The truth is, federal finances are not like your personal finances....Shout it from the rooftops.
Monetary Sovereignty
The single reason for the repeated U.S. financial crises
Rodger Malcolm Mitchell
Wednesday, October 16, 2013
Rodger Mitchell — The single reason for the repeated U.S. financial crises
Spoiler: It's the government is like a household analogy. As long as a vast majority believes this, progress on the fiscal front is going to be blocked, which means fiscalists like MMT proponents will be stymied. Overcoming this obstacle is second only to getting the money out of politics and locking the revolving door. The good thing is that the false analogy is an easier block to remove and that alone would open the way to significant progress.
Monetary Sovereignty
The single reason for the repeated U.S. financial crises
Rodger Malcolm Mitchell
Monetary Sovereignty
The single reason for the repeated U.S. financial crises
Rodger Malcolm Mitchell
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14 comments:
The household analogy will be a hard nut to crack. That's why I'm not stridently anti people who don't get it. It's a hurdle that might never be overcome--well at least in my lifetime. I'll tell you one thing for certain, labeling people as morons who don't get it will never be effective. Never. My mom doesn't' get it, and she was a Seton Hill grad in the early 50's, and she's damn smart. You think calling her a moron will work? Bullshit.
I think that there are two related but separate issues here. First, most people think that government is like a big firm or household so government finance is like household finance.
But they also believe that government can "print money" and if you ask them where money comes from they will say, 'The government."
So it is pretty simple to show them the contradiction here and explain the difference between the currency issuer and currency users.
Then comes point two. Once they realize this, then they say that government ought to act as it were a household or firm and budget in the same way.
So further education is needed about why this is a bad policy and that involves the MMT narrative.
Tom,
I'm all for educating the public on this. I think it's cut and dried, but I realize most are conditioned not to view it this way. Name calling is a non starter though, and I'm sure you realize this--you're too bright to stoop to that level. I wish there was a magic pedagogical bullet to get the MMT reality across to the masses. Perhaps there is, but I haven't witnessed it yet. You?
I wish there was a magic pedagogical bullet to get the MMT reality across to the masses. Perhaps there is, but I haven't witnessed it yet. You?
It's like a slog through a swamp in the topics on a hot day, one step at a time, pulling each foot out of the muck hoping the boot doesn't come off while swatting bugs and looking out for water snakes and crocodiles.
I think even if you educated many of the fervent "govt should act like a household" believers on MMT, got them to understand the reality of fiat currency operations, all it would stand to do is solidify their belief that a return to the gold standard or something similar is needed post haste. It would just make them lament the reality of the present situation that much more.
They're the sort that would only accept a fiat system after experiencing the flaws of a commodity backed system the hard way, and I don't feel like we all should have to relearn the horrible and damaging economic lessons of the past 125 years in order to get them to "get it".
One method to educate people would be to demonstrate what happens if the government started acting like a household. I showed a simulation on my blog yesterday which shows how an economy would melt down if it attempted to move to a balanced budget by hitting a limit on debt issuance. You do not see behaviour like that if a household cuts its budget.
People could argue about the model, but they would then have to explain how the flows work out to avoid the collapse.
A purely verbal argument will probably always go around in circles. You still have people that believe in the Treasury View, even though it was discredited in the 1930s.
I put up a link to your post, Brian. Thanks.
Mal,
"USE WITH CAUTION!!!"
Whatever else you do, please do NOT term any of your family members a 'moron' bro!
rsp,
Getting politicians and the average citizen to see things the MMT way cannot be done using reason. 99% of the population are swayed by emotion, inuendo and soundbites.
The main problem is the negative inuendo behind the word “debt” (think bailiffs, bankruptcy, etc). So I suggest everyone from time to time points out that “national debt” might just as well be called “national savings”. Sounds better, doesn’t it?
Isabella Kaminiska made the latter point in the Financial Times recently, as did Frances Coppola on her blog. Plus see my web site on the above debt/savings point:
https://sites.google.com/site/nationaldebtsave/
Thanks for the link. I'll see if I can do another simulation early next week covering the angle how the emission of government net liabilities matches the savings desires of the private sector.
"The household analogy will be a hard nut to crack." - Malmo's Ghost
We can use the houshold analogy…we can look at the non-government as a checkbook (or a balance sheet)…with deposits (public spending), withdrawals (taxes, net exports), and a balance (net saving).
Households just can't make the one transaction that makes everything different…create something from nothing, take something from the non-existence account and put it into the existence account…create money.
correction:
"We can look at the private sector…"
Ralph Musgrave: "The main problem is the negative inuendo behind the word “debt” (think bailiffs, bankruptcy, etc). So I suggest everyone from time to time points out that “national debt” might just as well be called “national savings”. Sounds better, doesn’t it?
Isabella Kaminiska made the latter point in the Financial Times recently, as did Frances Coppola on her blog. Plus see my web site on the above debt/savings point:"
The MMT economists have been out front on this too. It's a key piece of the MMT presentation.
In addition, Stephanie Kelton has been saying on national TV wrt to the possibility of US default that US tsys are the "equity" (her word) on which the global financial system rests as a foundation.
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