Thursday, June 30, 2011

Confession Time

Neoliberal Professor J.Bradford DeLong admits that deregulation of the financial sector during the 1990's was a bad idea.

An excerpt: "It may even be the case that we ought to return to the much more tightly regulated financial system of the first post-World War II generation. That system served the industrial core well, at least as far as we can tell from the macroeconomic aggregates. We know for certain that our more recent system has not".

It is amazing that the word 'may' is included in the above excerpt and not the word "should'.


Mario said...

the cracks are's only a matter of time levee can hold back the truth

googleheim said...

elastic currency theory

tom matt or mike - is the reserve swelling or not ?

where's John Harvey's newest thread ? he's been missing

googleheim said...

elastic currency theory

tom matt or mike - is the reserve swelling or not ?

where's John Harvey's newest thread ? he's been missing

Matt Franko said...


I think they are at about $2.9T and the Fed is holding there... just added $600B under the QE2.


Matt Franko said...


Delong: "While modern central banks had difficulty in dealing with inflationary shocks, it had been generations since they had seen a deflationary shock that they could not handle."

Perhaps when you are under gold convertibility, adding reserves can fight deflation, maybe not even then who knows/dont care, but the evidence is CLEAR that you cant do it under a non-convertible regime...

I still believe that they thought they could add to reserves by the original $1.3T under "QE1" (MBS) and the banks would have the reserves "to lend out" thus replacing the 1.3T Commercial Paper market (that disappeared in the GFC) and that would fix everything: NOTHING. Then when deflation arrived by 2010, they again went to the Monetarist playbook and came up with "QE2" (USTs)... again no results and we have wasted another year.

This is what you get when you have Monetarist morons running the CB in a non-convertible regime. If the last 3 years does not completely discredit Monetarism, I dont know what will.

This is indeed a mea culpa (probably the best you're going to get) from DeLong and his ilk...

Now I guess its up to the economics academe to toss out Monetarism... dont anyone hold their breath!


Tom Hickey said...

" If the last 3 years does not completely discredit Monetarism, I dont know what will."

The problem for them is that if monetarism is tossed, then the main function of a modern cb is settlement, as Warren points out, and the can all go home and start looking for a real job.

Anti said...

Since when is DeLong neoliberal? He's been in the Krugman camp(and possibly bed), as long as I've been aware of him. He's a liberal, period.

googleheim said...

Now, can anyone put defense spending cuts into perspective given that the growth of military spending probably tripled in the past 10 years but now a 20% peel back is considered devasting ???

googleheim said...

How's this :

Kay Bailey Hutchinson tells black farmers whose farms were stolen from them "we can't recompensate you because that will add to the debt" ...

but now the White farmers who are affected by the drought fires in Texas get "finally the Federal government has stepped in to help ( pay ! ) all these poor counties who paid for the firemen and helicopters' actions"

Then Michele Bachman's family has received $150,000 per year in Medicaid at her Husband's Christian counseling clinic. They also have a farm that gets tons of subsidies from the Federal government.

Evidently these folks are plain greedy.

They along with the deregulated energy companies whose back bone is a well subsidized oil industry with tax breaks galore ... are entitled to tax havens.

Then they fight against Title 1 schools who get federal money and gut these schools' programs.

Tom Hickey said...

Krugman pointed out some time ago that the conservative economic program to eliminate "the welfare state" is at bottom based on racism. The only way it can be put across politically is by getting the middle and lower classes to vote against their own economic interests by the implicit and sometimes explicit charge that government intrusion in the economy is for the benefit of those people by taxing "you." Of course this is not the only such ploy, e.g., pitting non-union against union, and private sector unions against public sector unions, and the exploitation of "values-voters."

Racism and class have shaped America from the beginning, and for the most part it is swept under the rug as politically incorrect to mention. When it is mentioned in the slightest, then the cry "class warfare" goes up from the shameless minions of the elite, as was heard this last week when the president had the temerity to suggest that tax loophole affecting millionaires and billionaires be closed.

Craig Austin said...


Regardless of what the roots of the elimination of the welfare state the ultimate appeal to policy change should be self-interest. Why did Illinois vote to become a free state? Poor white farmers didn't want to compete with slave labor. All this MMT stuff needs to be framed in self interest of the elites. George Friedmans from Stratfor is a perfect example. His latest book is straight up Machiavellian but ultimately translates to very progressive policies. Friedman is a marketing genius in my book.

Chaos said...

Hi Craig,

I think there is a problem rooted in the elites: the may be a dominant vision (true or not) that we are in a zero-sum environment.

And I'm not speaking about finance and money, but about real resources, consumption etc.

If you try to market progressive ideas using the self-interest paradigm you may well fail under this paradigm. However the neoliberal agenda is very appalling, as long as there is some sort of governance maintained and the status quo ends as the winner of this game while most of the population impoverish itself.

The ideological and propaganda war is part of the game, consciously and unconsciously, because of the cognitive bias (and elites are not different of the average Joe), will come to rationalize their own position with any weird theory they can come with.

You may well have there an explanation of the dismissing of keynesianism and the raise of monetarism and neoclassical synthesis later in the last decades.

This is all speculation off course, but you may want to give this a though. If you want to market progressive policies then you will have to overcome the zero-sum paradigm a lot of people have installed themselves in, and in case you can't because of empirical support, you will have to come with an argument where the current mainstream view is perilous to the status quo in the long run (or short run, because there is no such thing as 'long run' nowadays).

Craig Austin said...

Creating a grand narrative to challenge the economic schools or thought is a large endeavor but I think MMT does exactly that.

check out my site. i went on a terror this morning after punishing a fifth of whiskey with some friends.

Understanding monetary operations ultimately changes our concept of government debt for a currency issuer. Government debt is not a burden but rather a convenience to those currency users who prefer not to spend their savings in the marketplace. Ultimately, government debt of an issuer should be used as a means to an end. The debt of a issuer is a tool to maximize goods and services within our economy and should only be constrained by acceptable levels of inflation. Since the cost of imports is exports, the goods and services produced should ultimately be guided by what other countries are willing to trade their good and services for.

work in progress but flushing out some ideas

Craig Austin said...


by the way. i took out a lot of the negative verbiage like you suggested. i'm sure there is still some in there but i'll flush it out

Craig Austin said...


I've tried to reach out to John Harvey twice. Once on his blog and once by email. No response. I'm guessing something has come up. He's always been responsive in the past.

Tom Hickey said...

Self-interest must be properly understood.

Alexis de Tocqueville, Democracy in America, Chapter VIII, How The Americans Combat Individualism By The Principle Of Self-Interest Rightly Understood

The presumption of extreme individualism is sociopathic, and it is significant that Ayn Rand's "hero" was William Edward Hickman, who was hanged for a particularly gruesome murder. Rand admired him anyway, because he didn't have an altruistic bone in his body. She apparently did not get that he was a sociopath, and in fact, he unsuccessfully pleaded insanity.

Tom Hickey said...

"the may be a dominant vision (true or not) that we are in a zero-sum environment."

Depends on the institutional arrangements (rules). Humans have control over the rules they play by. The elites tend to be the rules-setters and they control the game to their advantage through institutional arrangements they erect.

These institutions don't function well overall, and there are constant crises and wars as a result.

It is entirely possible to recognize that resources are limited and need to be allocated for the "good" of the species, that is, its survival and progress. The present trajectory is unsustainable, and it is in no one's self interest from the evolutionary point of view. Everyone's DNA is at risk going forward unless steps are taken very quickly to change course.

Craig Austin said...

what appeals to me about MMT is the non-sociological perpective. god knows it can be analyzed in a billion different ways. i see MMT as explaining the fundamental machinery of the economic system. the system is mal-functioning and as a result everybody is yelling at the mechanics. the problem is the mechanics don't understand the problem. once they figure out their mistake - aka government debt is harmless until inflation kicks in the whole problem will be solved. the ultimate problem with our situation is that we have collectively misunderstood the nature of issuer debt.
once we agree on how the accounting works, it will become much more clear how fiscal policy, monetary policy, tax policy and the private banking sector should work together in balance.

what is the saying...90% of an engineering solution is identifying the problem

Tom Hickey said...

"what appeals to me about MMT is the non-sociological perpective.'

Funny then that Warren often says, "It's an institutional problem."