Conventional and Unconventional Economics

(c) by Mark Dempsey

1. The Conventional Economics Narrative 

The conventional story says national debt is a (growing) problem. The bigger it gets, the worse it is for the economy. The cost to pay it off, in higher taxes or lower spending--probably Social Security benefits and Medicare--would crush the economy. To top it off, the interest bill is compounding the problem, finally exceeding military spending.

This narrative is so ingrained in conventional economics that two respected, conventional economists--Reinhart and Rogoff--have even theorized about when such debt becomes too much of a burden for any economy to bear. They normalized the comparison of different currencies and historical periods by comparing economic performance with the ratio of debt to GDP.

Their conclusion? When a nation's debt exceeds 90% of GDP, the economy suffers in its wake. The constantly cited example is Greece, whose debt was roughly 125% of GDP. This led to bond markets demanding higher and higher yields (35!) until the European Central Bank stepped in and backstopped the Greeks' debt. The Greek economy suffered a worse downturn than the Great Depression.

So...is that an accurate story? Short answer: No.

2. Debunking the Conventional Narrative 

First, the assumption behind the debt panic in the US is that dollars grow on billionaires. This is obviously untrue; the government makes all the legal dollars any time it needs them. This is called monetary sovereignty, and the US has it. Greece does not.

That's right, Reinhart and Rogoff were comparing apples to oranges, not separating monetary sovereigns (US, UK, Japan) from non-sovereigns (Greece and the rest of the EU). Not only that, the spreadsheet on which they based their conclusions had a mistake in its formulas, pointed out by a graduate student. Their work is so slopping, I wouldn't let them mop my kitchen.

Perhaps the most convincing refutation of their 90% figure, however, is Japan. For decades, Japan has had debt that is roughly 240% of GDP. Conventional economists would say the bond markets would treat this as a sign Japan is a risky borrower, and predict those markets would demand a risk premium to fund BOJ (Bank of Japan) debt. Would the bond vigilantes demand more than 35%?

The truth is that the BOJ debt sold, until recently, for nearly 0% yield. That rate has increased to near 5% in recent months, but it's still nowhere near the Greek experience. The BOJ can issue yen at will, and there is no risk BOJ bonds will become unpayable.

3. What is National Debt, Really? 

So, what is national debt, really? It's like bank debt. Your bank account is your asset, but to the bank, it's a liability, a debt the bank owes you. You can ask the bank to reduce its debt because you hate the word "debt," but they would just make your account smaller. Not exactly sensible.

National debt is the mirror image of the private sector's surplus. That's not exotic economics, it's double-entry bookkeeping.

The conventional economic narrative obscures two other significant facts. First: monetary sovereigns do not need to borrow the money they make literally without limit. This means no interest payments are necessary. Such payments are "welfare for rich people" says one heterodox economist (Warren Mosler).

4. Inflation Limits Debt Issuance, but only in theory 

An entirely theoretical argument says that the central bank issuing too much currency is what causes inflation. Its most eloquent advocate was Milton Friedman ("Inflation is always and everywhere a monetary phenomenon"). 

But a study of 56 historical hyperinflations published by the libertarian, right-wing Cato Institute demonstrates that those were initiated by central banks run amok, printing too much money, exactly zero times. That's zero!

This is the final conventional  objection to the unconventional narrative that sovereign currency issuers can pay any debt, no matter how large. Why that would cause [hyper] inflation! Except the historical hyperinflations always begin with a shortage of goods, not a surplus of currency. This is true of Zimbabwe (food) and Weimar Germany (manufactures). Even the US inflation of the '70s began when OPEC restricted its shipments of that critical commodity, oil. 

Steve Keen on Government Debt

 

The conventional wisdom is that excessive government debt, and large government deficits, are the roots of all economic evil. When you see the financial dynamics of the economy in an integrated way, the conventional wisdom is conventional stupidity. 

The mainstream textbook view that a government deficit is negative public saving, reduces total saving, crowds out private investment, and slows economic growth, is the exact opposite of the accounting truth. 

Using double-entry bookkeeping, I show a government deficit is a CRITICAL step in creating fiat-based money, and it actually increases the money available to the private sector, not reducing it as textbooks argue. 

Government bonds do not take money from the public, as textbooks assert, and of the three ways in which they could be sold–to the central bank, to private banks, or the non-bank private sector–the current system is the worst choice. 

I use simulations in Ravel [software] to compare these three bond-sale arrangements using the same government deficit. I conclude that government debt and deficits need to be understood as part of the broader financial system rather than through a household-debt analogy, and from this perspective, they are not a “bug” of the system, they are a feature

...

See also "How Economists Will Destroy Capitalism" from Keen 

Homelessness

 

More than 10% of housing owned by billionaires is empty, more than enough to house every homeless person in the Western World. They don't care, it is about maximum profit, not providing housing.

— BladeoftheSun (@BladeoftheS) October 10, 2026

Accountability

 

The West has ZERO accountability for delayed, failed or over budget government projects... Here's why 👇 🇺🇸 The Western model The public gets told that elections, media scrutiny and audits keep governments accountable. So what happens when projects run years late and billions over budget? - California's High Speed Rail project was approved in 2008, with a 2020 completion and a $33 billion cost. What's f*king insane, is the latest estimate puts the cost at $126 billion, and full operations coming in 2040. - Auditors (apparently) expose waste. Politicians blame contractors. Contractors blame the government. Consultants blame the planning. The buck gets passed until the the f*ck up falls into the ether, along with all the others, and you as the tax payer foot the bill. At worst, if they're unlucky, the politician might lose an election a few years later. But still likely carrying on in another public position. 🇨🇳 The Chinese model China fixes this severe lack of oversight with, you guessed it, accountability and actual consequences. - Officials stay responsible during and after the project. Even if they've already change positions, been promoted or retired. Serious budget overruns, reckless planning or project failures bring strong penalties including demotion, dismissal, forced reassignment, disciplinary action, or criminal charges. - Auditors and development regulators monitor budgets and timelines during construction. Severe delays or reckless overspending can freeze funding, revoke project approvals and blacklist construction firms from future government contracts. - Builders and other contractors face fines, loss of qualifications and blacklisted from future government contracts for serious violations or poor performance. -- A possible slap on the wrist vs criminal charges. What are we doing here? 🤦‍♂️

— Chris M (@ChrisinLiuzhou) October 10, 2026

 

So you don't have to expand the tweet:

 

over budget? - California's High Speed Rail project was approved in 2008, with a 2020 completion and a $33 billion cost. What's f*king insane, is the latest estimate puts the cost at $126 billion, and full operations coming in 2040. - Auditors (apparently) expose waste. Politicians blame contractors. Contractors blame the government. Consultants blame the planning. The buck gets passed until the the f*ck up falls into the ether, along with all the others, and you as the tax payer foot the bill. At worst, if they're unlucky, the politician might lose an election a few years later. But still likely carrying on in another public position. 🇨🇳 The Chinese model China fixes this severe lack of oversight with, you guessed it, accountability and actual consequences. - Officials stay responsible during and after the project. Even if they've already change positions, been promoted or retired. Serious budget overruns, reckless planning or project failures bring strong penalties including demotion, dismissal, forced reassignment, disciplinary action, or criminal charges. - Auditors and development regulators monitor budgets and timelines during construction. Severe delays or reckless overspending can freeze funding, revoke project approvals and blacklist construction firms from future government contracts. - Builders and other contractors face fines, loss of qualifications and blacklisted from future government contracts for serious violations or poor performance. -- A possible slap on the wrist vs criminal charges. What are we doing here? 🤦‍♂️ 

A Review of "Tony" the Anthony Bourdain bio flick

 "I was -- to be frank -- a spoiled, miserable, narcissistic, self-destructive and thoughtless young lout and badly in need of a good ass-kicking". - Anthony Bourdain describing himself at the age he was during the time portrayed in the film.

The movie Tony is about Anthony Bourdain's adolescent life before he became a famous chef, author and travel guide. The film portrays him exactly as he describes, a miserable character who lied, manipulated and thieved his way in pursuit, he says, of success as a writer. True to form, although he repeatedly claims he's a writer and recipient of a fellowship, he doesn't write a word in the film and was turned down for the fellowship.

He ran away from home while still a teen--not to the circus, but to Provincetown, MA, pursuing a girl. There, he was robbed of the money he stole from his parents, penniless, and started working for a restaurant as a dishwasher. Bordain might be the protagonist of this film, but the chef who took him in--played masterfully by Antonio Banderas--is the hero.

The chef takes the eminently unlovable Tony under his wing, letting the homeless Bourdain sleep in a hammock on his porch, giving him the dishwashing job, waking him by dousing him with water (until he starts waking up on his own), taking him to church and eventually showing him what it means to be a chef.

When going to church, Bourdain protests that he doesn't believe in God. "What!? You don't believe in air, too? Yet you're still breathing!" replies the chef. 

So the Bourdain character stumbles his cringe-worthy way through the ass-kickings he gets while actually growing up, experimenting with lies, manipulation and thievery until he finds they are dead ends. And finally does something noble to make amends for the damage he's done, and honors the chef's contribution to his life, even in his choice of careers.

So the film does portray redemption, even for the young "lout." Yet most people know Bourdain hanged himself after having achieved success as a chef, writer, and media personality. Why the suicide? Curiosity? Impulsiveness? The ultimate ass-kicking? 

Bourdain himself was pretty sympathetic during the years of his success. He defended women from Harvey Weinstein, and highlighted the cooking of poor chefs too. That he was redeemed during the part of his life described by the film is ennobling, but like most of us he could have done more. Perhaps it was the idea that he was part of the matrix that enabled sexual and economic predators that discouraged him enough to hang himself. 

Meanwhile, the film is one you'll seldom see, showing adolescence as the embarassing mess it often is, and yes, delivering a happier, more authentic ending than we see from most Hollywood teens. 

This week's links: Keynes Twisted, Japanese decluttering, the China Challenge

 

How Economics Manufactured the Household State Part II — They Kept Keynes’s Name and Removed His Threat

The point is not that every heterodox proposition is correct or that mainstream economics contains no useful tools. The point is that a science becomes intellectually fraudulent when it calls one school “economics” and treats rival premises as optional politics. No serious discipline would remove competing explanations from the curriculum, then announce that the surviving explanation has won. 

…

The household state is therefore not a natural fact waiting to be discovered by economists. It is the political product of a discipline that narrowed its own vision, then handed the resulting fiction to governments as scientific necessity. 

11 Japanese Decluttering Lessons

Global Imbalances and the China Challenge

China has a distinct model of growth and integration into the global economy. When China joined the WTO in 2001, Western governments assumed that economic integration would gradually produce convergence. China would embrace the liberal understanding that underpinned the global trading system; market forces would play a larger role, and its priorities would come to resemble those of other major trading nations.

China has indeed become much richer – a major achievement. But convergence has not followed. On the contrary, since 2015, its approach to international economic relations has increasingly diverged from that of the rest of the world. Western countries trade because they want their consumers to access cheaper goods. China trades to put its producers and technology in a dominant position. Its objective is first to achieve greater self-sufficiency and then to establish lasting industrial and technological superiority in as many sectors as possible. This was already clear in 2015 with the adoption of the “Made in China 2025” objectives, and it has since been confirmed and expanded in the recent 15th plan. Industrial capacity is not simply there to meet demand. It is an asset in its own right: a source of technological capability, national resilience, and geopolitical influence.

Gyms for atrophying brains

 

I, too, think we should invent books.

— David Moscrop (@David_Moscrop) October 5, 2026