Why is it that the U.S., the world's richest and most powerful nation, cannot afford to feed its hungry, shelter its homeless, cure its sick, comfort its desperate?
Why, instead of these acts of kindness towards its citizens, does it plan to expand the ranks of hungry, homeless, ill and desperate people through austerity measures?
Our leaders and our lawmakers in Washington are planning budget legislation that will create an even wider pool of suffering citizens. Why?
The basic reason is that their economists / numerologists are being guided by models that relate to numbers rather than to real-life people and their real needs.
Wikipedia: Numerology is any of many systems, traditions or beliefs in a mystical or esoteric relationship between numbers and physical objects or living things.
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The term can also be used for those who place excess faith in numerical patterns, even if those people don't practice traditional numerology. For example, in his 1997 book Numerology: Or What Pythagoras Wrought, mathematician Underwood Dudley uses the term to discuss practitioners of the Elliott wave principle of stock market analysis. |
Models of any kind must always be used with care. The disadvantage of models is that they are simply models rather than the real thing one wants to measure. Models almost always miss critical features of the thing they attempt to model. Models usually employ the most current system and draw analogies between it and the object of interest. In the late 19th Century, the steam engine was an advanced system, and it was posited that the human mind worked like a steam engine and could build up excess pressure under stress, so that "blowing off steam" was beneficial to the mind to avoid further harm.
This idea seems quaint now, but we continue to use models when we can't measure the real thing. Economic models increase in intricacy but are built on antiquated underpinnings. In our era of fiat money--not based upon physical stuff such as gold--the vast majority of financial and economic leaders think and act as if we were still on the gold standard. No matter the predictions of mathematical models of the economy, they are interpreted and applied as if money need be scarce and in finite supply.
At least equally unfortunate is the fact that economic model outcomes are accepted at face value with little regard to the real people who are sharply affected by actions and policies derived from these models.
If you spend time reading through economic journal articles you might not believe your eyes. A research article can go on for many pages filled with the most complex formulas and equations. It can be comparable to a highly abstract mathematics report, and bear no relationship to and no mention of the impact of the research on real people. The intricacies and hair-splitting of the analysis may be stunning. How such an analysis could be applied with accuracy to real-world prediction seems incredible.
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Not every economic model produces bad outcomes, but too often the conclusions drawn from them become problematic. Of particular concern at the present is the belief that the U.S. and other sovereign nations cannot run a budget deficit without bad things happening. This
linked diary by Letsgetitright explains how Congress required that the Treasury Dept issue debt instruments when it spends beyond the budget limit. This requirement was unnecessary when we switched to fiat money, but because it remains a law, it is necessary for Congress to approve a new federal budget limit each time the government must increase its spending. Congress could rescind the law, but don't expect that to happen when conservatives and Blue Dog Dems are voting.
Those cons and Blue Dogs, and likely most other legislators, have swallowed the meme that the Federal Government's budgets are like household, business, city, county and state budgets. They cannot overspend their budgets without borrowing. The Feds have the ability to create money, while other entities don't. It seems a foregone conclusion, given these politicians' beliefs, that spending must be reduced to avoid a too-large debt. And guess what: the budget items they want to cut will be those they dislike on ideological, religious, racial, etc., grounds, as well as from the subliminal belief that money is a thing of limited quantity that the poor shouldn't have because they haven't earned it and don't deserve it.
INFLATION! OMG! INFLATION!
Even when economists admit that under certain conditions--and those conditions certainly exist now--it is okay to deficit-spend, they will argue that such spending will drive up inflation, that awful economic bugaboo.
Diarist Maddogg has explained here that it's not government revenue that constrains spending, but rather inflation. (Inflation rates are now at a very low, manageable level.)
Now here is a topic at which the numerologists show their inadequacy. Too much spending brings on inflation or even hyperinflation, they say. I can think just off the top of my head of several programs in which the Feds could invest without raising inflation rates:
- Granting funds to states to balance their budgets.
- Granting funds to the Postal Service to maintain services and personnel.
- Granting funds to Amtrak to balance its budget and increase service.
- Granting funds to colleges and/or students to promote education.
- Granting funds to charities to help the poor, homeless, disabled.
I leave it as an exercise for the reader to think of more projects like these. Most of the projects I named are simply to restore normalcy to a deteriorating societal environment. How could Amtrak buying new locomotives cause inflation? As if there were a huge market for locomotives. How could issuing more food stamps cause inflation? Will seeing that poor people get enough to eat cause a huge run on food and drive prices sky-high?
I submit that things like oil prices cause inflation, and these are largely out of the government's control.
I would gladly trade a little inflation for a noticeable improvement in ordinary people's lives. This is an example of looking first at the people effects and not the numerological predictions of doom.
This diary is published by the Money and Public Purpose group on Daily Kos.
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Money and Public Purpose (here), as we plan a strong effort to bring Modern Monetary Theory to the attention of everyone who can possibly support it. For more technical details on MMT, please see other diaries published by our group.
Thank you for reading and reccing.
psyched