Archive for January, 2012

Malinvestment and Good Accidents

January 31, 2012 3 comments

Matt Y talks about how Malinvestement doesn’t always have bad results due to luck.

As we know, Christopher Columbus had problems financing his journey – which created the most powerful empire of the next 200 years –  because he was totally wrong about the size of the earth and everyone knew it but a few rich fools.

“That said, it all made me wonder a bit about the social value of malinvestment. I’m really struck by the fact that Christopher Columbus sailed to the New World on the basis of a mathematical miscalculation about the size of the earth. It’s particularly striking that the conventional wisdom of Columbus’ time essentially had this question right—the earth, most scientists thought at the time, was much too large to make Columbus’ proposed westward sailing voyage a viable way of getting to China. Columbus shopped his idea to various monarchs, most of whom were in possession of accurate geographical analysis and rejected his idea. But Ferdinand and Isabella signed on to the crank’s erroneous ideas about where China was. For their trouble, they wound up in possession of a vast and wealthy empire and Spain became the leading Great Power of the 16th and 17th Century. Not bad for an unintended consequence of misguided idea based on an Italian navigator’s megalomania and calculation errors.”

This I think is one of the more important facets of human life: Luck. In this case, malinvestment turned out to have fantastically positive consequences for Spain. However, Luck isn’t always due to malinvestment.

There is a famous phrase about luck, “opportunity meeting preparation”, and lots of people try to apply this phrase to their lives. I know I do – it’s a good way to live.

But far fewer people think of this on the level of a country. How can we create situations where “good luck” happens? Well, keeping bunch of industries geographically close makes “lucky” things happen.

This is why Silicon Valley draws such bright people to it. It’s entirely possible to show up for work at some cool company and get lucky and become a multi-millionaire.  It happens all the time – I at least one person personally who took this life path and it worked great.

I think about Tesla, how he would just walk around New York City and meet with people who would fund his crazy ideas. Some of those ideas ended up creating our modern electrical society. We created a place where it was really possible for society to get lucky, and we did.

I think about Jobs tramping around Silicon Valley, selling computers, getting cheap parts, having Woz work at his desk on Apple stuff. We created a place where our society can get lucky, and we did.

Matt Y talks puts Malinvestment in the title, but this post is just as much about luck as Malinvestment. This is why it’s useful to build things here.  We could get lucky again.


Categories: Main

A Small Victory

January 31, 2012 Comments off

Check out this screenshot. Traders Crucible shows up #2 when you google  “Shadow Government Statistics”.

The post is Why Shadow Government Statistics is very, very, very wrong.

It’s hard to fight back against endless lies about how our economy works, but I’ll take this small victory. I get a few clicks every day on that post.

Categories: Main

If you can’t get the accounting right, you can’t get the economics right

January 27, 2012 22 comments

TC reader Greg had a good idea about a meme for our new Monetary Realism movement.  The idea:

“If you can’t get the accounting right, you can’t get the economics right”

I’d put this right up with:

“Businesses hire when they are swamped with demand”

Nice one, Greg!  I used this exact phrase today in what turned out to be an elevator pitch on Monetary Realism and MMT! We need thinking like this.

Nothing happens until you sell it…

Monetary Realism and MMT

January 25, 2012 48 comments

Hi Everyone,

Cullen Roche has a post up over at Pragmatic Capitalism about a new project we’re working on together. The recent back and forth about the Job Guarantee brought a bit of clarity to my thinking, and I think to many others too. I don’t fully support the Job Guarantee, and it’s clear the founders of MMT believe the JG is essential to MMT.

We’re starting an “offshoot” of MMT which we’re calling Monetary Realism. We’re massively indebted to the work of Mosler, Fullwiler, Kelton and the rest. We’re standing on the shoulders of giants.

But we’re not fully “in paradigm” (as they say), and we don’t want people to be confused that we are a source for pure MMT. We are not pure MMT. We do not want to undermine the work of the developers of MMT.

And, I want to be 100% clear – we are not against the mainstream MMT movement.

We just want to focus more on the insights of Warren Mosler, and what it means for the economy. We want to use these insights to make millions of lives better. Focusing on the operational realities will bring even greater recognition of those ideas, which should pave the way for a better functioning economy.

We have several other differences in focus as Cullen writes:

1. We side with Godley on the current account issue.
2. We view the state theory and the “taxes drive money” idea as incomplete.
3. We will focus more on productivity as a compliment to consumption as opposed to mainly looking at ways to increase aggregate demand.
4. We reject the JG as a central component of understanding the modern monetary system.

Still, we share a ton of common ground with MMT purists. Let’s not forget we grew up reading Mosler’s comments section.

The blog itself isn’t up yet, but it will be soon.  We’ll let you know when it is up.

Here’s one final note: We’re going to take the operational realities of modern money and put it everywhere. Everywhere.


Categories: Main

The Unappreciated Effects of Making Stuff

January 24, 2012 21 comments

Making stuff isn’t always glamorous, and it seems like it pays to have people make things for your. However, there are benefits to making something that do not show up in the statistics.

Matt Yglesias talks about it a bit in this post. I fully agree with this sentiment.  Making stuff has spillover effects on the economy that aren’t easily measured in statistics.

For example, when you make something, you might be able to figure out how to make it a bit better, faster, or cheaper. Plus you then need to hire other people who might also slightly improve the products.

This is why cities are useful – they are serendipity machines for humans. Manufacturing zones like we used to have across the entire Midwest have value outside of the jobs created – they also create innovation.

Check this other article about Steve Jobs by Matt. Apple computer exists because of a highly localized computer science focus around the bay area allowed Apple to get over the initial hump.

In short, we’ve got the iPhone because it was exceptionally easy for Steve Jobs to get started in computers. If this hadn’t exited, we might have a few more nice looking fonts. Instead, we have civilization changing products like the desktop computer and iPhone.

Density of making and designing things is extremely valuable for reasons beyond jobs.  I know, the Trade Deficit is really people giving us stuff in exchange for a few bits in a computer. But is that all we’re giving away?

I suggest we’re giving away more than just bits. Perhaps we’re giving away more.

Categories: Main

Again: I Does Not Equal S

January 18, 2012 14 comments

Remember when I wrote this brilliant insight a while back? Well, over the last few weeks there has been an upswing in this whole debate.

S doesn’t equal I, at least not for the last few hundred years in the United States. I don’t know why you’d bother thinking through a world where S=I. It happens so rarely and so infrequently, it’s like taking welding goggles with you everywhere as preparation for an eclipse.

Here is Scott Sumner responding to JKH over his statement “you are assuming a closed economy with a balanced budget”:

JKH, Both Wren-Lewis and I are assuming a closed, balanced budget economy. That’s not the issue being disputed.

So your complaint has no merit. I’m quite certain even Wren-Lewis would agree with me.

Last I checked, our budget hadn’t been balanced for a decade, and is going to be 8% of GDP or so.  Then we have this shocking Balance of Payments issue that’s another few 5% of GDP or so.  In other words, the argument has merit due to real world observations of what actually happens in our economy. 

This is a funny statement from JKH addressed to Scott Sumner :

There’s something wrong (and there has been from day one) if his opinion matters that much to you. Although, seems like you’re not the only one in that regard.

If you’re right on stuff, you should be able to ignore him and still prevail in the longish run.

If you’re not right on stuff, it won’t matter either way.

We are creating a new, more accurate economics, with a better way of thinking through issues. And the old guard doesn’t see it yet. We will prevail.

Update: This other quote from JKH shows exactly why this all matters:

The corresponding “saving” numbers are those generated per accounting period. For example, suppose the government runs a $ 1 trillion deficit and the economy adds $ 2 trillion in real assets, both in a given year. Then incremental NFA is $ 1 trillion, incremental investment is $ 2 trillion, incremental private sector saving is $ 3 trillion, and incremental national accounts saving is $ 2 trillion.

When you take G-T out of the equation, you’re making the ability hoard “impossible” inside the toy world. Then when you see something which appears to be hoarding in the real world, you’ll be absolutely confounded. It will appear mysterious and in need of a complex explanation, when all you need is to do the accounting correctly.

You get bonus points for recognizing hoarding is related to inflation rates.



Categories: Main

Austrians, take Note of this Awesome Natural Experiment

January 18, 2012 Comments off

We had a natural experiment in Afganistan on the benefits of zero government. Perhaps Bob Murphy can give us insight as to how freely associating men spontaneously create an orderly, just society – like the Taliban.

From the Article:

In her lecture series, Margaret Anderson explains that the best way to understand the dastardly public torture of criminals in early modern Europe is to consider the need of authority to establish itself over great distance, in an era before cell-phones and a legitimate judicial systems.
From the perspective of the people, a known dictatorship with obvious bright lines is often preferable to utter chaos. The ability to erect those bright lines and to enforce them harshly and swiftly  aided the Taliban’s rise, and even now according to Coll’s reporting, it sends people to their courts to adjudicate disputes.
We’re battling against people who don’t have the slightest clue



Categories: Main
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