Warren Mosler, "Seven Deadly Innocent Frauds of Economic Policy."

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avowkind's picture
avowkind
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Warren Mosler, "Seven Deadly Innocent Frauds of Economic Policy."

I read this online book this weekend: http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

Bearing in mind I am in NZ and don't know the local politics involved I was wondering how Mosler's thesis stands up to reality

It seems his key point is that the budget deficit is simply pure accounting - as he puts it a spreadsheet, and there is no reason for tax income to match up with government spending.   In particular I get the feeling that things like pensions and health care in the future are not really 'funds' in that money is set aside to pay for these in the future, more a faith based 'promise' that the government will provide for pensioners and the sick according to the means of the economy at the time. 

While I found some good points in there - for example money should be spent now rather than saved - for example paying for free education of todays children will infinitely more benefit the future GDP than putting the same money into financial markets (to be used in bubble speculation).  Gov't spending on education is unlikely to be inflationary. 

I also found concerns and omissions. For example the gov't spending is just accounting idea seems to work in an interest free environment, or where interest is exactly matched by increased productivity. but if the interest is just sucked out of future debt we appear to have a exponential system that will eventually eat itself. 

The other concern is that creating money in computers probably ties into the use of finite real world resources somewhere along the line, the system will run out of people, land, water, energy or breathable atmosphere eventually. 

Anyway I would be interested in everyone's take on this guy.  

 

Andrew Watkins, Waiheke Island, NZ

 

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avowkind
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Apologies for commenting to

Apologies for commenting to my own post but I found out more about this contrary point of view by reading http://en.wikipedia.org/wiki/Chartalism

Also known as modern monetary theory. 

Andrew

 

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sofistek
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Stopped Reading

HI Andrew,

I only read so far. The ideas seemed so wacko that I started to look for confirmatory references. I couldn't find any. However, he also seems to think that there can be a return to "the American Dream" and a return to "normal" prosperity. If I've leaned anything here it's that those notions are dead on their backs.

Specifically, he thinks that the governement is the federal reserve and that the government can simply print money without taking out loans. He quotes Ben Bernanke to corroborate his ideas in his first fraud but fails to note that Bernanke is not the goverment and actually contradicted his own quote 21 months later, on the same programme.

Do you think his views have a real applicability, with regard to the predicament outlined in the Crash Course on this site?

Tony

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avowkind
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Hi Tony, no surprise to see

Hi Tony, no surprise to see you here :)

I wasn't that convinced by the thesis, but do like to consider contrarian ideas as they test the status quo.   At the heart I think there is a truth - that you can create as much fiat currency as you like and a deficit could be considered another word for the amount of money in circulation.  Its also true that there are a lot of economists that think balancing the budget - by raising taxes and providing austerity measures will fix things when even I can see they would make things worse ( for most real people).

It seems to me that the current problem with the US QEn process is that the are trying to stimulate the economy by increasing the money supply and making more credit available - which we know produces bubbles.  Rather than taking some responsibility and actually 'spending' some money. 

I suspect that the thesis breaks down (as does the monetarism camp) in that the underlying idea that the money that is just accounting in a spreadsheet is ultimately false as it all eventually comes in to contact with some real world resource with finite limits.

Do folks think that this is the sort of person whose logic eventually leads to hyperinflation?

 

Andrew

 

 

 

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Roger Erickson
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mosler, chartalism, monetary operations

If you're puzzled, you might want to simply read more of Mosler's site.  He's simply following pure operations, not theory.

The logic is irrefutable.  Any physical system is, by definition & default, self notating.  That is, they generate their own bookkeeping.  Can atomic particles "run out" of photons or other interaction indicators?  Can chemical systems run out of electrons to transfer?  Can bio organisms run out of adenosine to carry energy around cells?  Can physiologies run out of their own blood to transport oxygen?

  Of course not, not while they exist, anyway.  System bookkeeping is incidental to physical operations, not the other way around.  The same must be true of any & all invented fiat currencies as well.  Most of the confusion you two mention so far comes from endlessly tired old questions raised by people indoctrinated in gold-std thinking decades after the last vestige of the gold std once again disapeared. 

For someone closer to Kiwiland, who writes far more extensively on the same topic, you might try this.

http://bilbo.economicoutlook.net/blog/

You'll find that these same questions endlessly discussed today were raised in Roman times, by John Law, by Ben Franklin, by Tom Jefferson, by Abe Lincoln, and pretty thoroughly by people such as Marriner Eccles after 1933, Abba Lerner, Wynne Godley and William Vickrey.

  People who are "educated" into economics before absorbing any other perspective on reality have a hard time, but anyone having studied anything else first fails to see the mystery.  It's simple operations.

Mosler parallels Vickrey pretty well.  They both just describe existing operations, regardless of mythology.

William Vickrey, “Fifteen Fatal Fallacies of Financial Fundamentalism:” (see fallacy 6)   http://www.columbia.edu/dlc/wp/econ/vickrey.html

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Roger Erickson
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mosler, chartalism, monetary operations

forgot to add that novices are always confused about the nature of currency, the act of currency creation, and who is owed what in a sovereign, fiat currency-debt regime

if you follow the logic through, any sovereign currency is eventually backed by, and created as an expression of, public initiative;

  we can't run out of initiative (short of group suicide), hence we can't run out of our own bookkeeping currency

we need appeal to no higher authority

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tjfxh
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MMT References

 

I had the same impression that most do when I first ran into Monetary Monetary Theory (MMT) aka Neo-Chartalism. You have to be kidding me.

But when I found that major economists like James K. Galbraith are into it, I checked it out and it blew my socks off. This is a whole new way of looking at macro based on monetary economics developed by the late Wynne Godley, formerly one of the six "wise men" at the UK Treasury. See Godley & Lavoie, Monetary Economics (2007) for stock-flow consistent macro modeling of an economy.

This has been in development for years and there is a whole lot of research on it, as well as many blogs. Some contributors are professional economists and others are people working in finance. Google L. Randall Wray (PhD student of Hyman Minsky), Scott Fulwiller, Mathew Forstater, Rob Parteneau, Marshall Auerback, William F. (Bill) Mitchell, and Warren Mosler, There are lot of working papers available at www.levy.org, if you are looking for documentation and Wray has an introductory book for non-economists, Understanding Modern Money: The Key to Full Employment and Price Stability.  

BTW, Warren Mosler is very successful hedge fund manager, owns a bank, founded Mosler Automotive, and recently ran for the US Senate. He knows whereof he speaks in The Seven Deadly Innocent Frauds.

 

 

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