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10-24-2011, 03:58 PM   #106
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QuoteOriginally posted by causey Quote
....in the second sense, the idea is that a government can print without worry--since there is no natural limit to printing, that is, no cost that money creation incurs--in order to address a certain (deficit) problem.
If MMT doesn't advocate money creation in this second sense, there is, indeed, no disagreement.
It does not in this second sense - there is both worry and means for control Tax policy is one important tool for applying deflationary pressure if things over-inflate..

The printer man giveth unto us and the tax man doth taketh away

10-24-2011, 04:26 PM   #107
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QuoteQuote:
You make it sound like there is some "doubt".... WE are in a fiat money system, by definition.
I didn't mean to make it sound doubtful.

_______________________________________________________________________________


OK, then, I guess, we can say, case closed!--and thank you! (I'm going to read some MMT in the next few months, though.)

Last edited by causey; 10-24-2011 at 04:42 PM.
10-24-2011, 04:32 PM   #108
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QuoteOriginally posted by jeffkrol Quote
Taxation is the main tool to stop inflation.......since it removes money from an overheated economy.
Other forms of inflation (doughts, cartels ect) are beyond our direct control in any "system"..
5 pages ago...........
10-24-2011, 04:36 PM   #109
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QuoteOriginally posted by jeffkrol Quote
5 pages ago...........
too many pages at once can be confusing...

10-24-2011, 07:49 PM   #110
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QuoteOriginally posted by causey Quote
I didn't mean to make it sound doubtful.

_______________________________________________________________________________


OK, then, I guess, we can say, case closed!--and thank you! (I'm going to read some MMT in the next few months, though.)
In the time you spent here you could read Mosler...........
http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
opening page is blank.. just a FYI........
10-25-2011, 09:03 AM   #111
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QuoteOriginally posted by jeffkrol Quote
In the time you spent here you could read Mosler...........
http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf
opening page is blank.. just a FYI........
I'll take a look at it as soon as I have some time--most probably, in December. (Revising a 400p dissertation now... and fleeing from work on PF )
10-25-2011, 04:59 PM   #112
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For your return..........
QuoteQuote:
Let’s take a look at the three basic rules, defined by one of the fathers of Modern Monetary Theory (MMT), Abba Lerner, in a paper he wrote about Functional Finance in 1941. (taken from mmtwiki)
The rules

1)The government shall maintain a reasonable level of demand at all times. If there is too little spending and, thus, excessive unemployment, the government shall reduce taxes or increase its own spending. If there is too much spending, the government shall prevent inflation by reducing its own expenditures or by increasing taxes.

2) By borrowing money when it wishes to raise the rate of interest, and by lending money or repaying debt when it wishes to lower the rate of interest, the government shall maintain that rate of interest that induces the optimum amount of investment.


3) If either of the first two rules conflicts with the principles of ‘sound finance’, balancing the budget, limiting the national debt or other dogmas of traditional economics, so much the worse for these principles.

Added 4th for "staglation"..........

4). The government must establish policies which stabilize the price level and coordinate both the money supply rule and the aggregate total spending rule with this stable price level at the unemployment level it prefers.

Colander writes, “To integrate the necessity of dealing with the institutional problem of sellers’ inflation by changing institutions rather than accepting whatever unemployment was required to stop inflation, Lerner and I arrived at [this] modification of the rules of functional finance… With this fourth rule the rules of functional finance can once again be relevant to modern economic problems”.
Economics in the “Golden Age of Capitalism” Modern Monetary Theory
Macroeconomics: was Vickrey ten years ahead? - economist and Nobel laureate William Vickrey - page 4 | Challenge

QuoteQuote:
Fighting inflation by keeping the poor and less well-off unemployed would violate society's collective normative judgment. He followed Lord Beveridge in believing that it is society's job to create more positions than job seekers, so that firms do the primary searching for workers, not workers for jobs.

The appropriate policy, if an inflation were started, would be to change the institutions of the economy so that the lower unemployment rate is consistent with no inflation. You don't accept a normatively unacceptable rate of unemployment as an equilibrium.

The Free-Market Solution to Inflation

It is here that my free-market solution to inflation, later reworked, further developed and, renamed the market anti-inflation plan (MAP) by Abba Lerner and me, came in. Vickrey saw MAP as the institutional change needed to guarantee that a true full employment - roughly 2 to 3 percent unemployment - could be reached in a way that was institutionally compatible with a non-inflationary economy. And it could do so in a way that was fully consistent with existing institutions......snip.............Concluding Comment

With the benefit of the observations of the late 1990s, it is now clear that Vickrey's view that, within the natural range, inflation and unemployment are separable issues has much more merit than the profession had perceived. A profession that can turn out young economists who see such ideas as kooky, without a deep consideration of them, is not training its young economists acceptably. Somehow, we need to give young economists a better sense of our lack of our understanding of the economy.

I suspect that, in view of recent developments and economists' poor record of predicting those developments, Vickrey's macro views will be making a comeback. It is quite likely that, sometime in the future, the profession will come to believe that Vickrey was years ahead of the profession not only in micro but in macro.


10-25-2011, 05:14 PM   #113
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Continued a bit....

QuoteQuote:
Dealing with the Inflation Problem

Vickrey's view does not mean that inflation cannot be a problem. It simply means that, within the 4 to 8 percent range, inflation is a problem separable from unemployment. Within that range, inflation is best dealt with by means other than contractionary monetary and fiscal policy. Contractionary policies to fight inflation simply add to the misery index without significantly reducing inflation. Using contractionary aggregate demand policy to fight inflation is the modern equivalent of bloodletting to cure diseases. It piles one misery onto another, without doing any significant good.

In 1996 anyone who had been so bold as to say that unemployment could be reduced to 4.6 percent without generating accelerating inflation would have been labeled a kook. That didn't stop Vickrey from arguing that, and if Vickrey were here today he would be telling you that, given current conditions, unemployment could, and should, be reduced to 4 percent, or even 3.5 percent, without generating accelerating inflation.

I do not know whether Vickrey was right in that view, but I also do not know whether he was wrong. The empirical evidence, when scrutinized, is ambiguous and does not allow us to reject a wide variety of theories. Many, if not most, economists would agree with me on this, especially if they include the evidence of the past two years. But, by the same token, the evidence does not allow us to hold the theories that we hold with much certainty. Yet economists seem to hold deeply whatever theory they subscribe to, as if it is the truth. Economists seem to have a genetic predisposition against uttering: "We don't know, and the empirical evidence doesn't tell us the answer."


QuoteQuote:
“it had to be recognized that the result might be a continually increasing national debt… At this point two things should have been made clear: first, that this possibility presented no danger to society, no matter what unimagined heights the national debt might reach, so long as Functional Finance maintained the proper level of total demand for current output; and second (though this is much less important), that there is an automatic tendency for the budget to be balanced in the long run as a result of the application of Functional Finance, even if there is no place for the principle of balancing the budget. No matter how much interest has to be paid on the debt, taxation must not be applied unless it is necessary to keep spending down to prevent inflation.”

“There are four major errors in the argument against deficit spending, four reasons why its apparent conclusiveness is only illusory…” (I’ll leave it to readers to read the reasons in the paper, some of the arguments apply to issues which are not very relevant today.)

“Functional Finance is not especially related to democracy or to private enterprise. It is applicable to a communist society just as well as to a fascist society or a democratic society.”
http://www.columbia.edu/dlc/wp/econ/vickrey.html

QuoteQuote:
Much of the conventional economic wisdom prevailing in financial circles, largely subscribed to as a basis for governmental policy, and widely accepted by the media and the public, is based on incomplete analysis, contrafactual assumptions, and false analogy. For instance, encouragement to saving is advocated without attention to the fact that for most people encouraging saving is equivalent to discouraging consumption and reducing market demand, and a purchase by a consumer or a government is also income to vendors and suppliers, and government debt is also an asset. Equally fallacious are implications that what is possible or desirable for individuals one at a time will be equally possible or desirable for all who might wish to do so or for the economy as a whole.

And often analysis seems to be based on the assumption that future economic output is almost entirely determined by inexorable economic forces independently of government policy so that devoting more resources to one use inevitably detracts from availability for another. This might be justifiable in an economy at chock-full employment, or it might be validated in a sense by postulating that the Federal Reserve Board will pursue and succeed in a policy of holding unemployment strictly to a fixed "non-inflation-accelerating" or "natural" rate. But under current conditions such success is neither likely nor desirable.

Some of the fallacies that result from such modes of thought are as follows. Taken together their acceptance is leading to policies that at best are keeping us in the economic doldrums with overall unemployment rates stuck in the 5 to 6 percent range. This is bad enough merely in terms of the loss of 10 to 15 percent of our potential production, even if shared equitably, but when it translates into unemployment of 10, 20, and 40 percent among disadvantaged groups, the further damages in terms of poverty, family breakup, school truancy and dropout, illegitimacy, drug use, and crime become serious indeed. And should the implied policies be fully carried out in terms of a "balanced budget," we could well be in for a serious depression.

Last edited by jeffkrol; 10-25-2011 at 05:31 PM.
10-25-2011, 05:38 PM   #114
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Especially for mikemike.........

[
QuoteQuote:
B]Fallacy 1[/B]
Deficits are considered to represent sinful profligate spending at the expense of future generations who will be left with a smaller endowment of invested capital. This fallacy seems to stem from a false analogy to borrowing by individuals.
Current reality is almost the exact opposite. Deficits add to the net disposable income of individuals, to the extent that government disbursements that constitute income to recipients exceed that abstracted from disposable income in taxes, fees, and other charges. This added purchasing power, when spent, provides markets for private production, inducing producers to invest in additional plant capacity, which will form part of the real heritage left to the future.
QuoteQuote:
Fallacy 2
Urging or providing incentives for individuals to try to save more is said to stimulate investment and economic growth. This seems to derive from an assumption of an unchanged aggregate output so that what is not used for consumption will necessarily and automatically be devoted to capital formation.
Again, actually the exact reverse is true. In a money economy, for most individuals a decision to try to save more means a decision to spend less; less spending by a saver means less income and less saving for the vendors and producers, and aggregate saving is not increased, but diminished as vendors in turn reduce their purchases, national income is reduced and with it national saving. A given individual may indeed succeed in increasing his own saving, but only at the expense of reducing the income and saving of others by even more.
QuoteQuote:
Fallacy 3

Government borrowing is supposed to "crowd out" private investment.
The current reality is that on the contrary, the expenditure of the borrowed funds (unlike the expenditure of tax revenues) will generate added disposable income, enhance the demand for the products of private industry, and make private investment more profitable.
ect.
QuoteQuote:

If a budget balancing program should actually be carried through, the above analysis indicates that sooner or later a crash comparable to that of 1929 would almost certainly result. To be sure, it would probably be less severe than the depression of the 1930's by reason of the many cushioning factors that have been introduced since, and enthusiasm for the quest of the Holy Grail of a balanced budget may wane in the face of a deepening recession, but the consequences of the aborted attempt would still be serious. To assure against such a disaster and start on the road to real prosperity it is necessary to relinquish our unreasoned ideological obsession with reducing government deficits, recognize that it is the economy and not the government budget that needs balancing in terms of the demand for and supply of assets, and proceed to recycle attempted savings into the income stream at an adequate rate, so that they will not simply vanish in reduced income, sales, output and employment. There is too a free lunch out there, indeed a very substantial one. But it will require getting free from the dogmas of the apostles of austerity, most of whom would not share in the sacrifices they recommend for others. Failing this we will all be skating on very thin ice.
For later.........
http://books.google.com/books?hl=en&lr=&id=6hVGY6xmc3EC&oi=fnd&pg=PA1&dq=%2B...page&q&f=false

Last edited by jeffkrol; 10-25-2011 at 05:51 PM.
11-03-2011, 09:08 AM   #115
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So what about this analysis?

David Beckworth & Ramesh Ponnuru: Tight Budgets, Loose Money: Why Both Liberals And Conservatives Are Wrong About How To Fix The Economy | The New Republic

QuoteQuote:
Both the left and the right have been consistently peddling the wrong prescriptions for our economy. Most liberals are focused on the need for additional fiscal stimulus, and dead-set against any premature moves toward what they consider “austerity.” Spending cuts, they say, would weaken the economy. Most conservatives are equally insistent that spending cuts need to begin now—and claim that by reducing expectations of future tax increases these cuts would help the economy. At the same time, they consider monetary policy dangerously inflationary and want the Federal Reserve to tighten it, or at least not loosen it any further.

Both sides are mistaken: the right on monetary policy, the left on budget policy, both on the relationship between them. What the economy needs now, contrary to the right, is a permanent monetary expansion. If the Federal Reserve delivers one, the economy, contrary to the left, won’t need new federal spending—and won’t suffer from spending cuts.

There is a bipartisan misunderstanding in Washington about the important role of the Fed in creating the sharpest recession since the Great Depression. For the 25 years leading up to our current mess—the period economists have come to call “the great moderation”—the Fed did a pretty good job of stabilizing the economy. The result of its monetary policies was that the economy, measured in current-dollar or “nominal” terms, grew at about 5 percent a year, with inflation accounting for 2 percent of the increase and real economic growth 3 percent. Keeping nominal spending and nominal income on a predictable path is important for two reasons. First, most debts, such as mortgages, are contracted in nominal terms, so an unexpected slowdown in nominal income growth increases their burden. Also, the difficulty of adjusting nominal prices makes the business cycle more severe. If workers resist nominal wage cuts during a deflation, for example, mass unemployment results.

During the great moderation, people began to expect spending and incomes to grow at a stable rate and made borrowing decisions based on it. But maintaining this stability requires the Fed to increase the money supply whenever the demand for money balances—people’s preference for cash over other assets—increases. This happened in 2008 when, as a result of the recession and the financial crisis, fearful Americans began to hold their cash. The Federal Reserve, first worried about increased commodity prices as a harbinger of inflation and then focused on saving the financial system, failed to increase the money supply enough to offset this shift in demand and allowed nominal spending to fall through mid-2009.

That drop in nominal spending was the most severe decline since 1938. Since then, none of the Fed’s much-debated moves toward monetary ease have brought nominal spending back to where it would have been had the expected 5 percent growth been maintained all along. Consequently, incomes are lower, debt burdens are higher, and banks are weaker than they should be.

Many liberals believe that the Fed is now “out of ammunition” since interest rates cannot be lowered further. Ron Suskind’s recent book Confidence Men reports that President Obama, for example, told economic adviser Christina Romer that the Fed had “shot its wad.” But as Federal Reserve Chairman Ben Bernanke noted in an analysis of Japan in 1999, the Fed can expand the money supply even when interest rates are very low.

For example, the mere announcement that the Fed will buy assets until nominal spending hits a target, for example, could raise expectations for nominal-spending growth. If debtors expect higher nominal income as a result, they will devote fewer resources to deleveraging. If investors expect higher nominal spending, they will rebalance their portfolios away from cash and toward higher-yield assets such as stocks, bidding prices up. Higher asset values then lead to increases in spending on both consumption and investment. The more aggressive the Fed’s announcement, in fact, the fewer assets it will likely have to actually buy.

The Fed has refused to take such steps largely because it fears that a dangerous level of inflation would result. That’s a foolish fear: Inflation has been low for the last few years, and the market for inflation-indexed bonds suggests that investors expect low inflation for years to come.

But the Fed’s fear has an implication that liberals overlook. It means that the current “multiplier” from fiscal stimulus—the amount of extra economic activity new deficit spending will generate—is zero at most. That’s because the more fiscal stimulus Congress provides, the less monetary easing the Fed feels inclined to offer. Liberals feel they are compensating for the Fed’s lack of action, but they are really just encouraging it: the main effect of any current fiscal stimulus is not to expand the economy but to shift economic activity around (and especially to shift it from the private to the public sector). Spending may have an economic payoff if it raises the nation’s productive capacity, but it won’t increase total economic activity in the near term because monetary policy, given the Fed’s predilections, will adjust in response to the stimulus.

Most conservatives, for their part, believe the Fed has done too much already. They look at the growth of the Fed’s balance sheet and see a troubling surge in the amount of dollars. What they don’t see is that the demand for money balances has surged even more, and that the Fed has failed to adequately respond to it. Nor are low interest rates a sign of loose money, as many people believe. As Milton Friedman pointed out in the case of late-1990s Japan, low interest rates can result from a tight-money policy that weakens the economy and reduces the expected returns on investments.

This tight money works against conservatives’ fiscal goals. It increases the deficit both by suppressing revenues and by triggering automatic spending on such programs as unemployment insurance. It also creates political pressure for new discretionary spending to help the economy. Both of the last century’s most pronounced periods of monetary tightness—during the Depression, and during 2008-9—also saw substantial growth in the federal government.

Conservatives have countered liberal fiscal views by pointing to studies suggesting that other countries have cut their budgets while enjoying economic rebounds. But almost all of these success stories featured the accommodative monetary policy that today’s conservatives oppose. This was true of the much-celebrated case of Canada’s fiscal retrenchment in the latter half of the 1990s, and of the emergence of the budget surplus in the U.S. in the same period.

The conservative worry that monetary ease will get out of hand is also overwrought. For one thing, we now have better market indicators of future inflation than we had during the great inflation of the 1960s and 1970s. More important, monetary ease that takes the form of a nominal-spending target would constrain future inflation. The Fed should commit to return to the nominal-spending trendline of the Great Moderation, which requires both a few years of faster-than-5-percent catch-up growth now and then a slowdown to the normal rate.

What the moment calls for, then, is temporarily looser monetary policy to respond to the short-term challenges of the weak economy combined with spending cuts to solve the long-term budget crisis. Each element supports the other. For example, higher nominal incomes will put a lot of homeowners above water again, ending calls for federal intervention. Fiscal stimulus, meanwhile, will not achieve its macroeconomic goals if the Fed remains committed to fighting a non-existent inflation threat and is unnecessary if it adopts a better course. Fiscal stimulus leaves us deeper in debt; monetary expansion reduces the debt burden. It’s a pity that nobody in Washington is advocating the right policy mix.
11-03-2011, 09:35 AM   #116
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Isn't that what I said?????

It's not what you spend, but what you spend it on...............
11-06-2011, 12:26 AM   #117
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The whole western world has been seduced by the endless stream of cheap imports. We have become used to this as normal. At some stage, a rather nasty reality check will be required. I can forsee either a mass printout of currency or a default. Perhaps war or a massive plummet in living standards. Given the remarkable parallel with the Roman Empire, a total collapse is also a distinct possibility. I keep telling my kids-"hopefully I will be gone when the s*&$ hits the fan, but you WILL be around, and it ain't going to be pretty." Unfortunately, I think the day of reckoning is not that far off. Perhaps the Nostradamus prophecies of late 2012 being the End of Days might just come true. I certainly firmly believe that 2012 will be a very "interesting" year like the old Chinese curse-"may you live in interesting times." Time to haul those tins of baked beans up to that little shack hidden deep in the mountains.
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