Monday, November 26, 2018

Tim Worstall — The End Game Of Modern Monetary Theory


This passes for serious criticism now?

In addition, Tim Worstall doesn't seem to realize that MMT is not a policy proposal but rather based on how the existing monetary system operates currently. Understanding this and using this knowledge opens up policy space by correctly describing existing fiscal space. Nothing needs to change with respect to the actual potential of the existing monetary system. This misunderstood by most economists, politicians and the public, with the result that voters and their representatives remain unaware of the potential of a sovereign currency issuer and accept "expert" advice that is not based on reality, thereby limiting the range of options considered to be available.

The argument seems to be, Let's not use what we have because we might abuse it. "Venezuela!" "Zimbabwe!" Notice how Venezuela has replaced Weimar, as Weimar recedes further from memory and becomes less useful in persuasion.

Continental Telegraph
The End Game Of Modern Monetary Theory
Tim Worstall | Senior Fellow of the Adam Smith Institute and founder of the Continental Telegraph

223 comments:

1 – 200 of 223   Newer›   Newest»
Magpie said...

It might be crap, but in a curious way Tim Worst-of-all's criticism is instructive. In fact, I think a lot of economic criticism follows the same pattern.

In this particular case, I've come to believe this is how guys like Worst-of-all think: "Those dumb MMTers have never, ever, heard the words 'Zimbabwe' and 'Venezuela'." Moreover, up til that most inspired moment, not even MMT critics, had that idea bright.

It took someone of Tim's extraordinary brilliance to find that most devastating and conclusive argument. And he didn't even had to tax his brain.

(Any similarity with other characters is mere coincidence, no doubt).

Ralph Musgrave said...

I left a comment at Worst-of-all's site.

On the subject of silly names (and congratulations to Magpie for his "Worst-of-All" creation) Worst-of-all has a good name for Richard Murphy namely “Murphaloon” which Worst-of-all made extensive use of a few years ago.

Unfortunately Worst-of-All has given up using that name for Richard Murphy, which is a shame. Worst-of-all also used to make extensive use of four letter words like f*ck and c*nt. That always appealed to my schoolboy sense of humor. Unfortunately he’s given that up as well.

Tim Worstall said...

So, here's how we might do things. Other people have used this idea and here was the result.

That's not an allowable critique now is it?

State planning of the entire economy, without market prices. What a good idea. But the Soviets tried that and it didn't work. That's not an allowable critique?

Let's fix the prices of necessities nice and low. But Venezuela! That's not allowable?

Governments face no budget constraints, they can just tax back the resultant inflation from the monetisation of fiscal policy. Sure they can - but look at what happens when they do, Venezuela, Argentina, Zimbabwe. That's not an allowable critique?

We're not to use experience nor history as a guide?

And the thing is, no one ever does come up with a proper answer to this. It's always just as above. Sure, we know this, but it'll be different because reasons.

Why is it that when I take the idea seriously, agree it can be done now let's look at the political incentives here, all I ever get as an answer is *crickets*?

Matt Franko said...

Oh please your side literally thinks “we’re out of money!” an abstraction of Accounting science...

Like one can run out of an Accounting abstraction... you have a cognitive deficiency...

Do you people realize how unqualified and incompetent you look to others better trained in applied mathematics?

Go and get some better training and then get back to us...

Tim Worstall said...

Matt laddie, wind your neck in. I'm the guy who says that MMT is actually a correct description of what actually happens. Yes, governments create money then spend it etc. I then go on to consider the implications of that in an actually existing political world. I entirely agree you cannot run out of the money that you yourself make.

Mithering about applied mathematics is very much missing my point.

S400 said...

Bill Mitchell have covered all these examples that Tim Worstall brought up a bit late... a few years late...

Matt Franko said...

https://www.logicallyfallacious.com/tools/lp/Bo/LogicalFallacies/154/Reification

Your side is exhibiting this cognitive disorder at acute levels.... suggest you get your house in order first.. then an intelligent discussion could take place about specific policies, etc...

Tim Worstall said...

Who is this "my side"? I'm just me. I'm nor more responsible for what other people say than you are for what Richard Murphy does. Even if we were respectively I think I win on that but neither of us are.

As to reification. That's rather what you're doing with money. It's an abstraction, it's a method of keeping score. Being able to make more money doesn't change the number or amount of *resources* that can be used in the economy, those are still limited.

Explanations about money are therefore fun and interesting but they're not a solution to the basic economic problem, the allocation of scarce resources.

But then everyone always does accuse others of the mistake they themselves are making, don't they?

Matt Franko said...

Yo I’m the one Telling you that you do not know how to apply abstractions properly and are hence drifting into reification/objectification... See your words here:

“can just tax back the resultant inflation from the monetisation of fiscal policy. ”

Those are your words not mine or not MMTs... complete reification..

Though I would say you do sound better along the scale of ability to abstract than most coming out of the Economics discipline ...

AXEC / E.K-H said...

Economics: A pointless left-right wrestling show
Comment on Tom Hickey on ‘Tim Worstall ― The End Game Of Modern Monetary Theory’

Economics claims since Adam Smith/Karl Marx to be a science but is not. Actually, it is political agenda pushing that abuses the prestige of science.#1 However, in the political dogfight, the appeal to science can be counter-productive because a political argument must necessarily appeal to emotions and thus cut scientific thinking short.

So, the easiest method of ‘refutation’ is to take some bad examples from history and simply to associate them with the other side. This is how Tim Worstall ‘refutes’ MMT: “And then we’ve this cautionary little tale about how the end game plays out. There’re more than just the one of those cautionary tales of course, Zimbabwe and Venezuela come to mind. Or perhaps Argentina.”#2

This annoys Tom Hickey: “This passes for serious criticism now? In addition, Tim Worstall doesn’t seem to realize that MMT is not a policy proposal but rather based on how the existing monetary system operates currently.”

In other words, MMT is pure experience-based practice in the here and now. Here is the story of how Warren Mosler created what later become known as MMT: “The origin of MMT is ‘Soft Currency Economics’… which I wrote after spending an hour in the steam room with Don Rumsfeld at the Racquet Club in Chicago,… I had never read or even heard of Lerner, Knapp, Inness, Chartalism, and only knew Keynes by reading his quotes published by others. I ‘created’ what became know as ‘MMT’ entirely independently of prior economic thought. It came from my direct experience in actual monetary operations, much of which is also described in the book.”#3

The general public likes this steam-room approach and dislikes theory. Accordingly, the MMT propagandist Richard Murphy tries to make some bonus points by introducing himself as a practical realist who suffers from a false image: “Modern Monetary Theory does suffer from being called a theory.”#4

This annoys Bill Mitchell: “Specifically, there is a current out there that considers MMT to be incorrectly labelled because according to the argument there is no theory involved. It’s hard to imagine why anyone would think that but the fact that they do tells me that I should write this blog post. As I noted yesterday, our Macroeconomics textbook … is full of theory. It has a lot of description, taxonomy, accounting, history, and philosophy, but also a lot of theory that ties some of those other components together in a meaningful way. The T in MMT is not a misnomer.”#5

Clearly, MMTers want to have it both ways. The sale people say that MMT is operationally true and nothing but common-sense policy, the academics insist that MMT is a superior scientific approach. And they relentlessly prove this by exposing the idiotism and failure of mainstream economics.

See part 2

AXEC / E.K-H said...

Part 2

Clearly, MMT has to be judged according to well-established scientific criteria. Worstall’s attempt to ‘refute’ MMT by referring to recent historical examples of inflation is silly polemics. Unfortunately, more cannot be expected from the Senior Fellow of the Adam Smith Institute.

MMT has to be refuted scientifically by proving that it is materially or formally inconsistent. This has already happened.#6, #7

Retarded folks like Tim Worstall argue always politically and never can get out of their tiny left-right box. In his utter ignorance, Tim Worstall swallows the MMTers’ self-description as Progressives hook, line, and sinker: “As we know Modern Monetary Theory is the latest great new plan from the left.”

Tim Worstall does not realize that MMT is in fact “the latest great new plan” from Wall Street.#8 If he had done his scientific homework he would know how the monetary economy works and that the macroeconomic Profit Law implies Public Deficit = Private Profit. In other words, MMT is not left/progressive at all. MMT policy does not benefit WeThePeople but WeTheOligarchy. That is, the noisy left-right wrestling show distracts from the plain fact that MMT and the Adam Smith Institute push the same agenda.

Egmont Kakarot-Handtke

#1 The real problem with the economics Nobel
https://axecorg.blogspot.com/2016/09/the-real-problem-with-economics-nobel.html

#2 Continental Telegraph, The End Game Of Modern Monetary Theory
https://www.continentaltelegraph.com/economy/the-end-game-of-modern-monetary-theory/

#3 The Johnsville News, Modern Monetary Theory (MMT) in a Nutshell
http://johnsville.blogspot.com/2011/06/modern-monetary-theory-mmt-in-nutshell.html

#4 Richard Murphy: the MMT fraudster dressed up as realist
https://axecorg.blogspot.com/2018/06/richard-murphy-mmt-fraudster-dressed-up.html

#5 Understanding what the T in MMT involves
http://bilbo.economicoutlook.net/blog/?p=40383

#6 The final implosion of MMT
https://axecorg.blogspot.com/2016/10/the-final-implosion-of-mmt.html

#7 MMT = Modern Monetary Trash
https://axecorg.blogspot.com/2018/09/mmt-modern-monetary-trash.html

#8 How MMT enlightens Washington
https://axecorg.blogspot.com/2018/05/how-mmt-enlightens-washington.html

Andrew Anderson said...

The argument seems to be, Let's not use what we have because we might abuse it. "Venezuela!" "Zimbabwe!" Tom Hickey

Our current banking model was designed/evolved for the Gold Standard when fiat was too expensive for the entire private sector to use so fiat use was largely limited to only banks and other depository institutions with the rest of the private sector largely limited to inexpensive bank created money (notes and deposits).

So perhaps the problem is not so much abuse of fiat creation as the failure to replace the current, designed for expensive fiat banking model with one suited for inexpensive, as it should be, fiat.

Ryan Harris said...

The social contract now is that employment and inflation are both prioritized and I think it's properly debatable whether they get the balance right. Fiscal authorities seem to procyclically spend which is a problem while monetary authorities pretend interest rates influence lending and spending in an unrealistic way.

I'm a die hard MMTer but I sort of agree with Worstall. Rather than speaking in abstractions where MMTers can hide behind ideology and rhetoric:

THE question for the progressive advocates of MMT, there are some audacious policy proposals on the table: when our healthcare, prescription medications, college, solar panels, electric sports cars, jobs for everyone are paid for with fiscal space (not funded by taxes) and the currency falls due to random walks/terms of trade/investment flows or whatever reason and commodities rise, do you raise taxes or cut spending to address the inflation?

How do Job Guarantee wages and types of employment adjust as real needs in the economy change?

Be specific. No abstractions or generalities please. Where are the mechanisms. How does it work, specifically.

"It won't happen" or you're just too dumb to get the finer points of "our economics" type logic isn't acceptable.

Which of the programs can be cut, how and when and where? Which taxes can rise? All the other schools of economic thought spend most of their time and worry on how to make real productivity improvements to the real systems to free up labor for more productive uses. And MMT does this hand wave and says it doesn't matter, market forces will fix themselves and solve the problems if the government just spends.

Well that's optimistic given government's central role in allocation, regulation and investment? We've seen these magical thinking assumptions about markets from Chicago boys and Socialists and... generally well functioning markets are fairly volatile, they don't just allocate and "happen" to do what is popular when you want pour money on policy priorities.


Tim Worstall said...

"Those are your words not mine or not MMTs... complete reification.."

You appear not to know what reification means.

Konrad said...

“Notice how Venezuela has replaced Weimar, as Weimar recedes further from memory and becomes less useful in persuasion.”

Venezuela has also replaced Weimar because Venezuela is associated with “socialism” in the mind of Western peasants.

It is standard imperialist procedure to sanction, blockade, ostracize, and otherwise attack a nation in order to cause hardships, while blaming those hardships on “socialism.”

Western peasants love this lie. It lets them think that no matter how impoverished and enslaved they become, at least they’re not suffering under “socialism.” Any alternative to oligarch tyranny is “socialism.” Are you dying because you have no money for a medical procedure? Society could save you, but that would be “socialism.” Welcome to the “free market,” bitches.

Meanwhile the Zimbabwe bogeyman persists because of racism among Western peasants. Any alternative to oligarch tyranny would be “Zimbabwe" (i.e. rule by Black people).

The Zimbabwe government refused to go neoliberal in obedience to IMF dictates. Since Zimbabwe’s currency at that time was pegged to the U.S. dollar, the West was able to punish Zimbabwe’s government by declaring economic war on Zimbabwe, resulting in the hyperinflation of 2008.

Western peasants have been trained to think that hyperinflation happened because “black Africans don’t know how to run a country,” and also because…”socialism.”

Greece is another bogeyman. If the USA were to have Universal Medicare, then the USA would become Greece because, ah…um…Greece. Or…something.

Right-wingers love this trash. You want Single Payer health care? That’s Communism! Left-wingers help out by mixing their calls for Single Payer (which everyone wants) with identity politics and political correctness (which everyone despises).

Therefore when Trump attacks Universal Medicare, his fans do not hear, “If you have a serious medical condition and you are poor, you will die!” No, Trump’s fans hear a rejection of militant feminism, militant “gay rights” and “trans rights,” and so on.

TRUMP: “I will make sure that all of you are crushed under neoliberal tyranny.”

TRUMP’S FANS: “He’s protecting us from liberals!”

Ryan Harris said...

Remember before the election Trump was praising UK healthcare. Then U=turn, suddenly it is "communism" when GOP wouldn't go along. No matter what any politician does or says to the contrary, health care keeps going toward single payer. The challenge is Acthar Gel type boon doggles in the US system, not the political rhetoric of "socialism"

Konrad said...

Tim Worstall makes two common errors. First, he falsely thinks that the following three types of countries are all the same. They are not, and they cannot be compared...

[1] Countries whose governments create their spending money out of thin air, and whose currency is spendable or exchangeable worldwide (e.g. the USA).

[2] Countries whose governments create their spending money out of thin air, but whose currency is not spendable or exchangeable worldwide (e.g. Argentina). If such countries have consistent net trade deficits, then they must borrow foreign currency in order to buy imports. The result is ever-worsening foreign debt and domestic austerity (e.g. Argentina).

[3] Countries whose governments cannot create their spending money out of thin air (e.g. the nineteen nations of the euro-zone). If such countries have consistent net trade deficits, then they must borrow all the currency they use. All the currency is created by banks as loans. The result is ever-worsening debt and austerity (e.g. Greece).

By falsely conflating these three different type of nations, Mr. Worstall falsely claims that without austerity, the USA would become Greece or Argentina.

Wrong.

Mr. Worstall’s second error is to claim that any alternative to neoliberalism, no matter how slight or modest, is Communism. Therefore without ever-worsening austerity and inequality, the USA would become the USSR.

In reality, either extreme leads to collapse. With neoliberalism, everyone and everything is owned by the rich. With Communism, everyone and everything is controlled by bureaucrats and party bosses.

We need a balance between these two extremes. We need a society of “both and,” instead of “either or.” A society with both capitalist and socialist aspects, in which some industries are privately controlled, while other industries are publicly controlled (e.g. utilities, police, fire, prisons, military, etc).

The USA tilts strongly toward neoliberalism. Hence the USA has ever-worsening poverty, inequality, and homelessness. Evidently this suits Mr. Worstall just fine.

Tim Worstall said...

Konrad, do try to keep up. I'm English. Living over here in Europe.

"Are you dying because you have no money for a medical procedure? Society could save you, but that would be “socialism.”"

We have that universal health care. Amazingly, people still die too.

"Hence the USA has ever-worsening poverty, inequality, and homelessness. Evidently this suits Mr. Worstall just fine."

Again, I'm English, I wasn't referring to the US. But the US doesn't have ever worsening poverty, and inequality fell in the recession, as inequality does fall in recessions.

And this is just drivel:

"Mr. Worstall’s second error is to claim that any alternative to neoliberalism, no matter how slight or modest, is Communism. Therefore without ever-worsening austerity and inequality, the USA would become the USSR. "

I lived and worked for a number of years in the rubble of what had been the USSR. I wouldn't wish that system upon anyone. Yet I'm just absolutely fine - as I've said in numerous articles - with voluntary socialism. You want, for example, worker owned companies like WinFoods, Mondragon etc? Great, there's the big wide world out there, you go build them and have fun. I'll even be a customer if you're producing what I desire.

Before accusing me of things try to work out what it is that I do believe, eh?

"Countries whose governments create their spending money out of thin air, but whose currency is not spendable or exchangeable worldwide (e.g. Argentina)."

Their currency was entirely exchangeable and spendable anywhere. Until they started to make too much of it, the value declined and people became less eager to hold it.....

Konrad said...

Tim Worst-of-All writes, ”The US doesn't have ever worsening poverty, and inequality fell in the recession, as inequality does fall in recessions.”

Worst-of-All does not know how to compose a sentence, but it seems that he denies that there is ever-worsening poverty and inequality in the USA.

From this it is clear that Mr. Worsted (or Worst-of-All, or Worcestershire sauce -- whatever his name is) lives in a dream world, and therefore cannot be helped or educated.

However his buffoonery gets worse. He thinks that Argentina’s currency, “Was entirely exchangeable and spendable anywhere. Until they started to make too much of it, the value declined and people became less eager to hold it..... “

For Worst-of-All, an Argentine peso can be spent or exchanged in any nation or any currency exchange house worldwide, like the US dollar can. Thus, everything was fine until they “made too much of it.”

No, little one. Argentina has a massive trade deficit, which means that Argentina is hugely dependent on imports. Since Argentine pesos cannot be spent outside Argentina, the Argentine government must obtain foreign currency in order to keep buying imports. Argentina obtains foreign currency by borrowing it. Recently Argentina’s government accepted the biggest IMF loan in IMF history. The Macri government uses this foreign debt as a pretext for mass privatization, mass austerity, and every other aspect of neoliberalism.

I tried to explain reality to you, little one, but you are too far out of your depth to grasp simple facts. Therefore you may have the last word.

Enjoy.

Tim Worstall said...

"but it seems that he denies that there is ever-worsening poverty and inequality in the USA. "

Care to join the same universe as the rest of us?

"Income Inequality:
The money income Gini index was 0.482 in 2017, not statistically different from 2016. Changes in money income inequality between 2016 and 2017 were not statistically significant as measured by the other indicators: the Theil index, the MLD, or the Atkinson measure.
Poverty:
The official poverty rate in 2017 was 12.3 percent, down 0.4 percentage points from 12.7 percent in 2016. This is the third consecutive annual decline in poverty. Since 2014, the pov­erty rate has fallen 2.5 percent­age points, from 14.8 percent to 12.3 percent."

From:
https://www.census.gov/library/publications/2018/demo/p60-263.html

Argentine Peso. It's a convertible currency. It is possible to sell it and gain some other currency in return. Thus it is not necessary to borrow in order to gain access to foreign currency.

You're not even getting the balance of payments right anyway. Even without a convertible currency it is not necessary to borrow to gain foreign currency. One can sell things. Like land, companies, factories. Heck, you can even see if anyone would like to invest in a country.

"I tried to explain reality to you, little one, but you are too far out of your depth to grasp simple facts."

Ah, yes, it's me that's in error, isn't it.

Joe said...

Doesn't sound like Tim has a leg to stand on in any of the actual arguments here, so why pull out petty insults and make fun of his name? That's the domain of slimeballs like Mark Levin, Rush Limbaugh, Trump and 3rd grade bullies.

If you can't see a difference between the US and Venezuela, Zimbabwe or Argentina, then why are you even commenting? He mentioned real resources, but as far as I can tell, MMT seems to be the only school that actually does care about real resources. Everyone else has an imaginary worry about not being able to write numbers on pieces of paper anymore that they'd prefer to see things crumble than to actually put those resources to use. We had to destroy the economy to save it, but at least we tamed the deficit! You fix one bridge and the next thing you know, you're taking wheelbarrows of cash to the store, so best not even think about getting healthcare to kids. They just don't make wheelbarrows big enough.

Remember that clip of Greenspan being forced to tell the truth to Paul Ryan about social security? Under oath, he had to put the the focus on real resources instead of worrying about what the numbers on the balance sheet says, which is of course, why mmt'ers love the clip.

Andrew Anderson said...

Under oath, he had to put the the focus on real resources instead of worrying about what the numbers on the balance sheet says, which is of course, why mmt'ers love the clip. Joe

Yes, but government privileges for the banks enable them to compete for those real resources much more than they would be able to otherwise. I read long ago that purely private banks might safely leverage their capital 2-1. Currently, banks may leverage their capital ~10-1. That's 5 times as much competition for real resources with government as purely private banks might muster.

And if substantial price inflation should result from the banks' privileged ability to compete for real resources with the monetary sovereign, guess who'll be blamed for it?

Joe said...

Andrew - I suppose that could be a concern, but where in the developed world is a shortage of resources a bigger problem that a lack of usage of resources?

We have millions upon millions of underemployed people, yet have shortages of teachers, nurses and doctors. We're not putting resources to use effectively.

Andrew Anderson said...

We're not putting resources to use effectively. Joe

No argument there but once sufficient deficits encourage the banks and borrowers that a new boom has arrived, then lots of real resources will be consumed for the benefit of private interests, not for the common good.

Tim Worstall said...

"We have millions upon millions of underemployed people, yet have shortages of teachers, nurses and doctors. We're not putting resources to use effectively."

Ah, well, that does, to see MMT as a solution, require that we believe government allocation of resources is going to lead to an effective allocation of them. HS 2 and the California HS train set rather calling that into question really.

Leave aside that creation of money part and consider the next. Political allocation of resources leads to their efficient allocation, does it?

Matt Franko said...

“so why pull out petty insults and make fun of his name?”

Because that is all these usual Art Degree half-commie commenters here have the skills to do...

Joe said...

I think it's messaging again.

This time it's about the nature of money. Everyone gets that money is a resource, but pretty much no one understands the nature of money. They all think it's a limited resource, that just somehow exists in the ether or comes from some amorphous goo of nobody knows what. This leads to stupid ideas like "We're running out of money" or "Government surpluses are good", or "We all need to live within our means". No one can spot a fallacy of composition it seems.

Well in reality, money is created by governments (and credit money is created by banks), and money is an infinite resource. But it still must be used effectively. If everyone tries to run a surplus (which is impossible, does Tim even understand that much?), you're using your money creating capacity ineffectively, a la the eurozone, or if you spend all willy-nilly without having actual production behind any of it, a la Zimbabwe, then you're not using it effectively anymore either. When 60% of the population can't afford a $500 emergency and at the same time we're giving the richest person in history a helipad, we're not using our tax and spending ability effectively (it's just not the magnitude, but also the distribution, and yes, taxes are a part of effective usage of our money creating abilities).

In most modern developed economies, it seems pretty obvious that much of the time, there's a persistent bias to too little money creation, where chronic un and underemployment are huge problems, and where infrastructure is literally falling down.

I guess let's all just sit around and lament that the bridge fell down. We can't build a new one despite the giant pile of brand new shiny steel and a nice supply of concrete on our side of the river, and half a town of unemployed construction workers. Too bad creating a bit of money to pay some people to build a new bridge would turn us into Zimbabwe. Any day now, that inflation's gonna hit...

S400 said...

“Because that is all these usual Art Degree half-commie commenters here have the skills to do...”

Ah so Matt has an Art Degree!

S400 said...

Sweden used to have as near full employment as you can get and all the social benefits with a large public sector and all the bells and wissles and there were not any Zimbabwe, Argentina, Venezuela situation and there were not a problem with a collapsing Swedish krona. Sweden used to be called the bumble bee of nations, to heavy to fly but still it did just that. The answer to that is of course the real economy were people create real value, may it be things, services, education, art you name it. This real functional economy is what keep the value of the currency as stable as it can be.
Understanding this and all boogeymen like Sovjet all other ridiculous examples of “history” go away.

Matt Franko said...

Check the thread genius I never resorted to the ad hominem ... I leave that you Art Degree do-dos with the superior semantic skills...

Matt Franko said...

FD I use “Genius” here as figurative language

(FYI for the cognitively impaired)

S400 said...

Yeah you have to isolate your behavior to this thread, because there are plenty of threads were you called others all sorts of things. Nice try!

S400 said...

I just checked the thread again and “Because that is all these usual Art Degree half-commie commenters here have the skills to do...” is a petty insult and the author is Matt.

I’m a genius!

Joe said...

"Political allocation of resources leads to their efficient allocation, does it?"
Ah, trotting out the old "guvmint can't do nuthin right" argument. I was tired of it before I finished the sentence.

Well if you don't like guvmint, you better get rid of your computer and smart phone, bust out a map instead of using GPS, shut off your internet, and don't you dare take advantage of modern medicine. Too much guvmint funding in the development of those. Grab some bootstraps instead.

Most people have come to the conclusion over the last 70 years that government does some things better and the private sector does some things better. The profit motive produces excellent results in some areas (a nice selection restaurants, toothpaste, shoes, cars, entertainment options etc) and produces disaster in others (health care, private prisons, environmental concerns, education, "defense", infrastructure etc).

And we've also seen that government becomes less effective if the private sector isn't kept in its place. As the US has been the prime example with it's system of legalized bribery (oops, did I say bribery? I meant campaign contributions. Lordy, I forgot my manners for a second)

Since education is the example that's been brought up...
Scandinavia has the best education systems in the world. Finland doesn't even allow private schools. Meanwhile, charter schools in the US haven't lived up to their promises, and for profit colleges are now generally understood to be mostly a scam (when the US government shuts down a private business, you KNOW something was very very wrong). Post WWII, the US private sector was put in its place for a while, we educated a generation to a very high level, led the world in science and technology for decades (in which basic R&D was almost 100% government funded btw.) But since, we've let our schools deteriorate as private interests have worked to destroy the public system.

It's amazing to me that anyone can argue the "guvmint can't do nuthin right" line anymore.

Andrew Anderson said...

As for abuses on the SUPPLY side of fiat, it should be pointed out that the DEMAND side of fiat is artificially suppressed in that the non-bank private sector may not even use fiat except for mere physical fiat, coins and bills. Hence deficit spending is more likely to produce price inflation than would otherwise be the case if EVERYONE could use fiat in convenient, inherently risk-free account form at the Central Bank and not just commercial banks, etc.

Moreover, while Central Banks create fiat for their monetary sovereigns they also, shamefully, imo, create fiat for the banks (e.g. InterestOnReserves) and for asset owners, typically the rich, via asset purchases from the private sector.

Noah Way said...

Joe nailed it precisely (political allocation of resources). Tax breaks for billionaires are political allocation of resources, duh.

Meanwhile FRANKO™ continues to be the poster boy for the Dunning-Kruger Effect.

Konrad said...

Art major!
All of you are Commies!
None of you are qualified!
You’re all biased against war!
I’m an electrician, and therefore brilliant!

. . . Repeat . . .

Imagine the mindless cacophony if Franko and Worstall were stuffed into a cage together.

Konrad said...

Joe writes,

“Well if you don't like guvmint, you better get rid of your computer and smart phone, bust out a map instead of using GPS, shut off your internet, and don't you dare take advantage of modern medicine. Too much guvmint funding in the development of those. Grab some bootstraps instead.

Exactly.

“Most people have come to the conclusion over the last 70 years that government does some things better, and the private sector does some things better. The profit motive produces excellent results in some areas (a nice selection restaurants, toothpaste, shoes, cars, entertainment options etc) and produces disaster in others (health care, private prisons, environmental concerns, education, "defense", infrastructure etc).”

Exactly. The problem is that entities like Mr. Worst-of-All regard any deviance from the extreme of neoliberalism to be its opposite extreme, which is Communism.

Incidentally neoliberals love government, as long as they are the government. Or as long as government serves their interests alone, and at the expense of the public.

“And we've also seen that government becomes less effective if the private sector isn't kept in its place. As the US has been the prime example with its system of legalized bribery.”

Yes.

“It's amazing to me that anyone can argue the ‘guvmint can't do nuthin right’ line anymore.”

And it’s amazing to me that some morons think inequality is decreasing in the USA. One of those idiots commented several times above.

Joe said...
This comment has been removed by the author.
Detroit Dan said...

Joe is the man!

Tim Worstall, what do you say to Joe's comment:

"Well if you don't like guvmint, you better get rid of your computer and smart phone, bust out a map instead of using GPS, shut off your internet, and don't you dare take advantage of modern medicine. Too much guvmint funding in the development of those. Grab some bootstraps instead.

Most people have come to the conclusion over the last 70 years that government does some things better and the private sector does some things better. The profit motive produces excellent results in some areas (a nice selection restaurants, toothpaste, shoes, cars, entertainment options etc) and produces disaster in others (health care, private prisons, environmental concerns, education, "defense", infrastructure etc).

And we've also seen that government becomes less effective if the private sector isn't kept in its place. As the US has been the prime example with it's system of legalized bribery (oops, did I say bribery? I meant campaign contributions. Lordy, I forgot my manners for a second)"

Best comment ever. Interested to see is Tim Worstall agrees.

Tim Worstall said...

"When 60% of the population can't afford a $500 emergency"

That's not what was found. Rather, 60% don't have $500 in cash savings to pay for an emergency. Which is different. What we don't know, but would like to, is how many of that 60% have sufficient credit to be able to pay a $500 emergency bill.

It's all rather MMT really. Credit creation is money creation of course, so do we want to create that money only in the time of emergency when people actually need it?

Bob Roddis said...

"guvmint can't do nuthin right" ---- "guvmint can't do nuthin right" ---"guvmint can't do nuthin right"

Except slaughter tens of millions of people. And impoverish almost everyone. And facilitate endless theft and wealth transfer. Duh.

It's always amazing how no statist ever can comprehend "the socialist calculation problem" or just the ubiquitous general calculation problem.

https://tomwoods.com/ep-1292-the-heroic-no-frills-private-school-and-its-enemies/

Tim Worstall said...

"Ah, trotting out the old "guvmint can't do nuthin right" argument."

Nope. I'm fully aware that government is the best - at least the least bad - method of doing some things. It's also not the least bad method o doing other things. The trick is in working out which things belong in which class?

"Well if you don't like guvmint, you better get rid of your computer and smart phone, bust out a map instead of using GPS, shut off your internet, and don't you dare take advantage of modern medicine. Too much guvmint funding in the development of those."

Funding of basic research might be one of those government is least bad things. The public goods problem, the funding of non-rivalrous and non-excludable goods. But then when government takes 29% (in the US) of GDP, nearly a third of everything, we'd sorta hope to get some baubles back from it, no? That we do get some things back is not proof that this is the best method of organising things.

That standard answer is yes to government funding of basic research and no to development or deployment. No government did create a smartphone for example, even as there was funding of basic research which led to the component technologies existing. Mariana Mazzucato is confused on this subject.

Even that basic research thought is not a slam dunk. Pretty sure it was the private sector Bell Labs which did the transistor. There are parts of Google doing some basic research these days. And do we think SpaceX or NASA is better at pushing the boundaries of rocket technology?

"Most people have come to the conclusion over the last 70 years that government does some things better and the private sector does some things better."

Quite so, the trick is what belongs in which class?

"(health care, private prisons, environmental concerns, education, "defense", infrastructure etc)."

Private health care is pretty good in many places. Entirely true that it doesn't produce universal coverage so we can justly argue that there should be government funding to ensure access. But the quality of health care is rather better in the US private sector system than in the British public sector one as an example. The NHS is very equitable and rather bad at "mortality amenable to health care". I'm even told that the US private sector is rather better than the VHA. UK private education is vastly better than public.

"Since education is the example that's been brought up...
Scandinavia has the best education systems in the world. Finland doesn't even allow private schools. Meanwhile, charter schools in the US haven't lived up to their promises, "

And Sweden's system is a pure voucher one. Any two qualified teachers can open a school and cash those education vouchers for the children sent to it. Works well too.

"It's amazing to me that anyone can argue the "guvmint can't do nuthin right" line anymore. "

I don't. I wonder what it is that it can do right and agree that there are some things. It's which that matters.

So, to my actual example. That California train set is a humongous waste of money. As is HS2 in Britain. This is an example of government doing something badly. The private sector wouldn't do either at all. What else belongs in this class of things government tries to do but does badly then?

Tim Worstall said...

"And it’s amazing to me that some morons think inequality is decreasing in the USA."

What inequality do you want to talk about then? Wealth? Income? Market income? After taxes an benefits? After government provision of goods and services in kind to the poor? After all government services? The further down this list you go the less inequality there is.


As an example, an example only, from the UK. Average top 10% incomes to bottom 10% incomes are about 12 to 1 when measuring market incomes. Now figure in taxes and benefits, then add the value of government services (free K12, the NHS etc) and it falls to 4 to 1. That last level of inequality is by any historical standard very low.

Which sort of inequality is it that you think is increasing? And is that one you're thinking of the important one? I'f argue that it's consumption inequality that matters and that that's at pretty low levels.

S400 said...

“And Sweden's system is a pure voucher one. Any two qualified teachers can open a school and cash those education vouchers for the children sent to it. Works well too.”

You don’t know what you’re taking about.
Sweden’s education system is in big trouble since the voucher system was introduced. It was one of the best in the world before voucher system introduced. And it was under the government.

The voucher system have created a pervert incentive where high grades are lightly given by private schools in order to look successful.

The voucher system is not in any way a success story compared to the old public system Sweden used to have. The only ones who have gained in this is the owners of the schools.

AXEC / E.K-H said...

Tim Worstall, Joe, Bob Roddis, etc

This thread started with the debt-inflation red-herring and ended with the allocation/calculation red-herring. Economists’ main function in society has always been to keep the audience entertained with angels-on-a-pinpoint talk shows and to prevent that any economic issue ever gets settled.

The lethal argument against the “guvmint can’t do nuthin right” imbeciles is that the business sector cannot exist without the government’s production of profit which shows itself empirically in the permanently growing public debt. In other words, the profitability of the business sector is NOT an indicator of productivity/efficiency but of deficit-spending/money-creation.

From the axiomatically correct macroeconomic Profit Law Qm=Yd+(I−Sm)+(G−T)+(X−M) follows that Public Deficit = Private Profit if all other variables are taken out of the picture for a moment.

So, it is the public deficit that produces macroeconomic profit and NOT any allegedly superior allocation of resources or the smartness/greed of capitalists or the alleged self-regulation by supply-demand-equilibrium. These factors influence merely the DISTRIBUTION of macroeconomic profit BETWEEN firms and NOT the overall volume.

In the early phase of capitalism, growth, i.e. the excess of the business sector’s investment expenditures I over the household sectors saving Sm produces macroeconomic profit Qm. In late capitalism, the government sector provides the life support of the business sector with deficit-spending, i.e. with G greater than T.

What the US government does in fact since many years is to artificially prolong the lifetime of an imploding economic system by steadily increasing the public debt. One collateral damage is that this also prolongs the blather-time of the “guvmint can’t do nuthin right” imbeciles.

The ongoing brain-dead blah blah of both MMTers and mainstreamers is incontrovertible proof that economists NEVER understood how the monetary economy works.

Egmont Kakarot-Handtke

Mike Norman said...

Ryan Harris said...
" when our healthcare, prescription medications, college, solar panels, electric sports cars, jobs for everyone are paid for with fiscal space (not funded by taxes) and the currency falls due to random walks/terms of trade/investment flows or whatever reason and commodities rise, do you raise taxes or cut spending to address the inflation?"

The gov't is spending (printing money) at a record pace of nearly $5 trillion per year. Taxes have been cut. The deficit will leap to over $1 trillion this year. What's the dollar doing? It's going up. Inflation is tame. So where is the currency depreciation?

Ryan Harris said...

All True. Commodities have pretty much deflated because markets appear focused on China's slowing building frenzy and USD rallying.

Noah Way said...

Worstall remains clueless. Take inequality, for example. Health care is tiered by cost, with public health care (Mediciad) being the bottom tier. No dental, no vision, no hearing. Dental repair = extraction. In the public system (Obamacare) it can take months to get an appointment. Meanwhile groups of doctors go around the country providing free health services to the poor (about 1/2 the population of the US does not have $1,000 in the bank). Social services are cut in favor of reduced taxes on those who already pay far too little and squirrel it away in real estate that they squeeze for maximum income while collecting the copious tax benefits of rentiers (which is another reason why there is a vast shortage of affordable housing) and corporate welfare. Sounds like inequality to me. Education? Public schools are largely shit, so comparing their value dollar-wise is like claiming valuable savings on a diccounted carton of spoiled milk.

The real problem with government is that it works for 'special' interests (the donor class), not for citizens - another form of inequality and misdributition. The time-honored tradition in the US is to bitch about government (a la Reagan) then sabatoge it to "prove the need" for efficiency via privatization. Of course the efficiency is only about generating profit and has no concern for the environment, humanity, etc. This is happening around the globe, and where it isn't the full economic and military force of Empire is ranged against it. Open your eyes and look around - wars for resources, wars for profit, climate change denial, environmental catastrophe, 14% poverty rate in a country with < 4% unemployment, etc.

If Tim is wondering why he isn't be taken seriously here it's because he doesn't know WTF he is talking about.

Tim Worstall said...

"14% poverty rate in a country with < 4% unemployment, etc."

That's one worth reconsidering. The US poverty rate is measured before all the things done to reduce poverty - before the effects of the EITC, Snap, Section 8, Medicare and so on.

You could know this and if you don't perhaps you should find it out before commenting. And perhaps you'd like to try telling us what the poverty rate is in other countries before the effects of the welfare system?

"Take inequality, for example."

OK, let's take inequality then. The usual measure is the Gini. This is higher for the US than many countries, lower than some. But do note that the usual measure is before, as above with the poverty rate, many of those things one to redistribute. Still, it's higher than many in international comparisons.

But that's not the claim. Which is that it is rising. And as I've shown above, it doesn't seem to be. So, who is it that's not knowing stuff?

Clint Ballinger said...

Tim Worstall wrote "But then when government takes 29% (in the US) of GDP, nearly a third of everything, we'd sorta hope to get some baubles back from it, no?"

Tim - That sentence alone sums up the vastness of your ignorance perfectly.

Matt Franko said...

“takes 29% (in the US) of GDP”

Reification...

Matt Franko said...

Definition of reify
transitive verb
: to consider or represent (something abstract) as a material or concrete thing : to give definite content and form to (a concept or idea)

Matt Franko said...

I could get Tim fully out of this by training 60-90 minutes per day 2-3 times per week for a year... he already knows we’re not “out of money!” he’s halfway there...

Detroit Dan said...

Tim-- Thanks for your thoughtful reply to my comment. Private businesses have brought us all sorts of marvelous technology, but that era is ending as they will destroy human civilization at the pace they are going. Take autonomous vehicles for example. IMO, this is a colossal waste of money. And developing "autonomous" anything would be a mistake, IMO.

I don't have time to comment in more detail at the moment. Thanks again.

Bob Roddis said...

Private businesses have brought us all sorts of marvelous technology, but that era is ending as they will destroy human civilization at the pace they are going.

People buy more and bigger houses mostly because they need an inflation hedge. No inflation, no need for an inflation hedge. Funny money loans induce overbuilding and sprawl and transfer wealth to people who can afford to buy assets with funny money. Government stimulus is totally unnecessary and is catastrophic to the environment. Absent stimulus, people wouldn't be able to buy so much worthless crap. People feel the need to move 40 miles from the center city to get away from bad government schools. Let's cut down some more trees and drive 65 minutes a day to our inflation hedge house. Funny money, government debt and deficit spending fund the great U.S. war machine.

"guvmint can't do nuthin right" EVER.

Andrew Anderson said...

"But then when government takes 29% (in the US) of GDP, nearly a third of everything, ... Tim Worstall

Have you ever considered that extensive government privileges for the banks constitutes welfare for the rich, the most so-called "credit worthy" of what is then, in essence, the public's credit but for private gain?

And that welfare for the banks and the rich allow them to impoverish* nearly everyone else, hence the vanishing or vanished middle class? And that government command of resources is therefor necessarily larger to ameliorate the damage done to others by the banks and the rich?

So yes, there's a problem but let's FIRST eliminate privileges for the banks and the rich before we dare think of eliminating aid for their victims.

*By, for example, automation financed by means that, through government privilege, bypass the need to share equity with workers or borrow their savings at honest interest rates?

AXEC / E.K-H said...

Detroit Dan, Bob Roddis

Detroit Dan maintains: “Private businesses have brought us all sorts of marvelous technology, …”

This is the Waiter Fallacy. It is the cook who has produced the delicious meal, the waiter only transported it with more or less elegance to the table. The generous tip, though, goes to the smiling fool who cannot even prepare scrambled eggs.

All the marvelous things of a civilization come from scientists/engineers and not from businessmen.

It was Tesla who invented AC and not businessmen: “The investors showed little interest in Tesla’s ideas for new types of alternating current motors and electrical transmission equipment. After the utility was up and running in 1886, they decided that the manufacturing side of the business was too competitive and opted to simply run an electric utility. They formed a new utility company, abandoning Tesla’s company and leaving the inventor penniless.” (Wikipedia)

The idea that “private businesses have brought us all sorts of marvelous technology” is the classical case of cultural misappropriation.

Egmont Kakarot-Handtke

Joe said...
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Joe said...
This comment has been removed by the author.
Clint Ballinger said...

AXEC made a good, (verbal!) point above - a first! Applaud everybody! Although the executing of a product and business plan is a big thing also; the engineers wouldn't usually get around to that. Private business and enterprise does indeed give us a lot, I think we all know that though

Magpie said...

Wow. How the mighty have fallen.

I think Tim Worst-of-all's teachers must be sorely disappointed. I could bet my ass against nothing at least one of them must have told him at least once something like this: don't re-invent the wheel, check what others have written about a subject, make sure you read answers and replies. Think what you write, before committing your reputation. Avoid embarrassing yourself without any need.

They call that "bibliographic research". It's related to due diligence.

If he had paid them attention, even a garden-variety Google search (this one, Timmy, "zimbabwe site:http://bilbo.economicoutlook.net/blog") would have told him there were "about 220 results", meaning that in 220 posts in that blog alone the "Zimbabwe" card he produced out of his sleeve has been considered.

220 results, Timmy boy, like this one:
Zimbabwe for hyperventilators 101
Posted on Wednesday, July 29, 2009 by bill

Zimbabwe is the new Weimar Republic. Not! Zimbabwe is the front-line evidence that shows that government deficits will generate hyper-inflation. Not! Zimbabwe is the demonstration of the folly of a fiat monetary system. Not! Zimbabwe is an African country with a dysfunctional government. Yes!
http://bilbo.economicoutlook.net/blog/?p=3773

Imagine you are playing chess. Wouldn't you try to anticipate your opponents' countermove? Would you place your queen unprotected where a pawn can capture it? You wouldn't, right?

But not here, no siree.

----------

Not happy with making a fool of himself, he had to dig himself ever deeper. Give me a break.

Noah Way said...

Worstall uses a straw man to deflect his ignorance. "Calculate poverty without welfare" is an absurdity, as both poverty and welfare are the result of government policy, as is the accumulation of vast wealth by a tiny minority. Cherrypicking data to support an argument does exactly the opposite, especially when the the data itself is inaccurate / politicized / corrupt. For example, US poverty levels are based on food costs in the 1960's.

Tim Worstall said...

Using the US official poverty line to discuss the number of people under the official poverty line doesn't seem like cherry picking to me.

"Cherrypicking data to support an argument does exactly the opposite, especially when the the data itself is inaccurate / politicized / corrupt. For example, US poverty levels are based on food costs in the 1960's."

Sure, Mollie Orshansky. The poverty line was three times a reasonable food budget for a household of that size in the early 1960s. Since upgraded for inflation. Why is that politicized, inaccurate or corrupt? It's simply a level of income we can use as our definition of poverty. And?

Magpie said...

Glad to see you around, Mr. Worst-period.

Okay, before proceeding any further, you have to tell us something now, like now, immediately. When did any MMTer ever propose this:

State planning of the entire economy, without market prices. What a good idea. But the Soviets tried that and it didn't work. That's not an allowable critique?

Let's fix the prices of necessities nice and low. But Venezuela! That's not allowable?


Go ahead, provide one link, one link only. You did your homework, didn't you? Well, that should be an easy task. Pick one of the many links I'm sure you found. Show no mercy. Either that or you retract.

Governments face no budget constraints, they can just tax back the resultant inflation from the monetisation of fiscal policy. Sure they can - but look at what happens when they do, Venezuela, Argentina, Zimbabwe. That's not an allowable critique?

Did Venezuela, Argentina, Zimbabwe, the Weimar Republic or planet Nibiru tax back the resultant inflation? This question admits two answers: yes or no. Answer now.

No red herrings. No bullshit. Forbes may accept that, we don't. That's no allowable critique here. You came here voluntarily, you play by our rules. Show us you know what you are talking about.

AXEC / E.K-H said...

Magpie, Tim Worstall

Now comes Magpie: “No red herrings. No bullshit. Forbes may accept that, we don’t. That’s no allowable critique here. You came here voluntarily, you play by our rules. Show us you know what you are talking about.”

As they say in Britain: “Keep your breath to cool your porridge”. The Senior Fellow of the Adam Smith Institute is not here for an exchange of profound economic knowledge but for another asinine dog and pony exercise.

Tim Worstall remains firmly in the tradition of the paradigmatic economist Adam Smith: “Smith ... disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter)

Nothing has changed since the founding fathers. The mission of the Senior Fellow of the Adam Smith Institute is to sell this message: The market economy/capitalism is the best of all possible economic worlds. Yes, there are crises, and unemployment, and corruption, and exploitation, and the distribution is perhaps a little biased, but, as everybody knows, the Soviets tried to make it better and it didn’t work. End of mantra.

Now, Magpie tells Tim Worstall that he cannot sell his bullshit to the audience of MNE, here “you play by our rules”.

What are those rules? At MNE “we” sell the message that deficit-spending/money-creation benefits WeThePeople and that MMTers are Progressives who care for the unemployed, the environment, humanity, in particular the health and happiness of children, the elderly, and the poor. To argue against this amounts to the self-exclusion from the world-wide community of good people.

“Our” rules include the small-print that anyone who proves that MMT is in fact proto-scientific garbage and that the MMT sales team does not promote knowledge about how the monetary economy works but pushes the agenda of the Oligarchy in the garb of social policy will be stopped in the tracks by a sky-high heap of political BS.

Egmont Kakarot-Handtke

Tim Worstall said...

Magpie. Perhaps you'd care to try a little reading comprehension here:

"So, here's how we might do things. Other people have used this idea and here was the result.

That's not an allowable critique now is it?

State planning of the entire economy, without market prices. What a good idea. But the Soviets tried that and it didn't work. That's not an allowable critique?

Let's fix the prices of necessities nice and low. But Venezuela! That's not allowable?

Governments face no budget constraints, they can just tax back the resultant inflation from the monetisation of fiscal policy. Sure they can - but look at what happens when they do, Venezuela, Argentina, Zimbabwe. That's not an allowable critique?

We're not to use experience nor history as a guide? "

That's what I said. It's an analogy. ANALOGY.

"Some people say that this is a good idea - here's our experience of people trying it. Some people say this other thing is a good idea. Here's our experience of it being used. So, MMT says this is a good idea. Here's at least some examples of our experience of it being used."

You get that? I did not say that MMT says the economy should be planned. Nor that MMT means or even implies price fixing. I did say that MMT means that governments face no budget constraints, they can monetise fiscal policy and tax back the resultant inflation.

Which is indeed what MMT says it says.

"Did Venezuela, Argentina, Zimbabwe, the Weimar Republic or planet Nibiru tax back the resultant inflation? This question admits two answers: yes or no. Answer now. "

No. They didn't. Which is rather my point. I agree that governments can tax back that inflation. What interests is will they? Our past experiences of the monetisation of fiscal policy don't tell us that they will. Should we use human experience to judge the value of an idea? That doesn't seem like all that radical an idea to me to be honest about it.

Please do understand what my critique of MMT is. It's that political reality means that it won't work like the plan. Well, OK, maybe you don't like that idea but that's what the critique is.

"The mission of the Senior Fellow of the Adam Smith Institute is to sell this message: The market economy/capitalism is the best of all possible economic worlds."

How amazing that you know what I think. That idea that the current capitalism/market economy is the best of all worlds would mean that I wouldn't support the varied things which would make it better. Like land value taxation, a carbon tax, health care reform and many other things. Since I do support those and many other things then I guess I must not think the current system is the best one possible then, eh?

Noah Way said...

Using the Soviet economic system as a demonstration of how planned economies don't work ignores the historical fact that the west waged economic war against the Soviet Union until its collapse (and beyond). Stop pretending it was a closed system, operating in a vacuum for scientific analysis. The same can most certainly be said of Venezuela and the world abounds with current examples.

Your argument here is not cherry picking, it is either deliberate misrepresentation or blind ignorance. Or both.

Magpie said...

Oh, I stand corrected, Timmy boy.

I get it know. When you write "let's fix the prices" you don't mean MMTers say that. Nope. You did your homework and you know they don't. (Thanks for admitting it, btw. A simple "My bad" would have been sufficient.). What you mean is that someone else tried fixing the prices and it didn't work, therefore by ANALOGY, to try something different with MMT should not work either.

Makes perfect sense, yes?

Let me advance my own analogy. It makes about as much sense as this: someone jumped from the 50th floor and killed himself, therefore, by ANALOGY, to take a glass of water should also kill me.

----------

I'll give you this, Timmy: you may not be much of a thinker, but -- boy, oh boy -- you are funny. You should try comedy. :-)

AXEC / E.K-H said...

Tim Worstall

You have been introduced as Senior Fellow of the Adam Smith Institute: “The Adam Smith Institute is a neoliberal think tank and lobbying group based in the United Kingdom and named after Adam Smith, a Scottish moral philosopher and classical economist.” (Google profile)

A think tank has NOTHING to do with thinking. But, of course, nobody wants to characterize his type of business as brainwashing.

Everyone who rallies behind the False-Hero-Memorial of Adam Smith exposes himself as an incompetent scientist. Adam Smith did not get the pivotal concept of economics ― profit ― right and this means that his final resting place in the history of scientific thought is a hole in the darkest corner of the Flat-Earth-Cemetery.#1, #2

The fact of the matter is that, in 200+ years, economists have not made any progress towards an understanding of how the economy works. The Profit Theory is still false and this means that the rest of the analytical superstructure is false. This holds for Classical Economics, Walrasianism, Keynesianism, Marxianism, Austrianism and MMT.#3

So, the political proposals/solutions of both late-Smithians and MMTers lack sound scientific foundations. In the final analysis, it is political fraud.

This is the difference between scientific thinking and think tank thinking: “A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. … A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent.” (Haack)

You say: “How amazing that you know what I think.” I don’t know what you think. But I know that you cannot think.

Egmont Kakarot-Handtke

#1 The Profit Theory is False Since Adam Smith
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2511741

#2 New economic thinking = old political fake
https://axecorg.blogspot.com/2017/03/new-economic-thinking-old-political-fake.html

#3 Down with idiocy!
https://axecorg.blogspot.com/2017/12/down-with-idiocy.html

Tim Worstall said...

"What you mean is that someone else tried fixing the prices and it didn't work, therefore by ANALOGY, to try something different with MMT should not work either."

No, Someone suggested this and it didn't work. Someone is suggesting this and maybe it won't work. You see?

Magpie said...

But I forgot the rest of your answer. This bit:

I agree that governments can tax back that inflation.

The thing is that you know it won't work with the US, because they didn't do it in Zimbabwe or Venezuela. That's Worst of All Iron Law of History.

Man, you are good.

----------

Still, a simple yes or no would have been enough. *<8oD

Tim Worstall said...

"The thing is that you know it won't work with the US, because they didn't do it in Zimbabwe or Venezuela. That's Worst of All Iron Law of History.

Man, you are good."

Nope. Because they didn't then I suspect it won't. So, what are you going to offer as the proof they will and therefore it will?

BTW, Nixon did increase the money supply, there was inflation and no, it wasn't taxed back. Had to wait for Volker to use monetary tools to bring inflation back down again....

Magpie said...

Just out of curiosity, Tim, isn't Nixon -- you know -- dead?

Oh, I get it. I didn't read carefully. You found his candidacy hidden deeply among the MMT proposals.

Have a good'day, mate. :)

Clint Ballinger said...

Tim wrote “Our past experiences of the monetisation of fiscal policy don't tell us that they will.”

Tim – What, precisely, “past experiences”? What developed countries have caused problematic price level increases from government spending?

Tim Worstall said...

" What developed countries have caused problematic price level increases from government spending?"

That's not what MMT says.

Ans that price level increases can come from government spending is just straight Keynes. There's nothing new or surprising about the observation.

MMT's point is that this doesn't have to be financed through borrowing, it can be done through money creation. Which is true, the old name for this is monetisation of the deficit. And yes, there has been one or two problems with this as a result of the on-sterilisation of that increase in the money supply.

Seriously, don't you people read any standard economics at all? Inflation from spending is just Keynes, inflation from increased money supply is Friedman. Neither are in conflict with MMT, indeed they agree with it.

Clint Ballinger said...

Tim writes “And yes, there has been one or two problems with this”

And they are...?

Noah Way said...

Funny how Worstall cherry-picks the posts he responds to.

He's got the smooth turd-like demeanor of a seasoned politician, glossing over or ignoring completely those things that undermine his position while focusing on his talking points.

i.e. sustained economic warfare as the cause of economic collapses

Tim Worstall said...

"Tim writes “And yes, there has been one or two problems with this”

And they are...?"

That just brings us back to Venezuela, Weimar and all the rest again, doesn't it?

Clint Ballinger said...

Tim writes “MMT's point is that this doesn't have to be financed through borrowing, it can be done through money creation”

Tim, that is not “MMT's point” in the slightest. If you think that it is, not only do you demonstrate that you do not understand government finance, but also that you have not actually studied MMT.
As for the finance bit: DO THE ACCOUNTING. Currency issuers such as the US, UK, Japan, Australia etc _categorically_ do not borrow their own tax-credits to “finance spending.”

Clint Ballinger said...

What developed (or even 'normal' developing countries) do you refer to that have had problems with money creation causing price rises?

AXEC / E.K-H said...

Tim Worstall

You say: “Seriously, don’t you people read any standard economics at all? Inflation from spending is just Keynes, inflation from increased money supply is Friedman.”

Are you really thus far behind the curve? Keynes and Friedman are not quotable in an economic argument because they are scientifically long dead.#1, #2, #3

Take notice that there is NO relation between a growing public debt and inflation.#4, #5 The lethal consequence of MMT policy is NOT on inflation but on distribution.

Egmont Kakarot-Handtke

#1 Forget Keynes
http://axecorg.blogspot.com/2018/02/forget-keynes.html

#2 Milton Friedman, fake scientist
https://axecorg.blogspot.com/2017/08/milton-friedman-fake-scientist.html

#3 Forget Friedman, forget Keynes
https://axecorg.blogspot.com/2017/07/forget-friedman-forget-keynes.html

#4 MMT and the inflation-red-herring
https://axecorg.blogspot.com/2018/04/mmt-and-inflation-red-herring.html

#5 Economics as tireless production of proto-scientific toilet paper: inflation theory as an example
https://axecorg.blogspot.com/2018/09/economics-as-tireless-production-of.html

Calgacus said...

Tim Worstall: MMT's point is that this doesn't have to be financed through borrowing, it can be done through money creation.

The real MMT points are that
(a) what is called government borrowing (trading bonds for currency) is NOT BORROWING as the word is used in any other context.
(b) The money issuance itself is "the borrowing". Issuing money (or issuing a bond) "finances" itself.
(c) In FDR's words - "government credit & government currency are one and the same thing".

Which is true, the old name for this is monetisation of the deficit. And yes, there has been one or two problems with this as a result of the on-sterilisation of that increase in the money supply.

No, "monetisation of the deficit" is not really an old name. It is associated with the recent bizarre idee fixe of the last few decades idea that issuing the form of money called "bonds" is less inflationary than issuing the bond called "currency" or "money". Now that there is no gold standard, and it makes no sense whatsoever, it is held more strongly when there was a gold standard. I do a lot of reading from old books of the 30s, 40s, 50s and 60s. The scientific advancement over the garbage of the post-1970s dark age is remarkable.
(In general the MMT academics read a lot more old economics, refer to a lot more old economics than any other school. They've treated all the points you make exhaustively.)

And no, there have not been problems with this oxymoronic "monetisation of the deficit". Indeed, the evidence if anything is that hiking interest rates, tight money, issuing bonds is in the long run MORE inflationary, not less than "loose money", low interest rates, printing money.

A case in point were the two world wars. Due to the good advice and thinking of Keynes and the New Dealers, in both the US & the UK one of the anti-inflation tools was capped, low interest rates for the banking and finance sector, as opposed to the higher interest rates of the WWI era. And there was less inflation from the bigger war, WWII, than from WWI.

Joe said...

The whole argument is really besides the point. Tim has a lack of imagination. It's a fact that a currency issuing government is not financially constrained. It's a fact that taxes don't "fund" the government (seems he accepts those, so progress).. But it's also a fact that these facts do not mean that the government must do everything, or anything at all for that matter, it depends on your politics (I detected a hint of that understanding too). You could be a right wing person and still recognize those facts. Still doesn't imply any big guvmint programs at all. Part of MMT is a recognition of how simple logic & accounting work. Financial flows are conserved, one account goes up, another goes down. If the govt is in surplus, then the non-govt is in deficit (has Tim gotten that far? Cause politicians, most economists and the general population sure aren't). And US dollars can't possibly fund the govt if US dollars didn't even exist until after the US govt created them. Pretty simple stuff.

Probably due to our personal politics, most ppl here also recognize the simple fact that virtually all of the wonders of our modern world are, to a significant degree, the result of governments playing an active role in economic activity and development. But you could still argue a right wing politics within the MMT framework. Politics doesn't change the fact that your income is someone else's spending. You could even argue that the govt should try to run a big surplus, which would throw people out of work, and that somehow would be a good thing. Hasn't worked well for Europe though.

Back to the mud, example after example has been brought up of where the government generally does a better job and the private sector makes a mess of things (education, health care, the evidence is overwhelming, no need to rehash..). All Tim can reply is "Because Zimbabwe", and recount some fact about Argentinian crooks liking bags of US dollars. Who wouldn't like bags of US dollars?

A senior fellow of the Adam Smith Institute and all he has presented is hackery. His original article was just simply lazy. "Because Zimbabwe" is not a serious critique.

Joe said...

Here, I'll do his job for him.

If the government cuts its deficit, the private sector will feel richer (despite actually having less money) because it can assume they'll pay less future taxes (despite tax revenue having zero connection to a govt's ability to spend, now or in the future), so despite having less money due to the government's reduced deficit (remember, govt deficit = non-govt surplus), the private sector feels richer and has no fear of inflation, so it'll go out and spend more money (despite actually having less) and this will generate more economic activity, ending any sort of economic malaise. Thus strengthening the private sector (despite actually weakening it), thus making inefficient big guvmint programs unnecessary (despite the fact the govt is sometimes more efficient [healthcare etc])... And the European economy took off like a rocket after the GFC while the American economy stagnated and people pushed wheelbarrows of cash from the hyperinflation resulting from the record bloated deficits. Oh wait...

Noah Way said...

Bravo, Joe. Don’t expect a response as Worstall ignores what doesn’t fit his ideology.

Clint Ballinger said...

Tim, still waiting...What developed (or even 'normal' developing countries) do you refer to that have had problems with money creation causing price rises?
You made it seem important and obvious that they exist (at first were the [presumably a significant amount of] “past experiences” then you lowered expectations to “one or two problems”; surely you can name these one or two then???)

Tim Worstall said...

" Keynes and Friedman are not quotable in an economic argument because they are scientifically long dead"

Oh, right. This might not be as true as you think.

"You could even argue that the govt should try to run a big surplus, which would throw people out of work, and that somehow would be a good thing."

MMT says that, in certain circumstances, you should run a surplus. As does Keynes, as does Friedman.

Assume - just for the purposes of the example - that you've inflation. Keynes would say that there's overstimulation of the economy. So, raise taxes and don't raise spending in order to reduce the stimulation of it. Run a surplus that is. Friedman would say that the inflation is the result of excess money creation. So, you could raise interest rates in order to reduce the multiplier between wide money supply and narrow. Or you could reduce the money creation of the central bank. Or you could tax back the excess money supply. Run a surplus. MMT says the inflation is due to excess money creation. Which you solve by taxing back that excess money. You run a surplus. Because taxing back the excess money creation is running a surplus.

That's not proving that MMT supercedes the earlier two now, is it?

"Back to the mud, example after example has been brought up of where the government generally does a better job and the private sector makes a mess of things (education, health care, the evidence is overwhelming, no need to rehash..). All Tim can reply is "Because Zimbabwe", and recount some fact about Argentinian crooks liking bags of US dollars."

Well, if you read up that's not what I said, is it? Sure government does some things better than the private sector. As the reverse is also true. The trick is knowing which is which.

"If the government cuts its deficit, the private sector will feel richer (despite actually having less money) because it can assume they'll pay less future taxes"

That's Ricardian Equivalence. Something that's true of some of us some of the time, sometimes of many of us for a time, and not of all of us all of the time. It's an effect to consider but not a ruling one.

"And the European economy took off like a rocket after the GFC while the American economy stagnated and people pushed wheelbarrows of cash from the hyperinflation resulting from the record bloated deficits."

And this just amazes me. The effective action after the GFC was QE. Which did indeed work by boosting the money supply. US first, then UK, then Europe a few years later. Places recovered in that order. QE did create inflation - by stopping deflation, rather the point of it. Don't you know this?

AXEC / E.K-H said...

Tim Worstall

You say: “MMT says that, in certain circumstances, you should run a surplus. As does Keynes, as does Friedman.”

That’s not the point. The point is Zimbabwe, i.e. your argument that the MMT policy of deficit-spending/money-creation causes inflation. That is not the case. MMT policy causes the metrics of macroeconomic distribution, i.e. share of profit/financial wealth, to increase. In other words, MMT policy is money-making for the Oligarchy in the bluff package of social policy.#1

Both Keynes’ and Friedman’s inflation-, distribution-, employment- and profit theory is provably false. So, they are scientifically dead and only ignoramuses still quote them.

Egmont Kakarot-Handtke

#1 Keynes, Lerner, MMT, Trump and exploding profit
https://axecorg.blogspot.com/2017/12/keynes-lerner-mmt-trump-and-exploding.html

Clint Ballinger said...

Qe did virtually nothing https://m.youtube.com/watch?v=CO6GS13rEuE

Clint Ballinger said...

Tim cannot name normal countries where government spending has caused problematic price rises. That was the premise of his whole argument about the "end game" of MMT. His argument is simply the flawed belief system in his head. Sad

Calgacus said...

Tim Worstall:Because taxing back the excess money creation is running a surplus.

No, it isn't. Raising taxes is not the same thing as running a surplus. It could just mean running a smaller deficit. Surpluses are not sustainable, unlike deficits. They tend to be dangerous and it isn't very usual that they are good policy.

By the way, AXEC / E.K-H Egmont Kakarot-Handtke is not an MMTer, but a critic of MMT with his own theories.

The effective action after the GFC was QE.
No, it did little. You can't push on a string.
After the immediate central bank actions during the crisis, the effective action was in the USA TARP & continued rather extreme Fed intervention and the stimulus. China and Australia avoided recession by appropriately sized spending. Other countries spent, but not on the scale that Keynes or an old Keynesian would have recommended. The USA stimulus was famously about 50% of what was advisable.

QE did create inflation - by stopping deflation, rather the point of it. Don't you know this?

We don't know this because it isn't true - it was deflationary, not inflationary. As Wray has said, with QE the Fed mistook the brake for the accelerator. The cult belief that lowering interest rates is always stimulating has become so ingrained it is hard to get many to even understand that there are people who are not members of this cult.

Detroit Dan said...

I haven't been able to read all the posts, but I agree with what Calcagus said.

It's hard to be certain of the effects of QE, since there are many other factors involved with regard to inflation. The simplistic logic that QE leads to inflation or deflation ceteris paribus may be irrelevant if other factors predominate (and thus ceteris paribus hides the more important information).


Clint Ballinger said...

Calgacus, good comment.
I think Tim knows so little about MMT he doesn't even realize AXEC has nothing to do with anything here (BTW, I did finally pin AXEC in a corner enough to make him admit he is a follower of Allais [who I like a lot] and that AXEC's "big idea"...drum roll please...is to run a balanced budget [!!]. But that is another story).
On interest rates, nailed it
"The cult belief that lowering interest rates is always stimulating has become so ingrained it is hard to get many to even understand that there are people who are not members of this cult." So true.
Yeah, it is crazy, so often writers even say “inflating the economy” or
“stimulating” the economy or similar and I have to go back an re-read the whole paragraph to realize they are actually talking about raising interest rates (or same in reverse for “cooling the economy” or similar wording). Mainstream econ, media, and the finance world all think there is only one lever, and that it actually functions. They do not even seem familiar anymore with the idea that the real levers are taxation and spending, and that their cult-like belief in interest rate effectiveness is absurd.
Anyway, Tim can't name countries that support his main contention. And if he believes QE was "effective action" he demonstrates ever more ignorance of gov. finance/macro.

Noah Way said...

Interest rates are not for regualtion of the economy, they are for income generation for the private banking cartel. Regulation of the economy is done with the money supply - spending and taxes. At least that is how it would work in a sane, uncorrupted system.

To slow, add money. Too hot, take money out (taxes). It's not rocket science, it's basic math. Which I suppose puts it out of the intellectual reach of British bloggers.

Let's talk some more about the failed Soviet economy (communism) that Warstall has gone deaf/mute on.

Joe said...

Gotta give Tim credit for sticking around this long and reading the posts. Most people would have ignored this thread long ago. Kudos. I'm seeing more agreement than I earlier anticipated.

I want to apologize for some of my assholish behaviour earlier. I got carried away.

Keeping the sectoral balances in mind, it does get difficult to try to tease out the effects of QE, but it's hard to see how some asset swaps in the financial sector are really going to spill over into more economic activity for the rest of the population. I suppose the theory goes that since you took away one interest bearing asset, and replaced with an asset that pays less interest, that would spur the holder of the asset to go use it productively instead of holding on to it, lend them out or whatever... Oh wait, banks don't actually lend out their reserves and aren't reserve constrained in their lending.. And who's gonna take a loan if the rest of the economy is depressed, why invest if there's no reasonable hope of a return? Strings aren't very easy to push on.

Whereas the govt's fiscal deficit has no mysterious mode of action. It ends up in the bank accounts of people in the private sector (albeit with a terrible distribution in the US, but nevertheless). So fiscal things like the stimulus, food stamps, unemployment and the like go directly to the private sector, whereas monetary policy has to work thru some murkier channel. Years of deficits allowed the US private sector to net save for a bit and the amount of private debt reduced. That's clear as day when you see the sectoral balances graph.

Just look at the US sectoral balance graph. In 2008 when the US private sector went hard into surplus, anything other than a matching govt deficit almost surely would have resulted in even more economic contraction. It's just an effect of financial flows being conserved. You can't all run a surplus simultaneously, how can monetary shenanigans change that?

Joe said...

and fair enough Tim. You can imagine scenarios in an MMT framework where a govt surplus would be the proper policy response. It's just that none of those scenarios exist anywhere in the world today (maybe some developing economies, I dunno). About the closest I can think of is when the US was on a credit binge in the late 90's when Clinton achieved his (in)famous surplus. It's a reasonable supposition that if the govt was deficit spending it could have been inflationary.

"As the reverse is also true. The trick is knowing which is which." and bingo, complete agreement there. Just our politics differ, which is fine, fair enough.

AXEC / E.K-H said...

Calgacus

Calgacus feels the urge to emphasize: “By the way, AXEC / E.K-H Egmont Kakarot-Handtke is not an MMTer, but a critic of MMT with his own theories.”

This is correct but irrelevant. In science, people are not much interested in membership cards or in opinions or in collecting likes/followers, or in self-presentations, but solely in contributions to the growth of knowledge. The identity proof of a scientist is that he has something to say that helps to understand how the universe or a subdomain of it works.

So, it does not matter at all whether and why a person belongs to the MMT community or not. As Schumpeter put it: “Remember: occasionally, it may be an interesting question to ask why a man says what he says; but whatever the answer, it does not tell us anything about whether what he says is true or false.”

True, I am NOT a member/follower of MMT, I am NOT a critic of MMT, I have proved that MM-Theory does not satisfy the scientific criteria of material/formal consistency.#1 What I in addition say is that MMTers are too stupid for the elementary mathematics that underlies macroeconomics and that they have no idea of what science is all about. And what I never forget to say that MMT is just another political fraud.

Egmont Kakarot-Handtke

#1 For the full-spectrum refutation of MMT see cross-references MMT
http://axecorg.blogspot.com/2017/07/mmt-cross-references.html

Tim Worstall said...

"Interest rates are not for regualtion of the economy, they are for income generation for the private banking cartel. Regulation of the economy is done with the money supply - spending and taxes. At least that is how it would work in a sane, uncorrupted system.

To slow, add money. Too hot, take money out (taxes). It's not rocket science, it's basic math. Which I suppose puts it out of the intellectual reach of British bloggers."

That's interesting. Because the people actually doing this for a living, the central bankers, think this way:

The broad money supply, M4 and equivalents, is the money supply to worry about here. And that's the narrow money supply, M0, times the multiplier the banking system adds to it. Or, if you prefer, the velocity of circulation. The multiplier rises at lower interest rates, falls at higher. Thus the change in interest rates is to change the amount of M4 money supply.

Interest rates are about adding or subtracting money.

" I suppose the theory goes that since you took away one interest bearing asset, and replaced with an asset that pays less interest, that would spur the holder of the asset to go use it productively instead of holding on to it, lend them out or whatever... Oh wait, banks don't actually lend out their reserves and aren't reserve constrained in their lending.. And who's gonna take a loan if the rest of the economy is depressed, why invest if there's no reasonable hope of a return? Strings aren't very easy to push on."

That is the theory and strings aren't easy to push upon. The influence of QE will always be faint. Which is why so much of it was done. From memory the UK did £450 billion of QE. That's M0 (or at least M1) creation of £450 billion. On a previous M0 base of about £60 billion (?). That's a lot of pushing on a string.

"Whereas the govt's fiscal deficit has no mysterious mode of action. It ends up in the bank accounts of people in the private sector (albeit with a terrible distribution in the US, but nevertheless). So fiscal things like the stimulus, food stamps, unemployment and the like go directly to the private sector, whereas monetary policy has to work thru some murkier channel. Years of deficits allowed the US private sector to net save for a bit and the amount of private debt reduced. That's clear as day when you see the sectoral balances graph. "

Sure. we've both monetary and fiscal tools that can be used. The old argument was that at the zero lower bound for interest rates then only fiscal could possibly work. QE showed that unconventional monetary policy could still work even then.

It's entirely possible that fiscal would work better.

However, that evidence is mixed. When Obama tried to go out and spend on all that infrastructure he had to admit to just not finding the shovel ready projects. Modern regulation just doesn't allow starting a scheme in weeks or months. Bit ineffective therefore. Under Bush there were two tax reductions tried. Sending hundreds of dollars in a check ran into Ricardian Equivalence (above). People saved it, paid down debt, not the point at all. Reducing FICA led to smaller amounts added to paychecks. This was spent, creating stimulus.

So, recent experience tells us that small and regular - and swift, changes in FICA take effect in 14 days normally, given US pay cycles - reductions in taxation seem to be stimulatory. Big infrastructure projects seem not to be.

Useful information that, we should use it in the future. Interestingly, it's also what Keynes came to believe towards the end of his life. FICA is called national insurance in Britain and there's a letter where Keynes says we should use that to vary stimulus.

"Just our politics differ, which is fine, fair enough."

That is my basic worry abut MMT. Not the details or the mechanism at all. It's what actually existing politics will do with it.

Andrew Anderson said...

From memory the UK did £450 billion of QE. That's M0 (or at least M1) creation of £450 billion. Tim Worstall

M0 would go up by £450 billion, true, but M1 would only increase if the asset seller were a non-bank. So if all asset sellers were commercial banks or other depository institutions with accounts at the Central Bank, there would be NO necessary increase in M1 at all - hence "faint" would be overstatement in that case.

Clint Ballinger said...

Tim again and again demonstrating he doesn't understand macro "That's interesting. Because the people actually doing this for a living, the central bankers, think this way... And that's the narrow money supply, M0, times the multiplier the banking system adds to it"

No, Tim, the ones who really deal with this stuff do not think that. It simply does not work that way. You might start here to try and grasp what you are missing

"Money multiplier and other myths" http://bilbo.economicoutlook.net/blog/?p=1623

As long as you believe in myths, your economics is nothing but fantasy. Come on, join the real world of facts Tim! :) Do the hard accounting, and you will see currency issuers don't borrow their own tax credits, there is no money multiplier (and why that matters), why interest rate manipulation does not do what you think it does, and on and on.

Tim Worstall said...

"M0 would go up by £450 billion, true, but M1 would only increase if the asset seller were a non-bank. So if all asset sellers were commercial banks or other depository institutions with accounts at the Central Bank, there would be NO necessary increase in M1 at all - hence "faint" would be overstatement in that case."

We do in fact know this, BoE published the figures. Banks were net short gilts before QE. They're now major holders. Not so faint.

" there is no money multiplier "

I'm willing to be entirely agnostic about reserves and the multiplier. But not about the money supply in general. We do agree that M0 and M4 are different numbers, do we? And that the ratio/relationship between them can change? Good, then we've a variable multiplier, don't we? Entirely independent of anything we want to say about reserve ratios.....

AXEC / E.K-H said...

Clint Ballinger, Tim Worstall

Clint Ballinger advises Tim Worstall: “Do the hard accounting, and you will see currency issuers don’t borrow their own tax credits, there is no money multiplier (and why that matters), why interest rate manipulation does not do what you think it does, and on and on.”

Yes, evidently, MMT is superior to the think-tank economics of the Senior Weasel of the Adam Smith Institute. In fact, anything is superior to mainstream economics because, in scientific terms, mainstream economics is the absolute zero. You just cannot go deeper.

But, although better, MMT is still not good enough. MMT, too, gets the foundational macroeconomic relations wrong. It does not matter whether this is because of stupidity or fraud, MMT’s sectoral balances equation is provably false.#1 This is lethal to the whole approach.

So, the MMT Weasel Clint Ballinger has to be advised in turn: “Do the hard accounting, and you will see that Public Deficit = Private Profit#2, and why MMT policy guidance benefits the one-percenters and NOT the ninety-nine-percenters.” Effectively, that is, behind the theatrical hostilities, the MMT Weasel Clint Ballinger and the Senior Weasel Tim Worstall are on the same Oligarchy page.

For those who suspect for a long time that Clint Ballinger is an incompetent scientist who suffers from multiple self-delusions here are the proofs.#3

Egmont Kakarot-Handtke

#1 MMT and the magical profit disappearance
http://axecorg.blogspot.com/2017/08/mmt-and-magical-profit-disappearance.html

#2 Rectification of MMT macro accounting
https://axecorg.blogspot.com/2017/09/rectification-of-mmt-macro-accounting.html

#3 How MMT makes everybody happy
https://axecorg.blogspot.com/2018/11/how-mmt-makes-everybody-happy.html

MMT: A free lunch for the Oligarchy
https://axecorg.blogspot.com/2018/11/mmt-free-lunch-for-oligarchy.html

Twitter-Threads
https://twitter.com/clintballinger/status/1066732200110878721
https://twitter.com/clintballinger/status/1065556839075463169

Detroit Dan said...

Hi Tim,

I've found that the MMT explanation of "money" is superior to the conventional explanation which uses M0, M1, etc. Of course, the conventional terms have some meaning, but provide only part of the picture while missing some key money like objects such as Treasury bonds.

Treasury bonds are practically money these days. They are time deposits, as compared to the demand deposits that constitute most of M1.

QE, or debt monetization, just involves swapping time deposits for demand deposits. Since the Treasury bonds are among the most liquid assets in the world and can be easily spent by anyone at anytime, these asset swaps do little to spur inflation.

A broader conception of money includes what MMT co-founder Randall Wray refers to as a pyramid of liabilities.

Private financial liabilities are not only denominated in the government’s money of account, but they also are, ultimately, convertible into the government’s currency... There could, thus, be “six degrees of separation” (many layers of financial leveraging) between a creditor and debtor involved in clearing accounts... We can think of a pyramid of liabilities, with different layers according to the degree of separation from the central bank... the government is highest in the pyramid—with no liabilities higher than its inconvertible IOUs.

So there are all sorts of private money-like liabilities that should be considered as part of the broad money supply and which can affect inflation.

In the broadest sense, all money is debt. Randall Wray (The Value of Redemption) and David Graeber (Debt - Updated and Expanded: The First 5,000 Years) discuss this at length, convincingly in my opinion.

For further consideration, I highly recommend this review of Graeber's book by Hans Despain.

Tim Worstall said...

I've had more than one run in with Graeber over the years, sorry, not impressed by his economic understanding.

This is before we even get to his idea that Apple was started by disgruntled ex-IBMers.....

"There could, thus, be “six degrees of separation” (many layers of financial leveraging) between a creditor and debtor involved in clearing accounts."

That strikes me as true an is, obviously enough, why M4 is rather larger than M0. I've no objection to these new ways of thinking. My basic view of economics is that with a few exceptions no one theory nor style captures the whole and that near all capture some part of it.

Want to think about money differently? Hey, great. But the other thoughts and theories probably do still have something useful to say.

Detroit Dan said...

Here's another good review of Graeber's book, this one by Aaron Brown, which clarifies the money=debt concept by removing some of Graeber's political slant.

Andrew Anderson said...

In the broadest sense, all money is debt. Detroit Dan

Please note that Equity is on the same side of the balance sheet as Liabilities and assuming it is non-negative, I don't see why shares in Equity, common stock, is not a form of debt-free, endogenous money.

This is not a mere quibble, imo, because one defense of government privileges for the banks is the desirability* of endogenous money creation. But common stock is a form of endogenous money that requires NO government privileges since, for example, it is normally non-redeemable.

Otherwise, great comment!

*Not that inexpensive fiat and floating exchange rates, unlike the Gold Standard, does not allow the creation and equal distribution to all citizens of enough EXOGENOUS money that government privilege for endogenous money creation can no longer be justified in any case.

Detroit Dan said...

Good point Andrew!

Equity is different from other liabilities in that there is no promise for ultimate repayment in the national currency. However, equity is similar to other forms of money and debt in that it is an accounting entry representing claims against assets, and thus can be traded like other forms of debt. So perhaps the pyramid of liabilities has twin peaks -- with central bank liabilities as one peak and legal ownership of property as another?

Returning to monetary policy, we see that it applies only to the financial side of the economy under the domain of the government. On the other hand, fiscal policy can be used to create, buy, or sell private equity and thus is more comprehensive. For example, industries can be nationalized or privatized.

Joe said...

So we go from "And this just amazes me. The effective action after the GFC was QE. Which did indeed work by boosting the money supply. US first, then UK, then Europe a few years later. Places recovered in that order. QE did create inflation - by stopping deflation, rather the point of it. Don't you know this?"

to

"That is the theory and strings aren't easy to push upon. The influence of QE will always be faint. Which is why so much of it was done." and "It's entirely possible that fiscal would work better."

So that's very interesting.

Sure, when Bush II sent out the $600 check to the general populace, lots of people did save it or pay down debt, but Ricardian equivalence would posit that the reason for that was that people expected to pay more taxes later. But (I think) you would also have to posit that absent the $600 checks people would have went out and spent more or at the very least maintained their spending. But that was the whole point of the checks, the economy was faltering because people were cutting back on their spending.

What evidence is there that the general populace bases their familial spending decisions on what they think some future govt taxes would be? (We've already established that deficits and tax revenue aren't directly related. So at best the theory relies on a general misconception. But hey, action for the wrong reason is still action)

What's a more common kitchen table dialogue: "We should save this $600 because we might have to pay more taxes at some distant future date." or "We should save this $600 since I might not have a job next week, and it'll allow us to stay in our home an extra month."?

Joe said...

Careful Dan with your use of the N-word.. And I don't mean the nasty racist N-word. I'm talking about the REALLY bad N-word, the one that really makes people sweat... Whole governments have been overthrown for the mere suggestion of the N-Word.

Detroit Dan said...

(c:

Andrew Anderson said...

However, equity is similar to other forms of money and debt in that it is an accounting entry representing claims against assets, ... Detroit Dan

Unless the corporation is being liquidated, it owes you NOTHING except the right to vote your shares, right? So shares are not claims on a common stock company but rather titles of co-ownership.

Yes, I've seen "owner equity" listed under liabilities somewhere but according to Equity = Assets - Liabilities, owner equity is what remains of the Assets should all Liabilities be extinguished.

And personally I'd rather not be or own debt slaves which "All money is debt" implies, does it not?

Anyway, kudos that you can even grasp the concept of shares in equity as money.

Joe said...

I'll try to steelman Tim's argument.

The US recovered first because it did massive amounts of QE first. The US also ran larger deficits than the Europeans.
QE works through some 2nd or 3rd order effect described above. Admittedly it's faint, so large amounts were required.

Fiscal policy is indeed a direct first order effect. But Ricardian equivalence is predicated on a 2nd order effect of the govt deficit, possibly limiting the effectiveness of the 1st order effect. (govt deficit gives the private sector more money [1st order effect]. But because of concerns of future govt solubility, they might not spend or invest it, and possibly make even further personal spending cuts so they can save in order to pay the expected future taxes [the 2nd order effect]).

With the resulting conclusion that during the GFC and its aftermath, the 2nd and 3rd order effects of QE were greater (almost surely to a significant degree) than the 1st order effects of govt deficits, which are tempered by the 2nd order effects of Ricardian Equivalence.

Is that fair?

Joe said...

And QE has the first order effect of reducing the desirability of holding on to financial assets, thereby improving the relative desirability of putting financial assets to productive use (investment). The second order effect is because of the relative improvement in the desirability of investment, the private sector will put existing financial assets to productive use and because of such improvement in the investment environment, new financial assets will be created driving even more economic activity (credit creation).

That is what the mainstream is selling, correct?

Calgacus said...

Egmont Kakarot-Handtke: I said that because Tim Worstall is new here and because I thought he might be naturally but wrongly assuming regular commenters here like you and Andrew Anderson were MMTers.


AXEC / E.K-H said...

Detroit Dan, Tim Worstall, Andrew Anderson, Joe, Calgacus, etcetera

You can blather on until you are blue in the face. This does not alter the fact that Walrasianism, Keynesianism, Marxianism, Austrianism, and MMT are mutually contradictory, axiomatically false, materially/formally inconsistent and that all got the foundational concept of the subject matter ― profit ― wrong.

By consequence, the policy guidance of all economic schools lacks sound scientific foundations. This makes it plain to the general public that economics is nothing more than political agenda pushing and economists are nothing more than useful political idiots.

Therefore, the first thing to do for the salvation of humanity is to flush failed economics and blathering economists down the scientific toilet.

Egmont Kakarot-Handtke

Andrew Anderson said...

OK Egmont, I've read the first part of http://axecorg.blogspot.com/2017/08/mmt-and-magical-profit-disappearance.html and see your point: with balanced household budgets, Public Deficit = Private Profit.

So your solution would be:
1) Require a balanced Federal budget
AND
2) Have the Central Bank supplement wages with an amount totaling Private Profit?

Clint Ballinger said...

On Egmont - Egmont realizes the 3-sector sectoral balances view and MMT criticisms of the mainstream based on it are correct. He thinks, however, the more important view is 4-sectoral, breaking the private sector into businesses and households. He believes deficit spending merely (and harmfully) allows for business sector profits and that in the long-run households suffer from this.

He simultaneously adamantly opposes anything “political” in his axiomatic econ.

What he doesn't get is that distribution between households and business is _fundamentally_ political. There is and can be no axiomatic solution to distribution. His approach is doomed to failure from the start, but he cannot see the reason why because of his belief that econ is purely axiomatic and politics should play no part.
He doesn't get the related Cambridge Capital Controversy and related clarifications on why distribution issues are necessarily purely political, about the rules of the game and who makes them. Just one small example: all the lawsuits in a country and their cash awards, awards of land, and other property and so on, are one influence on who gets what, and are decided by courts with social rules. Ditto taxation, incorporation laws, land ownership. Inheritance, and on and on. Who gets the profits from capital owned by an individual, a group of people, a corporation, the government? How did they come by that ownership, and why is it legitimate? There is no axiomatic solution to these questions; the answers are ALWAYS socially and historically grounded politics and law.

If he could grasp why it is impossible to make the balance of profits and distribution between households and business axiomatic, he could move on to something feasible and useful. But he is stuck in a broken loop. He thinks he sees something MMT misses, but he does not.

Clint Ballinger said...

Tim "But the other thoughts and theories probably do still have something useful to say." When it comes to Econ, not really.
Mainstream macro econ has evolved to be "as if" it were deliberately misleading, and supportive of bad policy that rewards the rich at the expense of everyone else. Mankiw and similar works have evolved, whether intentionally or not, to be subtly but very very effectively misleading, from the early diagrams and language used right through to what is left out in graduate level work.
There is literally almost nothing of use in mainstream macro, and much that is harmful. The right approach is to ignore it completely and start out with the basics again, from sectoral balances, real Central bank operations, and so on. Macro devolved from the 1940s; it is finally coming out of a seven-decade-long Dark Ages. A modern biology textbook explains real biology with current facts and empirically supported theories, and does not dwell on the many delusional ideas of the past. Modern macro should do the same.
[I don't discuss "micro" as it is merely a self-limiting sect of Sociology, and does not have much importance to real Political Economy. "Micro" is not "Economics".]

Tim Worstall said...

"[I don't discuss "micro" as it is merely a self-limiting sect of Sociology, and does not have much importance to real Political Economy. "Micro" is not "Economics".]"

That amuses as I tend to think that micro is mostly right and mostly useful. Prices, markets, wage determination, allocation of scarce resourses, division and specialisation of labour, all very useful indeed. It's macro that I think is mostly a waste of time. However:

"Mankiw and similar works have evolved, whether intentionally or not, to be subtly but very very effectively misleading, from the early diagrams and language used right through to what is left out in graduate level work. "

Mankiw is known as a New Keynesian, thinking that menu costs are highly important. And the thought itself is. A major concern is, well, how fast do things happen? Sure, we all agree that over a century the economy will adjust to a shock like a change in the price of oil. Over a decade? Pretty certainly, in a few hours? No. One of the distinguishing features between say, the New Classicals, the RBCs and the New Keynesians is, well, how long? Each of whom do have different theories about this, each of which is useful in part but nowhere near the whole truth.

Menu costs, for example, they obviously exist, yes, they'll delay adjustment and models should include them. But how important are they? Ah, we don't know.....

AXEC / E.K-H said...

Clint Ballinger

Clint Ballinger parrots the foundational blunder of economics, i.e. that the “… distribution between households and business is _fundamentally_ political.”

What Clint Ballinger does not get is that Profit Theory is false and by consequence Distribution Theory.#1, #2

What Clint Ballinger does not get is that economics is a system science. Retarded economists still think it is a social science.#3 The so-called social sciences are what Feynman called cargo cult science. Economics has been hijacked and corrupted by the agenda pushers of Political Economy.#4 Since Adam Smith/Karl Marx economics has not risen above the proto-scientific level.

The axiomatically correct macrofoundations approach is NOT for low life political economists. They are beyond hope. For them it is FLUSH.#5

Egmont Kakarot-Handtke

#1 The Profit Theory is False Since Adam Smith. What About the True Distribution Theory?
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2511741

#2 Essentials of Constructive Heterodoxy: Profit
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2575110

#3 The Science-of-Man fallacy
https://axecorg.blogspot.com/2015/10/the-science-of-man-fallacy.html

#4 “We have sunk very low”
https://axecorg.blogspot.com/2018/11/we-have-sunk-very-low.html

MMT and the overall political corruption of economics
https://axecorg.blogspot.com/2018/10/mmt-and-overall-political-corruption-of.html

Legitimacy lost
https://axecorg.blogspot.com/2018/09/legitimacy-lost.html

For details of the big picture see cross-references Political Economics/Stupidity/Corruption
http://axecorg.blogspot.com/2015/11/political-economics-cross-references.html

#5 The end of political economics
https://axecorg.blogspot.com/2017/06/the-end-of-political-economics.html

Clint Ballinger said...

Tim wrote: “Prices, markets, wage determination, allocation of scarce resources, division and specialisation of labour, all very useful indeed”

Some of it is interesting; I just said it is Sociology not macro, and is of little relevance to real macro. There are and can never be micro foundations. Sociological and business school studies of consumer behavior and other aspects of business and finance are fascinating, just not usually that relevant to macro, and where they are, are done my macro people (you are right, wage and tax issues are important). You probably thought Freakonomics was the pinnacle of economics 10 years ago ;)

And “all very useful indeed””
Very useful indeed...for what? How are they correct and how are they actually used by ...who? The gov? Finance people? Who is actually finding micro “very useful indeed”? I doubt you can show that many people in any applied field are actually using these studies in any “useful” way at all. I really doubt it, and if they do, it will involve real macro factors, not micro econ sociology


“It's macro that I think is mostly a waste of time”

Macro as you know and understand it, and as taught in most economics departments = 100% useless. We are in agreement there :)

Clint Ballinger said...

I suppose Tim and the "micro" people are going to "Nudge" us all to prosperity :)

Clint Ballinger said...

Egmont, as usual, doesn't understand why his “big idea” about the way profits fall on businesses and households is not original and is actually well discussed, and that there is, mathematically, no method to axiomatize distribution between the sectors he is concerned with. Cannot be done Egmont. You are wasting your time.

AXEC / E.K-H said...

Clint Ballinger

That is the actual state of economics, messed up
• profit theory, for 200+ years,
• microfoundations, for 140+ years,
• macrofoundations, for 80+ years,
• the application of elementary logic and mathematics since the founding fathers.

The representative economist has swallowed the micro-crap supply-demand-equilibrium and the macro-crap I=S hook, line, and sinker and does not know what profit is.#1

MMTers are too stupid for the elementary mathematics that underlies macro-accounting.

Come on, Clint Ballinger, prove that you are not one of this sorry bunch of useful political idiots and tell the blog audience which of the two macroeconomic relations is true/false:
(i) (I−S)+(G−T)+(X−M)=0
(ii) (I−S)+(G−T)+(X−M)−(Qm−Yd)=0?

Egmont Kakarot-Handtke

#1 How the intelligent non-economist can refute every economist hands down
http://axecorg.blogspot.com/2015/12/how-intelligent-non-economist-can.html

S400 said...

Take notice that EKHs answers always follows the same script: you’re too stupid.... and copy and paste of his blogposts. Never ever does he address any of the concerns brought up by those who give him a chance to explain his thoughts.

His answers always follows the same script. It’s simple trolling.

AXEC / E.K-H said...

S400

You say: “Take notice that EKHs answers always follows the same script: you’re too stupid....”

That is not quite correct, I say that MMTers are stupid or corrupt or both. For all with a deeper interest, links to the proofs are provided.

Your silly post confirms that the conclusion about MMTers is accurate. Therefore, it cannot often enough be repeated.

Try to refute the macroeconomic Profit Law and if you cannot you are out of economics.

Egmont Kakarot-Handtke

Tim Worstall said...

"And “all very useful indeed””
Very useful indeed...for what? How are they correct and how are they actually used by ...who? The gov? Finance people? Who is actually finding micro “very useful indeed”? I doubt you can show that many people in any applied field are actually using these studies in any “useful” way at all. I really doubt it, and if they do, it will involve real macro factors, not micro econ sociology"

So, micro on taxes. All taxes, any tax, will produce less of what is being taxed. But that less varies according to certain aspects of what it is that is being taxed. This deadeweight - the loss of economic activity per $x of tax raised - runs along a spectrum from least to worst. Land value taxation, consumption, income, capital and corporate, transactions. So, for $x raised we'd prefer to have land value taxation than, say, a financial transactions tax.

Yes, this applies in an MMT world as well, even where we're not worried about taxation to pay for government, but to control inflation. We still lose more economic activity through certain taxes than others, for he same money destruction.

Isn't that interesting? And it's worth noting that countries which do have 35 to 45% of GDP flowing through government do a good chunk of their taxation through a VAT, a consumption tax. The US is the exception pretty much, both with only 29% and also without a VAT - local sales taxes are much smaller.

This is so interesting that it's generally agreed among those who think through these things that if the US were to have a welfare state similar to, say, Sweden - as the Democratic Socialists of America would like for example - then it would nee to have a Federal VAT. Think it's Lant Pritchett who makes this case although that name might not be right.

That last might not be all that MMT but it is indeed looking to micro to tell us interesting things about what we ought to be doing.

In a more general sense, capital gains taxes are almost always lower than income taxes. Those deadweights are why. Another way to say much the same thing is that the peak of the Laffer Curve is different for different forms of taxation. Useful, no?

Clint Ballinger said...

Clint wrote: "if they do, it will involve real macro factors, not micro econ sociology"
And
"studies of consumer behavior and other aspects of business and finance are fascinating, just not usually that relevant to macro, and where they are, are done my macro people (you are right, wage and tax issues are important)"

S400 said...

”Try to refute the macroeconomic Profit Law and if you cannot you are out of economics.”

Refute a troll? I know much more pleasant ways of wasting my time.

Detroit Dan said...

Lets of good and not so good stuff here. Here are some things I agree with:

1. I agree with Clint that microeconomics is basically a waste of time. None of the items cited by Tim changes my mind about that. So perhaps this is an interesting disagreement which signals a deeper misunderstanding or disagreement? Could be progress. However, we're up to 130 comments, so many are probably getting tired of the discussion. I think it would be interesting to pursue somewhere else. What is the bottom of our differing opinions on the worth of micro v macro?

2. I agree with S400 that AXEC / E.K-H. I long ago gave up reading his posts.

3. I appreciated Joe's effort to steelman Tim's arguments. That's how to be constructive! Unfortunately, I don't think Tim responded to that.

AXEC / E.K-H said...

Detroit Dan, Clint Ballinger, Tim Worstall, S400

You cannot answer the question which of the two macroeconomic relations is true/false
(i) (I−S)+(G−T)+(X−M)=0
(ii) (I−S)+(G−T)+(X−M)−(Qm−Yd)=0?

Obviously, you have no idea of how the monetary economy works and have never heard of the Ancient Greek Philosopher’s Rule of Human Communication: If you know nothing, say nothing.

Time for you to say goodbye.

Egmont Kakarot-Handtke

Tim Worstall said...

This is off the cuff but an answer:

"What is the bottom of our differing opinions on the worth of micro v macro?"

Microeconomics is how the world works. How do we humans respond to incentives?

Macroeconomics at least attempts to describe how to manage an economy.

I think we know a great deal more about the first, are taking still stumbling steps toward the second. Say, around Chemistry was when they still thought phlogiston was a thing. MMT folk should agree with this as MMT is trying to say that all macro that came before is wrong, no?

I also happen to think that understanding the way the world works is more important a field of study than attempted management of an economy is. On the grounds that management is only going to be done by politicians and I wouldn't trust a one of them. And yes, I've worked for politicians, in politics, stood for election myself, advised politics and politicians. I've even been responsible for a couple of policies that got enacted in my native Britain. Actually invented the policy, created the rhetoric and saw it passed in about a decade. Woo Hoo, eh? But also, after all that experience, I'm even more cynical about politicians than I was before. I actively desire that they not manage the economy. Not for any economic reason at all, just because I know how they take decisions and make policy.

Clint Ballinger said...

“MMT is trying to say that all macro that came before is wrong, no?”

Macro was on the right path until about the1940s. What is now “MMT” (and Steve Keen and similar) should have become fully developed and implemented explicitly by the late 1940s (Beardsley Ruml, Abba Lerner, Minsky on private finance, etc).
Several things happened, academia went off the rails into increasing nonsense – mathematical nonsense in econ, the parallel in the social sciences and humanities, later, was poststructuralism and postmodernism. Great swaths of the social sciences declined into literal gibberish (mathy gibberish in Econ, postmodern gibberish in the rest).

Also, the right path that macro was on would have led to radically effective progressive policies.

Quite frankly, the wealthy and powerful nipped it in the bud. They succeeded with their explicit goal to fund think tanks etc to lend intellectual cover to fundamentally anti- progressive agendas by the plutocracy.

Reaganomics, Thatcherism, etc. It worked, and we are where we are today. Much the poorer for it, and with a childish, gibberish version of “macro” as the only known macro.

MMT is just a continuation and return to the correct trajectory of early 20th century macro.
The truth will out, and it is finally happening.

Clint Ballinger said...

"How do we humans respond to incentives?"

That is interesting, and not unimportant. But it is a tiny piece of what good macro can offer in the way of improving wellbeing.
"incentives" is not so clever or all encompassing as micro people try to make it out to be. It is one of many sociological issues that are worth addressing.
But it is a mere sliver of "Economics"

Clint Ballinger said...

micro "foundations"
"Yes, your textbook announces that “Nothing appears in this book that is not based on explicit microfoundations.” But then 15 pages later, you find that “We assume that all individuals in the economy are identical,” and that these identical individuals have intertemporally-additive preferences. How is this representative agent aggregated up from a market composed of many individuals with differing preferences? It’s not. And in general, it can’t be. As Sonnenschein, Mantel and Debreu showed decades ago, there is no mathematical way to consistently aggregate a set of individual demand functions into a well-behaved aggregate demand function, let alone one consistent with temporally additive preferences."

https://jwmason.org/slackwire/microfoundations-again/

Tim Worstall said...

"and Steve Keen and similar"

I've had a direct run in with Steve Keen. Deeply unimpressed I was. His point seemed to be that as there are never infinite suppliers then therefore all markets were oligopolistic. The answer that "many" is close enough to "infinite" for oligopoly not to apply didn't seem to register with him despite it being true.

AXEC / E.K-H said...

Economists: Time to say goodbye
Comment on Tom Hickey on ‘Tim Worstall ― The End Game Of Modern Monetary Theory’

Tim Worstall asks: “What is the bottom of our differing opinions on the worth of micro v macro? Microeconomics is how the world works. How do we humans respond to incentives? Macroeconomics at least attempts to describe how to manage an economy.”

This, at last, is the key question. And here is the answer.

Microeconomics is how “humans respond to incentives”. Human behavior, though, is NOT AT ALL the business of economics but of psychology/sociology. So, to begin with, economists got their subject matter wrong. Microfoundations are false because economics is NOT a science of behavior.#1

The fatal methodological blunder of the microfoundations approach is that NO way leads from the second-guessing of Human Nature/motives/behavior/action to the understanding of how the economic system works. ALL human-centered/behavioral approaches invariably crash against the methodological wall of the Fallacy of Composition.

Microeconomics is so popular because people like to gossip about the actions and motives of other people. To explain the world with the (ultimately unknowable) motives of (real or imagined) actors gives the illusion of understanding.

So, economics has to move from microfoundations to macrofoundations. Keynes started this paradigm shift but messed it up. More precisely, he got the foundational macroeconomic relations wrong: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (GT, p. 63) This is provably false for 80 years.

So what we have got is false microfoundations and false macrofoundations and an (logically impossible) integration of the two in the textbooks. Economic textbooks are the worst proto-scientific garbage since Samuelson’s firstling of 1948.#2

However, every generation of economics students happily swallowed this stuff enthusiastically with some inconsequential reservations on minor points here and there.

So, both microeconomics and macroeconomics are provably false. There is NO economics only clueless blather and political agenda pushing.

The fortunate circumstance for economists is that in the political Circus Maximus nobody needs and wants sound scientific foundations. Among morons, science is a nuisance. So economics became one more proof that one can tell the general public virtually any BS. And economists became useful political idiots who decorate themselves every year with the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.

Note the madness that failed/fake scientists not only claim to do science but sciences.

So, clearly, what has to be done is to move economics from false Walrasian microfoundations and false Keynesian macrofoundations to true macrofoundations. Needless to emphasize that the bunch of retarded losers that did not get profit right in the past 200+ years cannot perform a paradigm shift. For them, it is time to say goodbye.#3

Egmont Kakarot-Handtke

#1 Overreach: Economists have their fingers in every pie except real economics
https://axecorg.blogspot.com/2018/04/overreach-economists-have-their-fingers.html

#2 The father of modern economics and his imbecile kids
http://axecorg.blogspot.com/2016/11/the-father-of-modern-economics-and-his.html

#3 The future of economics: why you will probably not be admitted to it, and why this is a good thing
https://axecorg.blogspot.com/2016/01/the-future-or-economics-why-you-will.html

Detroit Dan said...

Thanks again, Tim and Clint.

I particularly enjoyed Clint's reference to J.W. Mason's Microfoundations Again, which in turn referenced Foundations of International Macroeconomics by Maurice Obstfeld and Kenneth Rogoff. Mason says, "Microeconomics doesn’t tell us anything about what to expect at a macro level, so macroeconomics has to be based on observations of macro phenomena; the 'microfoundations' are bolted on afterward." This is consistent with my understanding. One of the lessons of MMT (and Keynesianism in general) is that the fallacy of composition often applies in generalizing from micro to macro.

Another useful term in this discussion is "reductionism". This is discussed at length in this post entitled Greedy Reductionism, Science and Economics. As described in this article, "roughly hierarchical processes at each higher level might be understood at different levels of analysis and the lowest one is not necessarily of any use outside its restricted domain, and the higher-level analysis may well be the most important one". Here, the analogy with physical sciences is convincing, in my view.

I'll respond to Tim's thoughtful comments on micro v macro in a separate post.

Clint Ballinger said...

Much more to Keen than oligopolistic markets. What do you think of the credit impulse, and his work on AD and furthering Minskyian insights? Keen's work will be in textbooks 50 years from now. Current mainstream economists will not.

Detroit Dan said...

From Tim:

Microeconomics is how the world works. How do we humans respond to incentives? Macroeconomics at least attempts to describe how to manage an economy.

I think we know a great deal more about the first, are taking still stumbling steps toward the second. Say, around Chemistry was when they still thought phlogiston was a thing. MMT folk should agree with this as MMT is trying to say that all macro that came before is wrong, no?


As Clint said, I don't think this is right with regard to MMT. More generally, I don't think this is right. Macroeconomics deals with the performance, structure, behavior, and decision-making of an economy as a whole. It's not limited with how to manage an economy, though a macro understanding would certainly be critical to such an endeavour. The analogy with chemistry doesn't work for me as the macro level was what was known (properties of iron, water, etc.) well before the micro components were discovered, or disproved in the case of phlogiston. So I'm not sure what you're getting at there.

I also happen to think that understanding the way the world works is more important a field of study than attempted management of an economy is. On the grounds that management is only going to be done by politicians and I wouldn't trust a one of them. And yes, I've worked for politicians, in politics, stood for election myself, advised politics and politicians. I've even been responsible for a couple of policies that got enacted in my native Britain. Actually invented the policy, created the rhetoric and saw it passed in about a decade. Woo Hoo, eh? But also, after all that experience, I'm even more cynical about politicians than I was before. I actively desire that they not manage the economy. Not for any economic reason at all, just because I know how they take decisions and make policy.

So it seems that you think macro is relatively unimportant because it is impractical. In other words, we cannot manage the economy and that is what macro is all about. The basis for this belief is your personal experience and distrust of politicians. I think we are getting to the heart of the matter. You disagree with MMT because you distrust all attempts to manage the economy, and distrust strong management (implied by Keynesianism or MMT) more than weak management (monetary policy).

My belief is that we have no choice but to manage the economy. If our current form of governance is not working, then we must adapt. Our current form of government is capitalism, which has worked well for those of us who own some capital and/or labor in the right fields. But is reaching its limits, in my opinion, as arms merchants now can sell weapons of mass destruction, and the last corners of the earth have been industrialized on the basis of fossil fuels. Society will not solve these problems unless they are addressed, in my opinion. So we need to change our governance structure rather than abandon attempts to govern.

Detroit Dan said...

By the way, I notice that Tim posted a diagram of "Heterodox Economic Schools". Here is a diagram I made of economic schools: Evolution of Selected Economic Schools

Detroit Dan said...

Oops, I forgot that I have an updated version of my diagram: Evolution of Selected Economic Schools

Tim Worstall said...

"Much more to Keen than oligopolistic markets."

That's as far as I got with him. When he started shouting at me that I just had to agree his math was right - as Marshall said, burn the math after you've written the explanation in English - I entirely lost interest. I could see he was wrong in this assertion and wasn't prepared to invest more time in others of his - potential - errors.

"The analogy with chemistry doesn't work for me as the macro level was what was known (properties of iron, water, etc.) well before the micro components were discovered, or disproved in the case of phlogiston. So I'm not sure what you're getting at there. "

Sure, agreed, the micro.macro distinction is inverted. I think we know micro better than macro in economics, chemistry was the other way around. The reference to phlogiston was a little different. We're still viewing macro with an entirely incomplete theory. There's something crucial to our understanding that we've not got yet - as with chemistry back then.

"So it seems that you think macro is relatively unimportant because it is impractical. In other words, we cannot manage the economy and that is what macro is all about. The basis for this belief is your personal experience and distrust of politicians. "

It's a dual critique. I don't think we know very much about it yet. That makes it not very useful as a tool.

But I also think it will inevitably be misused by politics. Simply because I know, having observed in detail, how politicians make policy.

To give an example, here are the facts about UK government expenditure at present. The tax as %ge of GDP ratio is at a 50 year high. We run a budget deficit. Unemployment is at a 50 year low. Yes, this is different from the US as the employment to population ratio is at a 50 year high. Govt expenditure is higher as a %ge of GDP than it was before the crash - only just now, but it is. Government spending has risen in cash terms, and in real - post-inflation- terms since the crash.

Those are simply facts.

Yet the entire political establishment keeps talking about the terrible austerity being imposed upon the government budget and government services. It's that last which is what drives politics today. In the face of such wilful blondness to reality what point more effective macro management tools?

Joe said...

"Microeconomics is how the world works. How do we humans respond to incentives?

Macroeconomics at least attempts to describe how to manage an economy."

Sort of. In a depressed economy (or anytime really) it's perfectly rational for an individual to wish to net save. But macro rules out even the possibility for everyone, govt included, to do that simultaneously. It doesn't matter what the motivations are if the macro has put hard constraints on what is even possible. This is not a new observation, yet it's difficult to see how policy makers anywhere in the world understand it.
Somehow Greece is supposed to tighten it's belt to where the govt is in surplus (as should be the people too, can't have lazy Greeks borrowing money), yet if govt and domestic private is surplus then they must also have a trade surplus(by an accounting identity, flows are conserved, sum to 0), yet the other European nations are all trying to run as small of a deficit as possible too (or even a surplus). So the macro straight away rules it out, all nations can't simultaneously run trade surpluses..

Clint Ballinger said...

“The tax as %ge of GDP ratio is at a 50 year high.”

Why does this matter?

“We run a budget deficit.”

You mean, you are taxing back less than you spend; and yet there are still not problematic price rises. Why does it matter if you expand the tax-credit balance sheet anyway?

“Unemployment is at a 50 year low”

Is it zero?
Are there projects that are not being done that would raise the wellbeing of Britons? The NYTimes article I tweeted (https://www.nytimes.com/2018/05/28/world/europe/uk-austerity-poverty.html), among much else, suggests there are.
Why is the NHS suffering? Why is pure research being cut? Why are people being made to pay for Higher Ed via loans aiding the finance sector? Why is homelessness a big problem in the UK? Can veterans be cared for better? The elderly? I imagine they could.
Is the FIRE economy inflated, where deflating it would ease asset price inflation, allowing for more public projects in place of a bloated FIRE sector? (and increase equality, which is crucial for a functioning democracy and social trust)

The idea that the UK couldn't rally more real resources to make all Britons better off without causing problematic price rises does not ring true. At all.

Tim Worstall said...

"Somehow Greece is supposed to tighten it's belt to where the govt is in surplus "

Well, yes, as I've been arguing since the problem first arose. Greece should leave the euro, devalue. As Paul Krugman also - obviously independently, he's only been known to refer to me a couple of times and not on this - has also said. As, in fact, near every economist has said.

As, even, Milton Friedman pointed out before the euro even started, this is exactly the sort of problem it would cause.

"Are there projects that are not being done that would raise the wellbeing of Britons? The NYTimes article I tweeted (https://www.nytimes.com/2018/05/28/world/europe/uk-austerity-poverty.html), "

You nee to be careful here. Back in 1997/8 govt was some 35, 36% of GDP, about there. The incoming Labour government increased that substantially, by several percentage points of GP. That's fine, that's what changes in government are supposed to do, change policy. Then in 2010 we got the Conservatives back and they want to go back to that lower number - after all the effects of the recession etc.

The basic point here being two different visions of the good life. Labour favour much more of a Nordic/European social democracy, the Conservatives much less of one. This isn't about "money" so much a what should be the base structure of the economy/country.

Sure, pick your side. But don't, in a democracy, insist that the people don't have the right to vote one way or the other.

"Why is the NHS suffering?"

The budget's significantly larger as a %ge of GDP than it historically has been. Hey, maybe there's a problem with the structure therefore?

"Why are people being made to pay for Higher Ed via loans aiding the finance sector?"

Because we've a target that 50% of the age cohort should go to college. Instead of the 10-12% which was more likely when college was free.

"Why is homelessness a big problem in the UK?"

It isn't. Rough sleeping is about 5,000 people on any one night, 10,000 individuals over the course of the year. For the entire nation. It's absolutely nothing at all like the US. And near all of those rough sleeping are in one of two groups, those who transient through it - a couple of nights maybe for a teenage runaway - and the severely ill from drugs, drink or mental health. Housing and money don't actually solve those problems - the closing of the mental institutions to be replaced by care in the community might be the error there.

"The idea that the UK couldn't rally more real resources to make all Britons better off without causing problematic price rises does not ring true. "

You appear to be operating on the assumption that no one else, ever, has thought through these things.

AXEC / E.K-H said...

Detroit Dan, Tim Worstall, Clint Ballinger, Joe

“In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)

Neither Walrasians, nor Keynesians, nor Marxians, nor Austrians, nor MMTers have the true theory. Just the opposite, these approaches are provably false. Economics is scientifically unacceptable.

With your continuing blather, you perfectly fit the definition of an economist as a person who talks out of his ass about shit he does not know.

Egmont Kakarot-Handtke

Detroit Dan said...

Tim, Joe, and Clint-- Appreciate your comments.

At this point in the discussion, it seems clear to me that Tim has no significant disagreements with MMT as a description of how the modern monetary system works. However, Tim feels that "macro will inevitably be misused by politics".

Perhaps I should step back a bit and note that Tim claims that we "don't know much about macro yet", and I don't really get this. My feeling is that we know enough about problems that can and should be addressed, and that we should try to fix problems at the macro level. And that includes electing better politicians.

So I agree with Clint that there are problems that can and should be addressed in the U.K. Tim would argue that these are not macro problems, and if they are, we have no tools to address macro problems. In summary, Tim thinks that our political system is a mess and thus we shouldn't try to fix "macro" problems. Rather than trying to fix the political system, we should continue with the political status quo. Have I got this right Tim, or do you have any thoughts on how to improve the dysfunctional political system?

Tim Worstall said...

I wouldn't swear on that as a statement of belief but close enough.

Clint Ballinger said...

Tim wrote in his blog post that MMT says “Governments aren’t constrained by not having any money to do good things with, they can just make it and spend it, Yippeee!

Tim is dishonest here – he knows every MMT text emphasizes that real resources are the limit, and this is measured by inflation. If a government carries out public projects to the extent the limits of real resources are being reached, it begins to become evident in the price level. At this point the government is constrained and should not do still more projects. This is basic MMT.

The fact is, modern developed peacetime governments have never been close to this limit. What minuscule amount of inflation in developing economies there has been has been from the supply side (70s oil prices), ill advised tax cuts, and/or deregulation of finance according to mainstream econ “theory” (AKA= “finance sector special interests”),
MMT emphasizes that governments are constrained and delineates _precisely_ what that limit is.

Tim then writes in the original blog post:

“And then we’ve this cautionary little tale about how the end game plays out. There’re more than just the one of those cautionary tales of course, Zimbabwe and Venezuela come to mind. Or perhaps Argentina: “

Two things wrong here. First, not even the many extreme cases of inflation in developing countries resulted from government spending. In every case it is some combination of dictators with bad policy, extreme Dutch disease destroying the productive base of the economy, dictators destroying the productive base of the economy, ill-advised currency pegs collapsing, reliance on imported goods, losing wars, internal political strife, lack of legitimacy to tax, lack of bureaucratic efficiency to tax, and/or too much corruption to tax.

Not from government spending.

In developed countries, there has been very little problematic price rise at all. So the “cautionary tale” does not even apply, according to empirical evidence and history. What tiny bit of price instability there has been at all has been from ill advised tax-cuts (in a boom), or from (very) ill-advised financial deregulation (causing a credit impulse that in effect increases effective demand from the finance sector rather than from public spending) and that is merely a transfer of wealth to the Finance Class. And of course the 1970s supply side oil episode. But again, 1) price rises have been mild, not problematic and 2) they share one thing with the developing countries examples above – they ALSO were not caused by government spending.

Tim wrote a dishonest article – wilfully misrepresenting what MMT people say and write. Further, it gets the cause of price instability wrong, both for developing countries and for developed countries.

Tim, you should cut and paste any MMT segments about constraints on spending, that way you will represent them honestly. And don't resort to clearly false hyperbole as your only examples.

Give us an article of REAL criticism of MMT. There are always details that can be made better in economics. If you think we should not spend more to help the unfortunate, explain why. But don't misrepresent MMT. And don't rely on the myth that "inflation” is what is keeping developed countries from carrying out public projects. The data says otherwise, we can spend more and not cause inflation.

PS Just as an example of what really constructive criticism can look like, Steve Randy Waldman gets it right here:
“MMT stabilization policy — some comments & critiques”

https://www.interfluidity.com/v2/1357.html

This is the kind of dialogue that makes economics, and public policy, better.

You can do better than “The End Game Of Modern Monetary Theory” Tim!

AXEC / E.K-H said...

Clint Ballinger

You say: “Give us an article of REAL criticism of MMT.”

Here it is.

MMT is scientifically worthless because it is based on a provably false sectoral balances equation. Because the foundational equation is false the whole analytical superstructure is false. The MMT balances equation obscures the macroeconomic fact that Public Deficit = Private Profit. As a consequence, the MMT policy of deficit-spending/money-creation benefits the Oligarchy and NOT WeThePeople. The claim of MMTers to be the real Progressive is, therefore, a political fraud.#1

Egmont Kakarot-Handtke

#1 For details see cross-references MMT
http://axecorg.blogspot.com/2017/07/mmt-cross-references.html

Tim Worstall said...

OK, two constructive criticisms.

"deregulation of finance according to mainstream econ “theory”"

Well, another way to describe this is to change the velocity of money. Or the multiplier between M0 and M4. It being M4 which is the determinant of inflation of course. MMT really should get this, it doesn't conflict at all. By changing the financial system, perhaps if you like to say it this way, increasing the leverage of M0 into the real economy, we've increased the money supply. And, of course, if we were previously at the resource limits this will just turn up as inflation.

There's no conflict with MMT there at all. In fact it's a proof of the idea.

One more.

"If you think we should not spend more to help the unfortunate, explain why."

MMT doesn't make any difference to the end state. The old system was that to aid all the unfortunate we need a high tax, high redistribution, high spend, government. Under MMT we need, to aid all the unfortunate, a high tax, high redistribution, high tax, society.

Sure, the reason for the tax has changed. Instead of to finance it's to kill off the resultant inflation. But we are going to be running high spend up against teh resource limits because that's the point. We're thus going to need high tax because we need to kill off that inflation of being at the resource limit.

We;ll end up with 45, 55% of GDP going through government. Just as if we'd elected the Swedish social democrats who don't believe in MMT. So, what's the difference in this end state? None that I can see. And no, the purity of your motives isn't a large enough difference.

Now, politically, I'd oppose this, I think that's far too much of everything to be running through the political decision making process. I simply don't have sufficient faith in the efficiency of such allocation of resources. But then I've already said all of that already above.

AXEC / E.K-H said...

Tim Worstall

There is the political sphere and there is the scientific sphere. The political sphere is about agenda pushing, the scientific sphere is about knowledge.

In the political sphere, every imbecile is entitled to climb on a soapbox and to vomit the content of his dysfunctional brain all over the place.

In the scientific sphere, people are supposed to contribute something to the growth of knowledge. Scientific knowledge, in turn, is well-defined by material and formal consistency. Confused off-topic blather is NOT appreciated in the scientific sphere.

The most important thing is to keep the political and the scientific sphere strictly apart. The mixing of politics and science always corrupts science. This starts with Smith/Marx and continues over the whole right/left spectrum from Hayek, Keynes, Friedman, Krugman, Keen, Mosler, Kelton to Clint Ballinger and Tim Worstall.

Take notice that in the political sphere the Legitimate Sovereign makes the ultimate decision. The Spartans, for example, asked their Oracle whether they should go to war or not. If the Oracle said no, they simply went home. So, for them, the Oracle was the Legitimate Sovereign. To figure out, who the Legitimate Sovereign is in a given historical situation is the business of Political Science and NOT of Economics.

You say: “We’ll end up with 45, 55% of GDP going through government. … Now, politically, I’d oppose this, I think that’s far too much of everything to be running through the political decision making process.”

This statement, clearly, belongs to the political sphere. And it is as good as any other opinion. However, if the Legitimate Sovereign decides that the state’s share is 50% of GDP then that’s it. That is what sovereignty means. It is a matter of indifference whether those who maintain that 10% is in order and those that 90% is in order are dissatisfied.

The task of economists as scientists is to figure out how the economy works and how the decisions of the Legitimate Sovereign can best be implemented. The task of economists is, metaphorically, to figure out the principles of flying and how to get something heavier than air off the ground and safely to a remote destination. The economist as scientist has not more to say than anybody else what the destination should be.#2

Needless to emphasize that blathering economists have got nothing off the ground in the past 200+ years. What they have produced is 1001 stories about flying carpets.

Egmont Kakarot-Handtke

#1 Legitimacy lost
https://axecorg.blogspot.com/2018/09/legitimacy-lost.html

#2 For details see cross-references Political Economics
http://axecorg.blogspot.com/2015/11/political-economics-cross-references.html

Clint Ballinger said...

Egmont, what is the axiom for "legitimate"? The Political Scientists really need your wisdom! Help them, I am really sure they would greatly appreciate your insight.

Clint Ballinger said...

Tim: "I think that's far too much of everything to be running through the political decision making process. I simply don't have sufficient faith in the efficiency of such allocation of resources."

Excellent...that's a debate worth having!

Tim: "By changing the financial system, perhaps if you like to say it this way, increasing the leverage of M0 into the real economy, we've increased the money supply. And, of course, if we were previously at the resource limits this will just turn up as inflation.
There's no conflict with MMT there at all. In fact it's a proof of the idea."

Couldn't agree more. The changes we need are basic to MMT, and right here by Warren Mosler:

Proposals for the Treasury, the Federal Reserve, the FDIC, and the Banking System
---------


(I have written on related themes here
MMT & Positive Money Are Converging. That’s a Good Thing

OMFG, MMT & Positive Money Get Along

Endogenous money, MMT, Positive Money, & financial reform

See also To what extent can Positive Money and Modern Monetary Theory join forces?)

AXEC / E.K-H said...

Clint Ballinger

Learn reading. It has been explicitly stated above: “To figure out, who the Legitimate Sovereign is in a given historical situation is the business of Political Science and NOT of Economics.”

The task of economists as scientists is to figure out how the actual economy works. On this score, you are as bad a failure as one can get.

Just in case you have not realized it, your so-called debate with Tim Worstall is absolutely vacuous. Re-read your own stuff and weep.

Egmont Kakarot-Handtke

Clint Ballinger said...

Egmont "the Legitimate Sovereign makes the ultimate decision"

/legitimate: "allowed by law"/

What law?

Clint Ballinger said...

Egmont " The task of economists is, metaphorically, to figure out the principles of flying and how to get something heavier than air off the ground and safely to a remote destination."

Yes, but why is the food so bad? And why can't I get an upgrade to 1st class? And WHY do I always have to go though Atlanta!? Come ON Egmont, use your axioms!

Detroit Dan said...

Responding to Tim who said:

Well, another way to describe this is to change the velocity of money. Or the multiplier between M0 and M4. It being M4 which is the determinant of inflation of course. MMT really should get this, it doesn't conflict at all. By changing the financial system, perhaps if you like to say it this way, increasing the leverage of M0 into the real economy, we've increased the money supply. And, of course, if we were previously at the resource limits this will just turn up as inflation.

Inflation involves not only the supply of money, but the supply of goods and services. Government services, such as keeping the air clean and, hopefully, the planet inhabitable, are paid for out of taxes instead of on a per use basis. Note the irony with regard to "resource limits". There are limits on labor and raw materials, but also inflation-causing limits due to air pollution, weapons production and control, technological proliferation and resultant issues (e.g. genetic engineering, plastics, autonomous robots), etc. In other words, money is used for public goods such as regulation and remediation, but there are no per-use fees involved in consuming these goods, so taxes are used to soak up the money spent to keep the planet habitable.

We'll end up with 45, 55% of GDP going through government. Just as if we'd elected the Swedish social democrats who don't believe in MMT. So, what's the difference in this end state? None that I can see. And no, the purity of your motives isn't a large enough difference.

First, Sweden has a higher quality of life than the U.S. (-: I'm from Detroit :-), so that would be a good start regardless of the underlying theory. (https://en.wikipedia.org/wiki/Human_Development_Index, https://en.wikipedia.org/wiki/World_Happiness_Report)

Second, the difference between understanding how macro works and acting accordingly (MMT), and the Swedish social democrats who don't believe in MMT is fundamental to our political debate. You claim that little is known about macro and also that political decisions are hopelessly confused and/or corrupt. Perhaps we could improve the political situation if we were more straightforward about how macro works?

Tim Worstall said...


"First, Sweden has a higher quality of life than the U.S"

Oh dear God. Look, this is my bread and butter here. I make my living writing about these sorts of economic numbers and statistics. One of my professors was Richard Layard, of the World Happiness Report. Seriously, google Sweden and my name and you'll get reams of stuff.

Comparing Sweden and the US? The average lifestyle of the bottom 10% is about the same. The average of the bottom 5% in the US is rather worse than the bottom 5% in Sweden. The top national income tax rate in Sweden is lower than it is in the US. The Swedes tax heavily at the municipality level as well. Higher than near anyone's national income tax.Local taxes - 25% of income say - are spent locally. That's one good reason they'll pay such rates. Health care is local, at the county level not national. Capital gains taxes are about the same as the US. Corporate taxation is lower. There's no inheritance tax.

It's actually more free market than the US. Health care ain't free, there's a copay even for a doctors visit. It's actually more capitalist than the US.

Maybe that's why it's so high up the rankings?

Governenmt services keep he air clean? Really? I'm absolutely certain that I pay for my own catalytic convertor you know. That power stations pay for sulphur scrubbers, the consumers reimbursing them.

Detroit Dan said...

The U.S. spends well more than double per capita on health care than Sweden. In the U.S., health care expenses are a leading cause of bankruptcy. Obviously, you know a lot more about Sweden than I do. But everybody knows the U.S. has by far the crappiest health care financing system in the developed world because of its reliance on private insurers.

Catalytic converters are necessary for auto companies to meet federal mandates on emissions. Government regulation at work. At any rate, you're certainly not disputing my central point (e.g. you don't think that the military is paid for by consumers on a per use basis).

Anyway, you're welcome to rant away if it makes you feel better. I'll rant about global warming, genetic engineering, plastic pollution, out of control technology, etc. I feel that these are serious problems for my grandchildren and for your grandchildren and everybody else's grandchildren. Capitalism has given us these problems and is not going to solve them, in my opinion. What is your big picture take on these issues?

Detroit Dan said...

The U.S. spends well more than double per capita on health care than Sweden. In the U.S., health care expenses are a leading cause of bankruptcy. Obviously, you know a lot more about Sweden than I do. But everybody knows the U.S. has by far the crappiest health care financing system in the developed world because of its reliance on private insurers.

Catalytic converters are necessary for auto companies to meet federal mandates on emissions. Government regulation at work. At any rate, you're certainly not disputing my central point (e.g. you don't think that the military is paid for by consumers on a per use basis).

Anyway, you're welcome to rant away if it makes you feel better. I'll rant about global warming, genetic engineering, plastic pollution, out of control technology, etc. I feel that these are serious problems for my grandchildren and for your grandchildren and everybody else's grandchildren. Capitalism has given us these problems and is not going to solve them, in my opinion. What is your big picture take on these issues?

Tim Worstall said...

"But everybody knows the U.S. has by far the crappiest health care financing system in the developed world because of its reliance on private insurers."

France has private insurers, Germany's system (and Czech Republic, which is a very good system ) has private insurers. It's not the private insurance part which is the problem.

"global warming"

Let's have a carbon tax. As every economist has been saying this past 20 years - although do note that's micro, not real economics. In fact, we should have had a carbon tax 20 years ago. And yes, I have been saying this, in print, this long.

" genetic engineering"

Bring it on. BT cotton to Crispr twins in China. Lovely technology, going to make us all vastly better off.

"plastic pollution"

I'm against pollution. Doesn't mean I'm in favour of recycling, just pollution prevention.

"out of control technology"

Find it difficult to think of one that's out of control. If people don't want a particular 'technology then they don't use it and it fades away. What out of control?

"Capitalism"

Capitalism gave us climate change? Have you eve seen the emissions numbers for a socialist economy? I have and they're scary. Same with pollution of all forms.

AXEC / E.K-H said...

Clint Ballinger

You detract from the point at issue and ask: “Yes, but why is the food so bad? And why can’t I get an upgrade to 1st class? And WHY do I always have to go though Atlanta!?”

Surely, the Freakonomics guy can easily answer those questions. But neither he nor you know which of the two macroeconomic relations is true/false
(i) (I−S)+(G−T)+(X−M)=0
(ii) (I−S)+(G−T)+(X−M)−(Qm−Yd)=0.

And this means that you cannot answer the fundamental question of how the monetary economy works. But lack of competence does not prevent you from blathering with the Senior Ignoramus of the Adam Smith Institute about economic policy.

Get it, right policy depends on true theory. And both microfounded Neoclassics and macrofounded MMT are axiomatically false.

This is why economists’ policy advice is lethal, which did no go unnoticed: “Late in life, moreover, he [Napoleon] claimed that he had always believed that if an empire were made of granite the ideas of economists if listened to, would suffice to reduce it to dust.” (Viner)

And this is why economists are only admitted as clowns to the political Circus Maximus where they keep the audience entertained with a profound debate about why everybody always has to go through Atlanta.

Egmont Kakarot-Handtke

Detroit Dan said...

The French health care system is one of universal health care largely financed by government national health insurance. Germany and the Czech systems also have more government protections and mandates than in the U.S.

A carbon tax sounds reasonable. I disagree that it's micro as opposed to macro, but that's mostly a matter of semantics.

My view is that genetic engineering could be very dangerous. So I guess we'll have to agree to differ here.

So a plastic tax to offset the serious problems caused by a world awash with plastics?

I would say that genetic engineering and creation of automata are out of control, in addition to mention carbon based fuels and plastics. Also, military technology. And information technology. Who knows what the truth is these days? We have to rely upon the intelligence agencies. Social media is wreaking havoc with our societies. Lots of problems to deal with.

Yes, capitalism brought us the world of carbon based fuels. Socialism followed. And capitalism and unchecked technology is bringing more and more problems, many of which are threatening human civilization. That's how I see it. The best alternative as I see is some form of democratic socialism. Social democracy has certainly proven better than free market capitalism, but does not provide strong enough checks on technological chaos.


Tim Worstall said...

"Social democracy" just means free market capitalism with some state redistribution on top. How much is only a matter of taste. And everywhere is a social democracy these days. Heck, even Hong Kong ha a welfare system.

Democratic socialism, to a European, means Lenin. Really not a path to go down.

Joe said...

It's been a while but iirc, France has private insurers *in addition* to the public system, a sort of benefits enticement private employers use for their workers. So most of the French population is covered twice. For half the costs... Germany's private insurance system is far more regulated than the American system with a basic benefits package being required (which is sold as a non-profit item) with insurance profits coming mostly from supplemental policies, like if you want a private room.

That's my recollection but it's been a while, so corrections welcome.

Detroit Dan said...

Democratic socialism, to a European, means Lenin.

Apparently not to all Europeans:

"Corbyn self-identifies as a democratic socialist.[1] He advocates reversing austerity cuts to public services and some welfare funding made since 2010, as well as renationalisation of public utilities and the railways."[https://en.wikipedia.org/wiki/Political_positions_of_Jeremy_Corbyn]

Clint Ballinger said...

Tim - totally agree that the important thing to look at in already developed countries are the details of taxation. Sure a lot can be learned from Sweden, a lot seems to be about localism v national gov, but anyway, these are the issues we should be talking about.


What do you think of idea of just a property tax? [with some Pigouvian taxes where desired]?

Abolish Her Majesty's Revenue and Customs / IRS etc. completely.

Free up all the bright minds and good accountants etc to do other things, and simply rely on local property taxes for demand management?

Tim Worstall said...

"Apparently not to all Europeans:

"Corbyn self-identifies as a democratic socialist."

Corbyn's well down the road to proper socialism. And the defining democratic bit of the phrase is that all decisions are taken in the inner sanctums and then imposed. Sorry, you need to understand British politics in detail to get this but Momentum, the Corbyn supporting bit of Labour, is highly Trotskyist in its approach. That's before we even consider the policies they want.

"What do you think of idea of just a property tax?"

Sure, great, land value tax, Henry George and all that. I - and the Adam Smith Institute - are well I favour and say so loudly.

"simply rely on local property taxes for demand management?"

Won't work.

1) Not variable enough. It's just not a fine enough tool to be able to do demand management. Also, trying to vary it over time rather misses the attraction of the tax in the first place.

2) Won't raise enough. Not a rule, more a rule of thumb. You might be able to raise 10 - 15% of GDP through LVT. Just not a large enough portion to run a modern state. You could just about get away with government at the level of Hong Kong - I'd be in favour - but that's not what most people want.

Clint Ballinger said...

Can't raise property tax enough even w no income tax?

Tim Worstall said...

"Can't raise property tax enough even w no income tax?"

Well, no, apparently not. "Rents" - in the wider sense - just aren't a large enough portion of a modern economy. Economic profit - as opposed to accounting profit, or profit above the cost of capital, also known as excess profit - plus land rents etc just isn't enough as a tax base.

Capital share of the economy, which includes all of those and more, includes normal profit - that cost of capital - and depreciation etc, is what, 20%, 25% of the economy? To run a Swedish style welfare state you need 40 to 45% of the economy. Doesn't work, does it?

The UK has by far the highest property taxation in the OECD, some 11% of the tax take. Note, tax take, meaning perhaps 3 to 4% of GDP.

We can run this another way around. What's the current value of land in an economy? US household wealth is say $100 trillion, close enough for back of envelope calculations. Well under one third of that is land values - mostly under urban buildings. That's capital value of, say, $20 to $30 trillion.

So, we're going to raise $6 trillion a year from that? Really? Because that's what we need to run the current US government at all levels (some 30% of GDP of $20 trillion). That $6 trillion is rather more than the income associated with that land ownership. And tax rates of over 100% tend not to work.

It's theoretically possible to run a state on LVT only. But it'll be a very minimal state. It'll also not be enough as an inflation brake upon MMT I would suspect.

I'm entirely fine with such a minimal state so bring it on. And I think we should have LVT anyway, it's less bad than any other form of taxation. But it's not a total solution if you want a large state.

AXEC / E.K-H said...

Clint Ballinger

You again try to detract from the point at issue: “Tim ― totally agree that the important thing to look at in already developed countries are the details of taxation. Sure a lot can be learned from Sweden, a lot seems to be about localism v national gov, but anyway, these are the issues we should be talking about.”

No, we should be talking about that MMTers are stupid and corrupt agenda pushers who sell a free-lunch policy for the Oligarchy in the bluff package of social policy and how we can sue economists for 200+ years of economic damages and how we can get rid of these failed/fake scientists and how we can make economics a science.

Egmont Kakarot-Handtke

Clint Ballinger said...

Egmont,you do not understand the CCC, thus you waste your time. I doubt you can even write a coherent summary of it. And I know for a fact that you cannot disprove the Cambridge UK position, nor the work of Pasinetti.

AXEC / E.K-H said...

Clint Ballinger

You know nothing and I know that you cannot tell which of the two macroeconomic relations is true/false
(i) (I−S)+(G−T)+(X−M)=0
(ii) (I−S)+(G−T)+(X−M)−(Qm−Yd)=0.

And you suffer from multiple self-delusions. For example, you hallucinate: “And I know for a fact that you cannot disprove the Cambridge UK position, nor the work of Pasinetti.”

Fact is that Cambridge UK’s distribution theory has already been thoroughly disproved.#1

The profit theory is false from Smith/Ricardo#2,#3/Marx#4 onward to Keynes/Kaldor/Kalecki/Pasinetti. All these sorry members of the Cambridge School#5 go therefore down the scientific toilet. FLUSH. Oh, I forgot Clint Ballinger. FLUSH.

Egmont Kakarot-Handtke

#1 Income Distribution, Profit, and Real Shares
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2012793

#2 Ricardo and the invention of class war
https://axecorg.blogspot.com/2018/02/ricardo-and-invention-of-class-war.html

#3 When Ricardo Saw Profit, He Called It Rent: On the Vice of Parochial Realism
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1932119

#4 Profit for Marxists
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2414301

#5 Marshall and the Cambridge School of plain economic gibberish
https://axecorg.blogspot.com/2016/09/marshall-and-cambridge-school-of-plain.html

Clint Ballinger said...

Egmont: You think "ii" is correct. Pasinetti shows why it is meaningless. You fail to show otherwise in "#1 Income Distribution, Profit, and Real Shares".
You do not grasp why Pasinetti and related work make a hash of your entire profit theory. If you would verbalize your arguments, you might see where you go wrong. It seems you are unable to. That is sign enough that your theory is empty.
Pasinetti far surpassed your thoughts. Decades ago.

AXEC / E.K-H said...

Clint Ballinger

“Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (Keynes, GT, p. 63) The formal core of the GT is provably false for 80 years and this tells one all about economists’ scientific incompetence in general and the Cambridge School in particular.#1

Pasinetti’s idiocy consists of not having realized Keynes’ foundational blunder. The Cambridge distribution theories are all predicated on “Investment = Savings”.#2

There is no escape for you, Clint Ballinger. FLUSH.

Egmont Kakarot-Handtke

#1 For details see cross-references Refutation of I=S
http://axecorg.blogspot.com/2015/01/is-cross-references.html

#2 Wikipedia, Pasinetti, The Cambridge equation and Pasinetti’s theorem
https://en.wikipedia.org/wiki/Luigi_Pasinetti

Clint Ballinger said...

You clearly have not studied KaldoR, Pasinetti, Steedman etc. But esp Pasinetti. Try again when you can accurately summarize his work.

AXEC / E.K-H said...

Clint Ballinger

I am waiting until you give me the PRECISE summary of Pasinetti’s refutation of the axiomatically correct macroeconomic Profit Law. Should be an easy cut-and-paste for you.

In the meantime, I summarize your contribution to the point at issue: zero.

The point at issue is MMT and the unassailable proof of the stupidity/corruption of MMTers.#1

Because it is a sure bet that nobody will ever see your pertinent summary of Pasinetti, its FLUSH for you, NOW.

Egmont Kakarot-Handtke

#1 For the full-spectrum refutation of MMT see cross-references MMT
http://axecorg.blogspot.com/2017/07/mmt-cross-references.html

Clint Ballinger said...

I am remiss in not emphasizing Sraffa much more also. Although of course it won't matter. I'm sure Egmont will ignore the ways in which Sraffa's work far exceeds his own as well

AXEC / E.K-H said...

Clint Ballinger

This thread is about MMT. You have NOT realized that the foundational MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 is false and that the AXEC equation (I−S)+(G−T)+(X−M)−(Qm−Yd)=0 is true.

So you are out of any serious debate before it even starts.

In order to deflect from this embarrassment, you throw up the name of Pasinetti. But, of course, you cannot give a summary that proves that Pasinetti has said something sensible concerning the point at issue. In order to deflect from this embarrassment, you throw up the name of Sraffa without giving a summary that proves that Sraffa has said anything sensible concerning the point at issue.

Looks a bit desperate, your argumentation. But what is really bad for you is that Sraffa, too, has already been refuted.#1

You have not realized to this day that the Cambridge School of Loose Verbal Reasoning has NOT produced one piece of sound science,#2 so there is no hope for you. Perhaps in your next incarnation, you will be endowed with more than two brain cells. Then, perhaps, you could be admitted to a serious debate.

Egmont Kakarot-Handtke

#1 The futile attempt to recycle Sraffa
https://axecorg.blogspot.com/2016/12/the-futile-attempt-to-recycle-sraffa.html

#2 Quixotic Keynes exegesis
https://axecorg.blogspot.com/2015/12/quixotic-keynes-exegesis.html

Greg said...

Been following this thread the whole time and want to first thank Mr Worstall for hanging in so long, your engagement here has been helpful in illuminating where many points of disagreement arise.

Ive really appreciated Clints comments as well. I hadn't t checked his site in a while but was nice to get refreshed on his ideas.

Its been a long thread and I've missed some comments but I just want to say to Tim that your comments most recently about health care (specifically private health insurance) and your comments about LVTs are perfect examples of where, in my view, the whole rest of the world is off the rails and why we need to use a whole different framework if we are going to move forward. You make the comment that we "can't run a state off LVTs alone"...... which is exactly the type of " we need taxes to pay for our govt" nonsense this whole MMT movement is trying to shred. Its flat out wrong! A state is not a company that we need to raise revenue for. A state doesn't need cash flow the way IBM does. Nothing of use comes form using that framework.

Your comments about private health insurance "not being the problem" since different European health systems have them that are good systems is also a bit odd. Those systems aren't using private insurance in the way its trying to be used here. Its a way to get to the head of the line for certain procedures which have become quite standardized in their delivery. People who need total joints that don't want to wait and can afford it get a private insurer to pay the provider a little more get preferential treatment.

Insurance does nothing but add to the cost of health care overall. A doctor wants 5000$ to fix a hip a patient has to pay an insurance company 6000$ and he sends the 5000$ to doctor and keeps 1000$. Same with hospital costs or anything else. Insurance is extractive not additive, period. Single payers, that aren't trying to appease shareholders can still pay the professionals the same but instead of 20% (at least) they have costs of near 5%.

I start with the idea that NO ONE should ever be bankrupted because of health care bills. Why should your child getting cancer lead to financial destruction for ANYONE!! Only the US system leads to bankruptcy for a ruptured appendix, or an MI..... criminal.


Greg said...

Ill just add that, as a health care professional, Ive had numerous conversations with doctors and others in the health fields and whenever someone starts talking about single payer my new pat answer is I dont care how many "payers" there are, I only care how much they pay me. Thats pretty much everyones concern in every field. Some have control over their own incomes to a larger degree than others. Those with less control are fighting for more...... that's politics, that's life.

Tim Worstall said...

"You make the comment that we "can't run a state off LVTs alone"...... which is exactly the type of " we need taxes to pay for our govt" nonsense this whole MMT movement is trying to shred. Its flat out wrong! A state is not a company that we need to raise revenue for. A state doesn't need cash flow the way IBM does. Nothing of use comes form using that framework."

No the LVT won't work argument still applies under MMT. We're going to use LVT as our only tax - this is the postulation. We're only going to use tax to control inflation, not to fund spending. Hmm, OK. but when we reach full capacity we can only, by definition, have 15% of GDP running through government. For we're at full capacity, we cannot issue more money than we're taxing back.

Sure, it's theoretically possible that there's an MMT supporter who believes in the minarchist state but I've never met nor even heard of one. But if you are insisting upon LVT only then you are also insisting upon the minarchist state, MMT or no.

"Those systems aren't using private insurance in the way its trying to be used here."

Well, yes, I've written long pieces elsewhere pointing this out. The problem with the American system is that it tries to use insurance to pay for things which just aren't insurable, routine expenses. That's assurance, an entirely different economic model.

Insurance works for low probability and high cost events. Catastrophic health care insurance for example. It always makes me goggle when people argue that the contraceptive pill has to be included in a health care insurance package. Whut? Something that costs $10 a month? That the majority of women will use for perhaps half their lives (at least, some form of contraception they will). Your're going to use *insurance* to provide this? You mad or what?

Out of pocket would be better. Hell, even the government just buying it for everyone would be better.

I could make the US health care system cost less than half it does. Move it to the Singapore model. Mandatory health care savings accounts, government run catastrophic insurance. There, we're done.

Greg said...

"No the LVT won't work argument still applies under MMT. We're going to use LVT as our only tax - this is the postulation. We're only going to use tax to control inflation, not to fund spending."


First off no one has ever said that taxation is the only method for controlling "inflation". You must not have read much of the MMT literature. Its true that taxes are only a way to destroy money and not provide funding but permanent ZIRP and no govt debt longer than 180 days are also cornerstones of mgmt of inflation. If you have read guys like Mosler and Mitchell, two prominent MMT writers you'd have seen that. The JG is also part of the inflation control using employment as buffer stock.


" Hmm, OK. but when we reach full capacity we can only, by definition, have 15% of GDP running through government. For we're at full capacity, we cannot issue more money than we're taxing back."

Full capacity needs to be defined first but Ill just say that if we have everyone working that wants to work (ZERO involuntary unemployment or underemployment) a health system that doesn't drive people into poor houses a post high school education that doesn't do almost as poor as our health system in creating debt slaves then what other reason would we need to issue money. I dont see the issue.



"Sure, it's theoretically possible that there's an MMT supporter who believes in the minarchist state but I've never met nor even heard of one. But if you are insisting upon LVT only then you are also insisting upon the minarchist state, MMT or no."

Not true. First off Im not advocating LVT only but if I were, an LVT like any other tax would be up for raising or lowering as needed.
Just like corporate and personal income taxes come up for revision each congress. But your final comment about "MMT or no" is a "tell". Whether you like it or not MMT simply describes how any and all money systems are operated. They describe gold standards, bank credit, central bank interventions etc etc and they describe them accurately. Unlike the Mankiws etc who describe our trade deficit as "making China our bankers", describe reserve adds and drains filling up bank vaults with cash so they have something to lend. You are clearly a tweener but you can't shake a lot of your orthodox upbringing. In the end for me it comes down to this. All I hear from our leaders and rich people is that we dont have enough money to do the things that most average people want and they are driven by scarcity thinking. They want us to play a zero sum game where in order for me to get something I have to get someone else to give up something. That game is wrong

Just one more comment. I totally object to measuring the size of the state simply by some financial measure. You could have a totaltarian state that is small by spending percentage of GDP but 100 % oppressive to its people so I reject your minarchist framing. Its not how we should judge a states impact.

Greg said...

Tim

Have you looked at Warren Moslers proposals for health care? Im sure you could google it and find it but Ill try and find it in my saved files and post it for you. One of the best ideas Ive ever heard put forth.

Tim Worstall said...

"Full capacity needs to be defined first but Ill just say that if we have everyone working that wants to work (ZERO involuntary unemployment or underemployment) a health system that doesn't drive people into poor houses a post high school education that doesn't do almost as poor as our health system in creating debt slaves then what other reason would we need to issue money. I dont see the issue. "

OK, Sweden manages that. Pretty much at least. And they need 40% of GDP to do it. 15% of GDP is still needed to redistribute, to tax off the rich and give to the poor in order to reduce inequality.

Now, if we're going to postulate that we're not going to reduce inequality by tax and benefit then sure, we can have much less of the economy running through government. How many MMT people are going to agree with that? Stephanie Kelton? Srisly?

In the UK the NHS is about 9% of GDP. Education is about half of that. -ish. There's not a lot left from 15% for everything else government does really, is there?

"First off Im not advocating LVT only"

As I said, that was the postulate. I've already agreed it's a great tax, we should do it. I've also said the only problem is that we cannot have it as the only tax.

"All I hear from our leaders and rich people is that we dont have enough money to do the things that most average people want and they are driven by scarcity thinking. They want us to play a zero sum game where in order for me to get something I have to get someone else to give up something. That game is wrong"

So, let's correct it:

"All I hear from our leaders and rich people is that we dont have enough resources to do the things that most average people want and they are driven by scarcity thinking. They want us to play a zero sum game where in order for me to get something I have to get someone else to give up something. That game is wrong."

That's entirely correct. And if you want to say that we've no scarcity of resources then it would be an interesting discussion but it wouldn't be economics. Which is the study of the allocation of scarce resources.

"Just one more comment. I totally object to measuring the size of the state simply by some financial measure. You could have a totaltarian state that is small by spending percentage of GDP but 100 % oppressive to its people so I reject your minarchist framing. Its not how we should judge a states impact."

But I think this is an important axis along which to judge things. I agree that some things government does - see above - are worthwhile, truly make us all richer. I think that a lot of what it does does not. The biggest problem being that government is simply inefficient at many things.

Sure, that's belief and we can argue it for however long we care to fail to reach an agreement. However, that belief does mean that I think it important to determine how much of the economy is flowing through government and political decision making. Above that useful minimum the less the better say I.

It's *one of the ways* we should be judging a polity.

BTW, agree about a totalitarian society. The Nazis obviously were such. But they owned or operated only a small portion of the economy. They controlled near all of it through the law and planning. The Soviets owned it all. They were both bad ways of running an economy.

Just as the Texas Railroad Commission was a very bad method of running the oil market....

The Economists Challenge said...

My basic view of economics is that with a few exceptions no one theory nor style captures the whole and that near all capture some part of it.

Wow...someone finally took the time to stop intellectually masturbating for a minute..let's take this one step further...

Not only does no 'one' theory or style capture the whole from an 'analysis' perspective, no one style or economic system can fulfill the emotional, physical, and intellectual needs of every human being...some people need a capitalist system, others need a socialist system, others need a feudalistic system, and other a communist system.

Now, instead of everyone showing up on the shore to have a war over who has the biggest penis (sorry, I mean best political ideology) how about respecting the fact that we live in a society based on the right to pursue self-interests and with this right includes the right to operate as a capitalist, or a socialist, or a communist, or whatever 'ist' or 'ism' you prefer and that all that need be done for each person or household to operate under their preferred economic model is to put into effect the necessary legal relations with government...then the capitalists can play in their own sandbox operating under one monetary circuit, and the socialists can play in their own sandbox and operate under their own monetary circuit - and the socialists circuit can implement their own health care system whilst the capitalist circuit will implement its own private based health care system, and then no bugger can complain about anything because they have 'chosen' the system by which they want to operate under.

But this is not what we really want is it guys? Imagine if we actually created the utopian world many thinks exists - what would all of you do with your time when there is nothing left to argue about?

Tim Worstall said...

Err, this is what I do argue for:

"how about respecting the fact that we live in a society based on the right to pursue self-interests and with this right includes the right to operate as a capitalist, or a socialist, or a communist, or whatever 'ist' or 'ism' you prefer and that all that need be done for each person or household to operate under their preferred economic model is to put into effect the necessary legal relations with government...then the capitalists can play in their own sandbox operating under one monetary circuit, and the socialists can play in their own sandbox and operate under their own monetary circuit - and the socialists circuit can implement their own health care system whilst the capitalist circuit will implement its own private based health care system, and then no bugger can complain about anything because they have 'chosen' the system by which they want to operate under."

As an example, I've argued loudly that there's nothing at all wrong with voluntary socialism as a method of production organisation. WinnFoods, Walmart, Waitrose or Sainsbury's, the Co Op (for non-UK types, a workers co-op, a capitalist firm, a consumers co-op, all supermarket chains competing with each other in the UK market). You want to go do it then go do it.

I've no problem at all with alternative monetary arrangements. You want to use LETs, Brixton pounds, you go ahead. Run your life in the UK on the euro, why should I care?

Just recently I argued that it should be legal to have a paid market in organs for transplant. Those who prefer to rely upon empathy can do so. Those who don't don't have to.

BTW, I don't make these arguments just at my blog, but in paid articles in actual real press outlets. Even on the website of the free market think tank I'm a part of.

Perhaps it's because I'm a real liberal in the JS Mill sense?

The Economists Challenge said...

Tim,
My post wasn't directed at you but at the whole political/economic sphere.

I posted this on another blog, so am just copying and pasting here:


Years ago I learned that the brain can create just about ever chemical known to science. Not only this, but every thought, action, movement, we have creates a certain chemical.

With each chemical the brain produces, and hence with each though, action, or movement we make, all the cells which make up our body create receptors for this particular chemical. These receptors will not take in any other chemical than that which they have been created for.

Once a chemical has passed through the receptors into the cell and the effect of that chemical has passed the receptors begin sending messages back to the brain demanding more of the same chemical.

A belief in an idea and the desire to impose this belief on others, for example, is a case in which the chemical process has become so ingrained that a whole section of the brain exists purely to feed this circuit.

This understanding of our brain and body cells has led me to conclude that all the talk on economics is less about solving problems for others but about satisfying our own addictions.

The question I pose is - if we actually discovered and created the utopian world many believe exists (I think some people call this a system based on equality or something similar), then what would everyone do with their time when there is nothing left to argue over? What need would we have for either politics or economics (sorry, I shouldn't have tried to separate the two)?

The Economists Challenge said...

Tim,
As an addition, the problem is not economics or politics, it is what creates the need for economics and politics to begin with which is the problem

A real case in point is a blog Bill Mitchell posted a few months ago titled 'The Plaintive, I just want to do my art'

This whole blog post summarizes how tyrannical economists and political economic writers actually are and how brainwashed the general population are regarding what every member of a society is supposed to be doing with their time. When I read this I actually formed what I would call an emotion close to murderous rage aimed squarely at Bill Mitchell and every individual out there who agrees with his points in this blog. The idea that people like this could influence the world in which my children have to grow up in causes me great anxiety.

In this post, Bill uses the same rhetoric that brainwashed parrots use, such as this:

"“just make sure that the rest of you go to work to produce things that will allow me to eat, have a roof over my head, drive my car, sip coffee in street side cafes, buy artistic supplies, guitar strings, new amplifiers – never mind that people have to work to provide those goods and services.”"

What the tyrant Bill Mitchell is not mentioning is that each of those people who produce those things are doing so because that is what they have chosen to do and what's more, the choice to work a job and produce these things also offers these same people the ability to accumulate financial wealth and eventually maybe even become rich or at least retire from this work and live off their savings. Further, many of these same people may actually own the business from which they produce, and these same people have the right to capitalize and profit from this business. A farmer who owns his own farm will benefit financially if the price of farms goes up based purely on market forces; a financial benefit will accrue to this farmer for doing absolutely nothing extra, but this same farmer will certainly not complain of his new found wealth nor will any other worker who financially benefits from their efforts or from the value of their house increasing, etc etc etc.

I'm not saying this in order to defend artists in particular, but the point I am making is that why should Bill Mitchell, or anyone else for that matter have the right to tell me what, and how, I am supposed to contribute to society, especially when these same people have the right to generate as much wealth as their skills can allow them (and especially people like Bill Mitchell who produces nothing at all of value for society and yet lives extremely comfortably)?

What's really happening is all workers out there now, who work but are not disciplined enough to make themselves rich from their work, but have to keep plodding along in a boring job they hate are so angry at their situation that they want to impose it upon everyone else to have to also work a boring job their whole lives and to be able to count the beans of every worker so they can make sure others aren't working less than them - and hence we create the very means for political economics. And then people like Bill Mitchell come along and these same complaining workers get to worship someone who apparently understands them.

The Economists Challenge said...

Regarding the artists (and others like them), if they just wanted to do their art and I was the government, I would say fine, you can do your art, and we the government will supply and pay for your needs (housing, food, energy, clothing etc) by purchasing your needs from the private sector using a different sourced money which will come from the central bank and which is issued interest free and is then destroyed when it returns from the private sector in the form of taxes, and in exchange for this you will legally agree not to profit from your art; you can give it away for free, display it publicly, or simply keep it at home but you just can't try to profit from it; if you want to profit from your skills you have to return to the private sector and operate under their competitive monetary system. The reason we make this condition is because the right to profit is a competitive action and one which involves competing against others for market share, and as such you must accept the risks that come with such endeavors; the government is not supposed to mitigate or try to eliminate risks within a system based on competition because that is nothing more than tyranny.

Clint Ballinger said...

Re Egmont's ("AXEC") last posts (I bother with him here at all bc they have to do with distribution and wellbeing, and thus MMT and Worstall's post indirectly.
Egmont, see:

“Paradoxes in Capital Theory: A Symposium: Changes in the Rate of Profit and Switches of Techniques”
Pasinetti 1966

It shows that it is impossible to axiomatize distribution and “demonstrated conclusively that there is no relationship between the productivity of various factors of production — capital, labour, materials — and the distribution of income in society” as one comment summarizes it.

This is not an opinion – it is a fact in the paper. A devastating critique to the mainstream so important that they have had to essentially hide it (through minimizing its importance and/or ignoring it) for decades to maintain their hollow program.

This same critique, recognized and fully developed already in the 1960s, applies to Egmont's newer attempts to axiomatize and his focus on how profits fall on the household and business sector. He is ignorant of the fact not only that it has already been tried, but that it has already been mathematically shown to be impossible.

Almost everything of interest in economics must be assumed away to make an axiomatic approach tractable. Egmont assumes away the issues involved in how profit is distributed, who produces what, who gains from it, etc etc.
His axioms become tractable in doing so. Yet they become devoid of any interest in doing so as well.
The implications from the work of Pasinetti, stemming from Robinson and Sraffa, are that all distribution is political and based on the rules of ownership. The only “economics” of interest is Political Economics.
Pasinetti showed why in a method and language Egmont should understand, but fails to, htus wasting his own and everyone else's time in recreating an axiomatic approach that cannot succeed, and cannot shed light on any of the interesting and important question of economics.
Also, he thinks the one area he sheds light on is the monetary system. His framework is indeed better than the mainstream (not saying much) but is far less developed than the horizontal-vertical understanding developed over decades in various branches of economics and largely united by MMT (hence MMTs explanatory power and completeness, unifying the two understandings of the monetary system, the vertical (chartalist) and horizontal (circuit theory)). He again assumes away key aspects of the monetary system, gets some basic facts wrong, and otherwise merely repeats basic insights into vertical and horizontal money that have already been said better over the last decades. His fixation on MMT and MMT blogs is precisely from this fact - he intuits that MMT does what he wants to do but much much better. So he creates a pale axiomatic version of MMT, and assumes away all the important political economy, as Pasinetti 1966 says he must. He does work hard and has good knowledge and skills, that is why I encourage him to focus on something interesting and original rather than waste all of our time here. But of course Egmont won't hear of it.

Detroit Dan said...

Capitalism's main strength is also its greatest weakness. Our world has been totally transformed by capitalism, and this shows no sign of stopping short of the destruction of human civilization.

The Economists Challenge said...

Capitalism is but one system or model by which one can hold and treat any particular resource. If we take a house or land for example, if one purchases a house or land for the purpose of financially benefiting from it in the future, they are employing a capitalist system. In order for this system to exist certain laws must exist, a certain relation with government which allows this system must also exist, and a monetary system which is also market based (to reflect fairness) and which the house can be exchanged for must also exist. But the most important aspect of this system is that is a competitive system and one that includes a lot of risk - something which true capitalists are fully aware of and willing to take and who will not cry to government asking for a bailout when things fail but will in many cases wear their bankruptcy as a badge of honour and see it as a challenge to do better next time.

The problem with capitalism is not the purpose for which it is employed, but that it is over-crowded; by this I mean, by forcing those who are not naturally endowed with the skills to operate within a competitive system which treats all resources as things to be exploited for monetary profit and which requires one be a salesman, then the system cannot function to its true purpose.

Likewise, if a person is not naturally endowed with the skills to operate within a competitive sales based system, then by the same token this person should not demand the very fruits of such a system, i.e. financial wealth; but must instead own up to their lack of skills and employ a different model which allows them access to the necessary resources to exist and function as a normal human being without this model taking anything away from the capitalist system (i.e. it should not tax the capitalist system). In order for these other models to exist they must operate under different types of relations with government and use different monetary circuits to the capitalist monetary circuit.

But because we have forced everyone on the planet into a capitalist system we have inevitably created a socialist system which breeds nothing but corruption and political divide and allows the non-capitalists and non-producers (economists, politicians, lawyers etc) to benefit from both capitalists and workers whilst leaving the poor and homeless to rely on charities which these same non-producers will proudly and publicly inform us they donate to so it looks like they actually give a crap when they don't.

If we actually fixed things like unemployment and poverty, then what on earth are all these non-producers going to do in life? LOL! It bakes my noodle to think of how these psychopaths would actually answer that question.

Detroit Dan said...

"Government can't do anything right" is a self-fulfilling prophecy when government is bought and paid for by those who don't want the government to do much, i.e. capitalists with money to make regardless of societal impacts.

The Economists Challenge said...

LOL..Yes, the most hypocritical aspect of the right is that they want government to keep out of their business yet they demand this same government make laws upon laws upon laws to protect their fruits! By the same token the left are just as hypocritical for they demand to enjoy the fruits of competition yet do not want to bear the risks that come from competition.

As one of the most important principles of the law states 'he who receives the benefits must bear the burdens'!

The Economists Challenge said...

"Egmont assumes away the issues involved in how profit is distributed, who produces what, who gains from it, etc etc"

" are that all distribution is political and based on the rules of ownership."

I might be wrong, but I think Egmont is explaining in economic terms what the law explains in legal terms. Yes I agree that who gets what from the process of distribution is political when it is being drawn up or debated etc, but once the law is passed there is no room for politics for the money must flow according to the laws in place such as the rules of ownership.

The way I understand Egmont, and please anyone show me otherwise if you think I am wrong, is that money must always and without exception flow to property owners, who are in Egmonts words, business owners. Whilst a person may receive a distribution from government of some sort, if they intend to park it in a bank earning interest they have become a business owner who holds a financial claim against another (i.e. the bank). If they choose not to save it but instead spend it, it will then go into the hands of the owners of the business in which that money has been spent in; maybe that business will spend it at another business, but at some point it will end up in and be parked in the hands of a business owner who will not spend it but attempt to use it to create more money. What this then demonstrates is that there is a section of society who own the rights to the flow of money and who understand the debtor/creditor system and how to benefit from it, and then there is the rest of society who do not.

As the number or ratio of those who understand and benefit from the system (the business owners) compared to those who dont increases, then the productivity of those who don't must also increase - hence the reason why the % of GDP going to workers is at lows not seen since just after WW2.

People seem to think that having a bank account earning interest, or owning a home, are things which are so innocent that it does not occur to them that by virtue of doing these things they are business owners (or capitalists), and therefore they are not able to see that they actually belong to the same group (the so-called one %ers) they complain about. Yes, when a person gets to the point where they actually do not have to exchange their labours for money (as a result of owning a lot of assets) then they have entered a higher class of wealth, but this does not negate the fact that even the simple and innocent act of lending money to another at interest, or owning a home, will contribute to the increase in productivity of workers and all those who don't own any form of assets.

Then there is the concept of the smart money vs the dumb money. The smart money always have a knack of knowing then a cycle is about to turn down and hence hedge or position themselves a result, They MUST do this because they know that every bull market must come to an end at some point because there is simply no one left to buy. The smart money are those who do not work for a living, the dumb money is all those workers who are also business owners (owing bank accounts, homes etc).

More importantly, from what I think Egmont is trying to point out, is that if government runs deficits then it is simply creating more money which will flow to the business owners and to the smart money, because from a legal perspective, where else can it go?

The Economists Challenge said...

Sorry, I forgot to add, that because we have become so reliant on a debtor/creditor system (Wray) for basically everything in life now, then we must continue to appease the creditors, which means, the money must always flow to them, for if it stops or reduces to a level they are not happy with they will take away their capital and park it somewhere else (and this includes simple people who own bank accounts or homes), and when the capital flees then the economy in question flounders.

To me there is no such thing as WethePeople and the 1%ers..there are simply creditors (Yd) and there are debtors (-Qm) and nothing else. The more creditors there are the more the debtors must work. If we believe that we can all be creditors, then I must confess, I am simply unaware of who will be the debtors under such a utopia. Maybe MMT can explain to me how we can all be creditors?

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