Europe – Still In Denial

Warren Mosler cites several articles showing that European leaders are still in denial over what needs to be done in Europe. The problem in Europe is still quite simple.  Because there is no floating currency there is a natural competitive imbalance between trade deficit and trade surplus nations.  This exists in the USA as well among the states, but it doesn’t result in periodic solvency crises because the Federal government disburses 20% of state funds directly to the states each year.  Of course, that mechanism doesn’t exist in Europe even though the ECB is currently avoiding the worst case scenario by allowing budgets to be filled without default.  And the austerity measures aren’t helping this process – they’re creating a positive feedback loop as we continue to see in Greece and their now monthly “rescues”.

I’ve long said that Europe needs to go fully federalized and quickly into the direction of a US of Europe.  I still think that’s inevitable.  The big question mark is how big that US of E will be and whether they’re going to let these peripheral nations be part of what is increasingly becoming an unsustainable relationship (as is).  My guess is that Germany would love to toss out the dead wood, but they can’t do that just yet without blowing up their own banks.  So round and round we go.  Where she stops nobody knows….

Comments
  • Dan Kervick March 12, 2012 at 12:35 pm

    Yes, maybe the plan is to toss out some of the “periphery” countries somehow, build a fully federalized union out of the remaining core, and then offer a conditions-strewn path for re-application and re-admittance of the ejected countries .

    There is no mechanism for kicking countries out, right? So the only way to get them out is to make life so miserable for them they eventually leave on their own accord.

    • Cullen Roche March 12, 2012 at 12:40 pm

      Sounds like the plan, huh? I think you’re right Dan. Maybe a few leave after the defection and default scenario becomes tolerable for the core banking system and then they re-enter the union at a later date….Who knows. Maybe they all try to hang on. But I just don’t see how this doesn’t flare up again when people realize that the budgets aren’t improving and the solvency issue is still very much alive.

      PS – Nice to start getting back onto stuff we agree about because there’s a lot more of that than where we disagree!!!

    • Michael Sankowski March 12, 2012 at 12:50 pm

      I think Michael Hudson is on to something when talks about seeing how far countries can be pushed before they revolt. Greece is a small test case.

      • beowulf March 13, 2012 at 10:59 am

        Hudson is the most cynical person in the world, which I fear, makes him the most clear-sighted.
        Its hilarious some of things he does to stir the pot… like writing to the Premier of China to explain how to stick it to The Man (“use their excess dollars to buy out US investment holdings in their countries, at book value”).
        http://michael-hudson.com/2010/07/dollar-hegemony-and-the-rise-of-china/

    • AndyCFC March 12, 2012 at 2:27 pm

      Dan as I understand there is no mechanism for either leaving or getting kicked out.

      • Dan Kervick March 12, 2012 at 2:56 pm

        Yes, that’s my understanding too. But in the end its all based on treaties, so under international law people can back out of treaties based simply on the rights as sovereign nations under international law.

        • AndyCFC March 12, 2012 at 3:52 pm

          Agreed will be very messy though. Historically these sorts of things are very dangerous, only one I can think of recently that wasnt messy was the Czechs and Slovaks every other one was nasty.

    • Dan Kervick March 12, 2012 at 2:57 pm

      Sure, as long as I don’t start ventilating about my master plan for the Soviet People’s Republic of Europe. :)

  • Ben Wolf March 12, 2012 at 8:42 pm

    What really amazes me is the sheer ignorance of so many armchair experts regarding trade imbalances. Outside MMR/MMT blogs you just don’t see this being discussed. Everyone talks about Greek debt and overspending without considering why the overspending occurred, resorting to stock “Greeks are lazy/greedy” answers designed to stop thought.

    • Michael Sankowski March 12, 2012 at 9:06 pm

      Yep. Until you understand the euro is a gigantic vendor financing scheme gone bad, you don’t understand nuthin’ about dose problems in the eurozone.

      And there might be a few people talking about this outside of the MMT/MMR blogs but they are few and far between, and largely ignored by the press.

    • I'llHaveADouble March 12, 2012 at 9:50 pm

      Ditto. These are basically the only good blogs. Some new Keynesians come close by not completely excoriating the Greeks and saying, “Well, it’s complicated…” For everyone else, it’s basically just, “Germany runs surpluses because they’re awesome – everyone should do it!” and “The Greeks are lazy – cut, cut, cut.”

      It’s weird that something so important and so full of money would lend itself to unmethodical and even irrational analysis and commentary – and that those tendencies should prove resilient over many periods. Engineering isn’t like this. Medical science isn’t like this. But when doctors and engineers start talking investing and the economy, they start spouting the same stuff you’d hear on CNBC or at a truck stop Denny’s.

  • vincecate March 12, 2012 at 11:59 pm

    ” This exists in the USA as well among the states, but it doesn’t result in periodic solvency crises because the Federal government disburses 20% of state funds directly to the states each year.”

    The reason states don’t often have solvency crisis is that nearly all the states have “balanced budget amendments”.

    • beowulf March 13, 2012 at 11:08 am

      Well, what state officials always forget to mention those balanced budget amendments are only possible because of direct payments from Uncle Sam and indirectly, federal spending and transfer payments that boost state economies and tax rolls. That’s why I’m not worried about a federal balanced budget amendment becoming law.
      It may in fact pass the House and Senate with two-thirds majorities, but it would never get three-fourths of the state legislatures ratifying. There are enough state govts smart enough (of course I exclude South Carolina and the like) to realize they’d be cutting their own throats since they’d never be able to balance their own budgets without the half a trillion in revenue sharing Congress kicks them every year.

  • vincecate March 13, 2012 at 12:12 am

    In fact, the reason Germany does not have solvency crisis is that they also have a “balanced budget amendment”. The only state that does not have a balanced budget is Vermont. If Greece has a balanced budget amendment from way back they would not have gotten into this trouble.
    http://en.wikipedia.org/wiki/Balanced_budget_amendment

    What MMT/MMR guys don’t get is that if your budget it so far out of balance that you have debt over 100% of GNP and a budget that is nearly twice taxes and you print your own money, then you get hyperinflation. On some level you admit that if there is not enough taxes to create demand for the currency then you will get inflation, but nobody tries to look at the numbers of how much taxes are needed. I recommend a book by Bernholz.
    http://pair.offshore.ai/38yearcycle/#mmthyperinflation

    • Cullen Roche March 13, 2012 at 12:37 am

      Hyperinflation is not about taxes and collection of taxes. The collapse in the tax system is always due to some other event. MMT is wrong to imply that the collapse of the tax system is a cause and you make the same mistake. Zimbabwe didn’t run out of guys running around with guns trying to collect taxes. They didn’t run out of a monopoly on power and force. That’s about all they had after all. They ran out of people producing goods and services. They printed in excess of their productive capacity. Well in excess. I’ve written about hyperinflation in great detail. As I said:

      “Hyperinflations have generally occurred in nations with rampant corruption, war, productive collapse, or other extreme exogenous factors. The “money printing” that generally results is not actually the cause of the hyperinflation. It is merely the result of this exogenous event.”

      http://pragcap.com/hyperinflation-its-more-than-just-a-monetary-phenomenon

      There’s very little occurring in America currently that is consistent with a hyperinflationary environment….

  • Tom Hickey March 13, 2012 at 1:25 am

    Did you read Bill Mitchell’s Zimbabwe for hyperventilators, where he says, e.g.,

    Now imagine that some dictator comes along and starts taking land off the original farmers (who were productive) and gives it to those who do not understand how to farm or have no real interest in farming, in this primarily agricultural economy. The potential output would steadily contract and I have shown a particular revised potential line (a contraction of the overall capacity of the economy to produce).
    If you think about current demand levels in relation to that new dramatically reduced supply potential you quickly see there is a huge excess demand (spending) measured by the gap between Points B and D. But, in fact, as the income levels fall, the economy would actually contract along the top red aggregate demand line (as income falls, so does consumption and saving). At Point C there is still excessive demand (spending) in relation to the new potential capacity.

    Would you care to elaborate on why MMT is wrong about hyperinflation in that it ignores productive capacity, specifically criticizing of Bill’s post which seems to me to contradict your assertion. Or maybe I don’t understand your assertion since it is not elaborated. Thanks.

    BTW, Vincent used to comment at Warren’s place, and there is rather extensive debate with him there about the MMT position on hyperinflation.

    • Cullen Roche March 13, 2012 at 1:34 am

      Tom, I am plenty familiar with the MMT position on hyperinflation as well as Vince. I’ve been through these discussions with him at Pragcap plenty of times. There’s no need to reference any past MMT discussion, but thanks. You guys really don’t have to crusade in every time someone criticizes MMT as having a flaw. FYI.

      But here’s Mitchell on the Confederacy bringing it all back to taxes and making the state “center stage” just like always:

      “So the Confederacy in a few short months had established themselves as a sovereign government with monopoly powers to issue the currency and tax in that currency (thus generating a demand for it). The problem which emerged, however, was that unlike the Union states which could enforce its taxing powers, the Southern government had great trouble raising revenue from taxation.”

      Like always, MMT brings everything back to the power of the state, but the truth is that the Confederacy lost its productive capacity when the North cut of 95% off their exports. It was all downhill from there. The collapse of the tax regime was secondary in nature. But I am sure you have a random quote that will conflate the above quote so let’s have at another pointless debate.

      • Cullen Roche March 13, 2012 at 1:38 am

        And here’s Mitchell making the tax point again in Zimbabwe:

        “So what went on? The Zimbabwean Government is sovereign in the Zw dollar, although recent decisions to allow US dollars to freely trade within the economy is likely to undermine that sovereignty if tax collections in Zw become difficult to achieve.”

        This had practically nothing to do with the hyperinflation. Just like the Confederacy it was all about the collapse in production. I don’t even know why the points on taxes are raised. They add nothing to the conversation and only distract. But MMT does this with most arguments because it’s all about bringing the state back to center stage. Nothing new there.

        • Cullen Roche March 13, 2012 at 1:48 am

          I have to admit also – Mitchell is clever in framing that discussion on Zw. He utterly fails to mention that Mugabe was a brutal socialist and mass murderer who seized the means of production through corruption and force. Instead he makes Mugabe out to be some freedom fighter offering equal rights when the truth is that he was a murderer, a brutal dictator and a socialist. But if you twist the argument in just the right way then you can ease people’s fears over a socialist govt seizing the means of production and cratering the economy.

          • Ramanan March 13, 2012 at 2:35 am

            :-)

            Interesting how MMT sneaks in and sneaks out a few things.

        • JJ March 13, 2012 at 11:13 am

          “So what went on? The Zimbabwean Government is sovereign in the Zw dollar, although recent decisions to allow US dollars to freely trade within the economy is likely to undermine that sovereignty if tax collections in Zw become difficult to achieve.”

          This quote doesn’t strike me as being incorrect. Furthermore, it’s not refering to the hyperinflation. It is refering to the fact that the prevalence of the US dollar as a currency within Zimbabwe could undermine the Zw govt’s sovereignty if the govt is unable to maintain the widespread use of its own currency by maintaining a system of tax collection in that currency.

          If people are not obliged to obtain Zw dollars so as to pay their taxes in Zw dollars, then demand for the currency could evaporate in the face of competition from the dollar.

          Aside from this, Bill Mitchell makes it very clear that the cause of the hyperinflation and economic collapse in Zimbabwe was not the inability of the government to collect taxes. He puts the blame squarely on the destruction of productive capacity, followed by the excessive and corrupt printing of money by government massively beyond the ability of the economy to produce or of the government to tax. He does not state anywhere that if only the government had taxed more everything would have been ok. He describes the situation in Zimbabwe as a system-wide collapse with multiple aspects, beginning with the collapse of productive capacity following Mugabe’s misguided land-grab. So in the case of Zimbabwe, he’s actually in agreement with your view. In the following quote he even argues that certain excessive taxes (import duties) helped to fuel the collapse. So his view is more even-handed than you seem to suggest:

          “So you see the causality chain – trash your domestic food supply and then have to rely on imported food, which in turn, squeezes importers of raw materials who cannot get access to foreign exchange. So not only has the agricultural capacity been destroyed, what manufacturing capacity the economy had is being barely utilised.

          Further, goods and services have also been prevented from flowing in via imports because many importers abandon goods at the border when they are hit by exhorbitant import duties.

          Taken together, the collapse of production has seen the unemployment rate rise to 80 per cent or more. The rising unemployment has further choked any household income growth and aggregate demand has fallen even further.

          As a consequence, GDP growth has been contracting at around 7 or 8 per cent per year and the economy’s potential capacity level has been falling dramatically as investment dries up.

          Further, the response of the government to buy political favours by increasing its net spending without adding to productive capacity was always going to generate inflation and then hyperinflation.”

          http://bilbo.economicoutlook.net/blog/?p=3773

          And in a related article he writes:

          “There is almost always a major loss of productive capacity involved prior to the inflationary event.

          On Zimbabwe, Eslake wrote that “The hyper-inflation experienced more recently in Robert Mugabe’s Zimbabwe resulted from his government’s printing of huge amounts of currency to pay for the continued activities of his government while simultaneously destroying the productive capacity of Zimbabwe’s agricultural sector by handing it over to his cronies.” Exactly.”

          http://bilbo.economicoutlook.net/blog/?p=17006

          • Cullen Roche March 13, 2012 at 11:23 am

            Okay, MMTers have successfully hijacked a thread that had nothing to do with MMT. Well played!

            The fact is, Zimbabwe collapsed because a socialist dictator took over the private means of production. I know Mitchell says that in much more friendly terms, but Zimbabwe essentially proves everything that a hater of big govt is fearful of. You can disagree with this, but it doesn’t mean Mitchell’s presentation is “even handed”.

            • JJ March 13, 2012 at 11:54 am

              “Zimbabwe collapsed because a socialist dictator took over the private means of production… Zimbabwe essentially proves everything that a hater of big govt is fearful of. You can disagree with this, but it doesn’t mean Mitchell’s presentation is “even handed.”

              I only responded because it seemed to me that Mitchell’s views were being unfairly portrayed. Maybe I should have treated your comments as throw-away lines to be ignored. But it would appear that your unfair appraisals of MMT economists and their views is becoming both more strident and more frequent.

              I said his analysis is even-handed in the sense that he identifies multiple causes for the Zw hyperflation, primarily the collapse of productive capacity triggered by Mugabe’s forceful land-grab, and subsequently the huge corrupt money-printing for political favours.

              I would agree with you that in most cases when a socialist dictatorship has forcefully taken over an economy, this has been followed by an economic collapse. Mitchell’s analysis identifies the forceful redistribution of land to people without the ability or resources to farm it as the main reason for Zimbabwe’s subsequent collapse. He argues that it was completely the wrong thing to do and that it had catastrophic results. So you are in agreement on this at least.

              What I don’t understand is how you you make the link between Zimbabwe and what you refer to as the perils of “big government”.

              Do libertarians really believe that if the Democrats were to introduce ‘socialized’ heath care and other programs alongside employment programs for the unemployed and sweeping banking reform, this would be the first step down the road to brutal tyranny, economic collapse and starvation?

              I can’t think of any MMTer who argues for dictatorship and the forceful seizure and redistribution of property. I can’t think of any MMTer who argues for the end of democracy. In my experience it is in fact right wing libertarians who despise democracy.

              • Cullen Roche March 13, 2012 at 12:03 pm

                Phil,

                His comments are not “even handed”. He describes an environment of 50% unemployment as “reasonable”. What in the world is reasonable about 50% unemployment? That’s not “even handed” for a proponent of full employment.

              • Ramanan March 13, 2012 at 12:09 pm

                “I only responded because it seemed to me that Mitchell’s views were being unfairly portrayed. Maybe I should have treated your comments as throw-away lines to be ignored. But it would appear that your unfair appraisals of MMT economists and their views is becoming both more strident and more frequent.”

                Well thanks for responding. My question was genuine. I always notice some line or the other thrown in which seem to have no direct relevance. Don’t ask me to quote but next time I consciously notice, I will let you know. That said, in my recent debate was directly quoting a line which is quite inaccurate.

          • Ramanan March 13, 2012 at 11:29 am

            “So what went on? The Zimbabwean Government is sovereign in the Zw dollar, although recent decisions to allow US dollars to freely trade within the economy is likely to undermine that sovereignty if tax collections in Zw become difficult to achieve.”

            This quote doesn’t strike me as being incorrect. Furthermore, it’s not refering to the hyperinflation. It is refering to the fact that the prevalence of the US dollar as a currency within Zimbabwe could undermine the Zw govt’s sovereignty if the govt is unable to maintain the widespread use of its own currency by maintaining a system of tax collection in that currency.”

            Sorry but what’s the relevance of the quote? It just appears to sneak in something.

            • Cullen Roche March 13, 2012 at 11:40 am

              The whole article is presented in a manner so as to downplay the fact that a socialist govt seized the means of private production, wrecked the economy and that this socialist response was the only culprit in the collapse. He says:

              “In this World Bank Report 1995 you see the data shows that the economic performance was variable but reasonable. The economy underwent a severe drought in 1992-93 which pushed the inflation rate up but it soon came back to usual levels.

              The following graph is of GDP growth since independence in 1980 to 2007 (data from IMF). The performance up until about 2000 provided no sign of the disaster that has followed. GDP growth looked to be like many other nations – variable and usually positive except for the harsh drought in 1992-93.”

              He also calls the land reforms poorly implemented, but “correctly motivated”. Uh, “poorly implemented”? He MASS MURDERED tens of thousands of people in seizing the land. And the fact that a perpetual proponent of full employment could use GDP to obscure the fact that unemployment in the 90s was 50% (FIFTY!!!) is almost unbelievable. If any other country had 50% unemployment Mitchell would call that a total debacle, but he calls this economic performance “reasonable”. WHAT????? That’s not “reasonable”. It was a total disaster through almost all of Mugabe’s murderous and corrupt regime.

              But yes, Mitchell is “even handed” here, right?

              • Ramanan March 13, 2012 at 11:56 am

                From the hyperventilator article:

                “The problems came after 2000 when Mugabe introduced land reforms to speed up the process of equality. It is a vexed issue really – the reaction to the stark inequality was understandable but not very sensible in terms of maintaining an economy that could continue to grow and produce at reasonably high levels of output and employment.”
                :-)

                • Ramanan March 13, 2012 at 12:00 pm

                  From the hyperventilator article:

                  “But this disaster has nothing much to do with budget deficits as a means to ensure high levels of employment in a growing economy (where capacity grows over time) where the non-government sector also desires to save. A private sector investment boom would have caused the same outcome both in inflation and the political problems of fighting it. So will the hyperventilators also say we should not have net private investment?”

                  I donno what this means !

                • Cullen Roche March 13, 2012 at 12:00 pm

                  “Vexed” is one way to put it. Another is corrupt, murderous, horrible, etc.

                  • Ramanan March 13, 2012 at 12:01 pm

                    he he he.

                  • geerussell March 13, 2012 at 12:27 pm

                    The situation in Zimbabwe has largely arisen from the controversial land reallocations which sliced up their largest export and domestic form of productivity into the hands of the agriculturally incompetent.

                    If I were using the power of imagination to frame the writer for ideological bias I’d express shock that this mass murder was described as merely controversial then proceed to speculate about how the writer cleverly phrased it to play down Mugabe’s atrocity in order to further his own agenda.

                    I’d be completely off-base in doing so but that’s just how easy it is to pluck a quote out of context, zero in on a word and use it to unfairly indict someone’s motives. It’s a practice best avoided.

                    • Cullen Roche March 13, 2012 at 12:33 pm

                      Sure. And being a proponent of full employment, one might also describe an environment of 50% unemployment as “reasonable” in an attempt to downplay the corruption, hardship and atrocity caused by a socialist regime. But I am the one obscuring the facts, right? Right?

                  • JJ March 13, 2012 at 1:46 pm

                    He does say that the regime was made up of “evil idiots”.

                    • Cullen Roche March 13, 2012 at 1:50 pm

                      Okay. Mitchell nailed it. He got it all right. Better?

            • JJ March 13, 2012 at 12:23 pm

              Ramanan,

              He states that the Zw govt is a sovereign currency issuer, but then qualifies that statement by indicating that it might lose that sovereignty in the face of competition from the dollar if it can’t maintain demand for its own currency by maintaining an adequate tax-collecting system. That’s how I read it. We already know that Mitchell considers tax to be the way that govt establishes demand for its currency.

  • Tom Hickey March 13, 2012 at 2:11 am

    ” You guys really don’t have to crusade in every time someone criticizes MMT. FYI.”

    Uh, I thought I was asking for clarification and doing it in an acceptable way. Sorry if it was misinterpreted as confrontational.

    I really don’t understand your your position here in that Warren, for example, has said on different occasions that there are different reasons for hyperinflations historically. Weimar was the outcome of conditions imposed on Germany by the victors requiring unreasonable reparations along with deceasing Germany’s productive capacity. Zimbabwe was the result of the government reducing productive capacity by transferring agricultural land to less productive owners. The Latin American hyperinflations were due to government indexing greatly compounding inflation arising from excessive demand and inadequate supply.

    Randy wrote three blog posts on hyperinflation at Economonitor. In the second, Not Worth a Continental! How Modern Money Theory Replies to Hyperinflation Hyperventilators (Part 2), he talks about the specifics of various hyperinflations and credits your work, calling it excellent. That would indicate to me that he doesn’t think there is much space between you guys on this.

    Rob Parenteau also addressed hyperinflation in his post at Naked Capitalsim, Parenteau: The Hyperinflation Hyperventalists, where he says, “Productive capacity must be closed or abandoned in order for the hyperinflation to really rip.”

    So just where is it that you differ from these views, which seem to me to include productive capacity as an essential component in most hyperinflations?

    • Cullen Roche March 13, 2012 at 2:18 am

      Actually, you misconstrued my original point in your typical attempt to defend MMT. I really have zero interest in doing this again with an MMTer. We all know how it ends. We go back and forth, waste a bunch of time and you convince yourself that MMT has no flaws in it. What’s the point honestly?

      • Tom Hickey March 13, 2012 at 2:58 am

        Not being an economist, I have no hard and fast position on economics, since I don’t have the knowledge and tools that are needed. However, I am convinced, as I assume you are also, that most orthodox economists are off-base because they are not beginning with a monetary economy and do not understand finance, accounting or monetary economics very well. MMT appears to me to be the best solution out there, although I have issues with it, too, as I have expressed in some detail at various points. I am still not clear on MMR, but I admit that I have not had time to keep up with all the posts and the flurry of comments. I am waiting for something that ties it together.

        My honest point is that I am trying to learn more about a complex subject in which I have little training or background. When something comes up that I don’t understand and I think has relevance, I ask questions, trying to be as specific as possible in order to get to the point I am trying to grasp. MMT holds that the only constraint on a currency sovereign is availability of real resources in the present an for the future, and the monetary counterpart of real resource availability is price stability. Real resource availability seems to me to relate to productive capacity, which is dependent on many factors both real and financial. Inflation and hyperinflation are therefore central concerns based on both real resources and financial management in relation to them, which involves monetary economics, macro theory and policy. So I jumped this to the head of the line when I saw it.

        • Cullen Roche March 13, 2012 at 3:06 am

          Okay, I apologize for being short, but it appeared as though you were taking my comments out of context to prove a point rather than asking questions in search for edification….either way, it’s not important. Have a good night Tom.

  • Apj March 13, 2012 at 2:23 am

    I don’t recall Bill Mitchell being a Mugabe fan … Though I do recall his voluminous writings abhorring violence. Maybe I need to go and do some read overs?

    • Cullen Roche March 13, 2012 at 2:27 am

      Let’s just say – if I were to write the same piece specifically about Zw and Mugabe I probably would have mentioned the fact that he was a mass murderer, an ignorant economic dictator, a socialist, corrupt and wrecked that economy by doing what most libertarians (which I am not though I presume Vince is) fear govt’s will do – seize the means of production. But that’s just my approach to providing a realistic perspective. This isn’t to say that Mitchell is a “fan” of Mugabe, but his account isn’t exactly fair. In fact, he applauds the Mugabe economy and says Mugabe was well intentioned. No, Mugabe was a mass murderer who wrecked that country and drove millions into poverty. I don’t see how anyone can discuss Zimbabwe in such detail without mentioning these facts….

      • JJ March 13, 2012 at 9:41 am

        “Mitchell is clever in framing that discussion on Zw. He utterly fails to mention that Mugabe was a brutal socialist and mass murderer who seized the means of production through corruption and force. Instead he makes Mugabe out to be some freedom fighter offering equal rights when the truth is that he was a murderer, a brutal dictator and a socialist. ”

        You need to realise that Mitchell’s article was about the causes of hyperinflation and the relevance of the case of Zimbabwe to MMT. Mitchell’s aim in the article was not to rant against brutal dictatorship or “brutal socialism”, nor was his aim to stoke up the fears of libertarians. His aim was to analyse the causes of hyperinflation in Zimbabwe, and the relevant economic lessons that can be learnt relative to MMT.

        For the record, Mitchell refers to Mugabe as a “dictator” presiding over conditions that are “destroying Zimbabwe”. In the comments section he suggests the regime was composed of “evil idiots”.

        He describes the farm take over and subsequent collapse of food production as “catastrophic”. He describes the infrastructure as having been “trashed” and agricultural capacity as having been “destroyed”. He summarises the episode as a having been a “disaster”, and states that the Zimbabwean economy was “comprehensively mismanaged”.

        CR: “he makes Mugabe out to be some freedom fighter offering equal rights”

        Wikipedia:

        “As one of the leaders of the liberation movement against white-minority rule, Mugabe was elected into power in 1980. He rose to prominence in the 1960s as the Secretary General of the Zimbabwe African National Union (ZANU) during the conflict against the white-minority rule government of Ian Smith. Mugabe was a political prisoner in Rhodesia for more than 10 years between 1964 and 1974. Upon release with Edgar Tekere, Mugabe left Rhodesia in 1975 to re-join the Zimbabwe Liberation Struggle (Rhodesian Bush War) from bases in Mozambique.

        At the end of the war in 1979, Mugabe emerged as a hero in the minds of many Africans. He won the general elections of 1980, the second in which the majority of black Africans participated in large numbers (though the electoral system in Rhodesia had allowed black participation based on qualified franchise). Mugabe then became the first Prime Minister after calling for reconciliation between formerly warring parties, including white Rhodesians and rival political groups.

        Since 2000, the Mugabe-led government embarked on a controversial fast-track land reform program intended to correct the inequitable land distribution created by colonial rule.

        During the 1980s Mugabe’s policies were largely socialist in orientation. In 1980 and 1981 the Zimbabwean economy showed strong growth of the GDP with 10.6% and 12.5%. From 1982–1989 economic growth averaged just 2.7% (1980–1989 average 4.47%). Unsuccessful market reform attempts were started in the 1990s and the economy stagnated in this time. Since 2000, GDP has declined by roughly 40% in part due to land reform and hyperinflation.”

        So you see it’s not really as simple as you make out.

        Bill Mitchell’s description is no different to the standard account. The fact that his language is not forceful enough for your liking does not make his analysis incorrect. As shown above, Mitchell does not attempt to defend the regime or play down the “disaster” they created.

        Given the fact that as a result of the previous racist colonial regime “Whites who constituted 1 per cent of the population owned 70 per cent or more of the productive land”, Mitchell argues that “the land reforms were… not well implemented but correctly motivated.”

        It would be difficult to argue that the previous distribution of land was just or acceptable. It was hugely unjust and a hang-over from racist colonialism. It is clear that land ownership had to be redistributed in some way over time – but Mugabe’s smash-and-grab tactics were completely the wrong way to achieve this. Mitchell does not defend Mugabe tactics but argues that they constituted a “nasty harvest” originally sowed by the white colonials’ refusal to reorganise land ownership following Zm’s independence from racist colonial rule.

        As Mitchell states “the problems came after 2000 when Mugabe introduced land reforms to speed up the process of equality… The revolutionary fighters that gained Zimbabwe’s freedom from the colonial masters were allowed to just take over productive, white-owned commercial farms… From an economic perspective though the farm take over and collapse of food production was catastrophic.”

        For the record, I don’t consider regimes that abuse human rights, engage in murder and brutal oppression, or fail to respect the rule of law, as being ‘socialist’. In the same way that libertarians argue that anyone who ‘initiates force’ is not in fact a libertarian, I would argue that any ruler who murders or abuses the human rights of his citizens is not in fact a socialist. I consider the words murderer, brutal dictator and socialist to be mutually exclusive. Whilst people may call themselves ‘socialists’, they need to be judged by their actions rather than by their words. For genuine decent examples of socialism we should look instead to european and scandinavian nations, many of which have been intermittently socialist to varying degrees over the past century whilst some still are (in part) to this day.

        We might say that Mitchell is a socialist in the sense that he advocates nationalising banks and has on at least one occasion called for a failing corporation to be nationalised. He also wants better living and working conditions for all and a more equitable distribution of wealth, such that gains in productivity are fairly rewarded by gains in income. But he is not against the market or capitalism as such. He favours an integration of socially oriented policies with the benfits of free trade and private enterprise and ownership.

        • JJ March 13, 2012 at 10:24 am

          Bill Mitchell actually identifies himself as a ‘left-libertarian’. He also states that he is anti-authoritarian.

          Whilst he does tend to emphasise the role of government (his focus is on the role of a sovereign currency-issuer), I would imagine that for him the government ideally represents the expression of the ‘democratic will of the people’, rather than being the sort of oppressive organisation envisaged by right wing libertarians, who seem to prefer rule by the wealthy and the market over democracy.

          There is nothing to suggest in any of Bill’s articles that he is naive about the potential for bad or oppressive government however – many of his blogs directly attack governments across the globe for precisely such abuses of power.

          As such I think your implicit characterisation of Mitchell as some sort of devious malevolent statist is actually quite misplaced. I would say your descriptions of Mitchell’s intentions and underlying ambitions actually do more to shed light on your own political persuasions than they do on his.

          • Cullen Roche March 13, 2012 at 10:35 am

            Yes, I know. This is all about my personal politics and not the politics of MMT which has admitted on many occasions to being progressive, leftist, at times statist and ideological. You don’t need to lecture me on how this is all about my personal politics. You guys have succeeded in making that point clear. Never mind that you’ve built an entire economic theory around a political position and a policy agenda.

            Why do I bother arguing with MMTers again? Better yet, why would anyone?

        • Cullen Roche March 13, 2012 at 10:25 am

          I am just pointing out that his article is written in a specific way so as to alleviate certain fears pertaining to govt, socialism, etc. Which it achieves by not focusing on those facts. The truth us, the Mugabe govt was a socialist regime that seized the primary means of production and then implemented them very poorly. And he did so in a brutal and authoritarian way. That was the primary cause of the hyperinflation and it’s what every hater of big govt fears. But I have no idea why I am still wasting time explaining anything to MMTers since you guys are clearly pre-programmed to believe anything any MMT founder ever wrote….

          • JJ March 13, 2012 at 12:11 pm

            “I am just pointing out that his article is written in a specific way so as to alleviate certain fears pertaining to govt, socialism, etc. Which it achieves by not focusing on those facts.”
            You read the article in this way as you are concerned with the dangers of big government and socialism, and you see the fact that these subjects are not explicitly addressed as being evidence of an attempt by Mitchell to quietly ‘hoodwink’ the reader. But that is your interpretation which reflects your particular concerns. As I said, the article analyses the causes of Zimbabwe’s economic meltdown. The fact that it does not explicitly state certain things that you think should have been stated is worth noting, but it does not invalidate the analysis. If you had written the article you may have concluded that Zw’s collapse was simply due to “brutal socialism”. But you see Mitchell does something other than this – he actually provides a detailed analysis of what happened. He criticises everything the government did, whilst acknowledging that these “catastrophic” government actions ultimately had origins in earlier injustices inflicted by the previous colonial regime and left festering until 2000.
            By the way, the reason I am defending Mitchell here is not because I slavishly believe everything that he says, but simply because I believe that your comments are incorrect.

            • Cullen Roche March 13, 2012 at 12:30 pm

              Fair enough. I am just stating my claim that an analysis of the Zimbabwean economic performance as being “reasonable” or the implementation of the land reforms as “poor” are vastly misleading claims that can be seen as a potential attempt to obscure the real facts. If I were going to present a 3,000 word article about Zw I probably would have mentioned the fact that it was a corrupt socialist regime that drove the economy into the ground. Of course, this doesn’t exactly mesh well with the MMT ideal of “bringing the state back to center stage” so you can see why I am skeptical of his presentation. I don’t think I am being at all unreasonable here….

              • JJ March 13, 2012 at 1:37 pm

                Ok, but I don’t understand why you think that an MMT policies would have anything to do with what happened in Zimbabwe. You seem to support many of them.

                My ‘even-handed’ comment related to his treatment of the post-2000 meltdown. I said that I thought your two views had a lot in common, and that he wasn’t pushing an tax-fixated argument, far from it.

                I agree that his analysis of 1990s is lacking. Though it follows a simple standard account, it only looks at GDP growth and inflation and ignores other significant problems. These problems must have contributed to the severity of the subsequent collapse so a fuller analysis should incorporate them. I’m not sure their inclusion would necessarily weaken the MMT analysis however. This holds that govt deficit spending cannot outrun growth in production and productive capacity without potentially serious consequences, and that govt spending can always be inflationary and ineffectual if it is carried out incorrectly.

                Mitchell describes himself as an anti-authoritarian left-libertarian, even though he advocates large scale government deficit spending and bank nationalisation. I think he sees plutocratic dominance by finance as more of a threat to democracy and freedom at present than ‘big government’.

                If any of his policies were ever to get a chance of being implemented they would still have to go through the grinder of the democratic process. There is no ruthless MMT dictator that can force its ideas on the world. All Economists can do is come up with analysis and ideas and try to get them accepted. I’ve yet to hear an MMTer denounce democracy, even though many would like to see the current system reformed. In my experience, right wing libertarians constantly denounce democracy and want to take the vote away from people, in favour of a set of immutable ‘natural laws’ that can never be altered by anyone.

                So what I don’t get is where you see all of these malevolent dictatorial shadows lurking behind MMT. Where do you see the real connection between MMT and Zimbabwe’s example of “brutal mass-murdering dictatorial ‘socialism’”?

                Surely you know that there is a vast gulf between people who might describe themselves as leftwing or progressive or ideological (i.e. Wray the other day) and Robert Mugabe? Or do you see one as a slippery slope to the other?

                Are Mitchell’s policies so socialist in your view that if they were ever implented, it wouldn’t be long before we found ourselves in Zimbabwe’s position?

                BTW Kelton’s phrase argues that the chartalist way of thinking brings the state “centre stage” as it refutes the metallist arguments about the nature and history of money. Under the metallist story, the govt plays a minor role, but chartalists argue this is historically inaccurate and doesn’t represent the reality of the monetary system. The phrase does not indicate a desire to bring about a dictatorial socialist big government dystopia in which we all find ourselves on the road to serfdom.

                • Cullen Roche March 13, 2012 at 1:42 pm

                  I didn’t say that MMT policies would turn us into Zimbabwe. In fact, my position over the years has been explicit about that. I also never said that I thought Mitchell was malevolent or dictatorial. I also never said MMT was about a desire to bring about a dictatorial socialist big government dystopia.

                  What I did say was that Mitchell didn’t exactly tell the full story in order to downplay the negative effects of a socialist and corrupt govt.

                  I really don’t know why I bother responding to a single MMTer. I am surely a masochist.

                  • JJ March 13, 2012 at 2:40 pm

                    Ok, I sometimes use exaggerated language to emphasise a point – something you’re occasionally guilty of too. In both cases it’s probably why people get annoyed sometimes.

                    “If you twist the argument in just the right way then you can ease people’s fears over a socialist govt seizing the means of production and cratering the economy.”

                    “I probably would have mentioned the fact that it was a corrupt socialist regime that drove the economy into the ground. Of course, this doesn’t exactly mesh well with the MMT ideal of “bringing the state back to center stage.”

                    Why doesn’t this mesh well?

                    You have repeatedly insinuated a relation between MMT and coercive authoritarianism since the JG fracas. In these latest comments you suggest that Mitchell wants to downplay the ‘dangers of dictatorial socialism’ (indeed, the dangers of mass-murdering brutal socialist dictatorship) as focusing on these could make him and his “ideal of bringing the state back to centre stage” look bad. Why would that be then?

                    • Cullen Roche March 13, 2012 at 3:07 pm

                      If MMT were to frame a discussion on hyperinflation as being the result of a socialist and corrupt dictator then it might reasonably scare people into thinking that MMT’s pro-govt agenda is taking us in that direction. Not necessarily Zimbabwe, but in relative terms. It’s not an unreasonable position.

                      MMT is pro government. Pro state. “MMT is inherently progressive.” Which is fine. I’m not against you guys having a very explicit political position. But don’t try to hide it as though MMT is compatible with Austrian economics or small govt because it’s not. So own what you are and stop trying to obscure it. I was misled for a long time (partly due to my own fault) into believing that MMT is some apolitical and non-ideological perspective of the way the world works. I was probably even guilty of hoping I could influence the core MMTers into buying my apolitical approach. Clearly, that was wrong. That’s fine. I made a mistake there and I own it. But the truth about MMT is that it is a very tightly balled up theory with a very specific policy agenda. That’s cool. Most of economics is that way. But just own it rather than calling it “macroeconomic reality” or trying to portray it as something it’s not.

                    • JJ March 15, 2012 at 7:05 am

                      Cullen,

                      I asked a few MMTers the following questions and got responses from Warren Mosler, Bill Mitchell, Dan Kervick, Tom Hickey and Mitch Green.

                      1. Do you think that MMT might be compatible with small government and low taxes, or is it inherently biased towards big government and high taxes? (I’m assuming that MMT would always involve some form of the ELR/JG if it were to be fully implemented).

                      2. Does MMT require a degree of nationalisation (i.e. of banks/ corporations) and strict regulation, or is it compatible with no nationalisation and a hands-off approach to regulation?

                      3. Would you say that MMT economists have different political and ideological positions, or are you all more or less the same?

                      4. Do the main MMT economists have different understandings of what MMT is or of how it could be implemented?

                      You can read the responses (some short, some longer) here:

                      Warren Mosler/ Bill Mitchell:

                      https://docs.google.com/document/d/1FrF4rVICAdx9unhsIgfnPdpBGqVp_VAfYMXCqxdkWso/edit

                      Dan Kervick/ Tom Hickey/ Mitch Green:

                      https://docs.google.com/document/d/11zkfJYca8lHlXibR59m6HGZofV57Dy9OeDkD82chYhE/edit

                    • Cullen Roche March 15, 2012 at 10:23 am

                      Don’t take this the wrong way, but I don’t seen anything new or different there than what has already been said. But thanks for taking the time to compile all of this.

  • Tom Hickey March 13, 2012 at 2:25 am

    “This had practically nothing to do with the hyperinflation. Just like the Confederacy it was all about the collapse in production. I don’t even know why the points on taxes are raised. They add nothing to the conversation and only distract. But MMT does this with most arguments because it’s all about bringing the state back to center stage. Nothing new there.”

    Warren has said that as a general principle if a government loses the power to tax, then the risk is hyperinflation. I don’t see this as immaterial in that the brakes on the vehicle have failed. Without the ability to withdraw spending power when it is creating excessive effective demand relative to stagnant or declining supply, the supply side inflation spins out of control. No?

    • Cullen Roche March 13, 2012 at 2:31 am

      No. Loss of taxing power is secondary. As already mentioned.

      • Joseph Laliberté March 13, 2012 at 8:17 am

        In the specific case of Weimar Germany the question whether to tax or not was key. Weimar Germany could have tried to tax its population to pay for war reparations under Versailles, but very wisely decided otherwise on political survival ground (revolution was brewing in many parts of Germany at the time, for example: http://en.wikipedia.org/wiki/Bavarian_Soviet_Republic). Weird to say, but massive budget deficit to pay for war reparations (which along with the loss in productive capacity caused the hyperinflation) was perhaps the only way to ensure the survival of a capitalist economy in Germany. One has to remember that the German economy was doing relatively well, even during the hyperinflation years, compared to other western economies. The UK ambassador in Germany at the time summarised it best:
        “It is altogether impossible to conceive that twice the new rate of taxation could be imposed without producing a revolution”
        -Lord D’Abernon, British Ambassador to Berlin

        • JJ March 13, 2012 at 11:23 am

          Mitchell says something similar in his article on Zimbabwe:

          “When you so comprehensively mismanage the supply side of your economy as the Zimbabweans did the only way to avoid inflation is to severely contract real spending to match the new lower capacity. More people would have starved and died than already have if the Government had have cut back that severely.”

          • Cullen Roche March 13, 2012 at 11:26 am

            By the way Phil, you might as well use your regular name if you’re going to continue trolling this website.

            What are there? Maybe 10 of you running around different websites trolling and attacking the authors every day? Do you coordinate this privately? It appears very well managed. :-)

            • JJ March 13, 2012 at 12:13 pm

              Sorry, new name from now on. Trust me, no coordination as far as I’m aware.

              • Cullen Roche March 13, 2012 at 12:24 pm

                Ah. I just assumed you didn’t want to be connected to your insult laced rant from last week. Which I had to delete because it was so disgusting. Apologies for jumping to conclusions though! :-)

  • vincecate March 13, 2012 at 6:12 am

    People, the problem comes from spending much more than your taxes. It is true that you can get this problem by destroying your economy with a dictatorship or socialism. But the way to tell when hyperinflation is in the cards is by looking at total debt and spending vs taxes. You can also get the problem from war. But again, the problem is spending vs taxes gets too out of wack. War is just one of the ways to get into such troubles.

    There are many wars that do not cause hyperinflation. And many socialist or dictatorship countries that do not have hyperinflation. You need to look at what is really in common for the cases of hyperinflation. I highly recommend Bernholz book.

    Here is a question. How do they stop hyperinflation? Let me quote from Bernholz page 193, “A necessary condition to stop hyperinflation is to end money creation for the purpose of financing budget deficits of the government, its agencies and the losses of firms owned or controlled by it. For this purpose a strict limitation of these deficits is necessary.”

    If the only way to stop hyperinflation is to stop printing for the deficit, don’t you think that is the key part of hyperinflation? Yes, you can get out of control deficits in many different ways, but the key is the out of control deficit, not how you got to that point.

    • I'llHaveADouble March 13, 2012 at 8:52 am

      Bit of a vicious circle, don’t you think? Deficit spending beyond the productive capacity of the economy drives up prices…but tax revenues have collapsed because the productive capacity of the economy is falling apart.

      For an unchanged level of government spending and an unchanged tax regime, things could seemingly go from swimmingly to hyperinflation based on what’s going on in the real economy, right? If that’s the case, then controlling the deficit via the levers of taxing and spending may very well not be the ticket: if the government is still performing invaluable services (police, utilities, etc.), then controlling the deficit by cutting spending might further smash potential output and worsen the hyperinflation. Likewise, if the real economy is in tatters (all the factories blew up, the corn fields are being appropriated by warlords from the People’s Republic of Omaha, etc.) raising taxes is going to prove difficult: what’s a credible tax on a largely unemployed populace, and what will its effect be on the strained real economy?

      Under some circumstances, the imposition of an effective tax regime or spending cuts to reduce deficits may reign in a hyperinflation, but it would seem that the array of real underlying causes is the paramount concern. Those are also almost certainly more difficult to confront than financial balances, e.g. driving the warlords out of Lincoln, Nebraska.

  • vincecate March 13, 2012 at 8:51 am

    To me your position on money creation and hyperinflation is like seeing someone with AIDS and saying, “the problem is he is gay”, or “the problem is he is a drug user”, or the, “the problem is he cheated on his wife”, and saying there is no such thing as an AIDS virus. It is really very strange.

    • I'llHaveADouble March 13, 2012 at 11:05 am

      I request that we all shy away from analogies – we inevitably lose clarity and preciseness. I or another here could very well say that we’re saying “treat the AIDS” while you’re saying “he just needs to put on some weight”.

      • vincecate March 13, 2012 at 11:42 am

        Fair enough. But the point is there are many different ways to get into this bad situation called hyperinflation. But once in it there is a positive feedback loop where the more money that is created the less people want bonds in that currency or even to hold that currency. But the fewer people that want to buy bonds the more money the government must print. There are many ways to get into this feedback loop and it is very hard to get out. To me you guys are looking at things that can get you to the feedback loop, like war or dictatorship, but not really looking at the feedback loop.

        • Dan M. March 13, 2012 at 1:22 pm

          vincecate,

          You’re right, there are a lot of ways, but you seem to completely misunderstand “Money printing.” If most of our debt is paying less than 2% interest, that means that people our holding our debt not for the interest, but the safety. Do you really think the same people holding our bonds at 0%-2% are going to reject them en masse if they are QE’d and they now hold 0% cash? Think about this… explain this… because this is the crux of the issue.

          The AIDS analogy was way off. Simply put, usually hyperinflation involves more than just stupid monetary/fiscal mistakes… it often involves a very unstable government, foreign denominated debt (often as a result of losing a war), and harsh reduction of productive capacity.

          • vincecate March 13, 2012 at 3:40 pm

            Yes, people holding bonds at 1% and 2% can en masse decide not to roll them over. It happens time and again. Basically people realize that is a bad deal and not as safe as they thought. They realize this when inflation is clearly higher than the interest rate they are getting. They realize they are better off buying some “inflation hedge” or even just extra cans of tuna.

            The unstable government may be a cause or a result of the currency losing buying power.

            What ratio of spending/taxes would you count as a “stupid monetary/fiscal” mistake? Is it stupid for a government to spend 1.5 times what they get in taxes? Is it stupid to spend 2 times what they get in taxes? Is it stupid not to understand that inflation might not come for 4 years after you printed money? Does MMT/MMR explain these things? If MMT/MMR does not explain these how could getting them wrong be stupid?

            • Pierce Inverarity March 13, 2012 at 4:02 pm

              Actually, MMR does have equations to explain these things. Over at Pragcap a couple of months ago, beowulf was kind enough to walk us through what kind of deficit spending the Federal government might target with the current account deficit being what it is (among other factors). If he has time, maybe he’ll reprint it here, because I think it would do you a world of good to understand that MMR deals in operational realities and mathematics that you seem to want to sweep away with generalizations about “printing”.

            • Dan M. March 13, 2012 at 4:03 pm

              vinecate,

              Of course people can dispense of their bonds/cash… the key question is WHY WOULD THEY if they’re not already? Currently, foreign countries are still buying $500 Billion per year of our currency with their goods. Our bonds are currently paying 0%-2% for the most part… if they want to save in US bonds at super, super low rates, what is not rolling back QE going to accomplish?

              “Stupid monetary/fiscal policy” would be doing something besides what the economy needs at the moment. Right now, we are in a balance-sheet recession and NEED more dollar in our domestic economy. Stupid policy is letting your trade deficit outpace your fiscal deficit for 11 years and expecting things to fire back without significant deficits in our current recession. Stupid policy is being deathly afraid of inflation during a balance sheet recession when everyone’s deleveraging. Stupid policy is being afrait of hyperinflation in the most free, stable, and productive economy in the world.

              • Ben Wolf March 13, 2012 at 6:13 pm

                Thanks for saving me the trouble of writing that. Nice response.

                • Dan M. March 13, 2012 at 6:36 pm

                  Thanks, Ben… I’m kind of outclassed here so I like when I can contribute and not just confusedly try to keep up with the conversation.

            • Ben Wolf March 13, 2012 at 6:16 pm

              “Yes, people holding bonds at 1% and 2% can en masse decide not to roll them over.”

              Who cares? You keep laboring under the assumption that it matters whether people want to buy our bonds when the government does not need their money in order to function. It sells bonds as a reserve drain and nothing more. Let them not roll their bonds over, big deal and good luck to them stuffing their cash under mattresses.

              • Dan M. March 13, 2012 at 6:39 pm

                Ben,

                You don’t get it. If they don’t earn .6% interest on their cash, they’ll all look at each other and en-masse release those dollars in a flood into the US economy, demanding our goods & services, putting people back to work.

                You can’t imagine the destruction that will ensue.

                • vincecate March 13, 2012 at 7:26 pm

                  This is where MMT/MMR really fails. They don’t look at history. Historically if a country has debt over 80% of GNP and deficit over 40% of government spending and then people stop wanting to buy their bonds, they get hyperinflation. That MMT/MMR does not fit reality should make you understand the theory has a problem. Reality is real experimental results. In reality it does matter when the people stop buying the bonds. Imagine the USA. Right now the monetary base is something like $3 trillion and debt like $15 trillion. Like half the debt is due in the next year (short term stuff). If people stopped buying the monetary base could get an extra $7 trillion in one year, going from $3 trillion to $10 trillion. Historically when you get this kind of thing you get hyperinflation.

                  • Ben Wolf March 13, 2012 at 7:41 pm

                    Please show me empirical evidence of hard ceilings on debt for nations sovereign in their own currencies. Where you from, boy?

                    • vincecate March 13, 2012 at 8:21 pm

                      As long as people keep buying the bonds there is no hard ceiling on debt. The problem comes when people just cash in the bonds as they come due and do not buy new ones. Then the monopoly issuer of the currency can not limit how much money it creates. For every bond that comes due it must create more money. If trillions are coming due it gets monetary diarrhea.

                      Now I understand that MMT/MMR think it does not matter if a government monetizes the debt. But in reality it does matter.

                  • Deus.Ex.Machina March 13, 2012 at 8:26 pm

                    In 2001 Japan had a debt of 136% of GDP and more recently over 200%. Friends there tell me there has been no sign of any troublesome inflation let alone hyperinflation. More like deflation.
                    Vincent, you can keep singing the same old tune, but that does not make it true.

                    • vincecate March 13, 2012 at 8:42 pm

                      The Japanese have been exceptional savers, even in the face of low interest rates. But if they stop giving their savings to the government then they will get hyperinflation. I don’t think anyone else has lasted anything near as long as Japan after getting debt over 100% of GNP. The US does not have anything close to the savings rate of Japan in the last decade. Do not expect the US to last so long.

                    • Deus.Ex.Machina March 13, 2012 at 8:49 pm

                      Vincent:

                      “Confirmation bias (also called confirmatory bias, myside bias or verification bias) is a tendency of people to favor information that confirms their beliefs or hypotheses. People display this bias when they gather or remember information selectively, or when they interpret it in a biased way.”
                      WIKIPEDIA

                • Ben Wolf March 13, 2012 at 7:39 pm

                  I had no idea. Thank you for whacking me in the head repeatedly until I figured it out :)

  • vincecate March 13, 2012 at 9:03 pm

    Deus.Ex.Machina
    Confirmation bias

    Yes. This is clearly why with 100+ examples of hyperinflation when debt gets over 80% of GNP so many MMT/MMR folks look at Japan, the one example that has lasted awhile after passing this cutoff without printing like crazy, as if it were the norm.

    • Dan M. March 13, 2012 at 9:11 pm

      Wasn’t Great Britain 140% of GDP after WWII, and the US 110% of GDP?

      • vincecate March 13, 2012 at 9:18 pm

        Hyperinflation takes debt over 80% of GNP and deficit over 40% of spending, then people not wanting to buy bonds. After the war the US had a budget surplus. They did run a deficit during the war, but after cutting back the military the deficit was gone.
        http://pair.offshore.ai/38yearcycle/#debtlevel

        • Dan M. March 13, 2012 at 10:35 pm

          I tried to read the first few paragraphs of that. All I can tell you is it is incredibly, obviously, horribly biased stuff. I will try to read more later just to humor the Austrian argument.

          • vincecate March 13, 2012 at 10:48 pm

            Also, I have a blog at: http://howfiatdies.blogspot.com/
            I appreciate any feedback. I think I am just looking for the truth. If you can find any errors of fact or argument I do want to know.

            • Cullen Roche March 13, 2012 at 11:20 pm

              I’ve been pointing out your errors for years. You don’t seem to understand that hyperinflation is more than a monetary phenomenon. It’s always caused by exogenous events like losing a war, corruption, regime change, foreign debts, crashing production, etc. None of which are occurring in the USA.

  • AK March 14, 2012 at 12:12 am

    Why we can’t all just be friends and agree that the ability to tax, and productive capacity are both inherently connected and thus equally important?

    A sudden and massive loss of productive capacity & capital will mean that there is way too much money out there in comparison with the real goods base. This could theoretically be remedied by the imposition of a massive tax to shrink the monetary base – but practically by that stage, the government has lost the power & legitimacy to do that. Hence hyperinflation.

    • Cullen Roche March 14, 2012 at 12:35 am

      I think once this dust settles MMRists and MMTers will realize that we are indeed friends. We’re like the friends who just got in a drunken brawl. Once we wake up in the morning we’ll remember that we’re friends again. I’m still waiting to wake up though. Hell, I might still be involved in a fight if some of the commentators on other sites are any indication! I did deserve to be “laid out” according to some MMTers so maybe that’s in my immediate future! :-)

  • vincecate March 14, 2012 at 12:18 am

    Cullen Roche
    I’ve been pointing out your errors for years. You don’t seem to understand that hyperinflation is more than a monetary phenomenon. It’s always caused by exogenous events like losing a war, corruption, regime change, foreign debts, crashing production, etc. None of which are occurring in the USA.

    American won the revolutionary war and still got hyperinflation. Bolivia did not have any war. Not everyone that loses a war, has corruption, foreign debts, etc gets hyperinflation. So those things alone can not really be said to cause hyperinflation. Why can’t we agree that your different exogenous events are just different ways to get a government to where the combination of spending and taxes are at levels that make insufficient demand for the currency?

    • Cullen Roche March 14, 2012 at 12:44 am

      Why don’t you start your insufficient demand for currency by sending me your paper notes? I am in the business of collecting them from people like you who see no need for them. :-)

      • vincecate March 14, 2012 at 5:24 am

        So does MMR not like the MMT way of explaining that taxes provide demand for a currency?

        • Cullen Roche March 14, 2012 at 11:08 am

          Yes. See our about us page. We totally disagree with the state theory of money. http://monetaryrealism.com/sample-page/

          • vincecate March 14, 2012 at 5:33 pm

            I agree that MMT is too extreme with their view that the government can force whatever money they want on people. On the other hand, there is some truth to it. In the early 1930s the Fed only had $0.40 in gold for every $1.00 in paper money and people were taking out gold. The people were really rejecting the paper money. If even 40% of the dollars were turned in the Federal Reserve system would have been out of gold and bankrupt. So the government outlawed gold. This is a rather heavy handed move. In particular when the constitution says states can only use gold and silver money. But the government did it and got away with it. And they saved the paper money.

            On the other hand there were hyperinflations where France killed people who violated price control laws and they still could not fix prices. And many cases of hyperinflation where eventually people rejected the government money.

  • vincecate March 14, 2012 at 5:48 am

    I say the reason Bolivia got hyperinflation is they printed money to fund a large deficit. I say they stopped getting hyperinflation when they stopped printing money to fund the deficit. What reason do you say for Bolivia? If that reason applies to many other places, why did those other places not get hyperinflation? Your explanation can’t just be “there was instability in government” since not everywhere that has instability gets hyperinflation. What reason do you give for the hyperinflation stopping in Bolivia?
    http://www.sjsu.edu/faculty/watkins/boliviainfl.htm