Crisis? What Crisis? A Video for Elon Musk on the Deficit
Why eliminating the deficit will tank the economy
This nicely edited video (courtesy of the marketing team promoting my online course via https://book.stevekeenfree.com/) has a target audience of one person: Elon Musk. If by any chance he follows you, please forward this post to him—and its companion on Patreon, to which I’ve attached the crucial modelling files, including Matlab versions as well as the Ravel originals, (Substack only supports embedding a limited range of file types):
https://www.patreon.com/posts/119478488.
I work from first principles to show that, if the textbook model of Loanable Funds was a realistic model of banking, then he is right: if the government spends more than it takes back in taxation, a future crisis is inevitable.
But if what is normally called "Endogenous Money" applies, in which banks create money by making loans, then there is no crisis.
Since Endogenous Money--which I call "Bank Originated Money and Debt" (BOMD)--is the correct model, for reasons outlined here by The Bank of England and The Bundesbank, not only is there no crisis, but running a government deficit is a critical step in creating fiat money. I show in the video that, in this scenario, a balanced budget dramatically reduces the rate of economic growth.
Please share this page as widely as possible. The YouTube video has already been a hit, with over 100,000 views already (in just over a day) and more than 1,000 comments (not all of which are Austrian whines).
I've recorded a follow-up video on inflation--the main point of criticism by those who were critical on YouTube). It should be ready in a week or so, and has a result that will surprise my critics: the form of money that is historically most associated with inflation is private-bank-created money, not government-fiat-created money.
Agreed Steve. I think Musk knows the accounting, at least intuitively, and will squeeze government spending to squeeze labor.
An 'open letter to Elon Musk' is a clever device to get the message out into the wider world. 100,000+ views is highly significant. However:
My take is that far-Right politicians (such as the recently self-reinvented Musk) & Atlas junk-tanks like Heritage and IEA are more focussed on shrinking government (at least the social welfare aspects of it- not the police and military) and disciplining the working class to lower pay and harsher conditions. https://substack.com/@graceblakeley/note/c-84775973
The damage caused to the economy of real goods and services- the pond which the 99% swim in, including the owners of small-to-medium businesses- is likely considered mere 'collateral damage'- a price worth paying for the ideological outcomes sought. The resulting fall in consumption by the 99% could even be considered as a 'rational' response to climate change- instead of replacing the needs of a buoyant economy with renewables, relying on a much reduced demand for conventionals in a dystopian future where most people will consume little more than that required to keep them alive.
Even deflation has a silver-lining for the Billionaire. Those caught on the negative side of the deflationary debt trap will be forced into debt-peonage. Those on the positive side will see the purchasing power of their assets increase.
Comparisons have been made to the 'Gilded Age' of the late C19th. The key difference is that those were expansive times with escape-routes to less developed lands (coloniser opportunities if you like), and small-to-medium business opportunities simple enough to be established with achievable capital. No such opportunities are apparent today.