­ney

J. E. King, Monash Uni­ver­sity

New Zealand

Robert Wade, Lon­don School of Eco­nom­ics

Europe

Aus­tria

Ulrich Brand, Uni­ver­sity of Wien

Bel­gium

Chris­t­ian Arnsperger, Uni­ver­sity of Lou­vain

Ernst Stet­ter, Foun­da­tion for Euro­pean Pro­gres­sive Stud­ies u

Den­mark

Bengt-Åke Lund­vall, Uni­ver­sity of Aal­borg

Esto­nia

Wolf­gang Drech­sler, Tallinn Uni­ver­sity of Tech­nol­ogy

Rainer Kat­tel, Tallinn Uni­ver­sity of Tech­nol­ogy

Fin­land

Uskali Mäki, Uni­ver­sity of Helsinki

France

Bruno Amable, Uni­ver­sité Paris 1 Pan­théon-Sor­bonne

Rolande Bor­relly, Insti­tute of Applied Math­e­mat­ics and Eco­nom­ics

Jean-Pierre Dupy, École Poly­tech­nique and Stan­ford Uni­ver­sity

Olivier Favereau, l’universite Paris X 

Jean Gadrey, Uni­ver­sity of Lille

Bernard Guer­rien, Uni­ver­sité Paris 1 Pan­théon-Sor­bonne

Frédéric Lor­don, Bureau d’économie théorique et appliquée 

André Orléan, Ecole Nor­male Supérieure

Jacques Sapir, Ecole des Hautes Etudes en Sci­ences Sociales

Henri Ster­dy­niak,
Obser­va­toire français des con­jonc­tures économiques

Ger­many

Heiner Flass­beck, United Nations Con­fer­ence on Trade and Devel­op­ment

Ulrich Fritsche, Uni­ver­sität Ham­burg

Nor­bert Haer­ing, Han­dels­blatt

Gus­tav Horn, Macro­eco­nomic Pol­icy Insti­tute

Lorenz Jarass, Uni­ver­sity of Applied Sci­ences of Wies­baden

Wal­ter Krämer, Unvier­sity of Dort­mund

Man­fred Nitsch, Freie Uni­ver­si­taet Berlin

Sigrid Skarpelis-Sperk, for­mer mem­ber of the Bun­destag

Friederike Spiecker

Greece

Yanis Varo­ufakis, Uni­ver­sity of Athens

Lux­em­bourg

Jean Fey­der, Ambas­sador to the United Nations

Italy

Nicola Aco­cella, Uni­ver­sity of Rome

Gio­vanni Dosi, Sant’Anna School of Advanced Stud­ies

Grazia letto-Gillies, Lon­don South Bank Uni­ver­sity,

Cristina Mar­cuzzo,
Uni­ver­sity of Rome 

Ugo Pagano, Uni­ver­sity of Siena

Luigi Pasinetti, Catholic Uni­ver­sity of Milan

Alessan­dro Roncaglia, Uni­ver­sity of Rome

Annal­isa Rosselli, Roma Tor Ver­gata

Nether­lands

Esther-Mir­jam Sent, Rad­boud Uni­ver­sity Nijmegen 

Irene van Staveren, Inter­na­tional Insti­tute of Social Stud­ies of Eras­mus Uni­ver­sity

Nor­way

Erik S Rein­ert, The Other Canon Foun­da­tion

Rus­sia

Vladimir Avtonomov, Higher School of Eco­nom­ics, Moscow

Elena Sapir, P.G.Demidov Yaroslav State Uni­ver­sity

Swe­den

Peter Söder­baum, School of Sus­tain­able Devel­op­ment of Soci­ety and Tech­nol­ogy

Spain

Anto­nio Gar­rido, Uni­ver­si­dad Politéc­nica de Madrid

Switzer­land

Paul H. Dem­bin­ski, Uni­ver­sity of Fri­bourg

Jochen Hartwig, Uni­ver­sity of Zürich

Friedrich von Kirch­bach, Inter­na­tional Trade Cen­tre

Paul Meier, Swiss Futures and Options Asso­ci­a­tion

Ser­gio Rossi, Uni­ver­sity of Fri­bourg

United King­dom

Mark C. Cas­son, Read­ing Uni­ver­sity

Vic­to­ria Chick, Uni­ver­sity Col­lege Lon­don

Fran­cis Cripps, Cam­bridge Uni­ver­sity

Diane Elson, Uni­ver­sity of Essex 

Sheila C. Dow, Uni­ver­sity of Stir­ling

Edward Full­brook, Real-World Eco­nom­ics Review

Geof­frey Hodg­son, Uni­ver­sity of Hert­ford­shire

Tony Law­son, Cam­bridge Uni­ver­sity

Mary Mel­lor, Uni­ver­sity of Northum­bria at New­cas­tle

Paul Ormerod, Volterra Con­sult­ing

Paul Ray­ment, for­mer direc­tor of UN Eco­nomic Com­mis­sion for Europe

Ann Pet­ti­for, Pol­icy Research in Macro­eco­nom­ics

Robert Skidel­sky, Uni­ver­sity of War­wick

John Weeks, Uni­ver­sity of Lon­don

Latin Amer­i­can and West Indies

Argentina

Aldo Caliari, Rethink­ing Bret­ton Woods Project

Roberto Frenkel, Uni­ver­si­dad de Buenos Aires

Gus­tavo Mar­qués, Uni­ver­si­dad de Buenos Aires

Bar­ba­dos

Keith Nurse,
Uni­ver­sity of the West Indies

Brazil

Luiz Car­los Bresser-Pereira, Getulio Var­gas Foun­da­tion and Uni­ver­sity of São Paulo

Ana Celia Cas­tro, Fed­eral Uni­ver­sity of Rio de Janeiro

Fer­nando Fer­rari Filho, Uni­ver­si­dade Fed­eral do Rio Grande do Sul

Luiz Fer­nando de Paula, Uni­ver­si­dade do Estado do Rio de Janeiro

Chile

Mario Cimoli, UN Eco­nomic Com­mis­sion for Latin Amer­ica and the Caribbean

Mex­ico

Juan Calos Moreno-Brid, UN Eco­nomic Com­mis­sion for Latin Amer­ica and the Caribbean

Ali­cia Puyana, Latin Amer­i­can School of Social Sci­ences

Peru

San­ti­ago Roca, Uni­ver­si­dad ESAN

Jür­gen Schuldt, Uni­ver­si­dad Paci­fico de Lima

- — - — - — - — - — - — -

Canada

Marc Lavoie, Uni­ver­sity of Ottawa 17,300

Jim Stan­ford, Canada, Cana­dian Auto Work­ers

United States

Alice Ams­den, Mass­a­chu­setts Insti­tute of Tech­nol­ogy

Dean Baker, Cen­ter for Eco­nomic and Pol­icy Research

Michael A. Bern­stein, Tulane Uni­ver­sity

Joerg Bibow, Skid­more Col­lege

Ron Black­well, AFL-CIO

Bruce J. Cald­well, Duke Uni­ver­sity

David Colan­der, Mid­dle­bury Col­lege

Robert Costanza, Pot­land State Uni­ver­sity

Her­man E Daly, Uni­ver­sity of Mary­land

Paul David­son, Jour­nal of Post Key­ne­sian Eco­nom­ics

John B. Davis, Mar­quette Uni­ver­sity

Lloyd J. Dumas, Uni­ver­sity of Texas

James Gal­braith, Uni­ver­sity of Texas at Austin

Kevin Gal­lagher, Boston Uni­ver­sity

Jo Marie Gries­graber, New Rules for Global Finance Coali­tion

Stephany Grif­fith-Jones, Colum­bia Uni­ver­sity

Michael Hud­son, Uni­ver­sity of Mis­souri at Kansas City 

Fred­eric S. Lee, Uni­ver­sity of Mis­souri at Kansas City

Robert Locke, Uni­ver­sity of Hawaii

Stephen Mar­glin, Har­vard Uni­ver­sity

Anne May­hew, Uni­ver­sity of Ten­nessee

Deirdre McCloskey, Uni­ver­sity of Illi­nois at Chicago 

Julie A. Nel­son, Uni­ver­sity of Mass­a­chu­setts, Boston

Richard Parker, Har­vard Uni­ver­sity

Peter Rad­ford, The Rad­ford Free Press

Dani Rodrik, Har­vard Uni­ver­sity

Lance Tay­lor, New School for Social Research 

Immanuel Waller­stein, Yale Uni­ver­sity

Mark Weis­brot, Cen­ter for Eco­nomic and Pol­icy Research

Charles K. Wilber, Uni­ver­sity of Notre Dame

L. Ran­dall Wray, Uni­ver­sity of Mis­souri, Kansas City

Stephen T. Zil­iak, Roo­sevelt Uni­ver­sity

About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • DrBob127
  • I dis­agree with their analy­sis Philip, but agree that median hous­ing should cost no more than 3 years median wage. Gov­ern­ment cost imposts can push prices above that level, but to get to where we have, you need debt finance.

  • Lyon­wiss

    Steve

    But it is gov­ern­ment and reg­u­la­tory poli­cies (APRA, Basel etc) that per­mit the high lev­els of debt finance, which aided, not actu­ally caused, the hous­ing bub­bles (see Lyon­wiss May 18, 2011 at 4:14 pm).

  • sir­ius

    @Lyonwiss

    But it is gov­ern­ment and reg­u­la­tory poli­cies (APRA, Basel etc) that per­mit the high lev­els of debt finance, which aided, not actu­ally caused, the hous­ing bub­bles”

    The gov­ern­ment facil­i­tated the credit boom and indeed Gor­don Brown seemed to be proud of repeat­ing “the econ­omy is grow­ing”.

    The rela­tion­ship between gov­ern­ment of the UK can be traced back to 1694 (and beyond) with the Char­ter for the Bank of Eng­land.

    I find that research­ing his­tory is the only real way to get good insight into the true nature of these rela­tion­ships. (I am cur­rently look­ing at the time around 1066 and after in the UK).

    from Dec 12 2005
    “This in turn was because much of the growth came from (unsus­tain­able) debt-financed con­sump­tion. Now, though, the Chan­cel­lor is run­ning out of rab­bits to pull out of the hat.”

    http://www.moneyweek.com/news-and-charts/economics/new-labour-blows-it

    If you can bear to lis­ten or watch Gor­don Brown then a recent speech is here…(I can only bear to lis­ten to small sec­tions myself)…

    Gor­don Brown — The Future of Jobs and Jus­tice
    http://www.youtube.com/watch?v=l1e1TIKu89Y

    (I appre­ci­ate that he may really believe what he is say­ing).

    the “rest” how­ever are no bet­ter…

    Ire­land (a quote from 2006 — I smile ){*****==>}
    chan­cel­lor George Osborne says: “Ire­land stands as a shin­ing exam­ple of the art of the pos­si­ble in long-term eco­nomic pol­i­cy­mak­ing.” He describes the coun­try as a “mir­a­cle”. Alas, he wrote it back in 2006.
    http://www.guardian.co.uk/business/ireland-business-blog-with-lisa-ocarroll/2010/nov/16/ireland-bailout-crisis

    If you seek the truth then I sug­gest you (one) sim­ply stop lis­ten­ing to what these peo­ple say and use what “God” gave you (one) to think for one­self.

    IMHO. To debate what these peo­ple say is point­less and a waste of time.

    How­ever that Jared Dia­mond fella is bril­liant…
    http://video.google.com/videoplay?docid=4271982381147720351#

    And this I find to be bril­liant
    Guns, Germs and Steel (I)
    http://www.youtube.com/watch?v=KFjtbh6u9fw

  • sir­ius

    From the same link I have given the words…

    The IMF recently dared to sug­gest that if the UK didn’t cut spend­ing, taxes would have to rise. Brown, hubris intact, was furi­ous. “The staff of the IMF have been wrong before about British growth,” he said, and they’ll be wrong this time too: stronger growth will pro­vide the tax rev­enue nec­es­sary to cover any short­fall.”

    http://www.moneyweek.com/news-and-charts/economics/new-labour-blows-it

    And how about this site?

    British vot­ers have been repeat­edly told that Gor­don Brown man­aged to give Britain the longest period of sus­tained growth in his­tory. Things may be going badly now but things did appear to be very good until a year ago. In fact all Gor­don Brown did was encour­age peo­ple to feel good because the value of their homes was increas­ing, which in turn encour­aged them to bor­row.”
    http://www.howitends.co.uk/has-there-been-growth.php

    Is it only myself that can con­ceive of a dif­fer­ent world with a dif­fer­ent style social con­tract ? (ques­tion is rhetor­i­cal). No offense is meant it is just that I am repeat­edly struck by the fact that the peo­ple I meet can­not indeed visu­alise any­thing dif­fer­ent to what appears to be hap­pen­ing in the world.

    A recent meet­ing with some­body resulted in a response of “Mad Max, bring it on !”.

    Is any­body here famil­iar with the term “con­struc­tive destruc­tion?”

  • Oh def­i­nitely Lyon­wiss,

    But the “reforms” were done when the bank­ing sec­tor had hit the lim­its of what it could get away with under the pre­vi­ous sys­tem.

  • ak

    Sir­ius,

    Is any­body here famil­iar with the term “con­struc­tive destruc­tion?”

    Yes I am famil­iar as I spent my first 22 years of life in a sys­tem which was a result of “con­struc­tive destruc­tion”. The guy who man­aged that process was called Vladimir Iliych Lenin with a lit­tle help from Trot­sky, Dzierzhyn­ski, Stalin and a few other thugs.

    BTW the process of the “con­struc­tive destruc­tion” of the late com­mu­nist sys­tem led to 20% unem­ploy­ment (at the peak) and over 5% of the pop­u­la­tion migrat­ing away from the coun­try. This is quite ironic as it was Lenin who advo­cated “steal­ing what has been stolen”. So steal­ing what has been stolen twice was not a good idea either. 

    It was a grad­ual process of con­trolled reforms (under­taken in China in the name of “mar­ket social­ism”), not the neolib­eral shock ther­apy (Poland, Rus­sia) what deliv­ered much bet­ter results in terms of improv­ing people’s liv­ing con­di­tions and wealth. (I am not defend­ing sup­press­ing human rights but this is a sep­a­rate issue).

    In 1989 I blindly believed in the eco­nomic shock ther­apy as an ele­ment of a cre­ative destruc­tion of a cor­rupt and evil com­mu­nist sys­tem. I was young and naive. We, the anti-com­mu­nist activists, screwed up a quite nice coun­try. You just need to go for a walk and see the faces of Pol­ish home­less peo­ple (I’m assum­ing you live in the UK) to under­stand what I mean. We hadn’t had that stuff in 1988 under the col­laps­ing real social­ism… this was not what we expected to see in our promised land of eco­nomic free­dom and freshly restored absolute prop­erty rights. That alter­na­tive “social con­tract” was in fact made with the devil. 

    One lit­tle mis­take in your life and you’re out — first unem­ployed then often home­less and addicted to alco­hol of drugs. (Of course every long-term unem­ployed or home­less is guilty of being irre­spon­si­ble in the past so they all get what they deserve — this is what the neolib­eral moral­ists teach us every day).

    NB I have never had any prob­lems with earn­ing enough money for myself or for my fam­ily (in Poland and later in Aus­tralia) and I was mas­sively bet­ter off after the col­lapse of com­mu­nism but not every­one was so lucky. 

    In the UK it might be inter­est­ing to see what will hap­pen if the con­ser­v­a­tive PM destroys the NHS in the name of reduc­ing the waste and the cut­ting bud­get deficit. My bet is that it will look the same as Pol­ish pub­lic health sys­tem after sev­eral rounds of sim­i­lar cost-cut­ting reforms. Again — the sys­tem will be much bet­ter for young, healthy, rich and famous. A new/old kind of per­verted “social con­tract” inspired by the social Dar­win­ism of the neo­con­ser­v­a­tives. Back to the good old world of Dick­ens.

    But if some­one gets sick — first it is his or her mis­take so you’ve to pay for it –he/she should not have smoked that weed 45 years ago and dam­aged the lungs. Then — there is a fix. Rich peo­ple not happy with the wait­ing lists in the pub­lic health care sys­tem can always afford to travel to Switzer­land to an euthana­sia clinic to save money for the econ­omy and per­form con­struc­tive destruc­tion on them­selves.

  • Philip

    Steve,

    Sta­ple­don and oth­ers have writ­ten that the decline in real inter­est rates explain most but not all of the rise in house prices over the last decade and a half, argu­ing that this is some sort of fun­da­men­tal that under­pins hous­ing mar­ket prices.

    This sounds sus­pi­ciously neo­clas­si­cal but I can’t see the point that is been made. Is it because they see mar­kets respond­ing to real low inter­est rates and then adjust­ing to some new equi­lib­rium where prices are always effi­cient?

  • It’s glib rather than sound analy­sis Philip: if it were true, house prices would have been higher (rel­a­tive to incomes) in the 1960s than they are now.

  • Philip

    Thanks Steve.

    One mar­ket that doesn’t seem to get much atten­tion is the RMBS mar­ket. Over the last cou­ple of years, the gov­ern­ment has inter­vened to prop it up. Is this mar­ket impor­tant in the larger scheme of things?

  • Lyon­wiss

    Philip

    I have com­mented on mort­gage secu­ri­ti­sa­tion many times on this blog. The struc­ture of this blog does not per­mit me to refer eas­ily to those ear­lier com­ments, made under dif­fer­ent threads. The RMBS mar­ket is one of the main causes of the GFC!

    The sub­prime cri­sis in the US was a cri­sis in mort­gage secu­ri­ti­sa­tion, which has flawed incen­tives pointed out by Min­sky as early as 1992 (dis­cussed in one of my ear­lier posts). It is a mech­a­nism to pass or “shared” the under­writ­ing risk to investors. Once investors lost lots of money (e.g. Basis Cap­i­tal lost $100 mil­lion from a Gold­man Sachs deal), they are not com­ing back: the mar­ket is dead.

    Aus­tralian gov­ern­ment and the Trea­sury are mis­guided by the idea of com­pe­ti­tion in the home lend­ing mar­ket. Small play­ers such RAMS and Yel­low Brick Road can­not fund home lend­ing except through mort­gage secu­ri­ti­sa­tion, because they are not deposit tak­ers, like ADIs (big banks and credit unions) reg­u­lated by APRA. It’s sheer stu­pid­ity in revive secu­ri­ti­sa­tion, unless the moral haz­ard prob­lem is solved.

  • mahaish

    This is the shabby secret of the wel­fare sta­tists’ tirades against gold. Deficit spend­ing is sim­ply a scheme for the con­fis­ca­tion of wealth”

    what infla­tion lyon­wiss,

    not with high unem­ploy­ment in most parts of the OECD.

    the gold stan­dard is a relic of the past except in europe by the looks of it,

    and its look­ing like a bed of roses there, not.

    the sooner we expunge gold stan­dard think­ing from our col­lec­tive con­sious­ness the bet­ter.

    that goes for cur­rency pegs as well,

    both of them are bad ideas and no good will come of them,

    as we will find out as the dis­as­ter in europe plays out.

  • mahaish

    the gov­ern­ment finan­cial deficit is equal to the non gov­ern­ment finan­cial sur­plus.

    so lyon­wiss,

    gov­ern­ment finan­cial deficits add to pri­vate sec­tor sav­ings

  • Lyon­wiss

    mahaish May 21, 2011 at 10:23 pm

    US gov­ern­ment debt is largely owned by China and Japan and not by US cit­i­zens. This is very dif­fer­ent from the assump­tions of MMT. The US gov­ern­ment may be able to con­fis­cate wealth from its cit­i­zens, but it is a dif­fer­ent mat­ter with for­eign­ers.

  • Lyon­wiss

    mahaish May 21, 2011 at 10:23 pm

    By the way, MMT tells you that in a closed econ­omy you could rape, pil­lage and plun­der the cit­i­zens by the gov­ern­ment through a fiat cur­rency. But it doesn’t tell you that you ought to do it or that its is sus­tain­able (i.e. with­out revolt and rev­o­lu­tion).

  • sir­ius

    @AK

    Do you really believe in this kind of stuff K. Den­ninger writes, has he con­vinced you with his argu­ments or do you sim­ply like it because it is nicely dark and gloomy?”

    Because he under­stands the flows link­ages and nature of credit money and expo­nen­tial math­e­mat­ics very well indeed. 

    Read a few hun­dred of his tick­ers and that should be very appar­ent.

    He under­stands the need to limit the amount of liq­uid­ity in the sys­tem and the impotance of the routes in which that liq­uid­ity enters the sys­tem and is used in the sys­tem. Using liq­uid­ity for mate­r­ial amounts of con­sump­tion rather than non-pro­duc­tive pur­poses is ulti­mately bad.

    I con­sider him expert on the sys­tem that we cur­rently have. I have ben­e­fited from his insight to under­stand the sys­tem. My rea­son­ing (as an engi­neer) is that is wise to under­stand the strengths and weak­nesses of any exist­ing sys­tem before mod­i­fy­ing or replac­ing it. It is my desire to see the exist­ing sys­tem replaced as it has some char­ac­ter­is­tics which I believe make it very bad for human­ity.

    Enough of that. back to the exist­ing sys­tem…

    The USA has taken advan­tage of its reserve cur­rency sta­tus (and mil­i­tary indus­trial com­plex) to escape real­ity for decades. Just look at the bal­ance of trade fig­ures since 1992 for exam­ple. What do you call some­body who never actu­ally pays their debt ?

    That reminds me of a sign in a shop, “please don’t ask for credit as a refusal often offends”.

    One just needs to under­stand what brought the GFC into play in the 1st place.

    I really don’t see how you can­not see espe­cially as you come to Steve Keen’s site and he has pro­duced enough mod­el­ling to demon­strate the basic mechan­ics of money.

    In addi­tion I find that peo­ple who say “print more” are more likely to live in the US and gen­er­ally have a much bet­ter dis­pos­able income cush­ion and bet­ter stan­dard of liv­ing than those who say live for exam­ple in Egypt.

    In the last 2 years I have mused many times how I would absolutely love to have a class of peo­ple with whom I could con­verse and show and clar­ify things that peo­ple sim­ply just fail to get.

    Go and down­load QED and have a play.

    Go watch the basic corn econ­omy video at http://www.debtdeflation.com/blogs/2010/11/15/why-credit-money-fails/

    Appre­caite that it is a macro model and con­sider the great wealth inequal­ity that was facil­i­tated by this credit boom.

    I would love to explain more but this blog for­mat is just not ade­quate. I need to see what you have read and what your under­stand­ing is in order to be able to advise.

    There is some­thing that Mar­tin Armstrong’s mother said … some­thing along the lines of “a lit­tle of some­thing can be very good and a lot can be very bad for you”.

    If you think about it the whole world is based upon appro­pri­ate quan­ti­ties of things. (Think about bak­ing a cake).

    The wis­est thing I can sug­gest to any­body who gives a damn about equal­ity is to try and put them­selves into the shoes who have already been abused by the eco­nomic sys­tem and con­sider what the effects would be on them.

    I can afford more price rises in com­modi­ties but I am very much aware that oth­ers can­not.

    So at the very basic level, the fact that one can count this form of money and relate its use to cir­cum­stances in real­ity really makes it very easy to under­stand once one has the good for­tune to find some­body like Steve Keen who presents it to you “on a plate”.

    I have some deep dis­agree­ments how­ever with Steve Keen but I am aware that in this world “to tell the truth and noth­ing but the whole truth” will cause an auto­matic exclu­sion from the “eco­nom­ics club” such as it is.

    You have heard of the “time value of money” and the rela­tion­ship of price and decay in the phys­i­cal world?

    Well take a litre of petrol and drive you car for say 6 miles. You do that in say 10 min­utes. Now how long will it take to replen­ish that stock of petrol that you used? Answer is a few mil­lion years.

    The price of that petrol is based upon its extrac­tion time cost and does not bear a rea­son­able rela­tion­ship to its replen­ish­ment time and cost.

    As Jared Dia­mond answers ques­tions at the end of the talk he gives (see link in pre­vi­ous post)… “The only peo­ple who believe in infi­nite growth on a finite planet are idiots and econ­o­mists”.

    I wish we had engi­neers in charge of this planet. They would have no prob­lem under­stand­ing many of these things.

  • sir­ius

    type ‘impotance” I meant ‘impor­tance’

  • ak

    Lyon­wiss,

    I urge you to recon­sider your posi­tion in regards to MMT as I don’t think it is based on his­toric facts and on sound under­stand­ing of that the­ory. It wouldn’t hurt to read some of Ran­dall Wray’s or War­ren Mosler’s papers if you don’t like the writ­ing style of Bill Mitchell.

    By the way, MMT tells you that in a closed econ­omy you could rape, pil­lage and plun­der the cit­i­zens by the gov­ern­ment through a fiat cur­rency. But it doesn’t tell you that you ought to do it or that its is sus­tain­able (i.e. with­out revolt and rev­o­lu­tion).”

    You can open any his­tory text­book where you can find that MMT is not nec­es­sary for a total­i­tar­ian gov­ern­ment to rape, pil­lage and plun­der the cit­i­zens (or even send them to gas cham­bers). Adolf Hitler did not print money. Stalin did but this was really the least impor­tant detail when NKVD was com­ing in early morn­ing to pick up peo­ple and either kill them instantly or send them to Siberia or Kaza­khstan. He did not need to print money to finance his ter­ror.

    http://en.wikipedia.org/wiki/Economics_of_fascism

    I dare to say again that it was the absence of job cre­ation pro­grams in the early 1930-ties what enabled the Nazis to seize the power in Ger­many. The same applies to some extent to Italy.

    On the oppo­site MMT tells you that in either open and closed econ­omy the gov­ern­ment can empower its cit­i­zens by cre­at­ing jobs for every­one and can con­trol the aggre­gate demand (prob­a­bly not in the way it worked in the early 1970-ties when some seri­ous mis­takes were made). If we get rid of the fiat cur­ren­cies we are back to 19th cen­tury. Of course if stu­pid or cor­rupt peo­ple are in power then the capac­ity to “print money” may be mis­used. But deny­ing that capac­ity will not solve the prob­lem. The prob­lem can only be solved by remov­ing bad peo­ple from the power. 

    US gov­ern­ment debt is largely owned by China and Japan and not by US cit­i­zens. This is very dif­fer­ent from the assump­tions of MMT. The US gov­ern­ment may be able to con­fis­cate wealth from its cit­i­zens, but it is a dif­fer­ent mat­ter with for­eign­ers.”

    There is indeed a sig­nif­i­cant dif­fer­ence between Japan and the US in terms of own­er­ship of the gov­ern­ment secu­ri­ties but in prac­ti­cal terms this doesn’t change any­thing. The US gov­ern­ment “con­fis­cates wealth” by the act of “print­ing” (or rather sell­ing bonds in the cur­rent frame­work) not by destroy­ing the cur­rency (tax­a­tion). Tax­a­tion is required to sup­press the demand from the pri­vate sec­tor and make the money tokens scarce.

    The Chi­nese vol­un­tar­ily accept these fiat dol­lars. They don’t have to. They may request gold or their own cur­rency to be paid for the goods they deliver. They pre­fer dol­lars because this increases the export posi­tion, the aggre­gate demand, the prof­its and the invest­ment. Their goal is not the max­i­miza­tion of con­sump­tion but the max­i­miza­tion of invest­ment.

    They also think that run­ning the sur­pluses and stock­pil­ing the US bonds/currency may help fight­ing the infla­tion in China (we will soon see how it works). It is the Amer­i­cans who com­plain that the Chi­nese cen­tral bank ster­il­izes the export sur­plus.

    The Chi­nese may also pur­sue cer­tain polit­i­cal goals (to get more influ­ence over the Amer­i­can gov­ern­ment) by hoard­ing dol­lars.

    The only observ­able eco­nomic effect on the Amer­i­can domes­tic mar­ket of abruptly stop­ping that process (which is rather inevitable and may hap­pen sooner or later) will be an increase in the prices of imported com­modi­ties and a dras­tic increase in the prices of goods sourced from China.

    If we exclude explicit import con­trols and cus­tom duties as a tool of choice, the Amer­i­cans can do noth­ing to stop the Chi­nese sell­ing them goods at the price fixed by the Chi­nese. How­ever the Chi­nese can do noth­ing to stop the Amer­i­cans cre­at­ing as many dol­lars as they want (or need to cre­ate to reduce unem­ploy­ment in the US).

    In my opin­ion the spe­cial inter­na­tional sta­tus of the Amer­i­can cur­rency will be eroded no mat­ter what hap­pens. If the Amer­i­cans go into aus­ter­ity mode, they will shrink the econ­omy and lose the posi­tion of an eco­nomic super­power, becom­ing a typ­i­cal (Latin)-American coun­try. If the Amer­i­cans keep run­ning trade deficits even­tu­ally every­one will lose inter­est in hoard­ing these tokens and accept­ing these dol­lars for the com­modi­ties and other goods sold to the US. Then the exchange rate wob­bles (pos­si­bly quite vio­lent and lead­ing to bouts of cost-push infla­tion) will rebal­ance the global trade.

    Print­ing” dol­lars (sell­ing bonds to the Fed and spend­ing cur­rency) as opposed to sell­ing bonds on the mar­kets changes vir­tu­ally noth­ing except for the yield curve on the bonds.

    The only thing MMT is incom­pat­i­ble with is allow­ing these peo­ple who hoard money (in the form of bonds, bank deposits or other finan­cial assets) to receive a con­stant stream of income com­ing from the very fact they already have got sav­ings. The MMT the­o­rists want to get rid of the M-M’ cir­cuit by keep­ing zero inter­est rates. 

    If taxes and dis­cre­tionary spend­ing rather than inter­est rates are used as a tool to mod­er­ate the busi­ness cycle, it may be actu­ally eas­ier to dis­cour­age the inevitable emer­gence of spec­u­la­tive bub­bles and limit their neg­a­tive impact in terms of real resources mis­al­lo­ca­tion.

    You would prob­a­bly want to see the eco­nomic role of the gov­ern­ment severely lim­ited because all the gov­ern­ments are cor­rupt. I dis­agree with this. If we dis­man­tle the struc­tures of our state some­one else will come and seize or destroy our wealth. This hap­pened with India in the 18th cen­tury and China in the 19th. This also hap­pened in 1991 in the Soviet Union — the actual eco­nomic and social col­lapse hap­pened after the destruc­tion of the inef­fi­cient and cor­rupt cen­trally con­trolled com­mu­nist struc­ture. The Chi­nese did not allow for the destruc­tion of the inef­fi­cient struc­ture but grad­u­ally evolved their eco­nomic model into a kind of state cap­i­tal­ism or “mar­ket social­ism”.

    The gov­ern­ment is not our enemy. Some cor­rupt and incom­pe­tent politi­cians may be worth remov­ing but the struc­ture is essen­tial to the sur­vival of our sophis­ti­cated 21th cen­tury soci­ety. I actu­ally vis­ited the for­mer Soviet Union right after the col­lapse in 1992 and what I saw where was sad mess and anar­chy not any kind of wide­spread hap­pi­ness because of the removal of the com­mu­nist oppres­sion. I have very lit­tle to defend the com­mu­nists as my fam­ily suf­fered from their hands but this doesn’t mean that the vac­uum filed up by the clep­to­crats and West­ern cor­po­ra­tions try­ing to steal the nat­ural resources of Rus­sia was any bet­ter. The neolib­eral model didn’t work there and the state even­tu­ally went bank­rupt in 1998 before the order was restored by Putin.

    The idea that aus­ter­ity and get­ting rid of fiat cur­ren­cies may make our West­ern economies any bet­ter is based on delu­sional neo­clas­si­cal and Aus­trian eco­nomic beliefs (wouldn’t call them the­o­ries). Will a depres­sion (like in 1933) make us stronger? 

    Of course we must allow for dead wood to be removed from the econ­omy. I am all for the com­pe­ti­tion and for the mar­kets to play their role. I am not for a cen­tral con­trolled com­mand sys­tem which clearly failed and was an instru­ment of an oppres­sive total­i­tar­ian state. But deep reces­sions and depres­sions destroy the eco­nomic and social fab­ric rather than allow for the growth of new tech­nolo­gies bring­ing about the progress. Look what hap­pened in Poland or East­ern Europe in gen­eral — peo­ple like me (I claim to be well edu­cated, don’t know whether I’m intel­li­gent) sim­ply left. What’s left is a dog-eats-dog type soci­ety. Have you ever been there? I sim­ply don’t want my kids to grow up in a soci­ety where if you are not greedy enough you’re a loser who will be imme­di­ately exploited by the “smart” peo­ple. This is the human face of the eco­nomic effi­ciency increased by apply­ing aus­ter­ity to the soci­ety. Yes the most of my friends are doing either well or very well. The rich­est are — of course — bank man­agers… one of my most tal­ented class­mates who is actu­ally a car­di­ol­o­gist — became a banker, too. At least here in Aus­tralia there is a kind of “grey zone” — I don’t have to sac­ri­fice myself to mak­ing a career in order to live in the way I like.

    If we get rid of the fiat cur­ren­cies and revert back to gold money we will become eco­nomic colonies of these coun­tries which have fiat cur­ren­cies. We are in a global zero-sum game because the nat­ural resources avail­able on our planet are lim­ited. If the gov­ern­ments and state struc­tures are not destroyed simul­ta­ne­ously every­where in the world — the last one who stays strong will win.

    We have also for­got­ten about the role of big cor­po­ra­tions in the West­ern soci­eties. If we get rid of the gov­ern­ment they will seize that role. We may be directly man­aged by another East India com­pany.

    Finally let me com­ment on the suc­cess of the Teu­tonic eco­nomic model which is based on the per­sis­tent aus­ter­ity and cheap labour (increas­ingly sourced from the neigh­bour­ing coun­tries). The Ger­mans only pros­per because their econ­omy is stim­u­lated by the growth of credit in the EU deficit coun­tries and to some extent the demand for the man­u­fac­tur­ing equip­ment and mod­ern tech­nol­ogy from China. The Ger­mans talk about impos­ing aus­ter­ity else­where but if that hap­pens they will suf­fer too (or the cur­rent Euro­pean par­a­digm will have to change). It is also inter­est­ing to see what will hap­pen with the demand when the Ger­mans finally trans­fer enough man­u­fac­tur­ing tech­nol­ogy and know-how to China.

  • ak

    Sir­ius,

    Thanks for the response. Now now I know where you’re com­ing from. 

    I agree with you on acknowl­edg­ing that the stock of nat­ural resources is lim­ited.

    What I think is incor­rect is the assump­tion that the quan­tity of medium of exchange (“liq­uid­ity”) is the main dri­ving fac­tor of the econ­omy.

    This is mon­e­tarism. It was tried and it failed in the real life. Mon­e­tary tokens are claims on real things. They are not real.

    I have already pro­vided some argu­ments against the dynamic mod­els based on these assump­tion in the past. The stock of money/credit and credit impulse are impor­tant fac­tors but not the main dri­ving force of the econ­omy.

    BTW I have my own rather prim­i­tive ver­sion of QED in Scilab — but this is not rel­e­vant to this dis­cus­sion at this point of time.

    There is an alter­na­tive (also imper­fect because 2 things are miss­ing, one of them is the assets spec­u­la­tion com­po­nent lead­ing to a preda­tor-prey like sys­tem) in the form of stock-flow con­sis­tent mod­els devel­oped by the Godley’s school. Here the demand dri­ves the sup­ply and obvi­ously the value of mon­e­tary and real stocks influ­ences the flows.

    Please visit this site, it is much bet­ter than the Denninger’s:

    http://sfc-models.net/

    NB they are cur­rently work­ing on debt defla­tion but I don’t know what they got as I haven’t estab­lished a direct link with them yet.

    As a teaser — this is a Python script which runs the sim­plest (ele­men­tary) model from Chap­ter 3 of Godley’s book. The stock of money in this triv­ial model sta­bi­lizes over time. I need to per­fect one step in con­vert­ing the mod­els from eviews to Python then I’ll be able to run the model with the endoge­nous money too.

    #!/usr/bin/env python

    # model from Chap­ter 3 Mon­e­tary Eco­nom­ics

    # c_d Con­sump­tion goods demand by house­holds
    # c_s Con­sump­tion goods sup­ply
    # g_d Gov­ern­ment goods, demand
    # g_s Gov­ern­ment goods, sup­ply
    # h_h Cash money held by house­holds
    # h_s Cash money sup­plied by gov­ern­ment
    # n_d Demand for labour
    # n_s Sup­ply of labour
    # t_d Taxes, “demand”
    # t_s Taxes, “sup­ply”
    # w Wage rate
    # y Income = GDP
    # yd Dis­pos­able income of house­holds

    # alpha1 Propen­sity to con­sume out of income
    # alpha2 Propen­sity to con­sume out of wealth
    # theta Tax rate

    # Para­me­ters
    alpha1 = 0.6
    alpha2 = 0.4
    theta = 0.2

    # State of the model is described by the fol­low­ing (endoge­nous) vari­ables
    # h_h
    # h_s

    # Deter­mi­na­tion of start­ing val­ues of all the para­me­ters

    # Exoge­nous (in steady state)
    g_d=20
    w=1

    # Endoge­nous vari­ables (in steady state) 

    g_s = g_d
    y = g_s/theta
    yd =g_s*(1-theta)/theta
    c_d = yd
    c_s = c_d
    h_h = (1-alpha1)*yd/alpha2
    h_s = h_h
    n_d = y/w
    n_s = n_d
    t_d = theta*w*n_s
    t_s = t_d

    # Dynamic sim­u­la­tion
    # 1. cal­cu­late exoge­nous para­me­ters
    # 2. assign x_1 = x as pre­vi­ous period n becomes cur­rent n-1, sam­pling period is 1 year
    # 3. solve the equa­tions

    for year in range (1957,2001):
    # Gov­ern­ment expen­di­ture (exoge­nous vari­able)
    if year < 1960:
    g_d = 20
    else:
    g_d = 25 

    # the order of assign­ments is rel­e­vant
    # lines where there is a depen­dency on the pre­vi­ous period must appear first
    # to improve read­abil­ity explicit aux­il­iary vari­ables from the pre­vi­ous period have been added

    h_h_1= h_h
    h_s_1 = h_s
    # solve the model

    h_s = ((alpha1*h_s_1 — alpha2*h_h_1)*theta + ((alpha1 — 1)*theta — alpha1 + 1)*g_d — alpha1*h_s_1 + h_s_1)/(alpha1*theta — alpha1 + 1)
    h_h = ((alpha1 — alpha2)*h_h_1*theta — (alpha1 — 1)*h_h_1 + ((alpha1 — 1)*theta — alpha1 + 1)*g_d)/(alpha1*theta — alpha1 + 1)
    c_s = -((alpha1*theta — alpha1)*g_d — alpha2*h_h_1)/(alpha1*theta — alpha1 + 1)
    c_d = -((alpha1*theta — alpha1)*g_d — alpha2*h_h_1)/(alpha1*theta — alpha1 + 1)
    g_s = g_d
    t_s = (alpha2*h_h_1*theta + g_d*theta)/(alpha1*theta — alpha1 + 1)
    t_d = (alpha2*h_h_1*theta + g_d*theta)/(alpha1*theta — alpha1 + 1)
    n_s = (alpha2*h_h_1 + g_d)/((alpha1*theta — alpha1 + 1)*w)
    n_d = (alpha2*h_h_1 + g_d)/((alpha1*theta — alpha1 + 1)*w)
    yd = -(alpha2*h_h_1*theta + (theta — 1)*g_d — alpha2*h_h_1)/(alpha1*theta — alpha1 + 1)
    y = (alpha2*h_h_1 + g_d)/(alpha1*theta — alpha1 + 1)

    print “year=”, year,” h_h=”,h_h, ” y=”, y

  • mahaish

    US gov­ern­ment debt is largely owned by China and Japan and not by US cit­i­zens. This is very dif­fer­ent from the assump­tions of MMT. The US gov­ern­ment may be able to con­fis­cate wealth from its cit­i­zens, but it is a dif­fer­ent mat­ter with for­eign­ers”

    exactly the oppo­site lyon­wiss,

    if the chi­nese want to exchange their hard earned labour for amer­i­can dol­lars or its proxy in the form of a trea­sury secu­rity,

    its a road to eco­nomic hell for them me thinks not the amer­i­cans,

    since the sov­er­eign can attempt to change the value of the cur­rency thus erod­ing the value of the US dol­lar denom­i­nated assetts that the chi­nese hold.

    the yanks are essen­tially get­ting some­thing for noth­ing and are extract­ing a nett ben­e­fit from the chi­nese, since they the amer­i­cans get to enjoy the beneift of all that hard earned chnese labour.

    in return the chi­nese get dol­lars. in the past under the british they got opium.

    not quite sure which was the bet­ter propo­si­tion

  • Philip

    Look­ing at RBA data on the value of total res­i­den­tial stock in Aus­tralia (whether it is in nom­i­nal or real terms is not noted), if house prices were to means-revert back to long-run trends, then Aus­tralia could be look­ing at a loss of $2 tril­lion in hous­ing value.

  • sir­ius

    @AK


    What I think is incor­rect is the assump­tion that the quan­tity of medium of exchange (“liq­uid­ity”) is the main dri­ving fac­tor of the econ­omy.

    This is mon­e­tarism. It was tried and it failed in the real life. Mon­e­tary tokens are claims on real things. They are not real.
    ””

    I hope that you will for­give me as I will not be fol­low­ing any more of your posts as you really haven’t grasped what I was say­ing.

    I will blame my lim­ited com­mu­ni­ca­tion abil­i­ties and the blog for­mat for this as it really is not ade­quate to even begin to cover the breadth of what I would wish to say. 

    I stand by my resolve that a “class­room sit­u­a­tion” held on reg­u­lar inter­vals would at least be worth a try but my expe­ri­ence has been that peo­ple are very myopic and would pre­fer to ignore things that they con­sider “incon­ve­nient”.

    Which reminds me to add that before one enters the door it is impor­tant to ask cer­tain ques­tions as to what an indi­vid­ual believes in. (I am not refer­ring specif­i­cally to reli­gion here).

    In addi­tion I made the state­ment that Den­ninger under­stood much bet­ter than most the math­e­mat­ics *and* the true nature of sys­tem we have. That does not mean I agree with it. (I don’t).

    I have spent far too long debat­ing with peo­ple on the inter­net already and find that when peo­ple get “boxed-in” by an argu­ment they just walk away.

    So nowa­days I limit myself to just a few exchanges and just repeat­edly high­light­ing a few things so that peo­ple can look and judge for them­self.

    I can eas­ily break many argu­ments — I don’t even get an oppor­tu­nity to get started. At its core mod­ern day eco­nom­ics is extremely sim­ple.

    I think a lot of what people’s stand­point is on these issues comes down more to what they “believe”.

    I am wait­ing for QEIII and the con­tin­ued debase­ment of all cur­ren­cies. We will see how it works out (if I am still around by then).

    BTW I don’t do “isms” and words like “mon­e­tarism” etc etc. I used “liq­uid­ity” only as a foil.

  • Lyon­wiss

    Ak and Mahaish

    Ak said: “I urge you to recon­sider your posi­tion in regards to MMT as I don’t think it is based on his­toric facts and on sound under­stand­ing of that the­ory. It wouldn’t hurt to read some of Ran­dall Wray’s or War­ren Mosler’s papers if you don’t like the writ­ing style of Bill Mitchell.” There are many assump­tions on your part and it is not a polite way to dis­cuss. Of course, I can­not have a “sound under­stand­ing” if I dis­agree with you. And of course, I could not have read “some of Ran­dall Wray’s or War­ren Mosler’s papers.” It would be nice if Ak could apol­o­gize for such rude­ness.

    I apol­o­gize for being a bit hasty in exag­ger­at­ing US for­eign debt, which no one has chal­lenged here so far. We know that US gov­ern­ment debt has reached the $14 tril­lion ceil­ing. Accord­ing to US Trea­sury:

    http://www.treasury.gov/press-center/press-releases/Pages/tg1153.aspx

    For­eign­ers own about $7 tril­lion in Asset Backed Secu­ri­ties (ABS) and Trea­suries, so another $7 tril­lion is inter­nally owned. But we also know that the Fed has bought over $2 tril­lion of debt secu­ri­ties in bailouts through TAF, TALF etc, which were mon­e­tized in the MMT tra­di­tion. So US cit­i­zens indi­rectly own (through pen­sion funds and hedge funds) about $5 tril­lion of gov­ern­ment debt com­pared to $3 tril­lion own by China and Japan.

    But my point is print­ing money has con­se­quences lying out­side the con­sid­er­a­tions of eco­nomic the­ory, with other con­se­quences being polit­i­cal insta­bil­ity and revolt. The for­eign con­se­quences are out­side the con­trol the US gov­ern­ment. But even domes­ti­cally, what’s pos­si­ble is not always what’s desir­able. Greece, Spain, Ire­land etc. are all car­ry­ing out legal gov­ern­ment poli­cies (with­out judg­ing their mer­its, even if not directly print­ing Euros), but there are adverse reac­tions and poten­tially unde­sir­able con­se­quences.

    Mahaish’s state­ment: “gov­ern­ment finan­cial deficits add to pri­vate sec­tor sav­ings” could be con­sid­ered in rela­tion to some recent blog com­ments:

    http://www.creditwritedowns.com/2011/05/more-on-the-upside-down-world-of-mmt.html

    I do not agree with every­thing there, but there are some valid points worth con­sid­er­ing. One of the main con­cerns of MMT is full employ­ment, which is yesterday’s prob­lem and hardly any­one seems to under­stand this “game changer”. We are mov­ing into a post-employ­ment soci­ety, for which tra­di­tional eco­nomic par­a­digm, past and cur­rent eco­nomic poli­cies are irrel­e­vant. This is another topic alto­gether.

  • ak

    One of the main con­cerns of MMT is full employ­ment, which is yesterday’s prob­lem and hardly any­one seems to under­stand this “game changer”. We are mov­ing into a post-employ­ment soci­ety, for which tra­di­tional eco­nomic par­a­digm, past and cur­rent eco­nomic poli­cies are irrel­e­vant.”

    So we should go and tell these young peo­ple who con­gre­gate in Madrid’s Puerta del Sol that we are mov­ing into a post-employ­ment soci­ety and they should just go and enjoy the new eco­nomic par­a­digm. I would even sug­gest vis­it­ing one of the Cen­tre­link offices in West­ern Syd­ney. Some of the peo­ple who come for help there fail to under­stand that full employ­ment is a yesterday’s prob­lem.

    The view that we’re liv­ing in a kind of eco­nomic “new par­a­digm” sounds like the state­ment made by one of my favourite “deep thinkers”:

    What we may be wit­ness­ing is not just the end of the Cold War, or the pass­ing of a par­tic­u­lar period of post-war his­tory, but the end of his­tory as such: that is, the end point of mankind’s ide­o­log­i­cal evo­lu­tion and the uni­ver­sal­iza­tion of West­ern lib­eral democ­racy as the final form of human gov­ern­ment.” (F. Fukuyama, 1992)

    This described per­fectly well what’s going on now in China and other sim­i­lar coun­tries. They will keep mis­al­lo­cat­ing resources and send­ing cargo to the US in exchange for poten­tially worth­less green coupons until they over­take the deca­dent and decay­ing West.

    What­ever it takes…

  • ak

    … more on China

    big­ger price falls may be on the hori­zon given ruc­tions in China’s prop­erty mar­ket, accord­ing to famed short-seller and China bear, Jim Chanos.”

    “Sixty per cent of China’s econ­omy is dri­ven by the 12-year-old real estate con­struc­tion and devel­op­ment mar­ket — twice the pro­por­tion of the Asian tigers before the Asia cri­sis hit in 1997, he told CNN ear­lier this year.”

    http://news.smh.com.au/breaking-news-business/china-woes-loom-over-local-property-market-20110523-1ezdz.html

    So they will stim­u­late again… but only when the prices of com­modi­ties fail (why should the Chi­nese over­pay us?) and we’re broke. No, not them. We are the stu­pid and they are the smart.

    It will be very inter­est­ing to see what will hap­pen when there is not enough demand for Chi­nese Trea­sury Bonds. If a local rat­ing agency down­grades the debt will the Cen­tral Com­mite of the Com­mu­nist party reduce its “unsus­tain­able” budged deficit (like in Ire­land, Spain, Greece) or will they just send the whole staff of the rat­ing agency for extended hol­i­days to Inner Mon­go­lia (for the so-called re-edu­ca­tion by hard labour).

    Watch­ing China over the next 2 years — how the hous­ing bub­ble bursts there and how this can (or can­not) be cleaned up is the ulti­mate test of both MMT and the Austrian/neoclassical the­o­ries.

    I haven’t said that the Chi­nese are the strict fol­low­ers of MMT. They have inde­pen­dently com­bined some ele­ments from Marx-Keynes-Kalecki-Lerner with hard­core Bis­mar­ck­ian mer­can­til­ism.

    My bet is on slightly reduced growth of GDP in 2011 and 2012 but no major “change in eco­nomic par­a­digm”.