Billy Mitchell writes with admirable concision:
Ryan also claims that the US is in danger of a debt crisis:
The extreme example is a sudden, full-blown debt crisis like the one that Greece is now experiencing.
The US government will never encounter a Greek-style crisis because it controls the central bank, issues its own currency and can spend whatever it wants without worrying about who will fund it [that being the theory of the state I am concerned to critique here].
All true. But, in a political economy dominated by Big Lies, is the truth enough? And is a theory of the State that doesn’t incorporate the creation of Big Lies powerful enough to give an adequate account of the operations of the State? (For now, note the distinction between “will” and “can.”)
The financier George Soros has a theory of the super-class that contains Big Lies (and would, I suppose, also contain Big Truths*): He calls it “reflexivity.”
Both philosophy and natural science have gone to great lengths to separate events from the observations which relate to them. Events are facts and observations are true or false, depending on whether or not they correspond to the facts.
This is exactly what MMT does when it examines the “real operations” of taxation and spending.
This way of looking at things can be very productive. The achievements of natural science are truly awesome, and the separation between fact and statement provides a very reliable criterion of truth. So I am in no way critical of this approach. The separation between fact and statement was probably a greater advance in the field of thinking than the invention of the wheel in the field of transportation.
But exactly because the approach has been so successful, it has been carried too far. Applied to events which have thinking participants, it provides a distorted picture of reality. The key feature of these events is that the participants’ thinking affects the situation to which it refers. Facts and thoughts cannot be separated in the same way as they are in natural science or, more exactly, by separating them we introduce a distortion which is not present in natural science, because in natural science thoughts and statements are outside the subject matter, whereas in the social sciences they constitute part of the subject matter. If the study of events is confined to the study of facts, an important element, namely, the participants’ thinking, is left out of account. Strange as it may seem, that is exactly what has happened, particularly in economics, which is the most scientific of the social sciences.
OK. So, as a thought experiment, let’s suppose there is a class of extremely wealthy individuals who have been able to control the discourse, and the political system, to such an extent that the German diarist, Joseph Goebbels, would have written “This has gone far enough. Perhaps even too far!” And let’s call the wealthy individuals banksters, the discoursers the press and academia, and the political system the government and the parties.
And let’s further suppose (continuing our thought experiment) that the banksters, for whatever reason — avarice, sadism, a sense of public service, the desire to do God’s work, or some other banal motive — desire to make sure that what the government can do, it will not do. What would they do?
Well, they’d leverage the reflexivity of the system that they (in our thought experiment) control, that’s what they’d do. They’d use their wealth to inject a Big Lie through the discoursers (the press and academe), which would then transmit the Big Lies out through the government and the parties and thence out to “public opinion” (which, again, and only in our experiment, has no feedback mechanism connected to the government, the parties, the press, academe, or the banksters, except insofar as the Big Lie is reinforced). (Willem Buiter calls a smaller-scale version of this reflexive mechanism “cognitive regulatory capture.” Soros, I think, would say that Buiter was insufficiently general in his thinking. But “cognitive,” and therefore reflexive, it is.***)
And the Big Lie? Obviously, that the government cannot do what it can! But isn’t the “No, we can’t!” meme all pervasive these days? As if we’re living in a humongous gedankenexperiment run by banksters?
So, in this model, the real operations of the taxing and spending system (correctly identified by MMT) are trumped by the Big Lies****, and in fact the government can go bankrupt, because everybody in the decision making loop believes (though falsely) it can.No tags for this post.