Brilliantly observed.
http://www.gocomics.com/nonsequitur/2011/09/01
Updated to new non-syndicated link.
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8 comments:
Thanks for the comic strip link. This is a nice example of type of device I had suggested at several MMT sites come months ago. This sort of vehicle/communication technique could be very effective as a teaching tool. Hopefully, some day a MMT enthusiast will be able to communicate to an artist the variety of ideas which would illustrate the futility of conventional/neoliberal economics which unnecessarily divert attention of any/everyone who watches the MSM or the Obama administration' apparent ineptness. It is important to make the point such that anyone (not just the elite's economists) could get the point.
Neil - a question I'm sure you have a view on: how does MMT really view a govt surplus?
I see a surplus characterised sometimes as (a) a valid (albeit rarely necessary) tool to remove excess demand from an overheating economy when agg demand gets too high relative to agg supply, implying a soft landing, and at other times (eg the Clinton surplus) as (b) a dangerous manoeuvre which is likely to lead to increased private sector indebtedness, prompting asset bubbles and therefore resulting in a hard landing?
I'm struggling to reconcile these seemingly incompatible accounts. Clearly most of the time the govt should be in deficit, but is it, or isn't it, possible to withdraw NFA without having malign consequences?
Cheers
I don't think you can view any of the sectors in isolation to the others.
My personal preference is to design the automatic stabilisers with sufficient power so that they do the job for you without requiring 'Wisdom of Solomon' decisions.
Then if there is a budget surplus it is because the automatic stabilisers have deemed one necessary and it will go away when the condition triggers it.
So that means you need something else other than the job guarantee which obviously runs out of power once everybody is employed.
@Neil - agree on the importance of strong, properly-designed automatic stabilisers. But assuming they are designed to kick in during a period of strong growth (say, in the form of a general increase in taxes), doesn't this run the risk of reducing the incomes people have grown accustomed to, encouraging them to resort to destabilising leverage (which is I think Randy's narrative on why budget surpluses tend to precede a recession)?
It depends how much leverage you allow in the banking system.
The capital ratios are another stabilisation lever. There needs to be a point when banks say 'no'.
But even then you'll get malinvestment and the stabilisers need to recongnise that and catch the fallout from the resolution process.
I think Randy's argument is that, rather than banks themselves, it's private sector non-banks with medium to low levels of NFA which are the concern (ie most US households over 2002-7). This is the group which may find itself tending to borrow more following a fiscal tightening (and the risk is that the banks will be happy to oblige).
Perhaps for the MMT prescription of robust automatic stabilisers to be fully coherent, it needs to be accompanied by a provision limiting credit growth (but via means other than base rates).
Neil, That link to the Washington Post does not seem to work. I tried copy and paste, and that didn’t work either.
Anders, I like the idea of “limiting credit growth”. It is precisely the gyrations in privately created credit or privately created money (and the destruction of privately created money in a recession) that are half the problem. A monetary system that gets rid of this defect is advocated in this submission to the UK’s Independent Commission on Banking:
http://www.positivemoney.org.uk/wp-content/uploads/2010/11/NEF-Southampton-Positive-Money-ICB-Submission.pdf
Fixed
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