"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."
- Ludwig von Mises

Saturday, February 19, 2011

Cut Benefits to Bankers, Not Public Services

I found this interesting video from Nathan's Economic Edge.  Whereas I agree that Bankers in general have been irresponsible with their ability to create money from nothing, I'm not so sure government always has a better way to spend that money.  But there are government programs I believe in, like affordable healthcare for seniors, necessary infrastructure projects, and others.

I have to admit, a video like this makes Modern Monetary Theory look attractive.  But as I said, my concern with government taking over a larger part of an economy is the potential for the misallocation of capital.   Governments should focus on basic services instead.  As for Banks, they need to be held to a higher standard and regulated better in exchange for having such an "exorbitant privilege" as money creation.


Jim Slip said...

Aw, c'mon Misthos. Misallocation of capital happens anyway, whether the government is involved or not. Is the private sector immune to it? I don't think so. I'm not even sure what misallocation of capital is, anyway. I think most people instinctively tend to view anything export-based as good use of capital, whereas anything consumption-based as misallocated capital. I mean, is there a mathematical formula that tells us whether an investment is good or not?

Misthos said...

I agree misallocation of capital occurs in the private sector. But there is a penalty to that - you lose your money. That doesn't happen in the government sector. There's little pain of loss for government.

But that's theory. In reality, the wealthiest are backstopped by government, which further creates a situation of misallocated capital. Wall Street is a perfect example of that. Wall Street would never again be gambling as it is without near zero rates and government backstops.

Misallocation of capital occurs much more often by the government, as it is no one's money. Thus a government official will pay a defense contractor $200 for a $5 screwdriver... A state will get federal funds to build a billion dollar bridge that nobody needs... That sort of thing. That's what I mean by misallocation of capital.

Paying for a Senior citizen's hip replacement is not a misallocation of capital... but paying the hip replacement company an obscene amount of money is.

That's my fear of government control of an economy. Ultimately, government not only overspends, but spends on the wrong things.

boatman said...

both bankers AND malasass moving public employees will be off the tit.

here in fl, my buddy got $1 mil to fix AC units for 5 years from the city--and then retire at 80%.....private position would have grossed him 1/4 of that n then Soc. Sec........a hairdresser in greece can retire at 52 at 80% .........child PLEASE!

Misthos said...

Hey boatman,

I share your frustration, as I am neither a public employee or public contractor nor a banker.

And what really frustrates me is that public sector employees want taxes raised (that means I pay more) so they can get benefits for a retirement lifestyle that I will never get.

The system is broken. I see no way of fixing it. It's going to fix itself, I fear. It's going to meltdown. That, unfortunately, is the only rational conclusion I can arrive at. To think we can fix this, or that this is a temporary situation, to me, is the irrational view. And that irrational view is the prevailing view.

It's over. Too many fires to put out.

boatman said...

the human preference for easy fixes ensures a meltdown.

i can't agree more.

Rajiv said...


You may want to read Using MMT for Evil

I confess, I knew that Laffer knew monetary operations, and how it all worked. I just didn’t put together that someone could use the ideas of MMT in evil ways. Doh! How did I not see this?!?

If Art Laffer really gets and believes MMT, then he must be a pretty heartless guy.

Misthos said...


Thanks for the link. I will incorporate it in one of my future posts. I think there is value in what MMT'ers have to say. I believe that if people better understood the monetary system we have, there wouldn't be so much fraud by stealth means. I also believe that government is needed for many services and these should not be compromised by the parasitic, yet powerful elements of the economy - Wall Street. So I do have something in common with most MMT'ers. It's unfortunate that their view - or at least the actual mechanics of the monetary system is not as public as it should be.