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Against Economics

• jeffdavis 7y ago
  "...government borrowing didn’t divert funds from the private sector; it created entirely new money..." The general answer to this is that public spending crowds out private spending as both are bidding for the same goods and services. Not sure if that's a good explanation, but the article doesn't seem to address that conventional wisdom.
• diego 7y ago
  This article lost me at "printing money does not cause inflation." How would that be possible? The only answer would be that money is increasing in value for some reason, and the government must print more to keep prices stable (otherwise they would fall). Even then, it would be a technicality.
  • donatj 7y ago
    Yup, came here to make the same complaint. The article just throws that out there as fact with no justification or citation. Just need to look at what's going on in Venezuela, right now. Increased supply of anything lowers it's value.
    • lordnacho 7y ago
      > Increased supply of anything lowers it's value. Network goods? Are telephones more valuable when more people have them? Road networks? Just pointing out that many things in economics are not so obvious. You're right that you need to cite things that go against the orthodoxy. At least to have sane debates. But of course he could have cited the current money printing era, where if you believe the official figures there's not a lot of inflation anywhere in the west. I'm not so confident in the figures, but that's at least some evidence that printing a load of money doesn't cause inflation.
      • beerandt 7y ago
        I know there's an economic element to networks, but in the context of what we're talking about, more people having a telephone is a measure of the products quality, not supply. Capacity of the network would equal supply. Right? Unless I'm grossly missing something.
        • IggleSniggle 7y ago
          The value of a single phone is zero, 2 phones grants each owner the ability to contact one person (2 units of value total), 3 grants 3 owners 2 each (6), 4 -> 3 (12), 5->4 (20). In other words, increasing the size of the network multiplies the value of the entire network by that amount (factorial). In a phone network, there are a few different tipping points where the _ubiquity_ adds additional value. At a certain point, having a phone is worthwhile because everyone you could possibly want to talk to also has one. (this is also why I still have an account on Facebook). The same can be said of a currency network. It becomes more valuable the more people you can exchange it with. People using US dollars outside the US gain value from knowing they have a trusted "stable third party" currency, and at the same time US dollars become more value to citizens of the US because they can now use that currency for purchases in that other country. Having 20 phones with one owner is practically worthless, even though the network capacity is theoretically high. Distributing those phones among twenty people is what generates the real value. But you can't really distribute 20 phones equally among 200 people. You need sufficient saturation of currency for its distribution to be of any real value, because you need enough quantity to be able to use it to do its job as a holder of arbitrary value exchange.
          • beerandt 7y ago
            I appreciate the response. I get that... (I think) I just don't get why that necessarily has anything to do with supply itself. It has to do with the distribution, and as a result, the quality or utility of the network. As you said, one person having 20 phones is off dubious value, but 20 additional people with phones might increase the network's quality. The supply (20) is independent of the resulting quality/saturation/useful node count. On the other hand, increased nodes could be seen as a negative. Like the US-Russia hotline. Or Facebook after it opened up to users without college email accounts. Sometimes supply might affect the quality of a network, and therefore the value of having a node (phone) on that network. But to say supply increases with demand is misleading, to me. Increased quality increases demand, at a rate greater than the rate demand is decreased due to increased supply. If supply happens to increase quality, then yes supply might dominate the equation such that demand increases as supply increases. But that doesn't mean the fundamental relationship between supply and demand has changed, it's just been minimized for particular cases. Or maybe I'm just getting confused by transitive semantics.
    • fzeroracer 7y ago
      If we take the opposite of your logical argument, then lessened supply of anything increases it's value. That's a logical proposition stemming from your original thesis. Now let's try applying that to bus networks. The more busses we have on the road, the less they're worth. If we reduce the supply of busses, then busses will be more valuable. But this ignores the network effects of increasing the supply of something. If we increase the supply of busses, then we also increase the demand for busses and the value of busses through increased ridership. A single bus is worthless, but a fleet of busses is valuable to a community.
      • beerandt 7y ago
        I honestly don't get these network arguments. The market isn't for seats on buses, it's for timely transportation. The quality of the transportation affects the value. Which in the case of buses, more buses equals a better, more frequent and readily available product. The number of seats isn't the limiting factor. It's just a side effect of somewhat standardized bus sizes. Am I missing something?
    • pjc50 7y ago
      Venezuela is a great example that hyperinflation, or substantial consumer price inflation, is mostly a forex phenomenon, and in turn a balance of trade problem. Because you can't print other countries' money. Venezuela is a disaster because its export industries collapsed, and it doesn't have the advantage that western countries have of being an inward investment destination. So all sorts of things have to be imported, and the dollars needed to import them become increasingly scarce. Printing money is a symptom. If the presses stopped then all that would happen is that paper money would become increasingly scarce as well as worthless.
    • trcarney 7y ago
      I think you conflated value and price. Increased supply of anything lowers it's price not it's value. For example, oxygen is extremely valuable, can't live without it, but it is also very abundant. Therefore, its price is $0 almost everywhere. When you go to a ski resort, where the air is much thinner, there then becomes a market for oxygen and the price goes up[0]. The price changed with supply, not the value. [0] https://www.oxygenplus.com/blogs/articles/why-oxygen-plus-is-the-must-have-ski-and-snowboarding-accessory https://www.oxygenplus.com/blogs/articles/why-oxygen-plus-is...
    • littlestymaar 7y ago
      Because it's pretty clear to anyone close to economics. Nobody is monetarist nowadays, because data shows they were simply wrong [1]. The monetarist pitch was sexy because it sounded intuitive and elegant, that's why it spread so broadly. But it's worthless. Too bad for elegance and intuitiveness, if the reality doesn't match your model, you must throw it away. > Increased supply of anything lowers it's value. It doesn't work this way for money. otherwise,how would you explain that Euro isn't getting cheaper in dollar since 2015 when BCE is injecting billions of Euros on the market while the US has stopped QE for a while? [1] https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-inflation/ https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-infl...
  • aaronbwebber 7y ago
    No, that is not the only answer. There is at least one other possibility, which is that the demand for money is increasing.
    • diego 7y ago
      Well, if the demand for money is increasing and the supply is stable, then the value increases. Definition of supply and demand.
      • nlfwhulsdhouv 7y ago
        Interestingly, you're doing exactly what the article is criticizing. The orthodoxy of "everything is supply and demand" has failed to predict many recent, important macroeconomic phenomenon. On the hand, the heterodox economists that draw from a variety of traditions and ideologies have had a reasonable success rate with predicting some of these important events; yet they are still treated as crackpots. The reality is orthodox economics is just one theory of politics and the organization of society, which sometimes applies and sometimes doesn't. Treating everything as just "[the] definition of supply and demand" forgoes observing interesting and important phenomenon that seemingly work in opposition to or independent of supply and demand. Ignoring these phenomenon restricts your ability to understand and predict macroeconomic effects, and degrades your legitimacy as a 'science'.
        • throw0101a 7y ago
          > The orthodoxy of "everything is supply and demand" has failed to predict many recent, important macroeconomic phenomenon. Can you give some examples of these many unpredicted phenomenon?
          • nlfwhulsdhouv 7y ago
            Here I found a good article about it: https://www.nybooks.com/articles/2019/12/05/against-economics/ https://www.nybooks.com/articles/2019/12/05/against-economic...
  • CharlesColeman 7y ago
    > "printing money does not cause inflation." How would that be possible? I haven't read this particular article, but I've read elsewhere that traditional tools used by central banks to increase inflation are being observed to empirically no longer work. I understand many of these techniques are analogous to "printing money" in a controlled way. That points to failures in their models of the economy and of inflation. I also think I've read that at least some of the reason for this may be higher than expected levels monopoly-type powers active in the economy that conspire to keep prices and wages, and therefore inflation, down. My recollection is hazier on this part. Edit: this might be the article I was thinking of: Are Superstar Firms and Amazon Effects Reshaping the Economy?: The biggest companies may be influencing things like inflation and wage growth, possibly at the expense of central bankers’ power to do so. https://www.nytimes.com/2018/08/25/upshot/big-corporations-influence-economy-central-bank.html https://www.nytimes.com/2018/08/25/upshot/big-corporations-i... > Two of the most important economic facts of the last few decades are that more industries are being dominated by a handful of extraordinarily successful companies and that wages, inflation and growth have remained stubbornly low. > Many of the world’s most powerful economic policymakers are now taking seriously the possibility that the first of those facts is a cause of the second — and that the growing concentration of corporate power has confounded the efforts of central banks to keep economies healthy. > Mainstream economists are discussing questions like whether “monopsony” — the outsize power of a few consolidated employers — is part of the problem of low wage growth. They are looking at whether the “superstar firms” that dominate many leading industries are responsible for sluggish investment spending. And they’re exploring whether there is an “Amazon Effect” in which fast-changing pricing algorithms by the online retailer and its rivals mean bigger swings in inflation.
    • throw0101a 7y ago
      > I haven't read this particular article, but I've read elsewhere that traditional tools used by central banks to increase inflation are being observed to empirically no longer work. I understand many of these techniques are analogous to "printing money" in a controlled way. There are circumstances where printing money does increase inflation.... and circumstances where it does not: > When short-term interest rates reach zero, further monetary easing becomes difficult and may require unconventional monetary policy, such as large-scale asset purchases (quantitative easing). * https://www.brookings.edu/blog/ben-bernanke/2017/04/12/how-big-a-problem-is-the-zero-lower-bound-on-interest-rates/ https://www.brookings.edu/blog/ben-bernanke/2017/04/12/how-b... * https://en.wikipedia.org/wiki/Zero_lower_bound https://en.wikipedia.org/wiki/Zero_lower_bound It should be noted that central banks are not omnipotent: they do have some influence, but they do not have all the influence. When governments enact austerity, which depresses demand and economic activity, thus reducing inflationary tendencies, they are working at cross-purposes to the central banks. After the Great Recession we saw central bankers cut rates, but governments cut spending, thus the two cancelling each other out to a certain extent.
  • afterburner 7y ago
    The US "printed money" after 2008, and it did not cause inflation. Maybe your understanding is wrong.
    • throw0101a 7y ago
      The printing-money-will-not-cause-inflation was predicted by Keynesians: > Suddenly it seems as if everyone is talking about inflation. Stern opinion pieces warn that hyperinflation is just around the corner. And markets may be heeding these warnings: Interest rates on long-term government bonds are up, with fear of future inflation one possible reason for the interest-rate spike. > But does the big inflation scare make any sense? Basically, no — with one caveat I’ll get to later. And I suspect that the scare is at least partly about politics rather than economics. * https://www.nytimes.com/2009/05/29/opinion/29krugman.html https://www.nytimes.com/2009/05/29/opinion/29krugman.html The economic models said that the Fed should have decreased interest rates until they reached -6.7% (i.e., well below zero), but this that was impractical, the next-best thing was flood the market with cash equivalent, and that inflation would not appear: * https://krugman.blogs.nytimes.com/2009/11/16/the-madness-of-the-inflation-hawks/ https://krugman.blogs.nytimes.com/2009/11/16/the-madness-of-... > It seemed totally obvious to many people that with the Fed adding to the monetary base at breakneck speed, high inflation just had to be around the corner. That’s what history told us, right? > Except that those who knew their Hicks declared that this time was different, that in a liquidity trap the rise in the monetary base wouldn’t be inflationary at all (and that the relevant history was from Japan since the 1990s and from the 1930s, which seemed to confirm this claim). And so it proved, as shown by the red marker down at the bottom. * https://krugman.blogs.nytimes.com/2015/05/17/money-inflation-and-models/ https://krugman.blogs.nytimes.com/2015/05/17/money-inflation... > According to mainstream theory, among the characteristics of a liquidity trap are interest rates that are close to zero and changes in the money supply that fail to translate into changes in the price level.[2] * https://en.wikipedia.org/wiki/Liquidity_trap https://en.wikipedia.org/wiki/Liquidity_trap The [2] is a 1998 paper by Krugman talking about Japan. So ten years before the Great Recession there were already models on how to think about increasing M2 from other countries' experiences.
      • afterburner 7y ago
  • djokkataja 7y ago
    There are multiple cases where an increase in money supply doesn't lead to inflation; the United States in recent years comes to mind: "A good example is in a recession, the stock of money may rise 5%, however, people will be making fewer transactions and therefore the velocity of circulation will fall. This explains why quantitative easing (increasing the money supply) did not cause inflation between 2009 and 2016." [0] The article I link below contains 3 more examples: [0] https://www.economicshelp.org/blog/111/inflation/money-supply-inflation/ https://www.economicshelp.org/blog/111/inflation/money-suppl...
    • marcusverus 7y ago
      You are arguing that this is sometimes true. The author was clearly arguing that it is generally true: "We now live in a different economic universe than we did before the crash. Falling unemployment no longer drives up wages. Printing money no longer causes inflation." He is stating that we are in a different universe, with the clear implication being that the following items, which he does not qualify, are the new reality.
      • deleted 7y ago
        [deleted]
      • rayiner 7y ago
        I cannot stress enough that the author, David Graeber, is a professor of anthropology.
      • corporate_shi11 7y ago
        He is referring to QE not causing inflation. The truth is that it did cause inflation, but in asset prices not consumer goods.
        • bildung 7y ago
          But gains in asset prices are not inflation. Inflation is per definition the rise of prices in consumer goods.
  • viburnum 7y ago
    There’s been a huge increase in the money supply around the world since the GFC and hardly any inflation. This should not be a surprise because monetarism already failed as soon as it was tried 35 years ago. Simple models of the price level do not work. Output, trade, interest rates, investment, consumption, conflict between capital and labor, it all matters.
    • hogFeast 7y ago
      The point wasn't to cause inflation but to stop deflation. This is a mistake that people almost always make with economics: failing to understand the decision contemporaneously. By the metrics under which it was conceived, it had the intended effect (although some unfortunate side-effects...as ever).
  • Turing_Machine 7y ago
    > The only answer would be that money is increasing in value for some reason, and the government must print more to keep prices stable (otherwise they would fall). Even then, it would be a technicality. I don't think that's a technicality at all, but rather the norm in an expanding economy. In such a case the supply of money must increase in order to maintain stable prices. More stuff to purchase requires more money to purchase it. Inflation occurs when the supply of money increases faster than the amount of goods and services available for purchase, or if the money supply remains the same, but the goods and services available somehow decrease (for instance, after a lost war or natural disaster). Deflation occurs when the supply of goods and services increases faster than the amount of money, or when the supply of money decreases with the goods and services remaining the same. We've seen a lot of bad inflation in recent history, but it's not often appreciated that deflation can be equally ruinous. The Great Depression is an example of what you get if deflation gets out of hand. The prices for everything from stocks and bonds to apples and wheat plummeted, but it sure didn't lead to a consumer's paradise.
  • afpx 7y ago
    I think he means that printing money doesn’t change supply and demand curves. It only lowers the value of the money that one already has. For example, if one government prints more money, it doesn’t cause Global inflation. It just makes one country’s money worth less.
  • jmcqk6 7y ago
    Are you asking theoretically or empirically? Because using actual events from history, it's true that printing money may not cause inflation. When theory fails to describe reality, the failure is in the theory, not reality.
  • tuberelay 7y ago
    If you print money and then give it all to big banks who use it to ramp up the price of equities, it never really reaches the average person for them to be able to ramp up the price of the basket of things which CPI measures. Inflation here is seen in the stock market tripling, but that isn't included in government measures.
    • QuesnayJr 7y ago
      Because it's not inflation. It would be an asset bubble. Except it's not even that -- the P/E ratio on stock is high now because the economic news has been good, but it's nowhere near dotcom bubble levels (https://www.multpl.com/s-p-500-pe-ratio https://www.multpl.com/s-p-500-pe-ratio).
    • Zarath 7y ago
      I don't know, I mean, things like rent and healthcare costs seem to be increasing at runaway speeds. I'm sure lots of other things are too, just not TVs or whatever.
  • deleted 7y ago
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  • cortesoft 7y ago
    I remember hearing about new economic theory that talks about inflation being related to latent productive capacity. If, for example, a factory is only producing at half capacity because there is not enough people with money to buy their product, they can simply increase production if more money is put into the system without raising prices. It is only once a factory is at full capacity that it would raise prices to match the supply/demand curve. Our modern economies have a lot of latent capacity, especially since so much of our economy these days does not have a lot of raw materials involved. More Netflix subscribers don't use much more raw materials to serve them. We are not limited by things like oil and iron anymore, so we don't hit supply issues which cause inflation.
    • QuesnayJr 7y ago
      This is basically Keynesianism, which is the leading paradigm in macroeconomics. The challenge is knowing how much excess capacity there is in the economy. Unemployment is 3.6%, so I would guess not a lot, but I could be wrong.
  • deleted 7y ago
    [deleted]
  • nullc 7y ago
    > This article lost me at "printing money does not cause inflation." How would that be possible? Consider the equation of exchange (https://en.wikipedia.org/wiki/Equation_of_exchange https://en.wikipedia.org/wiki/Equation_of_exchange): MV = PQ. The amount of money (M) can be increased without prices (P) going up so long as either the velocity (V) of money goes down or the economy (Q) becomes larger.
    • Zarath 7y ago
      Just off the top of my head, if money supply increases at the same rate as human population growth, it seems like inflation should remain constant?
      • nullc 7y ago
        Yes, to a super vague hand-wavy level (which all this sort of economics is..)-- e.g. ignoring that not all persons are equal in the economy.
  • littlestymaar 7y ago
    Interestingly enough, the Monetarist view, which link between inflation and money creation is mostly a myth that was debunked long ago[1] (if you look at the history of the US since the 60s you'd see that this «hypothesis» doesn't hold, neither in short terms nor in long terms). But it was so obviously intuitive for the layperson that it caught rapidly in the opinion, and now it's considered common sense. [1]: https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-inflation/ https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-infl...
  • bildung 7y ago
    I think the author didn't elaborate further because while this is non-intuitive and tends to rail up the internet armchair economists, it actually is a well researched phenomenon. One pointer would be the term "liquidity trap", e.g. this here as a starter: https://www.investopedia.com/terms/l/liquiditytrap.asp https://www.investopedia.com/terms/l/liquiditytrap.asp Japan in particular had this problem for decades. And I have to point out "printing money does not cause inflation" is exactly what happened in the US and Europe after 2007/8. There was massive QE but no increase in inflation (inflation was actually reduced).
• nlfwhulsdhouv 7y ago
  > To this day, economics continues to be taught not as a story of arguments—not, like any other social science, as a welter of often warring theoretical perspectives—but rather as something more like physics, the gradual realization of universal, unimpeachable mathematical truths. This has always been my main frustration with economics. As a field, it certainly has value and usefulness, just like sociology, anthropology, or any of the 'softer' sciences. However, it eschews the tradition of teaching a variety of views and perspectives for the rigid orthodoxy of classical physics or chemistry, without the clean experimental results to back it up. Microeconomics and econometrics take a much more concrete and practical view and well-describe localized economic phenomenon, but macroeconomics is a bastardized combination of sociology and capitalist political theory mashed into an unfalsifiable 'science' and taught as such.
  • lordnacho 7y ago
    As someone who studied economics, I've always found the history of the subject itself to be more illuminating than much of the content of it. Both due to the content having this not-rigorous quality to it and because a lot of macroeconomics seems to be politics in disguise. You're right about micro though.
    • nlfwhulsdhouv 7y ago
      > Both due to the content having this not-rigorous quality to it and because a lot of macroeconomics seems to be politics in disguise. Yeah, I'm cool with macro conceptually, but we shouldn't pretend it's something it's not. The history is super interesting too, it connects with tons of important events, countries, and changes in the perception of society. > You're right about micro though. Interestingly micro is the one place where you can run moderately-well controlled experiments too :D.
      • woopwoop 7y ago
        What are some examples of these experiments?
• jariel 7y ago
  This is not an argument against economics, but against specific ideas in economics holding true: "Falling unemployment no longer drives up wages. Printing money does not cause inflation." This is not fair. A) Wages are the last thing to rise and tend only to do so when unemployment is low. We're just now reaching that level. B) Inflation doesn't well account for surpluses: we're getting a lot of bang for our buck in digital services, something that's super hard for the BLS to measure. 'Consumer Surpluses' are like 'profits' to the consumer that are not really measured at all - the only place we do this is when the BLS measures the 'quality' of a basket of goods to figure out inflation: i.e. if the Tomato is getting nicer, redder, juicier, then part of the increased cost of said tomato goes to value, the rest to inflation. This is hard enough to do already, but nary impossible with new services coming online. Case and point: Fortnite. It's free. I've played quite a number of hours of that last year and never spent a dime. Apex is a big game, not free. This is a new trend. The surpluses there are vast. Games have a measurable effect on time spent on other things as well. In a nutshell: consumers lives are improving in ways not always appreciated. C) "Printing money does not cause inflation" - generally, it absolutely does! It just depends where you measure said inflation: stocks, housing - massive inflation. We just don't put that into our version of inflation. But there's inflation for sure! Consider point 1 and 2 together: if stocks are doing well, and CEO's are getting their rewards for strong returns, why are they incented to innovate, pay more etc? Screw that - in a game of 'stocks going up because free money' - the strategy is to 'do nothing' - just keep operating as per, and avoid risk. 'Push the button, collect reward'. Risk changes the nature of the operating environment, and who wants that if there's steady 'returns'? D) The Fed is not 'printing money' really, it's not quite fair to say that in the sense usually implied: a government (or anyone else) 'printing money' to pay for stuff has an entirely different implication. I'll state the article misses the most important things: 1) Printing money almost assuredly does cause inflation, even now. 2) All things equal wages will rise as unemployment lowers. It's just that 'all things are not equal'. Take a look at real surpluses. Take a look at debt-leveraging in homes. Take a look at bifurction of employment from 'tech workers' to 'powerless gig economy' people. Take a look at levels of migrants, their relative skill and their relative market power for wages (they have little power, and there are enough that it absolutely moves the needle). 'Economics' can be used to measure and address all of those things, you just have to start looking at the data, and if not, start measuring things we didn't before. My bet is the answers are not actually that far off, and probably not very surprising if we could see 'all the data' otherwise ignored or unmeasured.
• tjpaudio 7y ago
  I would write this author off, this is a rant and nothing more. "We now live in a different economic universe than we did before the crash. Falling unemployment no longer drives up wages..." Wages are certainly going up in places with low unemployment, its just not distributed as evenly as it was in prior history.
  • lukifer 7y ago
    For context, David Graeber is an anarchist anthropologist who has written extensively about economics. His two best-known works on the subject: - https://www.amazon.com/Debt-First-5-000-Years/dp/1612191290/ https://www.amazon.com/Debt-First-5-000-Years/dp/1612191290/ - https://www.amazon.com/Bullshit-Jobs-Theory-David-Graeber/dp/150114331X https://www.amazon.com/Bullshit-Jobs-Theory-David-Graeber/dp... His views are surely influenced by his a-priori politics, but I've found his ideas thought-provoking to say the least.
    • QuesnayJr 7y ago
      Graeber is also the person who wrote this sentence: "Apple Computers is a famous example: it was founded by (mostly Republican) computer engineers who broke from IBM in Silicon Valley in the 1980s, forming little democratic circles of twenty to forty people with their laptops in each other's garages..."
  • hogFeast 7y ago
    For context: this idea is basically a fetish amongst those around Corbyn. Danny Blanchflower was, at one point, influential amongst the Corbyn crowd. Around 2013-15, he made a prediction that wage growth wouldn't rise as unemployment fell. This was true for a while...until 2015, and wage growth was nearly 4% a few quarters ago. The idea that high employment won't cause wage growth is something that you will, however, hear repeatedly from Corbynites. Btw, economists, unlike the author, tend to be quite sensible on the Phillips curve and understand that the relationship varies.
• anm89 7y ago
  This article is utterly nonsensical (claiming the money supply is essentially unrelated to inflation) but the specifics of their argument say a lot about the field and why things I think are about to get worse. Their argument goes A) current economic regimes are built on shifting sand and border on useless for predicting macro crises (this is true more or less) B) there are other schools of thought out there which are sometimes more predictive than the main stream C) therefore get rid of economics D) and replace it with a different version of economics, specifically one which agress with my politics. The problem is that they are right, mainstream economics is junk, and so it becomes really hard to discredit other wacky ideas like mmt, or endless unmoderated fiscal stimulus because hey, couldn't be much worse than our system which seems to blow up and screw everyone over.
  • nlfwhulsdhouv 7y ago
    > D) and replace it with a different version of economics, specifically one which agrees with my politics. All of macroeconomics is really just politics though, so if you believe a particular political conception is more useful or valuable, of course you want economics to follow. It's a shame the author didn't cite more, but it also doesn't mean they're wrong. The current set of economists are evolved Reagan-era republicans, which is certainly political, and one particular politic at that.
    • AnimalMuppet 7y ago
      Well... it's true that macroeconomics is always influenced by politics. It's not true, though, that "all of macroeconomics is really just politics". There's a bit more to macroeconomics than just "here's my politics, therefore here's my economics".
    • widowlark 7y ago
      >All of macroeconomics is really just politics This is not really true, there's a science to it as well, but its not always well employed
  • apendleton 7y ago
    > claiming the money supply is essentially unrelated to inflation I don't think this is the actual claim. The key quote is this (emphasis mine): > Doubling the amount of gold in a country will have no effect on the price of cheese if you give all the gold to rich people and they just bury it in their yards, or use it to make gold-plated submarines It's not that they're unrelated, it's that increasing the monetary supply is a necessary but not sufficient criterion for inflation to occur. I don't think the author would likely deny that printing boatloads of money resulted in inflation in Zimbabwe or Venezuela, just that if you increase the monetary supply specifically by giving it to rich people who hoard and it never gets spent on consumer goods, it won't affect the price of consumer goods. That's not how it went down in Venezuela, but is (the author asserts) what kept QE from working.
• hogFeast 7y ago
  I have an outsider's perspective, I studied economics but mostly ended up doing economic history (I am a practical person, and preferred stats to models)... ...the point of economics is not to produce models that are 100% accurate. Yes, there is an absolute ton of witchcraft in economics and especially in macro (CGE, DGE to name two areas beloved by civil servants/central banks) but it is very far from useless (and, contrary to what the author thinks, there is a hell of a lot of testing of theories). The issue, funnily enough given the author's perspective, is often that we use economics to just support whatever we already believe. On his actual content: unsurprisingly, he gets his history totally wrong. First, an important point, the UK never actually adopted monetarism. We were forced to adopt DCE targets by the IMF in 1968 but everyone thought it was bullshit. Even after Thatcher crushed inflation, monetarism was only popular amongst the small group of City economics/journalists who came to the idea in the 1970s (and were thought of as crackpots by non-risk takers). The UK was thoroughly Keynesian, that is why we persisted with utterly insane policies through govts under both parties (until Thatcher). Second, saying monetarism causes disaster confuses the cause and effect. Monetarism, whatever its theoretical faults, was correct in 1979 but was only necessary because Labour/Heath had fucked the economy beyond belief (the UK went to a three-day week because the economy literally just stopped working). Third, the 1960/70s were not a period of economic success. Inflation hit 25%, two devaluations, one trip to the IMF, one banking crisis, and endless begging other people to lend money (and the govt got a reputation for going back on agreements). Incomes policy was, objectively, one of the most disastrous policies ever conceived. It ended up, literally, with unions running the economy in 1974. Yes, growth was high but real growth was lower and supported by population growth. I am not aware of any history which concludes any economic policy pursued in this period worked. Everything failed. Fourth, what everyone forgets about the 1950/60s was that there was almost no trade. That is why workers were richer. Most currencies weren't convertible until the late 50s. The UK could milk Commonwealth nations dry with no competition. But the evidence here is clear: trade makes us richer. Anyone who says this isn't the case, even Trump recognises this, is an ignoramus. Fifth, Greenspan understood there was a bubble. He gave a speech in 1998 saying there was a bubble. The issue - which is perfectly logical if you look at what happened in 1958 when the Fed did burst a bubble - is that people will say you caused the downturn if you intervene (he blames monetarism for causing the downturn but also blames the Fed for not bursting the bubble...what a genius this guy must be, spotting bubbles like he is at a car wash). This is an attempt to inject some psychology into economics, it is amazing the author doesn't see this. It is no surprise Graeber has thrown his lot in with Corbyn. The number of crackpot acolytes around Corbyn grows every day (thankfully, he remains unpopular with voters). I would vote for Labour normally...but their current policies are just...ignorant. These ideas have been tried, they didn't work, that is why Corbyn has support amongst young people who don't read books. The logic is: build a wall, make Goldman Sachs pay for it.
• 6510 7y ago
  note to self: Required for education: Unskilled labor "must" pay less to motivate people to get diplomas. Required for productivity: Wages "must" be low enough so that people have to keep working. Since motivation to get a diploma depends on the size of the income advantage "ideally" people without diplomas should barely be able to sustain themselves - forever. All other economic talk seems filler material. All excessive wealth "should" go towards sustaining the filler material or otherwise be destroyed. For this purpose we also see endless investment in businesses that exist only for the purpose of extracting wealth from everyone else. Some of course deliver useful products in return but if they could increase ROI by not making anything most if not all would do it. If they operate at a loss it is even more "beneficial" to the system. For this purpose we also have 32 Trillion "hidden" in tax havens. The whole thing seems to have "evolved" so that we all are as productive as possible only to sacrifice the produce on the altar of productivity again. The bad thing about this is that all this "productivity" destroys everything around us. It all costs finite resources. We would be better off just making what we need efficiently.
• ep103 7y ago
  Does anyone have a good, non-biased resource explaining why keynesians cannot explain stagflation, and what Milton Friedman did during this era to solve that problem and thereby launch us into the modern neo-liberal moment? Whenever I search for this, I have a tendency to find articles that already assume the reader has read on the topic numerous times (like this one), or they they only address the topic in the most watered-down and overtly partisan manner. From reading between the lines on the first few pages of google results, it seems like Keynesian thought in the 1970s hadn't evolved far enough to recognize that inflation could have multiple driving factors and could impact different parts of the economy disproportionately. My limited understanding too is that this was resolved theoretically and with obvious and clear explanation in the years afterward (now referred to as neo-keynesian), but by then Milton Friedman had been lionized as the new economic "truth" and the universe moved on in his direction.
  • bhl 7y ago
    Very few things in economics are resolved theoretically; they're more often improved empirically. Take for example stagflation. Previously, economists assumed a simple linear relationship between inflation and unemployment (Philips curve). That failed to hold in the 1970s. And now, economists assume a simple linear-dynamics relationship between expected inflation and unemployment (augmented Philips curve).
  • QuesnayJr 7y ago
    In 1958, A. W. Phillips discovered an empirical relationship between inflation and unemployment, now called the Phillips Curve (https://en.wikipedia.org/wiki/Phillips_curve https://en.wikipedia.org/wiki/Phillips_curve) -- the higher the inflation rate, the lower the unemployment rate. Milton Friedman argued that the trade-off only existed for unexpected inflation. Once everyone anticipates that inflation, it will have no impact on unemployment. That's what happened in the stagflation era. The New Keynesians use an expectations-adjusted Phillips curve, which take into account this effect on expectations. In New Keynesianism there is a short-run trade-off, because prices do not instantly adjust, but there is no long-run trade-off once prices actually do adjust.
  • nyolfen 7y ago
• lootsauce 7y ago
  A few observations I generally do not see discussed. Velocity of money has a large impact on the inflationary impact of circulating money. Bank loans endogenously produce new money in the economy. This can dramatically impact the inflation seen relative to Fed printing. Official macro stats, especially inflation are tweaked to death and are not a stable metric.
• rayiner 7y ago
  The article takes things a bit too far with the political angle. Just because economists may or may not be particularly accurate at predicting recessions doesn’t mean that “economics” doesn’t deserve its place in the neo-liberal order. NPR did a podcast a few years ago on six policies it’s ideologically diverse panel of economists all agreed on: https://www.npr.org/sections/money/2012/07/19/157047211/six-policies-economists-love-and-politicians-hate https://www.npr.org/sections/money/2012/07/19/157047211/six-... They are: 1&2) get rid of tax deductions for mortgage interest and healthcare 3) eliminate corporate taxes 4) replace payroll and income taxes with consumption taxes 5) impose carbon taxes 6) Legalize marijuana Perhaps unsurprisingly, Europe, Canada, and Australia have all been moving in the above direction (at least slowly) over the past 30 years, marking a period of return to growth after decades of economic doldrums where they were uncompetitive with the USA. There is even less disagreement when it gets into microeconomics. Everyone agrees that markets produce efficient prices so long as you account for externalities. So for example, an EPI study polled economists about the $15 minimum wage (who identified as Democrats 3:1 as compared with Republicans): https://www.johnlocke.org/update/what-do-economists-think-about-a-15-hr-minimum-wage https://www.johnlocke.org/update/what-do-economists-think-ab.... 75% thought it would negatively affect employment, and 84% agreed it would hurt youth employment. Similarly, few economists support rent controls: https://www.economist.com/leaders/2019/09/19/rent-control-will-make-housing-shortages-worse https://www.economist.com/leaders/2019/09/19/rent-control-wi... Indeed, the consensus on government price controls is so deep that, with the exception of isolated things like rent control and the minimum wage, where people don't perceive it as price regulation, even liberals don't really call for price regulation. That is remarkable, because price regulation was a feature of life until the 1970s. Airline tickets, freight trucking, phone bills--all were priced not based on markets, but based on bureaucrats picking numbers.
  • gruez 7y ago
    >4) replace payroll and income taxes with consumption taxes how can this be implemented in a fashion that's non-regressive? income taxes in most countries are progressive, and consumption taxes are regressive.
    • 7y ago
• xvilka 7y ago
  Highly correlates with what is written in the Incerto[1] series by Nassim Nicholas Taleb. [1] https://www.goodreads.com/series/164555-incerto https://www.goodreads.com/series/164555-incerto
• Webstir 7y ago
  Wow. Reading through the comments I’m finding a ton of bafflegab. How many here have taken a college level economics course? Ok. Read yourselves out of the discussion because, if you believed what they taught you, you’ve been brainwashed. Go read Steve Keen to get deprogrammed. I’ll bet not one of you can even answer this simple question: To what intellectual disciple does money belong? Hint: it has nothing to do with mathematics.
• KODeKarnage 7y ago
  Oh great, another non-economist getting famous for criticizing economics from a position of comprehensive ignorance. Modern economics has more than enough critics WITHIN the economics field. People who wouldn't say something as stupid as "Economists still teach their students that the primary role of government ... is to guarantee price stability!". Seriously, this has NEVER been remotely close to true. When you say something like that, you effectively lose the section of the audience that knows the something about economics, and are instead rousing the ignorant rabble. The field of Economics has problems (such as an over-reliance on mathematical models), but instead of any of THAT being discussed we have the argument centering around some fantasy-world view of economics and economists!
  • etripe 7y ago
    You're taking the least charitable interpretation of that sentence, reading it as "all" or "most" economist teaching government's primary role is price stability. That is apparently false (I'll take your word for it). In a more charitable reading, he's reacting to one or a few instances where it is taught but shouldn't. That could be accurate, if contextually misleading and possibly myopic. Discounting his argument based on factual errors is fine, but given that you only bring one counterpoint to the table, "another non-economist getting famous for criticizing economics from a position of comprehensive ignorance" sounds like an argument from authority.
    • QuesnayJr 7y ago
      I don't see how anything in the text permits that charitable reading. Even the inventor of monetarism itself, Milton Friedman, thought that the government could prevent recessions -- he just thought that the best way to do that was to target the money supply, so you get price stability and no recessions all at once. The whole point of his and Schwartz The Monetary History of the United States is that drops in the money supply are linked to recessions.
• riffraff 7y ago
  > We now live in a different economic universe than we did before the crash I think "this time is different" thinking is dangerous. Yes, maybe the world is different now, but it's only been 10 years since the big crash, not so long. Expecting the world to keep being the same as it is now is just as dangerous as thinking it will always be as it was for the last 50 years.
• darawk 7y ago
  > Central banks like the Bank of England create money as well, but monetarists are entirely wrong to insist that their proper function is to control the money supply. In fact, central banks do not in any sense control the money supply; their main function is to set the interest rate—to determine how much private banks can charge for the money they create. Almost all public debate on these subjects is therefore based on false premises. This seems to be a weird oversight on the part of the author. Even if we accept the heterodox view of money creation as espoused by this article (which I do, for what it's worth), the central bank still plays a very important role even in the private creation of money. Setting the "risk-free" interest rate for the economy determines how much money banks are going to be willing to lend, which thereby determines how much money they will create. Just because the central bank is not printing the money themselves does not mean that their policy levers are not having profound effects on the money supply.
  • QuesnayJr 7y ago
    Graeber has an oddly dated notion of issues in macroeconomics. Targeting the money supply is a 70s era idea that the Bank of England tried briefly and abandoned in favor of targeting the interest rate.
• harimau777 7y ago
  Can anyone recommend a book or other resource that gives an overview of the various schools of economics including the "heterodox" ones? When I'm learning about a subject I find it much easier if I have a framework for categorizing and organizing the different approaches or topics that the subject consists of.
  • Synaesthesia 7y ago
    Well the best heterodox economist IMO is Michael Hudson. Recommend his blog, talks and books to anyone.
  • JDiculous 7y ago
    Ha Joon Chang - Economics: The User's Guide
• aazaa 7y ago
  > Printing money does not cause inflation. Ah, but it does. It creates asset inflation. This may be the worst kind of all possible inflation because it makes people believe they are wealthier than they are. When the inflation can no longer be sustained, large numbers will soon find out they are far poorer than they once thought. That's the stuff of revolutions and Dark Times. Asset inflation takes root through policies that distribute money, not to the poor (Great Society), but to the rich (Deregulation and Quantitative Easing). The rich have no use for the money being given out and so drive up asset prices with it. From this perspective, it's easier to see how a multi-thousand word essay on new economics fails to mention negative interest rates once.
  • cryptica 7y ago
    I agree with your point about asset inflation but I think that the author of the article is well aware of it based on these lines: > Doubling the amount of gold in a country will have no effect on the price of cheese if you give all the gold to rich people and they just bury it in their yards, or use it to make gold-plated submarines (this is, incidentally, why quantitative easing, the strategy of buying long-term government bonds to put money into circulation, did not work either). What actually matters is spending. Are you suggesting that negative interest rates are some kind of solution? I think they would make the problem worse, just like QE; the effect would just be to expand the money supply by injecting more money into the economy on the basis of arbitrary rules. With negative rates, the incentive becomes that everyone should borrow all the time (because borrowing becomes profitable), so then the question will quickly become "who is allowed/qualified to borrow?" and the answer will either be "rich people" or some other kind of unfair arbitrary criteria. Negative interest rates are a terrible idea. All the extra money will be absorbed by cryptocurrencies, advertising platforms and other speculative investments.
    • panarky 7y ago
      > What actually matters is spending Exactly right. MV = PT Where M is the monetary base, V is the velocity of money, P is the price level, and T is the real value of transactions. Central banks would love it if they could precisely control inflation by creating and destroying money. What actually happened with QE is that M increased and V decreased in almost the identical magnitude, leaving P and T virtually unchanged. Central banks have very little influence over the real economy, aside from short-term changes in interest rates.
• snidane 7y ago
  After years of unsatisfactory personal research of various schools od economics I had to come to conclusion they are all flawed because they completely omit the important parts which govern our economy. For example having all economical models based around people exchanging goods and not focusing on why money actually disappears from economy in form of monopolies and money parked in real estate. It always has to be poured back into economy in form of money stimuli like QE, yet people are blind to the fact that it yet again gets eaten up by ever bigger monopolies and more expensive real estate. A simple network model of money circulating in economy would show that these sinks are where the money keeps disappearing. Yet no economic school has its primary focus set on these money eating sinks. The closest school is actually the once mighty, now close to extinct Georgist school, in which they at least explain the business cycle of booms and busts as housing cycle, where housing bust is not some random consequence of a business going bonkers, but housing (actually land speculation) being the major cause of these cycles. If you think about it 100% of population (except for hobos) are involved in real estate market and paying close to 50% of paycheck on housing in some form. Yet all economics focus on stock and bond markets and exchange of random little items even though these are dwarfed by the housing markets. I don't think it is a conspiracy, but laziness. People like to research things which are easy to research, but not things which are difficult but important.
  • QuesnayJr 7y ago
    There's an entire field of real estate economics. There are professors and conferences and everything. You won't find your theory about money sinks, because it's a theory unique to you. It may be the greatest breakthrough in the history of economics, but it's not a theory that currently anyone else believes in. I personally am skeptical.
• ianai 7y ago
  “”” The one thing it never seemed to occur to anyone to do was to get a job at a bank, and find out what actually happens when someone asks to borrow money. In 2014 a German economist named Richard Werner did exactly that, and discovered that, in fact, loan officers do not check their existing funds, reserves, or anything else. They simply create money out of thin air, or, as he preferred to put it, “fairy dust.”””” Let me stop you there. Economists aren’t trying to create the exact theory that market participants implement. That would almost certainly be short sighted to the point of uselessness. (How often in your life have you woken up with Plan A and wound up doing B - where B is very different from A?) Instead, they’re looking for a theory that agrees in the outcome and may be applied usefully to describe what’s going on in resource allocation. This probably flies in the face of a technology focused era in which surveillance of the masses at the nearly perfectly micro/individual level is a prime factor in market valuation. Some of the largest corporations today have access to data no economist ever dared dream to consider. That actually makes me think modern surveillance companies (google, Apple, amazon, etc) could really make market models from the individual to market level in aggregate. Versus the topics at discussion here - which are macroeconomic. Macro is often hurt by a lack of data since there are only so many years of data of the goings ons of nations in a global context - with probably not enough variation to make conclusions.
• bocajuniors 7y ago
  The original definition of inflation is a decrease in the value of money.And since the value of money really is a measure of what value there is to buy divided by total amount of money it is quite clear that "printing money" causes inflation.