An alternative to popular faith
In the past 100 years, why have we had 20 recessions or depressions, an average of one economic crisis every 5 years. I was thinking about this, when I received a response to one of my posts. The writer criticized a position by quoting Thomas Jefferson. Thomas Jefferson!
Economics is one of the few sciences where someone feels free to correct a hypothesis by quoting two-hundred-year-old statements from a politician. Imagine a physicist or a medical doctor being criticized on the basis of statements by Columbus.
Physics turned with the Relativity and Quantum theories. Medicine changed with the development of the microscope and the discovery of germs. Astronomy changed with the telescope and the realization the sun is just one of myriad stars. Economics has changed, too.
This science, and most of its hypotheses, were turned on their heads with the end of the gold standard. Just as Einstein gave us E = MC2, and told us space and time actually were spacetime, a single continuum, the end of the gold standard told us that debt and money were debt/money, a single entity, and gave us, Money = Debt.
Years ago, money was a physical substance, a barter substance. No debt involved. Later, money represented a physical substance. The merger of debt and money had begun, because the holder of money now was owed the physical substance.
With the end of the gold standard, money became pure debt, in short, debt/money. Yet the public, including the politicians and the media, and sadly even some economists, imagine 1971, the final end to the gold standard, never happened. What they believed before 1971, the greatest change in the history of economics, they still believe. It’s tantamount to basing all your unchanging astronomical theories on a flat world and the earth as center of the universe.
So in the minds of the public, the politicians and the media, debt and money still remain two separate entities. In their minds, the U.S. federal debt is too large, though “federal debt” merely is an accounting term meaning the net money created by the federal government. Those same people, if asked whether the U.S. has too much money, would say, “No,” but they feel the U.S. has too much debt!
In their minds, federal deficits are “unsustainable,” though the federal government now has the unlimited ability to create debt/money.
In their minds, the federal budget should be balanced, even while population growth, the trade deficit and inflation all conspire every day to reduce the per capita supply of real money. With a population annual growth of 1% and a modest 2% inflation, the per capita supply of real money in a balanced budget would fall 26% in only 10 years. Visualize each of us owning $10,000 today. By 2020, we each would own only $7,300 in real money. How could that support even zero economic growth? Add in the needs of growth itself, and the debt/money supply requirement grows further.
In their minds, the current debt should be erased by increased taxes and/or decreased spending, despite acknowledgment that increased taxes and/or decreased spending hurt people and hurt the economy.
In their minds, a federal profit (for instance, on interest coming from loans to industry) is good, despite federal profits being defacto taxes, debt/money coming from the private sector.
In their minds, the federal government is just like you and me, and must live by our rules of fiscal prudence. Yet the federal government is not like you and me, not even like state, county and local governments, not even like corporations. The federal government is unique, for it has the unique power and authority to create unlimited amounts of debt/money.
We first must acquire debt/money in order to spend. The federal government creates debt/money by spending, a wholly different process with wholly different rules.
As a science, economics has not grown from the philosophical beliefs of Everyman. Intuition dominates. It is less a science, than a religion based on personal experience, rumor, authority, faith and desire. Despite close study of endless data (Visualize religious scholars bending endlessly over their bibles), facts are ignored, discounted or twisted, while those who speak facts are ridiculed by the masses.
No politician would dare to say, “Federal debt growth is necessary, forever,” though that is true. The few academics with the courage to speak the truth are shouted down. The repeated failures of the government to prevent inflations, deflations, recessions, depressions and stagflations all are ascribed to normal, inevitable, unstoppable cycles, not to errors of belief and action.
And that is why we have had a recession every 5 years and will continue to do so.
Rodger Malcolm Mitchell
http://www.rodgermitchell.com
#Monetary Sovereignty - Mitchell 
Rodger–
If we understood that this debt could/should never be paid back would we then realize that we don’t have to worry about paying back the debt?
If we stopped charging interest, erased the debt (just moved the money from the savings accounts back to checking accounts at the Fed), could we then go forward with no debt “on the books”?
If with a couple clicks of the computer we removed our national debt would people stop running around saying we need to balance the books?
Can we create a 24-hour plan where we 1) Extinguish the debt by calling in all bonds and making people whole with cash, 2) Continue government spending without issuing debt?
And then get on with our lives without worrying if the sky is falling?
And if that all happens, does money no longer equal debt?
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The answer to all your questions, but the last one, is “Yes.”
But if all that happened, money still would be debt.
Rodger Malcolm Mitchell
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Okay, I’ll ignore the last one about money equaling debt for now. (More studying.)
Now, ask yourself this… If we did this plan and it worked, wouldn’t other countries copy it? And if they did, would the US be able to maintain its empire around the world?
Is that the real reason why the hawks and the doves (I don’t view the MMT gang in the hawks or the dove camp) fight it out because someone makes sure to keep stirring the pot while this someone continues to get rich? Rich off the interest their making off this debt? Rich off the advantages in how we use this system on the rest of the world?
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Don’t ignore Money=Debt. It’s the foundation of modern economics. You can’t understand economics without understanding Money = Debt. Just think of every form of money you can, and ask yourself, “Is this someone’s debt?” (Savings account = bank debt. Travelers’ checks = AMEX debt. Etc.)
As for “Rich off the interest they’re making off this debt?,” if you can create money at will, how do you get rich off interest? Divorce personal rules from national rules.
Yes other countries would copy and no, we will not be able to maintain pre-eminence indefinitely. That will happen, whether or not the world comes to its senses. India and China, having more population, eventually will be #1, but who cares?
The key question is, will adoption of MMT improve the lives of America’s and the world’s citizens, and the answer is a resounding, Yes.
Just one example: Today, everyone in America would have complete health insurance.
Rodger Malcolm Mitchell
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Who cares whether the USA “wins”? Ask that to the CEOs and the members of the Corpocrocy that exists today thanks to our money system and political power in Washington. We cannot ignore this headwind in making real change going forward.
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“Physics turned with the Relativity and Quantum theories. Medicine changed with the development of the microscope and the discovery of germs. Astronomy changed with the telescope and the realization the sun is just one of myriad stars.”
With medicine and astronomy your examples are correct. The development and innovation of physical things (microscopes/telescopes) made it easier to find out how things worked which led to further understanding. Physics really is just applying language to what we already observed. Yeah, two objects fall at the same rate no matter of mass. Everyone observed that happening, but someone called it something and everyone said he invented it. He didn’t invent anything, he just called it something that no one had bothered to name. (I know I’m over simplifying this.)
“Economics has changed, too.”
How? I work, I get paid, I pay someone else for work, and the cycle repeats. What kind of innovation has there really been over the last thousand, million, billion years? I would contend that the cycle repeats itself. From what I understand, the Roman Empire practiced chartalism. It then changed rulers who then imposed a gold standard. Probably since he didn’t like the idea of the commoner able to use the chartalism standard for their own gain. Once the gold standard was in place, the ruler than had full control. The cycle will repeat again. Is there anything new? Not really. Perhaps innovation like insurance and the recognition of risk could apply to evolvement of economics theory, but then again, these are more instances of naming or formally identifying something that people may or may not have known they were doing. Was there anything new? I doubt it.
Unlike medicine, astronomy, physics, economics is the “science” that is most manipulated by man for man’s gain. The reason someone quotes Jefferson on matters of economics is that it may take man’s knowledge and man’s willingness of self control to evolve everyday economics understandings to help and assist their fellow man. Through laws and rights man may need to seek refuge from another man’s economic power.
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As for why every 5 years a recession, I think we have to look at what kind of recessions were are prone to.
In my opinion there are two types of recessions. Inventory and credit.
Inventory recessions are when a business looks at market conditions and assumes that there are more buyers for their product. They go out and add inventory (supply) to help meet this demand. When they guess wrong, they then have to stop creating inventory and sell that off. Workers are laid off, etc., etc.
Credit recessions are created when business and consumers have taken on too much credit and are unable to expand further. They need someway to get rid of this debt, but can’t. The economy can’t grow because, as you say, money is debt and without more debt money can’t grow. Thus, the debt is forgiven (bankruptcy), etc., etc. until the capacity to add more debt (money) is generated.
Thanks to computers and “just in time” inventory systems the inventory recession is pretty much a thing of the past. The credit recession though is still with us. And that’s why we are in the bubblicous economy since the addition of new debt (money) must contract periodically to meet the demand and capability to sustain this new debt (money).
Just follow the bubble. (I know, you don’t believe in bubbles, but many do and they make lots of money on it. On the way up and on the way down. Oh, and these are the same people who tell you bubbles don’t exist.)
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“Inventory recessions are when a business […]assumes that there are more buyers for their product. They go out and add inventory (supply) to help meet this demand.”
I doubt that what you call an “inventory recession” exists. Recessions are at least nationwide and often worldwide. Your “inventory recession” would require most, if not all, the various businesses in a nation or in the world to add too much inventory, simultaneously. Unlikely.
Recessions occur for lack of money growth, and are cured by more money growth.
“I know, you don’t believe in bubbles […]” Huh??
Rodger Malcolm Mitchell
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Got it. “There is nothing new under the sun” (Ecclesiastes). I was making a simple point: Post-1971 economics is different from pre-1971 economics, and the media, the politicians and most of the academics (who were educated in pre-1971 theory) make the same statements about debt, and use the same rationales as they did before the end of the gold standard.
When the world changes, hypotheses should, too. Quoting Jefferson in a discussion of today’s economics makes as much sense as quoting Jefferson in a discussion of quantum chromodynamics.
Rodger Malcolm Mitchell
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