Wednesday, 27 November 2013

Economists with an “investment” complex.

Various economists have tumbled to a point that has long been obvious to advocates of Modern Monetary Theory, namely that escaping a recession is easy: just print money and spend it (and/or cut taxes). Or to cite Mosler’s law, “There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.” That’s set out in yellow at the top of Warren Mosler’s site. (And for the benefit of the ignoramuses who think that money printing always leads to inflation, it won’t if the economy has spare capacity.)
Howevever, the economists who have tumbled to the above point often claim that the extra spending, for some bizarre reason, has to come in the form of extra public INVESTMENT. Why?
Three examples of this “investment complex” are as follows. First this article by Mario Seccareccia, Professor of Economics, University of Ottawa. He wants to see “massive public investment” so as to “sustain aggregate demand in the long term”.
Complete nonsense! You don’t need “investment” to “sustain demand”: you simply need SPENDING (as implied by Mosler’s law). The question as to whether that spending should take the form of investment or consumption spending is an ENTIRELY SEPARATE ISSUE.
The moral is that if you produce a nice new simple law, the equivalent of E=MC2 in economics, no one wants to know you. In contrast, if you produce tens of thousands of words of hot air, you’ll be enthusiastically applauded by your fellow academics, plus you may even be nominated for a Nobel Prize. Well I'm exaggerating, but no by a huge amount.
The second example of the “investment complex” is an article by Tejvan Pettinger (search for the phrase “public sector investment”).
As to the third example, you shouldn’t be surprised to learn that Kenneth Rogoff (professional advocate of all forms of economic illiteracy) also subscribes to the above “investment” nonsense. Search for “high return infrastructure” in this Financial Times article.
This will be way above the head of Prof. Kenneth Rogoff (and other Harvard economics department academics) but if an investment is “high-return” is should be made ANYWAY: i.e. regardless of whether the economy is in recession or not. That of course is a repetition of a point already made above. But when dealing with dimwits, sometimes constant repetition is the only way of getting the message across.

1 comment:

  1. Ralph, Yes what you say is true. However, investment is spending too. So it may help to get the MMT idea if we embrace the word 'investment' too. Investment in education, health, transport, the environment, digital networks, housing etc is something MMT advocates shouldn't have too much difficulty supporting.
    I personally didn't like schemes like 'cash for clunkers'. They gave the concept of stimulus spending a bad name.


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