Thursday, April 30, 2020

What Really Changes the Direction of History?

In teaching a class about Modern Money Theory for CSUS's Renaissance society, a student asked "What makes history change direction?"

At the time, this floored me. It's a really good question--one of the best. But I had no answer handy, so I said "I don't know."

After reflecting about this, I'm reminded of a tale about how to really change things.* Imagine humanity as passengers on a train that we all understand it's headed to a less-than-optimum destination. Some people will lobby for everyone to move to the right side of the train. Others will encourage the passengers to move to the left side of the train. What's really needed, of course, is for people to get out of the train and start laying a little new track.

The idea of leaving the comfort of the passenger car, and laying track is at least uncomfortable. Historical change, not just rearranging the passengers' seating, requires discomfort.

Meanwhile, here is Michael Hudson's evaluation of the kind of track that needs to be laid. Here's an excerpt:

The Chicago School says any government spending is the road to the gas chambers. I’ve heard that said literally. They say that with government spending, you’re going to end up like Germany in the Weimar area with hyperinflation or like Zimbabwe. They think that running a government deficit actually increases consumer prices and that erodes the purchasing power of financial wealth. Well, Modern Monetary Theory [MMT] says, first of all, that there’s a disconnect between financial asset prices and where the real economy is going. Asset prices, capital gains and the wealth of the 1% are going up but real wages and disposable income has been going down. We’ve seen real estate, stocks and bond prices going up and up since the Obama bailout of 2009, but the economy has not benefited the 95 percent.

There’s a sort of crude MMT solution, to simply run a budget deficit. And one extreme, there are some MMTers – not me and not my colleagues, but some MMTers – who say that all you have to do is run a budget deficit and you’ll pump money into the economy. The tacit assumption is that this money is going to be spent in a Keynesian-style way, on hiring labor, especially if the government will build infrastructure. The government would buy goods and services, whose production involves paying labor and you’ll reflate the economy, you’ll increase the circular flow of income within the production and consumption sector.

On the other hand, Wall Street and England have discovered bad MMT. It’s Donald Trump’s or the Democratic Party’s Obama-style MMT version known as Quantitative Easing. This approach says that deficits are indeed wonderful, as long as the government is running a deficit to spend on Wall Street, not into the “real” economy.

The leading MMT advocates of government spending, like Stephanie Kelton, Randy Wray and a whole group of MMTers who are critics of Wall Street, emphasize just what kindof government deficit spending we’re talking about. What actually is spent on public investment, employment and income support. It has to be spent on labor and tangible capital. The fake MMTers are saying government deficits are great if given to the banks. Banks will provide the credit and save the rest of the economy. But that’s the opposite of what we’re saying. So just like every good religion early on, every good idea from Jesus to Marxism can be turned upside down and into the opposite. You’re seeing an attempt today to turn the MMT that we all developed in the last three decades into a travesty of bailouts for Wall Street. It is as if bailing out Wall Street, Barack-Obama or Joe-Biden style, is going to bail out the economy by enabling it to run deeper into debt.


*Thanks to Werner Erhardt for the story

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