Say W-h-a-a-a-t?

Below are some of the wildest,boldest, and most surprising stories we ran across this week. Thanks toall who shared their favorites.  Keep them coming! This is a weeklyseries, so we’ll be back with more next Friday.

This piecefrom Forbes Magazine argues against Keynesian demand management and in favor of deflation as a cure for our ailing economy. The rationale?  Straight from the 19th century — Say’s Law of Markets.  The author argues:  “Right now there’slots of demand for Apple iPads and Amazon Kindles and Google Android phones, say, or for Katy Perry and Bruno Mars downloads. Lady Gaga’s “fame-monster” microeconomy thrives, needing no artificial boost. Even Britney Spears is back, with Ke$ha and Nicki Minaj.  Buton the other hand, there seem to be too many houses, Chevy Volts, BlackBerrys and Rihanna tour dates. Still, there is no general glut; everything has some market-clearing price. Instead there is relative overproduction in particular sectors to which pricesmust adjust.For housing and labor, say, to recover, some prices and wages must fall.  But policymakers face political difficulties by permitting prices to fall to the market-clearing levels that enable recovery. Nearly all policytries instead to hold prices at unsustainable levels and create still more “demand” in defiance of Say.”  

I hope his readers will remember that falling wages and asset prices didn’t help markets reach “equilibrium” during the Great Depression. Indeed,it made made conditions much worse.

Robert Reich, former secretary of labor under President Clinton, continues to make a strong case for infrastructure investment (the wise Homer in him), pointing out that, “unemployment in America remains sky-high” and “the nation’s infrastructure is crumbling.” But then, things go wrong. He says, “now connect the dots. Anyone with half a brain will see this is the ideal time to borrow money from the rest of the world to put Americans to work rebuilding the nation’s infrastructure.” As any MMTer knows, the US doesn’t need to “borrow money from the rest of the world to put Americans to work.” The government is the source of our money. It spends by crediting bank accounts. It is not revenue constrained.

US Congressman Dennis Kucinich (D-Ohio) has introduced legislationmodelled on a the kind of Job Guarantee (JG) or Employer of Last Resort (ELR) proposal that MMTers have been advocating for more than a decade. Unfortunately, the bill also advances the American Monetary Institute’s wrong-headed plan to fundamentally change the nature of our monetary system. The problem with the Kucinich legislation is that it views the JG as an employment creation scheme rather than a mechanism to promote macroeconomic stability (I.e. Full employmentand price stability).  As MMTers have explained, the JG buffer provides the nominal (price) anchor, and it is perfectly compatible with the monetary system we have in place right now.

In a recent post, Paul Krugman lashed out at Larry Kotlikoff for “dismissing Keynesian economics based on what they think they heard somebody say” instead of  taking “even a minute to see what those people have actuallybeen saying.” What’s Krugman’s beef?  Well, Kotlikoff misrepresented Jamie Galbraith and Paul Krugman, saying that, as Keynesians, they believe that unemployment exists because wages are too high, and thata decline in wages would increase employment.  Krugman points out that Jamie has “never claimed that a fall in wages would create jobs — nor can I see how anyone familiar with his work could imagine that this was his position.”  It reminded us of  some of Krguman’scritiques of MMT, especially the one in which he wrongly accused Jamie Galbraith (whom he considers a leading proponent of MMT) of taking the position that “deficits are never a problem.”  We hope that Professor Krugman remains interested in MMT and that he takes his own adviceand responds to what we’ve “actually been saying” and not some caricature of what others have said about us.

For the handful of readers who haven’t already seen this, here’s a BBC interview with market trader Alessio Rastani. We found it shocking, not because of its content but because of its candor.

Some shocking statsabout America’s food stamp recipients.  Whites make up the largest share of food stamp households, 70% have no earned income, 94% are US born citizens, etc.
What’s it like to work in one of Amazon’s warehouses in the USA?  Story here.

12 responses to “Say W-h-a-a-a-t?

  1. Bravo on the foodstamp stats. Careful with the Rastani video. While it was not a "Yes Men" type hoax, his purported position as a "trader" has been debunked by the Telegraph. BBC blushes are still on display.“How a man who has never been authorised by the Financial Services Authority and has no discernible history working for a City institution ended up being interviewed by the BBC remains a mystery.” Weekend.

  2. Marley,True BBC has some egg on its face, but we ran this because Reuters insists that Rastani is, at least in part, who he claims to be.

  3. On the Dennis Kucinich NEED act, the people at UMKC should have been working that bill. You have a unique access to DK through Michael Hudson.Beowulf had some out of the box thinking on that issue here here comments welcome at both places

  4. Clonal,We DID work on that bill. Wray, Kelton and Tcherneva met with Kucinich (at his request). He asked them to help write the bill. They offered a draft and never saw the bill until it came out in substantially revised form. Those who know the backstory know why.

  5. Stephanie,What did Mike Hudson have to say about that? What was the backstory? Who other than AMI was driving the drafting of the bill?However, Beo's idea has merit. A straightforward amendment of the Federal Reserve Act,andan amendment of 31 USC 5115 – Sec. 5115. United States currency notesIt may be useful to go back to DK with those suggestions. Ask Beo to comment on your draft, and see if he has some other innovative ideas.

  6. "Those who know the backstory know why."wow. i hope everyone is keeping a good diary. someday, i hope, a book will be written and the stories will be told about the real-life adventure of the handful of economists who set out to save the world. interesting and admirable heros. all kinds of villians. great plot. apparently lots of surprises involving public figures. could even sneak in some econ. what more does a good story need? …well, a reasonably happy ending would be nice.

  7. Are there any MMT critique of the American Monetary Institute proposals? I am reading Zarlenga's book at the moment and would be quite interested in any expositions of areas of similarity/differency with MMT. Thanks!

  8. "his purported position as a "trader" has been debunked by the Telegraph"He trades. Therefore he's a trader.What you mean is that the establishment rounded on him for speaking the truth.The BBC and all the 24 hour news media have loads of talking heads on them, few of which have any 'credentials' (not that they mean anything) – but all of which have a line to push.Anybody who's been on media training knows the drill.

  9. "The government is the source of our money."Even if you move the model out a level of abstraction and have a separate Central Bank/Treasury there is still a logical attack route.The argument can then be run like this.If you own, or receive the profit stream from, a bank then by definition you can borrow what you like from that bank at a near 0% interest rate.Even more so if that bank happens to be the one that isn't capital constrained.So why on earth would an entity borrow at interest from a third party when it can borrow at 0% from its own bank? It makes no logical sense.You wouldn't do it. No sensibly run corporation would do it. So why does the government?Who is benefiting from that stream of payments and why aren't they first against the wall to be cut?

  10. Hey Neil,Send me an email [email protected] a question for you

  11. What are the MMT School's thoughts on Occupy Wall Street?

  12. We have many thoughts on Occupy movement. We've been asked to produce a flyer/pamphlet that helps to focus attention on the central regulatory and economic weaknesses along with key action items. When it's ready, we'll make it available to all.