Power & Market | Mises Institute

Time 2020-06-24 22:03:27

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MMT: Not Modern, Not Monetary, Not a Theory3 hours agoJeff Deist Modern Monetary Theory (MMT) has a new champion, and a new bible. Stephanie Kelton, economics professor at SUNY Stony Brook, is the author of The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy. Professor Kelton was an adviser to the Bernie Sander...Modern Monetary Theory (MMT) has a new champion, and a new bible. Stephanie Kelton, economics professor at SUNY Stony Brook, is the author of The Deficit Myth: Modern Monetary Theory and the Birth of the People's Economy. Professor Kelton was an adviser to the Bernie Sander presidential campaigns, and her ideas increasingly find purchase with Left-progressives. It is certainly possible she has a future either in a Biden administration or even on the Federal Reserve Board, which is a testament to how quickly our political and cultural landscape has shifted toward Left-progressivism. And Left-progressivism requires a "New Economics" to provide intellectual cover for what is essentially a political argument for painless free stuff from government.Kelton's essential argument, first advanced by MMT guru Warren Mosler in the 1990s, is quite simple: federal spending is unconstrained by revenue. Taxes function only to regulate demand and hence inflation; federal borrowing functions only to regulate interest rates. Sovereign government treasuries can create and spend as much money as they like to stimulate growth, especially when the economy is underperforming. If inflation spikes, taxes can be imposed to take money out of the economy.Thus the only constraints on unlimited government spending are political. Unleashing ourselves from these "self-imposed" constraints, as Mosler puts it, is purely a matter of political will. Revenue is irrelevant to how you fund a government, and so why not use government to fund the economy as a whole?I direct readers to Dr. Bob Murphy's recent substantive review of Kelton's book here, as Bob does a thorough and effective job of debunking MMT and providing Austrian rebuttals to her claims regarding money, debt, and deficits. But I would make three quick points of my own:MMT is not modern. Kings have used seigniorage and currency debasement for centuries to fund their endeavors, always as the expense of their subjects.MMT is not monetary. It is primarily a fiscal approach to state finance, focused on tax policy as the economic accelerator and brake. Its roots predate the US Federal Reserve Bank, and in fact predate the present notion of "monetary policy." MMT finds origins in early 20th Chartalism, whose proponents opposed gold in favor of paper money issued by government and mandated as legal tender. It is also a genealogical heir to the Greenbackers of the late 1800s who believed Congress should direct the issuance of unbacked paper currency.MMT is not a theory. It is accounting. In fact, it relies on an accounting subterfuge which bizarrely claim government deficits represent private (societal) surpluses. Because government is the font from which currency springs, all financial assets (denominated in that currency of issue) are thanks to government! Thus under "national accounting," the more government spends the richer we the people get. When tax revenue is $100 but government spends $120, Americans are richer by $20. And so on. This is not a theory, this is accounting gimmickry almost purposefully designed to obscure what's really going on. In the relentlessly circular world of MMT, government is the source of all finance and in effect all wealth.  Taxpayers don't fund government, because after all government first provides the "tokens" (currency) taxpayers need to pay their IRS bill! Government funds taxpayers, which is broadly speaking what the American Left really believes. It's a version of Obama's "You didn't build that" rewritten into policy.But lets' not kid ourselves: the US federal government already finances its operations of MMT. 2020 federal spending may exceed $8 trillion, as Congress and the Trump administration blow the roof off the authorized $5 trillion budget with COVID relief bills. More than half of that amount, maybe as much as $4 trillion, will be "deficit financed"—a nice way of saying not financed by tax revenue. This is a first in American history, to put it mildly.This $4 trillion will not simply issue forth from Treasury Department printing machines as Kelton would prescribe, but the effect is the same: the Treasury issues debt to cover the shortage, which the "public" buys implicitly understanding the Fed will always provide a ready market for such debt. And where does the Fed get the money to buy Treasuries? It creates it from nothing, in Keltonite fashion.Chicagoites, market monetarists, supply siders, NDGP targeters, and other free market proponents frankly don't have much to say about MMT. They already accept the premise of "monetary policy," i.e. that government or central banks should issue and control money in society. They already accept treating the money supply and interest rates as forms of policy tools. They already accept deficits and taxes as methods to prime or slow the economy. So while they may object to how Ms. Kelton wants to use money politically, they can't much object to whether money is used politically.1Kelton deserves credit for writing a book aimed at lay audiences, instead of for her peers in academic economics. Unlike most of those peers, she seems genuinely interested in helping us understand how the world works. And unlike most Left-progressive academics, she also seems interested in helping average people improve their lot in life. Perhaps most importantly, she does not display the kind of contempt and anger toward Red State America we see from the the Paul Krugmans and Noah Smiths. It's easy for those of a free market bent to dismiss MMT out of hand, but the impulse to create something from nothing resides deep in the human psyche, and politics is where this impulse finds expression. We should not underestimate the allure of MMT in the midst of our current upheavals, because it appears to make possible every Left-progressive program: unlimited public works and federal jobs, useless and uneconomic Green energy schemes, reparations for Black Americans, Medicare for All, free college, free housing, and a host of others. MMT is the perfect economic proposal for those who sincerely and deeply believe wealth simply exists in America, and will continue to exist, regardless of incentives. All we need to do is figure out how to more fairly divvy it up—and so why not through government spending?   The promise of something for nothing will never lose its luster. MMT should be viewed as a form of political propaganda rather than any kind of real economics or public policy. And like all propaganda, it must be fought with appeals to reality. MMT, where deficits don't matter, is an unreal place. 1. Austrians have always decried state-ordered or central bank monetary expansion per se, because it produces no new wealth in society but benefits those closely connected to the new money. And Austrians consistently apply Say's Law to refute the entrenched idea that demand and consumption form the foundation of a healthy economy. Keep ReadingRead CommentsWhen commenting, please post a concise, civil, and informative comment. Full comment policy here Voting for Integrity over Hypocrisy 06/23/2020Gary Galles I have long been a fan of science fiction. I like it for the escapism it allows me. But sometimes I also find some real nuggets of understanding there. I found one example that bears upon America’s coming election in a Jack Campbell novel: People are always talking about demanding more...I have long been a fan of science fiction. I like it for the escapism it allows me. But sometimes I also find some real nuggets of understanding there. I found one example that bears upon America’s coming election in a Jack Campbell novel:People are always talking about demanding more and better performance from elected officials, but when you get right down to it, shouldn’t a democracy demand more and better performance from the citizens who vote? If they do their job well, then the quality of those they elect will naturally follow.That is one of the best summaries I have ever seen of Foundation for Economic Education founder Leonard Read’s view on voting. Since Americans will soon be assaulted with questionable election year assertions of why they must vote and who they must vote for in 2020, his rationale for why not voting can better defend our liberty merits consideration.As Read articulated in in his classic, Anything That’s Peaceful (1964):"Today…often a voter cannot cast a ballot except for one of two trimmers.""A trimmer…trims his personal idea of what is morally right, tailors his stand to the popular fancy. Integrity…is sacrificed to expediency.""Why, asks the responsible voter, should I endorse dishonesty by voting for such a candidate?""When both candidates for public office are judged to be trimmers, the one who trims less than the other is often regarded as 'the lesser of two evils.' But, is he really?""Principles do not permit of compromise; they are either adhered to or surrendered….To trim is to ignore the dictates of higher conscience…to take flight from integrity. Is not the candidate who will trim…ready to abandon the dictates of conscience[?]…Does not the extent or quantity of trimming merely reflect a judgment as to how much trimming is expedient?""When one must choose between men who forsake integrity…there is little relief at the polling level except as candidates of integrity may be encouraged by voters of integrity.""How can candidates of integrity be encouraged by voters (and non-voters) of integrity?""One candidate will stand for the coercive expropriation of the earned income of all citizens…to those in groups A, B, and C…[H]is opponent differs from him only in advocating that the loot be given to those in groups X, Y, and Z.""Does responsible citizenship require casting a ballot for either of these political plunderers? The citizen has no significant moral choice but only an immoral choice [made because] one of the candidates will deliver some of the largess to him or to a group he favors.""Does responsible citizenship require voting for irresponsible candidates?…To cast a ballot for a trimmer, because no man of integrity is offering himself, does as much as one can with a ballot to encourage other trimmers to run for office…to urge, as strongly as one can at the polls, that men of integrity not offer themselves as candidates.""What would happen if we adopted as a criterion: Never vote for a trimmer!""Would the end result of this…large-scale demonstration of 'voting by turning our backs,' compound our problem?…In time…Men of integrity and high moral quality—statesmen—might show forth.""Would a return to integrity by itself solve our problem? No…But it is only among men of integrity that any solution can begin to take shape.""If respect for a candidate’s integrity were widely adopted as a criterion for casting a ballot, millions…would not cast ballots. Yet, in a very practical sense, would not those of us who protest in this manner be voting…who, by our conscious and deliberate inaction, proclaim that we have no party. What other choice have we at the polling level? Would not this encourage men of statesmanlike qualities to offer themselves in candidacy?""There is no moral or political or social obligation to vote merely because we are confronted with ballots…doesn’t this 'obligation' deny to the citizen the only alternative left to him—not to endorse persons or measures he regards as repugnant? When presented with two trimmers, how else, at this level, is he to protest? Abstinence from ballot-casting would appear to be his only way to avoid being untrue to himself."Leonard Read rejected much of the current civic religion of political involvement, because it amounted to "regardless of integrity, vote." He argued for making integrity our central focus. And if we reflect on how infrequently we would use the word's common meanings or synonyms, such as incorruptibility, adherence to moral and ethical principles, honesty, reliably doing the right thing, uprightness, rectitude, sincerity or honor, to describe those we "must vote for," it certainly might improve things. Instead we see and hear its antonym—hypocrisy—demonstrated daily.Keep ReadingRead CommentsWhen commenting, please post a concise, civil, and informative comment. Full comment policy here The Federal Reserve is Getting Desperate06/23/2020Ron Paul In a sign that the Federal Reserve is growing increasingly desperate to jump-start the economy, the Fed’s Secondary Market Credit Facility has begun purchasing individual corporate bonds. The Secondary Market Credit Facility was created by Congress as part of a coronavirus stimulus bill to...In a sign that the Federal Reserve is growing increasingly desperate to jump-start the economy, the Fed’s Secondary Market Credit Facility has begun purchasing individual corporate bonds. The Secondary Market Credit Facility was created by Congress as part of a coronavirus stimulus bill to purchase as much as $750 billion of corporate credit. Until last week, the Secondary Market Credit Facility had limited its purchases to exchange-traded funds, which are bundled groups of stocks or bonds.The bond purchasing initiative, like all Fed initiatives, will fail to produce long-term prosperity. These purchases distort the economy by increasing the money supply and thus lowering interest rates, which are the price of money. In this case, the Fed’s purchase of individual corporate bonds enables select corporations to pursue projects for which they could not otherwise have obtained funding. This distorts signals sent by the market, making these companies seem like better investments than they actually are and thus allowing them to attract more private investment. This will cause these companies to experience a Fed-created bubble. Like all Fed-created bubbles, the corporate bond bubble will eventually burst, causing businesses to collapse, investors to lose their money (unless they receive a government bailout), and workers to lose their jobs.Under the law creating the lending facilities, the Fed does not have to reveal the purchases made by the new facilities. Instead of allowing the Fed to hide this information, Congress should immediately pass the Audit the Fed bill so people can know whether a company is flush with cash because private investors determined that it is a sound investment or because the Fed chose to “invest” in its bonds.The Fed could, and likely will, use this bond buying program to advance political goals. The Fed could fulfill Chairman Jerome Powell’s stated desire to do something about climate change by supporting “green energy” companies. The Fed could also use its power to reward businesses that, for example, support politically correct causes, refuse to sell guns, require their employees and customers to wear masks, or promote unquestioning obedience to the warfare state.Another of the new lending facilities is charged with purchasing the bonds of cash-strapped state and local governments. This could allow the Fed to influence the policies of these governments. It is not wise to reward spendthrift politicians with a federal bailout—whether through Congress or through the Fed.With lending facilities providing to the Federal Reserve the ability to give money directly to businesses and governments, the Fed is now just one step away from implementing Ben Bernanke’s infamous suggestion that, if all else fails, the Fed can drop money from a helicopter. These interventions will not save the economy. Instead, they will make the inevitable crash more painful. The next crash can bring about the end of the fiat monetary system. The question is not if the current monetary system ends, but when. The only way Congress can avoid the Fed causing another Great Depression is to begin transitioning to a free market monetary system by auditing, then ending, the Fed.Keep ReadingRead CommentsWhen commenting, please post a concise, civil, and informative comment. Full comment policy here "Protestors" Deface Bust of Miguel Cervantes, a Former Slave06/22/2020Ryan McMaken In a bit of ironic vandalism, San Francisco protestors painted "bastard" on a bust of Miguel Cervantes and defaced it in other ways. It's hard to imagine what the motivation was behind attacking the Cervantes bust, beyond, of course, total ignorance of who he even was. Cervantes was a...In a bit of ironic vandalism, San Francisco protestors painted "bastard" on a bust of Miguel Cervantes and defaced it in other ways. It's hard to imagine what the motivation was behind attacking the Cervantes bust, beyond, of course, total ignorance of who he even was. Cervantes was a sixteenth-century writer who penned Don Quixote, possibly the most influential work of Spanish-language literature ever written.Did the protestors even know who Cervantes was? It's impossible to know. Perhaps his "crime" was being a white man, although that is not even known for sure, and Cervantes may have been descended from Spain's large Sephardic Jewish population, as were many Spaniards whose ancestors had been "encouraged" to convert to Christianity in the fifteenth and sixteenth centuries.Crowd beat up on the statue after and tagged it, plus a nearby statue of Cervantes for good measure pic.twitter.com/F7foXW1ez6— Joe Rivano Barros (@jrivanob) June 20, 2020The great irony here, however, is that Cervantes, unlike every person "protesting" his image, knew what it was like to be a slave. As described by Fiona MacDonald for the BBC:In 1575, after fighting in military campaigns against the Turks in the Mediterranean, the Spaniard was captured by Barbary pirates and taken to Algiers. There, he was kept as a slave for five years. When he was freed – with a ransom raised by Trinitarian friars attached to the convent he was to be buried beneath – he had become the man who would write one of the greatest novels in history.“His five-year captivity in Algiers left an indelible impression on his fiction,” Cervantes scholar María Antonia Garcés tells BBC Culture. “From the first works written after his liberation, such as the play Life in Algiers (c. 1581–1583) and his novel La Galatea (1585), to his posthumous book The Trials of Persiles and Sigismunda (1617), the story of this traumatic experience continuously speaks through his work.”Cervantes was just one of countless Europeans enslaved by slave traders (especially the Muslim Barbary pirates) over the centuries, kidnapped in coastal raids by pirates along the coasts of Italy, Britain, Ireland, and the eastern Mediterranean. Saint Patrick, of course, had been enslaved in such a way, by Irish pirates.Such nuances of history, of course, matter nothing to the protestors or indeed to Americans in general. The average American (whether white, black, left, or right) knows about as much about the sixteenth century (or any century before the twentieth) as he knows about the intricacies of astrophysics.So we should not be surprised that the protestors are also vandalizing statues of abolitionists, as happened to a memorial for Philadelphia abolitionist Mathias Baldwin.Keep ReadingRead CommentsWhen commenting, please post a concise, civil, and informative comment. Full comment policy here Germany’s Greatest Philosopher of Freedom 06/22/2020Gary Galles Americans, as a rule, are poorly informed about the vast insights into liberty that some their countrymen have offered them. But moving beyond our borders and language, many know next to nothing. That is why it is valuable to find, in Star Trek lingo, that “undiscovered country” of understanding...Americans, as a rule, are poorly informed about the vast insights into liberty that some their countrymen have offered them. But moving beyond our borders and language, many know next to nothing. That is why it is valuable to find, in Star Trek lingo, that “undiscovered country” of understanding.One of the most valuable foreign sources of libertarian thought comes from Wilhelm von Humboldt. Born June 22, 1767, in Prussia, his book, translated from German into English, titledThe Sphere and Duties of Government (or The Limits of State Action in another translation) was a major work in liberty.Humboldt’s own description of the heart of his book was that “The grand, leading principle, towards which every argument…directly converges, is the absolute and essential importance of human development in its richest diversity.”J.W. Burrow wrote that “Humboldt explores the role that liberty plays in individual development, discusses criteria for permitting the state to limit individual actions, and suggests ways of confining the state to its proper bounds. In so doing, he uniquely combines the ancient concern for human excellence and the modern concern for what has come to be known as negative liberty.” And The Sphere also inspired John Stuart Mill’s On Liberty (though Barrow noted that “many commentators even believe that Humboldt’s discussion of issues of freedom and individual responsibility possesses greater clarity and directness than Mill’s”). In fact, Mill wrote in his Autobiography that “the only author who had preceded me…of whom I thought it appropriate to say anything, was Humboldt.”George Smith wrote that The Sphere was “one of the best defenses of limited-government libertarianism ever written.” It led Friedrich Hayek to call him “Germany’s greatest philosopher of freedom.” Ralph Raico wrote that Humboldt came to “passionately defend personal liberty,” which led him to ask, “To what end ought the whole apparatus of the state to aim, and what limits ought to be set to its activity?” What was his answer? “The one good which society cannot provide for itself is security against those who aggress against the person and property of others.” As a result, “the provision of security, against both external enemies and internal dissensions must constitute the purpose of the state, and occupy the circle of its activity.” But “for the [other] services which it is commonly held must fall within the scope of government action…Humboldt believes that they need not be provided by political institutions, but can safely be entrusted to social ones” (a theme strongly echoed by Albert Jay Nock). Humboldt’s approach also infused Leonard Read’s work at the Foundation for Economic Education, with its central focus on enabling individual growth or “blooming.”Even though The Sphere was first published in its entirety in 1850, and first translated into English in 1854, long after Humboldt’s death, few American writers can claim a closer connection to America’s revolutionary era. Humboldt was born in 1767, just ten days before the British passed the Townsend Acts, a major impetus toward our revolution. He completed the book in 1792, when George Washington won a second term. Much of his adult life overlapped that of James Madison (Humboldt died one year before him), whose efforts dealt with related themes. Further, few works have better caught the spirit of liberty that infused our revolution.Consider a selection of Humboldt’s insights below as food for thought.“Inquiry into the proper aims and limits of State agency [is]…more vitally momentous than any other political question.”“The due limits of State agency must conduct us to an ampler range of freedom.”“The freedom of private life always increases in exact proportion as public freedom declines.”“The highest ideal…consist[s] in a union in which each strives to develop himself from his own inmost nature, and for his own sake.”“Reason cannot desire for man any other condition than that in which each individual…enjoys the most absolute freedom of developing himself by his own energies, in his perfect individuality…restricted only by the limits of his powers and his rights.”“State measures…accustom men to look for instruction, guidance, and assistance from without, rather than to rely upon their own expedients.”“In proportion as each individual relies upon…the State, he learns to abandon to its responsibility the fate and wellbeing of his fellow-citizens.”“Men are not to unite themselves together in order to forego any portion of their individuality.”“The State, in its positive solicitude for the external and physical well-being of the citizen, cannot avoid creating hindrances to the development of individuality….[S]uch a solicitude should not be conceded to it.”“The whole argument conducts us [to] the necessity of securing the consent of every individual.”“The more a man acts for himself, the more does he develop himself.”“Now, without security, it is impossible for man either to develop his powers, or to enjoy the fruits of his exertion; for, without security, there can be no freedom.”“The State…is not to meddle in anything which does not refer exclusively to security.”“The State may not attempt to act upon the citizen’s peculiar condition with any reference to positive ends.”“The citizens of a State [are] secure, when, living together in the full enjoyment of their due rights of person and property, they are out of the reach of any external disturbance from the encroachments of others.”“The State…is not to withhold a man from the free exercise of his chosen pursuit because he has not submitted himself to its tests of capability.”“The less a man is induced to act otherwise than his wish suggests or his powers permit, the more favorable does his position as a member of a civil community become.”“The manifold and ever-varying plans and wishes of individual men are to be preferred to the uniform and unchangeable will of the State.”“Secure a due regard to the rights of others.”“The nation can accomplish [many important objects] as effectually and without incurring the evils which flow from State interference.”“Fatal consequences…flow for human enjoyment, power, and character, from confounding the free activity of the nation with that which is enforced upon its members.”“The government whose activity we have so narrowly circumscribed does not stand in need of such abundant sources of revenue.”“The grand point to be kept in view by the State is the development of the powers of all its single citizens in their perfect individuality.”As Ralph Raico summarized The Sphere and Duties of Government, “Humboldt shows himself to be a thoughtful but passionate believer in the efficacy of truly social forces, in the possibility of great social ends being achieved without any necessity for direction on the part of the state.”That is something our current age, in which the presumed sphere of government extends to virtually everything, would profit from remembering. And for those interested in reading further, more of his insightful words can be found here and here.Keep ReadingRead CommentsWhen commenting, please post a concise, civil, and informative comment. Full comment policy here QJAE Vol. 22, No. 4 (Winter 2019) and Vol. 23, No. 1 (Spring 2020) Are Now Online06/19/2020Mises Institute Two new issues of the Quarterly Journal of Austrian Economics are now available online. Vol. 22, no. 4 features an article by Dr. Mark Thornton on an unpublished note from the early 1960s by Murray Rothbard on the economics of antebellum slavery. Other highlights include a response by Dr...Two new issues of the Quarterly Journal of Austrian Economics are now available online.Vol. 22, no. 4 features an article by Dr. Mark Thornton on an unpublished note from the early 1960s by Murray Rothbard on the economics of antebellum slavery. Other highlights include a response by Dr. Joseph Salerno to Dr. Karl-Friedrich Israel on the wealth effect and the law of demand, as well as a book review from Dr. David Gordon of Janek Wasserman's book The Marginal Revolutionaries: How Austrian Economists Fought the War of Ideas.Vol 23. no. 1 includes an interesting look by Dr. Mark A. DeWeaver at extending Austrian business cycle theory to the command economy, demonstrating that Mises’s socialist commonwealth would not be free from Rothbardian error cycles. Other notable articles include a critique of intellectual property by Dr. Jakub Bożydar Wiśniewski, a tribute to Oskar Morganstern from Dr. Richard Ebeling, and a response from Márton Kónya to the economic analysis of The People’s Republic of Walmart.Volume 22, no. 4 (Winter 2019)Articles:An Overlooked Scenario of “Reswitching” in the Austrian Structure of Productionby Er’el GranotThe Macroeconomic Models of the Austrian School: A History and Comparative Analysisby Renaud FillieuleRothbard on the Economics of Slaveryby Mark ThorntonNotes and Replies:The Wealth Effect and the Law of Demand: A Comment on Karl-Friedrich Israelby Joseph T. SalernoA Note on Some Recent Misinterpretations of the Cantillon Effectby Arkadiusz SierońThe Relevance of Bitcoin to the Regression Theorem: A Reply to Lutherby George PickeringBook Reviews:Narrative Economics: How Stories Go Viral and Drive Major Economic Eventsby Robert J. ShillerReviewed by Brendan BrownIndebted: How Families Make College Work at Any Costby Caitlin ZaloomReviewed by Jeffrey DegnerThe Bitcoin Standard: The Decentralized Alternative to Central Bankingby Saifedean AmmousReviewed by Kristoffer M. HansenBeyond Brexit: A Programme for UK Reformby The Policy Reform GroupReviewed by George PickeringProsperity and Liberty: What Venezuela Needs…by Rafael Acevedo, ed.Reviewed by David GordonEconomics in Two Lessons: Why Markets Work So Well, and Why They Can Fail So Badlyby John QuigginReviewed by David GordonThe Marginal Revolutionaries: How Austrian Economists Fought the War of Ideasby Janek WassermanReviewed by David GordonRemembering:Remembering Ulrich Fehl, German Economist and Prominent Scholar with a Deep Knowledge of Austrian Economicsby Peter EngelhardVolume 23, no. 1 (Spring 2020)Articles:Discovering Marketsby Marius Kleinheyer and Thomas MayerBeyond Calculation: The Austrian Business Cycle in the Socialist Commonwealthby Mark A. DeWeaverOn the Impossibility of Intellectual Propertyby Jakub Bożydar WiśniewskiPlanned Economy and Economic Planning: What The People’s Republic of Walmart Got Wrong about the Nature of Economic Planningby Márton KónyaBook Reviews:Ribatarianizumu: Amerika wo yurugasu jiyūshijōshugi (Libertarianism: The Ultrafreedomism Shaking Up America, published only in Japanese)by Yasushi WatanabeReviewed by Jason MorganUnprofitable Schooling: Examining Causes of, and Fixes for, America’s Broken Ivory Towerby Todd J. Zywicki and Neal P. McCluskey (ed.)Reviewed by Jason MorganAmerican Bonds: How Credit Markets Shaped a Nationby Sarah L. QuinnReviewed by Patrick NewmanThe Economists’ Hour: False Prophets, Free Markets, and the Fracture of Societyby Binyamin AppelbaumReviewed by David GordonThe Great Reversal: How America Gave Up on Free Marketsby Thomas PhilipponReviewed by David GordonSocialism Sucks: Two Economists Drink Their Way through the Unfree Worldby Robert Lawson and Benjamin PowellReviewed by David GordonBanking and Monetary Policy from the Perspective of Austrian Economicsby Annette Godart-van der Kroon and Patrik Vonlanthen (ed.)Reviewed by Joseph T. SalernoRemembering:Remembering Oskar Morgansternby Richard EbelingThe Quarterly Journal of Austrian Economics is also available on Scholastica.If you are interested in submitting an article to the QJAE, learn more here.Keep ReadingRead CommentsWhen commenting, please post a concise, civil, and informative comment. Full comment policy here Fed Accountability Is a Farce06/19/2020Robert Aro The Fed claims they are “accountable to the public and the U.S. Congress.” But what good is accountability if the public and Congress have little understanding of what the Fed does? Even worse, if no one has the power to stop the inflationary actions of the Fed, what good are the...The Fed claims they are “accountable to the public and the U.S. Congress.” But what good is accountability if the public and Congress have little understanding of what the Fed does? Even worse, if no one has the power to stop the inflationary actions of the Fed, what good are the accountability measures in place?This week, Chair Jerome Powell addressed Congress and provided the June Monetary Policy Report. The process of testifying before Congress is very much farcical, because what the Fed says has no bearing on what the Fed does. We can assume that few members of Congress actually understand monetary economics. But what if many of them did, as well as the general public? Could the Fed really get away with all of this?Reviewing the chair’s testimony to Congress reveals how little the Fed and Congress know about economics and illustrates how ineffective testimony before Congress really is.In his speech, Powell lists many of the lending programs (Paycheck Protection Program, Main Street Lending Program, and Term Asset-Backed Securities Loan Program), but when it came to corporate bond–buying programs, all he offered was:To support the employment and spending of investment-grade businesses, we established two corporate credit facilities.Like a teenager trying to hide purchases made on a parent’s credit card, he did not explicitly list the Primary and Secondary Corporate Credit Facilities by name. He only said “two corporate credit facilities,” the only two the Fed has. How issuing debt to corporations or trading their bonds on the stock exchange supports employment or spending is anyone’s guess. What does it matter, anyway? Even if he said that $750 billion may go to buy corporate bonds, who would stop them?He moved from vagueness to deception quickly with the statement:The tools that the Federal Reserve is using under its 13(3) authority are appropriately reserved for times of emergency. When this crisis is behind us, we will put them away.What will the Fed say ten years from now, when “the crisis” is long behind us but the Fed is still using these emergency lending facilities? Or is the crisis not meant to end?Powell then cited the economic report:As described in the June Monetary Policy Report, these purchases have helped restore orderly market conditions and have fostered more accommodative financial conditions. As market functioning has improved since the strains experienced in March, we have gradually reduced the pace of these purchases.We have yet to get details on an “orderly market” or “accommodative financial conditions,” but it’s safe to say that neither the Fed nor Congress really knows what this means.Chair Powell is not the only central banker who seems to have never read Mises. Vice Chair Richard Clarida also discussed monetary policy this week in a speech,  noting:To me, price stability requires that inflation expectations remain well anchored at our 2 percent objective, and I will place a high priority on advocating policies that will be directed at achieving not only maximum employment, but also well-anchored inflation expectations consistent with our 2 percent objective.Of course, unpacking the issue with a “2% inflation” and “maximum employment” objective would require effort to understand and refute. We can only imagine how few members of society have actually done this.Just like his boss, the vice chair also stressed how temporary the new programs will be:these are, after all, emergency facilities, and someday—hopefully soon—the emergency will pass.Unfortunately, whether “emergency” or not, we can be sure of one thing: the Fed’s balance sheet can never decrease again, as it will lead to “liquidity” and other unbecoming issues of a nonfunctioning market—stock market decline, a decrease in the price of bonds, rising interesting rates, etc. We’ve crossed the rubicon.Accountability means nothing if those you are accountable to have little understanding of what you say or the ability to affect the outcome. Few elected officials, or anyone in a position of power, have either of the two.Keep ReadingRead CommentsWhen commenting, please post a concise, civil, and informative comment. Full comment policy here The Fed Is Now Buying Corporate Bonds, Just As We Knew It Would06/17/2020Robert Aro The stock market rejoiced on Monday with stories such as this CNBC “breaking news” headline: The Fed says it is going to start buying individual corporate bonds. But here’s the interesting thing: this isn’t actually “news.” The Fed’s announcement and the various...The stock market rejoiced on Monday with stories such as this CNBC “breaking news” headline:The Fed says it is going to start buying individual corporate bonds.But here’s the interesting thing: this isn’t actually “news.”The Fed’s announcement and the various mainstream media releases that followed didn’t offer much of anything we didn’t already know. In fact, we’ve noted the $750 billion bond buying program in several previous articles. We see that on the Fed’s weekly statistical release on May 14 it was noted that the financial statements were modified to include the Primary Market Corporate Credit Facility (PMCCF) and Secondary Market Corporate Credit Facility (SMCCF):These facilities operate through the Corporate Credit Facility LLC (CCF LLC), a special purpose vehicle that was formed to support credit to employers through bond and loan issuances and to provide liquidity to the market for outstanding corporate bonds.As noted above, the CCF LLC is where the purchases of corporate bonds and bond exchange-traded funds (ETFs) will be held on the Fed’s balance sheet. The program started with the first purchase last month and has been growing since. The balance now stands at $37 billon per last week’s release.The difference between the two programs is not slight, as the PMCCF funds indicate that money is being created and lent directly to corporations while with the SMCCF money will be created to buy bonds from existing investors. When announcements of new money programs are made, markets seem to rally. But what of the negative effects which come with this credit expansion? Should the risk of bond default, trading losses, interest rate risk, propping up “zombie companies,” and countless other effects not be addressed by the Fed? What the Fed thinks about this remains unclear, as the usual “crisis,” “credit,” and “liquidity” buzzwords appear to be more important than anything negative that comes from these lending schemes.Chair Powell presented the "Semiannual Monetary Policy Report to the Congress," where he shared his thoughts about the virus, job loss, the downturn, and the importance of the flow of credit, noting:If not contained and reversed, the downturn could further widen gaps in economic well-being that the long expansion had made some progress in closing.Ironic, since the Fed’s actions have done more for inequality than the virus ever could. Like the virus, the Fed’s actions should be “contained and reversed.” If not, we will watch as more Fed programs spread across the countryside, destroying both wealth and our future in the process under the guise of trying to alleviate a crisis which can hardly be articulated. Whatever is required to stop the Fed will not come from mainstream economists nor the media. But something must be done! Until that time, the “economic well-being” gap will continue to widen.Keep ReadingRead CommentsWhen commenting, please post a concise, civil, and informative comment. Full comment policy here MMT Confusion on Saving and Investment06/17/2020Arkadiusz Sieroń A main thesis of modern monetary theory (MMT) is that fiscal deficits are not a problem. On the contrary, they create financial assets for the private sector (in a closed economy, a public sector deficit equals a private sector surplus). Moreover, if the government can always create money to...A main thesis of modern monetary theory (MMT) is that fiscal deficits are not a problem. On the contrary, they create financial assets for the private sector (in a closed economy, a public sector deficit equals a private sector surplus). Moreover, if the government can always create money to cover its expenses, there is no need to fuss about government deficits. The pursuit of a balanced budget is, according to MMT supporters, completely misguided.Ultimately, from an accounting point of view, public debt is a financial asset of the nonpublic sector, while, as L. Randall Wray’s writes in Modern Monetary Theory: A Primer on Macroeconomics for Sovereign Monetary Systems, “government deficits equal non-government’s surpluses, generating income that can be saved.”This claim is very Machiavellian. From an accounting point of view, everything is correct, strictly speaking. The deficit in one place must equal the surplus in another. Conversely, governments can get into debt only if citizens put aside some savings that they agree to pass on to the government. At first glance this may sound fairly reasonable.This sort of accounting, however, obscures the economic nature of events and tells us nothing about causality. We can change the definitions of our accounting terms all we want, but that still won’t mean that government deficits can produce prosperity.We also encounter MMT confusion when it comes to the interpretation of budget surpluses. According to Wray, the Clinton administration’s budget surpluses were “just the flipside to the private sector’s deficit spending.” That is, they were simply a side effect of private sector deficit-financed expenditure. However, it is unclear how the private sector could be indebted to the government, which shows that this whole approach is highly suspicious.Indeed, the supporters of MMT once again redefine the basic terms. As Robert Murphy notes, “when MMTers speak of ‘net saving,’ they don't mean that people collectively save more than people collectively borrow. No, they mean people collectively save more than people collectively invest.”Murphy continues:the MMTers are certainly correct when they observe that “private saving net of private investment” can't grow without a government budget deficit (again if we disregard foreign trade). But so what? The whole benefit of private saving is that it allows for more private investment.By redefining “net saving” in this way, MMTers are ignoring the primary source of wealth creation, i.e., investments (and an increase in the market value of assets). Of course, any definition can be used, but the supporters of the MMT have chosen one that suggests that the government must have a deficit for the private sector to increase its net savings. The fact that any debtor’s obligation means a creditor’s claim is irrelevant to the basic fact that the private sector can increase its savings and assets even in a situation without a government deficit.The above analysis clearly shows that MMT is largely based on semantic manipulations and using definitions different from generally accepted ones. However, when you get through this conceptual chaos, you see clearly what the MMT is all about. The whole theory seems to exist only to justify higher government spending and larger budget deficits (it is no coincidence that Congresswoman Alexandria Ocasio-Cortez or Senator Bernie Sanders refer to the MMT when asked about the source of funding for the Green New Deal or universal healthcare and free higher education).Let’s give the floor to Wray himself (p. 8):Imagine how the policy discourse will be changed when our President could no longer claim that “Uncle Sam has run out of money”; when our government can no longer refuse to create jobs, or to build better infrastructure, or to put astronauts on Mars because of lack of funds.For the supporters of MMT, the government is almost a divine institution that creates money with its expenses and does not have to worry about this dismal economics and the limitations of its laws. Government deficits are not bad and do not lead to a crowding-out effect and interest rate increases. On the contrary, in the MMT view, deficits lead to decreases in interest rates, because they increase the amount of bank reserves; they also allow the private sector to accumulate wealth. As long as it issues its own currency, the government has virtually no financial restrictions. Limitations exist only in the minds of politicians and orthodox economists—we can afford much more; we can finally have full employment!It is not surprising, therefore, that the MMT has recently gained despite its theoretical problems. The controversial program that turns the whole of economics on its head, promising full employment, must attract public attention, especially in times of economic crisis. Let’s hope, however, that this popularity will not prove permanent and MMT will be abandoned.Keep ReadingRead CommentsWhen commenting, please post a concise, civil, and informative comment. Full comment policy here Drudge Report, RIP06/16/2020Ryan McMaken Like many people, there was once a time when I visited the Drudge Report multiple times per day. Drudge often had a fun mix of contrarian articles and unusual viewpoints that were hard to find without its help as a curator of articles. But in recent years, the site has become more...Like many people, there was once a time when I visited the Drudge Report multiple times per day. Drudge often had a fun mix of contrarian articles and unusual viewpoints that were hard to find without its help as a curator of articles.But in recent years, the site has become more or less indistinguishable from a standard mainline legacy media site. It has consistently carried articles and headlines that promote Russiagate hysteria and pro-FBI, pro-CIA positions.To a certain extent, this wasn't shocking, since the site has always been bad on foreign policy and had a neoconservative slant in that respect.But now the Drudge Report consistently leans in favor of COVID lockdowns and promotes panic, authoritarianism, and generally pushes crisis porn on a daily basis. It is now, for all practical purposes, a sister site to CNN.com or The Atlantic.The only aspect of the site that remains unchanged is its devotion to carrying lurid stories on the topics of pornography, brothels, and Hollywood gossip. Rarely does a week go by, for example, when the Drudge Report doesn't carry at least one new headline on sex with robots, or perhaps robot brothels. These headlines historically were good for a laugh. But now these headlines, never actually worth a click, are just side by side with standard mainstream media headlines that parrot the views of the CDC, the WHO, or some other group of government "experts."  In other words, the joke headlines aren't valuable enough in themselves to warrant a visit to the site anymore.Why did this happen?Some claim that Matt Drudge sold the site to others and new editors have taken over. I have no idea if this is the case. It's entirely possible that Drudge is still the editor but is phoning it in. After all, the problem may simply be that he's just getting old and lacking in ideas. He may have just lost his touch.Either way, it's now safe to ignore the the Drudge Report as a source of any "alternative," rare, or unusual viewpoints. You'd get pretty much the same content going straight to the Washington Post. Keep ReadingRead CommentsWhen commenting, please post a concise, civil, and informative comment. 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