Sunday, September 26, 2010

"First Principles"

From A special report on debt: Repent at leisure, The Economist, 24 Jun 2010

To understand why debt may have become a burden rather than a boon, it is necessary to go back to first principles. Why do people, companies and countries borrow?

Why do people do anything??? For profit or for personal satisfaction, according to an old tax document I read. (If they do it for profit, they use a business tax form. If they do it for personal satisfaction, they use an individual tax form. Cut'n'dry.)

But why do we borrow this much instead of this much? Depends who ya ask, I guess. But I say: Because of policy.

Policymakers got it wrong. They thought too much money would cause inflation but too much credit-use wouldn't. So they restricted the money we spend, and encouraged us to save and borrow. These encouragements are embedded in policy.

If we borrowed too much, it is because of policy. If we didn't save enough, it's because we didn't have money to save because they restricted it. If we had inflation, it was because we spent too much credit-money, not too much M1 money. If we accumulated too much debt, it is because policy allowed and encouraged that behavior.

The way the world is today, is the result of policy. Bad policy.

Why do we borrow so much? Because of policy.


Greg said...

Well Arthur,

Thanks for visiting my site and for the nice compliments. If I wrote everything that was going through my head these days I'd never work (partly because I'm so damn slow at typing). I would also probably scare a lot of people, best to keep some things to yourself ;-)

From your profile it sounds like we have been infected with the same econ bug.

Let me suggest a couple sites to add to your reading list

billy blog -

Warren Moslers site-

Check out Warrens recommended readings at top of page, specifically "7 Deadly Innocent Frauds"

Univ of Missouri KC site
Look for Randall Wrays articles here

billy blog has a great comment section, best on the web I think and his site is like an econ course, he even has weekly quizzes. Check it out I think, actually I KNOW, you'll like it!


The Arthurian said...

Hey Greg. Thanks. I took a look at those links... Mosler's "Seven Deadly" thing is *long* and, what I read of it, sounds like he just wants to print money, but doesn't want to call it that. (I can only imagine why!)

On NewEconomicPerspectives I found -- of all things -- an interview with Mosler. Was good though, to see Mosler's ideas restated for maybe a different audience.

Billy blog -- I ran across it once before and liked it -- but this time I didn't have the stamina for it. Have to try again later.

These guys are all MMT, right? New to me, I'm trying to figure that out. Thanks again for the links.

Hey, do you prepare your comments in Notepad or somethin' and then paste'em into the Comment Form? (Just wondering.) Sometimes I do that. Sometimes there's a blogger glitch, and I wish i did.

Only thing, I gotta turn WordWrap off before I copy from Notepad.


Greg said...


No I dont prepare my comments anywhere else. I'm usually flying by the seat of my pants :-)

Those ARE all MMT guys. Its the only paradigm I've discovered that makes sense, that is internally consistent. Most of the other paradigms focus on finance, interest rates and the such. MMT focuses on real economic activity and a governments role as currency issuer in supporting the welfare of its citizens.

The Arthurian said...

Greg --

I never heard of MMT until recently, and I'm sure I don't "get" it yet. But I have some real problems with Mosler's ideas (especially government spending as "simply a matter of changing numbers," in his Dallas address).

I wrote up an evaluation of his ideas. It is scheduled to post on 4 October. (I try to stay a few days ahead!) Maybe you would keep an eye on me and help me straighten out some of my misperceptions of MMT? That would be great...