Tim Duy: "The risk of recession has risen to levels that demand attention from the Fed"

From Tim Duy's Fed Watch, 24 March 2019:

Everyone has their pet recession indicator; many are probability models based on some combination of yield spreads and other leading indicators. Most will be raising red flags like this estimate of the probability of recession in six months based on the 10s2s and 10s3mo spreads and initial unemployment claims:

... The risk of recession has risen to levels that demand attention from the Federal Reserve. In the two cases of similar spikes in the 1990s, a recession was avoided by the rapid response of the Fed in the form of rate cuts. The times that response was lacking, a recession followed.

So now I switch from analyst to commentator: The above leads me to the conclusion that the Fed needs to get with the program and cut rates sooner than later if they want to extend this expansion.

If you're going to look at "yield spreads" as a recession indicator, you're going to have to explain why, in the 1990s, the yield curve inversions did not lead to recession. Tim Duy explains it.

I wanted to see what Duy was looking at, so I took his graph, erased the background, and used the graph as an overlay on a FRED graph of the Federal Funds rate.

The Fed Funds rate is the red line. The dates, the text, and the Y-axis values on the FRED graph are also red. The Y-axis is on the right. (I remember the days when a FRED graph had to have a left-hand scale. If you showed only one data series, you couldn't show it using a right-hand scale. Now you can. That's a handy feature.)

I matched up the two graphs using the X-axis tic marks. FRED's are faint and hard to see through the overlay, but they are there. (You can click the graph to get a better view.)

Tim Duy's graph overlaid on FRED's FEDFUNDS

I see what Duy is talking about. FedFunds (red), running low in 1993 (just above Duy's green line), then rising to the 6.0 level on the right-hand scale, then dropping just a little. And just as it stops dropping, the probability of recession (blue) falls to near zero. The "red-drop, blue-drop" pattern repeats in 1998. I see it. Alan Greenspan postponed the recession by lowering interest rates. Twice.

Looking at recession probability spiking upward at the right end of his graph, Tim Duy says

The risk of recession has risen to levels that demand attention from the Federal Reserve.

He says, and we saw, that

In the two cases of similar spikes in the 1990s, a recession was avoided by the rapid response of the Fed in the form of rate cuts.

Reinforcing that observation with symmetry and thoroughness, Duy adds

The times that response was lacking, a recession followed.

Duy makes a good case.

//

Posting resumes after April Fools Day.

You know

Tim Duy quotes Fed Chairman Powell:

It’s a major challenge. It’s one of the major challenges of our time, really, to have inflation, you know, downward pressure on inflation let’s say. It gives central banks less room to, you know, to respond to downturns, right. So, if inflation expectations are below two percent, they’re always going to be pulling inflation down, and we’re going to be paddling upstream and trying to, you know, keep inflation at two percent, which gives us some room to cut, you know, when it’s time to cut rates when the economy weakens. And, you know, that’s something that central banks face all over the world, and we certainly face that problem too. It’s one of the, one of the things we’re looking into is part of our strategic monetary policy review this year. The proximity to the zero lower bound calls for more creative thinking about ways we can, you know, uphold the credibility of our inflation target, and you know, we’re openminded about ways we can do that.

Can you identify the significant figure?

From Larry Summers:

This is an argument much more in the spirit of Keynes, the early Keynesians, and today’s Post-Keynesians than the New Keynesians ...

Misc notes on Summers "Responding"

Larry Summers, in Responding to some of the critiques of our paper on secular stagnation and fiscal policy:

Such economic success as the industrial world has enjoyed in recent decades has reflected a combination of very low real rates, big budget deficits, private leveraging up and asset bubbles.

No one from whom I have heard doubts the key conclusion that a combination of meaningfully positive real interest rates and balanced budgets would likely be a prescription for sustained recession if not depression in the industrial world.

Don't you want to determine why this is so?

//

Summers:

Sandbu argues against the notion of secular stagnation in part because he thinks it may lead in unconstructive directions like protectionism...

If what Summers says is correct, Sandbu rejects the idea of secular stagnation because he doesn't like where it may lead.

Do you see how wrong that is? To understand the economy you evaluate ideas based on how they fit reality. You don't reject ideas because you think they may lead someplace you don't want to go. Understanding the economy is not like planning a vacation.

To make matters worse, Summers does not address this issue.

//

Couple things Summers says. One, in regard to making interest rates even more negative: "capital cost is already not the barrier to investment". An excellent observation.

Two: "I have trouble thinking about behavior in situations where people and firms are paid to borrow!" Yeah.

//

Summers: "we are accustomed to thinking in terms of debt levels". But he's not talking about debt. He's talking about government debt.

... hunting and gathering ... agriculture and trade ... writing and civilization ...

ThoughtCo.com:

The Stone Age in human prehistory also referred to as the Paleolithic Period, is the period between about 2.7 million and 10,000 years ago...

The Paleolithic period begins in Africa with the earliest human-like behaviors of crude stone tool manufacture about 2.7 million years ago and ends with the development of fully modern human hunting and gathering societies.

Softschools.com:

The Neolithic Era, also known as the New Stone Age, was the time after the stone or ice age and before the Copper Age in some areas and the Bronze Age in others. Depending on the region, the era ran from around 9,000 B.C. to about 3,000 B.C...

The Neolithic Era will be remembered as the major transition from the hunting, gathering, and wandering groups to the agricultural communities and the domestication of animals.

New World Encyclopedia:

The earliest evidence for established trade exists in the Neolithic with newly settled people importing exotic goods over distances of many hundreds of miles.

Uh-oh. If we put the concepts "writing" and "civilization" together, we're suggesting that a time of "little or no writing" might be a "dark age". And that seems to be a no-no, as Britannica says that it implies a "pejorative" "value judgment" about "intellectual darkness and barbarity."

I really don't understand the objection. It is not a pejorative value judgment to say that a time of economic vigor is better than a recession.

I object to Britannica's objection on the grounds that it impedes thinking in terms of the Cycle of Civilization.

The economy drives civilization

In yesterday's post I said my impression is that writing first developed as a way to keep track of business data. I wasn't happy with "my impression is", but I couldn't put my finger on anything more substantial. So, soon as I finished that one I went looking. And as soon as I went looking, I remembered lookin before.

Found it. I wrote up something back in December 2017. Found it on my "Test and Development" blog. Never quite finished it, apparently.

I updated my remarks, updated one of the Wikipedia excerpts, added some links, and formatted the post using the "two-color dialog" background style I sometimes use.

Quoted sources		My commentary

AncientScripts:
The Sumerians were one of the earliest urban societies to emerge in the world, in Southern Mesopotamia more than 5000 years ago. They developed a writing system whose wedge-shaped strokes would influence the style of scripts in the same geographical area for the next 3000 years...

The excerpt takes us back a good 5000 years to the Sumerians. Theirs was an urban society with a writing system. Yesterday, Carroll Quigley pointed out that civilizations have writing and cities, but "Neolithic Garden cultures" did not. It would appear that the Sumerians developed writing and civilization.

It is actually possible to trace the long road of the invention of the Sumerian writing system. For 5000 years before the appearance of writing in Mesopotamia, there were small clay objects in abstract shapes, called clay tokens, that were apparently used for counting agricultural and manufactured goods.

This takes us back another 5000 years -- 10,000 years all told -- to the invention of clay tokens, a counting technology used for business purposes.

Cuneiform script (Wikipedia):
The cuneiform script was developed from pictographic proto-writing in the late 4th millennium BC, stemming from the near eastern token system used for accounting. These tokens were in use from the 9th millennium BC ...

"The 4th millennium BC spanned the years 4000 through 3001 BC."
"The 9th millennium BC spanned the years 9000 through 8001 BC."

I'm thinkin that the "token system used for accounting" is the same as the previously noted "clay token" system used for counting. The dates and the purposes suggest as much. This would mean, then, that between 10,000 years ago and 5000 years ago, Sumer moved from a clay token system, to proto-writing, to cuneiform script. And the earliest of those was already used for accounting.

There was accounting before there was writing. This suggests that business activity created the need for record-keeping, and the result was cuneiform. So the answer is yes, writing developed as a way to keep track of business data.

And if we go with the notion that "writing + cities = civilization" then the result was not only cuneiform script, but also civilization.

Economic activity makes the world go round.

AncientScripts:
As a spoken language, Sumerian died out around the 18th century BCE, but continued as a "learned" written language (much like Latin was during the Middle Ages in Europe). In this way, Sumerian was used continually until the 1st century CE, making it one of the longest used writing system in history.

"... much like Latin was during the Middle Ages", they say. That's the kind of comparison Arnold Toynbee would make. Cycle of Civilization stuff. Recurrences. History repeats itself -- or no, not exactly, but it rhymes.

Prehistoric numerals:
Early systems of counting using tally marks appear in the Upper Paleolithic. The first more complex systems develop in the Ancient Near East together with the development of early writing out of proto-writing systems.

Numerals originally developed from the use of tally marks as a counting aid, with the oldest examples being about 35,000 to 25,000 years old.

Counting aids like tally marks become more sophisticated in the Near Eastern Neolithic, developing into various types of proto-writing. The Cuneiform script develops out of proto-writing associated with keeping track of goods during the Chalcolithic.

"The Cuneiform script develops out of proto-writing associated with keeping track of goods". Again, economic ties. The development of writing was driven by self-interest, by the needs of people trying to make money.

Upper Paleolithic:
The Upper Paleolithic (or Upper Palaeolithic, Late Stone Age) is the third and last subdivision of the Paleolithic or Old Stone Age. Very broadly, it dates to between 50,000 and 10,000 years ago (the beginning of the Holocene), roughly coinciding with the appearance of behavioral modernity and before the advent of agriculture.

10,000 years ago: Modern behavior (and human nature) but as yet no agriculture.

Proto-writing:
The transition from proto-writing to the earliest fully developed writing systems took place in the late 4th to early 3rd millennium BCE in the Fertile Crescent. The Kish tablet, dated to 3500 BCE, reflects the stage of "proto-cuneiform", when what would become the cuneiform script of Sumer was still in the proto-writing stage. By the end of the 4th millennium BCE, this symbol system had evolved into a method of keeping accounts ...
This was gradually augmented with pictographic writing using a sharp stylus to indicate what was being counted. The transitional stage to a writing system proper takes place in the Jemdet Nasr period (31st to 30th centuries BCE).

"The 30th century BC ... lasted from the year 3000 BC to 2901 BC."

Okay: By 3500 BC (say 5500 years ago) it was proto-writing. By 3000 BC (5000 years ago) it was a fully developed method of keeping accounts, and over the next 100 years or so it became "a writing system proper".

Again: The economy drives civilization.

EDIT:
See also The accumulation of wealth gives rise to civilization -- one that I actually did finish.


The long, slow end of the learning curve:

	200,000 years ago:	Homo sapiens
	50,000 years ago:	Intelligent life
	35,000 years ago:	Tally marks as a counting aid
	10,000 years ago:	Clay Tokens used for accounting
	5,500 years ago:	Sumerian proto-writing
	5,000 years ago:	The Sumerian writing system

"they lacked both writing and city life"

From page 81 in The Evolution of Civilizations (PDF, 425 pages) by Carroll Quigley:

Leaving aside for the moment the two civilizations found in the New World, we can arrange the fourteen Old World civilizations into a pattern to show their chief cultural connections. Many other connections, which we do not show on the diagram, exist in fact and can be inserted by the cognizant reader. It is to be noted that four of the early civilizations are cultural descendants of the Neolithic Garden cultures, which were not themselves civilizations (since they lacked both writing and city life):

I liked Quigley's diagram immediately, as it reminds me of Toynbee's work. But the diagram made it to the blog today because the paragraph is incomplete without it. And the paragraph made it to the blog because it tells a way to distinguish civilizations from more rudimentary forms of human society: civilizations have writing and cities. Writing, and cities.

Two thoughts on cities:

• from Let's Go Surfing Now:
  

  The cycle of civilization is a cycle in the dispersion and concentration of wealth. The inequality that troubles Piketty and the Pope is evidence of that cycle. The growth and decay of cities and nation-states is evidence of that cycle. The saucer-shaped pattern traced by interest rates during the course of ancient civilizations is evidence of that cycle.

• and from Civilization:
  

  Civilization may be seen in the rise and fall of cities, but it is measured in the rise and fall of the standard of value.

As far as writing goes, my impression is that writing first developed as a way to keep track of business transactions, financial obligations, inventory, and such.

These thoughts suggest that both writing and cities have economic ties to civilization. And that is related to the idea that the cycle of civilization is a business cycle which is driven by the concentration and dispersion of wealth.

Brexit: Two reflections

1. Antonin Scalia on the United States of America:

If there was any constitutional issue resolved by the Civil War, it is that there is no right to secede. (Hence, in the Pledge of Allegiance, "one Nation, indivisible.")

2. Encyclopedia.com on Ancient Greece:

Delian League, confederation of Greek city-states under the leadership of Athens... All the members were given equal vote in a council established in the temple of Apollo at Delos [and] contributed funds, troops, and ships to the league. After Persia suffered a decisive defeat at Eurymedon (468 BC), many members supported dissolution of the league... When Naxos attempted to secede, Athens, taking the leadership from the assembly, forced (c.470 BC) Naxos to retain allegiance. Soon Thasos attempted the same maneuver and was likewise subdued (463 BC) by the Athenian general Cimon... The league had in effect become an Athenian empire.

Jefferson's money

From The Colonial Roots of American Taxation, 1607-1700:

A few words on the means of payment are required to understand the difficulties of collecting taxes. Public accounts were kept in English sterling, in pounds (£), shillings (s.), and pence (d.). However, few sterling coins circulated in the colonies. The colonies lacked an indigenous supply of gold or silver from which to mint coins. They acquired coins largely through trading with Spanish and French colonies in the Americas...

Throughout the seventeenth century, the American colonies depended on imports for a wide range of consumer goods. The cost of imports invariably exceeded the value of colonial exports. As a result, much of the specie that found its way into the colonies was shipped to England and other European countries to settle the colonists’ bills...

The chronic shortage of specie required the colonists to improvise alternative means of payment. They resorted to barter, payment in commodities, and such paper instruments as private promissory notes and bills of exchange drawn on London merchants.

My exploration of the internet while writing the two previous posts brought me to several links on Thomas Jefferson. I've taken a few pieces from some of the Jefferson links, and assembled them into one tale. Out of respect for my sources, I didn't edit the text I'm quoting. So you'll see some repetition where different sources overlap.

Thomas Jefferson came of age in a confusion of currency. The gold and silver of many kingdoms filled the gap created by a chronic scarcity of British coins in the American colonies. ^[1]

After the American Revolution, the thirteen colonies were still trying to figure out a currency system. Up to that point, the colonies used Spanish, Portuguese, and English coins for financial transactions. A few of the colonies minted their own coins, but most weren’t officially recognized. All of these coin’s denominations were based on a silver dollar, in a monetary system from Spain, known as a real. But once the colonies got ahold of these coins, each colony assigned the coins a different value. This made trade between colonies incredibly difficult. ^[2]

The first time that Jefferson dealt with the colonies’ disorderly monetary system was in 1776. (Dumas Malone, Jefferson the Virginian, 1948, p. 416). He drafted a report for Congress on the value of various monetary values in the states. This was vital since each state could issue its own specie, and it was common practice to also use foreign coinage. ^[3]

Jefferson began advocating decimal reckoning as an orderly alternative to the currency chaos in 1776. ^[1]

Jefferson saw standard American monetary and measuring units as a unifying aspect for the new nation; a way of completely severing all ties to its English past... He wished to get rid of all state and foreign monies, not have a system which integrated them. He felt a common currency would bind the country together... ^[3]

Jefferson believed that a coin based on the Spanish Dollar (what we know of as “pieces of eight”) would fit the bill. It was convenient in size and weight to be used in everyday commerce. This coin was easily divided by tens, a ratio that almost everyone could deal with and was known. And, it was a coin that was very familiar. A major portion of American business had been using the Spanish Dollar for transactions for many years. ^[3]

In April of 1784, Jefferson put these recommendations down on paper in a document titled, “Notes of the Establishment of a Money Unit and a Coinage for the United States.” His suggestions were given to the government, which, after extensive discussion, decided to use Jefferson’s ideas. And his ideas are still used today. ^[2]

In 1786 (some sources state 1785), ten years after Jefferson first took up the issue, Congress established a new monetary system. ^[3]

Sources:

1. Currency at monticello.org
2. How Thomas Jefferson Changed U.S. Currency at libertycoinandcurrency.com
3. Jefferson On Money at varsitytutors.com

Part 3 of 3
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MMT, Massachusetts Bay Colony, and the Invention of Motives

When paper money was issued in America, it became the first authorized by any government in the Western world. The Massachusetts Bay Colony financed a military expedition to Canada in 1690 by issuing bills of credit. Subsequent military campaigns and other expenses by other Colonies were funded in a similar way... In all cases, they were a financial expedient adopted to cover a lack of funds by promising to “pay later.”

- American Numismatic Society

Excerpts below are from The Colonial Roots of American Taxation, 1607-1700 by Alvin Rabushka. From the Hoover Institution:

Official paper money was first issued by the Massachusetts Bay Colony in 1690. (Seven more colonies followed by 1712.) A military expedition led by its governor, Sir William Phipps, set out in the fall of 1690 to conquer Quebec. It failed. The colonial government expected the soldiers to be paid from seizing the enemy’s treasury. Upon their return, the surviving soldiers demanded immediate pay from the government. The colonial treasury was empty, as revenues were collected only to meet anticipated annual expenditures. The solution was to issue bills in the form of “certificates of indebtedness” to the possessor on the part of the legislature. Bills would be receivable by the colonial treasury in payment of taxes.

Note that the Machusetts Bay authorities did not say You have to use these certificates of indebtedness to pay your taxes. They said: We lost the skirmish. We didn't get the spoils of war. The treasury is empty. We have nothing to pay you.

They said: But we can give you these certificates of indebtedness. They may not be good for much, but at least you can use them to pay the taxes you owe us. It's the best we can do for you. We feel terrible about this, really. Please accept the certificates.

The certificates of indebtedness were made acceptable in payment of taxes so the soldiers would find them of some value. That's not anything like saying you "have to" use these certificates or "you must" use them, which is the story MMT tells.

Let me go back and finish that paragraph.

Bills would be receivable by the colonial treasury in payment of taxes. The law provided that a portion of the notes would be called in and retired (destroyed) each year as revenues materialized.

Sounds exactly like MMT, which says that when the Federal government receives tax payments, they "shred" them. Stupidest thing I ever heard. But it made sense in Massachusetts Bay colony in the 1690s, because the certificates of indebtedness weren't money anyway. They were “bills of credit”. They were IOUs issued by the Massachusetts Bay colony, that could be used in payment of taxes.

So you'd pay your taxes with them, and they'd mark your taxes "paid". And then they'd discarded the IOUs. That's similar to MMT saying the Federal government discards the taxes you pay it. But it makes perfect sense to shred the retired IOUs, and it makes no sense at all to discard money. I think MMT is trying to make us understand that money is just an IOU. But that idea is too over-simplified to be correct.

The Massachusetts Bay authorities did not say "you must use these to pay your taxes". They said "this is the best we can do for you. Please take the certificates. To give them some value, we'll let you use them to pay your taxes." They did not say "you have to use them to pay your taxes". But at least the soldiers could do more than frame their certificates and hang them on the wall.

Things in Massachusetts Bay in the 1690s were not as MMT says things are today. Massachusetts Bay didn't print paper money and say "you have to pay your taxes" with it. They did not say "you must" pay your taxes with it. They did not say "you need it in order to pay your taxes". The soldiers would have preferred real money, of course. They didn't want the certificates of indebtedness. They took em because the certificates were better than nothing.

The bills issued in 1690 were called Colony or Old Charter bills. They became known as “bills of public credit,” or “bills of credit” for short, and were printed in denominations of 5s., 10s.. 20s., and £5. Their issue was justified on the basis of borrowing for a specific public expenditure. The bills were not called money since none of the colonies had received the right to coin money. Bills of credit were inscribed as legal tender and valid payments for all obligations, including taxes and bills of exchange. The original issue in the amount of £7,000 was raised to £40,000 a year later.

Bills of credit were initially met with distrust. Soldiers who received the first bills were able to exchange them for no more than 12-14 shillings to the pound in other forms of money. To establish public confidence in them, by an act in 1692 the General Court of the colony, its governing body, attached a 5 percent premium in their use to pay taxes (which remained in place until 1720). This measure made bills of credit more valuable than other lawful money. By early 1693, most of the bills had been redeemed. Popular demand for bills of credit to facilitate commerce and payment of taxes led to their regular reissue. Bills of credit remained at par with specie for about 20 years.

When I took my three credits of macro, the teacher emphasized the difference between our economy and a "command" economy. The policy of a command economy tells you YOU MUST. The policy of our economy uses inducements like the 5 percent premium, which increased the value of the certificates of indebtedness. Inducements make us want to do what they want us to do. Commands only remind us how much we don't want to do what they want us to do.

It troubles me when MMT describes our economy as a command economy. It's wrong.


Oh, and

Fees, taxes, and personal debts could be settled in any form of lawful money. Colonial legislatures gave locally produced crops (cereals, corn, tobacco, rice) official value for payment of taxes.

Nobody said you HAVE TO pay your taxes with the certificates of indebtedness. You could pay your taxes with "any form of lawful money", maybe even vegetables from your garden.

It may in fact be the case that payment of taxes was the only use open to the soldiers when the certificates were first issued. But saying HAVE TO requires that we invent unpleasant motives and assign them to Mass Bay. That's what I object to most of all in the argument MMT makes, the invention of other people's motives.


The bills of credit were promises to "pay later", as the American Numismatic Society says. As long as US paper money had precious metal backing, paper money was also a promise to pay. It was like a "bill of credit".

When President Nixon took the dollar off gold, the dollar stopped being a promise to pay. It became the payment. It became money. Fiat money, if you like, but money.

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"because you have to pay your taxes with it"

Lars P Syll, in Stephanie Kelton explains MMT:

In modern times legal currencies are totally based on fiat. Currencies no longer have intrinsic value (as gold and silver). What gives them value is basically the simple fact that you have to pay your taxes with them.

Edward Harrison, in MMT for Dummies:

Basically, according to MMT, your pound notes, your dollar bills, your euro coins have no intrinsic value. They're tokens. They only acquire value because the government says so. The government says, "you owe me taxes and you must pay these taxes using the money we create." And that proclamation alone makes state money valuable.

Doug Henwood, in Modern Monetary Theory Isn’t Helping:

As Wray put it, “The government does not ‘need’ the ‘public’s money’ in order to spend; rather the public needs the ‘government’s money’ in order to pay taxes.

The MMT explanation that money has value "because you have to pay your taxes with it" has long been a sore point with me. But I never pinned down why it bothers me until I remembered being awakened in the middle of the night by this thought: The thing that makes money valuable to the people who have most of it is that it earns them interest. And the people who have most of the money set the standard for the rest of us.

The thing that makes money valuable to the people who have most of it is that it earns interest: This thought leads directly to others, such as "The idea that deficits don't matter for countries that can borrow in their own currency I think is just wrong". The Chairman of the Federal Reserve said that.


We need money to pay our taxes? Our taxes? Sure. Also, our food and clothing and shelter and our earthly delights: stuff from Amazon or maybe from somebody local, god forbid. To me, money has value because I need it to buy what I want.

Conveniently, money is also what people are paid for their work. Gosh, what a fortuitous coincidence!

We can say money has value by convention. That's probably why they made the "fiat" dollars look much like "backed" dollars when they made that change:

Text and Images from Larry Parks at fame.org

This is not a dollar. It is a promise to pay a dollar.

This is a broken promise to pay a dollar.

We didn't abandon the dollar en masse when Nixon pulled the rug out. Convention kept people thinking of the dollar as real money. Me, for example: I don't have a problem with our money being fiat.

The transition from "backed" to "fiat" might have been less smooth if they took Washington's face off the fiat dollar and put Alfred E Neuman on it, or Aaron Burr. But they didn't fiddle with that, and the dollar, though worse for wear and worry, still has value.


The Ed Harrison quote above refers to "state" money. That's what the MMT discussion is about: why we in the US use the dollar specifically, as opposed to ounces of gold or pieces of eight or whatever else we might possibly use for money that's not measured in dollars.

Nobody brings this up, but when you're in the early days of a state, a nation-state say, the people want to belong to it. They want to be part of it. They want to use the money their state issues. It's part of the "national pride" thing. When you're in the late days of a state, people have lost that feeling and national pride is somehow seen as a problem. And they'll switch from dollars to bitcoin at the drop of a hat.


My memory's not great, but I recall the government setting a new policy, that they would allow credit cards to be used to pay taxes. I don't know when that was: late '80s, early '90s, maybe? But I know people were using credit cards before the government said you could pay your taxes with em.

Credit cards are not state money. They are a vehicle for state money, and can be used to pay US taxes. But credit cards arose and came into common usage before the government said we could use them to pay our taxes.

I'm thinkin US state money similarly came into common usage before the government said we "have to" use it to pay our taxes. That would make "because you have to pay your taxes with it" a bullshit argument.

Is there a law making it a requirement that US taxes be paid in US dollars? If there is, when did that law come into existence? I can't answer these questions. But if you want to say the US dollar only has value because they tell us we have to use it to pay our taxes, then you have to answer those questions. And the answers have to be "Yes", and "Before we started using the dollar as our accepted medium of exchange." Otherwise, "because you have to pay your taxes with it" is bullshit.

Come to think of it, the US dollar is used by the people of many nations. The dollar must be more stable than their own state currency, or must have some other advantage that makes those people prefer to use US state money. What do those people use to pay their taxes? And is there some law about that?


I don't need to use US money to pay my taxes. Whatever I use for money, I can exchange it for US money when it's time to pay my taxes. The notion that our money has value "because you have to pay your taxes with it" is bullshit.


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What's that name again?

141 million results, and the first one has Toynbee's name wrong!

Maybe Google did that on purpose?


Here. I looked:

Up slow, down fast

Menzie: "Recessions, once they are underway, happen fast — a lot faster than expansions."

Well said.


Newt:

A Study of History liberated me from any sense that we inevitably know how to keep America strong. It also engendered in me a deep sense that every generation faces the potential of serious challenges and that failure to respond effectively could mean the end of your civilization in a remarkably short period of time.

"A remarkably short period of time." Agreed.


The pattern is the same for the typical business cycle and the massive business cycle I call the Cycle of Civilization: Up slow, down fast.

The 2020 (Antonio Fatas) Recession

Antonio Fatas has an interesting post up where he looks at low unemployment as a predictor of rising unemployment and recession. Yes, you'd expect that to happen. As Fatas says, "there is reversion to the mean in unemployment rates". But there is more to the story, and Fatas digs it out:

The result might sound obvious and mechanical: once unemployment rate is low, there is only one way for unemployment to go: up. This is true but what matters is whether a persistent period of low and stable unemployment is possible. In the case of the US the answer is no.

And again:

In the case of the US, history suggests that “full employment” is not a sustainable state and that once we reach such a level a sudden increase in unemployment is very likely.

As opposed to Australia, for example, which has "sustained a low unemployment rate for decades." See? It got interesting, didn't it.

Fatas reports regression results which show that, for the US, "low unemployment rates are particularly good at predicting the tail risk of large increases in unemployment (recessions)... Interestingly, the same phenomenon is not present in other countries (such as Australia)."

Then he asks: Why?

The academic literature tends to emphasize two set of variables: those associated to macroeconomic imbalances (such as inflation) and those associated to financial imbalances. Interestingly, the introduction of these variables in the quantile regressions above makes the above effect go away (see Fatas (2019)). In particular, once we control for credit growth, it is not any longer the case that low unemployment is a good predictor of the tail risk associated to recessions (we still observe a reversion to the mean but we do not obtain a larger coefficient for the p90 quantile).

"This result," Fatas says, "suggests that recessions follow periods of low unemployment because imbalances are built during those years." Imbalances related to credit growth in particular: That's what he seems to be saying. So maybe low unemployment leads to rising unemployment and recession, not because of the low unemployment level but because of high credit growth -- or, rather, because of the financial cost associated with the relatively high level of debt that develops during a period of high credit growth. I can see that.

Fatas follows up with a zinger:

What is interesting is that the evidence shows that this is always the case, that the US economy has never managed to sustain a low rate of unemployment without generating the imbalances that lead to a recession.

He concludes that recession is "around the corner."


When Antonio Fatas said "history suggests that 'full employment' is not a sustainable state" for the US, my first thought was what we looked at the other day, Stephanie Kelton saying "MMT would set public spending always to the level required to achieve full employment, and then accept whatever deficit may result."

If Fatas is right, is the economic force he describes strong and independent enough to interfere with a plan like Kelton's for full employment?

If, as Fatas seems to say, credit growth during the recovery creates embedded costs that make recession inevitable, we might see sustained rapid credit growth under Kelton's full employment, along with rising financial costs that would drive public spending ever higher in the effort to achieve and sustain full employment. I'm not making a prediction here; just test-fitting some puzzle pieces. Irresistible force meets immovable object. What gives?

My second thought was to look at US unemployment to see if it really does appear that we've never had a persistent period of low and stable unemployment:

Graph #1

Eh, two years in the early 1950s, two in the mid '50s, three in the latter '60s, and maybe two in the latter '80s. Other than that, falling unemployment seems to give way immediately (when the time comes) to rising unemployment. You can even see it in recent months on the right side of the graph.

And the "persistent" periods that I find are not very persistent: two years, three on the outside. Compared to Australia, where, as Fatas says, "by the year 2000 unemployment reached a low level that has remained mostly flat for years."

Ouch.

So I added unemployment for Australia to the graph:

Graph #2

Yikes! It's higher than US unemployment from 1983 to 2003! Then it runs with ours till 2007 when we start rising into recession. Australian unemployment spends 2008 bottoming out, then rises.

Fatas sees Aussie unemployment running low and "mostly flat" since 2000. I see a one-year period (2008) as their "persistent" low.

Sure, Australia seems to have missed the "Great Recession" spike that we saw in 2008-09. Maybe that makes their unemployment rate appear low. But it has been persistently above 5% since 2009, and has reached above 6%. I'm a little disillusioned.

It is true that the Aussie rise from 5% to over 6% was not sharp and sudden the way the increases are in the US during recession. Maybe that's what Fatas was looking at. But if he's thinking that "low" unemployment is anything under 6.5%, then the US had a persistent low from 1962 to 1974. And that shoots a hole in the theory that "the US economy has never managed to sustain a low rate of unemployment".

That persistent US low, as it happens, occurred when the total-debt-to-GDP ratio was low and stable at 1.5. Which brings us back to "credit growth" creating the embedded costs that make recession inevitable. But credit growth wasn't a problem in the US in that period, what with inflation driving the GDP numbers higher as fast as debt was growing.

There was a recession during that 1962-1974 period. (Fatas said: "the US economy has never managed to sustain a low rate of unemployment without generating the imbalances that lead to a recession.") But the 1970 recession wasn't a "credit growth" recession; that recession was the Fed's way of fighting inflation. So also was the 1967 recession that we almost had, and so was the 1974-75 recession that terminated the 1962-1974 period.

The US history of 1962-1974 supports Fatas's view that low unemployment (or, really, rapid credit growth (or even more really, the financial cost associated with the high level of debt that develops during a period of rapid credit growth)) may be what leads to the recession that ends the period of low unemployment.

Personally, I find that conclusion just about right.


There remains one point to consider, and that is the point Fatas makes in his post titled The 2020 (US) Recession, which ends with the thought that

If history is an indicator of future crisis, and given the current low level of unemployment, a recession is likely to be around the corner.

I still like the Change in Total Nonfarm Payrolls as a recession indicator.

Graph #3: Monthly Change in Total Nonfarm Payrolls, and the H-P Trend
Click the Graph for a Larger View

To get the Hodrick-Prescott I exported the FRED data to Excel and used Kurt Annen's VBA code. The plotted line is default blue on the FRED graph. The dashed red line is Excel's plot of the same data and the black line is the Hodrick-Prescott. It uses a smoothing factor of 14400 for the monthly data. To show the H-P on the FRED graph with recession bars and all, I used PAINT.NET to erase the background of the Excel graph gif file, and overlaid it on the FRED graph. It's fun to do that once in a while.

Notice that the H-P almost always falls before a recession. Since the 1980 recession, it always falls for a couple years before the recession starts. It's not falling now.

The most recent "change in payrolls" number was low by an order of magnitude: 20 rather than around 200. Definitely an eye-catcher. But one month's data point is not a trend. A second one is a Red Alert. The third one could be a trend. But so far, there is no hint of recession in these payroll numbers.

Two openings

Stephanie Kelton opened her Paul Krugman’s Four Questions About MMT, 1 March 2019 at Bloomberg, with this thought:

There is a doctrine among mainstream economists holding that: (1) government deficits push interest rates higher and (2) rising interest rates crowd out private investment...
Paul Krugman is a believer in this doctrine. I’m not ...

(I skipped over that intro in mine of the 11th.)


Brad DeLong, grasping reality on the 7th of March, opened

thinking about this by Łukasz Rachel and Lawrence H. Summers this week: On Falling Neutral Real Rates, Fiscal Policy, and the Risk of Secular Stagnation.
It says an awful lot of true things. The average "neutral" 10-year safe real interest rate consistent with full employment in the Global North does look like it has fallen from 4% per year in the 1990s to -0.5% per year today... During this period of decline, increased government debts have put perhaps 2%-points of upward pressure on the neutral rate: the actual decline has been 6.5%-points.

There it is! "Increased government debts" are deficits, so DeLong is saying deficits have pushed interest rates perhaps 2 percentage points higher. An example of what Kelton was saying.

No biggie. I just like finding evidence that supports a generalization.

From the preface to the French edition

"I believe that economics everywhere up to recent times has been dominated, much more than has been understood, by the doctrines associated with the name of J.-B. Say. It is true that his 'law of markets' has been long abandoned by most economists; but they have not extricated themselves from his basic assumptions and particularly from his fallacy that demand is created by supply. Say was implicitly assuming that the economic system was always operating up to its full capacity, so that a new activity was always in substitution for, and never in addition to, some other activity. Nearly all subsequent economic theory has depended on, in the sense that it has required, this same assumption. Yet a theory so based is clearly incompetent to tackle the problems of unemployment and of the trade cycle."

- J.M. Keynes

On economic analysis

I was a math major. I remember doing homework problems when I didn't understand the process. I'd go thru a whole long process and come up with an answer that turned out to be wrong. What I learned was that to solve the problem I had to start in the right place.

It's like that with the economy too. Start in the wrong place and you get the wrong answer.

What she said

Stephanie Kelton, quoted by Robert Waldmann in MMT II at Angry Bear:

“MMT would set public spending always to the level required to achieve full employment, and then accept whatever deficit may result.”

I addressed this topic a couple weeks ago, but lets go again.

The quote sounds like a policy statement. I have to see it in context.

INCOMPLETE ANALYSIS

I found a source for the Kelton quote at Bloomberg: Paul Krugman Asked Me About Modern Monetary Theory. Here Are 4 Answers by Stephanie Kelton. Turns out the first of her four answers is the relevant one. From her article:

... Paul Krugman is a believer in this doctrine. I’m not, and he’s asked me to explain why. He is responding to a column I wrote critiquing his view of modern monetary theory.
I’m going to respond directly to the questions he raised:

Are MMTers claiming, as Kelton seems to, that there is only one deficit level consistent with full employment, that there is no ability to substitute monetary for fiscal policy? Are they claiming that expansionary fiscal policy actually reduces interest rates? Yes or no answers, please, with explanations of how you got these answers and why the straightforward framework I laid out above is wrong.

Quick responses first, followed by explanations behind my thinking.

#1: Is there only one right deficit level? Answer: No. The right deficit depends on private behavior, which changes. MMT would set public spending always to the level required to achieve full employment, and then accept whatever deficit may result.

So there's the quote Waldmann used. And the context is: The right deficit depends on private behavior, which changes.

Important point. I was gonna bring that up. If the Federal debt is "safe assets" then the Federal deficit is the supply of new safe assets. But the economy is the interaction of supply and demand. The demand for safe assets arises in the private sector, as Kelton says. And it changes.

We cannot consider only supply; we must consider also demand. Similarly, the Federal debt is not only safe assets; it's also a cost. If it wasn't a cost to the public sector it wouldn't be an income-producing asset in the private sector. It is incomplete analysis to think of the Federal debt only as an asset.

There is something else. The private sector demand for "net savings" as Kelton calls it, it's not natural demand. It is exaggerated demand, exaggerated on the one hand by policies that encourage saving, and on the other by the precariously unsound state of our economy. If we got rid of the policies that create the exaggerated demand for saving (and similar lopsided policies), I expect the unsoundness of our economy would slowly fade away on its own.

I quoted Kelton above: "The right deficit depends on private behavior, which changes." Yes, and policy changes it. If we fail to consider that our problems may be consequences of our policies, our analysis is incomplete.

THAT'S NOT HOW IT WORKS

 Stephanie Kelton, quoted by Robert Waldmann in MMT II at Angry Bear; Kelton comes back to our topic after three other "quick responses":

Is there only one right deficit level? No, because for one thing, MMT would establish a public option in the labor market — a federally funded job guarantee — thereby ensuring full employment across the business cycle. The deficit, then, would rise and fall with the cycle, as the job guarantee becomes a new stabilizer, automatically moving toward the “right size” in response to changes in the level of aggregate spending.

Uh, sorry. Can't use that answer. It is based on the hypothetical result of a hypothetically established "public option in the labor market". It is fantasy analysis — thereby insuring precisely the outcome desired by the storyteller. Got anything else?

Kelton does:

In the absence of a job guarantee, things get trickier. Leaving monetary (and exchange rate) policy aside, the government has to allow the deficit to go where it needs to go in order to accommodate the private sector’s net savings desires. If the private sector wants to spend less and save more, the public sector will need to accommodate that desire by running a bigger deficit or the economy will be pushed away from full employment. Krugman drew up the perfect schematic — based on the sector balance framework adopted by MMT — to explain all of this 10 years ago.

Skipping to the end of Kelton's paragraph, Krugman's perfect schematic is interesting. And it fits: It supports Kelton's argument. But that schematic is ten years old now. Krugman, writing in mid-2009, was looking at a Goldman Sachs memo about the change in private behavior which occurred between 2006Q3 and 2009Q1. Minsky Moment stuff.

Minsky Moments are momentary. They don't last forever. Kelton wants us to accept the implicit idea that a permanent, quasi Minsky moment exists and justifies the existence of annual Federal deficits. But that's not how it works. We are not trapped in a permanent, ongoing Minsky moment. That doesn't explain the deficits.

LOPSIDED POLICIES

Finally, at Brad DeLong's, a 1965 article from Time magazine discusses Keynes and the Keynesians of the '60s. From the opening:

In Washington the men who formulate the nation's economic policies have used Keynesian principles not only to avoid the violent cycles of prewar days but to produce a phenomenal economic growth and to achieve remarkably stable prices. In 1965 they skillfully applied Keynes's ideas—together with a number of their own invention—to lift the nation through the fifth, and best, consecutive year of the most sizable, prolonged and widely distributed prosperity in history.

Keynes's ideas—plus a few of their own, like the "full employment budget". Kelton describes that one: "Set public spending always to the level required to achieve full employment, and then accept whatever deficit may result.”

But that was not what Keynes had in mind. "What Keynes called for was deficits when the private sector cut back", Mike Kimel wrote (years back, in a comment at Presimetrics) "and surpluses at other times".

Or get it from the horse's mouth. In the New York Times of 10 June 1934, Keynes wrote:

I see the problem of recovery, accordingly, in the following light: How soon will normal business enterprise come to the rescue? What measures can be taken to hasten the return of normal enterprise? On what scale, by which expedients and for how long is abnormal government expenditure advisable in the meantime?

Keynes did not say we should have deficits year in and year out, forever. He wanted the economy to get back to normal ASAP and stop with the deficits already. Kelton's plan is to "accept" the deficits, the growing deficits, "whatever" they are. However much they turn out to be.

"MMT would set public spending always to the level required to achieve full employment, and then accept whatever deficit may result."

In the "public option" paragraph that we skipped, the double-hypothetical paragraph, Kelton hypes the federally funded job guarantee as a way of "ensuring full employment across the business cycle." Full employment in boom and recession alike. Remarkable! For all practical purposes, the "full employment" problem has been solved.

"The deficit," Kelton says, "would rise and fall with the cycle". Note that she does not say deficit in the recession, surplus in the boom. Kelton expects deficits always: larger in recessions and smaller in recoveries, but deficits always. Never surpluses. And that's with normal recessions, not "great" ones.

Keynes expected deficits to give way to surpluses when the Great Depression ended.

The "full employment" problem is worse now than it was in the time of Keynes. The problem was worse in the time of Keynes than it was during the greatest age of the inducement to investment. This is not a one-time change. It is either a recurring change or a continuing, long-term change. Either way, until the cause of this change is addressed, the employment problem will continue to grow worse.

Kelton's plan is necessarily different from Keynes's, because the economy has changed. It changed enough that Keynes's plan (deficits giving way to surpluses) couldn't work today. But if the economy has changed, maybe we don't need Kelton's marathon dance of deficits. We just need to discover the cause of the change. That cause is the problem we must address.

<<< Hint: THE POLICIES CREATING EXCESSIVE FINANCE are the cause. >>>

Stephanie Kelton is not looking for the cause of the change. She is looking to work around the change. She hopes to restore full employment using an extreme version of 1960s Keynesianism. But the problem keeps getting worse.

And the solution keeps getting worse: Keynes wanted a one-time burst of annual deficits; Kelton wants deficits always.

As the employment problem grows worse, Kelton's deficits will grow ever bigger. Even if that is harmless, it does not solve the problem.

But rest assured: The employment problem will continue to grow worse until the underlying cause of that problem is solved.

SEE ALSO

• The public debt is too small? I don't think so.
• How much public debt is sufficient?
• Federal and non-Federal debt should be roughly equal

Newt Gingrich, circa 1995

What the heck (again).

Newt Gingrich, from his 1995 book To Renew America.

Newt Gingrich		Arthurian

Toynbee's thesis was called "challenge and response." He argued that every civilization sooner or later encounters a challenge that threatens its very existence. At that point, the key question becomes how its leadership elites respond and whether they are adequate to the task.

How the leadership elites respond? But what if some yokel has the right response, and the leadership elites have the wrong response?

Late in the life of a civilization, things likely work as Gingrich describes. But early on, maybe the leadership is more flexible. And before the society has advanced far enough to be a civilization, maybe there are not yet any "leadership elites". Maybe the yokel finds a way to do irrigation in the Tigris-Euphrates Basin and just starts doing it. Maybe his neighbors see his success, and imitate him. The word spreads. Then maybe that yokel and his neighbors become the leadership elite.

I don't know. For sure, I don't know. But I know it is late-stage thinking to describe things as Gingrich does, so that only the existing powers would be able to develop a response. Cutting off your options like that seems to me a good way to reduce your chance of success.

Toynbee ranged widely, noting that solving one generation's challenge did not necessarily mean the civilization would rise to the next one. It was quite possible for a civilization to be successful for a long time and then suddenly fall apart. The challenges also might change dramatically. One generation could face military challenges while the next would be challenged by religion, politics, economics, or technology.

Ranging across history, Toynbee proposed an antidote to the insular complacency of the time, which said that having beaten Nazi Germany and Imperial Japan, we were bound to be successful in the long run. In Toynbee's view, Han China had been the dominant economic and cultural system on the planet for nearly two thousand years until it failed to modernize in the nineteenth century and ended up collapsing in the face of Western European economic and technological progress. (To Toynbee, European military advantages were almost entirely a function of political, economic, and technological advantages.)

The short view of two hundred years of American history was rapidly put in perspective by an analysis that noted that the Roman domination of the Mediterranean world lasted about six hundred years. Even Rome's seeming endurance faded next to the additional thousand years of Byzantine survival. So broad was Toynbee's sweep that he could mention the three great Mesoamerican civilizations (Maya, Inca,and Aztec) and include them in an analysis with pharonic Egypt, Mesopotamia, and the Indus Valley.

A Study of History liberated me from any sense that we inevitably know how to keep America strong. It also engendered in me a deep sense that every generation faces the potential of serious challenges and that failure to respond effectively could mean the end of your civilization in a remarkably short period of time.

"A remarkably short period of time." For sure. But I'm not sure I like taking the "challenge" from "challenge and response" and turning it into "serious challenges". Hey, everybody has problems. But that's not the same thing as a challenge that threatens civilization. Yes, I'm criticizing the writing here. What they wrote, Gingrich and his cowriter Bill Tucker, between the two of em you'd expect to read something that feels right. And "serious challenges" just doesn't feel right.

...
In proposing an Americal Renewal, I do so after having spent a long time thinking about the challenges we are facing and the responses we need. If the proposals I outline in this book seem ambitious, it is because I believe they reflect the magnitude of the challenges that face us. We are certainly not the first civilization to confront moral decay from within. But we are definitely the first generation in American history to face such a challenge.

Again, "challenges", plural. Enough problems for everybody. This is not what Toynbee's Study of History was about.

You know, if you go to Chapter One in the Gingrich book, it starts out good:

... our civilization is decaying, with an underclass of poverty and violence growing in our midst and an economy hard pressed to compete with those of Germany, Japan, and China.

Actually, he presents our "economy" as some kind of performance measure, unrelated to growing poverty and violence. He's got that wrong. But whatever; if he could fix the economy and poverty and violence and jobs and a few other things all at once, let him call it whatever he wants.

But those are not, you know, six different things. It's all the economy, and if we fix the economy we fix almost everything.

The title of Chapter One is "The Six Challenges Facing America". Here are the things Gingrich had in mind to fix:

1. "reestablish a legitimate moral-cultural standard"
2. "grasp the true significance" of the "scientific and technological changes going on around us" so that we can "lead the world into the Information Age"
3. "rethink our competition in the world market"
4. "replace the welfare state with an opportunity society"
5. "replace our centralized, micromanaged Washington-based bureaucracy with a dramatically decentralized system"
6. "balance the federal budget"

I don't know what his Number 1 means. The rest of them except number five are all aspects of the economy, or at least are related (or said to be related) to improving economic growth.

Number five probably would not be seen as a problem if the economy was good. And number one would probably go away with number five.

What's left? The economy. Fixing the economy. Improving economic growth and income. You know the drill. I'm just trying to point out one thing: The thing we need to fix is the economy.

Gingrich wasn't talking about fixing the economy. He was talking about fixing particular aspects of the economy, some that have been talked about for decades now, and some maybe he thinks sound good.

But here's the thing: If you make a list of problems and try to solve them, you may not have THE problem on your list. Maybe you took THE problem and broke it up into pieces, and you look at each piece and you try to solve each piece separately. In my view, there is little to no chance that your solutions will solve THE problem. Breaking up the problem works when you do computer programming; but for an economic problem the challenge is to correctly identify and describe the problem.

So here's the question: Where's the analysis that identifies and describes the problem? When did we sit down, put our heads together, and figure out what made the economy go bad? It's like the way it works these days is, whatever news stories gets the most attention are treated as the problems to be solved. That's not analysis of the problem.

See also: Challenge and Response

Bishop Bossuet

Oh what the heck, I'll put this one up today.

A.J. Toynbee:

The last great Western exponent of this Jewish-Christian-Muslim pattern of history had been Bishop Bossuet.

Who?

Bishop Jack-Benign Bossuet:

• fervent defender of absolute monarchy:
  

  Jacques-Bénigne Bossuet (1627-1704) was a theologian at the court of the French "Sun King" Louis XIV; Bossuet was one of history's most fervent defenders of absolute monarchy. For him, only God stands above the person of the king, and the king's authority cannot be challenged by any other human being.

• influential spokesman for the rights of the French church:
  

  Jacques-Bénigne Bossuet, (born Sept. 25, 1627, Dijon, Fr.—died April 12, 1704, Paris), bishop who was the most eloquent and influential spokesman for the rights of the French church against papal authority. He is now chiefly remembered for his literary works...

• royal authority comes directly from God:
  

  When Bossuet was chosen to be the tutor of the Dauphin, oldest child of Louis XIV, he wrote several works for the edification of his pupil, one of which was Politics Derived from the Words of Holy Scripture, a discourse on the principles of royal absolutism. The work was published posthumously in 1709.
  
  The work consists of several books which are divided into articles and propositions which lay out the nature, characteristics, duties, and resources of royalty. To justify his propositions, Bossuet quotes liberally from the Bible and various psalms.
  
  Throughout his essay, Bossuet emphasizes the fact that royal authority comes directly from God and that the person of the king is sacred. In the third book, Bossuet asserts that "God establishes kings as his ministers, and reigns through them over the people."

What sort of man was Jack-Benign Bossuet? Not so benign.

• Bossuet vs. Jouarre's Women

The abbey's privileges were not authentic, he claimed. Even if authentic, he argued (incorrectly), the councils of Trent and Vienna had revoked such privileges. Jouarre defended itself vigorously, showing that as late as 1631 Parliament had confirmed its rights. But Jouarre argued in vain...

• The Gallican controversy:
  

  In the Gallican controversy, Louis XIV maintained that the French monarch could limit papal authority in collecting the revenues of vacant sees and in certain other matters, while the Ultramontanists held that the pope was supreme. An extraordinary general assembly of the French clergy was held to consider this question in 1681–82. Bossuet delivered the inaugural sermon to this body and also drew up its final statement... The articles asserted the king’s independence from Rome in secular matters and proclaimed that, in matters of faith, the pope’s judgment is not to be regarded as infallible without the assent of the total church.
  
  They were accepted by all parties of the assembly, and his role in this controversy remained perhaps the most significant of Bossuet’s life.

The king gets his power from God, his subjects must obey him, and even the Pope often plays second fiddle.

"The last great Western exponent of this Jewish-Christian-Muslim pattern of history."

Links:

• Extracts from Bossuet's work on kingship
• Bishop Bossuet's Politics
• Bossuet, Divine Right of Kings

Sit and have a beer with A.J.

Arnold Joseph Toynbee (1889-1975)

Toynbee and History (1956), a collection of essays edited by Ashley Montagu, includes three pieces by Arnold Toynbee. The first of these is A Study of History: What I Am Trying to Do.

In it, Toynbee tells the history of history -- something that was in the back of his mind while he was writing the "3½‐million word, 12‐volume story of mankind" we looked at yesterday -- and he gets a few zingers in along the way.

I've shortened the essay and added paragraph breaks. It's still long for a blog, but if you don't drink too fast one beer should be enough:

The particular generation into which I was born happens to be a revolutionary one. In less than one lifetime the face of the World has changed almost out of recognition, and the West’s position in the World has undergone the greatest change of all.... As soon as one looks at the new panorama of history, one sees that it bursts the bounds of the current framework within which our Western historians have been doing their work for the last 250 years...

The traditional pattern in the West down to the end of the seventeenth century had been the Israelite pattern, which Christendom and Islam had taken over with modifications in their own favour. In this Jewish-Christian-Muslim view, history had appeared to be an act of God beginning at the Creation and destined to end in the Last Judgement, while Israel (or Christendom or Islam) had been singled out as being the people chosen by God for carrying out His purposes.

The last great Western exponent of this Jewish-Christian-Muslim pattern of history had been Bishop Bossuet. His eighteenth-century successors made the Late Modern Western pattern of history, on which we have been working since Bossuet’s death, by cutting God out of the picture and dealing with the Christian Church as the Church had dealt with Israel.

Bossuet’s successors appropriated the role of being ‘the Chosen People’ from the Christian Church, as the Church had appropriated it from Israel; and they transferred this role, partly to ‘Europe’, but mainly to the particular West European nation to which a particular historian happened to belong: to France, Britain, Italy, Spain, and so on, as the case might be.

This eighteenth-century Western view of history as a movement in a straight line, leading up to a twentieth-century ‘Europe’, ‘Britain’, or ‘Nicaragua’, instead of leading up to a future Last Judgement, simply cannot take in the new panorama that the twentieth century has now opened out before our eyes. In that antiquated Late Modern Western picture there is no room at all for China or India, and hardly any room even for Russia or America. And where are we to find in it so much as a niche for the Mayans or for the Hittites? In the light of our new knowledge, we are compelled to discard this pattern, as our eighteenth-century predecessors discarded Bossuet’s. Once again, we have to look at history with new eyes, as our eighteenth-century predecessors did.
...
In this age our Western Civilization has collided with all the other surviving civilizations all over the face of the planet — with the Islamic civilization, with the Hindu, with the Chinese, with the Aztec, and so on, — and we can take a comparative view of the effects of these simultaneous collisions upon the parties to them. This comparative treatment can be extended to the whole of history; and it is, in fact, the method of the human sciences: the theory of knowledge, psychology, anthropology, sociology, economics. The human sciences like the natural sciences, make a comparative study of their data in order to discover the structure of the facts and the events; and I believe that here the historians ought to take their cue from the scientists.
...
Some Western historians in the post-Bossuet age have denied that there are any regularities in the course of human affairs and have declared, with evident sincerity, that they have no such patterns in their own minds. Yet the use made by these very historians of such patterns as ‘Europe’ and ‘Britain’ shows that they are mistaken in their belief about the nature of their own mental operations. A pattern is still there; it is, as we have seen, the classical Jewish-Christian-Muslim pattern thinly disguised in secular modern dress. The difference between these post-Christian Western historians and their Christian predecessors is that the moderns do not allow themselves to be aware of the pattern in their minds, whereas Bossuet, Eusebius, and Saint Augustine were fully conscious of it.
...
One of my aims in A Study of History has been to try out the scientific approach to human affairs and to test how far it will carry us. Of course, no one would seriously contend that there are no patterns at all in historical thought, for thought itself is a mental pattern, and no historian could think one thought or write one line without using such mental patterns as ‘society’, ‘state’, ‘church’, ‘war’, ‘battle’, and ‘man’.

The real question at issue is not whether mental patterns exist but whether they cover the whole field of human affairs or only part of it; and my own belief is that there are some things in human affairs that have no pattern because they are not subject to scientific laws. One such thing, I believe, is an encounter between two or more human beings. I believe that the outcome of such an encounter would not be predictable, even if we had a complete knowledge of all the antecedent facts.

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