I got an ugly reminder today of how some people are rabidly attached to the view that debt is the worst evil afflicting modern society (see what happens when you make it easy to get laid and make a boatload of mood altering drugs available with a prescription? The moralists focus their vitriol on the now shorter list of remaining vices).
A fellow panel member at an upcoming conference started running a series of right wing tropes: democracies inevitably led to unsustainable debt levels because the voters aren’t disciplined and responsible; if we don’t cut government spending, we’ll get hyperinflation (this after mentioning deflation-mired Japan as one of those irresponsible democracies); how the public isn’t willing to take pain (ahem, no mention of the pain the banksters, who are the reason debt levels blew out, need to be taking?). And it wasn’t simply that he held those views; it was when he got on this line of thinking, he became vehement and angry. And this panel is before an audience that isn’t economically savvy, which means they probably believe the MSM scaremongering on the deficit front and they’ll tend to think his bumper sticker comments are sensible because they are familiar. I’m not looking forward to this, needless to say.
And I got a reminder of how hard it is to dislodge frameworks that people have internalized via this video on money (hat tip New Economic Perspectives). As much as people who know MMT are sure to like it, I’m doubtful it would be persuasive to viewers who hadn’t had some exposure to those concepts. Indeed, there were points where the bear that was doing the explaining seemed almost annoyed and curt. I also question whether a dialogue is an effective way to present complex ideas like this. It may need to be describes tout ensemble, whether verbally or in writing, and then a conversation like this might follow.
Mind you, I think (and suspect you’ll agree) that this video is well done; I’m just not sure that anything in this format (the Bears in less than 10 minutes) could make any progress with someone who wasn’t on his way to being sold.
If the foregoing is correct, I may need to think about this upcoming conference differently. It may be a bridge way too far to try to turn audience views around; perhaps I need to set my aims lower and merely set out to establish that the austerian moralist prescription just doesn’t work.
This post was originally published at Naked Capitalism and is reproduced here with permission.
4 Responses to “The Bears Explain Where Money Comes From”
Yes, people borrow their way to prosperity all the time.
"Quantitative Easing" is elite-speak for creating money. The government prints more dollars and spends them. This transfers value to the government. The government expands (dilutes) the current money supply. This is a tax on all current dollars.
Businesses are happy at first to sell more goods and may even hire. But, as the value of the dollar falls, they cannot replace their supplies at previous, lower prices. Their costs go up, and their prices must go up. Prices move to a higher equilibrium. Businesses then do not see a continued higher demand. Businesses realize that they have sold goods at a lower price than they should have, and they have to lay off any extra workers they hired.
You can sell more donuts by cutting the price by 5%. That will cut into your pay and the pay of your workers. You may see that as a bad choice.
Or, the government can play with the value of the dollar, and fool you into selling donuts for dollars that are soon worth 5% less. You may see this as a bad choice, but you have no choice.
That is how dollar devaluation raises sales while cutting salaries and economic growth.
By the way, this has only a temporary effect. The dollar must be repeatedly devalued to keep the illusion going, until everyone is working overtime at a steadily declining real income.
The government is happy to create money. Each time it "injects" more money into the society, it collects the real value represented by that money by spending it before prices go up. Others now have dollars that will soon be worth less. Their wealth drops by the amount of the new money created.
Nov 2010 – The Federal Reserve has just imposed a $600 Billion tax by "injecting" that money into the government, to buy real goods and services with new paper.
It will work flawlessly until human nature rears its head and somebody starts acting in their own selfish interests, which will happen a few nanoseconds after the system is installed.
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