The weird absence of money and finance in economic theory

26 Jun, 2019 at 14:45 | Posted in Economics | 5 Comments

Consider the problem of money. Money is of central importance to any modern capitalist market economy. Yet it is mainly sociologists, philosophers and dissenters that have maintained an interest in what money “is” with a view to continued critique and development … One might think this is because economics has already provided an agreed clear concept of money. But this is not the case. Contemporary economics defines money in terms of function (unit of account, store of value, medium of exchange), but puts aside both the actual history of money (after an origin story) and the conceptual problem of money, both of which likely affect the functionality of money in the broader sense of its role and consequence in real systems …

barterWhat appears weird to those outside of the mainstream is that in economic theory in general money is typically absent. It is usually assumed that in a properly functioning market system prices express the value of output such that all prices effectively become representative of ratios between goods and services (and inputs), and this ultimately means a market system operates as though it were barter. Money simply becomes the convenient symbol (in its medium of exchange guise) that expresses these ratios. As such, it has no independent significance, and one ought to look through money to the operation of “real” economic factors, and can in effect ignore money as a contributory, contextualising or significant component in a system …

The role of money in real systems has generally been peripheralised because of an arbitrary limitation created by the assumption that money is separate from and then circumspectly significant to “real” factors. This statement may seem odd to a non-economist, since we live in a world where monetary policy is high profile, and a great deal of attention is paid to central bank policy (inflation targeting for price stability), and to the existence and activity of banks.

Jamie Morgan / RWER

Yes indeed — money doesn’t matter in mainstream macroeconomic models. That’s true. According to the ‘classical dichotomy,’ real variables — output and employment — are independent of monetary variables, and so enables mainstream economics to depict the economy as basically a barter system.

But in the real world in which we happen to live, money certainly does matter. Money is not neutral and money matters in both the short run and the long run:

The theory which I desiderate would deal … with an economy in which money plays a part of its own and affects motives and decisions, and is, in short, one of the operative factors in the situation, so that the course of events cannot be predicted in either the long period or in the short, without a knowledge of the behaviour of money between the first state and the last. And it is this which we ought to mean when we speak of a monetary economy.

J. M. Keynes A monetary theory of production (1933)

What is also ‘forgotten’ in mainstream economic theory, is the insight that finance — in all its different shapes — has its own dimension, and if taken seriously, its effect on an analysis must modify the whole theoretical system and not just be added as an unsystematic appendage. Finance is fundamental to our understanding of modern economies​ and acting like the baker’s apprentice who, having forgotten to add yeast to the dough, throws it into the oven afterwards, simply isn’t enough.

All real economic activities nowadays depend on a functioning financial machinery. But institutional arrangements, states of confidence, fundamental uncertainties, asymmetric expectations, the banking system, financial intermediation, loan granting processes, default risks, liquidity constraints, aggregate debt, cash flow fluctuations, etc., etc. — things that play decisive roles in channelling money/savings/credit — are more or less left in the dark in modern mainstream formalizations.

Chicago economics — a pseudo-scientific zombie

25 Jun, 2019 at 19:17 | Posted in Economics | 6 Comments

A couple of years ago, in a lecture on the US recession, Robert Lucas gave an outline of what the New Classical school of macroeconomics today thinks on the latest downturns in the US economy and its future prospects.

lucasLucas starts by showing that real US GDP has grown at an average yearly rate of 3 per cent since 1870, with one big dip during the Depression of the 1930s and a big – but smaller – dip in the recent recession.

After stating his view that the US recession that started in 2008 was basically caused by a run for liquidity, Lucas then goes on to discuss the prospect of recovery from where the US economy is today, maintaining that past experience would suggest an “automatic” recovery, if the free market system is left to repair itself to equilibrium unimpeded by social welfare activities of the government.

As could be expected there is no room for any Keynesian type considerations on eventual shortages of aggregate demand discouraging the recovery of the economy. No, as usual in the new classical macroeconomic school’s explanations and prescriptions, the blame game points to the government and its lack of supply side policies.

Lucas is convinced that what might arrest the recovery are higher taxes on the rich, greater government involvement in the medical sector and tougher regulations of the financial sector. But — if left to run its course unimpeded by European type welfare state activities — the free market will fix it all.

In a rather cavalier manner — without a hint of argument or presentation of empirical facts — Lucas dismisses even the possibility of a shortfall of demand. For someone who already 30 years ago proclaimed Keynesianism dead — “people don’t take Keynesian theorizing seriously anymore; the audience starts to whisper and giggle to one another” — this is of course only what could be expected. Demand considerations are simply ruled out on whimsical theoretical-ideological grounds, much like we have seen other neo-liberal economists do over and over again in their attempts to explain away the fact that the latest economic crises shows how the markets have failed to deliver. If there is a problem with the economy, the true cause has to be government.

Chicago economics is a dangerous pseudo-scientific zombie ideology that ultimately relies on the poor having to pay for the mistakes of the rich. Trying to explain business cycles in terms of rational expectations has failed blatantly. Maybe it would be asking too much of freshwater economists like Lucas to concede that, but it’s still a fact that ought to be embarrassing.

shackleIf at some time my skeleton should come to be used by a teacher of osteology to illustrate his lectures, will his students seek to infer my capacities for thinking, feeling, and deciding from a study of my bones? If they do, and any report of their proceedings should reach the Elysian Fields, I shall be much distressed, for they will be using a model which entirely ignores the greater number of relevant variables, and all of the important ones. Yet this is what ‘rational expectations’ does to economics.

G. L. S. Shackle

What is wrong with modern economics?

25 Jun, 2019 at 10:28 | Posted in Economics | 1 Comment

It is simply that modern economists persist in insisting that a set of tools be everywhere adopted that are mostly inadequate to social analysis, given the nature of social phenomena …

wrong toolTo put the matter bluntly (the pun may be useful), it is like attempting to cut the grass with a hammer or a piece of paper. The latter objects have their uses, but mowing the lawn is not one of them. Methods of applied mathematics of the sort economists wield have their uses, but illuminating social reality is not one of them, or at best, is so only in exceptional circumstances. I hope that it is clear that this explanation, whether correct or not, reflects a stance that is not anti-mathematics but anti a mismatch of tool and object — and so, given the circumstances, anti the abuse of mathematics …

There is a good deal wrong with modern economics. There is much to be done to remedy matters at all levels of analysis. But little can improve at any level until we discard the widely-worn methodological blinkers which encourage the view that mathematical modelling is everywhere automatically relevant, even essential, so that paying explicit attention to matters of ontology is unnecessary.

Tony Lawson

Modern economics has become increasingly irrelevant to the understanding of the real world. In his seminal book Economics and Reality (1997), Tony Lawson traced this irrelevance to the failure of economists to match their deductive-axiomatic methods with their subject

largepreview It is — sad to say — as relevant today as it was twenty years ago.

It is still a fact that within mainstream economics internal validity is everything and external validity nothing. Why anyone should be interested in that kind of theories and models is beyond imagination. As long as mainstream economists do not come up with any export-licenses for their theories and models to the real world in which we live, they really should not be surprised if people say that this is not science, but autism!

Studying mathematics and logic is interesting and fun. It sharpens the mind. In pure mathematics and logic, we do not have to worry about external validity. But economics is not pure mathematics or logic. It’s about society. The real world.

Economics and Reality was a great inspiration to yours truly twenty years ago. It still is.

Hicks on probability calculus

20 Jun, 2019 at 23:05 | Posted in Economics | 20 Comments

To understand real world ‘non-routine’ decisions and unforeseeable changes in behaviour, ergodic probability distributions are of no avail. In a world full of genuine uncertainty — where real historical time rules the roost — the probabilities that ruled the past are not necessarily those that will rule the future.

Wickham, Mark, active 1984-2000; Sir John Hicks (1904-1989)When we cannot accept that the observations, along the time-series available to us, are independent … we have, in strict logic, no more than one observation, all of the separate items having to be taken together. For the analysis of that the probability calculus is useless; it does not apply … I am bold enough to conclude, from these considerations that the usefulness of ‘statistical’ or ‘stochastic’ methods in economics is a good deal less than is now conventionally supposed … We should always ask ourselves, before we apply them, whether they are appropriate to the problem in hand. Very often they are not … The probability calculus is no excuse for forgetfulness.

John Hicks 

Could Italy save the euro?

19 Jun, 2019 at 09:03 | Posted in Economics | 3 Comments

In a recent interview … Silvio Berlusconi mooted the introduction of a parallel domestic currency, the so-called mini-bills of Treasury (“mini-BOTs” for short), which would in theory allow Italy to exit austerity without exiting the eurozone. Italy’s Five Star/Lega coalition government has also embraced the idea. The ECB and the European Commission, predictably, oppose the mini-BOT’s introduction, seeing it as an existential threat to the single currency and a means of avoiding the fiscal rules established at its creation …

minibotDetermining what constitutes legal tender for the settlement of tax liabilities opens up considerably more fiscal policy space for a national government. Hence the appeal to Rome, as their proposed mini-BOT would give Italy’s government more policy options to generate an economic expansion commensurate with higher incomes and more job growth …

The mini-BOT remains highly controversial, both politically and legally. In terms of the latter, many, such as Lorenzo Codogno, a former chief economist at the Italian Treasury, claim that the introduction of a parallel domestic currency would contravene the terms of the European Monetary Union treaty … The real concern is political, a view typified by Riccardo Puglisi, an economist at the University of Pavia. Puglisi sees the mini-BOT not as a complement to the euro, but rather as “a way to facilitate the exit of Italy from the eurozone” …

The “phony war” will end soon. The parallel currency at least offers a fresh approach to reverse Italy’s relative economic decline. However, the European Commission’s reluctance to tolerate any degree of experimentation, its politically tone-deaf browbeating of the Italian government to fall into line with prevailing economic orthodoxy actually feeds the anti-establishment and anti-euro forces now politically ascendant in Italy.

Marshall Auerback

The monetary union has not been able to show any noteworthy productivity jumps since it was launched twenty years ago. The economic problems have been growing and at times almost led to national catastrophes. The EMU is not an optimal currency union, and as history has told us, countries like Germany, Greece, and Italy do not fall into step when marching.

Although data indicate that there may be some weak evidence of convergence in long-term interest rates in the Eurozone, there seems to be very little evidence of convergence when it comes to macroeconomic outcomes such as growth, employment, inflation, or public debt. The magic silver-bullet that would solve all problems, simply has not materialized.

The problems with the euro should not come as a surprise. If a country gives up its own currency, it does not only give up the possibility of having its own over monetary policy. Membership in the European monetary union means less accommodation and flexibility when it comes to country-specific asymmetric shocks, and fewer possibilities for freely using financial policies to guarantee low unemployment and high welfare levels.

The unfolding of the repeated economic crises in euro land has shown beyond any doubts 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? The euro has taken away the possibility for national governments to manage their economies in a meaningful way — and in Italy the people have had to pay the true costs of its concomitant misguided austerity policies.

The euro model is and has always been footed on an economic model that increases inequality and is to the disadvantage of the working classes. Austerity measures are repeatedly imposed and threaten not only our economies but also democracy itself.

How much whipping can economy and democracy take? How many have to be hurt and ruined before we end the euro madness? Instead of just go on mending the project it would be better to just admit that we have reached way’s end and that it is time to take another road. A road forward. A road without the euro.

My philosophy of economics

18 Jun, 2019 at 13:45 | Posted in Economics, Theory of Science & Methodology | 4 Comments

A critique yours truly sometimes encounters is that as long as I cannot come up with some own alternative to the failing mainstream theory, I shouldn’t expect people to pay attention.

This is, however, to totally and utterly misunderstand the role of philosophy and methodology of economics!

As John Locke wrote in An Essay Concerning Human Understanding:

19557-004-21162361The Commonwealth of Learning is not at this time without Master-Builders, whose mighty Designs, in advancing the Sciences, will leave lasting Monuments to the Admiration of Posterity; But every one​e must not hope to be a Boyle, or a Sydenham; and in an Age that produces such Masters, as the Great-Huygenius, and the incomparable Mr. Newton, with some other of that Strain; ’tis Ambition enough to be employed as an Under-Labourer in clearing Ground a little, and removing some of the Rubbish, that lies in the way to Knowledge.

That’s what philosophy and methodology can contribute to economics — clearing obstacles to science by clarifying limits and consequences of choosing specific modelling strategies, assumptions, and ontologies.

respectEvery now and then I also get some upset comments from people wondering why I’m not always ‘respectful’ of people like Eugene Fama, Robert Lucas, Greg Mankiw, Paul Krugman, Simon Wren-Lewis, and others of the same ilk.

But sometimes it might actually, from a Lockean perspective, be quite appropriate to be disrespectful.

New Classical and ‘New Keynesian’ macroeconomics is rubbish that ‘lies in the way to Knowledge.’

And when New Classical and ‘New Keynesian’ economists resurrect fallacious ideas and theories that were proven wrong already in the 1930s, then I think a less respectful and more colourful language is called for.

Robert Lucas in praise of superficiality

18 Jun, 2019 at 13:03 | Posted in Economics | 1 Comment

igTo observe that economics is based on a superficial view of individual and social behaviour does not seem to me to be much of an insight. I think it is exactly this superficiality that gives economics much of the power that it has. Its ability to predict human behaviour without knowing very much about the make up and lives of the people whose behaviour we are trying to understand.

Robert Lucas

Mainstream economics — a case of explanatory disaster

17 Jun, 2019 at 18:19 | Posted in Economics | 2 Comments

To achieve explanatory success, a theory should, minimally, satisfy two criteria: it should have determinate implications for behavior, and the implied behavior should be what we actually observe. These are necessary conditions, not sufficient ones. Rational-choice theory often fails on both counts. The theory may be indeterminate, and people may be irrational. e201ada1b6In what was perhaps the first sustained criticism of the theory, Keynes emphasized indeterminacy, notably because of the pervasive presence of uncertainty. His criticism applied especially to cases where agents have to form expectations about the behavior of other agents or about the development of the economy in the long run. In the wake of the current economic crisis, this objection has returned to the forefront. Before the crisis, going back to the 1970s, the main objections to the theory were based on pervasive irrational behavior. Experimental psychology and behavioral economics have uncovered many mechanisms that cause people to deviate from the behavior that rational-choice theory prescribes.

Disregarding some more technical sources of indeterminacy, the most basic one is embarrassingly simple: how can one impute to the social agents the capacity to make the calculations that occupy many pages of mathematical appendixes in the leading journals of economics and political science and that can be acquired only through years of professional training?

I believe that much work in economics and political science that is inspired by rational-choice theory is devoid of any explanatory, aesthetic or mathematical interest, which means that it has no value at all. I cannot make a quantitative assessment of the proportion of work in leading journals that fall in this category, but I am confident that it represents waste on a staggering scale.

Jon Elster

Most mainstream economists want to explain social phenomena, structures and patterns, based on the assumption that the agents are acting in an optimizing (rational) way to satisfy given, stable and well-defined goals.

The procedure is analytical. The whole is broken down into its constituent parts so as to be able to explain (reduce) the aggregate (macro) as the result of the interaction of its parts (micro). Building their economic models, modern mainstream economists ground their models on a set of core assumptions describing the agents as ‘rational’ actors and a set of auxiliary assumptions. Together these assumptions make up the base model of all mainstream economic models. Based on these two sets of assumptions, they try to explain and predict both individual and social phenomena.

The core assumptions typically consist of completeness, transitivity, non-satiation, expected utility maximization, and consistent efficiency equilibria.

When describing the actors as rational in these models, the concept of rationality used is instrumental rationality – choosing consistently the preferred alternative, which is judged to have the best consequences for the actor given his in the model exogenously given interests and goals. How these preferences, interests, and goals are formed is not considered to be within the realm of rationality, and a fortiori not constituting part of economics proper.

The picture given by this set of core assumptions – ‘rational choice’ – is a rational agent with strong cognitive capacity that knows what alternatives she is facing, evaluates them carefully, calculates the consequences and chooses the one – given her preferences – that she believes has the best consequences according to her. Weighing the different alternatives against each other, the actor makes a consistent optimizing choice and acts accordingly.

Besides the core assumptions the model also typically has a set of auxiliary assumptions that spatio-temporally specify the kind of social interaction between ‘rational’ actors that take place in the model. These assumptions can be seen as giving answers to questions such as: who are the actors and where and when do they act; which specific goals do they have; what are their interests; what kind of expectations do they have; what are their feasible actions; what kind of agreements (contracts) can they enter into; how much and what kind of information do they possess; and how do the actions of the different individuals interact with each other.

So, the base model basically consists of a general specification of what (axiomatically) constitutes optimizing rational agents and a more specific description of the kind of situations in which these rational actors act (making the auxiliary assumptions serve as a kind of restriction of the intended domain of application for the core assumptions and the deductively derived theorems). The list of assumptions can never be complete since there will always be unspecified background assumptions and some (often) silent omissions (usually based on some negligibility and applicability considerations). The hope, however, is that the ‘thin’ list of assumptions shall be sufficient to explain and predict ‘thick’ phenomena in the real, complex, world.

These models are not primarily constructed for being able to analyze individuals and their aspirations, motivations, interests, etc., but typically for analyzing social phenomena as a kind of equilibrium that emerges through the interaction between individuals.

Now, of course, no one takes the base model (and the models that build on it) as a good (or, even less, true) representation of reality (which would demand a high degree of appropriate conformity with the essential characteristics of the real phenomena, that, even when weighing in pragmatic aspects such as ‘purpose’ and ‘adequacy,’ it is hard to see that this ‘thin’ model could deliver). The model is typically seen as a kind of thought experimental ‘as if’ bench- mark device for enabling a rigorous mathematically tractable illustration of social interaction in an ideal-type model world, and to be able to compare that ‘ideal’ with reality. The ‘interpreted’ model is supposed to supply analytical and explanatory power, enabling us to detect and understand mechanisms and tendencies in what happens around us in real economies.

Based on the model – and on interpreting it as something more than a deductive-axiomatic system – predictions and explanations can be made and confronted with empirical data and what we think we know. The base model and its more or less tightly knit axiomatic core assumptions are used to set up further ‘as if’ models from which consistent and precise inferences are made. If the axiomatic premises are true, the conclusions necessarily follow. But if the models are to be relevant, we also have to argue that their precision and rigour still holds when they are applied to real-world situations. They often do not. When addressing real economies, the idealizations and abstractions necessary for the deductivist machinery to work simply do not hold.

If the real world is fuzzy, vague and indeterminate, then why should our models build upon a desire to describe it as precise and predictable? The logic of idealization, that permeates the base model, is a marvellous tool in mathematics and axiomatic-deductivist systems, but a poor guide for action in real-world systems, where concepts and entities are without clear boundaries and continually interact and overlap.

Being told that the model is rigorous and amenable to ‘successive approximations’ to reality is of little avail, especially when the law-like (nomological) core assumptions are highly questionable and extremely difficult to test. Being able to construct ‘thought-experiments’ depicting logical possibilities does not take us very far. An obvious problem with the mainstream base model is that it is formulated in such a way that it realiter is extremely difficult to empirically test and decisively ‘corroborate’ or ‘falsify.’

As Elster writes, such models have — from an explanatory point of view — indeed “no value at all.” The ‘thinness’ is bought at too high a price, unless you decide to leave the intended area of application unspecified or immunize your model by interpreting it as nothing more than two sets of assumptions making up a content-less theoretical system with no connection whatsoever to reality.

User guides to models

17 Jun, 2019 at 13:50 | Posted in Economics | 1 Comment


In Dani Rodrik’s Economics Rules it is argud that ‘the multiplicity of models is economics’ strength,’ and that a science that has a different model for everything is non-problematic, since

economic models are cases that come with explicit user’s guides — teaching notes on how to apply them. That’s because they are transparent about their critical assumptions and behavioral mechanisms.

Hmm …

That really is at odds with yours truly’s experience from studying and teaching mainstream economic models during four decades.

page_1When, e. g., criticizing the basic (DSGE) workhorse macroeconomic model for its inability to explain involuntary unemployment, its defenders maintain that later ‘successive approximations’ and elaborations — especially newer search models — manage to do just that. However, one of the more conspicuous problems with those ‘solutions,’ is that they — as e.g. Pissarides’ ‘Loss of Skill during Unemployment and the Persistence of Unemployment Shocks’ QJE (1992) — are as a rule constructed without seriously trying to warrant that the model immanent assumptions and results are applicable in the real world. External validity is more or less a non-existent problematique sacrificed on the altar of model derivations. This is not by chance. These theories and models do not come at all with the transparent and ‘explicit user’s guides’ that Rodrik maintains they do. And there’s a very obvious reason for that. For how could one even imagine to empirically test assumptions such as Pissarides’ ‘model 1’ assumptions of reality being adequately represented by ”two overlapping generations of fixed size”, ”wages determined by Nash bargaining”, ”actors maximizing expected utility”,”endogenous job openings”, ”jobmatching describable by a probability distribution,” without coming to the conclusion that this is — in terms of realism and relevance — far from ‘good enough’ or ‘close enough’ to real world situations?

Suck on that — and tell me if those typical mainstream neoclassical modeling assumptions in any possibly relevant way — with or without due pragmatic considerations — can be considered anything else but imagined model worlds assumptions that has nothing at all to do with the real world we happen to live in!

Here is no real transparency as to the deeper significance and role of the chosen set of axiomatic assumptions.

Here is no explicit user’s guide or indication of how we should be able to, as Rodrik puts it, ‘discriminate’ between the ‘bewildering array of possibilities’ that flow out of such outlandish and known to be false assumptions.

Theoretical models building on piles of known to be false assumptions are in no way close to being scientific explanations. On the contrary. They are untestable and a fortiori totally worthless from the point of view of scientific relevance.

Los economistas y la recesión

17 Jun, 2019 at 13:36 | Posted in Economics | Leave a comment

torreroTorrero despliega en su libro todo un arsenal de citas que ponen de manifiesto su profundo conocimiento y sus exhaustivas lecturas del tema. Y, aunque, como dije, el tono del autor es muy comedido, los textos que aduce muestran lo acerbo de los reproches que se han hecho a los teóricos de las «expectativas racionales» y los «mercados autorregulados». Hay quien dice (Nassim N. Taleb) que «los premios Nobel no son sólo un insulto a la ciencia; es que han expuesto al sistema financiero al riesgo de explosión» (p. 23). Y hay sarcasmos acerados, como el del historiador y economista sueco Lars Pålsson Syll: «Mi expectativa racional es que dentro de treinta años nadie sabrá quién fue Robert Lucas. Por el contrario, John Maynard Keynes será todavía conocido como uno de los maestros de la economía» (p. 62).

Los grandes maestros son, para Torrero, además de Keynes, Joseph Alois Schumpeter, Frank Knight (el autor de un libro precursor sobre riesgo, incertidumbre y empresa), y, sobre todo, Hyman Minsky, economista heterodoxo, seguidor de Keynes y discípulo directo de Schumpeter. Minsky fue el gran teórico de la inestabilidad de los mercados y, por tanto, un réprobo para la ortodoxia dominante en la profesión hasta la Gran Recesión. Murió once años antes de que ésta comenzara y confirmara empíricamente sus análisis sobre la inestabilidad. Y este es otro aspecto que Torrero (y no sólo él, ni mucho menos) reprueba en los teóricos de la autorregulación: que han prestado escasa atención al mundo real y a la contrastación empírica de sus elegantes elucubraciones. En conjunto, incluso antes de 2007, la evidencia real no ofrecía sustento fáctico convincente a sus teorías. La «Gran Moderación» no fue tan grande: la historia económica del último cuarto del siglo XX estuvo salpicada de crisis parciales en diferentes países que exigieron la intervención de los gobiernos. En realidad, los mercados autorregulados residían más en los departamentos de Economía de las universidades norteamericanas «de agua dulce», es decir, las situadas en torno a los Grandes Lagos, entre las que destaca, por supuesto, Chicago, que en las poblaciones, conurbaciones y centros económicos reales que las albergaban.

Gabriel Tortella

‘Minibot’ — cosa sono e che rischi comportano

16 Jun, 2019 at 18:44 | Posted in Economics | 4 Comments

Mini-Bot-5euro_webSi torna a parlare di “minibot”. A un anno esatto dalla formazione del Governo, la Camera dei Deputati ha votato all’unanimità una mozione che lo impegna a sbloccare il pagamento degli arretrati dovuti a professionisti e imprese anche ricorrendo a “titoli di Stato di piccolo taglio”, proprio come recitava il “contratto per il governo del cambiamento” siglato dai due partiti di governo. Ma perché mai lo Stato dovrebbe pagare i propri creditori non già con un bonifico ma consegnando dei titoli cartacei, molto simili a banconote, emessi direttamente dal Tesoro?

La formula è criptica al punto che qualche parlamentare ha confessato di aver votato la mozione senza afferrarne il contenuto. Parrebbe, a prima vista, poco rilevante che lo Stato reperisca i fondi per pagare i creditori, oppure consegni direttamente ai creditori dei titoli di nuova emissione. In entrambi i casi, lo Stato paga i creditori indebitandosi. Ma a sentire i promotori (tra cui l’attuale Presidente della Commissione Bilancio della Camera) e a rileggere il passaggio del “contratto” di governo dove si auspicano i minibot “anche valutando nelle sedi opportune la definizione stessa di debito pubblico”, è chiaro a che scopo questa maggioranza potrebbe in futuro ricorrere ai minibot: fare concorrenza alla moneta unica.

Gli ideatori descrivono il minibot come un titolo del Tesoro “sui generis”. Non ha scadenza, quindi non dà diritto a un rimborso in euro all’estinzione, e non paga interessi. A fronte di questo evidente handicap, e a differenza dei comuni titoli pubblici, lo Stato italiano (e solo quello) li accetterebbe in pagamento delle imposte. Nell’auspicio dei promotori, ciò basterebbe per renderli pari all’euro, consentendo al Tesoro di finanziare la spesa con l’emissione diretta di questi “quasi-euro di casa nostra”.

Prima ancora di chiederci se, e a quale valore, queste quasi-banconote sarebbero accettate come mezzi di pagamento, va rilevato che una legge che istituisse una “moneta parallela” non potrebbe essere promulgata dal Capo dello Stato senza averne preventivamente accertato la compatibilità col Trattato sull’Unione Europea. E il progetto evidentemente confligge con l’adesione all’unione monetaria. Tecnicamente, i minibot sono assimilabili alle monete metalliche in euro che teniamo nel borsellino, emesse anch’esse dal Tesoro in quantità autorizzate dalla Banca Centrale Europea, e iscritte a debito dello Stato. Nella migliore delle ipotesi, essi sarebbero considerati nuovo debito. Nella peggiore, sarebbero assimilati alle monete metalliche e anche un solo euro di emissione dovrebbe essere autorizzato dalla Bce.

Se i minibot vi sembrano un tentativo di aggirare le regole sul debito o addirittura una premessa per uscire dall’euro, non vi sbagliate, perché è proprio questa la dichiarata intenzione dei proponenti, i quali si immaginano che in un confronto con la Commissione Europea, la diffusione di queste quasi-banconote consentirebbe di negoziare da una posizione di forza e, se questo non bastasse, offrirebbero una transizione verso la nuova moneta. In realtà, al solo sorgere di uno scontro di tali proporzioni, i prezzi dei veri titoli di Stato (quelli che promettono euro) cadrebbero a picco, causando una vera e propria crisi finanziaria dello Stato e delle banche. E quel giorno il governo si sentirebbe autorizzato a proporre l’Italexit come il male minore.

Amara è l’Europa quando un Paese fondatore contempla vie di uscita, invece di fare proposte credibili per riformare davvero la politica fiscale europea nell’interesse delle generazioni future.

Andrea Terzi

To me, the idea of introducing a ‘parallel currency’ more than anything else shows that the euro crisis is far from over.

The tough austerity measures imposed in the eurozone has 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.

Europe may face a future with growing economic disparities where we will have​ to confront increasing hostility between nations and peoples. What we’ve seen lately — especially in France — shows that the protests against technocratic attempts to undermine democracy may go extremely violent.

The problems — created to a large extent by the euro — may not only endanger our economies, but also 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?

Mainstream economics — an obscurantist and harmful waste of time

15 Jun, 2019 at 15:32 | Posted in Economics | 3 Comments

One may perhaps, distinguish between obscure writers and obscurantist writers. The former aim at truth, but do not respect the norms for arriving at truth, such as focusing on causality, acting as the Devil’s Advocate, and generating falsifiable hypotheses. The latter do not aim at truth, and often scorn the very idea that there is such a thing as the truth …


These writings have in common a somewhat uncanny combination of mathematical sophistication on the one hand and conceptual naiveté and empirical sloppiness on the other. The mathematics, which could have been a tool, is little more than toy … Hard obscurantist models, too, may have some value as tools, but mostly they are toys.

I have pointed to the following objectionable practices:

2. Adopting huge simplifications that make the empirical relevance of the results essentially nil …

3. Assuming that the probabilities in a stochastic process are known to the agents … or even in some sense optimal …

7. Assuming that agents can choose optimal preferences …

11. Adhering to the instrumental Chicago-style philosophy of explanation, which emphasizes as-if rationality and denies that the realism of assumptions is a relevant issue.

Jon Elster

It’s hard not to agree with Elster’s critique of mainstream economics and its practice of letting models and procedures become ends in themselves, without considerations of their lack of explanatory value as regards real-world phenomena.

Many mainstream economists working in the field of economic theory think that their task is to give us analytical truths. That is great — from a mathematical and formal logical point of view. In science, however, it is rather uninteresting and totally uninformative! The framework of the analysis is too narrow. Even if economic theory gives us ‘logical’ truths, that is not what we are looking for as scientists. We are interested in finding truths that give us new information and knowledge of the world in which we live.

Scientific theories are theories that ‘refer’ to the real-world, where axioms and definitions do not take us very far. To be of interest for an economist or social scientist that wants to understand, explain, or predict real-world phenomena, the pure theory has to be ‘interpreted’ — it has to be ‘applied’ theory. An economic theory that does not go beyond proving theorems and conditional ‘if-then’ statements — and do not make assertions and put forward hypotheses about real-world individuals and institutions — is of little consequence for anyone wanting to use theories to better understand, explain or predict real-world phenomena.

Building theories and models on unjustified patently ridiculous assumptions we know people never conform to, does not deliver real science. Real and reasonable people have no reason to believe in ‘as-if’ models of ‘rational’ robot-imitations acting and deciding in a Walt Disney-world characterised by ‘common knowledge,’ ‘full information,’ ‘rational expectations,’ zero  transaction costs, given stochastic probability distributions, risk-reduced genuine uncertainty, and other laughable nonsense assumptions of the same ilk. Science fiction is not science.

Much work done in mainstream theoretical economics is devoid of any explanatory interest. And not only that. Seen from a strictly scientific point of view, it has no value at all. It is a waste of time. And as so many have been experiencing in modern times of austerity policies and market fundamentalism — a very harmful waste of time.

So much for ‘independent’ central banks …

15 Jun, 2019 at 14:49 | Posted in Economics | Leave a comment

Or, manque de chance, un tiers environ des banquiers centraux de la planète sont issus du secteur bancaire et financier, et cette proportion augmente (« How Do Central Bank Governors Matter ? Regulation and the Financial Sector », Ariell Reshef et Prachi Mishra, Journal of Money, Credit and Banking, vol. 51, n° 2-3, mars et avril 2019). Même tendance chez les superviseurs des banques ou des marchés financiers.

greenMais l’expertise requise ne justifie-t-elle pas de recruter des banquiers ? A quelques postes opérationnels, pourquoi pas. Mais pas à la tête (pensante) de ces instances de régulation. Car lorsqu’on y place un ancien banquier, la culture bancaire infuse et imprègne nécessairement la pratique du régulateur. C’est ce que montre l’étude de deux chercheurs néerlandais de l’université de Groningue et de la Banque centrale des Pays-Bas (« I Just Cannot Get You Out of My Head : Regulatory Capture of Financial Sector Supervisors », Dennis Veltrop et Jakob de Haan, De Nederlandsche Bank Working Paper n° 410, janvier 2014). Même après avoir quitté le secteur bancaire, un superviseur qui en est issu continue de s’y identifier socialement, en restant par exemple soucieux de sa réputation vis-à-vis du marché. Sa performance dans l’accomplissement de ses tâches s’en trouve négativement affectée. C’est seulement, lorsqu’il se sera forgé une nouvelle identité de superviseur – ce qui prend du temps et doit être stimulé – que cette influence psychologique pourra être compensée.

Jézabel Couppey-Soubeyran / Le Monde

On the use and misuse of randomisation

14 Jun, 2019 at 10:11 | Posted in Economics | Leave a comment

‘Ideally controlled experiments’ tell us with certainty what causes what effects — but only given the right ‘closures.’ Making appropriate extrapolations from (ideal, accidental, natural or quasi) experiments to different settings, populations or target systems, is not easy. “It works there” is no evidence for “it will work here”. Causes deduced in an experimental setting still have to show that they come with an export-warrant to the target system. The causal background assumptions made have to be justified, and without licenses to export, the value of ‘rigorous’ methods and ‘on-average-knowledge’ is despairingly small.

Randomisation — as does econometrics — promises more than it can deliver, basically because it requires assumptions that in practice are not possible to maintain. And randomisation is — as econometrics — basically a deductive method. Given the assumptions, these methods deliver deductive inferences. The problem, of course, is that we will never completely know when the assumptions are right. And although randomisation may contribute to controlling for confounding, it does not guarantee it, since genuine randomness​ presupposes infinite experimentation and we know all real experimentation is finite. And even if randomisation may help to establish average causal effects, it says nothing of individual effects unless homogeneity is added to the list of assumptions. Causal evidence generated by randomisation procedures may be valid in ‘closed’ models, but what we usually are interested in, is causal evidence in the real target system we happen to live in.

Yours truly is extremely fond of economists like Angus Deaton. With razor-sharp intellect, ​he immediately goes for the essentials. He has no time for bullshit. And neither should we.

Wren-Lewis vs MMT

12 Jun, 2019 at 09:43 | Posted in Economics | 6 Comments

Simon Wren-Lewis is obviously upset because some MMTers have called his economic policy proposals (providing the theoretical foundation for Labour’s Fiscal Credibility Rule) “neoliberal”. Neoliberal or not, what he does have to say about MMT and his own mainstream economics makes it clear what the debate really comes down to:

MMT’s key idea is that fiscal policy (changing taxes and government spending) is better suited to stabilise the macroeconomy than a central bank setting interest rates.

corbynAlmost without exception, advanced economies use interest rates set by an independent central bank to control output and inflation … A fundamental problem with today’s way of doing things occurred during the Global Financial Crisis. Interest rates fell to a level that became their lower bound … It is now received wisdom among academic economists that when interest rates hit their lower bound, fiscal policy needs to provide a large stimulus to the economy. Labour’s fiscal credibility rule is the first in the world to formalise this. If interest rates hit their lower bound, the normal rule is suspended and a fiscal stimulus occurs that is sufficient to end the recession. Labour’s rule is therefore designed to prevent austerity happening again.

MMT wants to go one step further. It wants to use fiscal policy to stabilise the economy at all times, and not just when monetary policy is out of action.

In Wren-Lewis 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 Wren-Lewis and other 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 Wren-Lewis and other 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 spendings 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 of government spendings can be inflationary. What is questioned is that government deficits necessarily is inflationary.

Next Page »

Blog at
Entries and comments feeds.