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Macro: The Austrians vs. The Modern Monetary Theorists


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Interesting discussion...

 

http://pragcap.com/debunking-ron-pauls-talking-points

 

The USA is a single currency system with a Federal Government (unlike the EMU).  This means the USA is a currency ISSUER.  EMU countries have to always obtain revenues or borrow before they can spend.  The same does not hold true for the USA.  If the USA wants to create money they simply spend it into existence by changing numbers in the computer system.  It might sound bizarre to the layman or even the neoclassically trained economist, but the USA no longer resides in a system in which its currency is convertible into gold.
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The major issue with his train of thought is that if you keep going and at some point the markets don't trust that you are going to pay back the debt, interest rates will rise as investors put money into real assets and equities.  By the time that happens, it is too late to do anything about it.  As we have seen, interest rates just don't gradually go up they go up non-linearly.  The irrationality of the market requires that you don't try to push your luck by spending too much.  Just ny 2 cents.

 

Packer 

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In his ridiculous analysis he forgets to mention one thing, and that is Free Trade.

 

I am going to simplify this for everyone to understand.

 

Deficits, come about when we spend more than we take in, both on a governmental level (budget deficits) and on a private level (trade deficits). When we print money to subsidize these structural flaws, there are three ways we get screwed down the line.

 

1) Our productivity goes down as our debt load rises.

2) Inflation increases causing prices to rise across the board, and compounding the problem as structural inefficiencies are

3) Foreigners who gain our dollars through trade, come back and own a larger part of our economy.

 

When we adjust for the amount of private sector debt incurred due to inflation, the decline in productivity due to the fact that every economic headwind in the last 30 years has been watered down with newly printed money, and the increased ownership of US assets by foreigners (both treasuries and real assets), you can see why printing money never works.

 

How do you all feel about $100 oil? Does it even compute? Wait till it hits 200...

 

Nearly 4 trillion of new base money has been created since 2008.

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I would encourage all who are interested in understanding how the modern monetary system actually functions from a mechanical perspective to A) put aside all prior thinking on the economy with regards to China "funding" our deficit, the potential for hyperinflation due to money "printing", and the USA eventually running into Greek-style funding issues, B) ignore anything Moore has said on the topic, and C) take a month to read anything on pragcap.com regarding how Cullen Roche, Warren Mosler, and other MMT proponents believe the monetary system actually works.

 

After those three steps, come back and reevaluate your prior beliefs and understanding, and revisit Moore's posts.

 

I'm not trying to stir anything up or be combative. This is a healthy debate and it would be much more instructive if most if not all members at least read through the MMT view point, as oppose to Moore dominating the conversation without actually refuting MMT on a point-by-point basis. It's very easy to adhere to the notion of "money printing", hyperinflation and the USA spending its way to a greek-style crisis without actually thinking through mechanically how our monetary system works.

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Guest ValueCarl

The system is designed to fail at its origin because of "interest" on debt, payable to and usurped by the Private Bankers representative of Family Dynasties-the ruling Elite or the one percent-who maintain power, influence and control over global citizens with impunity. The system is rigged by these Masters of the Universe; designed to be inefficient, unsustainable, with money abundance managed selfishly-by fiat, according to their whims delivered to and through the political puppets whom they are pulling the strings -in order for them to have their way while creating "indentured servitude" for the masses. By divine right, historically, they believe they are entitled to such privileges. 

 

Debt and money are synonymous. Got money; got debt. 

 

It is a mathematical certainty that the debt because of its interest; can never be paid off as a result of "the fractional reserve" system in its core design. Current monetary system design=guaranteed failure passing untold damages to future generations perpetually, until destroyed!     

 

Henry Ford understood these things, and members here should open up their minds as well. Steve Jobs, more than likely, understood these things as well.

 

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

 

Ford was even wiser when he said this, knowing where the population must go if they are ever to be set free from the chains of such "tyranny."

 

"If money is your hope for independence you will never have it. The only real security that a man will have in this world is a reserve of knowledge, experience, and ability." 

 

We live in a Dumbocracy to serve the Elite. It's ingenious what they have created to be consumed by mass idiocy who absorb it on a daily basis through their media controlled boxes wired into their homes. 

 

How many "one percenter's" are in this board, or are delusional enough to believe they will ever be part of such an in crowd? Who would even want to be part of such a self serving, destructive force against humanity!

 

If you're are not "one" percent of them, then you must stand against them, or you are against your own, the 99 percenters!

 

The rich are not stupid, they gave people democracy because they knew it changed nothing. Have you had your head in the sand for so long, that you can't see the change which always remains "The Status Quo"?  If the rich can't be removed from the market for their public greed, corruption, and ill will against society, then the People will never have any power nor freedom. The market retains all of the real power and THEY are the market.

 

Free markets and democracy are all a sham and a scam; a public ILLUSION.

 

 

I dare you all to take the plunge, and free yourselves from the fantasies you share on this board. For true freedom from bondage, catapulted by the necessary "change" in order for real change to occur, will only come about when The People get control of their money supply-without interest-again, and the system converts to a form of "social capitalism" predicated upon "meritocracy" while being applicable "GLOBALLY." That's the ticket to SUCCESS.  ;)     

 

 

http://www.zeitgeistmovie.com/ 

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Bmichaud I just read Mr. Roches MMT page (cringe), and I honestly feel it was a complete waste of time. Mr. Roche spends pages massaging his ego when in fact all hes doing is telling me that the sky is blue and the grass is green. Lets fast forward to the end of his "theory" where he starts to make some sense:

 

 

What’s The Catch? This Sounds Like A Free Lunch

 

So what’s the bogey here? What’s the catch? Because surely you must be asking yourself why this sounds like a free lunch. We can just spend to our hearts content, right? Absolutely not. The bogey here is inflation which is constantly moving up and down with the amount of money in the system based on my tax rate, spending, borrowing, etc.Thus, government cannot just spend and spend and spend or the extra dollars in the system will chase too few goods and drive up prices. It’s important to understand that government cannot just spend recklessly. This is important so I’ll say it again. This does not give the government the ability to spend and spend and spend. If they spend too much and tax too little they can create mal-investment and inflation. Likewise, if the government taxes too much and spends too little they create a government surplus and private sector deficit (by accounting identity). This can result in deflation and/or excess private sector debt levels as the private sector literally suffers a dollar shortage.

 

So after all these paragraphs and mazes and bs talk what does Mr. Roche end his "theory" with? A simple confirmation of everything I just said.

 

That this system encourages too much spending which can ultimately lead to too much inflation and the self propagating circle continues...

 

But here is where Mr. Roche falls short....

 

Why doesn't Mr. Roche mention the cultural and productivity declines that come about from each one of these cycles? How many industries are outsourced every time marginal cost producers are eeked out do the lack of fiscal discipline?

 

Also, You keep mentioning that I believe China is financing our deficit, but that is not the point I am trying to make. I understand just as you do that if China wouldn't buy our debt, the central bank could purchase it with newly printed money. The point that you appear to be having such a tough time getting your mind around is that the system as a whole breeds the type of fallacies we see that contribute towards foreigners to own 1/3 of every USD in existence. It's not just China and it snot just treasuries. When foriegners purchase US real estate or other hard assets they are making it that much harder for the citizenry to re-acquire such assets in the future.

 

Remember, in order to stay competitive the US private sector has had to amass the highest private debt per capita in the world.

 

All these things werent mentioned.

 

I honestly don't understand your hostility, and arrogance when we are basically arguing about the same thing.

 

My tone of discussion whenever we bring this topic up derives from the fact that intellectuals such as yourself and Roche attempt to rationalize whats going on in some complex way while attacking old school Austrians like myself. But in the end what do you accomplish? You just explained to me how all the little chips and lights work on my circuit board? Great, but the problem is still there, and the solution is still the same.

 

Surely if Mr. Roche can understand the problem you can as well?

 

 

 

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I would encourage all who are interested in understanding how the modern monetary system actually functions from a mechanical perspective to A) put aside all prior thinking on the economy with regards to China "funding" our deficit, the potential for hyperinflation due to money "printing", and the USA eventually running into Greek-style funding issues, B) ignore anything Moore has said on the topic, and C) take a month to read anything on pragcap.com regarding how Cullen Roche, Warren Mosler, and other MMT proponents believe the monetary system actually works.

 

After those three steps, come back and reevaluate your prior beliefs and understanding, and revisit Moore's posts.

 

I'm not trying to stir anything up or be combative. This is a healthy debate and it would be much more instructive if most if not all members at least read through the MMT view point, as oppose to Moore dominating the conversation without actually refuting MMT on a point-by-point basis. It's very easy to adhere to the notion of "money printing", hyperinflation and the USA spending its way to a greek-style crisis without actually thinking through mechanically how our monetary system works.

 

Again just reviewed your post and its just plain rude. Did I mention anything about the US entering into a greek style crisis or having funding issues? Did I mention anything about China funding our deficits? NO, I presented 3 solid cases for why printing money is to subsidize deficits is no good longterm. I then proceeded to actually read that BS bloggers 10 page explanation of why 1+1 = 2, and in the end supported my previous post with an almost identical explanation by Mr. Roche.

 

What say you?

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Sorry but you got me started. WTF are Mr. Roche and Mossler trying to achieve.. This is hilarious!

 

1.  In a non-convertible fiat currency system with FX rates, the currency issuer is not constrained in its ability to create money.  As Warren said, the government is merely the scorekeeper and the scorekeeper can’t “run out” of points.

 

2.  Government money doesn’t “come from” anywhere.  Just like the scorekeeper doesn’t “get” points from anywhere.

 

3.  Taxes serve to regulate aggregate demand.  So, it’s best to think of the level of taxation like a themostat.  If taxes are too high the economy will run cold.  If taxes are too low the economy will run hot.  We need to find that optimal level.  We are currently overtaxed.

 

4.  The bogey is not the debt and whether we are going to “run out” of money.  Ie, the government isn’t like a household in that it can go bankrupt.  The bogey is always inflation.  So we must agree on a size of government that is in-line with our goals as a society.

 

5.  So, deficits most certainly DO matter!  They just matter in a way that the mainstream doesn’t propagate.

 

Does anyone else agree that there is absolutely no point to this theory? What does it do explain the mechanics of how the government can print more money and why the government can tax x or y amount of aggregate demand?

 

In the end it confirms everything we say... Where do deficits come from? When governments spend more than they take in, or when private sector consumes more than it produces.. OK WE AGREE THERE.

 

So what happens next..

 

Well under a normal system there would be checks and balances to correct the flaws on both fronts (government and private) but by employing the water down strategy we simply subsidize government excess with newly created money to purchase government bonds and we lower interest rates to encourage capital owners to let go of their hard earned money for no return so the debtors can have a chance at recovering (wealth redistribution) and sometimes we even print money to purchase assets from the private sectors like mortgage bonds or in Japan ETF's.

 

And when we do this what happens?

 

Instead of rolling up our sleeves and correcting the flaws, we get lazier and lazier while our cost of living keeps rising because with each cycle ending there is more money chasing fewer goods (Cullens own words).

 

So where is the argument here Ben?

 

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Bmichaud I just read Mr. Roches MMT page (cringe), and I honestly feel it was a complete waste of time. Mr. Roche spends pages massaging his ego when in fact all hes doing is telling me that the sky is blue and the grass is green. Lets fast forward to the end of his "theory" where he starts to make some sense:

 

 

What’s The Catch? This Sounds Like A Free Lunch

 

So what’s the bogey here? What’s the catch? Because surely you must be asking yourself why this sounds like a free lunch. We can just spend to our hearts content, right? Absolutely not. The bogey here is inflation which is constantly moving up and down with the amount of money in the system based on my tax rate, spending, borrowing, etc.Thus, government cannot just spend and spend and spend or the extra dollars in the system will chase too few goods and drive up prices. It’s important to understand that government cannot just spend recklessly. This is important so I’ll say it again. This does not give the government the ability to spend and spend and spend. If they spend too much and tax too little they can create mal-investment and inflation. Likewise, if the government taxes too much and spends too little they create a government surplus and private sector deficit (by accounting identity). This can result in deflation and/or excess private sector debt levels as the private sector literally suffers a dollar shortage.

 

So after all these paragraphs and mazes and bs talk what does Mr. Roche end his "theory" with? A simple confirmation of everything I just said.

 

That this system encourages too much spending which can ultimately lead to too much inflation and the self propagating circle continues...

 

But here is where Mr. Roche falls short....

 

Why doesn't Mr. Roche mention the cultural and productivity declines that come about from each one of these cycles? How many industries are outsourced every time marginal cost producers are eeked out do the lack of fiscal discipline?

 

Also, You keep mentioning that I believe China is financing our deficit, but that is not the point I am trying to make. I understand just as you do that if China wouldn't buy our debt, the central bank could purchase it with newly printed money. The point that you appear to be having such a tough time getting your mind around is that the system as a whole breeds the type of fallacies we see that contribute towards foreigners to own 1/3 of every USD in existence. It's not just China and it snot just treasuries. When foriegners purchase US real estate or other hard assets they are making it that much harder for the citizenry to re-acquire such assets in the future.

 

Remember, in order to stay competitive the US private sector has had to amass the highest private debt per capita in the world.

 

All these things werent mentioned.

 

I honestly don't understand your hostility, and arrogance when we are basically arguing about the same thing.

 

My tone of discussion whenever we bring this topic up derives from the fact that intellectuals such as yourself and Roche attempt to rationalize whats going on in some complex way while attacking old school Austrians like myself. But in the end what do you accomplish? You just explained to me how all the little chips and lights work on my circuit board? Great, but the problem is still there, and the solution is still the same.

 

Surely if Mr. Roche can understand the problem you can as well?

 

 

The key difference between MMT and Austrian is that MMT believes current deficits are not high enough to the slack in the economy, whereas Austrians believe the current deficit is too high and we are at risk of a hyperinflationary death spiral if we do not cut the deficit sooner rather than later.

 

Yes headline inflation has been uncomfortable over the last three years, but core inflation (whether we like it or not, the best gauge of inflation over time) has been tame and the current 30-year treasury rate has proven quite definitively over the last three years that the USA is A) nowhere close to running into a funding problem, and B) nowhere even close to a hyperinflationary death spiral.

 

I won't even address the "arrogance" and "rude" comments after the abuse anyone with a differing opinion took a month ago on the "what a lovely frickin day....for reducing risk" thread for not swinging a large enough "line" in the market.

 

All I would like is for everyone to take the time to read everything on MMT then step back and look at the bond market action over the past three years for currency USERS (i.e. the eurozone) and currency ISSUERS (i.e. USA and Japan) and reassess the outlook for inflation in the USA and the apparent need to reduce the deficit ASAP.

 

If one reads MMT carefully, you will see that the imbalances you refer to, such as trade imbalances with China, are a natural result of global trade. By definition, for every trade surplus country there MUST be a trade deficit country - i.e. global trade is a zero sum game, unlike your recent comment that global GDP is a zero sum game, which literally makes no sense.

 

I'm not going to continue debating this, because the debate will never end. All I want is for people to take the time to reevaluate how they look at how the economy works then come back and look at the Austrian side, which has been more than substantiated by you on this board (not a bad thing) whereas the MMT theory has not been discussed nearly as much.

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When do you know deficits are high enough? The Austrian approach is to be prudent and avoid deficits in the first place...

 

Do I understand correctly that your MMT view is that we just keep walking on thin ice until it cracks? When do we know deficits are high enough under MMT? When hyperinflation comes? Then what do we do? raise interest rates?

 

All you guys do is explain to me that the sky is blue and grass is green.

 

Also about abuse from myself, I think you are blowing that out of proportion.

 

Did you even listen to this Mosler interview ? LOL

 

http://fetch.noxsolutions.com/schiff/audio/WarrenMosler_111711.mp3

 

Please do me the favour of listening to your idol, the first 10 minutes are spent by Mosler telling Schiff how he doesnt pay US TAX in his thick american accent via an unethical loophole in St. Croix.

 

 

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Again we are saying the same thing here too:

 

i.e. global trade is a zero sum game, unlike your recent comment that global GDP is a zero sum game, which literally makes no sense.

 

That is what I meant as well, the quest for global gdp is a zero sum game IE: not everyone can grow at the same rate it is a competitive process with the victor getting the spoils.

 

Jeez...

 

So now that we agree that global trade is a zero sum game.  Under MMT you guys assume no liability for any shift in competitiveness, when it is obvious that an increasing amount of debt can cripple marginal productivity. It is obvious that the debt was incurred because of a redistribution of wealth, either in the public sector by running deficits to satisfy the lower classes with pork spending, or in the private sector where the reduction in interest rates punishes the savers and rewards the debtors.

 

What in g-ds heck does MMT do? What purpose does it serve?

 

 

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moore_capital54, what are you looking at to suggest a significant relationship between money supply and productivity? Eyeballing a chart of YOY % changes in M1 and of productivity growth doesn't suggest an obvious link.

 

(I tried to post the charts but they don't appear)

http://www.bls.gov/lpc/prodybar.htm

 

 

We do some very cool research and it has been an eye opener.

 

For example, Look at the top 100 largest companies in terms of Market Cap, Profitability, and Sales.

 

Then, take the same list except repeat the exercise with 2009-1990 (Bloomberg users can do this)

 

You will see the amount of US companies continues to decrease year over year, quite drastically.

 

The same goes for the Forbes Billionaire List, notice the amount of US Billionaires has remained the same for nearly a decade, while globally the amount has quadrupled.

 

Private Debt to GDP is another tool, and its very frightening given we are less competitive and have had to incur more debt to be less competitive (IE: Laziness)

 

http://rwer.wordpress.com/2010/12/15/graph-of-the-week-private-debt-to-gdp-ratios-for-usa-and-australia-1920-2010/

 

Obesity Rates as well, the less hard we work and the more we outsource the fatter we all get.

 

It is important to really look at the posters here. I am a 54 nearing 55 year old Money Manager who has seen this cycle come about in a very aggressive way. I run a household and have seen the cost of living rise way in excess of CORE Inflation numbers.

 

And I can connect the dots, I don't know why it sounds so sensational to Ben Michaud. All I am saying is that printing money is bad, and debt is bad because it leads to us printing money,and a fiat system is bad because it allows us to print money whenever we have too much debt, and you guys keep wasting time arguing about metaphors or the technicals of how it all works when in the end your idol the tax cheat Mosler and the Blogger Cullen Roche both agree that deficits are bad because we don't really know when watering them down causes Hyperinflation.

 

Actually, I am quite proud of Germany for not buying into this type of academic BS. But they have had the nasty experience of the Weimar to keep them disciplined.

 

 

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moore_capital54, what are you looking at to suggest a significant relationship between money supply and productivity? Eyeballing a chart of YOY % changes in M1 and of productivity growth doesn't suggest an obvious link.

 

(I tried to post the charts but they don't appear)

http://www.bls.gov/lpc/prodybar.htm

 

 

We do some very cool research and it has been an eye opener.

 

For example, Look at the top 100 largest companies in terms of Market Cap, Profitability, and Sales.

 

Then, take the same list except repeat the exercise with 2009-1990 (Bloomberg users can do this)

 

You will see the amount of US companies continues to decrease year over year, quite drastically.

 

The same goes for the Forbes Billionaire List, notice the amount of US Billionaires has remained the same for nearly a decade, while globally the amount has quadrupled.

 

Private Debt to GDP is another tool, and its very frightening given we are less competitive and have had to incur more debt to be less competitive (IE: Laziness)

 

http://rwer.wordpress.com/2010/12/15/graph-of-the-week-private-debt-to-gdp-ratios-for-usa-and-australia-1920-2010/

 

Obesity Rates as well, the less hard we work and the more we outsource the fatter we all get.

 

It is important to really look at the posters here. I am a 54 nearing 55 year old Money Manager who has seen this cycle come about in a very aggressive way. I run a household and have seen the cost of living rise way in excess of CORE Inflation numbers.

 

And I can connect the dots, I don't know why it sounds so sensational to Ben Michaud. All I am saying is that printing money is bad, and debt is bad because it leads to us printing money,and a fiat system is bad because it allows us to print money whenever we have too much debt, and you guys keep wasting time arguing about metaphors or the technicals of how it all works when in the end your idol the tax cheat Mosler and the Blogger Cullen Roche both agree that deficits are bad because we don't really know when watering them down causes Hyperinflation.

 

Actually, I am quite proud of Germany for not buying into this type of academic BS. But they have had the nasty experience of the Weimar to keep them disciplined.

 

Those stats don't necessarily make the case for a money supply and productivity relationship. Foreign billionaires might represent the misallocation of resources from privatization schemes or flexible economic regimes. Ironically, the rise of foreign companies might show malinvestment as they overpay for expansion. Similarly, high profits might reflect government intervention and/or regional specialization (natural resource boom). Looking at measures like profit margins and sales growth can be misleading indicators of productivity without some way to eliminate other explanations. Labor productivity growth has actually been pretty decent over the last two decades, somewhat mysteriously as factors like IT improvements don't fully explain differentials globally. Going back to the M1 proxy for money supply and non-farm business productivity, there doesn't seem to be a strong statistical relationship.

 

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moore_capital54, what are you looking at to suggest a significant relationship between money supply and productivity? Eyeballing a chart of YOY % changes in M1 and of productivity growth doesn't suggest an obvious link.

 

(I tried to post the charts but they don't appear)

http://www.bls.gov/lpc/prodybar.htm

 

 

We do some very cool research and it has been an eye opener.

 

For example, Look at the top 100 largest companies in terms of Market Cap, Profitability, and Sales.

 

Then, take the same list except repeat the exercise with 2009-1990 (Bloomberg users can do this)

 

You will see the amount of US companies continues to decrease year over year, quite drastically.

 

The same goes for the Forbes Billionaire List, notice the amount of US Billionaires has remained the same for nearly a decade, while globally the amount has quadrupled.

 

Private Debt to GDP is another tool, and its very frightening given we are less competitive and have had to incur more debt to be less competitive (IE: Laziness)

 

http://rwer.wordpress.com/2010/12/15/graph-of-the-week-private-debt-to-gdp-ratios-for-usa-and-australia-1920-2010/

 

Obesity Rates as well, the less hard we work and the more we outsource the fatter we all get.

 

It is important to really look at the posters here. I am a 54 nearing 55 year old Money Manager who has seen this cycle come about in a very aggressive way. I run a household and have seen the cost of living rise way in excess of CORE Inflation numbers.

 

And I can connect the dots, I don't know why it sounds so sensational to Ben Michaud. All I am saying is that printing money is bad, and debt is bad because it leads to us printing money,and a fiat system is bad because it allows us to print money whenever we have too much debt, and you guys keep wasting time arguing about metaphors or the technicals of how it all works when in the end your idol the tax cheat Mosler and the Blogger Cullen Roche both agree that deficits are bad because we don't really know when watering them down causes Hyperinflation.

 

Actually, I am quite proud of Germany for not buying into this type of academic BS. But they have had the nasty experience of the Weimar to keep them disciplined.

 

Those stats don't necessarily make the case for a money supply and productivity relationship. Foreign billionaires might represent the misallocation of resources from privatization schemes or flexible economic regimes. Ironically, the rise of foreign companies might show malinvestment as they overpay for expansion. Similarly, high profits might reflect government intervention and/or regional specialization (natural resource boom). Looking at measures like profit margins and sales growth can be misleading indicators of productivity without some way to eliminate other explanations. Labor productivity growth has actually been pretty decent over the last two decades, somewhat mysteriously as factors like IT improvements don't fully explain differentials globally. Going back to the M1 proxy for money supply and non-farm business productivity, there doesn't seem to be a strong statistical relationship.

 

Not trying to be an ahole but my post provided solid facts and research confirming a trend I have witnessed over the last decade.

 

You spent some time here responding with a bunch of conjecture (might, ifs and maybe's) Why don't you take the time to actually analyse what your saying and see if you have found data to refute the data I presented.

 

Follow the path of least resistance...

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There doesn't seem to be an obvious connection between the facts offered and the conclusion. If you ignore the disconnect between M1 and labor productivity, then I thought that you would present some method to distinguish monetary effects on the factors you mentioned from alternative explanations.

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Moore_Capital54 I read nearly all of your posts because I think you have some intelligent things to say and I agree what some of your beliefs.

 

I am a bit confused on some of these points you bring up.  At school I am engaged with a lot of foreign exchange students (Business school) and I am not at all impressed with most of their work ethic.  This is not a result of language barriers as most of fluent.

 

I don't know if I would say North America has gotten lazy at all.  We work more hours than our counterparts elsewhere.  The outsourcing is due to the fact that globalization has made it more profitable for companies to pay the lower wage countries to do the work.  That seems like the major driver of this movement.  We take on the debt as a result of globalization than to maintain a lazy lifestyle.  The unskilled worker just doesn't have a job here for the most part. 

 

It might be harsh but if we want free trade we just have to accept that we are spreading wealth across the world, making it hard for our own unskilled labor to live. 

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Mr. Roche should listen to more of what Ron Paul has written and said before he writes a headline claiming to debunk what Ron Paul says in one context. Few people know as much about economics as Ron Paul.

 

Mr. Roche's argument is also wrong. He describes the system as if we had Gadaffi's and Lincoln's practice of printing debt free money ("Greenbacks" for war spending in Lincoln's case and grants and interest fee loans to the people for housing upon marriage and free schooling and college for all citizens and interest free loans for government infrastructure projects in Gadaffi's case). In our system in addition to money printing causing debt, treasury has to give the Fed debt which taxpayers must repay. So in addition to inflation you also get the Reinhart/Rogoff problem of slow growth when the debt exceeds 90% of GDP or so. High debt to GDP is why US is going to have the same slow growth problem as Greece, Italy and every other country that has had a high debt to GDP ratio.

 

Mr. Roche is also wrong about the effects of austerity. Whether austerity is good or not depends what the money is spent on and what the debt to GDP level is and whether the policy environment promotes growth or not. When spending has a negative multiplier such as the TSA scanners paid for by stimulus monies austerity boosts growth. When debt to GDP ratio is high even spending with a positive multiplier should be deferred unless the multiplier is high enough to cause the GDP ratio to stabilize and decline. Meanwhile, the government should focus on the basics like improving rule of law, speeding up the bankruptcy process, simplifying taxation, improving regulation so the benefits exceed the costs, avoiding wars, seeking peace, making education less expensive, increasing competition, increasing access to capital and protecting private property rights. The spending multiplier on the basics is usually very high. Governments do have a role and they should focus on doing those things that are helpful well.  Improving the policy environment and stopping the stupid will speed the recovery. The recovery will come when private businesses make money. Businesses need to adjust and rid the economy of the bad investments caused by the artificially low interest rates which caused the boom. American businesses are very good at these adjustments so government is lucky in that all they need to do is to get out of the way and look for policies which will help the private sector. Maybe they can find policies like Hitler found the Autobahns or Gaddaffi found the water projects which would have turned Libya back into the breadbasket it used to be when the region supplied most of the wheat used to feed Rome during Roman times.

 

The extremists are the people in power trying to preserve their position and privileges not the people advocating common sense. Perhaps Mr. Rogue is one of the many members of the media establishment that are paid by the ESF to promote a Hegelian dialect so we only see a false choice of stimulus/austerity when the real issue is what the money is spent on and whether the spending choices should change as the GDP to debt ratio changes or whether we should have the ESF/Fed and debt money instead of some other system.

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  • 9 months later...

It is my experience that economic theory (at leas macro) is often aimed to fit a theory to explain some prior event and then test the "fit" with some econometric analysis. What I truly like about the Austrian school is (1) its emphasis of not knowing better (let the market decide) and (2) always be aware of perverse incentives. When I look at MMT discussion being cited on the thread, it just (1) seems risky (as Moore points out, when do you know when the deficit is to big? When it is to late? In that case your passing the bill to your children) and (2) it is only applicable in a leading economy with a strong currency (if the economy is to small a major risk would be a sudden stop situation).

 

Deficits, come about when we spend more than we take in, both on a governmental level (budget deficits) and on a private level (trade deficits). When we print money to subsidize these structural flaws, there are three ways we get screwed down the line.

 

1) Our productivity goes down as our debt load rises.

 

Moore, I am a bit confused by you connecting productivity and debt. As I see it, you could for example increase productivity by adding debt and reducing labor. Perhaps you are talking about household debt? Could you please elaborate?

 

 

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It is my experience that economic theory (at leas macro) is often aimed to fit a theory to explain some prior event and then test the "fit" with some econometric analysis. What I truly like about the Austrian school is (1) its emphasis of not knowing better (let the market decide) and (2) always be aware of perverse incentives. When I look at MMT discussion being cited on the thread, it just (1) seems risky (as Moore points out, when do you know when the deficit is to big? When it is to late? In that case your passing the bill to your children) and (2) it is only applicable in a leading economy with a strong currency (if the economy is to small a major risk would be a sudden stop situation).

 

Deficits, come about when we spend more than we take in, both on a governmental level (budget deficits) and on a private level (trade deficits). When we print money to subsidize these structural flaws, there are three ways we get screwed down the line.

 

1) Our productivity goes down as our debt load rises.

 

Moore, I am a bit confused by you connecting productivity and debt. As I see it, you could for example increase productivity by adding debt and reducing labor. Perhaps you are talking about household debt? Could you please elaborate?

 

Consider the incentives to be unproductive when the government gets involved.  For example, the first stimulus money made available to my state was directed to the university system so that the professors and other staff didn't have to forgo scheduled raises or face layoffs.  This meant that the producers in the private sector in a small way had to suffer cutbacks disproportionately.

 

That 's one little cut to the productive part of GDP.  Add up a thousand cuts, and the economy is dragged down in a meaningful way.  Multiply even more those cuts in productive enterprise squeezed out by subsidized non productive activity, and you have got the whole economy like a government work crew where one man digs a ditch while five other men paid directly or indirectly by the government sit around smoking cigarettes and  criticize the guy doing all the work.

 

Government debt works the same way for as long as investors will buy it.  It subsidizes all the unproductive things the government does.

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I've read BMI's MMT online website, but I would like to round out a bit.  Could the kind people of the board on both sides point out some best in class reading material?  Particularly, the Austrian side, but more reading on the MMT side is also appreciated.

 

Thanks!

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I've read BMI's MMT online website, but I would like to round out a bit.  Could the kind people of the board on both sides point out some best in class reading material?  Particularly, the Austrian side, but more reading on the MMT side is also appreciated.

 

Thanks!

 

Re: MMT

 

MMT Primer - http://neweconomicperspectives.org/p/modern-monetary-theory-primer.html

 

Modern Money and Public Purpose - http://www.modernmoneyandpublicpurpose.com/schedule.html (starts next week)

 

7 Deadly Innocent Frauds - http://moslereconomics.com/2009/12/10/7-deadly-innocent-frauds

 

Soft Currency Economics - http://www.moslereconomics.com/mandatory-readings/soft-currency-economics

 

 

 

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It is my experience that economic theory (at leas macro) is often aimed to fit a theory to explain some prior event and then test the "fit" with some econometric analysis. What I truly like about the Austrian school is (1) its emphasis of not knowing better (let the market decide) and (2) always be aware of perverse incentives. When I look at MMT discussion being cited on the thread, it just (1) seems risky (as Moore points out, when do you know when the deficit is to big? When it is to late? In that case your passing the bill to your children) and (2) it is only applicable in a leading economy with a strong currency (if the economy is to small a major risk would be a sudden stop situation).

 

Deficits, come about when we spend more than we take in, both on a governmental level (budget deficits) and on a private level (trade deficits). When we print money to subsidize these structural flaws, there are three ways we get screwed down the line.

 

1) Our productivity goes down as our debt load rises.

 

Moore, I am a bit confused by you connecting productivity and debt. As I see it, you could for example increase productivity by adding debt and reducing labor. Perhaps you are talking about household debt? Could you please elaborate?

 

Consider the incentives to be unproductive when the government gets involved.  For example, the first stimulus money made available to my state was directed to the university system so that the professors and other staff didn't have to forgo scheduled raises or face layoffs.  This meant that the producers in the private sector in a small way had to suffer cutbacks disproportionately.

 

That 's one little cut to the productive part of GDP.  Add up a thousand cuts, and the economy is dragged down in a meaningful way.  Multiply even more those cuts in productive enterprise squeezed out by subsidized non productive activity, and you have got the whole economy like a government work crew where one man digs a ditch while five other men paid directly or indirectly by the government sit around smoking cigarettes and  criticize the guy doing all the work.

 

Government debt works the same way for as long as investors will buy it.  It subsidizes all the unproductive things the government does.

 

How is the private sector forced to cut back disproportionately? If teachers receiving stimulus money turn around and spend that money into the private sector, thus benefiting the private sector, doesn't that then mean the private sector doesn't need to cut back as much as it otherwise would? Either way the deficit puts money into the private sector in aggregate - I'd much rather see the deficit in the form of a lower tax rate for me versus stimulus money for lazy state workers, BUT, either way the state worker or myself turns around and spends that money, thus preventing the private sector from needing to cut back as much as it would otherwise through higher revenue....

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I'm not entirely sure why A) supporting deficits in a deleveraging environment is indicative of being a democrat (which I'm not...and FWIW, Bush ran deficits while Cinton ran a surplus.....PRESIDENTS DO NOT MATTER!!!) and B) why being a democrat would be indicative of my age....

 

It doesnt take more than second grade math to figure out that austerity (i.e. balanced budgets) in a depression is the worst possible medicine, AS EVIDENCED by what Europe is currently experiencing (anyone wonder why Spain's stock market hasn't done anything since March 2009 lows?). Those advocating deficit reduction here and abroad live in la la land - had we not been running massive deficits and printing money since March 2009, you think the stock market would be where it is right now? You think unemployment would be at 8%? You think voters would think Obama had done the right thing by running balanced budgets while the middle class balance sheet was obliterated?

 

This line of thinking has nothing to do with political party affiliation, but a simple understanding that every dollar of public sector deficit is, to the penny, private sector surplus, and that both the public and private sectors CANNOT run surpluses at the same time (again as evidenced by Europe). I've posted Dalio's stuff several times, which is by far the best construct for how to deal with depressions.

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It is my experience that economic theory (at leas macro) is often aimed to fit a theory to explain some prior event and then test the "fit" with some econometric analysis. What I truly like about the Austrian school is (1) its emphasis of not knowing better (let the market decide) and (2) always be aware of perverse incentives. When I look at MMT discussion being cited on the thread, it just (1) seems risky (as Moore points out, when do you know when the deficit is to big? When it is to late? In that case your passing the bill to your children) and (2) it is only applicable in a leading economy with a strong currency (if the economy is to small a major risk would be a sudden stop situation).

 

Deficits, come about when we spend more than we take in, both on a governmental level (budget deficits) and on a private level (trade deficits). When we print money to subsidize these structural flaws, there are three ways we get screwed down the line.

 

1) Our productivity goes down as our debt load rises.

 

Moore, I am a bit confused by you connecting productivity and debt. As I see it, you could for example increase productivity by adding debt and reducing labor. Perhaps you are talking about household debt? Could you please elaborate?

 

Consider the incentives to be unproductive when the government gets involved.  For example, the first stimulus money made available to my state was directed to the university system so that the professors and other staff didn't have to forgo scheduled raises or face layoffs.  This meant that the producers in the private sector in a small way had to suffer cutbacks disproportionately.

 

That 's one little cut to the productive part of GDP.  Add up a thousand cuts, and the economy is dragged down in a meaningful way.  Multiply even more those cuts in productive enterprise squeezed out by subsidized non productive activity, and you have got the whole economy like a government work crew where one man digs a ditch while five other men paid directly or indirectly by the government sit around smoking cigarettes and  criticize the guy doing all the work.

 

Government debt works the same way for as long as investors will buy it.  It subsidizes all the unproductive things the government does.

 

However, the essential functions of government such as protection against people or gangs bashing their neighbors and stealing their property, are not only conducive for prosperity, but essential.  :)

 

How is the private sector forced to cut back disproportionately? If teachers receiving stimulus money turn around and spend that money into the private sector, thus benefiting the private sector, doesn't that then mean the private sector doesn't need to cut back as much as it otherwise would? Either way the deficit puts money into the private sector in aggregate - I'd much rather see the deficit in the form of a lower tax rate for me versus stimulus money for lazy state workers, BUT, either way the state worker or myself turns around and spends that money, thus preventing the private sector from needing to cut back as much as it would otherwise through higher revenue....

 

I'm not against the teaching profession.  A number of close relatives are or have been teachers.  Education engaging motivated students and good teachers can be a highly productive investment for the future.  The point is that government largess will insulate the recipients at the nonproductive margins from entering or moving to other occupations that could be productive.

 

An extreme example of this was the poverty and very low productivity of the disfunctional soviet bloc countries two or three decades ago.  The saying there was, " They pretend to pay us, and we pretend to work." 

 

The fewer people there are in a society doing substantial, productive work, the poorer that society will  become, compared to what it might become, ceteris paribus.

 

However, necessary functions of government such as police to serve and protect us from bashing our neighbors to steal their property and rape their women are not only productive, but essential for prosperity.

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