···
Frank Lenk (2015.07.18.1009 PDT–
FL: Martin I have only briefly read the intros to both paperrs, but I would agree they are on the right track. First, Keynes was concerned about a lack of effective demand from the private sector and viewed private sector savings as a leakage from the spending that keeps the economy going, recognizing that one personâs spending becomes another personâs (or firmâs) income.Â
RM: This is very similar to T. C. Powers (Bill’s dad)  ideas which are described in his book “Leakage” and are the basis of my analyses in my H. Economicus paper in More Mind Readings. But I like the way T. C.Powers develops this rather than the way Keynes seems to since T.C. Powers’ analysis is so nicely  amenable to a control interpretation (like the one I give it in H. Economicus).Â
RM: T. C. Powers ideas about an economy are the first that made sense to me. T. C. views an economy as an aggregate control system producing goods and services (as the aggregate producer) for itself (as aggregate consumer). Money is the way the specialized production of goods and services (by the aggregate producer aspect of the aggregate controller) are distributed among the individuals that make up the aggregate consumer aspect of the aggregate controller. The aggregate controller pays itself, as the aggregate producer, for producing the goods and services that it consumes, as the aggregate consumes, using the money it received from itself as the aggregate producer. Leakage is just money that the aggregate consumer was paid itself, as aggregate producer, that is not returned to itself as aggregate producer; it’s a claim on goods and services that is not used. Whether that unspent income is in savings or (more likely) offshore bank accounts, it is leakage – money that is leaked out of the circular flow of goods and services that the aggregate controller is producing for itself.Â
Â
FL: If savings keeps leaking out and is not accompanied by an increase in spending elsewhere, then the economy starts shrinking.Â
RM: Actually, my simulations show that this is not the case. Leakage doesn’t shrink the economy in terms of making GDP growth go negative (a recession). Well, there may be a transient recession with a sudden spike in leakage but if leakage increases slowly (as it has in the US as inequality has gotten progressively worse since 1980) the result will be an economy that doesn’t produce as much goods and services as it is capable of producing. But it can still be a growth economy.Â
FL: Since we want the private sector to run a surplus (spending less than income), then the public sector must run a deficit even for a stable economy, let alone one that is growing. Â
RM: I don’t know that this is really the case. But this is the kind of thing that should be able to fall out of a good model of the macro economy. I obviously don’t have such a model yet.
Â
FL: Also, your insight that money is debt is also correct.Â
RM: I don’t quite get this. I suppose you could say that the money I possess is an implicit debt to the aggregate producer; it owes me $X of goods and services. It makes more sense to me, though, to see money as a claim on goods and services. But it is important to put money properly into an economic model; I still take a great deal for granted about how money fits into the system, and I even have a resident expert here at home – my wife, who used to work for the Federal Reserve Bank – and it’s a mystery to her too.Â
BestÂ
Rick
Â
As you highlight, anyone can emit money the trouble is in getting your money accepted by otherrs. That is why, in general, money emission falls to government, which can create the demand for its money by requiring it as the only thing that will satisfy the governmentâs imposed obligation of paying taxes. It is this obligation that gives money its value, not anything backing it. It is an obligation that is imposed by the Sovereign.
And this is the problem for Greece. It is not a sovereign nation any more. Neither is any nation that is part of the Euro. Part of being sovereign is being able to issue your own currency. In practice, it appears that the Germans have the most sovereignty in the Eurozone, but even they are finding out they are not completely sovereign because some kind of concessions will likely have to be made (e.g., creditors t
aking âa haircutâ?) if the Eurozone is to stay together.Â
There is a whole set of modern monetary theory or modern money theory (MMT) that expands considerably on the views I have proposed above. Minsky also plays a big part in terms of describing financial instability and how stability itself becomes destabilizing (because, from a PCT perspective, borrowers and lenders control perceived risk, and their perceptions of risk diminish as the length of time since the last crash increases, causing them to take on ever more risky investments as the length of the period of relative economic stability increases). MMT has some elements that are often perceived as fairly âout thereâ?, but even as traditional an economist as Gregory Mankiw agrees that without a fiscal union of Europe, a monetary union exacerbates political tensions rather than resolves them. See the NYT link here (hope this one works better
): Â http://www.nytimes.com/2015/07/19/business/history-echoes-through-greek-debt-crisis.html?_r=0&abt=0002&abg=0
(For those interested in learning more about MMT, there is a primer as part of a blog here: Â http://neweconomicperspectives.org/modern-monetary-theory-primer.html<
/a>  Itâs a blog, and it is sometimes dismissive of other points of view, which I donât much like. But the theory is all there. The primer was turned into a book, an advertisement for which is at the top of the page, but the blog posts are accessible below it.)
Frank
From: “csgnet@lists.illinois.edu” csgnet@lists.illinois.edu
Reply-To: Martin Taylor mmt-csg@mmtaylor.net
Date: Thursday, July 16, 2015 at 8:10 AM
To: “csgnet@lists.illinois.edu” csgnet@lists.illinois.edu
Subject: Re: Why PCT is on the fringe despite its success
[Martin Taylor 2015.07.16.10.43]
[Frank Lenk 2015.07.16.0738]
Iâll defend economists a bit (since I am one) and say that
most of us still think that increased government spending during
a recession or depression is a good thing, and that
impoverishment is a bad thing. The drive to punish debtors
really come more from the finance community than the economics
community.Â
Maybe you know of an article I mention here from time to time, which
I have always (well, for 60 years, anyway) thought should be a
seminal article at the foundation of economics, but which is even
more ignored than is the work of Bill Powers in psychology. It would
be interesting to have your opinion on it. It’s the Bagno link at
http://www.mmtaylor.net/Economics/index.html.
There's a loose PCT analysis that leads to the same conclusions as
does the Bagno article, but from a totally different starting point,
in the “PCT view of Economics” link on the same page. Comments on
that would probably be better appreciated by the CSGnet readership.
Both analyses independently come to the conclusion that a steady
average deficit, with its corresponding inflation, is required if an
economy is to be stable. The average size of the deficit can’t be
deduced from first principles by either approach, but Bagno’s data
suggest 4% is a reasonable target level for the average deficit (and
hence inflation rate), which is why I believe that the heart of the
European troubles is the Maastricht Treaty, which puts an upper
bound of 3% on any Euro-nation’s deficit. Too low a deficit and
inflation leads to a long slow decline in a closed economy. Germany
during the “wirtschaftwunder” was able to export its inflation to
much of the Western world, but there’s no way the whole world could
emulate that period of the German success, since we have no other
worlds to which we could export our “fiscal waste product”.
Anyway, comments on either or both articles from a real economist
would be very welcome.
Martin
Here is a link to recent column in the NYT about what good is
economics in aiding public policy discussions. http://opinionator.blogs.nytimes.com/2015/07/14/what-economics-can-and-cant-do/
As a field, our accomplishments are pretty limited and
disproportionate to our apparent influence in political debates.
 Unfortunately, most economists arenât as modest about what we
know as Daniel Hausman, the person interviewed in the column.
I probably think we know even less than he suggests, and I
agree with Rick that the reason is that economics is not based
on a sound psychology.
Rick, I re-read your H. Economicus article. My
criticism of it would be that it attempts to model the macro
economy directly, and it would be much more convincing if we
could model the economy as emerging from the control of
perception going on by the individual agents that compose it. I
think much of what we call economics is simply what results from
people trying to control the amount of food on the table for
their families. It goes beyond that, of course, but maybe that
is a better starting point for an economic model based on PCT.Â
Frank
From: "csgnet@lists.illinois.edu "
csgnet@lists.illinois.edu
Reply-To: Martin
Taylor mmt-csg@mmtaylor.net
Date: Tuesday, July
14, 2015 at 2:12 PM
To: "csgnet@lists.illinois.edu "
csgnet@lists.illinois.edu
Subject: Re: Why PCT
is on the fringe despite its success
[Martin Taylor
2015.07.14.15.08]
Well, Keynes was an economist, and the failure part of the
quote probably applies even more nowadays to economists than
to psychologists (see the way economists have been setting
up Greece for a xenophobic militiaristic dictatorship these
last few months.) Economists seem to be generally agreed
that the way to make a country prosperous is to impoverish
the people. Makes less surface sense even than S-R
psychology.
Martin
On 2015/07/14 12:49 PM, Richard
Marken (rsmarken@gmail.com
via csgnet Mailing List) wrote:
[From Rick
Marken (2015.07.14.0950)]
RM: Here's a
quote from John Maynard Keynes that I think does a
rather nice job of explaining why the success of
PCT has not emerged from the fringes of
psychological science despite its incredible
success (and the spectacular failure of the causal
model).Â
JMK: Worldly
wisdom teaches that it is better for reputation to
fail conventionally than to succeed
unconventionally.
BestÂ
Rick
–
Richard S. MarkenÂ
www.mindreadings.com
Author of  [ Doing
Research on Purpose](https://urldefense.proofpoint.com/v2/url?u=http-3A__www.amazon.com_Doing-2DResearch-2DPurpose-2DExperimental-2DPsychology_dp_0944337554_ref-3Dsr-5F1-5F1-3Fie-3DUTF8-26qid-3D1407342866-26sr-3D8-2D1-26keywords-3Ddoing-2Bresearch-2Bon-2Bpurpose&d=AwMFaQ&c=8hUWFZcy2Z-Za5rBPlktOQ&r=-dJBNItYEMOLt6aj_KjGi2LMO_Q8QB-ZzxIZIF8DGyQ&m=7GeEewwQFBrasZLXyIjzFsMuocaEdfJQR7PLrAXC65o&s=JRX3eiN1kFKBNBCFoML8SCDraPgzdrOVMHV5WkkLV2Y&e=).Â
Now available from Amazon or Barnes
& Noble
–
Richard S. MarkenÂ
www.mindreadings.com
Author of  Doing Research on Purpose.Â
Now available from Amazon or Barnes & Noble