posted on 08 February 2016
Perhaps there were unintended consequences to Lord Adair Turner's post-crisis discovery of the deeply heterodox taboo of what today we call 'public money'. He continues to find something diabolical in the midst of public money, and I can't figure out why. He has given no reason.
In his new book, 'Between Debt and the Devil', Adair Turner puts the lesser 'taboo' - DEBT (that of private banking induced credit-money fame) - front and center. His great discourse in Parts II and III of his book is on the "debt" problems of private-credit based monetary policy today. Being honest, more DEBT is all that the private money and banking system has to offer.
Turner's critical, negative views of a monetary system based upon DEBT-contracts here seems to comport with those of former BIS chief monetary economist Dr. William White - see for example here and here. This is true especially with regard to the ineffectiveness of central bank policy. In attempting to advance economic demand in our modern monetary economies, the harder they push on that string, the worse the outcome, as in the growth of the TBTFs. Their new fatness is all debt. And taking us nowhere.
Indeed, Turner's entire book is very smart, deeply informing and definitely worth the buy and the read, despite its faults. I say that in passing because this post is not a book review, but a policy review and critique.
Modern Central Bankerdom's Malaise - Debt Saturation
The modern central bankers' toolbox is empty, and their 'innovative' life-support policies ever more ineffective. Both Turner and White seem to recognize that attempts to use central banks as an economic demand-enhancing policy lever today are actually becoming the veritable cause for our continued and growing economic malaise - a.k.a. the Global Debt Overhang. This policy tool's main result is clearly more un-payable debts on a larger scale. This debt-saturation malaise is, in reality, substantially far more advanced and more entrenched than most pundits today are aware.
Dr. William White goes so far, both in his Cobden Center interview (referenced above) and his recent interview with Ambrose Evans-Pritchard at Davos, as to call for an end to using the central banking policy lever - recognizing aloud as does Turner more softly - that the jig is up on debt-based money. Let's do government, says White.
We agree. With Greenbacks.
Not so fast, says Turner.
What this money and banking situation actually means to astute economic policy makers should be manifest - you can't remove your economy from debt saturation ('overhang'), nee secular stagnation , by going any further into private bank debt.
It is thus that Turner identifies this edifice of "debt" as one of the very real economic dangers lurking in our midst. But, what does he propose to do about it? Other than to invent a more fearsome policy bogeyman?
Could a public-monied policy lever rise to the fore?
Some of us thought that Turner might engage the solution of that long-held "taboo" he has spoken of recently, that of Irving Fisher's 100 Percent Money, what we call today, public money. But, alas, rather than holding up a debt-FREE money solution, that of sovereign issuance, as proposed by Fisher, Simons and Friedman, among the economists that Turner has championed in recent times, we find this option being re-branded in his new book, from its former heterodoxy as an 'economic-taboo' to the more dogmatic, fearsome, even religious villain ........ of none other than 'The Devil' himself. Gee, pick a side - the bankers' or the devil ???????????
Besides the reality that there is little, if any, room there ...... one wonders. Why?
Play with the Devil Only Rarely, as a Last Resort?
In failing to embrace the 'public money' solution of Fisher, et al, in its stead we have Turner himself emerge as the modern money player, designing a pea-shooter money construct - of what I will call extremely limited-purpose public money. Turner constructs his own brand of OMF (Overt Money Financing), and then from a public policy perspective makes that construct into a modern pariah - a 'Demon', to be dabbled with only rarely, only when absolutely necessary, and seemingly in constant deference to its private DEBT-based counterpart.
Turner's Proposal is Just Too Limited
Turner's version of OMF leaves the many benefits of Fisher's public money vision untapped and unavailable. Turner's 'Demonic' characterization of the public money option is just plain Wrong, and not supported by science, facts or history. He asks how we can be certain about its possible misuse, forgetting for the moment of the historical misuse of DEBT. (BTW, Adair, Weimar was not public money.)
To those of us who have been working for generations on advancing the public money construct that Turner loosely discovered around 2011, his extremely-limited purpose, monetary finance' option is a non-solution, being far removed from the systemic solution that is both desperately needed and presently available through public money administration.
I hope to write on the operational and mechanical problems associated with Turner's 'extreme limitation policy' later.
But from a forward-looking policy perspective, this becomes a one-Chapter book, Chapter Fifteen: Between Debt and the Devil - A Choice of Dangers. It's a false choice for a lot of reasons; from my perspective, the first being that there is no "Between" Debt and the Devil. Debt is the Devil.
There's a Fork in the Road Ahead - Indeed
The gist of that concluding chapter is that there lies a fork in the road ahead - we are thus faced with a choice between Turner's postulation of two deadly dangers. To hear it from Turner, we must accept either the dangerous DEBT saturation and un-payable DEBT, or accept the unexplained public money Devil we don't know ..... being tainted still, and anew, by our modern money technocrat.
In this Chapter 15 we find conclusively that, after the last several years of Turner's popularized intellectual self-jousting on the exact role for public money within his evolving vision, the Jury is back.
According to Turner's now-evolved monetary construct - there's nothing really wrong with private money creation by fractional-reserve banking - that debt-saturating, cyclicality-deepening, anti-democratic system of private banker privilege.
Nothing really wrong with that, says Adair. Just needs a little monetary-finance tweaking when the bus is about to go off the cliff.
So the Fathers of Money Issued Without Debt are Wrong?
Does this mean that Fisher and Friedman and so many notable others were wrong on that specific foundational point? Also is Martin Wolf, and the rest of the world's monetary reformers who are promoting the well-scienced concept of public money as the vehicle to advance real economic demand, wrong as well? I certainly have not seen this addressed by Turner - the WHY that all the other noted economists are wrong on this point - and rather than positing logic and reason, he gives us " the Devil" you don't know argument ...... as his way to wrestle the money science forward in a half-hearted manner.
Missing the Money System Fix
Adair proposes that we accept his version of 'monetary finance' policy ..... where we sprinkle in a little OMF as needed (not too much, now .... careful, dangerous stuff there) to keep the private part from collapsing.
Nice (public-subsidy ) work if you can get it.
Sorry, Adair, but you have sorely missed the issue of the day.
Who should create the money? Why? And How?
All of those who have earlier toted the burden and paved the road to systemic monetary reform have had the mechanism for achieving that non-debt alternative, that of the economically stable and pro-democratic option, absolutely clear in presenting that vision.
It is the replacement of the present private bank credit (DEBT-contract) system in favor of one of public money administration. The key word here is replacement.
Turner has taken the bankers' side, by throwing a demonic monkey wrench into the public's side.
Money as a Public Utility
We are approaching that more learned study on money, where the basis of the discussion is the national economy and the national monetary system, and from a broader understanding of who owns that national money system, and of why those owners are not issuing the money, and gaining the seigniorage, as proposed by Fisher and Friedman, rather than paying the debt-service for its first use.
Just think - money is a public utility and bankers want to charge for its use by the public.
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