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By
Warren Mosler
(Cross-posted with permission of the author from
The Center of the Universe)

The intellectual dishonesty continues. As before, it's the lie of omission.
R and R are familiar with my book 'The 7 Deadly Innocent Frauds of Economic Policy' and, when pressed, agree with the dynamics.

They know there is a more than material difference between floating and fixed exchange rate regimes that they continue to exclude from their analysis.

They know that one agents 'deficit' is another's 'surplus' to the penny, a critical understanding they continue to exclude.

They know that 'demand leakages' mean some other agent must spend more than its income to sustain output and employment.

They know federal spending is via the Fed crediting a member bank reserve account, a process that is not operationally constrained by revenues.  That is, there is no dollar solvency issue for the US government.  

They know that 'debt management', operationally, is a matter of the Fed simply debiting and crediting securities accounts and reserve accounts, both at the Fed.

They know that if there is no problem of excess demand, there is no 'deficit problem' regardless of the magnitudes, short term or long term.

They know unemployment is the evidence deficit spending is too low and a tax cut and/or spending increase is in order, and that a fiscal adjustment will restore output and employment, regardless of the magnitude of deficits or debt.

Carmen's husband Vince was the head of monetary affairs at the Fed for many years, serving both Alan Greenspan and Ben Bernanke.  He knows implicitly how the accounts clear and how the accounting works, to the penny.  He knows the currency itself is a case of monopoly.  He knows the Fed, not 'the market' necessarily sets rates.  He knows that, operationally, US Treasury securities function as interest rate, and not to fund expenditures.  He knows it all!

Carmen, Vince, please come home!  I hereby offer my personal amnesty- come clean NOW and all is forgiven!   As you well know, coming clean NOW will profoundly change the world.  As you well know, coming clean NOW will profoundly alter the course of our civilization!

Carmen, Vince, either you believe in an informed electorate or you don't!?

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Comment Preferences

  •  Piling on is a good thing in this case. Actually, (8+ / 0-)

    an excellent thing!

    There can be no protection locally if we're content to ignore the fact that there are no controls globally.

    by oldpotsmuggler on Fri Apr 26, 2013 at 08:53:44 PM PDT

    •  I don't think (15+ / 0-)

      the full story's come out yet, even with all the piling on. What they did isn't only characteristic of them. It's the way things are done in economics these -- a pattern of practice like an attorney's advocacy, rather than like the scientific pattern of investigation, they like to claim they're following.

      •  I really liked your book, by the way. nt (2+ / 0-)
        Recommended by:
        ek hornbeck, Calamity Jean

        Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

        by hestal on Sat Apr 27, 2013 at 03:38:13 AM PDT

        [ Parent ]

        •  Thanks, (1+ / 0-)
          Recommended by:
          ek hornbeck

          I'm glad it worked for you. I figured the book would be hot because it's a solution to austerity. But surprisingly, its been moving slowly.

          •  I am surprised, and disappointed, to hear it. (2+ / 0-)
            Recommended by:
            ek hornbeck, Letsgetitdone

            I have been wondering about it. Do you have any clues as to why? I thought your book was well-written, well-organized and well-grounded.

            Since 2004 I have read perhaps 200 books on and around this general subject, and the most consistent, and most disappointing, characteristic is that they did not provide solutions. They all identified problems, and that is all to the good, but they just didn't provide the big finish.

            My mother used to say that there are four eternal questions: Where do we stand? How did we get here? Where do we want to go? How do we get there from here?

            Most books did well answering the first question, and sometimes they went overboard answering the second--they provided too much history. They would address the third question only by saying that the problems they had identified should be solved. And almost none of them addressed the fourth question. Those who made some effort fell far short of presenting a solid plan for going forward.

            Because of my mother's schooling I have worked very hard to answer all four of the questions in a book I finishing just now.

            Norman J. Ornstein and Thomas E. Mann co-authored The Broken Branch which was about the problems in Congress. I think it was published in 2006. Their book does an excellent job of detailing the internal problems created for Congress by its own members. But it is practically devoid of ideas for improving the situation. I did find this quotation in an article in the Washington Post. Ornstein said:
             

            But ultimately, only a credible threat that the public is prepared to throw the rascals out will change the ways in which politicians in Washington operate.
            In 2012, they published a second book: It’s Even Worse Than It Looks, How the American Constitutional System Collided with the New Politics Of Extremism. In the new book, the authors said that they were worried when they finished The Broken Branch. They feared that Congress might get worse. They were right of course. They document the gridlock and sheer self-destruction that has marked Congress since the election of Barack Obama. They summarized this second book in an op-ed in the Washington Post, which they called, “Let’s Just Say It: the Republicans are the Problem.” They wrote:
            We have been studying Washington politics and Congress for more than 40 years, and never have we seen them this dysfunctional. In our past writings, we have criticized both parties when we believed it was warranted. Today, however, we have no choice but to acknowledge that the core of the problem lies with the Republican Party.

            The GOP has become an insurgent outlier in American politics. It is ideologically extreme; scornful of compromise; unmoved by conventional understanding of facts, evidence and science; and dismissive of the legitimacy of its political opposition. When one party moves this far from the mainstream, it makes it nearly impossible for the political system to deal constructively with the country’s challenges.

            “Both sides do it” or “There is plenty of blame to go around” are the traditional refuges for an American news media intent on proving its lack of bias, while political scientists prefer generality and neutrality when discussing partisan polarization. Many self-styled bipartisan groups, in their search for common ground, propose solutions that move both sides to the center, a strategy that is simply untenable when one side is so far out of reach.

            In one chapter, Mann and Ornstein consider the usual ideas for improving things, and they conclude that they will not work. I agree with their conclusions. In the next two chapters they make several detailed suggestions of their own about how to repair our constitutional system. They make the following comment at the beginning of the second of these two chapters:
            We are tempted to think big when it comes to reforming political institutions, because the problems are so large and so vexing. But wholesale change in the political system is not possible and might not work. So in this chapter, we will focus on smaller ways to change American institutions to better fit the contemporary parties and political culture.
            They may be right. Big ideas may be impossible to implement. So they offer smaller ideas to tweak a system that is suffering from big problems. In my view, small ideas will not work, but big ideas, such as yours, will work.

            Also in 2012, Michael Lofgren published The Party is Over, How the Republicans went Crazy, Democrats became Useless, and the Middle Class got Shafted.

            At the end of his book, Lofgren suggests some ways that improvements can be made to our system, but, in my opinion, they are small ideas like those of Mann and Ornstein.

            Your ideas are big ideas, not because I think they would be difficult to implement, but because they would make important changes to our national economic systems.

            Maybe your book will catch fire. I hope so. I have grandchildren.

            Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

            by hestal on Sat Apr 27, 2013 at 10:55:18 AM PDT

            [ Parent ]

            •  Thanks again, hestal (1+ / 0-)
              Recommended by:
              hestal

              My theory is that it's hard for books to sell w/o big publisher marketing in back of them. I think that books like mine can catch fire these days; but first word of mouth has to generate a tipping point in interest. If a new crisis occurs, where the platinum coin begins to get mentioned again with the same intensity as it was in late December and early January, then I think that tipping point may be reached.

      •  It reminds me of (1+ / 0-)
        Recommended by:
        ek hornbeck

        the real Bush doctrine of fixing the facts around the policy.  It is obvious to me that they started out with the result they wanted and worked backward from there.

        Arrrr, the laws of science be a harsh mistress. -Bender B. Rodriguez

        by democracy inaction on Sat Apr 27, 2013 at 11:35:20 AM PDT

        [ Parent ]

    •  Piling on is absolutely necessary (10+ / 0-)

      if there's to be any hope at all of influencing the President and his alies to abandon his current course toward a "grand bargain" and to push for job creation instead.  The only way he's going to give up his support for deficit reduction is if he comes to fear for his "legacy", and if there's one thing a second term president is concerned about it's his legacy.  He needs to worry about being blamed for continued millions of long-term unemployed, continued acceleration of income disparity, and continued increasing economic desperation for tens of millions caused by wholehearted embrace of R-R's now fully discredited study.

      "Some folks rob you with a six-gun, some rob you with a fountain pen." - Woody Guthrie

      by Involuntary Exile on Fri Apr 26, 2013 at 09:50:59 PM PDT

      [ Parent ]

  •  Well, you know what I think. (13+ / 0-)

    Rattle shaking Shamen the lot of them.

    Except for the ones deliberately lying for money.

    Heh.

  •  It would be EXplicitly, no? (3+ / 0-)
  •  GDP growth lowers the debt-to-GDP ratio. (2+ / 0-)
    Recommended by:
    Judge Moonbox, ek hornbeck

    Since national debt is usually computed as a percentage of GDP, i.e., as a fraction with the GDP as its denominator, growing the GDP shrinks that fraction, i.e., the national debt-to-GDP ratio.  It's simple arithmetic.

    For example, our national debt is roughly $16.67 trillion, which is roughly the same as our national debt, so our debt-to-GDP ratio is roughly 100%.  But, if our GDP increases by 3% this year, to $17.17 trillion, then that ratio drops to 97%, i.e., there' a 3% drop in the nation's debt to GDP ratio, even if the deficit measured in dollars remains the same.

  •  As long as we don't have a culture of accountabili (8+ / 0-)

    -ty for the elites, the R & R's of the world won't come clean. They don't have an incentive to. In Amreeka, accountability is for suckers and little people like, you know, teachers.  If R &R are even marginally liberal, their careers would have been finished by now.

    "The word bipartisan means some larger-than-usual deception is being carried out”. - George Carlin

    by Funkygal on Fri Apr 26, 2013 at 11:45:02 PM PDT

  •  I think the bigger picture is being ignored (1+ / 0-)
    Recommended by:
    ek hornbeck

    Deficit spending is sometimes a necessary thing, but it wasn't a good thing when Reagan did it, and it isn't a good thing now.

     All this talk about austerity vs. stimulus spending distracts us from the fact that an entire world of progressive economic reforms are being ignored.
      I started to list a few here and here.

    ¡Cállate o despertarás la izquierda! - protest sign in Spain

    by gjohnsit on Sat Apr 27, 2013 at 05:51:57 AM PDT

    •  Too broad (3+ / 0-)

      to just say it's not a good thing.  It was a good thing when FDR did it to pull this country out of a Depression.  When it's done to wage global war or enrich the 1%, it's not a good thing. When it's done to improve the overall economy for everyone, especially when WPA-like programs are the vehicle and infrastructure that benefits the country for nearly a century results.


      "Justice is a commodity"

      by joanneleon on Sat Apr 27, 2013 at 06:07:00 AM PDT

      [ Parent ]

      •  I stick by my statement (1+ / 0-)
        Recommended by:
        ek hornbeck
         It was a good thing when FDR did it to pull this country out of a Depression.
        When FDR did it, it was a necessary thing (just like it is a necessary thing now). That doesn't make it good.

          Historically bankers (and the 1%) love government deficit spending. That's why they have encouraged useless wars for hundreds of years. Because they make lots and lots of money on government borrowing.
          Make no mistake, that borrowing is a transfer of wealth to the 1%.

          But that still avoid my bigger point: all this debate over austerity vs. stimulus spending distracts us from the fact that real economic reform isn't happening.
          Stimulus spending will not fix the economy. Real reforms must also happen for this economy to recover.

          Right now the entire spectrum of economic debate ranges from propping up the status quo to enhancing the status quo. That's all this debate is doing.

        ¡Cállate o despertarás la izquierda! - protest sign in Spain

        by gjohnsit on Sat Apr 27, 2013 at 06:22:18 AM PDT

        [ Parent ]

        •  It's necessary now too (2+ / 0-)
          Recommended by:
          ek hornbeck, gjohnsit

          It is necessary now too. But it's  very true that it has to be the right kind of deficit spending in the economic context of a particular nation.

          That's why MMT doesn't say that deficits are always and everywhere good, or always and everywhere lead to growth Details are important and econometric studies have to be very carefully and comprehensively designed to assess alternative causal models. RR didn't do that.

          At the NEP site, a commenter raised the issue of why MMT economists hadn't replicated the study since it seemed so easy to do. I replied there in this way.

          John, I suspect that the type of study you’re proposing is in the works now that the data’s been released. Remember, that UMKC people did try to acquire the RR data to replicate their work back in 2010, but RR refused to distribute their spreadsheet and have continued to refuse to disclose it until a few weeks ago. Of course, an attempt could have been made to gather the data again, but then the situation would have been a he said, she said deal with the name of Harvard and the money of the austerians in back of R and R, so that kind of refutation would have received little attention.

          MMT economists were very active in criticizing the RR study in 2010 and since on design and theoretical grounds. Those criticisms were decisive. The simple point that RR didn’t distinguish between fiat sovereign nations and, more generally among nations based on their type of currency system was enough to convince me that the study was BS. When people continued to take it seriously after critiques from Randy and Yeva Nersisyan and also Bill Mitchell appeared told me in 2010, that the mainstream didn’t care about the validity and would not listen to obvious critiques.

          It was also plain to me that the study was junk economic science because it included so few variables. That is, if you’re basically producing two variable correlations over all nations you can’t be interested in really explaining economic growth while highlighting the role of debt levels in that process. The reason why is that you’re not including the variety of variables and measures you need to partial out spurious correlations. For example, if you’re looking at economic growth as the dependent variable, then many other factors can impact that such as levels of unemployment, educational quality, levels of private investment, the proportion of an economy occupied by the FIRE sector, attributes of the health care system, price stability, crime rates, cultural factors, etc. You also need to investigate reverse causation and mutual causation, and of course do that across differing currency regimes.

          I can go on and on, but my point here is that, based on its design, and failure to include data that would test alternative theories and explanations of gowth, it was evident to me, and should have been evident to the econometricians working for the world’s major institutions that the R-R reported results, even without calculation errors, or leaving out relevant data points, could not say possibly say anything about causal relations that would be useful in arriving at policy recommendations. It was empty of policy relevance unless people wanted to believe in austerity. It was, in other words, a pure “junk science” fig leaf for the oligarchs to prosecute their war against everyone else.

          The press and MSM media played along with the fig leaf because they are owned and dominated by the oligarchs, not because there was ever anything worthwhile about the RR work, the level of which is so amateurish as an example of econometrics work that it would boggle the mind of an observer if that observer didn’t know that the academic system at the big schools had been corrupted by the grants/think tank system funded by the oligarchs.

          I think, finally, that the RR study is an example of the corruption of social science in modern times. I believe that one can show that the study was not just guilty of calculation errors and errors of omission, but that these must be seen as part of a pattern of systematic bias that permeated their whole process of inquiry beginning with their selection of the problem, moving through every decision point in implementing the study, and ending with their evaluation of their evidence and their writing of the result. They made no attempt to do a scientific study maximizing fair comparison of alternative theories having policy relevance, but instead prepared what was essentially a legal brief supporting austerity policies and the Pete Peterson line. The social costs of what they did are strewn all over the globe. See this recent post at DailyKos.

      •  I do my daily walk at a local park (2+ / 0-)
        Recommended by:
        Clem Yeobright, ek hornbeck

        which has a flood control dam. The park was constructed as an FDR WPA project. So here it is 70 years later providing valley flood control and recreation (picnic areas, swimming beach, hiking trails, fishing). Now that was a good investment of public money and created jobs too.

        Obama Style Justice: Make 99% of Bush Tax Cuts Permanent. Then cut Senior's Social Security to pay for it. Hey Grandma, F#@K YOU!

        by CitizenOfEarth on Sat Apr 27, 2013 at 06:23:17 AM PDT

        [ Parent ]

    •  Just like agricultural overproduction? (1+ / 0-)
      Recommended by:
      gjohnsit

      Still, that 'seven fat years, seven lean years' thing worked out awfully well for the Egyptians, didn't it?

      My grandfather didn't buy a house until he had the money in the bank to pay cash for it. My other grandfather, however, made sure to include a hollow newel post in his new house for the day his 10-year mortgage was paid off. Which one do you think was the wiser?

      Too late for the simple life, too early for android love slaves - Savio

      by Clem Yeobright on Sat Apr 27, 2013 at 06:09:39 AM PDT

      [ Parent ]

      •  Bad example (1+ / 0-)
        Recommended by:
        ek hornbeck

        It refers to real wealth, not nominal financial resources. That's why you had to save for the 7 lean years.

        The nominal. financial resources of the US are unlimited because it is a fiat sovereign nation issuing its own currency it the amounts it chooses. So, it never has to save to get money. It can just make it. See here.

        I've told you this before, but you still make the point. Why? Do you believe the US Government is limited in its legal ability to create money? If so, why?

        •  I've never communicated with you before, dude (0+ / 0-)

          and I have zero interest in making your acquaintance now.

          My comment was addressed to gJohnsit, i.e., '[Reply to This]'.

          Why do you persist in insisting people persist in things they aren't actually persisting in?

          Too late for the simple life, too early for android love slaves - Savio

          by Clem Yeobright on Sat Apr 27, 2013 at 10:57:57 AM PDT

          [ Parent ]

          •  He is the diarist. (0+ / 0-)

            I have an intense interest in everything that occurs in mine.

            You?

            •  Responding to ... (0+ / 0-)
              I've told you this before, but you still make the point. Why?
              I've seen lots of people go nuts in defending their theses, but they can't expect to be enabled in their idiocy.

              Friends don't let friends go over the edge.

              Too late for the simple life, too early for android love slaves - Savio

              by Clem Yeobright on Sat Apr 27, 2013 at 12:06:16 PM PDT

              [ Parent ]

              •  I think he is talking about dK in general... (0+ / 0-)

                which has been at best marginally receptive.

                I remember when not so long ago people thought they could hide rate him into submission.

                So a little paranoia is justifiable.

                And it's a whole different world when you're managing the same piece across 4 or 5 sites, it's very easy to lose track.

                And you ignore his main point-

                Do you believe the US Government is limited in its legal ability to create money? If so, why?
                Do you?
              •  Tired of avoiding (0+ / 0-)

                the issue yet, Clem? Do you believe the US Government is limited in its legal ability to create money? If so, why?

  •  Rogoff was interviewed for the HBO series Vice (5+ / 0-)

    (episode 04 aired last night) about the Austerity rioting in Europe. He presented himself as sympathetic to the umemployed youth, as if they are not knowledgeable enough to understand that Austerity will help them in the end. He also said (paraphrashing) that people seem to think someone needs to be punished for the 2008 World Financial crash, implying that no one was at fault, like it was a freak accident.

    Obama Style Justice: Make 99% of Bush Tax Cuts Permanent. Then cut Senior's Social Security to pay for it. Hey Grandma, F#@K YOU!

    by CitizenOfEarth on Sat Apr 27, 2013 at 06:04:16 AM PDT

  •  More complicated than that (0+ / 0-)
    He knows the Fed, not 'the market' necessarily sets rates.
    The actions of the market set interest rateS.

    THe Fed can operate inside the market to increase or decrease the money supply (by buying or selling bonds) until ONE rate hits precisely where it wants. (Within limits which are wider than the desirable variation.)

    Then the market sets the other rates to match that rate. If banks don't want to write mortgagges, they will charge much higher rates for mortgages than the rate for treasury bonds. Since getting treasury bonds down to 0% is effectively impossible, getting mortgage rates dow below some point is beyond the powers of the Fed.

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