Home > Uncategorized > The real crises we are facing

The real crises we are facing

from Lars Syll

The fact that 21 percent of all children in the United States live in poverty—that’s a crisis. The fact that our infrastructure is graded at a D+ is a crisis. The fact that inequality today stands at levels last seen during America’s Gilded Age is a crisis. The fact that the typical American worker has seen virtually no real wage growth since the 1970s is a crisis. The fact that forty-four million Americans are saddled with $1.7 trillion in student loan debt is a crisis. And the fact that we ultimately won’t be able to “afford” anything at all if we end up exacerbating climate change and destroying the life on this planet is perhaps the biggest crisis of them all.

These are real crises. The national deficit is not a crisis.

Can a government go bankrupt?
No. You cannot be indebted to yourself.

Can a central bank go bankrupt?
No. A central bank in a monetary sovereign country can always ‘print’ more money.

Do taxpayers have to repay government debts?
No, at least not as long the debt is incurred in a country’s own currency.

Do increased public debts burden future generations?
No, not necessarily. It depends on what the debt is used for.

Does maintaining full employment mean the government has to increase its debt?

It is true that MMT rejects the traditional Phillips curve inflation-unemployment trade-off and has a less positive evaluation of traditional policy measures to reach full employment. Instead of a general increase in aggregate demand, it usually prefers more ‘structural’ and directed demand measures with less risk of producing increased inflation. At full employment deficit spendings will often be inflationary, but that is not what should decide the fiscal position of the government. The size of public debt and deficits is not — as already Abba Lerner argued with his ‘functional finance’ theory in the 1940s — a policy objective. The size of public debt and deficits are what they are when we try to fulfill our basic economic objectives — full employment and price stability.

Governments can spend whatever amount of money they want. That does not mean that MMT says they ought to — that’s something our politicians have to decide. No MMTer denies that too much government spendings can be inflationary. What is questioned is that government deficits necessarily is inflationary.

  1. July 23, 2021 at 1:50 pm

    “Do taxpayers have to repay government debts?”
    In Venezuela they sure did repay all government debt issued in bolivars… with inflation.

    “Do increased public debts burden future generations?”
    No, not necessarily, if you assume that bureaucrats know better what to do with credit than e.g., entrepreneurs.


    • Patrick Newman
      July 24, 2021 at 11:46 am

      Bit of an ideological giveaway juxtaposing “bureaucrats” and “entrepreneurs”. Try public servants v. ruthless capitalists. Remind us who is destroying the planet – Dr Fauci or Jeff Bezos?

  2. Ikonoclast
    July 24, 2021 at 1:57 am

    The USA is in crisis, no doubt about it. Having 21 percent of all children in the United States in poverty is a crisis and an infrastructure graded D+ is also a crisis. Adopting MMT principles will help, quite a lot in fact, but still will not solve the central crises of capitalism. Capitalism has to be abolished because its central crises (as contradictions internal and external) are first axiomatic and then emergent as theorems and hence are programmed, systematic and systemic. What do I mean by this?

    The basic rules (axioms) of conventional capitalism, especially as unfettered capitalism, are;

    (1) That private property ownership, as supported by state power, and as the power of private owners of real property, money and financial capital, be able to dispose of all real assets and resources except to the extent of state ownership, spending and regulation but then modified by the power of money and financial capital to influence and direct state ownership, spending and legislation against the wishes of the democratic majority.

    (2) That money be deemed able to value all things incommensurate as if they were commensurate except as ethics, legislation and custom manage to limit or alter.

    (3) That possession of money be deemed to be a sign of virtue, entitlement and the right to do anything wished up to the exchange value of the money except as insofar as ethics, legislation and custom manage to limit or alter these entitlements and rights.

    (4) That private possession of money and capital be permitted to grow indefinitely except as insofar blah, blah, blah.

    From these axioms, and a knowledge of capitalist – worker relations, you could derive Thomas Piketty’s most famous conditional equation as a theorem. It is is interesting that nobody did, at least to my knowledge, not even PIkketty, who to his great credit derived it from a few hundreds years of empirical data from French and English economic history. What is the conditional theorem?

    If r (return on capital) is greater than g (economic growth) then inequality increases.

    This is a “theorem-etic” outcome of the axioms of capitalism as modified by the precise construction, in each capitalist jurisdiction, of owner / worker relations and the operations of state power. Indeed enough state taxing and welfare spending can operate against this tendency, even enough to halt it, at least for periods of time. In turn, the natural tendency of capitalists is to oppose state functions like taxing (capitalists) and giving welfare to the working poor, unemployed and otherwise indigent or marginalized persons. Capitalists approve of and lobby for “welfare for the rich” as low taxes for the rich, deductions, subsidies and so on for the rich.

    The empirical outcomes in the modern, developed capitalist systems have been a tendency to cycle with the cyclical pattern having special features related to depressions and wars, in the following way. In times of peace and relative prosperity, that is in periods of economic growth, Pikkety’s conditional theorem comes into play in the following form. If g is kept greater than r by means of rapid economic growth and/or by means of redistribution (taxes and welfare) then the system can continue to grow without crisis (excluding serious exogenous shocks). If growth fails or fails to be sufficient, due to secular (long run) stagnation or any other cause, endogenous or exogenous, then experience and history (empiricism) show that r becomes greater by r rising, g falling or a combination but probably mainly by g falling.

    A long or longish period of g less than r results in a rise in inequality. The poorer and working classes who might be very numerous, to the point of a great majority, fall in incoem and welath relative to the capitalist receiving r (return on capital). A fall in relative income and wealth is usually taken badly if those so falling are properly aware of this fall and its ratio to the rich. Those falling may be pacified and fooled (bread and circuses etc.) and kept unware of the dimensions of their relative fall. But this process fails when the fall takes the form of a fall against benchmarks which affect them undeniably, like a fall towards or through real poverty levels.

    At that point (masses falling through real poverty and deprivation levels) the masses revolt but the revolutions may take various forms, for example socialist, nationalist or fascist. The results will be conflict, national or international, up to insurrections, civil wars and regional or global war. Conflicts require foot soldiers be they for mass demonstrations, mass strikes or mass mobilizations for war. Mass mobilization of all of these types reduces the “atomisation” of modern people, a feature of modern civilization as it dissolves communities of common interest, in their small self-interest units and spheres. Atomisation is replaced by a perception of collective interest, of belonging to a large whole of persons with shared interests. Even democratic-capitalist societies heavily promoting individualism and self-interest cannot stop this process and it runs counter to the capitalists’ interest and wishes, especially when demobilized soldiers return en masse to civil society. These are men (and now women) who learned they can be strong, immensely strong, when they are combined in great masses. This is despite the maiming and PTSD of a returning proportion, which PTSD in particular is exacerbated by re-atomization in civil society and invalidation of their war sacrifice.

    But the elites are and remain terrified of masses of returning men and women – referring to large, “just” wars like WW2 as the home society sees them, so that invalidation does not occur – and so the elites are very careful about demobilization. They manage it gradually and are often virtually forced to make huge socialist-style and welfare-style concessions, especially for employment, housing, marriage and family life to re-integrate returned soldiers into civilian and economic life. If they did not, the prospect is literally humndreds of thousnads, if not millions of men and women who know genrally how to do things for themselves, improvise, do combined logistics very well and fight and kill at the pointy end. Masses of such people are terrifying. The self-cosseted and pampered rich elites are especially terrified of such capable and ornery people unless their (the elites’s) directly commanded security forces can divide and conquer the somewhat uncohered mass, uncohered by demob and the sequestration of weapons, especially heavy weapons, in guarded armories.

    The large socialist-style and welfare-style concessions, along with the re-starting of the civilian economy and gearing it to reconstruction (post WW2 Europe) or domestic consumption and reconstruction exports (post WW2 USA) usually re-boosts growth and g becomes larger than r. The corollary of g greater than r is that inequality decreases.

    But we entering a new phase of economic history, One where secular (long run) stagnation and secular (long run) decline are unavoidable because of resource limits, the limits to growth. It was long thought by many, including me, that the limits to growth would be directly about material resources (fossil fuels, minerals, timber etc. running low). This has turned out to be (mostly) incorrect. The limits have turned out to be planetary or biosphere system limits of geophysical, biophysical, biological and ecological natures, including the supply of eco-sevices. Climate change as AGW (Anthropogenic Global Warming) is the key example. Fossil fuel scarcity is not limiting us. We have an aver-abundance of fossil fuels easily capable of wrecking our climate at least a couple of times over, sending it over tipping points into runaway climate change (runaway for hundreds of thousands of years at least. It might re-equilibrate after that sort of time span and/or return to glacials and inter-glacials (which latter seems to favor modern humans and civilization.

    All this indicates that unfettered, endless growth capitalism (meaning its prescriptions as axioms and its extant practices) is and will be totally impossible to maintain. If we attempt to maintain it we destroy the biosphere and its systems as a place capable of supporting human civilization, many other species (the 6th mass extinction is real and happening right now) and quite likely even homo sapiens.

    Capitalism is impossible to maintain and completely doomed. Let’s not doom ourselves by trying to hang on to it.

  3. Benjamin
    July 24, 2021 at 8:28 am

    Neoliberal Propaganda managed to forcefeed into current thinking that staates and all others are not to be “financed” with taxes, fees and salaries. Rather they substituted that with profits for investors and credits and debts for the rest of everything. It is by today the biggest criminal existing plan to plunder everything on this planet and transfer all gains into tax heavens. How can we assure future generations not to be robbed by this?

  4. Ken Zimmerman
    July 25, 2021 at 9:19 am

    According to a 2019 interview in the Observer  New  Review, with Thomas Piketty about Piketty’s book ‘Capital  in  the  Twenty-First  Century,’ the  current  level  of  rising  wealth  inequality,  set  to  grow  still  further,  now  imperils  the  very future  of  capitalism.  Piketty  has  proved  it. It  is  a  startling  thesis  and  one  extraordinarily  unwelcome  to  those  who  think  capitalism  and inequality  need  each  other.  Capitalism  requires  inequality  of  wealth,  runs  this  right-of-center argument,  to  stimulate  risk-taking  and  effort;  governments  trying  to  stem  it  with  taxes  on  wealth, capital,  inheritance  and  property  kill  the  goose  that  lays  the  golden  egg.  Thus  Messrs.  Cameron and Osborne faithfully  champion  lower  inheritance  taxes,  refuse  to  reshape  the  council  tax  and boast  about  the  business-friendly  low  capital  gains  and  corporation  tax  regime.

    Piketty  deploys  200  years  of  data  to  prove  them  wrong.  Capital,  he  argues,  is  blind.  Once  its returns  –  investing  in  anything  from  buy-to-let  property  to  a  new  car  factory  –  exceed  the  real growth  of  wages and output, as historically  they  always  have  done  (excepting  a  few  periods  such as  1910  to  1950),  then  inevitably  the  stock  of  capital  will  rise  disproportionately  faster  within  the overall  pattern  of  output.  Wealth  inequality  rises  exponentially.

    The process  is  made worse by inheritance  and,  in  the  US and UK, by the rise of extravagantly paid “super  managers”.  High  executive  pay  has  nothing  to  do  with  real  merit,  writes  Piketty  –  it  is  much lower,  for  example,  in  mainland  Europe  and  Japan.  Rather,  it  has  become  an  Anglo-Saxon  social norm permitted by the ideology  of “meritocratic  extremism,” in  essence,  self-serving  greed  to keep  up with the other rich.

    This  is  an  important  element  in  Piketty’s  thinking:  rising  inequality  of wealth  is  not  immutable.  Societies  can  indulge  it  or  they  can  challenge  it. Inequality  of  wealth  in  Europe  and  US  is  broadly  twice  the  inequality  of  income  –  the  top  10% have  between 60% and 70% of all wealth but merely 25% to 35% of all income. But this concentration  of  wealth  is  already  at  pre-First  World  War  levels,  and  heading  back  to  those  of  the late  19th  century,  when  the  luck  of  who might expect to inherit  what  was the dominant element in  economic  and social  life.

    There  is  an  iterative  interaction  between  wealth  and  income: ultimately,  great  wealth  adds  unearned  rentier  income  to  earned  income,  further  ratcheting  up the  inequality  process. The extravagances  and  incredible  social  tensions  of  Edwardian  England,  belle  epoque  France  and robber  baron  America  seemed for ever left  behind,  but  Piketty  shows  how  the period  between 1910  and 1950,  when that inequality  was  reduced,  was  aberrant.  It  took  war  and  depression  to arrest  the  inequality  dynamic,  along  with  the  need  to  introduce  high  taxes  on  high  incomes, especially  unearned  incomes,  to  sustain  social  peace.

    Now  the inevitable process  of  blind  capital multiplying  faster  in  fewer  hands  is  under  way  again  and  on  a global  scale.  The  consequences, writes  Piketty,  are  “potentially  terrifying”. For  a start,  almost  no  new entrepreneurs,  except  one  or  two  spectacular  Silicon  Valley  start-ups, can  ever  make sufficient new money to challenge the incredibly powerful concentrations  of existing  wealth.  In  this  sense,  the  “past  devours  the  future”.  It  is  telling  that  the  Duke  of Westminster  and  the  Earl  of  Cadogan are two of the richest  men in Britain.  This  is  entirely  by virtue  of  the  fields  in  Mayfair  and  Chelsea  their  families  owned  centuries  ago  and  the unwillingness  to  clamp  down  on the loopholes  that  allow  the  family  estates  to  grow. Anyone with the capacity  to  own in an era when the returns exceed those of wages and output will  quickly  become  disproportionately  and  progressively  richer.  The  incentive  is  to  be  a  rentier rather  than  a  risk-taker:  witness  the  explosion  of  buy-to-let.  Our  companies  and  our  rich  don’t need to back frontier  innovation  or  even  invest  to  produce:  they  just  need  to  harvest  their  returns and tax breaks,  tax  shelters  and  compound  interest  will  do  the  rest.

    And, according to Piketty the new super rich aren’t really much different from the old rich. “Because [Jeff Bezos] and [Mark Zuckerberg] own $100 billion in the current state of the legal system, the current state of the fiscal system, the current way the international economy is organized, people say, ‘OK, $100 billion, exactly the right level.’ But with a different legal system, different international taxation, it could be 200, it could be 50. So what would be the story? Any level that they will attain, it will be the best? This kind of sacralisation of special individuals is a form of religious thought. People who use this kind of argument: ‘He’s great, therefore –‘ therefore what? Therefore, we should subsidize him so that he’s even richer?”

    Capitalist  dynamism  is  undermined,  but  other  forces  join  to  wreck  the  system.  Piketty  notes  that the  rich  are  effective  at  protecting  their  wealth  from  taxation  and  that  progressively  the proportion  of  the  total  tax  burden  shouldered  by  those  on  middle  incomes  has  risen.  In  Britain,  it may be true that the top 1% pays a third of all  income tax,  but  income tax constitutes  only  25%  of all  tax  revenue:  45%  comes  from  VAT,  excise  duties  and  national  insurance  paid  by  the  mass  of the  population. As a result,  the  burden  of  paying  for  public  goods  such  as  education,  health  and  housing  is increasingly  shouldered  by  average  taxpayers,  who  don’t  have  the  wherewithal  to  sustain  them. Wealth  inequality  thus  becomes  a  recipe  for  slowing,  innovation-averse,  rentier  economies, tougher  working  conditions  and  degraded  public  services.

    Meanwhile,  the  rich  get  ever  richer  and more detached from the societies  of  which  they  are  part:  not  by  merit  or  hard  work,  but simply because  they  are  lucky  enough to be in command of capital receiving higher  returns  than  wages over  time.  Our  collective  sense  of  justice  is  outraged. The lesson  of  the  past  is  that  societies  try  to  protect  themselves:  they  close  their  borders  or  have revolutions  –  or  end  up  going  to  war.  Piketty  fears  a  repeat.  His  critics  argue  that  with  higher living  standards  resentment  of  the  ultra-rich  may  no  longer  be  as  great  –  and  his  data  is  under intense  scrutiny  for  mistakes.  So  far  it  has  all  held  up. Nor does it  seem likely  that  human beings’  inherent  sense  of  justice  has  been  suspended.

    Of course  the  reaction  plays  out  differently  in  different  eras:  Piketty suspects  some  of  the  energy  behind Scottish  nationalism  is  the  desire  to  build  a  country  where  toxic  wealth  inequalities  are  less indulged  than  in  England. The solutions  –  a  top  income tax rate  of  up to 80%, effective inheritance  tax,  proper  property taxes  and,  because  the  issue  is  global,  a  global  wealth  tax  –  are  currently  inconceivable. But as Piketty  says,  the  task  of  economists  is  to  make  them  more conceivable. Piketty’s book certainly does  that.

  5. Craig
    July 25, 2021 at 11:12 pm

    The real crisis we face is not the false and intractable duality of capitalism vs socialism. It is the unwillingness/inability to think integratively about that conflict. This despite the four leading reformists of Steve Keen (financial instability), Michael Hudson (financial parasitism), Ellen Brown’s Public Banking (financial dominance) and MMT (financial austerity) all focused on money and finance.

    What is Keen’s “modern debt jubilee” major reform? Monetary Gifting.

    What does Michael Hudson’s research tell us? That the present monetary and financial paradigm of Debt Only has plagued us for the entire course of human civilization.

    What do Ellen Brown’s reforms suggest we do? Break up the private monopoly structural control of the private banks.

    What are MMT’s primary policies? Greater fiscal deficits and a job guarantee….which of course, thinking paradigmatically instead of merely reform, are what? That’s right, Monetary Gifting.

    The policies I have posted about here for years integrate the insights of all of the above and enable much more. Think about it.

  6. July 26, 2021 at 4:15 pm

    It is important to add an idea of when and why “printing money” may be inflationary or not. In order to answer this question we need no less than an encompassing understanding of what money is. This is my suggestion: money is trust in the institutions of the monetary system. Using this definition we may easily conjecture that anything that diminish this trust also diminish the value of money, hence inflation. Therefore, “printing money” be it by the central bank, commercial banks or “reckless” government spending does not cause inflation as long as this “printing” is not considered as a sign of weakness of the institutions of the monetary system. Once it is things go south. The implication is straightforward, governments and central banks have only limited influence on inflation, beliefs, propaganda and expectations yield much larger leverage.

    • Meta Capitalism
      July 27, 2021 at 12:57 am

      A welcome return Christian Mueller. Love your clarity.

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