John Maynard Keynes — an introduction

11 Apr, 2019 at 18:03 | Posted in Economics | 4 Comments

 

Bab’Aziz

11 Apr, 2019 at 17:22 | Posted in Varia | Leave a comment

 

Poem of the atoms

11 Apr, 2019 at 15:48 | Posted in Varia | Leave a comment

 

Debunking the balanced budget superstition

11 Apr, 2019 at 14:56 | Posted in Economics | 3 Comments

 

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 Apr, 2019 at 18:52 | Posted in Economics | 3 Comments

 

Inflation targeting — the wrong tool for the wrong purpose

10 Apr, 2019 at 18:18 | Posted in Economics | 1 Comment

 

MMT — vad är det?

10 Apr, 2019 at 15:12 | Posted in Economics | 1 Comment

Överskottsmålet är ett hål i huvudet. Riksbanken kommer inte att nå sitt inflationsmål. Euron är dysfunktionell och eurokrisen kommer tillbaka vid nästa recession. Se där tre bra utgångspunkter för den som vill förstå hur ekonomin kommer att utvecklas det närmaste året.

Låter det både stolligt, alarmistiskt och populistiskt? Möjligt, men det finns en röd tråd i dessa utsagor. De bygger på de insikter som vuxit fram i det som kallas Modern Monetary Theory, MMT.

mmtI Sverige har MMT knappt nämnts i den publika diskussionen överhuvudtaget. En genomsökning av tidningsdatabasen Retriever, som samlar upp det mesta som skrivs i detta land med någorlunda regelbundenhet finns MMT nämnt i ett par artiklar …

Men de som har hållit sig till den tråden har också fått sina makroantaganden besannade – både före och efter den senaste finanskrisen. Det gäller såväl risken för bubblor och den under de senaste årens extremt överdrivna faran för inflation och skenande räntor, samt inte minst centralbankernas impotens …

Ett epicentrum för denna teoribildning har varit och är Levi Institute vid Bard College där professorerna L Randal Wrey och Stepanie Kelton hör till de mest omtalade. Här har man vårdat det intellektuella arvet efter ekonomen och Keyneslärjungen Hyman Minsky …

MMT har gjort Keynes insikter till en mer generell utgångspunkt för ekonomin. Det vill säga, inte något som enbart gäller när räntan går mot noll och ekonomin riskerar att fastna i likviditetsfällan, som var Keynes scenario. Med andra ord kan ett land som har en egen valuta alltid spendera mer än sina skatteintäkter utan risk för att behöva ställa in sina betalningar …

Med detta faller mycket av den ortodoxi som har styrt policybesluten under de senaste decennierna. Inte minst i Sverige och i Europa. De stora intellektuella bautastenar som välts överända är demoniseringen av statliga budgetunderskott och statsskulder. Det vill säga sådant som har satts upp som bindande restriktioner i Sverige och framför allt inom eurozonen …

Så lägg det på minnet – MMT – Modern Monetary Theory – It´s coming to an economy near you!

Per Lindvall / Realtid.se

Om ändå vårt lilla land hade fler ekonomijournalister som Per Lindvall. Kunnig och orädd. Och som till skillnad från de vi dagligen ser på tv har förstått att riktiga journalisters uppgift inte är att bara rapa upp etablissemangets färdigtuggade snabbmat.

I artikeln nämns med rätta Hyman Minsky som en av de stora föregångarna inom MMT. Som ung forskarstipendat i USA i början på 1980-talet hade yours truly förmånen och privilegiet att ha Minsky som lärare. Han var en stor inspiration då. Och är det fortfarande! Vid sidan om Keynes är han nog den som mer än någon annan påverkat mig som ekonomikritiker och forskare under nu snart fyra decennier.

Radical uncertainty — a question of economic methodology

10 Apr, 2019 at 13:13 | Posted in Economics | 9 Comments

Between 1920 and 1950, a debate took place which defined the future of economics in the second half of the 20th century. On one side were John Maynard Keynes and Frank Knight; on the other, Frank Ramsey and Jimmie Savage.

UnknownKnight and Keynes believed in the ubiquity of “radical uncertainty”. Not only did we not know what was going to happen, we had a very limited ability to even describe the things that might happen. They distinguished risk, which could be described with the aid of probabilities, from real uncertainty—which could not. In Knight’s world, such uncertainties gave rise to the profit opportunities which were the dynamic of a capitalist economy. Keynes saw these uncertainties as at the root of the inevitable instability in such economies.

Their opponents insisted instead that all uncertainties could be described probabilistically. And their opponents won, not least because their probabilistic world was convenient: it could be described axiomatically and mathematically.

It is difficult to exaggerate the practical consequence of the outcome of that technical argument. To acknowledge the role of radical uncertainty is to knock away the foundations of finance theory and much modern macroeconomics. But the reigning consensus is beset with glaring weaknesses. Keynes and Knight were right, and their opponents wrong. And recognition of that is a necessary preliminary to the rebuilding of a more relevant economic theory.

John Kay

Many economists have over time tried to diagnose what’s the problem behind the ‘intellectual poverty’ that characterizes modern mainstream economics. Kay points to the questionable reduction of uncertainty into probabilistic risk. Rationality postulates, rational expectations, market fundamentalism, general equilibrium, atomism, and over-mathematisation, are some other things one have been pointing at. But although these assumptions/axioms/practices are deeply problematic, they are mainly reflections of a deeper and more fundamental problem.

c9dd533b1cb4e7a2e1d6569481907beeThe main problem with mainstream economics is its methodology.

The fixation on constructing models showing the certainty of logical entailment has been detrimental to the development of a relevant and realist economics. Insisting on formalistic (mathematical) modelling forces the economist to give upon on realism and substitute axiomatics for real-world relevance. The price for rigour and precision is far too high for anyone who is ultimately interested in using economics to pose and (hopefully) answer real-world questions and problems.

This deductivist orientation is the main reason behind the difficulty that mainstream economics has in terms of understanding, explaining and predicting what takes place in our societies. But it has also given mainstream economics much of its discursive power – at least as long as no one starts asking tough questions on the veracity of – and justification for – the assumptions on which the deductivist foundation is erected. Asking these questions is an important ingredient in a sustained critical effort at showing how nonsensical is the embellishing of a smorgasbord of models founded on wanting (often hidden) methodological foundations.

The mathematical-deductivist straitjacket used in mainstream economics presupposes atomistic closed-systems – i.e., something that we find very little of in the real world, a world significantly at odds with an (implicitly) assumed logic world where deductive entailment rules the roost. Ultimately then, the failings of modern mainstream economics have its root in a deficient ontology. The kind of formal-analytical and axiomatic-deductive mathematical modelling that makes up the core of mainstream economics is hard to make compatible with a real-world ontology. It is also the reason why so many critics find mainstream economic analysis patently and utterly unrealistic and irrelevant.

Continue Reading Radical uncertainty — a question of economic methodology…

What ought to be the role of money and markets in society

10 Apr, 2019 at 10:22 | Posted in Politics & Society | Leave a comment


As Karl Polanyi argued already in the 1940s — it is dangerous to allow markets ’embed’ society. Having unfettered markets and money take over society is a sure recipe for only one thing. Disaster. On both a human​ and ecological scale.

What we see happen in the US, the UK, Germany, Sweden, and elsewhere, is deeply disturbing. The rising inequality is outrageous. Societies where we allow the inequality of incomes and wealth to increase without bounds, sooner or later implode. The cement that keeps us together erodes and in the end we are only left with people dipped in the ice cold water of egoism and greed.​ A society without even an idea of a common good is no longer a society.

Why governments sell bonds

10 Apr, 2019 at 09:45 | Posted in Economics | 1 Comment

 

Money in the real world — how the rich get richer

9 Apr, 2019 at 17:06 | Posted in Economics | Leave a comment

 

[There’s an especially interesting part at about 28-35 minutes into the video where professor Helge Peukert speculates on why money is such an unknown territory even among economists]

Sweden as a case of MMT

9 Apr, 2019 at 14:53 | Posted in Economics | 1 Comment

According to the Swedish government official website, “Historically, the Swedish economy suffered from low growth and high inflation,” which the nation overcame with “inventive and courageous reforms” that “succeeded in maintaining control over public spending.

“First, in 1996, a ceiling for public spending was introduced. This was accompanied by the addition of the ‘surplus goal’ … for the government budget.”

dumstrut​Swedish government spending reforms were the consequence of a financial crisis in the early 1990s that saw the economy collapse into three years of recession and the nationalization of two major banks …

From 1971 to the 1990s crisis, Sweden experienced a mash-up of Green New Deal extreme government spending and “Modern Monetary Theory” loose money and enormous deficits. Government spending rose to over 70 percent and deficits rose to over 10 percent of GDP, while inflation soared to double-digit rates.

Sweden has trod the ground U.S. progressives wish to cover, and the only gains came when the social democratic fantasy was unwound.

Douglas Carr / The Hill

Now, this is one of the lousiest pieces of history revisionism I’ve ever come across.

In Sweden, as in so many other countries, neoliberal ‘norm politics’ invaded the economy in the 80s and 90s. The mantra was that it was high time for Sweden to follow in the footsteps of Thatcher and Reagan. Deregulate the economy — especially the financial markets — and make the central bank independent, so that one could concentrate economic policies on inflation-targeting rather than on low unemployment​, then Sweden​ would prosper. As it turned out, that was far from what happened. Letting finance markets loose and at the same time keep a pegged currency turned out to be fatal. If anything, the Swedish experience shows what happens when politicians — both Social Democrats and Right-Wing — start to listen to neoliberal economists and their market fundamentalist dreams.

In Sweden​ today we have a Finance Minister — a Social Democrat — that still keeps on talking​​ about how necessary it is to balance the budget. ​And that in a situation​ where the deficit is at its lowest in 40 years and still falling!

The Swedish government’s penny pinching is nothing but insane and has absolutely nothing at all in common with MMT or progressive ideas on how to manage a prosperous​ economy​​.

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

No matter how much confidence you have in the policies pursued by authorities nowadays, it cannot turn bad austerity policies into good job creating policies. Austerity measures and overzealous and simple-minded fixation on monetary measures and inflation ​are not what it takes to get our limping economies out of their present-day limbo.

We are not going to get out of the present economic doldrums as long as we continue to be obsessed with the insane idea that austerity is the universal medicine. When an economy is already hanging on the ropes, you can’t just cut government spendings. Cutting government expenditures reduces aggregate demand. Lower aggregate demand means lower tax revenues. Lower tax revenues mean​ increased deficits — and calls for even more austerity. And so on, and so on …

Noah Smith’s MMT ‘critique’ — nonsense on stilts

8 Apr, 2019 at 20:42 | Posted in Economics | 11 Comments

What is MMT, the heterodox economic theory … What does it say? How can we tell if it’s a good theory or a bad one?

These are incredibly important questions …

hur_ar_det_med_minnet_du_kan_ha_brist_pa_fettsyran_lecitin_580-580x416These days, most economic theories are collections of mathematical models. If you want to know what the theory says, you can parse out the models and see for yourself … You can go read a New Keynesian model or a Real Business Cycle model and figure it out on your own.

MMT is different. There are many wordy explainers and videos that will explain some of the concepts behind MMT, or tell you some of MMT’s policy recommendations. But that’s different than having a formal model of the economy …

Formal models have important advantages. For one thing, a good formal model can be compared with quantitative data, to see whether it works or whether it fails. Formal models can make testable predictions.

A second advantage of formal models is that you can figure them out for yourself, without having to ask any gurus. If you have to run to the gurus to ask them what the theory says any time you think you’ve found a flaw, it becomes almost impossible to skeptics or outsiders to evaluate the theory objectively.

Noah Smith / Noahopinion

Oh dear, oh dear. This is almost comical. Who can — really — take this ‘critique’ seriously? It is beyond disappointment!

Thankfully, Pavlina Tcherneva has taken her time and responded with a must-read full of reading suggestions for those who want​ to inform themselves of empirical MMT work. It is always so much more interesting to read people when they know what they are talking about …

MMT perspectives on the euro

8 Apr, 2019 at 19:28 | Posted in Economics | 1 Comment

 

When the euro was created twenty 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 20-year 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 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 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 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 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.

austerity22But 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.

History ought to act as a deterrent. During the 1930s our economies didn’t come out of the depression until the folly of that time — the gold standard — was thrown on the dustbin of history. The euro will hopefully soon join it.

Economists have a tendency to get enthralled by their theories and models and forget that behind the figures and abstractions there is a real world with real people. Real people that have to pay dearly for fundamentally flawed doctrines and recommendations.

Steve Keen on MMT

8 Apr, 2019 at 18:15 | Posted in Economics | 1 Comment

 

A bank’s ability to grant loans and create money has nothing to do with whether it already has excess reserves or deposits at its disposal … From the perspective of banks, the creation of money is limited by the need for individual banks to lend profitably and also by micro and macroprudential regulations … The central bank influences the money and credit creation process in normal times through its interest rate policy, which affects the financing and portfolio decisions of banks and non-banks through various transmission channels …

What the stylised example of the creation of money shows particularly clearly is that a bank can grant loans without any prior inflows of customer deposits. In fact, book money is created​ as a result of an accounting entry: when a bank grants a loan, it posts the associated credit entry for the customer as a sight deposit by the latter and therefore as a liability on the liability side of its own balance sheet. This refutes a popular misconception that banks act simply as intermediaries at the time of lending – ie that banks can only grant loans using funds placed with them previously as deposits by other customers.

Deutsche Bundesbank

Basic income — lessons learned from Finland’s experiment

8 Apr, 2019 at 12:59 | Posted in Politics & Society | Leave a comment

 

Robert Reich on the benefits of a Jobs Guarantee

8 Apr, 2019 at 12:20 | Posted in Economics | Leave a comment

 

Social ontology and the irrelevance of economics

8 Apr, 2019 at 09:59 | Posted in Economics | 13 Comments

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.

Pluralism in economics

8 Apr, 2019 at 09:50 | Posted in Economics | Leave a comment

 

I highly recommend also watching the other interesting interviews (especially the ones with Geoff Harcourt and Charles Goodhart) that Goldsmiths Economics has put on youtube.

The real debt problem

7 Apr, 2019 at 19:00 | Posted in Economics | 4 Comments

The ad nauseam repeated claim that our public debt is excessive and that we have to balance the public budget is nothing but absolute nonsense. The harder politicians — usually on the advice of mainstream establishment economists — try to achieve balanced budgets for the public sector, the less likely they are to succeed in their endeavour.darling-let-s-get-deeply-into-debt And the more the citizens have to pay for the concomitant austerity policies these wrong-headed politicians and economists recommend as ‘the sole solution.’

One of the most effective ways of clearing up this most serious of all semantic confusions is to point out that private debt differs from national debt in being external … A variant of the false analogy is the declaration that national debt puts an unfair burden on our children, who are thereby made to pay for our extravagances. Very few economists need to be reminded that if our children or grandchildren repay some of the national debt these payments will be made to our children or grandchildren and to nobody else. Taking them all together​ they will no more be impoverished by making the repayments than they will be enriched by receiving them.

Abba Lerner The Burden of the National Debt (1948)

Few issues in politics and economics are nowadays more discussed — and less understood — than public debt. Many raise their voices to urge for reducing the debt, but few explain why and in what way reducing the debt would be conducive to a better economy or a fairer society. And there are no limits to all the — especially macroeconomic — calamities and evils a large public debt is supposed to result in — unemployment, inflation, higher interest rates, lower productivity growth, increased burdens for subsequent generations, etc., etc.

But the truth is that 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 have to pay the 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 national debt these payments will be made to our children and grandchildren.

To both Keynes and Lerner, 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 (more or less temporarily) 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.

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

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

To view government debts in terms of the ‘functional finance’ concept introduced by Abba Lerner, is to consider their role in the macroeconomic balance of the economy. In simple, bare bones terms, the function of government debts that is significant for the macroeconomic health of an economy is that they provide the assets into which individuals can put whatever accumulated savings they attempt to set aside in excess of what can be wisely invested in privately owned real assets. A debt that is smaller than this will cause the attempted excess savings, by being reflected in a reduced level of consumption outlays, to be lost in reduced real income and increased unemployment.

William Vickrey

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