David Ruccio has been posting a lot about the de-funding of public higher education. This is clearly a major issue. I think Mike Konczal gets the pithy award in his post titled, “The 21st-century retreat from public higher education.” In his conclusion, he writes:
That right now is the moment our country is turning toward the idea of massive indebtedness as a prerequisite toward participating in the 21st-century economy is incredibly cynical, given how much worthless debt is hanging like an albatross around the neck of this fragile recovery.
Of course, he could have gotten wordplay bonus points by pointing out how cyclical it is, as in pro-cyclical. Counter-cyclical policies, which have been all but abandoned in the developed world, would drastically increase subsidization of what is obviously a public good.
Higher education is far from “obviously” a public good in my mind. Any reason why you think it should be clasified as such?
The quote is ludicrous. The federal government could eliminate all debt simply by not borrowing. Beginning in 1971, the end of the gold standard, the federal government gave itself the unlimited ability to create dollars just by pressing a computer key.
Borrowing the money you can create in unlimited amounts, at no cost or effort, is a nonsensical relic of the gold standard days. (The same could be said of taxing, by the way.)
So federal debt is not “hanging like an albatross around the neck of this fragile recovery.” What is hanging like an albatross is the false belief the federal debt must be reduced, a belief that each day prevents a quick and full recovery.
As for Mr. McCabe’s thought that higher education is not obviously a public good, he must feel the people who receive higher education do not benefit America. Hey, who needs doctors, lawyers, scientists, teachers and such?
Rodger Malcolm Mitchell
Rodger- He didn’t say federal debt. He was referring to the massive amount of consumer debt that has built up and which, while it’s being slowly deleveraged, is preventing a recovery in private consumption.
Josh- I think Rodger said it best- all of these functions have higher social benefits than private benefits. There’s a great paper by Aghion et al. about the causal impact of higher ed on state-level economic growth (pdf): http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.153.4486&rep=rep1&type=pdf
$80,000 in college debt, and all I have to show for it is a Ph.D. and a job working at a hotel at night. Wonder how I’m going to pay that off?
Student loans don’t subsidize education — which is a private good (when it’s actually good) — they encourage people to get more of a good of truly questionable value and then load them down with debt that is extremely difficult to pay off when you can’t get that job you were promosed by all the counselors was sure to come your way once you got your degree. How many people with a college degree actually work in the field in which they got their degree?
The federal government never should lend money for any purpose. The government only should give money.
When GM repaid its federal loans, the money came out of an economy that needs the money, to a government that doesn’t, thereby weakening both the economy and GM.
As for student loans, the federal government instead should pay students a salary for attending school.
Rodger Malcolm Mitchell
Government shouldn’t be giving money away, either. Whenever government taxes, they take money out of an economy that needs the money, to redistribute it in a way that reduces wealth, thereby weakening the economy.
As for student loans, the best thing for me to have done was work through college rather than have my leisure subsidized.
Troy- the government does not “take money out of the economy” when it spends money on public goods like education. I’m sure Rodger will explain why better than I have energy to right now.
Of course it does. Any time you tax, you take money out of the economy. It may re-enter the economy, and one may certainly argue about whether the costs are indeed worth it, but to deny that taxation results in money being taken out of the economy is to deny basic economic reality.
Troy is correct that when the federal government taxes, money is removed from the economy. When the government spends, money is added to the economy. There is, however, no relationship between federal taxing and federal spending.
Unlike Greece, Italy, Spain, Illinois, California, Cook County and Chicago, the U.S. government is Monetarily Sovereign (See: http://rodgermmitchell.wordpress.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/ )
Monetarily sovereign governments do not use tax money for spending. You can look up the above link to understand why. If taxes were $0, this would not affect by even one penny, the federal government’s ability to spend.
Rodger Malcolm Mitchell
Yup, that’s what I was looking for, Rodger. Maybe illuminate him with links to your key posts? The more exposure to these ideas, the better.
This is true. The federal government can always resort to inflationary measures by devaluing the dollar. If you like the outcome of Weimar Germany, that’s always a way to go. I wouldn’t recommend it
Didn’t he just repudiate your point and support mine?
I just noticed that Troy used the word, “wealth.” That word is a flashing red light in economics, because nobody can define it, measure it , put it into any graph or formula, or use it with any degree of specificity. It is non-scientific.
Is wealth your money? Your property? Your perceived quality of life? Your education? Your children? Your health? Your future? Your happiness?
Who is “wealthier”? A man living happily with his family in a log cabin in the great, unspoiled outdoors, or a multi-millionaire living unhappily alone in a cramped, overpriced New York apartment amid the smog and clatter of the big city?
Wealth, like beauty, is in the eye of the beholder, and has no place in any scientific discussion.
Rodger Malcolm Mitchell
I agree that it has not been properly defined — but I disagree that it has no business being in a scientific discussion of economics. If for no other reason than that Adam Smith’s book was titled “On the Wealth of Nations.” That’s a pretty good indication of what economics is or should be concerned with. That being said, work needs to be done on a proper definition of wealth. That work most definitely needs to be done. It will solve many if not most misunderstandings in economics. It is what everyone is properly concerned with. (I will also say that just because you can’t put it in a formula, that is no argument against it as a scientific concept when dealing with complex systems — math simplifies and doesn’t deal with the vast majority of real economic phenomena.)
Troy, until that “proper definition” happens, the word “wealth” should not be used.
Rodger Malcolm Mitchell
I could not disagree more. If you don’t use it, you won’t ever define it. That’s like telling someone they can’t practice their violin until they learn how to play it well.
Oy, Troy you just used the “Weimar Germany” comparison. Somehow you neglected to use the “Zimbabwe” comparison.
I’m teasing you, because those two nations always are used as (false) examples of what money printing causes. However, it is not money printing that caused those hyperinflations. In the case of Germany, it was the onerous, post-WWI conditions imposed by the Allies. In the case of Zimbabwe, it was Robert Mugabe and stealing of land from the owners. Then when inflation set in, both governments responded by printing money, rather than simply by raising interest rates.
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In essence, it was the inflation that caused the money printing and not the other way around.
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Since 1971, the end of the gold standard, there has been no relationship between federal deficit spending and inflation (See: http://rodgermmitchell.wordpress.com/2009/09/09/46/ ). I agree, there is a point at which money creation can cause inflation, but as you will see from this link, we are nowhere near that point.
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Rodger Malcolm Mitchell
“I could not disagree more. If you don’t use it, you won’t ever define it.” No, Troy, It’s like telling someone, “Don’t use a word neither you nor your listener understands.”
Anyway, I think your theory is oaiewrjjmpa. (Definition to be determined)
Rodger Malcolm Mitchell
I have literally never heard anyone claim that hyperinflation occurred first, then money printing. Not even Keynesians believe that. Monetarists don’t believe that. Neoclassical economists don’t believe that. Certainly Austrian economists don’t believe that. Whether you think we are anywhere near hyperinflation or not (I don’t think we are near hyperinflation, but we will see inflation), there is little question that if you increase the supply of money relative to the number of goods, you will get monetary inflation — prices will necessarily go up. The monetarists argued that you should increase the money supply at the same rate as increase in aggregate demand in order to keep prices the same precisely because this is true of money. I will note that when we got off the gold standard completely, we got 70′s stagflation, followed by pretty steady inflation since then. All monetary stability ended with the last remnants of the gold standard being tossed overboard.
Now, as for wealth — it is a word that has a defintion, unlike the one you just made up, which has no definition. Wealth may need refinement, but it does already have a definition. Thus, my example of learning the violin is a more apt metaphor. I am personally suspicious of any economists who isn’t interested in wealth. Quite frankly, if you’re not interested in how wealth is created, you’re not really an economist. Of did Adam Smith not know what he was talking about?
Or let me ask a few other questions: what is energy? what is information? These are quite ill-defined if you get right down to it, yet physics is impossible without them. Economics is the science of wealth-production. Every science has these ill-defined terms, which does not prevent the terms from being used, or the endeavor from being scientific.
Troy, the point is that the hyperinflation you mentioned, and indeed every hyperinflation of which I am aware, was caused by an economic situation unique to that nation, and did not begin with money printing. It began with the unique situation, and money printing followed as a government reaction to the already begun inflation.
What is it about gold that you think causes stability? We were on a gold standard in 1929, when the Great Depression began.
So long as you insist on using the word, what is your definition of “wealth”?
Rodger Malcolm Mitchell
Economics is the science of wealth production.
Biology is the science of life.
Define “life”. It still has not been done. Should we thus toss out the term?
Define “justice”
Define “beauty”
Or shall we stop talking about all of these things, since they are meaningless, since they are not clearly defined?
Or are they not meaningless?
It seems that all of the things we study — all of the things we have university departments for — involve the study of things that we are still in the process of defining.
But let me ask you this — imagine the following scenario:
You have two countries, A and B, and each produces one unit of product X each year. Country A destroys each unit of X it produces; Country B keeps each unity of X it produces. At the end of 5 years, which country is wealthiest? If “wealth” is a meaningless term, this question makes no sense. But if an amswer immediately leapt to mind, then you too have a definition of wealth. And it clearly has everything to do with economics.
The side issue of definition belongs to philosophy. Imho it is very important but I have to side somewhat more with Troy here. What is important in an informal dialogue is that the participants have the same working definition and examples in mind, otherwise people just talk past each other.
” there is little question that if you increase the supply of money relative to the number of goods, you will get monetary inflation — prices will necessarily go up. ” This is wrong empirically, and is denied by Keynesians and anyone to their left like MMTers. (And “monetary inflation” usually means money supply increases, not “price inflation”).
The Austrians use “inflation” to mean “monetary inflation” which may be the original definition, but the modern usage of “price inflation” is better. For the Austrian definition conflates 2 different phenomena because they wrongly believe them to be the same with “little question”. “Monetary inflation” can, but does not always, in fact usually does not, cause price inflation in modern economies. And some think the causation may go the other way.
If the US engaged in wholesale deficit spending – printing money – monetary inflation – to restore aggregate demand right now, price inflation would not occur. All that the historically large deficits of the past few years have done is to keep money supplies somewhat stable, fighting the deleveraging, the disappearance of credit money in the economy. A trillion dollar stimulus would hardly move prices, it would just mobilize more real wealth creation; it would be a free lunch.
Calgacus, I’ve lost the thread of Troy’s point. I agreed with what I thought was his original point that federal taxing removes money from the economy. Further, federal spending adds money to the economy. Simple enough?
For the above reasons, I said he government never should lend money (because repaying those loans is tantamount to taxation), but only should be giving money (aka “spending).
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But then Troy made the rather confusing statement, “Government shouldn’t be giving money away, either. Whenever government taxes, they take money out of an economy that needs the money, to redistribute it in a way that reduces wealth, thereby weakening the economy. “
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I wasn’t sure what “redistribute it in a way that reduces wealth” meant, but if “redistribute” means the federal government spends tax money, that is factually wrong. There is no relationship between taxes collected and federal spending.
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Then, because Troy used the word, “wealth,” I asked for his definition, which he seems to indicated doesn’t need a definition.
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At any rate, the basis for the entire discussion is Monetary Sovereignty (http://rodgermmitchell.wordpress.com/2010/08/13/monetarily-sovereign-the-key-to-understanding-economics/), which many people claim to understand, but very few do, and even fewer will take the trouble to investigate.
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Rodger Malcolm Mitchell
Redistributing money through taxation (which our government does do) is wealth-destroying. I was explicitly talking about government spending after it takes the money through taxation.
Another way for the federal government to spend it to create money. The problem with this, as every other macroeconomist on earth understands, is that it results in monetary inflation. During a recession, when there is natural deflationary pressures, creating more money does not obviously create inflation — but when those deflationary pressures ease and the economy grows, you get inflation. This is well-established both theoretically and historically.
I took up the discussion of the definition of “wealth” on my own blog. When you have defined “life,” I will define “wealth.”
Troy, you didn’t even read Calggaus’s comment, about the difference between monetary inflation and price inflation — and he was trying to agree with you. You are so in a rush to defend your intuitive positions, you neither read nor understand what is being said.
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I gave you a site that shows there has been no relationship between federal spending and price inflation for forty years. ( http://rodgermmitchell.wordpress.com/2010/04/06/more-thoughts-on-inflation/ ) Either you didn’t read it or didn’t understand it, probably the former.
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Your comment, “When you have defined “life,” I will define “wealth,” is such a cop-out. You refuse to define a word you yourself brought up. Truly sad.
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You supply no facts of your own, perhaps because your mind cannot be changed by facts, but at some time in the future you will claim, “Yes, I knew that all along.”
I’ll give you the last word on this, because I will not respond any further to your comments.
Rodger Malcolm Mitchell
That’s fine. You won’t answer my questions, and you present bogus arguments for nonsensical positions.
I tried to get some people over here who know more about macroeconomics than I do, and they told me it was a waste of their time, since you obviously could not be persuaded by reality. They also asked me why I wasted my time. I defended myself, but I think now they are perhaps right. You can’t argue with people who believe in magical castles in the sky.
Troy, forgetting about the “wealth” debate, where I always was and now Rodger also is confused about what is being argued – consider inflation. You use “monetary inflation” in a way nobody does – not Austrians, not MMTers – to mean “price inflation” when both concepts are being discussed.
You are just plain wrong about what Keynesians etc think. Sure they tend to be less horrified by (money or price) inflation – but one of Keynes & Co basic ideas was that money is not neutral. That if we deficit spent in a mega-recession, like the Great Depression, or right now – it would be a free lunch in all respects – a lot of money, net financial assets, would be created – and it would be matched or better by real “wealth” – so there would be no resulting price inflation. Not now, not later, not ever.
You can say it is crazy, speaking as an Austrian, but please understand what other major schools say. Rodger does not differ from “every other macroeconomist on earth”, especially Keynesians etc. From your perspective I am saying Keynesians are crazier than you thought.
Even taking the mainstream / Austrian point of view on taxing & spending for the moment:
“Redistributing money through taxation (which our government does do) is wealth-destroying.” Well, that is an Austrian belief, but it is again not universal – and I for one think it is preposterous. There are plenty of things the government does better and more efficiently than the private sector. War and health care are two biggies.