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The Kalecki element

Here’s our MMT guru Warren Mosler bemoaning, sort of, increased economic confidence in Europe:

Unemployment working its way lower in tiny increments unfortunately causes politicians and mainstream economists to think their measures are ‘working,’ including revised down deficit projections from the automatic stabilizers, and that it all just need lots of time due to the severity of the downturn.

…..And it is very bad for people forced to wait years before their lives can begin to recover, as with modest improvement in GDP a fiscal adjustment that could drastically accelerate the move back to full employment is highly unlikely.

At age 60, it’s not looking like I’ll get to experience how good this economy could be for everyone if we understood monetary operations and reserve accounting (my emphasis).

67 yeas ago, Michael Kalecki didn’t think it was a question of ‘understanding’ how fiscal adjustments could create full employment.  He thought it was all understood all too well:

In the slump, either under the pressure of the masses, or even without it, public investment financed by borrowing will be undertaken to prevent large-scale unemployment.

But if attempts are made to apply this method in order to maintain the high level of employment reached in the subsequent boom, strong opposition by business leaders is likely to be encountered.

As has already been argued, lasting full employment is not at all to their liking. The workers would ‘get out of hand’ and the ‘captains of industry’ would be anxious to ‘teach them a lesson’. Moreover, the price increase in the upswing is to the disadvantage of small and big rentiers, and makes them ‘boom-tired’.

In this situation a powerful alliance is likely to be formed between big business and rentier interests, and they would probably find more than one economist to declare that the situation was manifestly unsound. The pressure of all these forces, and in particular of big business – as a rule influential in government departments – would most probably induce the government to return to the orthodox policy of cutting down the budget deficit.  A slump would follow in which government spending policy would again come into its own.

Michael Kalecki’s Political Aspects of Full Employment, written after the Great Depression,  still resonates across 67 years and a Great Recession.

I do like a lot of what MMT has to say (though I look forward to Duncan’s fortcoming critique of it in the context of the Uk economy). 

What I struggle with is the apparently widely held assumption amongst the ‘MMT community’ that a reluctance to manage the economy for the benefit of all stems from ignorance on the part of our leaders (an ‘innocent fraud’).

I’m with Kalecki.  The bastards know exactly what they’re up to.


  1. duncanseconomicblog
    July 30, 2010 at 11:55 am

    Strange – I just quoted Kalecki my latest post.

    MMT stuff on the way – estimated we’ll have it by Sunday.

  2. July 30, 2010 at 12:53 pm

    I certainly can’t say you’re wrong, but I do remain hopeful after meeting with a variety of Congressman and businessmen.

    Good quote!



  3. paulinlancs
    July 30, 2010 at 1:02 pm

    Thanks, Warren. I wish you the best with your attempts to get your sense understood and your Senate campaign, which a number of us will be following with interest here.

    As for quotes, did you see this from Bill Gross, co-founder of PIMCO?

    ‘For sovereigns with debt in their own fiat currency, there is not the operational constraint that you and I face. After all, they can go to the backyard and just pick some bills off their money tree – something we can’t do unless we want to go to jail.

    Remember, many countries like the U.S. or the U.K. can just print money to meet creditor demands. After all, the only financial obligation of government in a fiat currency system is the payment of more fiat money. This is a confidence game then. Creditors will only accept more fiat money from the debtor if they believe that the money represents good relative future value (i.e. when debt repayment occurs and where value is relative to other currencies or real assets at that time).’

    (Quoted at http://www.creditwritedowns.com/2010/05/gross-is-it-possible-to-get-out-of-debt-crisis-by-increasing-debt.html though the site seems to be down at the moment)

  1. August 2, 2010 at 9:16 am

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