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The head of the Econ. department at my university said the Debt Doesn't Matter

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UGADUer Donating Member (161 posts) Send PM | Profile | Ignore Tue Oct-16-07 08:51 PM
Original message
The head of the Econ. department at my university said the Debt Doesn't Matter
He said that the 9 trillion dollar debt doesn't really matter. We were having a debt discussion for a forum; I kind of pressed him on a few things and found out that he's an admirer of Milton Friedman, the Laffer curve and all that. Why are so many Econ. departments like this?
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Richard Steele Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-16-07 08:54 PM
Response to Original message
1. Hey, welcome to DU!
:hi:

I'll leave it to others to discuss the Head of your Econ Dept.
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leftchick Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-16-07 09:00 PM
Response to Original message
2. This is well worth the watch
Edited on Tue Oct-16-07 09:00 PM by leftchick
Along with the other parts. Chomsky on Reagan and and Friedman. Pass it around. :)

http://www.youtube.com/watch?v=EPxc5jQVoT8
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UGADUer Donating Member (161 posts) Send PM | Profile | Ignore Tue Oct-16-07 09:02 PM
Response to Reply #2
5. Thanks; I reccomended to him to read the Shock Doctrine
and he said he will read it. He's not a total ideologue because he had positive comments about the film Fast Food Nation which has very progressive criticism.
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leftchick Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-16-07 09:11 PM
Response to Reply #5
9. Confessions of an Economic Hitman
and The Secret History of American Empire are also good. There are some great youtube videos of Naomi Klein's Shock Doctrine talks on youtube as well. She is Great! At least he seems open to discussion. Good Luck!
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StrongBad Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-16-07 09:00 PM
Response to Original message
3. Well it very much influences inflation which if out of control isn't desirable
I'm surprised the department head is a follower of Friedman. Monetarism is pretty much a thing of the past and nobody really takes it seriously anymore. Same thing with ridgid supply side economic policy. I mean, it is true that cutting taxes and reducing spending on government infrastructure will increase GDP by stimulating consumption and investment, but that increase predominantly goes to the upper classes and those without before said policy was enacted are no better off.
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UGADUer Donating Member (161 posts) Send PM | Profile | Ignore Tue Oct-16-07 09:04 PM
Response to Reply #3
7. He said supply-side really doesn't play out
but that the Laffer curve is true we're just not on the right part of it. He also said we should completely eliminate corporate taxes.
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Lydia Leftcoast Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-16-07 09:01 PM
Response to Original message
4. Milton Friedman was at the University of Chicago, and
business types LOVE the University of Chicago economics dept. because it teaches, essentially, that "greed is good."

Therefore, Chicago is considered to have a "good" economics department, which in turn attracts a lot of graduate students, who receive indoctrination into all that libertarian nonsense and then go forth and get jobs teaching in colleges all over the country. They also write most of the economics textbooks.
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StrongBad Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-16-07 09:16 PM
Response to Reply #4
10. You're right
I got my BA in economics and all throughout my schooling there were these little zealots always going around talking about the Chicago school and how they're readings are the only economic texts you need to know.

It's economic fundamentalism at heart.
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Odin2005 Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-16-07 09:43 PM
Response to Reply #4
15. Yep, the U of C is the indoctrination center of the neo-liberals and monetarists.
Edited on Tue Oct-16-07 09:44 PM by Odin2005
It's like there isn't many economists that aren't there that aren't contaminated by that crap. It seems like full-blown Keynesians are an endangered species.
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Mike03 Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-16-07 09:03 PM
Response to Original message
6. Dick Cheney said that too
The twin deficits don't matter at all if you are rich.

To the rest of us they matter, and to our children/nieces/nephews they are really going to matter.
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Fovea Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-16-07 09:10 PM
Response to Original message
8. Economics in the US
is a lot like toxicology in Russia.
It could do a lot of good, however,
it tends to get used for ill.
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Solar_Power Donating Member (422 posts) Send PM | Profile | Ignore Tue Oct-16-07 09:18 PM
Response to Original message
11. The dollar is being devalued at alarming rate -- debt holders are diluted
maybe that's the argument.

But debt is bad. Twin deficits are even worse.
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whoneedstickets Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-16-07 09:24 PM
Response to Original message
12. On the Laffer curve..
Edited on Tue Oct-16-07 09:26 PM by whoneedstickets
..This is total nonsensically and ideological concept.

For those unfamiliar with the idea it claims that taxes above a certain level eventually crowd out investment and thereby slow the economy down and reduce tax revenue. In such a case, proponents argue, lowering taxes should actually generate more tax revenue from a more vibrant economy.

This has never been proven but taken as faith by the RW.

However, to get back at your econ guy make a note that the CURVE has a low side and a high side. When we are on the high side cutting taxes is expected to increase revenue, BUT if we are on the low side it will only reduce revenue and not generate enough growth to compensate the loss of income(i.e. taxes are BELOW the optimal yield point before they crowd out investment). Empirically EVERY major US tax cut has resulted in DEFICITS! Growth has never offset the tax loss and in each case taxes had to be RAISED to reach a balanced budget. This indicates that America is under taxed according to Laffer curve yield predictions! Lowering taxes will not stimulate the economy enough to offset revenue losses.
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dflprincess Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-16-07 09:38 PM
Response to Original message
13. During the Reagan administration I had an econ professor that said
the size of the debt wasn't important as long as Americans owned the debt as it was doubtful Americans would all wake up one morning and try and cash their bonds in all at once (and if they did, Congress would just change the law and tax the returns on the bonds all to heck) - but the size became more serious as foreign interests took on more of it.
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whoneedstickets Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-16-07 09:43 PM
Response to Reply #13
14. True except that servicing the debt (interest paid on debt)..
..even if it is economically neutral because it just shifts funds from taxpayers to T-bill holders, reduces the discretionary funds available to government (which is something the RW doesn't mind) and is regressive (which is also something the RW doesn't mind).

Now if the debt service is leaving the country (to say China) this is very bad.
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Generic Brad Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-16-07 10:37 PM
Response to Reply #14
16. And if we stiff China, they are in trouble. Not us
That is how it was explained to me when I was in school.
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JohnyCanuck Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Oct-16-07 10:40 PM
Response to Original message
17. Could this be the main reason why debt is perpetually increasing?
Edited on Tue Oct-16-07 10:44 PM by JohnyCanuck
According to the documentary Money as Debt, most of the money that is in circulation in our modern, debt based/fractional reserve monetary systems is newly created each time banks make new loans (ie. some individual, organization, corporation, or government goes into debt).

To summarize (as per the video and in a very simplified manner) how most money is created and put into circulation:

Joe Schmo goes to First Bank of Moneygrubbers to to get a $15,000 loan to buy a used car from his neighbor. The bank figures he is a good risk and grants him the loan by a simple book keeping entry that creates, basically out of thin air, $15,000 that didn't exist before . Joe Schmo takes a cashier's check drawn on the Bank of Moneygrubbers for $15,000 dollars in newly created money to his neighbor with the used car, hands over the check and drives away the car. The neighbor now has $15,000 that he can use to buy a new lawn mower, TV set, refrigerator etc. So by taking out his loan (i.e. going into debt), Joe Schmo has put into circulation $15,000 that didn't exist before. If he hadn't gone into debt to the bank, there would be $15,000 less money in circulation to enable his fellow citizens to buy stuff and to percolate through the economy and keep people gainfully employed.

There are reserve requirements that dictate to the commercial banks how much new money they can create through loans and mortgages etc. These reserve requirements force the banks to keep a certain amount of money on deposit at the Federal Reserve (or another central bank in other countries) that is proportional by some ratio to the amount of loans they are allowed to make. However, as the Money as Debt video explains it, over time these reserve requirements have been getting lower and lower to the point of becoming negligible allowing the banks to make more and more new money with each loan they grant.

As explained in the video, the big drawback to this scheme is that all the new money created and put into circulation as a result of new loans does not put into circulation enough money to pay back the original loans plus the interest charges incurred. The banks' answer to that problem is to get more money into circulation by encouraging more debt and making more loans. This, of course, ends up in a dog chasing its tail scenario, as it just means overall debt has to keep spiraling upwards and upwards ad infinitum, otherwise the money supply would shrink leading to a catastrophic economic crash.

The end result in the case of the USA is this:



BIG PICTURE - $48 TRILLION of DEBT in America, and rising rapidly

the economy is 2-3 times more debt-dependent - -
with $29 Trillion DEBT EXCESS compared to prior debt ratios

Here's one graphic of many shown in the main Total Debt Report, linked below.

This is A SCARY CHART - showing trends of total debt in America (the red line, reaching $48 trillion in 2006 vs. growth of the economy as measured by national income (blue line). (adjusted for inflation). That debt increased $3.9 Trillion (9%) in the past year.

Which line goes up faster, the red debt line or the blue net national income line? Answer: the debt line.

And, that debt line is going up faster and faster than national income! Right?

(maybe, like this chart, your own personal or business debt is also going up faster than your own income - - possible?)

As mentioned, debt is here defined as all U.S. debt (sum debt of federal and state & local governments, international, and private debt, incl. households, business and financial sector debts, and federal debt to trust funds).

This chart shows, for the period 1957 to mid 1970s, total debt (red line on chart) was increasing close to the growth rate of national income (blue line on chart), despite war debt for WW II, Korea and Vietnam.

But, in the last several decades total debt has zoomed up, up and away - - growing much faster than national income. It has now reached $48.4 Trillion ($37.7 trillion private household/business/financial sector debt PLUS $10.7 trillion federal, state and local government debt).

http://mwhodges.home.att.net/nat-debt/debt-nat.htm



A few quotes used in the video Money as Debt:

"If all the bank loans were paid, no one could have a bank deposit, and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash, or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless situation is almost incredible -- but there it is."

Robert Hemphill. Credit Manager, Federal Reserve Bank of Atlanta

One thing to realize about our fractional reserve banking system is that, like a childs game of musical chairs, as long as the music is playing, there are no losers.

Andrew Gause, Monetary Historian

The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented.

Banking was conceived in iniquity and born in sin. Bankers own the Earth. Take it away from them, but leave them the power to create money, and with the flick of the pen they will create enough money to buy it back again...

Take this great power away from them and all great fortunes like mine will disappear, and they ought to disappear, for then this would be a better and happier world to live in. But if you want to continue to be slaves of the banks and pay the cost of your own slavery, then let bankers continue to create money and control credit.

Sir Josiah Stamp Director, Bank of England 1928-1941
(reputed to be the 2nd richest man in Britain at the time)

"Once a nation parts with the control of its currency and credit, it matters not who makes the nations laws. Usury, once in control, will wreck any nation. Until the control of the issue of currency and credit is restored to government and recognised as its most sacred responsibility, all talk of the sovereignty of parliament and of democracy is idle and futile."

William Lyon Mackenzie King
(Canadian Prime Minister during WW11 /JC)

http://paulgrignon.netfirms.com/MoneyasDebt/references....


Quote from the producer of Money as Debt, Paul Grignon:

Money created as interest-bearing bank credit is a magic trick, a fraud - now 3 centuries old; one that very few people have seen through despite, or rather because of, its utter simplicity.

It is my intention to make this mysterious debt-money system comprehensible to everyone. It is also my intention to foster sufficient understanding of the problems with this money system that citizens will be motivated to join the monetary reform movement and/or create local alternatives to the global monetary system - a system in which most of the productive people of the world are collectively chained to an ever-increasing and perpetually unpayable debt.

This is a system designed for elite control of the people by those who have given themselves the privilege of creating money. It is also, I believe, a system that is designed for catastrophe. As the movie explains, there can be no sustainable civilization without a sustainable money system

http://paulgrignon.netfirms.com/MoneyasDebt/ProducersCo...



You can purchase the video Money As Debt from http://moneyasdebt.net , or if you have a high speed connection you can watch the 47 minute video on Google video here:
http://video.google.com/videoplay?docid=-90504743625834...
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JohnyCanuck Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Oct-17-07 05:24 PM
Response to Reply #17
18. Another quote from a banker re. consequences of banks creating money.
"I am afraid that the ordinary citizen
will not like to be told that banks
can and do create money
...And they who control
the credit of the nation
direct the policy of Governments
and hold in the hollow of their hands
the destiny of the people"

Reginald McKenna,
past Chairman of the Board, Midlands Bank of England

http://paulgrignon.netfirms.com/MoneyasDebt/references....
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