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The role of literary fiction in perpetuating neo-liberal economic myths – Part 1

Summary:
A few weeks ago I wrote a blog – Reflections on a visit to New Zealand – which began by summarising some research I am working on which will be presented (with Dr Louisa Connors) at the upcoming MMT conference in Kansas City. This specific paper will be examining the role that fictional literature plays in framing false economic concepts and, thus, promoting neo-liberal biases among the readership, even when the plot of the narrative is ostensibly about something other than economics. We show that fiction is a powerful tool for spreading ideological propaganda, often in a very subliminal or subtle way. The lesson we draw from this work is that to further advance Modern Monetary Theory (MMT) ideas, authors, who introduce economic concepts into their writing, should construct their

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A few weeks ago I wrote a blog – Reflections on a visit to New Zealand – which began by summarising some research I am working on which will be presented (with Dr Louisa Connors) at the upcoming MMT conference in Kansas City. This specific paper will be examining the role that fictional literature plays in framing false economic concepts and, thus, promoting neo-liberal biases among the readership, even when the plot of the narrative is ostensibly about something other than economics. We show that fiction is a powerful tool for spreading ideological propaganda, often in a very subliminal or subtle way. The lesson we draw from this work is that to further advance Modern Monetary Theory (MMT) ideas, authors, who introduce economic concepts into their writing, should construct their narratives consistent with the MMT principles. This will help to counter the misconceptions that arise in literary fiction when authors engage with flawed neo-liberal arguments about the monetary system. This blog is in two parts and today is Part 1. Part 2 will come another day (soon).

One book we are working with at present to demonstrate our argument is the recent work by influential American author Lionel Shriver entitled The Mandibles: A Family, 2029-2047 (published May 2016), which traces a family through 18 years of economic chaos after the US government is forced to default on its national debt because it has run out of money and the US dollar has been rendered ‘worthless’ in international currency markets.

Shriver has made it plain in many interviews that the motivation for the book was to present “a cautionary tale about today” (Source).

She told the BBC Radio 4 show Front Row (see previous link) that:

I have to admit that it was kicked off by the crisis of 2008 … This is not an unrealistic book it is not a science fiction book.

In other words, Shriver places her work firmly in the realm of critical realism, which means that she is suggesting her narrative has something to do with reality as it is rather than as she would like it to be.

But the reality is that the book presents a series of linked economic myths woven through the narrative about the dynamics of the Mandible Family – without any scrutiny or validation – just stated.

These include:

1. The ‘government will run out of money’ myth.

2. The ‘government deficits will leave a burden for the kids and the grandkids’ myth.

3. The ‘nation will go broke’ myth.

4. The ‘profligate state then turns on its people’ myth and as in ‘socialism, becomes oppressive’ myth.

5. The ‘healthcare and pensions are unaffordable’ myth.

And all of that is “realistic” and non-fiction, by the author’s own words.

It might be that Shriver believes all this economics rubbish and is just weaving it into her book as a narrative construct. But even so, her literary influence means that the people who read the book will be nodding in agreement and having all their ignorance and prejudices reinforced, not by any economic analysis and empirical validation, but by the bare-faced assertions and repetition of these economic myths.

This is a different problem for progressives to that presented, for example, by the famous tome by Ayn Rand, Atlas Shrugged.

Ayn Rand characterised her work as being a work of romantic realism, in that described, in her view, a world “as it could be and should be” (Rand, 1995: 243).

[Reference: Rand, A. (1995) Letters of Ayn Rand, edited by Berliner, M.S, New York: Dutton.]

Thus, Rayn’s Atlas Shrugged was a cry to the ideologues to crush the welfare state and eliminate the regulative structures that had given the working class a reasonable stake in the spoils of capitalist production.

It was clearly seen as a theoretical template to politically activate the right-wing elements that were increasingly, through the 1970s and beyond, coordinating attacks on the Welfare State and government defence of the poor.

Rand sought to impose a perverted sense of justice (later called ‘trickle down’) onto the policy debate to shift power away from workers towards capital.

But Shriver’s work is in a different category to that. The narrative is not ostensibly about economics. But the dynamics of the family, the central focus of the book, is intrinsically linked to their economic fortunes, which Shriver casts as being undermined by governments.

She verbals the characters by having them recite, in normal conversation between themselves, various neo-liberal economic myths, without scrutiny. They are just presented as background facts as if they have some bearing on what is likely to confront American families in the next 20 years.

This is a much more insidious problem for progressives to confront. Rand can be dismissed as a strange and rather crude ideologue.

Shriver is much more subtle and attempts to push economic myths under the radar – but all the time, suggesting they are factual realities. They are not!

Our paper (to be presented in Kansas) will have five main parts (outside an introduction that will state the problem and scope of our study) and a conclusion that will draw the argument together):

1. A discussion of the ways in which literature can reinforce flawed ideology.

2. A brief introduction to the book’s plot.

3. Why the Mandibles is pure fiction – application of Modern Monetary Theory (MMT) principles to the main monetary precepts presented by Shriver. That is, the book is a fantasy without application to the real world now or in the future.

4. What might befall the Mandibles in a world where MMT is broadly understood – we rewrite the book – in a few short pages using a consistent MMT understanding. We will come up with a much different future for the family.

5. Implications for progressive writers (non-economists) – we discuss how fictional authors with a progressive bent can help deepen the penetration of MMT understandings within the general population.

Why the Mandibles is pure fiction?

Despite Shriver claiming her story about the Mandible Family is “not a science fiction book”, by which she means it falls within the genre of critical realism, the economic concepts woven into her narrative are pure fiction and have no applicability to the real monetary system and the likely evolution of the US nor the World economy.

In this section, we test the narrative against our understanding of Modern Monetary Theory (MMT) and find that the main monetary precepts woven by Shriver into the narrative are a hybrid of gold bug hysteria and mainstream, neo-liberal myths.

It is interesting that Shriver melds together a range of criticisms from disparate sources, not appreciating that they do not comprise a coherent paradigmic position. More about which later.

The obvious conclusion that the book is a fantasy without application to the real world now or in the future.

We argue that it is representative of a number of fictional works that bias readers towards implicitly taking on neo-liberal economic fallacies as if they were verities.

Shriver takes us to 2029 where a new financial crisis is unfolding in the US. A 13-year old boy, Willing Mandible ask his mother as he watches the TV news:

Mom! … What’s a reserve currency?

That is the first hint of what is to come.

The TV news reported that “The dollar now having dropped below 40 percent of the world’s …” as the mother answered:

I’ve no idea what a reserve currency is … I don’t follow all that economics drear. When I graduated from college, it was all people talked about: derivatives, interest rates, something called LIBOR. I got sick of it, and I wasn’t interested to begin with.

The boy responded “Isn’t it important?”

Shriver writes that between the GFC and 2029, when the novel begins, the US endured massive economic change and challenges.

All the elements are there – the robots taking jobs, a hacking crisis that temporarily disabled “vital internet infrastructure” and all the utilities and related home devices that depended on it; the rise of China as the largest economy; the collapse of mastheads such as the New York Times as hackers rendered digital platforms commercially unviable; and the increasingly unreliable New York water supply.

But as the TV news was foreshadowing a major financial meltdown and worse, the Mandible family was more occupied with the everyday micro matters such as who would sweep up the “bits of cabbage from the kitchen floor”. Referencing, obviously, our capacity to bury our heads in the sand from a combination of indifference and ignorance.

We are soon introduced to other members of the family. Lowell Stackhouse, an economics academic at a US university, returns from work and relates the day’s US Treasury bond auction results to his wife Avery (nee Mandible).

He tells her the volume of bids for the bonds (bid-to-cover ratio) was equal to the volumes available and yields doubled.

Lowell, is in denial, which is Shriver’s statement on the way the economics profession handled the period leading the Global Financial Crisis.

He recounts several other potentially disastrous events to his wife, which he claims are unrelated. France is observed as being “unable to completely roll over a tranche of maturing debt—but Germany and the ECB swept in right away”, although with the Eurozone dissolved (as we learn earlier), one wonders what the European Central Bank is doing in the story.

We learn that the UK government, a currency-issuing government, “can’t bail them out this time”, them being the private British bank, Barclays, which is going “to the wall”. Again, this is Shriver denying the obvious capacity that particular government has to create unlimited pounds. If the British government did fail to bail out a failing bank it would be because they didn’t see any political gain in doing so. It could never claim that intrinsic financial constraints were binding on the decision.

But Shriver wants her readers to believe that currency-issuing governments are not able to protect their financial systems and guarantee bank deposits, when in reality, they can always ensure financial stability.

Lowell tells Avery of another “unrelated” development where the “skittish hedge funds in Zurich and Brussels reduced their dollar positions to basically zero and moved into gold”.

While he notes that “foreign demand for US debt is low”, he believes that the US national debt is entirely sustainable because “At 180 percent of GDP – which Japan proved was entirely doable – the debt has been sustained”. Again, Shriver wants us to see Lowell in denial as these negative events multiply.

Clearly, she wants her readers to concur that the public debt-to-GDP ratio somehow matters, even if she doesn’t explain how it matters. She is also, implicitly suggesting that Japan will eventually crash and provide testament to the sort of nonsense that Rogoff and Reinhardt pumped out regarding dangerous thresholds for public debt ratios.

Clearly, she wants her readers to concur that the public debt-to-GDP ratio somehow matters, even if she doesn’t explain how it matters. She is also, implicitly suggesting that Japan will eventually crash and provide testament to the sort of nonsense that Rogoff and Reinhardt pumped out regarding dangerous thresholds for public debt ratios.

Lowell’s belief is epitomised in this passage:

Money is emotional … Because all value is subjective, money is worth what people feel it’s worth. They accept it in exchange for goods and services because they have faith in it. Economics is closer to religion than science. Without millions of individual citizens believing in a currency, money is colored paper. Likewise, creditors have to believe that if they extend a loan to the US government they’ll get their money back or they don’t make the loan in the first place. So confidence isn’t a side issue. It’s the only issue.

And Shriver dismisses this (through Avery) as being pontification and the type of “crap” that economics professors deal up within the academy.

This is a curious tension in the book. She clearly has disdain for the economics profession, given her representation of it through Lowell’s character, whose “quarter-inch stubble no longer looked hip but seedy, and his longish graying hair cut in once-trendy uneven lengths now made him appear disheveled.”

But at the same time, she is happy to channel the main myths perpetuated by the core of the economics profession without question. If the academics are so full of “crap” why are their theories worthy of becoming the basis for what The New York Times review called a “dystopian finance fiction” (Franklin, 2016).

[Reference: Franklin, R. (2016) ‘Lionel Shriver Imagines Imminent Economic Collapse, With Cabbage at $20 a Head’, New York Times, July 11.]

But back to Lowell. While consumer and investor confidence is important in an economy, it is a secondary aspect of the publics’ willingness to use a fiat currency that is not intrinsically valuable (compared say, to gold or silver coins).

Shriver is obviously oblivious to the fact that the state has the capacity to denote the objects that will be required to relinquish the tax obligations of the non-government sector. That capacity is what underpins the demand for the currency rather than confidence. The non-government sector has to supply goods and services to the government sector in order to acquire the state’s currency.

In Modern Monetary Theory (MMT), this tax obligation gives relevance to an otherwise worthless currency. It requires governments to spend the currency into existence. And, logically, the capacity of the non-government sector to pay taxes must comes after the government spending, not before.

As he is travelling to work next morning, Lowell looks at his mobile information device that everyone now carries (a “fleX”) and the headlines were “DOLLAR CRASHES IN EUROPE”, presaging the generalised collapse of the US currency, which Shriver sees as inevitable.

Next we encounter the grandfather of the family Douglas who is fabulously wealthy as a consequence of early industrial innovations from his father.

He is in conversation with his son Carter Mandible (father of Avery). Carter has been trying to work out “this ‘bancor’ business”, which as we learn later, refers to the new reserve currency introduced by Russia and taken up by China.

Not only are foreigners selling off the US dollar and the ECB, Bank of Japan, Bank of England and the US Federal Reserve cannot stop it, but Vladimir Putin has introduced a new reserve currency, the Bancor, a name stolen from the supranational currency proposed by John Maynard Keynes and E.F. Schumacher in the early 1940s to support an International Clearing Union they considered essential to restore stability once peace was restored.

But the conversation then shifts to an acknowledgement that:

The SEC hasn’t deigned to re-open the Exchange since the Level 3 circuit breaker kicked in on Thursday. It doesn’t take much imagination to picture what will happen to the market when they do. I’m sure the SEC has pictured it. So whatever the values at which stocks left off are academic.

Which means that Carter’s wealth had been more or less wiped out. Further, the ATM machines had reduced the amounts they were dispensing because of a fear of “bank runs”.

Paul Krugman is the Federal Reserve Bank governor in 2029 and claims the banking restrictions are temporary.

This prompts Douglas to rail against about the problem of using capital controls. He tells Carter:

The hard part is lifting capital controls, which becomes unthinkable the moment they’re instituted. Who wants to keep funds in a country that confuses a bank account with a bear trap? The moment you remove the constraints, the nation is broke. So you can be sure that at least the freeze on making monetary transfers out of the US will stay in place for some time to come. Look at Cyprus. The capital controls levied in 2013 weren’t entirely rescinded until two years later.

Perhaps Shriver could have used the example of Iceland, which has its own currency, rather than Cyprus, which surrendered its currency when it adopted the euro. But then the story wouldn’t have gone the way she wanted it to.

For Iceland has categorically demonstrated that even with the opposition of some of the largest hedge funds in the world, a small, currency-issuing government can successfully impose capital controls and defend its currency.

Please read my blog – Iceland proves the nation state is alive and well – for more discussion on this point.

She might also have updated her knowledge of the latest research on capital controls, where even the IMF, previously implacably opposed to them, has been forced to acknowledge that they can stabilise the financial sector and provide better growth opportunities for nations under speculative attack from foreign exchange markets.

Please read my blogs – Why capital controls should be part of a progressive policy and Are capital controls the answer?– for more discussion on this point.

But all that would be inconvenient to Shriver’s intent. By introducing Douglas into the narrative she sets up a repetitive theme in the book. Shriver motivates her causal chain by asserting that the American fiscal system has been underpinned for years by foreign purchases of US government treasury debt.

The US dominance of the IMF is also over, and the New IMF (NIMF) which supervises the bancor, is no longer a policy extension of the US. The NIMF aims to “restrict the money supply” in global markets and reduce the reliance on the worthless US dollar.

But as they rue the current developments on international foreign exchange markets, Douglas informs Carter that the US dollar “is worthless now because it was worthless before“.

Shriver then, through Douglas, rehearses the standard Austrian School argument that:

In the hundred years following the establishment of the Federal Reserve in 1913, the dollar lost 95 percent of its value — when one of the purposes of the Fed was to safeguard the integrity of the currency. Great job, boys! … And the majority of that currency decay is historically recent. Why, the dollar lost half its value in the mere four years between 1977 and 1981.

American politician Ron Paul and the Tea Party supporters all mount this argument to attack the Federal Reserve Bank and the use of fiscal deficits.

The problem with the argument is that it is intrinsically misleading.

The claim is often by made in terms of the relative shifts in gold prices in US dollars. They say that in 1913, it took $US20.67 to purchase an ounce of gold (that is, each US dollar purchased 0.0484 of an ounce). By the time The Mandibles came out (2016), the gold price had risen to $US1250.74 per troy ounce (or each US dollar purchased 0.0008 of an ounce).

Simple arithmetic then tells us that there has been a 98.3 per cent decline in each US dollar’s capacity to purchase gold.

Of course, this calculation, though the result is relentlessly shouted by gold bugs and other government haters really has no relevance in calculating the real value (purchasing power) of the US currency.

Even during the ‘gold standard’ periods (which includes the Post Second World War Bretton Woods system of fixed exchange rates), using the gold price as the standard reference for the value of the US dollar, was problematic because gold itself was not in fixed supply and was also used as a speculative vehicle. The Bretton Woods system was a spectacular failure and was abandoned in 1971.

Economists also respond by saying that the real value of the dollar is best expressed in terms of how much a standard basket of goods and services costs. They use a Consumer Price Index (CPI), which converts such a basket into index number points.

If we take the All Items CPI, which the US Bureau of Labor Statistics publishes back to January 1913, we see that its average value in 1913 was 9.9 index points (base-year value of 100 in 1982-84). The average value in 2016 was 240. A simple calculation means that the CPI has increased by 2328.4 per cent over the entire span of the data.

So converting that into a dollar purchasing power expression gives us a 95.8 per cent decline in ‘purchasing power’ per dollar between 2013 and 2016.

Which would appear to validate the claim that the US dollar has declined in value by that amount.

But in repeating this Tea Party logic, Douglas Mandible was grossly misleading his son, Carter and by, inference, Shriver was grossly misleading her readers by leaving them with the impression that the US dollar was worthless now as a result of central bank policies and deficit spending by the Treasury.

The reason this Tea Party logic is grossly misleading, is that it would only make sense if the wages received by workers, for example, had not changed at all over 103 years (1913 to 2016).

But, of course, that far from true.

Official data shows that the average hourly earnings of production and nonsupervisory employees in the US Manufacturing industry in 1913 were $0.22 (US Census Bureau, 1975). By 2016, the average hourly earnings had risen to $US20.44, a rise of 9,190.5 per cent since 1913 (Bureau of Labor Statistics, Series CES3000000008).

[Reference: US Census Bureau (1975) Historical Statistics of the United States, Colonial Times to 1970, series D802 – LINK]

$0.22 per hour in 2016 dollars would have been worth $US5.34 per hour. So the real hourly earnings have risen by 282 per cent between 1913 and 2016, an incredible increase in the purchasing power of the dollar in the hands of workers.

A comparison of any occupational group would reveal a similar result.

Further, annual per capita national income was $US407 in 1913 (US Census Bureau, 1975) or $US9,883 in 2016 dollars.

By 2016 it had risen to $US57,590, an increase of 14,049 per cent in nominal terms and (which in real terms translates to a 482 per cent increase).

In other words, the average American household now has a much greater command over real goods and services in 2016 than they had in 1913.

Consider the average Manufacturing worker of 1913 who was earning 22 per cents per hour, being time-shifted into 2016. They would only be able to buy goods and services worth $US5.34 for each hours of work, whereas the actual average Manufacturing worker in 2016 was able to purchase $US20.43 worth of goods and services. A massive improvement in the command over material goods and services.

And this comparison does not take into account the huge improvements in quality of the goods and services available, particularly in areas of health, technology and housing.

Nor does it take into account the compound interest that could have been earned on the 22 cents had it been saved. A separate comparison would reveal that the compounded real $ value would now be much higher than it was in 1913.

There is a valid argument to be made that the average blurs the underlying distribution given the rise in income inequality over the last 30 years in the US. But that is not the claim underpinning the diatribe from Douglas Mandible to his son.

Overall, the inference that a recipient of the US dollar had a better material life in 1913 when compared to 2016 is plainly false.

Here we see that Shriver has brought together a sort of grab bag of criticisms from disparate sources about central banks and government deficits, without acknowledging (and perhaps, not appreciating) that they do not comprise a coherent paradigmic position.

So while the loss of dollar value is typically an Austrian School argument (politicised by the gold bugs and Tea Party activists) it is rejected by any mainstream, neo-classical economist (which I generally refer to as the dominant neo-liberal group in the profession).

Most trained economists would acknowledge the arguments we have presented above.

But, not to be fussed by consistency, Shriver immediately launches into doomsday scenarios that the mainstream would use to attack government.

To be continued …

Conclusion

In Part 2, we consider the demise of the US economy in Shriver’s narrative, the way the US President is characterised and more.

Reclaiming the State Lecture Tour – September-October, 2017

For up to date details of my upcoming book promotion and lecture tour in Late September and early October through Europe go to – The Reclaim the State Project Home Page.

There are updated details today concerning the Madrid events.

Later in the week, I will be able to offer discounted access to the book. Stay tuned.

That is enough for today!

(c) Copyright 2017 William Mitchell. All Rights Reserved.

Bill Mitchell
Bill Mitchell is a Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, NSW, Australia. He is also a professional musician and plays guitar with the Melbourne Reggae-Dub band – Pressure Drop. The band was popular around the live music scene in Melbourne in the late 1970s and early 1980s. The band reformed in late 2010.

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