Politico out with an advance look at a forthcoming book from Alan Greenspan, excerpt:
“Both uncompromising sides of our ongoing debate on fiscal and other issues need to recognize that financial crisis lurks should we fail to resolve our deeply disruptive fiscal imbalance.
And that imbalance is far greater than the official data portray [because of contingent liabilities to the U.S. government from possible rescues of large financial firms and iconic nonfinancial firms]...Its interesting to read Greenspan's words here where he asserts that our imbalance is 'far greater than the official data portray', this sounds like he is bordering on some sort of conspiracy theory lunacy; and the headline quote hints at some sort of Malthusian defeatist misanthropy with the "no solution" reference.
In Mike's debates he would often cite the data and make a cogent, reasoned argument based on facts and data, historic precedents, and the debt morons he was debating would often retort "do you believe those numbers!" like the US civil service was lying or some nonsense; it looks like Greenspan himself is now going off the deep end in a similar manner.
It continues to amaze that a person this dumb could have held one of the most economically influential positions in government.
Recommend that nobody buy the book needless to say.
45 comments:
OMG! We're all fubbed duck!
Bob Roddis, from here on all your comments will be deleted. Just letting you know. Please go away.
Two years ago at a packed, invitation only dinner given by Bloomberg LLP at Cipriani's in NYC, where Greenspan was the speaker, I got up from my table and walked out in protest. I'm sure I am the only one EVER who did something like that. All the rest of the two thousand or so in the audience sat there in rapt attention listening to this idiot talk about the huge debts of the U.S. and how we are headed for trouble. Yes, if we listen to guys like him.
These guys aren't dumb. They have a plan. They are trying to dismantle most of the US government, and especially all those elements of US government operations that result in a transfer of wealth from our richest citizens to our poorest citizens. Their chief tactic for accomplishing this demolition is to terrify the public about US government solvency. They know they have a political winner in this argument, because they know the public is terrified and oppressed by its own private debts.
Greenspan isn't dumb. He is a scum-sucking plutocrat who works for other scum-sucking plutocrats.
MMters need to start playing a more aggressive and constructive role here. It's not enough to fall back on the argument that as the issuer of a fiat currency, the US government can, in principle, meet all of its actual and probable liabilities by issuing that currency. That's a weak standpoint that avoids the fundamental issues. The fact is, any responsible fiscal policy has to recognize limits on the amount of new dollars that can be pumped into the economy in any given fiscal period, vs. the amount of existing dollars that must be recycled from one group of dollar-holders to others. Our ability to meet our obligations to our children, our retirees and the sick has only a little to do with our ability to print money. The sick, the young and the elderly don't eat money; they don't take money for medicine; they don't put money in their gas tanks. And the printing of money does not by itself make these resources appear.
So it's best not to lean too heavily on the money-printing angle. Stop ducking out on the class war. The reason that our country can afford to meet all of those obligations is because it can afford to seize control of surplus capital resources that currently lie in the hands of scum-sucking plutocrats like Alan Greenspan and the people he works for.
And this...
"MMters need to start playing a more aggressive and constructive role here. It's not enough to fall back on the argument that as the issuer of a fiat currency, the US government can, in principle, meet all of its actual and probable liabilities by issuing that currency. That's a weak standpoint that avoids the fundamental issues."
It's what I've been saying for a long time.
See your point Dan I'm taking a different angle on this...
There are many out there fighting the 'class war' I'll leave that to better hands...
I'm coming at this from a technocratic standpoint and for these people to be going all around saying 'We're out of money!' is going to be more than a bit insulting to people who can 'connect the dots' on this and realize that it on its face is just not true...
Some are not interested in the 'class warfare' including myself to a great extent... so I will try to take the other angle at this via an appeal to basic intelligence with my hopes being that I can get thru to a bunch of people who maybe can be brought in via an appeal to "common sense" or "logic" or just plain truth or something along those lines...
I think this going back and forth with what Warren often posits: "ignorant or subversive?" is generally helpful in the debate and welcome your challenge here when you assert "these people are not stupid..."
Its got to be one or the other.
I will take up the mantle that it is the former vice the latter here... but think its probably a good idea to pursue both angles...
I think these people are all a bunch of dumb-fucks who are not qualified to hold their positions... they need to be exposed and humiliated as part of all of this ... sorry I guess.
rsp,
It's about two things that can't be disentangled — money and power. money and power entail class structure and involve a conflict among class interests or at least a competition, which favors those who already have money and power.
Any approach to economics and politics that doesn't take this into consideration isn't worth the bother. It's either ignorant or subversive, or both, and likely both in my view.
Matt, let's make this simple by ignoring all the operational mechanics and legal hurdles and complexities, and take a very simple model of the government. Suppose the Treasury spent simply by ordering the Fed to "mark up the accounts" of the recipients of the payments. Congress authorizes the level of spending and it can also tax. So if it wants to spend $X during the upcoming fiscal period and it plans to tax $Y during that period, then $(X-Y) will be the net anticipated amount of new dollars injected into the non-government sectors of the economy.
Now this is really oversimplifying matters quite a bit to put in this way, but let's oversimplify and move on.
Under what conditions would $(X-Y) be too big a number to be fiscally responsible? What is the appropriate ratio of $(X-Y) to $X? Clearly it depends on the size of the economy, the unemployed capacity of the economy, etc. But it would be really nice to have some clear, quantitative, theoretically well-motivated and evidentially well-supported policy rule here, one that could be used to advance precise public policy arguments that people can defend in the public sphere.
I assume most people will agree that a ratio of 1, with Y=0, is inappropriate, and that injecting $4 trillion of new dollars in one year into a $16 trillion economy would destabilize the currency. (Or maybe they wouldn't? In any case, a quantitative argument needed.)
I also assume most people will say that setting the ratio at zero, with Y=X, is also not a good decision in the present environment.
So what is the right ratio? Somewhere between zero and one. But where?
Until MMT has a formula and a precise proposal to put on the table during these ongoing budget debates, nobody will take the MMT alternative seriously, because when it comes down to crunch time all they get is hand-waving and vague theoretical harangues about fiat money and whatnot. But understanding we have a fiat money system doesn't solve anything.
It also doesn't help to say that at some point in the future, the whole government budget will be on auto-pilot and the amount will be determined as a mere residual after the automatic stabilizers take effect. That's not the world we live in. Government officials are required, year in and year out to make specific decisions on specific spending proposals and specific tax revenue proposals. Right now, there is no MMT guidebook for making these decision - not even a guidebook for making the decisions contingent on the size of government. It's all qualitative, not quantitative.
MMT has totally neutralized and marginalized itself with its insistence on its pointlessly abstract claim about taxes not funding spending. The fact is, under almost all conceivable conditions, the government needs to tax to run a sensible and responsible non-banana-republic fiscal policy. If people don't want to think of these revenues as "funding" government and prefer to think of them as "creating the fiscal space for more spending", that's fine. But in the end it doesn't really matter that much from the standpoint of practical fiscal policy decision-making.
Dan,
That was to the point and simply one of the best posts I've ever read by someone knowledgeable about MMT.
Dan,
#1 You are immensely intelligent...
I just dont think the current crop in policymaking are though... they couldnt write the above comment in ten years that you probably thru together in minutes....
Greenspan would fall asleep before the second paragraph... Peterson? Forget it... Walker? Forget it.. Grover Norquist? Forget it... Steve Moore? forget it.. etc...
You couldnt have this type of logical, lucid, mathematical discussion with them they would glaze over and start with the false metaphors, household analogies, gold standard logic, and other nonsense that they have picked up through rote learning over the years and all they can do now is regurgitate it ... they cant understand what the heck you are even talking about here, they lack the cognitive skills imo...
they are simply NOT qualified, YOU are qualified I'm sure, but I'm sorry they are not imo...
As far as your other point here about some sort of "model" being required, I too agree with that... I would like "MMT" to move forward on this even though most others both in/out of the academe are not "on board" even with "MMT 101" yet...
Mike and I are studying fiscal flows on our own for some years now but alas yes I wish the MMT academe would get into this too.. but there are not that many of them lets not forget...
I think instead they are mostly fighting the "class warfare" angle (which is frustrating to me personally as "I dont see class" so to speak.. I think I'm more of a technocrat in all of this..) so I agree there has to be more done from a technocratic perspective looking at the flows and trying to correlate these flows to output and employment levels, real resources, etc... and Mike and I correspond on these types of data "in our spare time", have data bases we follow, etc..... and I would like to see a lot of work in that area started soonest...
Probably no funding available for that type of thing though in the academe...
So for now we just keep hitting the blogs and use what small soapbox we're given... seems like all we can do for now without the major funding required to start a more focused/managed effort in both the media and the academe...
Dan you are a huge asset for humanity in all of this... just keep doing what you're doing imo. (I need to get more patience.)
rsp,
We have an output gap of roughly 10%.
$16 trillion x 10%= $1.6 trillion in needed private sector surplus.
It doesn't need to be more complicated than this and it doesn't need to be perfect because it can be adjusted. All that is needed, as Roger constantly reminds us, is sufficient adaptive rate.
It does not help the MMT cause if you cannot put a reasonable case of why government should be printing money at all and how should it be using it.
It's not coincidence that in Europe, despite all the pain endured by the depression in many places (yeah, no recession), the support of external centralized EU power and it's policies is still going strong: a perception of corrupted officials and political system along a huge waste and bad use of public funds. There are no free lunches, and when money and power is distributed one way or an other, and misused, people figures it.
In short: getting too focussed on aggregates and numbers is never ever going to tell the whole story, neither fix fundamental problems, and ultimately shape perception of the public in favour of 'rational' policies.
Why policy rules don't work is due to the diversity of contexts in which they are supposed to apply, whereas each context and must be approached on its own merits to do justice to the problem at hand.
Skepticism wrt formalization is a basic insight of Marx and also of Keynes, as well as institutionalists and evolutionists, and everyone that recognizes the difference between natural science and social science.
Abstraction is by definition removed from the particularity of context and the higher the level of abstraction the further the removal. Moreover, models is necessarily stylized if they are not replicas and the greater the stylization, the more general the model becomes and is therefore further removed from special cases, which may include exceptions. Formalized models work in the hard sciences in that there is a high degree of regularity wrt to the information that these sciences deal with. Not so with the soft sciences. Using highly formalized models risks over-generalizing and over-simplifying, eliminating the effect of complexity. Makes for tractable models that are impressive for their precision, but it also makes for rotten models when it comes to representation and prediction.
The rhetorical reason that formalization is preferred by many is that it gives the impression of precision when in fact matters may be much less precise. A less formalized model that actually captures the essentials of a issue without ignoring significant details is more appropriate under the circumstances.
In addition, a formal approach allows for sweeping the messy stuff under the rug of symbols that only capture quantities and not qualities, whereas quality is usually more significant in social matters than quantity.
For example, power is not included in formal economic models. Nor is cheating.
Janet Yellin's speech to the 2009 Minsky conference presents a rather heterodox viewpoint, but she doesn't even allude to the underlying fraud that was pervasive, let alone mention it as a decisive factor, despite being married to George Ackerlof, who wrote the book on it. She had to know this.
So, Ben, your view is that since we need $1.6 in additional output, the government should expand its deficit from about $1 trillion to $2.6 trillion? How does that follow? Why does the change in private sector output have to equal the change in the private sector surplus?
Tom, all that sounds great, but it doesn't help the practical policy maker or the policy intellectual. These people have to do battle in a realm where policies are quantitatively scored, and quantitative predictions are made with respect to their results. That's part of the debate. If there is no quantitative version of MMT to go along with the qualitative account, MMT can't get its foot in the door.
by the way the modern money network seminar is starting in a minute
Dan, you notice that no MMT economist have given a model that says what the exact number of the fiscal deficit should be because that is not how accounting identities work.
The Godley approach of SFC modeling presents a guide and a way of evaluating contingencies. Read Jan Hatzius's letters to get an idea of how he uses it in economic forecasting.
We need to convince people that there is no place for econometric modeling in policy formulation, not present a new model.
All the conventional economists dismiss heterodox economics of all stripe for not presenting an econometric model that meets their standards when their standards are what heterodox economists say are misplaced.
As soon as the work of Keynes was formalized, e.g., by Samuelson, the whole thing went down the toilet.
No amount of modeling would have been able to pinpoint the underlying cause of the housing crisis. I am not an economist, nor did I have any inside information other than my own eyes and ears, and I knew what was happening and called the top to my friends in RE in time to bail out if they were willing to cut and run by lowering their price. Same with stocks after Bear. At that time I warned of the possibility of a global meltdown and the safest strategy was to close out and go to physical gold. I was not involved in the market personally and wasn't even following it closely. But the signs were abundantly clear to anyone with half a brain. And the conventional economists not only did not see it but claimed no one did or could have.
We need to convince people that there is no place for econometric modeling in policy formulation, not present a new model.
Tom, that's utterly unrealistic. No responsible policy maker will ever adopt that attitude. That's like saying that once we understand the identities involved in Boyle's ideal gas laws, we don't need to have any quantitative measurements of temperature, volume and pressure to now how much helium to pump into a blimp.
As you note, Hatzius says he uses the identities in economic forecasting. That means he is not just using the identities, but is combining them with additional quantitative results and using them as constraints on a model. Stock-flow consistency isn't an answer, and it isn't even a model. It's just one constraint to impose on a model.
Yes, all of the mathematical models are imperfect. But you need to try to come up with something or else the policy advice is vague or vacuous. You often only get one shot. There was a brief political window to enact a stimulus package in 2009, and then it closed. The package was too small. What would MMT have said about the appropriate size of the package, about the appropriate mix of taxes and spending?
Imagine a senator asking a staffer fro economic advice the next time there is a recession. The staffer says, "We need to increase the deficit." The Senator says "How much? $100 billion? $500 billion $2 trillion?" And the staffer says "I dunno; I don't do exact numbers."
The staffer would demoted or fired.
Dan,
spending = income = employment = output.
As for our hypothetical staffer, he pulls numbers out of, if you'll pardon the vulgarity, his ass. No one ever gets fired for being wildly wrong, as economists usually are. All you're really saying is we need a model that makes us looks smart, which is exactly what the mainstream does. The level of discourse among our "elite" economists rises above the undergraduate level and their recommendations are literally guesswork.
I see no reason to ape their tactics because no matter what we try they'll never, ever change. The prospects for MMT lay in the future, not in convincing ideologues.
"...Government officials are required, year in and year out to make specific decisions on specific spending proposals and specific tax revenue proposals. It's all qualitative, not quantitative.
MMT has totally neutralized and marginalized itself with its insistence on its pointlessly abstract claim about taxes not funding spending. The fact is, under almost all conceivable conditions, the government needs to tax to run a sensible and responsible non-banana-republic fiscal policy. If people don't want to think of these revenues as "funding" government and prefer to think of them as "creating the fiscal space for more spending", that's fine. But in the end it doesn't really matter that much from the standpoint of practical fiscal policy decision-making..."
Please read and reread this excerpt. Dan isn't going the abstract route here. He's telling all how the cow ate the cabbage in the real world of DC political machinations. MMT needs to get down and dirty--and a little bit ideological-- on the brass tacks of particulars. If it fails in that task then it will never gain a foothold in policy debates/prescriptions. A blank check, no matter what the mechanism, will never garner support in the Beltway. Give me specifics or, to be nice as I can be, don't waste my time with pipe dreams that will never veer come to pass.
Right now, there is no MMT guidebook for making these political decisions - not even a guidebook for making the decisions contingent on the size of government, which matters to a shit load of people. MMT will work to move us in a humane direction. But, dammit, be specific, or else it's just sound and fury signifying nothing.
Tom, that's utterly unrealistic. No responsible policy maker will ever adopt that attitude. That's like saying that once we understand the identities involved in Boyle's ideal gas laws, we don't need to have any quantitative measurements of temperature, volume and pressure to now how much helium to pump into a blimp.
Dan, that is neoclassical economics. I am amazed that you haven't realized yet that economic is not like physics. Please consult Philip Mirowski, Against Mechanism, for example.
Macro deals with stock and flows that are aggregates and aggregates are estimates. The data is just not like physics and using physics as a paradigm for doing economics is absurd.
Moreover, economics is non-ergodic in that it is about complex systems that evolve based on reflexivity. As information becomes available entities, individuals, firms, government, etc, alter plans, change expectations, etc. i.e. adapt and adaptation results in emergence. Economics, especially macro is uncertain to the core and the best that economists can do mathematically is to project trends forward. But trends influence the future behavior of the trend.
Every trader knows how this works and how difficult it is to anticipate trends in a way exact enough to ensure high probability of success. Generally what happens is that enough traders figure out how to anticipate the current situation as to create the conditions for the data to change unexpectedly. It's called a trap. It happens moment to moment if you are day trader. Traders attempt all sorts of technical analysis to detect the underlying patterns and how they develop. But markets remain remain mostly random, other than when strong cognitive biases kick in, and what is random is uncertain.
Are their indicators and rules of thumb and even some pretty sophisticated math models like Black-Scholes in option pricing? Of course. But none of them can predict the vector of the market or any subset of it with the precision that is possible in physics. Putting a rocket on the moon was child's play in comparison of developing a sophisticated model capable of beating the market on a regular basis. In fact, when someone beats the market on a regular basis, the automatic assumption is cheating.
Macro is much more comparable to the financial markets than physics problems. No economist or economic school has it figured out with precision yet.
It like sailing across the ocean in the old days when all one had was a compass and sextant. They were useful and even necessary guides but they didn't say anything about drift from currents and wind, or changes in weather.
Ben, what is the current private domestic sector surplus S-I? Something like $500 billion? If we can have a $16 trillion with a $500 billion private sector surplus, does that mean we can have a $17.6 trillion economy with a $550 surplus? If yes, there is no reason to increase the deficit by $1.6 trillion. The change in private sector income from one period to the next is not the same thing as the change in the private sector's net savings.
Also, MMT relies on the notion of "savings desires". The idea is that once the private sector's savings desires are satisfied, growth can occur without an increase in net savings. How do we measure savings desires from the standpoint of policy-making?
I'm not at all saying that MMT needs a quantitative model to "look smart". I'm saying that MMT needs a quantitative model to turns its qualitative understanding of the economy into cogent policy recommendations that a policy-maker can act on. You may think that all those other folks are pulling policy recommendations "out of their asses". But somehow whatever machinery Paul Krugman was using, he was able to pull a stimulus package number out of his ass which was clearly closer to what was actually needed than the number that the government actually settled on.
I've been following all of these discussions for four years now, and there have been several legislative "crises" that have emerged during the period over debt limits, sequestration, fiscal cliffs, etc. In each case, MMT has been partly successful in injecting a few theoretical ideas into the mix, but it has been unsuccessful on the whole in getting any real foothold on the deliberations of the government.
Tom, if you try to run anything at all you have to make quantitative judgments: a business, a household, a government - anything. Of course the methods you use are all approximate and oversimplify the situation, and they deliver only fallible estimates. Of course the systems involved are complex and chaotic, and any mathematical model of them will only be an approximation. But you do the best you can.
Non-ergodicity doesn't mean non-quantifiability. It means using different mathematical techniques applicable to non-ergodic dynamic systems. It means relying less on equilibrium methods and more on methods that incorporate chaotic outcomes and path-dependency. Look at Steve Keen's work. He doesn't seem bogged down in kneejerk math phobia. he's trying to build a sophisticated mathematical model that can be used to study and diagnose financial instability.
I posed a few practical questions, and so far all I've gotten is, if I may say, bullshit. And people wonder why no policy makers take MMT seriously.
It's all very well to sit in one's heterodox corner and sneer at everyone else as a moron. But the moron's response is "put up or shut up". If all MMT has to offer is qualitative insights, and doesn't put forward even an approximate quantitative model, then it has no right to pass judgement on any quantitative proposals, made by any other people. If someone says we should cut taxes or increase taxes, cut spending or increase spending; slash the deficit or increase the deficit; then MMT has no principled argument against these views.
Dan, Mosler's always had a pretty specific and straightforward set of proposals.
the big fiscal stabilizer for the UMKC lot is the JG. That's always their first policy proposal, along with financial reform. They've done a lot of research on it.
"MMT has totally neutralized and marginalized itself with its insistence on its pointlessly abstract claim about taxes not funding spending."
I think it's a pretty fundamental point that clarifies what fiat money is. There's so much muddled nonsense that only serves to obfuscate how monetary systems basically work. One of MMT's qualities is that it cuts through the crap. Some people are genuinely stupid and don't understand. Some people don't want to understand for whatever reason, and some reasonable people get it but think it's too simplistic or something. Still it's a point that's worth making because its actually true.
Dan,
I agree with you that we need some sort of quantitative basis to help policymakers at least "get in the ballpark"...
Mike has us coming in this year at $4.19T on the top line spending number this FY which soon ends... but as far as the Congress people having to 'come up with numbers' they already do not appropriate:
Interest: $ 218b
Medicare: 561b
Medicaid: 252b
SocSec: 706b
TANF: 16b
Nutrition: 101b
IRS Refunds 260b
so that adds up to 2.114T
So they are not having to currently "come up with numbers" for over half of what they will spend this year out of the TGA...
These are all "automatic appropriations" that just run off of the broad policy objectives... some of the stuff they have to come up with numbers for the unit reimbursements like how much Medicare will pay for an MRI but they have no control over how many people get sick...
The "budget" numbers are meaningless and have no force of law as that is just a Resolution vice Laws...
Budget Res.: "this is about how much we intend to spend..."
Authorization Bills: "this is what we are going to spend it on...."
Appropriation Bills: "here is the money..."
And they do not even appropriate over half of what they spend...
So again I agree we need some sort of quantitative basis for the Budget, but then policy goals/outcomes obviously can be let to run where they will "automatically" in fiscal as that is already what we are doing with over half of what we do...
Then these idiots look at the data ex post and think we are 'borrowing from our grandchildren' or some nonsense... they are all idiots who dont even know what the heck we are even doing....
rsp,
Wray et al have done calculations and estimates on how much they think a JG would cost to implement and its approximate effects on GDP via simulations. I don't have the figures to hand though.
Levy Institute has some pretty solid policy research and proposals.
The basic MMT position is that of Keynes: Target full employment and the rest will take care of itself. The one statistic that is fairly accurate is unemployment. Unemployment signals that the economy is underperforming, and the Keynesian analysis is demand leakage to saving. Thus, the fiscal solution is to increase the deficit.
Within that, there are various policy options and MMT proponents may not speak with one voice regarding that. It's a political choice, and monetary economics is politically neutral but there is more to it than that since multipliers are involved. There is plenty of room for debate over the most efficient and effective policy given the current situation. While the general rule is to target unemployment, there is no general rule about how that should be done. It's context-dependent.
However, MMT is more than monetary economics, so there is a lot more that MMT proponents can say about as do some MMT proponents.
Of course, this also means meeting objections, such as the reason for is unemployment, i.e., no jobs or coddling the lazy, as well as why insolvency is not a concern for a currency sovereign, why inflation as result of deficit spending is not the boogeyman it is made out to be, and why the supposed IGBC doesn't affect fiscal sustainability as generally feared.
This is a very simple approach and it doesn't require a lot of modeling, fancy math, etc. that conventional economists say is needed to make accurate policy predictions.
KISS. It needs to be understandable intuitively to non-economists like politicians and voters. There are simple MMT-based explanations that qualify and obvious analogies like the Kelton seesaw to use in presenting it. Or the Krugman cross for those that understand some economics.
The bias is actually on the side of Keynesianism in this political kerfuffle because the public demands action from the government. People just have to see that the fiscal balance is the solution and not the problem. The government's balance must offset the non-government balance at full employment or else economic problems will develop.
That, of course, means overcoming the government as household or firm analogy and MMT economists have laid the foundation for that. It's time for MMT activists to let the world know it.
The reason that it is not possible to come up with an accurate estimate for a budget deficit is that the fiscal deficit is non-discretionary owing to automatic appropriation and tax collection that is not possible to anticipate. MMT doesn't work through the budget, but through automatic stabilization and the MMT JG, with some fiscal interventions if called for ad hoc due to changing circumstance.
MMT does not address the budget directly, which is just a plan. it addresses stocks and flows as they materialize, which cannot be anticipated with any degree of assurance owing to shifting saving desire in response to a a variety of factors whose future development is unknown.
The challenge is get the automatic stabilization and tax rate flexible enough to respond spontaneously to changes in economic circumstances.
This doesn't need to be rocket science, which is good because it cannot be.
The other aspect that conventional economics seldom admits let alone considers is the vagaries of modern capitalism that result in asymmetry. Many of these are institutionally imposed to the advantage of special interests. They can be addressed and eliminated or at least reduced.
The economy can never be fixed securely as long as rampant cheating is allowed and corruption affects the political process.
UMKC is out in front on this one with Bill Black, Michael Hudson, and Randy Wray, who are all pretty in your face people politically when it comes to addressing this publicly.
As far as political activism is concerned, who has been more politically active than Warren Mosler? He has laid out his view of an MMT approach to policy in his campaigns.
And then there is MNE. We are pretty activist here and continually call upon MMT proponents to be more active owing to the context of the time. Every moment staying the course is becoming more and more costly in both present and future.
If you have something to say, either ask to be a contributor or submit guest posts. Or inquire about posting at NEP, Naked Capitalism, Corrente, Daily Kos, etc, or start your own blog.
MMT professes to describe the economy as it actually is. And as it actually is, there is no job guarantee. So is that it? No plan B, plan C or plan D? No practical advice for how to run the government budget?
I think it does need to be rocket science. You need the easy version for the general public, but you need the rocket science for the rocket scientists. When all those Treasury officials and OMB officials and WH economic advisers and CBO officials and Senators and staffers are sitting around in a room throwing numbers at each other, they are not going to pay attention to the proposal that says "target unemployment somehow".
I'm with you Dan we could be doing a lot more to understand how fiscal policy can effect economic outcomes, but to be fair to the MMT people, there are just not that many of them and funding is scarce to non-existent for this kind of effort...
My investigation has determined that not even the US Treasury department tracks US fiscal flows within what could be considered an integrated govt-wide information system ... they told me they would like to have this capability but alas "they cannot afford it..." and they do their consolidated reporting via manual entry ex post.
Who knows for instance Greenspan may have been actually subsidized to write this book he is putting out by a Peterson or Koch funded entity... looking for a certain conclusion from Greenspan...
I keep looking for a fellow technocrat who has made a $bazillion, and may be attracted to just the pure technical logic of MMT, to fund something but sadly most if not all of the new rich technocrats are drifting towards the "job creator" type of libertarian pov... they do not seem to be particularly civic minded.
Or perhaps some Wall st entity might be interested in modeling fiscal like you imagine (as that might result in better market forecasting) but they like Hatzius' shop just seem content to front run the GDP numbers... which to me is of dubious value.
So this is a tough nut to crack... funding would certainly help imo.
rsp,
Yes, Matt, I would say what MMT needs is a gear-head: someone who is totally sympathetic with the macroeconomic framework of MMT, but is also eager to build predictive, causal models that incorporate that framework.
Yes, Matt, I would say what MMT needs is a gear-head: someone who is totally sympathetic with the macroeconomic framework of MMT, but is also eager to build predictive, causal models that incorporate that framework.
Not possible. The data is just not available. GIGO, Even the data that gets adjusted some time after initial reporting is just a best estimate. Current data is continuously being revised. There is a present no way to get the data needed for accurate macro forecasting even in the US at present, and the US is way ahead most of the world in reporting economic data.
This is a big thing that's wrong with the neoclassical econometric approach. The data is assumed to be accurate to a greater degree of tolerance than it actually has. Why? First because it is aggregated from a huge number of sources and a lot of them are guesses at proprietary information.
If this were possible, Hatzius would be doing it, and Goldman is doing the best job possible given their resources and commitment to being first in line.
BTW, there is Godley model that Levy Inst. uses but it is proprietary, I understand. But it, too, is limited by the inputs, which are not only estimates but contingent ones at that. That's why output is continuously being revised. No way to build fiscal policy on that basis other than to make it flexible enough to respond automatically to contingencies as they develop and take ad hoc measures as needed.
Tom,
I look at what Hatzius is doing as just front running the govt gdp reports to "look smart" to current/potential clients of GS...
I dont think they have any particular "scientific" interest or sense of civic duty...
They want to "predict" gdp before the gdp numbers come out so they can say "we know what is going on before even the govt does" which is not saying very much imo...
rsp,
I don't think they are just doing some frontrunning to look good. GS has the state of the art team and their big lack is accurate economic data. Of course, they run continuous Bayesian analysis to update their forecasting as information becomes available.
What does Hatzius and his team get paid and what do the comparable government economists get paid?
Remember David Walker was head of the CBO and Comptroller General of the United States. He doesn't even know the difference between bank credit and $NFA.
If this were possible, Hatzius would be doing it, and Goldman is doing the best job possible given their resources and commitment to being first in line.
He is doing it Tom. During the fiscal cliff and sequester debates, Goldman made quantitative predictions of the impact on GDP. They have turned out to be much more realistic than the government predictions. They didn't just pull those numbers out of a hat. They must have plugged the spending cuts into some model that they use.
Neoclassical economists aren't the only ones who use mathematical models.
Again, let's bring this back to a practical question. Suppose some progressive-leaning economists like Sanders, Brown and Warren come to the MMT folks and say, "We want to propose a budget that incorporates the insights of MMT and aims at reducing unemployment from 7% to 5% within one year. How big does the deficit have to be? We only have one shot to get this right."
That's right, Dan. Hatzius is the chief economist at GS because he is the best. Made it in his thirty's, too, and the first German to hold the post.
If you follow Hatzius, he often revises his forecasts based on changing circumstances or improved data.
I'm saying that this is the state of the art. Government's aren't in this class, as far as I can see. Still such in neoclassical modeling.
The US should just hire Hatzius regardless of what it costs to lure him away from if it wants the top economic forecast.
Even so, the forecasting is not good enough to predict precisely the size of the fiscal balance that will be required in the coming year, five years, and ten years, which is the length of time the CBO is given. And they look at SS and Medicare on 78 year schedule, which is pure nonsense.
Could MMT economists do as well as Hatzius? Well, I guess you would have to ask Warren how Valance's record compares with GS., or learn what you can about the Levy Institute model. None of the academic economists have time to construct and run such a model.
Again, let's bring this back to a practical question. Suppose some progressive-leaning economists like Sanders, Brown and Warren come to the MMT folks and say, "We want to propose a budget that incorporates the insights of MMT and aims at reducing unemployment from 7% to 5% within one year. How big does the deficit have to be? We only have one shot to get this right."
Well, you would have to ask some MMT economists how they would deal with this. Some are on Bernie Sanders board of advisors.
My answer would be, that's not the way it works. The necessary government fiscal balance is non-discretionary due to changing non-government saving desire.
The way to budget is to plan for the most efficient and effective use of government expenditure, given present and anticipated needs and then tax away enough to allow space for the automatic stabilizers, including an MMT JG to make the necessary adjustments automatically to maintain full employment while controlling for inflation. Macro analysis can give a rough idea of this, but it is not suitable for fine tuning. That's were automatic stabilization is needed.
There's no limit on the amount of spending possible. The only issue is reducing excess demand created with taxation. It's just taking out some of the funds being putting in, and that's OK, since it is the flow that counts. Use taxation to address negative externalities, among which is power accruing from wealth and income inequality, so jack up the progressive tax rate and tax away economic rent that is parasitical.
This is the ideal path. It just needs to sold politically.
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