Capital Deceit with Paul Gambles | MBMG IA
MBMG’s Paul Gambles was a recent guest on the Macro N Cheese Podcast. Macro N Cheese (MNC) is a production of Real Progressives, a volunteer organization dedicated to propagating economic, societal and political information and knowledge.
We’d encourage anyone interested in these topics to listen to the full episode as below.
Categorised as a left-leaning political body, one of the key tenets of Real Progressives is supporting the message of Modern Monetary Theory (MMT). MMT is a heterodox macroeconomic approach that has become increasingly popular in recent years, while increasingly attracting the criticism of mainstream economists, whose frameworks have been largely debunked by MMT. Paul and MBMG have long promoted many of MMT’s main empirical aspects, even before the term MMT was coined and long before Professor Stephanie Kelton’s seminal book, The Deficit Myth. Rather than a narrow discussion of MMT, for which many other past MNC guests have been far better qualified, MNC’s Steve Grumbine took the conversation into a wider ranging exploration. As Steve pointed out, to many in the MMT community, “capital markets, they’re the boogeyman”, an uncomfortable topic.
This is the first of two articles that summarise the dialogue between Steve and Paul.
While sharing Steve’s frustration at dysfunctional current state of socioeconomic affairs, Paul pointed out that soundbite solutions, like ‘eating the rich’, are infeasible due to the complexities that characterize societal power structures, complexities that have evolved from series of individual decisions, policies and choices since the dawn of mankind. During the discussion Paul reflected on the minor epiphany that he experienced when he became aware of the gap between the narrative and reality of capital markets, and between the narrative and reality in pretty much everything else too. Paul concluded the discussion by explaining-
“Capital markets are just the lens through which we can look at things. Just as economics is. Just as politics is. Nothing is quite what it purports to be, including the idea that capital markets are somehow free and that this freedom is somehow related to democracy and rights of representation and everybody having equal value in society. One thing that I’ve learned in recent years is that you have to be careful when talking about democracy. It’s not necessarily what you think it is.”
Paul explained that learning about the original Greek model of democracy, something that America’s founding fathers were deeply reverent about, when framing The Declaration of Independence and the Constitution, had been an eye-opener-
“Classical Greek democracy is really as much of a myth as the Gods on Mount Olympus. There was no transfer of power to the people as we now understand it but basically a carve up between different autocratic interests in ancient Athens who, until that time had basically been at each other’s throats, alternately in power or in exile before the exiles would return, war would ensue and there’d be a regime change.”
The handful of main Greek autocratic families (or eupatridae) carved up rights to rule between them in order to guarantee that they’d have a shared in the spoils of running Athens. Of course, they had to persuade the masses to accept this change-
“One problem was that having whipped the people into such a frenzy at each other’s throats for so many generations that the only way to sell it to the people was to say, ‘we’re giving you the power’. But that was never the case – there really wasn’t any transfer of power to the people.”
Paul related this to the misrepresentation inherent in capital market narratives, noting that Dutch merchants who founded the Dutch East India Company (or VOC) provided one version of the origin story of capital markets, having banded together to share the risk of their enterprises. If a voyage failed or ship was lost, the leading families retained their wealth and power by more than offsetting that through gains from other trade voyages. This served to empower the narrow group of founders of the VOC, further increasing their concentrated wealth relative to the vast majority of Amsterdam society.
Paul had earlier explained how his son Henry, in recently completing his undergraduate dissertation about the politics of the superhero genre, had discovered that Noam Chomsky refers to the American Declaration of Independence as the first superhero text. For all the rousing language, the Declaration of Independence primarily acted as a form of propaganda designed to exert control over the mass of the early colonists and settlors, in order that a small group could ascend to power, could exercise control, and create an absolute dependence on them, reinforcing the need for dependence through the idea that Americans, like pretty much the citizens of every other state, need a protector who will save the day when needed. Paul drew a line from this dependence to the perpetuation of myths of how economies and markets operate because if most people really understood ‘how the world works, with extreme power and wealth concentrated in such few hands, then it’s like Henry Ford’s quotation about if people knew how banking and monetary policy were, there would be a riot in the morning.’ In other words, societal and socioeconomic structures are predicated on perpetuating and more deeply embedding the kind of social structures that increase inequality and inequity.
“Capital markets have played a huge part in that. I think probably in the eighties, nineties and noughties then capital markets were one of the biggest drivers of inequality. Today there’s a real argument that maybe technology and social media are perhaps even bigger drivers or just as big drivers of inequality in the way that they’re able to concentrate power through information into a very small number of hands.”
Steve appreciated the superhero analogy, confessing to having previously flirted with Libertarian politics and ideals, noting that the seductive power of such philosophies is the idea that “maybe one day I’ll be a maker as opposed to a taker.” Paul agreed that this is “exactly how it works…how it sucks you in with the idea that if you do all the good stuff, you end up becoming the maker….getting all the good stuff and you deserve it. And if people who don’t get that….they don’t deserve it.” Paul and Steve both noted that this ‘just world fallacy’ is both compelling and overarching and dates back through human existence, even to ‘Biblical times and the Garden of Eden and serpent.’ Steve linked this to a more financial track, specifically, the origin story of currency, which prompted Paul to acknowledge his personal debt to another Steve – Paul’s economics mentor, Professor Steve Keen-
“He’s not only a great teacher, but also a really good friend and a wonderful human being…..which occasionally leads him to get a little bit excited about issues like climate change and the people who are doing their best to disguise the realities there. The eureka moment that Steve patiently led me to helped me understand why the world that economic models described wasn’t the world we actually lived in. Traditional macroeconomic models exclude money, claiming that money is not a significant factor in the economy, merely a medium of exchange. Traditional macroeconomists don’t regard money creation as an economic factor, just seeing money as literally a form of exchange from capital to labour, to goods to services. That’s such self-evident nonsense that it’s just ridiculous but this isn’t stupidity. This is a useful tool for ensuring that most people can’t understand how monetary policy works. Henry Ford was right. If they understood how it worked, they’d understand what the consequences of it are. 20 years ago MMT wasn’t a formalized movement in the sense that it has become today. There was no MMT Bible (if we want to look at The Deficit Myth in those kinds of terms: – I hesitate to call it a Bible because I think most of what’s in Deficit Myth is true, so it’s probably not a Bible). But it’s just nonsense to ‘ analyse’ any modern economy without including the role of money in that economy…I often say the single thing that really proves MMT right more than anything is when you hear politicians say ‘no, we don’t have enough money in the kitty for single payer health service and we don’t have enough money for the social housing and the government hasn’t got enough money for education.’ But ask politicians for tax cuts or ask them to go fight an imperialist war. Suddenly they have the money to do that. And that is the ultimate proof. Nobody ever asks them, when it was hospitals, why we don’t have the money. But when it’s creating weapons to put people into hospitals, we seem to have plenty of money for that. Nobody ever seems to ask that question [where the money comes from]. To me that’s the ultimate proof that MMT is on the right track.”
PART 1
In Part One of this article about Paul’s recent appearance on the Macro N Cheese podcast, we covered the more far-reaching discussions about power balances in evolved societal structures, including capital markets. In this concluding part, we’ll look closely at the analysis Paul and Steve fostered of how these imbalances are used by developed economies to exploit emerging countries.
Steve Grumbine focused on a particular bête noir
“Trained economists who make this profession absolutely a perversion talk about ‘well if you just print a bunch of money, it’s going to devalue the dollar’. One of the challenges for me was to understand that spending was the birth of a Dollar and taxing was the death of a Dollar. It’s like a circuit. Steve Keen talks about circuit theory. Warren Mosler expressly states that the term revenue comes from the French word revenir, which makes the money coming back in perfectly legitimate to call it revenue. However, the purpose of that revenue is not a financing operation, it is simply the return to sender. But where did the sender get the money to begin with? The sender created it by spending it into existence I believe that skipping the money creation aspect of it leads people to believe that capital markets dominate and dictate. They do in practice, but they don’t have to.”
Steve then related this to the idea of capital flight and emerging markets. Paul agreed, referencing his own experience:
“I arrived in Thailand in 1994 and therefore I got a ringside seat of the Asian financial crisis just a couple of years after I got here. I like to think that it wasn’t directly caused by me being here, but it is coincidental that it happened pretty quickly once I got here. A friend called Gerry Brady who publishes Boom Finance and Economics, a fantastic free financial newsletter, actually came up with one of the best explanations of emerging market currency weakness. Namely that if you have a soft currency and a hard currency in circulation alongside each other, then they’re conditions leading to a run on the local currency because everybody will instinctively be drawn to wanting the readily convertible Dollar. If you’ve got the US Dollar circulating alongside the Peso, if you have a local economy that runs on two speeds, then Dollar primacy wins out for all sorts of practical reasons.”
Paul and Steve then discussed why such conditions exist – Why do you need the US Dollar circulating in Argentina or in Southeast Asia or anywhere else?
“The reality is you don’t, except that’s the economic and political construct that was dealt to emerging markets after World War II, when they were pretty much forced into a reliance on US Dollars. That creates the potential for capital flight because a currency pair doesn’t just disappear into the ether. It must go somewhere, resulting in Thai Baht or Argentinian Peso or Turkish Lira or whichever EM currency is in question being converted en masse into hard currency. It’s not because of local government mismanaging economies or currencies. We had the crisis here in 1997 because governments and corporations in the region had all been encouraged to borrow US Dollars. That level of borrowing in an alien currency becomes a threat to the local currency, ultimately resulting in currency flight to US Dollar, flight to safety. It’s not necessarily a local factor at all, except having done what seemed to be the perfectly reasonable option that was offered in 1996, 1995, 1994 etc of being able to borrow in US dollars at an interest rate that the American system ensured was less than half of the interest rate charged in local markets, in local currencies.”
Paul and Steve agreed that undermining of local currencies in this way is a form of economic warfare, a stealth attack on local currencies by creating a level of debt in Dollar that ultimately becomes unserviceable and is reinforced by structural adjustments imposed by organisations like the IMF to ensure that countries aren’t able to fight Dollar hegemony. This led to a discussion of the BRICs and expanded BRICs groups as alternatives to and countervailing forces against the pressure of Dollar hegemony.
“Michael Hudson has this great phrase that debts that can’t be repaid won’t be repaid, but in this situation, they end up being repaid in another form;- the arrival in Southeast Asia in 1997 of the IMF with their IMF prescriptions. Their solution to having basically teased emerging markets into a Dollar addiction, was for emerging markets to bear the pain for that. The most powerful emerging markets saw all this and realised the value of their combined economic clout. One of the reasons the Dollar system so successfully imposed itself on emerging markets was the lack of collaborative bargaining, collaborative thinking between the markets. Each had its own totally unequal relationship with the west. The BRICs saw bigger emerging markets banding together to try to create an alternative pathway. Western hegemony has done pretty much everything it can to interrupt the progress of the BRICs. We see examples every day, such as the role that the West has played in trying to undermine the Turkish Lira. A chart of the South African Rand to the US Dollar over the last couple of months clearly shows the point at which American geopolitics expressed its dissatisfaction with South Africa for not following the Western prescription for how South Africa should conduct its relationships with other BRICs and particularly with Russia. Turkey has come through this, albeit with a much weaker currency. South Africa is coming through this, but suffering significant collateral damage. People lose jobs and businesses fail because western markets punish the Rand or the Lira for not following the geopolitical script that the west wants to be followed.”
Paul went on to suggest that western geopolitics in and around the Ukraine and in and around the South China Sea are attempts to prevent the diminution of western economic hegemony. – “I think we’re seeing it move into a geopolitical and into a military sphere. I think that’s terrifying. But it’s a logical reaction if you see it in western hegemonic terms.”
Steve quoted Thomas Sankara “under its current form that is imperialism-controlled debt is a cleverly managed reconquest of Africa aiming at subjugating its growth and development through foreign rules. Thus, each one of us becomes the financial slave, which is to say a true slave.”
Paul agreed – “Ask why western hegemonic lenders lend debts that they know can’t be repaid and won’t be repaid? It’s because in 1997 it wasn’t the western hegemonic lenders who lost out. This is a very clear way of maintaining control. You lend a debt, you increase the dependency, and then when the default happens, you send in your friends from the IMF to increase the dependency even further. It’s a very clinical, possibly a cynical strategy. Not just maintaining influence, but increasing influence, increasing that inequality, that slavery between debtor and creditor.”
Steve also highlighted how this system relies on its enforcement arm, NATO –
“It’s very important to understand the role of the police in managing and maintaining order for capital to thrive. And this is the same role that NATO plays. Making sure renegade states toe the line so capital can do its thing.” Paul and Steve view so-called ‘Renegade states’ as entirely a media creation in the same way that criminal profiling outrightly or subliminally creates the misconception that certain racial or economic profiles are more likely to be criminals. “It goes back to what Chomsky said about the Declaration of Independence. Create a bad guy and then rip off your shirt and show that you’ve got a large S branded on your chest underneath so you can come and save the day.”
Societal order that clearly is manufactured wouldn’t otherwise survive relies on what Chomsky calls ‘manufacturing consent’. We see this in people who maybe haven’t travelled very far from their own country or even their home state aggressively adopting Ukrainian branding on their public profiles, participating in carefully orchestrated virtue signalling. Hundreds of millions of people imagine that of their own volition they are standing up for freedom, because of the way that consent has been manufactured.
Hopefully the discussion will help to demystify the complex dynamics between capital markets and society while probing the role of capital markets in power distribution and widening inequality and will encourage listeners to question narratives and broaden their understanding of the world around them.
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About the Author:
Paul Gambles is licensed by the SEC as both a Securities Fundamental Investment Analyst and an Investment Planner.
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