terminology matters

In a reply to Beth, I had questioned the use (at all) of terminology like
"printing money"
in any debate about government spending. I said:
>
>(a) Government's do not spend by "printing money". That misnomer is often
>used by non-progressive economists to decry expansionary policy. I have
>been on ABC radio debates with business chamber types and they start
>saying "so you will have people with wheelbarrows at the bank before
long"....
>
Beth replied:
>
>Dear Bill, putting a term such as 'printing money' in inverted
>commas implies that it not to be taken literally. I have not taken my
>wheelbarrow shopping now for some years. But thank you for pointing out
>the possible misinterpretation by some readers. I can always rely upon
>you to be the common man - Beth

Such wit, Beth.

The point is however not so easily dismissed. The dominant financial media
adopts this
terminology to defend their position that government should pursue
surpluses and "leave
the private savings alone". Every morning you here this stuff wheeled out
(excuse my obsession
with vehicles that have wheels!) on the radio. I heard recently a statement
along the lines that
unless the government runs surpluses there will be no money in the jar to
pay for the increasing
health costs that the ageing population will impose. The commentator (well
known) went on to
say that "printing money" would be out of the question because it was
inflationary!!!

Further, the teaching term is starting in the next weeks.

How many academics (including those on this list) who are
charged with teaching macroeconomics (101, 201, 301 and beyond) will use this
terminology?

How many will discuss fiscal policy in some framework (IS-LM, AD-AS) from a
standard
textbook and juxtapose the different effects that would be forthcoming from
government
spending depending on the "source of finance" - tax, debt, or "printing money"?

How many will thus hold out that "printing money" is one way that
governments can spend
and another is to collect tax, store the proceeds somewhere (the "tin shed
in Canberra"),
and use that stockpile to buy things, or, alternatively, sell debt to the
non-g sector and store the
proceeds somewhere and then use that stockpile of money to buy things?

How many will then argue that the "expansionary effects" of "printing
money" are the largest
b/c interest effects are avoided? How many will then use the words
"crowding out" and discuss
these issues as if it is a question of elasticities (money demand,
investment etc)?

How many will try to defend "keynesian" positions by saying that "crowding
out will be small or even
crowding in might occur if public capital formation provides benefits to
the non-g sector",
or statements of similar proportions?

What is your bet Beth? Mine is that most progressive academics will relate
macroeconomics in
that way, as an example. The myth extends right through the orthodox
framework that starts
with the idea that debt issuance is about providing finance to governments.
It doesn't
matter if you, for example, adopt romer-type "LM" models, which are
similarly false.

The terminology we use matters b/c it is ingrained in these textbooks and
the received
wisdom. it immediately puts the debate back into that environment, which is
a false account
of how the real and financial sectors work. And a convenient framework for
those who
want to oppose full employment.

Alternatively, how many will tell their students that in fact this
trichotomy (tax, debt
issuance, "printing money") is false? How many will tell their students
that it is a plot
to make out that the government is like a household (that is, budget
constrained)?

How many will decompose spending (fiscal policy) and debt issuance
(monetary policy) correctly?

How many will tell their students that net government spending actually
puts DOWNWARD
pressure on interest rates?

How many will relate debt issuance as ONE method available to the RBA for
defending a positive
cash rate target in the money markets?

and etc.....

Not many I would guess.

At least this discussion list provides some vehicle for those who are in
doubt to get access
to alternative views and give their students a chance to really understand
the way the macro
economy works and to become empowered in their defence of the progressive
position.

best wishes
bill

William F. Mitchell
Professor of Economics
Director, Centre of Full Employment and Equity
University of Newcastle, NSW, Australia
E-mail: ecwfm@alinga.newcastle.edu.au
Phone: +61-2-4921 5065
Fax: +61-2-4921 6919
Mobile: 0419 422 410

http://e1.newcastle.edu.au/economics/bill/billeco.html
http://www.billmitchell.org
Received on Tue Feb 4 21:10:58 2003