One of the most pressing questions we all have is ..... "What should we do next??" Isn't that the question that every politician, economist........human being for that matter, is weighing in on in one way or another? No one is really suggesting to do nothing. They may suggest not doing anything different from what we are doing (even though thats impossible) but everyone knows we will do something. The only question is what. So how do we go about figuring this out?
We live in a world that loves data. Data is information. Data gets compiled, analyzed, interpreted and then is used as justification for suggesting a next step. Without the data, a choice of next step would be much more uncertain. How would we know what to do if we have no way of knowing what will happen? How can we know what will happen without analyzing what has happened before?
Of course obtaining this data requires tools that allow us to make measurements. We have to quantify things or else we cant really predict the outcomes of our "what should we do now" questions. We have to know what we have in order to know where we can get to. If I want to get to Los Angeles within 12 hours from Georgia, even the fastest car in the world won't help me. Knowing what we have and the limits of its capacity are crucial to even beginning to suggest a next step. Another word for our capacity is our means. What are we capable of?
I read it somewhere e-v-e-r-y d a y that we have been living "beyond our means" in the past and now we are paying it back and simply must accept current conditions. Its quite a popular refrain from many. But how do they measure what our means were.... or are? How do they know what we were capable of? The only tool they have is financial. Graphs showing debt accumulations to a point (around 2006 or 2007) and then a rapid descent are cited as a eureka moment for our macroeconomy when we finally were shown the error of our previous ways and our now "paying the piper". Of course the unspoken premise here is that our incomes are the measure of our means. But almost none of us determine our incomes. Our incomes are determined by others. Do others get to say what we are capable of?
We need to realize the limits of our measurements. Financial statements do NOT measure our means. Prices in stock markets or any other market are not measurements of capacity. This is easily demonstrated by the fact that if a companies stock value or a stock market as a whole falls to a price approaching zero it does not mean that that company now has no "means" for future growth. Our measurement system is what is flawed. It is capable of measuring a zero value. It can give us, as they say in the medical world, false negatives.
Looking at our past accumulations in financial accounts does not give us any information about what our present means and future capacities are. To assume it does gives too much power to numbers. Numbers which can be manipulated.
I don't buy the "beyond our means" mantra. Not at all. In fact I think we have consistently lived below our capacity. Most every human is not close to doing what they can and in their most optimistic moments, really want to do.
If we are going to use the graphs to castigate the many for living beyond our means we must use the same graphs to castigate the few for living so far below their means. Why isn't Jamie Dimon living up to his capacity? If he would just do more the rest of us wouldn't have to go so beyond our capacity
Monday, September 28, 2015
Monday, June 15, 2015
Austerity.... a "How to" Guide
This started as a comment and I needed more space to flesh this thinking out.
"Austerity to do or not to do? "... has sort of been the academic economists question of the last decade (hard to believe how long its been since the crisis onset). I know everyone has heard the tightening your belts analogy amongst others. The thinking here is that when you have taken on too much debt you need to tighten your belt and spend less..... thereby dedicating more to debt re- payments. All this sounds familiar to anyone in a household, which is everyone even if your household is only one person. All of us know when we have taken on too much credit card or car or mortgage debt we need to stop taking on more debt and use our incomes to pay down what we already accumulated until we get a little more wiggle room in our budgets. Sometimes our best option is to default or declare bankruptcy. For most, bankruptcy is not a desirable place to go.
Anything that puts an individual closer to bankruptcy is bad anything that moves him further away is good. Some austerity policies increase the risk of household sector bankruptcy others decrease it.
In the aftermath of our most recent private debt bubble (notice how I slipped the "private" qualifier in there....... eh!) which took down some major financial institutions and wrecked balance sheets everywhere in the world, our neoliberal overlords have been admonishing us as irresponsible and reckless. They saw it all as the fault of the borrowers, never bothering to see what the other side of the contract had to do with the final terms and conditions. Putting aside the discussion of blame for credit relationships and there ultimate success or failure for just a moment, Id like to next examine the absurdity of some of the recommendations of our thought leaders.
So we have this private credit bubble which threatens banks, households and businesses everywhere (I know banks are businesses too but they should be viewed separately at times because they have a special place in our economies) and there are drops in economic activity everywhere. This leads to falling GDP. At this point all focus (of our thought leaders) is simply on restoring bank balance sheets to health, to hell with household balance sheets. They do this by massive restructuring of debt contracts so that a lot of liabilities of these institutions become liabilities of the Federal govt and its agencies, which ..... ahem..... includes our Central Bank ( a NOT private entity). So massive private debt magically becomes.................... massive public debt!! Next, in quite short order, we get cries about rising and unsustainable public debt, from many of the same people who orchestrated the private debt to public debt alchemy described above. I should probably note that I am at present okay with the alchemy described above ( I was NOT then but was quite ignorant of economic matters in 2007) because I know that it, it being the transfer from private to public balance sheets, was the right thing to do. Its how one can stabilize banking systems when you have a currency you control. Thats how sovereign countries are supposed to function. Its actually quite a Keynesian concept.
However, to do this and then cry about rising public debts is the classic example of the kid charged with murdering his parents pleading for the courts mercy on grounds he IS an orphan. Of course the response to these cries of rising public debt is to cut govt spending/deficits so we can stop the rise of govt debts. This is the austerity that is being recommended. These cuts are in the form of reduced transfer payments and cutting public sector pay and public sector positions. All these recommendations increase the risk of bankruptcy for the household sector. So not only do these recommendations define chutzpah, as in the case of murderous orphan, they also define ignorance; "We are dismayed by all the households who can no longer pay their mortgages and credit cards as it has caused great stress to our banking system. We will respond by doing what is necessary to relieve the banks stress but we will ask millions more Americans to get closer to bankruptcy by cutting incomes until you have become responsible enough borrowers..... TINA!!" This is bad austerity, stupid austerity, austerity imposed by someone seeking retribution.
Now lets look at good austerity. We should look at differences between how the US and the Euro area have responded to these crises, and how the austerity pushes and responses have been. Countries within the Euro are not like the US. They didn't have individual control of their balance sheets because they share balance sheets to a degree with every other Euro user. This sharing is reflected only in the ECB balance sheets but it is there. But lets talk about how two countries , Greece and Iceland, have managed the crisis differently and what "austerity" means to both. Iceland left the Euro soon after the crisis. They went back to their own currency and restarted. This was certainly a drop from their previous standard of living, but Icelanders were not in a position to have to listen to Germans or Americans demanding a lay off of their librarians and a cut to pensions by 30% or whatever. They suffered and accepted their lowered living standards (without large job losses) and learned to live with less..... temporarily in many cases but even in other cases the lower living standards were dealt with voluntarily and with a reforming of priorities, which is all healthy.
Greece on the other hand has had to listen to their task masters for seven long years. Europe did the same thing as USA at first. Each countries branch of the ECB took on the household debts that were blowing up the private banks balance sheets (most of them German French or British banks BTW) which resulted in massive expansion of each countries public debt ratios. Of course the response was the same as here, the same as that murderous orphan. "Look at what you did now you lazy Greeks! You expanded your public balance sheets to take on bad household debt held by banks (as we told you to do)and now your public debt is sky high!!!! Cut your public wages and spending or our investors won't hold any of your shaky debt!!" The absurdity of it all really hurts
Greece is still being asked to cut more even though they have cut massively. The cuts have not resulted in a better economy by any definition of the word and there is a real possibility they will follow Iceland and simply restructure in a new currency. Only then will they be able to do good austerity. There is no good austerity imposed on you by others. Its never enough. They always want more. They want more because the first round doesn't give them the increase in their incomes they were wanting form YOUR austerity. They are playing a zero sum game. They fear their own incomes falling so they want to take a little from a lot of people. When those gains don't materialize, because austerity leads to less spending/incomes for many, they go back and ask for more.... and more..... and more.
Good austerity is self generated, coming from a place of reflection on wants vs needs. You do things under these conditions which make you less likely to default or go bankrupt. Bad austerity is imposed on you by some authority deciding you need to pay for something, even if it was something you didn't do. These things put you closer to bankruptcy. Oddly enough putting more households closer to bankruptcy seems to be THE POINT of our current cries for austerity out of our leaders. That is why they should be fought...... by the banks as well.
"Austerity to do or not to do? "... has sort of been the academic economists question of the last decade (hard to believe how long its been since the crisis onset). I know everyone has heard the tightening your belts analogy amongst others. The thinking here is that when you have taken on too much debt you need to tighten your belt and spend less..... thereby dedicating more to debt re- payments. All this sounds familiar to anyone in a household, which is everyone even if your household is only one person. All of us know when we have taken on too much credit card or car or mortgage debt we need to stop taking on more debt and use our incomes to pay down what we already accumulated until we get a little more wiggle room in our budgets. Sometimes our best option is to default or declare bankruptcy. For most, bankruptcy is not a desirable place to go.
Anything that puts an individual closer to bankruptcy is bad anything that moves him further away is good. Some austerity policies increase the risk of household sector bankruptcy others decrease it.
In the aftermath of our most recent private debt bubble (notice how I slipped the "private" qualifier in there....... eh!) which took down some major financial institutions and wrecked balance sheets everywhere in the world, our neoliberal overlords have been admonishing us as irresponsible and reckless. They saw it all as the fault of the borrowers, never bothering to see what the other side of the contract had to do with the final terms and conditions. Putting aside the discussion of blame for credit relationships and there ultimate success or failure for just a moment, Id like to next examine the absurdity of some of the recommendations of our thought leaders.
So we have this private credit bubble which threatens banks, households and businesses everywhere (I know banks are businesses too but they should be viewed separately at times because they have a special place in our economies) and there are drops in economic activity everywhere. This leads to falling GDP. At this point all focus (of our thought leaders) is simply on restoring bank balance sheets to health, to hell with household balance sheets. They do this by massive restructuring of debt contracts so that a lot of liabilities of these institutions become liabilities of the Federal govt and its agencies, which ..... ahem..... includes our Central Bank ( a NOT private entity). So massive private debt magically becomes.................... massive public debt!! Next, in quite short order, we get cries about rising and unsustainable public debt, from many of the same people who orchestrated the private debt to public debt alchemy described above. I should probably note that I am at present okay with the alchemy described above ( I was NOT then but was quite ignorant of economic matters in 2007) because I know that it, it being the transfer from private to public balance sheets, was the right thing to do. Its how one can stabilize banking systems when you have a currency you control. Thats how sovereign countries are supposed to function. Its actually quite a Keynesian concept.
However, to do this and then cry about rising public debts is the classic example of the kid charged with murdering his parents pleading for the courts mercy on grounds he IS an orphan. Of course the response to these cries of rising public debt is to cut govt spending/deficits so we can stop the rise of govt debts. This is the austerity that is being recommended. These cuts are in the form of reduced transfer payments and cutting public sector pay and public sector positions. All these recommendations increase the risk of bankruptcy for the household sector. So not only do these recommendations define chutzpah, as in the case of murderous orphan, they also define ignorance; "We are dismayed by all the households who can no longer pay their mortgages and credit cards as it has caused great stress to our banking system. We will respond by doing what is necessary to relieve the banks stress but we will ask millions more Americans to get closer to bankruptcy by cutting incomes until you have become responsible enough borrowers..... TINA!!" This is bad austerity, stupid austerity, austerity imposed by someone seeking retribution.
Now lets look at good austerity. We should look at differences between how the US and the Euro area have responded to these crises, and how the austerity pushes and responses have been. Countries within the Euro are not like the US. They didn't have individual control of their balance sheets because they share balance sheets to a degree with every other Euro user. This sharing is reflected only in the ECB balance sheets but it is there. But lets talk about how two countries , Greece and Iceland, have managed the crisis differently and what "austerity" means to both. Iceland left the Euro soon after the crisis. They went back to their own currency and restarted. This was certainly a drop from their previous standard of living, but Icelanders were not in a position to have to listen to Germans or Americans demanding a lay off of their librarians and a cut to pensions by 30% or whatever. They suffered and accepted their lowered living standards (without large job losses) and learned to live with less..... temporarily in many cases but even in other cases the lower living standards were dealt with voluntarily and with a reforming of priorities, which is all healthy.
Greece on the other hand has had to listen to their task masters for seven long years. Europe did the same thing as USA at first. Each countries branch of the ECB took on the household debts that were blowing up the private banks balance sheets (most of them German French or British banks BTW) which resulted in massive expansion of each countries public debt ratios. Of course the response was the same as here, the same as that murderous orphan. "Look at what you did now you lazy Greeks! You expanded your public balance sheets to take on bad household debt held by banks (as we told you to do)and now your public debt is sky high!!!! Cut your public wages and spending or our investors won't hold any of your shaky debt!!" The absurdity of it all really hurts
Greece is still being asked to cut more even though they have cut massively. The cuts have not resulted in a better economy by any definition of the word and there is a real possibility they will follow Iceland and simply restructure in a new currency. Only then will they be able to do good austerity. There is no good austerity imposed on you by others. Its never enough. They always want more. They want more because the first round doesn't give them the increase in their incomes they were wanting form YOUR austerity. They are playing a zero sum game. They fear their own incomes falling so they want to take a little from a lot of people. When those gains don't materialize, because austerity leads to less spending/incomes for many, they go back and ask for more.... and more..... and more.
Good austerity is self generated, coming from a place of reflection on wants vs needs. You do things under these conditions which make you less likely to default or go bankrupt. Bad austerity is imposed on you by some authority deciding you need to pay for something, even if it was something you didn't do. These things put you closer to bankruptcy. Oddly enough putting more households closer to bankruptcy seems to be THE POINT of our current cries for austerity out of our leaders. That is why they should be fought...... by the banks as well.
Thursday, November 27, 2014
If He Could Just Throw a Football.......
Michael Brown was murdered by a racist cop. In defense of the cops actions it was pointed out that Michael Brown was involved in a robbery where he stole a cigar worth less than 5 bucks. This was supposed to make us understand how dangerous Michael was and urge us to sympathize with his killer. He was obviously a thug.
Jameis Winston is a football player at FSU. He stole crab legs, valued by some as around 80$, from a Publix in Tallahassee while leading the Seminoles to a possible (at the time) BCS Championship game appearance. FSU people (from maybe the most racist state in the country) urged us to have sympathy for the kid. They decried those wanting a suspension as over reacting to a minor infraction.
The "You wanna ruin this kids life over an 80$ mistake???" cry from the FSU faithful was deafening. Winston had already been charged with a sexual assault prior to this incident, but he was a Heisman candidate bringing in millions to the good ole boys in the Florida panhandle.
Learn to throw a tight spiral little black boys.
Jameis Winston is a football player at FSU. He stole crab legs, valued by some as around 80$, from a Publix in Tallahassee while leading the Seminoles to a possible (at the time) BCS Championship game appearance. FSU people (from maybe the most racist state in the country) urged us to have sympathy for the kid. They decried those wanting a suspension as over reacting to a minor infraction.
The "You wanna ruin this kids life over an 80$ mistake???" cry from the FSU faithful was deafening. Winston had already been charged with a sexual assault prior to this incident, but he was a Heisman candidate bringing in millions to the good ole boys in the Florida panhandle.
Learn to throw a tight spiral little black boys.
Friday, August 8, 2014
I'll Definitely Need a Shower
Continuing on my non economics posts I do something I never thought Id do; read an Ann Coulter column and find MUCH to agree with! I try to avoid reading Ann since she rarely does real analysis. She simply peruses a situation, finds the inevitable easy target of her ire, snarkily points out to us how this situation was only caused because the world inhabited by the subject has become too liberal and thus was completely avoidable with the right ideology. You are encouraged to have zero empathy for the left wing poisoned rube, just contempt or at best exasperation. "That idiot should have known!!" is the unstated opinion. Throw in a little godless "evil" and you have the Ann Coulter recipe for a critique column.
I decided to read her because while at work last night (I can blame it on the fatigue we health care workers feel from time to time near the end of a long call) a coworker brought up Ebola and suggested to all that we read Anns take on the issue. Knowing how this guy rolls and Anns modus operandi I initially thought "Yeah right! That will be the LAST person I read on this" but my curiosity got the best of me. I read the column this morning.
I can honestly say that Ann and I were very close to having similar views on a couple things. That either makes her more intelligent than I thought ........ or myself much dumber, likely the latter. I think the focus of her criticism is valid, I just think she blames the wrong things for it.
I want to reprint her column and interject my comments where I think she goes off the rails. My comments will be in bold;
EBOLA DOC'S CONDITION DOWNGRADED TO IDIOTIC
"I wonder how the Ebola doctor feels now that his humanitarian trip has cost a Christian charity much more than any services he rendered.
What was the point?
There's little danger of an Ebola plague breaking loose from the treatment of these two Americans at the Emory University Hospital. But why do we have to deal with this at all?
Why did Dr. Brantly have to go to Africa? The very first "risk factor" listed by the Mayo Clinic for Ebola -- an incurable disease with a 90 percent fatality rate -- is: "Travel to Africa."
Can't anyone serve Christ in America anymore?
If he had provided health care for the uninsured editors, writers, videographers and pundits in Gotham and managed to open one set of eyes, he would have done more good than marinating himself in medieval diseases of the Third World.
I have to finish with a disagreement and agreement They are not aces at sacrifice. Most American Christians are sacrificing nothing. They are hands down THE wealthiest demographic on the planet.... and I am part of them. We think we are sacrificing when we pay our taxes and bitch about the guy in the trailer "having some skin in the game". His entire body is in the game. We put a toe or an elbow and claim we have given up everything
But yes we should very annoyed at Christian narcissism........ look in the mirror Ann and you'll find some.
I decided to read her because while at work last night (I can blame it on the fatigue we health care workers feel from time to time near the end of a long call) a coworker brought up Ebola and suggested to all that we read Anns take on the issue. Knowing how this guy rolls and Anns modus operandi I initially thought "Yeah right! That will be the LAST person I read on this" but my curiosity got the best of me. I read the column this morning.
I can honestly say that Ann and I were very close to having similar views on a couple things. That either makes her more intelligent than I thought ........ or myself much dumber, likely the latter. I think the focus of her criticism is valid, I just think she blames the wrong things for it.
I want to reprint her column and interject my comments where I think she goes off the rails. My comments will be in bold;
EBOLA DOC'S CONDITION DOWNGRADED TO IDIOTIC
"I wonder how the Ebola doctor feels now that his humanitarian trip has cost a Christian charity much more than any services he rendered.
What was the point?
Whatever good Dr. Kent Brantly did in Liberia has now been overwhelmed by the more than $2 million already paid by the Christian charities Samaritan's Purse and SIM USA just to fly him and his nurse home in separate Gulfstream jets, specially equipped with medical tents, and to care for them at one of America's premier hospitals. (This trip may be the first real-world demonstration of the economics of Obamacare.)
So you start off by trying to make the guy feel guilty for doing something his "faith" is telling him is the right thing to do. Thing is its not just HIS faith. The overwhelming majority of people think that physicians going to third world countries in efforts to improve living conditions with very simple acts (we aren't talking about doing complicated heart or brain surgery) is one of THE most selfless and honorable things to do. The ONLY way you can reduce it to some absurdity is by bringing in some financial cost element, which was incomplete btw because you made no attempt to put a number to what his efforts may have been worth. Of course there is no way to value the work those people do which is why we don't have private funding of it, they can't figure their "profit margins". So just rattle off a number with 6 zeros after it and declare it an automatic loss. And a mention of Obamacare within the first 100 words!! Good job Brownie! Hook em early and and get the cheap laughs Ann!
There's little danger of an Ebola plague breaking loose from the treatment of these two Americans at the Emory University Hospital. But why do we have to deal with this at all?
Why did Dr. Brantly have to go to Africa? The very first "risk factor" listed by the Mayo Clinic for Ebola -- an incurable disease with a 90 percent fatality rate -- is: "Travel to Africa."
Can't anyone serve Christ in America anymore?
These are actually all valid points. Thank you for at least not buying into the hysteria of an Ebola plague outbreak. As a member of a Baptist church that does international missions (as well as local) I think we send way too many rosy cheeked and pollyannaish people off to these foreign lands with little clue how much danger we are sending them to. As someone who has been to a couple places and been around a missional church I have a different take as to the source of this trend though.
Within Southern Baptist faith you have the SBC (conservative) and CBF (less conservative).
The churches have money (and our tax laws really encourage church goers to give.... not bad in and of itself) and like to spend it on big things like trips to Africa, India, Romania.....
The youth get all amped up and its a working vacation/summer trip complete with T shirts and local missions are secondary, they do not have the wow factor. The SBC has a huge international presence and much of its work is in simply trying to find converts. The international poor are less savvy than the American poor so they can be rounded up, have huge revivals where many get converted and the trip is a success. Its hard to do that here, because 1) many of our needy are already part of a church and don't want to hear your conversion speech or 2) they were part of a church and now reject religion (especially from privileged white kids) for good reason
No -- because we're doing just fine. America, the most powerful, influential nation on Earth, is merely in a pitched battle for its soul.
About 15,000 people are murdered in the U.S. every year. More than 38,000 die of drug overdoses, half of them from prescription drugs. More than 40 percent of babies are born out of wedlock. Despite the runaway success of "midnight basketball," a healthy chunk of those children go on to murder other children, rape grandmothers, bury little girls alive -- and then eat a sandwich. A power-mad president has thrown approximately 10 percent of all Americans off their health insurance -- the rest of you to come! All our elite cultural institutions laugh at virginity and celebrate promiscuity.
So no, there's nothing for a Christian to do here.
No -- because we're doing just fine. America, the most powerful, influential nation on Earth, is merely in a pitched battle for its soul.
About 15,000 people are murdered in the U.S. every year. More than 38,000 die of drug overdoses, half of them from prescription drugs. More than 40 percent of babies are born out of wedlock. Despite the runaway success of "midnight basketball," a healthy chunk of those children go on to murder other children, rape grandmothers, bury little girls alive -- and then eat a sandwich. A power-mad president has thrown approximately 10 percent of all Americans off their health insurance -- the rest of you to come! All our elite cultural institutions laugh at virginity and celebrate promiscuity.
So no, there's nothing for a Christian to do here.
Wrong! There is plenty to do.... they just don't want to do it since its not as sexy and being a true ambassador for Christ is really hard work. You don't get the converts every day. You don't get to chalk up a win every time you go to meet some recently homeless person where they are, instead of where you would like them to be. See, modern conservative Christians are capitalists in mindset and its killing Christs work. They make the investments in Africa, Asia East Europe where there aren't many Christians and can offer a little something for two weeks to these people, get them to say "Yes, I take Jesus Christ as my lord and savior" and leave, feeling like they got big returns on their investment. Here, they go to a place where the needy are and they might get slapped if they try and get them to recite something as they get their favor, so they don't make the investment. The only return they seek is a pledge by a desperate person. Of course American poor aren't as desperate as those other places (which really chaps the ass of Coulterites) thanks to many of our New Deal and Great Society programs.
If Dr. Brantly had practiced at Cedars-Sinai hospital in Los Angeles and turned one single Hollywood power-broker to Christ, he would have done more good for the entire world than anything he could accomplish in a century spent in Liberia. Ebola kills only the body; the virus of spiritual bankruptcy and moral decadence spread by so many Hollywood movies infects the world.
If Dr. Brantly had practiced at Cedars-Sinai hospital in Los Angeles and turned one single Hollywood power-broker to Christ, he would have done more good for the entire world than anything he could accomplish in a century spent in Liberia. Ebola kills only the body; the virus of spiritual bankruptcy and moral decadence spread by so many Hollywood movies infects the world.
If he had provided health care for the uninsured editors, writers, videographers and pundits in Gotham and managed to open one set of eyes, he would have done more good than marinating himself in medieval diseases of the Third World.
Ahhhh, so its the rich that need conversion!! On this I would heartily agree Ann but remember who is the party of the rich. Its not just Hollywood that needs saving, banks, energy company CEOs and health insurance behemoths could use a dose of Christ as well. I wonder why you don't include any of them?
And.... Im curious Ann, what good is converting a power broker form Hollywood to Christ? Is it so they will produce more movies like "God is Not Dead" that use the absolute worst traits of various atheists and roll them into one villain "professor" at a liberal university.
BTW, what is a medieval disease and why is it less worthy of study than some modern one like human induced MRSA or VRE?
Of course, if Brantly had evangelized in New York City or Los Angeles, The New York Times would get upset and accuse him of anti-Semitism, until he swore -- as the pope did -- that you don't have to be a Christian to go to heaven. Evangelize in Liberia, and the Times' Nicholas Kristof will be totally impressed.
Which explains why American Christians go on "mission trips" to disease-ridden cesspools. They're tired of fighting the culture war in the U.S., tired of being called homophobes, racists, sexists and bigots. So they slink off to Third World countries, away from American culture to do good works, forgetting that the first rule of life on a riverbank is that any good that one attempts downstream is quickly overtaken by what happens upstream.
Actually Ann your "explanation" is pretty pathetic. How can conservative Christians be tired of fighting a culture war THEY invented!? Its not the left that makes these issues a ballot initiative. If your tired of being called racist, homophobic, bigoted and sexist maybe you could clue your guys into trying to actually talk about something other than how to deport millions of immigrants, how to keep women from using contraception, that gay is a communicable disease and the "unAmericanism" of the president. We all know the code Ann.... just saying unAmerican doesn't change what is driving you nuts..... taking orders from a black guy!
America is the most consequential nation on Earth, and in desperate need of God at the moment. If America falls, it will be a thousand years of darkness for the entire planet.
Not only that, but it's our country. Your country is like your family. We're supposed to take care of our own first. The same Bible that commands us to "go ye into all the world and preach the Gospel" also says: "For there will never cease to be poor in the land. Therefore I command you, 'You shall open wide your hand to your brother, to the needy and to the poor, in your land.'"
Of course, if Brantly had evangelized in New York City or Los Angeles, The New York Times would get upset and accuse him of anti-Semitism, until he swore -- as the pope did -- that you don't have to be a Christian to go to heaven. Evangelize in Liberia, and the Times' Nicholas Kristof will be totally impressed.
Which explains why American Christians go on "mission trips" to disease-ridden cesspools. They're tired of fighting the culture war in the U.S., tired of being called homophobes, racists, sexists and bigots. So they slink off to Third World countries, away from American culture to do good works, forgetting that the first rule of life on a riverbank is that any good that one attempts downstream is quickly overtaken by what happens upstream.
Actually Ann your "explanation" is pretty pathetic. How can conservative Christians be tired of fighting a culture war THEY invented!? Its not the left that makes these issues a ballot initiative. If your tired of being called racist, homophobic, bigoted and sexist maybe you could clue your guys into trying to actually talk about something other than how to deport millions of immigrants, how to keep women from using contraception, that gay is a communicable disease and the "unAmericanism" of the president. We all know the code Ann.... just saying unAmerican doesn't change what is driving you nuts..... taking orders from a black guy!
America is the most consequential nation on Earth, and in desperate need of God at the moment. If America falls, it will be a thousand years of darkness for the entire planet.
Not only that, but it's our country. Your country is like your family. We're supposed to take care of our own first. The same Bible that commands us to "go ye into all the world and preach the Gospel" also says: "For there will never cease to be poor in the land. Therefore I command you, 'You shall open wide your hand to your brother, to the needy and to the poor, in your land.'"
To your last sentence Ill just add ... "Only if they admit to Christ as their lord and savior"
Right there in Texas, near where Dr. Brantly left his wife and children to fly to Liberia and get Ebola, is one of the poorest counties in the nation, Zavala County -- where he wouldn't have risked making his wife a widow and his children fatherless.
But serving the needy in some deadbeat town in Texas wouldn't have been "heroic." We wouldn't hear all the superlatives about Dr. Brantly's "unusual drive to help the less fortunate" or his membership in the "Gold Humanism Honor Society." Leaving his family behind in Texas to help the poor 6,000 miles away -- that's the ticket.
Right there in Texas, near where Dr. Brantly left his wife and children to fly to Liberia and get Ebola, is one of the poorest counties in the nation, Zavala County -- where he wouldn't have risked making his wife a widow and his children fatherless.
But serving the needy in some deadbeat town in Texas wouldn't have been "heroic." We wouldn't hear all the superlatives about Dr. Brantly's "unusual drive to help the less fortunate" or his membership in the "Gold Humanism Honor Society." Leaving his family behind in Texas to help the poor 6,000 miles away -- that's the ticket.
You are right, I made a similar point earlier. Glad we can agree.
Today's Christians are aces at sacrifice, amazing at serving others, but strangely timid for people who have been given eternal life. They need to buck up, serve their own country, and remind themselves every day of Christ's words: "If the world hates you, know that it has hated me before it hated you."
There may be no reason for panic about the Ebola doctor, but there is reason for annoyance at Christian narcissism.
Today's Christians are aces at sacrifice, amazing at serving others, but strangely timid for people who have been given eternal life. They need to buck up, serve their own country, and remind themselves every day of Christ's words: "If the world hates you, know that it has hated me before it hated you."
There may be no reason for panic about the Ebola doctor, but there is reason for annoyance at Christian narcissism.
I have to finish with a disagreement and agreement They are not aces at sacrifice. Most American Christians are sacrificing nothing. They are hands down THE wealthiest demographic on the planet.... and I am part of them. We think we are sacrificing when we pay our taxes and bitch about the guy in the trailer "having some skin in the game". His entire body is in the game. We put a toe or an elbow and claim we have given up everything
But yes we should very annoyed at Christian narcissism........ look in the mirror Ann and you'll find some.
Wednesday, July 16, 2014
Something Besides Economics?
Having been preoccupied with economics and monetary matters for the better part of four years now, I am going to post on something I actually intended to say a lot about when I first imagined my blog....... religion. My interest in religion is mostly in how bad a job most religion does in actually helping people with their big questions in life.
Religion has become just another sports team for people to blindly support and defend. Few actually think about what any of their "sacred" texts say and how they may have been edited over the years to say what they say. The assumptions of all religions are that their baseline facts are the right ones to start with, not the other guys'. Religions all operate with a "model" in mind and their recommendations follow from there. As I finish these first two paragraphs I am struck by how I could just as easily substitute the word economics or economists for religion and not have to change any other words. Its all a belief system and Ive grown weary of economists and HOW they go about defending their belief systems. They are not seeking truth, they just want to win. Many Pastors and Priests are the same way.
In an Alternet article, http://www.alternet.org/belief/how-non-believers-can-counter-annoying-religious-dogma-life-without-god-meaningless, the author makes a very interesting statement;
"I don't have a sacred text, or beliefs that I wish to place beyond challenge or mockery. None of my positions are beyond argument. I will change them, if persuaded. My dislike of dogma and my respect (as opposed to "respect") for rational debate doesn't make me weak. Indeed, I hold that the very contingency of my positions are at the core of their ethical force. If you can't point to a line in a book, or the dictates of a religious hierarchy to justify your opinions, then you have to own them yourself. You are fully responsible, and that is, in its own way, as radical and disruptive as submitting to the will of the divine."
The part about owning your own statements and not hiding them behind some line in a text word of some dead "authority" is an important one I think. I hear too many "Christians" say and do reprehensible things and then try and dismiss themselves from responsibility by saying "Its not me saying this, its Revelations 2:16 5-9" As if to add, "... just take it up with that dead author if you don't like it."
I cannot call myself atheist, I am more of a comfortable agnostic. I have no wish to be certain one way or the other. I know there will be no proof either way in my lifetime.... or ever. "Proof" comes from humans....... fallible humans, so we will never prove or disprove a God. I like having these questions to ask, I just despise the way most people want to actually discuss their answers. I will be happy moving in many directions on this issue as my life unfolds. When I see most of the staged debates between atheists and Christians however, I do find myself siding with the atheists most of the time. I just think too many Christians, humans for that matter, are really uncomfortable with uncertainty and end making all kinds of ridiculous systems to convince themselves there is something that they can be certain about that isn't death or taxes.
I know and have met some of the best people around at my church or surrounding church activities. There are many religiously motivated authors or speakers I get great joy in reading or hearing. Religion has motivated many people to do outstanding things but as an institution I think religion is a negative force. It is not uniting people it is reinforcing divisions.
Wow, I guess I did end up talking about economics after all.
Religion has become just another sports team for people to blindly support and defend. Few actually think about what any of their "sacred" texts say and how they may have been edited over the years to say what they say. The assumptions of all religions are that their baseline facts are the right ones to start with, not the other guys'. Religions all operate with a "model" in mind and their recommendations follow from there. As I finish these first two paragraphs I am struck by how I could just as easily substitute the word economics or economists for religion and not have to change any other words. Its all a belief system and Ive grown weary of economists and HOW they go about defending their belief systems. They are not seeking truth, they just want to win. Many Pastors and Priests are the same way.
In an Alternet article, http://www.alternet.org/belief/how-non-believers-can-counter-annoying-religious-dogma-life-without-god-meaningless, the author makes a very interesting statement;
"I don't have a sacred text, or beliefs that I wish to place beyond challenge or mockery. None of my positions are beyond argument. I will change them, if persuaded. My dislike of dogma and my respect (as opposed to "respect") for rational debate doesn't make me weak. Indeed, I hold that the very contingency of my positions are at the core of their ethical force. If you can't point to a line in a book, or the dictates of a religious hierarchy to justify your opinions, then you have to own them yourself. You are fully responsible, and that is, in its own way, as radical and disruptive as submitting to the will of the divine."
The part about owning your own statements and not hiding them behind some line in a text word of some dead "authority" is an important one I think. I hear too many "Christians" say and do reprehensible things and then try and dismiss themselves from responsibility by saying "Its not me saying this, its Revelations 2:16 5-9" As if to add, "... just take it up with that dead author if you don't like it."
I cannot call myself atheist, I am more of a comfortable agnostic. I have no wish to be certain one way or the other. I know there will be no proof either way in my lifetime.... or ever. "Proof" comes from humans....... fallible humans, so we will never prove or disprove a God. I like having these questions to ask, I just despise the way most people want to actually discuss their answers. I will be happy moving in many directions on this issue as my life unfolds. When I see most of the staged debates between atheists and Christians however, I do find myself siding with the atheists most of the time. I just think too many Christians, humans for that matter, are really uncomfortable with uncertainty and end making all kinds of ridiculous systems to convince themselves there is something that they can be certain about that isn't death or taxes.
I know and have met some of the best people around at my church or surrounding church activities. There are many religiously motivated authors or speakers I get great joy in reading or hearing. Religion has motivated many people to do outstanding things but as an institution I think religion is a negative force. It is not uniting people it is reinforcing divisions.
Wow, I guess I did end up talking about economics after all.
Tuesday, December 10, 2013
Sycophants and Henchmen
Classifying economists is becoming quite a challenge these days. Austrians, classicals, neo classicals, keynesians, new keynesians, monetarists, post keynesians, market monetarists and now new monetarists. I have two classifications. Sycophant or Henchmen
When I read an oped by an economist these days they usually are trying to make the non economist believe one of two things.
One; they want you to believe that the people who are on top of the world calling the shots and determining much of your economic fate, are hardworking smart guys who know what is best and have studied these things like finance and the economics and if you just don't tax them too much or make them follow too many rules, they'll make the world you inhabit with them a more livable place and you'll be happier. These are the sycophants
Two; they want you to believe that "There is no alternative" this is how its going to be while they are in charge so get used to it. These are the henchmen.
Either belief you come away with is fine with the guys running the economy.
When I read an oped by an economist these days they usually are trying to make the non economist believe one of two things.
One; they want you to believe that the people who are on top of the world calling the shots and determining much of your economic fate, are hardworking smart guys who know what is best and have studied these things like finance and the economics and if you just don't tax them too much or make them follow too many rules, they'll make the world you inhabit with them a more livable place and you'll be happier. These are the sycophants
Two; they want you to believe that "There is no alternative" this is how its going to be while they are in charge so get used to it. These are the henchmen.
Either belief you come away with is fine with the guys running the economy.
Wednesday, November 27, 2013
Taking on Krugman
This is one of the most conceited things I can do probably, but I'm doing it anyway. Im going to challenge Mr Krugman (and Joseph Stiglitz) on an economics matter. Ive never taken an econ class and he's a Nobel winner but I still believe he can be wrong...... dead wrong, on some matters. He would probably admit as much but not here, on the matter Im going to discuss, likely.
Krugman and Stiglitz (another Nobel winner) were having another public dispute about our current economic "crisis". I use air quotes because no one in Washington is treating this like an actual crisis. They call it such when they are appealing to voters in front of cameras but I see no interest in treating this crisis. Anyhoo, their disagreement is around the idea that inequality in income distribution is responsible for the lackluster recovery. Stiglitz believes it is, Krugman is having none of it. Its not so much that he disagrees that gets me its the reason he gives, and I see no evidence that Stiglitz even begins to have a way to challenge his objection. Pauls response to Stiglitzs' claim is that he sees no evidence that the upper class are under consuming at present. Well, of course they aren't. Thats not a claim that should be being made by those who believe that distribution matters in these income things. If thats what Mr Stiglitz is implying then thats just silly. The maldistribution of income isn't a cause of whats wrong today...........its a RESULT!! Everything we have done the last 30-40 years is whats wrong and this wide disparity is the evidence at the end of it all (and I do think its the end, not to be too apocalyptic). And by doing what we have always done we will stay right here. There is no mechanism within the "market" to reverse or change this.
Where we go wrong is in thinking of our system like a poker game or anything else where we willingly participate and pay and make bets (choices) and we see how we fare at the end of the night. However we end up is supposedly determined by how well we estimated potential disasters and avoided them, how well we foresaw great opportunity and took a risk on it. Thats a nice sounding story but its laughably untrue. Using that analogy we look at one guy with almost all the chips, and the game slowing down because the other nine guys can't even pay an ante and start offering "solutions" like; "Hey lets make the ante only half a chip".... Okay but this will only extend the pain for the losers. They can always be outbid and pushed out of games because they can't call anymore. Another one is "Those other guys can just borrow form the leader", riiiiiight, that will last only so long as well, as the chips required just to pay back the interest will drive others out of the game. You really can't borrow your way out of this when you have no increased income prospects. "Someone can just give everyone more chips" is another solution heard. This is the best of the three but the most politically difficult to pull off in an environment where everyone misunderstands their chips and how they get value. Too many people think this would devalue their current stock of chips too much, especially the guy with almost all of them but if they realize that playing the game IS the point not tallying up your chips, they might get past this.
None of those solutions though will really make up for the fact that we just need to play a different game
Krugman and Stiglitz (another Nobel winner) were having another public dispute about our current economic "crisis". I use air quotes because no one in Washington is treating this like an actual crisis. They call it such when they are appealing to voters in front of cameras but I see no interest in treating this crisis. Anyhoo, their disagreement is around the idea that inequality in income distribution is responsible for the lackluster recovery. Stiglitz believes it is, Krugman is having none of it. Its not so much that he disagrees that gets me its the reason he gives, and I see no evidence that Stiglitz even begins to have a way to challenge his objection. Pauls response to Stiglitzs' claim is that he sees no evidence that the upper class are under consuming at present. Well, of course they aren't. Thats not a claim that should be being made by those who believe that distribution matters in these income things. If thats what Mr Stiglitz is implying then thats just silly. The maldistribution of income isn't a cause of whats wrong today...........its a RESULT!! Everything we have done the last 30-40 years is whats wrong and this wide disparity is the evidence at the end of it all (and I do think its the end, not to be too apocalyptic). And by doing what we have always done we will stay right here. There is no mechanism within the "market" to reverse or change this.
Where we go wrong is in thinking of our system like a poker game or anything else where we willingly participate and pay and make bets (choices) and we see how we fare at the end of the night. However we end up is supposedly determined by how well we estimated potential disasters and avoided them, how well we foresaw great opportunity and took a risk on it. Thats a nice sounding story but its laughably untrue. Using that analogy we look at one guy with almost all the chips, and the game slowing down because the other nine guys can't even pay an ante and start offering "solutions" like; "Hey lets make the ante only half a chip".... Okay but this will only extend the pain for the losers. They can always be outbid and pushed out of games because they can't call anymore. Another one is "Those other guys can just borrow form the leader", riiiiiight, that will last only so long as well, as the chips required just to pay back the interest will drive others out of the game. You really can't borrow your way out of this when you have no increased income prospects. "Someone can just give everyone more chips" is another solution heard. This is the best of the three but the most politically difficult to pull off in an environment where everyone misunderstands their chips and how they get value. Too many people think this would devalue their current stock of chips too much, especially the guy with almost all of them but if they realize that playing the game IS the point not tallying up your chips, they might get past this.
None of those solutions though will really make up for the fact that we just need to play a different game
Thursday, October 31, 2013
How Do You Spend if There is No Money?
Its a nonsensical question on the surface isnt it? Trained economists won't think so though as they are used to looking at things with money out of the picture............. or so they say. As a guy who has really jumped with both feet into the econ/finance pond the last five or six years, I feel I am reasonably well versed in what economists are talking about when they speak or write, yet I must say I dont think Ive really ever heard the title question addressed. Is spending unique to a monetary economy? Is spending just trading but using a paper/electronic proxy as one of the traded items? I think spending IS unique to a monetary economy and its NOT simply a trade of a different sort than we are used to thinking about. In fact, Ill go as far as to say that I dont think we would see the world the way it is now if there wasnt money. I am not just referring to the way money has made our transactions easier and greases the wheels of our economic lives but that in fact its moneys design that has created the 1% and the 99%. Additionally its the spending of one side which is the accumulation for the other side. The sides arent 50/50 though. There is a small segment receiving the spending ultimately.
This is not meant to be some conspiracy theory about Bilderbergs and Jewish bankers running the world but simply a statement about how it must be when we create and use money the way we have for most of our human existence. There must be, according to the rules of our money creation a natural tendency for all the money to end up in few hands. It will happen this way unless some outside force stops it and legislates a different outcome. In a monetary economy we will always tend towards monopoly I believe because once you are the creditor/accumulator that relationship holds in virtually every transaction you take on. All modern (and even through history it is argued, persuasively I think) money systems are credit based AND privately controlled (and in modern times more govt regulated) via banks. Money gets created out of credit relationships. One side accumulates and another side spends. One half of the relationship creates a debt for the other half. The debt is repayed WITH INTEREST which means the repay-or ends up giving more money back to the creditor than he borrowed. Now, what he borrowed may in fact allow him to create much more than he previously could so paying the interest just comes out of his surplus, but if it doesnt allow that, the interest eats away at his net worth. Lets try thinking about lending/borrowing for interest without money. In other words lets try it in the world that neoclassical economists say we inhabit, one where money is "just" a neutral veil over what is really happening. Whats being borrowed and what is interest? Are you lending me your talents? Your knowledge? Your backhoe? It might be any of those three. And what do I repay with? My gratitude? My fealty? My daughter? A simple "Ill give you four ears of corn today and you give me five later when your field gets productive again"does not describe the mechanics of borrowing in our modern monetary economy. The borrowers of today are using bank credit, not someone elses extra stuff. Even the concept of giving back more ears of corn than you borrowed at a later date would have obvious limitations. Using physical goods and services as the means of payment makes it obvious to both sides that there would be limits to what you could expect to be repaid but with money ........... just add some zeros!
The concept of saving is quite easy to understand without money. You decide to hold onto something you have and use it at a later date. Maybe its something to eat that you've learned how to preserve maybe its a tool that you have made a little sturdier so it will last multiple growing seasons. The concept of investment is even conceptualize-able. I give some of my efforts to your project. I do it both to help you AND to help me. I know that if you are my neighbor, I have a better neighborhood when you are better off. There are tangible reasons to invest my time and efforts. By investing some of the food Ive saved to keep your family alive through the winter means you'll be around and strong in the spring when I might need you too, plus you wont build up resentment and try and burn my place down or kill my cattle. Consumption is easy. Its the eating of my saved grains, the wearing out of my tools, the sitting in my chair. The consumption of something previously saved or created is basic and in fact the reason most things were created was for consumption either now or later. These concepts were around even before we invented money and are basic to economics. But understanding spending, I believe, is more difficult in a non monetary economy. Spending is an act of giving up something. Its draining. We even use the word "spent" to describe when we are worn out and have nothing left. In a non monetary world there is investment, saving, consumption and trading. There is no spending.
Thinking of spending as trades is incomplete in my view. When I trade I am not objectively better off. I might be subjectively better off but I had to give up something of equal value for the trade to take place. Maybe I didnt want it any more but it still had value to someone. Yes, I got what I wanted and so did my partner, supposedly, but we havent elevated one of us above the other. So how, in a world where someone has to give up something of equal value to get something else, could we get to a situation like today where so many have so little? In todays economy, many spend down while few accumulate up. These arent trades or swaps, they are loaded transactions that one must do and the other is doing..... for a price. The price is often not the price to own but just the price to continue using. Its the price of staying in the game.
Spending as consumption doesnt work either because in a non monetary economy, when I consume no one else gets anything. I'm simply consuming my own stuff that I saved. In a monetary economy when I spend my "numbers" go down and someone elses go up. They get better off according to our scorekeeping system. Now, we all know that the scorekeeping system does not tell the whole story, but it tells a very important part of the story. Its why we developed it. To tell a different story. To see who has the most. To see who wins.
In a monetary economy I think of spending as something that happens when someone decides not to save money anymore. Thats all it is. Its anti-saving of money. Any decision not to save IS spending so if you look where all the lack of savings are thats where you find where the spending is. Conversely wherever you find savings growing there is no spending. If you look at the charts a great number of people are doing spending while a very few are just collecting their spending, doing no net spending of their own. Within this framework of course spending includes investment because investment is an act of not saving as well. We just call it investment when it is used for something other than paying off an old loan, consuming something for yourself today or buying a piece of art or jewelry. Come to think of it, many people, maybe even some economists, do call buying a piece of jewelry or art investment. Or even an old share of stock or an old bond. This is actually just reforming your savings. A perfectly fine thing to do in a free society, but encouraging that activity is not what we need today. We need investment spending and I think it needs to come from different places than the spending is now coming from. Its been coming from these places the last 30+ years and we've ended up here. No one really likes it here, so I hear, so to go somewhere else maybe we need some new spenders.
This is not meant to be some conspiracy theory about Bilderbergs and Jewish bankers running the world but simply a statement about how it must be when we create and use money the way we have for most of our human existence. There must be, according to the rules of our money creation a natural tendency for all the money to end up in few hands. It will happen this way unless some outside force stops it and legislates a different outcome. In a monetary economy we will always tend towards monopoly I believe because once you are the creditor/accumulator that relationship holds in virtually every transaction you take on. All modern (and even through history it is argued, persuasively I think) money systems are credit based AND privately controlled (and in modern times more govt regulated) via banks. Money gets created out of credit relationships. One side accumulates and another side spends. One half of the relationship creates a debt for the other half. The debt is repayed WITH INTEREST which means the repay-or ends up giving more money back to the creditor than he borrowed. Now, what he borrowed may in fact allow him to create much more than he previously could so paying the interest just comes out of his surplus, but if it doesnt allow that, the interest eats away at his net worth. Lets try thinking about lending/borrowing for interest without money. In other words lets try it in the world that neoclassical economists say we inhabit, one where money is "just" a neutral veil over what is really happening. Whats being borrowed and what is interest? Are you lending me your talents? Your knowledge? Your backhoe? It might be any of those three. And what do I repay with? My gratitude? My fealty? My daughter? A simple "Ill give you four ears of corn today and you give me five later when your field gets productive again"does not describe the mechanics of borrowing in our modern monetary economy. The borrowers of today are using bank credit, not someone elses extra stuff. Even the concept of giving back more ears of corn than you borrowed at a later date would have obvious limitations. Using physical goods and services as the means of payment makes it obvious to both sides that there would be limits to what you could expect to be repaid but with money ........... just add some zeros!
The concept of saving is quite easy to understand without money. You decide to hold onto something you have and use it at a later date. Maybe its something to eat that you've learned how to preserve maybe its a tool that you have made a little sturdier so it will last multiple growing seasons. The concept of investment is even conceptualize-able. I give some of my efforts to your project. I do it both to help you AND to help me. I know that if you are my neighbor, I have a better neighborhood when you are better off. There are tangible reasons to invest my time and efforts. By investing some of the food Ive saved to keep your family alive through the winter means you'll be around and strong in the spring when I might need you too, plus you wont build up resentment and try and burn my place down or kill my cattle. Consumption is easy. Its the eating of my saved grains, the wearing out of my tools, the sitting in my chair. The consumption of something previously saved or created is basic and in fact the reason most things were created was for consumption either now or later. These concepts were around even before we invented money and are basic to economics. But understanding spending, I believe, is more difficult in a non monetary economy. Spending is an act of giving up something. Its draining. We even use the word "spent" to describe when we are worn out and have nothing left. In a non monetary world there is investment, saving, consumption and trading. There is no spending.
Thinking of spending as trades is incomplete in my view. When I trade I am not objectively better off. I might be subjectively better off but I had to give up something of equal value for the trade to take place. Maybe I didnt want it any more but it still had value to someone. Yes, I got what I wanted and so did my partner, supposedly, but we havent elevated one of us above the other. So how, in a world where someone has to give up something of equal value to get something else, could we get to a situation like today where so many have so little? In todays economy, many spend down while few accumulate up. These arent trades or swaps, they are loaded transactions that one must do and the other is doing..... for a price. The price is often not the price to own but just the price to continue using. Its the price of staying in the game.
Spending as consumption doesnt work either because in a non monetary economy, when I consume no one else gets anything. I'm simply consuming my own stuff that I saved. In a monetary economy when I spend my "numbers" go down and someone elses go up. They get better off according to our scorekeeping system. Now, we all know that the scorekeeping system does not tell the whole story, but it tells a very important part of the story. Its why we developed it. To tell a different story. To see who has the most. To see who wins.
In a monetary economy I think of spending as something that happens when someone decides not to save money anymore. Thats all it is. Its anti-saving of money. Any decision not to save IS spending so if you look where all the lack of savings are thats where you find where the spending is. Conversely wherever you find savings growing there is no spending. If you look at the charts a great number of people are doing spending while a very few are just collecting their spending, doing no net spending of their own. Within this framework of course spending includes investment because investment is an act of not saving as well. We just call it investment when it is used for something other than paying off an old loan, consuming something for yourself today or buying a piece of art or jewelry. Come to think of it, many people, maybe even some economists, do call buying a piece of jewelry or art investment. Or even an old share of stock or an old bond. This is actually just reforming your savings. A perfectly fine thing to do in a free society, but encouraging that activity is not what we need today. We need investment spending and I think it needs to come from different places than the spending is now coming from. Its been coming from these places the last 30+ years and we've ended up here. No one really likes it here, so I hear, so to go somewhere else maybe we need some new spenders.
Thursday, January 31, 2013
Daddy, where does a middle class come from?
Income distribution is starting to crop up everywhere now (shout out to OWS folks.....thanks!!!). All the big boys are talking about it.... Krugman, DeLong, Stiglitz, Shipman. It is an important topic. One of the ways you can tell its an important topic is that TPTB dont want to talk about it. They want to simply dismiss it as whining by the losers in our current system.
What the talk is really about, it seems to me, is how do we get back a true middle class? I'm sure there are different ways to define middle class and certainly many of us who are truly upper class by income division would self identify as middle class. They (we) see middle class as a value system as much as an income division. So first off I shall define what I am calling middle class.
Middle class folks are those who need to work for their primary source of income ( and WISH to..... this is the "values" part) but their work does not NEED to be over 60 hours a week to make ends meet and have some left over for retirement. If you are living off interest payments, daddys work, 20 hours of work a week or your 60 hours pays you enough that you can pay cash for your house in one year with your savings..... you are NOT middle class. This is not an exhaustive list I gave. There are additional ways to not qualify for middle class. Ultimately middle class is the group of people who are not one financial setback away from poverty. They have a significant cushion that doesnt involve counting on family to completely change what they were doing to get you back on your feet.
To step back a little though, the idea of classes is not even universally accepted. On the assumption that classes are a useful way of understanding our society and its economic stratification, it must be said that the whole notion of classes points out that a relative station in life is something we think about. Im working from the idea that absolute wealth is less important than relative wealth. This is why taxation is not really of importance to wealth because as long as everyone who makes what you do is taxed as you are no one will climb up or fall down a position because of tax levels. If Im the richest guy after taxes, it makes no difference whether thats a 1000$ a year or a million a year. As the richest guy I will have access to most in a market based monetary economy. This should start to demonstrate, in addition, why distribution matters. If I have 1000$ and no one else has more than 100$ I have way more access than anyone else to dollar priced goods. So station in life matters, in fact I would argue, it's ALL that matters.
It seems that in America we dont like comparing ourselves to other Americans financially. Its sort of a taboo here. Dont talk about what you make or anyone else. And when you do, dont sound like you begrudge any one else their due share. We like to think we are all the same here.That we dont suffer from class envy here like other places. Its the class envy that leads to socialism/communism. Thats why I think these distribution arguments tend to be dismissed. In America, it seems its just the size of the American Pie that matters, not who gets to eat how much.
What has become obvious to me is the idea that middle classes dont just occur in market based monetary economies. They must be created by some force bigger than the biggest market participants. Left to their own, monetary economies would eventually all come to resemble the banana republics, where great wealth is held by a few and everyone is basically a servant. It is not inherent in the nature of capitalist economies for a large middle class to exist without govt intervention. You cant find a country with a strong middle class and not find one where the govt has interceded to "make" that middle class possible. Minimum wage laws, labor unions, paid time off, sick leave..... all these things are middle class creating ideas. And none of these have happened anywhere in the history of our planet without a govt, acting on behalf of people who do not own the means of production, insisting on and enforcing said ideas. Without them bosses would take more and more away in wages and benefits to support their bottom profit line. The natural trend is for a few large players to end up with huge numbers of little players toiling away for them. This arises because power usually works this way, and money is power in a capitalist economy. Power never willingly gives up anything, it is only forced to. Once a capitalist gains market share, the power it creates tends to multiply not recede.
Unless you think a middle class is not something to be concerned about, then income distribution should be a focus of policy. Im not as concerned about the over saving of the 1% as distribution skews upwards, Im concerned about the increased costs to everyone else as their income share shrinks and their need for credit increases. Credit is expensive. More expensive than cash. The extreme in distribution is making life way more expensive for far too many people. It has to change. Only we, through our collective will of govt can do that. The market sees no point in it.
What the talk is really about, it seems to me, is how do we get back a true middle class? I'm sure there are different ways to define middle class and certainly many of us who are truly upper class by income division would self identify as middle class. They (we) see middle class as a value system as much as an income division. So first off I shall define what I am calling middle class.
Middle class folks are those who need to work for their primary source of income ( and WISH to..... this is the "values" part) but their work does not NEED to be over 60 hours a week to make ends meet and have some left over for retirement. If you are living off interest payments, daddys work, 20 hours of work a week or your 60 hours pays you enough that you can pay cash for your house in one year with your savings..... you are NOT middle class. This is not an exhaustive list I gave. There are additional ways to not qualify for middle class. Ultimately middle class is the group of people who are not one financial setback away from poverty. They have a significant cushion that doesnt involve counting on family to completely change what they were doing to get you back on your feet.
To step back a little though, the idea of classes is not even universally accepted. On the assumption that classes are a useful way of understanding our society and its economic stratification, it must be said that the whole notion of classes points out that a relative station in life is something we think about. Im working from the idea that absolute wealth is less important than relative wealth. This is why taxation is not really of importance to wealth because as long as everyone who makes what you do is taxed as you are no one will climb up or fall down a position because of tax levels. If Im the richest guy after taxes, it makes no difference whether thats a 1000$ a year or a million a year. As the richest guy I will have access to most in a market based monetary economy. This should start to demonstrate, in addition, why distribution matters. If I have 1000$ and no one else has more than 100$ I have way more access than anyone else to dollar priced goods. So station in life matters, in fact I would argue, it's ALL that matters.
It seems that in America we dont like comparing ourselves to other Americans financially. Its sort of a taboo here. Dont talk about what you make or anyone else. And when you do, dont sound like you begrudge any one else their due share. We like to think we are all the same here.That we dont suffer from class envy here like other places. Its the class envy that leads to socialism/communism. Thats why I think these distribution arguments tend to be dismissed. In America, it seems its just the size of the American Pie that matters, not who gets to eat how much.
What has become obvious to me is the idea that middle classes dont just occur in market based monetary economies. They must be created by some force bigger than the biggest market participants. Left to their own, monetary economies would eventually all come to resemble the banana republics, where great wealth is held by a few and everyone is basically a servant. It is not inherent in the nature of capitalist economies for a large middle class to exist without govt intervention. You cant find a country with a strong middle class and not find one where the govt has interceded to "make" that middle class possible. Minimum wage laws, labor unions, paid time off, sick leave..... all these things are middle class creating ideas. And none of these have happened anywhere in the history of our planet without a govt, acting on behalf of people who do not own the means of production, insisting on and enforcing said ideas. Without them bosses would take more and more away in wages and benefits to support their bottom profit line. The natural trend is for a few large players to end up with huge numbers of little players toiling away for them. This arises because power usually works this way, and money is power in a capitalist economy. Power never willingly gives up anything, it is only forced to. Once a capitalist gains market share, the power it creates tends to multiply not recede.
Unless you think a middle class is not something to be concerned about, then income distribution should be a focus of policy. Im not as concerned about the over saving of the 1% as distribution skews upwards, Im concerned about the increased costs to everyone else as their income share shrinks and their need for credit increases. Credit is expensive. More expensive than cash. The extreme in distribution is making life way more expensive for far too many people. It has to change. Only we, through our collective will of govt can do that. The market sees no point in it.
Monday, January 21, 2013
Why Income Inequality Matters; The Toxicity of Debt
Paul Krugman and Joseph Stiglitz are having a bit of a disagreement. Joseph is citing income inequalities as holding back our recovery. Paul disagrees. He wants to agree and thinks he makes some good points but cant jump on board totally. Paul cites some graphs of savings rates in his NYT column and suggests that there is little evidence that the rich are underconsuming.
I dont think the underconsumption is from the rich. Its from the non rich who are losing incomes TO the rich. I think Paul is making the wrong assumption about where the underconsumption is coming from. He seems to think that distribution doesnt matter much. As long as total income to the economy is the same demand will be the same. I think he's mistaken. I think he's mistaken because he dismisses the toxicity of debt
Let me offer an analogy to our economy using something I understand well, our cardiovascular system.
Lets think of the flow of money like the flow of blood through our body. Acid, a normal byproduct of cellular function is like debt. Healthy cells are getting the blood they need and are able to get their waste products, acid, removed. But a cell that is either demanding too much or is in an area that is under perfused, runs the risk of accumulating acids to the point of toxicity and cellular death.
We have about 6 liters of blood in our body and it gets pumped around at anywhere between 3 liters minute to 15 liters a minute. There is a natural hierarchy of perfusion within the body. The brain, and kidneys alone receive over half of our cardiac output in normal conditions. So while at any given time over half the blood in our bodies is going through brain and kidneys, the rest of the bodies needs must be maintained or their debt (acid) will build up and not just kill that tissue but the whole body. In times when the heart is either incapable to meet the needs (failure) or the needs of the tissue are just too great (infection or vigorous exercise) acids build up. As long as inflows are met, acid wont reach toxic levels but if not sickness or death is imminent.
Incomes are what keeps consumers healthy. Debts are a normal part of our modern capitalist system as well and as long as the flow of incomes meets debt service their is no problem. But we want growth, and our banks encourage growth by taking on more debt. They want more people taking on more debt. These debts must be cleared or they will reach toxic levels and freeze the system. They freeze it in two ways 1) They stop getting paid or 2) They are the ONLY thing getting paid. As I said earlier, incomes are what keep consumers healthy and even if total incomes stay close to the same, if that total is only being distributed between 30% less of the consumer force, their debts become toxic and affect the whole system. Banks fail and businesses lose customers.
When 30%, I imagine its even more than this now, of your potential consumer base is only getting enough income to barely service old debts, these debts hurt everyone. They become a systemic problem not just a personal problem. The rest of the people cannot nor will not increase their debt levels enough to offset this reduction.
Distribution of flows matter. There are healthy distributions and un healthy distributions
I dont think the underconsumption is from the rich. Its from the non rich who are losing incomes TO the rich. I think Paul is making the wrong assumption about where the underconsumption is coming from. He seems to think that distribution doesnt matter much. As long as total income to the economy is the same demand will be the same. I think he's mistaken. I think he's mistaken because he dismisses the toxicity of debt
Let me offer an analogy to our economy using something I understand well, our cardiovascular system.
Lets think of the flow of money like the flow of blood through our body. Acid, a normal byproduct of cellular function is like debt. Healthy cells are getting the blood they need and are able to get their waste products, acid, removed. But a cell that is either demanding too much or is in an area that is under perfused, runs the risk of accumulating acids to the point of toxicity and cellular death.
We have about 6 liters of blood in our body and it gets pumped around at anywhere between 3 liters minute to 15 liters a minute. There is a natural hierarchy of perfusion within the body. The brain, and kidneys alone receive over half of our cardiac output in normal conditions. So while at any given time over half the blood in our bodies is going through brain and kidneys, the rest of the bodies needs must be maintained or their debt (acid) will build up and not just kill that tissue but the whole body. In times when the heart is either incapable to meet the needs (failure) or the needs of the tissue are just too great (infection or vigorous exercise) acids build up. As long as inflows are met, acid wont reach toxic levels but if not sickness or death is imminent.
Incomes are what keeps consumers healthy. Debts are a normal part of our modern capitalist system as well and as long as the flow of incomes meets debt service their is no problem. But we want growth, and our banks encourage growth by taking on more debt. They want more people taking on more debt. These debts must be cleared or they will reach toxic levels and freeze the system. They freeze it in two ways 1) They stop getting paid or 2) They are the ONLY thing getting paid. As I said earlier, incomes are what keep consumers healthy and even if total incomes stay close to the same, if that total is only being distributed between 30% less of the consumer force, their debts become toxic and affect the whole system. Banks fail and businesses lose customers.
When 30%, I imagine its even more than this now, of your potential consumer base is only getting enough income to barely service old debts, these debts hurt everyone. They become a systemic problem not just a personal problem. The rest of the people cannot nor will not increase their debt levels enough to offset this reduction.
Distribution of flows matter. There are healthy distributions and un healthy distributions
Saturday, January 12, 2013
Balanced Budgets are Un American
There can only be one way that a government can run balanced budgets in perpetuity, and that is to have complete control of its income. Without that a government can only set tax rates but not the amount of taxes it takes in. As long as the private sector is determining the level of income everyone is collecting expecting a government to balance its books is a fools errand. So how does a government have complete control of its income? It gets complete control of everyones salaries. IOW it employs everyone. So, in fact, those who are clamoring for balanced budgets are asking us to move closer and closer to a command economy where the government has control of your income, sets tax rates and then controls what it receives in revenues. Does that sound like the American dream?
Lets stop this balanced budgets nonsense.
Lets stop this balanced budgets nonsense.
Wednesday, November 14, 2012
MOE and MOA, a discussion which has been MIA
Lots of things churning around in my head today. Mike Sankowski at Monetary Realism had a great post a couple days ago discussing two different functions of money, its use as a medium of account (MOA) and its use as the medium of exchange (MOE). Art Shipman at his blog was also exploring this topic. I think this is a very important subject that gets to the heart of much of the disagreement/confusion amongst the various economic schools of thought.
I think of MOA as "dollar sign" and MOE as "dollar". Obviously they are related but they are not equivalent. One is describing the price of something, the other is a proxy for a credit which can be redeemed for something. The price of something simply tells you how many of the credits you need to obtain it. Most everything in our economy today can get a dollar sign attached to it, or assigned to it. We refer to that as its value or worth. Its not the only measure of value nor is the claim that it is the best measure of value but it IS the value, within this system, we can agree to use to somehow promote exchange of goods within this system. Additionally it allows us to come up with measurements of activity, like GDP, so we can have some sense of what is going on in between us. It is NOT a qualitative measure but simply a quantification based on an agreed quantifier. One complicating element is that "the dollar" our MOE also has a price component to it, due to the trading within currency markets. So our MOE has a MOA component to it. Things with dollars signs can generate dollars for the holders of these things, even if they are not directly sold.
It appears to me that what has resulted within our economy is actually the presence of two economies, separate but intertwined. Banks, financial institutions and the very rich deal with assets that trade as money like and only use the MOA aspect of our money. They are priced in dollars, placed on the asset side of balance sheets or sit in trading accounts and act as wealth, generating income (MOE) for their holders. The rest of us simply receive MOE each week or month and use this to purchase goods, services or some of those fancy MOA things from the other economy. The MOA side of the economy competes for our MOE. The solvency of financial institutions plus the level of borrowing an individual can take on are greatly influenced by the MOA. As a borrower holds more MOA they can borrow more MOE. Additionally as a bank holds a greater amount of MOA they can suffer more and more people failing to pay their MOE (loan losses) before being insolvent.
One problem with the MOA side of the economy is that it suffers from a fallacy of composition. Those values they use on the asset side of their balance sheets cannot possibly be true for all those assets at once. Their value is dependent upon only a certain percentage of them being liquidated at any one time. Allowing all these things to hold a value they cannot possibly hold at once seems a very serious problem. All layers of transactions based on those values will simply add more and more instability to all the balance sheets carrying that asset or its derivative. The more layers you add, the more balance sheets that become dependent on that asset value, the more affect a small price disruption will have.
The MOA side of the economy is capable of growing to levels which can never be supported by the MOE side, since prices can simply reflect desire and not ability. Additionally they can shrink well below levels which support adequate MOE generation for their holders when panics ensue. An economy relying too heavily on the MOA side will be fragile.
We have an economy now that is too oriented around our MOA.
I think of MOA as "dollar sign" and MOE as "dollar". Obviously they are related but they are not equivalent. One is describing the price of something, the other is a proxy for a credit which can be redeemed for something. The price of something simply tells you how many of the credits you need to obtain it. Most everything in our economy today can get a dollar sign attached to it, or assigned to it. We refer to that as its value or worth. Its not the only measure of value nor is the claim that it is the best measure of value but it IS the value, within this system, we can agree to use to somehow promote exchange of goods within this system. Additionally it allows us to come up with measurements of activity, like GDP, so we can have some sense of what is going on in between us. It is NOT a qualitative measure but simply a quantification based on an agreed quantifier. One complicating element is that "the dollar" our MOE also has a price component to it, due to the trading within currency markets. So our MOE has a MOA component to it. Things with dollars signs can generate dollars for the holders of these things, even if they are not directly sold.
It appears to me that what has resulted within our economy is actually the presence of two economies, separate but intertwined. Banks, financial institutions and the very rich deal with assets that trade as money like and only use the MOA aspect of our money. They are priced in dollars, placed on the asset side of balance sheets or sit in trading accounts and act as wealth, generating income (MOE) for their holders. The rest of us simply receive MOE each week or month and use this to purchase goods, services or some of those fancy MOA things from the other economy. The MOA side of the economy competes for our MOE. The solvency of financial institutions plus the level of borrowing an individual can take on are greatly influenced by the MOA. As a borrower holds more MOA they can borrow more MOE. Additionally as a bank holds a greater amount of MOA they can suffer more and more people failing to pay their MOE (loan losses) before being insolvent.
One problem with the MOA side of the economy is that it suffers from a fallacy of composition. Those values they use on the asset side of their balance sheets cannot possibly be true for all those assets at once. Their value is dependent upon only a certain percentage of them being liquidated at any one time. Allowing all these things to hold a value they cannot possibly hold at once seems a very serious problem. All layers of transactions based on those values will simply add more and more instability to all the balance sheets carrying that asset or its derivative. The more layers you add, the more balance sheets that become dependent on that asset value, the more affect a small price disruption will have.
The MOA side of the economy is capable of growing to levels which can never be supported by the MOE side, since prices can simply reflect desire and not ability. Additionally they can shrink well below levels which support adequate MOE generation for their holders when panics ensue. An economy relying too heavily on the MOA side will be fragile.
We have an economy now that is too oriented around our MOA.
Friday, August 24, 2012
What I'd do if I could
Its been a while since I've had anything that I felt was worth posting about. Ive got two or three half posts in the "Hopper" but I just couldnt complete the ideas satisfactorily. This is going to be a different take on an earlier post of mine where I imagined a day when a part of our country seceded and examined how they might go about setting up their own monetary system. I imagined an interview of someone else in the position of creating a country/monetary system and tried to see what kind of questions would need to be asked and answered. I would write that post a little differently today because I have acquired new information in the interim and have developed some of my thoughts to a greater depth but the overall view of that post remains; If your going to start your own country you need your own money and whatever money is used there will be a "state" making a choice about some very important things. The choice they make will mean differences in levels of freedom and levels of aggregate wealth.
Today Im going to be the guy has been put in charge of developing a monetary system for our a new country. Maybe I go in with some German guys and buy a couple Greek Islands.... I dont know or a couple million of us petition the US govt to let us have a portion of land on the Left Coast of the United States and create our socialist paradise. I will have to take a page out of the neoclassicals playbook and make a couple very dubious assumptions. 1) We didnt need a war to get to this point 2) Most/all who are going are behind the project and understand fully what we are embarking on (perfectly rational agents with full view of past and expectations of future)
One of the points I hope to illustrate is that during this time of creating a new country and its monetary system is that these decisions are being made BY GOVERNMENT. Its not a matter of starting a new country, delineating borders, picking a leader, start trading stuff or use the money you have left over form your old country, bring in some banks and over time a new "best" currency emerges by consensus. In the modern world especially a monetary system is by the government and for the people.
There are many options to running a currency. Peg it to another currency or a commodity or let its value float? Do you allow this currency to trade as a commodity on the currency markets or even if you desire it to will investors have any interest in it? How will you arrange the way your Central Bank functions with a Treasury? Will you even have a Central Bank? These are all political decisions and have no free market which shapes them much, but these decisions you make will impact the private markets you hope to be vibrant in your country.
So how would I do it if I could? Seems to me there are only a few real options but I ll go over what I see as all the options and try to eliminate the bad ones.
We could operate like the 51st state and use the US dollar. We would have full leeway as to how we set our institutions up like our tax system our court system our road system our school system. We could determine what level of govt influence or spending we put to these systems. We could make it as publicly driven as we like but if we are using the US$ we have constraints as to how much we spend. That constraint is how many dollars we can get. Within this state we would certainly have some production capacity already (not a totally dubious assumption yet in reality not as simple as it sounds) and some resources that would be ours to extract, refine and create stuff out of but is it possible that we have everything we need? Doubtful. Now if everyone there were happy to live only on the things which we produced ourselves, ("Buy Left Coast first...... and second.... and third" could be our state motto), we could exist, survive and be happy but we would have constraints on growth. This option does not sound like one which enhances our freedom or one that gives us a lot more options from where we are now. I think if you are seceding from somewhere you must stop being beholden to their currency.
We could go the route that many libertarians push for. A private banking driven, sovereign, gold standard currency. What questions would I have about this arrangement? First off, if we are going to go with gold standard, where do we get the gold we need to back our currency. I will grant that we have some land with gold within our borders but (this is another neoclassical level assumption that would be a huge game changer if false.) how much is the right amount for our population and the amount we intend to spend. Ive seen some goldbugs say that its not necessary to set an exchange rate with a gold standard but if you dont guarantee an amount of gold for x amount of your currency what is the reason for a gold standard and how would that be any different from the US today? Putting aside that particular discussion, I WOULD set an exchange rate of gold for our currency if I were to choose a gold standard but my question would still be.... How do I get the gold I need? I have to pay for it somehow. No one is going to give it to me to go start my country. Would all the dollars my now Left Coast citizens still had have to go to buying the gold we need to start a currency system? Actually it would likely be the banks that would have to answer this question as well. How does a bank, created ex nihilo, acquire gold reserves? What can it spend on gold when the previous currency of the new country is no longer desired by the citizens of that country? Answer me that gold bugs. Additional questions I have about this libertarian utopia are how will you interact with the rest of the world. Seems to me that the situation I described above where it would all "work" fine if you just consumed only what you produced equally applies to this scenario. If you are the only place using gold for money, what do you get in payment for the goods you might wish to export? If you wish to import how do you keep your gold supply up? It seems to me that this is not only not an improvement over what we have today, here in the USA, its even worse than above. Especially for those who value freedom as highly as libertarians profess to. In this instance your soveriegn but you limit your ability to spend to how much gold you have.
So lets scratch a gold standard off the list if we want a vibrant new world economy that interacts with the rest of the world and tries to give its citizens the best life they can achieve
How about a private banking driven system with no gold standard? Each bank just issues its own money and there are multiple competing currencies circulating. The currency you are paid in might be different than the currency which a store prices its goods in but exchange rate tables are everywhere so its just a math problem. Eventually the soundest bank currencies start to squeeze out the weaker ones and we are all better off because we are all using a sound currency that for the most part exchanges one for one. So when we start this country everyone already has dollars. Thats the only money we ever used, maybe some converted it to some commodity before the change over but they are on the margin. Most everyone kept their dollars because they needed them to transact. So when "First Left Coast Bank" opens up what do they do? Seems to me step one is acquire some capital. Ill go all neoclassical again and "assume" that most of these banks were here when the previous regime was in place AND they just kept their "real" capital in place. They would hold some US Bonds , some real estate maybe some gold or other commodity contracts but they would still have the question of "what do we have as capital that we can lend against" to answer. In addition, when they go about taking deposits, the only thing every other citizen has are US$. So they must take a US$ deposit and then decide how much "First Left Coast Bank" bucks they are going to extend to them in credit. And each bank will make this decidision differently. This doesnt sound easy, smooth, better, efficient or more freedom procuring to me. It just sounds like a mess. So Im scratching this off the list.
So how about we just play all dictator and stuff and just tell our citizens,
"In spite of what the Zero Hedge morons proclaim your US $ are not worthless. You can keep them if you like and go to the US and buy stuff or you can exchange them to your new national Treasury for "Lefties". We will give exchange at the rate of 1.5 Lefty to a dollar. All transaction within the Left Coast will be in Lefties and anything we purchase from outside our borders will be with Lefties. It may take some time for our Lefties to be accepted but I have a few suggestions for you to speed up that process. Keep doing your job to the best of your ability. What we produce says something about us. Remember, produce something you'd sell to your neighbor. If your neighbor has a problem with it youll never hear the end of it so make it something he'll have no complaint about."
Now every Left Coast citizen knows what they will get for their old currency. What does the Treasury do with its acquired US$? Well it can certainly go and procure goods and services that it is unable to produce in house as long as their is a dollar price on that, and of course this requires another "neo-ass" (shorthand for neo classical assumption) that these dollars would be honored, they could say No Left Coast dollars. NOW banks can enter the picture, because the citizens now have a net worth in Lefties that can be assessed and an appropriate loan amount can be determined. Seems to me until this point banks have no reference point other than some real asset which could be of indeterminate value. It seems that until a bank can determine your net worth in something pretty ubiquitous loaning is a very high risk operation. So high risk that most borrowers would say no thanks. Would Left Coast have a Central Bank? Sure. The system would need a borrower of last resort and lender of last resort to keep payments flowing but Im not sure there needs to be a lot of manpower dedicated to it. It could mostly be a computer program that simply issues electronic reserves and measures banks health via an algorithm designed by conscientious bankers (I know there are some). We definitely dont need these annual treks to Jackson Hole where nothing of substance happens just a proclamation that "We are concerned about blah blah blah in the global system and we wish for further emasculation of our fiscal bodies so the fate of the worlds economy is at our behest........ oh and Milton Friedman rocks!!!"
Additionally, since we can never run out of our Lefties I would provide a citizens income to everyone form birth. As a citizen it would be your right. The exact administration of this would involve ways to add to it for certain education milestones being met or deduct from it if certain violations occur. Financializing more of our life seems inevitable so why not find an acceptable worth for a newborn citizen and one who meets certain criteria as they age. Now banks have a minimum income they know can be used to pay back loans. Seems to be a stabilizing force to banks. Might it result in fewer consumer loans, likely, but I dont view that as a negative. Although people might be encourage to take more risks if they werent going to lose everything so I dont think its a given that this would lead to complacent citizens who just spend their dole money on basics and dont search for innovations.
One thing I need to point out is that it would additionally be necessary at some point, maybe not at first but eventually, to assess a tax in Lefties. This tax would simply be necessary to insure that Left Coast citizens seek some lefties. At some point, once the economy is up and running, we might find people preferring to just cross the border and work for dollars which would be fine to a point but might reach a point where Left Coast businesses cant find labor. To keep our currency area going and to keep us from devolving into a 51st state which just uses dollars but has no rights, something would be needed to keep people seeking and hopefully saving in lefties. It seems to me its just a fact of modern nation states, if you wish to have autonomy you should have your own currency but to keep your own currency viable some form of gentle coercion (no 9mm necessary hopefully) thru taxation would be necessary. Some citizens might think of their taxes as "paying for their govt" but your treasurer would know better (that that citizen wouldnt have the lefty to pay the tax unless the treasury had issued it first)
I just cant see any market mechanisms that this new country could use to find a new currency but I m open to someone showing me some.
Today Im going to be the guy has been put in charge of developing a monetary system for our a new country. Maybe I go in with some German guys and buy a couple Greek Islands.... I dont know or a couple million of us petition the US govt to let us have a portion of land on the Left Coast of the United States and create our socialist paradise. I will have to take a page out of the neoclassicals playbook and make a couple very dubious assumptions. 1) We didnt need a war to get to this point 2) Most/all who are going are behind the project and understand fully what we are embarking on (perfectly rational agents with full view of past and expectations of future)
One of the points I hope to illustrate is that during this time of creating a new country and its monetary system is that these decisions are being made BY GOVERNMENT. Its not a matter of starting a new country, delineating borders, picking a leader, start trading stuff or use the money you have left over form your old country, bring in some banks and over time a new "best" currency emerges by consensus. In the modern world especially a monetary system is by the government and for the people.
There are many options to running a currency. Peg it to another currency or a commodity or let its value float? Do you allow this currency to trade as a commodity on the currency markets or even if you desire it to will investors have any interest in it? How will you arrange the way your Central Bank functions with a Treasury? Will you even have a Central Bank? These are all political decisions and have no free market which shapes them much, but these decisions you make will impact the private markets you hope to be vibrant in your country.
So how would I do it if I could? Seems to me there are only a few real options but I ll go over what I see as all the options and try to eliminate the bad ones.
We could operate like the 51st state and use the US dollar. We would have full leeway as to how we set our institutions up like our tax system our court system our road system our school system. We could determine what level of govt influence or spending we put to these systems. We could make it as publicly driven as we like but if we are using the US$ we have constraints as to how much we spend. That constraint is how many dollars we can get. Within this state we would certainly have some production capacity already (not a totally dubious assumption yet in reality not as simple as it sounds) and some resources that would be ours to extract, refine and create stuff out of but is it possible that we have everything we need? Doubtful. Now if everyone there were happy to live only on the things which we produced ourselves, ("Buy Left Coast first...... and second.... and third" could be our state motto), we could exist, survive and be happy but we would have constraints on growth. This option does not sound like one which enhances our freedom or one that gives us a lot more options from where we are now. I think if you are seceding from somewhere you must stop being beholden to their currency.
We could go the route that many libertarians push for. A private banking driven, sovereign, gold standard currency. What questions would I have about this arrangement? First off, if we are going to go with gold standard, where do we get the gold we need to back our currency. I will grant that we have some land with gold within our borders but (this is another neoclassical level assumption that would be a huge game changer if false.) how much is the right amount for our population and the amount we intend to spend. Ive seen some goldbugs say that its not necessary to set an exchange rate with a gold standard but if you dont guarantee an amount of gold for x amount of your currency what is the reason for a gold standard and how would that be any different from the US today? Putting aside that particular discussion, I WOULD set an exchange rate of gold for our currency if I were to choose a gold standard but my question would still be.... How do I get the gold I need? I have to pay for it somehow. No one is going to give it to me to go start my country. Would all the dollars my now Left Coast citizens still had have to go to buying the gold we need to start a currency system? Actually it would likely be the banks that would have to answer this question as well. How does a bank, created ex nihilo, acquire gold reserves? What can it spend on gold when the previous currency of the new country is no longer desired by the citizens of that country? Answer me that gold bugs. Additional questions I have about this libertarian utopia are how will you interact with the rest of the world. Seems to me that the situation I described above where it would all "work" fine if you just consumed only what you produced equally applies to this scenario. If you are the only place using gold for money, what do you get in payment for the goods you might wish to export? If you wish to import how do you keep your gold supply up? It seems to me that this is not only not an improvement over what we have today, here in the USA, its even worse than above. Especially for those who value freedom as highly as libertarians profess to. In this instance your soveriegn but you limit your ability to spend to how much gold you have.
So lets scratch a gold standard off the list if we want a vibrant new world economy that interacts with the rest of the world and tries to give its citizens the best life they can achieve
How about a private banking driven system with no gold standard? Each bank just issues its own money and there are multiple competing currencies circulating. The currency you are paid in might be different than the currency which a store prices its goods in but exchange rate tables are everywhere so its just a math problem. Eventually the soundest bank currencies start to squeeze out the weaker ones and we are all better off because we are all using a sound currency that for the most part exchanges one for one. So when we start this country everyone already has dollars. Thats the only money we ever used, maybe some converted it to some commodity before the change over but they are on the margin. Most everyone kept their dollars because they needed them to transact. So when "First Left Coast Bank" opens up what do they do? Seems to me step one is acquire some capital. Ill go all neoclassical again and "assume" that most of these banks were here when the previous regime was in place AND they just kept their "real" capital in place. They would hold some US Bonds , some real estate maybe some gold or other commodity contracts but they would still have the question of "what do we have as capital that we can lend against" to answer. In addition, when they go about taking deposits, the only thing every other citizen has are US$. So they must take a US$ deposit and then decide how much "First Left Coast Bank" bucks they are going to extend to them in credit. And each bank will make this decidision differently. This doesnt sound easy, smooth, better, efficient or more freedom procuring to me. It just sounds like a mess. So Im scratching this off the list.
So how about we just play all dictator and stuff and just tell our citizens,
"In spite of what the Zero Hedge morons proclaim your US $ are not worthless. You can keep them if you like and go to the US and buy stuff or you can exchange them to your new national Treasury for "Lefties". We will give exchange at the rate of 1.5 Lefty to a dollar. All transaction within the Left Coast will be in Lefties and anything we purchase from outside our borders will be with Lefties. It may take some time for our Lefties to be accepted but I have a few suggestions for you to speed up that process. Keep doing your job to the best of your ability. What we produce says something about us. Remember, produce something you'd sell to your neighbor. If your neighbor has a problem with it youll never hear the end of it so make it something he'll have no complaint about."
Now every Left Coast citizen knows what they will get for their old currency. What does the Treasury do with its acquired US$? Well it can certainly go and procure goods and services that it is unable to produce in house as long as their is a dollar price on that, and of course this requires another "neo-ass" (shorthand for neo classical assumption) that these dollars would be honored, they could say No Left Coast dollars. NOW banks can enter the picture, because the citizens now have a net worth in Lefties that can be assessed and an appropriate loan amount can be determined. Seems to me until this point banks have no reference point other than some real asset which could be of indeterminate value. It seems that until a bank can determine your net worth in something pretty ubiquitous loaning is a very high risk operation. So high risk that most borrowers would say no thanks. Would Left Coast have a Central Bank? Sure. The system would need a borrower of last resort and lender of last resort to keep payments flowing but Im not sure there needs to be a lot of manpower dedicated to it. It could mostly be a computer program that simply issues electronic reserves and measures banks health via an algorithm designed by conscientious bankers (I know there are some). We definitely dont need these annual treks to Jackson Hole where nothing of substance happens just a proclamation that "We are concerned about blah blah blah in the global system and we wish for further emasculation of our fiscal bodies so the fate of the worlds economy is at our behest........ oh and Milton Friedman rocks!!!"
Additionally, since we can never run out of our Lefties I would provide a citizens income to everyone form birth. As a citizen it would be your right. The exact administration of this would involve ways to add to it for certain education milestones being met or deduct from it if certain violations occur. Financializing more of our life seems inevitable so why not find an acceptable worth for a newborn citizen and one who meets certain criteria as they age. Now banks have a minimum income they know can be used to pay back loans. Seems to be a stabilizing force to banks. Might it result in fewer consumer loans, likely, but I dont view that as a negative. Although people might be encourage to take more risks if they werent going to lose everything so I dont think its a given that this would lead to complacent citizens who just spend their dole money on basics and dont search for innovations.
One thing I need to point out is that it would additionally be necessary at some point, maybe not at first but eventually, to assess a tax in Lefties. This tax would simply be necessary to insure that Left Coast citizens seek some lefties. At some point, once the economy is up and running, we might find people preferring to just cross the border and work for dollars which would be fine to a point but might reach a point where Left Coast businesses cant find labor. To keep our currency area going and to keep us from devolving into a 51st state which just uses dollars but has no rights, something would be needed to keep people seeking and hopefully saving in lefties. It seems to me its just a fact of modern nation states, if you wish to have autonomy you should have your own currency but to keep your own currency viable some form of gentle coercion (no 9mm necessary hopefully) thru taxation would be necessary. Some citizens might think of their taxes as "paying for their govt" but your treasurer would know better (that that citizen wouldnt have the lefty to pay the tax unless the treasury had issued it first)
I just cant see any market mechanisms that this new country could use to find a new currency but I m open to someone showing me some.
Saturday, April 28, 2012
An Interesting Idea From a Dubious Source
Much of the talk on the econ blogs I follow revolves around the idea of a Job Guarantee (JG). This is an idea deeply imbedded into the MMT macro view. Some say its a necessary component and that "You are not an MMTer if you dont endorse the idea". Others are less dogmatic about it but it cant be denied that full employment, defined as anyone who wishes to earn an income is able to, is a primary goal of the MMT macro view. The other part of the trick is price stability though and the macroeconomists within the MMT school argue that price stability is best achieved by a wage anchor. The design of a JG can run anywhere from a fully federally controlled "make work" type program to a subsidy of private businesses at whatever level is necessary to "hire" everyone. The common denominator in both ends of the spectrum is recognizing the reality that the govt, as currency issuer, can fully fund a full employment economy. There are tradeoffs in every system but there is no saying "we dont have the money to do this". Thats a huge hurdle for a large portion of the population. Many believe the govt would run out of money if such a venture were tried.
One idea that has been offered involves an income guarantee, payable through a paypal debit card account. Here is the originator of the idea (as far as we know, the originator) Morgan Warstler;
Using a clone of Paypal and Ebay platforms, the US govt. should establish a Guaranteed Wage of $240 per week. Anyone who wants to work registers, receives a Debit Card,and each Friday has their GI deposited. All recipients have their labor weeks auctioned online. Bidding begins at $40 per week ($1 per hour). Bid increases by .50 cents per hour ($20 increments). Recipients keep 50% of the top bid, if they take it. If they opt for a lesser bid outside certain boundaries there are penalties (fraud measure). Recipients cannot be made to work outside a radius of a couple miles. Bidders must deposit money into system before they bid. They must accurately describe the job. Feedback will be given both ways. If you are familiar with Ebay, you understand what this accomplishes. There are no taxes paid, there are basic workplace protection requirments. Umbrella insurance is sold on site for folks bringing labor into their home. Expect 30M to register so approx $345B is our cost assuming 30M are auctioned at $1 (The govt. is picking up $5.50 and bidders are in for $1) At an avg. bid of $4 per hour, avg. worker is making $8, and the govt. is spending $250B a year. There is no more UI. There is no more minimum wage. That’s why there are 30M in program.
I would have to say that normally I would be 75-100% behind the idea. Its simple, it allows choices, there is a lot of bottom up thinking to it, the framework for it is in place already and I do think many people on both sides of the spectrum could get behind it. My primary reservation is knowing who came up with it. Not that I really KNOW Mr Warstler. He's as anonymous to me as Arthur Shipman or Mike Sax, guys on the internet I talk to with my keyboard. I wouldnt know any of these three if they walked in my house but I have read a lot of what they have to say on the sites I visit. I feel like I know them and know what kind of people they are. Mr Warstler is NOT good people, as they say.
First off Morgan is a fan of and I think a contributor to the late (yea!!) Andrew Breitbarts site. I'm not sure who is (was) a more despicable person, Breitbart or Limbaugh. Its close. So anyone who contributes to anything that guy did is only making the world worse. Not that bad people cant come up with good ideas, and vice versa, but in general I prefer ideas that come from people who at least seem to not be psychopaths.
Turns out Im not the only one who thinks Morgan Warstler reads like a toxic personality. Here is Raul Groom at "The Vanishing Dollar":
As many who read this blog (if any section of this blog's readership can be usefully called "many") probably already know, there is a person out in Internet-land who calls himself Morgan Warstler. He's a blogger for the odd, ugly, and mostly useless righty politics site Big Government (full name: "Andrew Breitbart presents Big Government featuring editor in chief Mike Flynn," and no I am not making that up). He's a gadfly on several well-known economics blogs including Scott Sumner's The Money Illusion, but most of my dealings with him have been at Yglesias' place over at ThinkProgress. All in all, the guy is a nutcase, and I really don't recommend listening to him, reading him, or talking to him at all. It will just make you angry and confused. That said, the Warstler may well be a genius. He's fallen in with the wrong people and has couched his policy recommendations in politically toxic, morally bankrupt packages. But the man is onto something. I know, I know. Forty-two loyal Yglesias fans (the entire readership of this blog, sadly) just threw up a little in their mouths. But Morgan's Guaranteed Income plan is sort of on to something. I'll explain later. Just wanted to warn you, sort of an econ version of the "trigger warnings" on sites that focus on social issues. I will be taking up a lukewarm defense of Warstler this week. Consider yourself on notice.
Dan Kervick, one of my favorite posters of late says; "I call Morgan Warstler a "Darth Vadar Marxist". Those are folks who seem to accept a whole bunch of Marx's theorizing about class warfare, but who then try to encourage everyone to join the dark side of the greedy capitalists"
Obviously Ive made the point that I think he's a terrible guy, but he's also afflicted with some really poor economic thinking. He thinks the whole problem with our unemployment problem is simply too high of wages (Yes if we all made even less more of us would default at the debt levels we've achieved..... making the banks really happy then). He views the economy as a zero sum game where the only way someone who doesnt have something can get it is by depriving someone else of that thing (which would mean in his world the only way the "haves" got it was by getting it at the expense of the "have nots"....... try making the argument that the US is rich only because theyve made Africa, Mexico and Central America poor... I dare ya!). He also in one of his comments at someones site made the statement that consumption was "bad". Bad? Tell that to the worlds manufacturers who are just looking for someone to consume their product How can something which is the other side of the coin from production be bad? Putting a label on an economic variable like that strikes me as religious zealotry. Puritanic.
Now all of this, again,is not to say that he hasnt hit on something quite good. He may very well have. I dont have large objections to it but whenever someone who thinks like an Austrian economist, is friendly to the likes of Andrew Breitbart and is smart (cunning may be a more appropriate description) I think one should look real hard at ANYTHING he proposes.
Im pretty sure that over 90% of the time if Morgan Warstler likes it........ I wont.
One idea that has been offered involves an income guarantee, payable through a paypal debit card account. Here is the originator of the idea (as far as we know, the originator) Morgan Warstler;
Using a clone of Paypal and Ebay platforms, the US govt. should establish a Guaranteed Wage of $240 per week. Anyone who wants to work registers, receives a Debit Card,and each Friday has their GI deposited. All recipients have their labor weeks auctioned online. Bidding begins at $40 per week ($1 per hour). Bid increases by .50 cents per hour ($20 increments). Recipients keep 50% of the top bid, if they take it. If they opt for a lesser bid outside certain boundaries there are penalties (fraud measure). Recipients cannot be made to work outside a radius of a couple miles. Bidders must deposit money into system before they bid. They must accurately describe the job. Feedback will be given both ways. If you are familiar with Ebay, you understand what this accomplishes. There are no taxes paid, there are basic workplace protection requirments. Umbrella insurance is sold on site for folks bringing labor into their home. Expect 30M to register so approx $345B is our cost assuming 30M are auctioned at $1 (The govt. is picking up $5.50 and bidders are in for $1) At an avg. bid of $4 per hour, avg. worker is making $8, and the govt. is spending $250B a year. There is no more UI. There is no more minimum wage. That’s why there are 30M in program.
I would have to say that normally I would be 75-100% behind the idea. Its simple, it allows choices, there is a lot of bottom up thinking to it, the framework for it is in place already and I do think many people on both sides of the spectrum could get behind it. My primary reservation is knowing who came up with it. Not that I really KNOW Mr Warstler. He's as anonymous to me as Arthur Shipman or Mike Sax, guys on the internet I talk to with my keyboard. I wouldnt know any of these three if they walked in my house but I have read a lot of what they have to say on the sites I visit. I feel like I know them and know what kind of people they are. Mr Warstler is NOT good people, as they say.
First off Morgan is a fan of and I think a contributor to the late (yea!!) Andrew Breitbarts site. I'm not sure who is (was) a more despicable person, Breitbart or Limbaugh. Its close. So anyone who contributes to anything that guy did is only making the world worse. Not that bad people cant come up with good ideas, and vice versa, but in general I prefer ideas that come from people who at least seem to not be psychopaths.
Turns out Im not the only one who thinks Morgan Warstler reads like a toxic personality. Here is Raul Groom at "The Vanishing Dollar":
As many who read this blog (if any section of this blog's readership can be usefully called "many") probably already know, there is a person out in Internet-land who calls himself Morgan Warstler. He's a blogger for the odd, ugly, and mostly useless righty politics site Big Government (full name: "Andrew Breitbart presents Big Government featuring editor in chief Mike Flynn," and no I am not making that up). He's a gadfly on several well-known economics blogs including Scott Sumner's The Money Illusion, but most of my dealings with him have been at Yglesias' place over at ThinkProgress. All in all, the guy is a nutcase, and I really don't recommend listening to him, reading him, or talking to him at all. It will just make you angry and confused. That said, the Warstler may well be a genius. He's fallen in with the wrong people and has couched his policy recommendations in politically toxic, morally bankrupt packages. But the man is onto something. I know, I know. Forty-two loyal Yglesias fans (the entire readership of this blog, sadly) just threw up a little in their mouths. But Morgan's Guaranteed Income plan is sort of on to something. I'll explain later. Just wanted to warn you, sort of an econ version of the "trigger warnings" on sites that focus on social issues. I will be taking up a lukewarm defense of Warstler this week. Consider yourself on notice.
Dan Kervick, one of my favorite posters of late says; "I call Morgan Warstler a "Darth Vadar Marxist". Those are folks who seem to accept a whole bunch of Marx's theorizing about class warfare, but who then try to encourage everyone to join the dark side of the greedy capitalists"
Obviously Ive made the point that I think he's a terrible guy, but he's also afflicted with some really poor economic thinking. He thinks the whole problem with our unemployment problem is simply too high of wages (Yes if we all made even less more of us would default at the debt levels we've achieved..... making the banks really happy then). He views the economy as a zero sum game where the only way someone who doesnt have something can get it is by depriving someone else of that thing (which would mean in his world the only way the "haves" got it was by getting it at the expense of the "have nots"....... try making the argument that the US is rich only because theyve made Africa, Mexico and Central America poor... I dare ya!). He also in one of his comments at someones site made the statement that consumption was "bad". Bad? Tell that to the worlds manufacturers who are just looking for someone to consume their product How can something which is the other side of the coin from production be bad? Putting a label on an economic variable like that strikes me as religious zealotry. Puritanic.
Now all of this, again,is not to say that he hasnt hit on something quite good. He may very well have. I dont have large objections to it but whenever someone who thinks like an Austrian economist, is friendly to the likes of Andrew Breitbart and is smart (cunning may be a more appropriate description) I think one should look real hard at ANYTHING he proposes.
Im pretty sure that over 90% of the time if Morgan Warstler likes it........ I wont.
Monday, April 16, 2012
Two Grinches
Politics is all about keeping your base supporters energized and ready to go to the polls for your party. You use the media to get out easy to digest messages, you have pundits who articulate these messages in various ways so they appeal to as many people as possible and then there are the think tanks that spend billions learning how to further manipulate people to achieve an end. Part of what you do is spend time pushing the positives of your team and part of the time its pushing the negatives of the other team. Its a back and forth and both parties in our system have enjoyed periods of rather sustained success due to their ideas being adapted at just the right time in history.
Democrats enjoyed success for most of my early life and it mostly started with Roosevelt and WWII. Our responses to the depression, a period of great pain for many that was seen as the end result of high finance run amok, were the cornerstone of democratic policies for decades. Protecting people by insuring their deposits (FDIC), making housing affordable via 30 yr mortgages (Fannie) and guaranteeing an income in old age (SS), were just a few of the important ways that average Americans were spared destitution if economic times turned real bad.
Republicans have enjoyed success from my college days onward. Mostly because they had the presidency when we fought off the inflation of the 70's and it was their policies which have been given credit. One of the strategies they have successfully used since that time centers around an idea by Jude Wanniski, a journalist/economist/author of that day, called the Two Santa Claus' theory.
It is described this way in Wikipedia;
"The Two Santa Claus Theory
The Two Santa Claus Theory is a political theory and strategy published by Wanniski in 1976, which he promoted within the United States Republican Party.
According to Wanniski, the theory is simple. In 1976, he wrote that the Two-Santa Claus Theory suggests that "the Republicans should concentrate on tax-rate reduction. As they succeed in expanding incentives to produce, they will move the economy back to full employment and thereby reduce social pressures for public spending. Just as an increase in Government spending inevitably means taxes must be raised, a cut in tax rates—by expanding the private sector—will diminish the relative size of the public sector". Wanniski suggested this position, as Thom Hartmann has clarified, so that the Democrats would "have to be anti-Santas by raising taxes, or anti-Santas by cutting spending. Either one would lose them elections"
The theory states that, in democratic elections, if one party appeals to voters by proposing more spending, then a competing party cannot gain broader appeal by proposing less spending. The first "Santa Claus" of the theory title refers to the political party that promises spending. Instead, "Two Santa Claus Theory" recommends that the competing party must assume the role of a second Santa Claus by not arguing to cut spending but rather offering the more appealing and publicly sellable option of cutting taxes.
This theory is a response to the belief of monetarists, and especially Milton Friedman[citation needed], that the government must be starved of revenue in order to control the growth of spending (since, in the view of the monetarists, spending cannot be reduced by elected bodies as the political pressure to spend is too great)[citation needed]. See also Starve the beast.
The "Two Santa Claus Theory" does not argue against this belief but holds that such arguments cannot be espoused to try to win democratic elections. In Wanniski's view, the Laffer curve and supply-side economics provide an attractive alternative rationale for revenue reduction: that under reduced taxation the economy will grow, not merely that the beast of the government will be starved of revenue, and that that growth is an attractive option to present to the voters. Wanniski argued that Republicans must become the tax-cutting Santa Claus to the Democrats' spending Santa Claus."
Interesting stuff. It seems to me that this strategy is blowing up for both parties. Now they are locked in a race to take away the least from their electorate. Both agree that something must be taken away but the what and the amounts differ. Now instead of being the "Two Santa Claus'" they are becoming the "Two Grinches". Whos brand of cutting will be most effective and appealing?
One of the things that may favor democrats is that they are more sincere in their beliefs that we must cut stuff. I disagree vehemently with austerity measures, knowing they are wrongheaded and based on a completely flawed paradigm of how govt financing works, but the democrats are more likely to be seen as sincere in their efforts to make things better. Republicans have shown that they are just about slashing and burning everyone elses stuff and keeping their stuff safe from harm. Unfortunately our politicians keep reenforcing the idea the populace has that the only choice we have is the least bad one.
Democrats enjoyed success for most of my early life and it mostly started with Roosevelt and WWII. Our responses to the depression, a period of great pain for many that was seen as the end result of high finance run amok, were the cornerstone of democratic policies for decades. Protecting people by insuring their deposits (FDIC), making housing affordable via 30 yr mortgages (Fannie) and guaranteeing an income in old age (SS), were just a few of the important ways that average Americans were spared destitution if economic times turned real bad.
Republicans have enjoyed success from my college days onward. Mostly because they had the presidency when we fought off the inflation of the 70's and it was their policies which have been given credit. One of the strategies they have successfully used since that time centers around an idea by Jude Wanniski, a journalist/economist/author of that day, called the Two Santa Claus' theory.
It is described this way in Wikipedia;
"The Two Santa Claus Theory
The Two Santa Claus Theory is a political theory and strategy published by Wanniski in 1976, which he promoted within the United States Republican Party.
According to Wanniski, the theory is simple. In 1976, he wrote that the Two-Santa Claus Theory suggests that "the Republicans should concentrate on tax-rate reduction. As they succeed in expanding incentives to produce, they will move the economy back to full employment and thereby reduce social pressures for public spending. Just as an increase in Government spending inevitably means taxes must be raised, a cut in tax rates—by expanding the private sector—will diminish the relative size of the public sector". Wanniski suggested this position, as Thom Hartmann has clarified, so that the Democrats would "have to be anti-Santas by raising taxes, or anti-Santas by cutting spending. Either one would lose them elections"
The theory states that, in democratic elections, if one party appeals to voters by proposing more spending, then a competing party cannot gain broader appeal by proposing less spending. The first "Santa Claus" of the theory title refers to the political party that promises spending. Instead, "Two Santa Claus Theory" recommends that the competing party must assume the role of a second Santa Claus by not arguing to cut spending but rather offering the more appealing and publicly sellable option of cutting taxes.
This theory is a response to the belief of monetarists, and especially Milton Friedman[citation needed], that the government must be starved of revenue in order to control the growth of spending (since, in the view of the monetarists, spending cannot be reduced by elected bodies as the political pressure to spend is too great)[citation needed]. See also Starve the beast.
The "Two Santa Claus Theory" does not argue against this belief but holds that such arguments cannot be espoused to try to win democratic elections. In Wanniski's view, the Laffer curve and supply-side economics provide an attractive alternative rationale for revenue reduction: that under reduced taxation the economy will grow, not merely that the beast of the government will be starved of revenue, and that that growth is an attractive option to present to the voters. Wanniski argued that Republicans must become the tax-cutting Santa Claus to the Democrats' spending Santa Claus."
Interesting stuff. It seems to me that this strategy is blowing up for both parties. Now they are locked in a race to take away the least from their electorate. Both agree that something must be taken away but the what and the amounts differ. Now instead of being the "Two Santa Claus'" they are becoming the "Two Grinches". Whos brand of cutting will be most effective and appealing?
One of the things that may favor democrats is that they are more sincere in their beliefs that we must cut stuff. I disagree vehemently with austerity measures, knowing they are wrongheaded and based on a completely flawed paradigm of how govt financing works, but the democrats are more likely to be seen as sincere in their efforts to make things better. Republicans have shown that they are just about slashing and burning everyone elses stuff and keeping their stuff safe from harm. Unfortunately our politicians keep reenforcing the idea the populace has that the only choice we have is the least bad one.
Wednesday, November 16, 2011
How a loan comes to be
This diary is motivated as a rebuttal to many wrongheaded ideas I hear in the blogosphere. Some I even held myself in the not too distant past. Not because I had ever put much thought into them but precisely because I hadnt put much thought into them. Funny how really thinking about something can clear the muddle away.
The idea I want to address in this diary is the nature of a loan. Specifically a loan from a bank
Now, we all know what a loan is right? We dont have something so we get it from someone else with a promise to pay it back. A cup of sugar from your neighbor, ten bucks for lunch from your buddy or even $5,000 from a parent or close relative for something really important. This would be what is called the micro perspective. What an individual does with his individual transactions and the motivations behind them. At any given point in time there are countless billions/trillions owed in this way. One important thing about these loans, they really dont have much macro impact (other than if everyone welched on these we'd have half the population pissed....... hmmmm maybe just like now after all.... but I digress) There is no monetary macro impact in terms of affecting aggregate demand is probably a better way of saying this. Why? Well I think its safe to assume if I lend $5,000 to my brother I dont need it myself. If I did I wouldnt lend it right, so this isnt money that would otherwise be spent on some good or service immediately. But my brother likely did spend it on something so my loss was his gain and we net to zero. I am expecting that he will "lose" $5,000 later when he can and give it back to me but again it is a net to zero in terms of the macroeconomy. No new money has been created to augment aggregate demand. This is the situation being talked about in this parable
http://blog.streeteye.com/blog/
This parable is trying to illustrate that one $100 bill can pay off thousands and thousands worth of debts. And this is true. But only if you are talking about the types of debts described above where its between two private sector actors and involves cash or its equivalent (a demand deposit account that one writes checks off of). This is not the case when everyone is indebted to what is functionally an outside third party like a bank.
A bank loan is verrrrrrry different. In spite of what many smart economists think (Mr Krugman Im talking about you here) when we go to a bank and get out a loan its not operationally, functionally, any-"ally" equivalent to what I described above. It involves something entirely different. The thing is I suspect banks know this but they are happy to let people continue to believe false beliefs. Probably cuz those false beliefs benefit them, or so they think. Anyhoo, what I would like to persuade you into seeing is that when you borrow "from" a bank you are not borrowing the accumulated savings of thousands of other people who are so generous to let you use their money for a venture (and "all" they want in return is some compound interest) but in fact you are borrowing from YOU!. Doppleganger whoever that lives a few years ahead and is so optimistic about his life he will promise almost anything to someone who is willing to make his dreams of a small business a reality.
Now, Im not claiming that when thousands or millions of people pool their resources that something greater than the sum of individual parts cant come to fruition and that banks dont in someway, in our modern economy, facilitate that. Thats not my intent at all, my intent is to show that at its most fundamental level what a bank loan IS.
I think this is important because just like if you dont know what matter is you have no way of coherently deconstructing and possibly reconstructing it, if you mis understand what bank loans are your attempts to restore them will fail when they cease to be the monetary support for the economy that they once were. Now, whether or not we should be relying on bank credit to support commerce at our previous levels is ANOTHER discussion to have.............. but not here.
SO lets do a short thought experiment which, I think, demonstrates my point.
Imagine ten people who are all consuming every bit of their income. They have nothing to save because they spend everything to live. Now imagine that only one guy finds a way to consume less and can therefore accumulate savings. At this point could a bank (Im going to take a cue from neo classical econ and “assume” a bank into existence) take his savings and lend them to any of the other nine people?? Of course not. Everyone else is consuming all their income, they have nothing to borrow. A bank could however loan the saver some money against his future disposable income. That loan is created out of thin air and is an addition to present money supply. Once each of the other nine people in that are able to accumulate savings by not using all present income for consumption, they can then become a borrower against THEIR OWN potential income stream.
It requires no one elses savings for me to get a loan, only my own potential future income beyond consumption.
Banks make claims on each borrowers own savings and future income and no one elses.
This realization makes it clear that all efforts to restore lending which focus on the banks side while ignoring the income of average Americans is destined to failure.
Are there any economists who talk like this? Who talk about repairing the citizens balance sheets not the banks? Who talk about income support instead of asset price inflating? Yep .............. the ones who study MMT
Study it!!
Bring on the discussion!
The idea I want to address in this diary is the nature of a loan. Specifically a loan from a bank
Now, we all know what a loan is right? We dont have something so we get it from someone else with a promise to pay it back. A cup of sugar from your neighbor, ten bucks for lunch from your buddy or even $5,000 from a parent or close relative for something really important. This would be what is called the micro perspective. What an individual does with his individual transactions and the motivations behind them. At any given point in time there are countless billions/trillions owed in this way. One important thing about these loans, they really dont have much macro impact (other than if everyone welched on these we'd have half the population pissed....... hmmmm maybe just like now after all.... but I digress) There is no monetary macro impact in terms of affecting aggregate demand is probably a better way of saying this. Why? Well I think its safe to assume if I lend $5,000 to my brother I dont need it myself. If I did I wouldnt lend it right, so this isnt money that would otherwise be spent on some good or service immediately. But my brother likely did spend it on something so my loss was his gain and we net to zero. I am expecting that he will "lose" $5,000 later when he can and give it back to me but again it is a net to zero in terms of the macroeconomy. No new money has been created to augment aggregate demand. This is the situation being talked about in this parable
http://blog.streeteye.com/blog/
This parable is trying to illustrate that one $100 bill can pay off thousands and thousands worth of debts. And this is true. But only if you are talking about the types of debts described above where its between two private sector actors and involves cash or its equivalent (a demand deposit account that one writes checks off of). This is not the case when everyone is indebted to what is functionally an outside third party like a bank.
A bank loan is verrrrrrry different. In spite of what many smart economists think (Mr Krugman Im talking about you here) when we go to a bank and get out a loan its not operationally, functionally, any-"ally" equivalent to what I described above. It involves something entirely different. The thing is I suspect banks know this but they are happy to let people continue to believe false beliefs. Probably cuz those false beliefs benefit them, or so they think. Anyhoo, what I would like to persuade you into seeing is that when you borrow "from" a bank you are not borrowing the accumulated savings of thousands of other people who are so generous to let you use their money for a venture (and "all" they want in return is some compound interest) but in fact you are borrowing from YOU!. Doppleganger whoever that lives a few years ahead and is so optimistic about his life he will promise almost anything to someone who is willing to make his dreams of a small business a reality.
Now, Im not claiming that when thousands or millions of people pool their resources that something greater than the sum of individual parts cant come to fruition and that banks dont in someway, in our modern economy, facilitate that. Thats not my intent at all, my intent is to show that at its most fundamental level what a bank loan IS.
I think this is important because just like if you dont know what matter is you have no way of coherently deconstructing and possibly reconstructing it, if you mis understand what bank loans are your attempts to restore them will fail when they cease to be the monetary support for the economy that they once were. Now, whether or not we should be relying on bank credit to support commerce at our previous levels is ANOTHER discussion to have.............. but not here.
SO lets do a short thought experiment which, I think, demonstrates my point.
Imagine ten people who are all consuming every bit of their income. They have nothing to save because they spend everything to live. Now imagine that only one guy finds a way to consume less and can therefore accumulate savings. At this point could a bank (Im going to take a cue from neo classical econ and “assume” a bank into existence) take his savings and lend them to any of the other nine people?? Of course not. Everyone else is consuming all their income, they have nothing to borrow. A bank could however loan the saver some money against his future disposable income. That loan is created out of thin air and is an addition to present money supply. Once each of the other nine people in that are able to accumulate savings by not using all present income for consumption, they can then become a borrower against THEIR OWN potential income stream.
It requires no one elses savings for me to get a loan, only my own potential future income beyond consumption.
Banks make claims on each borrowers own savings and future income and no one elses.
This realization makes it clear that all efforts to restore lending which focus on the banks side while ignoring the income of average Americans is destined to failure.
Are there any economists who talk like this? Who talk about repairing the citizens balance sheets not the banks? Who talk about income support instead of asset price inflating? Yep .............. the ones who study MMT
Study it!!
Bring on the discussion!
Monday, August 8, 2011
Irrational Expectations
Of all the irrational things we do and expect on a regular basis, and there are many, one just keeps on popping up again and again on blogs I read and in the comment sections. The thing is, I think I may be the only one who sees it as irrational. Ive never seen anyone else comment on it nor has anyone ever responded positively to my comment/question when I make it. I think it is because it involves questioning that thing which everyone just takes for granted and never questions. Its never even entered their mind to question it. Its the idea of interest on saving. Saving, it seems to many, is what defines a rational/good/responsible person. "Save some for tomorrow". "Dont use it all up today". "You dont know what tomorrow brings". These are all true/rational statements. So where is it I take issue? Not with the act of saving itself, because I save plenty, but with the idea that MY saving is necessary and as a result I should be paid handsomely for my saving. In fact, it seems to be posited by all, when I save (an act which helps me) I should be rewarded with not only access to the level of present consumption I decided not to do, but I should have the opportunity for MORE consumption later. And if that condition doesnt exist when I decide at a future date of my choosing? I get to curse our government (they are always to blame) and cry INFLATION INFLATION!! I find the whole exercise quite odd and I hope to show that its quite irrational.
Much of the discussions on econ blogs involves terms like nominal, real, medium of exchange, unit of account, credits, debits, interest and of course the big two.......inflation/deflation. All these terms refer to different accounting variables changing in relation to one another and of course accounting is how we keep track of, keep score FOR, money. Thats all accounting is. These numbers are supposed to represent real economic variables (real being sweat and atoms, ala Winterspeak) but often these numbers take on lives of their own and lose relation to real stuff. I want to argue that removing money and simply looking at real economic factors makes interest irrational, at least the levels that many people seem to think they should earn. Interest and by extension, I believe, extreme variations in wealth would be impossible in a barter world. Except by outright use of force, fraud or theft (Yes I know that probably explains the situation in our monetary world as well but........)
The most common place this idea comes to the forefront is in discussions of our public debt levels and the machinations of our federal reserve. People are concerned today that our low long term interest rates are punishing savers, exposing them to the woes of inflation, as our govt prints cheap money and makes their previously saved dollar worth less and less. Ignoring, for the purposes of this post, the whole flawed notion that most people have about exactly WHAT govt debt represents for the private sector (an asset or a liability), I want to just address the whole notion that someone should EVER expect their buying power to stay the same for a 10, 20 or 30 year period. Just exactly what does everyone else need to do in order for you to keep your buying power intact for three decades? Think about it. Today you have extra money and instead of buying 20 loaves of bread you buy 2 and save the money. Now you will likely be able to buy two loaves of bread a week for the next nine weeks, as the loaf of bread rarely changes prices significantly over 10 weeks, but if you keep that money for 5 years why should you expect that you could still buy 18 more loaves of bread with that money. If you can great, but why does the rest of the system have to operate in such a way as to guarantee it. And if the system doesnt do so, why is the system flawed? Now there are things that you might be able to do with that money to facilitate the likelihood of such a market price for bread. You could invest in technologies which make the harvesting of wheat more efficient or technologies which make the seeds grow more wheat per acre but if you dont, you have no gripe. This same discussion can apply to every product which you decided not to buy and instead saved your money.
Now, according to orthodox economists this is exactly what savers do. They put there money in places where the professionals make these decisions to keep the progress of capitalism moving, protecting the buying power of your dollar. Trouble is this isnt really true. Most of what we call investing is simply buying an already created commodity like a stock, or gold and waiting to find another sucker to buy it later at a higher price. This is the sole purpose of "investing" for most of us and this mindset is perpetuated if not outright demanded by the "professionals" who manage our money these days. Its simply gambling, waiting for the odds to move in your favor and then catch some poor sap in a losing position. Now of course in a world where people are only gambling their own money every winner is off set by a loser, its a zero sum game. But today we have large investment banks gambling OTHER peoples money where they stand to lose nothing (govt backing) and the others lose everything. Its not like your friendly high stakes poker game at all.
So lets remove the money and see what a saver is really doing and really expecting. A saver is simply deciding to only consume what they need right now and putting some aside for tomorrow. If they needed it they wouldn't save it. So how is it so noble to make the rational decision to only consume what you need? If they are lucky enough to have way more than they need what can they do? They either put it aside and use it before it spoils, deteriorates or is somehow not in the same condition it started and therefore not of the same utility or they find someone else who might can use it. Now if they have that someone else maybe they trade but there is never a guarantee that there will be someone else needing what you have extra of. But lets say you find someone who has none of what you have and would like some but they have nothing you need or want. What to do? You can invest in him and let him have it and work with him to help him return something to you. Your investment requires work on your part and your return is commensurate with the effort you put in to your investment. If you just say "here" and walk away you've given him something but you should not expect anything in return other than an in kind gift. No interest. If you would like some real returns down the road say one, two or five years ahead, you need to do something to bring that to fruition. Investment is an effort not a passive activity.
I remember being taught the "Rule of 72" a number of years back. The rule took the interest rate divided it into 72 and came up with the doubling period for your investment. 7.2% doubled every 10 years. 3% doubled every 24 years. Now of course this was just "nominal" doubling. This didnt necessarily reflect twice as much real stuff being created and that is the point. How could we ever set up, endorse, encourage and continue to genuflect towards a system which says it can double in size in every 10 and 20 years....... forever!? Is this not madness? Is it not being designed to fail? We could never have these expectations in the absence of money. In the absence of an abstraction which purports to represent real activity but in truth is becoming totally detached from real activity.
In the previous example of loaves of bread. Would it be rational for someone to lend a loaf of bread to someone and expect 2 in ten years? Maybe. Could everyone expect that? No. Especially not into perpetuity. If you wait 20 years you would expect 4. 30 years you would expect 8. It becomes obvious using real stuff that these interest returns are irrational expectations.
So if there is something you want, get it now. Dont save the money and expect to be able to get IT or its equivalent in 5 or 10 years, not unless you make an active effort yourself to try and ensure such a thing. Its like the girl you had the opportunity to marry when she was 21 beautiful and wanting to marry you. At 30 she may be fatter, she may have let her complexion go OR she may be more beautiful than ever but love someone else now.
Save when you dont need everything you have but dont expect the rest of the world to make sure you can get what you want later. It dont work that way
Much of the discussions on econ blogs involves terms like nominal, real, medium of exchange, unit of account, credits, debits, interest and of course the big two.......inflation/deflation. All these terms refer to different accounting variables changing in relation to one another and of course accounting is how we keep track of, keep score FOR, money. Thats all accounting is. These numbers are supposed to represent real economic variables (real being sweat and atoms, ala Winterspeak) but often these numbers take on lives of their own and lose relation to real stuff. I want to argue that removing money and simply looking at real economic factors makes interest irrational, at least the levels that many people seem to think they should earn. Interest and by extension, I believe, extreme variations in wealth would be impossible in a barter world. Except by outright use of force, fraud or theft (Yes I know that probably explains the situation in our monetary world as well but........)
The most common place this idea comes to the forefront is in discussions of our public debt levels and the machinations of our federal reserve. People are concerned today that our low long term interest rates are punishing savers, exposing them to the woes of inflation, as our govt prints cheap money and makes their previously saved dollar worth less and less. Ignoring, for the purposes of this post, the whole flawed notion that most people have about exactly WHAT govt debt represents for the private sector (an asset or a liability), I want to just address the whole notion that someone should EVER expect their buying power to stay the same for a 10, 20 or 30 year period. Just exactly what does everyone else need to do in order for you to keep your buying power intact for three decades? Think about it. Today you have extra money and instead of buying 20 loaves of bread you buy 2 and save the money. Now you will likely be able to buy two loaves of bread a week for the next nine weeks, as the loaf of bread rarely changes prices significantly over 10 weeks, but if you keep that money for 5 years why should you expect that you could still buy 18 more loaves of bread with that money. If you can great, but why does the rest of the system have to operate in such a way as to guarantee it. And if the system doesnt do so, why is the system flawed? Now there are things that you might be able to do with that money to facilitate the likelihood of such a market price for bread. You could invest in technologies which make the harvesting of wheat more efficient or technologies which make the seeds grow more wheat per acre but if you dont, you have no gripe. This same discussion can apply to every product which you decided not to buy and instead saved your money.
Now, according to orthodox economists this is exactly what savers do. They put there money in places where the professionals make these decisions to keep the progress of capitalism moving, protecting the buying power of your dollar. Trouble is this isnt really true. Most of what we call investing is simply buying an already created commodity like a stock, or gold and waiting to find another sucker to buy it later at a higher price. This is the sole purpose of "investing" for most of us and this mindset is perpetuated if not outright demanded by the "professionals" who manage our money these days. Its simply gambling, waiting for the odds to move in your favor and then catch some poor sap in a losing position. Now of course in a world where people are only gambling their own money every winner is off set by a loser, its a zero sum game. But today we have large investment banks gambling OTHER peoples money where they stand to lose nothing (govt backing) and the others lose everything. Its not like your friendly high stakes poker game at all.
So lets remove the money and see what a saver is really doing and really expecting. A saver is simply deciding to only consume what they need right now and putting some aside for tomorrow. If they needed it they wouldn't save it. So how is it so noble to make the rational decision to only consume what you need? If they are lucky enough to have way more than they need what can they do? They either put it aside and use it before it spoils, deteriorates or is somehow not in the same condition it started and therefore not of the same utility or they find someone else who might can use it. Now if they have that someone else maybe they trade but there is never a guarantee that there will be someone else needing what you have extra of. But lets say you find someone who has none of what you have and would like some but they have nothing you need or want. What to do? You can invest in him and let him have it and work with him to help him return something to you. Your investment requires work on your part and your return is commensurate with the effort you put in to your investment. If you just say "here" and walk away you've given him something but you should not expect anything in return other than an in kind gift. No interest. If you would like some real returns down the road say one, two or five years ahead, you need to do something to bring that to fruition. Investment is an effort not a passive activity.
I remember being taught the "Rule of 72" a number of years back. The rule took the interest rate divided it into 72 and came up with the doubling period for your investment. 7.2% doubled every 10 years. 3% doubled every 24 years. Now of course this was just "nominal" doubling. This didnt necessarily reflect twice as much real stuff being created and that is the point. How could we ever set up, endorse, encourage and continue to genuflect towards a system which says it can double in size in every 10 and 20 years....... forever!? Is this not madness? Is it not being designed to fail? We could never have these expectations in the absence of money. In the absence of an abstraction which purports to represent real activity but in truth is becoming totally detached from real activity.
In the previous example of loaves of bread. Would it be rational for someone to lend a loaf of bread to someone and expect 2 in ten years? Maybe. Could everyone expect that? No. Especially not into perpetuity. If you wait 20 years you would expect 4. 30 years you would expect 8. It becomes obvious using real stuff that these interest returns are irrational expectations.
So if there is something you want, get it now. Dont save the money and expect to be able to get IT or its equivalent in 5 or 10 years, not unless you make an active effort yourself to try and ensure such a thing. Its like the girl you had the opportunity to marry when she was 21 beautiful and wanting to marry you. At 30 she may be fatter, she may have let her complexion go OR she may be more beautiful than ever but love someone else now.
Save when you dont need everything you have but dont expect the rest of the world to make sure you can get what you want later. It dont work that way
Subscribe to:
Posts (Atom)