Sunday, April 15, 2018

Brian Romanchuk — Australian Fiscal Surpluses And Functional Finance


Don't be put off by the title. The post is chiefly about MMT's interpretation of functional finance rather than Australia.

While the post is longish and wonkish (but no equations to slow you down), it is worth a careful read.

Brian explains functional finance from the POV of an applied mathematician with experience in both control systems and finance. It's a bit of a different perspective so there is a lot in there that MMT economists generally don't touch on.

Bond Economics
Australian Fiscal Surpluses And Functional Finance
Brian Romanchuk

8 comments:

Matt Franko said...

" This means that the international component of the financial balance accounting identities cannot be interpreted as arm's length dealings between Australians and foreigners."

Same with the US.. we dont know how much of the international position was solely due to tax deferral/avoidance schemes by the US based multi-nationals due to the difference in tax rates between the US and the ROW...

Now both of those tax rates are equal at 21% so maybe we'll get to see how much if the US based multinationals change their tax accounting policies...

Matt Franko said...

We've only just completed the very first quarter (March) of operating under the new tax laws which went into effect Jan 1...

Matt Franko said...

"Was not the argument that fiscal policy is extremely powerful, so how did Australia avoid recession?"

You have to look at what the govt depository policy was under periods of surplus.. here in the US, when we have typically run surpluses, the surplus balances paid to the Treasury has remained in depository accounts at the depositories to earn deposit interest for the US Treasury savings accounts at the depositories... "govt as household..."

These deposits function just like any other deposit and create reserve assets on the bank balance sheets which will be regulated against depository's stated capital account...

Maybe in AUS they didnt do it that way maybe in AUS they put any surplus taxes into the Treasury account at the CB ONLY which does not negatively effect the depository banks ability to provide other credit to the non-govt and recession is avoided...

Matt Franko said...

Or like the MMT elites posit, it could be all part of the vast sinister nefarious "neoliberal conspiracy!" to fuck up the whole system and have all the depositories go bankrupt and cause chaos and hate and general discontent...

Matt Franko said...

"a time series of lump sum taxes that are fixed in real terms for all time. The "lump sum" specification means that the level of tax is fixed (in real terms) regardless of the wealth or income of the (representative) household; something like a poll tax."

This is a fixed frequency "model"... if you assume a fixed frequency in the model (and real world is not fixed frequency) you can never understand a damaging phenom that would be determined/predicted by a frequency domain analysis... ie a "frequency mismatch" error...

Here:

http://www.gohz.com/how-frequency-mismatch-leads-to-grid-failure

Same thing....

Tom Hickey said...

Or like the MMT elites posit, it could be all part of the vast sinister nefarious "neoliberal conspiracy!" to fuck up the whole system and have all the depositories go bankrupt and cause chaos and hate and general discontent...

Evidenced by?

Matt Franko said...

From my link:

"First of all remember that frequency (50Hz or 60Hz) is related to speed which is a mechanical property. So when you have 2 generators trying to synch together you are matching voltage, phase angle, frequency (speed), and phase configuration (rotation) is the same. Connecting two generators not running at the same speed can have consequences where the faster running generator pulls the slower generator to match its speed. This can cause structural damage to the generator (think of two gears meshing together that's not running at the same speed."

You cant go get a f-ing clarinet player to figure this type of thing out....

Matt Franko said...

Well Bill often makes a point of showing how when the AUS was in surplus, the govt bond BDs would go in to Treasury and try to get them to increase the rate of Treasury issuance regardless of the surplus... implying that at surplus, there would be no need to increase the rate of Treasury securities issuance... chalks it up to "corporate welfare!" for the "neoliberals!" who use political pull to get more commissions, etc... ie "neoliberal conspiracy!"....

Which as we know that Treasury issuance is a 'reserve drain' ie textbook MMT 101, then this might be why the banks were doing that... ie to get reserve assets down ('reserve drain') at their banks so they could award other necessary credit to the non-govt against their effectively fixed capital over short time periods...

Brian is showing that the DSGE models use fixed frequency mode here meanwhile you have a proportional regulatory control where the numerator has a very different frequency response characteristic from the denominator's frequency characteristic , ie the frequency response of depository assets is not matched with the frequency response of the capital ... ie "boom!" eventually under a govt surplus that creates fast increases in depository assets..