innocent fraud or subversion?

or both?

Galbraith attacked for teaching “NAKED Keynesianism” !!!


45 Responses

  1. I think children would make better arguments than these fox people. Anyway they twisted the facts to make it appear that Galbraith said that “all debt doesn’t matter”

  2. My takeaway from this:

    The road to destruction is lined with madmen. In other words, the anger of men is becoming increasingly incoherent. Blinding rage over the Wall Street and Capitol Hill “orchestrated” financial plundering of the American middle class leads men to incoherent ends. This is no longer a financial crisis, it is a social and political crisis. Pseudo-ideologies driven by rage are the primary policy engines now. America is on the “verge” of a post-Fascist breakdown of the nation, and (ironically) at least in the near term, MMT may be our only savior.

    1. Please:

      Academics at harvard have same position.

      are they children? are those nobel prize winner idiots? are they blinded by rage?

      1. But I would expect academics at Harvard to be curious enough to listen and attempt to understand.

      2. jcmccutcheon: that is yours expectation but you will find that it will not be met by the reality.

        Dan Weintraub: your claim is that anger is obscruing the rational thinking. however, i present you with clear case where there is no anger, and there is no rational thinking either!

        I ask you to explain this, and you say again “anger is obscuring rational thinking”.

        i think you are correct, i am also thinking you are angry. why you connect intellectual with Nazi and do not mention Communists is similarly telling

        Greg: you are correct. Old Great Depression programs have been helpful

      3. Intellectuals formed part of the vanguard of Hitler’s Nazi Party as well. Look, my point is only that anger has become a fuel that is powering populist sentiment, and that anger is obscuring rational thinking. AND, this anger is self-reinforcing. Anger breeds more anger, which makes the disenfranchised feel increasingly powerful in their discontent. This will not end well.

      4. Yeah things may get very very scary if the macro picture begins to darken as many expect. However, there may be just enough fiscal wind at our backs to get credit expansion going again.

      5. Yes there may be enough fiscal winds…………. in the form of unemployment insurance and SS (puts a floor under aggregate demand), FDIC, (prevents bank runs) AND believe it or not Fannie and Freddie (guaranteeing QUALIFYING mortgages).

        What so many of the Fox watchers dont get is that without the New Deal programs that have yet to be gutted we would be in Greatest Depression II and would have been during Bushs’ administration.

      6. What so many of the MSNBC watchers don’t get is that tax cuts would accomplish the same thing as these New Deal programs, with the added bonus of aligning incentives correctly.

      7. “What so many of the MSNBC watchers don’t get is that tax cuts would accomplish the same thing as these New Deal programs, with the added bonus of aligning incentives correctly.”

        UHHHHHH Not so much. Tax cuts do nothing for people who arent collecting incomes. Tax cuts do nothing to stem bank runs.

        I totally support Warrens (and others) proposal to have a payroll tax holiday, I believe it would be very effective, but the “tax cut” mantra on the right extends to totally ridiculous areas like inheritance taxes and capital gains taxes. Neither of those do anything to enhance GDP, they only work to entrench wealth and create aristocratic states………………not what we need.

      8. I’m not going to argue politics with you. If inequality bothers you, then it makes sense to take money from the rich and give it to the poor at some level. And the estate tax and capital gains tax certainly do manage to take money from the rich, or at least cause them a lot of hassle in avoiding the tax.

        But both of those taxes do cause inefficiencies and lower GDP (all other things being equal). The capital gains tax incentivizes people to hold onto investments that they would otherwise want to sell. The estate tax causes people to engage in extremely wasteful estate planning activities.

        In addition, both the estate tax and the capital gains tax incentivize people to do more charitable giving than they otherwise would. This is NOT a good thing. Giving to charities is a form of spending, and it can be extremely wasteful. In particular, charitable giving by the ultra-wealthy tends to go towards supporting the arts and various educational institutions that aren’t economically viable on their own.

        It’s a good thing for somebody like me who values museums and concert halls and a new computer science building at Whatsamatta U., but society as a whole has generally decided those investments are a waste of resources.

      9. ESM, the estate tax and capital gains taxes are taxes on rentiers, while income taxes and regressive taxes are chiefly taxes on workers. Why should rentiers pay less tax than workers?

        Keynes did not object to “significant inequalities” in income and wealth, and therefore did not aim to create a society in which incomes and wealth were equally (or almost equally) distributed among all members of society. He offered two justifications for inequality, as an incentive for productive activity and as a channel for competitive impulses that otherwise, he thought, might take on more predatory forms. However, he did think that existing inequalities were excessive, and that it would be desirable to reduce them.

        Keynes did not believe that the accumulation of saving in the hands of the wealthy—and the necessity of this saving for financing investment—justified inequality. He pointed out that the rates of interest necessary to pry away the savings of the rich for use by society to finance investment were typically too high to be consistent with full employment. With interest rates too high, Keynes argued, investment is too low (since some investment projects that would be profitable at a lower rate of interest would not be profitable, and therefore would not be undertaken, at a higher rate), and therefore so are total output and employment.

        Keynes viewed income from interest (which he called “rentier” income) as basically parasitic. He compared the interest income of the “functionless investor” to the rental income of landlords. Neither interest nor rent, he argued, required any “genuine sacrifice” on the part of their recipients. Rather, they were merely rewards for owning scarce resources. He advocated, therefore, a reduction of the interest rate to little or nothing and what he termed the “euthanasia of the rentier.” The cost of capital equipment, he argued, would cover its production cost, as well as allowances for depreciation and risk, but not incomes for idle owners of capital.

      10. Tom, they shouldn’t. I am actually against income taxes in general, partially because it discourages making money, and partially because it leads to an intrusive, ambiguous, and complicated tax code (income is too difficult to define legally).

        I favor consumption taxes, but also property taxes (although a property tax can be viewed as a form of consumption tax because the owner of tangible property is hogging the use of that property as a resource by other people).

        I disagree that somebody who merely owns financial wealth is a rentier, and I actually don’t think Keynes would say that he is. Ironically, the writer of the passage you cite does not seem to understand something that you understand quite well, i.e. you don’t need savings to finance investment.

        If Warren Buffett were to bury his shares of Berkshire Hathaway and billions of dollars of cash in his backyard and leave them there to decay away to dust, who does that hurt? Nobody. He is not using or wasting any real resources at all.

        In any case, if you don’t like people earning interest income, or (more rationally) don’t like the fact that there are positive return investment projects which are precluded by a high interest rate, there is an easy solution. You can make the interest rate zero. I believe that Warren has proposed that the Fed should generally hold the short-term interest rate close to zero, which strikes me as reasonable, as long as the Fed retains the authority to raise interest rates quickly if inflation were to tick up. Taxes usually can’t be raised fast enough to nip an inflation threat in the bud, so raising rates will probably be the first line of defense.

      11. ESM,

        As for whether interest rate hikes work faster than tax hikes, isn’t the issue a political one and not economic? That is, a tax hike doesn’t act slower but rather it takes longer to be enacted in our political process.

        Congress could delegate to the President the discretion to raise or lower tax rates (just as they’ve delegated to him the power to set or remove oil import fees). Or they could remove the discretion and simply set a formula. For example, we know that maximum employment rate in US history was 1.2% (in 1944, the last full year of World War II). Employee FICA taxes are 7.65% (employers also paying 7.65%). On a quarterly basis (or monthly for that matter), combine the two numbers… 8.85% — if the unemployment rate exceeds that sum, don’t collect any FICA taxes. If the unemployment rate is below that sum, add to it a FICA tax rate to equal 8.85%. As the economy moves towards full employment, adjust accordingly. So if unemployment is, say, 6%, employees and employers would each pay a 2.85% FICA rate.

        Whether by presidential discretion or by established formula, there’s no reason inflation can’t be dealt with by adjusting tax rates instead of interest rates. I concede if we get back to 1.2% unemployment, then yes, we should feel free to fiddle with interest rates. :o)

      12. Err, sorry. maximum employment was the 1.2% unemployment rate in 1944.

        As regressive as the FICA tax is, it sure is efficient. And I’m intrigued by the new unearned income Medicare tax, which adds capital income (dividends, capital gains, etc.) over $200,000 to the existing FICA wage tax base. I have no idea why we have two separate federal tax regimes.

        Instead of reforming the income tax system, Congress could drop it entirely and simply adjust FICA (remove the Social Security cap, add unrealized capital gains) to make it an Art Laffer-style “true flat tax”. But to move back on topic– even then, FICA could have variable rates depending on the unemployment rate.

      13. That’s right Beowulf. My concern about tax hikes working too slowly is all about the political process. The same goes for tax cuts. It just takes too long to get the ball rolling, and inevitably the size of the hikes or cuts gets negotiated down to a level below what is required.

        I think your idea of having an established tax rate formula is an excellent one (and using the unemployment rate is a good idea too). It would be a much better automatic stabilizer than the hodge-podge and accidental stuff we have in place right now. In fact, having a tax rate tied to unemployment might even be a better idea than the ELR/JG program that Warren et al favor. I agree with the ELR/JG in theory, but I think it would have a lot of harmful side effects in practice.

      14. ESM, I agree with you on property taxes (the estate and capital gains tax can be viewed as such) and on taxing consumption rather than income for work (productive contribution) as distinct from other revenue.

        I’m open to adjusting all property taxes for inflation, too. Only actual appreciation should be taxed as a matter of fairness.

        I disagree with you about the economic affects of inequality. Excessively unequal distribution is neither efficient nor effective economically, and it is socially disruptive.

        See, for example, Ernst Fehr: How I found what’s wrong with economics.

        The Spirit Level: Why More Equal Societies Almost Always Do Better

      15. Thanks for the kind words ESM. I threw in 1944’s 1.2% unemployment rate because ‘full employment’ now seems to mean, what, 5%, 5.5%? The Federal Reserve Act lists as one of its goals as “maximum employment”; as long as an employment target is set north of 1.2%, then we’re not really looking at maximum employment anymore. Granted, drafting millions of young men out of the economy had a lot to do with achieving our actual maximum employment rate, so I certainly don’t expect us to ever reach that level again. However, its still a good idea to use a compass even if you don’t intend to walk all the way to the North Pole.

        I wanted to point out that adding a tax on unrealized capital gains would be a federal tax on property (albeit, one the Supreme Court wouldn’t quickly blow up). What’s more, if capital is taxed every year instead of at realization, there’s no lock-in effect nor need for an estate tax on the back end. Art Laffer’s new book, Return to Prosperity, discusses this issue in some detail. Even indexed for inflation, it’d raise more than ten times the $30 billion in estate taxes the IRS collects annually (the increased revenue, of course, should be used to cut other taxes as well).

  3. Time to create a public report card comparing Galbraith’s ability to predict the future economy to near anyone at Harvard, Fox News or the current Obama administration.

  4. Good Lord. I do have to admire Fox’s polemical skills, they picked a villain (not Galbraith himself, but elite liberal Universities) and they plowed away. Hmm, what ARE the universities teaching our children?

    Of course, Galbraith is a professor at that fine Big 12 school, UT. In fact its Harvard professors like Barro and Mankiw who’d take the Fox News side of the debate, but let’s not make this too complicated. :o)

  5. Fox identifies Prof Galbraith is “Lloyd Bentson” Chair at UT.

    I think it was the 1988 VP debates (Quayle v Bentson) where everyone remembers the famous Bentson line “…you’re no Jack Kennedy!..”

    There was another Bentson quote I remember: Quayle was taking some general GOP credit for a stronger economy up to that part of the decade, and Bentson responded “If you let us write a trillion dollars of ‘hot checks’ then we would have done well too, but now we have to pay for it!”.

    This is a political ‘hot potato’ that they take turns smearing each other with, it goes waaaay back. The public (present company excepted!) lets them get away with it. Dick Chaney is the only one (maybe Pete Stark also) who has disclosed he knows how it really works, and he ain’t talking right now.

    I’d like to see Varney vs Mike Norman on Fox sometime, I’d take Mike in a 60 second knockout, first round!, Resp,

    1. Well if it’s a knockout you’re looking for, I’d recommend you go with Pete Stark, not Mike Norman. Pete’s got the temperament for it.

      Remember, Crazy beats big every time …

      1. Yeah, Pete Stark always reminds me of a crazy old man in a Stephen King novel that no one in town listens to and yet turns to be the first to recognize the danger and the only one that knows exactly what to do to defeat it.

      2. Beo,
        This is a youtube of Rep. Stark trying to get thru to some jerk from the Debt Doomsday Crowd, sounds like he is an Austrian. It sounds to me that Stark is in paradigm.


      3. Stark was a long-time banker, so I think he sort of gets it. But he doesn’t understand MMT well enough to explain it to a skeptic. On top of that he’s just an extremely arrogant, hyper-partisan, ill-tempered human being. Combine that with his frustration at his own inarticulateness, and you get what you see in the video — something which undermines the cause rather than advances it.

  6. @ zanon,

    Totally agreed. Fascism, Communism (Maoism)…extreme political responses to social and economic extremis.

  7. I may have found out what the Peterson people consider “unsustainable” to mean, how they currently define it. The following is a cut from a most recent post at the blog of the Chief Economist of the Concord Coalition, Diane Lim Rogers, PhD., she runs a blog called here. She allows comments which is more than I can say for any other Peterson related weblog (Peterson screens and I must be on ‘Ignore’), I give her credit for that, and she seems like a nice person in her writings but is unfortunately apparently not in paradigm. She has a blanket statement that her views there are not necessarily Concord’s, but this may be revealing anyway:

    …Hmmm…. sounds like the First Lady is trying to eliminate the “unsustainable” part of calories (the “energy gap”) just like her husband’s trying to eliminate–with the help of his fiscal commission, that is–the “unsustainable” part of the budget deficit (the part that exceeds growth in the economy).

    But I still find myself asking (like any well-conditioned budget policy analyst would) “a trillion-calorie reduction relative to what?–and spread over how many foods or people?–and over what kinds of people?”… How do we evaluate the success of this calorie-reduction portion of the overall campaign to reduce childhood obesity?

    Bold emphasis above is mine. She seems to be conceding that the “unsustainable” portion of the deficit is only that portion which exceeds GDP growth. But is not growth (at least nominal?) dependent on the fiscal deficit? If Concord concedes that the deficit within gdp growth is sustainable, and they could be shown thru sectoral balances equation how that same growth figure is dependent on said deficit, then it’s checkmate no? Resp,

    1. Those are the right questions to be asking, Matt. I also believe that deficits must grow with GDP, over the course of the business cycle, otherwise it becomes very difficult for GDP to grow.

      On the other hand, I don’t see a rationale for why deficits *must* or should grow *faster* than GDP. So when someone points at a budget and says, “look, the deficit is growing faster than GDP”, then you have one of three responses to make:

      1. This is temporary and the cyclically adjusted deficits is growing with GDP — meaning that the growth rate of deficits relative to the growth rate of GDP will *slow* down in the future, so that over a long period of time, the deficit and GDP are growing at the same rate. In that case, you need to provide a plausible mechanism.

      2. This is permanent, and that’s how it’s gotta be — the private sector requires more and more injections of assets in order to generate full employment, and these asset injections need to grow faster than GDP even across the business cycle.

      There is a general inverse correlation between how much additional asset injections the private sector needs in order to generate full employment and the standard of living/inequality of the nation. And this is not a business cycle effect, as the correlation holds over long periods — e.g. 30 year time frames, and it holds in cross country comparisons as well as in our own history.

      So which answer would you give?

      1. can you talks more about inverse correlation between deficit and inequality?

        most of standard of living reductions i see in US have less to do with inequality and everythign to do with poor governance, crime, and general degradation of society.

        or, to put another way, you give criminals who now mauraud urban abbaotoir called Oakland they will not become respectable middle class citizen!

      2. Zanon, most of the crime of which you speak is located in chronically poor urban areas, especially minority ghettos like Oakland’s. This is a problem that racism created, and racism is perpetuating. The US has not yet decided to bite the bullet on this and do whatever it takes.

        What you did not mention is the high crime rate among the affluent, who are most often not prosecuted for wrong-doing.

        The US social system incentivizes crime at the bottom and at the top, and this can be correlated to a lack of distributive justice. Many people familiar with history have argued that excessive inequality is generally associated with revolution. Keynes can be viewed as an “anti-revolutionary,” who worked to save capitalism from itself during the Great Depression.

      3. Zanon, by inequality, I am talking about the ratio of median wages divided by per-capital output.

        Basically, if the private sector as a whole requires more and more injections of funds in order to generate enough endogenous demand to provide for full employment, then it is like a car that requires more and more oil in order to run. That is a sign of a leak somewhere — someone is stockpiling financial claims excessively. By excessively, I mean that those claims are not sustainable — wages are too low for your debtors to make good. You should need to increase funds in the same proportion as the growth of the economy as a whole, but no more. Additional increases are stockpiled by those in power, not “earned” or sustainable.

        Now In a free market, the just deserts of such behavior would (eventually) be a cataclysmic zeroing out of those assets via bank failures and bankruptcies. But the magic of fiat government is that those hoarders can be protected with additional external asset injections, and the end result of this is that the private sector requires more and more external funding, leading to massive levels of wealth inequality and a declining middle class.

        By the way, this phenomena, that an influx of financial assets causes economic stagnation– was first noticeably observed in the decline of the Dutch republic, which received large infusions of gold in the mercantilist era. The whole Dutch finance economic model — extremely low interest rates, enormous rentier profits, output stagnation, and obscene inequality, has since been repeated by Japan and is being advocated by some here 🙂

        The trick is how to plug the leaks and prevent people from accumulating assets excessively without undergoing the cataclysmic free market adjustment. The easiest way to do this is via high top marginal tax rates that take certain incomes off the table. But sometimes you need the forced bankruptcies to bring the assets back to earth, and in this case, government can step in and maintain demand with ELR and spending on public goods while bondholders become poorer.

        And also note that by “external” funding, you need to look at not only the government deficits, but also the current account. A simple panel is here

      4. Tom Hickey:

        Unfortunately for you, you paroodle, i have own eyes. I and anyone else can compare oakland today to oakland 1950, or harlem 1950 to harlem 1970, or UK 1810 to UK 1910 to UK 2010. Or i can use the wonderful the google and look at newpapers from 1930,40 etc. poor people were not invented in 21st centry or even 20th century.

        unfortunately for you tom hickey i have own eyes and own brain.

        and once again i ask you why in gods name you think i condone the “high crime rate amongst afluent”. there is not a day that goes by without college educated engineer murder co-worker for looking at him wrong and then stealing his tennis shoes which he then sells for cocaine after beating his hooker. the body bags they carry out of downtown office buildings and subarban office parks beggar beleif! i am afraid to go to qdoba to buy my burrito these days.

        RSJ: i reject your analogy, as well as your definition of “excessive”. I do not get your “ought” from your “is” and I can think of plenty reasonable reasons why, as economy grow, it require additional fund to sustain AD for full employment.

        but thanks for making your point clear.

        again, i would love native japan who knows MMT to explain last 30 years there. i do not trust foriegn interpretations — everyone has some gospel they try to sell you.

      5. there is not a day that goes by without college educated engineer murder co-worker for looking at him wrong and then stealing his tennis shoes which he then sells for cocaine after beating his hooker. the body bags they carry out of downtown office buildings and subarban office parks beggar beleif!

        Come on! You just gave away the plot to this week’s Law & Order (and next week’s and the week after…). :o)

      6. RSJ,
        “Now In a free market, the just deserts of such behavior would (eventually) be a cataclysmic zeroing out of those assets via bank failures and bankruptcies. But the magic of fiat government is that those hoarders can be protected with additional external asset injections, and the end result of this is that the private sector requires more and more external funding, leading to massive levels of wealth inequality and a declining middle class.”

        At the risk of re-creating some harmony here, I think I find myself in 110% agreement with you here. Do you think this is where we are right now, in the middle of this process? The injections so far were TARP, and in way, the changing of the rules on accounting/capital, etc (Warrens ‘regulatory forbearance’). I believe prices would be alot lower if they had let it play out “free market” style. Even tho there has been many BKs and there is much vacant space, for some reason here, Property values are being held up (have you seen the performnace of the REIT index!??) or atleast retail prices are still not able to come down due to the lack of your ‘reckoning’ in Property imo. This would have had the effect of increasing the purchasing power of the lower income folks..especially for food, food still seems pretty high to me here at the retail level, driven by these Property “price supports” if you will (and petroleum but that for another day). Much vegetable gardening going on this year vs the past. btw I think the Tea Party people desire this reckoning you speak of and would cheer it on (they would also benefit economically as virtually all of them are not wealthy).

        Focus: at this point do you see the requirement for ‘more and more funding’? Why will they or do they still need this? (seems like they are set) How will they get it and can it be stopped?

      7. Zanon,

        Richard Werner who originated the term quantitative easing, wrote a couple of books about the Japanese economy Princes of the Yen, and New Paradigm in Macroeconomics: Solving the Riddle of Japanese Macroeconomic Performance.

        This is a snippet from wikipedia,

        According to its author, he used this phrase in order to propose a new form of monetary stimulation policy by the central bank that relied neither on interest rate reductions (which Werner claimed in his Nikkei article would be ineffective) nor on the conventional monetarist policy prescription of expanding the money supply (e.g. through ‘printing money’, expanding high powered money, expanding bank reserves or boosting deposit aggregates such as M2+CD – all of which Werner also claimed would be ineffective). Instead, Werner argued, it was necessary and sufficient for an economic recovery to boost ‘credit creation’, through a number of measures. He estimated in this article that the incipient bad debt problem of the Japanese system (i.e. including future bad debts) amounted to about Y100 trillion, or 20% of annual Japanese GDP, and that this had increased banks’ risk aversion. The subsequent slowdown in bank credit extension was the major problem, because commercial banks are the main producers of the money supply, through the process of ‘credit creation’. He thus recommended as a solution policies such as direct purchases of non-performing assets from the banks by the central bank, direct lending to companies and the government by the central bank, purchases of commercial paper (CP) and other debt, as well as equity instruments from companies by the central bank, as well as stopping the issuance of government bonds to fund the public sector borrowing requirement and instead having the government borrow directly from banks through a standard loan contract.

        Werner argues that the Bank of Japan’s usage of his expression ‘quantitative easing’ may be misunderstood. While suggesting it was adopting the policy suggested by a leading critic, the Bank of Japan implemented the standard monetarist expansion of bank reserves and high powered money, which Werner had predicted would fail. It is not obvious why the Bank of Japan chose to use Mr Werner’s expression, and not the already existing and widely used expressions ‘expansion of high powered money’, ‘expansion of bank reserves’ or, simply, ‘money supply expansion’, which more accurately describe its adopted policy at the time.

        He is also critical of Richard Koo, but he does seem to be in paradign with MMT.

      8. He is also critical of Richard Koo, but he does seem to be in paradigm with MMT.

        I think Ramanan put up an article were Marc Lavoie, also recommended that the CB buy equity from the banks instead of the government.

      9. Zanon, the “poor” problem began in earnest just after the Civil War with the “freeing” of the slaves into culturally enforced poverty, and it has persisted since.

        Where did you get the idea that I was accusing you of condoning high crime among the affluent? I was just observing that it is also a huge problem in the US along with marginalization of minorities, first the Native Americans, then the former slaves, and now the migrants from south of the border, most of whom are also of Native American stock.

      10. Matt, I think that two things are going on. One, is is as RSJ portrays. The bail out was a bail out of wealth, pure and simple, and the government has not only been holding up the banks but recapitalizing them.

        Secondly, the government stepped in to prop up the housing market from crashing further and wiping out the middle class. This is for sure. It is also suspected that the government engineered the recovery in equities to further bolster the wealth effect. The fear here was the onset of depression if the middle class folded. But the government is not recapitalizing the middle class.

Leave a Reply

Your email address will not be published. Required fields are marked *