Open thread October 30, 2012 Dan Crawford | October 30, 2012 4:47 am Tags: open thread Comments (20) | Digg Facebook Twitter |
I followed a link from Mark’s blog to Confounded Interest, a blog by Anthony Sanders of George Mason University. If I have this right, GMU is a Koch-funded operation, and their economics dept certainly promotess to a right-libertarian slant.
I made a comment, which you can see at the link, describing how the price table Sanders included in his post is several bits of nonsense. Somebody named Mike Brown responded to me, saying “I don’t get your beef with what the prof posted.” He also went on to rail against reported inflation numbers, the govt printing press, the futility of GDP, and in favor of hard commodities as stores of value.
I responded to Brown, but that comment has since disappeared without a trace. I’m not going to be able to reproduce it word for word, but the gist of it was that my beef with the prof was that he used make-believe numbers for grocery prices and cherry picked the gasoline price from the bottom of a temporary trough, and that both of these things are dishonest.
I stated that Sander’s comment that “Sampling of price is difficut” is beyond lame, pointing them to the BLS web site where, frex, egg prices are presented, and the Billion Price project, which tracks reported inflation numbers rather well. As an alternative, I suggested they talk to someone with a known history of grocery shopping.
Now, I’ll grant you that the tone of my comment was smarmy, but I don’t suffer fools, tools, and liars gladly.
The fact that they deleted my comment simply shows that they can’t handle the truth. Which shouldn’t be much of a surprise since they have to lie to make their point.
So it always goes with regressives – denial of reality is a pillar of their mental processes.
hard commodities as stores of value..?
so instead of using steel to make things, we can just keep ingots of it our cellar?
or have i failed to appreciate the value of junk yards all these years?
i understand the value of gold. when your country collapses, you can always use the gold to bribe the officials to let you emigrate to another country where people use the government issue stuff to create prosperity.
i think Spain tried that gold standard for a few years after 1500 or so. It didn’t last.
oh, i guess the point of my comment is that
you can’t store value.
but that is a long story.
yeah, I always laugh at that “hard commodities storage” thingy.
Like the USA’s value and thus it’s currency is not based on what is contained withing the boarders of the USA (and in some cases outside the boarders).
Granted, based on 76% of our wealth being generated from our judicial system and education system, our value is going down, but it’s still a commodity. Besides, since everything referrenced as a “brand” today including our 2 mainstream political parties, I think it is safe to assume the USA could be thought of as a brand and in that is the tangible of the intangible assest, thus value.
Yes our currency has value because of the things that go on inside our borders, and that taxes create demand for our currency. But commodities do have value, and many are easily convertible to the currency of your choice. Currencies value is measured against other currencies, and commodities many of which can be exchanged in liquid markets – some cannot. Value is in the eye of the beholder.
And Daniel – I do not think our value is going down. After much consternation, I have come to realize much of what is conventional wisdom in economics is utterly false based on political belief rather than anything of substance. This applies to both parties, but the Republicans are especially confused compared the partially confused Democrats.
We are at an inflection point where we can move our value up, or kill it. Deficit worries will kill it, if we understand that deficits are our SAVINGS, then our value goes up. Not an easy sell.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1998-2001: U. S. Federal Debt reduced 9%. Recession began 2001
2004-2007: U. S. Deficit Reduced 61% (from $413B to $160B) Great Recession began 2008
You have a proven track record of finding data that surprises me. Here is the FRED graph of deficit data for the ’08 – ’10 period.
I was not thinking deficit. I was thinking that 76% of our wealth creation is wrapped up in the intangibles of judicial and education. (2005 World Bank report). We are not doing so well regarding these two institutions. In fact, we seem to be doing rather well diluting them by pushing to create a two or more level class system for each.
Same goes the other way Jazz, I have seen lots of surprising data posted by you as well. I’d say we all get a little blinded by the conventional wisdom displayed in the media. Hey I have accepted things as truths millions of times that were not. So now I am looking more carefully.
I have now been looking at household debt payments as a percent of disposable income, which seems to move opposite the deficit, possibly showing lower deficits drain savings and people take on debt to compensate.
Many in the MMT field feel this is the case.
Highly suggest reading this for a real mind bender, but a quick read:
So our greatest danger right now might be both political parties attacking the deficit, as neither will call it savings.
Lastly, the financial crises is well explained by Hyman Minsky’s financial-instability hypothesis, which seems to explain it perfectly.
Do you have a link for that list of deficit reduction/depression. I would like it just for my own future reference and I think putting it on FaceBook, considering the post election push planned for the “Grand Bargain”.
Daniel here is one such piece:
I would also supply this link:
It is a free e-version of Warren Mosler’s book, and worth the read. Just a warning the book is contrary to much of each party’s political doctrine. For example, he thinks taxes are way too high, but also thinks deficits are required, as well as jog guarantees. It covers the logic on why surpluses are bad.
Also the last piece of data on the Bush deficit reductions was based on my own research – but Jazz provided the FRED chart there.
Here is one more that even discusses the Japan surpluses which went on for 6 years from 1987, and we know where Japan ended up:
Cherry pick away.
Note that the fed arose in 1914.
1920 debt decline was paying off WW I bills.
Why’d you change from debt to deficit for 2004?
Why not pick debt from 2002 through 2007?
Deficits going down in second Bush term included SS cash which lowered deficit while increasing debt.
Tho Bush had a low employment recovery due to an .6 multiplier for hiring contractors in Iraq and Afghanistan.
Anon – first I am not cherry picking, and it was some rather respectable economists that have made this observation, and you may follow some of the links above to read, digest, discuss, and/or draw your own conclusions.
Let’s just look at the Debt numbers. The debt was reduced by running surpluses, and in every case ended badly. Every depression was preceded by this.
It is Deficit in 2004, because we were still in deficit (we were not running a surplus), and no debt was reduced. But the deficit declined sharply by 60+%, removing over $300 billion in net private savings during that time – money was being drained from the economy.
Look at Japan and the result of their surpluses. Look at Europe right now. There is a pattern here, which makes even more sense when one realizes deficits are our savings (in a fiat system) – the exact opposite of a household and conventional wisdom.
I came to realize all of this when researching QE mechanics and what the effects might be, and stumbled onto MMT.
Sorry Ilsm just realized that Anon was you. And we both know i’d prefer most military spending be redirected home. The question now is if the US is running a large enough deficit to keep the economy on track.
steve has also posted about that debt reduction / depression relationship citing a paper by randy wray
well, i suppose a government deficit is a kind of investment, and no one proposes that we do away with private sector deficit.
nevertheless there are good investments and bad investments.
Coberly the deficit equals net private savings. Think of it this way how does new money supply enter the economy? The governmnet basically pushes a button creating a debit on there side and a credit in someone else’s account – like a social security payment. Deficits add new money supply.
From Warren Mosler’s Book:
Simply put, government deficits ADD to our savings (to the penny). This is an accounting fact, not theory or philosophy. There is no dispute. It is basic national income accounting. For example, if the government deficit last year was $1 trillion, it means that the net increase in savings of financial assets for everyone else combined was exactly, to the penny, $1 trillion. (For those who took some economics courses, you might remember that net savings of financial assets is held as some combination of actual cash, Treasury securities and member bank deposits at the Federal Reserve.) This is Economics 101 and first year money banking. It is beyond dispute. It’s an accounting identity. Yet it’s misrepresented continuously, and at the highest levels of political authority. They are just plain wrong. Just ask anyone at the CBO (Congressional Budget Office), as I have, and they will tell you they must “balance the checkbook” and make sure the government deficit equals our new savings, or they would have to stay late and find their accounting mistake.
Again highly suggest this it is a thought provoking read, has an intro from Jamie Galbraith, and some really interesting real life stories at the end – especially the Italian debt story back when Italy issued their own currency.
RJS thanks for that link, had not read that piece from Steve.
I have constructed a little example, which I think,illustrates the basic mechanics in a fiat system. There is more to it such as borrowing from private banks, but for now we will leave that out.
Lets take this example:
There is $1,000 in circulation possessed by person A. Person A buys $100 widget from B. Person A now has $900 person B has $100, they trade with each other but the total net wealth is still $1,000.
Now take the above example and add a 10% tax, so the government takes $100, but the government spends zero. So the net wealth of person A & B is now $900. Repeat for several years and they will become poorer.
One last exercise, reset persons A & B to the first scenario above. Government cretaes and spends $100 (collects no taxes), buying a $100 widget form person B. That person’s wealth increases by $100 and has more money to trade goods with person A. Private wealth is now $1,100.
We have a fiat system that can put more money into circulation. The downside is inflation that would need to be controlled by spending cuts and tax increases.
I do not understand your economics. Perhaps you are right. I think I do understand the role of “created money” and I am happy with it up to a point.
But while you can create money out of thin air, you cannot create real resources quite so easily.
Even in the case of “unemployed” resources, using created money to “employ” them is not something you can do without limit or without consequences if you employ the underemployed resources to exploit and destroy other limited resources.
You are right Coberly, you cannot create without limit, as inflation becomes your limit. And yes resources are always a potential constraint. Excess capacity labor is not such a constraint right now.
The US dollar is a simple, public monopoly.
If the govt, the currency monopolist, restricts supply of its ‘product’- dollars in this case- by spending less than the need to pay taxes and the desire to net save dollar financial assets, the result is excess capacity we call unemployment- people looking for work paid in dollars who can’t find it.
So if the tax creates more people for sale than the govt wants, it should either cut the tax or hire them.