One of the reasons that I hestitate to post on the crash list is precisely the type
of
response Julien put forward. I am thoroughly familiar with his line of argument and
do not
disagree with it. In fact, I have addressed practically all the issues Julien raise in
previous posts in recent years on may other lists. But on matters of eonomic policy
within
the context of the capitalist system, as distinguished from revolutionary analysis, it
is
more useful to criticise mainstrream neo-liberal economics for its logical
inconsistency
than merely dismissing it as reactionary. Most of my posts on economics, which deals
with
detailed issues of capitalist economics as it operates in the real world today, have
been
written for lists such as Post Keynesian Thought, inhabited by professional and
academic
economists. It is of course necessary to remember that knowing one's enemy is not the
same
as agreeing with him. But short of an armed uprising and gaining control of the
machineries
of government, we are at a stage of revolutionary history in which we have little
choice
except to operate on enemy soil. The fact that the basic concept of capitalism is
flawed
goes without saying. The task is to convince capitalists that even in their own
terms, the
tenents of capitalism are not what they imagine. For example, I personally know very
well
that capitalism does not allocate capital to the highest and best use even in financial
terms, let along in social terms. I was merely pointing out that debt capitalism is
even
more mal-allocative than equity capitalism. Like many, I have less time than needed
for all
my interests or responsibilities. It is not suffficient for me to be repeating
agreements
with like-minded souls. I post to impart information from which unfaimilar ideas may
result
when read by reasonable and thinking individuals. It is not enough simply to be pure
in
spirit. It is also necessary to be operationally effective. Revolutionaries are
unwittingly often the biggest obstacle to revolution by their tnedency of sweeping
condemnation. The socialist camp is in great danger of being co-opted by illusionary
capitalist efficiency. My posts try to point out that even in its own terms,
capitalism is
not what its propaganda describes.
Henry C.K. Liu
Julien Pierrehumbert wrote:
> Usually I don't respond to Henry's pieces which have their own merits even if they
> are often shockingly close to the mainstream in their own ways, but since Perry
> called this one "a keeper", I thought I might as well throw in my two cents...
>
> >It is
> >not clear that debt, unlike equity capital, actually puts money to work
> >for the highest and best use, or where it is most needed and where it
> >does the most good.
>
> Equity capital puts money to work for the highest and best use??? Like in those
> dotcoms?
> True, many useful businesses are listed on the stock-market but they are paying
> money to their shareholders and not the reverse. With a few exception in times of
> financial bubbles, companies pay way more money to their shareholders than they
> get from selling shares.
> It's nice to criticize debt, but don't think that it means that other forms of market
> financing are good. There's only one good way for the wealthy to put their money to
> good use, and that's when money is takes from them against their will.
>
> >Debt tends to be most productive at the highest
> >risk level which destabilizes the economy.
>
> So lending money to a corporation is more productive than lending money to
> someone who wants to build a home? Lending money to a dotcom is more
> productive than lending to utilities? Or does Henry mean profitable when he says
> productive?
>
> >The problem with debt is that
> >it needs to be serviced regularly (except zero coupons which cost more),
> >and a debt-propelled economy will reach a point where its ability to
> >service the growing debt is exceeded, unless inflation is ahead of
> >interest charges. Thus runaway systemic debt always leads to
> >hyperinflation.
>
> 1) Is inflation necessarily bad? I don't think so. Does managed inflation to solve
> credit troubles always lead to hyperinflatio? I don't think so. An explanation
>wouldn't
> hurt, Henry. Here you're only declaring your faith and talking like someone who
> supports the class interests of the rentiers.
> 2) There are other way to get rid of debt than inflation. One of them is bankruptcy.
> Another is taxing net worth instead of consumption, incomes and profits.
>
> >Bankruptcy only relieves the debtor, but not the
> >economy. If, as Minsky claims, money is created when credit is
> >extended, then the erasure of debt destroys money and shrinks the
> >economy.
>
> Why's that? Bailouts don't relieve the economy but when there's a bankruptcy, the
> lenders and shareholders lose money... What more can we ask? The economy
> can do fine without them. If their losses translates into lack of liquidity, the
>central
> bank can throw liquidity in the system. What's the downside since aggregate
> liquidity doesn't increase? Money is just paper and electronic data... why is it a
> problem when it is "destroyed"?
>
> >But the most fundamental aspect of a debt economy is that it cannot
> >sustain a slow down, even a soft landing. If Greenspan were better
> >versed in debt economics, he would have inderstood that a debt bubble,
> >unlike the conventional business cycle, cannot survive the slightest
> >deflation.
>
> AFAIK, he wasn't trying to deflate the bubble. Why should he have wanted to do
> that? What concerned him was having the so-called "wealth effect" on the top of
> strong growth. And when the bubble was deflating, what did he do? Was he happy?
> No, he cut rates. He probably would want to curb some excesses as opposed to
> the bubble as a whole, but he knows quite well that he can't target specific prices
> with interest rates and his market fundamentalism forbids him from advocating
> regulations.
>
> >His attempt to engineer a soft landing by raising interest
> >rates only accelerated the debt bubble's burst.
>
> The bubble has obviously not burst yet.
> And I let me add a wild speculation... weren't most of his actions in the beginning
>of
> 2000 designed to balance the expansionary policy he had before Y2K?
>
> >His only option was to
> >prevent the debt bubble from forming by tightening credit quality years
> >ago, but he chose to rely on the "market" to exercise its discipline.
>
> I argue that the main cause of the bubble is not monetary policy but
> overaccumulation. Why do you think so much credit was needed to run the
> economy in the first place? Because autonomous financing was lacking. We aren't
> talking about a situation where booming credit caused the economy to overheat...
> We're talking about a situation where, while the bubble was forming, commodity
> prices remained low, unemployment remained fairly high (esp. out of the US), and
> average capacity utilization remained boringly normal (except in the small parts of
> the economy where the bubble struck the hardest like in computers and networks).
>
> >Once the bubble is on its way, Greenspan is on top of
> >the debt tiger that he cannot get off without being devoured by the
> >beast.
>
> He can if he's assisted by the government. But he won't. Don't forget who he
> serves. Don't forget who sits on the Fed board and at the head of the Treasury...
> Those people come from the very core of the beast! I mean Chase, Citigroup,
> Goldman, Morgan, etc. Look at their revenues and their profits... Those folks are
> having a hell of a good time. Why would they want this to end?
>
> Julien
>
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