In 2008, Barack Obama told the US people the nation’s economic crisis would take a long time to overcome. In 2012, many of those voters are losing patience, because they have not been told why this recession has lasted so long or why his polices were the correct response.
Koo goes on to claim that when one person saves another must spend and borrow "to keep the economy going." What he implies but fails to first prove is that the previous level of economic activity was a natural one and thus sustainable.
Let us say that you run a 5k race in 22 minutes. You then snort 2 lines of cocaine and run a second race, completing it in 20 minutes.
It is highly unlikely that you will be able to complete a third race in 20 minutes without the drugs. Yet if you use the drugs in each instance to compete pretty soon you will find that the drug "boost" becomes your "new normal" and worse, your performance will start to slip due to the deleterious effects of the drug upon your body.
You might then be compelled to do four lines instead of 2 before the next race in order to "keep the economy going."
Of course you know where this leads if you attempt it with performance enhancements of this sort -- eventually the damage you will have accumulated in your body will become insurmountable with more drugs. On that 20th (or 100th, or whatever) race you will have a heart attack and die.
Koo further goes on to claim that interest rates are a tool to "insure that every dollar otherwise saved is instead borrowed and spent." Nonsense. Interest is a charge comprised of three factors: The risk you will not pay, the value of time, and the profit motive.
In other words assuming perfect information -- that is, that the time value of money is accurately computed and so is the default risk -- borrowing money is always expensive to the borrower in real terms; he or she always gets less than he or she would have gotten by saving the funds first before spending them.
Koo then goes on to describe that the "only way" to avoid a "deflationary spiral" is for the government to step in and spend in deficit, effectively destroying saved capital in the private sector.
But this too assumes a premise not in evidence or even shown to have any validity at all! Indeed, if the previous price level is overheated due to the artificial stimulative effects of foolish issuance of credit below the market-rate of risk plus profit then the alleged "level of demand" and "level of price" that resulted is demonstrably false!
In this case the economy is effectively taking ever-larger snorts of cocaine in an attempt to avoid having to face reality -- that the 20 minute 5k race is simply beyond the economy's capacity to execute on a sustainable basis given the structural realities of that economy. Whether this is due to the state of the educational system, the largesse handed out to the public in the form of entitlements, forward expectations for taxes as a consequence of promised future benefits or gross trade imbalances that have made our labor force uncompetitive due to slave-like labor and environmental destruction are simply ignored in favor of claiming that the previously-turned in time, which was executed by cheating, is "normal" and "expected."
Richard Koo is simply another of the MMT cabal, who believe that there is such a thing as a free lunch. That is, having experiencing cheating through monetary and fiscal manipulation, along with abject and outrageous frauds in the financial system through unbacked issuance of credit with false claims of "value", he now accepts on a blind basis that this formerly-achieved level of economic output is not only where the economy "should" be it is where it can be on a forward basis.
It would be nice to see some measure of intellectual rigor demonstrated by those who make such claims. For instance, it would be nice for them to show us exactly how the Nasdaq at 5,000 represented "Real Value" when we know that the S-1s filed by those companies claimed the GDP of the world dozens of times over in forward earnings projections.
Since it is not possible to ever manage to acquire more than 100% of something these projections and the resulting price level that came from them are factually false with only the drug-addled gambler's belief in them driving the alleged "economic activity."
Likewise housing prices resulting from artificially-depressed risk models and "money" (really credit) offered at rates where time and risk value were both misrepresented led to artificially expanded prices and do not represent value; they are a sham. The economic activity that resulted from these frauds in providing incentives for builders to put up homes at "prices" that were 2, 3, 4 or more times economic value was simply a performance-enhancing drug injected into the economy that was simultaneously rotting out the core of our productive capacity.
Koo, like so many others, believes that somehow one can engage in these self-destructive behaviors and then never suffer the consequence. Mathematics, however, says otherwise, just as do the laws of thermodynamics when it comes to energy.
There are thousands of charlatans who have, over the years, claimed to have discovered "perpetual motion" in one form or another. There has never been such a claim that has proved up under scientific scrutiny, and there never will be an economic "model" that follows Koo's precepts under scrutiny either.
All Koo and the other MMT adherents have to go on is the belief that they can con you into accepting a false premise, allowing the dissipation of your wealth through more and more snorts of coke up the nose, in the hope that when you finally grab your chest in agony you lack the strength and ability to strangle them before you expire.
Don't let them get away with it.
