Mainstream​ economics — the true picture

23 april, 2019 kl. 16:22 | Publicerat i Economics | Lämna en kommentar

Mainstream economists’ picture of economics looks like this:

noahbuilding

In reality, I would argue, it looks more like this:

neoclassical building

Schumpeter — an early champion of MMT

22 april, 2019 kl. 11:11 | Publicerat i Economics | 1 kommentar

Evidently this phenomenon is peculiar to money and has no analogue in the world of commodities. No claim to sheep increases the number of sheep. But a deposit, though legally only a claim to legal-tender money, serves within very wide limits the same purposes that this money itself would serve. Banks do not, of course, ‘create’ legal- tender money and still less do they ‘create’ machines. They do, however, something—it is perhaps easier to see this in the case of the issue of banknotes—which, in its economic effects, comes pretty near to creating legal-tender money and which may lead to the creation of ‘real capital’ that could not have been created without this practice.sch But this alters the analytic situation profoundly and makes it highly inadvisable to construe bank credit on the model of existing funds’ being withdrawn from previous uses by an entirely imaginary act of saving and then lent out by their owners. It is much more realistic to say that the banks ‘create credit,’ that is, that they create deposits in their act of lending, than to say that they lend the deposits that have been entrusted to them. And the reason for insisting on this is that depositors should not be invested with the insignia of a role which they do not play. The theory to which economists clung so tenaciously makes them out to be savers when they neither save nor intend to do so; it attributes to them an influence on the ‘supply of credit’ which they do not have. The theory of ‘credit creation’ not only recognizes patent facts without obscuring them by artificial constructions; it also brings out the peculiar mechanism of saving and investment that is characteristic of fullfledged capitalist society and the true role of banks in capitalist evolution. With less qualification than has to be added in most cases, this theory therefore constitutes definite advance in analysis.

Is public debt — really — a burden on future generations?

20 april, 2019 kl. 18:48 | Publicerat i Economics | 9 kommentarer

The real issue … is not whether it is possible to shift a burden (either in the present or in the future) from some people to other people, but whether it is possible by internal borrowing to shift a real burden from the present generation, in the sense of the present economy as a whole, onto a future generation, in the sense of the future economy as a whole … The latter is impossible because a project that uses up resources needs the resources at the time that it uses them up, and not before or after.

204545_600This basic proposition is true of all projects that use up resources … The proposition holds as long as the project​ is financed internally, so that there are no outsiders to take over the current burden by providing the resources and to hand back the burden in the future by asking for the return of the resources.
It is necessary for economists to keep repeating​ this basic proposition because one of their main duties is to keep warning people against the fallacy of composition. To anyone who sees only a part of the economy it does seem possible to borrow from the future because he tends to assume that what is true of the part is true of the whole.

Abba Lerner

Public debt is normally nothing to fear, especially if it is financed within the country itself (but even foreign loans can be beneficent for the economy if invested in the right way). Some members of society hold bonds and earn interest on them, while others pay taxes that ultimately pay the interest on the debt. The debt is not a net burden for society as a whole since the debt ‘cancels’ itself out between the two groups. If the state issues bonds at a low-interest rate, unemployment can be reduced without necessarily resulting in strong inflationary pressure. And the inter-generational burden is also not a real burden since — if used in a suitable way — the debt, through its effects on investments and employment, actually makes future generations net winners. There can, of course, be unwanted negative distributional side effects for the future generation, but that is mostly a minor problem since when our children and grandchildren ‘repay’ the public debt these payments will be made to our children and grandchildren.

To both Keynes and Lerner — as to today’s MMTers — it was evident that the state has the ability to promote full employment and a stable price level — and that it should use its powers to do so. If that means that it has to take on debt and underbalance its budget — so let it be! Public debt is neither good nor bad. It is a means to achieve two over-arching macroeconomic goals — full employment and price stability. What is sacred is not to have a balanced budget or running down public debt per se, regardless of the effects on the macroeconomic goals. If ‘sound finance,’ austerity and balanced budgets means increased unemployment and destabilizing prices, they have to be abandoned.

Time to rewrite textbooks on money creation

20 april, 2019 kl. 10:30 | Publicerat i Economics | 2 kommentarer

Poll_Results

This article has discussed how money is created in the modern economy. Most of the money in circulation is created, not by the printing presses of the Bank of England, but by the commercial banks themselves: banks create money whenever they lend to someone in the economy or buy an asset from consumers. And in contrast to descriptions found in some textbooks, the Bank of England does not directly control the quantity of either base or broad money. The Bank of England is nevertheless still able to influence the amount of money in the economy. It does so in normal times by setting monetary policy — through the interest rate that it pays on reserves held by commercial banks with the Bank of England.

M. McLeay, A. Radia & R. Thomas
Bank of England’s Monetary Analysis Directorate

Tax avoidance — the elephant in the room

19 april, 2019 kl. 23:36 | Publicerat i Economics | Lämna en kommentar

 

Negative interest rates — a Kaleckian perspective

18 april, 2019 kl. 10:53 | Publicerat i Economics | 2 kommentarer

At any one time a range of profit rates exists in the economy. That range may become more or less extensive in a boom or a recession, or move up and down with some profits cycle. However, the market forces equalising rates of profit across the economy … are weak. So that particular ‘long run’ has never been attained. The practical reality is that a range of profit rates always exists. That practical reality also undermines the argument of those neo-Wicksellians who attribute slow growth or under-investment to a very low or negative real natural or ‘equilibrium’ rate of interest …

kalThe existence of a range of profit rates suggests very strongly that there are always some firms that have a positive rate of return on their productive capital, even after paying near zero rates of interest. The question that arises is why these firms do not invest, in accordance with the standard theoretical imperative of profit-maximisation. The answer is obviously that they suffer from excess capacity in their existing plant and machinery. This is undoubtedly the main factor behind what is alleged to be the negative ‘real’ natural rate of interest that is supposed to warrant negative ‘real’ money interest rates. However, excess capacity is a problem of aggregate demand rather than monetary policy …

Neo-Wicksellian theory suggests that monetary policy is sufficient to regulate inflation and economic activity. However, the case for negative interest rates arises out of the failure of monetary policy and rests on conjecture rather than systematic analysis. More careful examination indicates that the problem of deficient effective demand that lies behind notions of a negative ‘real’ equilibrium or natural rate of interest that requires an even more negative
‘real’ money rate of interest, have to be addressed with measures to deal with that insufficient demand.

Jan Toporowski

For more on Kalecki in relation to MMT, see here.

MMT critics jumping the shark

18 april, 2019 kl. 10:23 | Publicerat i Economics | 10 kommentarer

jumpI was sent two papers by Thomas Palley the other day. I have known him for decades. He continually disappoints. He has become one of those self-styled Post Keynesians who are trying to destroy the credibility of Modern Monetary Theory (MMT) for reasons that are not entirely clear … He definitely has a set on MMT and regularly recycles the same sorts of attacks, which, continue to have the same problems. In other words, he does not seem to (or does not want to) learn. He also accuses those who respond of dishonesty — playing the pure is me card — although his own work on MMT fails, in part, because he deliberately (or not) refuses to acknowledge the extant MMT literature, which addresses the issues he claims are missing in the MMT approach …

When the Swedish economist Lars P. Syll wrote a critique of Palley’s latest papers (April 12, 2019) — Thomas Palley claims MMT fails to provide plausible macroeconomics — he was met with this response from Palley:

”Your blog post is misleading to the point of being dishonest.”

I didn’t find anything misleading at all with Lars P. Syll’s short overview of the problems in Palley’s work …

I only decided to explicitly address the Palley papers, not because they are important in any way, but because some of the points are still raised in E-mails I receive from readers who are acting in good faith …

But you can see why Palley avoids citing my work – because I have already written the stuff he claims MMT ignores!

William Mitchell

Yours truly i MMT intervju

17 april, 2019 kl. 22:43 | Publicerat i Economics | 3 kommentarer

Flamman (F): Först och främst, vad är MMT?

Lars Pålsson Syll (LPS): I grunden är det en reaktion på sättet som pengar och hur de skapas beskrivs i den traditionella ekonomiska litteraturen. Där beskrivs pengar som något som man sparar genom att sätta in dem på banken, och som banken i sin tur kan låna ut genom att skapa krediter. Bankernas pengaskapande förutsätter alltså att privata individer sparar. Lars-Pålsson-Syll_avatarMen den idén är fullständigt fel, det är inte så pengar fungerar. Speciellt inte i en ekonomi där den monetära basen av sedlar och mynt bara utgör någon enstaka procent av de pengar som är i omlopp. Det som MMT lyfter fram är att pengar skapas ”ex nihilo” som man säger, det vill säga ur tomma intet. Banken trycker på en knapp och skapar ett lån och skapar därmed också nya pengar. Det är alltså lån som skapar pengar och inte tvärtom. Det är den stora skillnaden.

F: Vilka är de politiska implikationerna av detta?

LPS: Vi inom MMT menar att bankerna på detta sätt får en otrolig makt över ekonomin. De har ett egenintresse av att skapa en massa krediter genom lån som de sedan kan göra vinster med eftersom de betalar en lägre ränta än vad de lånar ut till. Det är detta räntenetto som bankerna lever på. I en modern ekonomi skapar det rätt perversa böjelser hos bankväsendet eftersom de hela tiden vill få krediterna att expandera vilket i sin tur leder till fastighetsbubblor och så vidare, vilket i förlängningen ökar risken för finansiella kriser. Det var det som min gamle lärare Hyman Minsky, som också är en av inspirationskällorna för MMT, varnade för redan på 1960- och 1970-talet.

F: MMT brukar beskrivas som ett sätt att bedriva expansiv ekonomisk politik genom att man helt enkelt skapar nya pengar som staten sedan får tillbaka via skatteuppbörden. Detta eftersom ett land som har en suverän valuta inte kan gå i konkurs. En förutsättning är dock att landet har sin egen valuta.

LPS: Ja, det blir mer komplicerat om man inte har en egen suverän valuta, som euroländerna. Grunden för bankernas makt är att de kan skapa pengar som de vet att alla är intresserade av, därför att alla människor måste betala skatt. I Sverige görs det i svenska kronor. Enligt MMT är anledningen till att man kan skapa pengar att man måste betala skatt i just kronor. Annars hade människor ju kunnat betala varandra i vilka valutor de vill. Jag forskade tidigare om alternativa valutor och här i Malmö fanns det något som hette Möllevångsdollar. Sådant kan fungera i liten skala där människor har förtroende för varandra. Men problemet med alternativa valutor är att du inte kan betala din skatt med dem. Därför är kronorna de enda riktiga pengarna i Sverige. Och det är därför som bankerna har makten att via lån skapa pengar …

F: Vad skulle hända med inflationen om man bedrev MMT-politik?

LPS: Många hävdar att inflationen skulle  bli lägre därför att man inte ­längre skulle föda bankernas låneverksamhet som späder på finansiella bubblor. Det skulle göra att inflationstakten saktar ned. Men det beror på vilken inflation man pratar om. Det vanliga inflationsmåttet är konsumentprisindex. Men vi har så mycket annat i dag som tyvärr är viktigare än konsumtionen. Finanssektorn har tagit över en jättedel av ekonomin och förändringarna som sker på deras tillgångsmarknader finns inte med i de vanliga inflationsmåtten. Så om man skulle ge mer pengar till vanligt folk skulle deras köpkraft öka, och eftersom de konsumerar en stor del av sina inkomster så skulle efterfrågan på traditionella konsumtionsvaror öka. Och därför kan man hävda att inflationen skulle stiga. Men samtidigt kan man säga att mindre pengar skulle bli över till finanssektorn, som i huvudsak har drivit på inflationen. Därför menar MMT:are att man skulle kunna hålla inflationen i schack. Om Riksbanken tar över penningverksamheten kan man enklare reglera inflationen än vad som är möjligt i dag. Tvärtom mot vad det står i läroböcker i ekonomi så är det ju Riksbanken som i dag anpassar sig efter affärsbankernas lånebehov och inte tvärtom. En förutsättning för detta är dock att Riksbankens nya valuta helt ersätter affärsbankernas kronor.

Dock vill jag tillägga att det här inflationsspöket känns lite larvigt i våra tider där det inte är inflationen utan deflation som är problemet. Vi har ju inte ens fått upp inflationen till Riksbankens tvåprocentsmål. Då vore det väl bara bra om vi nådde det målet? Sedan menar vi keynesianer också att det målet i sig är satt för lågt. Egentligen vore det bättre om den låg på tre-fyra procent så att ekonomin fick lite svängrum …

Jonas Elvander / Flamman

MMT — building on Post-Keynesian​ foundations

15 april, 2019 kl. 09:30 | Publicerat i Economics | 2 kommentarer

To be sure, MMT concedes that the ability of an endogenous money supply to constrain inflation has limits. Government spending can still run up against the scarcity of real resources. Although some progressives invoking MMT seem unaware of this, Wray readily acknowledges that “just because the government can afford to spend does not mean government ought to spend more.” post-keynesian-vs-MMT-Government “must weigh the consequences in terms of withdrawing resources from other (perhaps more desirable) uses, as well as possible impacts on prices and exchange rates.” This returns us full circle to the first MMT constraint on inflation: the size of the “buffer stock” (Wray’s term) of unemployed labor that can be put to work …

One of the most emphatic assertions of MMT, to quote Wray, is “taxes are not needed to ‘pay for’ government spending.” Taxes are needed only to make sure people accept fiat money and, if necessary, to keep inflation in check. And because both the treasury and central bank are government institutions, there is some truth to the idea that both institutions have dual roles …

Equally important, critical parts of MMT’s edifice are built on Post-Keynesian foundations. As Kelton and Wray, along with Scott Fullwiler proclaim: “We have never tried to separate our ‘MMT’ approach from the heterodox tradition we share with Post Keynesians, Institutionalists and others. We have tried to extend that tradition.” A comprehensive and extensive critique of the Post-Keynesian paradigm is beyond the scope of this article. But if you strip away Post-Keynesian precepts, much of MMT’s edifice collapses, taking down many of its policy proposals with it.

Jeffrey Rogers Hummel

Skyll inte på Riksbanken. Skyll på Magdalena Andersson!

14 april, 2019 kl. 23:25 | Publicerat i Economics | Lämna en kommentar

Riksbanken har på senare tid fått utstå mycket kritik. Den har anklagats för att sänkt den svenska kronan i botten, skapat riskabelt hög privat skuldsättning och spätt på den ekonomiska ojämlikheten.

250px-Wikip-facepalmKritiken belyser visserligen allvarliga problem som delvis orsakats av Riksbankens expansiva penningpolitik, men är ändå missriktad. Riksbanken har bara gjort sitt bästa för att styra mot sitt lagstadgade mål om ett stabilt penningvärde.

De som bör ges skulden är snarare näringslivet, finanspolitiken och penningsystemet som tvingat in Riksbanken i ett hörn. Riksbanken kan med reporäntan som verktyg omöjligen kompensera för uteblivna löneökningar, underinvesteringar och en restriktiv finanspolitik utan att kronans växelkurs faller, den privata skuldsättningen ökar, tillgångspriserna skjuter i höjden och de rikaste som äger merparten av alla tillgångar blir ännu rikare …

Svenska kapitalister har satsat mer på att köpa redan existerande tillgångar och tjäna pengar på att äga, än att göra innovativa och produktiva investeringar. Det har lett till att efterfrågan hållits tillbaka vilket försvagat tillväxten och inflationen …

Ett ännu tyngre ansvar bär regeringen som trots den lägsta statsskulden på 40 år valt att fortsätta betala av ännu mer. Den offentliga skuldsättningen i Sverige väntas 2021 sjunka under 30 procent av BNP, vilket innebär att regeringen är skyldig enligt lag att förklara för Riksdagen hur det kommer sig att man inte spenderat mera pengar.

Samuel Kazen Orrefur  Markus Kallifatides  Daniel Suhonen

Moneta Fiscale in Italia

14 april, 2019 kl. 22:34 | Publicerat i Economics | Lämna en kommentar

L’economia italiana sicuramente soffre anche di altri problemi. La crescita della produttività è irrisoria da vent’anni a questa parte. Ma di nuovo, almeno in parte questo nasce dalla depressione della domanda. In termini reali, gli investimenti sono stati inferiori di oltre il quindici per cento nel 2018 rispetto al 2007. La bassa domanda del settore privato, le restrizioni alla spesa pubblica, e il basso impiego della capacità produttiva esistente producono effetti negativi e perduranti su investimenti e produttività.

moneta-fiscale-gallino-510-m5sIl governo in carica sta cercando di immettere più potere d’acquisto nell’economia, ma i vincoli fiscali lasciano pochissimo spazio di azione. Si può discutere se il reddito di cittadinanza e la “quota cento” sulle pensioni siano le forme d’intervento più adeguate, ma il problema di gran lunga più grave è che la dimensione assoluta di queste manovre è del tutto insufficiente.

Dato che i vincoli fiscali impediscono di reflazionare la domanda emettendo debito, e poiché la politica monetaria non può diventare più accomodante di quanto sia già oggi, è necessaria una strada alternativa. La Moneta Fiscale è lo strumento necessario.

La proposta su cui stiamo lavorando da oltre cinque anni è che il governo emetta titoli trasferibili e negoziabili, che i possessori potranno usare, a partire da due anni dopo l’emissione, per conseguire sconti fiscali. Questi titoli avranno immediatamente valore in quanto incorporano diritti certi a risparmi d’imposta futuri, e potranno essere immediatamente scambiati contro euro o utilizzati come strumenti di pagamento (in parallelo all’euro) per acquistare beni e servizi.

Biagio Bossone, Marco Cattaneo, Massimo Costa, Stefano Sylos Labini

Italy is a sad example — as is Greece, Spain, and, and … — of what not having a sovereign currency may force a country into. A group of MMT influenced Italian economists has for a couple of years been arguing for a possible way out of the euro ‘cul-de-sac’ with introducing this kind of ‘fiscal currency’. Interesting idea.

Functional​ finance — how to cope with inflation

14 april, 2019 kl. 18:18 | Publicerat i Economics | 5 kommentarer

Less well worked out is a technique of dealing with the other responsibility of the creator of money – the responsibility for maintaining its value. The key points here are not in the direct supply of money, or even in the regulation of the level of spending. The key points are in the determination​ of wage rates​ and in​ the determination of rates of markup of selling prices over costs … Higher wages relatively to prices are necessary for long-run prosperity but​ raising wages will do no good because they​ will only lead​ to higher prices and inflation.

Abba-P.-Lerner-2-810x540The dilemma can be resolved only by the government going to work on both money wage determination and on markup rates. Both are problems of monopoly and as such are inevitably destructive of a free economy. Markup rates must be reduced​ by antimonopoly measures … The most important help to the government in this will be the policy of maintaining​ full employment which will make it profitable for business to work with smaller markups.

Abba Lerner

Does MMT — really — ignore expectations?

13 april, 2019 kl. 12:08 | Publicerat i Economics | 23 kommentarer

In his latest diatribe against MMT, Thomas Palley argues that there is an ”inflationary bias” in MMT, that its framework ”is static and has little to say about how policy affects expectations of the future,” ”is silent on asset price formation,” and ”ignores expectations and treats private markets​ as irrelevant.”

Hmmm …

Yours truly has to confess it is extremely difficult to recognize that description. Given its roots in the writings of Keynes, Lerner, and Minsky, it is, to say the least, rather amazing to attribute those views to MMT. Let me just quote one source to show how ill-founded Palley’s critique is on this issue:

macWhile the IS-LM approach of John Hicks tried to represent what he saw as the key elements of Keynes’ General Theory, it is clear he left out issues relating to uncertainty​ and probability that Keynes saw as being crucial in the way that long-term expectations were formed … The decision to invest is dependent on the ‘state of long-term expectation,’ which is ignored in the static IS-LM approach … Investment, among other key economic decisions, is a forward-looking process … The failure to include the crucial role of expectations and historical time means that the IS-LM framework is reduced to presenting a general equilibrium static solution that has little place in a dynamic system where uncertainty is a key driver in economic decision making.

MMT and trade deficits

12 april, 2019 kl. 19:45 | Publicerat i Economics | 4 kommentarer

Unlike government deficits, which all countries in the world can run simultaneously, a trade deficit for one country necessarily means an equivalent trade surplus for the rest of the world. If there are countries deliberately running trade deficits, then they are forcing others to run trade surpluses. Since on this MMT argument, the trade deficit countries are the winners and the trade surplus countries are the losers, the former are behaving parasitically towards the latter. That should not be allowed if we are trying to achieve a harmonious global economy.

tradeThat is not how MMT advocates … put the argument. Instead they effectively recommend it as a policy that, presumably, all countries should adopt.

In my opinion, this goes against the spirit of the core MMT arguments with which I agree, because those core arguments can be practiced by all countries at once, to the collective benefit of the global economy: unemployment would be lower and output higher (leaving aside the caveats I noted above) if all governments ran deficits.

The same can’t be done with trade deficits, because one country’s deficit impose identical trade surpluses on all others. Since the deficit countries win from this behaviour and the surplus countries lose, this is anti-social behaviour which should be deliberately curtailed.

Steve Keen

Interview mit Stephanie Kelton

12 april, 2019 kl. 16:30 | Publicerat i Economics | Lämna en kommentar

220px-Kelton_Ring_PhotoKelton: Die Vorstellung, dass Staaten nur eine begrenzte Menge an Geld zur Verfügung hätten, kommt aus einer Zeit, in der die Währung in den meisten Ländern in der einen oder anderen Form an Edelmetalle wie Gold oder Silber gekoppelt war. Heute ist das nicht mehr so. Geld wird einfach gedruckt – genauer gesagt: im Computer erzeugt. Es lässt sich beliebig vermehren.

ZEIT: Das klingt jetzt so, als würden Sie einem Kind sagen: Süßigkeiten machen nicht dick. Nimm dir, so viel du willst!

Kelton: Nein, nein! Es gibt eine Grenze für die Staatsausgaben. Aber diese Grenze wird nicht durch die Höhe der Verschuldung bestimmt, sondern durch die Inflationsrate.

ZEIT: Wie meinen Sie das denn genau? Wir in Deutschland denken beim Thema Inflation normalerweise an Massenarbeitslosigkeit und staatlichen Kontrollverlust.

Kelton: Ich meine etwas anderes. Die Inflation ist auch eine Begleiterscheinung des Wirtschaftens. Um im Bild zu bleiben: Sie entsteht, wenn die Restaurants nicht mehr halb leer sind, sondern voll und sich in den Läden die Menschen drängeln. Denn dann werden irgendwann die Arbeitskräfte knapp. Die Folge: Die Restaurantangestellten können höhere Löhne durchsetzen, die Restaurantbesitzer erhöhen die Preise. In einer solchen Situation wäre es falsch, die Wirtschaft durch staatliche Ausgaben zusätzlich anzuheizen, denn dann würde sie heißlaufen. Wenn aber viele Menschen keine Arbeit haben, liegen Ressourcen brach, die der Staat nutzbar machen kann. In den meisten Industrieländern ist genau das derzeit der Fall.

Die Zeit

Thomas Palley claims MMT fails to provide plausible macroeconomics​

12 april, 2019 kl. 15:29 | Publicerat i Economics | 10 kommentarer

Modern Money Theory (MMT) asserts society can enjoy a range of large
government programs for free via money financed deficits, all without inflation …

tomRecently, progressive Democrats have called for a range of programs … All of them can reasonably be argued for. However, there is also the question of how they will be financed. Proponents of MMT assert that is a non-problem and the programs can be financed by “printing” money and without causing higher inflation … However, simple back of the envelope macroeconomic arithmetic shows that assertion to be completely implausible …

Keynesians have long recognized that money financed deficits can be used to finance programs when the economy is away from the full employment-inflation boundary. However, that financing option is temporary to the extent that those deficits generate developments which ultimately drive the economy to full employment. The case for progressive programs rests on their own merits, which should constitute their political foundation. Financing of those programs should be rooted in plausible macroeconomics, which MMT manifestly fails to provide.

Thomas Palley

Palley argues that ”money financed deficits” will generate inflation if they are part of a permanent program unless they are paid for with taxes. It is true that MMT rejects the traditional Phillips curve inflation-unemployment trade-off (in part influenced by Abba Lerner’s Economics of Employment (1956) and its discussion of what has become known as stagflation) 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 government s 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.

Much of the critique that Palley delivers was also waged against Abba Lerner’s ‘functional finance’ approach — on which much of MMT is based — back in the 1940s and 1950s. Even if some of today’s ‘Keynesian’ economists do not understand Lerner, there once was one who certainly did:

I recently read an interesting article on deficit budgeting … His argument is impeccable.

John Maynard Keynes (CW XXVII:320)

John Maynard Keynes — an introduction

11 april, 2019 kl. 18:03 | Publicerat i Economics | 4 kommentarer

 

Debunking the balanced budget superstition

11 april, 2019 kl. 14:56 | Publicerat i Economics | 3 kommentarer

 

I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked, [it] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, [and then] in every short period of time. If Prime Minister Gladstone came back to life he would say “oh, oh what you have done” and James Buchanan argues in those terms. I have to say that I see merit in that view.

Paul Samuelson

Samuelson’s statement makes yours truly come to think of the following passage in Keynes’ General Theory:

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is com­monly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authori­ty, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.

To Keynes — as to Abba Lerner and MMT today — it was evident that the state had the ability to promote full employment and a stable price level – and that it should use its powers to do so. If that meant that it had to take on ​debt and (more or less temporarily) underbalance its budget – so let it be! Public debt is neither good nor bad. It is a means to achieving two over-arching macroeconomic goals – full employment and price stability. What is sacred is not to have a balanced budget or running down public debt per se, regardless of the effects on the macroeconomic goals. If ‘sound finance’, austerity and​ balanced budgets means increased unemployment and destabilizing prices, they have to be abandoned.

Richard Wolff on what MMT has taught​ us

10 april, 2019 kl. 18:52 | Publicerat i Economics | 3 kommentarer

 

Inflation targeting — the wrong tool for the wrong purpose

10 april, 2019 kl. 18:18 | Publicerat i Economics | 1 kommentar

 

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