Thursday, 14 July 2011

'MMT' economics

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A reader emails about (a) Chris Hedges film review and (b) economics

Posted by The Editors [User Info] on July 13, 2011, 9:33 am

Hi David & David,

Many thanks, as ever for your brilliant & incisive work. It must be tough but please keep going!

Two items, the first maybe a little off-piste for your mainly UK focus, but I came across the following written by Chris Hedges (himself a foreign correspondent of the NY Times for 15yrs), highly critical of a recent film ‘Page One:Inside The New York Times’

“The Times, like Harvard University, where I attended graduate school, is one of the country’s most elite and exclusive institutions. Its ethos can be best summed up with the phrase “You are lucky to be here.” That huge numbers of people at The Times, as at Harvard, buy into this institutional hubris makes the paper, where I spent 15 years—nearly all of them, thankfully, as a foreign correspondent a few thousand miles from the newsroom—a fear-ridden and oppressive place to work. The Times newsroom, like most corporate nerve centers, is a labyrinth of intrigue, gossip, back-biting, rumor, false piety, rampant ambition, betrayal and deception. Those who play this game well are repugnant. They are also usually the people who run the place.
When you allow an institution to provide you with your identity and sense of self-worth you become an obsequious pawn, no matter how much talent you possess. You live in perpetual fear of what those in authority think of you and might do to you. This mechanism of internalized control—for you always need them more than they need you—is effective. The rules of advancement at the paper are never clearly defined or written down. Careerists pay lip service to the stated ideals of the institution, which are couched in lofty rhetoric about balance, impartiality and neutrality, but astutely grasp the actual guiding principle of the paper, which is: Do not significantly alienate the corporate and political power elite on whom the institution depends for access and money. Those who master this duplicitous game do well. Those who cling tenaciously to a desire to tell the truth, even at a cost to themselves and the institution, become a management problem. This creates tremendous friction within the paper. I knew reporters with a conscience who would arrive at the paper and vomit in the restroom from nervous tension before starting work. “
Hope that’s of interest to you, if you weren’t already aware of it.

The second item is about the global financial crisis, and the disastrous ‘policies’ (if one can dignify them as such) to supposedly resolve the situation.

Now, macroeconomics is complex & can be highly counter intuitive, so this isn’t an easy story to get a grip on. I’m an engineer by qualification, but have studied some basic economics in an MBA program some years ago & it’s taken me a couple of months to reach a good level of confidence in what I’m about to tell you.

I appreciate that this is likely to be seriously outside your scope of work. But it is a story of such far reaching importance to humanity & our continuing existence in the face of the imminent (ecological & resource) sustainability crisis, that I know you care about, that I believe you would want to be aware of it.

You may be aware that at the core of the global financial crash, & its ongoing problems, is a financial sector that has become huge in relation to the ‘real’ economy of goods, services & jobs, and effectively out of control & in large parts indeed criminal. Essentially a parasitical casino that passes it’s losses onto the real economy whenever its bets go bad & it crashes.

Read anything by Michael Hudson, Ass Prof of Economics with the University of Missouri, Kansas City, to get a grasp of the underlying ‘political economy’.

But there is more, much more. It turns out that the entire academic basis of mainstream macroeconomic thinking is bogus. Nearly every prominent economist, including people like Krugman & Stiglitz (Nobel Prize economists, generally sympathetic toward ordinary citizens) ignore glaring mathematical, logical & accounting untruths, factual inconsistencies (not matters of ‘opinion’) in their work.

The effect of this is profound. Not only is there needless suffering thru’ massive unemployment & devastated vital public services, but the urgent effort & investment, minimal as it was, to transform our economies to sustainability, particularly away from fossil fuels, is being hampered & delayed.

There is no reason for this whatsoever. No impediments, technically or financially – period. The world is +not+, I repeat +not+, ‘credit’ constrained in investing in a sustainable future of prosperity. To say otherwise is a lie perpetrated on a vast scale by the vested interests of a bloated & parasitic financial sector & the unbelievable ignorance & conformity of the mainstream economics profession & media commentators. If you thought the herd mentality of the media was bad, that of economics thinking is off the charts.

The solution & the key to understanding what amounts to this intellectual fraud, lies in a school of economic thinking which takes Keynsian ideas a stage further & has been recently termed Modern Monetary Theory (MMT). It also owes much historically to a theory known as Chartalism.

Probably the biggest lie perpetuated ad nauseam by politicians & media, and uncorrected by economists, is equating the macroeconomic & fiscal policy of a sovereign (‘fiat’) currency state (like UK, US & many others) with the financial management of a household or business. They are diametrically different. One is a currency issuer, the other a currency user, and the use of common terms like ‘defecit’ to imply the same meaning in either situation is fraudulent.

Anyhow, I wanted to make you aware of this. I suspect you believe as I do that humanity requires a ‘holistic’ solution to what is essentially its impending existential challenge. Because if we do not also change the basis of money, as our means of value exchange, & the economic & fiscal policy that flows from it, reforms to politics, democracy and media will not ultimately succeed.

Not a small thing to suggest, I know, but the midst of a global financial crisis represents a major opportunity for change & wider public awareness of the issues.

It is only recently that ‘MMT’ advocates, as yet a mere handful of academic economists, but usefully a few commercial finance ‘insiders’ as well, have begun (somewhat in frustration of their peers) to try to reach out & promote these ideas to a wider public audience. There is virtually no single location to go to find a comprehensive &, in lay terms, well explained source of information. But this resource list is very good, & has links to near all of the advocates’ blogs:

The book referred to there is available as a free download from the author’s site here:

“Seven Deadly Innocent Frauds of Economic Policy”

(I doubt that Mosler believes these ‘frauds’ are ‘innocent’ at the upper levels of the financial hierarchy any more than I do, but he is trying to engage astonishingly blinkered peers as best he can.)

Note that much of the material discusses the US economy & currency, but is directly applicable to the UK & indeed in many important aspects to the Eurozone, if one considers member states somewhat similar to semi-autonomous regions of a nation state..

As I’ve suggested, economics is not an easy (or very intuitive) subject, hugely important tho’ it is. It may not be something you don’t personally have much time to delve into, but perhaps, in conversation, you come across honest enquirers into this topic? It might do immeasurable good to point them in the direction of MMT!

I will leave you with that famous quote by banker Mayer Amschel Rothschild

“Permit me to issue and control the money of a nation, and I care not who makes its laws.”

Best wishes,

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