To some degree they get around this in Europe and Japan, says Richard Wolff, by redistributing wealth through welfare programs and state funded healthcare, which helps people retain purchasing power and this keeps businesses going.
Richard Wolff says the U.S. is intent on going the other way which will eventually lead to a crash.
Economic Crashes are part of the normal cycle of capitalism. Miraculously Japan and a few other countries have found a way to stop economic crashes using a very simple method.
Of course ethical finance precludes the problem of profit taking.
ReplyDeleteNor does ethical finance necessarily mean higher interest rates since equal fiat distributions to all citizens can lower them as desired.
Plus common stock is a means to finance progress that requires NO interest at all.
A faithful man will abound with blessings, but he who makes haste to be rich will not go unpunished. Proverbs 28:20 [bold added]
As a Nation we've hastened to get rich with little thought of ethical finance.
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ReplyDeleteSummary:
Capitalist employers are always looking for ways to cut labor costs. Whether through automation, hiring foreigners, moving operations abroad, or whatever, an enterprise’s profitability largely depends on how well it sells good and services, while cutting labor costs. However the more workers are impoverished, the less money they have to buy goods or services from capitalists. Therefore profits suffer. Hence the drive to cut wages becomes even more intense, which causes even more reductions in profits, which causes a race-to-the-bottom in worker exploitation.
Capitalists have never been able to resolve this contradiction. And the problem becomes even worse when rich people have all the money.
The Japanese government tried to offset this by allowing social programs, plus a high minimum wage, nationalized health insurance, cheap or free education, and so on -- but the USA is going the other way. Western oligarchs want it all, and they are committing national suicide. A crash is inevitable.
Since workers have no money to buy anything, the Fed is keeping interest rates low so that workers will buy things with money borrowed from private lenders. This causes workers to go ever further into debt.
Hence the coming crash will be driven by debt and inequality. Everyone knows this, but few dare admit it.
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The crash is occurring here and now via ever-expanding homelessness, ever-mounting student debt, ever-increasing suicide rates, ever-accelerating population decline, and ever-increasing inequality.
All this has driven society insane. In the UK, for example, men may now enter all female gymnastic facilities and use the same changing facilities, toilets, and showers as women and little girls. Also, men may now compete in female-only tournaments. Young males will penetrate countless facilities full of naked babes. If women don’t like it, they are bigots and haters.
https://www.dailymail.co.uk/news/article-6791187/Now-girl-gymnasts-share-changing-rooms-boys-identify-female.html
#MeToo, trans-mania, the denial of biological reality, the war on straight white males, and so on are all products of social breakdown and mass impoverishment.
But at least we don’t have ebil soshializm.
The real problem with the US is that financial interest are being allowed to draw the wealth out of the real economy. As compound interest pulls money from the real economy the government has to create more currency to pay the bankers. Until the people wake up and take the government back from Wall Street things will continually get worse. As I have understood Konrad to say several times, if all of the money the government creates goes to financial interest then MMT is useless.
ReplyDeleteIn the article I put out titled,
ReplyDeleteBrian Chappatta - How to Trade MMT Is Wall Street’s Great Unknown
Brian Chappatts warns that MMT will cause inflation if people get better off because they have less debt and student debt. He seems to be saying that society must stay lumbered with debt to keep inflation under control.
Great for bankers, hey.
So it's okay for people to borrow money and whack up house price inflation.
I can demolish the “Wolff theory” in under 50 words….
ReplyDeleteWhile “wages of the staff won't be quite enough to buy all the products” if you add in the wages / income of entrepreneurs / shareholders, then total “wages plus income plus dividends” WILL BE enough to “buy all the products”.
Zzzzzzzzzz.
As Richard Wolff says, the rich won't be buying thousands of hair dryers, or pizzas in the street, or other everyday commodities, so their wealth won't make up for the lost purchasing power.
ReplyDeleteRichard Wolff explains why capitalist societies tend to always be underperforming. That through low wages demand is suppressed and this leads to under-employment.
ReplyDeleteThe Magic of MMT.
I previously said that just because the government can issue its own currency it doesn't mean society can get free public services, because people will always have to work to provide those services. But I've had some new insight - most of society will get a free service after all.
When the government deficit spends to create a public service, new money is injected into society when the public staff get paid. Society then gears up to produce more goods and services. Now the government money is backed by goods and services.
MMT says the government is restrained by how much it can spend as human and physical resources are finite, which means spending more money won't produce more goods and services, only inflation.
How does society produce more goods and services when the government spends on public services? Well, for one thing, the staff already employed in those companies that are supplying the goods and services may want to work longer hours, but also, these companies will employ more people.
In this way, the under-employed and unemployed will find more work, and will be supply the goods and services to the public staff.
These people were doing nothing before, and may have been even on benefits, but now they are working contributing to society. So, in effect, it is they who provide the extra goods and services the public healthcare workers have worked for, and the rest of society gets a free health service.
A little bit of socialism and a little bit of capitalism are great bedfellows.
So people earning a hundred times the average wage don't eat a hundred times as many pizzas as the average person. I'm grateful to Wolff for that bit of information.
ReplyDeleteHowever, the rich do buy more and bigger houses, cars, etc etc than the less well off. Thus while the rich tend to have a higher propensity to save than the poor, if the piles of cash at the disposal of the rich get sufficiently large, they'll spend it somehow or other. E.g. Bill Gates gives tens of millions to charities.
How does that help the ordinary businessman in the high street, Ralph?
Deleteif the piles of cash at the disposal of the rich get sufficiently large, they'll spend it somehow or other Ralph Musgrave
ReplyDeleteSince fiat, including currency, is the creation and the property of the monetary sovereign, it may properly charge interest (i.e. negative interest) for its possession and use on non-citizen or large accounts such as those of the banks and the rich with an individual citizen exclusion up to a reasonable amount and distribute the proceeds equally to all citizens too without violating equal protection under the law.
Thus there is no need for wishful thinking that money hoarders shall spend their hoards.
There still remains the problem of excessive and unjust ownership of land and other finite resources but the problem of money hoarding is no problem at all, in principle.
"MMT says the government is restrained by how much it can spend as human and physical resources are finite, which means spending more money won't produce more goods and services, only inflation."
ReplyDeleteKaivey, you've misstated what MMT is saying by ignoring a crucial assumption underlying the previous statement in a way which is (inadvertently) grossly misleading.
The state of our economy now, and in general ever since the end of WWII is for the human and physical resources to be used at less then full capacity. As a side note, this is a deliberate policy choice of those in power. There is significant underutilization of resources, which means increased spending will not result in (significant) inflation, but in greater utilization of those resources, up to full capacity. Only after that point will more spending result in inflation without increased production. The situation you describe in the quoted text would only occur when the economy is already going gangbusters, and jobs are easy to come by. We're nowhere near that point yet! There is tremendous space available for additional government spending before we hit full capacity, so don't let anyone fool you with the argument quoted.
BBBar. This Thanks for your reply, and I entirely agree with you. You have misread me. That's not your fault, it's easy to be not as clear as you think you are being ( meaning myself) when writing something.
DeleteThere's is loads of spare capacity in our society, but not enough purchasing power due to the way capitalism reduces wages so much, and this leads to underemployment.
Now, the MMTers do say that the amount of money that governments can usefully create is limited to the amount of human and physical resources available, but our present day society has a long way to go yet before it maxes out. So, plenty of room for governments to create new money and spend it.
“The situation you describe in the quoted text would only occur when the economy is already going gangbusters, and jobs are easy to come by. We're nowhere near that point yet! There is tremendous space available for additional government spending before we hit full capacity, so don't let anyone fool you with the argument quoted.” ~ bbbar
ReplyDeleteCorrect.
During the last 150 years the only time that the USA has come close to having an inflation problem was during the two world wars. Everyone had a job, but there was little for people to spend their money on, since consumer goods were rationed for the war effort. This created the threat of price inflation.
To sustain the war machine, the US government pumped more and more money into the economy. Federal spending burgeoned from $9 billion in FY 1940 to more than $98 billion in FY 1945. To prevent inflation, the US government needed to get money back out of the economy at the same time. The government did this by [1] instituting the payroll withholding tax via the Current Tax Payment Act, which was signed into law on 9 June 1943, and by [2] launching a massive campaign to get all Americans to buy Treasury securities called “Liberty Bonds” in WW I, and “War Bonds” in WW II. The US government falsely told workers that revenue from taxes and from bond sales was needed to “finance the war.”
WW II ended 74 years ago, but we still have the withholding tax, plus the lie that tax revenue is needed to fund the US government.
Incidentally the US government was worried that during the war, the war profiteers might become a bit too powerful, so in late 1944 the government imposed a 94% tax on any income above $200,000. This ended when the war ended.
Ralph, sounds like trickle down economics. Yeah, that'l work awesome!
ReplyDelete