Monday, June 18, 2012

Washington's Blog gets it!


Draws on Steve Keen, Randy Wray, and Scott Fullwiler.

Read it at Washington's Blog
The Biggest Myth Preventing an Economic Recovery
by Washington's Blog

36 comments:

Dan Lynch said...

Or at least one member of Washington's Blog gets it. There is more than one author posting there.

I've given them a hard time in the past for their "hard money" posts, and pointed them toward MMT.

I'm glad they're open minded enough to consider post-Keynesian economics. Another convert. If we can convert 10% of the economic world, supposedly that's a tipping point.

Tom Hickey said...

I've commented there on MMT many times in the past and have seen no result. This is the first positive sign I've seen.

Washington's Blog is reposted at Zero Hedge, so I wandered over there and left a comment on MMT.

Anonymous said...

Unfortunately Wray's anti-capitalist rants seem to be getting worse. Probably won't do MMT any favours. He's just posted a new one over at NEP. It's a shame really.

I bet Wray and Mosler don't really get on that well.

GLH said...

Tom Hickey:
I would like to get your opinion on the matter of how best to spread MMT ideas. I know that Bill Mitchell and Randall Wray are writing a textbook and I think that is important, but could it better for them to spend their time on books that are focused more toward the layman. It seems to me that the established economist will shun the textbook and that the way to the people would be by doing what Steven Keen and Paul Krugman are doing. It just seems that it will a lot easier to convince people who aren’t already ideological. What is your opinion?

paul said...

"Wray's anti-capitalist rants"

Unfortunately for capitalism, math has an anti-capitalist bias.

When the laws of the universe are against you it's a serious problem.

Anonymous said...

"math has an anti-capitalist bias"

Wray goes well beyond the math of deficits etc. Sometimes he comes across as someone who just hates everything to do with capitalism, markets, profits, business, etc.

In this latest piece he describes entrepreneurs as being 'in the business of death'. In another he said that business owners are sadists.

Not going to do MMT any favours, as I said.

paul said...

"Wray goes well beyond the math of deficits"

It's not just deficits.

Everything about capitalism is unsustainable and thus bad overall for the worker.

Without state intervention capitalism can only succeed for a small subset of the population.

Funny that I read the same blogposts you read but didn't come away with the same impressions.

Wray doesn't say anything that arithmetic wouldn't tell you if one weren't wearing ideological blinders.

Anonymous said...

Without state intervention capitalism can only succeed for a small subset of the population.


Yeah but the state also needs a well functioning market economy to succeed.

Tom Hickey said...

GLH: "I would like to get your opinion on the matter of how best to spread MMT ideas. I know that Bill Mitchell and Randall Wray are writing a textbook and I think that is important, but could it better for them to spend their time on books that are focused more toward the layman. It seems to me that the established economist will shun the textbook and that the way to the people would be by doing what Steven Keen and Paul Krugman are doing. It just seems that it will a lot easier to convince people who aren’t already ideological. What is your opinion?"

I recommend to people with little knowledge of finance and economics to begin by reading Warren's Seven Deadly Innocent Fraud of Economic Policy, especially since it is a free download at his place and easily accessible to all.

paul said...

"Yeah but the state also needs a well functioning market economy to succeed."

That hasn't been proven yet. It's a supposition.

We have never tried true capitalism.

Nor have we ever tried true socialism.

There never has been nor will there ever be a "free market".

Thus economies will always be managed by some entity.

Anonymous said...

I'm not talking about a 'free' market. I think government and private sector are interdependent.

I'm not saying you do, but if you do in fact believe that non-market forms of socialism can work well then why are you bothering with MMT?

paul said...

"I'm not talking about a 'free' market. I think government and private sector are interdependent."

We are in agreement here.

I suppose the question becomes which is the (most) causal mechanism? Another chicken-egg argument. I say the State makes it work better for everyone. Without the state this wouldn't be true.

"I'm not saying you do, but if you do in fact believe that non-market forms of socialism can work well then why are you bothering with MMT?"

I haven't weighed in on the side of anything. It's clear what doesn't work and it's clear there are many things we haven't tried.

MMT is a non-ideological description (in my view) of the system we have at it's most granular level.

It would make no sense for me to ignore it. Even under full socialism the framework would be useful, but I don't advocate full socialism. I lean towards a hybrid system more socialiist than we now have.

Capitalism in a sandbox for the creative entrepreneur.

I am open to solutions that will make most people's lives better and more meaningful.

Tom Hickey said...

paul: "Capitalism in a sandbox for the creative entrepreneur."

The question is how much financial incentive is needed to motivate entrepreneurs to action in order to provoke maximum innovation. That is to say, is exorbitant monopoly rent essential to market capitalism, or is it excessive, resulting in needless extraction.

Generally speaking, entrepreneurs are reward in a financialized economy through appreciation of equity.

Presently, the inequality of income in firms is not so much due to paper net worth as to the growing gap between top management compensation and other employee compensation.

There is also the question of taxing income higher than capital gains and other tax sheltered wealth appreciation when realized. Is this incentive actually needed to spur innovation and investment? If so, where is the line between necessity and excess?

paul said...

Tom: "The question is…"

That's where the thinkers (like yourself) come in to sort all this complicated stuff out.

I prefer to sit in the background like a good bean counter and crunch numbers. The simple stuff that's black and white.

I can read and analyze ideas - just can't come up with them.

Tom Hickey said...

paul, the shell game is in the numbers. A good person with numbers can get them to say whatever. That's where rigorous analysis comes in.

paul said...

Tom: "the shell game is in the numbers"

Only if one is purposefully trying to deceive, in my view.

Which I guess is the definition of a shell game.

I don't view the MMT framework as any kind of shell game. The concepts are very granular, to the point where they can't be dissected any further.

Any direction one goes from there becomes more complex.

That's why a fundamental understanding of math is necessary for understanding economic systems.

Otherwise one has to rely on semantic, rather than abstract depictions and i don't believe any true level of understanding is possible in a semantic framework apart from math.

That's why I believe folks like Fieberger, Ramanan and others are just clouding the issues without any root level of understanding.

They truly don't get systems theory, or they refuse to accept the importance of it in their thinking. It's a shame really because it is so simple a caveman should be able to do it. Or so it seems.

But then that's why I'm partial to math - its how my brain is wired apparently.

Until someone comes up with real-world exceptions to the rules I'm staying with it.

Tom Hickey said...

paul, are you saying that there is a unified science in which everything relevant to significant issues in all fields is reducible to quantitative analysis that constitutes the only genuine knowledge?

y said...

Does anyone know what the Argentinian government is getting wrong? They have (very) high inflation.... and the government is financing itself by borrowing directly from the central bank...

Tom Hickey said...

Y, I don't know the specifics regarding Argentina, but MMT economists say that running higher than normal inflation is not always a bad policy given the alternatives.

IIRC, some countries have run abnormally high inflation for a while and have done pretty well overall in spite of it.

Tom Hickey said...

paul, I should also point out that life and social sciences other than economics also quantify data for analysis and they look at a broader range of information that is relevant to economic issues than economics does. That information and analysis needs to be integrated for a comprehensive picture to develop and to ask the right questions for further research.

JK said...

@y

I don't know anything about Argentina's current situation, but (I think) according to MMT, "if" there is a causal relationship between their deficit spending and inflation, it's because they are deficit spending beyond their own productive capacity.

Actually this is an issue that I don't think gets enough attention around the MMT community (or I'm just not aware of it)… i.e…

How do we measure/determine how much a country can deficit spend before causing demand pull inflation? The typical answer is: until their is inflation. But what if there already is inflation and unemployment isn't low? Is that possible?

My feeling is there must be a relationship between how much the country can deficit spend.. and the quantity and quality of their imports.

At first thought it seems obvious that if a country is highly dependent on imports, then continued increases in deficit spending should cause continued depreciation of their currency, i.e. inflation.

Is the solution: the deficit spending needs to be targetd at developing domestic production? If so, "how" should that be done?

Any thoughts?

JK said...

Just as an addition to my previous comment…

I find "inflation" to be one of the trickiest issues in economics.

Tom, or anyone, any leads or links to some of the best writing on Inflation?.. what it is, the different kinds/causes, etc…

Which Economist(s) have done the best work on Inflation?

Tom Hickey said...

@ JK

Abba Lerner, Flation: not inflation of prices, not deflation of jobs: what you always wanted to know about inflation, depression, and the dollar

Lerner added to that in Lerner and Colander, MAP, a market anti-inflation plan (1980)

Tom Hickey said...

"Is the solution: the deficit spending needs to be targetd at developing domestic production? If so, "how" should that be done?"

The way to do this is 1) close the output gap to create enough effective demand, and 2) facilitate productive investment through tax policy (taxing economics rent and negative externality rather than productive contributions) and public investment in education, health care, R&D, and infrastructure, as well as streamlining regulation to ensure it does only what is intended.

Another huge issue is reducing or eliminating crony capitalism and corruption by reforming institutional arrangements to encourage production rather than parasitism.

JK said...

@Tom

Thanks for the link. Just ordered it.

Matt Franko said...

JK,

13:00 minute mark of the video here:

http://mikenormaneconomics.blogspot.com/2011/11/infaltion.html

I perhaps overstated it in the post, but suffice to say prices are at least a function of prices paid by govt and collateral values applied by their partners the banks....

Resp,

paul said...

Tom: "paul, are you saying that there is a unified science…"

No. Not at all.

Economics involves human behavior. That said, it doesn't matter what the behavior is if the human doesen't have the resources (money) necessary to act on that impulse. If he/she does have the money then there are only three choices: Save, invest, spend. A simple logical chain to figure out where the money flows to in general terms. It's a simple system after all.

The things that complicate matters are what causes/creates the impulses. That's where the social sciences come in. I just prefer to keep the two things separated, otherwise it's too complicated.

Once the impulse is executed and known, the path is set. It's quantifiable in nominal terms and the economy won't function without nominal transactions (At least that's my assumption).

Most of the things we argue about with the navel-gazers is secondary or lower-order to the nominal transaction chain. They claim to see some kind of natural constraint in there somewhere but I can't find it.

Tom: "I should also point out that life and social sciences other than economics also quantify data for analysis"

Data and math are two different things. Math defines a relationship (if any) between data.

The sectoral balances is a relationship that is always true. It follows that the data obtained from that system will be predictable and repeatable without exception.

It's a nominal system though and I think a lot of confusion comes from conflating nominal with real.

The "savings" brouhaha is one example. The sectoral balances reflect nominal savings only and it can mean only one thing.

According to some the "data" (NIPA, FFoF) doesn't support the S/B model so someone is wrong.

But "they" also include items in "savings" like pension funds or equity in home ownership. These things are not nominal and "savings" is used in a different context here. Funny the difference never came up in the discussions, or when it was brought up it was dismissed as a problem with MMT framing rather than a misunderstanding of the S/B realionship..

If we don't know for sure how data are related but believe a relationship exists then we have to synthesize or mimic a mathematical model.

The outcome will likely be less predictable or predictable only within a narrow range.

These things are much simpler to "see" in the abstract than to explain with language.

Maybe eventually I will figure out how to do it.

Matt Franko said...

JK,

"Which Economist(s) have done the best work on Inflation?"

As Keen has shown, most if not all economists do not take banking into account into their analysis, and then they try to explain "inflation" or "price stability"...

If a bunch of banks start to lend $1M against mobile homes, then these banks are inspected by govt regulators/partners and these loans are allowed to stand, then the price of mobile homes quickly goes to $1M across the board...

rsp

paul said...

@Tom

Some further thoughts…

Consider my comments re math in the context of the nominal system only.

Then define the relationship between the nominal and real as leverage…unknowable…non-linear…a kind of levitation (I know, I'm reaching).

Real isn't real in the sense that if/when the music (money creation/spending) stops real will approach nominal in "value". They will converge and one of them is fixed.

Value is dependent upon leverage, whatever it is. I am not claiming that value is quantifiable, but it is mostly imaginary anyway in my view.

Cue Twilight Zone music…

Tom Hickey said...

paul, I generally agree with that approach.

What I don't agree with is simplified assumptions that allow for model creation that is neither explanatory (dubious assumptions) nor predictive (model shown to be non-representational of the things stand).

I conclude that use of the conclusions without qualification in the way that greatly exceeds the actual implications of the model is basically normative, because the people doing this are using an economic argument that is supposed "scientific" to push ideological policy objectives.

To me it is not coincidental that economists pushing neoliberal policy are the ones using models that necessarily lead to neoliberal conclusions, where as other economists advocating different policy solutions reject those assumptions and the conclusions based on them, and propose models based on different assumptions and foundations that have opposite results.

The right uses neoliberal and Austrian models to justify its policy recommendation, claiming either that they are scientific or based on irrefutable logic, while the left has its own models, generally Keynesian-based or Marxian. Bastard Keynesianism and New Keynesianism are supposedly centrist models that combine features of conservative and liberal leaning assumptions and methods.

This suggests to me that this is no normal paradigm in economics as a general theory guiding research. Instead there are arguments to desired conclusions, so that economics has to approached in that light. That is, at its foundations it is basically normative and philosophical rather than scientific.

So I think it is extremely important to shine light on stipulated assumptions and uncover hidden assumptions as well. Then issues can be evaluated based on the truth value of the assumptions and the normative component as well, since many issues in economic policy are argued as moral as well as scientific. In fact, the moral emphasis often dominates.

I would agree with Milton Friedman that economic schools are not very important. The issues is discerning good economics from bad economics.

This requires a rigorous approach that combines mathematical, logical, scientific, and philosophical reasoning, with due attention paid to history and management, along with developing the best possible data collection, processing, and controls to avoid GIGO. Not only are assumptions and other foundations selective but also basic information.

Tom Hickey said...

paul: "define the relationship between the nominal and real as leverage…unknowable…non-linear…a kind of levitation (I know, I'm reaching).

Real isn't real in the sense that if/when the music (money creation/spending) stops real will approach nominal in "value". They will converge and one of them is fixed.

Value is dependent upon leverage, whatever it is. I am not claiming that value is quantifiable, but it is mostly imaginary anyway in my view.
"

Matt has already provided the answer.

If a bunch of banks start to lend $1M against mobile homes, then these banks are inspected by govt regulators/partners and these loans are allowed to stand, then the price of mobile homes quickly goes to $1M across the board...

paul said...

"What I don't agree with is simplified assumptions that allow for model creation that is neither explanatory (dubious assumptions) nor predictive (model shown to be non-representational of the things stand)"

"So I think it is extremely important to shine light on stipulated assumptions and uncover hidden assumptions as well. Then issues can be evaluated based on the truth value of the assumptions and the normative component as well, since many issues in economic policy are argued as moral as well as scientific. In fact, the moral emphasis often dominates."


Yeah I'm being lazy in assuming that most of the folks here understand or are aware of the (implicit) assumptions.

I suppose I am making a clumsy attempt at generating discussion outside of the boundaries that are normally in place.

On the other hand, nominal analysis is pretty straightforward in my view and doesn't require a lot of assumptions to build upon.

One could make an argument that nominal is not sufficient, then we can have that discussion.

Further, one could write a JKH-style dissertation and most peoples eyes would glaze over. It's not my thing. Generate deiscussion - see where it goes. Experiment.

I expect pushback. It's helpful in developing thoughts into ideas.

I honestly don't take myself that seriously, although I believe the things I say are mathematically sound.

I don't take others that seriously either (those that demand they be taken seriously). I have a good bullshit detector. Born a skeptic.

I take things you say as constructive criticism.

Anyway, it's happy hour and I'm +2 so…

y said...

"MMT economists say that running higher than normal inflation is not always a bad policy given the alternatives."

In the case of a national emergency, such as invasion or starvation I'd agree. But I think a major problem with high inflation is that it discourages private sector investment. This in turn diminishes the abilty to exapnd productive capacity, which can generate higher inflation in a vicious cycle. I think this is partly what's going wrong in Argentina. The government thinks it can grow the economy by super charging demand, but that demand keeps hitting supply limitations (capacity limits) which aren't being broken down because sufficient investment isn't taking place. Investment isn't happening because of the high inflation..

y said...

I think a lot of the extra demand is also coming from excessive credit expansion, with people taking out loans to bring forward consumption in an attempt to beat inflation, which is turning into a self-fulfilling prophesy.

I'd like to know more about the situation but it's hard to find detailed analyses

y said...

*the supply limitations also entail a lack of competition, which means companies can often set prices.

Roger Erickson said...

re: Abba Lerner

He worked at a publicly supported University dependent upon public funds. Yet access to his output is contrained, and available only to those who pay some middleman rentier who does nothing but act as gatekeeper on publicly generated insights. Go figure!

How can the USA ever know what Americans know? If we can't share knowledge cheaper/faster/better, then we can't generate policy agility, and we can't be all that we can be.

Abba Lerner's book is available at Google Books, but whomever's getting the copyright extended is limiting access ... unless you pay them.

http://books.google.com/books?id=S2AiAQAAMAAJ&q=abba+lerner&dq=abba+lerner&hl=en&sa=X&ei=2qTkT7CHG4r30gHk4YCHCg&ved=0CGwQ6AEwCQ