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December 10, 2014


Ralph Musgrave

Chris: You don’t actually believe in secular stagnation do you? It’s hogwash. Demand can always be increased by printing enough money and feeding it into consumers’ pockets.

If Laurence Summers had advocated tea leaf reading instead of secular stagnation, every senior economist would now be earnestly discussing the pros and cons of tea leaf reading. The emperors that rule us have no clothes. But as usual, only a few naughty little boys like me can see it.

Dave Timoney

The problem with Summers' use of the term "secular stagnation" is that is prompts people to see the current set of symptoms in terms of an earlier era's debate, with camps forming around deficiencies in supply ("we've stopped inventing stuff") and demand (inequality).

Your fellow MMTer, Randy Wray, is perhaps closer to the mark when he notes that the current situation is more likley to be the product of success rather than failure: "To put it in simple terms, the problem is that investment is just too damned productive. The supply side effect of investment (capacity creation) is much larger than the demand side effect (the multiplier), and the outcome is demand-depressing excess capacity".


Contrary to the lament of messrs Gordon and Cowen re the non-appearance of jet-packs, technological advance over the last 30 years has been enormous, with software in particular adding an order of magnitude to productivity. The problem (evident in stagnant average productivity) is these gains depend on a small and shrinking amount of labour, hence the polarisation of superstar pay at the top and labour-capital substitution at the bottom.

The solution may well be printing money, but this will not reverse the underlying trend in the evolution of the material base. It's technology, innit.


Chris, are you familiar with the work of Paul Hirst who developed the theory of "associative democracy" as the original third way between economic liberalism and state socialism - devolving as many functions as possible to democratic, self-governing voluntary associations in civil society.




The problem is land prices. With access to leverage for all and undersupply land is bid up to soak up all disposable income.

Both parents now have to work full time now that joint income is a component of mortgage credit multipliers.

If you print more it means more income which means it goes on bidding for land. If we are more productive it means more income which goes on land.

We now all work harder for the same pile of bricks our parents had on a single income. Other things *are* cheaper.

If land became cheaper through LVT we'd see incomes go up as rents/mortgage payments fell and also we could reduce income tax.

Land soaks up all productivity gains where credit is calculated on "affordability" (read: the maximum we can squeeze out of you).

Icarus Green

Between land prices and the marginal efficiency of capital noted above, a lot of surplus is going to a smaller and smaller segment of society.

The savings then (assuming they're not offshore), have to be recycled into credit by financial intermediaries - say hello property market!

Central banks are pretty leery of intervening in the property market with macroprudential controls. Even when bubbles are clearly going on. Their neoliberal taskmasters hate curtailing rents (in the economic, not property sense).

If anything most Western governments try their hardest to stoke the property market hoping wealth effects feed into demand. Its idiotic to the point that I believe their real intention in doing this simply to enrich a small landlord class and turn everyone else in a 40 year office worker debt slave.

As Ben says, on balance, probably the opposite happens - the wealth goes to elderly low propensity consumers and gets sapped from young high propensity to consume younger people through higher debt burdens.

The fact that theyre pushing younger people into absurd levels of debt and in America's case, changing bankruptcy laws so that mortgage debt cant be expunged is classic aristocracy economics.

I have to laugh when I read positive newspaper reports (usually in the Torygraph and Daily Mail) about house prices going up. If the price of petrol, healthcare, education or food went up it would be bad news, yet housing price rises are fantastic.

Its probably the one area of the economy where the positives of taxation are unambigious - you wont discourage the creation of land by taxing it, you cant avoid land taxes, and it would raise a lot of money.

...In other words, a LVT will never happen.


Icarus - glad you agree.

Until we tax the rentiers nothing will change. Useful idiots calling for improvements in the minimum wage or whatever are simply asking for more for landlords.

The young are spending nearly half their income on housing. Single biggest outgoing by a mile.

What do economists do? Talk a load of rubbish about anything and everything else.


I'm a big fan of LVT in theory, but I doubt it's practical politics.

I quite like Tim Leunig's idea of Community Land Auctions, which uses the uplift in land values once planning permission is granted to give to local authorities (who can dangle enough incentives in front of voters to buy-off NIMBYism) - which might be one good way of increasing housing supply:


A couple of points on topic:

* Workers already have their human capital invested in their firm, won't this just invest their financial capital in the same firm, thus forgoing diversification?

* Why isn't their more worker control in the economy as it is? Are their barriers specifically preventing it? Or is it just one of those path-dependent things - hierarchical firms are historically dominant, so many people aren't aware of such alternatives in order to give it a go?


Building more homes won't stop speculators capturing land value increases from state projects. As long as the incentive to speculate remains we are in deep trouble.

ps the UK is encouraging the above more than most to forestall collapse, so yes it's politically impossible because the moment you pull the rug from under house prices the UK has no pants on.

gastro george

@Ben - while again agreeing with the trend of your ideas - some kind of land taxation is undoubtedly a good thing - once more I think you take the argument a tad too far.

Land values in other European countries, also experiencing the same depression, are considerably lower than here. In fact many British regions could say the same thing. While it's true that housing and land is a problem in the UK, it's largely a problem of Southern England.

Getting back to Chris' argument, having managed a coop quite a few years back, I'd concur with the arguments about motivation, productivity, etc. But coops and their like need more than that, they need structural support. We, like most SMEs, were hamstrung by the banks - paying usurious levels of debt interest and fees. Now a national workers investment fund ... then I'd start to get excited.


Housing/land is a problem anywhere productivity is good. Land is expensive also around Northern hubs like Leeds or York. Yes you can commute in but that has limits.

For me it's the heart of the problem. If you had better funding for SMEs so they could pay their employees more then guess who's waiting for you all at the end of the line? The rentier with a big "thanks for working harder" as he pockets the difference.



Some of us, useful idiots, also understand the consequences of financialisation, and support measure to mitigate the consequences.


London is nominally hugely more wealth than the rest of the UK.


"Academics call this process financialisation: the sudden creation of new financial markets and instruments. Molinari and the other residents of New Era used to have homes: now they merely live in financial instruments."

Financialisation is more thane just property.


Regarding falling prices in the regions, I don't see this as relevant - they are simply a proxy for productivity (as measured by our insane system). In the regions it's lower so prices are lower.

London is more "wealthy" as measured by our insane system.

Yet in London 35 year old accountants live in near-bedsits with one another. Hardly wealthy in my book.

It's necessary for 35 year old accountants to live like this because financialisation adds little true value and so they must skim off everyone else.

Agreed financialisation is more than just property. Education for example. They'd financialise everything if they could. But land is the most significant example.


Greater profit-sharing and degree of ground-level control would be a big plus, especially in the hyper-competitive business arena that exists today. That would let them benefit from higher business earnings immediately instead of just waiting and trying to get it indirectly in the form of a higher wage rate.

I don't particularly like using the Koch Brothers as a good example of anything, but Koch Industries apparently does this well. There's a lot of control delegated downward to workers combined with a major use of performance bonuses. Financial companies did this as well in Wall Street before 2007 - the flat income would be something like $200,000 (pretty good by American standards but upper-middle class) and then supplement it with large bonuses.


They are financialising everything! Most of all finance!

A Londoner who gets the rental deposit back can have a two bedroom property in Teeside.


"The area suffers from a very high crime rate, and high unemployment rate, and has seen its fair share of arson, fly-tipping and anti-social behaviour."

"The £750 house, dubbed the UK's cheapest house, was eventually sold last year for £14,00 - less than the price of some new Ford Focus models - through I-Am-Sold property auctions."

London is only more productive in extracting economic rent from the UK economy.

Wall Street is atypical because of the amount of economic rent been extracted, e.g. Lehman Brothers, but is also the home of bad practices (as usual).


"Lehman Brothers Holdings Inc. boss Richard Fuld Jr. long encouraged his employees to share in the ownership of the 158-year-old firm. With Lehman's stock hovering at $4 a share, its 24,000 employees have now lost an estimated $10 billion or more in paper wealth."

GM and Microsoft are the poster boys for bad practice through stack ranking and individual employee bonuses.


"for example, by measuring employee value according to the dollar amounts they bill clients."


@From Arse to Elbow,

In reality, the MMT position is not as simple as vulgar MMTers like to believe.

True, according to MMT:

"Demand can always be increased by printing enough money and feeding it into consumers’ pockets."

But that's not the whole story, not by a long shot.

Beyond the point where full employment (of factors in general, not only labour) is reached, permanent expansive fiscal policy does generate inflation. This is widely acknowledged by MMT academic proponents (although their internet fans have difficulty understanding these details).

In other words, expansive fiscal policy is a short-run measure. Lord Keynes, its 20th century great exponent, in fact, was even more cautious and once chided vulgar views in these terms: “On this point you are more Keynesian than I.”

If I may, I compare fiscal stimulus to the CPR one learns in first aid courses: you apply it until the ambulance arrives, to keep the patient alive (if you want to keep the patient alive). But a patient who requires CPR to look alive, is already dead.


It goes without saying: secular stagnation, should it really exist (and I am not taking sides on this question), is a long run phenomenon, not a short run one.


aragon: "London is only more productive in extracting economic rent from the UK economy."

Here here! Our system is a positive feedback loop. When we financialise everything the area that controls this wins.

People do work all over the UK that gets booked back through a few square feet in London and they take a cut. Then everyone says how much "wealth" London generates. Well done London!

For me it's about energy, both potential deployment of human capital and the use of land and resources therein. If you look at what London does here it's negative. It just sucks in resources and in payment it "organises" (by usury mostly) the activity.

As you say economic rent extraction.

London has other values of course. Ephemeral stuff like the arts, programmers writing software for boring repetitive tasks etc. All these are great, but let's face it most of London is finance (rentiers) and a bunch of foreign crooks looking to wash dirty money with their help.

And they have the system set up so that the harder we work the more spare energy there is to give to them to blow as they see fit.

Sion Whellens

Chris, great post. It seems to me what you're describing is worker co-operation (cf bethnalbling.blogspot.com). Labour-Tories aren't actually ignoring right-wing models of worker ownership - share rather than common ownership based, non-democratic forms where hierarchical management keeps a firm grip.


Not a bad idea giving the bright early employees a slice of the action - in return for long hours and riding out the rough patches. But for every Microsoft or eBay there were a thousand failures - the long hours lost. There is a snag, the bright young need to balance getting on the house ladder or risk missing the boat with a new startup. In my day you made more money bodging up a house than any salary paid. Today you can't even buy a wreck to bodge up in a credible location and the startup market seems a bit thin too. The US and the UK house markets were and are very different and I think lie at the core.

Ed Sweeney has many good ideas but the crucial problem - how to startup a viable business that stands a credible chance of out-running a job when you are a 24 year-old with a bright idea - remains. The ecology of the market does not seem very conducive.


Microsoft extracted economic rent from a de-facto monopoly in desktop software through copyright and now office software that was ruthlessly leveraged.

An alternative source of rent seeking.


MMT also addresses another source of economic rent and therefore addresses some of the structural problems in the economy, which is just a huge Ponzi scheme that cannot continue forever...
(Just another decade or so, prays George Osbourne)

We need to remove financialisation, and neoliberalism, listening to Ed Miliband speech, he does not have a clue!

A sticking plaster for a broken system.

Luis Enrique

Ben and others, you may be interested in this comment on a paper by Stiglitz, which blames land for inequality


Ralph Musgrave


Re the fact that excess inflation results if excess stimulus is implemented after full employment is achieved, that’s really a very simple obvious point. As for the idea that “academic” proponents of MMT understand that, whereas MMT’s “internet fans” don’t, I flatly reject that. Where one academic economist debunks another (and that happens dozens of times every day) they can’t both be right. Ergo at least one is talking thru their rear end. Ergo academia is full of incompetents.

Next, there is nothing inherently “temporary” about the MMT cure for recessions, also advocated by Keynes, i.e. having the state print money and spend it and/or cut taxes. That results in a PERMANENT increase in the private sector’s stock of money, which PERMANENTLY increases demand, all else equal, and provides a PERMANENT cure for the demand reducing effects of secular stagnation (if they exist).


Well, it sounds like all the left should become anarchists:


And I quite agree! We anarchists have always stood for workers' control -- of their struggles, organisations and, ultimately, the economy and society.

Nice to see others finally catching up.

Icarus Green

Fantastic blog Luis. Thanks for sharing.

Regarding financialisation in general, and not just in land prices, I found marxist economics pretty good on this issue.

Basically its a complex means of upwards redistribution. A process of detaching paper wealth from actual wealth. They do this by inflating it through private money printing against land assets and also nowadays, central bank money printing with financial assets. The end result is the same - the wealthy get wealthier despite not doing very much.

They try to sell this by saying it will "increase investment". Yes I suppose speculators will get involved at some point, but calling this short term horizon allocation of capital "investment" is like calling George Osborne a financial expert.

Meanwhile in non la la land, corporates are hoarding cash offshore or buying back their own shares because theres nothing real going on in the economy to invest in despite paper wealth mocking/telling us that the economy is doing great and expected future income is going to be fantastic.

Most of QE effects are supposed to lower financing costs for companies. In reality, it mainly benefits large listed companies or markets with liquidity. Everyone knows QE wont go on forever and so wont lock in their capital in a startup or something long term. They'll eventually want to dump it back into bonds again.

Inflation from this process happens, but because its so focused in its application and distributional effects, the only way an average guy on the street is going to see it is in housing prices...or in the bizarre scenario he goes to his local yacht dealership.

They probably wish they didnt have to go through this process and just have an excel file of names for whom they would just print money and hand it to them. I don't know, maybe this actually does happen.

Icarus Green

By the way, mortgage securitisation has been fantastic for this land price priming. The only brake on the process was the fact that banks had to hold the mortgages on their balance sheets and as a result had capital requirements against how much credit they could create. Securitisation ended that.

Eventually the banks had a field day printing money against land and swapping it instantly with institutional investors actual money. Even to the point that they resorted to giving mortgages to homeless people and people that couldn't write their name on the contracts.

This hyper financialisation led to the 2008 crises of course. Eventually the buck has to stop somewhere. Thankfully, the institutional investors took the hit and the bankers got their porsches by taking a cut of the money as it went through the system.

Ha Ha. Those idiot institutional investors!

Oh wait, that's us.


For those interested in issues around land and the economy, and LVT, I've been involved in a group called the Labour Land Campaign which aims to understand these issues and raise them among parties of the Left and unions:



Icarus - totally agree. Up to 2008 *was* the inflationary period. Post 2008 QE was simply backfilling the hole left that banks could not fill having printed like mad-men.

Banks (with the blessing of govt) are printing money against land. And it's always worth that much because they just lent that amount to someone who can only use it to buy that land.

Again agreed all they want is money through the system to skim. Holding onto stuff medium to long term is a pain in the ass. Realistically this still doesn't stop the bankers as they don't care about the banks, but as you note it put some kind of brake on them.

So pleased to see someone else label pre 2008 as (near) hyperinflationary. Boy did Labour totally screw over the working man.


The whole process allows for the financialisation of a person. The banks are extending loans against the theoretical lifetime income of a person thereby helping themselves to a slice of their lifetime income.

The state is happy for them to do this as the credit instantly enters the system which they label "growth". Then we are left with the small matter of endless repayments to our banker overlords for 30 years, leaving no disposable income.

The individual has little choice as they have to live somewhere and the banks set the land price through unlimited credit which translates into lifetime earnings.

The bankers then spunk all the money on frivolous stuff that has no return over the medium term (easy come easy go). This malinvestment from them plus the population stopping working and playing the housing market means the country's productive capacity dwindles.

What an unholy mess. All the terminology and the whole frame of the debate is totally wrong. They have us arguing about nonsense like GDP when increasing rent means more work for us, more money for the banks and we cheer it along.


@ Musgrave,

"Re the fact that excess inflation results if excess stimulus is implemented after full employment is achieved, that’s really a very simple obvious point."

Perhaps. But, as obvious as you say it is, that's not what one concludes from your first comment:

"Demand can ALWAYS be increased by printing enough money and feeding it into consumers’ pockets."

I'll abstain to comment on your rear end ergo academia is full of incompetents. It doesn't compute.

"Next, there is nothing inherently “temporary” about the MMT cure for recessions, also advocated by Keynes, i.e. having the state print money and spend it and/or cut taxes."

Paraphrasing the Prophet: On this point you are more Keynesian than Him.


@ aragon,

It's true that MMT addresses other things. You are absolutely right on that (that this is enough of a change, it's another matter).

For instance, the employer of last resort (JG) and universal income (BIG).

People close to MMT has made several proposals, too. Michael Hudson has written about the FIRE. Bill Black was written extensively about what he calls white collar crime, and such.

All of that very positive and praiseworthy.

But here the only proposal mentioned by name was fiscal stimulus, and that was what I also mentioned by name.


Incidentally, MMT does not appear, per se, to preclude fiscal surpluses, and "austerity". The great objection is when to apply it. Academic MMTers, to a man, seem to consider that currently "austerian" policies are counter productive.

That does not mean they will always be counter productive. And, frankly (perhaps that's not your case), often non-academic MMT fans seem to forget that.

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