Re: [A-List] FW: znet/weisbrot on deflation - critique?

["Gary Santos" <evs@xxxxxxxxxxxx>]

Henry,

The debate on whether money is a credit or debt is not as interesting as its
follow through ("there is no need for capital formation, because state
credit can be issued to finance them") if money is a credit. But, it gives
license to spend well beyond levels what common opinion considers prudent.
We are, after all, dealing with "fiat" whose value can be subject to a
downward change value much greater than real assets when hyperinflation sets
in.

If, indeed, money is credit and this credit can be freely spend, I fail to
see any assurances that the economic return on these patrimonial investments
will turn out higher than its economic cost, the creation of more claims on
fiat assets. Put another way, if we were to translate the concept of money
as credit into a 5 year Medium Term Plan for a developing economy, what
would it look like? Surely, the decision to spend is easier than deciding
what should be spent on. Investment in education with lousy teachers is
exactly like a badly made bridge built leading to nowhere. Both are total
wastes of money.

Gary





----- Original Message -----
From: "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>
To: <a-list@xxxxxxxxxxxxxxxxxxx>
Sent: Saturday, July 12, 2003 8:18 AM
Subject: Re: [A-List] FW: znet/weisbrot on deflation - critique?


> Ann,
>
> There is plenty of time for us for duel when our common enemy,
> neo-liberalism, is defeated.
>
> But a few comments below:
>
> Anyutka wrote:
>
> > Sorry, Jim, but your analysis is based not on a critique of capitalism,
but
> > on one of central banking.  Only in a monetarily, centrally-planned
economy
> > (which central banking creates) in which the medium of exchange is
declared
> > to be such by a government with a printing press and is bereft of
commodity
> > backing and therefore enters the economy as debt, is deflation a threat.
> > Under free market capitalism (which by definition requires
commodity-backed
> > money, which is based on an asset, not debt) deflation is a boon - it
clears
> > out malinvestments, thereby freeing capital for productive pursuits
> > beneficial to all.
>
> It is true that if money acquires a fixed intrinsic value, it becomes
> more clear that holding it is an asset, not a debt.  When government
> issues money, with or without backing by valuable commodities, it is
> issuing a credit instrument of government asset.  Since all that is not
> yet assigned to the private sector is government asset, the government
> issued money has intrinsic value, more solid than gold, until the
> government falls or owes more foreign debt than its asset (national
> wealth) can afford.  Through taxation, the government claim legitimately
> a portion of the privat sector.  Now for all "productive pursuits",
> meaning all activities beneficial to the common goods, since avtivities
> beneficial to the private good cannot logically be defined as
> productive, although at times it is possible to have activities that are
> beneficial to both public and private good, which is why a private
> sector is permissible.  Now for all productive pursuits, there is no
> need for capital formation, because state credit can be issued to
> finance them.  Only non-productive private pursuits need private capital
> formation, being that a person enjoys the right to squander his own
> assets and resources, but only to a certain limit, because when we own,
> we do not command full authority over an asset, we only control the
> right to use it and pass it on to our designated heirs.
>
> As prices fall due to increased productivity and
> > efficient capital allocation, the value of money grows.  (As a
consequence,
> > so do domestic savings - the only investment capital of which any nation
can
> > truly be assured.)  This is especially important for the working class,
who
> > pay the greatest price in a fiat system which can only work -
temporarily
> > and inefficiently - under a regime of perpetual inflation, i.e. theft.
> > Funny how nobody gets this right - people cheer when the value of their
> > homes rise, but are supposed to be threatened when the value of their
money
> > does the same?  The only ones truly under the gun from deflation are the
> > govt and their bankster allies - all scam artists, villains, and rogues
> > living well off the labor of others. -A.
>
> When your house increases in price, you enjoy a monetised increase in
> value. When prices fall, the value of money in private hands increases
> but the value of money as state credit do not necessarily increase.  The
> same face value of state credit in the form of money now command more
> tangible assets to redeem.  In other words, the seller of the house get
> less money (state Credi) with which to do other things with.
>
> Deflation is neither good or bad except for two factors.  It creates
> unemployment and its shrinks the economy.  Those factors are bad for
> people who need to work to make a living and for a nation which needs a
> growth economy.
>
> Valuable money is not good for those who have to do or sell things to
> get moeny, which is most people.
>
> Henry C.K. Liu
> >
> > ----- Original Message -----
> > From: "Craven, Jim" <jcraven@xxxxxxxxx>
> > To: <a-list@xxxxxxxxxxxxxxxxxxx>
> > Sent: Friday, July 11, 2003 2:50 PM
> > Subject: [A-List] FW: znet/weisbrot on deflation - critique?
> >
> >
> >
> >>There are several reasons why deflation, especially sustained, may cause
> >>some problems for capitalism that monetary policies or indeed fiscal
> >>policies cannot fix. First of all deflation, or sustained decreases in
the
> >>general price level (as opposed to disinflation or decreases in a
positive
> >>rate of inflation) can produce dislocations in the following ways:
> >>
> >>A) Because some business costs are relatively fixed and locked-in in the
> >>short-run (e.g. interest rates fixed for terms of loan agreements, rents
> >>fixed for terms of rental agreements, wage rates fixed for terms of
> >>empoyment agreements) sustained deflation can cause a profits squeeze
> >>leading to cumulative and self-reinforcing downward effects: e.g.
> >
> > Deflation
> >
> >>leads to disinvestment or putting off planned investment, leading to
more
> >>layoffs, leading to falling real incomes leading to falling aggregate
> >
> > demand
> >
> >>leading to more deflation and falling aggregate supply (partially
> >
> > cushioning
> >
> >>the fall in the general price level) and even further rising
> >
> > unemployment...
> >
> >>B) Deflation can lead to expectations effects on the demand side (when
> >>people expect lower prices or lower future incomes they decrease present
> >>demand in anticipation of the future low incomes and/or future even
lower
> >>prices thus creating feedback and self-fulfilling/reinforcing effects on
> >
> > the
> >
> >>demand side leading to the same on the supply side);
> >>
> >>C) Everybody wants to go to heaven but nobody wants to die. Everbody
wants
> >>the prices of what they sell to go up while the prices of what they buy
to
> >>go down but deflation doesn't work that way often. When the general
price
> >>level is falling, or better the weighted-average price level (itself a
> >>highly suspect construct), it does not mean that every and all prices
are
> >>falling. Often businesses may find that prices of what they sell are
> >
> > falling
> >
> >>while input prices are not falling as fast, not falling and/or even
rising
> >>causing profits squeezes and or on the worker side even more dramatic
> >>decreases in real wages thus feeding into the cumulative and
> >>self-reinforcing spiral downward;
> >>
> >>D) Falling general prices might stimulate some sales (in the
conventional
> >>models, a falling general price level stimulates increases in Aggregate
> >>Quantities Demanded leading to increases in real GDP and employment,
> >
> > leading
> >
> >>to increases in employment and real incomes, leading to increases in
> >>aggregate demand, profits, investment and ultimately  short-run
aggregate
> >>supply--the anti-Keynesians start out with supply-led growth) depending
> >
> > upon
> >
> >>the overall domestic and global contexts operating. For example, with
> >>widening income/wealth inequalities (U.S. is number one out of 22
> >>industrialized nations in wealth/incomes inqualities), with masses of
> >
> > people
> >
> >>maxed-out on their credit cards, with real tax burdens being
increasingly
> >>dumped on the so-called middle-class and below, with increasing
> >
> > uncertainty
> >
> >>about the future (employment, real incomes, prices, interest rates,
costs
> >
> > of
> >
> >>education, globalization effects, downsizing, outsourcing etc) among the
> >>general mass-demand-producing segments of the population, tax cuts,
> >>expansionary monetary policies leading to even lower interest rates etc
> >
> > may
> >
> >>not and will likely not have the usual intended effects of stimulating
> >>employment, output, investment, savings, moderate/necessary increases in
> >>prices, increases in aggregate demand and short-run aggregate supply
etc.
> >>For example, with the last supposed "tax cuts" and rebates, only about
17%
> >>of those who got them spent them; the rest went into drawing down debt
not
> >>into spending as predicted.
> >>
> >>E) Often deflation is portrayed as having some positive effects on
> >>international trade side and making prices of exports more competitive
> >>globally and making imports relatively more expensive and less
> >
> > competitive;
> >
> >>this is supposed to simulate net exports and even reverse some slides in
> >
> > the
> >
> >>general exchange rate of the dollar. This assumes that prices and
relative
> >>prices are the only or even significant basis for global demand for
> >
> > exports
> >
> >>and imports. In the context of global recessions and widening global
> >>inequaltiies in wealth/incomes, no matter how far prices fall, they may
> >
> > well
> >
> >>not have any stimulative effects on net exports--especially in the
context
> >>of nations, like U.S. citizens, maxed-out with their own credit cards;
> >>
> >>F) Deflation can have effects on preventing future investment, business
> >>start-ups, etc; plus, deflation is usually associated with the most
> >
> > extreme
> >
> >>troughs of a typical business cycle (in most recessions at most we find
> >>disinflation but actual deflation is rare since the Great Depression)
thus
> >>having negative effects on both investor and consumer--and
> >>saver--expectations and psychology; Further, even those deflation,
> >>especially unexpected, favors lenders at the expense of borrowers (at
> >
> > least
> >
> >>in theory), and helps to lower real interest rates, the bottom line is
the
> >>bottom line and now matter how much taxes are cut, no matter how low
real
> >>interest rates go, this will not likely simulate significant investment
in
> >>real plant and equipment, output and jobs in the context of global and
> >>domestic masses suffering falling real incomes and increassing debt and
> >>unable/unwilling to demand any real output that could be produced (who
> >
> > will
> >
> >>start up a business, no matter how cheap the borrowed money with little
> >>prospects of effective demand); this will but stimulate more
wealth/income
> >>inequalities and the increased hegemony of financial capital over
> >
> > industrial
> >
> >>and agricultural capital--more paper chasing and short-run speculation.
> >>
> >>I could go on, and notice I am looking only from the standpoint of
> >>contradictions in bourgeois economic theory, when we bring in a
full-blown
> >>Marxist analysis, departing from the linear and unidirectional "chains
of
> >>causality" and ultimate "independent/dependent" variables of bullshit
> >>neoclassicism, it gets even worse--or better from the standpoint of
> >>destabilizing the whole system.
> >>
> >>Got to run, more later, this is just for openers.
> >>
> >>Jim C.
> >>
> >
> >
> >
> >
>
>
>
>