Economics Questions

Re: Public deficits = net private savings

chloe732 — Thu, 22 Jul 2010 03:22:04 GMT

Think Blue (aka XYZABC),

I read your reply to AP Lerner on the Krugman in Wonderland link. Got a good laugh, thanks for that. There is not much to laugh about these days. It will be interesting to see how others respond to him after he admits he is a Chartalist.

Re: Public deficits = net private savings

Think Blue — Wed, 21 Jul 2010 17:16:43 GMT

Looks like our friend AP Lerner is back. LOL.

Krugman-in-Wonderland: Is There Really a "Keynesian Case"?

Re: Public deficits = net private savings

chloe732 — Wed, 21 Jul 2010 03:16:12 GMT

Well, it looks like there is plenty of refut'n goin' on. I actually remember reading the HuffPo Abolishes Scarcity article when it came out, didn't make the connection.

Re: Public deficits = net private savings

Think Blue — Tue, 20 Jul 2010 21:26:56 GMT

chloe732:
Think Blue, you've gotten to the bottom of AP Lerner's mysterious theory. It is Chartalism (never heard of it before). AP Lerner (1903-1982) was a Chartalist, the blog poster took on this name. This is very similar, if not identical to, the theories put forth by the Zeitgeist (sp) folks. They call it Resource Based Economics. I watched a video that described the monetary system in Chartalist terms.

For some odd reason, these Chartalists do like to remain mysterious, so when Robert Murphy (an Austrian economist) was examining their ideas, he did not even realize he was critiquing their theory (or at least he didn't call them out by name).

Here are some Austrian critiques of the Chartalist theories, which razerfish was requesting on another thread:

Mises.org: Aren't Deficits Another Name for Saving? Nope.

Mises.org: HuffPo Abolishes Scarcity

Re: Public deficits = net private savings

Think Blue — Tue, 20 Jul 2010 17:05:20 GMT

Here is a blog discussion between a Chartalist and some Austrians:

Mises Economics Blog

Re: Public deficits = net private savings

chloe732 — Tue, 20 Jul 2010 03:24:02 GMT

Wolfman: "Instead I got my MBA in Finance and it is fun to work in the private sector."

BRAVO! Well done, sir!

Re: Public deficits = net private savings

wolfman — Mon, 19 Jul 2010 13:41:02 GMT

I dont consider myself "anything". However, economics made sense to me after I found this website thanks to Ron Paul 2008 presidential campaign.

It also discouraged me from getting a masters or PhD in this most abused science of all. Instead I got my MBA in Finance and it is fun to work in the private sector.

Although having a BS Economics I just take it as a hobby.

Sam Armstrong wrote the following post at Sun, Jul 18 2010 3:35 PM:

wolfman wrote:

I took many Keynesian classes in the last 3 yrs.

Tell me, were you an Austrian before you took those modern (keynesian) macro classes?

Re: Public deficits = net private savings

chloe732 — Mon, 19 Jul 2010 05:21:54 GMT

Think Blue, you've gotten to the bottom of AP Lerner's mysterious theory. It is Chartalism (never heard of it before). AP Lerner (1903-1982) was a Chartalist, the blog poster took on this name. This is very similar, if not identical to, the theories put forth by the Zeitgeist (sp) folks. They call it Resource Based Economics. I watched a video that described the monetary system in Chartalist terms.

Jonathan was right in his response to AP Lerner: "Unfortunately, AP Lerner's post is very convoluted, unclear, ambiguous, and confusing, so I don't think anybody will be able to provide a proper rebuttal."

I think that says it all. It's a train wreck.

Re: Public deficits = net private savings

Think Blue — Mon, 19 Jul 2010 02:59:32 GMT

Here is an excerpt from the Wikipedia entry on Chartalism, which explains some of the basics:

Chartalists draw the following conclusions:[6]

Private household budgets and national government budgets are not analogous – households must finance their spending prior to the fact (one cannot spend money one does not have, and thus must either earn it or borrow it), while governments must spend first (credit private bank accounts, "print money") before it can subsequently tax (debit private bank accounts).

Indeed, if all government spending were collected in taxes (balanced budgets, no national debt), there would be no money for private savings.

Government spending is thus the source of funds for net private savings.

Government spending is not revenue-constrained.

Governments do not "spend taxpayers' funds" – taxation lowers private spending power, but does not provide additional public spending power (governments can spend fiat money by printing it, without needing to finance it).

Decreases in national debt yield a decrease in private sector savings, and thus an increase in leverage of the private sector, which can yield a credit bubble.

These yield radically opposite conclusions to mainstream economics on national budgeting, arguing that persistent government deficits are necessary to a growing economy. Chartalists are in agreement with Keynesian economists on the desirability of deficit spending for fiscal stimulus in case of lack of effective demand, for partly overlapping reasons. Chartalists disagree with Keynesian economists on the desirability of running surpluses during periods of high effective demand as this will effectively decrease the money supply and therefore increase credit leverage in the economy.

Re: Public deficits = net private savings

Think Blue — Mon, 19 Jul 2010 02:46:45 GMT

From the other thread, razerfish mentioned that the underlying theory might be something called MMT or Modern Monetary Theory.

Basically, MMT is another name for Chartalism, which is Post-Keynesian theory (yes, that is an actual school).

In general, I think it's prudent to familiarize yourself with other schools of thought, even other non-mainstream ones, in the event you encounter some of their adherents.

Here are some useful links after I did a google search:

Wikipedia: Chartalism

Wikipedia: Monetary Circuit Theory

A Primer on Modern Monetary Theory (MMT)

Re: Public deficits = net private savings

Sam Armstrong — Sun, 18 Jul 2010 20:35:49 GMT

wolfman wrote:

I took many Keynesian classes in the last 3 yrs.

Tell me, were you an Austrian before you took those modern (keynesian) macro classes?

Re: Public deficits = net private savings

Think Blue — Sun, 18 Jul 2010 19:20:51 GMT

chloe732:
Go to the link you provided above, to the Krugman in Wonderland blog. Scroll down to AP Lerner's post about 3/4 of the way down. He provided the link to Econ 101.

For some odd reason, I can't find the link. Maybe he removed it from his post? But anyways, that's not really important anymore.

Here are my comments about your critique of his Econ 101:

chloe732:
1) It uses an accounting identity to conclude that an increase in public debt equals an increase in private savings. The statement is true according to the definition. But I contend that accounting identities have nothing to do with economics; they ignore the market as a process.

The macro account identities do a provide a method of categorizing data, and showing necessary economic relationships. For example, the accounting identity savings must equal investment is a reality not disputed either by the Austrians or mainstream economic schools of thought.

But yes, they do ignore market process, since the formulas are just a snapshot in time.

chloe732:
2) His island analogy ignores the nature of money as a commodity that arises in an unhampered market. The sea shell assumption oversimplifies the situation to the point of error. The actors simply would not "decide" to use seashells. When silver enters the picture, they simply would not "decide" on an exchange rate. Even in a simplified analogy, money would have to be dealt with in a more realistic manner than this to avoid errors in theory.

3) The description of exchange value is erroneous. It appears to be labor theory of value, or some kind of objective value, in disguise.

He is absolutely making no sense whatsoever. It would give me a headache for me to disentangle his convoluted reasoning.

chloe732:
4) Does anyone know what "leakage" is or why it's relevant?

I don't know what he means by "leakage" either. In Keynesian thought, there's a saying that "leakages must equal injections", which is another way of stating the economy must be in general equilibrium.

For examples, savings must equal investment, else there might be a "leakage" of savings over investment, drowning the whole economy in a savings glut.

chloe732:
5) The section on "Deficits" is flawed. The conclusion should be that the creditor obtained currency plus a note receivable with interest, and the debtor provided currency and a promise to pay with interest. He says the creditor receives a "surplus" and the debtor incurs a "deficit" which offset. Of course they offset from an accounting standpoint, but so what? He seems to equate a "private surplus" in this context with real savings.

He then shows an impressive chart of Japan with bars expanding and contracting together that show how government deficits equal private surpluses. He ignores the reality that government deficits represent what SOME people owe to OTHER people.

Some people (the taxpayers) have notes payable, and other people (investors) have notes receivable. To say that private surpluses increase with increased deficits is the same as saying private notes receivable increase when government debt increases. True statement. But the accounting identity does not prove that deficits are helpful in recessions as is being implied. It simply means that someone is keeping a tally of how much is owed from one group to the other group. That is what his charts represent, nothing more.

In macro and internal trade theory, this is known as external and internal balances. He's quoting some other econ blogs about this, but since he does not know what he's talking about, he's demonstrating his complete ignorance of a legitimate concept.

But I completely agree with what you said above in the part I highlighted. His accounting identities and charts do not add any more useful information, then stating an obvious condition. He might as well state that "a circle is round."

Re: Public deficits = net private savings

chloe732 — Sun, 18 Jul 2010 17:33:28 GMT

Think Blue: "I'm curious chloe732, where did you find that "Econ 101" link? Is he posting on another blog now?"

Go to the link you provided above, to the Krugman in Wonderland blog. Scroll down to AP Lerner's post about 3/4 of the way down. He provided the link to Econ 101.

By the way, what do you think of my critique of it?

Re: Public deficits = net private savings

Jonathan M. F. Catalán — Sun, 18 Jul 2010 16:19:55 GMT

Another interventionist concept? I don't see how a concept like that is useful in economic analysis, except in the situation where one is trying to intervene in the economy.

It's "useful" depending on what "branch" of Austrian banking theory you consider yourself a part of (although, all Austrians tend to agree that a rise in demand for base money will lead to an increase in supply of base money, although obviously there is some lag in time). Say there is a rise in demand for money, but some of this money is stored under mattresses (or is simply not loaned out), this is analogous to a general fall in the volume of money (in circulation, which is what matters). The structure of production necessarily becomes shorter and narrower, regardless of a change in society's time preference. This topic is dealt with by Jesús Huerta de Soto in his treatise on business cycles.

Of course, in a free market the amount of "leakage" which occurs is probably very low, especially if we assume that a free market in banking would effectively minimize the occurances of "depressionary shocks" to expectations.

Re: Public deficits = net private savings

Think Blue — Sun, 18 Jul 2010 10:27:25 GMT

chloe732:
AP Lerner (the guy who replied in the blog post defending interventionist economics) provided the following link. It is called "Econ 101".

Economics 101

I believe this framework is flawed.

Thanks for posting this. I've been reading though some of his material through the "Econ 101" link, and honestly, they're just a bunch of incoherent ramblings that make absolutely no sense whatsoever.

He would surely flunk out of any introductory macro class offered in many colleges.

I've posted a response as userid XYZABC on the blog, and called him out on his claims about Fed operations, which were factually false. He didn't take on my challenge, but seemed not to want to debate the blog post anymore, and then he deferred to a whole bunch of other links he posted.

His "arguments", if you really can call it that, is a whole bunch of copy and paste from other econ blogs (from those, who know what they're talking about), interwoven into some bizarre econ theory, and it's so laughable. Those same sources contradict him by saying the complete opposite of what he's claiming.

I'm curious chloe732, where did you find that "Econ 101" link? Is he posting on another blog now?