Tuesday, May 29, 2018

Bill Mitchell – ECB research provides a withering critique of mainstream macroeconomics

Although this blog post considers some very technical material its message is simple. Mainstream macroeconomic models that are used to determine policy choices by governments are deeply flawed and the evidence strongly supports a central thrust of Modern Monetary Theory (MMT) – that fiscal policy is powerful and that austerity will kill growth. In that sense, it helps us understand why various nations and blocs (such as the Eurozone) struggled after the onset of the GFC. It also explains why the deliberate attack on Greek prosperity by the Troika was so successful in demolishing any prospect of growth – an outcome that the official dogma resolutely denied as they constructed one vicious bailout after another. It also explains why New Keynesian approaches to macroeconomics are flawed and should be ignored. I was reminded this week by a research paper I had read last  year (thanks Adam for the reminder) which presents a devastating critique (though muted in central bank speak) of the mainstream approach to macroeconomic modelling. A research paper from the ECB (May 2017, No 2058) – On the sources of business cycles: implications for DSGE models – provides a categorical critique of DSGE models and a range of other stunts that mainstream economists have tried to introduce to get away from the obvious – economic cycles are demand driven.…
Q. Why do Austerians want to restrict domestic demand by limiting domestic worker incomes?

A. To decrease spending on imports while increasing exports in order to "strengthen" the trade balance and ideally achieve a permanent trade surplus, using Germany as a model for the EZ.

This is the prescription of the TroikaEuropean Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF).

This is what is happening with respect to the political kerfuffle in Italy.

Bill Mitchell – billy blog
ECB research provides a withering critique of mainstream macroeconomics
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

See also
Italy’s establishment has just revealed its truest beliefs and priorities. The context was the two parties that received the most votes in the last election forming a coalition government. The two parties seeking to form a coalition government won a majority of the seats in both houses of Italy’s parliament in the most recent election. The New York Times reported many of the key facts, but missed the key analytics.
"All's fair in love, war" — and politics, which is war conducted by other means.

New Economic Perspectives
The New York Times Praises the Italian Establishment’s Economic Illiteracy and Assault on Democracy
William K. Black | Associate Professor of Economics and Law, UMKC

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