Friday, September 29, 2017

Raúl Carrillo — Hy Minsky, Low Finance: Modern Money, Civil Rights, and Consumer Debt


Lawyer and Monder Money Network director Raúl Carrillo's presentation at the MMT conference. Must-read for all interested in MMT.
(1) First, I’d like to impress upon folks a theme that I’ll be stressing throughout the conference: when it comes to the economy, law is not merely a governing force (as many on the right would have economists believe) nor a reflective force (as many on the left are inclined to think). It is also a constitutive force. What I mean by that is that the law doesn’t just intervene into the economy on the back end, and it doesn’t merely reflect deeper forces in the economy either. Rather, a lot of the economic concepts we talk about not only have a particular meaning in the context of specific legal parameters, but they only exist given the deeper architecture of legal regimes, in the sense of systems design. I’m going to do my best to articulate what that means and what that looks like when it comes to consumer finance.

(2) Second, I’m going to talk about how people actually experience the government’s failure to sufficiently spend money for public purpose. People don’t experience the absence of MMT-insights as policy failures in a grand sense. They experience it as personal pain. Over time, that pain can become chronic, but at first, it’s acute. For some of us, it’s devalued assets, houses, cars, etc., but most people in this country live paycheck-to-paycheck — or no-paycheck-to-no-paycheck — and thus experience the survival constraint pain on the liability side, where their debt is expounded, compounded, and sometimes straight-up fabricated. And within this group…there is what we call “disparate impact” in the legal world. As Sandy Darity, Darrick Hamilton, and other fellow travelers consistently point out, for many folks on the periphery, especially people of color who lack intergenerational wealth, the lack of MMT informed-policy means permanent austerity and perpetual depression.

With that in mind, we must cultivate a way to talk about Modern Money from the bottom-up and from the outside-in. We have to draw maps from people’s suffering to the macro failures. I personally think we can do this best by talking about (1) consumer debt, (2) criminal justice debt (which Prof. Harris is going to cover), and (3) taxes (which Prof. McCluskey will discuss).…
Modern money is a legal institution first and foremost, as chartalism, or the theory of state money, makes clear. There is no "natural money." Money-use, initially as credit, grew out of informal custom and was later was institutionalized formally in law. and The constitution and operation of this now highly formalized legal institution has vast social, political, and economic implications, especially considering that it can be captured by special interests through a political process involving asymmetric power.

New Economic Perspectives
Hy Minsky, Low Finance: Modern Money, Civil Rights, and Consumer Debt
Raúl Carrillo, staff attorney at New Economy Project, an economic justice non-profit in New York City

31 comments:

Salsabob said...

Here is what MMTers don't get as they spend countless hours chiding people over and over about their hysterical fear of federal debt/deficits - people intuitively understand their is an inflationary constraint, that there is no fountain of unlimited "free money." Sure MMTers give lip service to the inflationary constraint, but ask any one of them how they would operatonalize that constraint to avoid harmful inflation and the best you get from them is some reference to monetary policy on steroids that would make Paul Volker blanch. Most MMTers, however, just cop out by saying, as economists, that's not our job and besides the adults in the room will keep the Right from cutting every tax they see and the Left from throwing free money at every problem they see - yea, sure, and Donald Trump will also stop tweeting. The only operationalized mechanism for the inflationary constraint IS deficit hysteria. And until MMTers seriously come up with and push an alternative, they will not be taken seriously. In the meantime, we all should be thankful that there is at least some effort of restraint regardless of how weak or hysterical.

Tom Hickey said...

There are two basic principles in advertising and marketing.

1. The most powerful world is "free."

2. FEGG. Most people are motivated chiefly by fear, exclusivity, guilt and greed.

Other important things to remember

1. People remember slogans and jingles when they are repeated often and they act on them later.

2. The subconscious is more influential on behavior than the conscious.

3. Math turns most people off and most people can't do the simplest operations mentally. Assume innumeracy, other than very simply slogans like "half off." "Half off" is not identical to "50% discount" in sales effect.

MMT economists and most proponents are not capable of selling MMT to the masses. Professionals are required and lots and lots of testing (expensive).

PR firms are also needed for placement of promo, getting on talk shows, etc. Also expensive.

Detroit Dan said...

Salsabob-- I agree with the substance but not the tone of your criticism. Rather, I appreciate the MMT academics for explaining how the system works. Also, I've read infinite detailed proposals from the MMT community over the years on the problem you highlight. My favorite proposal is to implement inflation control via automatic stabilizers (many of which have already been implemented).

Matt Franko said...

"Math turns most people off "

And here we are.....

Matt Franko said...

"getting on talk shows, etc. Also expensive."

Mike used to actually get paid BY Fox to go on talk shows....

Matt Franko said...

bob they are going to have to deep 6 the entire "inflation!" and "deflation!" metaphors...

And instead listen to Warren when he says under the current operations: "all prices are necessarily a function of what the govt pays for things and what they let their banks lend against things..." this makes sense....

Warren has the correct concept here which is what they should be building on.... its just too much for the MMT academe of economics people... they just cant go that far so they are stuck in that "inflation!" trap you point out

Its a good point you have... its true...


Tom Hickey said...

Alfred Marshall (Principles of Economics) is credited as being one of the first to introduce (partial) formalization in economics.

I know I had a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics: and I went more and more on the rules —

(1) Use mathematics as a short-hand language, rather than as an engine of inquiry.

(2) Keep to them till you have done.

(3) Translate into English.

(4) Then illustrate by examples that are important in real life.

(5) Burn the mathematics.

(6) If you can’t succeed in 4, burn 3. This last I did often.

I believe in Newton's Principia Methods, because they carry so much of the ordinary mind with them. Mathematics used in a Fellowship thesis by a man who is not a mathematician by nature---and I have come across a good deal of that---seems to me an unmixed evil. And I think you should do all you can to prevent people from using Mathematics in cases in which the English language is as short as the Mathematical. ....


Alfred Marshall, Letter to Bowley

To get traction politically you have to speak simply — as Donald Trump has demonstrated in spades. This probably means aiming at the 8th grade level.

There are apps that will assess the grade level. In popular writing I aim at the 11th or 12th grade level, but I am just trying to reach people and not persuade them to take action.

Motivating people to vote for you or policies you advocate and getting them fired up to actually get out and vote in large numbers is a skill. Wonkish = fail.

Matt Franko said...

Tom using math within the academe shouldnt be a show stopper...

Tom why is this:

When I was earning my STEM degree, I had to take 6 credits in Economics electives to get MY degree.. I took Intro to Micro and Intro to Macro for 3 credits each... got my 6...

How come THEY dont have to take 6 credits in MY discipline to earn THEIR degree?

Its "inequality!!!"...

If I was one of these big "inequality!" people out there, I might go all "inequality!" on you on this...

"hey! this is inequality!!!!!"

Its like this lawyer guy I have to read here... why do I have to read this BS?

Jeff65 said...

Salsabob,

Baloney.

It is a simple how to operationalize the inflation constraint: the government mustn't compete with the private sector on price. It should buy idle resources. If the government requires a scarce resource it should allocate that resource. This is already done: the draft, eminent domain, control of permits and licenses, etc.

Easily understood and implemented. We already know how to do it - we've done it before.

Matt Franko said...

Jeff how does that scheme work for truck drivers in San Juan right now?

Matt Franko said...
This comment has been removed by the author.
Matt Franko said...

"Must-read for all "

F that...

Let him go and take 2 years of college level math and while he is at it then take Intro to Statics for 3 credits and Intro to Dynamics for 3 and then get back to me....

Tom Hickey said...

Tom using math within the academe shouldnt be a show stopper...

It's not an issue as long as it remains in academia. Math doesn't export well, especially when large-scale persuasion is involved, as in politics.

It's probably impossible to explain MMT to most people when even the so-called smartest people in academia can't seem to get it.

On the other hand, if the Chinese or Russians come to understand it at the top level, they can just do it.

The American public is so programmed by deficit and debt hysteria, MMT policy is unlikely ever to happen in the US.

Tom Hickey said...

Matt, policy has to be translated into bills that pass through the political process and become law. The law has to be constructed so that the executive actually carries out the intent of the legislators.

This is a very technical process that requires a high level of expertise. Generally this is done by staff but legislators are supposed to understand what they are proposing and voting on, at last in principle.

But what actually happens wrt to a lot of legislation in the US is that lobbyists write the laws, put some $ into the pols campaign finance bucket, and the pols pass the laws. The people paying the lobbyists also pay highly qualified lawyers to write the bills to make sure that they get just what they want.

Matt Franko said...

Tom,

Humphrey-Hawkins Full Employment Act:

https://en.wikipedia.org/wiki/Humphrey%E2%80%93Hawkins_Full_Employment_Act

Already done....

What's the problem?????

Matt Franko said...

Blah blah... Keynes said... blah blah blah... but Samuelson blah... blah... blah blah... though Milton Friedman blah blah blah... Kalecki blah... oh and dont forget Marx made the point that blah blah... blah... blah... but recently, Minsky hypothesis is blah ... blah...

OMG....

Tom Hickey said...

Humphrey-Hawkins Full Employment Act:

https://en.wikipedia.org/wiki/Humphrey%E2%80%93Hawkins_Full_Employment_Act

Already done....

What's the problem?????


Not implemented.

Congress has no power to force the executive to implement the law. President do so selectively.

André said...

Salsabob,

"but ask any one of them how they would operatonalize that constraint to avoid harmful inflation"

The answer is the Job Guarantee Program.

Jobs for everyone, with controlled wages to avoid inflation. Unlimited federal budget to that program - the spending will automatically reach some kind of limit anyway, the one corresponding to full employment.

Matt Franko said...

Executive not technically qualified or competent...

Matt Franko said...

Clinton: "Surplus!"

Bush: "we're going to war.... go shopping!"

Obama: "we're out of money!"

Trump: "Do deals, save money!"

ALL morons...

Calgacus said...

Salsabob: people intuitively understand their is an inflationary constraint, that there is no fountain of unlimited "free money."

Agreed. MMTers should more often say that governments can run out of munnie - munnie that is worth anything, that is. But this is no reason for current economic policy of auto-erotic self-strangulation because it hurts the lesser people so good.

The only operationalized mechanism for the inflationary constraint IS deficit hysteria.

Quite wrong. First-lesson-in-MMT tools of ZIRP and the JG are exceedingly powerful, long term, operationalized mechanisms to crush inflation, and ones that mesh with and potentiate other tools. MMT thinkers and forerunners have devised and implemented many other tools for a long time - more than any other school I know of. Based on such history, an MMT guided state would have the least inflationary currency the world has ever seen. Deficit hysteria, on the other hand is a good way over the long term to create banana republics, and has been helping make the USA one since the 1980s.

Tom Hickey said...

Executive not technically qualified or competent...


And the solution is in a democratic republic?

We already know that the selection process is the problem. What's the solution?

Matt Franko said...

Solution: Challenge the present tptb as unqualified... call them out on it....

Ben Johannson said...

There is no evidence a developed capitalist economy can suffer harmful inflation with modern institutional arrangements. Worrying about it, as though one wrong move will destroy the universe, is like worrying one might accidentally summon Bloody Mary by saying her name too many times.

Matt Franko said...

"There is no evidence a developed capitalist economy can suffer harmful inflation with modern institutional arrangements. "

Ha who needs evidence with these people...

André said...

As a person who lived through harmful inflation with modern instituional arrangements, I would like to know what evidence is that...

Excessive and wrong government spending can bring harmful inflation to modern economies. And MMTers don't deny that.

But there are some ways to spend a lot that do not bring inflation - for example, in a Jog Guarantee program with controlled wages. You can spend a lot of the federal budget on that and will would have no inflation. That's what MMT theory says anyway. And mainstream economists will believe that such program is the chaotic end of the universe.

Tom Hickey said...

Who is going to do it? Who is going to coordinate it. Who is going to script it? Who is going to pay for it?

So far it has been impossible to dislodge even the top level economists from their perch.

Belling the catt

Ignacio said...

Solution: Challenge the present tptb as unqualified... call them out on it....

Who would replace them? The elite is "the elite". Supposedly the best we got? Meanwhile we have top PhD in maths and engineers who believe in a gold standard.

We have to live with the fact that most humans are ill-equipped to really think at systemic level in a systematical way. Maybe there is no solution until the system complexity outgrows our capacity to understand it and we have to let machines do the work automatically.

I bet things would automatically turn better if we could achieve a self-sufficient automated system and get the human factor out of the way.

Tom Hickey said...

I bet things would automatically turn better if we could achieve a self-sufficient automated system and get the human factor out of the way.

Have to avoid GIGO though. After all humans write the code. Machine can be faster in "thinking" than humans but not necessarily smarter in the sense of a comprehensive take on intelligence. Computers are just computational machines.

Theory of Multiple Intelligences

Ignacio said...

That's true Tom, the way to do it is to isolate each part of the system in terms of inputs and outputs and get specialised people "obsessed" with that knowledge/technical domain to just work on it and iterate over it. The people in charge of architecting only needs to break down things in terms of inputs/outputs (which is no simple feat tbh). And keep iterating over it.

Is the best way to get something as free of bias (which by no means would be perfect) as possible.

Our current "democratic" system is failing, it doesn't iterate fast enough on issues and is sclerotic with corruption, ideology and stupidity. Things that need fixing and improvement are not being worked on because we are blocked by ideological warfare.

Technocracy is dangerous, but what we got now is not even close to technocracy, is a bunch of headless bureaucrats and politicians with agendas trying to find multiple ways to fuck us all and manipulating a percentage of the population to get away with it.

I agree with Matt when he says "the executive (as is) is not equipped to deal with this issues" (or something along those lines). But there is no solution on sight, getting rid of whoever is on top of the power structure leaves a vacuum and chaos takes place.

Tom Hickey said...

Science and technology have enabled humanity to live a much better life than previously thought imaginable, but humanity is limited in its adaptability to changing conditions by evolutionary traits that make it suitable for living in previous times rather than the present and especially not the fast approaching future opportunities that come with their own challenges.

In addition to genetic limitations imposed by biological evolution, cultural and institutional limitations are also imposed by historical development, which involves path dependence.

Add to that, the hierarchical structure of intersecting networks that enable class structure and power, hence the development of asymmetries that limit systemic effectiveness and efficiency.

When this happens in an ecosystem operating on the laws of nature, a culling is foreseeable.

While humans are not as completely determined as lower forms, their degree of freedom is constrained by many factors that prevent the use of using feedback for learning, applying creativity on a large scale, and otherwise adapting to emergence and increasing the return on coordination by applying intelligence.

It's looking like we have outsmarted ourselves.