Constrained by money? A response to Paul


by Sunny
18th July, 2010 at 9:24 pm    

I’m more just writing down thoughts here… I was going to respond in the comments to Paul Cotterill but turning it into a blog post might be better. He says:

Now, what causes demand to outstrip supply to create rampant inflation? Well, mostly it’s when supply is constrained in some way.

Why was there huge inflation in Weimar Germany? Not because the government printed money, but because production in the Ruhr suddenly collapsed when the French and Belgian armies took over the area, after the Germans defaulted on the massively punitive reparations payments, and production collapsed.

Paul can take example of hyper-inflation to justify his point, but that doesn’t mean expanding the money supply endlessly has no impact on the economy. Let’s say supply of products in an economy doesn’t collapse. But if the government prints lots more money, it will eventually end up in the pockets of people. They will spend that extra money and suddenly demand will outstrip supply.

If you just keep it within the domestic economy, then it’s obvious why inflation will rise then. If however you’re importing a lot of good then it’s arguable that you could import more to fill that demand. But that would mean a trade deficit (you’re importing much more than you’re exporting) – which puts pressure on the currency, causing it to rise and hence inflation. Am I missing something here Paul?


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  1. sunny hundal

    Blog post:: Constrained by money? A response to Paul http://bit.ly/d15SAN


  2. sunny hundal

    @BickerRecord Constrained by money? A response to Paul http://bit.ly/d15SAN


  3. Gabi Urse

    Pickled Politics » Constrained by money? A response to Paul http://bit.ly/bQs8Xu


  4. Chad Booker

    Pickled Politics » Constrained by money? A response to Paul http://bit.ly/db4YWf


  5. Chris Jones

    Pickled Politics » Constrained by money? A response to Paul: Not because the government printed money, but because… http://bit.ly/dqXlI8


  6. K Knight

    Pickled Politics » Constrained by money? A response to Paul: Not because the government printed money, but because… http://bit.ly/dqXlI8


  7. Howard Rose

    The common choices for these are: 1. ensure if you put X amount of money in the bank, you get x+y out, even decade… http://bit.ly/bw7aD3


  8. Paul Cotterill

    Interesting discussion emerging about fiscal constraints http://bit.ly/d15SAN courtesy of @sunny_hundal . Shamit of LFF and others vs me.


  9. james kirk

    Pickled Politics » Constrained by money? A response to Paul http://bit.ly/bw7aD3


  10. james o kirk

    Pickled Politics » Constrained by money? A response to Paul http://bit.ly/bw7aD3


  11. blogs of the world

    A response to Paul http://bit.ly/d15SAN. soru ? on 18th July, 2010 at 10:56 pm. The detail… http://reduce.li/w9g7r0 #response


  12. Marcel Duda

    Pickled <b>Politics</b> » Constrained by money? A response to Paul http://goo.gl/fb/gJ7mY


  13. Paul Cotterill

    @theday2day Forget the NHS for a bit. @wbmosler has turned up at Pickled Politics. http://www.pickledpolitics.com/archives/9293


  14. Bill and Warren’s excellent adventure « Though Cowards Flinch

    [...] aspects of all this, because to date comments on everything I’ve written has tended to get dragged towards the key, but for my not that key, question of  whether MMT can deal satisfactorily with the [...]




  1. soru — on 18th July, 2010 at 10:56 pm  

    The details of the economics ultimately come down to a pretty simple choice. With the power it has, a standard-issue western, non-wartime government can make at most one one, or perhaps one-and-a-half, changes to the functioning of a raw market economy.

    The common choices for these are:
    1. ensure if you put X amount of money in the bank, you get x+y out, even decades later.
    2. ensure that if you make yourself available for work, you can get a job that pays a living wage.

    Inflation is just the case where the first guarantee isn’t, in real terms, met. If you prioritise the second over it, there are going to be bad times when it conflicts with it, and so isn’t met.

    That’s distinct from the cases like the Weimar and Zimbabwe, where you don’t have a state functioning well enough to even half-meet either promise.

  2. Kismet Hardy — on 18th July, 2010 at 11:15 pm  

    Instead of the government throwing billions down the black hole of bank bail-outs, why don’t they give every single British national over the age of 18 and residing full-time in the UK £100,000 each, paid directly into their UK bank account?

    This way, the banks get their money, the people get their money, people get out of debt, small businesses would thrive, less people would be forced into unemployment and Britain would become a nation of choosers rather than beggars.

    Tell me why my plan won’t work and you can have all my euros

  3. Paul — on 19th July, 2010 at 6:24 am  

    Sunny

    Thanks for this response. I think there are two main things to add.

    First, as Mosler says in the piece I link to:

    ‘The risk of running a deficit that is too large is
    not insolvency – the government can’t go broke – but excess aggregate demand (spending power) that can be inflationary.While this is something I’ve never seen in the U.S. in my 60-year lifetime, it is theoretically possible. But then again, this can only happen if the government doesn’t limit its spending by the prices it is willing to pay, and, instead, is willing to pay ever higher prices even as it’s spending drives up those prices,as would probably the case.’

    Hence, MMT does not suggest ‘expanding the money supply endlessly’. What it suggests is that rather than use unemployment essentially as a means to control inflation (as ‘buffer stock policy’, tax policy and government spending should be used to do so.

    Pages 113-115 of http://moslerforsenate.com/wp-content/uploads/2010/06/7DIF.pdf apply.

    Second, and much more simply, if we accept that the distortions of hyperinflation are not a real risk (because hyperinflation is caused by collapsing real output etc.) then I’m not sure why everyone believes that even moderate inflation is the great evil, over and above lack of resource utilisation in the economy (unemployment and recession). What, within limits, is so wrong with an inflationary boom? Yes, MMT’s logics of tax as driver of production can be used to tame inflation (as above) but even if it isn’t, is inflation worse than high unemployment?

    This article, which Chris Dillow has just linked to, is also useful on debunking the inflation fear (esp the comments) http://neweconomicperspectives.blogspot.com/2010/07/myths-about-government-debt-and-deficit.html In general, this MMT thinking (under various names) is starting to become known as the ‘Kansas City School’.

  4. boyo — on 19th July, 2010 at 7:19 am  

    Well I’ve just asked my economist partner and was told hyper inflation was highly unlikely in developed, peace-time economies – it only happens when a currency loses most of its value, basically – and deflation is the greater risk for the UK economy, as with Japan in the 90s.

    This is largely why, instead of getting a five year fixed re-mortgage, I’ve just got a two year tracker. So I suppose you could say I’m putting my money where my (partner’s) mouth is.

  5. Shamit — on 19th July, 2010 at 8:46 am  

    “But if the government prints lots more money, it will eventually end up in the pockets of people. They will spend that extra money and suddenly demand will outstrip supply.”

    And usually the vastly wealthier people have the cash to meet the inflated pricing. We already see this in a microscale in London where a small percentage of very rich people have driven prices up of many things and as a consequence, those with far more limited incomes suffer.

    And the 50% tax rate does not really address this issue as many of them have money put in trusts etc where the taxman can do very little.

    Our taxation policy also compounds this problem – where the government’s approach does hurt higher middle class earners however it does very little to impact upon the super rich.

  6. Shamit — on 19th July, 2010 at 9:03 am  

    “deflation is the greater risk for the UK economy, as with Japan in the 90s.”

    I hardly every agree with Boyo but on this one I think there is serious merit to his argument.

    With lower growth in GDP – you would expect higher unemployment so that the average household income is maintained. However, our unemployment rate is lower than what it should be based on our GDP figures – but this is not signifying more income per household.

    Actually, if you look at the unemployment figures in detail, you would find that most of us are in part time employment than ever before and that wages have dropped. Therefore, there are deflationary pressures on the economy.

    There are some key structural differences though between our economy and Japan – the collusion between bureaucrats and banks are far and assets are held far more widely.

    ********************************

    Another point I would like to make, unlike most other EU countries Britain has the ability to print money – and that provides for some protection.

    But borrowing money depends upon willingess of the lender as well – and as recent experiences have shown that without the bond market having the confidence in the country – it becomes difficult for a country to borrow money.

    This is not a recent phenomenon – even in 1993 the incoming Clinton administration had to focus on cutting the deficit as it was getting difficult for the US to borrow money at preferential rates. And as we know US owns the world’s reserve currency. Even then a Democrat president had to cut the deficit – and surprisingly, the Republicans agreed and once the deficit reduction plan was agreed upon – it opened the floodgates for private sector investment which led to the biggest economic boom in the US history.

    So those who call for continued borrowing without addressing the deficit are not learning from the lessons of history.

    *********************************

    I would have thought PPE graduates from Oxford especially with serious Treasury experience under their belt would understand that. They probably do but they are using their considerable intellects to sell false bill of goods to win an election by being populist and denying history.

    *******************************

  7. Paul — on 19th July, 2010 at 9:40 am  

    Shamit

    ‘This is not a recent phenomenon – even in 1993 the incoming Clinton administration had to focus on cutting the deficit as it was getting difficult for the US to borrow money at preferential rates. And as we know US owns the world’s reserve currency. Even then a Democrat president had to cut the deficit – and surprisingly, the Republicans agreed and once the deficit reduction plan was agreed upon – it opened the floodgates for private sector investment which led to the biggest economic boom in the US history.

    So those who call for continued borrowing without addressing the deficit are not learning from the lessons of history.’

    There is another view, rooted in the reality of what a fiat currency actually is:

    ‘Federal government spending is in no case
    operationally constrained by revenues, meaning
    that there is no “solvency risk.” In other words,
    the federal government can always make any and all
    payments in its own currency, no matter how large
    the deficit is, or how few taxes it collects.’

    For a fuller dissection, try p.11-28 of http://moslerforsenate.com/wp-content/uploads/2010/06/7DIF.pdf

    For thirty odd years (esp post ’93), banks have been able to create money ‘out of thin air’ (to use Galbraith’s phrase) at an ever faster rate, but always using the state’s authority as printer of (fiat) currency as the backstop, though this was never acknowledged. In 2008 that backstop was needed, and we are where we are. Yet mainstream economics is content to ignore the fact that states can also simply create money out of thin air.

    In the end, this boils down to a misconception of what money, and especially tax, actually is. Tax is not what the government needs to pay for its revenue commitments, ‘commonsense’ as that concept is. Tax is government spending returned to government, and is what makes the economy work as a whole.

  8. Shamit — on 19th July, 2010 at 10:14 am  

    “Tax is government spending returned to government, and is what makes the economy work as a whole.”

    I have fundamental problems with this statement. Government, by definition, has no money – it is dependent on the taxpayer to provide its money that it spends on common good.

    In earlier days, one of the ways of increasing state revenues was to annexe other countries to deliver tax revenue – and we were experts in that business.

    However, I do not disagree that some states have resorted to printing money out of thin air -somekey examples are: Zimbabwe, Soveit Union and there are plenty more in Asia before the liberalisation began – and in all cases, the “opportunity costs” of such actions have been disastrous. The unintended consequences of those actions have been inability to compete abroad, total loss of faith in the economic system by investors. And, more importantly, it creates massive inequity and to control social unrest – the Government is forced to impose price controls or consumption controls.

    So as an economic policy tool, most economists would agree that producing money from thin air especially by governments is unviable.

  9. douglas clark — on 19th July, 2010 at 10:18 am  

    Paul,

    So, all that hyper inflation in Germany in the inter war years was down to industrial collapse and not just down to printing money?

    Could you perhaps do a guest post here to disabuse folk – like me – that thought there was always a limit to the states power to print itself out of trouble? For that seems to me to be the general, and perhaps mistaken, view.

  10. cjcjc — on 19th July, 2010 at 10:32 am  

    Inflation is always and everywhere a monetary phenomenon.

    A supply shock might/will lead to a one-off price shock (wrt the goods concerned), but this will not turn into a generalised inflationary process without monetary accommodation.

  11. Kismet Hardy — on 19th July, 2010 at 10:35 am  

    Someone tell me why my genius plan to solve the economy won’t work please.

  12. Paul — on 19th July, 2010 at 10:48 am  

    Shamit @8: ‘I have fundamental problems with this statement [mine about what tax is]. Government, by definition, has no money – it is dependent on the taxpayer to provide its money that it spends on common good.’

    With respect Shamik, the fact that you have a fundamental problem with it doesn’t mean it’s wrong.

    You make the point about colonialism annexing other countries to develop new revenues. In many parts of Africa colonialists first had to introduce their own currency (‘monetize’) to the territories they had invaded in order to develop cash crop economies. They did so by enforcing ‘hut taxes’ payable only in the sovereign currency of the invading nation. The development of tax regimes is what drove those (exploitative) economies.

    Douglas @9: I’d be happy to do a blogpost (further to the ones Sunny links to in his OP here) but I honestly don’t thing I’d add much to what’s already been written.

    I’ve already linked to http://moslerforsenate.com/wp-content/uploads/2010/06/7DIF.pdf and I think this is still the most accessible, brief introduction to MMT, even if you just do pages 11-20odd.

    For a paper specifically about the reasons for pyperinflation in Weimar and Zimbabwe, try http://bilbo.economicoutlook.net/blog/?p=3773 which from memory also has some interesting comments on Russia’s 1998 situation.

  13. Paul — on 19th July, 2010 at 10:54 am  

    Kismet @11: This guy (http://moslerforsenate.com/?page_id=22), running for Senate in the US, kind of agrees with your core idea, although his figures are rather different. One of his core 3 proposals is:

    ‘Declare an Immediate ‘Payroll Tax Holiday’ — The U.S. Treasury will no longer deduct FICA, Medicare and other Federal payroll tax deductions from your paychecks, resulting in an immediate increase in take-home pay of roughly $650 per month for a couple with a combined income of $100,000 per year.’

    He combines that with proposals for increased funding to state governments and the state employing all ‘surplus labour’ at a living wage.

  14. douglas clark — on 19th July, 2010 at 11:31 am  

    Paul,

    I can, sort of, understand that a country that internalises it’s debt, may have less of a problem with hyper inflation than a country that doesn’t. Internalise it’s debt like.

    However, the idea that inflation is damn near a virtue only works if the external producers of something you want, oil perhaps, don’t see through the flim flam of internal inflation and do not raise their prices to match. Obviously they have to look at substitution – at some stage atomic cars would become an economic bargain! – but that could be a long long way away.

    I think your friend is arguing that the economy can be a sort of perpetual motion machine. Perhaps it is on one level, we will obviously always have an economy, but a healthy one does not rely on words that deny entropy.

    I do not believe in perpetual motion machines, in the lattr sense. And certainly not from practitioners of the dismal science….

  15. MaidMarian — on 19th July, 2010 at 11:33 am  

    As an aside to this, some of the problems faced by Weimar Germany were down to its ultra Proportional Representation voting system which pandered to extremists and allowed for wild policy swings as small interests brought down governments with impunuity.

  16. Kismet Hardy — on 19th July, 2010 at 11:36 am  

    Also, I’m not sure if it’s relevant, Weimar Germany had some other kinds of problems that I read about in my kid’s history picture book and a film by Stephen Speilberg told me about, but I think it had something to do with some Jewish people.

    Thanks Paul. I knew one day someone would agree with me about something.

  17. douglas clark — on 19th July, 2010 at 11:41 am  

    MaidMarian @ 15,

    Some evidence please? That is well off my understanding of what actually happened. How many German governemnts in the years 1919 to 1933 were brought down? As far as I know, not a one….

  18. vimothy — on 19th July, 2010 at 1:07 pm  

    Personally, I’m of the opinion that aiming for a wholesale paradigm shift is unlikely and unecessary. It is very clear from the empirical record that fiscal consolidation leads to a worsening of the public finances. Since the ostensible goal of conservatives is the improvement of public finances, this should be the first argument we make–, as in, “okay, even if we accept your premises are correct, historically fiscal consolidation does not help”.

  19. Paul — on 19th July, 2010 at 1:20 pm  

    Vimothy @18: As I said over at my place (TCF), I’d love to be able to agree with you that the data set out very clearly in the Economic Consequences of Osborne (http://tinyurl.com/3xl4t9x ) would be enough to persuade governments that they’re going in absolutely the wrong direction.

    But it’s not. Papers like this are being ignored because it’s in the interests of capital to ensure that it is so, through its hegemonic control of the media.

    Hence, I’m arguing that, while it would be nice not to have need of ‘competing theories’,opposition of the type I’ve set out – which combats the central fallacy of mainstream economics and (i’m suggesting) can well and should be portrayed as a ‘conspiracy theory’ – may be needed to ensure that your type of thinking sees the light of day.

  20. Duncan — on 19th July, 2010 at 1:47 pm  

    I find the MMT stuff quite interesting, but don’t entirely buy it as practical policy.

    Two main reasons.

    First it strikes me as a very “closed economy analysis”, yes the UK (or the US, or whoever) could create a lot of money but, assuming this was MMT in one country, how would the world react? Probably by dumping the currency. End result – prices of imports soaring and inflation. Not because of a Friedmanite chain of reaction but the result would be the same.

    Second – what do we mean by inflation? Mosler might well be right, in theory, that the Fed creating more cash would not, as direct consquence, drive up measured US inflation by CPI – bu what do we think would happen to asset prices? Look at QE here, £200bn printed, little inflationary impact – FTSE up 45%.

    Now, trying to cut the deficit now is wrong for lots of reasons – but, like Vimothy, I don’t think we need MMT to argue that.

  21. vimothy — on 19th July, 2010 at 1:58 pm  

    But you require a wholesale change in thinking, whereas my argument doesn’t require any shift at all.

    In strategic terms, I’m not totally convinced, TBH.

  22. vimothy — on 19th July, 2010 at 2:00 pm  

    Sorry, my comment above aimed at Paul on 19th July, 2010 at 1:20 pm

  23. Shamit — on 19th July, 2010 at 2:10 pm  

    “With respect Shamik, the fact that you have a fundamental problem with it doesn’t mean it’s wrong.”

    With respect Paul – your assertion does not make my analysis wrong.

    Could you cite examples where countries printed loads of money and it did not have adverse impacts? I think you would find it difficult to produce.

    Especially in a globalised economy, where supplier – consumer relationships extend beyond particular geographic boundaries, the theories you propose would lead to unmitigated disaster.

    I tend to agree with Duncan – there are ways of cutting the deficit and there are arguments why the deficit should not be drastically cut right now. (i tend to agree with deficit hawks but there are viable arguments against the principle).

  24. vimothy — on 19th July, 2010 at 2:18 pm  

    I think we need to clarify terms here as well: “Printing money”, “expanding the money supply”, etc. These are potentially quite contentious words! Are we talking about fiscal or monetary policy? Are we in an endoegnous or exogenous money world? When we say “money supply” we (mostly) mean private debt contracts held in bank deposits, right?

  25. douglas clark — on 19th July, 2010 at 4:15 pm  

    vimothy,

    I’ll admit I’m a tad out of my depth here, but it seems to me that:

    When we say “money supply” we (mostly) mean private debt contracts held in bank deposits, right?

    that we also ought to include public debt. The debt that Government incurs on our behalf, too?

    Would that not be right, and if not, why not?

    I don’t know. We have a banking sector that we can’t allow to fail (bankers rhymes with something else…) So, rather than restructure it, we feed it billions of pounds.

    Anyway,it seems to me that our money, after VAT, after NI, after Income Tax is now just a prop for a shower of greedy people in London.

    Did I say people? I meant bastards.

  26. douglas clark — on 19th July, 2010 at 4:16 pm  

    Sunny Hundal,

    Please give us back the preview!

  27. warren mosler — on 19th July, 2010 at 4:19 pm  

    First, thanks for all the mentions!

    See my latest draft of ‘the 7 deadly innocent frauds of economic policy’ at: http://www.moslereconomics.com/?p=8662/

    And lots more under ‘mandatory readings’ on the same website.

    Also some at http://www.moslerforsenate.com

    At the heart of it, regarding ‘inflation,’ the currency is a public monopoly, and therefore the price level is a function of prices paid by the govt when it spends (and/or collateral demanded when it lends) as a simple point of logic.

    Of course govts don’t realize this, and always spend on a ‘quantity constrained’ basis rather than on a ‘price constrained’ basis. While this might make a lot of political sense, the lack of understanding of the actual fundamentals of the price level can spawn anti inflation measures that miss the point.

  28. douglas clark — on 19th July, 2010 at 4:39 pm  

    Warren Mosler,

    It is good to see you here. I have read, most, of your on-line book, and I refer you to my post at 14. I do not believe that economics can play tricks for us, it is essentially a zero sum game, is it not?

    (I would be very interested in your views on real growth.)

    Anyway, would it not be the case that the USA, by substance and by default, could play the game that you describe?

    It seems to me that the UK could only follow in the footsteps of the giant.

    And your proposal would, at the very least, be quite destabilising for the rest of the worlds economies.

    Least, that’s what I think….

  29. MaidMarian — on 19th July, 2010 at 4:41 pm  

    douglas clark – Here’s something I found on the web

    http://www.wbenjamin.org/weimar.html#republic

    Click on ‘The Weimar Republic: Political History’

    Between 1919 and 1933 the chancellorship turned over 16 times.

    More on the elections is here

    http://www.bundestag.de/htdocs_e/artandhistory/history/factsheets/elections_weimar_republic.pdf

    The hyper-proportional system of PR was, for sure not the only factor, but it abolutely did not help.

  30. douglas clark — on 19th July, 2010 at 5:05 pm  

    MaidMarian,

    Oh yes, elections!

    See in any decent democracy you have them.

    Lets take you through your own reference.

    In 1919 Germany gave women the vote. You could call that enfranchisement or summat, MaidMarian.

    Your link

    http://www.wbenjamin.org/weimar.html#republic

    doesn’t take me to the home site you think it does.

    I am completely unconvinced, so far, that you can reference a case of the Weimar Republic acting in the way you say up until it’s final days. This is the history of the Weimar Republics’ leadership. It is not particularily pretty, but it was a functional democracy:

    SPD, Zentrum; DDP Jan 1919 Friedrich Ebert

    Nov 1918

    Dec 1918

    Dec 1918

    Feb 1919
    SPD
    SPD, Zentrum, DDP Philip Scheidemann first Chancellor of Weimar Republic, February 13, 1919 Jun 1919 SPD
    SPD, Zentrum, DDP Gustav Bauer Jun 1919 Mar 1920 SPD
    SPD, Zentrum, DDP Hermann Müller appointed Chancellor: March 27- June 8, 1920 June 1920; SPD
    Zentrum, DDP, DVP June 1920 Konstantin Fehrenbach appointed Chancellor: June 25, 1920 resigns May 4, 1921 Zentrum
    Zentrum, DDP, SPD Josef Wirth appointed Chancellor May 10, 1921/ Oct. 1921

    Oct. 1921;

    resigns November 14, 1922
    Zentrum
    Zentrum, DDP, DVP Wilhelm Cuno appointed Chancellor: November 12, 1922 resigns August 12, 1923 No Party

    DVP, SPD, DDP

    Rule by pres.decree (from Sept 1923)
    Gustav Stresemann appointed Chancellor August 13, 1923/ Oct 1923

    Oct 1923

    Nov 1923
    DVP

    Zentrum, DDP, DVP, BVP

    Zentrum, DDP, DVP
    June 1924 Wilhelm Marx appointed Chancellor: November 30, 1923 resigns December 15, 1924 Zentrum

    Zentrum, DVP, DNVP, BVP

    Zentrum, DDP, DVP, BVP
    Dec 1924 Dr. Hans Luther appointed Chancellor: January 15, 1925 resigns May 12, 1926 No Party

    Zentrum, DDP, DVP, BVP

    Zentrum, DVP, DNVP, BVP
    Wilhelm Marx

    May 1926

    Jan 1927

    Jan 1927

    Jun 1928
    Zentrum
    SPD, DDP, Zentrum, BVP, DVP May 1928 Hermann Müller June 28, 1928 resigns March 30, 1930 SPD

    Rule by presidential decree

    Rule by presidential decree
    Sep 1930 Dr. Heinrich Brüning appointed Chancellor: March 30, 1930 resigns March 30, 1932 Zentrum

    Rule by presidential decree

    Rule by presidential decree
    July 1932 Franz von Papen appointed Chancellor: March 30, 1932 resigns November 17, 1932 Zentrum/No Party

    Rule by presidential decree

    Rule by presidential decree
    Nov 1932 Kurt von Schleicher appointed Chancellor: December 2, 1932 resigns January 28, 1933 No Party

    Rule by presidential decree

    Rule by presidential decree
    Mar 1933 Adolf Hitler appointed Chancellor: January 30, 1933 NSDAP

  31. douglas clark — on 19th July, 2010 at 5:16 pm  

    Err, not a word about you being completely wrong MaidMarian?

    Whatever effect minor parties had, it seems pretty obvious that Germany was zoncked in 1933. And you and I have picked up the pieces ever since.

  32. MaidMarian — on 19th July, 2010 at 5:41 pm  

    douglas clark – ‘In 1919 Germany gave women the vote. You could call that enfranchisement or summat, MaidMarian.’

    I never said anything otherwise – the Weimar constitution was, on paper, a progressive model in 1919. Certainly far more progressive that the UK was at the time, and had some of the highest levels of emancipation. I think only Norway was more progressive. Why the need to put words into my mouth?

    And as for your conception of, ‘functioning democracy,’ I think we will just have to agree to disagree. It’s just that 16 turnovers of chancellor in 14 years with large periods under Presidential decree, heading to totalitarianism doesn’t sound very well functioning to me.

    You see, you are just spoiling for an argument aren’t you? A better argument that you could have made would be that the Third French Repblic was similar in instability, and that went along nicely for the best part of 85 years. It’s just that the French party system at the time was less atomised and the electoral system was much less proportional than that imposed at Weimar.

    Why the, ‘summat,’ sneer?

  33. warren mosler — on 19th July, 2010 at 5:45 pm  

    Doug,
    If we direct real gdp measured growth to things with near 0 marginal cost of production/infinite leverage like downloading songs and software the growth rate can be unlimited. And, of course, demand determines the profitability of capital investment that further increases growth potential, as does the right public infrastructure investment, etc.

    And with its own non convertible currency and floating fx policy, the UK and any other nation can unilaterally sustain domestic full employment along with desired internal price stability, and thereby optimize real wealth including real terms of trade.

  34. Shamit — on 19th July, 2010 at 6:13 pm  

    “And with its own non convertible currency and floating fx policy, the UK and any other nation can unilaterally sustain domestic full employment along with desired internal price stability, and thereby optimize real wealth including real terms of trade.”

    Thats the theory. In practice, that is exactly what India tried before liberalisation in 1991- or for that matter so did Soviet Union.

    And these theories are pretty much defunct in an integrated globalised economy – and would have been hard to implement anyways in an island economy such as the UK.

    So with all due respect – theories make everything sound plausible but in reality many theories are just words in a book or screen.

  35. boyo — on 19th July, 2010 at 6:22 pm  

    shamit, if its any comfort, you’re not actually agreeing with me but my partner, who is considerably more cuddly

  36. warren mosler — on 19th July, 2010 at 6:31 pm  

    that’s no my recollection of what went wrong with those two examples?

    details?

  37. Jai — on 19th July, 2010 at 6:47 pm  

    MaidMarian, Douglas,

    If you’re looking for a proper academic overview of the Weimar Republic and the events surrounding its eventual replacement by Hitler’s regime, the best possible source of information I can recommend to you would be the “Third Reich Trilogy” by the internationally-respected historian (and professor of History at Cambridge) Richard J. Evans. It’s regarded as the most comprehensive and brilliant analysis ever written of the events leading up to the final days of the Weimer Republic followed by the rise & fall of the Nazi regime. Incidentally, in 2000 Professor Evans was also a key witness against David Irving in a trial involving the latter’s Holocaust denial.

    “The War of the World” by Niall Ferguson also details these topics, and is similarly excellent.

    All of these acclaimed books are available via Waterstones, Amazon, and WHSmith. As a matter for the historical record they are obviously very important but, as you can imagine, given the subject matter they are also often harrowing reading.

  38. douglas clark — on 19th July, 2010 at 8:01 pm  

    Jai,

    I am not some sort of haulocaust denialist. It is perfectly plain that something went terribly wrong in the state of Germany, leading up to Hitlers accession.

    It is just not true to say that it was too much democracy, or that it was down to minority parties, which is what MaidMarian would have you believe.

    There is no evidence that suggests that.

    There are mountains of evidence that a democratic state was subverted by a completely weak man called Hindenberg. That is who gave Democratic Socialism it’s life blood, despite it never have being able to claim a majority – more than 50% – in the Reichstag. Hindenberg bought into the stability pact idea, which, had he chosen to read his own counties history, should have made him a tad more wary of the nazis….

    MaidMarian is either ignorant of that history, or in willful denial of it. I hope it is the former, ’cause I quite like him.

  39. MaidMarian — on 19th July, 2010 at 8:09 pm  

    Jai – You could also try ‘Weimar: Why did German Democracy Fail?’ Edited by Ian Kershaw. Out of print, but very good.

    I am a big Niall Fergusson fan.

  40. douglas clark — on 19th July, 2010 at 8:23 pm  

    Ok, you are both quoting other writers.

    Where do either of them support your opinions? It is a given that German democracy failed, due imho to a weak president.

    It is a given that Hindenberg gave Hitler the Chancelorship when he probably had no right to do so.

    It is not right to say that it was German democracy that gave Hitler his presidency, it would be more correct to say that Hitler became the Furher despite German democracy.

    That is the way of evil, malicious bastards throughout the world, then as now…

  41. MaidMarian — on 19th July, 2010 at 8:51 pm  

    ‘It is a given that German democracy failed, due imho to a weak president.’

    Despite the long periods of rule by Presidential Decree?

  42. Paul — on 20th July, 2010 at 10:17 am  

    Sorry, I got left behind by this thread yesterday, and there’s too much to respond to now comment by comment. I’ll post a follow up at TCF, focusing less on whether MMT is viable in its entirety, more on the use of its essential concepts (the nature of fiat currency, the nature of tax) as a way of creating a popular narrative in competition to the right’s dominant narrative of ‘governments can only spend what they get in in tax’.

    From both an MMT and post-Keynesian point of view, this is wrong, and the arguments about inflation in MMT are less important in the short term than the need to find a ‘hook’ for a leftist counter-narrative. I anm suggesting that this hook might lie in the idea that governments are simply lying when they tell us they can’t afford things (and from there to the privatisation of the money supply as class power in action etc. etc.)

    That was the whole point of my original post, but understandably the relative novelty of MMT thinking (at least in the UK) has meant that this has got lost (either that or I was just rubbish at saying it first time around).

    Anyway, good to have had some transatlantic chat. I do hope people will take the time to read some of the MMT stuff and esp Warren’s (online) book. As Duncan has said above, it is at the very least ‘interesting’.

    Just one Q for Shamit so I’m clear on where he stands. Shamit, you change the focus of your contesation in your comments at #8 and #23. In the first one you contest the nature of tax, but then in the second you move on to the issue of inflation as the thing that makes MMT unworkable. Does this mean you are accepting my (Warren’s indirectly) explantion of tax (via the role of the hut tax in the 1800s, and that MMT’s conception of tax as the driver of the economy rather than revenue earner? .

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