Home > Main > The Concise Way to Destroy the IGBC, and Why to Destroy it

The Concise Way to Destroy the IGBC, and Why to Destroy it

May 3, 2011

From the excellent Peter D:

“If I am understanding you correctly, you’re saying that the IGBC is an ex post condition and as such worrying about it ex ante should be done only insofar as there is an observable that tells us whether we’re violating it or not. If there isn’t one, then who cares, more or less. If there is one – such as inflation rate – then this is the only thing we should be concerned about, which bring us back to your posts about solvency vs. inflation.”

Exactly.  What can we do today?  How can we act now?  Well, we need observables to be able to act appropriately. Otherwise we are little more than cave people sacrificing the lamb and burning it on a stone altar to hold back the wrath of the always angry gods for another year.  If we can see something today, act on it – but it does not and cannot be an opinion on the IGBC, because the IGBC is unknowable.

[Update: The original post where the IGBC is slain is here.  We can’t know if the no-Ponzi assumption holds in real time except possibly through what we can observe.  If we cannot observe, measure, or otherwise know it, then it cannot matter today. Being scared of the dark is for 6 year olds, not important people at the IMF.]

And why to destroy it?  Because Brad Delong and Paul Krugman used it to poo-poo MMT.  We are saying the standard model is wrong, because it uses the IGBC.

Once that IGBC is gone, we are back to Insolvency vs. Debasement.  And we’ve won that argument.  Even Bill Gross says we cannot default.

All of this comes down to believing in an impossibility – that is believing we can go broke.   Going broke is impossible.  Debasement is possible.

[Update: Peter D is responsible for this concise phrasing.   The IGBC is the Inter-temporal Government Budget Constraint. )

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  1. beowulf
    May 3, 2011 at 6:41 pm

    Right, if we’re going to live by faith-based economics, there are better textbooks:

    If you help the poor, you are lending to the LORD—
    and he will repay you!
    Proverbs 19:17

    :o)

    • TC
      May 3, 2011 at 7:00 pm

      Now thats good! or should I say God! 🙂

  2. May 8, 2011 at 12:19 pm

    agreed!

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