Sunday, February 18, 2018

Bill Mitchell — Censorship, the central bank independence ruse and Groupthink

A few things came up late last week which demonstrate the neoliberal Groupthink is alive an well at the highest levels of policy in Australia (and elsewhere). First, there was a story that a report from an Australian Broadcasting Commission (ABC) journalist on the Australian government’s corporate tax cuts was withdrawn after publication by the ABC after receiving several complaints from senior government ministers including the Treasurer and the Prime Minister. The story was not even radical. The journalist who I have had dealings with is a neoliberal herself when it comes to understanding macroeconomics. Second, one of the claims that the neoliberals make is that central banks are now firmly independent and not part of the political process. This is all part of the depoliticisation process whereby governments absolve themselves of political responsibility for policies that harm the citizens by appealing to ‘independent’ external authorities (such as the IMF, or central banks). Well we know that the claim about central bank independence is not true both in terms of the way the monetary system operates but also in the conduct of various central bankers over the last few decades. Last week, the Reserve Bank of Australia governor once again demonstrated how politically independent he is NOTby invoking key mainstream neoliberal myths about deficits and grandchildren. And then an old hack and largely failed British Labour politicians got in on the act. The Groupthink is powerful but becoming increasingly desperate under the increasing pressure from citizens for more accountability.
Bill Mitchell – billy blog
Censorship, the central bank independence ruse and Groupthink
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

22 comments:

GLH said...

Of course there is no independent Fed, it belongs to Wall Street. The Fed doesn't work for the people it works for the same bankers that control ABC, NBC, Fox etc. The Fed is controlled by the same people who control the Treasury. Bankers make sure that no one else is selected for the jobs.

GLH said...

I realize that Prof. Mitchell was talking about RBA but same difference, the same people control the entire West.

Matt Franko said...

More fake news GLH.... Treasury has typically been controlled by bankers/businessmen and the Fed has typically been controlled by academic economists.... further Jewish academic economists... Volker Greenspan Bernanke Yellen this goes back to the 70s...all academic economists and Jewish...

Powell at Fed is breaking with decades of tradition in that he is a lawyer and a WASP....lets see if there is any departures in policy...

Matt Franko said...

None of those previous 4 would have said what Powell says here:

http://mikenormaneconomics.blogspot.com/2017/11/feds-powell-on-congress-role.html

Academic and Religious training creates biases....

Matt Franko said...

Bill seems oblivious (as most) to the different basis of accounting... perhaps a few courses and associated rigorous training in accounting exercises would be in order...

https://taxfoundation.org/three-differences-between-tax-and-book-accounting-legislators-need-know/

"While the differences between book and tax accounting are no doubt confusing to many, it is entirely reasonable that there be considerable differences between the two practices. After all, corporate accounting standards are typically set by the independent Financial Accounting Standards Board (FASB), while the Internal Revenue Code is a product of the political process between Congress and the While House. Tax rules are driven by broader public policy concerns rather than adherence to formal accounting practices.

So while Generally Accepted Accounting Principles[1] (GAAP) are intended to insure uniformity of companies’ financial statements and accounting methods, similar activities may be treated very differently for tax purposes.[2] Therefore, it is possible for the financial reports of a company to differ from the tax returns prepared for the IRS because of the different accounting methods."

This is Accounting 101 type stuff...

But if you never even took Accounting 101 then.... ??????

Same with the statement of a falsehood (that MMT will incorrectly label as "neoliberal lies!") that govt is like a household when they use household accounting to evaluate the govt financial reports prepared via an entirely different basis of accounting...

You dont refute the falsehood "govt is a household!" by simply claiming it is a "neo-liberal lie!" you have to refute it via the actual accounting science... ie via competent technical presentations/illustrations...

André said...

Although I agree that most people don't get accounting right, I don't see the "govt is a household" claim as an accounting issue.

You don't need to know anything about accounting to acknowledge that the government is not a household. Actually, for some people, to put things in an accounting perspective just makes everything more confusing.

After all, accounting is just a methodology/standard for registering financial events. The financial events exist even if you do not know how to register them in the books.

A banker will be able to explain exactly how a repo operation works even if he doesn't know how it is registered in the books. You don't need necessarily to know accounting to understand how such operations work...

Matt Franko said...

It is a falsehood... so how do you refute a falsehood? answer: (empirical) science... its the only way...

Matt Franko said...

"The financial events exist even if you do not know how to register them in the books."

that is NOT true in a regulated system... youre statement is false...

in a regulated system (proportional or integral control) regulatory adjustments are made in response to measurements that are ex post...

Look at the dam video above... its like you are saying that none of that matters because "water is going to flow downhill anyway!"....

Its a REGULATED system for crying out loud...

Matt Franko said...

You guys are saying "the system is not regulated!" because you have never been trained in regulatory mathematics...

If youve been rigorously trained it becomes very apparent what is going on...

Matt Franko said...

In the dam video, they have flow meters and water level measurement devices that report conditions in continuous time to regulators... think of these devices as an "accounting system"... humans make regulatory actions based on the reported data...

None of this "evolved from the apes!" ... we human beings create these systems and control them...

André said...

"that is NOT true in a regulated system... youre statement is false..."

Let me give you an example.

Banks offer credit cards to costumers. They offer a limit, that may or may not be consumed by the costumer for making transactions. Sometimes there is a contractual commitment where the bank provides the credit limit for a period (one month, for example). If the bank cancels the limit before the contractual period, it may face legal sanctions.

That contractual arrangement that exists in the real world does not exist in the balance sheet, because the credit limit is not registered in the books. Only the consumed limit is registered. The available, unused limit is not. That is how the accounting standard works today (which may or may not change in the future).

The credit limit and its consequences do exist in the real world, even if that limit is absent in the balance sheet.

You put too much weight in accounting standards. The accounting standards do bring consequences to the real world, but it is not all there is. Some operations are not even shown in the balance sheet. Some are shown in a very unreasonable way. You do not need to know accounting to understand how the world works. Of course, knowing accounting is useful, but it is not essential.

That said, I do believe that all economists and everyone that works in finance should be trained in accounting. It is a shame for the economist to doesn't understand accounting. That doesn't mean that the economist should know ALL the accounting details of everything. And the common person doesn't have the obligation to know accounting. And those people who doesn't know accounting are nonetheless completely able to understand how the modern monetary system works and that the government is not a household.

Noah Way said...

Aside from the fact that credit card agreements effectively bypass legal redress with mandatory binding arbitration. So application of law (passed on behalf of banks by their congressional representatives) is essentially precluded on behalf of the credit card holder.

Since banks are largely self-regulating the problem is even worse. Accounting is commonly used to misrepresent financial data, among other things.

Six said...

GAAP allowed different methods of reporting in the 80s, Matt. LIFO vs FIFO, for instance. Is it still this way, or do they dictate inventory accounting these days? I don’t really GAF, but you seem to be painting a somewhat false narrative. Also, does FASB lord over Australian accounting, or do they answer to different masters? Wouldn’t Australian accounting standards be more pertinent to what Mr Mitchell does or doesn’t know?

GLH said...

Matt Franko: I'm I didn't realize we were able to point out that so many Fed chairmen have been Jewish. You are completely correct.

Greg said...

Why do you think there is two different types of accounting, tax accounting and book accounting?

So a company can show via their tax accounting that they have no taxable profits while at the same time show via their book accounting that they are making lots of money to support a rising stock price. Its a sham

There should only be one type of accounting the "value" of a company. Period. Either you are making money or you aren't

Matt Franko said...

Greg that is more of a Philosophy imo question rather than an Accounting question...

I have NEVER taken a Philosophy class but I have taken Accounting 101 and 102 as electives and took maybe one or two graduate level course in Corporate Finance...

See the article above from the US based Tax Foundation to understand the differences from the Accounting perspective...

The "bottom line" (Accounting metaphor) is that if a US firm has any taxable income, it WAS taxed at 35% now after the Trump thing it is taxed at 21%....

ALSO, whereas before any US firm's global earnings retained in a foreign subsidiary was NOT taxable, NOW with the Trump thing it IS taxable at the same 21% AND any PREVIOUS retained earnings are ALSO taxed at a 15.5% in arrears...

So BIG changes in the US tax policy are going to modify the actions the firms are going to take going forward...

Tax policy matters...

Matt Franko said...

"Wouldn’t Australian accounting standards be more pertinent to what Mr Mitchell does or doesn’t know?"

they all basically mimic the US... look at the article, Trump got a big tax cut for US business so now all the Australian right wants one too... looks childish maybe?

I dont know if Bill ever had any rigorous training in Accounting or not... I dont think it was ever his focus anyway...

One of the first questions in Accounting is 'what basis to use?'....

https://en.wikipedia.org/wiki/Basis_of_accounting

When the unwashed keep making a conflation between govt and households, what they fail to understand (never having been trained) is that each of those entities uses a DIFFERENT Basis of Accounting...

André said...

Matt,

You don't need to know what is Basis of Accounting to understand that the government is not like a household, that the government can and should spend more than it taxes, that the central bank is not really independent, that there is a strong groupthink in economics, and so on.

I don't know why you claim that Bill seems oblivious to the different basis of accounting, but I don't think it matters for the point he is making about censorship, central bank independence and groupthink.

You are clinging to some unimportant details.

Basis of accounting is relevant when you are making accounting analysis...

Matt Franko said...

"unimportant details."

Yo they are not "unimportant" to those trained in them.... I'm the one making the case in the actual scientific terms and processes and techniques of the science of Accounting and Finance and regulatory mathematics...

Bill is the one who keeps conflating the statement of a falsehood with lying and who keeps drifting off into objectification of the figure of speech "neoliberal"...

Where have these people gotten? Nowhere... these f-ing coin things are leaving them in the dust...

What have they changed about their approach? Nothing...

Matt Franko said...

"is relevant when you are making accounting analysis..."

Yo when these people make the conflation with the govt as a household they ARE making an accounting analysis...

What are they doing then???? You think they think that govt is LITERALLY a household????

They are doing an accounting comparison and saying 'the govt is broke!', etc.. "unfunded liabilities!" ,etc... "sustainability!" etc... "out of money!" etc...

These are ALL accounting analysis....

What are they then?????

Six said...

It doesn’t sound like you’ve been “rigorously trained” in accounting, Matt. When I studied accounting you could use GAAP and come up with different “bottom lines”. Portions of GAAP were very specific and other portions were a framework for guessing. Surely they covered that in your two undergrad accounting classes.

André said...

"Bill is the one who keeps conflating the statement of a falsehood with lying and who keeps drifting off into objectification of the figure of speech "neoliberal"..."

What is exactly his statement of falsehood or his lying? Can’t understand what you are talking about.


"Yo when these people make the conflation with the govt as a household they ARE making an accounting analysis..."

They are doing some kind of accounting analysis, but not necessarily the actual formal analysis, employing knowledge about GAAP, IAS, IFRS, details of accounting standards or anything like that.

You don't need to know the definition of assets, liabilities, cash/accrual basis or anything like that to understand how the government works, and how any of its operations works. Of course, the more knowledge you have, the better it will be to understand anything, but the fact is that most people, economists and politicians don’t understand in details the accounting standards, and it really doesn't matter.

What difference does it make whether you are employing cash or accrual basis in government accounting standards? Or whether you mark a position to market or not? Or whether you employ FIFO? Or whether you employ linear or nonlinear depreciation? The fact that the government can issue money is still the same no matter what accounting standards you put in place. The same is true for the fact that the central bank is not really independent, or the fact that economics profession is cursed with groupthink, etc. Those themes are not related to accounting standards in the sense that you don’t need to know anything about those standards to be able to understand what is going on. Don’t know why you put so much importance in accounting standards. They have some importance, but not the one you are giving them.

Accounting is a standard for recording information, which could be inappropriate to record some kinds of transactions, and may change over time, depending on a lot of factors, including some cultural ones. The fact that you record something employing a standard doesn’t mean that you actually interpret and manage your company or the economy the same way, or that the real world works just like the predefined framework of the standard. Actually, most companies do employ some parallel kind of information management, and usually they explicitly separate “accounting data” from “non accounting data” or “off balance sheet data”. A lot of important decisions are taken based on the “non accounting data”. Sometimes the “accounting data” is fully ignored, because the management knows that the standard is inappropriate for that kind of decision.