Post Keynesianism Versus Kakistocracy
We have a whole generation of struggling young people. Some of whom have turned to leftist revolution as an alternative. Others of whom have adopted the ultimate symbol of the lucky loser in Donald Trump. Both groups seem to want to just "burn it down." They are frustrated because our economic system is frustrating. Jobs are disappearing. Monopolies are buying out ma and pa or simply putting them out of business. And ruthless capitalism seems to be joyfully converting itself into kakistocracy. Schumpeters Creative destruction stops being creative the moment people stop creating. Hoarding creates liquidity traps. We have a system that is only serving some of us!
None of this is necessary!
We can participate in our own creation. The world does not have to decline.
It doesn't have to be that way!
The Post Keynesians have pointed out that it doesn't have to be that way. Capitalism can be put in it's place, chained to a wagon, and kept happily chasing a carrot; if we stop treating it like a viable political or economic system. Capitalism, as I've explained using Henry George's definition, is about "actual capital" or investment in production and useful wealth. Both actual Capital and labor should be treated as sacred. People have to eat. Businesses and useful things have to be conceived, built and sustained. Capital is not the money, it is the productive wealth behind that money. With Accounting money or any other kind, the money simply measures the relative value of productive and parked wealth.
An Alternative to Kakistocracy?
When I was studying economics and thinking of making economics my college major, I was already solidly a "keynesian", having read every book on the subject I could read without falling asleep; including John Maynard Keyne's Opus:
I can't say I was an authority on the subject at all. I am both intuitive, and logical, so I have to reign in my intuitions and validate them, but the "new" theories in the 70s coming from Friedman and the right, were obviously rehashes of the arguments the keynesians had been arguing against.
Rock, Paper, Scissors
Politics is like Rock, Paper, Scissors, no strategy works perfect all the time because rock can be beaten by paper, paper by scissors, scissors by Rock, etc... The new theories could not hold the rock solid theories of Keynesianism. But they could chip at some of the edges. Keynes was talking about a situation where liquidity (money) was being hoarded. His observations were spot on and accurate on 90% of what he talked about.
Using minor errors to Discredit
Some of Keynes ideas were not as good as they seemed. The Money multiplier was based on the notion that banks actually loaned based on reserves, that was already becoming a fiction in his days. Reserves still were a constraint but Federal Reserve regulations were loosening it. There were areas where Keynes was teaching archaic ideas. But his critics used weaknesses in Keynes teaching to try to dismantle things they didn't like about it, not because they weren't true but because they were inconvenient to a free-booting, neo-colonial, accounting money movement, that was aiming at applying a the square peg of "markets" to solve problems that didn't exist for the 90% so Grifters, Opportunists and Privateers could make a lot of money. We derisively called it "trickle down."
Corrupt Pushback on Progressive Economics
The trouble was that this change in teachings was being pushed top down by wealthy investors and donors to the Universities, and hustled by young up and coming ambitious folks who were excited by the arguments. The idea that monopolistic competition, advertising based competition, anything goes freebooting capitalism and trickle down ideas, could somehow promote the public good appealed to emotionally immature and/or greedy people. It was a great theory for justifying the sell off of public goods, private government of utilities and kleptocracy.
Trickle Down Was Proven Absurd from the Start
The "new Economics" came to policy in the Reagan Administration, was shown bankrupt. Some related ideas led to the Fed Reserve engaging in policies that managed to prove that the trade off between "inflation" and "jobs" was a false argument. Unfortunately, those had been "established dogma" and I know I was fooled by the arguments. They didn't make sense, but they sounded reasonable until we got stagflation under Volcker during both Jimmy Carter's Presidency and Reagan's. I suffered from those policies, and examined them.
Out in the Desert
The people who understood them the best were relegated to writing in Business magazines and tabloids. James Galbraith, who is the son of John Kenneth Galbraith, documents how he and other real economists were pushed out into the margins during the late 70s and all through the 80s, not really getting attention paid attention to them until 2008 and the economic meltdown. The theories they developed in the wilderness have come to be known as Post Keynesianism. People as diverse in economic beliefs as Ravi Batra or Kevin Philips, both wrote presciently about the forces driving both economic cycles and the misery of the majority. Writers like Joseph Stiglitz were ignored. There is still a concerted effort to ignore them.
- Joseph Stiglitz
- James Galbraith
- Ravi Batra
- Kevin Phillips:
- 44 Years Later
- Jacob Weisburg thinks he FOS (I don't agree, may deconstruct this article):
- Erring Republican
Meanwhile main stream economics was so clueless it's practitioners came to focus on micro-economics and claim that macroeconomics was a waste of time. Some, disciples of Von Mises, claimed that economics couldn't be tested. His Aristotelian "praxeology" for instance established economics as a form of faith.
"Praxeology is the study of those aspects of human action that can be grasped a priori"
Praxeology makes assumptions and then seeks evidence to justify them. The risk is that if the assumptions are faulty, rather than examining them, they'd look for some other causality to blame for the failure. Other economists weren't much better.
With nonnsense like "praxeology," and a-priori faith in free markets, they'd thrown out the science of economics, and observation baby with the Keynesian dirty water. Even "neo-keynesians" who kept call themselves that ignored many of the core ideas that actually made sense under the conservative influences of money and power. People were expected to build economic theory on untested assumptions, simplified models. It all failed in 2008. Perfect markets, rational behavior, none of it was true in practice. The whole edifice was a con that put the confidence scheme in Conservative.
- Further Reading:
- A Founder of the Right Wing
- Economic Sophism
- Libertarians versus Henry George
- Tories, Neolibealism & NeoKeynesianism
Unethical versus Ethical Economics
I was glad I changed my major, though I still regret not at least trying to write my thesis that Economic Cycles are determined by unethical behavior. The reality is that ethics, virtue, duty play a big role in economics. The invisible hand that makes a free market work is
- Individual Free Actors (not hierarchical corporations) with the power to negotiate (say no) and make real choices.
- Markets: A well governed place established with just rules (weights and measures, boundaries, disclosure requirements, labeling), and enforcement.
Their assumptions led them to create an idealized and impractical model and then try to make the real world fit it.
- Further Reading:
- Starve the Beast Destroy Economy
- Review of "The Predator State"
- Virtue and Vice
- Yanis Varoufakis & Saving Europe.
Continuing Not So Innocent Fraud
Economists and business people are still pushing ideas, that by now, they know are false. Which moves such people out of the realm of mistaken an into the realm of shills, propagandists and con artists. My thesis that the economic cycle is driven by corruption and greed is laid out in front of us like a picnic lunch where no-one showed up and that was left out for the insects and other wildlife to eat while it spoiled. Authorities seem to have given up pedaling their bogus ideas to the nation and have opted for authoritarianism and kakistocracy instead. It all can be avoided! Some young people are so oppressed they are participating in Trumpism to destroy the "establishment." The establishment needs to be fixed. Destruction only digs a hole and pulls dirt on top of the digger.
Post Keynesianism versus Kakistocracy
There is no reason we have to trade off national investments and vital services to our people for short term gains against an artificial deficit. We need to balance the budget in a way that prevents inflation or deflation. But there is no call for slavish devotion to avoiding budget deficits. What really matters is that fiscal spending floats all boats and doesn't create monsters that sink their neighbors. The current system rewards the lazy, privileged and inherited wealth. That needs to change.
The Catch 22 of Creative Assets And Money
A catch 22 is a legalistic no win situation. Our current system forces ordinary folks to mortgage or pledge their assets in order to get money to eat or get to work. This is wrong. It also allows privileged people to create money by creating debt.
Ending False Choices
There is no need to trade off political antiquated bureaucratic control of our infrastructure against Privateering Oligarchy. Monopolies and privateering are not the only way to fund public projects. The idea that we have to accept the dominance of private bankers over our countries is a con where bankers take straw, spin invisible cloth, take real money, and then pretend that they are lending to the Government. This is a false trade. Private money is based on loans This is a trade off is based on the faulty accounting of pirates and privateers, and of a system that cons people into accepting banknotes in return for interest bearing loans, forces government to sell treasury bonds and lets the bankers govern the production of notes and money. You can make yourself educated on this by reading the people I cited earlier or reading the ones at the end of this section.
Reforming the Banking System
The Post Keynesian James K. Galbraith has been working with those who embrace ideas known as Modern Money Theories (MMT). These are derived from lessons learned from dealing with both silver & Gold backed money and with purely fiat money. They also draw from "Chartalist ideas" and ideas derived from the 19th century Greenback and populist movements. James K. Galbraith moved in that direction with his discovery that our deficit problems are a function of both National Debt, "private debt" and also economic inequality. They only seem radical because the current system is extremely convenient to a very small, dominant and vocal monopoly that pretty much blacklists opposing views.
Modern Monetary Theory in an Open Loop
The other reason that modern Monetary theory hasn't caught on is that it's theory has been argued mostly from the POV of a closed loop society. Most theorists act like they are dealing with an economy the size of Kansas City. For example L Randal Wray has this chart for money creation and destruction:
L Randal Wray notes that a:
" monetarily sovereign government is the monopoly supplier of its currency and can issue currency of any denomination in physical or non-physical forms. As such the government has an unlimited capacity to pay for the things it wishes to purchase and to fulfill promised future payments, and has an unlimited ability to provide funds to the other sectors. Thus, insolvency and bankruptcy of this government is not possible. It can always pay"
Genuine Freedom = Sovereignty
Unfortunately for most of the world, the government is not sovereign over its own money supply. Conservative economists would have you believe that that is how it should be and then bash government for having to tax before spending, while privateers pocket cash they never earned. The way it is supposed to be is that Government should spend using notes and then tax back the notes. The way it is supposed to be is that central governments gives advice, general regulations and renders assistance to our many communities. General Government is supposed to organize local governments and be organized so that information travels up a system of decision making, where each level controls where it is best able and has the most information. We ignore principles of economic Subsidiarity in our current mess. Things get centralized.
- More Information
- Balancing Budgets as financial warfare
- Front Money first then tax it.
- Principles of Federalism
- Commonwealth requires Republican Corporations
- Democratic Subsidiarity
Defeating the Pirate Kings
Of course in most of the world, Pirates and Pirate Kings rule the money. And so:
- Nations are usually not Sovereign over their own money
- Nations are either creditors or debtors to private individuals [directly or through institutions] and other Nations
Thus Wray's vision, can be proven to work theoretically within a closed system. But will take some tweaking to be applied to the broader world. It can be done. But the pirates run the banking system.
On the other hand, the lessons from the work of Ray, Kelton, Stiglitz, etc... can be used to fashion an open system that really works!
Our Modern money is mostly accounting money. Paper Money represents a debt of the Federal Reserve. Many of those debts only exist because of fiat from government or contract. They are invisible cloth. If the economy burns off, billionaires who own things fight with billionaires who own debt and they all try to foreclose on the real assets of businesses citizens and entire countries. This debt itself, in many cases should be discharged. The holders of large amounts of accounting money, who do nothing with that money, don't have more rights to real assets than those doing real work or investing in actual productive assets and consumables. They are like the Emperor. Economic downturns are usually the result of their unethical behavior. Why is it that their invisible cloth is used to steal the real cloth of citizens? Why do the citizens go naked so that greedy crooks can flee the country?
There is no perfect agreement between the Robert Reich's, Krugman's, Wrays, Stephanie Keltons or Rogoffs; but they all agree that current policies involve false trade-offs, and that austerity is not a way forward. We don't need to run Kakistocracies, or to suffer such misery as we are suffering. And to fight this we must become more informed about economics and politics. And not let the high falluting words or complex math throw us. Economics is neither a simplistic subject. It's not like the economy of one house. It is the economy and ecology of a whole world. Read the smart people!
- The Smart People:
- Randal Wray on how to Run an Economy
- Kenneth Rogoff
- A world without Paper Money
Taxation as recovering reserves
Wray Also writes that:
"the injection of government currency (through expenditures or advances) into the other sectors must occur before the destruction of the government currency (through tax enforcement and repayment of advances). In an economic system in which a sovereign government operates through its own monetary system, spending (or lending) must occur before taxing. In addition, taxes are not a funding source in that logic. They are part of the destruction of government currency, i.e. they return currency to the issuing government."
Most economists posit that money is "borrowed" from the economy and then the Government pays back that borrowing with taxes. But actually money is lent or spent into the economy and then must be recovered to avoid hoarding of it by those granted a privilege to use and respend government issued money.
"Thus, the government “budget constraint” is more relevantly interpreted as an expost identity that shows the sources of injection and destruction of government currency. It is not an equation describing the choices to fund government expenditures. Within that logic, a fiscal deficit represents a net injection of currency that usually needs to be drained as explained in section 3 "
Using the legal term "privilege" sheds light on this. When money is sovereign, those the government buys resources from can turn around and pay their own debts and replace lost resources. Money is always sovereign for someone. If money sovereignty is in private hands then it becomes a tool for wealth aggrandizement, hoarding and oppression. Money that has its sovereignty questioned loses it's value and becomes mere shreds of paper or a fraction of it's nominal or original worth. So inflation can be seen as a war on the sovereignty of money.
I cut out the rest of this post as I realized that it needs separate post. I started this post quite a while ago. It is generating two posts as I update the information and finish it. As usual I have a lot to say. I have over a hundred other half finished posts to go through!
- L Wrandal Wray