We’ve another of those little specials from David Graeber. Telling us that the field of economics is entirely all wet and that it’s anthropologists who have the stuff to tell us all how to do it. The advice this time is as the advice last time, it’s worth Graeber taking a little trot down the corridor in the London School of Economics – I assume he’s still there – and talking to some economists about what economists do in fact believe.
Which isn’t what Graeber thinks they do. But then, you know, this is the man who thinks that Apple was started by refugees from IBM.
A good example is the obsession with inflation. Economists still teach their students that the primary economic role of government—many would insist, its only really proper economic role—is to guarantee price stability.
Well, umm, no actually. The Bank of England’s inflation target is 2%, allowing 1% either side. The Federal Reserve aims for 2% using the personal consumption expenditure core measure of inflation. The European Central Bank has a target of up to 2% inflation.
A major aim of quantitative easing this past decade has been to try and get inflation up to those levels.
With a 2% inflation rate each year the general price level doubles every generation, every “grandfather” as Sir Pterry would put it. This is not price stability.
And do note, this is his opening claim, traditionally where you put your strongest one.
These assumptions came with the monetarism of the 1980s, the idea that government should restrict itself to managing the money supply, and by the 1990s had come to be accepted as such elementary common sense that pretty much all political debate had to set out from a ritual acknowledgment of the perils of government spending.
This is simple colei. There’s not an economist on the planet – not even the most neoliberal of them and I should know, I’m more neoliberal than most of them even if not an economist – who would claim nor teach that monetary policy is the only useful or valid one available to government. Or that all government spending is a bad idea.
There are indeed those who argue that fiscal policy isn’t all that good at assuaging the business cycle but that’s a rather different claim.
We now live in a different economic universe than we did before the crash. Falling unemployment no longer drives up wages.
Nonsense. The US currently has entirely reasonable real wage growth. The US has generational lows of unemployment, it is generally agreed that the two are connected. UK wage growth has picked up as unemployment has fallen since the crash. Sure, wage growth might not be all that great but Graeber’s statement is still more colei.
Printing money does not cause inflation.
Tell that to Venezuela and Zimbabwe. In what circumstances does it is the interesting question.
The phrase has been repeated endlessly in the media, whenever someone asks why the UK is the only country in Western Europe that charges university tuition,
Eh? Even a cursory glance tells us that FR, IT, ES and NL charge tuition fees. Yes, to domestic and EU students as well as proper foreigners.
The truly extraordinary thing about May’s phrase is that it isn’t true. There are plenty of magic money trees in Britain, as there are in any developed economy. They are called “banks.” Since modern money is simply credit, banks can and do create money literally out of nothing, simply by making loans.
No, banks create credit, central banks create money. Another way to say the same thing is that central banks create narrow money, M0, the banking system creates wide money, M3 or M4. This is our old friend, MV = PQ again. And we can also note that M0 does not equal M4, therefore wide and narrow money are not the same thing, money and credit are not the same thing.
Which is also where we find out about why printing money doesn’t create inflation currently – V has fallen which is why we did QE, to stop PQ falling.
The one thing it never seemed to occur to anyone to do was to get a job at a bank, and find out what actually happens when someone asks to borrow money. In 2014 a German economist named Richard Werner did exactly that, and discovered that, in fact, loan officers do not check their existing funds, reserves, or anything else. They simply create money out of thin air, or, as he preferred to put it, “fairy dust.”
That’s because it’s a different section of the bank, the treasury department, that funds the loans that the credit department is making. Sigh. And the treasury must go fund those loans by 4.30 pm each and every banking day. It’s called balancing the books, it’s why the interbank market exists and not being able to do so is why Northern Rock went bust.
It’s not really worth taking the rest of the screed all that seriously. For he’s off discussing Skidelsky who is also wrong.
Colei again, pure colei.