Posted To RWER Blog 04/24/2018

Completely agree we need a new economics. Only a paradigm change qualifies as a new economics. Everything less than that is merely “epicycle” reform that will be gamed and morphed back into the same old economics. Erudition and abstraction are all well and good, but the deep insight and transforming effects of a paradigm change ultimately render most of such to distracted and non fully looking vanity. So let us have a new paradigm so we can actually accomplish a new economics.

Studying the history of paradigm changes is an essential and enlightening guide to deciphering both the old/current one and the new one. In the Reformation the primary aspect of the paradigm change was directness of the relationship to the product of the dominating force, i.e. the God’s grace via its sacraments. This defined the current paradigm of sacraments only via the church and the new one as the individual’s direct relationship with God. Today in economics it is the form of Debt Only for the distribution of money/credit that is the current paradigm and monetary gifting directly and reciprocally applied and distributed at the point of retail sale throughout the entire economic process that is the new one.

If we want and need paradigm change let us study them and apply their signatures to economics.

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Steve Keen says DSGE’s problem is it doesn’t have money, debt or banks in its model, and he’s absolutely right. His only problem is he talks paradigm change and reformation, but he doesn’t have a clue about their nature, their signatures, what the current one or the new one is and how to implement it. He’s a good mathematician and probably a great pedant, but he doesn’t have the mindset skills for paradigm perception….and he’s probably the best economist on the planet…and that tells you something.

Economics needs an informed visionary who can also look directly at commerce, discern its significances and craft policies that deal terminatedly with money, debt and banks, not the endless wandering opaqueness of erudition and abstraction that resides entirely within and cannot step outside of the current paradigm.

FS:  Surely, the major error in conventional economic analysis is obvious. Equilibrium analysis is and must be that gross misunderstanding. The empirical evidence since the start of the industrial revolution is of cycles. Therefore, there is no known period of equilibrium.

Me:  General Equilibrium is the macro model problem, but what is it that plagues both enterprise and the individual and prevents the entire system from being free flowing? Money, debts and banks are the clue…and the deepest answer is INDIVIDUAL monetary austerity. Okay, so banks create virtually all of our money, its form and nature is Debt Only and banks dominate and manipulate all other business models and 95-98% of the general populace.

The answer to the current paradigm of Debt Only is a direct monetary gift to the individual (a universal dividend) and a direct and reciprocal monetary gift at the strategic point of retail sale throughout the entire economic process with a discount/rebate policy that resolves the chronic problem of modern economies, namely price inflation. Direct and Reciprocal Monetary Gifting resolves that problem, the monopoly paradigm of private banks and a whole host of other problems and unnecessary stupidities. If any one can show me that they can do these things and more I’ll applaud them and get on their bandwagon. Otherwise lets get on with the mass movement to herd the entirety of the political apparatus toward the implementation of the above.

 

FS:  While I do not disagree with the general thrust of your comments, economists must not bite off more than they can chew.

They may wish to emulate Hari Seldon, but the likelihood of their success is very small.

To use scientific development as a more relevant example, it was achieved by many tiny steps each creating further insights. Despite a few false steps, progress has been continuous. The application of the scientific method has been and is of critical importance to its achievements.

As I see it, it will only be through making small rigorously valid steps, will economic understanding on a larger scale be achieved.

L:  Mainstream economists see no difference between rentier income and income directly tied to production of goods and services. Michael Hudson’s views deserve an honest evaluation and discussion. Steve Keen is not (IMO) the best communicator of MMT. Stephanie Kelton and Michael Hudson are the most effective communicators in my view.

Me:  Michael Hudson’s fire in the belly regarding the parasitical nature of finance is impressive. Steve Keen recognizes that MMT has the mechanics of money creation correct but that it only speaks about government debt which is “a tempest in a teapot” compared to the deflationary nature of total individual and corporate debt. However, neither is apparently aware of the breakthrough insight about how to implement what they both want to see, namely the end of economic and monetary austerity for both the individual and for enterprise by tying monetary gifting directly to the point of retail sale throughout the entire economic process.

We can pray that incremental reforms and tweaking of theories will undo the 5000 year old paradigm of Debt as the only form for the distribution of money, and hold up the 500 year old paradigm of Science as the only way of discovering an answer, but these orthodoxies, the increasing pace of change and the rising stress of long delayed resolution will spell disaster for everyone….unless we discover and utilize the supreme integrative human mental discipline of Wisdom which includes science plus the pungent kick in the @ss discernment and decisiveness necessary to resolve and extricate us from the building chaos.

C62:  But the demagogues are already here. Where and when will a reform of existing structures and a latterday Bretton Woods economic consensus come from? Meantime individuals are more nearly “atomised /brownian” largely due to their fixation on mobile devices/”new media”. As in the poem the centre cannot hold & the worst are full of passionate intensity. Isn’t there some sense that the laudable objectives expressed here might resemble rearranging the deck chairs on the Titanic?

Me:  You have to bring an every way integrative appeal to traditionally opposed constituencies like the individual and the small to medium sized business community, and use the very means of distraction to unite them. Discernment and integration of only the truths in opposing perspectives and inverting/transforming an apparently problematic means of communication are two of the processes of Wisdom which not only includes science, but is actually its most radical form and manifestation.

KZ:  Craig. “The question is how are we going to resolve the issues that everyone agrees upon, namely the continual build up of debt, systemic austerity and scarcity of individual income?”

Change the laws that allow such actions to be carried out. Then, enforce these laws strictly.

Me:  “Change the laws that allow such actions to be carried out. Then, enforce these laws strictly.”

Yes, so how do you change the current law/current situation?

You recognize the most important, problematic and operative factor in the current situation, money, and then you intelligently and insight-fully resolve its scarcity so that the individual, commercial agents and the system become a lean, mean freeing machine that serves them rather than slavishly makes them serve it.

Look directly at commerce and its tools and operations until you see, then focus on the solutions there and never stop until they are implemented.

PP:  Banks do not spend money, except trivially to pay salaries and run their buildings, etc. When someone walks into a bank and gets a mortgage loan, the following happens:

1. The banks writes in its books that person X owes the bank $100k plus interest over some years. That’s a loan.
2. The bank and person X write a contract that if X is unable to repay the loan the bank has a right to repossess and sell the house. That’s collateral.
3. The bank writes in its books that the bank credits X’s account $100k, which means the bank promises to pay X $100k whenever they ask. That’s a deposit.
4. At the end of that day the bank checks that it has enough credit with the central bank (the Fed, ECB, etc.) to meet some legal targets, which are fairly low. If not, the bank takes a loan from the central bank. That’s reserves.

Money gets created at step 3, when the bank writes out the loan amount into the customer’s account. That money doesn’t come from anywhere, not from the central bank. The bank creates it. The bank can create money like this because:

* It’s a bank. It has a special license that makes it different from a person or bakery.
* The bank has assets to match or exceed the amount it created (the loan and collateral).
* People accept bank credit as money, and call it money for all intents and purposes.
* The central bank and the government have the bank’s back and promise to guarantee it all if it goes wrong. Except in Europe where they don’t so there’s constant crisis.

I hope this helps.

Me:  Nice, succinct analysis.

Now consider that we currently give one business model (finance) the sole monopolistic right to create the life’s blood (credit/money in the paradigmatic form of debt ONLY) for the survival of every business and every individual.

This is domination and felonious temptation waiting to happen, and because old paradigms are largely unconscious and new ones require a new conscious realization…..all we have to do is stand up on our own hind legs and “stand in the light” of the new paradigm of Direct and Reciprocal Monetary Gifting long enough to perceive it.

JB:  Unfortunately, perhaps, Craig I don’t know of any large global firm which worry’s much about debt, since so much of it disappears into investors in the form of stock. Bank debt, for example, is for consumers & non-incorporated firms, which in the US can generally walk away from with a formal bankruptcy. Two years later they’re on their way legally in most cases.

Me:  Yes, well those large global firms still would need to compete with the small to medium sized corporations who would be able to under sell them with a 50% discount/rebate at the point of retail sale which would make that and other new paradigm policies “an offer even those with global reach could not refuse”. And any line of credit they may need would be better coming from a publicly administered banking system that could offer them such at 0% interest.

RL:  Calgacus, Compare the history of Europe under unbridled nationalism in the first half of the 20th century and the peace and prosperity of Europe in the second half and you’ll understand why your advocacy of nationalism is nonsense. Those who forget history are condemned to repeat it. Those who forget how Europe gained the reputation for being “The Dark Continent (The mass killing field of the world), would not advocate your position. Europeans as nationalist are mass killers. When I studied European history 1952-1965 that was the history we learned. What makes you think that Europe as a bunch of nations won’t revert to old habits. Europe does not have a history of freedom and justice that the nasty
EU EZ is perverting. Its all we can do to keep the Europeans from committing mass murder.

Me:  Robert,

You make excellent and historically accurate points, but there is nothing like the stable prosperity that a new monetary and economic paradigm would effect to make the demagogues and xenophobes crawl back under the rocks they came from and that would also break through upon the ensconced positions of the financial elites.

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