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Thursday, November 29, 2012

Ain't It Just

As TJ notes, "hard to write that MMT column when every other word is four letters." Uh-huh. Yeah. 

I wouldn't normally be so whacked out, except that the economic news is rather ugly and I am losing my objectivity over the negativity. I looked at this morning's initial claims and promptly generated a whirlwind of brilliant explanations as to why these figures don't mean what they seem to mean.In other words, I'm BSing myself. 

I will not inflict the BS on you - there's plenty available for free. The initial claims report is here. There may even be some small chance that some of my brilliant explanations as to why this report doesn't mean what it seems to mean have some merit, but the fact is that the four-week MA is 405K, and this marks an unlovely signpost in that last year it was 392K. Furthermore, this week's SA claims are 393K, which tends to suggest that some of my brilliant explanations are completely false. 

Every human being is condemned to fight a lifelong battle against his or her own tendency to fantasize reality. The truth is that getting what we want can only be achieved by struggling to recognize the worst aspects of our current reality so that we can improve upon them. The worst of it is that the more intelligent a person is, the greater the ability to construct an attractive and plausible detailed network of explanations as to why one's preferred reality is the reality, so intelligence is not the answer. Nor is plausibility. 

No, the answer is to pin your worldview to a framework of evidence, and to nail your own mental BS to that framework of evidence when you start to slide into fantasy. At times like these, this can be a painful process, but I now have to do it to myself. I do not want to be a walking, talking ID 10 T error, and if I don't correct this now, I may end up adopting MMT myself. 

Economics always contains huge evidential uncertainties, and so it is a very seductive field for fantasists. I can't afford to let myself join that crowd, and right now my inner toddler is just begging for admission to that club.

Comments:
Denial of reality is a somewhat useful defense mechanism for humans, self-preservation is somewhat instinctual.

For human organizations, it's dangerous rather than useful. Sure, it's somewhat instinctual because humans are involved, but it doesn't do the group a damn bit of good.

That's the thing about groupthink - when you notice it the group is actually losing its significance.
 
Aside from the arcane technical issues with MMT, there seems to be a glaring political problem with the politics of it. In a democracy were the public understands that the GOV can print at will, how can political leaders use taxation to manage aggregate demand? There will always be a political opposition to offer free guns or free butter with no tax increases. Short of a strict authoritarian government, who can get away with imposing broad tax increases? Especially if the public gets an inkling that the government doesn't actually "need" the money.

Even if the formulas of MMT all add up, the politics of it seem to push economies towards self-destruction. It's like running a nuclear reaction without the control rods - there is no way to keep the reaction/money-printing from going super-critical.
 

Stirner--that's precisely the problem I see with MMT. It destroys the link between "money" and "value".

The U.S. has been a success for a very long time because of a culture which encourages value-add activites, and a monetary system which has by and large rewarded those activities with increased control over resources. MMT, if used as the dominant monetary policy, gives complete control over economic rewards to the guy who controls the printing press. So, it moves the distribution of rewards away from value-add activities and toward a "strong-man" model, in which your revenue stream is determined by your distance from the seat of political power. Every society includes the "strong-man" model to some extent, but MMT makes it wholesale.

Which is why I expect to start hearing much more about MMT theories from establishment mouths.

 
Neil - I have read enough MMT to understand that they have a very sophisticated understanding of money (i.e. debt and credit), but there seems to be a short circuit in how that relates to real world "wealth." Or as you call it, the link between money and value.

FOFOA has done some interesting work trying to bridge the two in this essay:
http://fofoa.blogspot.com/2012/11/moneyness-2-money-is-credit.html

I can't tell if he fully squares the circle, but he's chock full of interesting ideas.
 
Stirner, I started reading your reference. Right out of the chute he is wrong in saying money = credit. Money does have to be credible. But you can have money without debt, which he describes as the exercise of credibility.
I think there will be many fallacies which follow.

 

JC:

And yet every monetary system in history has featured debt, even if its use is disguised in euphemism. Saying "you can have money without debt" is sort of like saying "you can grow corn without making whiskey".

 
The foundation of MMT is that there would be no money without deficit spending. This is false.

All this debt money created in the past several decades has produced a massive amount of bad debt. There are so many bonds in the world you have hordes of accountants, analysts, politicians, banks, hedge funds, institutions, lawyers,etc., devoted to managing this money. There are specialists in every field. Some know how to manage impaired debt of sovereigns while others are capable of buying bankrupt corporate debt at 20 cents on the dollar and make a profit. You have money managers playing with Argentina debt. You have massive protests in Europe due to the results of this excess of debt money creating distortions in their economies.

The first to get their hands on new debt money get to speculate with it. Prices and investment is distorted by all this new money. Financial instruments are becoming tulip bulb money. Yes, we have a credit bubble. And the MMTers want more of it.

 
Debits always equal credits. This MMT looks like it's been the unofficial paradigm for a while now. An especially invidious form of theft.
Anon PA
 
"No, the answer is to pin your worldview to a framework of evidence, and to nail your own mental BS to that framework of evidence when you start to slide into fantasy. At times like these, this can be a painful process,"

Amen
 
The first to get their hands on new debt money get to speculate with it. Prices and investment is distorted by all this new money.

You got that right. That's why the banks were all upset when the $300 income tax rebate was in place. People paid down debt with their rebates which lowered the amount of expected interest income the lenders thought they were going to get.

It helps to remember the sequence of events. After the plebes got the new money in the rebate, only a few months later the elites said the whole monetary system would collapse. The elites got their huge bailouts of new money and the plebes have been paying for it with lower (real) wages ever since.

It isn't the plebes asking for stimulus, it's the elites telling the plebes that stimulus would be good for "all of us". Well, the macro numbers may LOOK better after such stimulus, but the balance isn't the same. Not so much "Operation Twist", more like "Operation Screw".
 
It appears that lower food prices may be far far into the future if at all.

http://www.commercialappeal.com/news/2012/nov/29/drought-threatens-to-close-mississippi-river-to/?CID=happeningnow

If the drought doesn't let up, next year crops could get REAL expensive. A friend has a relative who is an operator at one of the grain terminals on the Miss. River in Illinois; he states a lot of grain is being rejected due to mold. I wonder if China has this factored in their 5 year plan.
 
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