An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
Pages
▼
Pages
▼
Tuesday, February 15, 2011
My not so small influence on policy :)
Last night I was talking to Democratic strategist, Bob Beckel. Beckel is an adviser to Joe Biden. (It's funny, 'cause I was sitting there and Biden called Beckel on his cell phone.)
I have been talking to Beckel for a while now about all this MMT stuff, government spending, debts, deficits, etc and have won him over to our side to the point that he's become a very good communicator of these concepts.
Well, we were discussing the president's State of the Union speech and I mentioned to him that I thought it was interesting that the president put the issue of the deficit way back near the end of the speech almost as if to de-emphasize it. Then Beckel said to me, "Mike you don't realize how much of an influence you had on that."
I was shocked.
He told me that he had been explaining all this stuff to Biden and Biden was a key player in the White House in terms of framing the State of the Union speech. He said Biden argued strongly for de-emphasizing the deficit, while another group of fiscal hawks at the WH wanted to make it a priority. The hawks lost the debate and according to Beckel, that was due in no small way to me!
Mike,
ReplyDeleteWell done. Keep that water dripping on the stone - it'll get through eventually.
Gives me "le courage" to continue!
ReplyDeleteWoo hoo! The last mile is closing.
ReplyDeleteGood work, Mike.
Mike,
ReplyDeleteThe party that adopts this I believe will be rewarded politically.
Right now I would describe the Dems as the party of the "Deficit Doves & Owls" but the GOP is I'm afraid 110% bought into deficit reduction mania, it has never been more rabid at the GOP. I cannot see how at this point the GOP could turn around, it is just too far of a reversal, many GOPers would literally look like fools.
This is the best news in this regard I have received in a long time. Please keep up the pressure on Beckel/Biden, see if you can get in to talk to Biden's people, I believe Jared Bernstein is/was Biden's econ guy, he would be able to understand what you would communicate. Also I think Goolsbee at the CEA would be receptive, but Sperling is a Rubinite, so try to avoid Sperling...
Great work!!!
Resp,
PS You may want to call that blonde back up and let her know you are now influencing Whitehouse policy! ;)
Tell Beckel to tell Biden to tell Obama that they are going to open up the Super Conductor Super Collider ( or at least consider it ) for the following :
ReplyDeletea. BIG Spending Bush's backyard!
b. Get NASA spending crew cut off Obama & Biden's backs !
c. Really piss off the Republicans
d. Really talk about something the Tea Partiers have no bearing to come close to conversing about.
e. Take back American leadership with a kick at the Euro !
f. Get smart smart quants off the economic rigging game and into the hunt for things affecting humanity longer term.
Beckel is on TV a fair amount. Let's see if he has the guts to back MMT on Fox.
ReplyDeleteWell done, Mike. Bon courage :)
ReplyDeleteGiven the political realities, I don't think any of them can come out talking MMT in public. It's just too complex to explain, and it leaves you open to accusations of "irresponsiblity". What it does do is affect what they do - for instance, in the Tax deal Obama "caved" to the Repubs and cut taxes MORE than they wanted. At the time I thought it was because he was weak - but given what Mike says, maybe it's because they realize that increasing the deficit, in any way, is the key to increasing employment and ensuring reelection.
ReplyDeleteSo now he's throwing them a bone with proposed discretionary cuts that won't happen and wouldn't do much if they did. He still has to pretend to be concerned about the deficit, because people think it's a problem, while privately doing everything he can to increase it.
It's ugly, but that's politics. Remember the definition of a successful politician: someone who can see where the crowd is going and get a few steps in front of it. Until we can get MMT out there in the public conversation, it would be suicidal for any politician to back it openly.
This means we are officially doomed:)
ReplyDeletesend them a copy of my book?
ReplyDelete:)
Beckel is on O'Reilly all the time. It's too bad we can't sedate O'Reilly so Beckel to do some explaining to the teeming masses. Bill only let's people talk for five seconds at a time. Tough to get your message across in that format.
ReplyDeleteMike,
ReplyDeleteHopefully if Obama gets re-elected he will dump Tax Dodge-Timmay and hire you as Secretary Treasurer.
Warren Mosler for Fed President too!
Red Rock, Chewitup,
ReplyDeleteBeckel is now mounting an offensive for us on Cavuto and to the degree he can, on O'Reilly and Hannity. He getting the message out. He's also very savvy politically and as a communicator. He can definitely help us craft the language into more potent material that we can use in the media.
Yes, Warren, we should send Beckel a copy of your book.
ReplyDeleteThat's great Mike, congrats! And its nice to read that a high official like Biden is still willing to learn something new. Now if only Tsy would start to quietly deposit platinum coins... :o)
ReplyDeletehttp://moslereconomics.com/2011/01/20/joe-firestone-post-on-sidestepping-the-debt-ceiling-issue-with-coin-seigniorage/
Of course to get any kind of boost in aggregate demand and wage growth without increasing the deficit, the Administration will have to embrace the old Wynne Godley paper (with perhaps the most contrarian title in the history of economics), "Control of Imports as a Means to Full Employment and the Expansion of World Trade". By way of example, in 2008 the Levy Institute estimated that the revenue from auctioning off import certificates could replace 4.9 points of 15.3% FICA rate.
http://www.levyinstitute.org/publications/?docid=1077
This is great news!
ReplyDeleteWhy can't the Democrat MMT'ers propose a significant tax cut? This will blindside the Republican's.
An article from Charles Hugh Smit Of two Minds.
ReplyDeleteIf Bernanke wants a true healthy inflation why doesn't he give money to the 80% of the us population instead of making the elite bankster group rich through hidden transfer of wealth.
Anybody have ideas about doing the items below?
You want to create organic inflation, driven by consumers with plenty of cash chasing goods and services? Here's how:
1. Reinstate the policy of paying 5.25% on all savings, effectively transferring wealth back from banks to citizens. If the banks can't manage to do so and remain solvent, then close them down and liquidiate their assets and liabilities. Others will rise to take their places.
2. Print $5 trillion in cash, not credit, and liquidate all consumer debt and a couple trillion in mortgage debt for those who are not hopelessly underwater.
3. Aggressively cram down underwater mortgages onto the banks, forcing them to liquidate all their bad debt. Yes, this will reveal them as insolvent, but the goal here is not to save the financial Elites' impaired assets, it's to reset the housing market by clearing off all the impaired debt in the system.
By resetting the consumer balance sheet and paying interest, then you would be putting cash into households which could be spent in the real economy.
Is this a wise or prudent policy? I don't know. The goal here was not to assess that question, it was simply to follow up on the goal of creating inflation. If you want organic inflation, you have to divert the national income from the banks to the citizenry, and you have to reset the housing market.
The Fed's policies cannot create organic inflation, because all the Fed is doing is transferring wealth to the nation's Elites. Their spending on luxuries and fine dining are not broadbased enough to generate organic inflation in the entire economy.
Borrowing money does not drive organic inflation: higher incomes and free cash drive organic inflation. If you want inflation, then you have to increase the incomes and assets of 60% of the households, not just the top sliver who own most of the financial assets.
Bob,
ReplyDelete"Organic inflation?" Hehe! We could just as well call it organic monetary debasement.
The way that the money gets into the economy now does enrich the people who get to spend the new money first before it has lost any of its purchasing power. Commercial and investment banks along with hedge and mutual funds (and those who know how the game works) are the primary beneficiaries of the current monetary system.
These insitutions use the money to speculate on equities and commodities. This is why commodities traded on a world market and equities rise before other prices.
In your scenario no one is richer though. It will not result in more real production or job creation as chartalists think. It may result in phony asset bubbles for a time that will end with a crash. There are countless examples from world history that prove debasement of the currency does not enrich a people, but, rather, it impoverishes a people.
Welfare,
ReplyDeleteHow has the dollar lost its purchasing power?
Mike,
ReplyDeleteWe have went round and round on this one. You have even offered me links in the past to make your point. We have a different interpretation of the harmful (to you beneficial) effects of monetary inflation.
Prices should be dropping over time if the medium of exchange holds it value in an environment of productivity gains. Let us say that prodcutivity gains over a 3 year period are cumulatively 3%. Prices could in fact remain flat if the money supply is increased along with the productivity gains. My interpretation of that is that the individual has been deprived of the lower prices that would have materialized absent the monetary inflation. It is true that a certain minimum money supply threshold is necessary if demand for cash holdings increases, but any money supply beyond that minimum threshold is unnecessary and even harmful.
Imagine how much monetary debasement had to occur for prices to have risen so substantially given the incredible productivity gains over the last 50 years.
Wage prices only increase a year to a year and half after consumer and producer prices have risen. The individual has a lower standard of living during that lag period. I'm certain that you are aware of the Cantillon effects of inflation.
People save less in this environment as well because who wants to save in a currency that is being debased? Businesses have less real credit to access for capital investment as a result. Artifical credit derived from banking procedures can make ephemeral credit available, but this credit has no corresponding saved capital to justify it. Market actors will be mislead by an artifically low interest rate. 20 years of very low interest rates have taken a toll on new capital investment and in some cases on the maintenance of the existing capital stock.
One bubble after another does not a healthy economy make. Everyone consumes more and people do FEEL richer during the bubble period, but it is just an inflationary illusion. Each successive credit bubble will require more and more monetary inflation/ credit expansion until the monetary authority finds that it can no longer inflate another bubble without completely destroying the currency.
The latest bubble is in government bonds. They will not be able to inflate another bubble. When this Mother of All Bubbles bursts it will make the housing collapse look like the good ole' days. If they try to reflate another bubble in the wake of that burst bubble, they will kill the dollar.
In real terms prices have dropped, Welfare. Have you bought a computer recently? A car? A House? Food? Clothes? I can go on. It requires less labor hours to purchase any one of those things than it did in 1970. Not to mention the fact that you get a lot more for your purchase: more computing power, a technologically advanced car, a waaayy better house, better food, clothes, etc.
ReplyDeleteWelfare, don't tell me you are looking at nominal prices??? I thought you were smarter than that.
Mike is right. A competitive and global capitalistic economy has a deflationary bias built into it. Therefore enough money must be created to overcome the bias as well as to compensate for other demand leakages such as exports and savings desires. You can give every man woman and child in America a million dollars tomorrow and if they decide not to spend any of it ( a demand leakage ) there will be no inflation.
ReplyDeleteRemember during the years of Bush that the RReal economy was inflated and there was no printing.
ReplyDeleteWe are just about back to those levels of prices of somethings like gasoline at $3 / gallon because of too much money ?
Nothing is higher relatively, and bar is not raised.
gas got higher than than $140 per barrel of oil ... we are not there.
this means the stimulus is working and it is under control of the government and not the lunatics that be.
The days when a litre of gasoline cost about the same as a litre of bottled water are over, it would seem. Should I view this and other price changes as evidence of currency debasement?
ReplyDeleteMeanwhile I'm considering purchasing an electric vehicle, while waiting for these vehicles to become more affordable. Does this mean I have an expectation of deflation and behaving accordingly?
WWS,
ReplyDeleteTake a look at the second video at the below link at the 14:00 mark to see an explanation of "inflation" within a non-convertable monetary regime.
link_http://bilbo.economicoutlook.net/blog/?p=12089#more-12089
This is how it works today. Again, I realize it would be different if we were still on a convertable regime, but we are not.
Resp,
I'm looking forward to the day in the very near future when Obama or Biden get this smarmy canary-ate-the-cat look on their face after being asked the dumbest question a TeapubliKKKonartist could ask and respond with something flippant like "you abominable silly deficit terrorist, you don't understand America's exceptional monetary sovereignty nor the power thereof...geez Louise, what part of American sovereignty don't you understand? I mean, it's a big effin' deal!" and then say "yes, next question?"
ReplyDeleteAlan:
ReplyDeleteLOL!!! That would be awesome!!!
Mike,
ReplyDeleteComsumer elctronics do tend to go down because the incredible efficiency gains in that still infant sector manage to compensate and then some for monetary debasement. They would be lower still if not for debasement. The average individual has seen his standard of living drop over the last 20 years.
I think there is a misunderstanding in the subjective nature of value which Austrians focuses on and the neo-liberal school does not.
See: http//mises.org/daily/2231 for an explanation.
Matt, I'll take a look at that link later this evening.
Laura,
ReplyDeletePeople expect consumer electonics to fall, but most people don't wait do they? Many people don't wait two or three years for plasma t.v.'s to fall in price if they can afford them. People tend ot buy what they can afford even if there is an expectation of falling prices. I notice people lining up the night before when the latest iPhone is released. The same for the latest game consoles and on and on. The assumption of "deflation expectations" is a fallacy in the real world. Consumer actions refute it.
Warren often says,"depending on your politics" when offering solutions. Generally speaking, I don't think the Tea Party mantra of smaller government is so bad, when referring to less bureaucracy and interference. One side likes to spend, the other prefers tax cuts. If the powers that be admitted to the facts, the middle 67% of the political bell curve could be accommodated. Those immediately left and right of center agree with each other a lot more than they think they do. Nothing will make the fringes happy. The trouble is, they make the most noise.
ReplyDeleteWWS,
ReplyDeleteThe price of electric vehicles will go down. I am certain of it. There will also be more models to choose from, and infrastructure to support them.
If I did not believe this, then there would be no point in delaying purchase of a Nissan Leaf.
Someday I may get an iPod or whatever. I'm not willing to pay a premium just to have those gadgets now. Most consumers are aware of this.
From what I have read, productivity gains have gone into the pockets of owners rather than be reflected as wage gains. Yet I cannot say from personal experience that I'm receiving lower wages and paying higher prices than I otherwise would be.
Austrians, Socialists, etc. all claim that our lives would have been immeasurably better if only we had followed their proscriptions. Sorry, but I don't buy it. Show me objective evidence, please.
Chewitup,
ReplyDeleteThe Republican track record is to ignore deficits once they are in power. Cutting taxes for the rich and spending more on the military is there raison d'etre. They will use whatever fringe groups they need to gather enough votes to get elected.
We have bad government policy because the political system is corrupt. The needs of a majority of the electorate do not matter.
Laura,
ReplyDeleteDon't be so certain about electric cars going down in price. By the way, are you aware tht the first electric car was debuted at the turn of the 20th century? How's that worked out? Everything is going to go up in dollar terms--even electronics soon enough.
You may make that decision but many do not even when they expect prices to fall by 40% or more in the next two years. It is usually only electronics that go down that much over a short period anyway.
In a free market in money prices would drop to reflect productivity gains which would probably be around 1-2% annualy (accepting electronics). That amount of "deflation expectation" isn't going to stop anyone from delaying a purchase even for luxuries. Even a 3-5% annual deflation expectation wouldn't stop teh vast majority of people from purchasing what they think they can afford in the present.
WWS
ReplyDeleteYou said...
"By the way, are you aware tht the first electric car was debuted at the turn of the 20th century? How's that worked out?"
Are you serious??
Electric cars depend on the delivery of electic power to the motor and it obviously has to be portable, which means some type of battery.
Are you really trying to make a comparison between the battery technology today and that which existed around the turn of the 20th century?
Laura,
ReplyDeleteI totally agree about the system being corrupt. Politicians make me think of all those self important know-it-alls who ran for student council in high school. (My apologies if any of you were one of those) But those are the people we choose to run our government.
By the way, government spending for infrastructure is one thing, but electric cars belong in the private sector free market. Although I would support funding R&D for battery technology. Do I sound squishy or what?
Department of Energy has made so many technological advances, your free market is still sucking on teets of Government spending.
ReplyDeleteALL MONEY EMANATES FROM THE GOVERNMENT.
Probably according to some folks then DOE and DOeducation are both unconstitutional !
Mike,
ReplyDeleteThe reason that electric cars need subsidies is because they are cost ineffiecient given the current state of technology and available resources for the mass production of electric batteries. I don't recall the automobile industry needing subsidies to replace the horse and buggy, nor do I recall the personal computer requiring a subsidy to replace the typewriter.
Electric cars use lithium-ion batteries. A big problem is that total world reserves of lithium are just north of 6.2 million tons (base reserves are about 11 million tons). That's just fine so long as a few million people use E.V.'s, but there is no way that the known reserves of lithium can support tens of millions of users much less hundreds of millions of drivers.
Much of the enthusiasm for E.V.'s is due to the purported environmental benefits of these vehicles. But there are harmful effects of mining greatly increased levels of lead, zinc, arsenic, cadmium, and lithium required for the production of electric batteries. What happens when more of these metals inevitably end up in the groundwater? What about the harmful effects of much increased mining?
An incredible amount of energy and water are used to heat and cool metals in the prodcution of these batteries during processing. The processing of these metals will create harmful pollutants into the air through emissions.
Production of these batteries also require a great deal of energy (much of it carbon-based energy), and waste byproducts of this manufacturing creates additional environmental hazards.
Finally, there is the cost of replacing the battery and the disposal of it. A lithium-ion battery has a life expectancy of three years. The cost of replacement batteries is estimated to be $8,000! (can you afford that Laura?).
I hope I am wrong about E.V.'s, but they have tended to be impractical and cost inefficent. They have failed the market test again and again. On the bright side, this inflationary depression may solve many of our problems though. I foresee many more Americans peddling bicycles in the near future. Come to think of it, that may also solve our country's obesity problem as well :)
The Dept of Energy and the National Science Foundation all provide funding for university research, spin off, and incubation for a gazzillion technologies in all industries and disciplines.
ReplyDeleteSo when Austrian libertarian or even dancing fool republicans say the Department of Education is unconstitutional, then it is no doubt that the subsidies rant thing is a bogus hoot.
Austrian or republican conservatism will not re-invest in education and research in the free market entities, so who is the power hitter that really delivers as for research and development ?
government spending.
name one thing that hasn't been developed with help from government. even facebook was from a college campus rife with government spending.
Here :
ReplyDeletehttp://en.wikipedia.org/wiki/National_debt_by_U.S._presidential_terms
National debt by US Presidential terms - looks like the only real players in reducing the debt were Carter and Clinton and they were in office for 12 years total.
Reagan, Bush I and Bush II were in office for 20 years and all red ink - deficit and debt went UP with them.
??? where's the chicken little deficit hawk ?
WWS,
ReplyDeleteI expect there will be economies of scale as production grows and there are more models to choose from. Ultimately my choice will be guided by affordability and price.
I don't know if deflation is bad for an economy. Some say it is. On the other hand if purchasing power is continually increasing then consumption should increase as your discretionary dollars go further. Once consumption reaches real resource limits, prices would stop falling.
But we're not seeing productivity gains being passed to the consumer or currency debasement. Purchasing power has been eroded by falling wages, personal debt and unemployment. Supply exceeds demand, sales are flat, and resources are sitting idle.
The efficient storage of electricity would be an important technological advance. Batteries/fuel cells have the potential to eclipse the gasoline engine and change the world in other important ways.
ReplyDeleteI have a question for someone versed in economics, as I am just an engineer, and I know what I know by learning from Mike Norman.
ReplyDeleteMy question is how is the shadow economy (black market- off the books workers with no reported income)figured into the GDP by the govt. I read an article in Barrons several years ago that stated as much as 54% of the US GDP is off the books income. How does the fed calculate the shadow GDP?
Also MIT has a fantastic calcuation of over 7 million products ordered on the internet in a few hundred countrie in real time. According to this calculation CPI is 13.0%. Does anyone know the name of this report I heard about it today on a talk radio show. thanks to everyone on this website for their valuable contributions.
I found the website,
ReplyDeleteIt is called " The Billion Prices Project @ MIT".
The Billion Prices Project is an academic initiative that collects prices from hundreds of online retailers around the world on a daily basis to conduct economic research. We currently monitor daily price fluctuations of ~5 million items sold by ~300 online retailers in more than 70 countries.
This webpage showcases examples of average inflation indexes that we created to illustrate the type of statistical work that can be done with this type of data. Our team is currently working on developing econometric models that leverage the data to forecast future trends and conduct economic research.
Sorry about my mistatement of items tracked, on line retailers tracked and countries tracked. But check out the charts. The 365 day inflation on the MIT website for the US is 2.57% and monthly is .81%
ReplyDeleteAccording to the website the curves represent mostly price changes with some wage changes included. But I would think this chart is more reliable than the govt manual statistics. The monthly curve is accelerating. Bernanke will have to tighten very soon or he will be too late according to the monthly curve.
Bob,
ReplyDeleteThis subject of inflation also gives me pause.
I've come to the point that I think I do not believe in inflation. I do believe in price fluctuations, or 'price instability'.
Freidman once said "inflation is always and everywhere a monetary phenomenon" . Now this may have been true decades ago when Freidman said it, when the US was tied to a gold standard, but it has no basis today under our free floating, non-convertable regime.
Right now, property prices have collapsed, wages are stagnant. The only thing that is causing our recent price run ups in certain commodities is the oil cartel, and speculative demand.
Both of these forces should be attacked. Instead of a policy interest rate increase, which will just increase fiscal transfers thru the interest income channel and add fuel to the fire, we should be encouraging vehicular fuel choice/substitution to attack the oil cartel, and put Mike Norman in as the CFTC chairman to finally kick these MFing speculators out of the commodities markets once and for all.
Bob, at the following link, if you go to the second video at the 14:00 mark, Mosler and Mitchell give one of the best explanations of so-called "inflation" Ive seen that acknowledges the current monetary arrangements:
link_http://bilbo.economicoutlook.net/blog/?p=12089#more-12089
But that said, you are right, what Ive typed here does not mean that the idiot Fed will not raise soon! We may have to watch out for that soon..... the way that the Fed thinks if the OPEC people raise then your adjustable rate mortgage also has to go up!?!??!
As a trained engineer, I know this cannot make sense to you?
Bob,
ReplyDeletePaul Krugman wrote about Billion Prices Project the other day. It tracks goods but not services (CPI tracks both).
http://krugman.blogs.nytimes.com/2011/02/18/the-billion-price-index/
Matt,
Interest rates are at a rock bottom low, 3 month Treasuries were at 0.09% today, (isn't it odd that the overnight rate, 0.25%, is actually higher than 3 month?). Its a pity that Tsy doesn't make hay while the Sun shines by ceasing sale of Treasuries longer than 3 months and getting either FRB or Congress to agree to a rate cap. There must be a half dozen better ways to control inflation that don't involve slowly asphyxiating the economy with gradual interest rate hikes. There's no indication Tsy or Fed has studied any of them.
great job Mike!!! That is really HUGE!! I mean you don't get any bigger than indirectly effecting the darn US President's state of the Union address!!! Get this man a beer!!! on the house mate!!!
ReplyDeleteMatt, great video link you posted by billy blog on fiscal sustainability!!! wow!!! That guy is awesome.
Beowulf, what do you mean by a "rate cap"? Do you mean a tsy rate bottom that cannot go below the fed funds rate? I don't understand why would you suggest a rate cap to control inflation? I thought fed funds rate hikes controlled inflation.
I understand what you mean by a rate cap on bonds to control inflation as bonds usually track inflation, but why mention a rate cap now when tsy rates are so darn low? What good would it do now? I don't get it. What am I missing???
Cheers!!
Mike " what artificial lending standards are you talking about" Norman is influencing the US government economic policies?
ReplyDeleteThat alone makes me sick in my stomach!