[aazaa]

The article begins with the idea that the causes of the Great Depression are not known or too numerous to pin down. It then continues by claiming that "recent scholarship has resulted in striking agreement on the reason for the crisis." The cause of the Great Depression was the gold standard, according to the article:

> ... The constraints of the gold-standard system hamstrung countries as they struggled to adapt during the 1920s to changes in the world economy. ... Central bankers continued to kick the world economy while it was down until it lost consciousness.

What this article ignores, like countless articles before and since, is the Roaring 20s. Articles like this treat the Great Depression as an event that hit the US economy out of the blue. But even superficial study of the ten years prior reveals something obvious: a massive, compounding, technology-fueled asset bubble.

The article also ignores the event that kicked off the Roaring 20s: the depression of 1920-1921:

https://en.wikipedia.org/wiki/Depression_of_1920–1921

This depression resolved itself under a gold standard regime and with minimal intervention by the Federal Government and Federal Reserve.

50 years ago the US abandoned the last vestiges of the gold standard. Today we find ourselves in the middle of a technology-fueled asset bubble. The US president talks, without a hint of embarrassment, about the need to borrow to continue to service debts. This is, of course, the very definition of a Ponzi scheme.

Whatever this comes to, we won't have the gold standard to kick around. It's been out of the picture for decades. What happens when the world's governments decide to outdo each other on how much currency they can conjure into being?

[VHRanger]

It's extremely HackerNews-ish of you to propose that the author of the article ignores your pet theory.

The author of the linked article is Barry Eichengreen, widely recognized as the premier scholar of the Great Depression. The article references about 900 pages worth of other articles, believe me: your pet theory about the 1920's events is considered in the conclusion. They're not ignoring it because they read fewer books than you.

> The US president talks, without a hint of embarrassment, about the need to borrow to continue to service debts.

Governments don't work like a household. What matters is borrow costs and use of funds. If a government can borrow and the net growth generated is greater than the interest rate on the debt, it's a good thing to borrow. Like any business debt.

A government can be in debt forever, the only thing that matters is borrowing costs and growth rate (and how the growth is generated see eg. Chinese real estate for malinvestment).

[aazaa]

> It's extremely HackerNews-ish of you to propose that the author of the article ignores your pet theory.

What pet theory is that? All I did was to mention two historical episodes that preceded the event under discussion, and which the paper fails to mention.

> The author of the linked article is Barry Eichengreen, widely recognized as the premier scholar of the Great Depression.

So what? We're talking about the paper, not a person.

> The article references about 900 pages worth of other articles, believe me: your pet theory about the 1920's events is considered in the conclusion.

On what pages does the paper take up the issue of the speculative bubble leading up to the Great Depression?

> Governments don't work like a household. What matters is borrow costs and use of funds. If a government can borrow and the net growth generated is greater than the interest rate on the debt, it's a good thing to borrow. Like any business debt.

A main MMT talking point. Yes, I've read Kelton's book and yes, a government that prints its own currency is not like a household.

MMT is an experiment. For all our sakes, I hope its proponents are right.

> A government can be in debt forever, the only thing that matters is borrowing costs and growth rate (and how the growth is generated see eg. Chinese real estate for malinvestment).

What if malinvestment looks like investment until it doesn't?

[dnautics]

> Governments don't work like a household.

That's right. If a individual accumulates too much debt, then the individual can choose to discharge obligations through bankruptcy resulting in loss of credit, or death of the debtor, and ultimately the lessor is on the hook for the risk, and those two parties with agency over the debt contract are the only two who directly must suffer consequences. (yes there is tangential collateral damage, like if there are dependents, but it's not a whole lot).

If a government goes into debt, it externalizes the consequences of the spending to the public. "well, we vote for our representatives who spend". But that's not true. Suppose you were 16 (or, even more extremely: -1 years old), and couldn't vote against representatives voting for something stupid, like, say the US government invading Iraq. You are still on the hook for paying off the costs of those decisions. Sovereign debt is an end-run around the principle of "no taxation without representation", and it's in a much more morally questionable place.

Or, you can choose to reject the principle of "no taxation without representation", which if you are happy to do that explicitly and publically I will shut up.

Finally, the burden of amortizing sovereign debt is often achieved through the printing press, which in the long run causes inflation. Households usually can't do this. This disproportionately hurts the poor, so that adds onto the moral objection to sovereign debt.

[SilasX]

>Governments don't work like a household. What matters is borrow costs and use of funds. If a government can borrow and the net growth generated is greater than the interest rate on the debt, it's a good thing to borrow. Like any business debt.

If that was an attempt to show a difference from households, I don't see it, since those thing are equally true of households.

[mabub24]

In many ways, the concept of "printing money" is too simplistic to describe how the banking system and monetary systems interact with each other, especially once you get your head around the fact that money is (almost always) "created" endogenously through the expansion of balance sheets.

You can't just think like a customer going to the bank; you have to think of it like a number of actors in a complicated network of credits and debits as well as global trade with imports and exports.

[nicoffeine]

The gold standard was abandoned because it is a terrible idea for civilizations that have technologies like accounting systems and currencies that are difficult to counterfeit. Tying economic expansion to the ability to mine and store one type of element doesn't make any sense.

There are countless asteroids out there with quadrillions of dollars of precious metals. Does that mean the first private company to create a currency "backed" by a claim to one of them is worth more than the US economy? No, of course not. The US economy produces food, shelter, water, goods, services, etc etc. It's worth far more than a chunk of atoms. Even if you could magically spirit those atoms into a vault somewhere, what do you do with them at that point?

Modern monetary theory is doing just fine, and so are all of the nations issuing fiat currency, selling bonds and notes, building infrastructure, and providing fertile ground for markets to do interesting things. Nostalgia for the gold standard is just way for people to claim the superiority of economic theories that are simply not useful anymore.

[loki49152]

Modern monetary theory isn't doing fine and neither are the countries with fiat currencies. They're all in absolute crisis because their economies are built on ever-shifting quicksand.

The "gold standard" isn't a theory of economics, it's an observation. Money is a medium of exchange - a mechanism for judging the relative value of unlike goods. That is literally impossible if the thing used as money is non-economic, like fiat currency. The money must be itself a tradeable commodity. Commodities that are useful as money have all the traditional traits you learn in elementary school, and gold is the traditional and current best fit for those traits.

Belief in the viability of "monetary policy" and fiat currencies always comes from a belief that no one can really know how economics works, so whatever anyone does right now might not work in the future. Well, obviously that's going to be true of people who refuse to learn what economics as a field actually is.

[slowhand09]

I posted this yesterday.

Food for thought. In 1964 you could take two silver dimes and purchase ~1 gallon of gas. Gas was ~20 cents per gallon. Dimes were 90% silver. Fast forward to 2021. You could take two silver dimes to a coin dealer, sell them for fiat currency, and purchase 1 gallon of gas. Gas is ~$3.50 per gallon, silver is ~$23 per oz, and 2 silver dimes from 1964 contain ~5grams of silver.

But using 2021 dimes, you need 35 dimes to purchase a gallon. Precious metals have kept their value. Fiat currency has lost nearly 90% of its value since moving off the gold standard. The government needs more money, they print it. Based on their promise to pay it back later, with cheaper inflated currency.

Paper currency representing a given quantity of gold/silver/etc is a good idea. When you divorce it from that backing value is when governments print money to inflate. We all lose when that happens.

[dnautics]

> Modern monetary theory is doing just fine,

How's that gap between the rich and the poor going?

Look, the US was on the gold standard between 1850 and early 1900s, and not only recovered from a civil war, but ALSO freed all of its slaves AND went from a backwater country to a world superpower, and reduced inequality all at the same time.

https://voxeu.org/article/american-growth-and-inequality-170...

[praxulus]

> This is, of course, the very definition of a Ponzi scheme.

Most Ponzi schemes don't have the authority to levy taxes on the largest economy the in world, nor are they backed by the most powerful military force humanity has ever seen.

[newsclues]

Does that mean modern monetary policy is not a Ponzi scheme because it has a nuclear military?

[kiba]

No society can outrun living beyond their means, no matter how deep their reserves are.

[vvoaterr]

Anybody is welcome to download the Robinhood app, and buy FAANG/FAGMAN stocks with all your disposable income. Then you, too, will be contributing to the leading cause of the next "Great Depression", plus, you'll come out of it having become quite Rich.

You're welcome.

[txru]

> FAGMAN

...

So do you use that often in polite company...?