What We in the 1 Percent Don’t Want the 99 Percent to Know

We don’t wish to be rude, but if you are not one of us – part of the 1 Percent, that is – you are not meant to be reading this message. With some exceptions, you should go back to whatever it is you have been doing. If you happen to be some kind of troublemaker, inclined, say, to question things or work toward change – a terrorist, to be frank – be assured that we know what you are doing. Thanks to our creeping surveillance apparatus we will soon put an end to your efforts, whether by misrepresenting your position, holding you up to public ridicule, sending you to jail, or making war with you. If you are not a terrorist, then we don’t much care what it is you have been doing. But be comforted in the knowledge that you must be doing it well, because you have not inconvenienced us in the slightest. We thank you for your cooperation. Now kindly go away.

We take it, now, that the 99 Percent have departed and gone back to whatever it is they do, and that it is therefore safe for us – the 1 Percent – to cut the niceties and be forthright. The fact is that, in recent times, various snippets of knowledge normally privy only to ourselves have seeped out to small sections of the 99 Percent. For those unfamiliar with the new terminology, by “99 Percent” we mean what are sometimes called the sheeple or, in less precious times, trash. Some on our more liberal wing preferred “human” trash. Considering their humanity is far from obvious, on balance the pithier version of the old terminology seems more apt. Whatever. We digress.

The key point is that certain elementary truths usually reserved for our good selves have penetrated the dull consciousness of a small minority of the 99 Percent. This process was most recently aided by the platinum coin saga (h/t to Tom Hickey for the link), which, if it had been allowed to proceed unimpeded, would have exposed to more of the 99 Percent the existence of these simple truths, some of which are not even comprehended by the dimmer members of our own, uppermost percentile. Fortunately, our president is on the same side as the Treasury, Fed, and GOP on this issue. Our side. For now, at least, any light that might have been revealed remains concealed. Good o.

The least ignorant of the subhumans – we’re sorry, the 99 Percent – are beginning to cotton on to the fact that for societies in which the government issues its own currency and allows its external value to float, such as the US, the UK, Japan, Canada, and many others (though, happily for us, not the member nations of the European Monetary Union), a number of simple truths apply. For these governments – the currency sovereigns – the following points hold.

1. Money, as most of us know, need not constrain economic activity below potential, since it is created out of thin air. It is resources (including labor resources) that matter and that present the only real constraint on what we do.

As long as the supply of goods and services can be expanded along with any extra monetary demand the government might create, there will be no threat in terms of inflation.

We pretend otherwise, of course, because we don’t want the government to create money for the benefit of the 99 Percent. It should only be done in pursuit of noble causes, such as rescuing banks, redistributing wealth upwards, or engaging in wars with those who threaten our economic interests.

So, for example, when there are unemployed workers, it is obvious to anyone but a blithering idiot that it is possible to produce more goods and services for the 99 Percent. Or, at least, it would be obvious if we had not done such a great job of bamboozling people! The real cost of such employment would simply be the time and effort expended by those willing and able to do the work along with the raw materials they fashioned into goods or services. The money needed to pay them is no object, because it can be created out of thin air.

We can see how dangerous this aspect of reality is. If it were widely understood, everyone who wanted a job would be enabled to find one. The 99 Percent would feel a greater financial security, have less fear, and be more difficult to control. They might start demanding stuff, like higher pay, better working conditions, or more entitlements, rather than being resigned to having less of all these things.

Similarly, since there is currently idle capacity in factories, warehouses, restaurants, motels, theme parks, and the list goes on, there is obviously the capacity to produce more goods and services at current prices. All that is lacking is the ability of consumers to pay for more goods and services, and this ability is easily solved by providing them with more of what can be created out of thin air: money.

Here, too, you can see how undesirable this would be. That’s why we pretend the government can run out of money. It is in the hope that the 99 Percent will be gullible enough to believe us. (So far, so good!) That way, goods and services that could easily be produced are not, and entitlements that could easily be provided are taken away. LOL!

2. The government’s deficit equals, by definition, the surplus of the non-government. By logical extension, the national debt mirrors, by definition, the accumulated net financial wealth of the non-government. This means that an attempt to reduce the government’s deficit is actually an attempt to inhibit the non-government’s attempt to earn more than it spends, and an effort to reduce the national debt is at the same time an attempt to annihilate non-government net financial wealth.

Some of us may wonder, then, why we do this. The truth is, we don’t. We are not really trying to reduce the deficit or the national debt. Rather, we want to use the deficit and national debt as an excuse to cut entitlements, social services, and implement other austerity measures designed to undermine the living standards of the 99 Percent.

The beauty is that, in doing so, there will be negative impact on demand, output, employment, income, and therefore tax revenue, limiting the impact of any cuts in government spending on the size of the deficit and allowing further increases in the national debt.

If, at the same time, the taxes on ourselves are cut further, or government spending or central-bank operations can be used for the purposes of extending more privileges to ourselves, the scenario repeats itself quite exquisitely. A year from now the budget will still be in deficit and the national debt higher than now, justifying further austerity measures.

All this can continue for as long as the gullible 99 Percent buy our story, which, for going on five years, they have. ROTFL!

3. The interest owed on the national debt is at the discretion of the central bank, since it sets the terms on which the government issues its own liabilities.

Unfortunately for those of us in the 1 Percent, there is no hope of bond vigilantes forcing higher interest rates on this debt against the will of the currency issuer (for newcomers, see here and here). It is unfortunate because interest on debt is our main form of corporate welfare. For doing absolutely nothing productive, we stand to receive a large transfer from the currency issuer whenever debt is issued!

Now, if the 99 Percent ever caught on, they might question why government issues debt at all. There is no real need to do so. The laws that currently require it have been retained to disguise our corporate welfare as a return on supposedly necessary lending. Rather than issuing debt, it would be much simpler if the government permitted itself just to spend money into existence, as appropriate, without borrowing from anybody. Bank reserves could simply be allowed to mount, with no need at all for them to attract positive interest unless the government deemed it appropriate.

Needless to say, any such move must be prevented from happening at all costs! Otherwise, reality would be easily perceived even by many in the 99 Percent, making it more difficult to justify our corporate welfare as legitimate income.

For an awkward moment, during the platinum coin debate, these simple truths threatened to slip out. Thankfully, the danger has now been averted. For the foreseeable future, it promises to be business as usual.


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90 thoughts on “What We in the 1 Percent Don’t Want the 99 Percent to Know

  1. Spot on and quite depressing for this awake 99%er. Oh, wait a minute, that must make me a terrorist. Uh oh.

    One question about this:

    “All this can continue for as long as the gullible 99 Percent buy our story, which, for going on five years, they have. ROTFL!”

    Five years? I think it’s been going on longer than that! Thirty-five years is more like it, no?

  2. Thanks for the positive responses, everyone. Glad you enjoyed.

    Rodger: The link to your post (excellent, by the way) is appreciated. I’ve been enjoying reading your thoughts on the motives behind austerity.

    Nobody: Yes, good point, thirty-five years is right. I had in mind the global experience since the onset of the crisis, but the same basic point could apply to the entire neoliberal period.

  3. Magpie: Adapted from my new year’s resolutions :

    – If it’s not free, I don’t want it.
    – If it pays, I won’t do it.

  4. The more people engage with the freedom debate the better. At the moment the debate is still too partisan. Freedom has traditionally been understood as emancipation, that freedom is a lack of restraint; but how free are those who have no restraint if they are homeless or starving?

    “Emancipation from the bondage of the soil is no freedom for the tree.”
    Tagore, Rabindranath

    For the open source community freedom is deontological.

    Social choice theory provides an alternative concept of opportunity freedom, but traditional social choice theory is purely static (to avoid the aggregation problem). Social choice theory can be extended by moving from sets to graphs with every choice creating another set. Although this denies the ability to aggregate choices, the unexpectedness of outcomes can still, in theory, be aggregated (or at least modelled).

    The small shift from emancipation to opportunity inverts the Austrian argument to favour the state sector. This is similar to the way that shifting from monetary accounting to resource accounting allows a household model of government and demonstrates that unemployment is really a form of luxury consumption by the elite.


    Physicists have no reason to believe that behavioral regularities they call physical laws are special in any sense. They have no reason to suspect that in the confines of the observed space such behavioral regularities are different from here, on Earth.

    The set of parameters that must fall in concrete intervals for a planet to be able to host a biosphere is large, but not exceedingly large. Biospheres may be rare, but the number of stars is huge, so a huge number of rare biospheres may still be a huge number.

    That a biosphere, similar to Earth or such that Earth is similar to, will evolve an animal genus as homo is quasi a certainty, given that mammalian dominance be established in the Animalia kingdom.

    Of the different known species of the homo genus on Earth, the sapiens is clearly the more evolved. In any biosphere developing a homo genus, a homo sapiens must evolve some time.

    This, of course, does not make the sapiens as in Earth the top of evolution across, say, Galaxy. Homo species more advanced that sapiens my have evolved, for example, as a result of some more favorable set of local conditions.

    With respect to the individual attitude towards other human beings, the sapiens species in Earth presents itself split among a subset of cooperative and a subset of free rider, cheater or predatory human attitudes. This is not particular to the sapiens: it also happens in other species. Nor is it mathematically possible to have a perfect species or zero free riding, cheating or predatory behavior.

    But it is mathematically possible to contain free riding, cheating and predation to such low levels that they do not impact significantly on the species overall cooperative behavior, as it is done with several illnesses.

    If this happens, if, globally, a homo sapiens species attains a degree of cooperation nearing unit, except for unavoidable systemic losses, it goes into maximal development over the planet, Behaviorally at least, such species will become homo galaxiae: a sapiens capable of making itself prosperous and peaceful all over the planet and therefore appropriate for convivial with other galaxiae species.

    And this rules out war or other forms of predation as economic exploitation, cheating and free riding at perceptible systemic levels.

    So, if a human thinks of other humans as subhumans, it is clear that in an evolutionary view he or she is an underdeveloped exemplar. A median sapiens as of today may well look as a subhuman to a galaxiae. Even if he or she has political or economical power to coherce those he or she considers subhumans. Being more than others is not a question of exercising power over others.

    It is like when one grows: one is admitted to the world of adults as one learns to behave oneself and to reason adequately about matters of life. The sapiens of Earth can be admitted to the world of homo galaxie by globally evolving to higher levels of cooperation or it can fail becoming a retarded child, for a child in a systemic crisis of growth it is.


  6. “There are 18,000 worlds in creation which are inhabited, some by human beings with 100% intelligence, others with lesser and varying degrees of it. But the value of our Earth, where mind and heart balance, is inestimable. For it is here and here alone that one can go through the process of Involution and experience the subtle and mental spheres; here alone that God-realization can be attained.

    “Thus it is that souls (jiv-atmas) from other inhabited worlds finally take birth on this Earth for their emancipation, more so during the Avataric advent when the highest spiritual benefit is gained — and most so when the Avataric manifestation is greatest. Hence the present influx of population on Earth is but the natural outcome of the rush of ‘migration’ from other worlds, and the ones migrating from the worlds of highest intelligence are responsible for carrying science to the peak it has reached today.

    “All this has been recurring since timeless ages, in a never ending tide and ebb. Even this Earth expends itself in time and another such earth takes it place. Science will soon come to know a little of what I have said.”

    Meher Baba
    THE ADVANCING STREAM OF LIFE, pp. 144-145, ed. K. K. Ramakrishnan

  7. You know, Pete, you’re spot on in C.

    You could call it the “heads I win, tails you lose” strategy.

    I’d put it this way: during the good times, when the economy grows, the 1PC Government cuts spending on social services (health, education, social security). You know, they are good economic managers, fiscally responsible, taking tough, courageous measures.

    Additionally, the 1PC Government sell good public assets (mind you, who would want bad assets?); the nation may lose income long-term, but short-term there is a surplus. And when they retire from a life of public “service”, they have good mates outside in the private sector who owe them one.

    Overall, people may have less money to spend, but who cares? There’s private debt to fill the gap. Your banking mates are there, too.

    With some luck, and Australia is the lucky country, a mining boom develops here or there and the trade balance improves. Your mining mates are happy, too.

    Bottom line, the economy keeps growing. Slowly, maybe, teetering on the brink, but your mates are happy.

    And the 1PC Government may even have their fiscal surplus, which they can distribute, partly or entirely, as they see fit, in tax cuts for… (you guessed it!) their mates! You know, higher income thresholds for income tax, lower marginal rates, more deductions and offsets, negative gearing, superannuation gifts, subsidies for private education.

    If the rabble complains, the first step is to pay no attention. If it keeps whingeing, you send in the media and the cops. The first to ridicule them, the second to beat the shit out of them.

    Normally, this would do the trick. If they still keep complaining, however, and elections are near, just to shut them up, the 1PC Government may offer a little bribe: a $300 one-off bonus for the pensioners, the $700 toolbox for vocacional training students. It won’t make any real difference to them, but you can say “See? I care” and take some photos, hugging old ladies (it always helps, come election time). They may even end up voting for you!

    Ultimately, the 1PC Government and its media cronies can always blame the bad public services on the foreigner, the dole bludgers, the single parents: the hospitals suck? That’s all those foreigners fault! Unemployment grows or wages fall? That’s all those foreigners’ fault! And while you make a big show of whipping the asylum seekers, you secretly increase the intake of migrants (and for good measure, you put them out of social security).

    Those are the “good” times: the “heads, I win”.

    When the bad times come in, well, the 1PC Goverment need to cut spending on social services (health, education, social security). You know, they are good economic managers, fiscally responsible, taking tough, courageous measures.

    And the same story follows (just read the whole thing again).

    Those are the “bad” times: the “tails, you lose”.

    Case in point:
    Friday, January 11, 2013
    Howard was your most wasteful sprendthrift in modern history – IMF

  8. Another way one can consider that is the “anti-Robin Hood” strategy: austerity for the 99PC; tax cuts, privatization, subsidies, corporate welfare, “socialism” for the 1PC.

    And the beauty of the thing is that one gets to see the pensioners and the “welfare queens” fighting over crumbles; the students on Austudy bitching about the “dole bludgers” on Newstart Allowance (which is a few bucks higher: “why are you giving **those** people more than you give me?”); the women fighting the men, the young fighting the old; everybody against the asylum seekers, even the children of previous asylum seekers!

    People are so busy having a go at each other for peanuts, that they forget all about the 1PC!

  9. Why? What does it benefit the 1% to
    use the deficit and national debt as an excuse to cut entitlements, social services, and implement other austerity measures designed to undermine the living standards of the 99 Percent.

    Is the goal pure debt slavery or neofeudalism? Most people rationalize their actions – what is the rationale for the Pete Petersons? It seems easier to explain from misguided understanding of economics than from evilness; after all, it doesn’t look like the 1% come out ahead under austerity / “entitlement” “reform”

  10. hi Lil’D

    It’s called conflict theory.

    Although originating with Marx, this is mainstream social theory in the UK. I believe that this theory is not prominent in the USA because of the legacy of McCarthyism. It would be better to ask an American sociologist about this though.

    A related idea is countervailing power.

    If the state is a countervailing power against corporations then corporations need to diminish this power to monopolise the economy. Although the Wikipedia page credits this idea to J.K. Galbraith, he was heavily influenced by Thorstein Veblen’s ideas on monopolies. Thorstein Veblen developed his ideas from Marxist conflict theory.

  11. @Lil’D

    Is not hard to understand at all.

    If one believes that the government has only a limited, finite, determined, quantity of money to spend, as many say they believe (as Peterson), then every dollar that goes into “entitlements” for the 99 PC is one less dollar going into subsidies for rich kids’ schools (to mention one “entitlement” for the rich in Australia). That’s why austerity and entitlement reform sounds like music to their ears.

    If one additionally believes that every dollar the government spends has to be previously collected via taxes, then one would try to shift the taxes. It’s not coincidence that Romney wanted precisely that.

    But even if one does not believe that government is constrained by money, it doesn’t follow that one would like to see the government spending in social security. Say, if people get the dole and can actually survive on that, then they may not be desperate to get the first job they find. That’s bad when the crappy jobs one needs to fill pay equally crappy wages.

    Worse, if people are not afraid to lose their jobs, maybe they will not put up with everything the boss demands. They may get uppity.

    But I’ll dare a suggestion. Try asking the same questions to members of the 1 PC.

    I could bet you’ll hear something like this: if the government can spend, let them spend on me, not on **them**. I deserve it, **they** don’t. I’m better than **them**.

    Does that make the 1 PC evil? That’s for you to decide. I know my own answer.



    And, no, Hacky, that’s not theory. That’s experience.

  12. hi Magpie,

    One method of analysis is the theory of circumstance where an event can be analysed by “who did what, when, where, why and how”.

    This also ties in with the distinction between theoria and praxis. For example, social work is a form of praxis and social theory is theoria that underpins it. There’s a similar distinction between Economics and the economy. Economics could be properly referred to as economic theory. The relationship between social theory and social practice is circular because theory informs action and action informs theory. Experience informs theory because action creates unexpected consequences. The degree of unexpectedness correlates with the quantity of new information which needs to be incorporated into theory.

  13. This is how Al Jazeera’s Dan Hind summarizes what’s happened so far with the TPC:

    “Mohandas Gandhi once gave a useful summary of the political process: ‘First they ignore you. Then they laugh at you. Then they fight you. Then you win.’ Each tactic will be used for as long as it remains effective. After all, why would your opponents pay you the compliment of acknowledging your arguments unless they absolutely have to? The appearance of jokes, then, is often a significant moment. It marks the point where the first line of defence has collapsed.”

    At first, nobody really cared much about how money works. That’s when the GFC happened. In an attempt to revive their economies, the Fed and the Bank of England went into QE overdrive, to no avail.

    Then came the first debt ceiling crisis and “in the summer of 2011, Jack Balkin came up with an apparently wacky idea [the TPC]“. I’m not sure about this, but that’s not really important.

    And God said “Let there be silence. And there was silence”. Gandhi’s first step: not a single comment from the good and mighty on the TPC.

    Now, we are approaching the second debt ceiling crisis and lots of people have heard about the TPC. It’s time to confirm Gandhi for the second time: let there be laughs.

    “Heidi Moore over at the Guardian called it ‘an elegant solution – if you are a cartoon villain given to sitting in a vast underground bunker and innovating plans for world domination while petting a white cat’. Paul Vigna finished his blog at the Wall Street Journal with the warning that ‘if printing, or minting, money was a real solution to a nation’s problems, Zimbabwe would be an economic superpower’.” In a liberal translation of the Spanish proverb: God made them separate but they found each other.

    After the joint Fed-Treasury announcement and “for a while money creation will vanish from the news. The next time it appears we’ll have to wade through some more gags (…) But ridicule will not obscure so simple a truth forever. Eventually the jokes will wear thin and we will have a fight – or a debate – about who controls the economy, a secretive state in cahoots with shifty and disreputable private banks, or a sovereign people.

    “And then, if Gandhi was right, we’ll win.”


  14. Lil’D: An example from New Zealand of the class-interested nature of austerity is provided by an excellent feature-length documentary :

    In a Land of Plenty

    The documentary traces a quite deliberate and conscious strategy to undermine organized labor, create large-scale unemployment, and unleash strong downward pressure on wages and benefits.

    The strategy of both major parties, in tandem with the treasury and central bank, involved several clearly defined steps. First, austerity was imposed to create mass unemployment. It is very noticeable in the early stages that the main focus of protesting workers was on the right to work. Second, with unemployment much higher (deliberately so) than before, this was then used as “evidence” that wages were too high, legitimizing real cuts in pay, particularly in the minimum wage. Not surprisingly, the cuts in pay did not boost employment, since it is a fallacy of composition to expect otherwise, but this was never the intention of policymakers. Third, with unemployment still high and real wages reduced, it was argued that unemployment benefits were too generous relative to the minimum wage, and this was the cause (via “disincentives to work,” etc.) of the high unemployment. This is despite much of the protesting having initially been over the right to work.

    It is class war and very transparent but has worked, under various guises around the world, to the benefit of the ruling class for the last forty years.

    I discuss capitalists’ opposition to full employment in :

    Kalecki’s “Political Aspects of Full Employment”

  15. I watched the In the Land of Plenty documentary in its entirety (linked from somewhere on this site) a few months back. Highly recommended.

    It’s all about control under the guise of TINA. They know exactly what’s going on. And it’s working.

    We are the morons. Not them.

    Edit: I realize I just paraphrased Peter’s comment above without having read it first.


  16. I don’t understand. Surely the 1% and at least a sizeable minority of the 99% (me, for instance) realize that the rising tide that lifts all boats is good paying jobs with healthcare, retirement benefits, etc. for everyone? They could be richer than their wildest dreams of avarice if the economy was bustling along again. What’s their motivation? What’s the motivation for a push to austerity? I cannot bring myself to think there’s an actual evil conspiracy.

  17. You can think of it as an “evil conspiracy” or you can think of it as “maximizing profits”, especially in the short-term. Where short-term = going on close to 40 years now. Wage stagnation, deregulation, tax cuts to the wealthy, asset bubbles, super easy credit, etc. And you can only dip your hands into that bag-of-tricks so many times until there’s nothing left. Personally, I think we may be getting very close to that point.

  18. Dave, the 1% has been pushing to end the New Deal “welfare state” and all associated with it since the Great Depression, the length of which they blame on the New Deal and welfare programs. They also trace all economic issues since to the welfare state. On one hand this neoliberalism based on neoclassical economics (economy in equilibrium w/o govt interference). Most of them actually believe that the pie would be bigger under “fiscal discipline and responsibility,” with money creation almost exclusively coming from private lending. It’s just coincidental, of course, that this turns out to be self-serving.

  19. Be still my heart:


    See? THIS is what I am talking about. Krugman (of all people) says:

    So am I saying that you can have full employment based on purchases of yachts, luxury cars, and the services of personal trainers and celebrity chefs? Well, yes. You don’t have to like it, but economics is not a morality play, and I’ve yet to see a macroeconomic argument about why it isn’t possible.

    I’m hoping economic “models” take into account sustainability, outside of past predictions that housing prices will increase forever and that banks don’t matter because ‘Sam and Janet’ say so.

    Meanwhile, we have a $2.2T infrastructure deficit, soaring health care costs and education, massive household debt levels, stagnant wages, environmental issues…and the “Business Round Table” conference recently tells us we can solve our problems by raising the retirement age to 70. Presumably to churn out more yachts for the .1%. Let everyone else drink Big Gulps.

    Short-term, short-term, short-term. “Maximizing profits”. Consequences be damned.


  20. Trixie, agreed. Krugman is correct that there is no technical reason we couldn’t have an economy geared towards producing luxury consumption items for the 1 percent. The sustainability of this comes down to whether the rest of us would put up with it and, if so, for how long. We the people have to put our collective foot down and demand a more sane set of priorities.

    Notice that this was not what happened in the lead up to the crisis. Accordingly, Krugman distinguishes what occurred prior to the crisis from what may occur post crisis. Prior to the crisis, the unsustainable buildup in private debt was substantially connected to maintaining the consumption demand of the 99 percent, despite stagnating real wages. That approach was unsustainable without redistribution of income due to the impact on household debt burdens. Any attempt, post crisis, to continue the widening of inequality would require diverting production to the consumption demand of the 1 percent, and must be resisted by the rest of us.

  21. “Krugman is correct that there is no technical reason we couldn’t have an economy geared towards producing luxury consumption items for the 1 percent.”

    Except that they have a choice not to buy them, and their motivation is accumulation not spending. So it would be unstable and depend upon the choices of a very limited number of highly fickle individuals. Moreover the distribution at the bottom end would be poor which would mean that needed goods and services were under produced and undersupplied to the bottom end.

    Whereas if you go the other direction you have lots of people spending on stuff that they need, ensuring that needed goods and services are produced first. Then we produce luxury goods with any real capacity we have left.

    So Krugman is wrong. Economics *is* a morality play – because its about the production and distribution of goods and services to fulfil the needs of *society*.

  22. Hey, I know, let’s have everyone make (disposable) yachts! Where they dissolve in a week or two and its occupants get immediately teleported to the nearest yacht dealer for a replacement. Because, you know, TINA.

    Admittedly, not even I thought of that. Although I have noticed how the luxury goods industry has been booming in the last few years and is one of the fastest growing (and hottest) markets. How meaningful that is, I don’t know. But this line of thinking is like reading a bad sci-fi novel. Or a really good one, depending on how you look at it.

  23. Veblen thought of it already. He called it conspicuous consumption. These have the name “Veblen goods.”

    A lot of conspicuous consumption is based on style, so what is “in” is constantly changing, requiring perpetual consumption. For example, the people at the top don’t just have the most luxurious cars. They also have a standing order for a new vehicle as soon as the next model comes out. Wealthy women, of course, wear an outfit costing tens of thousands of dollars only once.

  24. Neil: Except that they have a choice not to buy them, and their motivation is accumulation not spending.

    Well, I am definitely not 1%. But we still need to be clear what “they” probably mean by spending and accumulation. It is definitely not what we, or I, mean by accumulation and spending.

  25. @Trixie

    “I’m hoping economic ‘models’ take into account sustainability”

    You know, that’s a very good point. It reminded me of a note I read, some months ago, at the BBC World News website (I’ll see if I can find the link, even though the BBC search facility sucks big time).

    It turns out that, until a few months ago, zoologists were reporting new findings of animal and plant species in their expeditions to relatively pristine parts of the world.

    Largely, these new species were small critters: newts, lizards, frogs, insects, spiders, snakes. You know, the kind of little things some people think are good pets.

    Well, the zoologists noticed that these species often went extinct after the announcements. Puzzled, they started to investigate.

    They found that collectors, after reading the announcements, would pay smugglers small fortunes for the critters.

    If memory serves, someone asked an smuggler, well if you guys exploit the new species, it will disappear and you won’t be making any more sales.

    I think (I’m telling the story from memory, you’ll understand) the guy acknowledged that, but said something like: If I don’t do it, someone else will. I won’t get the money and the species will disappear just the same…

    The zoologists decided that they will not be making any new announcements.


    If you think about it, there is method in that madness. The tragedy of the commons, they call it.

    The same, writ large, happens with the 1 PC.

  26. @ PeterC and TrixieD’S

    “Trixie, agreed. Krugman is correct that there is no technical reason we couldn’t have an economy geared towards producing luxury consumption items for the 1 percent. The sustainability of this comes down to whether the rest of us would put up with it and, if so, for how long. ”

    Krugman is repeating the Malthusian argument on underconsumption, only that in Malthus’ case it was the landed aristocracy who were supposed to over-consume, to compensate for the labourers’ under-consumption.

    You know, capitalists were austere Protestants who saving/investing all their earnings.


    You guys should notice that Krugman does not make any reference to the increase in private debt before 2007. He focuses on savings and says that, if the 1PC indeed saved more of their income, **aggregate** savings should have increased with inequality.

    Krugman: “The trend [in **aggregate** savings as % of GDP] before the crisis was down, not up — and that surge with the crisis clearly wasn’t driven by a surge in inequality”.

    Not for a moment the idea that the distribution of savings and debt may matter crosses Krugman’s mind. This is the same issue behind Krugman’s dispute with Steve Keen, last year.

    In this article, I think, Krugman gave a hint to the origin of the problem: the permanent income hypothesis.

  27. @Pete and Trixie

    And speaking of the permanent income hypothesis and Krugman: Interfluidity comments on Krugman’s comments on Stiglitz’s comments.

    “These studies agree that the rich do in fact save more, and that they do so in ways that cannot be explained by any version of the permanent income hypothesis.”

    He offers several of them here:
    Inequality and demand

    I haven’t had a look at those studies, but I’ll try to!

  28. Thanks for the link, Magpie. I agree that the rich have a higher marginal propensity to save than the poor. But technically that will just mean it takes a larger exogenous injection of autonomous demand — whether private, public or foreign — to sustain full-employment output. Maybe I’m missing something. (I haven’t followed the link yet.)

    Just to be clear, I’m not saying that an economy geared towards the production of luxury consumption goods would be socially stable.

  29. But where are you going to inject that demand without ‘crowding out’ the production of luxury goods?

    And if you pull production of luxury goods down, then the spending injection from the top end falls since they won’t spend as much (unless you believe they are completely price insensitive).

    I smell a fallacy of composition with the whole idea. It organises the real production system completely upside down. You need the system to produce needed stuff first, and then top up with luxury. If for no other reason than there is only a finite amount of real stuff to transform on a finite world.

  30. No doubt there needs to be necessary consumption catered for first. Whatever size workforce the 1 percent considers functional to its needs, whether in employed or unemployed mode, will need to be provided with (at the very least) the physical necessities of life. The 1 percent will always try to push the actual amount received by the 99 percent down to that physical minimum to the extent they can get away with it.

    The injection of demand could, for example, be public production of free luxury items to anyone on the richest 500 list. They deserve it. :-)

    The 1 percent are not opposed to production per se, only to production that requires them to do any of the work or to production that satisfies the desires of the 99 percent (beyond the physical minimum). They are perfectly happy for many workers to produce goods or services for them, provided the unemployment rate does not get so dangerously low that workers get some leverage in disputes over wages and social policy.

  31. After reading SRW’s post (linked to by Magpie), I didn’t see anything central to the argument with which to disagree. Both PK and SRW agree that technically (“in theory”, in the linked post) the economy could be geared towards luxury-goods production. However, SRW is arguing that under the current institutional setup this eventuality, though technically possible, has not happened and is unlikely to happen. Here is an example from the post:

    Paul Krugman argues that “you can have full employment based on purchases of yachts, luxury cars, and the services of personal trainers and celebrity chefs”. What about that? In theory it could happen, but there’s no evidence that it does happen in the real world. As we’ve seen, high income earners do save more than low income earners, and that is not merely an artifact of consumption smoothing.

    BTW, I agree with the rejection of the permanent income hypothesis. Capitalism is characterized by accumulation of value for its own sake, not necessarily (even ultimately) for consumption. Magpie will remember that, in a somewhat different context, I fell into the trap of arguing against this characteristic in a recent discussion at his blog.

  32. Yep, Pete, you are right. I misinterpreted Krugman’s article.

    When he said this:

    “The trend [in **aggregate** savings as % of GDP] before the crisis was down, not up — and that surge with the crisis clearly wasn’t driven by a surge in inequality”.

    He wasn’t stating what he believed should happen (as I thought); he was just explaining how things should have happened, ***if*** Stiglitz were right.

    But this, of course, is not what happened.

    In other words, for Stiglitz to be right, the increased savings of the rich (due to increased inequality) must exceed the decreased savings of the rest of the population (in order to have a net increase in aggregate savings).

    Or, to put things differently, if someone is not taking into account the distribution of savings/private debt it is Stiglitz, not Krugman.


    I also agree that in principle it should be possible to re-start the economy with luxury spending. This wasn’t what I was talking about, either.

    Still, now that you mentioned it, I do find it ironic that Krugman believes in this possibility.

    Let’s remember a little bit of HET. In the early 19th century Ricardo and Malthus debated a series of subjects; LTV and general gluts, among them.

    On general gluts Ricardo took Say’s side (i.e. general gluts are impossible); Malthus opposed him.

    Bottom line: Malthus was an underconsumptionist and he believed that the way out of recessions (general gluts) was through increased luxury consumption spending. As this would be an autonomous increase in demand, I guess Keynes would have approved (and I also guess, that’s why Krugman also admits this possibility)

    Fast forward to the present.

    Stiglitz complements the thesis that the current is an underconsumption crisis (which he and Robert Reich had already advanced) and says now that inequality is making it difficult to re-start the economy.

    Krugman, who believes Malthus’ anti-underconsumptionist recipe could work, opposes Stiglitz’ underconsumptionist thesis!

  33. http://www.nytimes.com/2013/01/25/opinion/krugman-deficit-hawks-down.html?src=ISMR_AP_LO_MST_FB&_r=0

    He’s the ONLY voice in the mainstream, but he’s a voice nonetheless. And I told him in no uncertain terms that he better stop talking about building disposable yachts. At least on MY internet. Or I’m gonna go all John Cusack on his sorry ass:


    Ok, so THAT comment didn’t get approved. But I’ll do it anyway.

  34. Or? OR? I can do a ‘Best of Mike Norman’. No lack of material there. The online hate-fucking of Lauren Lyster because Mike Norman can’t get laid is always a “winner”, economically speaking of course.

    Or perhaps, a parody on Austrians clinging to their gold and guns in a bunker because of HYPERINFLATION. Or perhaps, the MNE community, clinging to their paper dollars in a bunker because WE MAY NOT BE ABLE TO PAY TAXES AFTER WE’VE BEEN PAID OR HAVE EARNED A PROFIT.

    So many choices…

  35. @Trixie

    I have a pre-production idea for your next film… Think of it as the basic premise for a script.

    After doing the “Angry Dr. No/Action Man” daily routine for years, Tony Abbott (a mix of Rush Limbaugh and Romney, with some Catholic bits of Ryan) began the new year showing his full dramatic range. Now he is the star in the new show “Reasonable Guy”.

    “Mr Abbott told an American presidential-style rally of 300 Liberal supporters in Sydney the coalition has been ‘listening’ and strengthening its plans for Australia”.

    Reality Down Under has this malleable, dream-like quality… Reminds me of Abbott’s second in command, Joe Hockey: from goofy but likable “Shrek” and “TV Fairy”, to “Very Serious Person” in days…

    If that doesn’t give you any ideas for your next production, I can’t possibly imagine what will. Something like “The Strange case of Dr. Abbott and Mr. Tony”.

  36. Trixie, that article by Paul Krugman is excellent in its explanation of why deficit hawks should be on the back foot. Whether they really are on the back foot is not a question I can assess from my vantage point under a rock in oz. I would like to think it is true but feel skeptical. However, the answer to that question doesn’t take away from the value of Krugman laying out clearly the failure of the austerity arguments, both in theory and practice. That’s a big positive, I think.

  37. Pete

    I’m very interested in your opinion on this post by Mark Thoma (commenting on Brad DeLong):

    Friday, March 18, 2011
    DeLong’s Law

    If I understand the post, both Say’s Law and Walras’ Law can be expressed saying that the sum of excess demands for all goods is zero. So, if excess demand for, say, steak is positive, then somewhere else there must be a negative excess demand, for, say, t-shirts and/or booze. And viceversa.

    However, Say’s Law (always following Thoma) does not consider excess demand for money; Walras’s, he says, does. So, if there is negative excess demand in some goods, there could be a positive excess demand for money balancing them, according to Walras’.

    The idea, I think, is to make Keynesian ideas compatible with the supply-demand equilibrium ideas.

    What do you think of this explanation? Is that the difference among Say’s and Walras’ laws? Can Say’s Law really be formally represented that way?

    Next, Thoma speaks of “DeLong’s Law”, the same as Walras’ but considering additionally “high-quality interest bearing assets”. Would that be a legitimate difference, or we should consider “high-quality interest bearing assets” as intrinsically a part of Walras’s Law?

  38. Magpie: A couple of old posts relating to Walras’ Law, one by Bill Mitchell (in the section: “Classical dichotomy and the denial of unemployment”) and the other by Steve Keen :

    Money neutrality – another ideological contrivance by the conservatives

    “A much more nebulous conception”

    Acceptance of Walras’ Law amounts to supposing that, in the absence of frictions, there would be full employment. Effective demand, in this view, would not be an issue without these frictions. For example, the liquidity trap involves a supposed non-adjustment to a natural rate of interest.

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