On lying politicians and bullshitting scientists

Greg Sargent writes:

I disagree with Sargent’s statement that “The reason Trump regularly tells lies that are very easy to debunk . . . is to assert the power to say what truth is.” I think it’s simpler than that. People like to say things that make them look better, and this is easier to do if you’re not constrained by the truth.

The big question is not so much why someone who has lied a lot in the past keeps lying—people typically keep doing with what’s worked for them before—but rather why so many of his supporters don’t seem to mind.

And there I’d like to draw a connection to something I’m more familiar with, which is scientists bullshitting. Sometimes out-and-out lying, but more commonly not “lying” exactly, which would imply some awareness of what they’re doing, but rather saying things that sound good even though they are not accurate.

As with political parties, what’s striking to me is not so much that some scientists bullshit, but that the mainstream of the scientific establishment doesn’t seem to care.

When a major psychology journal publishes a paper claiming to be “a long-term study,” and it turns out that the study only spanned 3 days, that’s pretty bad, no? You’d think they’d be kind of embarrassed, no? I’m not taking about the authors here, I’m saying the journal editors would be embarrassed, the head of the psychology society would be embarrassed, etc. Mistakes happen, but this is a pretty bad one. Kind of like the thing about Trump’s lies being so easy to debunk—this is a piece of bullshit that’s particularly easy to catch.

Anyway, the punch line is, No, nobody cares. I care, Retraction Watch cares, whoever got papers rejected by that journal because they were publishing bullshit instead, they probably care, various grad students and postdocs who email me saying they’re upset that their advisors don’t seem to care about getting things right, they care too . . . but that’s about it.

Why don’t they care? They’re committed to the entire enterprise, just as politicians that lie are enabled by members of their party who presumably think that their larger causes will suffer if they were to confront the lies. To be upset about the bullshit would require giving up too much.

P.S. I’m not trying to draw any equivalence between a politician trying to overturn an election and scientists publishing things that don’t make sense. I’m just trying to leverage my from-the-inside understanding of the science bullshit to get some insight into political lies.

P.P.S. If you want to argue on policy grounds that Trump as president did more good than harm, and that if you support a political party’s larger goals you gotta go with who won the primary elections as there’s no alternative . . . sure, you can make that argument. The analogy to the science discussion is to argue that, sure, there are lots of really bad papers, but to draw attention to them would reduce trust in science. You could also make the argument that some amount of bad science is necessary, as the review system isn’t perfect, but if that’s all, then you should be happy with loudly pointing out the b.s. The striking part to me is not when people say, “Yeah, there’s lying but on balance it’s positive,” so much as when people wriggle around and try to deny that the lying or bullshitting is happening.

Indeed, it’s a sad sign of partisan polarization that it seems almost like a political stance to point to a politician’s pattern of lying, in the same way that it’s a sad sign of scientific communication that it seems almost like a form of rabble-rousing to discuss scientific bullshit that just sits in the literature forever.

As I wrote last year (but it could’ve been 5 years ago, or 10 years ago):

Science is kind of like . . . someone poops on the carpet when nobody’s looking, some other people smell the poop and point out the problem, but the owners of the carpet insists that nothing has happened at all and refuses to allow anyone to come and clean up the mess. Sometimes they start shouting at the people who smelled the poop and call them terrorists. Meanwhile, other scientists carefully walk around that portion of the carpet: they smell something but they don’t want to look at it too closely.

P.S. As indicated by this title, this post focuses on the toleration of lies by politicians and scientists, but the topic is more general. “Lies” blurs into “incompetence” (recall Clarke’s Law), and “politicians and scientists” blurs into “anyone who’s trying to sell you something.”

67 thoughts on “On lying politicians and bullshitting scientists

  1. Many politicians “bend” the truth—probably for the reasons you list.’\

    Below is a link to a newspaper story that appears in today’s Washington Post. (It was up on the web earlier.)

    It begins:

    There’s a regular request that readers send to The Fact Checker: Is that personal anecdote that President Biden just told true?

    The answer, in many cases, is there’s no evidence.

    Many of these tales are of relatively minor consequence — an apparent effort by the president to make a connection or show that he’s not just a politician. But throughout his career — most famously in his first presidential campaign, in the 1988 election cycle — Biden’s propensity to exaggerate or embellish tales about his life has led to doubts about his truthfulness.

    See. https://www.washingtonpost.com/politics/2024/05/02/that-time-football-legend-rig-driving-eligible-bachelor-biden-was-arrested/.

    • Bob:

      When I tell a story, my goal is typically to share an experience or convey truth or understand the world. My impression is that politicians typically speak in a salesman mode, in which the point of telling a story to serve some instrumental goal of persuasion or framing. From that perspective, the truth of the story doesn’t matter at all, except to the extent that the speaker can get in trouble by being caught in a lie.

      There’s also forgetfulness. Both Biden and Trump, in different ways, have long histories of emphatically saying things happened to them that didn’t. Paradoxically, having a track record of doing this sort of thing can serve as a defense against charges of senility. Making things up is not a new thing for these guys.

      The other complicating factor with politicians is that they are so often speaking in public. If I had a camera crew around all the time, I’m sure I’d be caught saying lots of stupid and offensive things all the time. Then to avoid this I’d have to speak in a very stilted way, and when you speak in a stilted way you can sound stupid and inauthentic, and then you want to loosen up a bit and it’s easy to get things wrong, etc.

      • ” My impression is that politicians typically speak in a salesman mode, in which the point of telling a story to serve some instrumental goal of persuasion or framing. ” I think that is part of what Carpenter is saying; Trump’s lies are asserting that some aspect of the world is the way his listeners would like it to be — climate scientists don’t really know, for example. Having the leader of the pack assert something means that you can, too. We evolved as social (herd) animals, and still are.

  2. I disagree with Sargent’s statement that “The reason Trump regularly tells lies that are very easy to debunk . . . is to assert the power to say what truth is.” I think it’s simpler than that. People like to say things that make them look better, and this is easier to do if you’re not constrained by the truth.

    I agree with this and I think it’s the best explanation for Trump’s lying that I’ve seen.

    Trump’s lying is an explicit and deliberate strategy, developed way back in the day in with his team of Roy Cohn and Roger Stone. You lie explicitly and often, openly and brazenly, to use and create the power to define truth, to create FUD, to exercise and build the power to create beliefs that don’t have to be tested against anything other than what you want the “truth” to be. You can thereby innoculate yourself against criticism.

    I don’t think it’s directly parallel to why scientists lie or even why Biden lies in that with Trump it’s done openly and proudly as an explicit strategy. I think you’re making an error in thinking that these lies are essentially all alike, driven by the same mechanisms.

    Imo, Trump’s lies build a sense of power among his followers so that he and they have to power to do whatever they want and so the libz can’t do anything about it. The end goal is very much to exercise the power to lie in and if itself, without having to be hampered by constraints.

  3. I agree with Sargent. Trump’s lies often aren’t about making himself look better, but they are always about asserting his power to lie and shape the reality of his followers. He’s a classic authoritarian in that respect, probably instinctually. Saying that it’s just to make himself look better drastically underestimates how toxic he is.

  4. I agree that the Trump part is not very interesting. The guy is an obvious sociopath, in the sense that he has learned that not having scruples is a sort of superpower, so why not? But there are lots of people out there like that. More to the point is, why do his supporters and even many in-the-middle types give him a pass? Part of it is that routine, brazen lying disables outrage. If it’s just the occasional exaggeration/lie now and then, you are open to rebuttal: no, that one isn’t true, and here’s why. But if it goes on nonstop, criticism loses focus. Then, instead of examining the details that speak to deceit or truthfulness in a given statement, you’re arguing about whether there’s a general pattern, and it gets wrapped up with all the other impressions people may have. Trump’s supporters think he’s forthright, tells it like it is, says what others are afraid to, etc. That aura can carry a lot of weight once you move from a specific instance to questions about a general tendency toward truthfulness.

    • “… why do his supporters and even many in-the-middle types give him a pass?” Isn’t this what Sargent (Sorry, Bob) is talking about.

    • “why do his supporters and even many in-the-middle types give him a pass? ”

      That one’s easy: they (correctly!) trust him to implement the policies they want. The religious right, the rich and business types, and the folks who think they’re not “of color” all consider their policies more important than the bloke who’s president. (The religious right, in particular, is explicit about this: it doesn’t matter that Trump’s a filanderer who has never been inside a church, he killed RvW and he’ll allow the states to outlaw abortion.)

      • That may be true, but it still baffles me. On what basis would anybody trust Trump to implement any particular policies? He has repeatedly shown that he will do whatever he wants regardless of past promises/actions/beliefs. One thing I have not been able to figure out is what, if anything, Trump truly believes. Given his record, such trust must be based on something other than evidence. So, saying people trust him to implement policies they want (which I largely agree with) just begs the question of why they have such trust.

        • Trump is amazing at sending the message to a certain demographic of roughly “I’m like *you*, I share your values, I’m part of your tribe and will protect you against your tribal enemies”. All politicians do that to a certain extent, almost by definition. But Trump is a very rare talent at it. Thus they fundamentally trust him, at a gut-level.

          Sometimes when I say this, people reply along the lines of “But it’s not true, he’s a rich urban former Democrat, it’s false, it’s a con, a grift, etc. etc.” All of which might be accurate, but doesn’t change that’s what he’s able to do.

          Maybe the science analogy is something like people don’t want to go too hard on a faker, because of a view that everyone’s just trying to survive under great pressure and “There but for the grace of God go I”.

        • Is there not even one Trump supporter that reads this blog that could give insight into why they support him? Of course, their reasons might not carry over to others’ but still…

          Based on a couple of frequent commentators, I suspect they support him simply because he’s not a Democrat and even his lies aren’t as bad as having a Democrat in office. But such reasoning is predicated on what Dale describes, that Trump can be trusted to implement policies that align with one’s political beliefs. Hopefully someone can explain why they hold that trust.

        • @turn

          I already explained it multiple times on here in earlier threads.

          People like him because he *seems* to be against the “uniparty” that has overseen constantly increasing wealth inequality, decreasing lifespan, constant ” wars”, ever more ubiquitous spying, and so on. Meanwhile the whole time they issue a constant stream of press releases saying how great they are.

          Personally I can’t imagine him putting a dent in any of those issues (in fact we already had him as president and they all got worse, then even worse under biden). Or any president for that matter.

          However, so many life-long political people who have been personally benefitting from this status quo *seem* to hate him for some reason. So that makes you think he must be threatening to cut out some graft somewhere. Probably just changing who gets the cut, imo.

        • “Is there not even one Trump supporter that reads this blog that could give insight into why they support him? ”

          Happy to oblige.

          First – Bidens (Biden = any democrat) energy, resource and environmental policies are an absolute disaster, across the board, complete in every respect. It’s hard to guess what the heck kind of drugs this man and his coterie of fools are taking. This man (and his party and philosophy) makes Don Quioxte look like a genius. There is absolutely no reason to believe that Trump would maintain any of Biden’s resource policies and with any luck Trump would simply eliminate the EPA. I accept that we need some environmental protection but at this point the EPA is just an arm of the Sierra Club.

          Second: Biden has handed out over $150B to student borrowers while I paid my loan debts. I personally find that extremely offensive, particularly when Democrats have been selling young people on unaffordable “education” while trade jobs go wanting, and particularly because much of the damage to students caused by the pandemic was caused by Democrat’s own stupid policies about shutting everything down. It’s all the more offensive when there are already numerous programs that allow people to scoot on their debt for working at NGOs or for city, county or local governments. These jobs may not have high pay, but they all have ridiculous protection from unemployment and ridiculous benefits.

          Since Dems have messed things up so bad, why don’t thye just dig into their own fat little pockets and pay off their own mistakes instead of ripping off the public to do it???

          Third: the presumption that some form of “social justice” is served when every subgroup in the population is equally distributed in every vocation is an idiotic proposition conceptually – subgroups have cultures and cultures have behaviors that leave them – **on average** – more suited for some vocations and less suited for other vocations. It’s wrong as a concept but as policy it’s a complete disater. And we know how this kind of policy is implemented by Democrats: where uncompetitive subgroups (that, coincidentally, are supporters of democrats) stand to be enriched by it, it will be implemented vigorously by democrats (e.g., bank loans, academics, tech jobs etc); where they stand to lose from it (sports and entertainment) this form of “social justice” will be sidelined and suppressed just as vigorously. In other words, it has nothing to do with social justice at all and everything to do with taking money from one group of people that don’t support democrats and giving it to other people who do support democrats (the same as Dem’s energy policy). What’s so idiotic about this policy is that ultimately everyone will lose from it, even the subgroups that stand to benefit in the short term, because in the long term having society run by incompetent people because they are the right color/gender/ethnicity/sexual persuasion whatever – will reduce the net prosperity of society and negatively impact everyone. I’m happy to let people of any subgroup do any job when they achieve the necessary criteria. Until then, they should work at achieving those criteria.

          Whatever Trump does or doesn’t do, I feel very high confidence that he will come through to some degree on all of these critical issues.

        • chipmunk
          Thank you for obliging and providing that enlightening rant. I actually agree with more of your positions than you might think – but I find your support for Trump simultaneously puzzling, frustrating, infuriating, and sad. I won’t bother with point to point, but I will say that Trump is more inclined to spend government money than just about anybody. He is so narcissistic and transactional, that spending other people’s money to further his own satisfaction is more in keeping with his identity than it is Biden’s. Much of what you object to is the Democratic agenda. Frankly the Republican agenda on economic issues is not that different. They are just as spendthrift (see this week’s Economist for a great discussion of how both parties have abandoned worrying about budget deficits) – but vary according to whose pockets they would like to contribute to. On social issues they are far apart and it is hard for me to find much worthy about the Republican take on those. Immigration is a complex issue, but the ideas promoted by Trump are racist, xenophobic, and self-destructive (for the country).

          Most of all, what I reject is the bullying. Trump is a bully – I see no other word for it, nor do I see any suggestion that deviates from that. Electing a bully – and one who is willing to flout it – because you don’t like the Democratic policies is a poor bargain, one I am unwilling to make. He also is happy to define his own truth, regardless of any facts. I find it hard to believe that you are willing to support that. You seem to paint Biden as a disaster, but I don’t see the comparison – he is old, he may be senile, but he is a decent human being. That is not a trait possessed by Trump.

          I do thank you for stepping up and answering the request. But frankly I find your explanation bewildering.

        • Dale, you are missing two points: dog whistles and entertainment.

          For example, “reducing the deficit” is a dogwhislte for “spend less money on poor and non-white people”. Everyone on the right is fine with corporate give-aways, tax breaks for the rich, and doesn’t care about the deficit. Heck, they _love_ the deficit, since it’ll give them an excuse to trash Social Security.

          And, at least the last time around, Trump put on a great show that all the righties loved.

          But, the bottom line really is policy: the lefties want to help the poor, the sick, and the planet, and the righties want to help the rich, the white, and the corporations.

        • David
          I completely agree – that was the purpose of my reference to the Economist article. The Republican position (at least the Trump-inspired group) is not to reduce budget deficits – it is to reduce spending on particular policies while increasing them on others. Budget deficits are a worthy thing to worry about, but almost no politicians really worry about them any more. The pain will come later, and that is not a concern for today’s political class. All they really want to debate is where to collect money and where to spend it. Yes, there are real differences in policy priorities and I think there are many in the Trump tribe that support him on those grounds. The sad thing is that they seem to believe that he believes in those priorities. I believe he supports things when they further his own interests and that he would gladly change positions if and when that suited him (purely a transactional approach). The only exceptions may be on immigration and race – and those are areas where I find his beliefs unpalatable.

        • Dale, deficits arent even that worthy of a thing. Inflation matters, the debt only matters because it measures more or less the money supply and an excess of money leads to inflation and inflation leads to bad decisions making and poor allocation of resources

          M2 to debt ratio is ~1 because of the way we create money.


          Neither of the modern US political parties care a whit about any of that except that it may interfere with their elections.

          Taxes on the wealthy are needed primarily because there’s way too many dollars floating around and it skews the market towards producing crap that only 10,000 wealthiest people care about

          Here’s dollars per capita CPI adjusted to 2019 equivalents


          We have doubled the amount of cash purchasing power per person in the economy since 1995. That drove everything that’s wrong with our economy today: dot com bubble, housing bubble, tech bubble, second housing bubble (currently ongoing), higher education bubble (ongoing), and consumer price inflation of the last few years.

          That happened consistently under Clinton, W Bush, Obama, Trump, and Biden.

          Noone cares because no one seems to even understand.

          Economists themselves don’t even understand what money is and where it comes from as evidenced by the discussions here


          Keen is 100% correct and it’s trivially true if you simply do very basic accounting, and the Bank of England published a white paper agreeing in 2014


          That economists don’t even know where money comes from or how it works in fucking 2024 is basically everything you need to know about macroeconomics in one simple lesson.

          We will not fix the major instability of our world until we reign in money creation by taxing the dollars out of existence. We can not do that by taxing the average people, it must be by taxing the wealthy because of the wealth inequality meaning that all the money that needs to be destroyed is in their hands.

          Neither side of the US 2 party system is even in the same county where this discussion is, much less the same room.

          The alternative is quite literally war and violence. I believe that’s inevitable now because no one, not even the economists, seem to get it.

        • Daniel
          This isn’t the place to reanalyze all of economic theory – there are places I agree with you and places I don’t. I have never liked the way economists measure the money supply. Government debt is poorly understood almost universally – although you will find that most economists (and most economic theory) correctly says that government debt is not an economic problem, as long as it is reasonably related to national income (which it is, in the US). However, government debt is a political problem. The debt never needs to be fully repaid – it can be rolled over in perpetuity (depending on the credibility of government liabilities). But its size becomes relevant as it needs to keep being refinanced, and the larger it is, the more of a political problem it becomes. The current government budget deficit is very large – and potentially showing signs of growing larger. It is very much a political problem as to what level of deficit we can “afford” and how it gets financed. The larger it is, the bigger the problems.

          The fact that neither political party is concerned with it worries me. Politicians have taken a while to discover that they can buy more votes by spending money they don’t have with no apparent consequence until the future (at least they can kick the can down the road further than their election concerns). Democrats have (deservedly, in my opinion) the reputation of having known this for a long time. There was a time when Republicans seem to have cared, but they now realize that there is little cost to running large deficits provided that they spend it on the “right” things. I actually think that is part of the Trump legacy – his tax cuts convinced his party to stop worrying about the size of the deficit. So, now the fights are over whose money to spend and on what – but nobody seems much concerned with sustainability. I do not view that as progress – I see it as irresponsibility. It is not the large size of the government debt that concerns me – we can easily afford it as a country. It is the inability of our political system to collect and spend money responsibly that is a problem. And I think both parties might agree on that while intensely disagreeing on where the money should come from and where it should go.

          Against that backdrop, I find the support for Trump quite puzzling. I don’t think he stands for anything regarding these issues – he could care less about the size or sustainability of the deficit, provided that the taxes don’t come from his friends and that the spending is on his priorities. Most of his supporters seem blind to the realities – they are just convinced that the Democrats don’t care about them. Even if they are right, that is a sad state of affairs.

        • You’re right it’s a political problem but not for the reasons people seem to think. The problem is that the government creates money when it spends, even if it spends that money on citizens, if it doesn’t recoup that money at some point later in taxes the amount of money grows, growth at a moderate rate so that purchasing power per capita stays contstant-ish would be fine, but doubling the purchasing power per capita in 30 years is insane. They were able to do it without triggering runaway consumer goods inflation because they were in essence giving this money to the rich… University endowments, private military contractors, private equity companies, banks, etc etc so the effect was hidden on food and utilities and transportation and etc… and the effects on housing prices was welcomed by baby boomers who owned all the housing at the start of this craziness because they thought they were getting rich.

          But the political price is coming due now. Fertility rates have crashed out, people with masters degrees who financed them through excessive student loans are working Starbucks, people with PhDs are living in their cars and selling sex on the side to stay afloat


          Trump was himself a repudiation of the last 30 years of economic policies, but he actually fuelled more of the same! When neither major party is working towards stability, instability is guaranteed eventually.

          My own feeling is that if Economists were worth their salt as a group they would be screaming this stuff from the rooftops… Instead they are fairly universally saying things like “the economy is great, look at the unemployment level, look at the job growths” never mind that those jobs still don’t pay the bills, or that many of the most well payed people actually sit around and twiddle their thumbs all day at Google or Facebook, just on the books to keep them away from working for the competition.

          Anyway I agree with you that it’s all a major problem that both Democrats and Republicans fail to even be in the same universe as.

        • I’d add to Daniel’s post.

          Gov spending money on “the poor” (as a group) is not helping them, it makes them more poor through inflation. It helps all the middlemen whose hands the money passes through and whoever sells “the poor” whatever they buy though.

          To help the poor you need to spend on more efficiently producing whatever it is they need/want. Essentially its a technological problem, not a social one.

          Actually, What government has succeeded in helping “the poor” (once again, as a group)? I’d like to see the details of some cases. Eg, how this was measured and the effects.

        • If we want to focus on helping “the poor” then I think we should consider some of the following. What government has helped the poor – try China for one. You may not like their policies, but the immense number of people lifted out of poverty in a short period of time is stunning. You could argue that it could have been accomplished by a democratic government or without any of the autocratic means used, and that might be true, but it will be hard to find evidence of a similar achievement from anywhere else.

          If we want to focus on the US, “the poor” are in many ways better off than they were 10 or 20 years ago. Let’s not pull out the various measures to support one position or another – there are simply too many adjustments (too many forking paths if you like) that provide contradictory pictures. Further, arguing that inflation hurts “the poor” is too simplistic for me. Some things go up in price, some go down, people make discretionary choices (how many of “the poor” have cable TV subscriptions?), and there are a variety of government programs that redistribute funds. As best as I can tell, the percentage distribution of income has remained relatively constant in the lowest quintile (I believe one of the charts linked to yesterday looked like that). But which “poor” should we focus on. Some groups have suffered, to be sure. Others not so much.

          I think the picture both Daniel and Anon are promoting is that US macroeconomic policy has hurt the poor and enriched the wealthy. They seem to suggest that this has been a deliberate policy. I’m not convinced, although I wouldn’t claim I believe the opposite. I do think that macro policy has enriched the wealthy by inflating various asset markets (predominantly held by the wealthy). I’m not convinced that was the goal of these policies, but it certainly seems to be one of the results. The characterization that what the robust economy has “given” the poor has been “taken away” through inflation is also a picture I am reluctant to accept, and I certainly don’t think that was the intent of the policies (I’m agnostic about whether that has been the result).

          Take these statements with a beach full of grains of salt – I’ve never claimed to understand macro and have refused to teach macro for 40 years.

        • Anon and Dale,

          Whether spending on “the poor” causes inflation is entirely dependent on the manner in which it’s done, and whether it helps or hurts them is also dependent on the way it’s done even in the absence of inflation.

          I’ve always admired Dale’s willingness to say that he doesn’t understand macroeconomic dogma, and I think it’s likely because if he looked carefully at it, the emperor has no clothes.

          Define the money supply the way we define M2… https://www.investopedia.com/terms/m/m2.asp says essentially it’s all the cash plus all the checking and savings deposits and short-term CDs, but omits large deposits only accessible at long time horizons (things like IRAs and 401k).

          In the absence of counterfeiting coins, how can this increase? The Fed can buy bonds at the discount window from newly minted reserve deposits, or a bank can lend a dollar in exchange for an IOU from a private company or individual. In both cases for every dollar of new money there’s a dollar of new debt instrument that records the creation of money. Money and debt are the same thing. I guess debt can get discharged in bankruptcy court and maybe some other manners so they aren’t quite like conservation laws in physics, but to first order money = debt.

          Now apparently real actual economists argue that this isn’t true because they can’t do basic math and have no training in systems dynamics tracking stocks and flows and etc… and because maybe in the distant past money worked differently because it was much more about cash and gold and such… but by 1930 or so this analysis should have been fait-accomplis and yet in 2024 we still have professional economists arguing that banks lend out the deposits people put in. That isn’t true and hasn’t been true basically ever in the lifetime of anyone alive today. Banks are *limited* in their ability to poof new money into existence by regulations, which used to include “reserve requirements” but those were eliminated in 2020, the current regulations are about “stress tests” or some such thing that the Fed does to determine solvency of banks, plus whatever bullshit brand new idea the fed wants to invent such as purchasing govt bonds at par value which started happening a few months back after Silicon Valley Bank went belly up.

          Ok, so that’s how dollars get created, how do they get destroyed? Suppose you have a loan with a balloon payment. When you pay off that loan at the balloon payment, the bank removes that money from your checking account and tears up the loan paper… the money *poof* ceases to exist. Similarly when the government taxes money out of your account, POOF it disappears. Remember, money is just what’s in people’s checking accounts etc, and the government doesn’t *have* a “checking account”. So taxation just makes money disappear.

          Now, if the government spends money into existence on the poor, and taxes money out of existence from whoever, the spending on the poor doesn’t inflate the money supply. But if it deficit spends (spends more than it taxes) then the money supply grows. The actual mechanics are baroque but basically every dollar the govt spends creates a dollar and every dollar it taxes destroys a dollar, so if it spends more than it taxes the money supply grows.

          Now, suppose the govt is spending more than it taxes, the taxes come from the poor and middle class to a much larger extent than from the wealthy… Then the money supply is growing and the money flows either direct from the govt to the rich (when it buys military equipment or Amazon Web Services or whatever), or from the govt to the poor (social security payments or welfare) and then from the poor to the rich through the poor buying goods from the companies owned by the rich. But because the money supply is growing and the money is flowing eventually to the rich… deficit spending explicitly causes the rich to get richer… that’s what it does. It increases income and wealth inequality by concentrating money into the hands of the existing wealthy.

          Now, economists don’t seem to be capable of simply writing down some stock and flow diagrams and figuring this shit out, but it’s pretty trivial in the same way that civil engineers have been writing down conservation laws for water flow from the oceans into the atmosphere, falling as rain, soaking into aquifers, running through rivers, filling up dams etc… you just follow the *flow* and it becomes clear that after you build a dam a bunch of water will fill up behind it if sufficient rainfall happens on the mountains behind…

          So, is this all “deliberate?” well I’d say it’s deliberate in the following sense… rich and powerful people *like* deficit spending because the money flows to them and they mechanically get more rich and more powerful. They may not have sat down and drawn the diagrams and figured it out and argued cold bloodedly “hey do more deficit spending because we get rich” but they sure as shit argue for things that they believe help them, such as moving computing to the Cloud and cutting taxes on corporations and the wealthy and reducing capital gains taxes and starting wars and buying war equipment and such.

          So yeah, it’s emergently deliberate based on a large number of wealthy people buying favors for themselves that make them wealthy.

          And in the presence of all that, increasing deficit spending to give to the poor just does create inflation. You have to tax money from the rich otherwise the rich tilt the production in the economy away from things that everyday people need, and soon we don’t have enough housing or food but we’ve got shitloads of cloud services and business to business whatnots…

          and that’s where we are today.

        • One additional point about the money supply. Almost every economics textbook has the question “are credit cards money?” to which the “correct” answer is no. Credit cards are merely a mechanism through which the money supply is used – cash or checking accounts (the “correct” definition of money supply) are then used to pay off the credit card balance. Back when I reluctantly taught intro macro (long long ago), I always took issue with this. The unused credit on credit cards is fairly large (at least for some people, like me). At the same time, a significant number of people have maxed out the credit on their cards and can’t pay off the full amount each month. If people want to spend more or less they can adjust the balances they do or don’t pay off each month. So the real purchases in the economy can increase or decrease with no changes in the official money supply through discretionary decisions about credit card use. I’ve not seen an intro book that mentions this at all. Hence I don’t teach macro (either I don’t understand it (and)/or the standard theory doesn’t account for this.

        • Dale, you’re 100% correct. I don’t pretend to know what goes on on the back end accounting wise, but there is no difference between “I go to the bank and apply for a loan to buy a car and they do approvals and then transfer money into the account of the car dealership and record a debt that I owe them in their bookeeping system” (which creates money out of thin air) and “I buy a cart full of groceries on my credit card and then don’t pay it off at the end of the month but rather pay some minimum payment”.

          In both cases, some new money is created in the account of the merchant that they can use to buy more food or cars or pay wages with.

          In both cases, a record of a debt that I owe is created in the accounting system of a bank.

          In neither case is some money removed from the account of some other person in the economy like if I were to send you $100 that you promise to pay back in 2 weeks… you would have more money in your checking account and I would have $100 less in mine, leaving the money supply constant. (unless I take your written IOU and it starts circulating and people use it to pay for things… a kind of event that has certainly happened in some times and places in the past, often in British colonies by British soldiers as I understand it)

          Worse than the standard theory not accounting for credit cards, the standard theory doesn’t even account for the majority of money in the economy! Economists as evidenced by the long blog post I linked earlier vehemently argue that banks lend out money deposited by their depositors, a concept which is TRIVIALLY disproven by simple accounting.

          In any case, the more we deficit spend, the more we drive inequality by ultimately allowing money to accumulate into accounts of people who consume vastly less than their income (ie. the rich). We even tax capital gains *less* than wages. An idea which is built on a fundamental mistake in “standard” Economic theory. The mistake is that “there won’t be any money invested if we don’t incentivize people to save” as if there were a constant supply of gold coins with no gold to be had from mining and we have to “save them up” in order to spend them, rather than that we can trivially create money by entries in electronic bookeeping systems and banks do so every day of the year.

          Yes, we should incentivize people not to consume real resources profligately, but capital gains and wage gains should be taxed exactly equally if not *more* taxes on capital gains to offset the power imbalance caused by the way our systems work and use that money to drive universal basic income to reduce inequality and stabilize the political system against violent crime and war.

        • Anon,
          Social Security, Medicare, and other transfer programs could be improved in many ways, but are you really saying they don’t help at least some of the people they aim to help?

          The AARP was founded by a woman who went to visit a former teacher and found her living in a chicken coop, too poor to pay for housing or medical care. There are still people who don’t have good housing or medical care, but former teachers without mental health issues or drug addictions are no longer among them.

          Somehow this makes me think of people who deny the effectiveness of childhood vaccinations: it’s the kind of claim that can only be made by people who never knew, or have forgotten, what life was like a hundred years ago.

        • > we still have professional economists arguing that banks lend out the deposits people put in. That isn’t true and hasn’t been true basically ever in the lifetime of anyone alive today. Banks are *limited* in their ability to poof new money into existence by regulations, which used to include “reserve requirements” but those were eliminated in 2020, the current regulations are about “stress tests” or some such thing that the Fed does to determine solvency of banks

          Banks lend out money that they get from someone else. When they lend money that they don’t already have they need to quickly find someone else to provide that money.

          The money doesn’t need to come from depositors but that’s the cheapest source of money (even though it’s not as convenient in other aspects as getting money from central banks or private lenders).

        • > Worse than the standard theory not accounting for credit cards,

          In what way does the standard theory fail to account for credit cards?

          Do you mean that the merchant doesn’t get paid until a few days after the sale – and that “advance” is not taken into account in the money calculations – or something else?

        • > Gov spending money on “the poor” (as a group) is not helping them, it makes them more poor through inflation. It helps all the middlemen whose hands the money passes through and whoever sells “the poor” whatever they buy though.

          Binary thinking strikes again.

        • Dale –

          You say:

          > I think the picture both Daniel and Anon are promoting is that US macroeconomic policy has hurt the poor and enriched the wealthy.

          I assume that you mean that in absolute terms, not relative terms; IOW, that US macro policy has lowered standards of living for the poor as opposed to not increasing them in proportion to the gains in standards of living among with wealthy.

          What measures lead you to that conclusion?

        • Carlos, banks don’t “get the money from somewhere”, they *create it* by accounting. Being a “licensed” bank is being an organization that is part of an exclusive oligopoly of organizations licensed to *manufacture money* according to rules set by the govt.

          They add money to your checking account in exchange for a “bond” you give them which is a promise to pay them some future payments. When that happens, the total money supply *increases* it doesn’t come out of anyone elses account to flow away from them and towards you, the borrower. The money supply goes *up* because of their changing an entry in their computer.

          Keen’s blog post linked above goes through the accounting required to show this is the case.

          Now, they can’t do this forever… The Fed has some rules that can be stated equivalent to: “you can only manufacture more money if some function f(your_books) is bigger than 0”

          These days that f(your_books) is a “stress test simulation” but in the past it included “reserve requirements”. Those reserve requirements went to 0 in 2020 and will stay there, because “stress test simulations” are a more comprehensive and general evaluation method plus The Fed can jimmy them up any time it wants (ie. can change the rules).

          If most banks are getting into the “stress” zone, but the govt wants them to be able to make more money, the govt can buy bonds from them. They can say “you know that bond that trades in the market for $1000, we’ll buy it from you for $1200” and The Fed can make that purchase with brand new money it creates in an accounting system in the “Reserve” accounts. So that’s another way money can come into existence. But that bond represents money that was deficit spent in the past…. So the bond is basically latent money. It’s a memory procedure for deficit spending, and it flows inevitably towards the discount window where The Fed will manufacture some money for the banks. The money was in essence “guaranteed to be created” at the moment the govt Deficit spent.

        • Joshua:

          Here’s median income divided by CPI for rent + food + transportation + childcare + education… basically all the basic things people want to buy for their family.


          The graph shows that 1999 had highest median income and it declined continuously until 2012. It rebounded mildly until 2019, and then declined ever since.

          I think it’s pretty well established that median people did better than the poorest people, unfortunately Fred doesn’t have like 10%tile household income as a stat I can pull up.

        • > They add money to your checking account in exchange for a “bond” you give them which is a promise to pay them some future payments. When that happens, the total money supply *increases* it doesn’t come out of anyone elses account to flow away from them and towards you, the borrower. The money supply goes *up* because of their changing an entry in their computer.

          I accept the premise! The question is what happens next.

          Let’s say there is a bank with lots of assets including millions of dollars in reserves [let’s say cash in a safe for simplicity].

          You’re the only client today and they give you a $1m loan at 10% rate.

          They change an entry in their computer and they have a new asset (you owe them $1m, the loan) and a new liability (the owe you $1m, the deposit). The money supply goes up.

          Note that if you leave your deposit in the bank you’ve solved the “getting the money from somewhere” part for them – they got it from you. And they are extremely happy with the arrangement! You will pay them $100k for the loan and they won’t pay you anything for the deposit, or not much. Even better, they know you have the liquidity to pay back the loan.

          If we stop there it’s true that the bank doesn’t need to find any money to give to you – but that’s just because it’s not giving you any money! Are you really going to pay $100k per year for nothing – just to prove a point?

          In reality you wanted the money for something and the analysis of transaction is not complete until you make use of it. Let’s say that you go to the teller and leave with your million in a bag – heading for the racetrack or whatever.

          At the end of the day they are in the same state that they were in the morning with only two changes: a) there is an entry in the computer saying you owe them $1m and b) they have one million less in the safe than before. Maybe they didn’t realize that they can *create* money and they didn’t have to give you theirs!

          [Exactly the same happens if instead of taking the cash you wire the million to somebody else’s bank. The reserves of the bank that gave you the loan go down one million.]

          > Keen’s blog post …

          Not everyting published in the internet is correct. There is link in that blog post to another blog post – and even a PDF! – saying the opposite.

        • Carlos, yes, but Keen is correct and the guy who says the opposite is wrong. 🤣

          Seriously though. Here’s a tiny economy:

          Alice has 1 million in the Bank, the Bank has 1 million in reserves, and Carlos has 1 million in the bank and a quantity of grain worth $1M in todays market.

          The economy has $3M in dollars. Later we will have to assume that at some point in the past $2M was created and it’s currently being held in a bank in the neighboring economy…

          Alice wants to buy the $1M in grain to bake bread that will eventually be worth $2M when exported to the neighboring economy. But Alice doesn’t want her balance to go to zero in the bank because there’s also some other stuff Alice needs to do with money… so Alice asks Bank for a $1M loan.

          Alice provides the Bank with a paper saying “I will pay $1.05M in 1 years time”. The Bank mechanically increases Alice’s balance by $1M extra to $2M. The total money supply is now 2+1+1 = 4 Million. Money was created! out of thin air! This procedure was allowed by the government because the Bank met some requirements for it to do that.

          Alice talks with Carlos and says she’ll take delivery of the grain in exchange for $1M cash. Carlos agrees and they get on their bank computers and do a transfer. Now Alice has $1M in the bank, Carlos has $2M in the bank, the Bank has $1M in reserves. No money was created, but possession of the grain goes to Alice.

          Now some manufacturing occurs and we have bread. Alice sells the bread to someone in neighboring economy in exchange for $2M which we presume was created in the past. Alice has $3M in bank, Bank has $1M in the reserves, Carlos has $2M in the bank, $2M was imported that was created in the past… (3+1+2) – 2 = 4 so no money was created since the loan…

          Now, Alice pays the bank $1.05M, the bank tears up the paper saying she owes $1.05M and reduces Alice’s account balance by $1.05M, they increase their reserve balance by $0.05M….

          (3-1.05) + (1+.05) + (2) – 2 = $3M the money that was created when you took out the loan went poof… it disappeared, we’re back to the same money supply as we started with, but $2M in historic money was imported from the neighbor economy.

          That’s how (modern) money works. And most Economists deny that. And they are simply wrong and it’s infuriating.

        • Daniel, you sent a complicated example but I really don’t know whether you agree or not with my simple example.

          – When the bank gives you a $1m loan and you take that $1m out of the bank the reserves of the bank go down $1m.

          – Those reserves are money coming from somewhere. If they want to replenish those reserves they need to get more money from somewhere (depositors or other financing sources).

          – Leaving aside other regulatory limitations they could in principle give you a gazillion dollar loan by changing an entry in their computer (which sounds like *manufacturing money*) with the stipulation that you cannot make any use of that money and have toleave it deposited there (which no longer sounds like *manufacturing money*).

          Maybe we agree on the substance – and the disagreement is just about whether that’s more appropriately described as “banks are intermediators” or “banks create money from thin air”.

        • Carlos:

          You mentioned cash, which is a trivial fraction of the money supply but is responsible for a considerable amount of the confusion. Think of cash as a *really slow* encrypted transfer request on the internet. It travels in your pocket. So the latency of this request could be hours to decades… Let’s ignore cash (it’s less than 10% of the money supply in normal times, the entire global monetary system could operate without it if necessary) because the variation in latency it can induce is confusing.

          At time 1 a bank has reserves of $1M in its account with The Fed, and $5M in deposits, which are *liabilities* to the bank.

          At time 2, carlos transfers money out of the bank to another bank in the amount of $1M

          At time 2 the bank has $1M in reserves with The Fed, and $4M in deposits which are *liabilities* to the bank. The bank is *more solvent now*

          The money they transferred *came out of your account* and *went into your account at a different bank*. They “got the money” from their accounting system. No money was created or destroyed.

          How did that money “come into existence in the first place”? One of two mechanisms:

          1) A bank originated a loan in exchange for a person giving them a bond saying they’d pay in the future (the example I did above)


          2) The government issued a bond, sold it to a bank, the bank sold it to The Fed, and The Fed created money out of nothing into a Reserve account. (a bunch of time could pass between the start of this chain and the end of it, but in principle all this could be done in the same day also).

          So every dollar in the economy came either from Deficit spending in which govt issued a bond, or personal/corporate borrowing in which a person/corporation issued a bond to a bank.

          (there’s also the possibility for the Treasury to literally tell the printing presses to roll and flood the economy with literal paper cash, but that doesn’t happen in the modern economy, and it has no in-principle difference from flooding the economy with bonds which The Fed eventually redeems for bits in a computer at The Fed)

        • > At time 1 a bank has reserves of $1M in its account with The Fed, and $5M in deposits, which are *liabilities* to the bank.
          > At time 2, carlos transfers money out of the bank to another bank in the amount of $1M
          > At time 2 the bank has $1M in reserves with The Fed, and $4M in deposits which are *liabilities* to the bank. The bank is *more solvent now*

          That’s just not how it works. If that was the case bank runs would be imposible.

          According to your story at time 3 (4/5/6) a second (third/fourth/fifth) client could transfer $1m elsewhere. The bank would always have $1m in reserves with the Fed and the deposits would decrease to $3m ($2m/$1m/$0). Everyone would be happy [*].

          You may remember Silicon Valley Bank. It was not a happy event.

          [*] Ok, the bank would not be terribly happy but that still looks like a fairy tale compared to what happens in the real world.

        • As is often the case Carlos, you’re right and have detected a flaw in my description, I’ve done that accounting wrong… I apologize. The following example is correct, and the point is made towards the end…

          —- correct accounting —-

          Banks need to maintain positive net equity. Assets – Liabilities – Equity = 0 so Equity is Assets – Liabilities, so the bank I mentioned was bankrupt already. Let’s do it right. We’ll form a bank, do some solvent transactions, then cause a bankruptcy similar to the SVB debacle.

          at time t1 a group of investors who have $10M form a bank, $10M goes into the reserve account at The Fed

          at time t2 the bank lends $10M to Carlos in exchange for a bond to pay $11M next year…, the bond is present valued at $10M, so the assets is $10M reserve + $10M paper and the liabilities is $10M, equity is still $10M. Money is defined as the sum of all the deposit accounts at banks that people can use to buy things with… so $10M of money was created at the origination of this loan.

          at time t3 Carlos pays for $5M in stuff by transferring to another bank. Assets now is $10M reserves + $10M in paper – $5M in liabilities = $15M briefly until the other bank asks for resolution of the imbalance…

          at time t4 the other bank which took on $5M in liabilities now requests $5M in assets to balance them from Carlos’ bank to represent the money transfer. The first bank sends $5M in reserves to the second bank. First bank has now $5M reserves + $10M in paper assets and $5M in liabilities, equity is still 5+10 – 5 = $10M everything is solvent so far.

          time t5 the borrower buys another $5M in stuff sending to other bank… the first bank only has $5M in reserves, but let’s say the Fed says it is going to need to come up with $1M more reserves at least because it needs to have SOME reserves according to the rules (in reality reserve requirements are not strictly there anymore, but there are some generalized “requirements” and lets just say The Fed says in this case you can’t go below $1M in the reserves)

          time t6 Now the first bank says “well we had better sell this $10M paper to get more reserves”. However unbeknownst to the bank, Carlos just filed for bankruptcy and noone will buy this paper it’s now worth $0.

          Bank realizes it’s in deep trouble, sends the final $5M in reserves to the other bank, and goes bankrupt.

          So yes, you’re right when a bank transfers liabilities to another bank it also has to transfer assets, and that comes from reserves which are inter-bank. Solvent banks have not that much assets in reserves, they’re mostly in the form of paper loans and govt bonds… If the market value of those assets declines sufficiently quickly, and people transfer funds out of the bank, they can’t sell them to get reserves and that’s when they go bankrupt.

          I believe we’ve fixed my accounting problem, I’m definitely not an accountant, though I’ve done moderate amounts of double-entry bookeeping in the past… but in any case

          —————- the actual economic question which I was trying to address still stands ——

          the actual material economic question I’m arguing against is the following idea:

          At time t2, when the bank loaned $10M in exchange for a bond promising $11M in 1 year… at no time did the bank have to “find the money from another depositor to put $10M in money into Carlos’s account”. The bank isn’t constrained by a “limited supply of coins” or similar. The bank literally manufactures money at that point.

          In other words, they didn’t have to go to a few hundred depositors and say “hey here’s a bunch of CDs where we pay you on net $10.2M one year from now, in exchange for you all reducing your checking account balances by a total of $10M now, so we can move that $10M to Carlos’ account”.

          And **this is the story that standard economics tells** that *banks intermediate loans* they “get the money from some depositors” and “loan it out to borrowers”.

          Yes, CDs are a tool that banks have, but they are not a *strictly required* thing to “keep from manufacturing money”… because banks **do** manufacture money.

          Standard economic monetary theory says banks **intermediate loans** basically by aggregating a bunch of small CDs that depositors are individually loaning money to banks so that they get some cash they can then loan out now.

          There are actually 3 major theories:

          1) Banks strictly intermediate loans, every dollar they lend must come from borrowing from depositors or be manufactured by The Fed.
          2) Banks intermediate loans in a fractional manner (ie. they create some money in the process of intermediating loans)
          3) Banks create money de-novo, as does The Fed, the restrictions on the bank are entirely that “The Fed will allow it”.

          1 is simply wrong. 2 and 3 are kind of compatible with each other sort-of. The real difference is in how important we see individual depositors lending to the banks as.

          “The Rules” that The Fed have about when banks can write loans make some connection between the assets that the bank has and whether they can make a loan. But in reality the rules are much more about the value of non-cash-assets ie. NON reserves, such as commercial paper, US Govt bonds, stocks, physical assets (like foreclosed houses) and soforth that the bank has. The bank isn’t constrained in lending primarily, or even very much at all, by the willingness of everyday people to buy CDs from them thereby reducing their checking account balances so that the bank can move money essentially from the CD buyer’s checking account to “Carlos the borrower’s” nor are they constrained principally by the “reserves” they have, because at any given time most of their assets are NOT in reserves. Usually a bunch of assets are in Govt Bonds, and The Fed will exchange those for reserves at any time.

          Thanks for coming to my TED talk and fixing my accounting… do you agree with my final point though? That banks manufacture money and it’s not principally restricted by the ability to “borrow from depositors” it’s mostly restricted by the ability to convince The Fed that non-reserve assets they hold have a particular market value?

        • > That banks manufacture money and it’s not principally restricted by the ability to “borrow from depositors” it’s mostly restricted by the ability to convince The Fed that non-reserve assets they hold have a particular market value?

          We agree then: it’s not about the ability to “borrow from depositors”.

          They can “manufacture” money as long as they already have the money they “manufacture”, they have things that they can sell to get the money they “manufacture” or they can borrow the money they “manufacture” from someone else including the central bank (which is the one who can really create money at will).

          By the way, that seems in the line with the defense of the intermediary theory of banking from “the guy who is wrong”. I’ve not read the white paper yet but he stresses the following points in the introduction:

          That the difference between it and the Thin Air theory is not a matter of “mere semantics”: both theories rely upon essentially the same understanding of what it means to say that banks are intermediaries, so that the difference between them is substantive;

          that the Intermediary theory doesn’t suppose that banks must receive deposits of “physical” stuff (e.g., commodity money or fiat currency) to make loans, or (for that matter) that they ever have to deal in physical stuff at all, whether by taking it in or by handing it out;

          that it is not contradicted by the fact that banks can “create” money in the form of their own transferable IOUs, and specifically in the form of current deposit account balances, or by the fact that the quantity of bank‐​created money at any time tends to be much larger than the quantity of base or high‐​powered money;

          that it doesn’t require that banks rely exclusively upon retail deposits for funding;

          that it doesn’t require that banks have sufficient funds of any sort on hand before they arrange loans;

          that it is not the same thing as the textbook “multiplier” account of bank lending and deposit creation;

          that it does not apply to fiat‐​money issuing central banks, the powers of which are more or less those that the Thin Air theory wrongly assigns to ordinary (commercial) banks.

        • Carlos,

          Good we’re on the same page. First let’s distinguish between what *does happen today* and *what could happen under some other systems that aren’t that different*. It could be the case that tomorrow the US Govt changed the rules for banks so that they could “go into the red” by say $10B each (or any other change they like, the stress tests get modified to use slightly different volatilities or whatever but to make the story easy to tell we’re allowing up to -$10B equity ). Now, of course they wouldn’t *have* to, but the banks could each write new loans up to $10B more than they have today.

          On the day this occurred, would The Fed have “created more money” or not? Here’s where we have to have a clear definition of what we mean by money.

          Most people for the purpose of economic questions use M2 as the definition of money, https://en.wikipedia.org/wiki/Money_supply shows that M2 is notes and coins in circulation, travelers checks, demand deposits (checking accounts), Other checkable deposits, savings deposits, and time deposits less than $100k and money-market deposits for individuals. Basically “stuff that people or small businesses could access within a day to buy goods and services with”

          Note that bank vault bills, and federal reserve deposits by banks are NOT money for this purpose.

          This is the definition I’ll use and it’s the definition most people use when they mean money supply IMHO.

          So, on the day The Fed declared this “ability”, then no more money was created. Checking deposits didn’t go up, currency in circulation didn’t go up, no more stuff in money market accounts… nothing happened to M2 basically.

          Now, suppose all the banks are “full up” and are unable to lend according to The Fed’s rules. Carlos goes to a bank and describes his scheme:

          Carlos plans to buy $10M worth of chromebooks in china, ship them to the west coast, and then sell them to schools who are already clamoring to get them for next school year, for a total of $15M. The bank agrees that this is a good scheme for making money and they will loan him $10M if he agrees to pay them $11M one year from now (10M at 10% interest, to make the math easy). The loan officer taps away on his computer and says “whoops, we can’t do that because right now the rules don’t allow us to manufacture $10M in your account, but I hear this evening there’s a Fed announcement, come back tomorrow”.

          Tomorrow Carlos comes by and asks the loan officer about the loan, the loan officer says “yes there was an announcement last night, banks can each go into the red by $10B now” (or whatever… some rule change). Taps on the computer… and sure enough it’s allowed…

          Carlos signs papers saying he’ll pay $11M next year, the loan officer taps on the computer inputting scans of the documents, and Carlos’ bank balance increases by $10M instantly.

          At this point, M2 went up by $10M and accordingly we say “the money supply increased” and “the bank manufactured the money” because who else could have manufactured this money? Yes The Fed **allowed** it to be manufactured, they issued a **License** to manufacture the money, but they didn’t actually make it… the bank made it at the moment they tapped enter on the computer which is the moment that M2 increased!

          There’s no other meaningful way to describe what happened. Particularly if what The Fed did was alter their stress tests to use smaller volatility and therefore no reserve changes were made or any negative equity or whatever.

          So, banks manufacture money out of thin air.

          But they also manufacture a tradeable debt instrument (the Loan paper Carlos signed) which by itself can’t be used to pay for things, but which can be used to rearrange where money is stored and “the rules” allow banks to issue more loans if these assets go up in market value.

          So here’s where we bring it all full circle to Trump and also Democratic party politicians and their various policies.

          With the system as described, Banks can hold assets such as Bonds, Stocks, real estate, ETFs… they can take as collateral on a loan stock or stock options or real estate or machinery in a factory… and use those things to convince The Fed that if things go bad they can sell them to meet their regulatory needs. There are no hard and fast reserve requirements anymore, but you need to convince The Fed every few months that your portfolio of stuff isn’t going to crumble to dust immediately.

          So, govt issues bonds at moderate interest rates (low prices) to “finance” government spending. Banks buy bonds with cash today… Banks and other financiers formulate a risky plan to lend out to wealthy people using the bonds as assets to get Fed approval… things go bad… The Fed agrees to buy their government bonds at more than what they sold them for (high prices, low interest rates), this is exactly what The Fed did to keep banks afloat when SVB crumbled. In the process The Fed manufactures Reserves worth more than the bonds were before The Fed agreed to buy them at high prices… The banks wait for a while, rates go back up… the banks buy govt bonds at a lower price… repeat the cycle… In each cycle the banks mechanically benefit from the change in value of the bonds they’re holding as the interest rates are monkeyed with. Plus when the interest rates are low, they write a lot of loans, and when the interest rates are high, they write less loans but they get more money for the loans they do write.

          Mechanically, through cycles of crisis, the finance class turns deficit spending (which involves issuing bonds) into a “money pump” that continuously cycles between high and low interest rates ensuring that people in the finance industry, and people who have the ear of bankers and can borrow from them freely, and all these people mechanically get wealthier, basically just by money-pumping no major economic activity or value needs to be created for this component of the wealth growth…

          Basically deficit spending, on whatever, wars, social programs, anything, together with monkey business by banks, leads to oscillating cycles of high and low interest rates, that pumps *freshly manufactured* money directly into the “capitalist class coffers”.

          To top it off, companies can issue stock, which has a market value and can be used as assets or collateral to convert the stock into cash. In essence, large corporations can “print money” as well, they IPO their stock, sell it into an upward moving market flush with cash from the Fed having lowered interest rates and “quantitatively eased”. People bid up the stock… the companies then use the stock as collateral for loans, the company buys-back stock from its executives, waits until the stock finally comes back down from its high fly… the banks panic because their collateral is worth less… The Fed agrees to buy bonds for much more than they’re really worth… the banks are bailed out… and the cycle repeats.

          Now, here’s the federal funds rate since the 1960’s… in 1971 we got entirely off the gold standard:


          Here’s M2 per capita: https://fred.stlouisfed.org/graph/?g=1nr1W

          And here’s “share of net worth held by the top 1%” (only available from 1990 onwards): https://fred.stlouisfed.org/graph/?g=1nr26

          I submit to you that my thesis is, this doesn’t need to be a cabal of people planning this stuff… evolution of individual strategies to make money via financialization of various activities and the diffusion of these strategies amongst the owner-finance class causes this cycle to occur, and it’s driven especially by deficit spending which guarantees The Fed will eventually manufacture money, and by forcing an oscillatory cycle in “the interest rate” that The Fed will pay, the finance class can force The Fed to print money *even faster* than they would have just by deficit spending alone, because the bond prices oscillate up and down, and this mechanically makes the owners of capital who have fluid access to banking… richer and richer…

        • > It could be the case that tomorrow […] the banks could each write new loans up to $10B more than they have today.

          The banks can already write new loans for more than what they have. What you describe doesn’t seem different from what happens today.

          > On the day this occurred, would The Fed have “created more money” or not?

          The Fed can create money by lending to banks. What you describe doesn’t seem different from what happens today.

          > Here’s where we have to have a clear definition of what we mean by money. […] Note that bank vault bills, and federal reserve deposits by banks are NOT money for this purpose. […] At this point, M2 went up by $10M and accordingly we say “the money supply increased” and “the bank manufactured the money” because who else could have manufactured this money?

          That “manufacturing” (i.e. the increase in the money supply) is done jointly by the bank and the client. The bank cannot “manufacture” the money on it’s own. At this point, the analysis is useless because nobody takes a loan just for the sake of increasing the money supply in a meaningless transaction devoid of economic content. People take a loan – increasing the money supply – because the want the money supplied for something.

          When the client takes the money out of the bank (either in cash or wiring it elsewhere) the reserves of the bank go down. That’s where the money that the client got came from! Those “non-money” dollars that the bank held are converted into “money” when the borrower gets them (increasing the money supply).

          > So, banks manufacture money out of thin air.

          As long as they have (or can get) the raw material: those “non-money” dollars (reserves) that they convert to “money” dollars with the loan. Or at least they can borrow “money” dollars from someone else but in that case the money supply doesn’t increase (unless the lender is the central bank and it credits the bank’s account with money coming out of nowhere).

          “Banks manufacture money out of thin air” doesn’t seem to me a very meaningful way to describe what happens. Upon hearing that one could imagine that banks don’t need deposits at all to make loans but the fact is that they couldn’t increase the money supply if it wasn’t for the reserves they got from deposits (they can also get “freshly printed” money from the central bank but then it’s the central bank who is increasing the money supply).

          Anyway, probably nobody else is reading this exchange anymore so I can let you repeat that “banks manufacture money out of thin air” without feeling the urge of protecting the public. That’s enough banking theory for a while for me.

        • Carlos, no worries. The fact that it’s moderately offtopic is why I suggested the mastodon thread but evidently you don’t have mastodon or didn’t want to use it.

          I disagree in the sense that people absolutely get loans to increase the money supply. A major way that the ultra rich avoid taxation is to take loans against their assets, thereby increasing the money supply so they can buy stuff, write down the cost of the interest, and avoid paying capital gains when they instead sell those equity assets. That’s a massively important part of lending at the moment.

          I also disagree that banks can only increase the money supply by “using money they already have”… Using *assets* yes, but assets are mostly marketable things *other than money*. The distinction between money and the market value of an asset is important. Money is highly non-volatile, and many assets are potentially quite volatile. When Musk uses Tesla shares as collateral for a loan he pushes volatility onto the banking sector, helping to drive one of those liquidity crises that forces The Fed to “print” more money and give it to the financial sector. Pushing volatility into the bank’s assets mechanically creates money at a faster rate than even that implied by Deficit spending.

          Anyway, it took us a while to get to the same place and to avoid making mistakes on the accounting. I appreciate you engaging, and fixing my accounting misstep.

        • > I disagree in the sense that people absolutely get loans to increase the money supply. A major way that the ultra rich avoid taxation is to take loans against their assets, thereby increasing the money supply so they can buy stuff […]

          When I wrote “nobody takes a loan just for the sake of increasing the money supply in a meaningless transaction devoid of economic content” I meant that they don’t leave these one billion loans deposited in the lending bank. There would be little economic content in paying millions in interests for nothing.

          “People take a loan – increasing the money supply – because they want the money supplied for something” means that they want that money to buy stuff, etc.

        • Carlos, gotcha. Yes I sort of agree… Much of the time they want the money to do some economic function (ie. enable some goods to be produced or consumed or services to be produced or consumed). But some of the time they want the money to initiate a series of financial shenanigans which then returns them more money **without any net economic good being provided** especially even they may actually destroy a bunch of economic goods. So I’d distinguish this as a *financial* reason rather than an *economic* one.

          Cory Doctorow gives examples https://pluralistic.net/2023/07/20/continuation-fraud/ the situation often is to buy some functioning company, use its real assets to qualify for loans (ie. converting “stuff” into “newly minted money”), take the cash from these loans and transfer it to the schemers on the other side of a legal barrier so they are not liable to repay, then dump the company on an unsuspecting buyer, or just let it go bankrupt and walk away. Meanwhile the value of the real assets declines through lack of maintenance, or some of the justification for the loans is the functional operations of employees who leave or whatever, or any of a number of things that leaves us with 1) some very rich schemers, and 2) a functional company that becomes nonfunctional and stops providing goods or services. So the schemers get rich off of destroying economic value.

          That’s the real reason I’m interested in all this topic and I think it nicely circles back to the original point of this post… which is that there’s a lot of bullshitting and lying and scheming going on in the world’s economy… so much that the lack of real growth in the market (insufficient housing, crumbling public schools, lack of childcare, urban food deserts etc) may be attributable to the movement of effort towards financial shenanigans which enable people to get rich while *destroying* economic value.

          So that’s my underlying reason to care about all this stuff.

      • I don’t agree here.

        That one’s easy: they (correctly!) trust him to implement the policies they want.

        The direction of causality is reverse there, imo, at least often. Evangelicals/the religious right thought that the personal attributes of a politician where at the top of the list of critical attributes until Trump became a real political viability. Look at the hypocrisy re “fiscal responsibility” or “government interfering in the free market (tarrifs anyone?) pre- and post Trump.

        As chipmunk so often demonstrates, Trump’s appeal is the unrestrained antipathy he expresses toward libz and “the left.” Identity orientation drives views on policies more so than the other way around.

        It’s not just that way with Trump and his supporters. There’s a parallel on the other side of the aisle.

        • Were not where.

          Anyway, the point being that Trump’s lies serve the identity-aggressive/identity-defensive agenda. The open and brazen lying sends a signal that the smug libz can’t control “truth” as they think they can and as they have for the years since America was truly great.

          The truth is what Trump says it is and the harder libz push back the funnier and more satisfying it gets. Just watch them get all wound up about Trump’s lies.

          The best part is how simultaneously (1) you shouldn’t take what he says seriously because it’s just masterful bluster designed to trigger libz (watch what he does not what he says) and (2) he’s an unafraid tough guy who says what he really believes because he just loves him some ‘Merica.

          And it doesn’t matter that 1 and 2 are in direct contradiction.

        • “As chipmunk so often demonstrates, Trump’s appeal is the unrestrained antipathy he expresses toward libz”

          It’s funny that you say that. You’re talking about yourself, not me. Substitute “trump” for “the libz” – there’s Joshua.

          That’s not an appealing about Trump to me at all. I would rather see the entire political discussion focused on policy rather than attacking ‘the libz’ – that is, what’s known about the previous and likely future success of a given policy and whether it’s worth the cost of implementing it. That would provide **AMPLE** info to unwind almost all of what “the libz” are up to.

          In general I find my choices in this election deeply troubling – which has more or less been true since 1996, when I voted Clinton. Trump is jsut the least of the evils. And as I have said many times, I have not yet voted for Trump. In 2016, I reluctantly voted for hilary, having bought into the screaming of hte left about trump – which turned out to be almost all false. In 2020, I did not vote for a presidential candidate. I really wanted to vote for Trump, but his relentless imbecile babbling about not respecting the results of the election cost him my vote. Now it doesn’t matter. The cost of the other candidates is too high.

        • Chipmunk –

          > That’s not an appealing about Trump to me at all…

          I should have been more clear. It’s the a same sort of antipathy that you constantly demonstrate that is likewise appealing about Trump for his fans.

          Its kinda unarguable.

  5. I conjecture what Greg Sargent is doing is a pretty decent illustration of “projection” as the term is used in psychology. To pundits like him, statements must follow certain elaborate rules about “truth”. Therefore, he analyzes what Trump is doing in terms of that framework, assuming that Trump must passionately care about this framework as much as he (Sargent) does. But, per discussion above comments, that assumption isn’t accurate. Neither Trump nor many of his supporters operate in this framework.

    Maybe the analogous aspect with the scientific establishment is where it’s all about the publication count. They don’t really care too much about the contents of the publication itself.

  6. Most of Trump’s lies are just obvious exaggerations. Is that what we are talking about here? We should distinguish between loose talk, and attempts to deceive someone about facts.

    Trump is currently on trial in NY for lying in his business records. Cohen paid off a blackmailer and Trump later compensated him, booking it as a legal expense. The DA says that was a crime, because of an intent to cover up some other unspecified crime.

    So if you have a theory about Trump lying, then how does that theory apply to this case? This is the example of Trump lying that everyone is talking about.

    • The “Big Lie”, likely the most consequential, is his continuing claims that there was massive election fraud and that he really won the 2020 election by a huge margin. Second I’d say is his denial of Russian interference in the 2016 election and of the many contacts between his campaign and Russian agents. Third, his claims that the perpetrators of the 1/6 insurrection were unfairly prosecuted.

      wrt the current court case–which isn’t nearly as consequential–a key point is that Trump knew about the payoff beforehand. Saying that “Trump later compensated him” makes it sound like he only found out about it afterwards, which the evidence says was not the case.

    • Daniel –

      How do you see that variation on that graph to be explained by government polices (let alone by government policies crafted with a specific intent of disproportionate benefit)?

      What correlatory policies do you see in as explanatory for the inflection points of 1999, 2012, 2019 on such short time horizons? I tend to think that macro impact of policies only very rarely has a very immediate impact.

      • Hi. I’m guessing you are commenting on comments buried above where I posted some fred graphs but I’m not sure which ones you’re referring to.

        If you’re discussing the federal funds rate for example, then you may be misunderstanding my point. My point is that *the finance industry* manipulates the government into “adjusting the interest rate” thereby making them wealthy through a “money pump”. Specifically they buy bonds when the interest rate is up and the bonds are “cheap” and then they manufacture some new crisis with money the banking system creates using the bonds as their asset to back the creation of the money, then when the crisis hits The Fed is convinced to drop the interest rates (ie. equivalent to buying their bonds at higher prices). Some of them suffer, but the rest get bailed out… those who suffer ensure that they pay out big bonuses to the executives before going bankrupt and then move on to a different firm. that’s precisely what happened at Silicon Valley Bank https://www.cnbc.com/2023/03/11/silicon-valley-bank-employees-received-bonuses-hours-before-takeover.html

        The mechanism by which we create and distribute money is specifically a system that inevitably drives inequality, and the rate at which it’s driven is determined in major part by deficit spending which inherently creates money, every dollar a govt spends creates at least 1 dollar, every dollar a government taxes destroys one dollar. I say “at least” because if you can manufacture a reason for The Fed to buy bonds at higher than market rates you can make The Fed make more than 1 dollar per dollar of deficit.

        • Daniel –

          Sorry, I was responding to this comment:


          Re your last comment here…Personally, there’s a related dynamic that I think is relatively more directly explanatory for a lot of the macro-level pattern we’ve seen: the financial engineering in the corporate world. (1) As an example, companies like GMC used to focus on the profits of building cars. Now, it’s more a financial company (offering loans) than a car company. As a related phenomenon, (2) many businesses are less focused on sensible business plans, and more on short-term goosing of stock prices (like from stock buy-backs) – decisions made by corporate execs who hold shares and can get out if necessary while the stock benefits can be realized before stocks go down because of a lack of long-term thinking in the business plans.

          That, it seems to me, is more of a direct self interest-driven mechanism than federal policy which imo (1) doesn’t have the same short-term horizon for the realization of benefit and (2) has a more complex mix of underlying “interests” (IOW, I’m willing to think that some policy-makers really do look towards the health of the economy rather than the interests of the wealthy with indifference to the poor, for example).

        • Joshua. Yes 100% my underlying concern is specifically that the people you’re discussing, the “financial class” are really “running the show” through their creation of quite complex schemes using credit default swaps, repo agreements, currency swaps, overseas eurodollars, blablabla to create a massive “money pump” that moves money mechanically into their coffers without providing any economic value, or even *by destroying economic value*

          I mention as much here: https://statmodeling.stat.columbia.edu/2024/05/05/on-lying-politicians-and-bullshitting-scientists/#comment-2371898

          It’s a mistake if you think that I’m arguing “government employees are creating this problem” what I’m really arguing is that finance schemes control those government employees, those govt employees are a lever in a massive engine controlled by a massive network of millions of finance industry people all providing certain pushes and pulls to make the engine do what they want… which is to get rich in *financial* terms without needing to do the hard work of providing actual houses, cars, childcare services, education services, healthcare services, construction and repair, energy generation… etc.

  7. I’m guessing you mean look at china roughly since 1980?

    China’s poverty rate fell from 88 percent in 1981 to 0.7 percent in 2015


    I don’t think thats a good example as the poverty was *caused* by government to begin with. From the “Cultural Revolution” wikipedia:

    In 1981, the Chinese Communist Party passed a resolution and declared that the Cultural Revolution was “responsible for the most severe setback and the heaviest losses suffered by the Party, the country, and the people since the founding of the People’s Republic.”

    Thats an example of *reduced* government “help” raising people out of poverty. I’d also have issue with measuring it in dollars adjusted for CPI and a few other things. But thanks for the example, I now have an idea of why people think its a successful strategy.

  8. It’s depressing that virtually all of the comments are about politics rather than science. I would dearly love a discussion on how to deal with pre-reviewed papers that are just pure nonsense.

    • Independent replication, then once you have some kind of reliable observations, use that to guess some explanation. Finally you work out some otherwise surprising consequence of that explanation and check that on new data.

      @ Phil

      Social Security, Medicare, and other transfer programs could be improved in many ways, but are you really saying they don’t help at least some of the people they aim to help?

      I said “as a group”, meaning that some people will benefit while others will become (more) impoverished. Social security in particular is not something people under ~50 years old generally believe will benefit them. Its a pretty obvious ponzi. Those who got in first benefited but already people are getting paid back in diluted dollars (in theory adjusting for inflation could work, but CPI has been gamed for political reasons).

  9. I disagree with all of these explanations. The reason Trump makes so many outrageous statements is that he was schooled in this tactic by Roy Cohn in order to overwhelm the ordinary thinking processes of the mind as an overload of shock that befuddles, of logic so scrambled as to leave thinking in a tilt/no go state. One screwy statement after another seems to be entertaining for some who are willing to believe anything, while at the same time splitting the mainstream into at least two groups: those who want to use logic to correct and counter these false statements(a waste of time and effort), and those who dismiss his distortions as idiocy and not worth the time and effort to consider. My point is that Roy Cohn wanted to confuse, distract and annoy rivals and juries, to countersue for extreme amounts of money, to counter- charge for so many numerous faults that would keep opposing staff on fruitless case searches costing time and money. The idea is to wear down, create cost and fatigue, and have the opponent give up in desperation. Trump has master this deceptive tactic to the point that it has become part of his personality. He is never serious or thoughtful in the ordinary sense of logical states to convince anyone. His intent is to sow panic and surrender. So, spending time and effort to consider his mental confusion in order to correct the message is a fool’s errand. He is outrageously flawed in his statements by design and commentators should recognize his tactic instead of trying to reason against his unreasonable tactic. Those efforts are dry and academic, without the humorous dismissal his obviously illogical and counterfactual efforts deserve. Humor is the best medicine for his diseased declamations.

  10. Pollution is still a cause of significant premature deaths.

    Anthropogenic climate change is very, very likely to cause more premature deaths and more unnecessary costs in the future if not mitigated.

    Banning the EPA is very, very, very likely to leave future generations poorer and sicker than they would be otherwise.

    It has to be the single most stupid and cruel policy suggestion I’ve heard in a long time.

    Trump’s policy preferences are far, far, far more likely to result in disaster than Biden’s.

    • But his golf courses may prosper without needing to worry about water quality, wetlands, etc. This is an area where I might even say that I “trust” Trump (to do what he perceives to be in his own interest – I’m not completely convinced that I “trust” Biden similarly).

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