The neoliberal policy approach in the decades leading up to the crisis basically amounted to enticing or pushing people into increasing levels of private debt. With private debt burdens mounting in relation to real GDP, we were told that consenting adults knew what they were doing. Then the crisis hit. Since then, as the private sector attempted to deleverage and get its unsustainable debt levels under control, we were told that the government's deficits, which increased as a matter of accounting, were unsustainable. The outcome, depending on which doomsayer you listened to, would supposedly be hyperinflation, escalating interest rates, sovereign default, a crippling debt burden on future generations, or some heady combination of any or all of these calamities. For governments that issue their own flexible exchange-rate nonconvertible currencies, these claims are nonsense. Even in the Eurozone the sovereign-debt crisis is a manufactured one that can be alleviated indefinitely by the ECB. So what explains the neoliberal preference for private debt and aversion to government deficits? The class-interested motivations seem crystal clear.
Private indebtedness, unlike government deficit expenditure, binds the majority of individuals more tightly to the wage labor relation. Workers with mortgages or other debt obligations will be more subservient in relation to their employers, and less likely to risk their present positions in negotiations over wages and conditions.heteconomist.com
Why Neoliberals Pretend Private Debt Doesn't Matter and Public "Debt" Does
Peter Cooper
It's called "debt-slavery," "debt-servitude," and "debt serfdom."
A major purpose of public debt under the current operational method of bond financing instead of direct issuance of currency is to create fiscal space for private sector deleveraging by offsetting increasing private saving desire that is not offset by net exports, thereby allowing the private sector to run the surplus it desires without contracting the economy and creating unemployment.
6 comments:
The neoliberal policy approach in the decades leading up to the crisis basically amounted to enticing or pushing people into increasing levels of private debt.
Constantly screaming and warning about the evil nature of such funny money "private debt" is central to Austrian analysis. "Progressives" who employ the term "neoliberal" simultaneously to the status quo defenders and to Austrians are completely dishonest and dishonorable.
I guess that's what one does when one is losing the argument.
http://fromalpha2omega.podomatic.com/entry/2013-01-26T03_29_12-08_00
In Bob's mind everyone he argues with is "losing the argument".
Delusional.
y: Since you ignored the gist of my comment, what else am I to think?
Since the point of Cooper's article is patently false and preposterous, what else am I to think?
Bob, a lot of folks agree that private debt accumulation as a result of loose bank credit is a problem in that it leads to excessive asset appreciation that creates a "wealth effect" on paper that leads to further imprudence based on fictitious capital and fictitious (unrealized) profits. Eventually, this either has a spill over effect in terms of higher goods prices, or the Ponzi is unsustainable and a financial crisis results. Austrian economics and Post Keynesians that follow Minsky, in particular, agree on the basics of this analysis.
What is not agreed upon is the solution. Austrians hold that the solution is a return to "sound money." Post Keynesians look to financial reform, reducing the possibility of bank credit excesses. Others want to end private banking as it is exists and go exclusively to a government system of money creation.
There are trade-offs with all solutions. The debate is about establishing the most efficient and effective solution theoretically, and then considering whether and how it can be implemented practically.
THANK YOU Tom Hickey. You've got some of the tightest / succinct writing on this material, taking the big picturing and boiling it down to the basic essence, and you do it with ease. Why can't we get you a regular column on Bloomberg or something like that?
Tom- like Econmav said - nice summary. That is basically it - once one recognizes that private debt is a key factor in balance sheet recessions, there are the three choices you mention.
I think they can be unified (as readers here may know) - regulation is clearly needed (as you say PKers want), & Austrian and monetarist views actually coincide with "progressive" (like Positive money) anti-private bank plans once the rules are changed; i.e., the Friedman rule not only works but is necessary once private credit money is stopped.
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