At Ralphonomics here.
Ralph exposes a couple of dopes who watched the "Back to the Future" movies one too many times.
If a bridge is built in 2014, the LABOUR REQUIRED to build it must be expended in 2014.
Put that another way, if a bridge is built in 2014, there is just no way that labour expended on bridge building in 2015 or 2016 can contribute to the bridge built in 2014.
LOL!That would involve time travel.
18 comments:
Nick Rowe actually backed the Wren-Lewis / Portes time travel theory with a very complicated argument a year or so ago. I think I spotted the flaw in the Rowe theory, but haven’t got time to go over it all again. If Nick or one of his supporters could set out their argument in two or three hundred words, I’d be interested.
I think Rowe is Canadian Ralph... and William Shatner is Canadian too.... I used to watch the old Star Treks and the Enterprise had to time travel in some episodes...... soooooooo. ....
The foreign example is incorrect as well. Deferring payment is irrelevant. The debt is created at the time the construction is done and the real output is given up.
The fallacy there is the 'single economy view' fallacy that economists use all the time - treating the foreign sector like some alien land that doesn't have to follow the same rules.
It becomes clear when you realise that there is one world and it is a closed economy. Within that there are interacting currency areas. Viewed from that point real output can only get used once somewhere.
The whole issue boils down to a one-to-one match belief between money and stuff. When you recast that as more of an induction circuit model - which indeed is what Keynes actually did - then the fallacy becomes clear.
The finance circuit and the real circuit are not directly connected. The finance circuit does its thing and induces activity in the real circuit - almost as a side feedback effect.
Which is pretty much what happens when you put your toothbrush on charge.
The real circuit has to take what the finance circuit throws off in a monetary economy.
"an induction circuit model - which indeed is what Keynes actually did"
Neil what book is that in?
btw imv when we say "the deficit is too small" what we are doing is walking over and putting our hand on top of the motor to see if it is warm and then correlating that with the output... ie 'if the motor is warmer then we are probably pumping more Gal/hr ..."
Which is probably correlated but there are obviously better ways to do it...
rsp
Nice analogy, Neil.
We can conceptual a relation between the flow of electric current based on +/- polarity and the flow of money based on a polarity of credit/debt (credits and debits to accounts).
In electrical induction this polarity can be used to induce change through a motor that outputs mechanical motion, and this change can be controlled by a dial (potentiometer) that varies the flow and changes the rate of mechanical motion induced through the motor.
In monetary system the flow of credit-debt also induces "mechanical" change in "motor" of the real economy that can be controlled by "dialing" credit up and down.
In the analogy the mechanism in both cases is powered by polarity that nets to zero hence is "fictitious" in relation to the real, which is additive or subtractive.
Funnily enough, in the digital age, finance is also electrically powered and electronically controlled, running in terms of digital switches and keyboards. So some analogies there also in terms of circuitry.
A monetary circuit powers an economic system like electrical circuity powers a mechanical system based on electro-magnetism. And a financial "grid" functions analogously to an electrical grid.
" induction circuit model " following this (FD: metaphor) a bit...
imv Marx only studied what looks like the inductive component (ie 'wages & debt' cohort what he termed "capitalists"...)
And was ignorant of the present source function as we were then under the metals as the source function.... and ignorant of resistive and capacitive components... or thereabouts...
Again this is metaphor/analogy....
Right Tom eventually you would want to calibrate the source to the output...
I've talked to Roger about this what he sees thru evolution is that the point of sampling changes as the design evolves...
So maybe at first you would notice the motor would get warmer as the pump flow would increase (correlation) but then you would eventually figure out that when you turned the dial one way (stimulation), the motor got warmer and flow increased and the opposite (again correlation) ... then it would evolve to where you would measure pump gal/hr and make marks on the dial at the source and calibrate the control to actual flow rather than resistive (thermal) loss.... etc...
Roger sees this even in normal evolutionary biology....
so we all have this down but unfortunately we have the "time travelers" at the controls and in charge of design... pretty humiliating to the rest of us....
Trying to explain that you can't produce or consume anything now with resources (including human capital) from the future is like hitting a wall when it comes to the public debt and obsessed crew. Is like explaining you can't run out of (fiat) money. All to absurd.
Worst thing is "time travellers" try to come up with all sort of fuzzy and convoluted explanations to bypass their many cognitive biases.
A turing machine could run our system better because it wouldn't need to bypass all these cognitive biases.
good points Ignacio .... I think what we are going to have to do to be ultimately successful is to better understand the inter-workings of these cognitive biases and how to specifically operate against them...
Which doenst really have to do directly with economics... rsp,
Ralph: here you are. The really simple version:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2012/10/how-time-travel-is-possible.html
Matt: quoting my old post:
"Suppose you wanted to take milk away from people who won't be born until 100 years in the future, and give it to people alive today. But you don't have a time-machine.
Here's how you do it:
You borrow milk from people who are young and give it to the people you want to give it to. You wait a few years, then borrow some more milk from people who are young, and use it to repay the milk you borrowed from the people who were young but are now old. And keep on repeating until you get to the people who were born 100 years after you started. You don't borrow milk from them; you just take it."
"You borrow milk from people who are young and give it to the people you want to give it to."
Why do you use the term 'borrow' and not 'create'?
The implication you are making, which is false, is that the young had an alternative use for the spare milk and would in fact create the milk regardless.
That's always the failure of classical economics - that all the stuff that can be made will always be made. That isn't the case at all in a monetary economy.
It's the use of the term 'borrow' that is the classical weapon of choice - because it is a loaded term. The assumption is always that you are dragging things away from unwilling participants who can magically use everything they are capable of making.
"Neil what book is that in?"
That's what the General Theory is all about. The finance circuit does what it does in a monetary economy and the real circuit has to adapt to that.
In other words there is no one-to-one correlation between the two. You have to manage the financial circuit so that it throws off what the real circuit requires to operate at maximum efficiency.
So it is an inductive relationship, rather than a direct one.
As I said: "Worst thing is "time travellers" try to come up with all sort of fuzzy and convoluted explanations to bypass their many cognitive biases."
Here is a prime example of that, and that's when the guy is smart and can make up arguments.
If they wouldn't be making (let's focus on the production/consumption instead of the underlying finances of credit/debt) that milk to be 'borrowed' by others, they assume they would be... Doing what exactly? Consuming the excess milk themselves? Doing something else instead of the milk?
You can channel activity through financing credit, if the credit didn't exist, that activity wouldn't be carried out (so instead of producing X gallons of milk, they would be producing Y gallons of milk, being Y < X). Sure you can have excess production of something, but one thing is ill-carried leverage (specially though rehypothecation like in RE) and other the dynamics of production tied to financial flows, if the "borrower" is not credited by more than his future production capacity can guarantee (with some risk margins), what would be the problem, the producer can have now the milk and the milk producer can have now the credit, and so the economy moves on.
So what is better: doing nothing at all, or producing the extra milk that is actually needed. In the world of orthodox economists, people living in the brink of starvation is a better option than living in a world with abundance of goods and a thriving economy (and demand) that creates opportunity. In reality, is under these circumstances that progress is made, not in a world of misery where you just barter what you got at hand even if you could be producing more thought "time travellling". they have yet to confront their own romantic narrative of the perfect newtonian machine based on some fairy tale about bartering and how money is just a substitute for that world, but in essence is the same (all built on the falsehood of Say's law).
In most cases (most, not all, for example in case of politicians AND ECONOMISTS we would be better if they just shut up and let the grown up productive people do their thing) doing nothing is not the better option (as humans tend to have this behaviour of avoiding starvation and be creative and productive).
But there is a quantum leap to think that if the credit didn't exist, something else would be done and someone else would be consuming that labour, or that the excess production would naturally find a better consumer. This would be the argument of supply siders and 'austrian economics'.
In face of evidence, this does not happen in reality, when there is a fall on demand because the lack of funding, people does not 'magically' start doing something else of what they know or what they can do with their current means (if you have the know-how of how to manage a farm, and have a farm with some cows and the machinery to produce pasteurized milk you are not going to magically start building houses just because no one wants milk) unless they are in a very bad situation. Sure if you believe in markets (and these guys are true believers in markets) you must believe that the market is clearing all the time, and bad business will always go bankrupt regardless of the circumstances. So periodically killing the system to induce artificial blood drains to liquidate is an unnecessary artefact product of a sick control freak supply side economists who enjoys watching others suffer.
But maybe some day we may have a Turing machine running the macro system to insulate the real production economy from control freaks who end up destroying lives and creating conflict all the time through their masochist ideologies. And we get rid of excess economists and an an oversized financial sector that could be run by a single computer. Ah but then they will have to look up for other job ;)
Nick,
Thanks for directing me to your "really simple version". (Probably the only version I'd understand).
I agree your "version" dents my time travel argument. However, I think your method of effecting time travel has a weakness.
I've set it out here:
http://ralphanomics.blogspot.co.uk/2014/10/more-on-time-travel.html
Ralph: thanks. I will take a look later (I just woke up).
Neil: "Why do you use the term 'borrow' and not 'create'?"
Good question.
1. Because I wanted a counter-example to show that time travel is not impossible. One example is enough.
2. If there is deficient-demand unemployment, then you are right that new milk would be created in the first period. But then it would also be true that milk would be destroyed in the last period, when the multiplier goes into reverse.
3. A more interesting case is when there is deficient demand in the fist period, but a classical economy in the last period. Then it's more complicated. It depends on whether you could use monetary policy instead. And your views on intergenerational equity. Etc.
But again, this is a counterexample to the "time travel is impossible" argument.
Abba Lerner seems to have gotten this from misreading von Mises. Bob Murphy is the expert on this. Bob used to think that time travel is impossible, until I changed his mind.
I am not sure that everyone here has things just right. And from Wolf's summary, I am not sure that Wren-Lewis & Portes have things so wrong. But Keynes & Lerner certainly did have it right, which is why they proposed "funding" full employment through "borrowing" (bonds) = "printing 'fiat' money" (the difference is practically non-existent), rather than taxation. I.e. they supported deficit spending.
Lerner was perfectly aware of "time-travel" - he anticipated and understood such objections - while his critics did and do not. Look at the part of the chapter on The National Debt in Economics of Employment where he says "the return to sound finance is illusory" after treating such matters.
This is why he said there "other things being equal, it is better that the National Debt be smaller". But this betterness in negligible in comparison with the benefits. And of course "time-travel" characterizations are silly. The time travel is the usual direction - all it is saying is spending now has consequences later. Quelle surprise!
So Lerner characterizes such arguments with something like saying it is like trying to avoid a little rain by jumping into a lake. Book not at hand, all "quoting" from memory.
Expanding on Neil's point, with a minor quibble - there is nothing wrong with the word "borrowing" used correctly - "borrow milk" implicitly makes the usual category mistake of identifying "financial" and "real" which as usual is more or less equivalent to an invalid full employment assumption. MMT / Institutional / Lernerian / Keynesian economics is careful and correct. Its critics aren't.
Nick it sounds like you are describing some sort of logistics supply chain...
If the western most jurisdiction needed milk, then they could just get it from the 2nd west most jurisdiction and avoid shipping it across the country.
Nick we have people down here (Fix the Debt, CRFB, Concord, Peterson, Kick the Can, etc...) who have millions of $ going all around saying "we're borrowing from our grandchildren!" and "we're out of money!" and "we're bankrupting ourselves!" all the time and they have sympathetic ears in US Congress and the Executive branch.... so this is what we are trying to operate against here...
Its not helping to be perpetuating these myths in any way... right now we have the potential for an Ebola pandemic down here and our "A Team" thinks they are "out of money!" and thus needlessly eliminating options... scary!!!
rsp,
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