Wednesday, January 25, 2012

Trader's Crucible — Monetary Realism and MMT

Read it at Trader's Crucible
Monetary Realism and MMT
by TC


googleheim said...

here is some monetary realism -

Enbridge the Canadian company behind the Keystone has now said it will sell it's oil via Warren Buffett's train system to West Coast for export to China.

The whole point of the Keystone was for American independence of oil and to make to refineries down south ( instead of building them up north ).

By saying it wants to sell to China now, it is just saying they only want to sell the oil and they don't care who gets it.

It's not about the independence at all.

Matt Franko said...

Looks like they want to back burner the JG for now and just go after some of the more basic false perceptions out there Tom. (taxpayer on the hook, bond vigilantes, etc..)

I hope they really do this.

There are many, many morons out there that need to be confronted and rebuked often and publicly.


Tom Hickey said...

The economists provided a well reasoned and documented foundation but they aren't point people. Need a vanguard for that, out there seeking targets of opportunity. But without a solid foundation in macro, ideas will never influence policy people that count. In the first place, they listen to the top academics who have their ear, and secondly, they would never do anything that the academy nixes. So this necessarily endeavor requires a multi-pronged approach.

geerussell said...

Even though they've essentially abandoned macro (or at least gone back to the drawing board on it out of opposition to a JG), to the extent they weaken popular resistance to MMT's descriptions it'll be a net good.

I imagine their efforts will open a few minds for MMT academics presenting a complete macro approach.

wilwon32 said...

@googleheim et al

I am not sure what led you to believe that the Keystone proposal had anything to do with American independence wrt oil products. It has been common knowledge among opponents of that project for a long time that the idea promoted - that this project would have something to do with providing independence wrt Middle East or other sources - was false. It had about as much credibility as the idea that Alaskan oil would provide a resource primarily for domestic consumption when, in fact, a major portion has been supplied to the Far East countries. On the other hand, the proposed route of the Keystone pipeline through the plains states had a significant percentage chance of fouling a major aquafir with the possible environmental consequences unimaginable. (I haven't a quick reference, but anyone interested can google for that info.)

Tom Hickey said...

I imagine their efforts will open a few minds for MMT academics presenting a complete macro approach.

In what sense? That's what macroeconomists do, and as far as I can tell, the MMT economists feel that they have a well-worked out package that resolves the major policy issues in terms of effectiveness wrt public purpose and economic efficiency. While that claim remains to be shown in fact through policy adoption, the claim has not been disproven theoretically.

Modern Realism is not going to challenge MMT as a macro theory without taking it on as one, showing its weakness as a macro theory and presenting a more optimal macro solution. Cullen has said that he is not a macro guy and has no intention of trying to do that. In fact, I tend to doubt that anyone who is not working in economics rather than finance or elsewhere would have the necessary background or time to do this. But a working group might be able to mount something.

The MR team has some interesting ideas that should be interesting to see developed and presented. For example, Beowulf has some provocative suggestions for a more market-based approach to inflation, trade, and employment, building on work of the later Lerner, Vickrey and Buffett. But the MMT economists already knew about this and apparently chose not to go in that direction for whatever reason. Maybe that will come out in an ensuing debate. I will be interested to see how this develops.

Perhaps they can interest some others who are close to MMT but not totally on board, like JKH and Ramanan. Maybe they could recruit some macro guys, too, like Steve Waldman (who trades) and Steve Roth.

But overall, I see different focuses aimed at different audiences. MMT is stil the only macro theory still standing that purports to resolve the policy trifecta of economic growth relative to population growth, full employment of the population, and price stability. It's not by accident that there are the focuses of macro. They are the focuses of economic policy and policy makers want direction from economists about how best to proceed under the pressure of existing and anticipated conditions.

On another note, one thing I have not seen addressed about the JG: It is essentially a mopping up operation as MMT conceive of it. If well implemented, the sectoral balance approach and functional finance should keep the economy close to equilibrium at optimal output potential along with FE & PS. But given the data and the way policy instruments work, this is unlikely to be precise enough to reduce unemployment as much as it could be dropped using an ELR, too. That makes the economy more efficient than a solution without a JG unless it can be shown that the other solution effectively maintains equilibrium at FE & PS.

Additionally, other interesting issues have surfaced in the debate. I would like to hear more discussion of Peter Cooper's ideas relative to a basic income guarantee, a job guarantee, and combo JIG, as well some of the other things he has broached.

I would also like to hear a way to get around the complaint against conventional approaches concerning the commoditization of labor, which in my view is the Achilles heel of capitalism, making it fundamentally incompatible with liberal democracy. The economic aspect of this issue has been formalized by Amartya Sen as the liberal paradox.

This is the elephant in the room in my view, and it is at the basis of the present political kerfuffle that going viral globally and isn't going away anytime soon. The workers of the world are waking up and realizing that they are no only getting a bad deal. They are being devalued as human beings. Any economists that don't yet realize that this is a huge and looming policy issue are asleep at the switch, with a freight train full of product racing to collide with a passenger train filled with people.

Tom Hickey said...

googleheim, as you know, petroleum is fungible, and the US is strenuously pushing for continuing sales of oil in the global market rather than through contracts between users.

The idea of US oil independence is an oxymoron. The market supplies product to the highest bidder.

If the US is to develop energy independence it will have to be using local energy sources that are decentralized and cannot be exported, or else resort to export controls to prevent exporting to higher bidders.

Matt Franko said...


Perhaps Romney's nomination will advance this debate.

He comes from a Private Equity background.

All they do is bribe a bank to lend them money to buy 2 existing Cos. and merge them and then throw a bunch of overhead people out of their jobs and replace a bunch of the jobs that remain with illegals to dress up the financials and then flip the now Co. back out into the market and make money...

Who can't do that?

But underlying this industry is a basic belief that its good to throw people out of their jobs... this could be an issue with Romney....


geerussell said...

"In what sense?"

I was reaching for a positive spin, hoping that minds which have had their conventional paradigms challenged by MR would be more fertile ground for MMT than they might otherwise have been.

"provocative suggestions for a more market-based approach to inflation, trade, and employment, building on work of the later Lerner, Vickrey and Buffett."

So, Vickrey. I was unfamiliar with him until Cullen suggested inflation warrants as a non JG FE&PS solution.

Reading about him has been a treat. He was an interesting character and his ideas are intriguing.

Whatever the merits of inflation warrants, I did find it interesting that the only specific FE&PS alternative offered so far shares the same "theoretical and politically difficult" traits that were used to argue against the JG.

Tom Hickey said...

geerussell: I was reaching for a positive spin, hoping that minds which have had their conventional paradigms challenged by MR would be more fertile ground for MMT than they might otherwise have been.

Agree that it will be net positive on several counts. First it will widen and broaden the debate, reaching a lot more people. Secondly, it will provide a foil for debate within the MMT core paradigm, allowing for greater elaboration of ideas and options.

Tom Hickey said...

Matt, I think that the GOP nominee, whoever that may turn out to be and I think it will be Romney, will have to address inequality as the "defining issue of our time." So far, Romney has been on the other side of this both in his personal history and his campaigning. His attempt to paint himself as "a man of the people" is just ludicrous.

Letsgetitdone said...

I'm wondering how they will handle "full productivity." None of them has yet defined it, though Cullen has claimed that it is served by a UE buffer stock better than by a JG buffer stock. To my mind, he must show why this is the case, and also show why "full productivity" will produce "prosperity" which Cullen counter-posed to the MMT goal of "public purpose." Finally, the MR team will have to show that "prosperity" is either a dimension of "public purpose" and a more important one than FE with a living wage/PS, or else that "prosperity" is preferable to public purpose as an overall goal.

I don't think they will be able to show any of this, but Cullen and TC are very oriented toward marketing and may be able to gain ,any adherents even if they don't successfully "show" any of these things to people with a strong critical orientation.

So, we will have to see how things develop. Meanwhile, MMT will change anyway. It's possibilities have only begun to be explored. I hope it will evolve more towards Peter Cooper's views and towards Green New Deal notions. I think that's where the future is.

Tom Hickey said...

Agree, Joe, that productivity is more a problem for UE than a solution. Increasing productivity just idles more workers unless leisure is distributed more widely. In fact, the pace of this is picking up through innovation in automation and robotic technology. The ability to telecommute is also erasing national boundaries.

I have a friend who has a small company that appears to be US-based, but he's the only one located in this country. Even the servers are in India. He just does marketing and customer service from here, and maybe tweaks some code if required.

So how productivity is going to address UE, I can't imagine. But maybe Cullen means something else by productivity than output per unit of labor. I don't know what "full productivity" could mean in this context.