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Abracadabra, No More Banking Crisis
October 22, 2012 10:48 AM   Subscribe

IMF Economists are suggesting that The Chicago Plan, first proposed in 1936 as a way to avoid another Great Depression, is the answer to our current economic woes.

Specifically, they studied the (theoretical) primary benefits of The Chicago Plan and found all 4 would likely result from the adoption of this system in the US.

(1)Much better control of a major source of business cycle fluctuations, sudden
increases and contractions of bank credit and of the supply of bank-created money.
(2) Complete elimination of bank runs.
(3) Dramatic reduction of the (net) public debt.
(4) Dramatic reduction of private debt, as money creation no longer requires simultaneous
debt creation.

Link to the source paper, which includes a prominent disclaimer that this is a working paper and represents the opinions of the author, not the IMF.
posted by COD (57 comments total) 10 users marked this as a favorite

 
When I hear "IMF" or "Chicago", I immediately think of Economics with a deep concern for the lives of ordinary people. Let's do it!
posted by benito.strauss at 10:56 AM on October 22, 2012 [50 favorites]


What is "Long-arm economic output". I'm thinking it's just long-term misspelled, as google is getting me no other reference for the term besides the Telegraph article, but it's a mistake to underestimate the economic field's ability to produce jargon.
posted by bswinburn at 10:57 AM on October 22, 2012


Sentiment seldom expressed in American opinion pieces:

"We return to the historical norm, before Charles II placed control of the money supply in private hands with the English Free Coinage Act of 1666."
posted by Tell Me No Lies at 10:58 AM on October 22, 2012 [4 favorites]


How to solve a liquidity crunch? Destroy any liquidity left in the system!

Makes perfect sense to me.
posted by Talez at 10:58 AM on October 22, 2012 [6 favorites]


One could slash private debt by 100pc of GDP, boost growth, stabilize prices, and dethrone bankers all at the same time.

Um, yeah, good luck with that.
posted by monospace at 11:01 AM on October 22, 2012



How to solve a liquidity crunch? Destroy any liquidity left in the system!

Makes perfect sense to me.
posted by Talez at 10:58 AM on October 22 [+] [!]


Do we have a liquidity crisis? Did we have a liquidity crisis in 2008? I'm not convinced we did/do. There was a credit crisis, to be sure.
posted by 3200 at 11:06 AM on October 22, 2012


Is it just me, or wouldn't this completely make a whole bunch of particularly speculative, greedy individuals hopping mad?

Because, if so, I am all for it.
posted by markkraft at 11:10 AM on October 22, 2012 [6 favorites]


AND THEN CIVIL WAR BREAKS OUT
posted by TwelveTwo at 11:15 AM on October 22, 2012 [3 favorites]


If they couldn't muster the strength needed to implement these reforms in the wake of the Great Depression, and instead were suckered by bankers into a watered-down version, I'm ... skeptical that we'll be able to do any better today.

While the current recession has been bad, it largely hasn't been bread-line bad, and I don't think there's a public perception that it's really worse than the Great Depression of the 30s. And although the public may be pissed off at Wall Street / "banksters" / etc., they are still well-entrenched in, and protected by, our economic-political system.

Though I think there's an argument that the banking industry has burrowed so deeply into the real economy, not to mention the political system, that the level of public anger required to disentangle the two at this point would probably also be accompanied by a fair bit of real-world destruction.
posted by Kadin2048 at 11:15 AM on October 22, 2012 [6 favorites]


I was trying to decide how this meshes with the stuff Ron Paul spouts about eliminating the Federal Reserve. On the surface, more govt is automatically bad, so Paul should recoil at the thought of this. However, I'm not sure it really is that much different than the reforms he pitches. I think the 100% reserve requirement sort of provides the same check on inflation and lending that the gold standard would in Paul's fantasy world. I think. It's been 20 years since I took a Macroeconomics class.
posted by COD at 11:18 AM on October 22, 2012


I'm sure the Chicago Plan has its pros and cons, but I'm inclined to back it because it was partially authored by Paul Douglas, a badass Quaker who joined the Marines in 1942 at age 50. Wikipedia:

On the second day of the Battle of Peleliu, Captain Douglas finally saw action when his unit waded into the fray. He earned a Bronze Star for carrying ammunition to the front lines under enemy fire and earned his first Purple Heart when he was grazed by shrapnel while carrying flamethrower ammunition to the front lines. In that six-week battle, while investigating some random fire shootings, Douglas was shot at as he uncovered a two-foot-wide cave. He then killed the Japanese soldier inside at which point he wondered whether his enemy might be an economics professor from the University of Tokyo.
posted by stupidsexyFlanders at 11:22 AM on October 22, 2012 [11 favorites]


If only sensible economic policy were the concern of the policy makers.
posted by cmoj at 11:26 AM on October 22, 2012 [1 favorite]


This isn't sound policy. It is massively deflationary.
posted by JPD at 11:31 AM on October 22, 2012 [6 favorites]


WILL SOMEONE PLEASE THINK OF THE MUPPETS?
posted by chavenet at 11:38 AM on October 22, 2012


These Chicago guys will do anything . . .
posted by B-Boy Limping at 11:45 AM on October 22, 2012 [2 favorites]


cmoj: "If only sensible economic policy were the concern of the policy makers."

Having read this article, I'm not even remotely convinced that it's a sensible economic policy.

Yes, it would solve a lot of problems, but it would almost certainly end up being a huge drag on growth, given that it would make credit incredibly difficult to obtain.

As far as I can tell, this sort of plan would make it very difficult for credit to be obtained by the people who need it most. Sure, you'd have fewer poor farmers being foreclosed on....because those farmers wouldn't have been allowed to borrow money in the first place. There would be no new businesses, and no ladder for the middle-class.

The article didn't really offer any convincing evidence for how this plan would help the "little guys." Sure, investment bankers would no longer be allowed to gamble with the treasury's money, but I don't quite see how that translates to an improvement for the other 98% of us. If anything, this proposal could just entrench the oligarchy (who would just lend to each other), and cause a proliferation of black-market financial products (ie. mafia loans) for the rest of us.

Maybe I'm misunderstanding things, but the Chicago plan seems to loudly send the message that all credit is bad. It may very well be that we use too much credit today, but I just can't imagine that the period of massive economic growth that followed WWII would have happened if these policies were in place.
posted by schmod at 11:46 AM on October 22, 2012 [7 favorites]


Do we have a liquidity crisis? Did we have a liquidity crisis in 2008? I'm not convinced we did/do. There was a credit crisis, to be sure.

The credit crunch was a knock-on effect of insufficient liquidity in the system. You're effectively arguing that it wasn't insufficient rain that caused the drought but there certainly was a drought.
posted by Talez at 11:50 AM on October 22, 2012 [1 favorite]


I still don't get how full reserve banking is supposed to work in any meaningful sense. If banks are required to have a full reserve then they can't loan out deposits (maybe) and that means that they are going to find it very hard to have interest bearing accounts. As a practical matter, they'd probably have to charge me to hold on to my money.

Now, you can get around the loaning problem by having a special agreement whereby I promise not to withdraw the money while it is being loaned out (so, I deposit $1000 and agree to let the bank loan out $100 and promise not to try to withdraw more than $900 until the loan has been repaid). This sort of system means that only the wealthy will be able to get any interest on their money, because they are the only ones who don't need immediate access to all their money.

I also find it odd that the "keep the government off my businesses" types are in favor of dictating how banks can lend money. What happened to the free market? As long as my banks says "We do not promise to have all your cash in hand at any time, but your deposits are insured and you will not lose money (but you might have to be patient)" then what's the problem?

I'm also pretty sure that other "non bank" organizations would step up and do bank-y type things (probably for those with enough money) and you'd get "fractional reserve sort-of-but-legally-not-exactly banks", which doesn't actually seem to solve anything.

No. I just don't get it.
posted by It's Never Lurgi at 11:51 AM on October 22, 2012 [1 favorite]


Maybe they were just trying to give the mob a monopoly on loans...
posted by Feantari at 12:01 PM on October 22, 2012 [3 favorites]


No, really, just raise minimum wage to like $15 an hour indexed on inflation so everyone can afford to live, eat and buy the products their neighbours make, and provide universal health care so everyone can afford to start their own business or consultancy if they want to. Also raise taxes to 75% for incomes over $500K and get rid of the capital gains special case. Why is this so hard?
posted by seanmpuckett at 12:09 PM on October 22, 2012 [21 favorites]


NYTimes, Paul Krugman:Things That Aren't Bubbles
Is fiat money a bubble in this sense? Not at all. It’s true that green pieces of paper have no intrinsic value (except that they can be used to pay taxes, which is actually important), so that my willingness to accept green paper from you is based only on my belief that I can in turn hand that green paper over to someone else. But there’s nothing to prevent that process of monetary circulation from going on forever.
posted by the man of twists and turns at 12:15 PM on October 22, 2012 [2 favorites]


I still don't get how full reserve banking is supposed to work in any meaningful sense. If banks are required to have a full reserve then they can't loan out deposits (maybe) and that means that they are going to find it very hard to have interest bearing accounts.

The article spells it out -- banks would in turn borrow from the government's reserve bank, so they could in fact lend out in excess of deposits. But the govt would finally be in control of the money supply.
posted by i_am_joe's_spleen at 12:24 PM on October 22, 2012 [1 favorite]



The credit crunch was a knock-on effect of insufficient liquidity in the system. You're effectively arguing that it wasn't insufficient rain that caused the drought but there certainly was a drought.

Rain analogy aside (because that's not at all what I'm effectively arguing), the bulk of the post-Lehman depression was not an effect of insufficient liquidity. It's not clear to me there was ever an actual liquidity crisis at all, but certainly not after the Pres and Co stepped in. Our ongoing Depression grew out of a credit crisis (or, if you'd prefer, a risk crisis). It's not that there wasn't any money to lend, it's that no one was lending--no one would lend. One interesting (and perhaps accurate) critique of the bank bailout is that it dumped cash into a system that did not need cash. I tend to agree. But certainly after corrective measures started, there was no liquidity crisis.
posted by 3200 at 12:25 PM on October 22, 2012 [1 favorite]


> This isn't sound policy. It is massively deflationary.

I'm lacking knowledge here...can you explain for me?
posted by swimming naked when the tide goes out at 12:28 PM on October 22, 2012


Is there anywhere I can get a brief list of the proposals of the plan rather than a brief list of how it's supposed to help?

If I start seeting Full Reserve Banking or an end to fiat currency, or heightened austerity during an economic contraction, Ima slap a few dumbass economists.
posted by chimaera at 12:29 PM on October 22, 2012 [1 favorite]


I don't know too much about this but wasn't this done in SA (can't remember which country atm)? And didn't it fail miserably and cause large scale poverty/hunger/ civil unrest/ etc? Hasn't the 'chicago plan' been completely discredited by now? Now I might be wrong here but seems to me what I have read leads me to the above conclusions.

Didn't Naomi Klein has quite a bit to say on this topic and none of it good.
posted by bannana at 12:29 PM on October 22, 2012 [2 favorites]


I don't think this has to be an all or nothing proposal.

Something akin to the margin trading laws might do. Banks could only lend out, say, a factor of ten beyond the assets they possess. Small banks could still make a go of it, but mega banks would be limited in the amount of damage they could cause.

Does anyone know the current situation? What's the ratio for assets/outstanding loans for BofA for example?
posted by Tell Me No Lies at 12:29 PM on October 22, 2012 [1 favorite]


When I hear "IMF" or "Chicago", I immediately think of Economics with a deep concern for the lives of ordinary people. Let's do it!

If you had read the article, considered the argument, and then thought of a response, you'd probably agree with the gist of their idea:
The benign side-effect of their proposals would be a switch from national debt to national surplus, as if by magic. "Because under the Chicago Plan banks have to borrow reserves from the treasury to fully back liabilities, the government acquires a very large asset vis-à-vis banks. Our analysis finds that the government is left with a much lower, in fact negative, net debt burden."

The IMF paper says total liabilities of the US financial system - including shadow banking - are about 200pc of GDP. The new reserve rule would create a windfall. This would be used for a "potentially a very large, buy-back of private debt", perhaps 100pc of GDP.

While Washington would issue much more fiat money, this would not be redeemable. It would be an equity of the commonwealth, not debt.
This is a solution that treats money for what it is — a placeholder for earned economic value — and places it directly under the control of the state without having to create debt each time someone borrows money. It would also remove growth as a requirement for a healthy economy to pay down conjured debt, which could literally save our finite planet from the inevitable. Even better, the also forces more people to earn money doing something besides coming up with clever ways of exploiting the fractional reserve banking system, which increases accountability and equality.

It's the first time I've seen Western intellectuals propose a meaningful change to our institutions that would actually benefit workers, who are legitimate economic engines, to the detriment of debt-holders, who are by definition parasites of economic activity, especially in their current form.
posted by notion at 12:31 PM on October 22, 2012 [6 favorites]


Looking more into it, it seems to be almost entirely predicated on Full Reserve Banking.

Which is a horrible idea. "I see you've been irresponsible with how you built this building. Rather than implement building codes and reasonable restrictions and requirements for responsible building, we're just gonna say nobody is allowed to build anything anymore."
posted by chimaera at 12:33 PM on October 22, 2012 [4 favorites]


You know who else was on to this? Our man Kucinich.
"Declaring that "the creation of money by private financial institutions as interest-bearing debts should cease once and for all,"[3] the NEED Act would abolish what is referred to as fractional reserve banking by prohibiting the creation of credit lent out against deposits held by private institutions;[4] eliminate the quasi-independent[5] status of the Federal Reserve System;[6] and grant the U.S. Department of the Treasury, on behalf of Congress, the exclusive authority to originate money.[7] The legislation would also bar the federal government from all future borrowing,[8] institute an 8% cap on interest rates across the country,[9] mandate that new money spent into circulation include annual block grants to the States,[10] and establish a Monetary Authority inside the Treasury to manage national monetary policy.[11]"

http://en.wikipedia.org/wiki/NEED_Act
posted by entropos at 12:35 PM on October 22, 2012


Is this that Libertarian pretend economics shit, that virtually nobody takes seriously outside of internet Randroids?
posted by edheil at 12:36 PM on October 22, 2012


AND THEN CIVIL WAR BREAKS OUT

Except this would be like a civil war from Oregon Trail, where the bankers have the most money, but the farmers are a much better shot.
posted by Blue_Villain at 12:36 PM on October 22, 2012


I don't think anybody would characterize Kucinich as a Koch Libertarian. So, no, Edheil
posted by entropos at 12:36 PM on October 22, 2012


Something akin to the margin trading laws might do. Banks could only lend out, say, a factor of ten beyond the assets they possess. Small banks could still make a go of it, but mega banks would be limited in the amount of damage they could cause.

Isn't this fractional reserve banking, aka, what we have now?
posted by justkevin at 12:37 PM on October 22, 2012


To add on to what I'm saying, a combination of the following would solve most or all of the contributory factors to the big 2008 banking crisis:

1) Strict division between investment banks and consumer banks.
2) If a bank fails, rather than being bailed out it is nationalized, with the first people being paid back are consumers and the last people paid back are the speculators.
3) Banks which play fast and loose with documentation get nationalized.

I'm a free marketeer as much as many or most people, but being irresponsible with the entire economy shouldn't mean that you get bailed out, you get nationalized. And your executives can go without bonuses.
posted by chimaera at 12:38 PM on October 22, 2012 [3 favorites]


When I hear "IMF" or "Chicago", I immediately think of Economics with a deep concern for the lives of ordinary people. Let's do it!

If you had read the article, considered the argument, and then thought of a response, you'd probably agree with the gist of their idea:


Respectfully - any system that is 1)Deflationary 2) Raises the real cost of credit is a massive negative for the non-capital holding classes, i.e. the non-rich. It is sort of an unavoidable consequence. Sure the plan originally calls for a quasi-jubilee, but what happens next?

Is this that Libertarian pretend economics shit, that virtually nobody takes seriously outside of internet Randroids? This sort of predates that, but it is kind of its intellectual fore bearer.

Something akin to the margin trading laws might do. Banks could only lend out, say, a factor of ten beyond the assets they possess. Small banks could still make a go of it, but mega banks would be limited in the amount of damage they could cause.

Isn't this fractional reserve banking, aka, what we have now?
Pretty much.
posted by JPD at 12:40 PM on October 22, 2012


I still don't get how full reserve banking is supposed to work in any meaningful sense. If banks are required to have a full reserve then they can't loan out deposits (maybe) and that means that they are going to find it very hard to have interest bearing accounts. As a practical matter, they'd probably have to charge me to hold on to my money.

This is correct. What many people forget today is that traditionally, bank accounts came in two forms: demand accounts and deposit accounts.

Demand accounts were held at commercial banks, and the banks had fairly strict reserve requirements. The idea of a demand account was that you could write checks against them with complete confidence that the bank would be able to back up the checks, meaning that the checks were useful as money. (If this weren't the case, then nobody would want to accept the check as a form of payment.) And these type of accounts rarely paid interest -- in fact in many states, demand accounts were prohibited from bearing interest. [Note: WP says that the prohibition on checking account interest was part of the banking reform of 1933, interestingly.]

Deposit accounts are the more familiar "savings accounts," and were held at S&Ls or savings banks. They paid interest, but the tradeoff was and is that you have limited access to your money while it's deposited in the bank. The most basic type of account is a time deposit, e.g. a Certificate of Deposit, where you give up the right to withdraw your money for some period of time, in return for fixed interest. But even regular savings accounts (coupled with bank-run regulations) still limit your withdrawal abilities.

The reserve requirements for these two different types of institutions, due to the different types of accounts being offered, are different. It would make sense to have very high reserve requirements for a bank offering only demand accounts, but that would be crippling for an S&L.

Unfortunately, we seem to have thrown away the idea of separate "commercial" or checking-account banks offering demand accounts, from savings banks offering time deposits, and lumped everything in together. I think this can only bring tears, as many people today don't maintain separate checking and savings accounts, and expect to both be paid high interest rates on their money and have the ability to withdraw all of it whenever they feel like, and those are mutually exclusive goals. The latter can be achieved only with high reserves, the former with low ones.
posted by Kadin2048 at 12:42 PM on October 22, 2012 [1 favorite]


The reserve requirements for these two different types of institutions, due to the different types of accounts being offered, are different. It would make sense to have very high reserve requirements for a bank offering only demand accounts, but that would be crippling for an S&L.

Reserve requirements for banks were raised over time. OCC regulated banks where not the root cause of the problems in the GFC, it was more the growth of "shadow banking" done on a much thinner capital base mostly provided by the capital markets.

Over the last 40 years or so bank capitalization ratios have actually risen - especially at non-thrift banks (those regulated by the OCC)
posted by JPD at 12:46 PM on October 22, 2012 [3 favorites]


If you had read the article, considered the argument, ...

I honestly felt a little bad after posting, because I made the first comment, and it was predictable snark. Sadly, I don't really know much macroeconomics. But I do know that the IMF regularly shafts the poor. And when it comes to money I don't trust magic. And I don't see why we need to flip over everything before seeing if restoring sensible regulation works.
posted by benito.strauss at 12:48 PM on October 22, 2012 [1 favorite]


Rain analogy aside (because that's not at all what I'm effectively arguing), the bulk of the post-Lehman depression was not an effect of insufficient liquidity. It's not clear to me there was ever an actual liquidity crisis at all, but certainly not after the Pres and Co stepped in.

Prior to the TARP program we had a drying up of asset market liquidity, it was all but impossible for banks to borrow funds drastically reducing their funding liquidity and we had banks with balance sheets filled with these illiquid assets. By all measures it was certainly a liquidity crisis on three fronts.

The "credit crisis" is just another name for the funding liquidity crisis shifting to Main Street businesses.

Our ongoing Depression grew out of a credit crisis (or, if you'd prefer, a risk crisis). It's not that there wasn't any money to lend, it's that no one was lending--no one would lend.

Which is the drying up of funding liquidity? Either way in the list of things that would help the situation, killing off a healthy bank's ability to invest in the populace via its depositors isn't even on the list which was my entire point.

One interesting (and perhaps accurate) critique of the bank bailout is that it dumped cash into a system that did not need cash. I tend to agree. But certainly after corrective measures started, there was no liquidity crisis.

Some banks needed cash, some didn't. The problem was that the first bank to blink would have seen a mass stampede of investors coming to quickly reclaim what was left of their capital. Giving all banks TARP money whether they wanted it or not was an expedient way to get the system back on track with a minimum of mass panic.
posted by Talez at 1:07 PM on October 22, 2012


When I hear "IMF" and "Chicago", I immediately think "Unbelievable" and "Hard to Say I'm Sorry".
posted by iviken at 1:12 PM on October 22, 2012 [7 favorites]


the post lehman part of the crisis was almost entirely a liquidity crisis and not a solvency crisis.
posted by JPD at 1:13 PM on October 22, 2012


Also, imagine if the extremist Tea Party factions could stonewall monetary policy like they do on taxation.

"We think that inflationary money supplies only punish good hard working Americans that save their money at the expense of those who buy now, pay later on credit therefore we won't authorize the latest bloated money supply expansion."

Political brinkmanship would take on a whole new meaning.
posted by Talez at 1:15 PM on October 22, 2012 [1 favorite]


I'm just going to repost what I said a few months ago about Ambrose Evans-Pritchard:

The author believes that the Oklahoma City Bombing was an FBI sting and that Clintons killed Vince Foster for some reason. So yeah, maybe that's an ad hominem attack and we should treat all texts with equal validity or maybe the guy with tin foil viking helmet and the Lyndon LaRouche face tattoos may not be the most likely to understand complex things.

The Telegraph may think he's worth publishing but his articles aren't really worth reading.
posted by allen.spaulding at 1:30 PM on October 22, 2012 [4 favorites]


grazed by shrapnel while carrying flamethrower ammunition to the front lines.

Wow. I'm reading that as "narrowly dodged a horrible and fiery death." - respect!
posted by Artw at 1:32 PM on October 22, 2012


I love Kucinich but I worry that he gets onboard with the sketchy economics of the far-right gold-bug Ron Paul nuts, because he opposes "the Banks" because he thinks they're controlled by evil capitalists, while the far-right gold-bug Ron Paul nuts oppose the same "Banks" because they think they're controlled by evil... well, they won't say the word "Jews" out loud.
posted by edheil at 1:55 PM on October 22, 2012 [1 favorite]


banks would in turn borrow from the government's reserve bank, so they could in fact lend out in excess of deposits. But the govt would finally be in control of the money supply.

I read that as banks having to borrow from the Fed to cover the reserve gap that they have now, not that this would be an ongoing thing. And I can't imagine that the people promoting full reserve banking would be even remotely happy about the government being in control of the money supply. That's exactly what they don't want.

Doesn't the government have control, albeit indirect control, over the money supply now? The government sets the reserve requirements, which limits the amount of money that banks can generate, and they also set the prime interest rate.
posted by It's Never Lurgi at 1:55 PM on October 22, 2012


The IMF has changed its outlook a fair bit since the 'End of History' days of the late 90s and early 2000s. Especially since the global financial crisis. There has been a gradual shift back towards moderate Keynesianism and away from the rightwing 'Washington Consensus' that was absolutely dominant 10 years ago.

Having said that, this is a single IMF working paper by two economists out of their research department (who, btw, have nothing to do with the Telegraph's nutter journalist) and it does not represent the views of the Fund itself.

It is an extremely radical proposal amounting to the nationalisation of the credit market and a massive expansion in the powers of the Fed (and equivalent central banks). This is an interesting intellectual exercise and it may even have some possible merit, but has virtually no chance of being implemented anywhere in the foreseeable future.

I haven't read the paper but looking at the abstract I am reminded of a little known amateur economist 'quack', the radiochemist Frederick Soddy. Back in the 20s and early 30s he wrote some books on economics, and offered 5 policy suggestions, all of which were considered to be crazy at the time:

1. Abandon the gold standard

2. Let international exchange rates float

3. Use federal surpluses and deficits as macroeconomic policy tools that could counter cyclical trends

4. Establish bureaus of economic statistics (including a consumer price index) in order to facilitate this effort

5. Stop banks from creating money (and debt) out of nothing.


In the decades since, the first four of these ideas have become accepted conventional wisdom and basic macroeconomic policy everywhere. Only the last is still considered 'crazy'.
posted by moorooka at 3:10 PM on October 22, 2012 [8 favorites]


seanmpuckett: "No, really, just raise minimum wage to like $15 an hour indexed on inflation so everyone can afford to live, eat and buy the products their neighbours make, and provide universal health care so everyone can afford to start their own business or consultancy if they want to ... Why is this so hard?"

Because it's a minimum. I figure raising the minimum wage just increases the amount of money seeking to buy housing in nicer neighborhoods, which in conjunction with building restrictions, raises the prices of rents rather than improving affordability.

Arguably, lowering the interest rate to fuel economic growth has led to a similar approach from the opposite end: lower the price of housing until everyone can afford it. You can see how that's working out.
posted by pwnguin at 3:34 PM on October 22, 2012


In the decades since, the first four of these ideas have become accepted conventional wisdom and basic macroeconomic policy everywhere. Only the last is still considered 'crazy'.

Just because the first 4 ideas have been implemented and successful doesn't necessarily make the fifth not crazy.
posted by chimaera at 5:44 PM on October 22, 2012 [1 favorite]


Just because the first 4 ideas have been implemented and successful doesn't necessarily make the fifth not crazy.

Obviously. But remember, it took a very long time to get the other four accepted and implemented successfully. And just because an idea hasn't yet been implemented successfully doesn't necessarily make it crazy. I'm just pointing out that several of the core ideas of modern macroeconomics were quite recently considered 'crazy' as well, and that this one has some serious company.
posted by moorooka at 7:54 PM on October 22, 2012


I don't know where Soddy got his ideas but the first four were put on firm theoretical foundations by John Maynard Keynes and in fact executed at his urging in the 20s and 30s. Keynes is a lot better known for these ideas than Soddy.
posted by JackFlash at 8:28 PM on October 22, 2012


Moorooka - its sort of a weird argument you are trying to make. Wouldn't a more reasoned argument be to explain why this action wouldn't have the sort of the wildly deflationary impact on the economy that the conventional wisdom says it would rather than saying "This guy came up with 5 ideas people thought were crazy, 4 of them are now conventional wisdom, so the fifth might be as well"

(Also the CPI has been published in the US since 1919 - seems like Soddy published most of his work from 1920 on.)
posted by JPD at 7:02 AM on October 23, 2012


well I didn't really intend to discuss the idea on its merits (don't have enough free time and I'm not really sure of my own opinion, tbh). I was just pointing out that the idea reminded me of this rather interesting Soddy character who I had never heard of until recently. (although his more interesting ideas have to do with the incompatibility of exponential capitalist growth with finite fossil-fuel resources). Now having had a cursory read of the paper it turns out that Soddy is actually referenced, as being an influence on Fisher. I just thought the dude was worth a mention.

Regarding the wildly deflationary impact - basically they just want to turn money creation over from private banks to central banks. So it could be deflationary, inflationary, or goldilocks 'just right' depending the rate at which central banks create reserves. Just like the current situation - inflationary when private banks like to lend (like, when there's a big-ass securities market to sell loans to), deflationary when they don't (even when the Fed's lending to them at zero percent). At least, that is my impression.
posted by moorooka at 2:50 PM on October 23, 2012


kadin2048: While the current recession has been bad, it largely hasn't been bread-line bad, and I don't think there's a public perception that it's really worse than the Great Depression of the 30s.

I'm not there, but it seems like that kind of thing is just around the corner.

For fun, I've been following Mutant's blog, which is chock-full of encouraging numbers, like yesterday's chart of shrinking American savings.
posted by sneebler at 4:36 PM on October 23, 2012


That graph is a how-to in end point bias. Or in this case starting point bias.
posted by JPD at 7:03 AM on October 24, 2012


JPD's got the number on that one. Starting your chart in 2007, at arguably the height of subprime lending, is going to reveal one thing primarily: the relationship between lending policy and the savings rate. How else do you explain a 25 percent jump in savings in a single quarter? Does anyone recall getting a 25 percent raise in 2007?

If you extend the chart further back, you'll see that since 1970, savings always spikes in a recession, and fall back later. Plus, percent change from a year ago is a terrible metric. Compounded annual rate of change is a better measure, and as you can see, falling to zero is a regression to the mean, and indicative of NOT being in a recession.
posted by pwnguin at 9:22 AM on October 24, 2012 [1 favorite]


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