I have been travelling a lot today (nearly 6 hours starting early) and so haven’t much time for blog writing. I am working on a paper at present on the use of metaphors in economics and how Modern Monetary Theory (MMT) might usefully frame its offering to overcome some of the obvious prejudices that prevent, what are basic concepts, penetrating the public psyche. Here are some notes on that theme. The blog is just a rough sketch and will be refined over the coming weeks. There is a section at the end that encourages reader feedback – lets see what you think.
Macroeconomics is an area of study that is fraught with controversy. Macroeconomics is seen as being of significant national importance but the concepts that are involved in understanding macroeconomic functions are difficult to understand well.
For example, what is an aggregate price level? How do we understand a budget deficit or a budget surplus? And are all budget deficits the same?
Macroeconomic concepts are discussed in the media on a daily basis, such as, the real GDP growth rate, the inflation rate, the unemployment rate, the budget deficit, and the interest rate.
Finance segments on national news broadcasts, introduced over the last three decades or so, increasingly expose the public (and journalists) to macroeconomic terminology, without a commensurate increase in the degree of education associated with the terminology or concepts.
Further, the advent of social media has made it possible for anyone to become a macroeconomic commentator: the so-called blogosphere is replete with self-styled macroeconomic experts who make claims about the state of the federal budget, often relying on “common sense” logic to make their cases.
The problem is that common sense is a dangerous guide to reality and not all opinion should be given equal privilege in public discourse. Our propensity to generalise from personal experience, as if the experience constitutes general knowledge, dominates the public debate – and the area of macroeconomics is a major arena for this sort of false reasoning.
The surge in public interest in matters macroeconomic has been channelled by the dominant neo-classical paradigm in economics. As a consequence, the public understanding becomes straitjacketed by orthodox concepts and conclusions that, in themselves, are erroneous, but also lead to policy outcomes that undermine prosperity and subvert public purpose.
The abandonment of full employment in the 1980s and the willingness to tolerate mass unemployment is a manifestation of this syndrome.
The dominant macroeconomics paradigm, which prior to the global financial crisis had pronounced that the business cycle was largely dead and that we had entered a period of “great moderation”, categorically failed to foresee the consequences of the labour market and financial deregulation that it had promoted.
We would argue that its lack of empirical content and its demonstrated failure to predict novel facts (the GFC) renders the mainstream macroeconomics a pseudo-scientific, degenerative research program following the classification scheme proposed by Imre Lakatos in 1970.
However, any sense that the crisis would lead to a major examination of the role of mainstream economics and action to change the curricula taught and research agendas pursued were short-lived. Mainstream economists exercised their anti-government free-market biases and effectively reconstructed what was a private debt crisis into a sovereign debt crisis. The dynamics that created the crisis (deregulation, reduced financial oversight) continue to be advocated by the mainstream as solutions.
The public debate is dominated by claims that fiscal austerity is the only viable path to recovery and leading multilateral agencies such as the IMF and the OECD have produced glowing forecasts, which denied that major fiscal retrenchments would damage growth.
This view was unchallenged by media commentators. Subsequently, the IMF has been forced to admit its calculations were in error (IMF apology article) although this admission, stunning for what it represents, has had little impact on the dominant discourse.
Modern Monetary Theory (MMT) is a coherent, internally consistent and well-developed macroeconomics framework, which is ground in the operational reality of the capitalist monetary economy.
Its track record in explaining major events over the last two decades (including the global financial crisis and its aftermath) suggests that it is a progressive research program (in the Lakatosian sense) capable of predicting novel facts, which are confirmed by subsequent events.
In this regard, MMT is a superior basis for macroeconomic reasoning relative to the dominant neo-classical approach.
But the problem is dealing with the way the dominant macroeconomics paradigm frames its argument. Why does the emerging MMT approach, which though superior in the ways noted above, fail to resonate with the wider public.
Framing refers to the way an argument is mounted or pursued in the public debate. Cognitive linguists have shown that the way we understand complex issues is via metaphors and neo-classical macroeconomics has been extremely successful in its use of common metaphors to advance their ideological interests (the work of George Lakoff is prominent).
It is apparent that we end up believing things and supporting policies that actually undermine our own best interests because of the way the arguments are presented to us. In other words, we accept falsehoods as truth and ideology triumphs over evidence.
Recent psychological studies have highlighted the extent to which pre-existing biases influence the way in which individuals interpret factual information, including straightforward statistical data.
This presents a problem for the communication by researchers to the public of research outcomes that bear on public policy design, particularly where findings may be counter-intuitive, or may challenge a dominant or controversial discourse, as in the case of economic austerity or climate change.
The aim of the paper we are working on at present – with some notes presented below – is that we consider the evolution of MMT as a viable consistent alternative but recognise that the language deployed by progressives and conservatives in communication about key macroeconomic concepts undermines the successful communication of insights arising from MMT.
We aim to provide a conceptual basis for understanding how language matters (the contribution of my co-author who knows about these things) and examine some of the key metaphors used to reinforce what the flawed message of orthodox economics and examine key ideas of modern monetary theory and propose effective ways of expressing those key ideas.
Fellow MMT colleague Randy Wray and others have explored the metaphors that underpin the language that is commonly used to describe macroeconomic operations and outcomes.
There has, however, been limited work in the linking of metaphorical language to values and the way language reinforces or undermines a particular value or set of values. That is our aim.
The economy is Us
People created the economy. There is nothing natural about it. Concepts such as the “natural rate of unemployment”, which imply that the economy is a natural system, which should be left to its own equilibrating forces to reach its natural state, like any living system.
But when we use terms like natural we have to ask – natural in relation to what? The mainstream define the problem away rather than address the ideological benchmark that the term “natural” disguises.
The reality is that human interaction and choices, initially simple and localised, and later, significantly more complex and spatially distributed (globalised), creates what we call the economy. We are in charge here.
At some point, we realised that we needed an agent to do things that we could not do ourselves – either easily or at all. We formed governments. We also came to understand that our creation – the economy – would only serve our common purposes if it was subject to oversight and control by our agent.
We had operated under the mistaken view that this agency role was unnecessary because our spontaneous interactions would sort things out in our favour. It didn’t happen and when the consequences of this failure became so obvious – during the Great Depression – we accepted the agency role as being fundamental to ensuring that the capitalist monetary system behaved itself.
We learned then that capitalism which had developed into a broad system of wage labour was subject to basic tensions between labour and capital. We also learned that the so-called “market” signals (prices that brought demand and supply together) would not deliver employment outcomes that satisfied the desires of labour for work.
We learned that this system could easily equilibrate (a state where there was no further dynamic for change) in a state of mass unemployment. The Great Depression taught us that our agent (the government) could ensure that the system did not get stuck in this state because it had the spending capacity to ensure that total spending in the economy generated enough output that would fully employ all those who wanted work.
The simple understanding of that period was that the economy was a construct we could control in order to create desirable collective outcomes such as improved living standards – better housing for all, improved public education and health standards etc. All outcomes that required real resources to be brokered by the public sector in cooperation with the private firms and workers.
While there was a strong conservative element that resisted the Post-World War 2 consensus, the government mediated the class conflict to ensure the system did deliver social as well as private returns. We understood that if employment fell it was because there wasn’t sufficient demand and because the economy was us, we knew what to do about it – spend more. The question was how would this be accomplished.
Economists certainly understood that private spending could become stuck – while the unemployed certainly had a demand for goods and services, they only sent a notional signal to the firms of that desire. The private market only works on effective demand and supply signals – that is, demand intentions backed by cash and the unemployed didn’t have any cash because they had lost their job and employment provides income which funds spending.
While the way the macroeconomists spoke of such things was reserved for the academy (full of jargon etc), the concepts were also broadly understood by the public and we knew that a government budget deficit was required to ensure that total spending was sufficient (for full employment) when the rest of us (the non-government sector) were not recycling all our current income back into the spending stream (that is, saving).
The period of neo-liberal smugness
In the 1980s and beyond, the mainstream revision of the past gathered pace.
Weber (1997: 71) wrote that the rise of the “New Economics”, characterised by the:
… globalization of production, changes in finance, the nature of employment, government policy, emerging markets, and information technology, had contributed] … to the dampening of the business cycle.
[Reference: Weber, S. (1997) ‘The End of the Business Cycle?’, Foreign Affairs, 76(4), 65–82]
The “facets” which had smoothed out growth and supply shocks would now be:
… less important in a more flexible and adaptive economy that adjusts to shocks more easily and with less propensity for sparking a new cycle (Weber, 1997: 71).
Weber also implicated the decline in union strength, more flexible labour markets, and the rapid growth of the financial sector as contributing to the end of the business cycle.
He said that the “enormous growth” in derivatives trading was beneficial because “(t)hese new financial products spread and diversify risk” and that the new class of funds managers were “better at using these new tools to stabilize financial flows and protect themselves against shocks” (1997: 74). The financial sector was seen as lubricating “increasingly efficient” global capital markets and had created an array of “shock absorbers that cushion economic fluctuations” (1997: 75).
He also said (1997: 80) that the “current consensus on inflation among central bankers” will “also constrain states’ fiscal policies” and that the “inherently cyclical nature of government spending will decline as business cycles dampen”.
Weber (1997: 75) concluded that “doomsday” arguments “that complex markets might act in synergy and come crashing down together is simply not supported by a compelling theoretical logic or empirical evidence.” Such views were increasingly common among mainstream economists as the new century approached.
In 2002, Harvard economists James Stock and Mark Watson captured this sentiment and noted that the US economy was “quiescence” which reflected “a trend over the past two decades towards moderation of the business cycle and, more generally, reduced volatility in the growth rate of GDP” (Stock and Watson, 2002). They termed this trend the “great moderation” (2002: 162).
[Reference: Stock, J.H. and Watson, M.W. (2002) ‘Has the Business Cycle Changed and Why?, in Gertler, M. and Rogoff, K. (eds.), NBER Macroeconomics Annual 2002, Volume 17, MIT Press, 159-218]
On February 20, 2004 the current US Federal Reserve Board Governor Ben S. Bernanke presented a paper in Washington entitled “The Great Moderation” (Bernanke, 2004), which summarised the views held by the vast majority of economists that the business cycle was dead!
[Reference: Bernanke, B.S. (2004) ‘The Great Moderation’, paper presented to the the Eastern Economic Association, Washington, DC, February 20, 2004, available at: http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2004/20040220/default.htm]
The celebratory, smug confidence of the mainstream economists is best summarised by Robert Lucas Jnr. in his presidential address to the American Economics Association (2003: 1):
Macroeconomics was born as a distinct field in the 1940’s, as a part of the intellectual response to the Great Depression. The term then referred to the body of knowledge and expertise that we hoped would prevent the recurrence of that economic disaster. My thesis in this lecture is that macroeconomics in this original sense has succeeded: Its central problem of depression prevention has been solved, for all practical purposes, and has in fact been solved for many decades. There remain important gains in welfare from better fiscal policies, but I argue that these are gains from providing people with better incentives to work and to save, not from better fine-tuning of spending flows. Taking U.S. performance over the past 50 years as a benchmark, the potential for welfare gains from better long-run, supply-side policies exceeds by far the potential from further improvements in short-run demand management.
The message was simple. The mainstream economists had triumphed over the interventionists who had over-regulated the economy, undermined the incentive from private enterprise, allowed trade unions to become too powerful, and bred generations of indolent and unmotivated individuals who only aspired to live on welfare support payments.
This triumph manifested at the policy level by the primacy of monetary policy in counter-stabilisation, where the primary policy target became inflation stability. Fiscal policy was rendered a passive subordinate and governments abandoned their responsibilities to maintain full employment.
We considered these arguments in detail in our 2008 book – Full Employment abandoned.
The sentiments expressed by Lucas coincided with the major shift in policy direction towards so-called microeconomic reform, which resulted in extensive financial and labour market reform. The pre-conditions for what was to become the global financial crisis were set in place during this period.
Real wages growth started to lag behind productivity growth as a result of attacks on unions and the rising precariousness of work (increased casualisation and rising underemployment), which undermined the capacity of workers to pursue adequate recompense.
The loss of capacity to maintain consumption growth was overcome by the burgeoning financial sector, which grew rapidly on the back of a massive increase in private sector debt, increasingly provided to more and more marginal borrowers then packaged up into complex derivatives and on-sold to the next sucker.
The official narrative was that of Lucas – the business cycle was largely dead.
This view of the world was buttressed with a vehement political campaign which sought to dispose of the binding concepts such as collective will etc in favour of promoting the view of the economy as a natural system delivering outcomes to individuals in accordance to their contributions.
They promoted the economy as a self-regulating system.
In her book, Don’t Buy It, Anat Shankar-Osorio juxtaposes two models of the economy. The first depicted in the following graphic which she considers represents the conservative view (although there are progressives that would be lumped into this category).
Accordingly, the driving image is that “people and nature exist primarily to serve the economy” (Location 439). The economy is removed from us and is a moral arbiter, which recognises our endeavour and rewards us accordingly. Those who do not work hard and sacrifice for the “economy” are deprived of such rewards.
But if the “government” intervenes in the competitive process and provides an avenue where the undeserving (lazy, etc) still receive rewards then the system malfunctions and becomes “sick” (a metaphor that the economy is a living thing) and the solution is to restore its natural processes (aka getting rid of government intervention such as minimum wages, job protection, income support etc).
So “self-governing and natural” are the messages we receive, which leads to the obvious conclusion that “government ‘intrusion’ does more harm than good, and we just have to accept current economic hardship” (Location 386).
Our success then is somehow independent of the success of the economy. The hallmarks of a successful country are whether real GDP growth is strong irrespective of whether “this comes at the expense of air quality, leisure time, life expectancy, or happiness … all of these are secondary”.
If poverty rates are rising, the construction is that the person is just not doing enough for the economy rather than the economy failing, in its current operations, to do enough for us. We are to blame for our own failures. They arise because we don’t contribute enough. How can we expect to be rewarded for a sub-standard contribution to the success of the economy?
Progressives get sucked into this narrative and offer up “fairer” alternatives within, for example, the austerity debate. Take the current debates in the advanced nations.
None of the major (progressive) political parties are challenging the austerity dogma. You will often read a progressive commentator writing something like … “we know the deficit is a problem and public debt has to be reduced, but we think this should be done more gradually”.
At that point, both sides of the debate are effectively singing off the same hymn sheet and the public discretion gets lost in the fog. The basic propositions are root-and-branch wrong but the solutions seem obvious and the different value-systems (conservative and progressive) are left to argue about matters of degree.
Towards an alternative
In the early 1990s, as the neo-liberal credit binge was beginning, the early proponents of what is now broadly known as Modern Monetary Theory (MMT) – this was a small group (Mosler, Mitchell, Wray, Forstater, Fullwiler, Tcherneva then Bell/Kelton) – drew on earlier heterodox theory (functional finance etc) and added particular operational insights about the monetary system – to develop an alternative narrative about the way the monetary capitalist system operated.
They used this narrative to expose what they saw was an unsustainable dynamic fostered by the mainstream belief that self regulating markets would deliver maximum wealth to all.
Even in those early stages of the private debt build-up it was clear that a major crisis was approaching, given the ill-considered financial practices that were emerging.
Other progressive economists, however, were not so engaged. They were mostly intent on focusing on issues such as gender, sexuality, method and, as such, provided a fragmented, and easily dismissed critique of the mainstream economics narrative.
There was also hostility with progressive ranks to the growing literature being produced by the proponents of MMT.
The Great Moderation was brought to a stark halt by the global financial crisis, which began in early August 2007 when the French bank BNP Paribus stopped withdrawals from three investment funds in response to the growing concern about the viability of the sub-prime loan portfolios. Later in the same month, there was a run on the British bank Northrock.
As the wealth that had been built up during the Great Moderation started to prove illusory, with housing and share prices falling sharply, the crisis escalated. In September 2008, Lehmans collapsed.
At that point, the myth of self-regulating markets was exposed and the entire edifice of mainstream economic theory lost creditability – none of the dominant Neo-Keynesian models taught in universities or used by academics in scholarly articles was equipped to predict the crisis or offer viable solutions to the crisis.
Finally, it was clear to all that the emperor had no clothes.
The initial response to the crisis of the mainstream economists was silence although there were notable exceptions.
On October 23, 2008 as the crisis was escalating, the former US Federal Reserve Chairman appeared before the US House Committee on Oversight and Government Reform, which was investigating the “The Financial Crisis and the Role of Federal Regulators”.
The Chairman of the Committee, Henry Waxman asked Greenspan whether his free market ideology that pushed him to make regrettable decisions. He replied (US House of Representatives, 2008, page 36-37):
Mr. GREENSPAN. Well, remember, though, whether or not ideology is, is a conceptual- framework with the way people deal with reality. Everyone has one. You have to. To exist, you need an ideology.
The question is, whether it exists is accurate or not. What I am saying to you is, yes, I found a f1aw, I don’t know how significant or permanent it is, but I have been very distressed by that fact …
Chairman WAXMAN. You found a flaw?
Mr. GREENSPAN. I found a flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.
Chairman WAXMAN. In other words, you found that your view of the world, your ideology, was not right, it was not working.
Mr. GREENSPAN. Precisely. That’s precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.
However, any sense that the crisis would lead to a major examination of the role of mainstream economics and action to change the curricula taught and research agendas pursued were short-lived.
The mainstream profession began to reconstruct what was a private debt crisis into a sovereign debt crisis, which suited their anti-government, free market biases.
The dynamics that had created the crisis (deregulation, reduced oversight) were advocated as solutions. The public debate was flooded with claims about that fiscal austerity was the only viable path to take and leading multilateral agencies such as the IMF and the OECD produced glowing forecasts, which denied that major fiscal retrenchments would damage growth.
Subsequently, the IMF has been forced to admit its calculations were in error (IMF apology ARTICLE).
So while the MMT narrative has had a high predictive value its capacity in influencing the public debate has been close to zero.
Shenker-Osorio (2012) provides this alternative conception of the economy, which is consistent with the view that it is our construct and not something separate from us.
She writes (Location 1037):
This image depicts the notion that we, in close connection with and reliance upon our natural environment, are what really matters. The economy should be working on our behalf. Judgments about whether a suggested policy is positive or not should be considered in light of how that policy will promote our well-being, now how much it will increase the size of the economy.
Or we might add – how much it adds to the budget deficit or public debt.
Her suggestions sits squarely with the principles of functional finance – that we see the economy as a “constructed object” – and policy interventions should be appraised only in terms of how functional they in relation to our broad goals.
We thus need to elaborate more fully what the goals that we seek to achieve are. A particular budget deficit, for example, is a meaningless goal.
The budget balance will be whatever it is – in relation to our goals and the functional relationship that net public spending has in relation to those goals.
The government is not a moral enforcer and the economy is not a morality play.
Metaphors and Values
There is a progressive literature (for example, the Common Values Handbook) which attempt to articulate the values considered to be “our guiding principles” which influence “the attitudes we hold and how we act”. Extensive research has “identified a number of consistently-occurring human values” (Common Values Handbook, 2012: 8).
This research that is drawn upon largely centres around the work of Schwartz and his value circumplex. He identified 10 basic and universal human values which frame the way we think.
Our view – which will be elaborated in the paper – is that this discussion is somewhat of a side-show. The values are so general that any idea can be consistent with them.
We prefer to concentrate on developing some broad principles and working on a language to support them.
Broad principles and terminology
Some broad principles to develop might be:
1. The Government is Us!
2. The government is our agent and like all agents we cede resources and discretion to it because we trust that it can create benefits for all of us that each on of us individually cannot achieve. We understand scale.
3. Governments invest in our immediate well-being by providing essential services without the need for profit.
4. Governments invest in the next generation’s well-being through building productive infrastructure that delvers services for decades.
5. We empower governments with unique characteristics so that it can pursue our interests without the constraints we face ourselves.
6. We understand that a deficit for us means we have to find funds to cover it, whereas a deficit for our agent, the currency-issuing government means it is funding our spending and saving choices.
7. A government deficit enhances our freedom because it boosts our income and allows us more options.
Face to Face – Mainstream and MMT
The following Table presents the mainstream propositions that are used by economists and commentators to focus their attack on government spending, deficits, public debt and income support payments for the most disadvantaged workers.
In the paper we will show that example reinforces several of the main core values that the mainstream paradigm seeks to promote, such as, self-discipline; independence; ambition; wealth and sacrifice.
Each of these false propositions is backed up by a series of metaphors that disguise the myth.
The operational reality that MMT offers for each proposition is in column two. The issue is – how to communicate the ideas in the MMT column to the wider public.
|Mainstream macroeconomics||Modern Monetary Theory|
|Budget deficits are bad||Budget deficits are neither good nor bad and are required where the spending intentions of the non-government sector are insufficient to ensure full utilisation of available productive resources.|
|Budget surpluses are good||Budget surpluses are neither good nor bad and may be harmful in some circumstances if they involve a drag on growth in situations where there are idle resources.|
|Budget surpluses contribute to national saving||There is no sense to the concept that a currency-issuing government saves in its own currency. Saving is an act of foregoing current spending to enhance future spending possibilities and applies to a financially-constrained non-government entity. The government never needs prior funds in order to spend and thus never needs to “save”.|
|Budget should be balanced over the business cycle||Budget should be allowed to adjust to the level of net spending required to achieve and sustain full employment given the spending decisions of the non-government sector, irrespective of the state of the business cycle.|
|Budget deficits drive up interest rates because they compete for scarce private saving||Private saving is not finite and is related to income. Spending always brings forth its own saving because saving rises and falls with income movements, which are directly related to movements in spending.|
|Bond markets determine funding costs of government||Central bank sets interest rate and can control any segment of the yield curve it chooses. The costs of government spending are the real resources that are utilised in any particular public program.|
|Budget deficits mean higher taxes in the future||Budget deficits never need to be paid back. Every generation can freely choose the level of taxation it pays.|
|The government will out of fiscal space (money)||Fiscal space is more accurately defined as the available real goods and services available for sale in the currency of issue. The currency-issuing government can always purchase whatever is for sale in its own currency. Such a government can never run out of its own currency.|
|Budget deficits equals big government||Budget deficits may reflect large or small government. Even small governments will need to run continuous deficits if there is a desire of the non-government sector to save overall and the policy aim is to maintain full employment levels of national income.|
|Government spending is inflationary||All spending (private or public) carries an inflation risk. Government spending is not inflationary while ever real resources are idle (ie. There is unemployment). All spending is inflationary if it drives nominal aggregate demand faster than the real capacity of the economy to absorb it.|
|Issuing bonds to the private sector reduces the inflation risk of deficits||There is no difference in the inflation risk attached to a particular level of net public spending when the government matches its deficit $-for-$ with bond issuance relative to a situation where it issues no debt. The inflation risk is embodied in the spending rather than the monetary arrangements that are associated with it (bond-issuance or not).|
|Intergenerational burdens are linked to inherited budget deficits in the form of debt that have to be paid back.||Intergenerational burdens are linked to the availability of real resources. For example, a generation that exhausts a non-renewable resource imposes a burden on the next generation. A future generation cannot transfer real resources back in time.|
|Unemployment is used to control inflation rate||Employment is used to control inflation rate|
|Sovereign issuer of currency is at risk of default||Sovereign issuer of currency is never at risk of default. The issuer of a currency can always meet any liabilities it incurs in that currency.|
|Taxpayer money||Public currency. The taxpayer does not fund anything. Taxes are a device to free up real resources so our agent, the government can instigate a socio-economy program for our collective benefit.|
|Humans make rational decisions based on self-interest||Humans are complex and rarely predictable, reason and emotion are inseparable.|
The following graphic captures some examples of mainstream neo-classical macroeconomic metaphors which are used to reinforce the erroneous propositions summarised in column one of the above Table.
There is a broad current of opinion that MMT has to avoid so-called loaded terms. Here are two examples.
Statement 1: Mass unemployment is a sign that the budget deficit is too small
This is a correct conclusion.
There are two problems with using the term budget deficit. First, the term has a negative connotation because a deficit signifies a shortfall.
In an accounting sense, a deficit is a shortfall of revenue given spending.
Second, movements in the budget balance are ambiguous and cannot be assessed in a qualitative manner without further, detailed and technical scrutiny.
A given budget outcome can be signal that the deficit is “good”, if it has arisen as a result of discretionary fiscal policy decisions by government to maintain full employment given the spending and saving decisions of the non-government sector; or “bad”, if it has arisen because non-government spending has fallen and the automatic stabilisers have led to a decline in tax revenue and an increase in unemployment.
The focus also leads us to conclude that the government, in fact, controls the budget outcome. The reality is that the final outcome reflects discretionary decisions made by government and spending and saving decisions by the non-government sector.
So the terminology is problematic and the reality quite complex.
There are those who suggest we stop using the term “deficit” and “surplus” to denote the state of the public balance. All sorts of suggestions come up.
While I am sympathetic to the argument that we need a separate and effective language I also consider that communication is, in part, made effective by education.
I think we can lose the plot completely if we start inventing new terms for, say, the “deficit”, which will not communicate anything meaningful.
In those sort of cases, I think it is better to provide better education and better tools for comprehension rather than invent a new language for the sake of it.
Statement 2 Government spending adds to net financial assets in the non-government sector
Again a correct conclusion.
A common metaphor – the government is spending like a drunken sailor in port – is used all the time in the media and introduces anxiety into the public debate.
It allows those who have an ideological objection to government intervention to justify fiscal austerity programs that drive up unemployment and reduce our real incomes.
We support policies that make us worse off because the debate obscures the truth.
Some of the literature points to the fact that the term – spending – invokes the perception that something is spent or gone.
Government spending is, in fact, a flow of funds (net financial assets) to the non-government sector, which increases our incomes and saving, increases employment and increases the capacity of the non-government sector to risk manage the future (by increasing our saving).
In this case, a change in language might be helpful and still retain meaning.
We might use the term recurrent investment for government consumption spending and long-term investment instead of government capital spending.
But then again, using the term investment, might confuse the debate, given that investment has two meanings: (a) economists use it to describe productive capacity building; (b) the layperson thinks of it as the purchase of a financial asset.
But it is possible that the positive connotation that “investment” promotes would be useful.
A work in progress.
We will be interested in seeing whether you think terminology matters and what alternative terminology you might consider appropriate for the following concepts:
1. Budget balance
2. Budget deficit
3. Budget surplus
4. Public debt
5. Government spending
6. Government taxation
7. National income
8. Income support payments
9. Full employment
That should get things rolling ….
That is enough for today!
(c) Copyright 2013 Bill Mitchell. All Rights Reserved.