Dmitri Dmitri Dmitri…

Once more with the appeal to authority! Instead of quoting celebrity economists with a professional motivation for trashing Friedman’s work because they should’ve thought about this first, why don’t you study economics yourself and make a judgement that can be critiqued?

I have. Let me tell you why Bernie’s economic plan is good economics.

Right now, across the developed world, we are looking at below optimum inflation, an overly leveraged private sector (that means private debt is too high) and a liquidity trap in which too many savings are chasing too few productive investments.

It’s a vicious circle, self-reinforcing. Why? The deleveraging of debt is made harder by the lack of inflation. That makes for less discretionary spending in the economy. That makes for poor revenue growth prospects for businesses of all kinds, which makes for a poor investment climate. The poor investment climate and the low inflation makes holding cash too attractive. The failure of cash to circulate (the low level of monetary velocity) makes it harder to earn extra money to pay down debts, and the circle is complete.

I know you like celebrity economists, so here’s one for you. Larry Summers calls this phenomenon secular stagnation. Heard of him?

The proposed solution (and if you want credentialled economists to refer to instead of my word or heaven forbid your own scholarship, you can refer to Jamie Galbraith, Joseph Stiglitz, Stephanie Kelton, Warren Mosler and a huge bunch of others), is much the same as it was in FDR’s day. Increases in public spending to stimulate demand. This is necessary because if you allow demand to remain weak for too long, the productive capacity of the economy erodes, and long term growth prospects are drastically reduced.

What about the public debt you say? Well, even if that was a problem in normal times (it’s not, because a state which issues its own currency can never go bankrupt, refer to Japan’s well over 200% debt to GDP ratio — still they borrow at incredibly low interest rates), it’s massively not a problem right now.

Why? Because there is a savings glut sitting idle. That money wants to be put to work, and you know how I know that? Because the interest the government pays on long term debt has never, ever been lower. If you factor in expected inflation, investors will literally pay money for the privilege of lending money to the government at this time.

Incidentally, that should give you a good idea about how bad the situation is right now. If you’re so pessimistic that you’re willing to accept a limit on your losses instead of a solid return, don’t you see how weak aggregate demand must be?

Saying public debt is the problem right now is like complaining that your feet are itchy when your canoe is about to go over Niagra Falls. It is NOT the most pressing issue at the present time.

Bernie Sanders, alone of the candidates for president, makes proposals which are ambitious enough to solve this problem. If you read Paul Krugman, he’s not criticising the policies that Sanders proposes, just the optimistic outcomes he projects. That’s a matter of conjecture, but you’ll notice that Krugman doesn’t say these things shouldn’t be done. He just says it’s unrealistic to expect it to happen with a Republican House, and that even if it does happen, its projections are too optimistic.

I happen to think he’s wrong about that. The economy is struggling under the weight of its private debt, and if you stimulate it sufficiently to facilitate a big enough deleveraging effect, I think you’ll see a huge recovery fuelled by the backed up innovations that for years have simply lacked sufficient demand to attract investment.

Krugman’s argument is that growth like that has never been seen before in modern times. The problem with that assertion is that nothing like what we’re experiencing has ever happened in modern times either.

Anyway, I just wanted to let you know that letting other people do your thinking for you and riding on the coattails of their authoritative reputation is now firmly out of fashion. You’re wrong, and you don’t know enough about what you’re talking about to understand why, but at least from reading this you can see that there are smart people with credentials that totally disagree with you. Your argumentum ab auctoritate isn’t even backed up by consensus, let alone the unanimity you claim.