Peut-on encore écouter de la musique?

22 Jun, 2024 at 11:58 | Posted in Varia | Leave a comment

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My favourite French teacher.

Not only does he speak at a pace that makes it possible to follow along, but he also has interesting thoughts about the things he discusses. Highly recommendable!

Is ethnic segregation positive?

20 Jun, 2024 at 16:20 | Posted in Politics & Society | 1 Comment

The ethnic segregation of immigrants in the US from 1850 to 1940 | CEPRIn many European countries over the past decades, there has been increasing frustration over what is perceived as a lack of social integration of immigrants and children of foreign-born parents. One factor that researchers and politicians have highlighted as a possible explanation is what is called ‘neighbourhood effects,’ which, simply put, refers to how the area where one grows up and/or lives affects one’s life. There has often been interest in seeing if the population composition in specific neighbourhoods (‘immigrant-dense areas’) indicates the presence of segregation that may reinforce inequalities between foreign-born and native-born individuals in terms of education and employment.

In a recently published report from the Expert Group on Public Economics (ESO) — Good Neighbours: an ESO report on the significance of neighbourhoods for integration — the authors show that ethnically segregated housing does not ‘per se’ have to be something negative. This finding has received some attention in the media and is portrayed as something exciting and new because the prevailing image of ‘immigrant-dense’ areas is often that a significant part of the problem there is that if people with the same background choose to live in the same area, it hinders their opportunities to learn Swedish, obtain a good education, and secure employment.

Upon closer reflection, however, it is obvious that no one could reasonably dispute that if one grows up and lives in a neighbourhood characterized by good role models, well-functioning networks, and highly educated and successful individuals, then the chances increase that one – regardless of ethnicity – will acquire a good education and job.

The interesting question, therefore, is not whether segregation can be positive — we already know that – but whether the existing segregation we have in Sweden today is positive. In the policy area, this question becomes important because many politicians want to limit the right to free choice of residence, arguing that families who do not settle in immigrant-dense areas or who leave these ‘vulnerable’ areas have better opportunities for good education, language skills, and jobs.

Research conducted in Sweden has (unsurprisingly) found that where we live matters and that for socioeconomically disadvantaged groups and immigrants, there is a high degree of correlation between where one lives and the extent to which one has higher education and stable employment. We know that ethnic segregation has increased over the past three decades and that there is a strong connection — especially in some metropolitan regions — between ethnic and economic segregation. However, we have significantly less knowledge about the mechanisms behind these correlations.

What one – especially in quantitatively oriented research – does is select some measurable factors (‘variables’) which are put into so-called regression models, trying to measure to what extent these factors covary (‘correlate’). This is often done — as in the ESO report — without a thorough examination of to what extent these measurable factors (education, income, place of residence, etc.) really represent the mechanisms we ultimately are (should be) trying to identify. Naturally, this is troubling if we want to use policy measures to reverse what most perceive as a negative development. Without identifying the mechanisms that create societal problems, it is difficult to choose which measures can be expected to have the greatest effects.

What we need is causal knowledge about the mechanisms behind the observed relationships. To provide us with useful knowledge, also requires using other types of tools in the toolbox — such as e.g. attitude surveys — that can complement the statistical data analyses. This is important, especially in the case of neighbourhood effects, where we are often not interested in stating that these on average exhibit a certain pattern but want to know why the effects for specific groups in specific contexts can sometimes be positive and in other cases and for other groups can be negative. Focusing only on statistical results in evaluation contexts often does more harm than good.

The type of mathematical-statistical investigations that the ESO report is a clear example of have often received an undeservedly high status within social sciences in recent times. Why? Fundamentally since they give the impression of delivering rigorous and precise answers to the questions researchers ask. The price for the sought-after precision, however, is in most cases far too high. By adapting the questions in such a way that one can get precise answers, we get answers to questions we are not really interested in.

Another telling example of this is today’s hype among quantitatively oriented social researchers to engage in so-called randomized control trials (RCT). The design becomes the main focus and just by getting more or less ingenious experiments in place, one believes they can draw far-reaching conclusions about both causality and the ability to generalize experimental outcomes to larger populations. Unfortunately, this often means that this type of research gets a negative shift away from interesting and important problems to instead prioritize method selection. Design and research planning are important, but the credibility of research fundamentally lies in being able to answer relevant questions we as both citizens and researchers want answers to. Instead of accepting that a lower degree of certainty is inevitable, one engages in model constructions that enable certain knowledge. If the goal is knowledge about the real world, however, the value of these is at best unclear.

The focus on analyzing social problems using statistical models has largely created a new incomprehensibility. The narrow focus on building mathematical-statistical models and theories, where precision, elegance, and refinement take precedence over relevance, has led to a lack of overview and that quantitatively oriented social research today contributes more to the development of applied mathematics than to the social sciences.

The ESO report Good Neighbours, unfortunately, contributes no more than marginally to an accumulation of knowledge that can form the basis for evidence-based policy measures in the area of neighbourhood effects and immigration. What emerges in the report mostly confirms things we already knew, and most of the truly important policy questions we ask are not answered beyond rather meaningless statements of the type “segregation can be good if… but can also be bad if…”. How this is supposed to help us solve the important integration problems in our societies is hard to see. One might also ask whether the enormous resources that are now annually spent on this type of research could be used in a more policy-effective way.

The pitfalls of randomization

20 Jun, 2024 at 14:34 | Posted in Theory of Science & Methodology | Leave a comment

The core purpose of RCTs is to use random assignment in order to ensure that the unconfoundedness assumption essential to identifying an average treatment effect holds. In the abstract, this is a strong argument for the method. Problems arise, however, when pristine asymptotic properties confront the muddy realities of field applications and strict control over fully exogenous assignment almost inevitably breaks down, for any of a variety of reasons discussed below or in the preceding section on ethical dilemmas. The end result is that the attractive asymptotic properties of RCTs often disappear in practice, much like the asymptotic properties of other IV estimators. We term this the “faux exogeneity” problem because, like faux pearls, the product commonly looks of high value and one must scrutinize carefully in order to detect the fundamental flaws in construction so that many naïve consumers are regrettably duped …

The limitations of RCTs (wonkish) | LARS P. SYLLUnobservably heterogeneous treatments, encouragement bias and sampling bias in economic studies undercut the ‘gold standard’ claim that RCTs reliably identify the (local) average treatment effect for the target population (i.e., that RCT estimates have internal validity). Just as the original gold standard depended on a range of strong assumptions – that ultimately proved untenable, leading to the collapse of the gold standard – so does the claim of internal validity depend on multiple, strong, often-contestable assumptions. As with studies based on conventional, observational data, the development economics community needs to interrogate underlying identifying assumptions before accepting RCT results as internally valid …

A core pitfall is that experiments typically treat human beings as subjects, not as agents. When measurable outcomes are the core variables of interest, as is typically true in evaluation research, the behavioral mechanisms that yield these outcomes in the non-experimental economy are almost inevitably subordinated in research design. This problem is compounded when the phenomena of interest – such as market equilibria, outcomes that fundamentally depend on collective action, etc. – arise from complex multi-agent interactions not readily reproducible in experiments, as we discuss below, with reference to capital access. Furthermore, it is by no means clear that purging agents’ endogenous behavioral response is always desirable given that the core question of interest is what will happen in response to real people’s non-random responses to the introduction of a policy or project or technology. Precise answers to the wrong question are not always helpful.

Christopher B. Barrett & Michael R. Carter

The present RCT idolatry is dangerous. Believing randomization is the only way to achieve scientific validity blinds people to searching for and using other methods that in many contexts are better. Insisting on using only one tool often means using the wrong tool.

the-right-toolRandomization is not a panacea. It is not the best method for all questions and circumstances. Proponents of randomization make claims about its ability to deliver causal knowledge that is simply wrong. There are good reasons to share Deeaton’s scepticism on the now popular — and ill-informed — view that randomization is the only valid and the best method on the market. It is not.

Researchers who use randomization-based research strategies often set up problem formulations that are not at all the ones we really want answers to, to achieve ‘exact’ and ‘rigorous’ results. Design becomes the main thing, and as long as one can get more or less clever experiments in place, they believe they can draw far-reaching conclusions about both causality and the ability to generalize experimental outcomes to larger populations. Unfortunately, this often means that this type of research has a negative bias away from interesting and important problems towards prioritizing method selection. As Barrett and Carter rightly notice:

Precise answers to the wrong question are not always helpful.

Days Like This

19 Jun, 2024 at 10:57 | Posted in Varia | Leave a comment

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Kan etnisk segregation vara gynnsam?

18 Jun, 2024 at 14:13 | Posted in Politics & Society | Leave a comment

Kan etnisk segregation vara gynnsam? - Magasinet KonkretI en nyligen publicerad rapport — Goda grannar: en ESO-rapport om grannskapets betydelse för integration — visar författarna att etniskt segregerat boende inte ’per definition’ behöver vara något negativt. Detta konstaterande har fått viss uppmärksamhet i medierna och framställts som något  spännande och nytt … Vid närmare eftertanke är det dock uppenbart att ingen rimligen kan ha ifrågasatt att om man växer upp och bor i ett grannskap kännetecknat av goda förebilder, väl fungerande nätverk, högutbildade och framgångsrika individer, så ökar chansen att man själv — oberoende av etnicitet — skaffar sig en god utbildning och jobb.

Den intressanta frågan är alltså inte om segregation kan vara positiv — det vet vi redan – utan om den verkligen existerande segregation vi har i Sverige idag är positiv …

Den forskning som bedrivits i Sverige har kunnat konstatera (föga förvånande) att det spelar roll var vi bor och att vi för socioekonomiskt svaga grupper och invandrare har en hög grad av korrelation mellan var man bor och i vilken utsträckning man har högre utbildning och fast förankring på arbetsmarknaden. Däremot är kunskapen om varför det ser ut på det här sättet — vilka är mekanismerna bakom – minst sagt bristfällig …

Vad man — inte minst i den kvantitativt inriktade forskningen — gör är att välja ut ett antal mätbara faktorer (’variabler’) som man stoppar in i så kallade regressionsmodeller och försöker mäta i vilken utsträckning dessa faktorer samvarierar (’korrelerar’). Ofta görs detta — som i ESO-rapporten — utan en ordentlig genomlysning av i vilken utsträckning dessa mätbara faktorer (utbildning, inkomster, boendeort, etc) verkligen representerar de mekanismer vi ytterst är (borde vara) ute efter att identifiera. Självklart är detta besvärande om vi med policyåtgärder vill vända en vad de flesta uppfattar som negativ utveckling. Utan att identifiera de mekanismer som skapar samhällsproblem är det svårt att välja vilka åtgärder som kan förväntas ha störst effekter.

Lars Syll / Magasinet Konkret

Konkret webbkort Lars Syll72

Sedan ett år tillbaka är yours truly medarbetare på samhällsmagasinet Konkret.

Mina artiklar finns samlade här.

Everything you want to know about MMT

18 Jun, 2024 at 08:59 | Posted in Economics | 3 Comments

One of the positive contributions of MMT, especially from a European point of view, is that it makes it transparently clear why the euro-experiment has been such a monumental disaster. The neoliberal dream of having over-national currencies just doesn’t fit well with reality. When an economy is in a crisis, it must be possible for the state to manage and spend its own money to stabilize the economy.

When the euro was launched twenty-five years ago, it was celebrated with fireworks at the European Central Bank headquarters in Frankfurt. Today we know better. There are no reasons to celebrate the 25th anniversary. On the contrary.

euroAlready since its start, the euro has been in crisis. And the crisis is far from over. The tough austerity measures repeatedly imposed in the eurozone have made economy after economy contract. And it has not only made things worse in the periphery countries, but also in countries like France and Germany. Alarming facts that should be taken seriously.

The problems — created to a large extent by the euro — may not only endanger our economies but also our democracy itself. How much whipping can democracy take? How many more are going to get seriously hurt and ruined before we end this madness and scrap the euro?

The euro has taken away the possibility for national governments to manage their economies in a meaningful way — and in country after country, the people have had to pay the true costs of its concomitant misguided austerity policies.

The unfolding of the repeated economic crises in Euroland during the last decade has shown beyond any doubt that the euro is not only an economic project but just as much a political one. What the neoliberal revolution during the 1980s and 1990s didn’t manage to accomplish, the euro shall now force on us.

But do the peoples of Europe really want to deprive themselves of economic autonomy, enforce lower wages and slash social welfare at the slightest sign of economic distress? Are​ increasing income inequality and a federal überstate really the stuff that our dreams are made of? I doubt it.

Rolling in the deep

18 Jun, 2024 at 00:17 | Posted in Varia | Leave a comment

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Take you home

18 Jun, 2024 at 00:00 | Posted in Varia | Leave a comment

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Old flames die hard

Random Walk (student stuff)

15 Jun, 2024 at 13:22 | Posted in Statistics & Econometrics | 1 Comment

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Sonderzug nach Pankow

15 Jun, 2024 at 12:47 | Posted in Varia | 1 Comment

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In den 1980er Jahren hatte die deutsche Rocklegende Udo Lindenberg eine große Anhängerschaft hinter dem Eisernen Vorhang. Besuche zeigten ihm, dass die Menschen in Ostdeutschland im Grunde genommen genauso waren wie im Westen. Er begann Erich Honecker zu bitten, ihm zu erlauben, durch das Land zu touren.

Im Sonderzug nach Pankow stellt sich Udo vor, in der DDR zu spielen. Ihm wurde tatsächlich erlaubt, am 25. Oktober 1983 im Palast der Republik in Ost-Berlin aufzutreten. Vor der Veranstaltung randalierten Fans und wurden verhaftet — und die geplante Tour durch Ostdeutschland wurde abgesagt.

The psychopathy of Ayn Rand

13 Jun, 2024 at 16:55 | Posted in Politics & Society | 2 Comments

Now, I don’t care to discuss the alleged complaints American Indians have against this country. I believe, with good reason, the most unsympathetic Hollywood portrayal of Indians and what they did to the white man. They had no right to a country merely because they were born here and then acted like savages. The white man did not conquer this country …

Since the Indians did not have the concept of property or property rights—they didn’t have a settled society, they had predominantly nomadic tribal “cultures”—they didn’t have rights to the land, and there was no reason for anyone to grant them rights that they had not conceived of and were not using …

What were they fighting for, in opposing the white man on this continent? For their wish to continue a primitive existence; for their “right” to keep part of the earth untouched—to keep everybody out so they could live like animals or cavemen. Any European who brought with him an element of civilization had the right to take over this continent, and it’s great that some of them did. The racist Indians today—those who condemn America—do not respect individual rights.

Ayn Rand,  Address To The Graduating Class Of The United States Military Academy at West Point, 1974

It’s sickening to read this gobsmacking trash. But it’s perhaps even more sickening that people like Alan Greenspan consider Rand some​ kind of intellectual hero.

Alan Greenspan isn’t just a bad economist. He’s a bad person. What else can one think of a person who considers Ayn Rand — with the ugliest psychopathic philosophy the postwar world has produced — one of the great thinkers of the 20th century? A person who even co-edited a book with her — maintaining that unregulated capitalism is a “superlatively moral system”. A person who in his memoirs tries to reduce his admiration for Rand to a youthful indiscretion — but who actually still today can’t be described as anything else than a loyal Randian disciple.

Ayn Rand and her objectivist philosophy have​ more disciples than Greenspan. But as Hilary Putnam rightfully noticed in The Collapse of the Fact/Value Dichotomy (Harvard University Press, 2002) it’s doubtful if it even qualifies as a real philosophy:

It cannot be the case that the only universally valid norm refers solely to discourse. It is, after all, possible for someone to recognize truth-telling as a binding norm while otherwise being guided solely by ‘enlightened egoism.’ (This is, indeed, the way of life that was recommended by the influential if amateurish philosophizer – I cannot call her a philosopher – Ayn Rand.) But such a person can violate the spirit if not the letter of the principle of communicative action at every turn. After all, communicative action is contrasted with manipulation, and as such a person can manipulate people without violating the maxims of ‘sincerity, truth-telling, and saying only what one believes to be rationally warranted.’ Ayn Rand’s capitalist heroes manipulated people all the time (even if she didn’t consider it manipulation) via their control of capital, for example. Indeed, the person who says, ‘do what I want or I’ll shoot you,’ need not be violating any maxim concerned solely with discourse. But it would be a mistake to use such examples as objections to Habermasian ‘discourse ethics.’

In her diary from 1928, Ayn Rand approvingly quotes a statement made by William Edward Hickman – “What is good for me is right.” Rand is enthusiastic and writes: “The best and strongest expression of a real man’s psychology I have heard.”

Later she models one of her heroes​  – Danny Renahan – after Hickman. Renahan is portrayed as

born with a wonderful, free, light consciousness — [resulting from] the absolute lack of social instinct or herd feeling. He does not understand, because he has no organ for understanding, the necessity, meaning, or importance of other people … Other people do not exist for him and he does not understand why they should.

Who was this  Hickman that so inspired Rand?

Hickman was a notorious bank robber, child kidnapper and mass murderer. One of the most hated and heinous criminals in U. S. history.

How people like Alan Greenspan and all modern-day ‘objectivist’ disciples can consider Ayn Rand “one of the greatest thinkers of the 20th century” is really beyond comprehension. It’s sickening.

Gambler’s ruin — a Markov process analysis (student stuff)

11 Jun, 2024 at 12:55 | Posted in Statistics & Econometrics | 1 Comment

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Below you will find a little Python script yours truly made to simulate a betting scenario as a Markov process and visualise how the total amount of money changes over time. This model highlights that, due to a higher probability of losing, the total money will generally trend downwards over a large number of bets.

import numpy as np
# Define the transition matrix B
B = np.array([
[1, 0, 0, 0],
[0.51, 0, 0.49, 0],
[0, 0.51, 0, 0.49],
[0, 0, 0, 1]
])
# Define the initial state vector v25
v25 = np.array([0, 1, 0, 0])
# Function to compute the state vector after n steps
def markov_steps(B, v, n):
state_vector = v
for _ in range(n):
state_vector = state_vector.dot(B)
return state_vector
# Number of steps to simulate
num_steps = 25
# Compute the state vector after 25 steps
v_final = markov_steps(B, v25, num_steps)
# Print the final state vector
print(f”State vector after {num_steps} steps: {v_final}”)
# Optional: Plot the evolution of the state vector
import matplotlib.pyplot as plt
# Compute the state vector evolution
state_vectors = [v25]
for i in range(1, num_steps + 1):
state_vectors.append(markov_steps(B, v25, i))
# Convert to numpy array for easier plotting
state_vectors = np.array(state_vectors)
# Plot the evolution of the state vector
plt.plot(state_vectors)
plt.xlabel(‘Number of Steps’)
plt.ylabel(‘State Probability’)
plt.title(‘Markov Process: Evolution of State Vector’)
plt.legend([‘State 1’, ‘State 2’, ‘State 3’, ‘State 4’])
plt.show()

What is a good model?

10 Jun, 2024 at 13:35 | Posted in Theory of Science & Methodology | Leave a comment

perfectly-good-econ-theoryWhereas increasing the difference between a model and its target system may have the advantage that the model becomes easier to study, studying a model is ultimately aimed at learning something about the target system. Therefore, additional approximations come with the cost of making the correspondence between model and target system less straight- forward. Ultimately, this makes the interpretation of results on the model in terms of the target system more problematic. We should keep in mind the advice of Whitehead: “Seek simplicity and distrust it.”

A ‘good model’ is to be understood as a model that achieves an equilibrium between being useful and not being too wrong. The usefulness of a model is clearly context-dependent; it may involve a combination of desired features such as being understandable (for students, researchers, or others), achieving computational tractability, and other criteria. ‘Not being too wrong’ is to be understood as ‘not being too different from reality’.

Sylvia Wenmackers & Danny Vanpoucke

All empirical sciences use simplifying or unrealistic assumptions in their modelling activities. That is not the issue – as long as the assumptions made are not unrealistic in the wrong way or for the wrong reasons.

Theories are difficult to directly confront with reality. Economists therefore build models of their theories. Those models are representations that are directly examined and manipulated to indirectly say something about the target systems.

But models do not only face theory. They also have to look to the world. Being able to model a “credible world,” a world that somehow could be considered real or similar to the real world, is not the same as investigating the real world. Even though all theories are false, since they simplify, they may still possibly serve our pursuit of truth. But then they cannot be unrealistic or false in any way. The falsehood or unrealisticness has to be qualified.

Some of the standard assumptions made in neoclassical economic theory – on rationality, information handling and types of uncertainty – are not possible to make more realistic by “de-idealization” or “successive approximations” without altering the theory and its models fundamentally.

If we cannot show that the mechanisms or causes we isolate and handle in our models are stable, in the sense that when we export them from are models to our target systems they do not change from one situation to another, then they only hold under ceteris paribus conditions and a fortiori are of limited value for our understanding, explanation and prediction of our real world target system.

No matter how many convoluted refinements of concepts are made in the model, if the “successive approximations” do not result in models similar to reality in the appropriate respects (such as structure, isomorphism etc), the surrogate system becomes a substitute system that does not bridge to the world but rather misses its target.

Stjärnorna kvittar det lika

7 Jun, 2024 at 21:40 | Posted in Varia | Leave a comment

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Till minnet av Bengt Nilsson. En vän av den sort som Gud inte gjorde någon kopia av — och som glömskan aldrig kommer att rå på.

MMT — the key insights

7 Jun, 2024 at 10:56 | Posted in Economics | 3 Comments

As has become abundantly clear during the last couple of years, it is obvious that most mainstream economists seem to think that Modern Monetary Theory is something new that some wild heterodox economic cranks have come up with. That is actually very telling about the total lack of knowledge of their own discipline’s history these modern mainstream guys like Summers, Rogoff and Krugman have.

New? Cranks? Reading one of the founders of neoclassical economics, Knut Wicksell, and what he wrote in 1898 on ‘pure credit systems’ in Interest and Prices (Geldzins und Güterpreise) soon makes the delusion go away:

It is possible to go even further. There is no real need for any money at all if a payment between two customers can be accomplished by simply transferring the appropriate sum of money in the books of the bank

A pure credit system has not yet … been completely developed in this form. But here and there it is to be found in the somewhat different guise of the banknote system

We intend therefore​, as a basis for the following discussion, to imagine a state of affairs in which money does not actually circulate at all, neither in the form of coin … nor in the form of notes, but where all domestic payments are effected by means of the Giro system and bookkeeping transfers. A thorough analysis of this purely imaginary case seems to me to beworthwhile​e, for it provides a precise antithesis to the equally imaginary​ case of a pure cash system, in which credit plays no part whatever [the exact equivalent of the often used neoclassical model assumption of ‘cash in advance’ – LPS] …

For the sake of simplicity, let us then assume that the whole monetary system of a country is in the hands of a single credit institution, provided with an adequate number of branches, at which each independent economic individual keeps an account on which he can draw cheques.

What Modern Monetary Theory (MMT) basically does is more or less what Wicksell tried to do more than a hundred years ago. The difference is that today the ‘pure credit economy’ is a reality and not just a theoretical curiosity — MMT describes a fiat currency system that almost every country in the world is operating under.

In modern times legal currencies are totally based on fiat. Currencies no longer have intrinsic value (such as gold and silver). What gives them value is basically the simple fact that you have to pay your taxes with them. That also enables governments to run a kind of monopoly business where they never can run out of money. A fortiori, spending becomes the prime mover and taxing and borrowing is degraded to following acts. If we have a depression, the solution, then, is not austerity. It is spending. Budget deficits are not a major problem since fiat money means that governments can always make more of them.​

In the mainstream economist’s world, we don’t need fiscal policy other than when interest rates hit their lower bound (ZLB). In normal times monetary policy suffices. The central banks simply adjust the interest rate to achieve full employment without inflation. If governments in that situation take on larger budget deficits, these tend to crowd out private spending and the interest rates get higher.

What mainstream economists have in mind when they argue this way, is nothing but a version of Say’s law, basically saying that savings have to equal investments and that if the state increases investments, then private investments have to come down (‘crowding out’). As an accounting identity, there is, of course, nothing to say about the law, but as such, it is also totally uninteresting from an economic point of view. What happens when ex-ante savings and investments differ, is that we basically get output adjustments. GDP changes and so makes saving and investments equal ex-post. And this, nota bene, says nothing at all about the success or failure of fiscal policies!

For the benefit of our latter-day​ ‘New Keynesian’ mainstream economists, let’s see what a real Keynesian economist has to say about crowding out and government deficits:

Fallacy 3
Government borrowing is supposed to “crowd out” private investment.

The current reality is that on the contrary, the expenditure of the borrowed funds (unlike the expenditure of tax revenues) will generate added disposable income, enhance the demand for the products of private industry, and make private investment more profitable. As long as there are plenty of idle resources lying around, and monetary authorities behave sensibly, (instead of trying to counter the supposedly inflationary effect of the deficit) those with a prospect for profitable investment can be enabled to obtain financing. Under these circumstances, each additional dollar of deficit will in the medium long run induce two or more additional dollars of private investment. The capital created is an increment to someone’s wealth and ipso facto someone’s saving. “Supply creates its own demand” fails as soon as some of the income generated by the supply is saved, but investment does create its own saving, and more. Any crowding out that may occur is the result, not of underlying economic reality, but of inappropriate restrictive reactions on the part of a monetary authority in response to the deficit.

William Vickrey Fifteen Fatal Fallacies of Financial Fundamentalism

It is true that MMT rejects the traditional Phillips curve inflation-unemployment trade-off and has a less positive evaluation of traditional policy measures to reach full employment. Instead of a general increase in aggregate demand, it usually prefers more ‘structural’ and directed demand measures with less risk of producing increased inflation. At full employment, deficit spending will often be inflationary, but that is not what should decide the fiscal position of the government. The size of public debt and deficits is not — as already Abba Lerner argued with his ‘functional finance’ theory in the 1940s — a policy objective. The size of public debt and deficits are what they are when we try to fulfil our basic economic objectives — full employment and price stability.

That governments can spend whatever amount of money they want is a fact. That does not mean that MMT says they ought to — that’s something our politicians have to decide. No MMTer denies that too much government spending can be inflationary. What is questioned is that government deficits necessarily is inflationary.

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