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Left to its own, free market capitalism trends to stagnate, says Yanis Varoufakis, unless there is a stimulus, he adds.The free marketeers believe there is a magic number for interest rates, which the free market will set, but in practice this never happens, as Varoufakis explains. Time for MMT. A decade after the 2008 financial crisis, faith in markets' self-regulating abilities once again lies in tatters. There simply is no single real interest rate that would spur investors to funnel all existing savings into productive investments, and employers to hire all who wish to work at the prevailing wage. Setting aside the magical interest rate’s non-existence, capitalism’s natural tendency to stagnation also reflects the failure of money markets to adjust. Free marketeers assume that
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Left to its own, free market capitalism trends to stagnate, says Yanis Varoufakis, unless there is a stimulus, he adds.The free marketeers believe there is a magic number for interest rates, which the free market will set, but in practice this never happens, as Varoufakis explains. Time for MMT. A decade after the 2008 financial crisis, faith in markets' self-regulating abilities once again lies in tatters. There simply is no single real interest rate that would spur investors to funnel all existing savings into productive investments, and employers to hire all who wish to work at the prevailing wage. Setting aside the magical interest rate’s non-existence, capitalism’s natural tendency to stagnation also reflects the failure of money markets to adjust. Free marketeers assume that
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Mike Norman considers the following as important:
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Left to its own, free market capitalism trends to stagnate, says Yanis Varoufakis, unless there is a stimulus, he adds.
The free marketeers believe there is a magic number for interest rates, which the free market will set, but in practice this never happens, as Varoufakis explains.
A decade after the 2008 financial crisis, faith in markets' self-regulating abilities once again lies in tatters. There simply is no single real interest rate that would spur investors to funnel all existing savings into productive investments, and employers to hire all who wish to work at the prevailing wage.Setting aside the magical interest rate’s non-existence, capitalism’s natural tendency to stagnation also reflects the failure of money markets to adjust. Free marketeers assume that all prices magically adjust until they reflect commodities’ relative scarcity. In reality, they do not. When investors learn that the Federal Reserve or the ECB is thinking of reversing its earlier intention to increase interest rates, they worry that the decision reflects a gloomy outlook regarding overall demand. So, rather than boosting investment, they reduce it.
Instead of investing, they embark on more mergers and acquisitions, which strengthen the technostructure’s capacity to fix prices, lower wages, and spend their cash buying up their companies’ own shares to boost their bonuses. Consequently, excess savings increase further and prices fail to reflect relative scarcity or, to be more precise, the only scarcity that prices, wages, and interest rates end up reflecting is the scarcity of aggregate demand for goods, labor, and savings.
What is remarkable is how unaffected free marketeers are by the facts. When their dogmas crash on the shoals of reality, they weaponise the epithet “natural”. In the 1970s, they predicted that unemployment would disappear if inflation were subdued. When, in the 1980s, unemployment remained stubbornly high despite low inflation, they proclaimed that whatever unemployment rate prevailed must have been “natural”.