35/ it’s funny how Norwegian newspapers and even the central bank are not even pretending this has anything to do with us. You want to know what numbers the Norwegian central bank is looking at to figure out if they can lower the Norwegian interest rate?
The unemployment rate in the United States of America.
https://e24.no/internasjonal-oekonomi/i/Xj6olo/viktige-jobbtall-kan-skyve-paa-rentehaapet-fed-har-tatt-feil-foer
https://www.nrk.no/ytring/det-haster-overhodet-ikke-med-rentekutt-1.16778904
36/ Turns out that the pre-Friedman King of Economy, John Maynard Keynes, agreed with me (according to the book), or the quote is about the opposite (about lowering the interest rate to make people take out loans)… but it turns out to be kind of the same for the NOK 🤪
“You can’t push on a string”
Turns out that perhaps the quote is misattributed 😅
https://en.wikipedia.org/wiki/Pushing_on_a_string
My point being: you can try to make your currency attractive, but you can’t make people buy it.
And I posit that the NOK is weak because the planet is fucked and everybody knows it.
40/ And one sector is particularly vulnerable: construction. Because:
1. Materials (imported) are much more expensive
2. Interest rates are way up, so a lot of projects are halted due to financing
3. They are dominated by highly unionized workers and their salaries just went up (because the unions didn’t negotiate with them, they negotiated with the swimming in money export sector)
So all sorts of companies associated with construction are going bankrupt.
@[email protected] I find the interest rate situation in Norway extra annoying, because even with it not working to bring down inflation, the one silver lining it should have had was to cool the housing market. Instead, house prices are still going up because we completely stopped building 🙄🙄🙄
43/ And that gets us the whole “what is inflation?”. Because if it is that it is harder to make ends meet because everything is more expensive. Then they are actually creating MORE inflation.
Yeah, we are exposed to the exchange rate, but now we are killing the economy that’s supposed to compensate, while driving actual living costs even further through the roof.
44/ Housing is also a weird market in general, because once you’re in, you buy and sell in the same market. So that market becomes sort of disconnected from everything else. Because demand is constant and supply is pretty constrained: the people selling their homes and newly built stuff.
But with no construction the supply is even more constrained, and the people buying are mostly the people selling, so it becomes a strange closed loop system.
45/ However, if you are a renter you are also getting hit, again by different effects. The current left coalition (and previous iterations) have wanted to make it less lucrative to be a landlord. So margins have shrunk due to higher taxes etc. But a lot of this has been funded through loans, and so those margins are getting squeezed further. So landlords are either selling off their properties, which are often in the cities, or raising rents. But the housing market is undersupplied so it just absorbs these properties.
So now we have fewer rental properties, which would drive up prices on its own (according to economic theory 😅), but the remaining market is also increasing rent to compensate for higher interest rates.
So even if you rent you are getting hit by the interest rate. And actually it’s worse there, because rents will for sure not go down in the same way mortgages will if/when they reduce the interest rate.
46/ Or in kubernetes analogy (because of Cybercyn and the book The Unaccountability Machine): some stuff in our system (the Norwegian housing market) are auto-scaling in some cloud, some are manually scaled (by buying and adding new servers in our on prem data center) and once the peak in consumption is over, some things might scale down quickly, but some are stuck now with a lot of expensive hardware taking up space in our server racks.
Mortgages are in AWS and rents are on-prem in my very confusing analogy.
47/ I don’t know what the answer is, my earlier idea of constraining the supply of NOK… it looks like they did that, and it had apparently about as much effect as the interest rate (not much if any).
Maybe without these two things it would’ve spiraled out of control… but I don’t think so, because this wasn’t caused by our economy.
So maybe the best thing would’ve been to just accept it? Yeah, the NOK is weak, because the world is rough, increase salaries some and just sit tight? Maybe even stimulate internal growth to compensate?
52/ Ok, I think I get it. MMT says that a deficit isn’t a sign of government overspending, inflation is. (And here they are clearly talking about the overheated economy inflation) So as long as the spending doesn’t cause inflation, it doesn’t matter if you run with a deficit even over a longer period (she mentioned decades).
So basically she is sort of saying that deficits aren’t real because taxes aren’t real.
This is more like the water in a radiator system (my analogy). You can add in water or remove water, but the system isn’t the water. And adding water (money) only becomes a problem when the pressure in the system gets too high and water starts spilling out somewhere.
Basically, money isn’t “real”. It’s… just water in a radiator system in a building. The building and the radiators and the people living there are the real things.
@[email protected] @[email protected] Most economic forecasting models are relatively simple and don't require supercomputers (because the models are oversimplified). Steve Keen takes a System Dynamics approach and has many more feedback loops in his models. He's also one of the fiercest critics of mainstream economics I know of, for many of the same reasons @[email protected] is. Worth looking up, if it interests you.
Modern Monetary Theory states that’s, because the government of a country is the monopoly supplier of money, it has an unlimited capacity to pay for things and...
The Norwegian government receives revenues in both NOK and foreign currency from petroleum activities. Some of these revenues are used to finance a planned central government budget deficit. Norges Bank carries out the necessary foreign exchange transactions associated with petroleum revenue spending. These foreign exchange transactions are planned and smoothed over the year and are pre-announced each month.
62/ I feel so smart when I read news articles that agree with me 🤓 🤣
“And an interest rate increase will not help, he believes. - The higher the interest rate goes, the more landlords have to raise the rent, and then the interest rate increase is inflationary. It does not have the same effect as in the housing market, where prices fall if interest rates rise. The interest rate is not a good weapon to deal with this kind of inflation. It makes matters worse, he says.”
https://e24.no/norsk-oekonomi/i/93zl4d/uenige-om-leieprisene-det-gjoer-vondt-verre
65/ After spending ages on inflation, I’m apparently breezing through chapter 3 “The National Debt (That Isn’t)”
Basically, in the same way tax isn’t real (in that it is just a mechanism to remove money from the economy and/or create demand for the currency. MMT says that the deficit isn’t real. Very clear that it is the US they are talking about. To generalize to more countries she picked the UK and I would’ve preferred another more “normal” country.
67/ To be fair, I think that issue is pervasive in the whole field. They are not able to separate ideology from models of the economy. And then they infuse in morality and destiny and Right and Wrong in these models until it’s more mythology than science.
And I don’t mind ideology. I have a great helping myself. But when you’re already in a non rigorous field, mixing opinions into “models” makes the whole thing even less serious.
A complex system is what it is. You find out the shape of it empirically. You can form hypotheses, design experiments and test. You don’t sit in a corner and Devine It. You might have a famous “shower thought” but then you test.
And seriously, these people (economists) don’t test ANYTHING.
68/ I really thought I’d be more convinced by leftist economists. But they are methodically all very similar. And it is the methodology I have issue with in this whole… project(?).
This field has imo structural issues and they aren’t fixed by the practitioner being less of an ass.
The problem is they believe in these simplistic models and that is standing in the way of developing the kind of tooling, discipline and humility needed when working with complex systems imo.
When you quote me I hope you pick the best quotes: “And I posit that the NOK is weak because the planet is fucked and everybody knows it.” https://social.vivaldi.net/@Patricia/112719497998588756
75/ Chapter 5: “‘Winning’ at trade” is interesting, but doesn’t really go into the depth I’d like (but I guess after reading 4 Econ books in a row I’m not the target readership). The chapter is very “political” and idealistic rather than descriptive, but that was a tendency we saw earlier too. The basic idea is that a trade deficit isn’t a bad thing. She goes on to envisage a world economy that is more… equitable? It argues for developing countries to focus more inward, and diversifying their economies, perhaps making them less vulnerable to the global markets. It argues against losing control over one’s own currency (its MMT, so obviously). It makes clear that the dollar gives the US an outsized influence and leverage over the rest of the world.
She criticizes both democrats and republicans, but seems to have a soft spot for Bernie Sanders. He hired her to work at the Capitol, so I guess that makes sense.
The MMT premise seems to be that you don’t have to “have the money” to fund guaranteed full employment or “entitlement programs”, because the control over the currency means that the government always “has the money” to pay.
76/ The “winning vs losing” at trade is explicitly directed at Donald Trump. But she spends a lot of time emphasizing that American workers have lost jobs (“well paid union jobs” comes up several times) when production moved offshore.
It feels to me like she is arguing for a midpoint, a more protectionist approach, but not measuring in trade deficit/surplus, but instead in… standard of living?
She gets slightly into the topics of “The Shock Doctrine” in that the international trade organizations and the world bank became dominated by extremist (my word) capitalist forces.
79/ But the book is supposed to not just be a work of ideology, but provide a way through this mess we’re in, in the aftermath 🤞of a global economy dominated by extremist capitalism.
And that premise is based on this currency “trick”, and there I am not yet convinced tbh.
84/ Ok, chapter 4 “Their red ink, is our black ink”. I think it was Keen in one of his podcast episodes who said something that I hadn’t considered. From memory: as a country’s economy grows, whatever that means, the money supply would need to grow too.
Looking at population growth alone that makes sense to me. And that means that my mental model of a fixed “amount of money we have” isn’t correct. It would, at least over longer periods of time, need to be elastic in some way. And I can’t see how that could be a global zero sum game either, since many countries that were poor a century ago, and are still poor today, often still have a “bigger” economy than they did a century earlier.
@Patricia i mean it figures that the new money has to *actually circulate* before it has any effect. it's not magical action at a distance.
i explained this to my parents when i was like 10 and they laughed at me and told me that no because money was backed up by gold
@Patricia Thanks! A very fascinating subject. Perhaps economics is like cults because money itself is like cults?
I might actually read it on paper without spending a dime on Amazon 😄:
https://deichman.no/utgivelse/3494bd1b-8d2a-463a-b63d-f181be119016
92/ As some folks have alluded at (where does the new money actually go) and based on something she says earlier in the book (that deficits have actually been too low) I started wondering. Imagine I have a truck full of dirt and I tell you I’m going to pour it out, you’d think it would create a pile of dirt, right? But what if I pour it into a hole. We don’t get a pile, we lose a hole…
The thing that I think MMT are arguing is that “debt” isn’t “debt” if it’s monopoly money you made up. To you as the money machine it behaves differently. And debt isn’t debt. It’s potentially pothole filling. But that means something is absorbing money, and don’t just say “rich people” because that is lazy. Are there holes? Where are they? What would be the effect of filling them? I’m assuming that filling different holes would have different effects. And maybe that’s MMTs thing: to fill the unemployment/underemployment hole? And from there achieve an effect?
94/ Still in chapter 4. She was discussing another economist, Wynne Godley, and so I had to look him up and that opened another line on economic models: equilibrium models (the “mainstream economics” models) and a set of models referred to as “accounting models”.
Steve Keen, who a lot of folks have brought up (the guy with the podcast “Debunking Economics”) seems to be one of the people who are proponents of “accounting models”.
And it seems to me that MMT draws from the work of economists in this area.
Wynne Godley was credited for predicting the financial crisis based on his model.
This paper looks very interesting because it seems to contrast the two approaches. Which tends to be illuminating in my experience.
“No one saw this coming. Understanding financial crisis through accounting models”.
https://pure.rug.nl/ws/portalfiles/portal/2646456/09002_Bezemer.pdf
95/ so far my (quite shallow) understanding is that these “accounting models” model flows of money. With the basic premise that money has to come from somewhere and go somewhere. Or more accounting-wise that a subtraction one place has to lead to an addition of equal size (possibly the sum of multiple additions) somewhere else.
This relates to the idea that MMT presents, which Wynne Godley also seems to have supported and Richard Vague (above article and TED talk), that a deficit for the state necessitates a surplus somewhere else. Found this graph from Godley using his “sectoral financial balances” framework, depicting the US economy. This graph is very similar (perhaps identical?) to what Vague shows in his TED talk. They both show what seems to be an inverse relationship between a public deficit and a private surplus.
@Patricia one of the challenges I have when pondering money in this way is thinking about the dual overlapping roles it fills. One is as something to exchange for goods and services, the other is as a mechanism of control of... the economy? What gets produced? Other things?
So holes may look like luxury goods that have weird-ass no logical value (does it maybe cost $500 to make a Birken bag?) or Manhattan penthouses, or Tesla stock...
@Patricia right, because I used Tesla stock there, but in the late '90s or early naughts I'd have used Amazon stock, and then AWS happened...
And, hell yes, if we could do all of those social things, break some intergenerational trauma, do education and learning? I believe we could have amazing growth in human potential.
Rather than Birkin bags.
@Patricia @danlyke incidentally, this is why I'm somewhat leary of sovereign wealth funds.
Like, really? There's nothing you could more usefully spend on locally to ensure future productivity? All your children have all the support they need to flourish into maximally-productive adults? All your potential parents have enough support to become parents while remaining productive? And so on.
These aren't privately capturable benefits, so putting money in private industry isn't going to make them happen, but they absolutely are things you want to happen.
91/ Oh here he goes into another side of this (very US centric): that the increase in household wealth as a result of deficits tends to be tied to real estate and stock values, and that results in wealth distribution inequality, because most poor people don’t own homes nor stocks. https://youtu.be/wuonrlKefRM?si=7TUvGs-JeUI2AWW5
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