Tuesday, February 28, 2012

Ralph Musgrave — Modern Monetary Theory will not solve Europe’s problems

Read it at Ralphonomics
Modern Monetary Theory will not solve Europe’s problems
by Ralph Musgrave


Matt Franko said...

If I was from Greece I think at this point I would be pretty pissed at all of the people going around saying my country was not "productive".... Resp,

Matt Franko said...

"But imposing severe deflation on uncompetitive countries so as to get their costs down (in Euro terms) is the only method or tool they’ve got. "

What Ralph writes here coupled with the SGP fiscal limits and enforcement thru austerity is long term bearish for the Euro imo...


Ryan Harris said...

I'm amused by the productivity discussion. The implicit but unstated and unsubstantiated claim is that MMT does not provide the tools to increase productivity and also harms productivity. So I think it is time to ask, What is the magical mechanism they think creates productivity? Is it the invisible hand of the market? Is it the pressure of unemployment? Is it competition? Or just plain magical processes that can't be explained except by game theory? Explicitly identifying these things will move the discussion forward. What tools does MMT provide to policy makers and business to grow productivity. What harm does it do? Countries that have increased their productivity are readily compared to those who have lagged.

Matt Franko said...

Well for one TB, productivity gains do not come without investment.

When you have morons in charge who think "we are out of money", think of all of the productivity enhancing projects that are not even contemplated? Energy? Transportation? Education?

The mainstream/status quo is a joke.


Ryan Harris said...

That is exactly what I was thinking, Matt and I think that it is really quite simple when you look at how different countries actually work under different sorts of policies. When economists abandon the theories on what motivates individuals, companies, industries and countries to become productive and focus on what actually happens it isn't that complicated or magical -- though some of the measures of productivity can be deceptive, like the prescription of UNSNA.
I started following MMT because it was right and made it easier to make money because it doesn't rely on magical thinking, invisible hands, and corny unrealistic mathematical models that use questionable statistical methods. Lately these things are being injected back into the productivity discussion.

bob salsa said...

In complete agreement with TB and MF, but how do you assure the funds provided make their way to productive investments? And isn't the concern that they might not at the heart of the reticence to provide? How does MMT address or hurt that concern? If it only raises the anxiety of the concern, then it stays a hard sell.

Tom Hickey said...

how do you assure the funds provided make their way to productive investments?

For one, use the sectoral balance approach and functional finance to offset saving then design fiscal policy that 1) taxes unproductive behavior (economic rent and negative externality) and doesn't tax productive behavior (primary investment and productive work), and 2) invests in education, R&D, and infrastructure.