Bill Mitchell — Elements in a strategy for the Left

Reuters reported (July 8, 2018) that the awful Madame Lagarde was in France last week lecturing people on how the “joint euro zone budget could be designed with conditions so that it does not become a no-strings transfer of rich countries’ cash to poorer members”. Meanwhile, Jürgen Habermas was lecturing all and sundry on how a “frightened retreat behind national borders cannot be the correct response to … the politically uncontrollable functional imperatives of a global capitalism that is being driven by unregulated financial markets” (Source). Meanwhile, in the UK, the ‘Remainers’ think staying in the corrupt EU is a good idea because the Tories are so incompetent and divided. The state of the world. Misperceptions, misinformation and just plain poor analysis. There are tremendous opportunities for the Left to make political gains. But if they don’t abandon the type of ideas and language that is exemplified by Habermas’s latest entreaty and if they don’t undermine the likes of Lagarde and the Remainers (the pan-Europe contingent) then they will, once again, miss the boat. 

In my recent book (with Thomas Fazi) – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017) – a central organising concept is that a progressive future is only possible if progressive citizens do two things:

1. Learn how the monetary system operates and understand the capacity of the currency issuer and the opportunities and constraints that the government has.In other words, educate ourselves so that we have the capacity to refute the neoliberal lies that sustains the current system that has seen progressive outcomes diminish markedly.

2. Take control of the political process and expunge neoliberal factions from progressive political parties (like the Blairites in the British Labour Party, almost all the Australian Labor Party, the Wall-Street embedded elites in the US Democrats, much of the traditional machinery of the European Socialist parties etc).Reclaiming the state is about reclaiming the legislative and regulative capacity of the nation state so that it is directed at advancing well being for the many rather than the few, to steal Jeremy Corbyn’s so excellent catch-cry....

For those to whom MMT may be new, it is important to realize that the operational description of monetary systems, being purely descriptive, is value-neutral and doesn't favor any political point of view or value system. From the aspect of operational description, MMT simply sets forth the institutional arrangements of different monetary systems and explains the fiscal space that is avialable based on these arrangements, which are mostly legally established and therefore subject to the policy decisions of legislative bodies. Therefore, they can be changed by the same bodies that created them as well as interpreted by administrators, regulators and courts.

When the data is analyzed and explained with respect to economics, it gets interpreted in terms of assigning causation to various variables as well as in parametrizing models. Here there is disagreement among economists, which gives rise to competing theories, which can be evaluated by comparing model to data, both economic data and institutional arrangements.

For example, if a model presumed operations under a different monetary system than the current one it is unlikely to be a faithful model worth of trust in either forecasting or policymaking. In addition, if causation is improperly imputed, the model will not be representational of what it purports to represent.

MMT from the vantage of theory is a so-called Keynesian model since it prioritized full employment. In this sense, MMT theory is considered to be on the left side of the political spectrum.

Those who recognize the correctness of operational analysis of MMT may take any political position that is consistent with the principles of the operational description. Those that accept the theory as well are likely to fall on the left of the political spectrum in prioritizing full employment.

However, those who accept all the aspects of MMT as both an operational description and a macroeconomic theory can be properly categorized as being "MMT." Here, there is leeway in both how the theory can be used to formulate optimal policy in various countries, as well as in the strategy for presenting MMT as a macroeconomic paradigm or framework for policy formulation and arguing for policy options compatible with it.

Bill Mitchell – billy blog
Elements in a strategy for the Left
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — Timor – challenges for the new government — Part 1-3 of 3

This is Part 3 (and final) of my mini-series analysing some of the challenges that the newly elected majority government in Timor-Leste faces. In Part 2, I discussed the progress of the Strategic Development Plan and the challenges ahead in terms of poverty, unemployment, and other indicators relating to the development process. In Part 2, I focused more on the currency debate – documenting how the IMF and World Bank had infused its ideological stance into the currency arrangements that Timor-Leste set out with as a new nation. I made the case for currency sovereignty which would require Timor-Leste to scrap the US dollar, convert the Petroleum Fund into its stock of foreign exchange reserves, and to run an independent monetary policy with flexible exchange rates, mediated with the capacity to use capital controls where appropriate. In this final discussion I consider specific policy options that are required to exploit what is known as the ‘demographic dividend’ where the age-structure of the nation generates a plunging dependency ratio. To exploit that dividend, which historically delivers massive development boosts to nations, the shifting demographics have to be accompanied by high levels of employment. That should be policy priority No.1.

Bill Mitchell – billy blog
Timor – challenges for the new government – Part 1

Timor – challenges for the new government – Part 2

Timor-Leste – challenges for the new government – Part 3Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Brian Romanchuk — Why MMT Is So Popular (For People Like Me)

In a previous article, I explained why I am complacent about the state of economic theory in Modern Monetary Theory (MMT). This matters for someone like myself, who is attempting to write primers explaining various economic concepts. However, for many followers of MMT, the more important question is how its theoretical concepts get translated into a new policy framework. This raises the question of political economy, which I largely shy away from. However, I will offer my eccentric political views on the future of MMT....

Bond Economics
Why MMT Is So Popular (For People Like Me)
Brian Romanchuk

Brian Romanchuk — The Price Level Does Not Exist

It appears to be a mistake to refer to the price level when discussing the theoretical properties of an economy; at best, there are a few price levels in play at a given time. If we are referring to the measured level of a price index, such as the Consumer Price Index (CPI) there is no difficulty, however this aggregate price index should not be expected to correspond to any useful theoretical construct. This article explains my logic, and then looks at the practical implications of what appears to be yet another hand-wringing post-Keynesian article about the difficulties with mathematical economics..

As a disclaimer, I have no idea how my comments fit in with the existing academic literature. I had a very brief discussion with Professor Randall Wray at the Modern Monetary Theory Conference on this topic, and it was an issue that he was well aware of. I would guess that it would cause greater anguish among mainstream economists, as it suggests that their preferred policy of inflation targeting is theoretically incoherent...

Refreshing to get some applied mathematicians involved.

Bond Economics
The Price Level Does Not Exist
Brian Romanchuk

Ramanan — Alex Izurieta On UN Global Policy Model

Policy models and their implications — not just economic.

The Case for Concerted Action
Alex Izurieta On UN Global Policy Model
V. Ramanan

Neil Wilson — Running a Modern Money Economy

MMT is a description of the existing monetary system and its interaction with the production mechanisms. It takes a unique viewpoint that highlights opportunities that remain out of sight to traditional methods.

From this viewpoint comes a number of suggested policy proposals. So how do those proposals help keep things running smoothly?

Modern Money Matters
Running a Modern Money Economy
Neil Wilson

Noah Smith — Did macro theory fail us in the crisis?

This is a useful article. Pay particular attention to point 4.

I feel like if you have models for everything, you don't actually have any models at all. Without a way of choosing between models, your near-infinite stable of models turns into one big giant mega-model that can give anyone any results he wants. Worried about a financial crisis? Pull out a model that tells you a financial crisis could be looming. Worried about inflation? Pull out a model where inflation is a big danger. And so on.

I'm kinda going to agree with Noah about this. If macro theory presumes a model that predicted the crisis precisely based on assumptions and deductive logic, what he says is true. No mathematical model predicted the crisis with precision. Moreover, there will likely never be such an econometric model for reasons that Keynes explained.

But what this says is that macro theory is not very relevant to the real world, and policy makers should not be looking to macro theory  for guidance, other than peripherally.

Business people understand this. If macro theory were useful in business forecasting and operations, businesses would be hiring macroeconomists and competing away the best ones with huge salary offers. The fact that this is not happening is all you need to know about the practical usefulness of macro theory based on formalized models.

I think that this shows how there needs to be a distinction drawn between macroeconomics as a theoretical discipline and political economy as a policy science that combines economics with political science, sociology, history, law and government, and psychology — all disciplines that deal with the real world empirically — and other relevant methodological disciplines like applied mathematics, systems theory, philosophy of science, and analytic philosophy.

Does this mean that theoretical macro is a waste of time? No. Theoretical pursuits have their place. But they should know their place and not represent themselves as something they are not.

If you ever want macro models to actually be useful, it's not enough to just wave your hands and say "all models are wrong". It's not enough to treat models as ways to "organize our thinking". You've got to have a way to take them to data and decide if you should keep them around, send them back to the shop for alterations, or burn them in a fire.

What it means is that macroeconomists should not be assumed to be especially qualified as policy advisors based on their knowledge of macro theory. Those seeking policy advise should look elsewhere, or at least at least much more broadly.

Noahpinion
Did macro theory fail us in the crisis?
Noah Smith | Assistant Professor of Finance, Stony Brook University

Noah Smith — Economics Gets Sucked Into Dark Corners

About the use of economics in policy formulation. Science or art?

Bloomberg View
Economics Gets Sucked Into Dark CornersNoah Smith | Assistant Professor of Finance, Stony Brook University