Mosler: "7 Deadly Innocent Frauds of Economic Policy" (BC#2)

[Chad]

I'm a little late to the party. Just finished the book last night. I was rather disappointed. His entire argument comes down to "magic money" printed by the government is never ending and no one would care if we printed $5,000,000 Trillion. WTF!!??? No wonder we are so messed up with guys like this getting into positions of influence. It appears that success (making money) does not require a completely rational mind.

I think Mosler’s model of the current system is essentially accurate for the years of his investing lifetime/observations, albeit incomplete. I don’t think he appreciates why this is likely to be so. In my view, the primary reason why our government can print money with little adverse consequences is that the dollar is the world’s reserve currency – this is otherwise known as “The Exorbitant Privilege”. See this recent article for an explanation as to what this means practically: http://www.mauldineconomics.com/editori ... e-us-brand

I think Dragline nailed it with the above. Mosler's model would work to a certain extent, but at some point it would come crashing down when people refused to accept US currency.

[Dragline]

But I still wonder about the reserve currency argument. What makes you lose that status? It is high inflation, right? So if you manage to keep that in check, which you can by higher taxes/less spending, this would work, or not? Japan's currency has devalued against other currencies like the Dollar, Euro and GBP, but prices remained stable since the 90s. Is that enough to make the currency a store of value? I wonder what your take on this is.

My take on it is that historically the reserve currency is usually the currency of the most dominant economic power/empire in the world: http://azizonomics.com/2012/01/04/a-his ... one-graph/ Related friendly countries get sub-reserve status.

I don't think you see high inflation vis-a-vis other currencies until it loses that status. If you want to go more in depth on this topic, you'll need to read things like this: http://siteresources.worldbank.org/INTG ... rt2011.pdf

Read the Chapter that begins at page 125 (and see box 3.1 for a history of reserve currencies). They are forecasting that the dollar loses its number one postition by 2025, but becomes part of a more multi-currency group of reserve currencies. The big question is whether the Chinese currency will replace the Japanese currency as the dominant Asian one. When/if that happens, the yen will blow up.

My own personal view is that the dollar remains dominant until the US runs out of money being the world's policeman. But I don't have a crystal ball.

[vivacious]

The "reserve" status is already shifting in a way.

China has too many capital controls to be able to be a reserve currency for one thing.

China and Japan already use their own currencies in trade though. China has become a major trading partner of Japan. China and Russia do the same thing now.

The yuan is already a quasi reserve in intra Asian trade.

There's currently a battle between America and China in Africa economically and somewhat militarily which a lot of people don't realize. I believe China is Africa's top trading partner right now.

After some of the tariffs India began buying Iranian oil in gold. I think that started when the SWIFT codes were blocked in Iran for transactions.

So the grip of dollars is already going down. It's becoming a smaller and smaller percentage of reserves etc.

[Riggerjack]

Back when we were talkiing about the book, I said:

Quote:

Lawrence Summers Several years ago I had a meeting with Senator Tom Daschle and then-Assistant Treasury Secretary Lawrence Summers. I had been discussing these innocent frauds with the Senator, and explaining how they were working against the well-being of those who voted for him. So he set up this meeting with the Assistant Treasury Secretary, who is also a former Harvard economics professor and has two uncles who have won Nobel prizes in economics, to get his response and hopefully confirm what I was saying. I opened with a question: “Larry, what’s wrong with the budget deficit?” He replied: “It takes away savings that could be used for investment.” I then objected: “No it doesn’t, all Treasury securities do is offset operating factors at the Fed. It has nothing to do with savings and investment.” To which he retorted: “Well, I really don’t understand reserve accounting, so I can’t discuss it at that level.” Senator Daschle was looking on at all this in disbelief. This Harvard professor of economics, Assistant Treasury Secretary Lawrence Summers didn’t understand reserve accounting? Sad but true. So I spent the next twenty minutes explaining the “paradox of thrift” (more detail on this innocent fraud #6 later) step by step, which he sort of got right when he finallyresponded: “…so we need more investment which will show up as savings?” I responded with a friendly “yes,” after giving this first year economics lesson to the good Harvard professor, and ended the meeting. The next day, I saw him on a podium with the Concord Coalition - a band of deficit terrorists - talking about the grave dangers of the budget deficit.

He uses this technique several times, quoting conversations with people with name recognition, (Al Gore, Robert Rubin, Steve Moore etc...) and leaves the impression that they were too sleazy, stupid, or stubborn to change their ways when he Enlightened them. His name dropping crosses into all kinds of fields. maybe it's the skeptic in me, but when i picture these conversations, i easily see people thinking things like:

"Mmmm, i really need to go over the rules with my staff, rich contributors are fine, but I don't need to be wasting my time with any loser with a checkbook" or "Security? where's my security detail?" or "Wow, those hair plugs really cover up his tin foil hat!"

Now, I'm never going to get awards for my writing style, but neither am i writing a book. These attempts at legitimacy by proximity always set off alarm bells.

N

[Riggerjack]

And Spartan warrior pointed out:

Even if he is committing the appeal to authority fallacy (what I assume you mean by "legitimacy by proximity"), you would be committing the fallacy fallacy by disregarding his arguments on that basis: believing that someone's argument is invalid solely on the basis that the presenter committed a logical fallacy, is itself a fallacy.

Well, when my point is that he's being dishonest, I don't know of a better way to demonstrate that than by pointing out the ways he is dishonest. Or perhaps that is the fallacy fallacy fallacy.

[Riggerjack]

It seems to me, that someone who claims his theories are as simple and direct as a balance sheet, who then presents unbalanced examples, not singularly, but as a clear pattern, is being dishonest.
If my previous examples are uncomfortable, I'm happy to discuss any of his other frauds. Having suffered thru this book, I very much want to discredit it, so when we have more economic discussions in the future, this crap doesn't come up again.

BTW, the maudlineconomics link didn't get me to anything about reserves, but it was a very cool site!

[Dragline]

Here's the Mauldin link again: http://www.mauldineconomics.com/editori ... e-us-brand

You can also find the relevant article by googling "Mauldin Exorbitant Privilege" if that link doesn't work. Mauldin has an email newsletter you might like. But he's always trying to sell information and has weird dyed Baby-Boomer hair. He has his own name-dropping issues too.

I didn't find Mosler's name dropping to be dishonest or anger-provoking, but it just wasn't convincing and made him look weak. That part actually kind of reminded me of Seligman in the last book.

Mosler should have done some research and come up with some data, which might of been cherry-picked but at least would have been something to gnaw on.

[Spartan_Warrior]

@Riggerjack: How is name-dropping dishonest though? You don't believe he really talked to these people, or he's lying about the content of his conversations?

I very much want for you to discredit this as well. It would make the world that much less complicated.

[Felix]

As I had feared, the book's argumentation style does harm the message. I would have preferred Soft Currency Economics as a choice as that is the book that actually goes into the details with less focus on policy suggestions. 7DIF assumes MMT is true and then argues on that basis and tries to explain it in the process, not the best way to present a highly controversial position.

I fully agree with Riggerjack that the book does not argue its points very well, especially not when facing critics. The name-dropping, which Mosler certainly does, harms his position more than it helps and taints what he is trying to say. It is a bad way of making as extraordinary claims as Mosler's. No doubt about that.

I guess one thing about MMT that aggravates people is its association with high-government-spending policy suggestions. MMT attracts people of that political persuasion. I have been guilty of forging that link on this forum myself. But one can very easily argument for a more conservative policy on the same theoretical grounds.

One can argue easily within the framework of MMT that the government should stay out of the economy and not take too much money out of circulation through overtaxation which hinders the private sector in doing its thing - the government creating inefficiencies through misuse of government power.

I am guilty of mixing my socialist policy preferences with MMT theory and have probably done a disservice to both by doing so. Even if money worked according to Austrian theory, I would still stand by my political stance and argue for more egalitarian policies, just as those who favor the free market over government involvement would probably argue for lower taxes and smaller government in either case.

If one wants to actually discredit MMT, the best place to start is ripping holes into Soft Currency Economics. 7DIF is a too mushy target. You can attack the way of argumentation and rightfully so, but there is too little detail on the system-describing parts to allow for actual discrediting.

@Dragline: Thanks for the link. I'll need to read that.

[Chad]

@Riggerjack: How is name-dropping dishonest though? You don't believe he really talked to these people, or he's lying about the content of his conversations?

I'm not speaking for Riggerjack, but for myself. It comes across as dishonest to me, because it's a smoke screen to hide the fact he has no data. I think he knows he has no data and this is a "Look WHO I talked too! So, it must be right (also, because I made a lot of money). Never mind the man behind the curtain."

I very much want for you to discredit this as well. It would make the world that much less complicated.

His argument strikes me as a "belief" argument. He is starting out from "My belief is right unless you disprove me." Unfortunately for him, the burden of proof falls on him. Until he provides some hard data his "belief" holds no more weight than any other. You can't discredit something that, in effect, doesn't really exist yet. It will exist once he has data.

[Riggerjack]

The name dropping is irritating, but not dishonest. The dishonesty comes from implying that after Enlightenment by our hero, these people were too stupid, sleazy, or stubborn to change their ways and endorse this bold, new path.
This whole book was soft money economics, if there was anything new and special, I missed it. I admit to going in without an open mind, and the hollow arguments caused me to start looking at writing style, as this whole book is based on fluff.

Devoting a book to shooting down 7 strawman arguments, and even presenting those poorly shows fraud, alright.

[Riggerjack]

Actually, Felix, one thing has always bugged me about your endorsement of soft money. Inflation, and the general increase in the money supply is a gift to the banks and rich folks you seem to resent so much. How do you resolve that conflict?

[Spartan_Warrior]

I guess I find myself in agreement with Felix here:

You can attack the way of argumentation and rightfully so, but there is too little detail on the system-describing parts to allow for actual discrediting.

As I noted in my review, I fully agree that the facts/data presented here are few and far between and that the book does not totally convince me that "this is how it works". I agree there is a certain amount of name-dropping and some form of "appeal to authority" fallacy (albeit inverted as vivacious pointed out, so it's more like "appeal to my knowledge over the authorities") woven throughout the book.

But like I said earlier to Riggerjack, assuming that a theory or argument is wrong just because the speaker used a fallacy (or fallacies) to support it is itself a logical fallacy. If Mosler said "I was having a conversation with Bill Gates the other day and I couldn't convince him that the sky was blue", would you argue that the sky in fact isn't blue simply due to the name-dropping?

I guess I'm just playing devil's advocate here and trying to distinguish the actual theory/model from its presentation. I'm more interested in the coherency of the ideas and how (or whether) it applies to the world than I am in debating Mosler's persuasive writing style. That said, this may be beyond the scope of this particular text*, since I kind of agree with Felix that what we've been given here is not enough meat to chew on to either prove or discredit the theories.

*The extra context added by Dragline et al regarding the exorbitant privilege, etc, has helped put this theory in a broader context for me. I personally am inclined to believe that Mosler is probably right about a lot of what he's talking about, particularly the way the currency transactions work on the Federal Reserve balance sheets, etc. "Adding points in a football game". I also agree that he's missing that broader context of why he's right, again, at least in this text.

I also have to note that the book is supposed to be descriptive, not proscriptive. The essence of it (at least from what I got) was that governments spend fiat money into existence, not that governments should spend more fiat money, etc. It is not, to my mind, an advocation for "bottomless debt" as some seem to have taken it. (Though, in fairness, he brushes over any consequences of what "bottomless debt" could mean to the dollar's reserve status, etc.)

Ultimately, if I'd only known, I would've gone with Soft Currency Economics. Maybe I'll pick that one up at some point.

[jennypenny]

Actually, Felix, one thing has always bugged me about your endorsement of soft money. Inflation, and the general increase in the money supply is a gift to the banks and rich folks you seem to resent so much. How do you resolve that conflict?

It doesn't have to be a conflict. Poor spending choices result in poor distribution. Even if better spending choices are made though, and spending benefits the people who need it most, I don't see any way to avoid having banks and business owners benefit as well. As long as they aren't the sole or primary beneficiaries, I don't see it as a problem.

[Riggerjack]

The best argument against soft money I can think of is that it gets out of control, and it is then devastating. Look at Argentina. For that matter, look at our current Fed and "tapering".
I've said it before, but it is worth repeating: there is no super economic daddy figure to make the economy safe and clean, and play nice with the other kids. Even if there was a economy czar, empowered with absolute, tyrannical control over money supply, there isn't enough real-time data to make the adjustments called for. The more control, the bigger the overcorrection.
people generally do what they perceive to be in their best interest. It may not be in their objective, long term best interest, but it generally leads to greater happiness than some central authority figure making decisions for them.

Four years in the army hammered that lesson home, over and over. If I seem excessively hostile to the big brother approach to the economy, I think that is the reason.

[Spartan_Warrior]

one thing has always bugged me about your endorsement of soft money.

See, that's just it. I don't think either Felix or Mosler himself is "endorsing" anything so much as trying to discern how the real world operates.

I think this whole idea that something you disagree with is being "endorsed" is the root cause of a lot of the angry sentiment. Like we're trying to "change" something. But we're just trying to figure out how it's already functioning, or at least I am.

I could believe 100% that MMT is true and still not "endorse" it. Just like I believe the U.S. political system is two-party fascism. Doesn't mean I endorse it.

I've said it before, but it is worth repeating: there is no super economic daddy figure to make the economy safe and clean, and play nice with the other kids. Even if there was a economy czar, empowered with absolute, tyrannical control over money supply, there isn't enough real-time data to make the adjustments called for. The more control, the bigger the overcorrection.

Along the same lines of the above, I agree with all of this. No one has all the real time data to pull all the levers in exactly the right way. Maybe if they did the economy would run more smoothly? Who knows?

But the lack of appropriate data doesn't necessarily mean that people aren't pulling levers, or that there aren't levers to pull.

[Chad]

But like I said earlier to Riggerjack, assuming that a theory or argument is wrong just because the speaker used a fallacy (or fallacies) to support it is itself a logical fallacy. If Mosler said "I was having a conversation with Bill Gates the other day and I couldn't convince him that the sky was blue", would you argue that the sky in fact isn't blue simply due to the name-dropping?

You are correct, that even an idiot can come up with a good idea, so we shouldn't discount an idea just because the argument is bad, However, from my perspective, we don't have any real information to judge the author's theory. Our only recourse is to fall back on judging the author, which, in this case, is partly done through his fallacies he uses to support his idea.

[Chad]

Ultimately, if I'd only known, I would've gone with Soft Currency Economics. Maybe I'll pick that one up at some point.

No way to know until we read it.

[5to9]

Very glad to see the discussion here, I'm a relative newbie to thinking about these sort of economic arguments, so it's nice to see some discussion from more informed folks.

I think my assessment is that these were interesting thoughts, but completely lacking in any evidence or proof of their correctness. (I know, this apparently just means I should read Soft Currency Economics, and I plan to). It was interesting to be forced to question some of the statements we hear in the news on a daily basis.

Ultimately, I think what this book is really claiming is that our government doesn't fully understand the currency system it is trying to control, and that to me was a valid point. His claims that he knows how it should be controlled were very weak, and I think he glossed over the inflation topic in a way that came close to being dishonest. He repeatedly implied that paying off T-notes was a non-event, putting in parentheses things like (plus some interest), as if that wasn't a relevant event. To me it seems like deficit spending is committing ourselves (if we don't want to default) to increasing the future money supply, and giving up some of the control he talks about.

Fun book, and glad to be catching up with the study group (couldn't get the first book in time). Having an informed group like this to discuss the book afterwards significantly increases the value to me of reading it.

[Felix]

@Riggerjack:

I support a redistribution of wealth, a strong welfare system, even a basic income and I do so whether MMT is right or not.

I support the MMT view because I think it is an actual description of the current monetary system.

One does not imply the other.

Mosler argues for tax cuts and thinks that people should work to get money from the government and that only as an intermediate solution until the private sector hires people again. He is way more conservative than I am.

I do not argue for inflation (and neither does Mosler). I argue against deflation based on the ideas of the paradox of thrift and the balance-sheet recession theory by Koo. In a very real sense this would be a government screw-up hindering the real economy. I prefer stable prices as much as the next guy.

I see the results of the hard-money approach across Europe with above 20% unemployment and no end in sight and I actively worry about Germany, while being the last domino in the line, to also fall into that trap.

I find that one of the main reasons MMT gets flak is because people see it as a suggestion of "let's just produce massive hyperinflation, wheee". It just isn't true.

What MMT tries to do is create a model of how the current money system works. Whether that system is good or bad is up for debate, but first you need to get the description right. Evaluating it is a different step.

I do accept blame for mixing the two on this forum. I also accept blame for not having suggested a switch to reading Soft Currency Economics in the first place, thinking that 7DIF would be a less boring read and not considering the lack of substance.

I should have known my audience better.