Or
Why should students in the dismal discipline demand the reimbursement of their tuition fees.
Comment on the article « Meet The 22 Economists That Want To Kill Your Purchasing Power » by Tyler Durden, in Jun 10, 2017 8:15 PM http://www.zerohedge.com/news/2017-06-09/meet-22-economists-want-kill-your-purchasing-power
(Note: The comment on John Williams’ contribution follows below and is treated apart because, though it shares all the theoretical mistakes of mainstream bourgeois economists, it is at least well-intentioned and pragmatic.)
These guys are desperate now. And they haven’t got a clue about what they are talking about – to verify this assertion, see my THE FED DILEMMA in http://rivincitasociale.altervista.org in the section « Another America is possible ».
They simply do not know what inflation is and keep talking about it in the singular. This is because their monetary theory is a simple tautology aggravated by Irving Fisher. (1) Aside from this silly tautology, we should underline the fact that Marginalist models do not have any money variable they can deal with. Bourgeois economy cannot deal simultaneously with quantities and qualities – or structural values and conjunctural market prices –, nor can it reconcile micro and macro-economic. Laughingly Schumpeter tried to turn this lethal methodological failure into an ontological given of the discipline! Hicks knew better and specifically says that he is not dealing with either inflation nor the revenue structure. However, right from the so-called « Keynesian bastards » – Joan Robinson’ phrase – and afterwards, they all happily feigned not to notice!!!
Aside from occasional historical chapters on financial crisis, we are here confronted with a blind spot. Financial crisis should theoretically never happen especially in presence of speculation, which would naturally accelerate the market mechanism supposed to quickly lead to the right market price. Hence, money is at best incorporated in the models as a commodity like any other to be determined by the market in the Walrasian « market of markets » sense, or a version thereof. In truth, this amounts to a plagiarism but in a debilitated form, one derived from Tugan-Baranosvky’s fallacious simultaneous resolution trick proposed in his synthetic pseudo-theory of value. He was thus backing and furthering Böhm-Bawerk’s initial falsification attempt of Marx’ s value theory.
Then you have the Philips curve but plotted in a different setting – full employment, post-war reconstruction and World expansion of the USA and advanced economies. Indeed, it has some truth in it, but it is impossible to check within its Marginalist parameters because it functions with monetary parameters removed from real monetary facts – in particular, M2 and M3 have to do with credit not with money and money circulation, hence with structural inflation; added to that you then have the dollar external exposure, an aggravated aspect of M3.
Then came along Ronald Reagan with his arch-reactionary masters and with them the dismantlement of the Welfare State and of the Cola clause: But no one seems to understand the relation with the collapse of the core inflation rate. Yet, as explained in the Marxist quantitative theory of money – demonstrated by me (2), M1and part of M2 cover the real salary mass and the social salary mass, the latter being bigger than the first because it incorporates the emission of money by the central bank to support RA, the reserve army – in the Welfare State form this means social safety nets.
The difference between the two salary masses engender the structural inflation when the rotations are taken into account. In a full-employment setting, the real salary mass multiplied by the rotations corresponds to the real value of the production when the Reproduction cycle is considered, although the frictional unemployment would create a residual discrepancy. This structural inflation is not the only form of inflation though, but the main one – you also have imported inflation – oil etc – and inflations due to the inappropriate levels of M1, M2 – remember Hume’s rain ? – and to the relative impact of M3 on the consumers spending.
Of course, if, mutatis mutandis, you reduce the safety nets and destroy the Cola clause and simultaneously increase the ranks of the unemployed or underemployed and discouraged etc , then inflation will be strongly reduced for the main part, i.e. structural inflation. In the Note ** of my Book III, entitled Keynesianism, Marxism, Economic Stability and Growth (2005) (3) – see the Livres-Books section of www.la-commune-paraclet.com – , I was the first to underline the real numbers for unemployment in the USA; this was then retaken by some groups and statisticians but not uniformly, for instance Istat still does not dare present them …. There remain the statistic gimmicks laboriously practiced by mainstream economists and others – for instance the way CPI and other Indicators are calculated by opportunistically changing the consumers’ basket and looking at the salary average … !!!
Then you have the plain ineptitudes uttered by the ineffable Bernanke, following suite on the even more ineffable « Maestro ». Years ago, sociologists would have naturally inquired about the sociological origins of this over-represented crews and their ideology but then even sociology has been perverted with the inept and pervasive so-called efficient market ideology given as a perennial truth … unless, of course, people are now even afraid to inquire, which is more likely the case.
Of course, Bernanke is the guy who dealt with inflation in his PhD thesis and who as President of the FED wanted QE in order to create hyperinflation and thus shift the burden of the huge US debt financing – created to bail out private banks and enterprises – on the shoulders of the American and World proletariat and particularly on the shoulders of the Chinese and Japanese, the greatest buyers of Treasury bonds.
This inept fellow, part of the overrepresented « self-contented » lot (4) with his ilks like Yellen, Akerlof, Stiglitz – Draghi, of course – and many others, including the sorry lot who signed this inept and half-backed letter, took their inflation criterion from the Maastricht Treaty 3 % but, faced with the disastrous empirical facts in the post-Reagan USA, they stabilized it at 2 %.
Now if anyone would ask them why 2 % they simply would not know what to reply; nor would they know how to explain how they ended up under this threshold! At least the Europeans, in particular the French given Mitterrand’s role in it, do admit that the 3 % inflation Criterion of the Maastricht Treaty was an arbitrary convention merely used to harmonize things within the European monetary snake system before passing on to the écu and the euro. (For the euro, they unfortunately preferred the idiocies of a Mundell over my proposal for national Cooke ratios (5) within the BCE and are now paying the price of this imbecilic and criminal Monetarist hyper-centralisation, one which not even the US Fed System would have tolerated.)
And now you have this inept bunch!
Look, if you just want inflation, just raise the price of oil. Or, better still, raise nominal salaries and safety nets; it will be drastic.
But this begs the question: Why do they need more inflation – with their crappy bourgeois inept overrepresented narrative understanding of monetary policy? To get away from the negative interest rate trap they created for themselves and go to a « new normal » (sic!).
These negative interests have in fact destroyed the tools available to the Monetarist bourgeois monetary policy conducted by bourgeois central banks: They simply do not have any margin left to influence things! They are trapped. And badly trapped too because normally if interest rates are low – not necessarily negative – business does invest. And today it simply does not. Or, more precisely, it invests only in speculation, and in an humongous fashion too! And though they do not understand it, this is precisely what destroys the real economy. But then mainstream bourgeois economics does not know the difference between real economy and speculative economy. They often use the terms without realizing that in their own theoretical framework the difference cannot even exist. They get Nobel prizes too doing that … (In order to understand the difference between profit, classical interest and speculative interest, see here: http://rivincitasociale.altervista.org/public-debt-and-marginalist-shibboleths-italys-case-march-3-2017/ )
So these inept crews are now trapped into their own neoliberal, Monetarist narrative.
We should ask the signatories of this letter what level of « inflation » (core?) they want, for what reasons and how they propose to reach it. Note, for one thing, that they take for granted that, today, there is almost full employment in the USA! And they do not even notice that the FED does not bother calculating M3 any longer. We then would laugh our head off, and hopefully some students in their dismal discipline would ask the reimbursement of their tuition fees and the imposition of my Marxist theory in the syllabus! Pluralism in the discipline, did you say ? (6) Years ago Jannis had warned about what he aptly called « groupthink ».
Paul De Marco
June 11, 2017
Notes:
- For a quick take on Irving Fisher’s contribution to the falsification of economics see my Methodological introduction in the Livres-Books section of the site www.la-commune-paraclet.com
- It first was laid out in my first Book entitled Tous ensemble and restated in English, for instance in my book Synopsis of Marxist Political Economy. Both are available in the Livres-Books section of the site already referred to above.
- This book was the first I believe to point to the coming subprime crisis that would be fatally engendered by the boom in speculative vehicles. Use « montage » in the search function to check. It also denounced the unscientific treatment of inflation as well as Bernanke’s policies.
- As you might remember, this was John Galbraith’s apt phrase although he did not say where he took it from …
- See my Tous ensemble. Incredibly the name Cooke ratio was immediately changed into McDonough ratio to confuse less-informed people. Silly narratives necessarily need to erase memory to better usurp it. Heidegger even pushed this intellectual crime to the level of etymology, as I have shown in the pertinent article to be found in the Livres-Books section of the already quoted site. But of course, a narrative is not science no more than perception is reality.
- As far as pluralism and censorship – philo-Semite Nietzschean to say the truth – are concerned, please check this : http://rivincitasociale.altervista.org/negation-de-mon-droit-de-reponse-odieuse-censure-philosemite-nietzscheenne-en-france-et-au-journal-le-monde/
Quick comment on: John Williams, “Monetary Policy in a Low R-Star World,” August 15, 2016.
As I said above he shares all the theoretical misconceptions of other mainstream bourgeois economists, but at least he is well-intentioned and pragmatic.
Implicitly he admits that Monetarist pretensions are bunk and advocates a policy mix. (Again, I send one back to my piece « THE FED DILEMMA ».) But we do not really know why aside from the fact, that being inside the Fed apparatus, he knows present policies do not work and he at least takes note.
This policy mix would include a return to welfare policies – i.e. fiscal stimulus and counter-cyclical actions through monitored safety nets. Without an understanding of the genesis of inflations, this is just pragmatism and no more. But then, since the FED badly needs some inflation to raise interest rates, it would not matter from where it would come from. As for fiscal stimulus, he does not say anything on Barro’s plainly idiotic so-called Ricardian equivalence, but one presumes that he has in mind the stimulus plan once implemented by Obama. Would the regressive fiscal policy of Donald (Duck) qualify ? Yet, this stimulus plan worked only when public money went to public sectors – infrastructures like roads and bridges, health care, education and the like. In my piece quoted above, I underline the crucial difference between sectoral multipliers and the generic one, especially when the latter is totally perverted by Monetarist policies and statistics. (For instance the financial speculative sector is over-represented at more or less 9% of GDP.)
And then comes the clou: Fix a higher inflation target and, to do that, target it on the nominal GDP. Goodness grief! You must try to understand this after you read this quote : « While a central bank sets its short-term interest rate, r-star is a function of the economy that is beyond its influence » (the underlining is mine).
There was a time after the Second World War when bourgeois economies functioned with some kind of correcting feedback mechanism, namely the prudential ratio. This did not prevent business cycles which regularly completed the needed corrections through the purges unfolding with each crisis. Now however central banks and primary banks – and the rest of the financial institutions – are no longer mainly governed by the prudential ratio although it has become much more loose and sloppy. It suffices to point to the size of the shadow banking sector and to the real effect of QE – and of the negative interest rates used in great part to save the system, because many countries could not deal any longer with a debt financing governed by a higher spread. Today, bailouts have replaced the cyclical capitalist purges hence the corrective feedback mechanism of the capitalist mode of production.)
By the way how does one deal with this higher spread aspect – say in Italy – with a transition to a so-called « new normal » ? (I send the readers to my articles « The Treasury and the Fed » and « Credit without collateral » in the International Political Economy section of my site www.la-commune-paraclet.com.)
Paul De Marco
June 11, 2017