The rich are getting richer. It is a refrain that has certainly been uttered before, and likely will again…
Actually, in the Western world, we are all getting richer. Being poor 50 or 100 years ago is very different than being poor today. The “poor” in this country have cell phones, air conditioners, cars etc.
He continues:
Deutsche Bank’s Torsten Sløk says that the distribution of household wealth in America has become even more disproportionate over the past decade
Wealth is not distributed. It is earned. There was a total of 873 touchdowns in the 2018 NFL season. Patrick Mahomes, the QB for Kansas City Chiefs, has the number one spot with 53 touchdowns. Would you say the distribution of touchdowns last year was disproportionate to Patrick Mahomes in the 2018 NFL season?
People who talk about wealth or income distribution talk as if their is some living organic creature handing out wealth. No such entity exist. Government’s can steal wealth and distribute it to others, but the wealth must first be earned.
He quotes Sløk :
So in some sense the source of higher inequality is Fed policies, which pushed stock prices and home prices higher. But the lack of changes in redistribution by fiscal policy is also playing a role
The critics of the Federal Reserve have been saying this for over a 100 years. Printing money pushes up assets prices. Rich people have assets. Central banks were created by governments. They have nothing to do with the free market or Capitalism. Despite all of this each generation gets wealthier. Capitalism creates more wealth than governments can destroy.
He now pulls out the big guns. A rich man who says capitalism has failed:
The Justice Department is preparing an antitrust investigation of Google. Here is the definition of antitrust laws from Wikipedia:
Antitrust law is a collection of federal and state government laws that regulates the conduct and organization of business corporations, generally to promote fair competition for the benefit of consumers.
The antitrust argument goes something like this: A company (or group of companies) have a dangerous possibility to monopolize a given industry. This monopoly has the ability to push out all competitors and set prices as high as they want. Antitrust laws are needed to protect the consumer.
It is an amazing fact that the antitrust laws are employed against innovative businesses and companies that have expanded output and lowered prices. Take the case of Standard Oil Company. The proponents of antitrust use the Standard Oil Company as their best example of an out of control monopoly. The story line is it cornered the market and raised the market price of kerosene by reducing supply. This story line goes against reality.
In 1870 Standard Oil Company had a 4% market share. By 1890, it had a 85% market share of the domestic petroleum refining market. Prices of kerosene fell from 30 cents a gallon in 1869 to 9 cents in 1880, to 7.4 cents in 1890, to 5.9 cents in 1897.
This brings us to Google. Google is so innovative that it supplies their services for free. Almost all of Googles money is made from advertising. This allows you to use the greatest search engine the world has ever known for zero dollars.
The not so supreme court had this to say about the Sherman Antitrust Act of 1890:
The purpose of the [Sherman] Act is not to protect businesses from the working of the market; it is to protect the public from the failure of the market.
Increasing productivity, reducing prices and raising the standard of living of the consumers is considered a failure of the market in the eyes of the supreme court. Antitrust laws should be repealed.
Whenever I see the word “Globalist” in an article title, I know I should not continue to read it. It is bad for my mental health to continue. But like bad late night TV, sometimes I can’t help myself. Consider the recent article by alt-market entitled, “Globalist are Bringing Their One World Currency Plans Out Into the Open“. He states the following:
In the past I have said that when globalist criminals stop trying to hide their criminality – when they start to become brazen in their rhetoric and agenda, that is when it is time for people to worry. Why? Because when criminals act more confident it is usually because they think they have already gotten away with it. Their plans are almost complete.
Over the past year, the globalists have become absolutely brazen in flaunting their endgame for a single global currency system. Yes, it is time to be concerned. But there are people out there who will tell you that the notion is “far fetched”. They will tell you that it is “doom porn”, and they will tell you it is “conspiracy theory”.
The evidence says otherwise. The evidence says it is conspiracy FACT.
The rest of the article is rhetoric and assertions. He does not highlight any facts. He than begins to list what he considers fallacies.
Fallacy #1: The Globalists Need The Dollar To Maintain Power This is patently untrue. The dollar is nothing, just like any other fiat currency system. It is a fabrication, a fantasy. Its value is an arbitrary product of manipulated forex markets. Its buying power has dwindled to a shadow of its former glory in the past century. The globalists have resided over the life and death of multiple reserve currencies, and the dollar is no different.
The dollar is a medium of exchange. When you go to the store and buy milk you use dollars. If the author believes the dollar is nothing, he would have no problem withdrawing his accounts and have a bonfire with them.
One of the greatest advancements in economic thought was the idea that all value is subjective. This theory was advanced by William Stanley Jevons and Carl Menger. This theory has been accepted by every school of economic thought. The author claims that this is not true. He claims that the USD value is an arbitrary product of manipulated forex markets. The forex market is the most liquid market in the world and has daily transactions in the trillions per day. In short, it is a massive free market of currency exchanges. Other countries peg their currency to the USD and intervene in the free-market. This is nothing new. These countries are subsidizing their export industry. They are hurting their citizens to help the American consumer. This, along with other factors, has resulted in the dollar dominating FX reserves.
This 60 plus percent share has been true for decades. The author does not show you this chart. He hints at it below, but does not show you the steady trend.
Fallacy #2: There Is No Other Currency Mechanism In The World That Can Take The Dollar’s Place This fallacy relies on two assumptions – One, that no currency has the liquidity to match the dollar and fill the void in global trade if it were to fall. Two, the majority of reserves held in central banks around the world are denominated in dollars, therefore a replacement is unlikely because the world is “used to paying with dollars”.
First, liquidity is meaningless. Liquidity in any currency can be created on a whim. In fact, the Chinese have been ramping up the liquidity of the Yuan for the past ten years. Trillions in Yuan have been conjured from nothing, which is a development I have warned about repeatedly along with the Yuan’s inclusion into the IMF’s SDR basket.
This is not to say I think the Yuan will replace the dollar as the world reserve, far from it. That honor will go to another mechanism entirely, which we will discuss in a moment. The point is, fiat currencies are not limited by their liquidity, they are only limited by the restrictions that central banks set upon them. If global central banks decide in unison that they will dump the dollar as the world reserve and use another currency, then that is exactly what will happen. Liquidity can be created with the push of a button.
When one accepts the fact that the Bank for International Settlements dictates and coordinates the policies of all major central banks, then the idea that they might all drop the dollar as the world reserve at the same time becomes less difficult to grasp.
Second, as mentioned above, the vast majority of central bank forex holdings used to be in sterling, and yet, the sterling was toppled and the dollar became the world reserve very quickly.
Liquidity of the forex and currency pairs has to do with the amount of traders active in the market. The US dollar is the most actively traded currency. This is a fact. This is a function of the free-market.
First he says “liquidity is meaningless”. In the next sentence he says ” the Chinese have been ramping up the liquidity of the Yuan”. I am confused. Is it meaningless or not?
Just because a central bank creates more of a currency does not mean more people are going to trade it. If this was true, the Venezuelan bolivar would be the most liquid currency on the planet.
Why would central bankers get together to dump US dollars all at once? There is no reason why this would happen. These countries that peg to the US dollar are mercantilist. This keeps the US dollar as the king of FX reserves. The author gives no justification why central banks would coordinate to do this. He gives no indication why these mercantilist policies of foreign governments will end. This has been going on for almost a 100 years and there is zero signs of it changing.
Comparing the US to Britain after WW II is a leap. Europe was in ashes after WWII. The US, besides Pearl Harbor, was untouched. There is no parallel to the events that led to the Sterling losings its reserve status to the US dollar today.
Fallacy #3: The Globalists Already Have Total Control Through The Dollar, So Why Would They Change Anything? This argument generally comes from people who have no understanding of the psychology of economics and the psychology of power.
First and foremost, the federal reserve and the dollar are merely a franchise of a larger system; they are but one tentacle writhing from the body of the globalist vampire squid. In the pyramid of banking power, the Fed is an errand boy, a workhorse, that is all. At the top if the pyramid sits the major global institutions which control policy, including the IMF, the BIS, World Bank and the UN.
Strictly speaking, economics does not have a psychology. Individuals have a psychology. Economics picks up where the study of psychology leaves it. An economist is only concerned that a person chooses “A” over “B”. Why a person chooses “A” over “B” is the job of the psychologist.
The BIS is a clearing house for central bankers. I don’t know what he means when he says the BIS controls policies. The UN, IMF and World Bank are gigantic bureaucracies. They have no teeth. Bureaucracies hate to be told what to do by other bureaucracies. This is why some central banks are expanding their balance sheets and other contracting. Do central bankers get together and talk to one another? Sure they do. But so what? This is nothing new.
He than makes the stupidest of all his claims. The SDR is going to become a world currency to replace the dollar.
The SDR’s role as a bridge is also being confirmed in the mainstream. In 2017, globalist Mohamed El-Erian called for the SDR to act as a structure for a one world currency system, and stated that this would be useful in combating “the rise of populism”.
The ‘value’ of the SDR, is primarily composed of US dollars. The author claims that the USD is going down. In the same article he claims the SDR, which a large component of its value is derived from the USD, is going to take its place. You see the logic in this?
Every ideology has a fringe. This is an example of the right-wing fringe. He is talking about a subject he knows nothing about. When you see the word “Globalist”, run for the hills.
I see these two very often. I will write them both out than give the answer.
(Note: They are all made up scenario’s and made up numbers but assume they are true)
A US Army recruiter is trying to convince NYC residents to join the Iraq war. He states that the death rate in the Iraq war for US soldiers the past 10 years was 5 per 1,000, while the death rate in NYC for the same period was 15 per 1,000. Therefore, you are less likely to die going to fight in Iraq than living in NYC.
An author is writing about the rise of small businesses in America. He defines a small business as any company that hires less than 50 employees. He states that the amount of small businesses in America was 30 million in 2008 compared to 35 million by the end of 2018. Therefore, small businesses are on the rise.
Statistical Fallacy #1
The army recruiter is not comparing the same two groups. The death rate in NYC has very old people, very sick people and infants. Those in the army are between the ages of 18-35. The army recruiter is not comparing like for like.
Statistical Fallacy #2
Never use absolute numbers. Always use percentage. If there was 100 million businesses in 2008, the percentage of small businesses would be 30%. If in 2018, there was a total of 150 million businesses the percentage of small businesses would be 23%.
Changes in the subject matter and changes in which the data is collected is another one I see a lot. Is cancer on the rise, or are we getting more accurate reports and diagnosis? Is heart disease on the rise, or are changes happening in the classification of what constitutes death by heart disease? Is the temperature of the earth really increasing, or are we getting better at measuring it with more and more temperature recording devices?
Alan Krueger is an economist that recently passed away. He wrote a book, Myth and Measurement: The New Economics of the Minimum Wage. He claims that the empirical data he collected suggest that raising the minimum wage does not cause unemployment. In short, he is saying as things get more expensive people do not buy less of it. He rejects supply and demand. I debunked the methodology used in his book here.
The book does a comparison of changes in employment in New Jersey and Pennsylvania. Krueger surveyed fast-food establishments in New Jersey and Pennsylvania before and after the minimum wage in New Jersey rose from $4.25 to $5.05. The comparison is a simple “differences-in-differences” test between the two states. The conclusion is that the rise in Jew Jersey’s minimum wage did not reduce employment at fast-food restaurants. In fact, the data suggest that the increase in minimum wage actually increased employment.
David Neumark and William Wascher wrote a paper which went deeper into the data to verify Krueger’s findings. You can read the paper here. Instead of a survey they collected actual payroll records from Burger King, Wendy’s, Roy Rogers, and KFC restaurants in New Jersey and Pennsylvania. Here is one of the their main conclusions from their findings (‘CK’ refers to David Card and Alan Krueger):
The paper came to the exact opposite conclusion using data collected from payrolls. ‘Measurements’ in social sciences are tricky. It is very different than the natural sciences. David Neumark and William Wascher paper just proves how sloppy Alan Krueger was with thinking. If the NBER asked me to write a paper on Alan Krueger’s book it would have been one sentence:
As things get more expensive, people buy less of it.
James K. Galbraith is a professor at the Lyndon B. Johnson School of Public Affairs. He has posted a response to Rogoff called Modern Monetary Realism. The points made by the MMT professors are either nonsense or not true. From the Galbraith’s post:
MMT is not, as its opponents seem to think, primarily a set of policy ideas. Rather, it is essentially a description of how a modern credit economy actually works – how money is created and destroyed, by governments and by banks, and how financial markets function. Nor is MMT new: it is based on the work of John Maynard Keynes, whose A Treatise on Money pointed out back in 1930 that “modern States” have functioned this way for thousands of years. From this description, certain straightforward facts flow. Governments create money by spending and extinguish it via taxation.
The last statement is simply not true. Government spending and taxing does not necessarily mean increases or decreases in the money supply. Let’s use an example. An economy consist of $100,000 dollars in cash. Some individuals decided to deposit a total of $50,000 in the bank. Therefore, $50,000 are now demand deposits. The total money supply is still $100K: $50K in demand deposits and $50K in cash. If a government taxed people $25K, the money supply doesn’t change. The $25K is just transferred to the government demand deposit from the individuals. This $25K is not ‘extinguished’. When the government withdraws the $25K from its demand deposit to spend it, the money supply does not change. This $25K will just move from the government demand deposit to other peoples demand deposits (or will be held in cash by the people). This government spending did not ‘create’ money. Even when the government issues debt, this does not mean the money supply will increase. If in the above example, the government issued $25K worth of debt, instead of taxing the money, the outcome would be the same for the money supply.
The money supply expansion is created when the Federal Reserve buys assets and when banks create additional money on top of their reserves (fractional reserve banking).
He does not define what he means by ‘money’. However, even if we looked at the monetary base, M1 and M2, as shown below, we will see that the money supply goes up and down.
The government always runs a deficit. That is, it spends more than it takes in each month. If what he was saying was true, than the money supply could never have a decrease. Looking at the chart, it trends upward but it has dips. You could go back further in history for all of these money supply numbers and see how false his statement is for different time periods. In short, MMT is very far from realism.
We have heard the stories. IRS using gestapo type tactics. Seize assets first, ask questions later. It has the entire power of the US government behind it. What match does Grandma have against the IRS?
Let me tell you something about Grandma. She votes. She sits at home all day watching the news. She represents the largest block of voters by far. If any politician dares mention ‘reform’ following by ‘social security’ or ‘medicare’, she will rush out to the voting booth and retaliate.
The IRS budget shrinks every year. The amount of workers gets less and less. I can depict the IRS bureaucracy in one chart.
0.5% of all returns are audited by the IRS. The total number of audits shrinks every year. This is a very good.
Does this look like the trends of a future totalitarian state? The most hated bureaucracies will be slashed first. The checks need to keep on flowing to Grandma. The bills keep pilling up. Grandma takes more and more of the federal budget.
The US government can issue more debt, no doubt. However, the interest component will grow and grow. Between Grandma and interest payments, whats left for the rest of the bureaucracies? Not much. Grandma is going to take down the entire federal bureaucracy. The last check to bounce will be to her. Read about the future here.
Supply and Demand
Most people understand that prices are determined by supply and demand. This is depicted in any economics 101 textbook.
The law of supply and demand and the graph above do not originate from the facts of reality but rather from the imaginary construction of the mind. The graph above depicts curves based on the assumption that human preferences remain stationary. In reality, human preferences are constantly changing. It should be clear that man has no knowledge of what the shape of the curves look like. The demand and supply curve can take on many different functions and are constantly changing. All we can say is that the demand curve is downward sloping and the supply curve is upward sloping.
The implications are straight forward. As the price of something rises, people buy less of it.
This can be illustrated by a simple thought experiment. The price of an orange is 1$ right now. The government passes a law and states, “the minimum price for an orange shall not be less than 20$”. Would less people buy oranges or more? As things get more expensive people buy less of it. The answer is obvious.
Labor Services It is unfortunate that ‘price for labor services’, ‘salary’, etc. have been given a different name other than price. This would eliminate confusion on the subject. The law of supply and demand also govern the price of labor. Let us say I am an airline pilot. A meeting has been called for all airline pilots around the country to gather for a conference in Washington D.C. Every airline pilot in the country shows up except for me. The building the conference was being held in collapses and all the airline pilots die. I am the last one left in the country. Would my salary (think price of labor) go up or down? The answer is obvious. All airline companies in the country would bid up my salary in order to entice me to come work for them. It would be short lived of course. People would see the outrageous salary posting to fly planes and individuals would flood the market to become airline pilots. Eventually the supply would increase and the price of labor would drop.
Now the government passes a law and states “the minimum price for labor shall not be less than 20$ per hour”. In other words, the minimum wage law is raised from its current level of 7.25$ to 20$ per hour. Would less people buy labor services or more? The answer is obviously less. As things (read goods and services) get more expensive people buy less of them. It should be clear. The minimum wage law is actually an unemployment law. It says anyone worth less than 20$ per hour shall now be unemployed.
The fallacy becomes obvious when stated differently:
If the minimum wage law is such a good idea why stop at 20$ per hour? Why not 50$ or 100$ per hour?
Disastrous Effects of This Law The minimum wage law effects everyone. However, it hits the lowest wage earners the most. Young children living in the inner cities effectively get priced out the market. Instead of getting a job and learning about hard work, work ethic, etc. they become involved in street gangs, drugs, and criminal activity.
You may think since you earn a lot more than the minimum wage that this law doesn’t effect you. You would be wrong. There was a time when you pulled into a gas station and an attendant filled up your tank and washed your windows. There was a time when you called up a company and got a human on the phone. Now you get stuck in the phone tree for about 20 minutes before getting what you want. There is no doubt that automation, technology and competition has cut the need for some of these jobs. We have no way of knowing how much of these jobs were destroyed by minimum wage, but I would not be far fetched to say it is partially to blame for all the small inconveniences in certain aspects of life. The fact that some companies employ their call centers in India or other emerging markets indicates there is some truth in this.
Methodology in the Social Sciences Social science is very different than natural science. The above analysis did not go back in history and use data to prove the above statements. It is all deductive logic. As things get more expensive people buy less of it. This is in contrast to the natural sciences were empirical data is used. For instance, deductive logic can not figure out the melting point of steel. Controlled experiments are conducted and empirical data shows it is 2500°F.
Majority of economist use data from the past to valid their theories. A “right-wing” economist will show data from specific countries showing that as the minimum wage was raised unemployment rose. A “left-wing” economist will show data from specific countries showing that as the minimum wage was raised unemployment declined.
There are obvious flaws in this thinking.
First, how is unemployment defined? The US government publishes U1 through U6. Private companies publish their own unemployment numbers. They all have different meanings and methodologies. None of them match up. Looking at the trend we can get an idea about what is happening, but to get an absolute number? I can make myself unemployed right now. If I refused to take a job for less than a million dollars a year I would quickly become unemployed. Should I count in the unemployment number? I run into people who would rather be unemployed than take a job at McDonald’s or Walmart because they feel they are above that line of work. Should they count?
Second, showing a chart with the unemployment declining and the minimum wage going up is another flaw. If the minimum wage law in the US was 0.25$ in 2011 and was raised every year by 10% you would have a chart showing increasing minimum wage and decreasing unemployment. However, we know that no one would take a job in the US for 0.25$. Not even 0.50$. Real wages have risen to the point that such absurdly low wages would find no willing employee.
People open themselves to attacks when using empirical data to justify or create theories in economics. In order to beat me in the intellectual field you must be willing to combat me using deductive logic. You must be willing to say, “As things get more expensive people do not buy less of it.” This flies right in the face of reason and logic.
Unemployment in a Free Society Elimination of the minimum wage law and other regulatory burden would not eliminate the unemployment. Anyone promising a Utopia free of human pain and suffering is living in a fantasy land. This was the promise of socialist in the 20th century. They promised heaven on earth but winded up giving hell on earth. Ludwig Von Mises summarizes unemployment in a free society perfectly in the following passage:
Where production is perfectly balanced there is no unemployment. Unemployment is a consequence of economic change, and where production is unhindered by the interferences of authorities and trade unions, it is always only a phenomenon of transition, which the alteration of wage rates tends to remove. By means of appropriate institutions, by the extension, for example, of labour exchanges, which would evolve out of the economic mechanism in the unimpeded market i.e. where the individual is free to choose and to change his profession and the place where he works – the duration of separate cases of unemployment could be so much shortened that it would no longer be considered a serious evil. But the demand that every citizen should have a right to work in his accustomed profession at a wage not inferior to the wage rates of other labour more in demand is utterly unsound. The organization of production cannot dispense with a means of forcing a change of profession. In the form demanded by the socialist, the Right to Work is absolutely impracticable, and this is not only the case in a society based on private ownership in the means of production. For even the socialist community could not grant the worker the right to be active only in his wonted profession; it, also, would need the power to move labour to the places where it was most needed.
There is a web site called The Economic Collapse. I enjoy reading it. It provides some good data. However, the author can’t think straight. It asks this question at the top of its website, “Are You Prepared For The Coming Economic Collapse And The Next Great Depression?” The idea of “Economic Collapse” definitely sells. First, let me define an economic collapse. This is the situation in Venezuela right now. The author implies that something of this magnitude is going to happen here in the USA. I argue that nothing of the sort will happen in the USA any time soon. The USA still has a robust free market. Yes there is government intervention in the economy. Yes the Federal Reserve creates bubbles. In spite of all of this, each generation gets richer. The website was created in late 2009. It has been calling for an economic collapse for 10 years. You would think after being wrong for 10 years people would ignore it. The creation of this website marked the bottom of the economic cycle. The longest bull market in history followed.
The latest article (surprise, surprise) states that the USA economy is about to fall apart. It has proof of this. It provides 18 really big numbers. I will comment on a few.
#1 Farm loan delinquencies just hit the highest level that we have seen in 9 years.
Food prices are in the gutter. In real terms, they are probably at a generational low. This is more of a symptom of a struggling industry.
#2 We just learned that U.S. exports declined by 4 billion dollars during the month of December.
Trade deficits are meaningless. See below.
#3 J.C. Penney just announced that they will be closing another 24 stores.
This is the free market at work. Online retail stores like Amazon are putting them out of business. I hate going to the store. It takes to much time. 90% of my shopping is done online.
#4 Victoria’s Secret has just announced plans to close 53 stores.
see point #3.
#5 On Thursday, Gap announced that it will be closing 230 stores over the next two years.
See point #3.
#6 Payless ShoeSource has declared bankruptcy and is closing all 2,100 stores.
The Baltic dry index is volatile. Look at it over the past 10 years. It goes up and it goes down. Additionally, the index is subject to change about how it is calculated. The author gives no reason about why he believes this drop is any different than all the other drops over the past 10 years. Nor does he provide any insightful analysis about why it dropped. There is a common tendency in the social science fields, like economics, to have a “measurement”. Fredrick Hayek wrote the following in “The Counter Revolution of Science”.
The blind transfer of the striving for quantitative measurements to a field in which the specific conditions are not present which give it its basic importance in the nature sciences, is the result of an entirely unfounded prejudiced. It is probably responsible for the worst aberrations and absurdities produced by scientism in the social sciences. It not only leads frequently to the selection for study of the most irrelevant aspects of the phenomenon because they happen to be measurable, but also “measurements” and assignment of numerical values which are absolutely meaningless. What a distinguished philosopher recently wrote about psychology is at least equally true of the social sciences, namely, that it is only too easy “to rush off to measure something without considering what it is we are measuring, or what measurement means.”
I am not convinced the Baltic dry index measures anything worth measuring. This fact onto itself probably tells us something about the shipping industry, but nothing about the general economy.
#11 We just witnessed the largest decline in the Philly Fed Business Index in more than 7 years.
This is the same as point #9
#12 In January, sales of existing homes fell 8.9 percent from a year earlier. That was the third month in a row that we have seen a decline of at least 8 percent. This is an absolutely catastrophic trend for the real estate industry.
The housing market is overheated and due for a decline. This has been detailed at this site.
#13 U.S. housing starts were down 11.2 percent in December compared to the previous month.
See point #12.
#14 Compared to a year earlier, home sales in southern California were down 17 percent in January.
California housing market is a bubble. It has been detailed on this site.
#15 In December, home sales in Sacramento County fell a whopping 22.5 percent compared to a year earlier.
See point #14.
#16 Pending home sales in the United States have now fallen on a year over year basis for 13 months in a row.
See point #12.
#17 More than 166 billion dollars in student loan debt is now “seriously delinquent”. That is an all-time record.
A bunch of fools took out a large amount of debt to get useless degrees. So what? Other delinquencies are down trending and are at a decade low. See here.
#18More than 7 million Americans are behind on their auto loan payments. That is also a new all-time record, and it is far higher than anything that we witnessed during the last recession.
See point #17.
Facts, per se, are useless. All that matters is the philosophy of the person looking at them. I could have easily posted 18 numbers that show a recession is not imminent. This is an example of an author who looks at data with no working philosophy of the business cycle.
Stephanie Kelton is out with her rebuttal to Paul Krugman. You can read it here. MMT is so crazy it even baffles Paul Krugman and the Keynesian school. There are so many holes in MMT and her thinking it would take much more time than is worth to rebuttal it all. Her first paragraph is what got me. She starts off with this:
There is a doctrine among mainstream economists holding that: (1) government deficits push interest rates higher and (2) rising interest rates crowd out private investment. The government can take more of the economy’s financial resources, but only at the expense of lost private investment. This means that running budget deficits has at least some downside. Paul Krugman is a believer in this doctrine. I’m not…
We know from supply and demand that if the supply of something increases the price decreases (all other things being equal). That is, if an entity issues more and more debt, the price of this debt will decrease i.e. interest rates will rise. Her first point, effectively says, this is not true. In one sentence, she rejects supply and demand.
Her second point was destroyed by Milton Friedman a long time ago.
Capital is not unlimited. Government borrowing crowds out the private sector. The question should be asked, ‘what would people have done if they did not lend their money to the government?’
