Heterodox economics

[RandomGuy]

Modern Monetary Theory: Government debt is meanless. Government can, and should be printing money like all get out, to get the economy moving again.

Interesting bit from, you guessed it, the Economist

I tried to get the most important parts of this VERY long article.

http://www.economist.com/node/21542174

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Marginal revolutionaries
The crisis and the blogosphere have opened mainstream economics up to new attack

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These three schools [Keynes, Austrian, MMT] of macroeconomic thought differ in their pedigree, in their beliefs, in their persuasiveness and in their prospects. Yet they also have a lot in common. They have thrived on the back of massive disillusion with mainstream economics, which held that the economy would grow steadily if central banks kept inflation low and stable, and that there were no great gains in the offing from fiscal expansion, nor any great cause for concern over financial instability. And they have benefited hugely from blogging.

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What’s more, put into the context of a pathetic response to the current crisis, the ideas offered by these very different schools all take on a similar form: that policymakers are overly worried about something that should concern them less. The Austrians see the bogeyman as deflation, the fear of which inflates bubbles. The market monetarists, diametrically opposed, see exaggerated fear of inflation. And the economy is getting too little help from fiscal stimulus, according to neo-chartalists, because of the government’s supers ious fear of insolvency.

The clearest example of the power of blogging as a way of getting fringe ideas noticed is “The Money Illusion”, a blog by Scott Sumner of Bentley University, in Waltham, Massachusetts. In the wake of the financial crisis Mr Sumner, a proponent of market monetarism, felt he had something to say, but no great hope of being heard.

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A real solution

If the target were not believed, the Fed would have to do whatever it takes to hit it. That might include “heroic” purchases of assets, on a bigger scale than anything yet tried by the Fed or the Bank of England. Even then, people might refuse to spend the newly minted money, or the banks might also refuse to lend it.

But there are ways to make people spend, say market monetarists like Bill Woolsey of The Citadel, a military college in South Carolina. The Fed could impose a fee on bank reserves, leaving banks to impose a negative interest rate on their customers’ deposits. That might simply serve to fill up sock-drawers as people took the money out of their accounts. But eventually, instead of hoarding currency, they would spend and invest it, bidding up prices and, with luck, boosting production.

Thanks largely to Mr Sumner’s campaign, a growing number of mainstream economists—including Mr Krugman—now favours looking at a change to NGDP targeting. At its November meeting the Fed’s policy committee discussed the pros and cons of such a move—remarkable in itself for an idea so marginal just a couple of years ago. It did not, though, sweep all before it. Some committee members worried that switching to a new targeting regime could “risk unmooring longer-term inflation expectations”. If inflation were allowed to rise to 5%, for example, people might regard that as permanent and set wages accordingly, even as output returned to normal. To show its mettle, the Fed would then have to restrict growth; the costs of proving its seriousness might swamp the benefits of the new regime.

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In the neo-chartalist view of the world, fiscal policy comes to resemble monetary policy. When the Treasury spends, it adds to the supply of money in circulation. When it taxes, it withdraws money. So for neo-chartalism to work as intended, budget-makers must both tighten policy once demand has been restored and inflation threatens and also be credible in their commitment always to do so. Otherwise self-fulfilling expectations of inflation will take root, as they did in the 1970s. That period of stagflation demonstrated the need to leave macroeconomic stabilisation to forward-looking technocrats—central bankers—thought responsive to economic news and unresponsive to political demands. If you can imagine fiscal policymakers in Congress allowing the economy to be run in such a way, then you too can be a neo-chartalist.

Clearly the tea-partiers who would not party with Mr Mosler during his Senate bid will have none of this. Ron Paul, the libertarian Texas congressman whose 2008 presidential campaign was one of the foundations of the tea party, and whose 2012 campaign is currently enjoying an enthusiasm few would have predicted, is a balanced-budget zealot, and from his pulpit as chair of a House subcommittee on monetary policy lambasts quan ative easing as “financial malfeasance”; indeed he advocates abolishing the Fed itself.

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Gauranteed to drive followers of Ron Paul nuts.

[boutons_deux]

Nobody Understands Debt

when people in D.C. talk about deficits and debt, by and large they have no idea what they’re talking about — and the people who talk the most understand the least.

Perhaps most obviously, the economic “experts” on whom much of Congress relies have been repeatedly, utterly wrong about the short-run effects of budget deficits. People who get their economic analysis from the likes of the Heritage Foundation have been waiting ever since President Obama took office for budget deficits to send interest rates soaring. Any day now!

And while they’ve been waiting, those rates have dropped to historical lows. You might think that this would make politicians question their choice of experts — that is, you might think that if you didn’t know anything about our postmodern, fact-free politics.

But Washington isn’t just confused about the short run; it’s also confused about the long run. For while debt can be a problem, the way our politicians and pundits think about debt is all wrong, and exaggerates the problem’s size.

Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.

This is, however, a really bad analogy in at least two ways.

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.

But isn’t this time different? Not as much as you think.

It’s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. Nor are we heading rapidly in that direction.

Now, the fact that federal debt isn’t at all like a mortgage on America’s future doesn’t mean that the debt is harmless. Taxes must be levied to pay the interest, and you don’t have to be a right-wing ideologue to concede that taxes impose some cost on the economy, if nothing else by causing a diversion of resources away from productive activities into tax avoidance and evasion. But these costs are a lot less dramatic than the analogy with an overindebted family might suggest.

And that’s why nations with stable, responsible governments — that is, governments that are willing to impose modestly higher taxes when the situation warrants it — have historically been able to live with much higher levels of debt than today’s conventional wisdom would lead you to believe. Britain, in particular, has had debt exceeding 100 percent of G.D.P. for 81 of the last 170 years. When Keynes was writing about the need to spend your way out of a depression, Britain was deeper in debt than any advanced nation today, with the exception of Japan.

Of course, America, with its rabidly an ax conservative movement, may not have a government that is responsible in this sense. But in that case the fault lies not in our debt, but in ourselves.

So yes, debt matters. But right now, other things matter more. We need more, not less, government spending to get us out of our unemployment trap. And the wrongheaded, ill-informed obsession with debt is standing in the way.


http://www.nytimes.com/2012/01/02/op...debt.html?_r=1

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Change in Wash DC about debt is hopeless? yes. So Human-Americans remain ed.

[Winehole23]

http://www.bloomberg.com/news/2012-0...en-fading.html

[CosmicCowboy]

I get the concept but it is so incredibly counter intuitive that I just can't accept it.

[boutons_deux]

More heterodox economics:

Goodbye 'Shop Til You Drop' Mentality: Renegade Band of Economists Call for 'Degrowth' Economy

Signs of Crisis

Daly's steady state economy, which he first wrote about in the 1970s, isn't alone in calling attention to problems created by unchecked economic growth. Other works that waved red flags include Rachel Carson's 1962 classic, Silent Spring, widely credited with launching the U.S. environmental movement; and Limits to Growth, the Club of Rome-commissioned study by a group of MIT economists, which caused public consternation when it first appeared four decades ago.

Since then, evidence has continued to mount that humanity may be reaching the end of the road built by our Western industrial model with its assumptions that natural resources, and nature itself, are super-abundant. A few of the problems that have garnered headlines include the following:

Critical minerals are on the decline.
Experts worry that declining "energy quality" threatens growth, as the world's dwindling fossil fuel stores require more effort to extract.
Many countries including the world's biggest grain producers -- the U.S., India and China -- are depleting their aquifers to keep bringing in the harvests.

Carbon emissions are reaching a dangerous level.

2011 broke the record for extreme weather with 12 events costing $1 billion or more to clean up.

Plant and animal species are going extinct at unprecedented rates.

World population is growing and so is hunger.

We have already exceeded some important planetary boundaries.

"One reason growth doesn't work is we've underestimated the ecological cost of growth, and overestimated the benefits of growth," Daly says.


Today, U.S., European and Australian societies have also emerged as forums for a wide range of ideas about how best to strike an ecology-economy balance. There's plenty of disagreement within the field about how best to go about getting off the growth trendmill. Daly's steady state economy, which envisions practically no more growth, is perhaps the purist and most cold-turkey approach.

Some ecological economists such as William Rees and Costanza have done groundbreaking work helping to visualize the scope of the environmental-economic conundrum. Rees came up with the concept of the ecological footprint. Costanza was the lead author of a groundbreaking 1997 paper published in the journal, Nature, led "The Value of the World's Ecosystem Services and Natural Capital." It tallied up the value of the planet's ecosystems in dollar terms -- between $16 trillion and $54 trillion a year.

Others like the UK's Tim Jackson, Canadian Peter Victor and Australian Philip Lawn, a professor at Flinders University, Australia, focus on taking the ideas pioneered by Daly and putting them into practical use -- thinking through, for instance, how to "de-grow" the economy, essentially sending it into a planned recession, without throwing large numbers of people out of work.


http://www.alternet.org/module/print...ndviews/758876