A comment on Auerback’s recent post


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I am undeniably disappointed in Obama, though I recognize that he has had some very difficult stuff to deal with.

At the time I voted for him, I was a deficit hawk and pretty neo-liberal in outlook. Initially I was even highly skeptical of the stimulus! After Obama was elected, I realized that as an ordinary citizen, I did not understand economics at all. So I have been trying to actually learn about it, and read Keynes, Friedman (for balance, I guess), and Minsky, along with every economics blog I could find (left, right, and center). The result (so far) is that I end up going through an “everything you know is wrong” revelation with MMT. The tipping point for me was Warren Mosler asking where the points come from on a scoreboard and saying that when you pay taxes, the government destroys your money, because it does not need it to spend, via your “Should America Kowtow to China?” post. Then it just hit me like a ton of bricks – everything you know about macroeconomics is wrong. It’s hard to sufficiently emphasize how hard I was suddenly hit by it. So at least from my perspective, much of the disappointment arises from me actually changing my opinions, less from disappointment in him.

Another, larger, better targeted fiscal stimulus is needed. But with his current economic advisers, not to mention the political mood, there is no way that will actually happen. People don’t understand why it is needed because people do not understand the macro-economy. People are scared by the banal gold-standard conventional wisdom that “our children will have to re-pay the national debt,” and that “the government is going to go bankrupt.” As long as (normal but reasonably educated) people think that way, it would be suicide for any politician to actually do what is needed to fix the economy, even if that politician actually understood why it was necessary, which of course none of them do.

Well, at least Obama’s better than McCain. We would probably have lunacy like a spending freeze with him in charge.


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9 Responses to A comment on Auerback’s recent post

  1. warren mosler says:

    there’s nothing ‘wrong’ with velocity per se.

    what’s ‘wrong’ is when its used in the context of increasing bank reserves in order to alter the real economy. Causation doesn’t run in that direction.

    Reply

    zanon Reply:

    I always think of “velocity” as being “savings desire”. If velocity goes down, it means people want to save more.

    It’s funny, the quantity theory of money people always seem to keep velocity fixed unconsciously.

    Reply

    Scott Fullwiler Reply:

    Agreed, Zanon . . . though I actually go with saving desires of the non-govt sector as the inverse of velocity.

    So, the new MV = PY is with M as the govt deficit and V as the inverse of non-govt desired saving. Eg: Less saving (more “leveraging”) by non-govt sector raises V and you need less M to get to desired PY, and vice versa.

    Reply

  2. Mr. E says:

    Whats wrong with the velocity of money?

    We just have a different way of measuring money supply right?

    Reply

  3. Mattay says:

    Ooh, my comment as a post.

    As Jason says, MMT is very much a “paradigm shift” that changes your way of thinking about the economy.

    Because it is such a different way to think, you need effective rhetorical instruments like the scoreboard analogy that can create “aha!” moments for people for whom MMT is entirely outside of their customary framework of thought.

    Shortly after, I read the 7 Innocent Frauds. Thinking about things in real terms was also very helpful to me. For example, by having a “social security trust fund surplus,” it is not like we are actually hoarding food, clothing, cars, housing, nurses, etc for later use by future retirees. There is no Strategic Consumer Goods and Services for Future Social Security Recipients reserve analogous to the Strategic Oil Reserve.

    Tom Hickey – Understanding Modern Money is on my to read list. :)

    Reply

  4. jason says:

    It’s true that’s it’s a paradigm shift that changes everything, because there is so much of what we hear from political parties (including up here in Canada) and on the media that is just whacky once these pieces start to fall together. I’m like Tom above, very progressive and i’m the guy that before would have said tax business and that cutting the GST (again in Canada) is stupid because it will be harder to get to a surplus situation…etc etc..and one year later I have had to abandon so many ideas I believed. But it’s very liberating. I make many more comments now in online print media and have many more discussions about economics and try to point people to this site. I think there are many phases of outreach about this that need to occur to the general public, but certainly one that comes to mind is economic textbooks need to be challenged. I happen to have my old 1993 intro economics textbook open. Central banks borrow for deficits. Central banks control inflation by changing the money supply. Velocity of circulation theory. Tax as a source of revenue for federal govt. it’s all here and now all seemingly wrong.

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  5. Tom Hickey says:

    Same thing happened to me, although I was a progressive (radical, actually) and knew that something was wrong with neoliberalism from Chomsky’s Politics and Neoliberalism and Hegemony and Survival. But I hadn’t seen through the veil and was still under the spell of the Wizard and the gold brick road. (Did you know that The Wizard of Oz was an allegory against the gold standard?)

    I happened to read a comment by Ramanan on a blog, although I no longer remember which one. It sounded a bit far-fetched but he provided references and I checked them out. This led to my reading Randy Wray’s Understand Modern Money, and the scales fell from my eyes. I realized that I had just discovered the holy grail of economics! Then everything began to fall into place. Reading the blogs of Warren, Bill Mitchell, Randy, Scott Fulwiler, Winterspeak, Marhall, etc., and going through the comments carefully, especially those of JKH, I began to get how everything fits together with MMT as the foundation. Eureka. Thank you all.

    America, wake up before it is too late.

    Reply

  6. jcmccutcheon says:

    Is their a link to this one?

    Reply

    jcmccutcheon Reply:

    nevermind I found it http://neweconomicperspectives.blogspot.com/2010/01/president-obama-its-not-just-words.html#comments

    Reply

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