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It's Called a Jump to Conclusions Mat

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January 16, 2011 – Comments (14)

So much happening, I don't know where to begin. I wish I could blog more, but stupid work and life has me out of the blogosphere and into the real world. Stupid, stupid work. As our lives go by, the details of the day-to-day make it difficult to focus on the big picture. We get sucked into stories and fed opinions by despicable agenda-setters. You have to sift through conflicting facts and ideas until you finally give up.

Thankfully, Tom Smykowski is here to help. Tom had a great idea once. He called it a Jump to Conclusions mat. You see it would be a mat with conclusions on it that you could "jump to."  In these trying times, this is sure to be as big a hit as the Pet Rock.

Let's look at an event and see how handy the Jump To Conclusions mat can be in your life. We'll head over to Google News and see what's happening today.

A gun show in Tucson will proceed as scheduled following a call for its cancellation from gun control groups. - LA Times

Here are some conclusions we could jump to:

1. Gun owners are racist redneck inbreds.
2. Liberal p*ssies are trying to limit our freedom.
3. Republicans don't care about the safety of children.
4. Democrats want to expand the Nanny State.

See how great this is? You jump to one of the conclusions, and there you go. All set. No thinking required.

Let's try another.

Isreal and US intelligence agencies tested Stuxnet virus on Iran. - Jerusalem Post

Again, jumping to conclusions:

1. They had to take action because Obama is weak
2. Iran would have used nukes on Isreal if it wasn't for Stuxnet and still might.
3. It's the USA's responsibility to protect Israel.
4. Iran must never be nuclear weapon capable.

Ok, one more because we're having so much fun.

British Petroleum swaps reserves at half the price it paid for oil spill damage. - Bloomberg Businessweek

I'm feeling jumpy:

1. Evil capitalism triumphs again
2. Great, now they can go destroy another water source
3. We need more regulation
4. It's George Bush's fault

And I'm tired (my cardio is just not up to snuff.) Now let's look at some real issues.

The Pointlessness of Current Events

I remember high school teachers stressing the importance of following current events. I was told that I would be uninformed and backward if I didn't know what was happening in the world. My high school teachers were wrong.

Following current events without an understanding of human action is pointless at best and potentially damaging. I can think of no better way to become misinformed than by watching mainstream media and following daily events as if they were actually important news.

Without a theory of human action, you might as well buy Smykowski's Jump To Conclusions mat.

I have my theory, developed with assistance of course, that I use to analyze world events. By no means does it make sense of everything, but it helps to filter out noise. The above three articles are simply noise. The events are predictable, predicted, and easily understood in the context of human action.

I'm curious as to your approach to current events? Do you follow them closely? Do you feel informed? What theory or theories do you use to analyze events?

One Interesting Story About the Internet Gods

I like it when the bad guys win. The Internet Gods (my term for the online group Anonymous) have been teaming up with Wikileaks to upset the apple cart. If you're not familiar with Anonymous, see here. The loose alliance of Anonymous and Wikileaks is not entirely surprising, but I admit that I'm pleasantly taken back by how swiftly they can shake up power. The government of Tunisia is their first official victim.  I'm skeptical about the immediate impact here. It appears likely that the parasitic Tunisian state will be able to retain their control for now, albeit with a few casualties (the President as sacrifical lamb.)  But it is surprising to me that a President of a sovereign nation has been forced to flee his throne thanks to the ingenuity of a few tech-savvy freedom loving nerds. Times, they are a changin...

A Note on Modern Monetary Theory

I promised before the Holidays that I would complete my analysis of Modern Monetary Theory, started here. A few things have come up since then. There is a combination of factors at work here. First, I've been interviewing for positions on the East Coast over the past month. A move to the States appears imminent, though I haven't ruled out anything just yet. I'm taking my time, trying to pick the best opportunity. Second, this has led to changes in my personal life as I have to focus on the immediate future more so than I normally would. That leaves less time for blogging and especially for the level of research and thought needed to do justice to opposing ideas. Although I can whip out a blog rather quickly, it's because I'll spend days ruminating on a subject before writing. Finally, I have to admit that everytime I think about MMT, I feel a bit bored. There really isn't anything of interest there.

Let's look at one example real quick, and maybe this is something I can do in future blogs to relieve the burden of trying to prepare a semi-academic work.

I came across a gentleman named Rodger Mitchell, author of the book Free Money. Let's quote directly from Rodgers' website:

"The unlimited ability to create money is an uncontested fact for monetarily sovereign nations, although at any given time, a nation may or may not choose to use that ability. Economic growth, inflation, deflation, recession, depression and social factors may influence a nation’s decision to create money. A monetarily sovereign nation even can choose to declare bankruptcy, for various reasons, but this would be an arbitrary matter of choice.

Debt hawks do not (or do not wish to) understand the implications of monetary sovereignty. You never will see that term on such debt hawk web sites as The Committee for a Responsible Federal Budget” or the Concord Coalition. If you go to those sites you will see federal debt described in the same terms as personal debt – as an unsustainable obligation. While debt can be unsustainable for you, me, businesses, states, cities, counties and the monetarily non-sovereign EU nations, no debt is unsustainable for the U.S. government. " - emphasis included in original

So far, Rodgers has covered ground that I've already discussed, although he doesn't say why this fact is uncontested (hint: theirs is bigger than yours.)  Rodgers goes on to inform you, in case you didn't already know, that the laws of the U.S. government are different than your household:

"While debt hawks may mention sovereign debt, they do not discuss monetarily sovereign debt. Debt hawks suffer from Anthropomorphic economics disease — the false belief that federal finances are like yours and mine.

The U.S. was not always monetarily sovereign. Prior to 1971, the U.S was on a gold standard. It did not have the unlimited ability to create dollars, since every dollar needed to be backed by a fixed amount of gold. No gold; no dollars. Similarly, the EU nations are on a euro standard. Their ability to create euros is limited by law. Our states, counties and cities are on a dollar standard. Their ability to create or obtain money by borrowing or taxing is limited by local law, by voters and by lenders.

The financial problems of Portugal, Ireland, Italy, Greece and Spain (The PIIGS), are due not to deficits and debt. They are due to these nations having surrendered their monetary sovereignty, thus preventing them from serving their debt by creating money."

Basically, the State of California, being non-monetarily sovereign, is constrained in a way the the U.S. federal government is not. Same goes for Cook County, IL and for the Jones family in Bumf*ck, Georgia.

But so what? Who cares? Like we don't know that we can't enfore our will upon the U.S. government and create our own money? The only difference between the Joneses/Cook County/California and the U.S. government is that the latter has a bigger gun. That's what monetary sovereignity really means. So why beat around the bush? Just come out and say it. Modern Monetary Theory, in order to hold true on a theoretical and practical level, relies on one party holding a gun to the head of everyone else.

Another MMT idea that I've stumbled across is the Job Guarantee/Employer of Last Resort policy. This provides a federal-government funded job to anyone who wants to work, at a uniform, basic compensation (wages plus benefits).  This is repackaged Keynesianism but we'll look at it briefly from L. Randall Wray's blog:

"A job guarantee program is one in which government promises to make a job available to any qualifying individual who is ready and willing to work. Qualifications required of participants could include age range (i.e. teens), gender, family status (i.e. heads of households), family income (i.e. below poverty line), educational attainment (i.e. high school dropouts), residency (i.e. rural), and so on. The most general program would provide a universal job guarantee, sometimes also called an employer of last resort (ELR) program in which government promises to provide a job to anyone legally entitled to work:"

Um, don't we already have that? It's called Job Corps. And it's worthless. Well, what do you expect? No one in Job Corps (or MMT appearantly) has ever studied human action. Continuing on with Mr. Wrong Wray (see what I did there?):

"Proponents of a universal job guarantee program operated by the federal government argue that no other means exists to ensure that everyone who wants to work will be able to obtain a job. Benefits include poverty reduction, amelioration of many social ills associated with chronic unemployment (health problems, spousal abuse and family break-up, drug abuse, crime), and enhanced skills due to training on the job" 

I hear that job guarantee programs also make my penis bigger. Where do I sign up?

Now, let's just think about this idea for a moment. If you're an employer of minimum wage/low wage labor, why would you ever hire anybody on your own when the government is willing to do it for you?  Under some MMT proposals, the government guarantees the job no matter if you work for them or a private business. Second, how does the government get the money to create these jobs? According to MMT, they spend it into existence. If you are spending money into existence, you are creating money out of nothing.  That reduces the value of everyone else's dollars, hence taking money from one group of people and giving it to another.  You are removing jobs from one area to put them in another area.  Worse yet, you are only "creating" the least economically viable and productive jobs!  Egads!  What jobs are you removing from the economy to create these wonderful jobs?

With theories this bad, who needs communism?

MMT focuses solely on the nominal representations of wealth and savings, completely unable to understand that savings and wealth creation are actions.

Before I finish today, I want to share a story. A young baseball player, 17 years old perhaps, was trying to catch on in the big leagues. The year was 1910.  He found a cannery that was willing to pay him an entry level wage of $20/week as long as he played for the company team on Saturdays.  From there, he could get the experience needed to sign with a big league team. (Scouting wasn't the exact - ahem, Ryan Leaf - science that it is today.)

$20/week. That's not a lot of money.  Actually, if you think about it, perhaps it is. That was one ounce of gold per week.  Or $1350-1400 per week today. Tax free.  Suddenly, that doesn't look so cheap.

So why was he poor? 

Because if there ain't sh*t to buy, it doesn't matter how much money you make. Simply, America wasn't making enough stuff yet to provide everyone with all their material wants to make a person feel wealthy on one ounce of gold per week. Since that term productivity has continued to increase by astonishing levels. (Consider how much more productive businesses are in the digital age at moving information and resources as compared to one hundred years ago.)

Now, imagine how much wealthier this nation would be if our ancestors had kept the parasitic state and bankers out of the pockets of Americans since 1913.  Would "full employment" even be a concern?  Full employment was achieved 500 years ago. If you and your family didn't work, you starved. As productivity increased, children no longer had to work. For a while we achieved a nation where the majority of households only had one full time worker.

Full employment is the ultimate fool's gold. It's a pipe dream that's really a nightmare. Trust me, you do not want full employment. You want minimal employment, a nation so wealthy that only one person in every family has to work.  That's a nation that is built on savings and investment, not debt and confiscation.

Modern Monetary Theorists certainly understand our current system, the one built on debt and confiscation. They just mistakenly believe that they can make it work in everyone's best interest.  They view their work in propping up the confiscation state as somehow noble and radical. It's not. It's the same state theory of money that has been around since kings first discovered the power that comes with control of the subject's money supply.

David in Qatar

14 Comments – Post Your Own

#1) On January 16, 2011 at 3:04 AM, Valyooo (99.50) wrote:

I will read this some other time, but nice blog title (love Office Space) and and even better quote; "I wish I could blog more, but stupid work and life". Love it, haha.

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#2) On January 16, 2011 at 6:36 AM, devoish (96.20) wrote:

Full employment is the ultimate fool's gold. It's a pipe dream that's really a nightmare. Trust me, you do not want full employment. You want minimal employment, a nation so wealthy that only one person in every family has to work.

Nice post. We don't need jobs - we need paid vacations.

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#3) On January 16, 2011 at 8:30 AM, whereaminow (< 20) wrote:

We don't need jobs - we need paid vacations.

If you can dream it, you can do it.

On an unrelated note, if da Bears lose tonight (today for you people), I might hurl myself off a bridge into rushing traffic, so this may be my last post.

Bear Down!

David in Qatar

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#4) On January 16, 2011 at 9:44 AM, binve (< 20) wrote:

David,

As always, an excellent post.

>> Modern Monetary Theorists certainly understand our current system, the one built on debt and confiscation. They just mistakenly believe that they can make it work in everyone's best interest.  They view their work in propping up the confiscation state as somehow noble and radical. It's not. It's the same state theory of money that has been around since kings first discovered the power that comes with control of the subject's money supply.

This is a great paragraph. I do think that MMT accurately describes the monetary reality we now live in. So as a set of operational rules, I have no problem with it. What I do have a problem with are the fiscal ideas that people who do understand MMT come up with. They go something like this:

1. Government spends money into existence (no argument from me, this is a true statement)

2. During the 'boom' year the private sector takes on an unprecedented amount of debt. The size of the debt (and servicing costs) are unsustainable. Contracting employment and economic growth at the height of the last bubble showed this very early on. (again, no argument)

3. Private sector cannot spend, they are drowning in debt and need to deleverage (again, no argument)

4. This creates an enormous output gap, and the private sector deleveraging is deflationary. So the government is not only free, but should, step in a fill the output gap (This is the one I have a *huge* problem with).

The reason why most people say we can't do number 4 is that bond prices will drop and yields will take off as foreign governments refuse to fund our debts. This is erroneous as I sought to explore here:  http://caps.fool.com/Blogs/the-matter-of-deficits/435457.

So if the bond market is only a monetary tool, and not a financing tool, and there are no 'negative' impacts for goverment filling the output gap, then why shouldn't they?

Because there are negative impacts!!

If our 'output' (our GDP growth, wages, employment, etc.) were all sustainable, and built on a solid economic foundation, then we wouldn't have had the crisis to begin with! The financial crisis merely exposed large scale non-viable economic activity and a massive reset needs to happen. Now, the reset doesn't have to happen all at once, but we need to be heading in that direction. 

But things like market-to-imagination, encouraging consumer spending (buy more houses, buy more clunkers, etc.), are all aimed at trying to get the economy back to where it was at the peak. That is ludicrous!

If that is the application lesson of MMT, then it fails. If the application lesson is rather that we don't have to worry about an outright default (which we don't), then we have a bit of breathing room in order to make tough decisions now in order to have a sustainable economic future tomorrow.

But that doesn't appear to be happening. 

Thanks for the posts, as always!

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#5) On January 16, 2011 at 10:00 AM, binve (< 20) wrote:

David,

Also, good luck in your upcoming move (in case you take the job)!

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#6) On January 16, 2011 at 10:23 AM, whereaminow (< 20) wrote:

hey binve!

Thanks man. Let me add to some of the great comments you mad here, just to play off your thoughts.

1. Government spends money into existence (no argument from me, this is a true statement)

Yeah, but this is another one of those "well, duh" reactions I have to MMT. Do people believe that money falls out of trees, or that conversely, the government creates money and doesn't spend it?  

2. During the 'boom' year the private sector takes on an unprecedented amount of debt. The size of the debt (and servicing costs) are unsustainable. Contracting employment and economic growth at the height of the last bubble showed this very early on. (again, no argument)

Although this tracks somewhat with Austrian Business Cycle Theory, what is left out is how the boom started in the first place. Just as MMT has no theory explaining hyperinflation (kinda weird since they believe that everyone else is wrong about hyperinflation... do they think it's never possible under paper money?), they also have no theory explaining the cause of the boom. Everywhere MMT is deficient they just regurgitate Keynesianism in new terms. Basically, it's animal spirits again.

3. Private sector cannot spend, they are drowning in debt and need to deleverage (again, no argument)

Actually I disagree. The bust doesn't occur because people are drowning in debt. They certainly are awash in debt, but that's not why the bust occurs.  Busts occur because there are not enough resources to sustain lines of production started under the easy credit during the expansion.  Grasping for resources drives up costs, which in turn lead to less profitability, which causes lenders to wake the eff up and raise rates, which leads to mass bankruptcies. Then people are drowning in debt. 

Again, notice that MMT does not indicate the source of the boom. I've actually had MMT supporters tell me that ABCT sounds perfectly correct, and yet, they don't see that what they are advocating merely increases the likelihood of boom/bust.

4. This creates an enormous output gap, and the private sector deleveraging is deflationary. So the government is not only free, but should, step in a fill the output gap (This is the one I have a *huge* problem with).

Only if the private sector debt goes unpaid. However, that NEVER happens. The money printers must step in and stop the bleeding and they do.  So the debt just gets shuffled around.  

I had a similar argument with The Pragmatic Capitalist a couple months ago. He argued that the new Tea Party Republicans were going to lower the debt ceiling, leading to more deflationary pressure. I told him he was nuts. As Gary North points out in an excellent article at LewRockwell.com today, the debt ceiling has been raised 80 times in a row!  

So much for evidence-based theories. People who fear deflation simply cannot face the reality of power in the hands of a bankocracy. Public debt will keep expanding. The government will keep asking for more money. No little Tea Party is going to stop that.

Instead of admitting that deflation never happened, and that they were wrong, they renamed it deflationary shock, which is hilarious since deflation is persistent and a shock is not.

Deflationary shock... yeah and I take rigorous naps.  

David in Qatar 

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#7) On January 16, 2011 at 12:09 PM, Valyooo (99.50) wrote:

If the bears win tonight, doesn't matter...clay matthews is going to ruin your life next week.

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#8) On January 16, 2011 at 2:44 PM, whereaminow (< 20) wrote:

Valyooo

The Packers have this nasty habit of snatching defeat from the jaws of victory. That gives me hope. But yes, they are absolutely the superior team. Hopefully, we'll get a few breaks. 

David in Qatar 

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#9) On January 16, 2011 at 4:49 PM, rofgile (99.43) wrote:

whereaminow...

 I conclude that the Bears are going to get whupped by the Packers!  What say you to that?!

  WOOO!

  -Rof 

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#10) On January 17, 2011 at 12:21 AM, rfaramir (29.40) wrote:

Just don't buy bonds, they're immoral: http://mises.org/daily/4922

I'm going to take a rigorous nap right now, see you tomorrow! 

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#11) On January 17, 2011 at 7:17 AM, whereaminow (< 20) wrote:

rofgile,

I conclude that the Bears are going to get whupped by the Packers!  What say you to that?! 

LOL, well in the spirit of reverse jinxes let me say that Aaron Rogers is the greatest quarterback I have ever seen. It amazes me how durable he is. He's like Favre-Starr-Majkowski all rolled into one unbelievable player.

=D

David in Qatar 

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#12) On January 17, 2011 at 8:39 AM, mtf00l (50.28) wrote:

Does this cover MMT Part 2?

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#13) On January 17, 2011 at 12:38 PM, whereaminow (< 20) wrote:

mtf00l,

Unless I find something more interesting than what is covered here and in the comments with binve, I probably won't look at it again. There just isn't anything there of note. Aside from some of the nice work that PragCap does on breaking down Fed moves, MMT itself has little to offer. 

I really wish a MMT proponent had stopped by one of these posts and offered their viewpoint, what they found interesting, debated some points, etc.  Oh well. 

David in Qatar 

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#14) On January 18, 2011 at 2:31 AM, FleaBagger (28.19) wrote:

Your cubs broke Freemarkets' heart, but I was spared by my minimal expectations.

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