Thursday, September 27, 2018

Stephen Williams — How mainstream economics has led to clueless governments

More framing.

This is a really good article. Concise, precise, and clearly formulated so that anyone can understand it. Disseminate widely.

Here is the lede:
Governments of all stripes base their policies on mainstream economics. Powerful challenges to the mainstream, especially from ecological economics and modern monetary theory, explain why we are in a hole and can’t seem to get out.
If this article is largely correct, we can conclude that the economics profession is a major cause – directly or indirectly – of most modern evils.
In saying that, I draw heavily on the work of Australian academic economists Professor Robert Costanza, Associate Professor Philip Lawn, Professor Bill Mitchell and Dr Steven Hail.
Taken together, their work – in conjunction with colleagues overseas – claims that mainstream economics is fundamentally wrong left, right and centre — although I don’t mean to imply that these four scholars agree on every point.
Mitchell – a co-originator of modern monetary theory (MMT) – shows that we could have full employment quickly with a job guarantee, that federal budget deficits are normal and desirable, that the federal government never needs to borrow money, and that federal taxes do not fund anything.
The Federal Government should focus on non-inflationary full employment and not budget outcomes, because we can run deficits forever without borrowing.
In short, the Federal Government does not have the budget constraints of a household, business, or state government, because it can create unlimited money — but should spend prudently to avoid inflation and ecological overshoot....
Independent Australia
How mainstream economics has led to clueless governments
Stephen Williams

See also
For many, Brexit is a right-wing project because the principal authors are an extreme element of the British Tory Party. However an Australian academic will be putting forward a very different view at a public meeting in Galway.
Bill Mitchell is professor of economics at the University of Newcastle, New South Wales, Australia, a widely published author, and a notable proponent of Modern Monetary Theory. He is also the co-author, with Italian political theorist Thomas Fazi, of Reclaiming the State – A Progressive Vision of Sovereignty in a Post-Neoliberal World.
That book will form the basis of his talk in Galway, entitled Reclaiming the State, which takes place on Wednesday October 3 at 8pm in the Harbour Hotel. Prof Mitchell argues that progressives and the political Left should not regard Brexit - and the current problems of the EU and monetary union generally - as a cause for despair, but as an opportunity to embrace a progressive, liberating, vision of national independence, to reject the EU’s austerity straitjacket and to implement a democratic socialist platform, “which is impossible within the EU, let alone the euro-zone”.
In Reclaiming the State, Mitchell and Fazi dispute that national independence has become irrelevant in a globalised world. They contend that it is only by reclaiming the state from supranational institutions, such as the EU, that people can break away from the neo-liberal economic dogma of the privatisation of resources and public services, deregulation of finance, the reduction of workers’ rights in collective bargaining, cuts to social programmes, and the lowering of taxes on wealth and capital at the expense of the middle and working classes.
The event is organised by The Desmond Greaves School, and will be chaired by Terry McDonough, Professor Emeritus of Economics at NUI Galway.
Galway Advertiser
Public meeting to ask ‘Is Brexit is an opportunity for Ireland?’


Andrew Anderson said...

How mainstream economics went so wrong, from the early 1970s onwards, is another story, but it boils down to:

changes in currency rules (abandoning the gold standard without rewriting the textbooks properly);

Our current two-tiered money system, whereby the banks may use fiat and the population may not - except for bills and coins - was designed or evolved for expensive fiat, i.e. the gold standard.

Now with near costless fiat, there is no physical reason why the entire population may not use fiat directly and great benefit for doing so such as an additional payment system in addition to the one that must work through banks, precise interest rate policy such as negative interest on large account owners, including the banks, but free accounts for ordinary citizens, freeing our hostage economy from the banks, and increasing the demand for fiat so that the monetary sovereign gets more bang for the bucks it spends to advance the general welfare.

Konrad said...

How mainstream economics has led to clueless governments

One of the problems with today’s economists is that they fraudulently pretend that there is no fraud in economics, even though American society is saturated with institutionalized fraud. Wall Street is built on fraud. Neoliberalism is 100% a fraud. Capitalism itself is inherently fraudulent.

Anyway it’s good to see the MMT message continue to spread.

Ralph Musgrave said...

Another “pro fiat money” and “anti privately issued money” argument is this. While there is no sharp dividing line between money and non-money, money is normally regarded as something absolutely guaranteed to hold its value (inflation apart). In contrast, much of the so called money or “dollars” that people had in private banks in the 1930s became worthless overnight when those banks failed. (According to Irving Fisher, about $6bn went up in smoke, which will be a good $60bn in today’s money.

Thus that money was really nothing of the sort: it was actually shares in sundry banks. But the response of governments to the 1930s was government (i.e. taxpayer) backed deposit insurance, which sounds great. But there’s a catch as follows. Money or so called money deposited at private banks is loaned on by those banks, thus deposit insurance involves taxpayers standing behind money lenders, and there is a widely accepted, basic principle which is that it is not the job of governments or taxpayers to subsidise or stand behind private commercial transactions.

In short, privately issued money relies on flouting that widely accepted principle. And that’s a good argument for banning privately issued money, with central bank issued “base money” being the only form of money. I expand on that argument here:

Andrew Anderson said...

Money or so called money deposited at private banks is loaned on by those banks, Ralph Musgrave

Actually, except from its vault cash, it's impossible* for a bank to lend to the non-bank private sector since the non-bank private sector may not have accounts at the Central Bank to receive the loan.

Instead, when banks lend to the non-bank private sector, they create new deposits/liabilities for fiat.

*A possible exception is to a fiat saving service such as Treasury Direct but the fiat is useless there (i.e. no checking or debit service) until transferred to a private bank, credit union, etc. in exchange more mere liabilities to fiat.

Ryan Harris said...

Ecological overshoot. FFS. How is that part of MMT?