The Arthurian on a no-credit-growth system

Read these two posts together. Art brings up an interesting issue.

Why can capitalism not survive in a no-growth world? Because that's how we set it up. If we set it up differently, it would work differently. If we designed economic policy for a no-growth world, we could live in a no-growth world. You see it in economic models all the time.

We're almost there now, actually. We live in an almost-no-growth world, right? And yes, things are not very good. And even I have been calling for (or predicting, actually) better growth. However, things are not very good in our no-growth world because all our policies are designed for a world of "full speed ahead" growth. Just for the record, then, the fact that economic conditions have satisfied almost no one for the past decade is not evidence that we cannot live in a no-growth world.

I can't lay it out for you today. I'm not particularly a fan of the no-growth world. I don't see it as necessary. But that's just me.

But I can lay out a parallel situation. I can lay out a no-debt-growth world:

Economic growth under this [presently existing] system is supported by credit use. Say we grow three percent. We need credit enough for that three percent. We don't need credit enough for the whole economy. We don't need to use credit for everything. We do use credit for everything, and that's the problem; but we don't have to. 

Let the Fed issue that money. If the economy grows 3%, let the Fed issue 3% more money by expanding its holdings of government debt. The system is essentially unchanged under the plan I describe, except the normal growth of Federal Debt held by Federal Reserve Banks is faster than before, and anti-inflation policy gets some help from the tax code.

Remember, I'm talking about encouraging the private sector to pay down debt at an accelerated rate. This doesn't have to be a punitive plan. Shouldn't be, until we can average 4% RGDP growth for a decade. Oh, and this suppression of wages to fight inflation, that has to go.

A plan similar to this, more or less, could change policy enough to make a no-growth world a pretty decent place to live.

The New Arthurian
Excerpts from a book review

A bit more from Heilbroner and Silk
The Arthurian

Neil Wilson — The Function of Government Spending

Any government outlay causes somebody somewhere to receive some income they didn’t have previously in return for supplying some good or service. They then pay some tax, and decide how much of that income to spend on other goods and services in the economy and how much to save for a rainy day. That process then continues with the money bouncing around between people causing transactions.

We can represent the initital government outlay with the following definitions.…

 Understanding issuance and taxation.

Modern Money Matters

The Function of Government Spending

Neil Wilson

Neil Wilson — A Sterling Performance

Why you can ignore most of what is written about floating rate currencies and why the commentariat always gets it wrong.

As long as banks supply liquidity to speculators, speculators can dominate markets. In external trade, as long a central banks provide liquidity to speculators, speculators can dominate international markets.

Currency is a policy tool and the government is the monopoly issuer through its central bank.

Yes, this implies that so-called capitalist free market economies are actually command systems. Central banks chose the policy to follow in any case, although they usually strive to create an illusion that the market is setting prices through competition. Even in setting interest rates, they are supposedly "following market expectations" rather than setting policy. Even Paul Krugman believes this.

Modern Money Matters
A Sterling Performance

Neil Wilson

Steve Randy Waldman — There’s no such thing as base money anymore

I’ve no grand ideological point to make here. But I think a lot of debate and commentary on monetary issues hasn’t caught up with the fact that we have permanently entered a brave new world in which there is no opportunity cost to holding money rather than safe short-term debt, whether we are at the zero bound or not.

Interfluidity
There’s no such thing as base money anymore
Steve Randy Waldman

That is a grand ideological point, and the bankers don't want it drawn for fear it will undercut the rationale for the interest subsidy.

Izabella Kaminska — The Fed’s 1.6 trillion ‘somethings’

Izabella and Chris Cook explain tax credits. Old but goodie.

Read it at The Financial Times | FT Alphville
The Fed’s 1.6 trillion ‘somethings’ (July 26, 2011)
Izabella Kaminska
(h/t y in the comments)

Important if you haven't seen it before.

Ralph Musgrave — Three MMTers and Milton Friedman say government borrowing is pointless

So if three MMTers (Warren Mosler, Dan Kervick and me) all say the same, namely that government borrowing is pointless – not to mention Milton Friedman - I challenge anyone to contradict us!!!!

Read it at Ralphonomics

Three MMTers and Milton Friedman say government borrowing is pointless

by Ralph Musgrave

Add me to the list.