Wednesday, November 25, 2020

MMT bleg, one more try — Scott Sumner

 Scott Sumner is not satisfied with the answers he received.

If I were to try to develop a radical new macro theory, I’d try to come up with a way of explaining my new model using the framework of existing models. Actually, I often do that here, translating market monetarism into New Keynesian language. I’m not seeing that with MMT. And it’s not just me. I see other bloggers like Noah Smith, Paul Krugman, Brad DeLong, Nick Rowe, etc., who seem to have an equally hard time trying to figure out what MMTers are claiming. MMTers should understand why we are confused, and have plausible answers. One sign that you are truly on top of an issue is if you can see why others hold a different view, and explain things in their language.
Uh, maybe because they are criticizing the framework.

BTW, as a philosopher I can report that this is the situation with Wittgenstein's criticism of philosophy on logical grounds. The framework is just wrong because it ignores what's actually going on with the logic and not what is supposed. As result many philosophers don't get Wittgenstein's criticism of their methodologies.

What is Wittgenstein's major point? Look and see. Pretty much the same point that MMT economists make from the institutional/accounting perspective. 

The MMT economists criticism is the same as Wittgenstein's in philosophy: You are setting about it in the wrong way. The assumptions are not supported by the actual system structure and dynamics.

The Money Illusion
MMT bleg, one more try
Scott Sumner | Ralph G. Hawtrey Chair of Monetary Policy at the Mercatus Center at George Mason University

15 comments:

Ralph Musgrave said...

I left a comment after Sumner's article, which he responded to: unlike most of the other comments, which he ignored. So I've been patting myself on the back all day...:-)

Matt Franko said...

“ What is Wittgenstein's major point? Look and see. Pretty much the same point that MMT economists make from the institutional/accounting perspective. ”

Institutional/regulatory accounting is scientific not dialogic...

The MMT people have never abandoned the dialogic for science... they’re still at Bard.... they may have just dipped a toe into science from time to time when it suits them...

Sumner isn’t out of line expecting them to engage in dialogue imo...

MMT has to get out of Bard and find a land grant school that will let them convert it over to science...

Matt Franko said...

Any Big 10 school would be a potential landing spot..

Matt Franko said...

Maybe Texas at Austin...

Matt Franko said...

"So the MMT textbook says OMOs are irrelevant. "

He's got them there if the book says that...

Tom Hickey said...

He's got them there if the book says that...

It doesn't say that.

SS is interpreting the book in terms of his frame of reference, which the book sets out to correct. But he cannot seem to think outside that frame and he is not alone in that (Krugman, for example, who he cites).

According to MMT they are irrelevant in the way that monetarists assume they are based on their framing.

Of course they are relevant according to MMT's framing when the cb chooses to set the the policy rate above zero and is not paying IOR.

Even the cb doesn't seem to get liquidity and that is one of their primary functions — making sure that markets clear seamless while setting the policy rate. (Even choosing letting the rate go to zero is setting the rate.)

Monetarists think that something is happening in the case of OMO that is not actually happening, which is why theory doesn't match fact. So then they come up with ad hoc patches. MMT just explains it in terms of how the cb sets the policy rate.

Peter Pan said...

Dear Scott Sumner,

Your assumptions are irrelevant.


Perhaps this is the kind of verbal slap needed to wake this gentleman up.
And if he's happy in his echo chamber, then let him be.

Matt Franko said...

“ Your assumptions are irrelevant.”

These dialogic people assume the entire Theory... so they are not irrelevant...

MMT assumes their Theory then sumner assumes his Theory then they dialogue back and forth on the Areopagus in Athens while the public observes the dialogue and the public is left to be convinced one way or the other...

This is these two peoples methodology..... it’s not ergodic/scientific .... neither of them tests anything they just make competing Theoretical assertions via dialogue...

It was left behind by those forming the scientific academe in 1860... these people are still operating the pre 1860 methodology... it obviously doesn’t work...

MMT dabbles in science every so often but in minor ways...

Matt Franko said...

“Even the cb doesn't seem to get liquidity and that is one of their primary functions “

“Liquidity “ is a figure of speech...

They (Fed) have the RRR Reserve Requirement Ratio which is not a figure of speech... Reserve Assets divided by Deposit Liabilities in scientific terms...

Last September it was promulgated at 10% and system Deposits were 13T and the Monetarists there like Sumner were doing “quantitative tightening!” and adjusted system reserves below 1.3T the 10% threshold and the FFR spiked as there were not enough Reserves in the system to meet minimum requirements...

Instead of these moron dialogic circle jerks like this one here ... it might be more useful to point something like this scientific/technical incompetence of these people and get them the fuck out of there... they can’t even apply eighth grade algebra...

Peter Pan said...

Sumner is the one to be convinced. He must drop the theory and become the student.

Tom Hickey said...

"Liquidity is not a figure of speech. It's a technical term in finance that means being able to meet financial obligations on time. It is key in managing cash flow, as anyone responsible for meeting a payments schedule knows all to well.

"Accounting liquidity measures the ease with which an individual or company can meet their financial obligations with the liquid assets available to them—the ability to pay off debts as they come due."

Liquidity

Liquidity in the payments system has to do with settling, which banks do on a daily basis and anyone short at the end of the day is forced to do settle using the discount window, paying a penalty. Part of the function of a cb is to ensure that everything clears seamlessly while maintaining its policy rate. If the cb forces banks to use the discount window owing to illiquidity in the payments system, the the overnight rate rises and the cb loses control of the policy rate.

Matt Franko said...

In your sentence it is a figure of speech...

Here it is not a figure of speech:

https://www.investopedia.com/terms/l/liquidity-coverage-ratio.asp

Matt Franko said...

“He must drop the theory and become the student.“

Sorry but that is not how their side of the academe operates.... they are supposed to start with and then stick to their original Theory and dogmatically advocate for it in dialog with others positing an alternative Theory.... using figurative language, rhetoric, identifying correlations when they happen, persuasion, etc..,

Doesn’t work but that is how these people have been trained to operate.... it is non-scientific...

Peter Pan said...

Incompatible approaches ~ incompatible outcomes?

Trying to educate a jackass with a blog, who thinks he's having a debate, leads to incompatible outcomes.

NeilW said...

Scott's a charmer isn't he.

"Translate your theory into Latin so I can read it"
"There aren't the words in Latin to express what is expressed through the nuances in English"
"YOU MUST WRITE IT IN LATIN OR I WILL IGNORE YOU".

Another ivory tower to lock the door to and move on.