This is where so many smart people I know end up. You have to use mainstream models -- you can't move the profession or help shape policy (or get a good job) otherwise. But on many questions, using those models means, at best, contorting your argument into a forced and unnatural framework, with arbitrary-seeming assumptions doing a lot of the work; at worst it means wading head-deep into an intellectual swamp. So you do some mix of what my friend suggests here: find a version of the modern framework that is loose enough to cram your ideas into without too much buckling; or give up on telling a coherent story about the world and become a pure empiricist. (Or give up on economics.) But either way, your insights about the world have to come from somewhere else. And that's the problem, because insight isn't cheap. The line I hear so often -- let's master mainstream methods so we can better promote our ideas -- assumes you've already got all your ideas, so the only work left is publicity.
If we want to take questions of aggregate demand and everything that goes with it -- booms, crises, slumps -- seriously, then we need a theoretical framework in which those questions arise naturally.The Slack Wire
Aggregate Demand and Modern Macroeconomics
JW Mason
[*] Keynes' original term was "effective demand." The two are interchangeable today. But it's interesting to read the original passages in the GT. While they are confusingly written, there's no question that Keynes' meant "effective" in the sense of "being in effect." That is, of many possible levels of demand possible in an economy, which do we actually see? This is different from the way the term is usually understood, as "having effect," that is, backed with money. Demand backed with money is, of course, simply demand.
9 comments:
The whole situation Mason describes is utterly depressing: intelligent people locked by the inviolable pieties and ideological orthodoxies of their profession and society into a party line of false representations of reality and mandatory intellectual dishonesty.
They are describing the kind of situation that prevailed in the Soviet bloc prior to the rapid unraveling of the Communist polities.
Economists need to recognize that these rigid ideological requirements are not just some kind of relatively insignificant intellectual dress code. They are the ideological defense system for a failing order of staggering social and economic inequality, plutocratic control of the political system, social de-democratization and widespread human suffering and despair.
What Dan Kervick said.
My comments on Mike's YT videos.
Our Govt has created jobs and profits for over a century. Don't believe it? Ask the CAPITALISTS. They pushed for that partnership, in the "Progressive Era" started by the GOP after Civil War.
If Govt can't form an economic situation that is healthy and conducive for providing a job for everyone who wants to work, why have a Govt? Voting? Wars?
Neoliberal econ agenda is to CAUSE unemployment, sacrifice people to hedge inflation. IDIOTIC. Prosperity?
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Money is nominal and relative. State money is not a "pool" or "lock box" that is filled by (a) taxes or (b) borrowing.
Govt Debt is not SOURCE of govt spending. Govt Debt is state-provided investment instruments, used by the banking system and savers to store surplus wealth, RESULT of govt spending.
Govt debt DRAINS liquid savings from banking system by converting to non-liquid bonds with term duration.
Bank credit is created on balance sheets.
Govt spending is created on balance sheets too.
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Gold is not money, because gold is does not exist on a balance sheet.
Gold is a commodity, like tobacco or corn, but more scarce.
What is Money - 1934 article on Warren Mosler's site. Money emerged in history as a record of a social obligation btw two parties. IOUs became trade-able. Rulers spent State money in advance to purchase real goods, contingent upon tax demands on a portion of that spending.
Gold was used by Kings as a medium to hire foreign mercenaries, *before* FOREX mkts existed.
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In ancient history, a person accepted an IOU from a neighbor, say labor or animal for future crops. That is a numerical record.
Kings were toughest warlords. King could ENFORCE taxes on subjects, so King could issue advance credits to purchase supplies. King's credits had nominal trade-able value, because King demanded a PORTION of credits (mostly from wealthy Nobles not serfs) paid back to King, as a fee for doing biz in Kingdom, and for mil protection. Taxes uphold value of fiat currency.
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Govt is STILL toughest warlord. Fiat currency issued (spent) in advance (initially on military) by Govt maintains value because currency users MUST get currency to pay taxes. Otherwise, they could trade in other currency.
Fiat currency MUST be created first, otherwise nobody would have money for taxes. We'd have to mail chickens or corn to the IRS.
Gold is a Commodity. Commodity exchange is primitive BARTER, and NOT commerce. For circumstances like hiring frgn armies.
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In ancient past, when King spent advance tax credits to purchase food etc., real goods were scarce. THAT made taxes "taxing", production of scarce goods.
Since industrial age after Civil War, Capitalists' HUGE problem became OVER-production, excess abundance, and insufficient Demand.
Big Capitalists had US govt switch to nominal-value currency*, WHY? To purchase surplus industrial output, to finance foreign sales, to add to private Demand.
* "nominal-value currency" = create Fed, abolish Gold
My comments are partly informed on history by Kevin Carson's "Monopoly Capitalism", but also by Randy Wray's point on the history of money.
Austrians think "gold" is the NATURAL history of money. Not that Gold STANDARD was a "fiat" political determination.
It makes sense that Gold was used to pay foreign mercenaries. The English royals couldn't pay Germanic or French mercs in "tally sticks" to fight in France, because they couldn't tax foreign tally sticks ... those had zero value outside the issuing Kingdom.
Rome could only hire mercenary soldiers for Roman coins in areas and regions where Rome ruled, and therefore collected taxes in the form of "worthless" "fiat" Roman coins.
After sound convenient global foreign currency exchange markets were formed, there's no further need or purpose to use precious metals ... which is a form of barter ... to hire mercenaries (or other trade). We can use ACTUAL money, which is an accounting record that exists on balance sheets.
There's a "kinder" way of explaining Mosler's story that "Fiat currency is based on a guy with a gun at the door who won't let you leave until you pay".
Keynes said fiat currency is a theater ticket, of nominal value. The ticket taker rips the ticket in half. The ticket's value is only relative to attending the performance; afterwards it's worthless paper.
What happens if you try to sneak into the theater or football game or concert without a ticket? An armed guard will throw you out. The ticket price is the TAX you pay to enter the arena.
(If you think about it, a good football or basketball or concert ticket *can* be traded for other commodities, for narcotics, for sex, maybe for a Laptop or a used car. It's worthless if the game was yesterday.)
You would think Austrian econs would want to abolish paper concert tickets and the electronic version by Ticketmaster. Everyone would have to lug gold ingots to the arena, and arena staff would have forklifts ready to haul the gold away to the vault. None of that modern e-ticketing.
Dilbertgeg - It seems like common sense to me that more people are concerned with trying to find ways to avoid paying taxes if possible than they are concerned about getting enough currency to pay their taxes.
People do tax planning and invest in IRAs and 401Ks to minimize their tax liability. Concern about getting enough currency to pay taxes does not even enter the minds of most employees because their taxes are withheld. It only becomes an issue as April 15th approaches and some people realize they didn't have enough withheld and now they have to write a check.
For the most part, I think that people get up early and go to work in order to pay the rent/mortgage, make car payments, put food on the table, maybe go on a vacation and save up for college tuition payments or retirement needs.
@ dilbertgeg
Good stuff.
@dilbertgeg
Excellent +1
(If you think about it, a good football or basketball or concert ticket *can* be traded for other commodities, for narcotics, for sex, maybe for a Laptop or a used car. It's worthless if the game was yesterday.)
This was actually Silvio Gesell's idea. Money with an expiration date. Use it or lose it, baby. It's still a pretty good idea.
"I think that people get up early and go to work in order to pay the rent/mortgage"
banks have to pay everyone's taxes on their behalf, because they act as middlemen between the state and the population. So they create demand for state money. Their liabilities (our bank deposits) are denominated in state money. You've got to go out and get either currency or deposits denominated in state money to repay your debts to banks (mortgages).
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