Category Archives: Modern Money Theorie

Austerity Kills Economies

By Narayana Kocherlakota, Bloomberg View. Professor of economics at the University of Rochester and was president of the Federal Reserve Bank of Minneapolis from 2009 to 2015.

The planet’s wealthiest and most powerful countries face a slow-moving but potentially devastating political and economic crisis. It now falls to Donald Trump to find a way to combat it. (I think it’s safe to say: We Are Screwed!)

Over the past few years, voters in much of the developed world have rebelled against the establishment. In the U.S., millions of voters supported an avowed socialist in the Democratic primary. (An avowed Socialist? Shock Horror. It’s not a disease! Social means people helping people. Something Americans like to beat themselves on the chest about but it’s all bullshit.) And this week, Americans elected a new president who has essentially no support from mainstream politicians or media.

Across countries, these dissatisfied voters vary wildly in terms of their preferences for (or opposition to) societal change. What they have in common is anger at the existing economic order.

The well-off often treat this anger as something of a mystery. Actually, it can be traced directly to what Christine Lagarde, managing director of the International Monetary Fund, has termed a global low-growth trap. (Christine came around to intelligent economic thinking in the end.) 

Over the last nine years, economic growth has been slow throughout the world, and particularly in developed nations. The U.S. is a prime example: Output is about 12 per cent to 15 per cent lower than was expected nine years ago.

(Like every respectable economist predicted in 2008. AUSTERITY KILLS ECONOMIES!  But no, most governments once again chose to ignore common sense and the lessons of history and followed a Neoliberal, ‘we must balance the books’ policy.

Economics 101: A Government Is Not A Household. It Does Not Have To Balance The Books.

Modern Money Theory: Money the government hogs is money taken out of the economy. Government debt is good. The government controls the currency, the government IS the currency. It’s deficit is owed to itself. Is just a simple case of adjusting a few numbers in the right place.) 

The primary culprit, in my view and in Lagarde’s, is a shortage of consumer demand for goods and services, (No, Really?) which has left businesses with little motivation to invest, hire or innovate. As a result, there aren’t enough jobs to go around, and the people who are working aren’t very productive.

The demand shortage creates some perverse incentives for economic policy makers. To stimulate the economy, they want to convince consumers that prices are heading upward, so that buying something today will be more attractive than waiting.

In such an environment, policies that increase the cost of doing business — such as raising minimum wages or increasing the regulatory burden — can reap larger-than-usual benefits.

More alarmingly, the cost reductions associated with globalization appear much less desirable in a low-demand world. Restrictions on trade, immigration and all kinds of international economic interactions become more attractive.

The unwinding of economic linkages, in turn, can increase the incentives for transnational armed conflict — a danger that came to such disastrous fruition in the 1930s.

Guiding the world out of this quagmire will require determined leadership, which the U.S. is uniquely well placed to provide. It is by far the world’s largest economy, with a government that still has plenty of capacity to borrow — as the low interest rates on its debt indicate.

It could employ its vast resources in many ways.

(It could but unfortunately American foreign policy has a consistent track record of spending those resources on war. Why? If nobody is fighting, nobody is buying bullets.) 

For example, the president-elect has spoken of his desire to undertake a complete overhaul of American infrastructure and to cut taxes. Such a program, combined with appropriate support from the Federal Reserve, would both generate much-needed jobs for Americans and be a great first step toward leading the world out of its low-growth trap. I look forward to seeing this plan implemented in his first hundred days in office, and I hope that he is able to persuade other nations to join the U.S. in this vital effort.

(Cut taxes for who? The 1%, so they can invest and create jobs? Making extra stuff for who to buy? The 1%? Nobody else has any cash. Companies don’t spend money on productivity when nobody’s buying. Which is why Austerity Kills Economies.) 

Come on now people. Can you not learn from experience and admit you’ve been pushing a stupid Neoliberal policy for the last eight years? 
Christine ate humble pie and adjusted her thinking to new information.  Clever Eh?  You can do it too. 

Hans

He manipulated and massaged Adam Smith’s message to suit his own, sometimes brilliant but often delusional, economic theories.