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You are here: Home / Politics / Glibertarianism / Less than zero

Less than zero

by DougJ|  June 4, 20129:24 am| 71 Comments

This post is in: Glibertarianism, Going Galt

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Atrios wrote a few days ago that:

We are currently ruled by central bankers who aren’t just aiming for 2% inflation, which by now we should know is too low (both at the moment and longer term), they think 2% inflation is too high.

The reasons are different in Europe, but here part of the explanation is because a Kenyan Muslim Socialist Democrat is in the White House. If George Bush and a Republican Congress were in charge, they’d be stepping on the gas, and the ex-Maestro would be on the teevee explaining why we don’t need to be worrying about high interest rates when we have record low interest rtes.

I’m not sure whether or not that is true. The fixation with inflation comes to some extent from the fact that high inflation is about the only form of wealth (asset, opposed to income) tax that we have (other than property taxes). If you have a billion dollars and there’s 5% inflation, then in a year, it’s only worth 95% of what it used to be worth. Our Galtian overlords have an extreme aversion to having their wealth taxed. So the fact that most economists — if they’re being honest — believe that printing money (and possibly driving up inflation in the process) is the best way out of this near-recession might be irrelevant with Republicans in power too.

The Very Serious People, especially at Kaplan, have written about how our economy is not a “zero sum game”, that if workers eat enough shit, the confidence fairy will return and raise their wages. In fact, what is happening is that workers are eating shit and not buying anything with their nonexistent wages, and investment portfolios of the wealthy are sometimes suffering as a result. If the Galtians ate a little shit in the form of inflation, good economic conditions might return and raise the value of their assets.

But you’ll never hear that “zero sum game” argument made by the Very Serious.

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71Comments

  1. 1.

    PaulJ

    June 4, 2012 at 9:32 am

    The economy is a zero-sum game, except when the government net-spends. Ignoring that is ignoring reality.

    Unforunately, even when the government net-spends the few end up with it all. Taxes on the rich need to be in the 90% range like it once was.

    65% of the population has no savings.

  2. 2.

    rlrr

    June 4, 2012 at 9:33 am

    Remember all the dire predictions that Obama’s policies would cause hyperinflation? How’d that turn out?

  3. 3.

    Napoleon

    June 4, 2012 at 9:36 am

    I’m not sure whether or not that is true.

    Here are two links that explain that it is in fact true:

    http://thinkprogress.org/yglesias/2010/08/23/198316/the-partisan-fed/?mobile=nc

    http://rortybomb.wordpress.com/2010/08/18/back-does-the-federal-reserve-simply-not-like-democrats/

  4. 4.

    Punchy

    June 4, 2012 at 9:38 am

    But somewhere, a ghey wants to marry. So we’d better fix that first. Also, Sharia Law is not running rampant throught the country, so lets pass laws to stamp out the nothingburger.

  5. 5.

    Jerzy Russian

    June 4, 2012 at 9:38 am

    @rlrr:

    Remember all the dire predictions that Obama’s policies would cause hyperinflation?Remember all the dire predictions that Obama’s policies would cause hyperinflation?

    We have sort of a inverse hyperinflation where the rate is rapidly approaching zero. This is consistent with the “predictions” made by many right-wingers, where I have taken the inverse of what was predicted to make it match more closely to reality.

  6. 6.

    libarbarian

    June 4, 2012 at 9:38 am

    Also remember that high inflation helps debtors and hurt creditors … and that a lot of their “wealth” is in the form of debts owed to them by us.

  7. 7.

    gaz

    June 4, 2012 at 9:42 am

    You seem to be using zero sum differently in terms of economics than I would have considered it.

    Zero-sum basically means someone’s gain is someone else’s loss.

    Well, I do not think that economics is a zero-sum game, but I guess I’d apply that in a different context than you did (and maybe the villagers and those economists as well).

    I think that a rising tide lifts all boats. As China’s middle class emerges for example, while it may hurt us in the short term, it helps us in the long term.

    Speaking domestically, a healthy middle class and robust programs for the poor will actually help rich and poor alike.

    Again, speaking globally – there’s as much wealth as there are resources and labor, multiplied by our ability to use our creativity to get value from those resources, roughly speaking.

    So our wealth pool will always grow. The pie gets bigger.

    Frankly, the way you used zero-sum above makes me uncomfortable, and I firmly believe that zero-sum thinking is why humans get themselves into all kinds of messes. The battle for resources, land and power is what drives a lot of conflict, if not most conflict. Zero sum thinking is behind a lot of that.

    Just sayin’

  8. 8.

    RalfW

    June 4, 2012 at 9:51 am

    Inflation not only devalues the asset base, it impacts the value of dividends and unearned income which can be more inelastic than wages – though if you ask the average US worker, they’ll tell you just how inelastic wages have been for the last couple of decades.

    And therein lies one reason why higher inflation with high unemployment is actually bad for workers too. When umep is at 8.2% there is damn little leverage for workers to demand the raises needed to keep up with rising consumer prices.

    All that said, the current central banker obsession with inflation is wrong. But I’d say that their wrongness is mostly in how their obsession prevents legislative bodies and heads of state (not just Congress/Obama but also Merkel/Bundestag, Cameron/Parliament) from establishing sane tax and budget policies in a recession.

  9. 9.

    liberal

    June 4, 2012 at 9:51 am

    So the fact that most economists—if they’re being honest—believe that printing money (and possibly driving up inflation in the process) is the best way out of this near-recession might be irrelevant with Republicans in power too.

    No, the best way to get out of this mess is some combination of government spending. Inflation might be derivative of that, but the claims that the Fed alone can fix things are plausible but somewhat shaky (since you can’t force banks to lend).

    Inflation is useful insofar as it’s a backdoor way to implement forgiveness of private debts, but I’m not sure how effective it is if the interest rate on those debts floats.

  10. 10.

    gaz

    June 4, 2012 at 9:54 am

    @liberal: “claims that the Fed alone can fix things are plausible but somewhat shaky ”

    I’d say it’s more than shaky. It’s flat out false considering where we are right now. I think the feds would probably agree, and if I recall correctly, they already have.

  11. 11.

    Enhanced Voting Techniques

    June 4, 2012 at 9:56 am

    One just has to look at Mitten’s as his no loss guaranteed life or the hurt fee fees of WallStreet that the rest of the country is angry with them because they had to bail their ass to see how we ended up here. Even the movie the Avengers was mocking this “I NEVER lose because I am special” attitude of the elite in Stark.

  12. 12.

    gaz

    June 4, 2012 at 9:57 am

    @RalfW: Inflation isn’t always a bad thing for workers. In the big picture some think it could help reduce our unemployment rate. See for example Paul Krugman

  13. 13.

    Metrosexual Black AbeJ

    June 4, 2012 at 9:59 am

    @gaz:

    I agree that this isn’t zero sum, but one could argue that someone has to eat some form of shit in the short term at least (I’m not even convinced this is true, but let’s say for the sake of argument that expansionary measures would raise inflation a few points). Getting us out of this near-recession would be a tide that lifts all boats. Austerity is a tide that sinks all boats.

  14. 14.

    RalfW

    June 4, 2012 at 10:03 am

    @gaz:

    So our wealth pool will always grow. The pie gets bigger.

    Usually, yes. But periods of deflation, the 1930s being the mega-example, can and do happen. We forget, because the US Central Bank system actually has done remarkably well heading off a major deflation in a long time.

    I think they’re basically inventing a new failure as they go along here in the 20-teens, but for now lets look at wealth = resources + labor X creativity.

    I think that’s a fine model, but of course some key questions are: is there a divisor on the left side that shows how the wealth gets distributed?

    Because right now plenty of wealth is being created. It’s just not going below the top couple of percent of the global rich. And that’s a failure of tax policy, not central banking or even the general wealth creation model.

    Another other major problem with the model (and it’s because it’s so simplified, which models of course are) is that resources are being exploited, not just used efficiently. One of the major failures of capitalism is that so many costs can be externalized with no or minimal repercussions to wealth agregation. The biggie to me is pollution/environmental degradation.

  15. 15.

    negative 1

    June 4, 2012 at 10:03 am

    @gaz: It’s a zero-sum game in the sense that our ‘wealth pool’ is the basket of market goods, in Adam Smith-ese. By definition economics is the science of the distribution of scarce goods.
    I understand what you are saying about technology helping us all, but by and large it’s a crock of s^&t. If technology, and by extenstion the basket of market goods, were the biggest driver of standard of living then hunger would not be such a problem for anyone, given the HUGE technological advances we have made. And yet, people still starve. So if it’s not a zero-sum game how easy to produce food does it need to become before we don’t have children going hungry? Because to me it doesn’t seem to be a supply problem, it seems to be that some people don’t have resources while others have too much.

  16. 16.

    gaz

    June 4, 2012 at 10:03 am

    @Metrosexual Black AbeJ: On that we agree, and you are probably right that someone will have to eat shit in the short term. Too bad the working poor and the middle class have been eating shit for at least the last 30 years.

  17. 17.

    gaz

    June 4, 2012 at 10:06 am

    @RalfW: Personally I believe that there’s real wealth, and artificial wealth. That wealth being created is almost universally artificial, since it does not tie to any products or services that fit the model I outlined. It is created in a vacuum, and doesn’t reflect reality. One of the many problems with artificial wealth is that it is frail. Since it’s not tied to anything real it can evaporate as easily as it’s created. I believe the MOTUs probably know this on some level, which is why they are attempting to guard it so fiercely.

  18. 18.

    Bulworth

    June 4, 2012 at 10:06 am

    If you have a billion dollars and there’s 5% inflation, then in a year, it’s only worth 95% of what it used to be worth.

    Isn’t the billion dollars earning interest? What is the interaction between an asset’s investment return and the rate of inflation?

  19. 19.

    RaptorFence

    June 4, 2012 at 10:10 am

    I know you have your issues with E.J. Dionne, but I think he captured it well this morning:

    Forgive me for noting that conservatives seem to believe that the rich will work harder if we give them more, and the poor will work harder if we give them less.

    Also, too a epic bit of “Both Side Do It” and some sloppy kisses for the (failed) Simpson-Bowles commission from Fred Hiatt

  20. 20.

    Freddie deBoer

    June 4, 2012 at 10:11 am

    Exactly right. The monetary policy mechanism serves the moneyed elite.

  21. 21.

    gaz

    June 4, 2012 at 10:18 am

    @negative 1: The primary issue with people going hungry is the inequitable distribution of wealth, not the lack of technological advancement to help the problem.

    So while I agree to a degree with your assessment I do think you are overstating your point, and at the same time, it’s possible (if not likely) that I am overstating mine.

    I look at the boom post WWII and how it changed us globally. We didn’t magically create more raw resources, and yet the standard of living of vast swaths of humans increased dramatically even as population skyrocketed. I’d go so far as to posit that the impact of technological advancements far outstripped the amount of resources we were able to extract, and while our labor pool grew, it lagged compared to our tech. It was technology that was the primary driver of our SoL increase.

  22. 22.

    RalfW

    June 4, 2012 at 10:22 am

    @gaz: I’ve been reading K-thug for years, and I think he’s basically right. But inflation is not a magic cure that is risk-free either.

    I think the key is still tax and budget policy not Fed action. It’s a lot easier to bash Bernanke (partly because he makes it easy with some poor policy choices), but because he’s one semi-nonpartisan target rather than the Village-sacrosanct “both sides do it” Congress.

    The policies that I think need to be tried would – eventually – risk higher inflation: fed. gov’t borrowing and investing in infrastructure, re-hiring teachers and other laid-off state workers, paid for with higher taxes on the rich now, and all earners phased in (net of low income credts, not trying to screw the working poor here).

    Where the Fed comes in is in promising not to fuck up the benefits of a growth policy. If they raise interest rates too soon after a big stimulus, the benefit of the wave of spending is gone.

    I think that’s what needs looking at. It has to be non-Fed stimulus + Fed looseness to work. Just Fed looseness alone gets you the Japan basketcase (simplifying here of course).

    So all this talk about Bernanke has to include Congress’ GOP (abetted by cowed Dems) unwillingness to do stimulus.

  23. 23.

    Linda Featheringill

    June 4, 2012 at 10:23 am

    Capitalism totally depends on having a supply of paying customers. That is so basic, the fat cats have to know it.

    The powers that be in Europe sometimes look like they are playing chicken with their customer pool, extracting more and more from the 99% until just before the point of collapse of the consumer class. Maybe they think they can pull out in time?

    In fairness to the European PWB, I must say that most Republicans and too many Democrats are no better.

    It seems like such a stupid game. I don’t understand it.

  24. 24.

    gaz

    June 4, 2012 at 10:27 am

    @RalfW: On this I think we are basically in general agreement.

    We are faced with terrible tax policy and a demand weak economy.

    We need real government spending (due to absence of private sector spending) to prime the pump. Even if inflation were a result (and I find the notion questionable, as Krugman does as well) it would still give us a net ROI. Stimulus, IOW and lots of it.

    We need a realigned tax policy that doesn’t suffer from both rewarding the creation of artificial wealth and redistributing wealth upward.

    We need to invest in our nation in order to remain competitive, and the less we choose to do so, the further we hamstring ourselves as a nation into being uncompetitive in the future.

    Shorter: I agree with K-Thug =)

  25. 25.

    Villago Delenda Est

    June 4, 2012 at 10:30 am

    Tumbrels.

    The only way out now is tumbrels.

  26. 26.

    gaz

    June 4, 2012 at 10:32 am

    @Villago Delenda Est: I’m investing in torch and pitchfork futures =)

  27. 27.

    OzoneR

    June 4, 2012 at 10:36 am

    @gaz: All of what you’re saying is true, but Americans do not want to invest in their country, they want to invest in themselves and fuck everyone else.

    Case in point, California high speed rail, they don’t want it, eek! a deficit

    http://www.bloomberg.com/news/2012-06-03/california-high-speed-rail-losing-support-poll-shows.html

  28. 28.

    muddy

    June 4, 2012 at 10:37 am

    The other thing they like about no having inflation is that those damned senior and disabled people don’t get a COLA. There was one this year after not having one the previous 2 years.

    But the prices of groceries and fuel have gone way up during that 3 year time period, I never understand why they don’t count that as inflation. It’s the inflation that affects people the most. Or I guess I should say affects poor people the most, and probably that’s the very reason why they don’t count it, for all I know.

  29. 29.

    Roger Moore

    June 4, 2012 at 10:48 am

    @liberal:

    Inflation is useful insofar as it’s a backdoor way to implement forgiveness of private debts, but I’m not sure how effective it is if the interest rate on those debts floats.

    It’s also a very effective way of forcing people who are holding on to a lot of cash to put their money into more productive assets. Since one of our big problems right now is an unwillingness for banks to make loans to businesses that need them, discouraging them from hoarding cash seems like a very good idea.

  30. 30.

    Davis X. Machina

    June 4, 2012 at 10:52 am

    Depression is a choice

    We are in a depression, but not because we don’t know how to remedy the problem. We are in a depression because it is our revealed preference, as a polity, not to remedy the problem. We are choosing continued depression because we prefer it to the alternatives.

  31. 31.

    Kirk Spencer

    June 4, 2012 at 10:53 am

    @muddy @28: The reason they don’t is that groceries and gas are volatile. Meaning they go up and they go down for a host of reasons beyond those of inflation, with scarcity and speculation high on the list. They change how much up and down they are rapidly and unpredictably.

    This means any tools used to try and control and stabilize inflation get no reliable feedback.

    Picture driving on a heavily washboarded gravel road. The oil and food changes are the washboard, the road itself is the baseline inflation. Do you steer against every twitch of the wheel, or generally aim down the road?

  32. 32.

    Ben Cisco

    June 4, 2012 at 10:55 am

    @Napoleon: Matty Y correctly noted that POTUS renominated the GOP Fed chair, but this:

    and then don’t fill the other vacancies on the Fed board in a timely manner

    is horseshit. The NeoConfederates have held up/blocked a ton of nominees because they only want candidates to the right of Genghis Khan. To conveniently “forget” to mention that fact is lazy as hell and misleading to boot.

  33. 33.

    Roger Moore

    June 4, 2012 at 10:57 am

    @gaz:

    I look at the boom post WWII and how it changed us globally. We didn’t magically create more raw resources, and yet the standard of living of vast swaths of humans increased dramatically even as population skyrocketed. I’d go so far as to posit that the impact of technological advancements far outstripped the amount of resources we were able to extract, and while our labor pool grew, it lagged compared to our tech. It was technology that was the primary driver of our SoL increase.

    We may not have magically created more resources, but we started burning through the ones we had, especially petroleum, much faster. The biggest single thing that’s raised our standard of living is replacement of human and animal power with mechanical power, and in post-WWII that’s generally meant burning fossil fuels. Take away our cheap power, and the whole thing comes crashing down. That’s why it’s so critical to develop renewable energy now, when we still have enough of the non-renewable stuff left to power the transition.

  34. 34.

    Martin

    June 4, 2012 at 10:58 am

    That’s totally not true.

    European central bankers have one mission in their charter – control inflation. US central bankers have two missions in their charter – control inflation and control unemployment.

    We were wise enough to add the employment piece and the Fed really does take it seriously, but it’s a unique component of the US central bank. And the Fed is smart enough to know the long-term effects of unemployment on the economy.

    The wingnuts are all too happy to ignore the Feds responsibility toward unemployment that was mandated by Congress and they whine about it constantly. And the only response that needs to be given to them is that if Congress would just nut up and deal with employment directly, through some form of stimulus, then the Fed could let that component go and focus solely on price stabilization and inflation and would indeed raise interest rates. Because that’s the grand bargain that they’re forcing the country to make – either increased deficit spending in the near term through stimulus or the risk of high inflation long term through quantitative easing. We’ve got a balance built in to the system and its working as intended. If they don’t like the results there are other ways of getting there that they just need to stop being dicks about.

  35. 35.

    Martin

    June 4, 2012 at 11:00 am

    @Roger Moore: Except that if irresponsible bank behavior was the cause of this, the low interest rates only further the banks behavior by making it unprofitable to loan money. Yeah, it gets the rest of us to invest, but it’s causing the banks to do the same, which is why Jaime Dimon has a date with Congress coming up.

  36. 36.

    kth

    June 4, 2012 at 11:02 am

    8% unemployment is a political problem for whoever is President. Accordingly, if a Republican were President, you bet Republicans would be all for the QE and more Keynesian stimulus (though probably in the less-effective form of tax cuts).

    It wouldn’t be totally symmetrical: Democratic politicians care more about jobs for their constituents, so they would (rightly) go along with the loose money policy.

  37. 37.

    Hungry Joe

    June 4, 2012 at 11:03 am

    The problem with inflation now is that unions have been decimated and all workers generally stripped of power. Used be that, three percent inflation, what the hell, I’ll a get a cost of living bump to cover that and maybe another one or two percent as a raise. (“Raise,” n. Increase in wages or salary. obs.) Today’s workers are justifiably fearful of inflation because three percent inflation = a three percent pay cut.

  38. 38.

    danimal

    June 4, 2012 at 11:28 am

    @kth: Damn straight.

    I’ll never figure out why the Merkin people keep getting fooled by the GOP budget shenanigans. Why are Keynesian economics a soshalist plot when enacted by Obama and common sense when enacted by Republicans (Romney: “Of course I won’t cut in the first year, GDP would decrease 5%…).

    I used to think national journalists were economic illiterates, who didn’t “get it,” but this occurs too much. Now I just believe they are in the tank.

  39. 39.

    OzoneR

    June 4, 2012 at 11:31 am

    @danimal:

    I’ll never figure out why the Merkin people keep getting fooled by the GOP budget shenanigans.

    Hours and hours of talk radio yelling about welfare mothers with Escalades and ungrateful immigrants moochin’

  40. 40.

    PaulJ

    June 4, 2012 at 11:39 am

    “…So our wealth pool will always grow. The pie gets bigger…”

    How does our wealth pool get bigger in nominal terms?

  41. 41.

    Todd

    June 4, 2012 at 11:40 am

    @Linda Featheringill:

    The powers that be in Europe sometimes look like they are playing chicken with their customer pool, extracting more and more from the 99% until just before the point of collapse of the consumer class. Maybe they think they can pull out in time?
    …
    In fairness to the European PWB, I must say that most Republicans and too many Democrats are no better.
    …
    It seems like such a stupid game. I don’t understand it.

    If you look at what the Meritorious Inheritors do with money, they’re not providing velocity. They’ll tie it up in real estate, gamble with it, tie it up in antiques or burn it up in political contributions and ad buys.

  42. 42.

    muddy

    June 4, 2012 at 11:45 am

    @Kirk Spencer: Thanks for the explanation. Gas prices do go up and down, but I have to say food prices never go down in my experience. But perhaps they base that on corn futures or some stuff and not what is in the supermarket.

  43. 43.

    Enhanced Voting Techniques

    June 4, 2012 at 11:52 am

    @kth:

    8% unemployment is a political problem for whoever is President. Accordingly, if a Republican were President, you bet Republicans would be all for the QE and more Keynesian stimulus (though probably in the less-effective form of tax cuts).

    Sure, but they would have the same problems Obama has getting things threw Congress. Basically a lot of Congressmen are terrified of doing anything for anybody at any time because of the wingnuts. It’s not so much a difference of policy its there is this group wants to see it all burn down.

  44. 44.

    PaulJ

    June 4, 2012 at 11:54 am

    @muddy:
    “…Gas prices do go up and down…”

    True but the overall trend is always up.

  45. 45.

    Judas Escargot, Your Postmodern Neighbor

    June 4, 2012 at 11:59 am

    The “Oh Noes! Inflation!” meme is also about interest rates. Imaginary inflation gives the MOTU a great excuse to raise them (which is essentially them giving themselves a raise, at our expense).

    Raising interest rates is the only way to get more money out of the little turnips. That’s why (for example) in the GOP primary debates, they were all panties-in-a-bunch over Bernanke’s policies.

    If Romney wins, expect a Bernanke replacement and much higher interest rates for the Little People.

  46. 46.

    muddy

    June 4, 2012 at 12:05 pm

    @PaulJ: Indeed, but Kirk was saying about volatility.

    Sigh, I remember in HS when both gas and cigarettes cost 50 cents. We used to say, imagine if butts cost a dollar, no one would pay and everyone would quit. I was telling this to a young person recently, who then wanted to know how much stamps cost back in the olden days. I replied, how the hell would I know, I was in HS smoking and driving around, not paying bills and sending out checks, lol.

  47. 47.

    liberal

    June 4, 2012 at 12:06 pm

    @Roger Moore:
    You’re right. But then, how are you going to get the inflation to encourage banks to lend out more money?

    What I’m saying is that I think the claim that it’s easy for the Fed to do this is highly questionable, if not outright wrong.

  48. 48.

    PaulJ

    June 4, 2012 at 12:14 pm

    @muddy:
    “…I remember in HS when both gas and cigarettes cost 50 cents…”

    I remember in HS when you could buy gas for $0.20/gal

  49. 49.

    gaz

    June 4, 2012 at 12:14 pm

    @PaulJ: See the model I outlined in that post.

    Also as an example, see post WWII when our technology made a quantum leap compared to pre WWII

    The most rapid major advances in human history came in just before the latter half of the 20th century (and increased at an accelerated pace since – most of which during the last half of the 20th. As a byproduct, our wealth pool grew.

  50. 50.

    liberal

    June 4, 2012 at 12:17 pm

    @negative 1:

    If technology, and by extenstion the basket of market goods, were the biggest driver of standard of living then hunger would not be such a problem for anyone, given the HUGE technological advances we have made. And yet, people still starve.

    That’s completely wrong. Food is much cheaper than it was a long time ago.

    The cause of poverty, and its solution, was figured out by Henry George over a century ago. There’s one classical component of production which really is in fixed supply: land.

    With current technology, most who is able bodied should be able to provide themselves with the minimum essentials by either growing their own food, or doing something the market deems useful and then trading for it. The problem is that they have to pay a toll to landowners in order to have a place to grow that food, or labor in exchange for food, or even sleep.

    The real outrage about the rich not paying a higher tax rate isn’t that rich people, per se, should pay a higher tax rate. It’s that people who collect economic rents are skimming from the rest of us, and most if not all the income of the truly wealthy is economic rents.

  51. 51.

    liberal

    June 4, 2012 at 12:19 pm

    @Martin:

    The wingnuts are all too happy to ignore the Feds responsibility toward unemployment that was mandated by Congress and they whine about it constantly.

    Worse than that, I thought I read that some teatard proposed stripping the employment mandate out of the Fed charter.

  52. 52.

    Daulnay

    June 4, 2012 at 12:20 pm

    We are in a depression, or right on the edge of one. Look at the symptoms: very low inflation or price deflation; flight from productive, risky investments to cash and other secure, non-productive investments; persistent high unemployment.

    In this situation, expansive monetary policy is “pushing on a string”. It works very poorly, if at all. This is the basic Keynesian insight, gleaned from the Great Depression. The best cure is expansionary fiscal policy: tax cuts (only for those not well-off), and spending increases (which will require suspending balanced-budget amendments at the state and local level).

    Atrios misdirects blame — it lies on the people insisting that countries balance their budgets right now. In the U.S., that’s Republicans, some ‘moderate’ Democrats, and the Burkean middle of our commentariat. In Europe, it’s the people pushing for Greek, Italian, Portugese, Spanish and Irish austerity.

    The central banks are not perfect, but they only deserve blame in so far as they push for austerity — which the US Fed has not. The US monetary policy is highly expansive — real interest rates on US debt are negative, even 10 years out, which in normal times leads to high inflation. But these are not normal times… people simply stick the increase in money supply ‘under the mattress’.

    Blame the Republicans and others who talk about the government ‘living within our means’. Blame those who foolishly compare the government budget to the family budget (Barack Obama, I’m looking at you). And especially blame those who’ve been using this rhetoric to turn the American economy into a zero-sum game for 95% of Americans.

    Face the fact that the American Dream is, and has been, under attack. The system that generated prosperity and freedom for everyone, that gave us all a chance to get ahead if we worked hard, that system is gone. For the last 30+ years, the U.S. government put into place a system that siphons all the economic growth into the pockets of the elite. For the rest of us, it’s been zero-sum — if one of us gets better off, another of us gets worse off.

    It’s unfair, but worse, the system removes the incentive for ordinary people to work hard and get ahead. If this continues, U.S. citizens will start to regard economic success the way people do in poverty-ridden countries, as evidence that someone stole from their neighbors. The idea of progress, that everyone can get better off, will disappear.

    Finally, for those that argue the Democrats are good, Republicans bad, consider the record. Clinton’s people did plenty to usher in this era, from NAFTA to dismantling Glass-Steagall. Democrats like Joe Biden and Harry Reid helped pass the draconian bankuptcy ‘reform’ called the “Bankruptcy Abuse Prevention and Consumer Protection Act” in 2005. (The bill got 18 Democratic yes votes in the Senate, and a courageous ‘Not Voting’ from Hillary Clinton.)

    Democrats may be better than Repubs but they’ve been pretty bad all the same. That’s why crazies like Ron Paul have been able to gain traction. It’s easy to lump Dems and Repubs together and say they’re all the same — because that’s what the facts show. (Yea, it depends where you draw the line. But that’s the problem, isn’t it? There are way too many ‘liberal’ Dems on the wrong side of the line.)

    To get back to the current crisis… how many Democrats do you hear calling, loudly, for a big increase in the deficit? And how many do you hear ‘sagely’ saying that we have to address the deficit problem, and not treating austerity talk like the babbling of fools that it is?

  53. 53.

    liberal

    June 4, 2012 at 12:22 pm

    @gaz:
    I might be wrong, but I thought the really big advances were before that, in the Industrial Revolution. We’re talking productive gains on the order of 1,000 or more (and that’s not a percentage).

    When Matako Chan or whatever her handle-du-jour is was posting here (where’d she go? don’t miss her, though…), I teased her once or twice about a point that someone made about the Singularity—it’s happened in the Ind. Rev.

  54. 54.

    gaz

    June 4, 2012 at 12:23 pm

    @PaulJ: In case by nominal, you mean very specific:

    Microwave ovens. We can now prepare food for less power and effort than we used to, using the same amount of resources we used to make old cooking devices.

    Cars. We take the same material from the ground, and can make something far more valuable that uses resources more efficiently and to greater effect.

    Computers. Bits of silicon and gold arranged carefully now serve to make it dramatically cheaper to process things that were difficult and often impossible to do before hand. We used to just make glass and jewelry with this stuff, basically.

    Labor force and raw materials considered equal we now enjoy more capabilities and greater efficiency – basically greater VALUE – than we ever had before. This is where a lot of our wealth pool growth lies.

  55. 55.

    liberal

    June 4, 2012 at 12:26 pm

    @Daulnay:

    The central banks are not perfect, but they only deserve blame in so far as they push for austerity

    Strictly speaking, not true. If they had been taking their regulatory duties seriously, the crash wouldn’t have occurred because no one would have gotten liar loans.

    For the last 30+ years, the U.S. government put into place a system that siphons all the economic growth into the pockets of the elite. For the rest of us, it’s been zero-sum—if one of us gets better off, another of us gets worse off.

    Yeah, this is the nastiest aspect of the current crisis: a credit-collapse-based recession, combined with the nasty, nasty secular trends you identify.

    Finally, for those that argue the Democrats are good, Republicans bad, consider the record. Clinton’s people did plenty to usher in this era, from NAFTA to dismantling Glass-Steagall. Democrats like Joe Biden and Harry Reid helped pass the draconian bankuptcy ‘reform’ called the “Bankruptcy Abuse Prevention and Consumer Protection Act” in 2005. (The bill got 18 Democratic yes votes in the Senate, and a courageous ‘Not Voting’ from Hillary Clinton.)

    I completely agree, though IMHO this is the one issue that the Dems are the “least better” than the Republicans on.

  56. 56.

    gaz

    June 4, 2012 at 12:35 pm

    @Daulnay: I’m a liberal, not a Democrat. Too often, Democrats are 3rd wayers that sell the same neo-liberal policies espoused by fiscal-libertarian fools. Including NAFTA, the destruction (effectively) of Glass-Steagal, and the “bankruptcy reform” crap that you mentioned.

    Your problem is one of mislabeling. I’d argue that Democrats are at least nominally better than Republicans in that they occasionally get it right. I think I can safely speak for most people here that vote D in that we do so because we are realists, not necessarily because we agree with them.

  57. 57.

    muddy

    June 4, 2012 at 12:37 pm

    @PaulJ: Wow, you *are* old!

    I remember gas being 5 cents a gallon too, oh wait no, that was 5 rials, it was in Iran – I think the exchange made that about 7 or 8 cents at the time.

  58. 58.

    gaz

    June 4, 2012 at 12:42 pm

    @Daulnay: FYWP my post broke.

    I was going to add that on social policy front if nothing else, I’d vote D, given the two realistic options. To say that the Republicans are the same as the Democrats completely ignores this, and is so disastrously and monstrously foolish that I won’t take anyone seriously as soon as they make the claim.

  59. 59.

    gaz

    June 4, 2012 at 12:46 pm

    @liberal: You might be right. I didn’t live through the industrial revolution. In the end, I don’t believe it detracts from my point about the latter 20th century. I think it would be fair to call that a revolution as well. I think there’s a case to be made that the 1000x magnitude increase in value for production could apply to emergent technology in the late 20th as well – but it’s harder to quantify because (like is the case with digital computers) we don’t have anything to compare them to.

    Not to mention that it’s a more convenient frame, seeing as how most of the stuff you encounter today was – if not birthed in – then greatly improved by our advances in the mid-to-late 20th.

  60. 60.

    negative 1

    June 4, 2012 at 12:48 pm

    @liberal: I like Henry George, but if I’m overstating my point to Gaz you may be overstating your point about Henry George ‘solving poverty’, or at least you seem to lack conclusive evidence. That said, I’m not sure we really disagree…
    By stating that it’s cheaper you are actually sort of arguing my point against Gaz. “Cheaper” such as it is, means that less of the overall total value of goods is food. And yet, people are still not getting enough of it. However, as one of the two probably most basic necessities (water being the other) people certainly aren’t prioritizing other things over it. So it’s a zero sum game because if technology alone could solve the problem everyone would have access to food now (enough is produced to feed humanity by most calculations). Some still don’t, however, so obviously some still have access to resources at the expense of other people. Hence, a zero-sum game.

  61. 61.

    PaulJ

    June 4, 2012 at 12:49 pm

    @gaz:
    Nominal wealth grew also over that period.

    A lot. Over the 3 years during WWII the National Debt™ grew by more than a factor of 5. That’s a huge increase in money creation.

    Today, doing that same thing would require increasing the National Debt™ to over $80 Trillion by mid-2015.

    The question is, if nominal wealth doesn’t grow, is it possible for real wealth to grow, since it is measured in nominal terms.

    And then we come to the question, how does nominal wealth grow?

  62. 62.

    gaz

    June 4, 2012 at 1:00 pm

    @PaulJ: “And then we come to the question, how does nominal wealth grow?”

    I think the question we really need to be addressing is how to get “real” wealth to grow. If I understand how you are using nominal wealth here (and maybe I don’t, I’m not an economist) then I think that’s a question that’s too far forward looking to be realistic given our nation’s current predicament. Plus I already addressed one aspect of it through technological advancement. As I said, it’s only fair that I should allow for the likely possibility that I may be misunderstanding your use of the phrase “nominal wealth”.

    But if I’m not, real wealth is a big problem right now. I don’t think nominal wealth is huge problem in the short term.

    As far as increasing real wealth?
    I think the simple answer (and probably a bit glib) is that mass mobilization of our labor force is the clearest way to grow it.

    As much as I’m tempted on economic grounds, I’ll withhold advocating for total warfare (like we did during WWII), even though that’s by far the easiest way to mass mobilize a nation’s labor force.

    Failing that, increasing demand through directed government investments in infrastructure wouldn’t hurt. I guess in a sense, massive stimulus spending would be like mini WWII, or the New Deal (which both arguably increased workforce mobilization even while it increased our debt – it also grew our GDP which allowed us to pay down our debt better than if we hadn’t done so).

  63. 63.

    Daulnay

    June 4, 2012 at 1:02 pm

    @PaulJ:

    The question is, if nominal wealth doesn’t grow, is it possible for real wealth to grow, since it is measured in nominal terms.

    Trivial. Prices drop, usually due to huge increases in productivity. Rare, but it does happen, and happens in a limited fashion all the time — the huge increase in computer power/dollar is one recent example.

  64. 64.

    Daulnay

    June 4, 2012 at 1:08 pm

    @gaz:

    Your problem is one of mislabeling. I’d argue that Democrats are at least nominally better than Republicans in that they occasionally get it right. I think I can safely speak for most people here that vote D in that we do so because we are realists, not necessarily because we agree with them.

    We wring our hands, and claim that we must vote for the lesser of two evils. But that’s only partially true — we can pressure our representatives and senators, and our local legislative politicians much more, and really hold them to account. While we may have to choose the lesser of two evils for a Senate seat, to keep it out of the hands of the Repubs, there’s no reason we can’t vote for a better, non-Democrat alternative in solidly liberal districts. Yet we don’t, even though to vote Democrat in those districts is to enable the ‘moderates’ in the party.

  65. 65.

    gaz

    June 4, 2012 at 1:15 pm

    @Daulnay: I agree with the crux of your point about applying pressure, and I’m pretty friendly to 3rd party candidates – but not so much as to put a seat in significant danger of being captured by a republican. That’s where I draw the line, and why by and large, I believe in more and better democrats, although I’ve often voted Green locally. Nationally, we are a two party system. As much as I’d like that to change, until there is a clearer path to make that happen we aren’t going to get it.

    FTR, because of the way the electoral college works, I do vote 3rd party in one case nationally (and have gotten a ton of flames because of it here on BJ) – the office of president. But I’d never do that if I thought for a second that my electoral vote wouldn’t go to a D president. Also, if I thought a 3rd party candidate had a clear shot at the office, I’d go for it, like I do locally. But that is almost never the case.

  66. 66.

    Canuckistani Tom

    June 4, 2012 at 1:16 pm

    @muddy:

    Why do we always remember that the prices were awesome, but forget that the wages were crap?

  67. 67.

    PaulJ

    June 4, 2012 at 1:17 pm

    @Gaz, @Daulnay,

    Nominal wealth is the net number of dollars held in the non-government, after accounting for liabilities.

    The difference between nominal wealth and real wealth is leverage.

    Money created through credit cannot increase nominal wealth for the economy as a whole, every dollar created has an off-setting liability.

    Increasing real wealth without increasing nominal wealth requires greater and greater levels of leverage.

    Increasing productivity decreases the number of jobs.

    A partial list of pension-related funds totals in excess of $38 Trillion.

    There is ~$5 Trillion in nominal wealth in existence.

    Where will the funds come from to fund those pension plans, since they pay out in dollars?

    BTW, I am not an economist. Anyone can figure these things out using basic arithmetic and readily-available data.

    Modern economics is a scam (Modern neo-liberal economics that is).

    Economics is an engineering problem.

    Just food for thought.

  68. 68.

    OzoneR

    June 4, 2012 at 1:25 pm

    @Daulnay:

    how many Democrats do you hear calling, loudly, for a big increase in the deficit

    A lot, they just tend to get laughed off the stage and can’t seem to get on the ballot to run for office

  69. 69.

    gaz

    June 4, 2012 at 1:35 pm

    @PaulJ: Ahhh. okay, I get the term now.

    So, FTR, advancements in tech increase nominal wealth (although in many cases, like tech-based increase in productivity, they hurt it).

    The way I was using the term real wealth was also quite different than how you were using it. I’ll concede that I’m probably mistaken on that term as well. When I said real wealth, I mean wealth that was created as a direct product of labor and production, as opposed to artificial wealth that occurs via leverage and vapor products, like a lot of financial instruments.

    I agree that economics is an engineering problem.

    “Modern economics is a scam (Modern neo-liberal economics that is).” Also, this.

    We have relied on boom-and-bust bubbles to keep this country afloat for years. So much so, that a plurality of people have simply decided that the economy is a purely cyclical phenomenon. That needs to change.

    For starters, we as a nation don’t manufacture anymore – at least not to a significant degree. Productivity increases aside, this is a major core problem. As long as we are freely trading with nations with inexpensive and large labor pools, we won’t be able to compete in raw manufacturing. I’m sure there are many ways we could ameliorate that, but I wonder if all of those wouldn’t run into the wall of simple economy. We demand a higher wage, and the rest of the world is trading freely. We’re damned if we stray too far away from the free trade route, and we’re damned if we expect a higher amount of money in exchange for our labor than the countries we compete with.

    That said, I’ve argued before (and will spare the thread the rehashing of the details) that I.T. has sort of supplanted much of the vocational labor that used to be handled through manufacturing – although I won’t go so far as to say it’s even close to a complete solution. That said, it’s illustrative of my point that follows:

    Clearly, I think we’re going to need to have a more skilled labor force – at the end of the day – than the next country. That’s the only clear way I can see that we’d be competitive with the 3rd world in terms of being able to create things. So we need lots of investment in education, just for starters.

    We’re in definite trouble on the manufacturing front. Until countries like India and China grow a solid middle class and their SoL grows to a level approaching ours – basically until they start demanding the same level of pay we do for producing things, it behooves us to not compete in those areas.

    It’s a tough problem. We definitely need to explore other markets where we can remain competitive in the face of a global economy, and we haven’t done near a good enough job of this so far.

  70. 70.

    PaulJ

    June 4, 2012 at 2:55 pm

    @gaz: “…advancements in tech increase nominal wealth…”

    A clarification:

    there is only one way possible to increase nominal wealth – money creation via net government spending (deficit spending). Spending more than is taxed.

    Running a surplus decreases nominal wealth.

    The National Debt™ is the accounting record of money creation. The National Debt is identically equal to National Savings™.

    Government debt = non-government savings.

    The National Debt™ is equal to the sum of all deficits/surpluses over history.

    This may seem like a leap but …think about it.

  71. 71.

    gaz

    June 4, 2012 at 2:59 pm

    @PaulJ: I’m pretty sure most of the tech advances I spoke about were actually a product of defense and wartime spending – and thus govt spending, but I take your point.

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