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In other words, whether we are in Minsky fly to safe assets world as DeLong says or in a debt-reduction driven economy should be a matter of empirical analysis, isn't it?

The two are hardly exclusive and we are experiencing both a flight to safety and deleveraging just now. Those two phenomena are together largely responsible for the huge drop in the money supply, broadly measured, which is threatening to create a debt-deflation economic death spiral in the US, the UK, Ireland and other EMU peripheral countries.

The problems are largely those of widespread failure of understanding of economic realities combined with a response of repugnance by large numbers of those with means towards doing almost anything that would help. A very large number of those with appreciable wealth are most concerned to keep it rather than to increase it just now. Solvent corporation find the current environment attractive for purchasing valuable assets from insolvent companies on the cheap and are especially interested in buying up competition or potential competition so as to increase the depth of their market penetration. Increasing the width is for times of expansion. And just because they have the vast majority of available wealth does not mean that they do not want the rest.

They analogize endlessly to the family budget without realizing that families cannot print their own money while sovereign nations with their own currency which floats freely against other currencies can and that this difference is crucial for effective policy in these circumstances. But they can conceive of no way that this could be of benefit to them. Mostly they are afraid that printing money will just dilute the value of their existing money.

Many in the USA were happy to see banks in which they have an interest take TARP money to guard against a "liquidity crisis" and remain happy to see those same banks make money by borrowing money from the government at .25% and parking it at the Fed to receive 1.25% or what ever the numbers are this month. Not a big return but still it is free money. And as stakeholders in the financial sector it certainly seems right and proper that the financial sector be saved. That whole process does nothing for the rest of the economy, but they don't see that as their problem.

Many in the financial sector and more that aspire to be in that select company have been nurtured for so long on Randian superhero myths that they feel empowered of feel that those with whom they aspirationally identify are rightly empowered, as will they be some fine some day. As the psychologist David McClelland said in Power, The Inner Experience, Wiley, 1975: "The purpose of power is to feel powerful." So even those who only aspirationally identify with the powerful still can get the feeling -- a feeling that is very fundamental and addictive. With that kind of reward they will be extraordinarily resistant to anything that challenges that feeling -- very much like an addict resisting withdrawal.

I suspect they see money that is in circulation as game and themselves as hunters; money they have previously made is theirs to keep, as they got it by their prowess, and they have every right to go right on hunting. It is the nature of the hunter to kill the last game animal. Not understanding the difference between governments which can print their own currency and individuals who cannot, they instinctively see spending government money to employ people doing socially useful things as taking money they have made and giving it to others who were unable to get a job on their own.

This flows from a society that has been transformed into an adjunct of the economy and where the source of all true values are found in the rationale of the market. That the attitudes sketched above are both ridiculous and monstrous is of no significance until and unless enough people understand what has happened, insist on change and find a way to bring about that change.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Oct 4th, 2010 at 11:44:28 PM EST
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