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Earl shorris on the uses of liberal education as a weapon

Posted on Tuesday, December 18, 2012 by bill I am researching a project at the moment on the role of humanities and social sciences in enhancing standards of living and rendering societies open, empathetic to the disadvantaged and dynamic. It is in the face of trends within Universities to concentrate funding and attention on the so-called STEM disciplines Science, Technology, Engineering and Mathematics and contract funding for the humanities and social science.

Earl shorris on the uses of liberal education as a weapon

The funding cuts undermine the viability of these areas and whole departments have been closed — having been declared by the bean counters — as being uneconomic. There is strong evidence available to show that studying the humanities is a socially transformative endeavour for example, the Clemente program. We have to defend the humanities to enrich individuals. But we also have to use that empowerment to challenge the elites on the macroeconomics battleground. The two motivations are self-reinforcing.

The former is not a sufficient condition for social transformation. I was further reminded of this theme when I was listening to the radio yesterday December 17, 2012. This is a daily program that is broadcast nationally in Australia. The segment discussed the so-called Clemente Course in Humanities — which is described as a: You might also like to read a more recent article by Earl Shorris in the Harpers Magazine December 2011 — American Vespers — The ebbing of the body politic.

I will come back to that soon. As a field of study, economics has always occupied a conflicted place in our tertiary institutions, although the experience varies across different countries. Economics is unambiguously a social science, with dimensions from the humanities philosophy, history being crucial partners in the learning experience.

  1. Unlike similar publications, pw made good use of humor and art to sharpen its only marketable skill after years of university education.
  2. But Koo says that the only thing that kept the economy from falling into a deep depression was the deficits. While Paul Krugman is now advocating expansionary fiscal policy, he was not always of this persuasion.
  3. It's very inspirational and gives me hope that Shorris's new found idea through Viniece will spread and become a more revolutionary way or education people who can't afford to be educated. We have to defend the humanities to enrich individuals.
  4. In ancient Greece, the humanities led to reflective thinking, which in turn led the Greeks to examine the polar opposites of social life. Both Richard Koo and Paul Krugman ultimately think that deficits are to be used, not generally, but when special circumstances occur.
  5. GDP growth in Japan has been very low since its property market exploded in the early 1990s. It was a fine example of how many people in poverty are truly capable, intelligent and want to be better, and how opportunity can make or break that mind-set.

However, as the neo-liberal era unfolded the social science dimensions of the discipline and certainly its links with the ancillary disciplines from the humanities have been attacked and in many cases abandoned. What remains of the principles subjects is a potpourri of nonsense parading as New Keynesian economics at the macro level.

The microeconomics subjects are similarly business-oriented. Economics as taught in our universities is now mostly devoid of any interaction with the real world and serves to perpetuate the neo-liberal agenda, which is to dismantle government influence on the resource allocation and to bias the distributional system to deliver increased benefits to the rich and to deny opportunity for the poor.

As part of this purge on the broader social science elements of economics, the related links to philosophy and history have been culled. When there is some historical content provided, it is typically revisionist to reinforce the ideological agenda being pursued rather than reflect what probably happened in any particular historical epoch.

The classic example at present is the discussion about the Great Depression, which has been spawned by the current crisis. The legitimate study of history is always interpretative but it is never just making stuff up! So while economics was traditionally a broad study of society and part of a well-rounded education encompassing readings in the humanities and other social sciences, the neo-liberal era has recreated it as a narrow area of study, which serves to reinforce the idea that capitalism is good and government intervention of any kind is bad.

The humanities is necessary but not sufficient for social transformation

Even the so-called progressive economic writers lapse back into this role — reinforcing the mainstream narratives and undermining the progressive aspects of their work. Two major examples of this appeared in the last week. GDP growth in Japan has been very low since its property market exploded in the early 1990s.

Neo-liberals have argued that this is evidence that the deficits were wasteful. But Koo says that the only thing that kept the economy from falling into a deep depression was the deficits. His work has demonstrated that when the neo-liberal lobby started to gain traction and forced the Japanese government to attempt to cut its net spending in 1997the Japanese economy went backwards again. History tells us that these attempted cut-backs only increased the deficits — via the automatic stabilisers!

In this sense, his work is much more in the Minsky tradition and is consistent with MMT. So monetary policy will not stimulate investment. As a result, he has consistently advocated using fiscal policy to stimulate aggregate demand. In that sense, his work runs counter to the mainstream dislike for fiscal policy and the incessant demands from my profession for fiscal austerity.

Richard Koo understands that if the private sector is to reduce its indebtedness, then the public sector has to increase its debt given the current, voluntary and unnecessary practice of issuing debt to the private sector to match deficits. I also said that Koo is no modern monetary theorist given he believes in a government budget constraint GBC — automatically associated deficit spending with borrowing even when he is talking about economies with near zero interest rates and therefore no need to borrow to maintain interest rate targets.

Most of these disputed points arise from his erroneous assumption that the government needs to finance its spending. His latest offering confirms that he operates in the mainstream framework and while insightful in many ways remains part of the problem.

Consider his warning in his latest Nomura Report: But nightmare scenario awaits when private loan demand recovers. The problem is what happens when private loan demand recovers. To avoid this outcome, central banks will have to mop up excessive reserves by raising the statutory reserve ratio, raising the interest rate paid on reserves, and selling government bonds. All of these measures will serve to lift interest rates, sending bond yields sharply higher and triggering a possible crash in the bond markets.

The Report is aimed at the incoming Japanese Government, which has stated it will loosen the inflation target that the Bank earl shorris on the uses of liberal education as a weapon Japan considers appropriate. The aim is to stimulate the flagging real economy. What he has in mind is mainstream textbook monetary economics. Allegedly, because they currently are sitting idle because there is no private demand for credit.

What is the required amount? The reality is of-course that none of this is an accurate depiction of what is happening or will happen.

First, the monetary base reserves responds to the money supply not the other way around. There is no money multiplier given that loans create deposits and banks then source reserves from wherever they can get them, the BOJ being, typically, the final guaranteed source.

Second, banks do not lend the reserves they hold with the BOJ. Reserve balances held at the central bank are used for clearing purposes to ensure the payments system functions.

Banks may hold excess reserves — that is, funds not required to maintain their expected clearing house obligations each day. Because they know they can always get reserves from the BOJ whenever they are short.

The banks will typically extend loans to any such borrower, although its assessment of what constitutes credit-worthy varies over the financial cycle. Third, what happens if there is a sudden burst of demand for loans — the trigger that Richard Koo thinks will provoke a 1000 per cent inflation rate?

It is quite simple. We have to divorce that from the balance sheet dynamics that have accompanied the quantitative easing and related programs given the discussion in the first two points.

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Having said that, of there is a renewal of interest in private borrowing on a large-scale, the banks will start extending loans which will create new deposits and enhance the capacity of the private sector to spend invest or consume. In the first phase of this cycle, excess productive capacity will be absorbed by the growth in nominal aggregate demand and unemployment will fall as firms increase production.

Governments have all the fiscal tools they need to counter that development should it occur. Richard Koo thinks that the central banks have three options to resolve this danger. They will have to raise reserve requirements to drain the excess reserves, engage in large-scale sale of government bonds or raising the rate paid on reserves.

All of these measures will serve to lift interest rates, sending bond yields sharply higher and triggering a possible crash in the bond markets … A sharp increase in government bond yields could lead to fiscal collapse in countries with a large national debt.

Which completes the circle of mainstream myth making. The central bank may want to raise reserve requirements or pay more on excess reserves but that will do nothing to reduce the bank lending rate should there be renewed demand for borrowing from the private sector. Please read the following blogs — Building bank reserves will not expand credit and Building bank reserves is not inflationary — for further discussion.

Further, the central bank can set whatever interest rate it chooses. And, for sovereign governments an increase in bond yields as the price of bonds falls due to increased supply does not lead to any increased threat of insolvency.

The government would just be providing more income flows to the private sector. If it felt those income flows were threatening price stability it could simply control the yields on the debt or sell the debt to the central bank. Even in Japan, those options are legally available without any change in law. Interestingly, Koo has been very critical of US economist Paul Krugman, another so-called progressive voice in the current debate.

While Paul Krugman is now advocating expansionary fiscal policy, he was not always of this persuasion. During the Japanese crisis in the 1990s he was a fierce advocate for quantitative easing. In 1998, he wrote that there was a spending gap in Japan earl shorris on the uses of liberal education as a weapon that low nominal interest rates were not providing a stimulus.

He concluded that given that Japan was stuck in a liquidity trap: The only thing that got Japan moving again in the early part of this Century was fiscal policy. Richard Koo understood that much — that the failure of monetary policy to stimulate the economy at the time was not because there was a liquidity trap.

The problem is that in attempting to allay the fears that such an outcome will occur, he suggests that such an outcome will occur. So it only comes down to a timing issue rather than a matter of substance.

  1. Both Richard Koo and Paul Krugman ultimately think that deficits are to be used, not generally, but when special circumstances occur.
  2. In this sense, his work is much more in the Minsky tradition and is consistent with MMT.
  3. And so economics remains a vehicle for the neo-liberal agenda rather than as a progressive force combining social science views of the collective — which make society rather than the corporate sector the object of analysis — and the humanities the importance of ideology and history. The attack on the humanities has been driven by the erroneous claims that budget austerity is important and quality education should be more market oriented.

Evil types think, and want you to think, is that the big current deficit is a sign that our fiscal position is completely unsustainable.

Now, America does have a long-run budget problem, thanks to our aging population and the rising cost of health care. However, the current deficit has nothing to do with that problem, and says nothing at all about the sustainability of our social insurance programs. Instead, it mainly reflects the depressed state of the economy — a depression that would be made even worse by attempts to shrink the deficit rapidly. If there is no sustainability problem in the short-run — because the US issues its own currency — then how is there a sustainability in the long-run.

That the proportion of public spending in total spending will be higher because a higher proportion of citizens will be relying on public spending? Even if the dynamics turn out to be true and that is contestable, how is that a problem for a sovereign government?

The long-run problem facing the US in the context of an ageing population and the rising cost of health care is to ensure there are enough real resources available to be allocated to satisfying the needs of this cohort.

That challenge is not a budget problem. It is a real problem relating to productivity and resource availability, which will ultimately also become a political problem if there are competing and incompatible demands on the available resources at some future point in time.

If the government can pays its bills now it will also be able to pay them tomorrow. That is the capacity that a currency-issuing government possesses — now and later. Both Richard Koo and Paul Krugman ultimately think that deficits are to be used, not generally, but when special circumstances occur.

In that way, their arguments can be subsumed back into the mainstream paradigm. And so economics remains a vehicle for the neo-liberal agenda rather than as a progressive force combining social science views of the collective — which make society rather than the corporate sector the object of analysis — and the humanities the importance of ideology and history. The attack on the humanities has been driven by the erroneous claims that budget austerity is important and quality education should be more market oriented.