Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
I'm just going to repost a comment I made on Bill Mitchell's blog on Modern Monetary Theory and environmental sustainability:
I think the key issue preventing MMT and Environmental Economics from being seen as compatible (which I think they ultimately are) is that it is extremely easy for Environmental Economics to fall into the position that what we need is thermodynamic accounting and that the fiat money system, which is by and large conflated with the fractional reserve banking system, is unable to properly incorporate thermodynamic accounting because money values are arbitrary (fiat). Therefore, a theromodynamic standard (energy, thermodynamic free energy, entropy, ore some similar quantity) for money is often proposed as the solution to all our economic woes. Anyone who takes MMT seriously will recognise that an energy standard is just as deflationary in terms of employment as a gold standard or any other commodity standard. The resolution of the dilemma is to point out that employment does not need to mean high-environmental-impact employment. Clearly employing people in personal services has a much lower environmental impact than employing the same people in resource extraction, energy-intensive manufacturing, etc. And the economy can "grow in nominal terms' while not growing in environmental impact by an adjustment in the mix of goods and services consumed, in the direction of lower resource intensity goods and services.

A lot of people come into Environmental Economics from engineering or natural science, and such a background predisposes one against social convention ("fiat" money, nominal accounting) and for objective measures (real accounting, hence commodity money, gold standards, and thermodynamic money standards). "Money as a thing" is one of the most engrained concepts in our culture and it dovetails with the engineer/scientist tendency to prefer a commodity standard for money.

At present, monetary austerity is being used as an argument for environmental business as usual ("we cannot afford the investment needed to transition to a green energy economy"). This is a conceptual mistake of mixing resource austerity with money austerity, but if you believe money should map resources, you can't break the link between money austerity and resource austerity. The fact is that MMT through "functional finance" provides a way to justify that yes, we do (if only we have the political will) have the money to mobilize the resources necessary for the massive investment involved in a wholesale transition to a green energy future. This is akin to Keynes' quip that

"Thus we are so sensible, have schooled ourselves to so close a semblance of prudent financiers, taking careful thought before we add to the `financial' burdens of posterity by building them houses to live in, that we have no such easy escape from the sufferings of unemployment".
We may in fact paraphrase Keynes: "Thus we are so sensible taking careful thought before we add to the financial burdens of posterity by building them windfarms to power their society, that we have no escape from the sufferings of environmental destruction".

To be sure, I personally agree that "a forward-looking, progressive macroeconomics - such as Modern Monetary Theory (MMT) - requires economic activity to be in balance with the natural environment", but I think it is really important, to address and break the easy conceptual link between Environmental Economics and Commodity Money.

The Euro will outlivebury us all --- Jean-Claude Juncker
by Migeru (migeru at eurotrib dot com) on Sun May 5th, 2013 at 04:41:32 PM EST
[ Parent ]
The "money as a thing" is spot on. And your comment above starts to scratch the surface of the problem. But that is not normally is on offer...

When I hear people talking that there is a "demand problem" (which I think there is) I never see the necessary caveat about potential physical resources tweaking what "extra demand" really can mean.

Another problem is that the theory is presented with a decoupling of capital allocation: It almost looks like increasing demand is enough. But demand for what is even more important: A personal jet for everyone? Or something else?

Because, as I see it, if you have saner monetary policies, I am not at all convinced that the way money would be spent would create a more sustainable society. A concrete example: if more money would flow in Portugal, people would buy more cars, govt would build more highways and so on. Extra capital allocation would indeed be destroying the country in the long run (as would require the import of expensive fossil fuels instead of e.g. electric-based trains with more efficiency per person transported).

My quip is not with keynesianism (or maybe even MMT) but with the fact that that is a very small (albeit important) part of the equation. And proponents seem to mostly ignore (not your case above) all the rest.

Economics as if physical reality was absent. And this is valid even if you believe in a very large resource base (it is just the allocation of capital priorities that would change).

by cagatacos on Mon May 6th, 2013 at 02:23:09 PM EST
[ Parent ]
So it is possible to do it right...

In the long run, we're all misquoted — not Keynes
by Migeru (migeru at eurotrib dot com) on Mon May 6th, 2013 at 02:24:42 PM EST
[ Parent ]
The discussion about physical resources is ignored because it is difficult to model, difficult to forecast, difficult to prove, and in any case about the future. By contrast, the loanable funds fallacy is comparatively trivially debunked.

Defeating Austerity is not a sufficient condition for a sustainable industrial planning system. But it is very much a necessary one, and so long as that is the case it makes no sense to muddy the waters with the resource discussion: Austerity proponents have nothing interesting to say about resources anyway.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 6th, 2013 at 02:40:09 PM EST
[ Parent ]
Forget about resources (I gave this discussion the wrong tone).

My point is that monetary policy is a variable in the equation that has much more important pieces (resource allocation, politics, propaganda, ...)

You can have the best monetary policy in the world and still go the way of poverty, war, ...

At the end of the day I think this is just a case of (macro)economists giving themselves more importance that they really have.

by cagatacos on Mon May 6th, 2013 at 03:24:14 PM EST
[ Parent ]
Same logic applies to poverty, war, etc.: It's hard to muster a compelling argument that poverty-inducing policies are factually wrong and stupid.

Doing economics properly is hard. Debunking quacks is much easier, and we in any case need to debunk these quacks if we are to have a prayer of doing economics properly.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 6th, 2013 at 03:33:50 PM EST
[ Parent ]
You mean it's not hard to muster, surely?

In the long run, we're all misquoted — not Keynes
by Migeru (migeru at eurotrib dot com) on Mon May 6th, 2013 at 03:36:57 PM EST
[ Parent ]
No, it's hard to muster arguments that war for plunder is objectively wrong. Wingnuts are amazingly good at moral and cultural relativism when it suits them.

It's not hard, by contrast, to muster arguments that the loanable funds fallacy is objectively wrong.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 6th, 2013 at 03:49:45 PM EST
[ Parent ]
The compelling argument is that all economics is a trade-off between constrained and controlled prosperity for a (wannabe) masterclass, vs general and sustained prosperity for much larger sections of the population.

Or more specifically, it's a trade-off between whether the minority or the majority have political power.

There is nothing else to economics. That's always the core question and - interestingly - it's the one that's discussed least often, and avoided most avidly in general discussions.

Keynes tried to make this point, or something very like it. But his English is so bloody convoluted and obscure that it's tragically easy to miss.

If you start from the premise of majoritarian democratic economics, you immediately have to define metrics that measure the spread of prosperity in a reality-based way.

This is the exact opposite of aristocratic economics, where the object of the exercise is to obscure power relations to the greatest possible extent, and give populations an illusion of participation and reward where they don't truly exist.

I'm not aware of any genuinely majoritarian and democratic formulation of economics. As I've suggested before, you'd have to start with some very different ideas about money-as-politics - rather than the current idiotic ideas about money-as-stuff, even if it's fiat-stuff - and build something completely new from completely new premises.

You'd also have to build in the idea of wealth and value explicitly arising from cooperation and collective intelligence, and not so much from current ideas of wealth as something that individuals grab for themselves in a Hobbesian process of never-ending competitive acquisition.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon May 6th, 2013 at 04:08:23 PM EST
[ Parent ]
start with some very different ideas about money-as-politics - rather than the current idiotic ideas about money-as-stuff, even if it's fiat-stuff
Money as social credit is a good start.

In the long run, we're all misquoted — not Keynes
by Migeru (migeru at eurotrib dot com) on Mon May 6th, 2013 at 04:46:09 PM EST
[ Parent ]
by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 7th, 2013 at 06:54:56 AM EST
[ Parent ]
I wasn't aware of that, sounds interesting.

In the long run, we're all misquoted — not Keynes
by Migeru (migeru at eurotrib dot com) on Tue May 7th, 2013 at 09:06:58 AM EST
[ Parent ]
The Social Credit theory of C.H. Douglass was put into practice in Alberta, Canada in the '30s:
Clifford Hugh Douglas was born in 1879. He was educated at Cambridge University, and was an engineer. Douglas developed a view of the role of money, and a monetary system, which he called Social Credit. He presented his ideas to the Canadian government in 1923 before the Committee of the House of Commons on Banking and Industry in 1923.

His books, including "Social Credit", influenced the Farmers Co-operative (the UFA) in Canada, to which Douglas became a financial advisor in 1927. From those beginnings, the Alberta Social Credit Party was formed in 1935, with popular educator and radio preacher William Aberhart as its leader. That party came to power and, in 1935, Major Douglas became the chief reconstruction adviser to Premier Aberhart. Differences between Douglas' views and the party's policies resulted in Douglas' resignation as advisor. Douglas published many books on his views concerning money, banking, and the globally influential and powerful. His other books include Economic Democracy (1920), The Monopoly of Credit (1931), The Use of Money (1935), and The Alberta Experiment: An Interim Survey (1937). Douglas died in 1952.

In the end, IIRC, his ideas were defeated by the usual method: bankers spending lots of OPM to defeat his supporters.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed May 15th, 2013 at 09:02:40 PM EST
[ Parent ]
good points...

i think we also need to figure out ways to reward companies that eschew planned obsolescence instead of the present system, which does the exact opposite!

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Mon May 6th, 2013 at 08:13:56 PM EST
[ Parent ]
One of the problems with debunking quacks is that it isn't an economic process but a political one.  Anyone with two brain cells to rub together knew that Austerianism was counterproductive and in fact had been demonstrably an historical failure, many times.  Anyone with four brain cells knew that R&R's "debt limit" smelled like last week's diapers and would eventually cave in.  Yet the pundits and politicos charged off in that direction and continue to do so because they're paid to.  Stopping this will be a political process because the Austerians' power is political.  It's rather like dealing with creationists.  No point in using science to argue with them; they have no power in science, and they don't accept science, however much they disguise their religion as science.  Their power is entirely political, and that's where they have to be fought.
by rifek on Fri May 10th, 2013 at 12:00:36 PM EST
[ Parent ]
The point is that right now bad monetary policy is being used to buttress the case that There Is No Alternative and to exempt politicians form coming up with sound policies.

I mention Abba Lerner's Functional Finance. Functional finance is the idea that the government should be able to spend directly into the economy to further policy goals. Under customary institutional arrangements, this means that the Central Bank should monetize the resulting expenses. Of course, if you use Central Bank money to fund a cash-for-cluners programme so everyone can buy an SUV and to build more roads, this will be "dysfunctional finance".

But proper monetary policy would make it impossible to argue we can't afford policies that are not resource-constrained, such as laying off teachers or nurses for lack of fiat money.

In addition, if all those teachers and nurses decide to spend their 'functional finance' wages on imported consumer goods, a floating exchange rate may help set up a negative feedback loop (lots of imports devalue the currency, resulting in more expensive imports).

So functional finance and accomodative monetary policy provides policy space. It doesn't take away the responsibility of the policymakers and of the public to ensure that policy is sound.

In the long run, we're all misquoted — not Keynes

by Migeru (migeru at eurotrib dot com) on Mon May 6th, 2013 at 03:35:44 PM EST
[ Parent ]


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