Philip Pilkington — How Far Can We Push This Thing? Some Optimistic Reflections on the Potential For Economic Experimentation

Readers are probably aware that there is quite a lot of discussion of Modern Monetary Theory (MMT) and the potential for fiscal experimentation batting around at the moment. Others have weighed in on this already, and I have little to add.

It is striking, however, that most of the push-back — where there is push-back — is not focused on trying to discredit the idea that we should engage in fiscal experimentation. Indeed, the notion that we should engage in fiscal experimentation seems to be, if not mainstream, at the very least part of the discussion.

Yet, vulgar strawman-style arguments against MMT aside, no one seriously disputes the fact that if too much fiscal expansion is undertaken the economy will eventually hit a hard inflation barrier, past which any increase in spending will generate inflation rather than real output expansion. Interestingly, no one seems to have tried to come up with a new framework for estimating where this inflation barrier might be and whether it is too risky to overshoot it.

So, I’ve decided to fill that gap. Linked below is a paper where I use a new capacity utilisation-based framework to provide hard, yet optimistic numbers of how far we might push the economy in the spirit of fiscal experimentation....

Fixing the Economists
How Far Can We Push This Thing? Some Optimistic Reflections on the Potential For Economic Experimentation
Philip Pilkington

Edward Lambert — Re: Tim Duy… Brains need not explode

Edward Lambert's effective demand model is turning bearish.

Angry Bear

Re: Tim Duy… Brains need not explode
Edward Lambert

Brad DeLong — Understanding the Wall Street View of the World–and Why It Doesn’t Change

In whose interest?

Now labor no longer has a voice. But where have all the debtors gone? And why are the equity holders so confident that a low-pressure economy gains them more in terms of reduced wages than they lose through a failure to reap economies of scale and high capacity utilization? It is a great puzzle.

I think I understand why people are clinging to beliefs that justify policies that they think are in their interest given that labor and debtors are out of the picture, and given that equity holders have decided that they are more interested in waging economic class war than in full capacity utilization. But why have equity holders decided that?

WCEG — The Equitablog
Understanding the Wall Street View of the World–and Why It Doesn’t Change: Monday Focus
Brad DeLong | Professor of Economics, UC Berkeley

Taking the Path Less Traveled

Every aggregate faces a fork in the road, every day. One path leads to tactics as usual and an increasing Output Gap, the other leads to painstaking assembly of novel staging, linking & sequencing of current & emerging tactics.

The 1st path accelerates gridlock and demise - and hinders progress. The 2nd leads to organization on a greater scale, by tuning our increasingly complex economic engine.

The recent temper trantrums within the overall Functional Finance community over trivial aspects of full capacity utilization are a good example. Since people ultimately drive all potential capacity and potential output, full utilization in some form or another was historically practiced in most human settings, as well in all other species. Of course that needn't precisely fit current definitions of "100% employment" involving everyone formally covered in an hourly or salaried employment contract.

No matter what methods our 50 states and 5000+ counties settle on today, there will always be even better ways tomorrow. That's why diversity is always needed, and why the diversions published by Rodger Mitchell seem so distracting.

One general way to express full capacity utilization is to call for a publicly guaranteed job, commonly called a JG.   Rodger's minimal divergence from this concept is a minimum revenue distribution by the currency issuer, not just with states but with citizens.

Call it what you will.  Arguing over the details at this particular time - when no version of Functional Finance is represented in policy - is divisive, and therefore wasteful politics that only delays actual exploration of aggregate options.

The only rational thing to do is to SHAPE situations, not argue over the slight differences in advised course settings, especially since both proposed course settings differ so much from our current one.

The optimal path to getting somewhere is rarely the presumed most direct path. The important thing is to focus on the goal, not the direction of the first step.

If we argue overmuch about the direction of the first step, the primary result is that we inhibit people from taking any step at all.

The concept of "shaping," from psychology, is to elicit whatever activity is most easily initiated, and to then gradually re-shape or redirect the behavioral momentum to arrive at the goal, while conserving adaptive-momentum.

In practice, it's far more productive to conserve any existing adaptive-momentum than it is to inhibit & preclude all momentum not deemed to be perfectly aligned with the one & only path presumed by hubris.  "Focus on the goal and don't constrain tactics" has proven to be good advice, from Gylippus to Patton.

What do all members of the tiny - but finally growing - Functional Finance community all share?  Perhaps the goal of shrinking the USA's incredible Output Gap?   Given that, why divisively argue over tactical details?  Why not focus on promoting more people to a shared goal?  Once recruited to a consensus goal, 312 million people don't need to be micromanaged.