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Ep. 117 Refuting Some Economics Fallacies Related to the Corona Crisis

Bob tackles some Keynesian / MMT fallacies that have resurfaced in light of the response to the coronavirus. In particular, he responds to Larry Summers who viewed the lockdown as being akin to workers staying home over the weekend, and then to Neil Irwin on Twitter, who approvingly retweeted a thread arguing that it was mathematically *impossible* for state governments to have saved ahead of time in preparation.

Mentioned in the Episode and Other Links of Interest:

The audio production for this episode was provided by Podsworth Media.

About the author, Robert

Christian and economist, Chief Economist at infineo, and Senior Fellow with the Mises Institute.


  1. Tel on 04/29/2020 at 9:46 AM

    Good work Bob.

    Does anyone sincerely doubt that if the entire population of the Western world had been putting aside an extra pack of toilet paper in their laundry every so often for the past year, then there would have been NO toilet paper shortage in 2020?

    However, I think these discussions are a bit easier when you make a clear distinction between physical assets (tins of beans, bars of gold, packs of toilet paper) and financial assets (bonds, cash, equities, etc). When it comes to physical assets you must obey the laws of physics and chemistry, etc but other than that you can stockpile whatever you want. There’s no “accounting identity” that applies to physical assets. However, those “accounting identities” do apply to financial assets and it’s impossible to ever get above a nett zero with financial assets. Robinson Crusoe cannot have any financial assets at all because it’s meaningless to write an IOU to yourself.

    Let’s suppose I have a physical asset (like a box on N95 masks which I don’t really have but for a thought experiment I might have them) and I offer to ship the box of masks to Bob. Perhaps Bob needs them more than I do, but anyhow I want to get paid so Bob sends me an IOU note promising to pay me $100 USD in 2021.

    Thus, I had a physical asset (box of masks) and I ship that to someone else in exchange for a financial asset. My IOU note is now my asset, and Bob’s liability. The physical asset has shifted ownership but the asset is still the same asset as before. The total nett value in the whole financial world is zero (as per normal) because every IOU note is always exactly equal in terms of asset and liability. That’s always true in the financial world, regardless of whether you have government or not. Since government liabilities come out of future taxes, they still come out as a nett zero … everything comes back to the private sector sooner or later.

    Bob’s right that financial assets do assist in the efficient deployment of physical assets (that’s the whole point of having financial assets) so therefore decisions made regards to where money gets spent will in turn lead to changing behaviour at the physical level. Anytime someone suggests more savings, that always implies physical assets, although it might be via some indirect chain of financial assets.

    • Dave H on 05/01/2020 at 2:50 PM

      Are you claiming that equity shares are not financial assets? Because if Bob issues equity shares in exchange for your masks, then the net sum of financial assets is in fact a positive number. Bob has created 100 shares of BobCo ex nihilo with no corresponding debt. He is not obliged to ever buy them back from you.

      • Charles DuBois on 05/10/2020 at 12:03 AM

        Dave H. Not quite, I believe Tel is correct – financial assets net out to zero. In your example, your shares now own, in effect, the masks – a non-financial asset. That is, these shares do not represent a financial asset. Yes, you could, in principle, sell the shares for cash. However, then someone else would be reducing their financial assets and they would now own, in effect, the masks.

        To keep it simple, If the company were hypothetically liquidated, and Bob kept all that he had originally – then the shareholder would get the masks – not a financial asset.
        If the shareholder, upon liquidation, did receive money, then Bob would be down the same amount. So financial saving always nets to zero.

        Perhaps a poor analogy to the shares – but you can sell your car for cash. That does not mean a car is a financial asset.

        Make sense? Thanks for any comments, criticisms.

  2. danan on 04/30/2020 at 3:53 PM

    I’m glad you chose to talk about MMT again, since I’d been hoping for your input anyway. Would you agree that the following is a good framing of this issue?

    The sectoral balance, ignoring trade is stated as: G – T = S – I

    MMT proponents believe by increasing the left-hand side of the equation (more government deficits), private savings will rise to make up for that (with private investment constant or even rising, but less so), since there are idle resources. Austrians (or supply siders) believe savings will be relatively constant, but private investment will fall, illustrating the crowding-out effect. So it all comes down to how responsive private investments are with respect to more deficit spending. Is that a correct way of thinking about this?

  3. […] Bob Murphy Show: Refuting Some Economics Fallacies Related to the Corona Crisis […]

  4. Marko on 05/04/2020 at 1:19 PM

    I have a question for some of the next episodes. How come after 100 years after the workers fought for the 40 hours workweek, even now the average american workweek is 44.8 hours? I mean, I understand personal preference, more money than leisure time, but let me try to be the devil’s advocate for the socialists and ask “How come the number of hours is so close to the ones that were decided by law so long time ago, that after 2 wars and so many crises, it remained essentially the same. Is capitalism really working”. The obvious answer, we do not have capitalism is surely part of the answer, but is this all? Very strange coincidence.

    • Dave H on 05/04/2020 at 11:54 PM

      Marko, If you want to have living standards that people 100 years ago had, you can probably do it by only working 2 hours a week.

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