In the last week, it was alleged that economists such as the IMFs Olivier Blanchard were alleged to be working in the tradition of Hyman Minsky, which by association inferred that they were on top of the crisis – foresaw it, understand why it occurred and offer the best ways out of the mess. Please read my earlier blog – Revisionism is rife and ignorance is being elevated to higher levels – for an introduction to this issue. I argued that this attempted association is plainly false and Blanchard’s monetary economics is more in the Monetarist tradition, which is the anathema to the endogenous money framework that Hyman Minsky worked within. This is no small issue. The economists mentioned are often in leading positions (media, universities, policy) and influence the way the public (and students) think about the policy choices available. By promoting erroneous understandings of the way the monetary system operates, such economists become part of the problem not the solution, no matter if they are currently opposing fiscal austerity. If only they were operating in the tradition of Minsky!Read it at Bill Mitchell — billy blog
If only they were operating in the tradition of Minsky!
by Bill Mitchell
More smack down.
Paul,
ReplyDeleteFT article that Bill reviews uses concept of a "closed system" wrt reserves in the banking system...
Link goes to wrong article at billyblog...
ReplyDeleteThanks, Dan. Fixed.
ReplyDeleteimo Stella is making a mistake by not pointing out that when he says "injected into a closed system and cant get out" that this is a METAPHOR/ANALOGY....
ReplyDeleteNothing is being "injected" in reality... it is perhaps a good metaphor to use in trying to explain the procedures, but this should be pointed out.
Reserve BALANCES, ie an abstract mathematical regulatory construct, are not in reality injected... tho I agree one could use this metaphor/analogy for explanation purposes only...
FD: Nothing is being injected.
And "closed system" is useful for explanation purposes perhaps but only because RBs dont have anything to do with the non-bank sector for their regulatory purposes, hence they "cant get out"...
All these monetarists seem to want to do is think in what is basically a gold standard paradigm (maybe this is because at core they are really still "in love" with the metal).
rsp
@Matt,
ReplyDeleteI nod in agreement when I see that term being used in an economic article.
Another is reference to the 2nd Law of Thermodynamics, which implies the same idea.
There are many very bright commenters that visit this site that do not understand, or are not even aware of this very simple concept.
It makes it difficult for me to take their arguments seriously, even though they have far greater "knowledge" of all things economic than I.
It is better to be generally right than precisely wrong.
Matt: "imo Stella is making a mistake by not pointing out that when he says "injected into a closed system and cant get out" that this is a METAPHOR/ANALOGY"
ReplyDeleteWhat Stella means, I take it, is that reserves exist only as entries in the Fed's spreadsheet and only the Fed has the password for entering keystrokes. Banks can borrow and lend existing reserve among each other in the interbank market and get reserves in their dealings with the Fed, but they cannot inject reserves themselves. Only the Fed can do that. The idea of a closed system is that reserves only enter and exit through the Fed, although they can also be exchanged for vault cash, and vault cash is a two way street, with banks exchanging reserves for cash with they need it to supply window demand, and they return it for reserves when they have more cash than they want to hold.
@Tom
ReplyDeleteIn much the same way as the Earth is a closed system and energy can only enter via the Sun.
iow I think this would be good:
ReplyDelete"look, if you are having trouble understanding what I am trying to explain to you semantically, consider this analogy from physics: a gas can be injected into a closed cylinder, and this does not affect the air outside of the cylinder...."
@Matt
ReplyDeleteThat's a good one. As simple as it is it may fall on deaf ears though because "it is so simple it repels the mind".
In my experience (and probably yours too) even the swimming pool/tub analogy fails.
Apparently there is some difficulty in getting from point A to point B.
I suspect it is more of an internal defense mechanism than anyting else.
Their whole way of looking at this is a sort of "physical" paradigm with "injection" "supply" "liquidity"
ReplyDeleteI think it may at core be a "gold standard" or metallic standard mentality... minus the gold though.
and a lot of these monetarists you see being amenable to proposals to switch back to gold standard... they usually dont disagree with going back to gold...
they may be closet "gold bugs".
rsp