Crantag wrote:Based on my understanding of conventional economic theory:
I'll double down on the treating government like a household has nothing to do with conventional economic theory (and is from the realm of political punditry, specifically it's a meme crafted by rightwing so-called deficit hawks (the irony of which is self-apparent following Bush and Trump)).
I'll offer that a better analogy is a government as compared to a corporation, which issues bonds to pay for investment. Borrowing money can lead to an expansion of the economic base, and so productive borrowing is considered to be a virtue (and it applies to the level of a national economy, just as well).
Going back to the olden days, countries borrowed money to build railroads. Some people got rich off of lending the money, but in many cases the railroads also paid dividends to the countries involved.
That's just one example (about infrastructure), but the distinction is productive borrowing vs unproductive borrowing.
Even at the level of the household. If you accumulate credit card debt drinking at the bar, or buying things you don't really need, etc. etc. etc., it is unproductive. If you accumulate credit card debt in order to fund your day-to-day expenses for a month or two or so, while you move to a new city to take on a new job, it is likely to be productive (otherwise, why'd you even take the job?)
Anyway, without further ado. Although, I'll be upfront that I'm not entirely sure how well I'll be able to answer your questions (and I welcome input of others, as well, who may be so inclined).
#1 Doesn't mainstream economics teach that Gov. borrowing "crowds out" private borrowing?
(2) Doesn't mainstream economics teach that austerity is good for a nation?
(3) Doesn't mainstream economics teach that the US Gov. running a surplus is desirable in part of every business cycle?
(4) Isn't the total size of the surplus supposed to equal the total size of the deficits during that business cycle?
There were 4 questions, and I added some numerals.
On 1, I'm not sure, but it sounds familiar. But, I'm honestly not sure if that is a tenet or not. If you've heard it is, it may well be, but I'm not sure of the mechanisms by which that is supposed to occur, and would be interested to know.
On 2. I don't think this is accurate. It is certainly not accurate of Keynsian economics, by a long shot. But mainstream economics has been corrupted by monetarism (Milton Friedman-ites). They may well think that austerity is good, and their argument for it may have to do with their ideas of the high virtues of small government. It sounds more like Grover Norquist than Friedman though, a little bit.
On 3. What is mainstream economics? This is a real question, because it was Keynsianism, before the neoliberal (counter-)revolution. Keynsianism definitely didn't teach that. I don't think neoliberalism really does either. I think this is more politics. I actually think neoliberalism really doesn't address this issue; whereas Keynsianism has, seemingly, been borrowed by MMT. The ideas on this topic you attribute to MMT (run a surplus in good times and a deficit in bad times) is really directly from Keynes (which is fine, theories build on other theories).
4. I don't really know, but that might be Keynes' ideal.
#2 If my understanding is not what mainstream economics teaches about why a surplus is a good thing then what does it teach on this point?
I honestly didn't hear much on this topic from contemporary mainstream economics (as I noted above). Maybe I simply wasn't exposed to it in my experience, but if that is the case, I simply don't know and am ignorant on the subject of what mainstream economics teaches on this. I don't recall it being a part of any of my undergraduate or graduate curriculum (and that's actually a little bit of a bad look for mainstream economics, but I guess maybe they ignore the inconvenient things to write about. Not that no 'mainstream economist' has written on it, but I don't recall it from any textbooks).
#3 I would contend that making a theory that you know does not correspond with reality and then using that theory to make policy recommendations to the Gov. it quite dishonest. It is totally unscientific. Imagine if climate scientists tried to do that. I would expect the outraged shouting to be heard as far away as Mars.
. . It isn't like it is hard to correct the theory on this point. Either, all those bank loans do keep adding to the total bank deposits and so do create more than 10 times the lending or they don't.
Economics deals with abstract models. I have said before, that economics is more art than science, in my view. The abstract models provide proxies, which can be applied to the artistic interpretation of extant phenomena.
Perhaps ironically, the most scientific economist, in my opinion, is Karl Marx.
He explicitly acknowledged the limitations of economics in terms of quantitative analysis, given the lack of precise data available. Economics is in the realm of metaphysics (the philosophy of which Marx mastered, long before he turned his energy to economic analysis). Physics is quantifiable in precise manner, but economics isn't. Scientific analysis of economics more belongs to philosophy than it does to mathematics (as Marx demonstrated). Logic vs math, essentially.
Marx evaluated at length the nature of value, of class relations, of production, of the working day, etc. But he sought to do so in a scientific manner; based on philosophy methodology.
In short, I don't disagree with your assessment. But I think that Marx (to a greater extent) and Marxist economics (to a somewhat lesser extent) do aim for scientific analysis, and that in doing so, they are exceptions.
Then Crantag wrote again:
Sorry to quote myself and essentially double-post, but the above is about the distinction of productive vs unproductive borrowing, essentially.
In the case of the government, it is indeed not quite so simple, as any spending will create demand in the economy.
The supply-siders don't believe in this, but they are simply shills, in my opinion.
I said before, you put 5 economists in a room, and you'll get at least 5 different opinions. I think that most economists believe that government spending is more than the sum of it's parts, and are more in line with your thinking on the topic (and I agree with your view on it), but there may be some who don't.
The thing is, some of the economists that get publicity are basically just prize fighters for corporate interests, and are not true to academics.
Sorry it took so long to reply. 1st the election. Then I had to think about a reply. Than I got distracted by trying to solve a puzzle that involves a game.
There is a lot to respond to and I have combined your 2 replies by adding your 2nd to the 1st one.
OK, I can accept your correction that comparing a nation to a company is a better analogy. I think it doesn't matter much.
OK, economists don't agree on anything. And yet we are told that economists agree that the Gov. must not deficit spend too much. In other words I'm going to continue to argue against what the media says is why the Repuds and Dems in Congress behave the way they do.
I do this because [as you say] economists are a large mixed group so they have no 1 opinion to argue against, and because I want Congress to act a different way so it is their opinions that matter. Also, the public's opinions matter and they only hear what the media tells them is true about economics.
So, I assert that it doesn't matter what the professional economists publish if they let the media distort it. I am trying to change the perceptions of Congress and the public. What the media syas is what I'm taking as the other side of the argument. If you can't accept this then we will just have to agree to disagree.
On #1 you asked where I heard it and how it is supposed to work.
I heard it from the MMTer Stephanie Kelton. She explained that it begins with the idea that [just like back when we were on the gold standard] there is just so many dollars in the world. Imagine there is a big pile of them in the corner of the room. Now imagine every one of those dollars magically moves to millions of small piles
that belong to every person, comp., bank, nation, etc. in the world.
. . Now the Gov. wants to deficit spend, so it needs to sell a US Bond. To do that someone with a pile of dollars must exchange their dollars for the Bond. This means that he/she/it doesn't have the dollars any more to lend to a Corp. that wants to borrow dollars to [for example] build a new factory. Thus, Gov. borrowing does crowd out private borrowing and will therefore drive up interest rates.
. . Stephanie said that this is incorrect. She said that in fact when the Gov. deficit spends it 1st writes and sends out the checks or auto-deposits the dollars into someone's bank account. The Fed. Res. honors those checks even though they are kyted. Then the Treas./Fed. offers a US Bond for sale. Thus the dollars to buy the bond have already been added to the economy before the Bond is sold. The dollars are already added to the deposits of the banking system and so the banking system can lend 90% of the amount of the Bond right off, and 10 times the value of the Bond in total. Thus, even if we ignore the way that deposits create 10 times their value in "lending potential", the banking system can lend 90% of the amount of the Bond right off. AND, all this ignores the fact that you and I have alredy agreed to, that the banking system can pretty much lend all the dollars it wants to without ANY limit because the world is awash with 'reserve dollars' and banks can buy some, add them to its reserve account, and lend 9 times that amount.
On 2, [remember I'm talking about what the media says] when Clinton ran a surplus this was seen as a good thing. It is still hailed as one of his accomplishments. Keynes did say that the nation needs to run a surplus in the boom part of the business cycle, right? It follows logically that he thought a surplus was a good thing during booms. OTOH, Keynes changed his teaching later on, but this part of his teaching is what is fixed in the public's and the media's mind.
On 3, I addressed this first thing above. By mainstream economics I mean what you hear in the media when it explains economics.
. . However, I think you are confused about what I said or meant to say. MMT does not suggest the a surplus is called for during the boom pat of the business cycle. MMT says that a surplus in only called for if inflation is getting out of hand because of shortages in the real resources that can be bought. All the rest of the time [at least as long as there is a trade deficit] there needs to be a deficit. This deficit needs to be as large as the trade deficit plus the amount the public wants to save [and does]. If it isn't that large then year after year there will be less dollars in the economy and this will cause a recession eventually.
. . Notice that MMTis seems to be claiming that the business cycle is a product of the gold standard with its limit on the money supply or Neo-liberal economics with its self-imposed limit on the money supply. That without this limit, there will not be recessions. Well, if there is also a limit on private debt levels.
. . BTW --- the need for some limit on private debt is the reason I started this thread.
On 4, OK, I think it was Keynes idea. So, we seem to agree this might be so.
On #2, as I said, I'm reacting to what the media says the economists say rather than what they do in fact say. Again, I do this because it is what the public hears and thinks the economists are saying. If economists think the media has it wrong, then shouldn't they find a way to reach out to the public and tell them directly what they think? Maybe create some Youtube videos by the various economics depts. or schools of thought or something.
On #3, OK, economists mostly create models that they don't believe correspond to reality and then they make policy recommendations based on the results of those models. Is this what you are saying?
. . Again I ask, why do they get away with this? Why? Is it that the media is now owned by rich people and they want to deceive the public? If so, then the media is leading the world and all of humanity over a cliff.
. . You said there that you don't disagree with my assessment [was it that it is dishonest to base policy recommendation on models that you know have nothing to do with reality?]
Your 2nd reply --- mostly I have already responded to.
. . You did say the 'supply-siders' are just shrills. Meaning liars.
. . MMT makes a big, big deal out of explaining that in reality the economy is driven by sales [not by excess supply]. That comp. will hire people and add to their ability to deliver their product or service ONLY
when they see more effective demand than they can supply with their current levels of staff and equipment.
Sorry about the wall of text.