Reassembling again for the event. This time, it's Auerback on "Will the US turn into a modern Weimar Germany?" Reminder: This liveblog is just a liveblog, no claims for accuracy or correctness can be made absolutely. I try my best but even I can only type so fast...
Remember that some of the panelists are bloggers themselves and later I'll try to give the links to their blogs.
So, now, it begins...
Why we tax: Abba Lerner says: The state can make anything into money, but it means nothing unless taxes/obligations are denominated in it. Then it becomes sovereignty.
Taxes also serve to regulate aggregate demand, not to "raise" money. We should evaluate policy in terms of effects and impacts in the real world, not dogmas of "soundness". Operational reality.
Weimar Germany
- Extremely harsh foreign war reparations.
- One third of gov't spending, half GDP.
- (But the USA only has 8% deficits at most.)
- German debt: denominated in foreign currencies, no control.
Foreign debt vs domestic debt.
- Germany hadn't enough gold to pay off its debts.
- Had to aggressively buy foreign currency --- massive price inflation!
Unions
- Weimar had a much larger unionized power and population, with COLA.
- Price inflation (BUT Auerback thinks that unions are a good thing in most circumstances.)
- No such mechanism in the USA; wages don't rise with prices, have declined. Potentially deflationary.
Obama has presided over a massive wealth transfer to the wealthy rather than raise wages.
Diff between Weimar Germany and USA: Germany operated in a gold-standard world, the Mark was worthless vs gold. French/Belgian occupation of Ruhr, met with passive resistance. But money was still paid to workers.
Is Zimbabwe a better example than Weimar?
- Zimbabwe civil war.
- Zimbabwe growth happened before drought, not perfect but happened.
- Problem: land reform. Whites resisted it, so the political response was a misguided land reform that pushed the productive capacity down.
- (Auerback notes that the political cost of inequality is very high, warning for USA.)
- Zimbabwe forced to buy food on foreign markets. No funds left for raw materials, collapse of manufacturing, 80% unemployment...
The Zimb. gov't response was to buy favour by increasing spending: hyperinflation!
USA is not quite as bad as Zimbabwe in these departments, so Zimbabwe is probably a poor analogy.
Bad gov'ts can wreck any economy. But with fiat money, a wise gov't can sustain price stabillity AND full employment.
Long-term unemployment yields lower productive capacity.
Q&A
Missed first question, got distracted.
Mitchell summarizes Auerback: Take a country, destroy its productive capacity---then any gov't spending will cause hyperinflation. But Zimbabwe could not have stopped inflation without starving everyone to death. US going that way too?
Q from Ed Harrison: Social security -> inflation?
A from Wray: No, wages might do it, but soc sec "passes through" much more slowly. Misallocation possible in future.
Q from Ed Harrison: Inflation -> currency depreciation -> interest rate -> inflation?
A from Mosler: This is a political problem. Interest rates are a political decision.
A from Mitchell: Depreciation is not inflation. It's a one-off price increase. So the premise behind Harrison's claim is not quite right.
Objection from Harrison: So if the price of the currency goes down, doesn't everything become more expensive? (Oil, for instance.)
Panelists (mainly Mitchell): But...that's a once-off adjustment. A once-off adjustment is not inflation, inflation must be systemic.
Harrison: That's just a "definitional issue". A rise in price over defined time is inflation over that time.
Mitchell: But that's the point, it's a bad definition. If it's not systematic, it's not inflation.
Wray takes premise for the sake of argument. Yes, there is a political propensity to increase interest rates. But this can backfire. It's very hard to find a correlation over a long time that shows that interest rate and currency are connected. Central bank myth.
In response to another question (missed but answer interesting), Mitchell: The era when wages were tied to productivity didn't have hyperinflation; this didn't change in the 90s onward where productivity went to owners instead of workers. They aren't connected.
Mosler: Wages will stagnate without the support of the state, due to game theory.
Q from New Deal 2.0 blogger: Are there things that can be done to prevent inflation that the USA could be doing, or is the USA safe?
A from Mosler: pretty safe. The risks of inflation, anyway, are political, not economic. Doesn't hurt e.g. productivity. But may have ballot box effects.
Auerback: things are still heavily weighted to deflation, not inflation.
US oil price inflation will end itself very quickly, because there aren't government systems to keep it going [by demand destruction?]. If the USA had such systems, it would require institution reform to stop it.
Mitchell: so many developed economies have high unemployment; so it's be ridiculous to worry about inflation. High unemployment is so much more costly. It's the success of neoliberal ideology that we don't take unemployment into account FIRST. Gov'ts are wasting billions of dollars worrying about inflation over unemployment.
Unemployment in central bank ideology is a TOOL for the control of inflation, not the other way around. Outrageous, should be the other way around. Losses from last two years from unemployment in USA dwarf ALL historical US war costs.
Mosler: Financial sector is most useless waste of human resources ever. Keynes wanted "euthanasia of the rentier."
We've been on break for a few minutes. I'm going to start a new thread for the next and last talk shortly.
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Posted by: fenuercarpeve | January 10, 2012 at 10:52 PM