Monday, September 28, 2009

It's hard to be a bear

Stock market keeps climbing, oblivious to unemployment, oblivious to the continuing housing crash, and oblivious to the rising deficit. What gives?

Two great posts to read.

It's hard being a bear begins with this shocking line: "If the economy does in fact recover from the Global Financial Crisis—without private debt levels once again rising relative to GDP—then my approach to economics will be proven wrong."

Someone actually open to changing their mind driven by reality and data. Read the whole post for that alone. I don't know enough about the difference between various schools of post-Keynesianism (Chartalism vs Circuitist), and it may get too inside baseball, but certainly worth reading.

The response is also equally worth reading, if for nothing else, an appearance from JKH:
I have a visceral negative reaction to the apparent econo-blogosphere virus of making up definitions that conflict with standardized double entry book keeping definitions that the creators of those conflicting definitions actually rely on in order to source the data that supports their new creation …

Moreover, the monetary system as a whole does not have negative net financial assets. That is logically incorrect. Every financial obligation is mirrored by a corresponding financial asset. This holds for money, debt, and equity. This is double entry book keeping …

If the common ground between Circuitism and Chartalism is that both camps understand how the monetary system works, that would be enormous common ground. I’m absolutely convinced that the Chartalists understand it, and that understanding is provable by operational fact and pure accounting logic. The accounting paradigm as between government and non government financial balance is absolutely indisputable in that sense. Conversely, if the primary distinction between Chartalists and the neo-classicals is on the same point, that is enormously important. It is enormously important because there is no way you can understand economics if you don’t understand how the monetary system works. It is a necessary condition. Otherwise, it would be like monkeys typing Shakespeare for the neo-classicals to get it right.
Note. that by "neo-Classicist" JKH means both the boys at Chicago Krugman keeps beating on in the NYTimes and Keynesians like Krugman himself who believe in the "money multiplier", as well as fads du jour like Sumner (who also believe in the money multiplier).

When talking about PK identities, I often here stuff like "that's just an accounting identity", or "that's just nominal, it isn't real". Accounting matters, it is the operational reality of banking. Nominal matters too to the extent that we interact with banks or money. Which is a lot!

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