103/ seems to me from reading this and some of the references that the disagreement seems to be “technical”. Krugman seems to agree that the fear of deficits is overblown, but seems to argue that interest rates are another tool to manage possible inflation. Tbh I haven’t gotten the opposite impression yet from the book, but maybe I missed it.

One thing I do wonder about is that if the deficit is in the form of bonds, won’t higher interest rates affect the cost of the accumulated deficit? Wouldn’t the public side now also have to pay more for the accumulated deficit? How does that work?

Maybe I don’t know how any of this works

105/ she is describing a model for interest rate that I think she is going to argue against. In it there seems to be a mechanism where one imagines that the private sector and public sector compete for loans in the same fixed sized market. And so the public sector deficits are in this model financed by loans in this market. And therefore the increased deficit would then be a significant increase in demand on a finite supply of money. And therefore drive the interest rate up.

But… that’s not how it works? In the real world? The banks increased their interest rates when the central bank did. So this model doesn’t make sense at all to me.

114/ And here from the Congressional Research Service

Deficit Financing, the Debt,
and “Modern Monetary Theory”
https://sgp.fas.org/crs/misc/R45976.pdf

116/ But one thing I haven’t read much about is this inflation they’re currently fighting with interest rates globally. What do they think caused that? The EU guy didn’t seem to think it had anything to do with the financial measures during the pandemic, but rather fallout from the supply chain breakdown? I really need to read that speech more closely.

For Norway imo imported inflation of 2-3 percent doesn’t really matter when exchange rates mean that imports are 25(?) % higher than a couple of years ago. And I’ve realized that people aren’t distinguishing the two much in the media. But the interest rate hike that they are apparently doing to fight the insignificant inflation is killing households who are struggling with food prices due to the weak NOK.

For real. I don’t get the interest rate hike at all, it seems purely destructive for no reason. It clearly has zero effect on the value of the NOK.

117/ For real, how does this make any sense? Companies costs are increasing because the NOK is historically weak and interest rates shot up, so costs are way up and demand is way down. So their answer is to continue to beat Norwegian households into “submission” because they are already lying on the ground?

“There is uncertainty about the further development of the Norwegian economy. If companies' costs continue to rise rapidly or the krone becomes weaker than forecast, price inflation may remain high for longer than we currently envision. Then the committee is prepared to raise the interest rate again.” (Google translation)
https://www.norges-bank.no/kort-forklart/inflasjon/

121/ Finished chapter 7 and 8 and it is pretty clear to me that this is mainly aimed at the US, and seems to be intended as an economic lever to shift the US in a more social democratic direction.

This is her summary of MMT

123/ I have been trying to find someone saying what is causing this inflation. And it's weird how little there is to find on this. But I found a page on the national statistical institute of Norway (SSB) talking about inflation in 2023. And it is really funny how they even point out the same feedback loops I've talked about in this thread (plus some more):
- rents are up (increased interest rates are probably a factor)
- imported goods are up (weak NOK is probably a factor)
Other things they brought up was that energy prices had been very high and that those losses were probably also being priced in.

The thing is... That means that we are turning up interest rates partially because we turned up interest rates and partially because our currency is weak and that energy prices were high a year ago. And turning up interest rates is not made to fix any of that.

It is made to cool down an overheated (too much money, too much spending) economy.

But that isn't what the economy looks like. But since they have reduced the entire state of the economy into one number (plus some including this, excluding that numbers), all context is gone and they pull out the same hammer that is part of the reason we got in this mess.
https://www.ssb.no/priser-og-prisindekser/konsumpriser/statistikk/konsumprisindeksen/artikler/kraftig-prisvekst-i-2023

124/ Their whole model is based on the assumption that when prices go up it is because demand is up. But sometimes prices go up because costs are up. And... that is not fucking supported.

I don't know what to say.

129/ Ok, I had an epiphany.

And it’s about all the money that goes to the rich/banks. Where does it go? Because we don’t see it much in the real “normal” economy. (Or at least I thought so)

So what if, when we double or triple the money supply, but only/mostly give it to the rich/banks, we actually see inflation, but we didn’t recognize it as inflation?

What if the goods that got hit with inflation were “Capital” - that is real estate and stocks etc.

What if what we think of as capital gains is actually inflation on rich people stuff?

And maybe when rich people got a lot of money they spent it, but they spent it on rich people stuff?

Like apartment buildings.

And back to Harvey/Marx’ definition of “use value” vs “exchange value” - their money 💰 inflated the “exchange value” of real estate. Which is why nobody can afford a home anymore.

So basically the rich have their own economy, which shares its currency with us. But the stuff they can buy, at the scale they are at, are different things. We would perhaps get a nicer couch or more food if we got a lump sum in our scale (2000$ for example). They buy real estate and stocks at their scale (2.000.000$).

So you don’t see the inflation on groceries, but real estate values go up (or don’t go down).

130/ Which reminds me of a story a guy told me. So his building only had one electricity meter (I’m assuming it’s old), and so they had a practice of splitting the bill evenly between the units. But suddenly they had gotten a massive bill, 10-20x what they usually got. Turns out one of the units had started up a pot farm and apparently this was pulling a lot of energy for heating lamps or something (look I don’t know anything about growing pot). But since they only had one meter they had to split it anyway.

Or in my radiator system metaphor, what if one of the units had connected a pipe to the system and was siphoning off the water into the system next door? It’s a separate system. So our system would have this “weird quirk” where we filled and filled with water/money, but it never became over-pressurized. But if we filled a bit too much on a part of the system that bypassed this guys unit, then we actually saw over-pressurizing on occasion.

However, next door, they had to remove water regularly because it was constantly becoming over-pressurized from the continuous stream of water.

My brain is visual 🤷🏻‍♀️

133/ Lol, I’m still stuck on inflation. Remember way in the beginning of this thread when I said I’d be done with it soon? Well, here we are, way after the end of the book and I’m still stuck on inflation.

The problem is that inflation is like colic. If you ask people what colic is they’ll say something about stomach issues. But when you look up the actual diagnostic criteria it’s (for Norway): baby cries more than 3 hours a day, more than 3 days a week for more than 3 weeks.

So would it surprise you when I tell you about a study on kids that were diagnosed with migraines as children, one of the findings was that every single one had been diagnosed with colic as babies?

You have one single metric: baby cries.

IT COULD BE LITERALLY ANYTHING

(I’m clearly not annoyed by this)

So back to inflation. They have basically a shopping cart of stuff. And if it costs more then they say INFLATION. But why does it cost more?

Friedman (their hero) literally says that inflation happens (partially?) because people think it will happen.

I just can’t. This “field” is driving me nuts. It’s a wandering self fulfilling prophecy.

134/ Maybe some went up because their costs were up when rebooting their supply chains after the pandemic, maybe some went up because costs went up because of war (wheat in Ukraine), maybe some went up because of weaker currencies, maybe some went up because THEY RAISED THE INTEREST RATE, maybe some went up because… Everybody Else Did It And If We Do It Too Maybe We Can Make Some More Money???

But hey. We have one variable in our high school math equation. So fuck all of you.

😬🥳

135/ You know, one of the upsides of having more diversity in your field is new (and better 😇) metaphors, my gift to you:

Inflation is like colic

You don’t know why the baby/economy is crying

136/ I give up. Norwegian inflation went down more than projected, so now Norwegian economists are predicting interest rate hikes 🤯Wait what? Reason: the NOK got even weaker. Wat? Well, you see, since the Norwegian economy looks like it’s going better than expected, people think we’ll lower the interest rate so then NOK isn’t that interesting anymore so… 🤪

This is such a bullshit field, no other field would get away with this crap. They just gaslight you constantly.
https://e24.no/norsk-oekonomi/i/MnnAxK/kronen-svekker-seg-videre-reell-fare-for-renteheving

137/ This is a joke. They’re just doing the economics equivalent of techno-babble. “Well, actually, the NOK is weak because inflation is low”
Fuck you, Mr Economist, y’all said the opposite a month ago.

Just say it like it is: WE DON’T KNOW, BECAUSE WE DON’T KNOW HOW THE ECONOMY WORKS, WE’RE JUST FAKING IT

Economics is not only a pseudoscience, economists are rude and condescending
https://borsen.dagbladet.no/nyheter/svakeste-pa-24-ar/81685750

138/ Why is it my problem that they created a completely unsuited academic discipline to deal with a complex adaptive system? Why is it my problem that they don’t even realize that they are dealing with a complex adaptive system? This is like the Middle Ages. It’s all weird superstition and using retrospective correlations to “show” they were right. Just say every single thing and then cherry pick your statements after the fact.

This is how con artists and carnival psychic’s work.

DO ACTUAL SCIENCE.
This is embarrassing for all of us.

139/ Ref post 129: I’m watching the documentary “97% owned” about the British monetary system and there they say this explicitly: increased money supply inflates housing prices.

But they also talk about why this is true (they are speaking about the British system, I don’t know if this is the case for other countries):

Most of the increase in the money supply is done by banks “printing money” where they lend out money they don’t actually have, even fractional backing for.

And since the only way they can “print money” is through new loans and since mortgages are much less risky in comparison to business loans, they “print money” by granting mortgages thereby causing inflation in a very limited part of the economy: the housing market
https://youtu.be/XcGh1Dex4Yo

140/ Something I didn’t know: the author of The Deficit Myth, Stephanie Kelton, was on an 8 person advisory economics working group for Biden and had a lot of influence on the economic policies to get the US out of the pandemic recession.

https://youtu.be/LGlqnHTBP3I

142/ So I’ve been thinking, if it is the case that increases in the money supply has led to inflation in housing prices (among other things). And if that increase in the money supply is driven through and/or created by private banks. What would be a solution for Norway? (Possibly other countries, but that’s harder for me to say)

The primary goal would have to be to remove real estate (mortgages) from the menu of financial instruments available for the banks.

Back to the use value vs exchange value: the use value of a house is its value as a home for people. The exchange value should not be available for speculation.

So how could this be done?

I don’t see another way than to take mortgages away from private banks.

In Norway student loans are public, run through an institution called “Lånekassen” (the loan box?), and we also have another “public bank” called “Husbanken” (literally The house bank). Today it handles a quite small part of the market, but imagine that it becomes dominant, offering the lowest rates, humane policies like loan freezes etc that the student loan bank offers today.

The state would in effect take over the mortgage market.

Private banks would have to lend out money to for example businesses. Which might perhaps make VCs less interesting.