Dear Citizens and Elected Officials:
Introduction:
Well, I’ve done it, attacked the “Pope” — his equivalent in secular economic terms, “his eminence” Paul Krugman, the final word on economics for most of the Progressive Community. I won’t however, be called before a papal inquiry: dissent in American matters of political economy is banished by non-reference, as we will see below. If we are to make real progress, however, we need to move beyond the Pope and the discussion vacuum. Here’s his column in the New York Times this morning: “Hard-Money Men Suddenly Going Soft”: www.nytimes.com/…
Krugman rightly attacks the fiscal hypocrisy of the Republican Right in Congress, but even arguing for responsible budgetary policies is fraught terrain today, where how well the citizens are doing is a huge argument in itself, going back to the Presidential campaign of 2016. Does anyone, any coherent line of thought to the left of Paul even exist in his own mind? I think it probably does, but he’s not going to give it any column time. I give some examples below in my responses to a reader who asked me why the U.S. hasn’t settled on an “optimum” interest rate? Good question, but it begs the very political nature of the answer: for whom, and at what cost and under what particular economic circumstance — where we might be in the “business cycle — 1927 or 1932 to dramatize the issue, or in more contemporary terms, 2006 vs 2008-2009. And here is economist James Galbraith take on these matters, one year ago: www.marketwatch.com/… “Economist James Galbraith isn’t celebrating Dow 25,000” — good call, Professor Galbraith.
Yanis Varoufakis, whom I mention below, is the leading public intellectual on the left in Europe, and also a trained economist, member of the Greek Parliament, and running for the European Parliament. He’s a friend and good professional colleague of James Galbraith. He’s also founded two movements: pushing for a Green New Deal for Europe (DiEM25), and one Progressives need to achieve at the International level — a Progressive International (with its echoes of the now forgotten left forerunners of such a worldview — but he’s a social democrat, not a socialist) pushing towards a new, modern “Bretton Woods” arrangement, with plans to put all the idle private capital and earnings to work for the public good — which will also induce better private spending and full employment within new green parameters. I do not mean to cover such a daunting breadth of policy terrain so breathlessly: the only good frame of reference of what we need and how hard it will be to achieve is the context of the 1929-1932 years, and the “Mobilization” of World War II. — but we have to get there by persuasion and elections and policies...not counting on whatever the secular version of Pearl Harbor is to make the transition. Talk that over with Mitch McConnell and Rush Limbaugh for starters...
Varoufakis doesn’t get a word from Krugman, despite having written these books whose titles surely must be within Krugman’s radar range: “Talking to my Daughter About the Economy: Or How Capitalism Works — and how it Fails” (2013);“The Global Minotaur: America, Europe and the Future of the Global Economy” (2015); “And the Weak Suffer What they Must? Europe’s Crisis and America’s Economic Future” (2016); “Adults in the Room: My Battle with the European and American Deep Establishment” (2017).
Varoufakis’ work, especially “Adults in the Room” has been put on the level of John Maynard Keynes’ most famous writings (not the theoretical ones, not yet) but “The Economic Consequences of the Peace” (1919) and “Economic Possibilities for our Grandchildren” (1930).
Now here’s what I wrote, in the Times, along with my responses to a reader’s comment:
I wasn't going to skip this column with it's weighty title, echoes of the free silver WJB populists vs the "hard money" men of the late Gilded Age. But readers, here's what Paul didn't tell you. That there is something called Modern Monetary Theory which says yes, based on a nation's sovereign currency powers, a reputable (tarnished and shaken but still standing) central bank, the Federal Reserve, it can use the inherent powers to tax to back printing money to meet the crisis of the day. Readers please consult L. Randall Wray's "Modern Monetary Theory" for a quick course. Paul has not yet blessed the theory, so the Pope has not issued a pronouncement. Several other things Paul left out: that monetary policy is highly political by its very nature, one course or another, tight or lose money helping different parts of society to different degrees. Due to the powers which it creatively extended, the Fed conjured up electronic trillions during the 2008-2009 Great Financial Crisis, but this power was used to save the banks, and the top 20% of the economy, not Main Street, and Quantatative Easing has continued up until about a year ago, when the Fed eased its buying of stressed private assets and government bonds and slowly began raising interest rates. Yanis Varoufakis has written four excellent books over the past five years about these matters, but the Pope has put him in exile, won't mention them. The books would clear a lot up for readers. Paul is not divine. He leaves a lot out, rivals and their ideas.
3 REPLIES
My response:
“We are caught between changing interest rate regimes, between the extraordinary low rates which have existed to, in theory, save the financial system since 2008, with all its policies of Fed Power understated, and the wish, almost desperate, to get back to a more normal - historical norm - interest rate policy, with the nagging fear being - since we are clearly at the top of a business cycle which in history do not last more than 8-10 years - that the economic "normal" no longer exists, that the current status quo will not be able to survive "normal" - higher rates in the 3.5-5% range...That raises the question of how solid those low unemployment numbers really are - for so many, they have no savings and are "short" at the end of the month: see Fed. Res. St. Louis branch study of money for emergencies, the campaign for Gov. in Florida where this issue of empty pockets was loud, and the Yellow Jacket-Vest protests in France...Not mentioned by Krugman: the "Market Fundamentalist" Conference put on by Ralph Nader on Oct. 19 this year in DC: Dennis Kelleher, head of Better Markets, said it was a huge painful mistake to be raising interest rates now as Main Street is just beginning to "recover." He's no Republican; I'm reading the business cycle as saying: not the time to raise rates, but it may be, Fed thinking, driven more by the fear of loss of tools - room to lower - if the downturn is severe, which it might be, looking at the broad international pic.
I must add, wasn't room above, that what the Fed targets as desirable, and that in itself is in dispute, isn't the whole picture; international money markets, capital markets have their own ideas. I'm relying on Joseph Stiglitz's chapter on this topic in his book about the "Roaring 90's" where the US is important but no longer the sole sovereign in determining these matters. My underlying assumption, important for the political economy Right and German Bankers, is that inflation, the great bogeyman since the long 19th Gold Standard (see Karl Polanyi, "The Great Transformation) is a fading ghost. If it has some reality today - it had none during the 1990's with broken labor world-wide, it would be in the wake of a Climate Mobilization and Green New Deal. We can cope, though, as we did in WWII. Krugman fears to tread into this intellectual territory; more than a foot still being in the Neoliberal Camp, "austerity light," no Modern Monetary Theory.”
Editor’s Note: And James Galbraith maintains that the fear of inflation has been defunct in reality for at least 40 years, the rise of the vast new “international labor market” having broken the power of workers to politically engage and raise their pay. See the link above. I don’t like this powerful fact, and many are working to change the stark reality, for workers and indeed the bottom 80%, so that we don’t end up in what Galbraith has called a “Pareto Distribution,” named after the Italian economist Vilfredo Pareto who noticed that 20% of Italians owned 80% of Italy’s land” at the turn of the 20th century — 1906, actually. (from “Inequality: What Everyone Needs to Know,” 2016.)
Best for the holidays,
billofrights
Frostburg, MD