Wednesday, December 12, 2012

Rudiments of MMT Well Stated Here

commentary by Roger Erickson

The point here is that the public/private sectors can coordinate actions, or they can try to work in isolation, or even ignorant opposition. Your choice.


"To Wynne Godley - and those of us who have absorbed at least a rudiment of MMT – this was self-evident. A sectoral balance approach is a necessary ingredient in understanding financial crises – and that’s also one of the reasons why the Fiscal Cliffers are so wrong.

It was the bubble that banks and big companies created with a large private sector debt that led to the crash, and that dwarfed government tax revenues and a fortiori drew the government sector into the red and forced it to reduce spending and cut down on employment.

If the the government in such a situation tries to reduce its debt, there’s a real risk it triggers the private sector into a large deleveraging that inevitably will raise unemployment even further. So, today’s problem is not that we’re not reducing the deficit of the government sector fast enough. On contrary. The risk is we’re reducing it too much and too fast. To follow the Fiscal Cliffers is repeating the mistakes of the 1930s. Cutting governmental spendings and raising taxes only prolong the recession. Bad idea!"




5 comments:

Daniel Jones said...

"Cutting governmental spendings and raising taxes only prolong the recession. Bad idea!"

im curious what the MMT arguement is to the depression of 1920-1921?

also the MMT arguement to the fact that the great depression continued through all the hoover/fdr years of government intervention and stimulus spending and then finally ended when government spending and taxes were slashed?

Tom Hickey said...

im curious what the MMT arguement is to the depression of 1920-1921?

Here a PKE answer that is compatible with MMT:

Lord Keynes: The US Recession of 1920–1921: Some Austrian Myths

also the MMT arguement to the fact that the great depression ... finally ended when government spending and taxes were slashed?

And when would that be?

The deficit was cut in after the re-election of FDR in 1936, leading to a tanking of the economy. It was the massive deficit spending of WWII that ended the depression and set the stage for decades of post-war real growth.

Daniel Jones said...

"It was the bubble that banks and big companies created with a large private sector debt that led to the crash."

whats the MMT arguement to economists that say the bubble was both predictable and created by government intervention because A) the federal reserve pushed down interest rates after the dotcom bubble crashed which led to people investing in housing that wouldnt otherwise have had the interest rates been at market levels. B) at the same time congress injected stimulus spending into the economy which for the most part ended up in real estate, resulting in investing that would not have otherwise occured in the market. C) the government sponsored enterprises fannie and freddie were buying up mortgages and ultimately instigating and insuring risky lending by banks resulting in more demand for real estate than would have otherwise existed on the free market. D) the government and the FED doing everything within its power to increase home prices and keep them inflated. and finally E) that the housing market remained mostly steady with minimal inflation in prices before the government engaged in any of these programs..

paul said...

@Daniel Jones

You left out the part where banks knowingly made a huge number of loans to people that had no means to repay, driving the delinquency rate well above the safe threshold and collapsing the bubble.

The parts you did mention where the government did this and the government did that...were all a result of pressure (and bribes) from business interests tipping the playing field in their direction.

As Professor Bill Black has shown...control fraud...which Freddie Mac/Fannie Mae were a part.

You also forgot to mention that FMac/FMae was a public/private partnership...which one took the losses?

The "free market" in action. Players in the free market will never allow events to just happen, they will try to game the system so they can't fail. Failure is for the rubes.

Tom Hickey said...



Lord Keynes, Austrians Predicted the Housing Bubble? – But so did Post Keynesians and Marxists

Bill Mitchell, Monetary policy was not to blame

Michael Hudson, The Bubble and Beyond

Michael Hudson, The new
roadto serfdom: An illustrated guide to the coming real estate collapse


Mike Konczal, Six Rebuttals to the Argument that Congress or Fannie and Freddie Caused the Crisis

William K. Black, The Two Documents Everyone Should Read to Better Understand the Crisis

William K. Black, Lenders Put the Lies in Liar’s Loans and Bear the Principal Moral Culpability

William K. Black, Fannie and Freddie Fantasies

Wikipedia – Control fraud

Joe Weisenthal, The Untold Story Of How Clinton's Budget Destroyed The American Economy

For starters.