My screed on why you-all need to reconsider your view that Modern Monetary Theory is clearly flawed. - Politics | PoFo

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I put this screed here in Political Circus because 1] The economic theory being used by Gov. leaders is a political choice. And 2] “Economics” is a backwater here.

I claim that 1971 was a pivotal year in World history. It is the year that Nixon took America {and therefore the World} off the gold standard. Different groups reacted to this in different ways. A lot of fiscal conservatives across the world expected there to be a lot of inflation, now that money was just “pieces of paper”. There was already some inflation because Pres. Johnson had decided to have guns and butter {not rise taxes to pay for the Vietnam War while also funding the Great Society programs}. The leaders of the Arab nations {that is of the oil producing nations especially} expected more inflation of the US dollar and their product was priced in dollars. They took advantage of another Arab-Israeli War to boost oil prices a few times over the next 7 years. This, all by itself, forced all prices up. This looked like inflation caused by the FACT that the dollar was just “a piece of paper”. In a way it was, i.e. the OPEC leaders thought this way and they did it. However, the mass of businessmen had zero choice. They had to raise the price of what they sold because their costs had gone up {oil is IN everything}. My old boss was in the group of businessmen who was sure that whatever people {i.e. customers} said, in fact they would accept any price increase because they had gotten used to it. So, because of the War, going off the gold standard, and OPEC there was a lot of cost push inflation thru the 70s and early 80s.

Another group reacted to Nixon's action in a different way. These men were the leaders of a group that was founded in 1937 to “undo all of the New Deal”. This group is called “The Family” and/or “The Foundation”, google it. These men could see that with the US off the gold standard there needed to be a new reason for the nation to avoid excessive deficit spending. That the old reason {that the Gov. must not create too much additional money to avoid a run on its gold supply} no longer made any sense. Therefore, a new reason needed to be found, or created; or else the Gov. could easily fund the 'hated' New Deal programs. This group funded the think tanks of the conservative movement in the 60s and early 70s as part of their program the undo the New Deal. They expanded their funding to include economics professors. They need a new theory of why the US Gov. should NOT fund the continuing New Deal and now Great Society programs with deficit spending. The hired or bought off economists set about their job. They created or appropriated what we now call Neo-liberal Economics. It claimed to be a science but it rejects real world data in favor of their assumed fantasy world. This choice means this type of economics is NOT A SCIENCE. They claimed that their {obviously false assumptions} were a necessary simplification that WOULD give good enough answers {to the question of “what policy should the Gov. use in the current situation?”}. The result was a theory that seemed to make sense. It was progressively adopted by the mass of the economics profession. All who didn't toe the line were excluded. Now the mass of people believe this Theory in their gut. The majority of the readers of this screed agree with this Theory. However, this Theory does not conform to the real world.
. . Three examples are: . It has been predicted for the last 25+ years that Japan would have high inflation and interest rates because it has deficit spent for that long and run up its “National Debt”** to about 235% of its GDP. In fact Japan has had inflation and interest rates THAT ARE TOO LOW for the good of the Japanese economy. Inflation is now close to 0% and interest rates are below 0%.
. . The 2nd example is the US in WWII. It is a little known FACT that during the war the law was broken and the Fed. Res. Bank directly bought about half of the massive total of all War Bonds sold. Then after the war the US economy had no problems. The war was followed by the best 25 to 30 years any nation in world history had ever seen. Inflation was low, interest rates were low, wages were high, and the economy hummed along just fine. The period ended in about 1970 or '73 because inflation had picked up a little. But, for the mass of the people their wages kept up with inflation.
. . The last example is the GFC of 2008. In 2007 as it approached no Neo-liberal economist said he could see it coming. They all were saying the economy had no problems. That the national debt may someday be a problem, but not for the next few years. Then PRIVATE DEBT caused the biggest financial crisis in world history. The only reason the result wasn't worse than after the crash of 1929 was that the US and other Govs. reacted with massive infusions of cash into the banking sector and a large fiscal stimulus and not Hoover's reaction of spending cuts.

So, the majority of readers here agree with a Theory{of a non-science} that does not conform to reality. If economics was a science then there would be a huge search for a better theory that did conform to reality. There already is such an economic theory. It is MMT. MMT explains why Japan has had low inflation and interest rates for 25 years despite massive deficit spending for all that time. Why the US had the best years any nation ever had after it won WWII. And, MMTers saw the GFC/2008 coming and published the warnings 2 or 3 years ahead of it.

. . OK, what does MMT have to say, you ask? MMT explains that the non-gov. sector of the economy has people in it who desire to save cash and they have the cash to save. That this is a leakage of currency out of the economy. MMT explains that banks don't lend this cash to borrowers, but rather banks create new cash out of thin air when they make new loans. But, the people can't make the required payments on their debts when the debts get too large. MMT explains that most non-European nations can always pay all bills they owe by creating currency and that UNLIKE EVERYONE ESLE Govs. don't actually need to get currency from someone else to pay their bills. This is a good thing because it lets the Gov. deficit spend to replace the leakage of currency as the people save year after year. Also, that the National Debt should never be paid down, let along paid-off.
. . . Speaking for myself now, I can explain why Neo-Liberal economists didn't see the GFC coming and why they explain away the examples of Japan and post war US with hand waving or just ignore it. I believe that the reasons for this are that Neo-Liberal economics was created to favor the rich over the poor and middleclass. That the paymasters would and have not taken kindly to those who rocked the boat. However, the readers are not being paid to “toe the line” so to speak. You are free to adopt the scientific mind set, that if the theory doesn't predict the future well or explain the past at all then there is a glaring need for a new theory. A theory that does conform to reality and if possible allows all, or at least almost all, the people to live better than now and to have Gov. have the currency to fund the needed Green New deal without taking it from the rich or middleclass.

.** . I put 'National Debt' there in quotes, because when a nation is off the gold standard and only borrows in its own currency, it can pay any bill by selling bonds to its central bank to get the currency to pay the bill. Or, it can just create the currency directly. So, the other way of looking at the money Noe-liberals call the National Debt makes more sense.
. . . All debts have 2 POV associated with them, the lender's and the borrower's. The National Debt meme is looking at it from the borrower's POV. If we look at it from the lender's POV, we see that this money is all the accumulated cash that the US Gov. has spent in the past to buy something from the people {to get the people to part with something or work for the Gov.} AND NOT TAXED BACK FROM THE PEOPLE. It is the accumulated assets of the people or actually the “non-gov. sector of the economy” meaning the people, corps, and foreigners. Paying the debt off would require the Gov. to tax it away from the people who currently hold it in order to pay the cash to someone else who would rather have the bond. WHY IS THIS A NECESSARY THING TO DO?? The UK/England has had a national debt since 1694 and not paid hardly any of it down. In these 325 years the nation has acquired an Empire and lost it; and yet there was NO Need to pay the debt off {of those ears, 277 years were even spent on the gold standard, which the world isn't any more}. Given this real world example why do you think the the US must pay its national debt off “someday”. It seems that in the real world someday never comes.

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