- 18 Dec 2018 05:59
#14973370
Real subject is: Before 2008 only 10 economists saw the GFC coming. Why? Because they don't see private debt (vs Gov. debt) as a problem.
I find it strange that Mainstream or Neo-liberal economics sees no problem with mounting non-Gov. debt, but does see a huge problem with mounting Gov. debt. Because it doesn't see private debt as any sort of problem it didn't see the GFC/2008 coming. OTOH, for the last 40 plus years it has been warning everyone about the coming hyperinflation that will result from rising Gov. debt. The inflation that has never materialized. The rate of Gov. debt growth has increased to levels that few could have imagined in [say] 1985, and yet the inflation predicted at half this size of deficit spending has not happened.
I find these facts to be damning. Mainstream economics is so deeply flawed that it sees a problem where there isn't one and doesn't see a problem where there is one. Why might this be?
I'm told by professional economists {MMTers] that there are 2 main causes of recessions and Bank Panics.
1] Excessive Gov. budget surpluses that must (by definition) have the effect of reducing the amount of real money in the economy until there is not enough to grease the gears, so then people must stop spending, so then companies see reduced sales, so then they layoff workers, so then the workers stop spending and a recession starts. In the 1800s a Bank Panic would substitute for a recession as people rushed to get their savings out of the banks because they were not solvent. When the banks went under, there was even less money left in the economy because “bank notes” were used as money in addition to actual US dollars (paper, silver, or gold).
2] Rising personal private non-Gov. debt that reaches a point that the workers can't make the next month's payments. When they declare bankruptcy the banks must write off those loans and they may become insolvent. In any case the banks stop making loans and this drops the GDP because GDP is total spending which must come from income or from borrowing. When lending and borrowing stop the increase in spending from an increase in borrowing dries up. [Note: income is defined as being continuing while every act of borrowing is separate; this is why it is increased borrowing that contributes to the GDP.] When borrowing stops, that part of the GDP is removed and this usually means that the GDP growth goes down suddenly and becomes negative. Suddenly the GDP goes from growing to shrinking. Before this it looked [to mainstream economists] that the economy is fine because the GDP is growing. And then, out of the blue, it shrinks. None of them can see it coming because they ignore the whole effect that banks and credit have on the economy.
It seems to me (IStM) that the most likely reason for the blindness of economists is that Neo-liberal economics is not a science, it is propaganda. By that I mean Neo-liberal economics first decides what it wants to prove and then sets out to find a proof the the people will accept as valid. Truth is not the goal. Tricking the people into accepting an economic theory that only serves the rich/owners and certainly has screwed the mass of the people is the goal. To this end it uses false assumptions [labeled “simplifying assumptions”] and flawed logic. It ignores all contrary actual real world evidence that they have got it wrong.
It has been 10 years since the GFC/2008 and Neo-liberal economics has not announced one change in its theory to reflect reality on the ground. This can be seen clearly in Europe/France today. Macron cut taxes in Fr. on the rich and increased taxes on the rest of the people and triggered the Yellow Vest uprising. The EU & ECB are still pushing back on nations like Italy and Portugal which want to increase Gov. spending.
. . . And, who has seen one mainstream economist warning about the mounting non-Gov. debt to GDP ratio? I haven't, have you?
I have been told by professional economists that there have been a few papers by people from the IMF and ECB, etc. about how austerity has not done what they expected it to do. BUT, there has been no changes in the policies of the IMF, ECB, or Govs. like Macron's. It seems like they are following the orders of someone who doesn't care about 'truth' or about the suffering of the mass of the people. These someones seem to be focused on what will provide them with more money for which they can find nothing to spend it on.
IStM, that they do this because the rich own the banks and they don't suffer when there is a Recession or a bank panic. Yes, their net worth does down, but their net holding of real assets goes up when they foreclose on or buy cheaply the real property. The rich know that the market value of their holdings doesn't matter that much, what matters is how much real stuff they own. IStM.
It is time that the people start to use MMT economics instead of Mainstream economics. Then money for programs for the people will not be a problem; just like NOW finding the money for tax cuts for the rich is not a problem.
I find it strange that Mainstream or Neo-liberal economics sees no problem with mounting non-Gov. debt, but does see a huge problem with mounting Gov. debt. Because it doesn't see private debt as any sort of problem it didn't see the GFC/2008 coming. OTOH, for the last 40 plus years it has been warning everyone about the coming hyperinflation that will result from rising Gov. debt. The inflation that has never materialized. The rate of Gov. debt growth has increased to levels that few could have imagined in [say] 1985, and yet the inflation predicted at half this size of deficit spending has not happened.
I find these facts to be damning. Mainstream economics is so deeply flawed that it sees a problem where there isn't one and doesn't see a problem where there is one. Why might this be?
I'm told by professional economists {MMTers] that there are 2 main causes of recessions and Bank Panics.
1] Excessive Gov. budget surpluses that must (by definition) have the effect of reducing the amount of real money in the economy until there is not enough to grease the gears, so then people must stop spending, so then companies see reduced sales, so then they layoff workers, so then the workers stop spending and a recession starts. In the 1800s a Bank Panic would substitute for a recession as people rushed to get their savings out of the banks because they were not solvent. When the banks went under, there was even less money left in the economy because “bank notes” were used as money in addition to actual US dollars (paper, silver, or gold).
2] Rising personal private non-Gov. debt that reaches a point that the workers can't make the next month's payments. When they declare bankruptcy the banks must write off those loans and they may become insolvent. In any case the banks stop making loans and this drops the GDP because GDP is total spending which must come from income or from borrowing. When lending and borrowing stop the increase in spending from an increase in borrowing dries up. [Note: income is defined as being continuing while every act of borrowing is separate; this is why it is increased borrowing that contributes to the GDP.] When borrowing stops, that part of the GDP is removed and this usually means that the GDP growth goes down suddenly and becomes negative. Suddenly the GDP goes from growing to shrinking. Before this it looked [to mainstream economists] that the economy is fine because the GDP is growing. And then, out of the blue, it shrinks. None of them can see it coming because they ignore the whole effect that banks and credit have on the economy.
It seems to me (IStM) that the most likely reason for the blindness of economists is that Neo-liberal economics is not a science, it is propaganda. By that I mean Neo-liberal economics first decides what it wants to prove and then sets out to find a proof the the people will accept as valid. Truth is not the goal. Tricking the people into accepting an economic theory that only serves the rich/owners and certainly has screwed the mass of the people is the goal. To this end it uses false assumptions [labeled “simplifying assumptions”] and flawed logic. It ignores all contrary actual real world evidence that they have got it wrong.
It has been 10 years since the GFC/2008 and Neo-liberal economics has not announced one change in its theory to reflect reality on the ground. This can be seen clearly in Europe/France today. Macron cut taxes in Fr. on the rich and increased taxes on the rest of the people and triggered the Yellow Vest uprising. The EU & ECB are still pushing back on nations like Italy and Portugal which want to increase Gov. spending.
. . . And, who has seen one mainstream economist warning about the mounting non-Gov. debt to GDP ratio? I haven't, have you?
I have been told by professional economists that there have been a few papers by people from the IMF and ECB, etc. about how austerity has not done what they expected it to do. BUT, there has been no changes in the policies of the IMF, ECB, or Govs. like Macron's. It seems like they are following the orders of someone who doesn't care about 'truth' or about the suffering of the mass of the people. These someones seem to be focused on what will provide them with more money for which they can find nothing to spend it on.
IStM, that they do this because the rich own the banks and they don't suffer when there is a Recession or a bank panic. Yes, their net worth does down, but their net holding of real assets goes up when they foreclose on or buy cheaply the real property. The rich know that the market value of their holdings doesn't matter that much, what matters is how much real stuff they own. IStM.
It is time that the people start to use MMT economics instead of Mainstream economics. Then money for programs for the people will not be a problem; just like NOW finding the money for tax cuts for the rich is not a problem.
- By wat0n
- By Tainari88