My favourite Stockholm girl

25 March, 2019 at 09:28 | Posted in Varia | Leave a comment


Visiting​ Stockholm yours truly, of course, takes the opportunity to spend some time with a ​daughter who lives there (after having graduated from the Stockholm School of Economics and now works in the finance sector). Picture taken eighteen years ago at our summer residence.

On Tour

24 March, 2019 at 20:39 | Posted in Varia | Leave a comment


Touring again. Visiting Stockholm. Sweden’s Television, Parliament and Riksbank. Regular blogging to be resumed later next week.


23 March, 2019 at 17:54 | Posted in Varia | 1 Comment


Use ECB’s money-creation capacity to support environmental projects

23 March, 2019 at 12:25 | Posted in Economics | 3 Comments

There is no limit to the amount of financial assets the ECB can buy. In principle, it could purchase all existing financial assets (all bonds and shares, for example) … There is also no restriction on what types of assets the ECB can buy … It could replace the old bonds with new ‘environmental bonds’, issued to finance environmental projects.

ja16greenbondsThe bottom line is that it is perfectly possible for the ECB to use the instrument of money creation to favour environmental investments without endangering price stability …

Given the existential threat of the degradation of the environment, including climate change, the priority should be to use the ECB’s money-creation capacity towards the support of environmental projects. This can be done without creating inflation.

Paul De Grauwe

So now we are eagerly awaiting the Krugman-Summers-Rogoffs denouncing this proposal as “dangerously wrong.” In the scientific world,​ it doesn’t matter who says​ what. So, if MMTers propose central banks to buy ‘green bonds’ that must be evaluated the same way as when a renowned mainstream professor at the LSE’s European Institute says so. Or …?

Nein — der Gender-Pay-Gap ist kein Mythos

23 March, 2019 at 10:21 | Posted in Economics | Leave a comment

Der Bruttostundenlohn von Frauen liegt in Deutschland 21 Prozent unter dem der Männer. Damit ist der deutsche sogenannte Gender-Pay-Gap einer der höchsten unter den Industrieländern. Zahlreiche wissenschaftliche Studien zeigen, dass ein großer Teil der Lohnlücke durch Faktoren erklärt werden kann, die auf den ersten Blick nichts mit dem Geschlecht zu tun haben. Das sind etwa Unterschiede in der Berufserfahrung, die Frage, ob jemand Teilzeit oder Vollzeit arbeitet, der Berufszweig, die berufliche Stellung im Unternehmen und die Betriebsgröße. Rechnet man all das heraus, bleibt noch ein Lohnunterschied von etwa sechs Prozent übrig, der bereinigter Gender-Pay-Gap genannt wird …

GenderPayGap_2017Viele Erklärungen der Lohnlücke gehen aber eben nicht auf freiwillige Entscheidungen von Frauen zurück, sondern sie sind das Ergebnis von Diskriminierung im Arbeitsmarkt – und das gilt auch für jene Faktoren, die im bereinigten Gender-Pay-Gap gar nicht mehr enthalten sind. So gibt es Belege dafür, dass Frauen nicht freiwillig auf Führungspositionen verzichten, sondern dass sie in einer männerdominierten Berufswelt größere Hürden zu überwinden haben … Sondern Studien zeigen, dass in Deutschland die Löhne in solchen Berufszweigen sinken, in die Frauen vordringen …

Es ist außerdem zynisch und falsch, zu behaupten, der unerklärte Teil der Lohnlücke sei mit sechs Prozent vernachlässigbar klein. Denn diese sechs Prozent lassen sich vermutlich direkt auf eine Diskriminierung von Frauen am Arbeitsplatz zurückführen, und sie machen für viele Menschen einen signifikanten finanziellen Unterschied. Bei einem Medianeinkommen in Vollzeit in Deutschland von knapp 35.000 Euro im Jahr sind das 2.100 Euro – eine alles andere als triviale Summe.

Marcel Fratzscher / Der Spiegel

The rational expectations putsch

22 March, 2019 at 11:40 | Posted in Economics | 2 Comments

The tiny little problem that there is no hard empirical evidence that verifies rational expectations models doesn’t usually bother its protagonists too much. how-many-irrational-assumptions-are-needed-for-economist-to-use-rational-expectationsRational expectations überpriest Thomas Sargent has defended the epistemological status of the rational expectations hypothesis arguing that since it “focuses on outcomes and does not pretend to have behavioral content,” it has proved to be “a powerful tool for making precise statements.”

Precise, yes, but relevant and realistic? I’ll be dipped!

In their attempted rescue operations, rational expectationists try to give the picture that only heterodox economists like yours truly are critical of the rational expectations hypothesis.

But, on this, they are, simply … eh … wrong.

Let’s listen to Nobel laureate Edmund Phelps — hardly a heterodox economist — and what he has to say:

frydQ: So how did adaptive expectations morph into rational expectations?

A: The “scientists” from Chicago and MIT came along … They said, let’s be scientific. In their mind, the scientific way is to suppose price and wage setters form their expectations with every bit as much understanding of markets as the expert economist seeking to model, or predict, their behavior …

Q: And what’s the consequence of this putsch?

A: Craziness for one thing … What led to rational expectations was a fear of the uncertainty and, worse, the lack of understanding of how modern economies work. The rational expectationists wanted to bottle all that up and replace it with deterministic models of prices, wages, even share prices, so that the math looked like the math in rocket science … The problem is that we don’t have a “right” model that could be certified as such by the National Academy of Sciences. And as long as we operate in a modern economy, there can never be such a model.


The rational expectations hypothesis presumes consistent behaviour, where expectations do not display any persistent errors. In the world of rational expectations, we are always, on average, hitting the bull’s eye. In the more realistic, open systems view, there is always the possibility (danger) of making mistakes that may turn out to be systematic. It is because of this, presumably, that we put so much emphasis on learning in our modern knowledge societies.

So, where does all this leave us? I think John Kay sums it up pretty well:

An important scientific advance yields conclusions that differ from those derived from other theories, and establishes that these divergent conclusions are supported by observation. Yet as Prof Sargent disarmingly observed, “such empirical tests were rejecting too many good models” in the programme he had established with fellow Nobel laureates Bob Lucas and Ed Prescott. In their world, the validity of a theory is demonstrated if, after the event, and often with torturing of data and ad hoc adjustments that are usually called “imperfections”, it can be reconciled with already known facts – “calibrated”. Since almost everything can be “explained” in this way, the theory is indeed universal; no other approach is necessary, or even admissible …

Into Eternity

22 March, 2019 at 00:13 | Posted in Varia | Leave a comment


Rybin Male Choir

21 March, 2019 at 23:44 | Posted in Economics, Varia | 1 Comment


Public debt — questions and answers

21 March, 2019 at 18:02 | Posted in Economics | 5 Comments

Can a government go bankrupt?
No. You cannot be indebted to yourself.

Can a central bank go bankrupt?
No. A central bank can in principle always ‘print’ more money.

Do taxpayers have to repay government debts?
No, at least not as long the debt is incurred in a country’s own currency.

Do increased public debts burden future generations?
No, not necessarily. It depends on what the debt is used for.

Does maintaining full employment mean the government has to increase its debt?

dec3bb27f72875e4fb4d4b62daebb2fd161b36392c1a0626f00cfd2ece207d84First, full employment can be maintained by printing the money needed for it, and this does not increase the debt at all. It is probably advisable, however, to allow debt and money to increase together in a certain balance, as long as one or the other has to increase.

Second, since one of the greatest deterrents to private investment is the fear that the depression will come before the investment has paid for itself, the guarantee of permanent full employment will make private investment much more attractive, once investors have gotten over their suspicion of the new procedure. The greater private investment will diminish the need for deficit spending.

Third, as the national debt increases, and with it the sum of private wealth, there will be an increasingly yield from taxes on higher incomes and inheritances, even if the tax rates are unchanged. These higher tax payments do not represent reductions of spending by the taxpayers. Therefore the government does not have to use these proceeds to maintain the requisite rate of spending, and can devote them to paying the interest on the national debt.

Fourth, as the national debt increases it acts as a self-equilibrating force, gradually diminishing the further need for its growth and finally reaching an equilibrium level where its tendency to grow comes completely to an end. The greater the national debt the greater is the quantity of private wealth. The reason for this is simply that for every dollar of debt owed by the government there is a private creditor who owns the government obligations (possibly through a corporation in which he has shares), and who regards these obligations as part of his private fortune. The greater the private fortunes the less is the incentive to add to them by saving out of current income …

Fifth, if for any reason the government does not wish to see private property grow too much … it can check this by taxing the rich instead of borrowing from them, in its program of financing government spending to maintain full employment. The rich will not reduce their spending significantly, and thus the effects on the economy, apart from the smaller debt, will be the same as if Money had been borrowed from them.

Abba Lerner

John Hassler och Klas Eklund — etablissemangsekonomer med dimljuset på

21 March, 2019 at 09:59 | Posted in Economics | Leave a comment

Det är svårt att hitta en mer missbrukad ekonomisk klyscha än just ”strukturreformer”. För att citera en diskussion i Financial Times; ”Strukturreformer är en tom amatörekonomisk fras, ofta med vaga referenser till avregleringar och skatte- och budgetnedskärningar”.

itzhak_126513125Ordet dyker ständigt upp när något lands ekonomi anses ha kört fast på en för låg tillväxtkurva … Så också när man i början av augusti läste Dagens Industris intervju med en rad kända svenska nationalekonomer, som professor John Hassler, tidigare ordförande i Finanspolitiska rådet, Klas Eklund, senior ekonom på Mannheimer och Swartling … Samtliga oroar sig, med rätta, för ett kommande politiskt dödläge med den stora kil som Sverigedemokraterna har dunkat in i den svenska politiska vävnaden, men sedan kommer det, en därmed sammankopplad oförmåga att genomföra strukturreformer.

John Hassler uttalande slår på dimljuset; ”Jag är ganska bekymrad. Vi har en historiskt låg underliggande tillväxt i BNP per capita och det kommer att cementeras om man inte genomför ett antal strukturreformer”

Men när ordet ska fyllas med innehåll tilltar dimman, förutom just vaga referenser till ytterligare avregleringar av arbetsmarknaden och skattesänkningar, värnskatten ska bort, och att det höga svenska skattetrycket behöver sänkas. Det senare dock utan att göra avkall på det heliga ”överskottsmålet”.

Per Lindvall

The real public debt problem

21 March, 2019 at 09:17 | Posted in Economics | 1 Comment

The claim that our public debt is excessive has been used as a major justification for austerity – cuts in spending. That massive debt, we are told, 1) must be repaid, 2) threatens our country with bankruptcy, and 3) is a burden on future generations. All these are wrong. Let me explain why …

austerity-george-osborne-desktopBritain’s national currency is managed by our central bank, the Bank of England, owned by the citizens of the United Kingdom (that is, our elected government). As a result, the British government can never default on its bonds. Our government can replace maturing public bonds with new ones. Should private buyers, households and businesses, refuse to purchase the new bonds at the interest rate set by the British government, our government can sell them to the Bank of England …

The debt is nothing more than pieces of paper that the government promises to buy back on a specific date. These pieces of paper can be bought back with new pieces of paper (new bonds) with later buy-back dates. If the private owners of the debt paper do not want the new bonds (new debt paper), our government can sell those new bonds to the Bank of England for cash and use the cash to pay the bond holders.

John Weeks

Today there seems to be a rather widespread consensus of public debt being acceptable as long as it doesn’t increase too much and too fast. If the public debt-GDP ratio becomes higher than X % the likelihood of debt crisis and/or lower growth increases.

But in discussing within which margins public debt is feasible, the focus, however, is solely on the upper limit of indebtedness, and very few ask the question if maybe there is also a problem if public debt becomes too low.

darling-let-s-get-deeply-into-debtThe government’s ability to conduct an ‘optimal’ public debt policy may be negatively affected if public debt becomes too small. To guarantee a well-functioning secondary market in bonds it is essential that the government has access to a functioning market. If turnover and liquidity in the secondary market become too small, increased volatility and uncertainty will, in the long run, lead to an increase in borrowing costs. Ultimately there’s even a risk that market makers would disappear, leaving bond market trading to be operated solely through brokered deals. As a kind of precautionary measure against this eventuality, it may be argued — especially in times of financial turmoil and crises — that it is necessary to increase government borrowing and debt to ensure — in a longer run — good borrowing preparedness and a sustained (government) bond market.

The question if public debt is good and that we may actually have too little of it is one of our time’s biggest questions. Giving the wrong answer to it will be costly.

Speaking truth to power

21 March, 2019 at 08:39 | Posted in Politics & Society | 1 Comment

A “millionaire​ funded by billionaires” is not “part of the solution” but rather “part of the problem, actually”. No beating around the bush there. Great!

ZEIT: Hat Carlson nach dem Interview noch einmal den Kontakt zu Ihnen gesucht?

Bregman: Ja. Wollen Sie seine Antwort sehen? (er zieht sein Telefon hervor und liest aus seiner E-mail vor) “Mir hat gefallen, was Sie in Davos gesagt haben, und ich hatte grosse Hoffnungen für unser Interview. Aber Sie haben sich als dümmer, dogmatischer und weniger eindrucksvoller erwiesen als erwartet. Im Übrigen sind Sie ein Arschloch.”

Die Zeit

Alan Krueger (1960 – 2019)

20 March, 2019 at 22:49 | Posted in Economics | 7 Comments

jp-imgresI’ve subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole.

David Card

Economist-former-Obama-adviser-Alan-Krueger-dead-at-58Back in 1992, New Jersey raised the minimum wage by 18 per cent while its neighbour state, Pennsylvania, left its minimum wage unchanged. Unemployment in New Jersey should — according to mainstream economics textbooks — have increased relative to Pennsylvania. However, when economists David Card and Alan Krueger gathered information on fast food restaurants in the two states, it turned out that unemployment had actually decreased in New Jersey relative to that in Pennsylvania. Counter to mainstream demand theory we had an anomalous case of a backward-sloping supply curve.

Lo and behold!

But of course — when facts and theory don’t agree, it’s the facts that have to be wrong …

The inverse relationship between quantity demanded and price is the core proposition in economic science, which embodies the pre-supposition that human choice behavior is sufficiently rational to allow predictions to be made. Just as no physicist would claim that “water runs uphill,” no self-respecting economist would claim that increases in the minimum wage increase employment. Such a claim, if seriously advanced, becomes equivalent to a denial that there is even minimal scientific content in economics, and that, in consequence, economists can do nothing but write as advocates for ideological interests. Fortunately, only a handful of economists are willing to throw over the teaching of two centuries; we have not yet become a bevy of camp-following whores.

James M. Buchanan in Wall Street Journal (April 25, 1996)

Alan Krueger was an economist who — contrary to people like Buchanan — had the courage to question received opinion when facts falsified the theory. RIP.

Public debt — a macroeconomic necessity

19 March, 2019 at 21:40 | Posted in Economics | 3 Comments

The problem stems from the fact that the affluent, which include successful entrepreneurs and capital owners, save relatively more than average or poor households … For this to work out, additional​ demand would have to be created …

dirk2The implication of this is that there’s a macroeconomic requirement to run public deficits, founded on a demand gap that arises from households and firms wanting to set aside savings in the form​ of money … This demand gap cannot be closed but by an increase in government spending and hence debt.

Private debt could close it only temporarily​ since it cannot rise forever. Household debt to GDP ratios have risen substantially in many countries over the last decades, but people will not accept​​ mortgage payments in the range of 50-100 per cent of their​ disposable income …

A permanent public deficit is not a pathological symptom, but a macroeconomic necessity in order for private households to be in a position to save money.

Dirk Ehnts

MMT — the Wicksell-Le Bourva connection

19 March, 2019 at 20:53 | Posted in Economics | 3 Comments

MMT Comparing the limited work of Wicksell, Le Bourva, and MMT, we find that they share many similarities. Obviously, the institutions and issues being discussed have changed during the decades these scholars were writing, yet all three views agree on some fundamental issues. The methodology is quite similar, with a strong focus on balance sheets opposed to theoretical models based on assumptions that are necessary for the mathematics to work. There is also a strong consensus that monetary theory is positive, not normative. Further relevant areas of agreement are found with respect to: the idea of Chartalism when it comes to the origin and value of money; the endogeneity of money regarding bank creation of deposits; the role of the money market in the economy and the missing link to inflation; the monetary circuit and the link from debt to income; and the effects of deficit spending.

Some minor differences occur when it comes to the question of why banks do not expand unlimited credit if they can. While Wicksell believes that the interbank-market debt of banks expanding their loan books relatively faster than other banks should stop further bank loan creation, Le Bourva agrees with Kalecki and sees rising risk as the major factor. In Wray (2012), it is creditworthiness and access to reserves at low costs that limit the extension of loans.

Dirk Ehnts & Nicolas Barberoux


19 March, 2019 at 19:09 | Posted in Varia | Leave a comment


Psalm 50

19 March, 2019 at 18:48 | Posted in Varia | Leave a comment


L’Italia può permettersi un vicepremier che racconta delle balle del genere?

19 March, 2019 at 17:05 | Posted in Politics & Society | Leave a comment


How to teach economics if you have a dissenting perspective

19 March, 2019 at 12:22 | Posted in Economics | 6 Comments

teaching-economics-6-638Issue #1: How do you teach the introductory economics courses if you have a dissenting perspective? Mankiw lays out three alternatives, teaching the mainstream and suppressing your own views, teaching minority or fringe views (i.e. your own), or not teaching introductory econ at all. He says the second option is “pedagogical malpractice” … I opted for an approach neither of them consider, to present mainstream economics in the third person: this is what that particular group thinks. Allow for a critical distancing, which is not the same as critique. I didn’t write “this stuff is garbage”, but “here are the assumptions that conventional economists make that distinguish their approach from others.” Whenever possible, I point out where other disciplines differ, and while I encourage students to judge for themselves, I don’t pressure them into adopting any one point of view. This is called critical thinking, and it barely exists in the world of economics textbooks, which proselytize shamelessly.

Issue #2: What should be the role of supply and demand theory and, in particular, the welfare interpretation of it? Mankiw feels welfare economics gets short shrift in the typical intro econ course and text … I am mostly on Mankiw’s side here, but from a critical perspective. I agree entirely that welfarism underlies virtually all applied econ work outside macroeconomics, and it’s important for students to understand what it means. We just saw a “Nobel” prize awarded to an economist, Bill Nordhaus, whose primary claim to fame is an application of the welfare framework to climate change. Nearly every economist working on climate issues adopts the same approach. It would not be an exaggeration, however, to say that the vast majority of climate scientists regard their work as nuts. Clearly there is a pressing need to present the underpinnings of welfare economics to as wide an audience as possible, so they can understand these disputes.

Peter Dorman

MMT and the real issue of money and debt

18 March, 2019 at 18:17 | Posted in Economics | 3 Comments

Austerity policies throw millions of people out of work … The lower level of output caused by austerity means there are fewer goods and services available to distribute. Society becomes objectively poorer in material production terms. How can that be helpful? …

Some readers may object: what if there just isn’t enough money to buy people? If there’s just no money, it’s no good going ever further into debt.

Wrong. Money is not actually a limited resource. Money is a scorekeeping tool, nothing more. Governments and central banks can no more run out of money than the scorekeeper of a basketball game can run out of scoring-points …


Unless debts are denominated in a foreign currency, a government and the banking system it ultimately controls cannot ‘run out of money’ …

The real issue is the distribution of money and debt — not its inherent availability or quantity.

Dirk Ehnts

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