Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
You endlessly and tiresomely quibble with the terms of discussion. Perhaps you should develop your own language. Same with economics.

Germany has relatively low rents precisely because German economic policy has not allowed bubbles in German real estate. The problems that developed in Germany were the result of German banks making reckless loans in peripheral countries and then being able to stick those countries with 100% of the costs. The contemptible regulatory policies in Europe were due to the refusal of Germany to allow European wide regulation of banks while allowing European wide operation of these same banks.

I am sorry you have relatives who are generating wealth through residential rentals. I also deplore the process by which that has happened. In the USA it was because Greenspan and others turned a blind eye to the bubble that was developing and refused to use the vast powers of prudential regulation Congress gave the Federal Reserve after the Savings and Loan crisis.

Greenspan adhered to his easy money policies until 2005, but by then monetary policy was incapable of handling the situation that had developed. Not only did we have a world class bubble in real estate but also in stocks and commodities. Financialization of residential real estate had created financial instruments, MBSs, CDOs, etc. that had face values far above their actual value. When this became known the entire financial system started to freeze.

The result was a great destruction of bank money and a large hole in the money supply. This was highly deflationary and would have sent the world economy into a debt-deflation death spiral had not Bernake and Paulson created TARP to paper over the hole and then, under Obama employed QE to take the impaired finacial instruments off the market or to arrange for other institutions to take them, along with money from the Fed to make them whole.

So while the world was staring into the abyss of deflation and depression which was being staved off by massive central bank intervention, most people were obsessed with INFLATION. TARP and QE were going to trigger massive inflation they feared. This was because the general understanding of economics had been poisoned by rich man propaganda for half a century.

The rich knew well how to make money off a depression - buy up valuable assets on the cheap and consolidate your vertical integration. But they feared inflation because it made their existing wealth less valuable. A major result of their propaganda was to normalize the view that the only legitimate way to manage the economy was through monetary policy.

While monetary policy served excellently well for getting us into a deflationary crisis, it is useless for getting us out. All monetary policy can do is make money cheaper. But that is useless if business people are afraid to invest. It was fiscal policy, direct government spending on useful projects, that got us out of the depression of the '30s, to the extent that we did recover prior to WW II. And it was a careful combination of fiscal and monetary policy that enabled the USA to prosecute WW II to conclusion and emerge with a prosperous economy.

When Obama took office the economy was at its nadir. But the Mainstream Economists he relied upon, Larry Summers in particular, were frightened by the size of the hole that had been blown in the economy and were terrified to propose a $1Trillion dollar stimulus. So they asked for and got $600 Billion, some of which was in the form of tax credits, while what was needed was more like $1.5 Trillion. The result was an anemic recovery. The justification for the anemia was AUSTERITY. Because the rich so feared inflation, millions of people had to suffer privation and many died as the result.

That is where we are today. Tax cuts for the rich, austerity for all others. The solution is deficit spending. The bottom 80% of the population is starved for income yet the economy is driven by consumption. But the other consideration is how that deficit spending is to be deployed. Right now it is buying tax cuts for the rich. That does not help consumption as the rich only consume a tiny fraction of their income, squirreling away the majority in overseas accounts, financial instruments and real estate.

What is needed is investment in the real economy. Spending on infrastructure employs real people who are un or under employed and increases the money circulating in the economy that is used for consumption. This has positive knock on effects. And yes, deficit spending on productive assets can be considered an investment. Well done, this spending becomes self liquidating. Wind farms and associated transmission facilities pay back far more than they cost over their useful life.

But Mainstream Economics, Neo-Classical Economics and its recent permutations, requires that investment be made from savings. This was basically true under the gold standard. But it is no longer true since the USA went off the gold standard in the summer of 71. An understanding of the range of options available to a nation with its own fiat currency shows that there is often policy space, options to use resources that are un or under utilized. The limit on such use is inflation.

For starters it is clear that, if we can afford to give the rich a $1 Trillion+/year tax break, we could use that same money instead to fund a Green New Deal. And, by moving to Medicare for All we could have better health care for all of the population for what we are currently spending or less. MCA would likely actually be deflationary, which would require even more deficit spending. Government assumption of student debt would have a similar effect. The newly found purchasing power of GenX and younger college grads would generate economic growth, increased GDP, that would more than pay for the cost of retiring the loans.


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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 6th, 2019 at 04:48:22 PM EST
[ Parent ]
I am using the language of economics and finance. You challenge is reconciling its arithmetc and semantic contradictions with a concern which is, paraphrasing, making a new [sic] green deal commerce policy "pay for itself." And turn a profit.

< wipes tears >


Diversity is the key to economic and political evolution.

by Cat on Fri Sep 6th, 2019 at 07:20:16 PM EST
[ Parent ]
"I am using the language of economics and finance."

And that is the basic problem. What you learned was 'Mainstream US Economics' - basically Neo-Classical Economics with a few permutations over the decades. US economics has never come close to capturing the essence of Keynes. That is why Joan Robinson, who knew Keynes, called what the US calls Keynesian Economics, the Samuelson Synthesis, bastard Keynes.

Afraid of being labeled a 'Socialist' after WW II, given the smear job Wm. Buckley and others applied to Lorie Tarshis 'Introduction to Economics', which followed Keynes closely, as Tarshis has studied under Keynes at Cambridge in the '30s, Samuelson smuggled in some derivative concepts from Keynes' followers - Hicks and Hanson and the IS/LM diagram and the Phillips Curve. These were toy classroom models that also were specific to the economic conditions for the time they were developed. The world changed. The toy models failed, and Milton Friedman blamed Keynes.

Most American economists had only that very limited understanding of Keynes. Left behind was Keynes' deep uncertainty. That would have been corrosive to the facile explanations that were the best Neo Classical Economics could provide. Neo-Classical asumptons are that the laws of economics are invariant. Keynes held that all economics is historically contingent. These are the underpinnings of Post Keynesian Economics, of which MMT has become a part.

Another difference between Keynes and Neo-Classicals is their understanding, or lack thereof, of money and its role in an economy. The standard Neo-Classical explanation for money is that it is a 'veil over the economy' and that economists have to abstract away from money to see the real economy. That is a convenient view as the rich do not want people understanding money. If you can't see the money, it is hard to follow the money. That is how US Mainstream Economics became housebroken for the rich.

MMT is based on actual monetary practice by people who have had the opportunity to closely observe how money is created, used and destroyed. It is now an integral part of Post Keynesian Economics. For MMT and Post Keynesian economists money is clearly endogenous. Around 97% of all US 'money' is bank money, created out of thin air via double entry bookkeeping when banks make loans. Money is not just a thing, but a social relationship.

Once a country has its own fiat currency that is freely traded on the ForEx markets there are policy spaces for government action that do not exist under a gold standard. The limit on deficit spending comes to be inflation, not debt. Since the Federal Reserve has not yet managed to actually hit the 2% inflation rate that they target, our economy has been seriously under performing. And 2% is a rich man's compromise number for tolerable inflation. A more realistic figure would be 3%.

Sadly, most US citizens, to the extent they have any understanding of economics, have been mis-educated to the Neo-Classical Economics view, which is compatible with the gold standard, which no longer exists. So we continue to be frightened about debt, regardless of the absence of inflation. Europe is more of he same. As, apparently, are you.

There is, however, a free and enjoyable way to get up to date on matters related to Money and Banking. Perry Mehrling of Barnard College, Columbia University, has an online version of his Money and Banking course, as senior level economics course at Barnard, available on Coursea. You can audit the course for free and most of the readings are online as well. You might find Stigum's 'Money Market' book interesting, but it is not essential to understanding what the course is about for those just auditing the course. The same is true for Mehrling's excellent 'The New Lombard Street', but it you might want to check out of a library. It is short and sweet.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 6th, 2019 at 09:42:12 PM EST
[ Parent ]
is foregone tax revenue, the event which has not occurred.

Money that is not taxed and is not collected, is not exchanged, is not "given" to anyone.

Diversity is the key to economic and political evolution.

by Cat on Fri Sep 6th, 2019 at 07:36:37 PM EST
[ Parent ]
is money borrowed from and returned with excess of principal amount of money borrowed ("interest") over a period to a lender.

No matter how you dress up the element of "value", that is the transaction proposed.

Unless one borrows from a library.

Diversity is the key to economic and political evolution.

by Cat on Fri Sep 6th, 2019 at 07:50:07 PM EST
[ Parent ]
USA: the most illiterate, ignorant, litigious nation on the planet is offering advice, How to solve an immense pile of filth alias Climate Crisis by exploiting the MMT of "printing money" alias renting USD THIRTEEN TRILLION as yet collected from future $15/hr --maybe $20/hr--wages earned by building automated infrastructure, vehicles, and lenders, because "savings glut."

"What this means, I believe, is that a country with its own currency would not be subject to the kind of self-fulfilling panic that is now arguably hitting Italy*."

Italy picks former PM Gentiloni as EU commissioner - government source, ECON portfolio preferred over AGRI (discarded)

Diversity is the key to economic and political evolution.

by Cat on Fri Sep 6th, 2019 at 08:13:49 PM EST
[ Parent ]


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