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.
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Monday, February 25, 2013
Thom Hartmann interviews Stephanie Kelton — What is Modern Monetary Theory
I listened to this today. Found it amusing that he appears to agree with her, but during the commercial breaks we get to hear him hawking gold ownership as a hedge against the coming collapse.
I think what Hartmann needed to hear was something like this:
It makes no difference if the average hourly wage was once $1.00/hour and a can of coca cola cost $0.05, and then years later the average hourly wage is $10.00 and a can of coca cola costs $0.50.
i.e. nominal numbers don't matter
...
Wages/Salaries increase with inflation, otherwise the majority of the population would have starved to death.
One person's expenditure is another person's income.
The important question is whether or not the middle and lower income people are seeing their real-wage increase with productivity gains. If they are not, somone else is is receiving it. Guess who!?!
JK is largely right, but Kelton really is impossible. Hartmann is trying to understand, and Kelton was not helpful. She simply couldn't squarely face Hartmann's question: Why does a formerly $30,000 house now sell in six figures? Why couldn't she simply answer this. I found her weaseling out of it very disappointing. The guy finally gave up. Hartmann is not stupid; he deserved better. Too often MMT people come across as "smarty pants."
Yeah, I thought she dodged that question too, and I wasn't sure why, because I know she could give a good answer.
For example, just point out that in the 19th century we had numerous depressions which tend to yank the price level back down and therefore relatively constant over time. When the gov't steps in to mitigate and/or prevent depressions, there is bound to be at least a small inflationary bias over time ... but this is a reasonable price to pay considering the alternative.
If I rememer correctly Kelton did mention real-wages, stagnant wages, and productivity gains… so I doubt she purposely dodged the question. More likely 'the light bulb' just didn't click at the moment regarding exactly what he was asking.
I'd have thought someone with his exposure would've already been familiar with the answer to the question he kept asking. It doesn't take any MMT-specific knowledge to answer it.
The reason why everything is more expensive now than it was 40 years ago is because our money system is inherently inflationary. In fact our own Federal Reserve Bank attempts to target a low rate of inflation. What's important to appreciate is that inflation isn't necesairly bad in and of itself. It can be difficult on society if prices rise too quickly, but the fact that a house costs more today than it did 40 years ago doesn't matter, again in and of itself, because people are making more money now than they did then. We could add two zeroes to the price of everything today and all of our bank accounts and that wouldn't change a thing. What matters is improving standards of living, and a fair distribution of productivity gains. That's what we need to be focused on. Are middle and lower income people getting their fair share of the productivity gains? There's plenty of evidence indicating they haven't been. Naturally the questions then are: why? what's been happening? The United States has experienced plenty of productivtiy gains and technological progress. It must be that the high income people are receiving most of the real gains. Is this desirable? Is this fair? Is this the kind of country we want?
The MMT response should be the house costs more because the govt is willing to directly pay more for labor and building materials in general AND the govt will now lend you 100k for a house that they used to only lend you 30k for.....
If govt starts lending $1M against mobile homes tomorrow the cost of mobile homes immediately goes to $1M.... libertarians may not be able to see or understand this.
'Inflation' is a big concern on RT due to all of the 'metal love' that compels their whole operation over there.... The gold bugs are obsessed with 'inflation' and 'debasement'...
Mike has battled extensively in the past with this dogma that pervades within the RT....
Hartmann may have been obligated to do the customary RT interrogation on this topic in support of gold/metals.... It's soft corruption...
govt will now lend you 100k for a house that they used to only lend you 30k
Or you could put it this way: The gov/Fed will now support interest rate/lending policies that in the 70's would only allow the capitalization of 30k but will now support capitalization to 100K. Low interest rates are capitalized in the form of higher prices.
Seems to me that when firms achieve productivity gains they just lower the price....
Its the WAL-MART mentality...
So to me its not as if 'gains are not being distributed'... This 30 year trend in income distribution is directly due to policy that has made it so.... The high income cohort has in effect received massive subsidy from govt....
It's a difficult question to answer because the question was specifically about housing. Housing prices have risen much more sharply than consumer prices generally, so the answer can't just be the inflationary bias of our monetary system. House prices have experienced a couple of sustained speculative booms.
Housing and college are good examples of more money being made available to high demand products. Demand for housing and college has been artificially inflated by the social acceptability of using a lot debt and very little equity to enter the market.
Hartmann did MMT no favor by focusing on inflation.
Inflation is less than 2% while unemployment is 8% and black unemployment is 16%. MMT can put America back to work. That's what Hartmann should have talked about.
Who says Thom is shilling for gold bugs, when he gives her Ron Paul ideology to refute but got raddled. He agrees with her but she couldn't do it. Steve Keen would be able to do it easily.
Very much agree with all the commenters who answered my question above.
JK- I would say it much the same way but I would also point out that so much of the discussion about relative costs of goods today misses the overall improvement in many goods. How much would a car with todays features have cost fifty years ago?
Matt- Totally agree about the metal love and inflation. For a school of thought that is supposedly dismissed by most, it seems like every guy with a show who talks economics is a metallist to a degree.
My impression was that although Hartmann asked about housing and inflation, housing wasnt the 'crux' of his question. He was simply asking why things cost more today than they did year ago, and is this not indicative of a depreciation of the dollar?
If you look at his question that way, then the simple answer is the monetary system is inherently inflationary.
At this point the discussion could lead into why an inherently inflationary system is better than an inherently delfationary system, specfically with regard to endogenous money via bank loans being made in nominal amounts.
But really the conversation could go in many directions.
That's why I said he should know better. He was asking a question he ought to already know the answer to. You don't need anything MMT-specific to know why things in general are more expensive than they were 40 or 100 years ago.
concerning housing. the average house is twice as big as is was in the 50's. With way more amenities. dishwasher, 3 stall garage, central air etc. using median statistics on price without compensating for other factors is misleading.
And of course what M. Hudson said. "the price of a house is what ever a bank is willing to lend against it.
Absolutely true y, I should have said hard money type and not "metallist" . I have no issues with buying a shiny object to hold and hope to sell for more down the road, I just dont want the worlds or countries monetary system based on it.
I listened to this today. Found it amusing that he appears to agree with her, but during the commercial breaks we get to hear him hawking gold ownership as a hedge against the coming collapse.
ReplyDeleteHartmann confuses the value of the $ vs. other currencies with inflation. And he confuses inflation with the standard of living.
ReplyDeleteYeah, I noticed that. It was annoying. But I've found such misunderstandings to be surprising widespread in the various discussions I've had.
ReplyDeleteI think what Hartmann needed to hear was something like this:
ReplyDeleteIt makes no difference if the average hourly wage was once $1.00/hour and a can of coca cola cost $0.05, and then years later the average hourly wage is $10.00 and a can of coca cola costs $0.50.
i.e. nominal numbers don't matter
...
Wages/Salaries increase with inflation, otherwise the majority of the population would have starved to death.
One person's expenditure is another person's income.
The important question is whether or not the middle and lower income people are seeing their real-wage increase with productivity gains. If they are not, somone else is is receiving it. Guess who!?!
JK is largely right, but Kelton really is impossible. Hartmann is trying to understand, and Kelton was not helpful. She simply couldn't squarely face Hartmann's question: Why does a formerly $30,000 house now sell in six figures? Why couldn't she simply answer this. I found her weaseling out of it very disappointing. The guy finally gave up. Hartmann is not stupid; he deserved better. Too often MMT people come across as "smarty pants."
ReplyDeleteYeah, I thought she dodged that question too, and I wasn't sure why, because I know she could give a good answer.
ReplyDeleteFor example, just point out that in the 19th century we had numerous depressions which tend to yank the price level back down and therefore relatively constant over time. When the gov't steps in to mitigate and/or prevent depressions, there is bound to be at least a small inflationary bias over time ... but this is a reasonable price to pay considering the alternative.
If I rememer correctly Kelton did mention real-wages, stagnant wages, and productivity gains… so I doubt she purposely dodged the question. More likely 'the light bulb' just didn't click at the moment regarding exactly what he was asking.
ReplyDeleteI'd have thought someone with his exposure would've already been familiar with the answer to the question he kept asking. It doesn't take any MMT-specific knowledge to answer it.
I can see that ... you are probably right ... didn't realize right away what he was getting at.
ReplyDeleteHow would you guys answer the question of "why" a 30,000$ house now sells for 100,000$? What do you see as the crux of what Hartmann was getting at?
ReplyDeleteI'd answer it something like this:
ReplyDeleteThe reason why everything is more expensive now than it was 40 years ago is because our money system is inherently inflationary. In fact our own Federal Reserve Bank attempts to target a low rate of inflation. What's important to appreciate is that inflation isn't necesairly bad in and of itself. It can be difficult on society if prices rise too quickly, but the fact that a house costs more today than it did 40 years ago doesn't matter, again in and of itself, because people are making more money now than they did then. We could add two zeroes to the price of everything today and all of our bank accounts and that wouldn't change a thing. What matters is improving standards of living, and a fair distribution of productivity gains. That's what we need to be focused on. Are middle and lower income people getting their fair share of the productivity gains? There's plenty of evidence indicating they haven't been. Naturally the questions then are: why? what's been happening? The United States has experienced plenty of productivtiy gains and technological progress. It must be that the high income people are receiving most of the real gains. Is this desirable? Is this fair? Is this the kind of country we want?
The MMT response should be the house costs more because the govt is willing to directly pay more for labor and building materials in general AND the govt will now lend you 100k for a house that they used to only lend you 30k for.....
ReplyDeleteIf govt starts lending $1M against mobile homes tomorrow the cost of mobile homes immediately goes to $1M.... libertarians may not be able to see or understand this.
RSP,
Greg,
ReplyDelete'Inflation' is a big concern on RT due to all of the 'metal love' that compels their whole operation over there.... The gold bugs are obsessed with 'inflation' and 'debasement'...
Mike has battled extensively in the past with this dogma that pervades within the RT....
Hartmann may have been obligated to do the customary RT interrogation on this topic in support of gold/metals.... It's soft corruption...
Rsp
govt will now lend you 100k for a house that they used to only lend you 30k
ReplyDeleteOr you could put it this way: The gov/Fed will now support interest rate/lending policies that in the 70's would only allow the capitalization of 30k but will now support capitalization to 100K. Low interest rates are capitalized in the form of higher prices.
JK,
ReplyDeleteSeems to me that when firms achieve productivity gains they just lower the price....
Its the WAL-MART mentality...
So to me its not as if 'gains are not being distributed'... This 30 year trend in income distribution is directly due to policy that has made it so.... The high income cohort has in effect received massive subsidy from govt....
Rsp
David,
ReplyDeleteBut have we not had periods where rates were being raised at the same time as prices were increasing?
RSP,
It's a difficult question to answer because the question was specifically about housing. Housing prices have risen much more sharply than consumer prices generally, so the answer can't just be the inflationary bias of our monetary system. House prices have experienced a couple of sustained speculative booms.
ReplyDeleteThis comment has been removed by the author.
ReplyDeleteHousing and college are good examples of more money being made available to high demand products. Demand for housing and college has been artificially inflated by the social acceptability of using a lot debt and very little equity to enter the market.
ReplyDelete"Why does a formerly $30,000 house now sell in six figures?"
ReplyDeleteThe entire financial sector was radically deregulated from the 80s onwards?
Government policy is geared towards encouraging rising private debt leveraged against rising asset prices?
Because this makes big bucks for the banksters? Who are now too big to fail or jail?
The guys in charge are stupid?
Hartmann did MMT no favor by focusing on inflation.
ReplyDeleteInflation is less than 2% while unemployment is 8% and black unemployment is 16%. MMT can put America back to work. That's what Hartmann should have talked about.
Who says Thom is shilling for gold bugs, when he gives her Ron Paul ideology to refute but got raddled. He agrees with her but she couldn't do it. Steve Keen would be able to do it easily.
ReplyDeleteI just added part three of the interview to the Hartmann post.
ReplyDeleteJusts added part four to the Kelton-Hartmann post.
ReplyDeletenext up, Warren Mosler, or R. Wray. They could stomp all over it with ease.
ReplyDeleteVery much agree with all the commenters who answered my question above.
ReplyDeleteJK- I would say it much the same way but I would also point out that so much of the discussion about relative costs of goods today misses the overall improvement in many goods. How much would a car with todays features have cost fifty years ago?
Matt- Totally agree about the metal love and inflation. For a school of thought that is supposedly dismissed by most, it seems like every guy with a show who talks economics is a metallist to a degree.
We need TWO people on at the same time .....
ReplyDeleteMy impression was that although Hartmann asked about housing and inflation, housing wasnt the 'crux' of his question. He was simply asking why things cost more today than they did year ago, and is this not indicative of a depreciation of the dollar?
ReplyDeleteIf you look at his question that way, then the simple answer is the monetary system is inherently inflationary.
At this point the discussion could lead into why an inherently inflationary system is better than an inherently delfationary system, specfically with regard to endogenous money via bank loans being made in nominal amounts.
But really the conversation could go in many directions.
That's why I said he should know better. He was asking a question he ought to already know the answer to. You don't need anything MMT-specific to know why things in general are more expensive than they were 40 or 100 years ago.
ReplyDeleteThis comment has been removed by the author.
ReplyDelete"it seems like every guy with a show who talks economics is a metallist to a degree"
ReplyDeleteThere's no reason why a pro-reason person shouldn't use some of their money to buy fetishes like shiny metal if they think it will return a profit.
concerning housing. the average house is twice as big as is was in the 50's. With way more amenities. dishwasher, 3 stall garage, central air etc. using median statistics on price without compensating for other factors is misleading.
ReplyDeleteAnd of course what M. Hudson said. "the price of a house is what ever a bank is willing to lend against it.
commodities are probably the best gauge.
miller B,
ReplyDeleteyou can't deny the fact that the majority of the benefits, since 1973, have been largely taken by the top whatever percent.
It's like they worked out how the money system really works decades before "normal people" cottoned on to the facts.
Absolutely true y, I should have said hard money type and not "metallist" . I have no issues with buying a shiny object to hold and hope to sell for more down the road, I just dont want the worlds or countries monetary system based on it.
ReplyDeleteWarren Mosler answered the "house question" in some forum, I believe I saw it at heteconomist.com, like this:
ReplyDelete"Don't look what $1 can buy, look what all the dollars in the economy can buy."