tag:blogger.com,1999:blog-2499715909956774229.post136892817837150173..comments2024-03-09T02:22:57.289-08:00Comments on Stephen Williamson: New Monetarist Economics: "Modern Monetary Theory"Stephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger41125tag:blogger.com,1999:blog-2499715909956774229.post-77762388866422656202012-03-02T11:50:27.365-08:002012-03-02T11:50:27.365-08:00As someone who does not do research in monetary th...As someone who does not do research in monetary theory but who still teaches Macro I find this discussion very interesting but also highly frustrating. It is frustrating because in the classroom I still teach the quantity theory of money, monetary aggregates, and so on. Thankfully there are some textbooks that have moved away from the IS-LM framework, but surely we can do better in terms of incorporating at least those insights on which some consensus exists in a framework that is simple enough to teach to the average undergraduate. Or am I wrong?CAnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-37125755393652386312012-02-27T06:26:18.951-08:002012-02-27T06:26:18.951-08:00By rejecting standard theory, MMT becomes worthles...By rejecting standard theory, MMT becomes worthless.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-90342286497989271732012-02-25T00:07:48.523-08:002012-02-25T00:07:48.523-08:00Further to this, you will occasionally see a prett...Further to this, you will occasionally see a pretty looking chart that shows a very symmetrical relationship between private sector surplus, and government deficits. The chart is used to imply that the "good times" of positive private sector surplus were always accompanied by times of government deficits.<br /><br />I have seen a similar chart from numerous sources, including Nomura. Those of you with suspicious minds may think that it almost looks too symmetrical, and if you do then you are right - the symmetry comes from the definition, not from any interesting information about the real world. If you assume no foreign sector surplus or deficit, the positive private sector balance as defined is exactly the negative government deficit.Paul Andrewsnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-57683447603937506852012-02-24T23:50:11.672-08:002012-02-24T23:50:11.672-08:00The sectoral balances approach contains a misleadi...The sectoral balances approach contains a misleading term, and MMT uses this to falsely imply that an increase in government debt is the only way to improve private sector wealth*.<br /><br />The misleading term is "positive private sector balance". Sometimes MMT calls this "private sector net savings" or simply "private sector savings".<br /><br />There is a sleight of hand, and the nature of that sleight is as follows:<br /><br />The thing that they call "positive private sector balance" is not a thing that improves the health of an economy. It is equivalent to an increase in the total amount of financial assets less financial liabilities held by private sector individuals and organizations.<br /><br />"Positive private sector balance" does not mean, and bears no relation to, increases in real private sector wealth. However, the term is used by MMT practitioners as if the term is synonymous with increases in real private sector wealth. It is presented as an obvious good, and this is swallowed whole (or blithely passed along) by many advocates of MMT or sectoral balances without a proper analysis of what the term means. I believe this is partly because of the way the term is constructed (the use of the words positive and balance) and partly because it suits certain vested interests to have people swallow it.<br /><br />It is no surprise that those who live off the government bond market wish to see continued issuance of government bonds, and sectoral balances and MMT are a handy propaganda device to that end.<br /><br />*I leave out the foreign sector here for simplicity.Paul Andrewsnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-81976333979390203082012-02-24T19:15:48.411-08:002012-02-24T19:15:48.411-08:00I don't really want to weigh in here... but by...I don't really want to weigh in here... but by any realistic standard this is pretty extreme stuff...Philip Pilkingtonnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-77989855224484187882012-02-24T18:24:50.349-08:002012-02-24T18:24:50.349-08:00Professor Williamson
You say that Lucas is a scie...Professor Williamson<br /><br />You say that Lucas is a scientist. In the Milliman lecture Lucas wrote in his "slides" about why recovery was delayed in the Great Depression:<br /><br />"• Most important, in my view, but hardest to measure, were effects of<br />demonization of business<br /><br />"• Businessmen were “malefactors of great wealth” (FDR)"<br /><br />Lucas also blamed the emergence of unions.<br /><br />Now these do not, to me, appear to be the statements of a "scientist," as many have remarked. In fact, Mitt Romney would know better than to write such things.<br /><br />A scientist would realize that the two examples given above (Truman's first term and Bush, 2000-06) negate the really silly claims made by Lucas.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-27056667640635947452012-02-24T16:07:14.242-08:002012-02-24T16:07:14.242-08:00Your post is 1/2 good and 1/2 unclear.
Good part:...Your post is 1/2 good and 1/2 unclear.<br /><br />Good part: You're right, MMT is a way of organizing facts; it's a description of the economy. However, MMT's view of the economy informs several policy prescriptions its proponents might suggest.<br /><br />Unclear part: As for evaluating those policies using standard useful economic theory, how does that work if the whole issue is that MMT rejects standard useful economic theory, as do heterodox theories in general, such Post-Keynesian economics?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-78959705382028799712012-02-24T15:58:01.662-08:002012-02-24T15:58:01.662-08:00"In this case, he knows perfectly that these ..."In this case, he knows perfectly that these guys are fringe people not taken seriously by anyone active in yhe field, and that these nuts are unwilling to interpret the mainstream's rejection as informative as to the coherence of their work. I think hes poking at you..."<br /><br />You're probably right about Mankiw's motivation, but his critique, Smith's critique, and Gagnon's critique in the article are strawmen (not surprising because why would they have taken the time to thoroughly understand MMT by reading the primary lit?) or able to be rebutted. Mankiw falls into the "MMT says deficits don't matter/ hyperinflation" straw man fallacy, as does Karl Smith (and MMT has thoroughly addressed the Zimbabwe/Weimar/etc situations). As far as Gagnon's critique, MMT rejects the money multiplier and the cases of Australia and Canada can be easily explained using the sectoral balances approach (a favorite of the chief economist at Goldman Sachs), which Gagnon appears oblivious too (those countries ran massive trade surpluses).<br /><br />Furthermore, as far as the coherence of their work, they're a heterodox Post-Keynesian-associated theory. I don't expect the mainstream to immediately view it as coherent, otherwise the mainstream wouldn't be in the position they are. Secondly, there are many heterodox economists supporting MMT. Thirdly, there are also many financial practitioners supporting the MMT approach, and not just those at random hedge funds but also people located at bulge bracket ibanks (e.g. the head of interest rates at Morgan Stanley, analysts and economists at Nomura and HSBC etc). Lastly, several bloggers and major news sites, outside of the MMT core circle, have begun to show more support for MMT, even if they aren't 100% on board.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-81647755655299356862012-02-24T15:33:02.697-08:002012-02-24T15:33:02.697-08:00Also, a summary point to be made about Krugman'...Also, a summary point to be made about Krugman's response:<br /><br />"To conclude by way of reiterating the main point here, one need not agree with MMT that the three assumptions Krugman makes are incorrect. The overarching problem is that Krugman has simply assumed the Neo-Liberal macroeconomic model is correct and the MMT view is incorrect. This is far different from actually demonstrating that MMT is incorrect, which Krugman has yet to even attempt."<br /><br /><br />Lastly, force-fitting MMT into ISLM is a misrepresentation of MMT. Nick Rowe's response here was very kind, but that part is certainly something MMTers would reject. MMT comes out of the Post-Keynesian tradition, and ISLM does not fly over there.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-76389386838329005732012-02-24T15:18:14.635-08:002012-02-24T15:18:14.635-08:00Also, Krugman's critique of MMT was largely a ...Also, Krugman's critique of MMT was largely a strawman. Here is a paper explaining Krugman's misinterpretations as well as where MMT simply disagrees with him (I know it might get tiresome for others to see MMT proponents insisting they are always misinterpreted, but it is what it is):<br /><br />"Paul Krugman's critique of MMT is based on three incorrect assumptions about what MMT policy proposals actually are; it also demonstrates a lack of understanding of our modern monetary system (as is generally verified by volumes of empirical research on the monetary system by both MMT’ers and non-MMTer’s). While MMT’ers argue that all three assumptions made by Krugman are false, one does not need to necessarily agree. The point is that to critique MMT on the basis of assumptions that are inconsistent with MMT is to actually not critique MMT at all. It is a straw man. I explain these assumptions and how they relate to Krugman’s two posts as I go through the text of both."<br /><br />http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799068Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-47516361887026053432012-02-24T14:55:40.305-08:002012-02-24T14:55:40.305-08:00" The government can never run out of money??..." The government can never run out of money?? Evidently, for these people, these MMTs, the Weimar Republic never existed..."<br /><br />Complete misrepresentation of MMT which is typically the knee-jerk reaction of everyone who confronts MMT. It really gets tiring.<br /><br />BTW the article also misinterpreted and misrepresented MMT at several points. This is common since MMT is a very different way of viewing things, and as such, it takes a lot of effort to *properly* understand it (whether or not it's right). As FT Alphaville notes, it's like an autostereogram (http://ftalphaville.ft.com/blog/2012/02/22/892201/why-mmt-is-like-an-autostereogram/).<br /><br />I'll leave some papers for you if interested.<br /><br />Here is brief overview of what MMT is <br />http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1723198<br /><br />Here is an MMT paper critiquing the "Fiscal Sustainability" literature, so you can see it directly applied and it's nontraditional view of fiscal and monetary policy -http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1722986<br /><br />Here is a paper on how MMT views Central Bank Operations. MMT is very operations-focused, as they believe a close look tells a much different story than mainstream econ theories (really, much of what they believe in the way of banking and operations isn't different from other Post-Keynesian schools) http://www.cfeps.org/ss2008/ss08r/fulwiller/fullwiler%20modern%20cb%20operations.pdf<br /><br />Here's the MMT view of interest rate setting http://www.cfeps.org/pubs/wp-pdf/WP34-Fullwiler.pdfAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-71552017185855418142012-02-24T11:46:36.742-08:002012-02-24T11:46:36.742-08:00This post makes no sense. If MMT is a framework f...This post makes no sense. If MMT is a framework for economics, then it can't "solve" anything, because it is simply a way of organizing our facts. In this case, their framework seems useless and full of either vacuous assertions or out-right empirical inconsistencies.<br /><br />If MMT is instead a set of policy prescriptions, then we can evaluate those policies using standard useful economic theory, and find them either good or bad. In this case, their ideas seem poorly thought-out.<br /><br />Neither case looks too good for the nutjobs pushing this drivel.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-88701588693827405682012-02-24T06:53:15.709-08:002012-02-24T06:53:15.709-08:00British Keynesianism was a school of economic thou...British Keynesianism was a school of economic thought. Not a set of policy prescriptions.<br /><br />See: http://en.wikipedia.org/wiki/Post_Keynesian_economics<br /><br />Especially Michel Kalecki, Joan Robinson, Nicholas Kaldor and, in the US, Paul Davidson.Philip Pilkingtonnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-12404441237051282942012-02-24T06:12:24.414-08:002012-02-24T06:12:24.414-08:00The Lucas I know is apolitical in how he thinks ab...The Lucas I know is apolitical in how he thinks about economics. The man is a scientist.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-58277922658863328062012-02-24T00:59:20.266-08:002012-02-24T00:59:20.266-08:00Only MMT can solve our fundamental problem, which ...Only MMT can solve our fundamental problem, which is private debt:<br /><br /> econd, going forward, it seems unlikely that households can sustain large enough primary deficits to reduce or even stabilize leverage. ... As a practical matter, it seems clear that, just as the rise in leverage was not the result of more borrowing, any reduction in leverage will not come about through less borrowing. To substantially reduce household debt will require some combination of financial repression to hold interest rates below growth rates for an extended period, and larger-scale and more systematic debt write-downs. ...<br /><br />http://rortybomb.wordpress.com/2012/02/23/guest-post-by-jw-mason-the-dynamics-of-household-debt/Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-9279834171562180292012-02-24T00:39:18.629-08:002012-02-24T00:39:18.629-08:00Odd that Lucas only have one problem, the facts:
...Odd that Lucas only have one problem, the facts:<br /><br />1946 -- Truman, who was even more populist than FDR, was President<br /><br />2000 -- Team Bush,Greenspan, and a Republican House and Senate in Place and yet we, per Lucas page 14/15, drop from trend under their leadership <br /><br />I could go on but facts never matter to either Lucas or a Lucas followerAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-13662300042131302322012-02-23T20:53:39.708-08:002012-02-23T20:53:39.708-08:00British Keynesianism. That worked out so well. Bu...British Keynesianism. That worked out so well. But surely an entirely appropriate policy for America as it travels down the road of stagnating failed empire with rampant joblessness. Robert Lucas identified this as America's future in his Milliman lecture.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-2195017407260254532012-02-23T17:56:25.498-08:002012-02-23T17:56:25.498-08:00Possibly you want to sell that one short.Possibly you want to sell that one short.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-28962117982188304212012-02-23T14:54:09.795-08:002012-02-23T14:54:09.795-08:00Unfortunately not. He's more of a jock type......Unfortunately not. He's more of a jock type...<br /><br />Another economist with long flowing hair is Justin Wolfers.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-13584585442446136592012-02-23T13:09:13.116-08:002012-02-23T13:09:13.116-08:00Read this:
http://www.cnbc.com/id/45886997/The_Wa...Read this:<br /><br />http://www.cnbc.com/id/45886997/The_Wall_Street_Firm_That_Uses_Modern_Monetary_TheoryAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-30030625204463507222012-02-23T11:48:33.220-08:002012-02-23T11:48:33.220-08:00P.S. Most of the 'crazy' stuff on NEP is j...P.S. Most of the 'crazy' stuff on NEP is just the Godley sectoral balances model rejigged in some way or other. You get broadly the same stuff in the FT these days.<br /><br />"Battle not with monsters, lest ye become a monster, and if you gaze into the abyss, the abyss gazes also into you." -- Friedrich NietzschePhilip Pilkingtonnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-59062543936058549052012-02-23T11:43:19.200-08:002012-02-23T11:43:19.200-08:00Yeah, they're debating it. Some just opt for a...Yeah, they're debating it. Some just opt for a payroll tax holiday to restore aggregate demand.<br /><br />It's weird to see some of the comments as are written above (comparisons with Austrians etc.). MMT policy percriptions are usually either some sort of stimulus or tax cut (usually in the range the likes of Krugman call for).<br /><br />As for the nominal/real distinction, I don't think there is the confusion you attribute. Price stability doesn't mean a 0% rate of inflation. If a jobs guarantee were introduced you'd see a one-off bump in the price level. Then you would use the minimum wage to negotiate between inflation and stable output. So, if inflation was rising too fast (say, 5% after the original price bump) you would be more reluctant to raise wages than you would in the case that there was, say, 2% inflation.<br /><br />The way Mitchell puts it is that currently we use a buffer-stock of unemployed people claiming welfare (NAIRU) to negotiate inflation. Under the jobs guarantee program you would use nominal minimum wages as the lever to control inflation.Philip Pilkingtonnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-84550819147347823142012-02-23T11:24:55.895-08:002012-02-23T11:24:55.895-08:00The Job Guarantee plan can be seen as their way of...The Job Guarantee plan can be seen as their way of providing a nominal anchor to the system. It's like the gold standard, except that it's labour, not gold, that is convertible into money. Trouble is, these guys are sometimes a bit fuzzy on the real variable/nominal variable distinction, so sometimes it comes out as a way to pin down the price level and at other times it's a way to get "full employment". I think they are currently arguing among themselves over whether the JG is an essential or contingent component of MMT policy.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-45094547385322213422012-02-23T09:56:41.517-08:002012-02-23T09:56:41.517-08:00My nose is not all it could be, but I never notice...My nose is not all it could be, but I never noticed any bad breath, and we have spent many hours together. I don't stay out late though.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-4381040701253648522012-02-23T09:54:55.046-08:002012-02-23T09:54:55.046-08:00I thought Randy was unique. We'll have to intr...I thought Randy was unique. We'll have to introduce him to your father. Does your father play a musical instrument? If so, he could play with the Contractions.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.com