Barrons Doesn’t Do Monetary Realism

Just when you think the word might be spreading….It was interesting that Barrons ran this great quote from a regular reader here at Pragcap last week:

 We must be careful comparing the federal government with a household (or state or business) because Washington has no solvency constraint. The federal government can’t run out of money (unless Congress decides it should), as it can always call on the banks and the Federal Reserve to serve as agents of the government.

The constraint is inflation, not solvency. But given the weakness in our economy, along with high unemployment, I don’t see much risk of inflation anytime soon.”

And then just a week later runs a cover piece about how the USA is becoming Greece.   Of course, the problem within Europe is that their central bank is entirely independent of the sovereigns rendering none of the European countries pure currency issuers.  They are all strategic users of the Euro because of this lack of political and monetary union between Treasury, Central Bank and government.  The USA, of course, doesn’t have this problem so it is virtually impossible (aside from political choice) for the USA to run out of money.  The comparison Barrons makes is patently wrong.  For a full discussion on this arrangement with a comparison of Greece and the USA please see the section called “Contingencies – The USA versus Europe” in the Contingent Institutional Approach.

Anyhow, the Barrons piece could be right about some things.  Yes, government spending could cause big problems down the road and it might even cause high inflation.  But what it isn’t going to causes is a Greek-like crisis where market participants literally worry that we are running out of money.  It won’t happen in the USA where the true constraint is inflation, not solvency.  


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • frederick

    It’s a political article based on zero understanding of the monetary system. Too bad really. Barron’s used to be a great rag.

  • Tom Brown

    Cullen, do you think Barron’s is just unaware or do you think this is a calculated political spin? No mainstream economic school subscribes to this view, correct? Only a subset of Austrians school types would agree (I think!) that we are on a path towards Greece.

  • Cullen Roche


    I think the better question is – who in the mainstream has described the Euro crisis in the same terms that MR has? MMT obviously has (or, at least they’re the closest though JKH would probably agree with me that even MMT contradicts itself at times in discussing Europe). A few other post-Keynesians have. But who else? Who else really gets it? To me, this is about understanding the core pieces of the system at its operational level. How many people actually use the MR framework or even something close? Not many people. Frankly, I don’t think the writers at Barrons intentionally write things like this article. I think they really honestly believe that Greece and the USA are comparable or they just don’t understand the monetary system at a depth that allows them to understand why such comparisons are silly….

    But still, the problem lies in the fact that these core understandings are still well known to a very small minority of the population….MR has had almost no influence on public debate. Partly because it’s not a very old school, but also because we’re probably not political enough to leave a dent. Either way, I view that as a problem because it means people don’t understand the monetary system. And if they don’t understand the monetary system then discussing the politics (as this Barrons piece does) is futile.

  • Tom Brown

    frederick, I was writing essentially the same comment at the same time (see below). I tend to agree with you. The Greece or household analogy is probably a strong one to the average Joe, right or left politically. I’ve seen John Stewart (definitely left of center) make jokes along these lines in comparing us to Greece. Although, I think making such an argument (right now, anyway) more clearly serves the purposes of those on the right. This was not always the case (remember “Deficits don’t matter.” Cheney?). Voters from both sides are vulnerable to this fallacy.

    It seems like a cynical ploy to me… I’d bet that very few economic advisers to politicians subscribe to this Greece analogy (except Rand Paul, perhaps?), but it’s still tempting for a politician to make the analogy because it’s an easy and powerful argument to the voters. But why is Barron’s doing it?

  • Tom Brown

    Well you’ve certainly spent a LOT more time reading the literature out there than I have, and so I’m sure you have a great feel for it. However, I can’t see any Monetarist thinking this (Market or otherwise)… Sumner? Greenspan? Bernanke?… even Milton Friedman if he were alive… do you think he’d take the Greece analogy seriously? Didn’t Friedman have a hand in CREATING this system (i.e., floating exchange rate fiat money)? He’s certainly recognize that’s NOT what Greece has.

    Who in the serious economic world believes the Greece analogy, except a few Austrians? And I’d even be surprised if some of them believed it (e.g. Shedlock, Stockman, Whalen).

    I agree that this story has mass intuitive appeal and thus is a popular comparison to make in the media and popular culture (both right and left). But isn’t it pretty much the duty of every economist to call it out when they encounter it and let people know that the analogy is false? It’s hard for me to believe that just post-Keynesians, MMTers, and MRists don’t subscribe to the analogy. What about Krugman and neo-Keynsians in general? Certainly they don’t buy this stuff do they?

    Well maybe I’m wrong… maybe the bulk of economists really do buy into this idea. Or maybe I’m correct, but the power of the analogy is just too strong in popular media, and ends up “infecting” publications like Barron’s as well.

    I just can’t help thinking that perhaps there’s a healthy bit of political cynicism involved though as well… back during the Reagan years, very few conservatives were worried about budget deficits… it’s only when Clinton came in that they became important. They went right out the window again when Bush 43 was in… and then you had lefty’s like Krugman complaining about deficits! And then there was “deficits don’t matter” Cheney, remember him?

    Now with Obama things have changed again… Krugman suddenly advocates more deficit spending, and we don’t hear too much from Cheney on the subject anymore!

    It’s almost as if the intuitive appeal of this message is just too strong of a political bludgeon to NOT use it to beat your opponents up with… thus the economists keep their mouths shut if it’s the OTHER guy being beat up.

  • Tom Brown

    BTW, that’s why we’ve go to get more media exposure for you Cullen! I’ve actually written to several shows suggesting that you’d make an excellent guest. Maybe you need to do something outrageous… marry a Kardashian perhaps?

  • HankB

    Just curious – why do you say MMT contradicts itself on Europe?

  • DJ

    I think there are two parts to “we are not Greece”. Yes, we are not Greece so we can print money until inflation is limited. But, also, we are not Greece so we should not fear austerity leading to a negative spiral. Is this second part wrong?

  • Tom Brown

    Ah, I know! Write a book with a provocative title… that ought to get you on at least a half dozen shows with low standards…. how about this: “Cheney was RIGHT*!!! ….(*deficits don’t matter)”

    The new book circuit is VAST and has very low standards… I don’t know how many times I’ve heard the same author on Stewart, “On Point,” “Fresh Air,” “Marketplace,” “Planet Money,” “To The Best of Our Knowledge,” NPR, PBS, Bill Maher, Colbert, Bill Moyers, Charlie Rose… … and those are just the center and left of center ones!

    Throw in a few black helicopters and FEMA camps and Alex Jones will be sure to send an invite!… and if not him you can claim Jones is a crank, and then Glenn Beck will snap you up!

    … let’s see, what else… well claiming Mother Theresa was the devil worked for Christopher Hitchens… that even got him on Fox News!

    There’s a lot to be done about this Cullen… a LOT! … I’ll keep on this and let you know what I come up with ;)

  • Cullen Roche

    JKH touched on this in the CIA. MMT often refers to the ECB as a “currency issuer”. But when it discusses the USA it doesn’t also refer to the Fed as the currency issuer, but refers to the “US Govt” as a currency issuer. They consolidate the Fed and Tsy into the same thing. It’s easier to understand all the parts when you break them down and actually explain them as they exist. You can’t just consolidate them because it makes your mythology work better. At the operational level the Fed is very very similar to the ECB. So, if the ECB is a “currency issuer” then the Fed must be also. Why not just explain it as it exists? Of course, MMT has to consolidate them because without the consolidation you don’t get the “destruction” and “creation” of money at the taxing and spending level which would basically render one of MMT’s main points void. So rather than calling the Fed a currency issuer and an independent entity they refer to the Fed as part of the Treasury and consolidate the US govt as a currency issuer. This keeps their US story consistent, but creates a contradiction when compared with how they discuss Europe.

    But whatever. MMT is light years ahead of most everyone else on the Eurozone and many of them have the predictions about its demise to back it up. Unfortunately, some MMTers may have overplayed their hand on the idea of sovereignty in Europe as the entire system has essentially eliminated sovereignty at the state level and led many MMTers to predict that the system would completely unravel. While that hasn’t happened, I’d say that prediction is not looking very good….

  • Tom Brown

    … maybe you can admit to economic “doping” and make a full confession on Oprah.

  • Cullen Roche

    On Harpo? Orcam on Harpo? Oprah on Macro? It was meant to be. She’d be flattered that my company name is a rip-off of her company name. :-)

  • Tom Brown


  • Tom Brown

    Wow, that is rich!… it didn’t fully dawn on me at first. ha! Genius!

  • Joe in Accounting

    How about watching morning joe on msnbc this morning. They’re discussion about the national debt was a comedy errors. They used terms like “crisis”, “bankrupt”, etc. And these are supposed to be moderates (both left and right) like aaron ross sorkin, bob woodward and joe scarborough. It’s completely maddening when these people, who think of themselves as smart and sophisticated talk like this. And then you get one talking head that says, “they’ve been saying for ten years that our debts are going to cause interest rates to skyrocket, bond auctions to fail and entitlement programs to go bankrupt and none of this has happened” Of course, no one on the panel addressed this and they kept right on discussing how do we close our deficit.

  • Matthew McOsker

    I commented on that awful piece over at Barron’s.

  • Joe 401k

    Balancing government accounts like a checkbook and “running out of money” are easy concepts for people to understand, since most of us do one or the other every day. This is part of the reason why the household and Greece analogies are so powerful. Journalists aren’t any different than the rest of us, after all. The concepts discussed on this site, on the other hand, are a little more complicated. If you want your message to become widespread, I suggest dumbing it down a bit. I don’t see that as a bad thing. Even in undergraduate sciences classes, theories are dumbed down a bit to make them more digestible.

  • Old Dog

    An even larger worry is that Ryan & Co. in our Congress spouts the same line as Barrons.

    Do they really think we are all that stupid?

  • jt26

    The “we are Greece crowd” belong to a long line of unimaginative people that view the world as finite and zero sum (think Europeans in 1900). Greece is twice the size of Singapore or Finland; what do you get for that? Not much; regardless of monetary system. The big difference is the skill, imagination and drive of the people. The “Greek fundamentalists” are an out shoot of the religious right; “our conservative values and moral superiority economics will lead you to Nirvana.” It’s nothing but a rephrasing of thrift is next to god.

  • Cullen Roche

    Awesome video. Thanks for posting.

  • Andrea Malagoli

    I agree that “It won’t happen in the USA where the true constraint is inflation, not solvency”.

    This means that the country will remain solvent, but the people will go hungry and homeless. It is happening.

  • DJ

    No body is biting, so I’m going to throw in a stat. Using a Hayekian austerity approach, the US economy in 1950 was twice the peak in 1929 (peak level). Using a Keynesian spending approach, the Japanese economy in 2010 was 20% higher than the peak in 1990. In both cases, the period is the same – 20 years. Add to this, additional examples from the Baltic and Balkan European countries that austerity works.

    So, sure, we are not Greece and we shouldn’t worry about debt as much as we do. But, that doesn’t mean austerity is a bad option, does it? Especially, since the US has automatic stabilizers with a free currency and debt in the same sovereign currency.

    The only criticism of austerity in the US context seems to be a deep recession. Before 1990, a recession wasn’t such a bad thing, but a natural part of the business cycle to flush out the deadbeats, isn’t it? Shouldn’t we care about the quality of recovery rather than the depth of the downturn? Long term gain over short term pain?

  • Cullen Roche


    Valid points. I’d counter by arguing that the economy thrives on a flow of funds (and a productive use of that flow of funds). What just occurred in the US economy resulted in a nearly unprecedented freeze in this flow of funds. Why? Because our economy revolves around what MR calls “inside money” or bank money. When the flow of this inside money stops (ie, when people stop borrowing & spending) the economy seizes up like a body suffering from a heart attack. Understanding the centrality of inside money to the system is crucial to understanding what is going on today. This flow remains very weak by historical standards. It’s coming back, but it’s still weak. Our heart is still very weak in other words. It needs artificial help. That’s where the govt comes in. The govt can always keep the flow going because it can always tax and deficit spend. This keeps bank deposits moving from Peter to Paul no matter what. It keeps incomes high, revenues high, etc. That’s all positive in an environment like today where the pvt sector can’t go it alone.

    Now, the problems you are likely worried about are totally valid. The problem with the govt “flow” is that it can be inherently unproductive. When the govt spends they redistribute money from Peter to Paul regardless of what Paul does to earn the funds. When the private sector redistributes funds it’s generally rewarding someone for their innovation, creativity, service, etc. So private spending has an inherent productive component to it. If that production is not useful it goes out of business. But govt spending doesn’t have the same component. When govt spending is unproductive it often doesn’t matter. There is no form of creative destruction in govt spending. So it can water down the overall product if you will. Is that happening today in the USA? I don’t think so. We produced more goods and services in the last 10 years than we had in the previous 20. “lost decade”? Hardly. This is an unbelievably innovative and productive nation. Is there a risk that it could happen here? YES. But I don’t see it. So austerity is an unnecessary evil that will bring recession and unemployment for no reason. Of course, you’ve got the Fed causing distortions in other ways that I totally disagree with, but that’s a slightly different moral hazard matter.

    So, I think we need to remain prudent and work from a solid understanding of our current environment. The politics and all that are secondary to really understanding the system and why we have a real fix for our problem today.

  • DJ

    In your first para you are talking about a liquidity crunch, which existed for a brief period and was helped by monetary policy and TARP which I was in support of, back in 2008/2009. If the flow is low now, its not because of liquidity problems, but perhaps because there is no more room for stimulus?

    You argue that debt levels are not a problem since inflation is low. Sure, but there are other danger levels published by people like Rogoff which indicate that we are at the border line, if not over. By the way, personally I think we are fine, as long as longer term fiscal policies are fixed.

    I don’t have an idealogical opposition to govt spending. But, the great productive capacity of the US is precisely the reason why a downturn would have been successful by flushing out the bad credit. Austerity supporters are more confident about the US economy (and its resilience) than stimulus supporters. So, I don’t agree with your arguments at all.

    A recession would be unnecessary? You didn’t give me any convincing reasons why. What about the bad credit in the system which should be flushed out? Are you suggesting that all recessions should be avoided forthwith? Do you really think immediate inflation is the only indicator which should be a factor to decide whether we should conteract every recession with fiscal stimulus? What about absolute debt levels (and the levels marked out by Rogoff).

    Austerity would cause unemployment sure, but only in the short term. But, with a recession, comes the possibility of a better economy which would provide more employment over time. Please refer to my stat. The example seems to suggest that employment bounced back better in the Great Depression than in the Japanese case (if we take GDP as a proxy for employment). And, Japan isn’t even done yet with its QE 20 years later.

    I don’t have any idealogical preferences for austerity or against govt spending.

    Its just that I noticed that Romania, Czech, Poland bounced back quite well from the crisis using austere measures. Japan doesn’t even compare favorably to the Great Depression, so why do we like their approach so much? To me it looks like the only people who like the Japan approach are creditors, who don’t want a contraction, but don’t care too much about the upside. Suits them fine, at the cost of everyone else, including long term labor.

  • Nils

    Most voters are ;)

  • Cullen Roche

    I don’t understand the “feel the pain” crowd’s perspective. It’s as if nothing bad has happened in the USA. As if no one suffered in the last 5 years? Do you really believe that? Do you really believe there was no bad credit “flushed out”? We’ve been through an unprecedented de-leveraging for a developed economy. The economy has sucked for 5 years. Unemployment hit 10% in the world’s largest and most productive economy. What would be enough pain for you guys? Greece? Spain? Should the entire nation suffer through a depression just because some people have an aversion to govt? I disagree with this view of the world. I think we’ve undergone substantial pain. And I think the govt has been an important tool that we utilized to help us avoid going from recession to depression.

    I understand that recessions are totally normal and I would never advocate that you try to permanently alter the business cycle to avoid recession at all times. But we’ve been through massive amounts of pain here. Why do you write your comment as though nothing bad has happened in the USA in the last 5 years or as though I think the govt’s actions helped us avert a crisis? We just went through the crisis. It was horrible. The worst in 80 years! Is that not enough? Do we need to all suffer through a depression just so irrational people can feel more comfortable about the USA not “running out of money”???

  • DJ

    I’m not a masochist. I’m only interested in how countries that follow “short term pain for long term gain” have done as compared to those that haven’t. Maybe the examples I looked at don’t apply for some reason or another. I would love to know why though.

    Who said nothing bad has happened? You must also distinguish between the bad things that happened because of market malfunction in 2008 vs today. Please don’t dramatize unnecessarily. In fact, forget about the US of today, why not look at the examples I gave and talk about those, or about Rogoff debt levels?

    “Should the entire nation suffer through a depression just because some people have an aversion to govt?”

    No, but maybe its the best option given the amount of leverage among creditors and debtors? Aversion to govt is irrelevant to my points. And, a) I don’t believe it would necessarily be a depression. It would be more like Poland and Czech, etc. Again, you have to dissociate market malfunction in 2008 and financial system stability from the underlying economy for my assertion to be possible, and b) it would be temporary and c) it could lead to a better recovery. How is this bad? I’m talking about the possibility of a better option.

    And, again I don’t have an aversion to govt spending.

    The crux of my objection is the thinking that addressing short term growth is the solution, when that needn’t be the case.

  • hangemhi

    Any study of an economic recovery that only considers Gov debt and not private sector debt should be thrown out. The austerity lovers seem to have studied hundreds of recessions around the world and found a handful of examples where Gov spending went down, and the economy improved. In each of the very few examples they could find (desperate searching to prove an unprovable theory) I guarantee you that private sector debt went up which made up for Gov debt doing down. Why and how could this happen? Simple, private sector debt levels were at record lows. And in the case of the post WWII recovery there was enormous pent up demand due to a rationed economy, so they needed everything.

    What’s the diff here and in Japan? Private sector debt levels hit record highs – they simply can not, and should not, take on more debt. So austerity will merely crush the economy. Also, loans against houses is the largest money creation option in the private sector – so if you have huge debt levels from an over supply of houses, you are royally screwed and the only way to get through that period without 25% unemployment is Gov debt.

    So what about the Rogoff study – well, did they take into account private sector debt levels? Did they consider ALL money creation – gov debt AND private sector debt? No, they looked at someone taking their foot off the breaks of a car, not noticing if they were on a hill facing downward or upward. So you can just throw the entire study out as proof of anything.

  • Joe in Accounting

    The question is, would a smart man like Dr. Carson, after having the mechanics of our monetary system explained to him, reassess his world view?

  • hangemhi

    great story, good speaker, totally misinformed about economics. Another expert in some other field using that expertise to convince people of things they clearly have zero expertise in. But since he is apparently both smart, and well-intentioned, he’s the exact kind of person MR needs to reach out to.

  • hangemhi

    The part of the country that is hungry and homeless has nothing to do with gov debt. Education is the #1 issue. The brilliant idea from those who hate the debt the most is to cut education spending. Works great too because then it is easier to sell the uneducated the line of bull that tax cuts for the rich really help the poor

  • JJTV

    Agree Hangemhi.

    The below paper indicates why that study is not useful for the case of the US and similar countries:

    I know Cullen posted something too…maybe this link:

  • Johnny Evers

    Exactly, Andrea.
    There are people who have a political agenda to increase the size of government, so it’s to their advantage to mock the Greece analogies.
    But in doing so, they fail to state directly that their plan is to monetize government spending. We can’t delevarage if we simply replace private debt with public debt, so the only conclusion to be drawn is that public debt doesn’t have to be deleveraged.
    The other mistake they make is the money solves all economic woes. If somehow more money can be introduced, the economy will get better.
    Take hangemhi’s point about education — the quality of a child’s education depends on the cultural values of his parents, and not on increasing spending on education (which is in itself code for ‘spend more money on retired teachers.’.
    Meanwhile, we’ve had 15 years of stagnant wages precisely because of our belief that debt grows the economy. It’s not working anymore. We need to find another way.

  • Cullen Roche


    Valid points, but where are you getting your data on those nations? I see that they all ran large budget deficits to get out of their economic hole.

  • Geoff

    I never caught that Orcam was Macro backwards. Jeez, I’m an idiot.

  • Johnny Evers

    Those charts show those countries reducing their deficits the past two years.
    The U.S. is still increasing its deficit.
    We’re running larger deficits not as a response to the recession but because of structural reasons (more obligations, demographics).

  • Cullen Roche

    No, not exactly. Where is all the evidence that America is some insufferable abominable place to live? Last I checked, GDP per capita was at an all-time high.

    I’m not ignorant of the fact that we could be doing a lot better, but geez. Go visit a third world country if you want to see low living standards. Sorry, but America doesn’t fit the mold of this hell hole that so many people try to portray daily life as. And considering we just went through the biggest crisis of the last 80 years, I’d say things are actually a lot better than most think.

  • Cullen Roche


    You can’t just make things up every single time you leave a comment here.

    At some point, you are going to have to try to digest the facts I lay out via MR. Thus far, you have made almost no effort to actually understand what I say. You just regurgitate the same anti-govt talking points you have believed since day one. That position is fine if it’s backed up by facts, but you never do that. It’s getting a bit tiresome.

    Also, the deficit improved in those countries because of automatic stabilizers. Ie, tax revenues increased because the govt spending got the economy humming again.

  • Johnny Evers

    What a fake analogy. Nobody is saying America is a hellhole.
    It’s a great country.
    But nobody seriously doubts that the rise in GDP per capita is going mostly to the wealthy.

  • Iluvatar


    Exactly. That was part of my point.

    And he is an excellent outreach opportunity – agreed.

    But here is the kicker?

    I feel we have solved 1/2 of the debate and I am becoming breathless waiting for the other shoe to drop.

    I would give Dr. Ben Carson about 4-6 hours to snap to, and then realize the lack of a solvency constraint, and then realize we are *not* going broke.

    And that is all fine well and good.

    But how do we address the concerns of the *high debt* brought up by people, including smart people?

    It is as if there are *two* issues here:
    a) we are getting so much debt we may go broke (easily argued against)
    b) we have high debt, isn’t this bad (even if we don’t go broke)?

    It is case b) that I think we need to be able to argue more intelligently about, so that the common man can feel somewhat assuaged over his concerns.

    I think MR needs to cover the whole ground not just solvency constraints.

    It would be a good thing to do.

  • Johnny Evers

    Real GDP per capita rising at 1.9 pct per year; real median wages rising at .5 pct per year.

  • Cullen Roche

    If you think distribution is the problem then you should be in favor of more govt taxing/spending that takes from the rich and gives to the poor. You’re talking out of both sides of your mouth. You’re pretending to be a small govt guy and a big govt guy at the same time. How do you expect the system to rectify itself? What is your solution to the problem you point out?

  • Cullen Roche

    I have no idea where Reinhardt got that data from, but the Social Security database does not show the same sort of disconnect. And that’s data coming straight from tax receipts so it’s absolutely right.

  • Gary_UK

    You perhaps need to move away from the charts and go and look into the real world of America.

    I’m not even in the country, but reading and viewing tells me it’s a country on the slide, with increasing poverty and deprivation.

    47 million on food stamps?

    The piper has to be paid, and you lot (and most of the world except Europe) have barely made your first instalment.

  • Pierce Inverarity

    Why don’t you come visit before making declarations, Gary?

  • Cullen Roche

    You scaremongers are truly out of ammo. Food stamp usage ALWAYS rises during a recession. This recession was no different. And the figures aren’t even remotely alarming when compared to past recessions despite the fact that this was the worst recession in 80 years! Frankly, I am surprised the numbers aren’t much worse.

  • DJ

    I owe you an apology. I was using an economist friend’s verbal mention of policy in certain Eastern European countries. It is known that they have been instituting tough structural reforms. But, it would take further study into the numbers to see how the reforms go with the budget deficit and growth numbers. Anyway, the jury seems to be out on these countries. So, I’ll just have to withdraw my comments on these countries. Sorry!

    I checked the GDP numbers in the Great Depression and for Japan. Thankfully those are correct.

    It seems weird to me that Koo says that an increase of public debt from 60% to 220% for 20% increase in real GDP over 20 years is a good deal. Today it takes $5 in debt to get $1 growth in the US. It was dollar for dollar back in the 1970s. I don’t have a problem with the US doubling debt from 100% to 200% of GDP (like Japan) if needed, but if its going to fetch only 20% growth, is it worth it and more importantly, is it the best option out there? Again, my interest is not idealogical but academic.

  • Tom Brown

    Ha… sounds about right!

  • Tom Brown

    Nor did I until I posted the above comment…

  • hangemhi

    Johnny – you accuse Cullen of a fake analogy, but claim that my statement that Education is the #1 challenge is code for bigger government? How can you expect anyone to take you seriously?

  • Roger Ingalls

    Re Krugman. See below article, “we are not greece”, gotta give the dude credit where it is due.

  • Johnny Evers

    If the guy working on the line 20 years ago was making $25 an hour, and his son is now making $12 an hour, I would rather have a solution that raises the son’s wages rather than a government tax redistribution system. What are you going to do — put him on food stamps? Redistribution only makes him more vulnerable and less independent. It doesn’t change the inequality.
    I am not sure what the solution is, but we can maybe start with admitting we have a financial-government complex that funnels money to one sector.

  • Nils

    No amount of spending on Education will make an average person with an IQ of 80 as productive as an average person with an IQ of 120. No amount of spending will turn a shitty parent (or parents in some cases) into good parents.

    There is so much free Education just a mouse click away nowadays, by excellent teachers, one would assume that every student with internet access should exceed prior generations without this advantage, but that clearly isn’t the case.

    The USA is spending an average of $13k per Student (as per the OECD report). I think that should be more than enough.

  • Nils

    Move away from the charts? Why don’t you just say “move away from the facts into my bubble”?

    You might just be reading and viewing the wrong sources. Here in Germany the media takes great glee in pointing out problems in the US.

    Who is the piper by the way?

  • TR

    My vote goes to Barron’s. EU can decide to finanance greece, and USA can decide to not raise the debt limit. I would not bet with my money that govenment decisions might not go upside down at any moment.

  • Nils

    I think I once heard Larry King say that, but he used a longer time frame (after all he arrived on the Mayflower).

  • Roger Ingalls

    No doubt we spend plenty on education, and a fair number do get educated. What’s missing is a reasonable transition from education to full time work, that doesn’t involve an overly expensive college.

  • The Dork of Cork.

    I disagree with your take on the US of A Cullen.

    Its a failed state.

    The EU is merely trying to create another US of A via austerity.

    Its the oldest trick in the Book.

    Its a mechanism to push resources upward toward further industrialization although perhaps not in Europe – somewhere else perhaps.

    Ireland was pushed into extreme surplus after Cromwell ……….England became a Industrial giant.

    Its how it has worked since the 1500s at least.

    Ireland has become a island Detroit since the 1970s.

    People were unhappy during the boom and they are unhappy during the bust.
    Its the banking system engaged in high level warfare on peoples minds.
    I am afraid Its a satanic system of control.

    The banks always wish to push resources upwards.
    Its in their nature.

    Our only hope is that the system implodes and brings the fuckers down with us as we are normal folk are dead anyway.

  • hangemhi

    You’re right, parents matter, probably more than anything else. So is education getting worse because of gov spending, or is gov spending going up because parents are getting worse? After all, tt is only in the past generation where both parents worked, while income inequality also rose dramatically. This IMHO probably explains our education system more than anything else.

    Like my first point to Andrea above, we see the result of a bad economy and broken system (the high debt, lots of poor, high student spending) and blame the spending or the poor people who rely on the spending rather than the broken system. We don’t have high debt/deficits because we have spending problem today, we have them because of what we’ve been doing the past 30 years. We created more poor people with failed economic policies, and thus we have more spending on the poor. Blaming the poor is like punching someone in the face and yelling at them for your broken first. And we can’t fix spending by cutting spending if all that will do is make the problems worse. For example, you can’t cut education spending if you have forced parents to rely on that source of education more than any other generation and think you’re going to get better results.

    Johnny Evers is up in arms about Gov spending. But the problem is that is all anyone is up in arms about. As a nation we need to recognize that spending is up due to the problems we’ve created, not the cause of the problems. This bassackwards idea that lowering spending is a fix is ludicrous. And no Johnny, I didn’t just say “more spending”. I said we need to fix what ails us, and yelling at the debt/deficit isn’t what ails us

  • hangemhi

    yes, and dumb it down so that it can be easily argued by anyone. I know Cullen isn’t a fan of the way his former econ school dumbed things down, but you’re fighting a losing battle if you can’t put this into easily digestible laymen terms and phrases. I watched with horror as liberal Chris Matthews agreed with conservatives that we have a spending and debt problem and need to get it under control. No, those are the results of the problems we have, not the cause of them.

  • KB


    This chart carries little useful information. More relevant, would be one showing foodstamps use as % of total population and % of total employed.

  • KB


    On US vs Greece topic, I have a question. Since the government delegates money issuing to the private/commercial banks, why does this delegation does not work in Greece. Why do we need a central bank for this “delegation”? And actually, Greece still has a central bank…
    Or Greece government cannot really delegate money “printing” to the Greece banks?

  • Cullen Roche

    No, 55% of everyone on food stamps is a child or elderly. Presenting it as a % of working population is totally unfair. I have a post coming up on this. It’s a fair and accurate portrayal and includes per capita. But people using this as some sign of the apocalypse are misleading everyone. The size of this program has averaged 8% growth since inception and has grown every year since 2000. But those with a political axe to grind prefer not to present the facts as they lay. Instead, they distort the truth to prove whatever it is they’re selling to their constituency.

  • JK

    Tom Brown,

    Greenspan understands. See these:

    Further, I’ve heard Warren Mosler say the higher ups at the Fed all understand all of this. Obviously there are differences between MMT and MR, but they agree on the most salient point here: inflation, not solvency, is the true constraint.

    So… if this doesn’t raise the question of WHY doesn’t Greenspan, Bernanke, et al. make any of this clear to Congress? (it’s conspiracy theory time!)

  • InvestorX


    you are naively blind to the fact that your great system, which is now spread all over the world and was initiated by the British, is based on Ponzi and fraud, which is FRL. The system has mutated and has become cannibalistic. The system privatizes gains and socializes losses. That is why it is redistributing wealth to the wealthy and eating the middle class. The interest rate mechanism assumes a perpeto mobile machine, especially at its high debt levels today. But recessions are needed to flush capital misallocations and poor stewards of capital. The whole fiscal and economic policy in the US and elsewhere is aimed at protecting the required by market forces failure of TBTF banks and some other corporations, while giving the false impression of caring about GDP growth and the economic well-being of the average man. This is a cancer and you are in favor of “providing more flow” to it. I agree with most of your views, but they are good for normal times. These are not normal times. Managing the system as it is, as opposed to reforming it will only deepen the problems. The whole recovery post 2008 has went on average into the pockets of the 1%, who are bribing (the right word for lobbying) everyone in govt to give them more and more wealth, large parts of it syphoned from the middle class, as there is little true organic growth in this system, where shuffling money or lobbying pays better than real production. Understand the system is ony a slippery slope and will kill capitalism and democracy / republic if it continues this way. It may not come too quickly, but we are constantly moving in the wrong direction. That is why a short-term pain is needed for a long-term gain. The high unemployment levels in the West show that the lower classes have kept enduring their part of the pain in spite of the “recovery”. But the true people causing the problems have come out better off instead of worse of from the crisis. A cleansing at the poor leadership and capital stewards levels is needed. And a change of attitudes towards integrity, law obeyance and true productivity is necessary.

  • Nils

    This area is a political minefield. When talking about education you naturally arrive at poverty, and it’s not a far step from there into terrain that’s politically incorrect and therefore can’t be subject of policy discussion. So it’s easier for the small government crowd to say to just cut all the spending an circumvent the whole murky debate.

    For example, I would discourage certain groups with statistical probability to produce bad outcomes from reproducing, thereby not stranding more people in the same predicament. But there is no way to accomplish that without cloaking it in some small government rhetoric.

    In any case, just increasing spending in excess of inflation doesn’t create better results. In my home country it’s often suggested to pay teachers better. That shit would never fly in the private sector, if anything I’d be paid less for worse performance. What is needed is an approach that looks more at the output than at the input. If a policy doesn’t yield good results it is to be replaced, not funded more.

    This of course requires to enter the world of fact and evidence based research, most of these debates are driven by emotion or superstition (assign left vs. right as you see fit). And it would require politicians to admit they are wrong, which many are trained by profession not to.

    You say spending is up because society created worse problems. I’d say spending is often up because spending failed to fix the problems it was allocated to fix.

    Another thought: the more you spend on the poor the easier it gets to blame them for not making any of it.

  • boatman

    anyone who cannot see the WEST+JAPAN is quickly headed to a debt/credit/currency crisis is just fooling themselves and has faith in instruments that will fail.

    the US will print the petrodollar until it isn’t THAT.

    and that time is coming sooner than most think.

    ‘perfect world’ scenarios are not relevant to a planet run by creatures with a 3 million year history of not being ‘prescient’.

    human nature guarantees i will continue to short civilization at this point.

    its going to be great to buy rare earth element miners at .05$ on the dollar in about 2 years.

  • Anonymous

    Hangemhi, I’m not ‘up in arms about government spending’ or ‘blaming the poor.’
    I agree with you that we have an economy that is not working for all people.
    I would go further and say we have some cultural problems we need to address, in direct result of the lack of opportunities for low-skill workers, who used to at least be able to get a job paying a decent wage and raise a family.
    But I don’t think that adding more debt solves any problems. In the big picture, more debt primarily helps the top 5 percent. At the micros level, if you look at educational spending, for example, increased eduational spending primarily flows to the retirees. Less and less goes into the classroom. The cry for spending more on education is a response to the fact the state pension systems are broke.

  • Solomon

    To spend or not to spend, that is the question…

  • Steve W

    Love this whole thread, although I have not read all the comments yet (because I still have to work for a living). I’m also amused (and sort of flattered) that my letter to Barron’s got mentioned by Cullen again. At any rate, I almost laughed when I saw the cover of Barron’s this weekend. When I was reading the article, and got to the part that said a “review of fiscal crises in Argentina, Ireland, and Greece in the past decade reveals instructive common features and differences.”

    I was hoping for a brief nod to the reality that the U.S. government can always create (or print) money it needs, or a discussion about potential high inflation. Overall, the article was disappointing. I found it interesting that Japan’s debt to GDP ratio wasn’t mentioned. Perhaps that’s another clue that the article’s author doesn’t understand how fiat currency systems work.

  • Pierce Inverarity

    I really don’t think Cullen would disagree with anything you’ve said here except maybe the first sentence. Fractional Reserve Banking has been around for a really long time.

  • Cullen Roche

    I never said the system was perfect or that it was my preferred system. As always, I simply describe to you how the system works. If other people want to push for changing it then be my guest. I’m just the messenger of operational realities. And you know what they say about shooting the messenger…

  • InvestorX

    Ok, I think we are getting closer then.

    More by Taleb on the topic, although he is not well articulated at times, misguided at others, but get generally the direction right. Unfortunately the anchors are quite poor and their cognitive dissonance does not allow them to grasp what he is saying:

    @ Pierce: The ponzi problem of say QE or BoJ’s NKY targeting stems from the FRL ponzi. It is the root cause. It is extending the ponzi or letting it collapse, so CBs as servants of the banks go with extend and pretend.