Monday, April 18, 2011

Perry Mehrling - What's Next?

"Otmar Issing, for example, offers a Nobel for anyone who provides a proper theoretical treatment that combines credit and money, financial quantities and financial prices. That is what practicing central banker economists like himself have always been looking for, and not found yet, certainly not in the pre-crisis academic consensus.

"A decade ago, Olivier Blanchard wrote an influential paper, “What do we know about macroeconomics that Fisher and Wicksell did not?”, in which he put forth a kind of Whig history of the progress of macroeconomic thinking up to 2000. Compared to today, suggested Blanchard, macroeconomics pre-1940 looks like “a period where confusion reigned, for lack of an integrated framework”.

"According to his account, the inter-temporal general equilibrium model (DSGE) provided that missing framework. Now, ten years later, we can see that framework in a different light, as the origin also of the “beauty” that economists mistook for truth, and apparently still do, if only by force of intellectual habit. The important takeaway is that the crisis has opened the ground for alternative frameworks as well as tweaks of the existing one.

"To be provocative, let me put it this way. We are living today in a period not unlike the inter-war period, a period where confusion reigns for lack of an integrated framework. We are living in a period of exploration and experimentation, not only in the policy world but also in the world of ideas. Let the new economic thinking begin."

Is this realization making room for MMT?


Anonymous said...

I think so. The Chicago School simply looks foolish right now insisting that we are at full employment, and the Keynesians repeatedly stab themselves trying to balance the budget over the long haul.

Mosler has a good chance to go big time here.

Tom Hickey said...

I believe that Warren sent Otmar Issing a copy of his book when he first got wind of this some time ago.