Better Economic Predictions Could be Made if More Economists Read Wynne Godley's Writings

This morning, as I was going through my hard disk seeking information on some unrelated subjects, I came across a paper by the late Wynne Godley (1926 – 2010), one of the originators of Modern Money Theory (MMT). His distinguished career included the Economic Section of HM Treasury from 1956 to 1970, and as director of the Department of Applied Economics at the University of Cambridge. I had saved the paper, entitled Strategic Prospects and Policies For the U.S. Economy (2002) and was particularly impressed with its predictions that extended to (yes!) 2007. Godly was careful to explain that his scenarios were not necessarly accurate predictions, but it is clear that, barring unforeseen events, he believed that the U.S. economy would follow one of the paths he had laid out.

In light of the fact that he wrote this article in 2002, he seems to have been unusually prescient. His theory was based on the behavior of the three factors determining the money supply of the U.S.: The government’s net cash flow (+ or -), the private sector’s net cash flow (+ or -), and the current account (balance of trade) (+ or -). These three numbers always sum to zero.

Assuming that the current account is unlikely to change significally in the short run (around -$700 billion/year), the government and private sectors must make up for that shortfall. If the government is in balance or surplus, the private sector must bear the brunt of the negative current account. Funds normally available for consumption, savings, and investment will decline by some $700 billion, which would lead to a recession. Thus, to make up that loss, either the government must make up the difference by printing money, or the private sector must borrow the money from banks. If the economy does not grow, the cost of servicing the debt to banks will eventually exceed the ability of debtors to pay and a large number of debts will become bad. Lending will decline, which is the recipe for a recession. It goes without saying that if the government runs a surplus, it will take even more money out of the private sector. That is why the government sector usually creates more money by spending than it destroys by taxing. It's called a deficit, a term that is a misnomer, since the government, unlike a family, can create money and spend it without having to be concerned with creditors.

For a little more background, Godley’s paper,  Seven Unsustainable Processes is informative but rather technical. The download is slow, so be patient.

On the Occasion of J. S. Bach's 333rd Birthday

It is appropriate, indeed mandatory, that the birthday[1] of one of the two greatest composers who ever lived[2] be celebrated. About Bach, the late William F. Buckley, Jr, whose political philosophy I abhorred, regarding it as eloquence in support of fascism, got it right when he commented:

[T]here are among us men and women who will not drink from this most precious vessel of our cultural patrimony. To some, he does not speak. If we understand that, then we understand, surely, what the problems are in Geneva, where grown men are actually talking to each other as if it were a challenge to formulate arrangements by which the world should desist from the temptation to destroy itself. If a human being exists who is unmoved by the B minor Mass, it should not surprise that human beings exist who are unmoved by democracy, or freedom, or peace. They have eyes but they do not see, ears but they do not hear. Well, Bach tended to end his manuscripts with the initials, “S. D. G.” — Soli Deo Gloria, To God alone the glory. But God shares that glory, and did so 300 years ago when Johann Sebastian was born[3].

Amen.

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1. I began writing this short article on March 21, J. S. Bach’s 333rd birthday, but other matters intervened. My apologies to the master, wherever he is.  ↩
   
2. The other being Wolfgang Amadeus Mozart.  ↩
   
3. National Review, February 26, 2018  ↩
   

Conservatism and Fear

Living as I do in Mississippi, and having lived here most of my life here, I have had an opportunity to observe racism and conservatism in all their different manifestations. The Young Turks just posted a video on recent scientific findings that conservatism is directly related to fear. I can vouch for that out of experience . Watch now

Bolton in the White House? Heaven help us!

According to an article in The Week, dated today (3/8/2018), by Damon Linker, Trump is seriously considering appointing John Bolton as national security advisor. Bolton would be replacing H. R. McMaster.

As the article points out, Bolton is one of those neo-conservatives that believes with all his heart that the only possible response to difficult international conflicts is to bomb, bomb, and then if that doesn’t work, invade, conquer. Throughout his entire political career, he has resisted the use of diplomacy to solve conflicts between nations.

In light of Trump’s shallow understanding of nearly everything touching on presidential responsibilities, one hopes that Trump would seek the advice of knowledgeable advisors, but it is becoming increasingly evident that Trump will seek only flatterers and persons who agree with his ill-formed opinions.

Let us pray.

Atomic Bombs and the NRA

Rationale for allowing citizens to possess nuclear weapons:

Atomic bombs don't kill people;
People kill people.

On the 15th Anniversary of the Invasion of Iraq

In 2003, the Bush Administration, under the pretense of ridding the world of a dangerous dictator who possessed “weapons of mass destruction,” invaded a nation that had not attacked the U.S. during its entire history. The invasion and subsequent occupation led to the deaths of as many as a million Iraqis, a large proportion of them children. This was in addition to the million or more Iraqis that died as the result of sanctions imposed by the U.S. after Desert Storm in 1993.

The Bush Administration invaded Iraq mainly to enrich the military/industrial complex that has driven so much of our foreign policy since the end of World War II. During the mobilization, the government even conducted classes for businesspersons who wished to profit from the procurement bonanza. It was all transparent. Very little was hidden from anyone who took the trouble to look.
No good came out of the invasion or occupation to anyone but defense contractors, who are still gorging themselves at the public trough. Attacking a nation that has never threatened you is a war crime, pure and simple. George W. Bush, Vice President Dick Cheney, Secretary of Defense Donald Rumsfeld and the other neoconservatives in the administration all have blood on their hands that will never be washed out.
Watching the CIA testifying before the Senate Intelligence Committee several days ago reminded me of the talk leading up to the invasions of Vietnam and Iraq. Dan Coats, Director of National Intelligence told Congress that “[t]he risk of inter-state conflict is higher than any time since the Cold War.” CIA Director Mike Pompeo, FBI Director Christopher Wray and National Security Agency Director Adm. Mike Rogers, as well as the heads of the Defense Intelligence Agency and National Geospatial-Intelligence Agency, Lt. Gen. Robert Ashley and Robert Cardillo, answered questions by the committee members.
As you might guess, the picture they presented was bleak. That the most powerful nation in the world, whose military expenditures exceeds those of the rest of the world combined, should be worried about enemies is ridiculous. It appears as though the defense industry is getting hungry and needs another war to restock their coffers.

Obama, Objective Journalism, and Manufacturing Consent

Never forget that people the mass media won’t tell you about have been deemed by the power elite to be unworthy of our concern. To focus on the vast amount of suffering in the world, much of which has been the direct result of U.S. foreign policy, would be an inconvenience to the power elite who profit from many of these activities. A recent opinion piece by John Christiansen, Jr. in Medium, analyzes Obama’s rationalization of military intervention and concludes that he was no better than his predecessors. He also cites a book I have long regarded as the bible of state propaganda, Manufacturing Consent by Edward Herman and Noam Chomsky.