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Democratizing the Money Issue

posted by Adam Levitin

Robert Kuttner has a fantastic piece on creditor-debtor conflicts in several contexts (sovereign, consumer, current, historical). For Kuttner it alls points to a need to "democratize the money issue," by which he means returning the money issue--creditors' interests versus debtors' and whether credit would be cheap or dear--to the forefront of national politics. 

Kuttner reminds his readers that the money issue was perhaps the foremost issue in late 19th century US politics. Remember Bryan's Cross of Gold speech? The monetary policy debates that led up to the creation of the Fed (an attempt to depoliticize monetary policy) were inextricably tied up with the Progressive politics that busted the trusts and paved the way for a regulatory state, setting the tone that lasted in one form or another through the 1970s. 

I think there's a lot of cause to reexamine the money issue and the intersection of consumer finance, monetary policy, and political power. But there's a real problem in figuring out how to talk about it. It's a sure-thing dead-end if one starts to talk about the Fed and monetary policy as a first move--it just brings out the crackpots. (Why don't the gold standard folks--who are hardly the nuttiest of the bunch--recognize that gold is just as much of a fiat value as paper or wampum?  Absent consumption value, it's all fiat.) Another major obstacle is that few people think of themselves as debtors, even though they are deeply leveraged.  The modern American consumer seems quite different in this regard than the Western farmer of 125 years ago, who was very conscious of being a debtor and of the cost of credit. 

I'm not sure how one gets the money issue to be part of a national dialogue, but I think Kuttner's piece is an important step in getting us there. 



Maybe he had a 1-page limit but it's nothing but populist cliches. For example, referring to "punishing Greece instead of letting it grow." Please. The country is being loaned billions - that's punishment? This despite Greece having falsified its financial reporting for years, and having failed to meet any benchmarks that they promised to meet just months ago. It's a country that has made a cultural norm of cheating on taxes; when rich Americans do that, does he say, let's not punish them, let's help their family grow? Please. The very idea that enforcing a contract freely made by someone with equal bargaining power is punishment is absurd.

And the reference to lenders being "the wealthy" shows he does not understand financial intermediation, or prefers not to acknowledge it. It's not Old Man Potter lending his money out.

Finally, claiming to prove that a 21st century nation can achieve growth by trashing its financial institutions by a one-sentence reference to a 19th century agrarian movement is intellectually indefensible.

"But there's a real problem in figuring out how to talk about [financial/monetary policy]."

Start by explaining who benefits. People assimilate information through context. It's not enough to point out (for instance) that austerity measures imposed during a weak recovery will bend the curve downward. There's an orchestrated choir saying the exact opposite. People legitimately wonder why there isn't consensus if it's so blatantly obvious. Explaining who the winners and losers are would help clarify matters.

My background is in politics, not finance or economics. I can understand what Rightists are up to but until now I couldn't figure out why obviously learned people could advocate in favor of policies proven to be disastrous time and again. Thanks to Kuttner's (too brief) piece, light has been shed at least part of the darkness. It makes perfect sense that bondholders and even corporations sitting on trillions of dollars of cash with no customers would at least want to make those dollars more valuable.

You have to tell a narrative.

MT: Greece is being loaned more billions at the insistence of creditors -- the same folks who lent them money in the first place and who are at least co-conspirators in the falsified reporting and other scams. There are no innocents here, except future generations assigned to lifetime poverty by the financial "discipline" demanded to ensure that the perpetrators of the fraud are held blameless.

Contracts are never immutable. We do have bankruptcy laws.

Blind austerity policies are inane. Prudent fiscal management, which is achieved by reprioritizing spending agendas (which are NOT budgets), and by reconfiguring internal capitalization modalities, so that national and private fiscal policy is redirected toward funding national projects that will jump start the Greek economy, is key.

Prudent fiscal management. Do you get that by lending to spendthrifts and gambling addicts? HELL NO! But no one has the fortitude of character to do what must be done; i.e., force Greece into a debt restructure that replaces their present fiscal management mechanism with a trustee, at least until its economy regenerates a payback for its lenders.

A potential Greek default is a much bigger deal? Greece has an economy roughly the size of Washington state, but the real worry is about a domino effect. If the loan goes bad it could be worse for Europe in general.

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