tag:blogger.com,1999:blog-2761684730989137546.post1073553551630034628..comments2024-03-28T07:50:06.102-04:00Comments on Mike Norman Economics: Nick Rowe — Can you please read a first year textbook?mike normanhttp://www.blogger.com/profile/03296006882513340747noreply@blogger.comBlogger36125tag:blogger.com,1999:blog-2761684730989137546.post-22157197173984871182012-08-01T13:08:39.530-04:002012-08-01T13:08:39.530-04:00Unlearning Econ chimes in…
http://unlearningecono...Unlearning Econ chimes in…<br /><br />http://unlearningeconomics.wordpress.com/2012/08/01/read-a-textbook/paul melihttps://www.blogger.com/profile/04604543110795683837noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-13345322927210242062012-07-30T16:38:35.112-04:002012-07-30T16:38:35.112-04:00"the long run, if the central bank wants to p..."the long run, if the central bank wants to prevent the price level exploding up or down, it needs to set the rate of interest equal to the rate that the LF theory predicts. Otherwise Aggregate demand will be permanently too high (inflation) or permanently too low (deflation)."<br /><br />The hidden assumption being that inflation control is the job of monetary policy and not fiscal policy.<br /><br />Yes, monetary policy can control inflation by crashing the economy, increasing unemployment, ramping up government subsidies to the rentier class, and rendering govt deficits unsustainable in the long term. <br /><br />MMT argues that you can control inflation without having to do any of the above, whilst maintaining full employment through an ELR program. <br /><br />Which is better?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-20915897236586149422012-07-30T13:38:19.769-04:002012-07-30T13:38:19.769-04:00Hello Ramanan and Tom,
With respect to the recomme...Hello Ramanan and Tom,<br />With respect to the recommendation of the Baumol-Blinder Canadian version of the macro-economics book it probably was me as in early 2010 I had just audited two courses with Marc Lavoie, one on Post-Keynesian(PK)economics, the other on monetary economics. At the time I wrote glowingly of Marc's abilities as a teacher as well as how good the book was. I did look through a number of others and on monetary issues found them very disappointing. As a person with a Masters of economics from McGill University (1986) I found I had to unlearn many things despite some of my profs having been PKers. <br /><br />With respect to the usefulness of MMT-type economics to countering BS propaganda regarding fiscal deficits and monetary issues I think it has a little use in convincing some "thought leaders" on our "side" that household finance thinking is misguided. Household finance is a very intuitively appealing, powerful and disabling concept. <br /><br />Nonetheless, in my opinion the overwhleming challenge remains political. Why do we tolerate that millions of people are un and under-employed when there is so much to do? So many services lacking and so much infrastructure needing improvement and expansion. It's Keynes' 1929 pamphlet for the UK Liberal Party all over again.Keith Newmannoreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-22466158369067739242012-07-30T00:40:49.367-04:002012-07-30T00:40:49.367-04:00Dan K., getting the economics right comes after th...Dan K., getting the economics right comes after the victory. But it's also useful for debunking the BS.<br /><br />A lot of people now get intuitively that we are in the midst of the Big Rip-off, but they don't know the details of how the three card mont-shell game works. So they consistently get taken, yet come back for more of the same, expecting a different result.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-9131008878635063082012-07-30T00:05:45.404-04:002012-07-30T00:05:45.404-04:00Yes, you're right. "loans make deposits&q...<i>Yes, you're right. "loans make deposits" was still true pre-1971.</i>.<br /><br />Ramadan is right I think. Theories of endogenous money - though not called by that name - have been around for centuries.<br /><br />It seems to me that a substantial portion of mainstream economics is pure ideology: a priori, armchair theorizing based on groundless principles concocted to justify the existence and flatter the prejudices of the rulers of the prevailing social order.<br /><br />It plays a role similar to theology: it indoctrinates the student with a system of intellectual defense mechanisms they can use to resist critical thinking and fend of intuitions of moral disgust over the failures of the existing system.<br /><br />Social change isn't going to come from the economists, who as a profession seem to have very little to offer. I've been reading the economics blogs for four years now, and it is astonishing how many electrons are spilled in extended debates over what are fundamentally small difference.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-54287018762500854582012-07-29T22:32:08.561-04:002012-07-29T22:32:08.561-04:00Joe,
I think Warren Mosler, bank owner, has done j...Joe,<br />I think Warren Mosler, bank owner, has done just that wrt Krugman ..... Imo Krugman lacks a certain mathematical aptitude (Krugman works via semantics not math) to be able to 'see' what you are saying. <br /><br />He read something different a long time ago and has been given to believe it against any alternatives..... his mind has been closed and without the math aptitude looks like still he cannot 'see'his way out of it..... rspMatt Frankohttps://www.blogger.com/profile/11978352335097260145noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-47568214214495959272012-07-29T22:10:06.414-04:002012-07-29T22:10:06.414-04:00Stocks, Flows and Loanable Funds by RSJ
Another m...<a href="http://windyanabasis.wordpress.com/2011/05/04/stocks-flows-and-loanable-funds/" rel="nofollow">Stocks, Flows and Loanable Funds</a> by RSJ<br /><br /><a href="http://bilbo.economicoutlook.net/blog/?p=20343" rel="nofollow">Another macroeconomist who is blind by Bill Mitchell</a> (Mitchell contra Blinder)<br /><br />Studying macroeconomics – an exercise in deception<br /><a href="http://bilbo.economicoutlook.net/blog/?p=5419" rel="nofollow">http://bilbo.economicoutlook.net/blog/?p=5419</a> (Mitchell contra Mankiw)<br /><br /><a href="http://bilbo.economicoutlook.net/blog/?p=5122" rel="nofollow">The IMF fall into a loanable funds black hole … again</a> (Mitchell contra IMF)<br /><br /><a href="http://bilbo.economicoutlook.net/blog/?p=10704" rel="nofollow">The austerity mania is just blind dogma</a> (Mitchell contra austerians and deficit hawks)Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-6156807339953518802012-07-29T21:47:42.762-04:002012-07-29T21:47:42.762-04:00There is a rationale for it, Joe. Banks do liabili...There is a rationale for it, Joe. Banks do liability management and risk management. That is to say, the asset side has to balance with the liability side of the balance sheet and maturity mismatched needs to be hedged. <br /><br />Deposits are the least expensive short term funding available for banks, so even though banks don't actually lend out savings and therefore compete for saving to lend, they do compete for deposits in order to maintain profitability in a competitive environment. Hey, they don't give away those toasters for nothing.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-67527114759516875822012-07-29T21:26:34.418-04:002012-07-29T21:26:34.418-04:00Tom, thanks for the reply, I think I understand th...Tom, thanks for the reply, I think I understand the loanable funds model. It's the reason some people think that govt deficit spending crowds out the private sector investment because savings are having to go to the govt instead of private investment, leading to an increase in the price of money. Which seems logical if there were a fixed pool of savings to lend from, but as we know banks don't function that way. <br /><br />I guess what I want to know is why doesn't some banker just say "Yeah, we don't lend out other people's deposits. Krugman and the rest are unequivocally wrong." I would think that should settle it. It should just be a matter of seeing the bank's accounting operations. See what I'm driving at? Krugman's had to have met at least one banker in his life. Did banks at one time actually lend out deposits? What about credit unions?Joehttps://www.blogger.com/profile/15197727918414570446noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-51971559379939262152012-07-29T20:51:55.561-04:002012-07-29T20:51:55.561-04:00Joe: Forget the gold standard.
It's all in e....Joe: Forget the gold standard.<br /><br />It's all in e.g. Mankiw's first year textbook (though many are not as good on this topic, and Mankiw isn't perfect either).<br /><br />There are 2 theories of the rate of interest (in a closed economy):<br /><br />Loanable Funds is the long run theory.<br /><br />Liquidity Preference (e.g. the central bank sets the rate of interest) is the short run theory.<br /><br />How do we reconcile the two?<br /><br />Answer: in the long run, if the central bank wants to prevent the price level exploding up or down, it needs to set the rate of interest equal to the rate that the LF theory predicts. Otherwise Aggregate demand will be permanently too high (inflation) or permanently too low (deflation).Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-78819475915277177912012-07-29T20:51:28.776-04:002012-07-29T20:51:28.776-04:00There's gotta be more to the origin of the loa...<i>There's gotta be more to the origin of the loanable funds model, I mean, does the accounting of it somehow imply(albeit wrongly) a transfer from saver to borrower?</i><br /><br />The basic idea is that there is a pool of savings that savers loan to banks as deposits, which the banks then in turn loan at a higher rate of interest to borrows. This is basically short term borrowing by banks that funds long term borrowing chiefly for investment, including residential housing as investment.<br /><br />The pool of savings is the amount of funds loanable in the system for which banks and firms seeking investment compete with government tys issues. Taxation also supposedly draws from this pool of funds that is not consumed.<br /><br />No gold standard necessary to explain it although under a gold standard (convertible fixed rate system) the cb has to regulate the money supply to prevent excessive conversion due to price instability. It does this by managing the interest rate, so that savers would rather hold money than gold.<br /><br />Paul Krugman appears to think that this is what is happening operationally. Austrians criticize "fractional reserve" bank lending as maturity mismatching.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-34005816462192634902012-07-29T20:26:11.859-04:002012-07-29T20:26:11.859-04:00Wasn't Bretton Woods a gold standard? After WI...Wasn't Bretton Woods a gold standard? After WII gold was pegged to $35 an ounce. It seems to me like we never truly had a gold standard, gold was just kinda tacked onto the ass of our currency, and people believed it was "backing the currency".<br /><br />There's gotta be more to the origin of the loanable funds model, I mean, does the accounting of it somehow imply(albeit wrongly) a transfer from saver to borrower? Would a banker say he creates money through lending? I'm thinking of this in a sort of parallel fashion to how everyone thinks taxes and bonds "fund" the government when really they don't, the self-imposed constraints just make it appear so. Almost all of congress and even the president get that wrong.Joehttps://www.blogger.com/profile/15197727918414570446noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-72476617163672441612012-07-29T19:16:24.192-04:002012-07-29T19:16:24.192-04:00Tom,
I think Keith Newman.Tom,<br /><br />I think Keith Newman.Ramananhttp://www.concertedaction.com/noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-75184715802897661642012-07-29T19:05:09.516-04:002012-07-29T19:05:09.516-04:00Leverage: "The only worthy economic books are...Leverage: "<i>The only worthy economic books are the ones which discuss the foundational axioms and principles that direct each school of throught. So either you read the general theory of Keynes or the critiques by Hayek, or Das Kapital of Marx, or Kalecki or Minsky or other more 'obscure' authors which present and try to explain their foundational axioms and worldview or it's a waste of time.</i>"<br /><br />This is exactly right. How does a system work in terms of parameters, assumptions, methods, key terminology, and conclusions. <br /><br />This is precisely what one learns in the studying the history of philosophy, since every philosopher provides a systematic articulation of a a worldview.<br /><br />Criteria are context-dependent, and there is no overarching context, hence, no absolute criteria. No worldview can justify itself and all justification takes place within the context of a worldview as a frame of reference that provides criteria, norms and values, as well as a lens for constructing facts, which result from "seeing-as," as Wittgenstein put it.<br /><br />Thus, the question becomes, first, how does the system hang together (consistency), how well does it fit experience (correspondence), how useful is it in terms of consequences (pragmatism), and how simply is it expressed (elegance).<br /><br />The arts, sciences and humanities are subsets of a worldview in which context is interpreted in terms of the frame. Different approaches to economics are different cognitive frames. To step into that frame is to acquiesce in the rules that determine it.<br /><br />This is why the mainstream wants to proclaim that a Kuhnian normal paradigm has been achieved in economics and anyone not operating it terms of it is marginalized by the rules of the game.<br /><br />Heterodox economists are smart enough not to fall for that, unlike Democrats that can't resist jumping into the opponents' frame, where they are at a disadvantage from the get-go.<br /><br />The way forward is through laying out the different presumptions clearly and critiquing them through debate in which in there is no received frame. Let each side make its case based on consistency, correspondence, pragmatism, and elegance. At least some Austrians have accepted the endogenous view of money for example, whereas many mainstreamers still hold to the discredited exogenous view. How would think that the Austrians would be more open when they are a pretty dogmatic bunch.<br /><br />It's curious how the mainstream wants to just ignore the Cambridge capital controversy as if it never happened, for instance. And ignore Minsky. And Godley. The list goes on. As Paul Krugman has pointed out several times in my memory, some things that were settled decades ago, now are being ignored as if they never took place at all. Is this ignorance of history, or is it psychological denial? Or is there an agenda? One wonders.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-57955135570669093972012-07-29T18:28:56.248-04:002012-07-29T18:28:56.248-04:00Why does Friedman say: It doesn't happen here ...Why does Friedman say: It doesn't happen here inside the bank, It happens as a result of transactions in between the banks?<br />http://www.youtube.com/watch?feature=player_detailpage&v=Iv6RFubNxXoAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-51640006210255331482012-07-29T18:02:49.679-04:002012-07-29T18:02:49.679-04:00"It doesn't really seem plausible that on..."It doesn't really seem plausible that one day in 1971 banks changed how they operate and suddenly had the ability to lend without actually having the money first and no one noticed."<br /><br />Yes, you're right. "loans make deposits" was still true pre-1971.Ramananhttp://www.concertedaction.com/noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-6190237690197288382012-07-29T17:59:08.039-04:002012-07-29T17:59:08.039-04:00"Doesn't the idea of the money multiplier..."Doesn't the idea of the money multiplier (which I know is wrong) imply that a bank is not simply lending a savers money to a borrow?"<br /><br />The way It explains It, student understands It as if bank needs deposit prior to making a loan. This is the way I first unerstood It taking an econ class. People think of money as things made out of paper. No one in the group I was in university with understood how this process works. If someone would have told them that bank is just adding numbers to your account and the numbers don't come frome anywhere, they wouldn't have believed It. If this is so obvious like Nick says then why don't most people understand It? For if they did, this would make the debate a whole lot easier. For example "printing money" wouldn't sound as bad, because private banks do It every time they give a loan.<br /><br />It is precisely the monetarist paradigm and quantity theory of money that is the problem. <br /><br /><br />"It doesn't really seem plausible that one day in 1971 banks changed how they operate and suddenly had the ability to lend without actually having the money first and no one noticed."<br /><br />They didn't have the gold standard prior to that, It was Bretton Woods. <br /><br /><br />i know Nick's argument is against "banks are not reserve constrained" that in long run when CB is targeting inflation, It comes to the same thing. It doesn't.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-80187222648617912382012-07-29T17:37:14.699-04:002012-07-29T17:37:14.699-04:00Ramanan "1. Baumol/Blinder 2. ??"
Yes, ...Ramanan "1. Baumol/Blinder 2. ??"<br /><br />Yes, I was told to get that, maybe by you. Marc Lavoie edited the first Canadian edition (2009) and that's the one I picked up.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-230876884551000892012-07-29T17:33:37.327-04:002012-07-29T17:33:37.327-04:00Nick I am unable to assess the merits of Rowe vs. ...Nick I am unable to assess the merits of Rowe vs. Hudson, even if you had time to critique it. But this is exactly the debate I think is needed, since it strikes me that Hudson as it right and he is an economic historian as well as a former Wall Street economist.<br /><br />And of course, there is a widespread acknowledgement of a difference between price and value, e.g., market price, book value, replacement value. That that is not the issue that Hudson is taking about.<br /><br />As someone who understands RE since some of my friends make a lot money from dealing it it, I can say that there is a huge difference between what one can build a house for and what one can sell it for, and that difference is what the bank is willing to finance the property for. <br /><br />Remember that the same banks finance the contractor as the buyers, so they know the spread and have to be aware that they are enabling it. The rent extracted by both the contractor and the bank is huge. That is now bringing the states of California, Florida, Nevada, and Arizona in particular to their knees.<br /><br />Even worse, a lot of fraud, predatory lending and general impropriety was involved, which the FBI reported on in 2005. Crime and fast dealing is pure rent.Tom Hickeyhttps://www.blogger.com/profile/08454222098667643650noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-81954929230261345942012-07-29T16:40:13.404-04:002012-07-29T16:40:13.404-04:00What's going on?
Let us make a list of mainst...What's going on?<br /><br />Let us make a list of mainstream macroeconomics textbooks to see how many texts do not use the money multiplier:<br /><br />1. Baumol/Blinder <br />2.????<br /><br />Even John Taylor's book has the money multiplier story.Ramananhttp://www.concertedaction.com/noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-70123887550104387082012-07-29T16:30:06.383-04:002012-07-29T16:30:06.383-04:00Tom: OK, I did actually start reading that Michael...Tom: OK, I did actually start reading that Michael Hudson post. Then I started skimming it, then I stopped. Because I really got nothing out of it. So much of it was just plain wrong. I could spend a week fisking it. But I'm not going to.<br /><br />To take one tiny example: your own takeaway from his post: "Equating price with value, there is no theory of economic rent"<br /><br />Yes there is. It's right there in first year textbooks.<br /><br />On the other hand, I did get something out of reading your comment. I see your point on scholasticism, on the "first perspective" idea, and on the benefits of a history of thought approach.<br /><br />But Hudson's piece...nada. (And I have actually read some Veblen, years ago).<br /><br />Maybe I should spend more time reading Steve Williamson, who I also usually disagree with. There are only so many hours in the day. I can't read everything.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-57219518581744479372012-07-29T16:27:29.501-04:002012-07-29T16:27:29.501-04:00Doesn't the idea of the money multiplier (whic...Doesn't the idea of the money multiplier (which I know is wrong) imply that a bank is not simply lending a savers money to a borrow? (since the money multiplier model results in a sort of creation of money) I think the ideas of the money multiplier pre-date the end of the gold standard. It doesn't really seem plausible that one day in 1971 banks changed how they operate and suddenly had the ability to lend without actually having the money first and no one noticed.Joehttps://www.blogger.com/profile/15197727918414570446noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-25990965843010005752012-07-29T15:47:32.107-04:002012-07-29T15:47:32.107-04:00"So where did the myth of the loanable funds ..."So where did the myth of the loanable funds model come from?"<br /><br /><br />gold standardAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-70208436984774765072012-07-29T15:38:44.300-04:002012-07-29T15:38:44.300-04:00Question. MMT and Steve Keen insist a loan results...Question. MMT and Steve Keen insist a loan results in an endogenous expansion of purchasing power, and not a shift from savers to borrows. The empirical data supports this by showing credit money leads base money by up to a year. So where did the myth of the loanable funds model come from? It seems pretty shocking a nobel laureate, Krugman, could consistently make such a basic error.Joehttps://www.blogger.com/profile/15197727918414570446noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-58421973565991088192012-07-29T14:56:06.822-04:002012-07-29T14:56:06.822-04:00"Notice the term "iconoclastic." Th...<i>"Notice the term "iconoclastic." That's heterodoxy in any field and it is marginalized by orthodoxy precisely because it is iconoclastic. The only what the door is opened is if the heterodox accept the orthodox frame, which makes it impossible to win in the debate. This is all about the framing."</i><br /><br />Exactly!<br /><br />The only worthy economic books are the ones which discuss the foundational axioms and principles that direct each school of throught. So either you read the general theory of Keynes or the critiques by Hayek, or Das Kapital of Marx, or Kalecki or Minsky or other more 'obscure' authors which present and try to explain their foundational axioms and worldview or it's a waste of time.<br /><br />Of what use is to 'digest' a textbook which only gived you their mainstream unfalsifiable foundations as fact without further discussion? Only to create 'morons' who can't question things (or who just can pass some test so they get a title so they can join the 'structure'?).<br /><br />That's why reading 'history of economics' is much superior to reading an itnroductory textbook to econ101.Leveragenoreply@blogger.com