"Austrians and MMTers should be on the same side. After all, both camps understand the relationship between money and credit, and both understand the full ramifications of having fiat money. They should be on the same side arguing against economists who argue that demand can be created by flooding the banking system with reserves, and both should be on the same side arguing against those who think that increasing inflation expectations is an effective way to get an already over-indebted economy to take on more debt...."
Interesting take. Edward Harrison of Credit Writedowns is an Austrian economist that has incorporated MMT, for example, so it is not as farfetched as it may first sound.
Interesting idea, there's a straightforward solution but the brick wall the Austrians must run through is deficit hysteria.
ReplyDeleteAs I've suggested before, Congress could set up an automatic fiscal policy with a payroll tax holiday tied to unemployment rate. Formula could be, reduce FICA withholding by 10% for each 1% of U3 rate. so 8.8% U3 rate would mean standard (15.3%) FICA rate is reduce by 88%. Every month as BLS adjusts U3, Tsy would adjust tax rate.
Instead of current 2 percentage point FICA tax holiday (a 13% reduction from standard FICA), an 88% reduction would, in turn, mean a 13 point reduction from standard 15.3% FICA rate. Now THAT'S a tax cut.
Its FICA's very regressivity that'd make a FICA holiday so effective in boosting aggregate demand. The only thing better would be the only tax that'd even more regressive, a national sales tax. :o)
Do Austrians believe that a coin in circulation is just a Liability of the government ?
ReplyDeleteThen they have to proceed to the belief that a bond is also just a govt liability. They have an aversion to govt liablilites.
Then they also have to accept that the non-govt has savings desires that the govt must meet thru est govt liabilites.
I think many within MMT have been trying to engage like we have done here with WWS. The Austians have an irrational zealousness for so called "precious" metals seems to me, many humans in these times do. It wasnt always that way.
But I think Tom you have stated that Edward Harrison has made the transition maybe there is a way for them to snap out of it...
Resp,
Austrians and MMTers & their forefathers have a long history. MMT predecessors Marx (first to understand demand-constraint) & Henry Dunning McLeod (banking, "loans create deposits", credit theory of money) both debated Austrian Eugen Bohm-Bawerk (& each other) some of a million things I plan to read if I ever get the time. In the so-called Methodenstreit, Menger & the other Austrians were the opponents of the German Historical School, that included Knies & Knapp of chartalism.
ReplyDeleteAbba Lerner studied under Hayek (who argued a lot with Keynes also). There is a definite Austrian flavor to Lerner's writing. Semi-Austrian Austrian Schumpeter was the teacher of Minsky, who taught Wray. Some see similarity between Austrian Business Cycle Theory and Minsky's Financial Instability.
Both camps have not forgotten that truth is not a meaningless word, and can understand conceptual clarity. In comparison, arguing with the mainstream is like fighting a wet noodle. Austrians might often be crazy or wrong, but the mainstream is often "not even wrong".
Matt: The Austrian school was founded by Menger, who understood and defined money as a commodity, a thing, that arose from free trade and markets. So they see the government as just something that interferes with the pristine market, and this is the root of their gold-buggery. There are a lot of fanatic blog-Austrians out there, but the smarter ones have a decent chance of being converted to MMT, Harrison isn't the only one who has.
hey all,
ReplyDeleteso I've been commenting on that blog post over there like crazy...b/c frankly I agree with the author and feel that Austrian econ and MMT econ do need to combine...I actually suspect that Warren feels the same way...especially considering he's a Libertarian at heart and I believe he's alluded to that in a comment or two.
Anyway this one person named Ellen asked this question over there and I answered her as best I could but figured I'd grab some of you guys to head over and talk to her too in case I misspoke and/or there's more to add.
Here's her question and so head over there!! I do think if the unification of Austrians and MMT'ers would be more than a huge step in the right direction.
"Question for MMTers --
Without government debt out there to give the Fed's trading desk something to buy and sell (that is, OMOs), how would the Fed conduct monetary policy?"
Before any Austrian's make sense, they have to debunk pseudo Austrianism like that of Rachel Bachmann who today is reported to compare the Holocaust to the tax burden that today's grandchildren will have to bear in the future.
ReplyDeleteShe is wacked out of it, and she conveniently disclaims that "nothing is worse than the Holocaust" but she is using the Holocaust for FALSE ECONOMIC AND POLITICAL AGENDAS.
Mario, see:
ReplyDeletePaying Interest on Reserve Balances: It's More Significant Than You Think: Fullwiler.
Pretty good place to start on that one.
http://www.cfeps.org/pubs/wp-pdf/WP38-Fullwiler.pdf
ReplyDeleteMatt, this is what I answered in comments at my site. I haven't read much Austrian, "but from what I've read of some written posts and comments of some Austrian-leaning people, they already possess the concepts to come to a common understanding of the economy with MMTers. It all boils down to whether they acknowledge that we are already on a fiat world, and whether they find it acceptable or not. If they abhor it, no amount of discussion will convince them of the viability of the world as described by MMT. I think the discussion needs to be on the basis of whether we should have a fiat currency, or one based on a gold standard. All ideas and beliefs of Austrians seem consistent, but in a world where currency cannot be issued at will. This was true sometime ago, but not anymore. Do we go back to it or not, that should be the discussion."
ReplyDeleteI would further add that some people who favor Austrian economics don't understand the gold standard. Some think that in a gold standard economy, the price of gold will rise together with the growth of the economy, rather than constraining growth, or causing a decline in other parts of the economy. In short, some people who think a gold standard is good are actually describing the fiat monetary system that we have now.
yes there are many quacks that exist in the land of Austrians to be sure. However I respect the wealth creative focus that Austrians bring to the table. I think they're "grounded" (earth and metal) nature is good for an economy and good for producing things.
ReplyDeleteHere's a good post by Rogue on going bank to gold, with a humorous spin.
ReplyDeleteWhat would happen if we went back to the Gold Standard
"Politicians encourage creationists and scientists to get together."
ReplyDeleteThe Austrians should be deprived of any serious attention, with all attention focused on getting more stimulus to get this economy moving. That will end Austrianism.
ReplyDeleteWhy would anyone want to have any association with these idiotic cretins at all?
Hey all,
ReplyDeleteJust fyi...Ed Harrison has reposted Rogue's article as well today and it appears there's some discussion going on over at his comments.
You may wish to hop over there and chime in as it looks like they are saying some interesting things regarding MMT and Austrians and fiscal policy.
Here's the link. Cheers! http://www.creditwritedowns.com/2011/04/austrians-and-mmt.html
I do think that Austrians and MMT'ers agree that the bailouts aren't good, that business needs to be revived again instead of rent seeking activities and that the people need to be focused on once again to create a solid economy. There's alot in that for MMT and Austrians to connect on and as someone else said here MMT roots are tied to Austrians.
Oh and btw I really like your FICA formula Beowulf. That's a great idea.
Hey all,
ReplyDeleteAlthough not directly related to this post, I figured I'd share this here anyway to get your input. In this video link below at 13 minutes and onwards, the gentlemen shows how there seems to be a positive relationship between an increase in the money supply and a STRENGTHENING in the currency in Australia. Now who knows if this holds true for the US as well, but this relationship is interesting it seems to me to say the least. This positive relationship seems to have been playing out for at least 20 years now (20 years!) in Australia. I highly suspect the same is true for the US but I have no figures currently.
Can you guys think of any fundamental reason as to WHY and HOW this relationship exists? This relationship seems to clearly fly in the face of most economic theories which state that an increase in the money supply causes a DECREASE in the currency’s value. It would be nothing short of revolutionary I’d say to figure out how such a presumption is not necessarily accurate. I was thinking it could be b/c of a balance sheet recession coupled with positive fiscal policy however this relationship seems to be functioning for over 20 years now…
Your thoughts would be greatly appreciated and honored. Here’s the video link…again he starts talking about it at 13 minutes and onwards.
http://emini-watch.com/emini-trading-update-friday-29-apr-2011/3641/
"Oh and btw I really like your FICA formula Beowulf. That's a great idea."
ReplyDeleteThanks Mario, but its certainly not original to me. An obscure British economist suggested something similar at the end of World War II:
Keynes preferred a formula of the type later described as built-in flexibility... (1) steady rate of state-planned capital spending for two-thirds to three-fourths of total investment and (2) changes in the social security taxes paid by firms to encourage investment during a recession. Tax reductions were to be automatic. When unemployment reached 8 percent, tax rates came down; when unemployment returned to 5 percent - "the minimum practicable rate" - tax rates were to return to their long-term value. Keynes opposed counter-cyclical policies to change interest rates...
http://books.google.com/books?id=03FNdTbHMTwC&pg=PA294&dq
Of course, since the range of possible unemployment rates is wider than 8% and 5% (and because it makes the math simple), I'd scale the formula from 10% to 0%, but he certainly had the right idea in using fiscal policy instead of monetary. I guess that makes Lord Keynes the first Post Keynesian (which would probably amuse him).
His capital spending proposal is itself an interesting suggestion. Assuming he meant net investment (that is, after depreciation), two-thirds of total investment sounds about right-- limiting public projects, of course, to those justified by cost benefit analyses. Net public investment in 2010 was 20 billion higher in 2010 vs 2006, while net private investment was $600 billion lower. (see lines 50 to 56). It certainly would make sense to stabilize aggregate demand across the business cycle with higher levels of BCA positive public investment spending year in, year out.
http://tinyurl.com/3megk69
By happy (or unhappy) coincidence, our estimated $500 billion annual shortfall in needed infrastructure spending is about the same size as our trade deficit. So we can fill in our potholes at the same time we fill in our foreign sector demand leakage.
Mario,
ReplyDeleteThe $AUD is driven by commodities which are usually sold in $USD, so the declining rate of the $USD sees more $AUDs on the market at present (& the value of the AUD increase).