(P.S. Non-economists may be surprised that I haven't said which textbook I would recommend. That's because it doesn't really matter much. They are all fairly similar in coverage and treatment. And they are almost all good, in my opinion.)
Read it at Worthwhile Canadian Initiative
Can you please read a first year textbook?
Nick Rowe | Associate Professor, Carleton University
My commment at Nick's place:
Now my thoughts on the matter of introductions.
I think that there is a problem here that has been identified by cognitive scientists, and it's widely used commercially in advertising and marketing. It's called anchor bias.
Can you please read a first year textbook?
Nick Rowe | Associate Professor, Carleton University
My commment at Nick's place:
Nick: "(P.S. Non-economists may be surprised that I haven't said which textbook I would recommend. That's because it doesn't really matter much. They are all fairly similar in coverage and treatment. And they are almost all good, in my opinion.)"
Like the ones that teach the money multiplier? :o
BTW, Lorie Tarshis's The Elements of Economics (1947) can be downloaded free here.Keynes before Samuelson et al mangled him.
Now my thoughts on the matter of introductions.
I think that there is a problem here that has been identified by cognitive scientists, and it's widely used commercially in advertising and marketing. It's called anchor bias.
The first exposure to something creates and anchor, which is why first impressions are so important in life. If one is exposed to wrong ideas first, then it will be more difficult to shake them later. It's a matter of neural pathways. One neural pathways are opened, they create biases against other pathways, since information flows more easily (efficiently) through pathways that have been opened previously.
Anchoring is closely associated with confirmation bias. People tend to seek views that confirm already held opinions. Information is processed quickly to qualify candidates and reject those which conflict with already held views.
So, yes, which textbook one studies first can make a huge difference in how one approaches a subject.
My field is philosophy, and I entered grad school with a lot of cognitive biases that it took me several years to overcome. There is no way that reading an introductory philosophy texts would have helped me to avoid this problem, and the fact that I was coming out of a life-long Catholic education certainly influenced by views and my approach.
There is no introductory book in philosophy that can possibly inform a student of the field in one reading. The issues are complex and the historical debate over the most basic issues still rages indecisively. There are not "answers." There are methods for formulating and evaluating rationales, but there is no overarching criteria as there are in math and natural science, where the criteria are proof or "pedigree" and empirical evidence or "warrant" respectively. These criteria only apply loosely in life and social sciences, since they are non-ergodic, reflexive, and qualitative.
I would suggest rather beginning with a history of philosophy that surveys the field in terms of its development instead of a text. Then one would see that philosophy does not provide answers, like quantitative subjects dealing the the natural world. But even here, all histories of philosophy approach the subject from a particular point of view.
Moreover, just about all philosophy texts contain readings from the great thinkers that shaped the field. One can only learn philosophy by observing what the greats actually did. Texts which summarize and simplify problems are rather useless other than as reminders after one has already studied the material deeply.
Economics is similar. To get the drift of economics, one needs to understand the history of economics and the history of social and political thought as well, since they are closely intertwined. Here all again, all histories are composed from a point of view, and previous economists are viewed through that lens.
The honest way to teach economics is to admitted that it is not a science like physics nor a method like math, but rather a spin-off from social and political philosophy. As such, economic does not and cannot provide precies answers to most issues in political economy, and economic models in abstraction are much too simple to fit the complex world in which we live. They serve as aids to thought. When they claim to be solutions, they exceed their bounds as models.
Many if not most people that visit to economic blogs are interested in economics in relation to policy, not economics per se. They want to know how economics informs the political debate over policy formulation based on a rationale rather than only ideology. The task of economists is to illumine this honestly, not making claims that cannot be substantiated.
The economics debate should be over "good" versus "bad" economics rather than schools or personalities contending. Non-economists that visit blogs want to see a good case made for a position and see that position challenged by informed opponents. This is the way that informed electorates come to better political choices based on understanding and analysis of issues. Economic policy is not the only important matter with respect to policy either. Voters also want to see a comprehensive approach to policy, not a piecemeal one that ignores consequences in related matters.
36 comments:
This is good stuff to keep in mind with regard to the "morons".
It's easy to poke fun at flat-earthers but when you spent all your life fearing the edge of the world it's hard to just wave that off.
Tom: My first degree was in philosophy too. They never gave us a philosophy textbook, we just waded right in with AJ Ayer's LTL, IIRC.
And I never had one of those big surveys of the history of philosophy either.
It was a great experience studying philosophy. But looking back on it (apart from wondering "Wow! What was that all about?") I did sense a certain lack of some course that would have given a brief synopsis and put it all in perspective.
But it's hard to imagine there being an intro philosophy text in the same way there can be an intro economics text or an intro psych text or an intro polisci text.
Nick,
Have you ever read Lorie Tarshis' introductory textbook? It was basically blackballed. It would be well worth your time to wade through all 500 pages of it
Nick: "But it's hard to imagine there being an intro philosophy text in the same way there can be an intro economics text or an intro psych text or an intro polisci text."
First I want to say, Nick, that I think your post is really important because it brings up issues that we need to be confronting directly. This is really about how economics is taught, since it lies at the heart of policy debate and policy choice. Getting this even slightly wrong has potentially magnified social consequences due to policy choice based on either erroneous thinking or lack of clarity on key issues.
Turning now to philosophy and economics. Back in the day, there were intro texts in philosophy, and they continued to be used in Jesuit schools until the Sixties. The shift occurred between my undergrad and grad years at Georgetown.
Those texts were called "scholastic" and approaching philosophical issues from the point of view of the Thomistic Scholasticism stemming from Thomas Aquinas. They teach exactly what students are looking for because they lay everything out in a very logical and convincing manner that provides the answers that students who already have been indoctrinated into a particular ideology from catechism class in grammar school seek due to anchoring and confirmation bias.
It took me some time to be able to a critique this approach intelligently, instead of just throwing, say, Hume at it. Thomism has an answer for Hume and others, of course, in terms of its assumptions (self-evident first principles, intellectual intuition) and methodology. I went on to do a dissertation on the logic of justification in ordinary language using Wittgenstein's On Certainty. But a lot happened in between that involved a lot of personal wrenching.
I happen to disagree that economics is different in this regard. It's all about assumptions a starting points and methodology, especially criteria. This is the point of heterodox economists, many of whom see orthodoxy as the "Aquinas" of the existing status quo controlled by a neoliberal elite who are both profiting from the current approach and promoting it in their interest. Most assistant profs, the one's teaching the intro courses, are expected to adopt a "standard" text. Creative ones introduce supplementary material, too.
For example, if you haven't read Michael Hudson's most recent blog post, "Veblen’s Institutionalist Elaboration of Rent Theory", do so and you will see what I mean. It's transparent, and it largely accounts for why the mainstream missed the GFC and doesn't seem to know now how to fix it. Equating price with value, there is no theory of economic rent. It should be required reading as supplementary material in an intro course, and discussed as well, with a promise that it may be on the test.
(continued)
(continuation)
This is not to say that there are no answers in either philosophy or economics. It's just that the answers are such that many do not wish to hear them and other who don't want them spoken.
In both phil and econ, the truth is that we know a lot less that we would like to believe due to complexity of the data, subjectivity of the processing agent, and logical-methodological constraints like lack of availability of criteria.
Of course, it is easy to generate simple models that appear like solutions but which don't fit the real world. Even complex econometric models for grad studies. Such models can be helpful for students as thinking aids, but students don't seem to get that they cannot be extended to the real world and its complexity.
Perhaps students are not told. I don't remember being told this when I studied Samuelson. But that's fifty years ago. However, I do remember the basic points because they were drilled in.
But what about simple models that do fit the facts because they are based on identities, such as the necessity of the govt and consolidated non-govt balances summing to zero and therefore being inverse. From this certain consequences follow about changes in non-govt saving desire and the size of the govt fiscal balance in relation to economic performance, employment and price stability. I don't recall ever hearing that as an undergrad in econ or finance (I minored in business and finance.)
But I do remember learning the money multiplier and exogenous money, which turned out to be wrong because the multiplier is just the reflection of an accounting residual in a system in which money is endogenous.Not sure that was in Econ 101, tho, could have been later when I was trading and monetary policy was all the rage.
This is sort of comparable to scholastic philosophy texts getting rules of syllogistic logic wrong. At least they didn't do that.
Here's a post by Matias Vernengo on the publication of In Defense of Post-Keynesian and Heterodox Economics. From the blurb:
Post-Keynesian and heterodox economics challenge the mainstream economics theories that dominate the teaching at universities and government economic policies. And it was these latter theories that helped to cause the great depression the United States and the rest of the world is in. However, most economists and the top 1% do not want mainstream theories challenged—for to do so would mean questioning why and how the 1% got where they are. Therefore, numerous efforts have been and are being made to discredit if not suppress Post-Keynesian and heterodox economics. These efforts have had some success; this book is a response to them.
This book makes it clear that Post Keynesian/heterodox economics is, in spite of internal problems, a viable and important approach to economics and that it should resist the attempts of the critics to bury it. The reader will also find arguments that directly engage the critics and suggest that their views/criticisms are vacuous and wrong. As such, this will appeal to all who are interested in economic theory, economic history and who believe in challenging the orthodoxy.
Clonal,
Eh. I'm not sure it's all it's cracked up to be. I've gone through most of it - picked it up at a used book store in Detroit - and for a historical perspective on Keynesian economics as well as a grasp of the going economic thought of the time, you might as well just read the General Theory.
It's interesting that a tiny Catholic college in Detroit would have assigned it in the 1950s when Samuelson's text was already available.
Seems like Nick Rowe thinks the existing intro econ texts are a valid entree into the field. But in doing so he misses the point you were making, that the intellectually honest way to teach intro to econ is as a history of thought class. The majority of US texts try to present it as a science like physics, complete with numerical examples, trying to impersonate a real science. But its not, its more akin to philosophy.
Waste of time.
Better read a finance or business books. At least they are don't try to perpetuate some sort of propaganda.
Economics is like doing finance pretending money does not exist (or worse, it's neutral). When an introductory economy book talks about thermodynamics I may consider it worthy to recommend, meanwhile is just bullshit.
P.S: Economists are generally scientifically illiterate people, which is a shame. You can't talk about economics if you don't know physics, engineering, biology nor psychology, sociology and other and other similar subjects.
If you want to talk about finance talk about finance, but don't pretend you are talking about 'economics'.
Better read a finance or business books. At least they are don't try to perpetuate some sort of propaganda.
I see you've never met the CAPM. Finance is absolutely loaded with unsubstantiated notions, untestable hypotheses and all around propaganda.
The blurb to Joan Robinson's Economic Philosophy (Aldine; First Edition edition 1963, reissued 2006) :
"Economics has always been partly a vehicle for the ruling ideology of each period as well as partly a method of scientific investigation. It limps along with one foot in untested hypotheses and the other in untestable slogans. Here our task is to sort out as best we may this mixture of ideology and science." With these provocative words, Joan Robinson introduces this lively and iconoclastic book. "
In what follows," she says, "this theme is illustrated by reference to one or two of the leading ideas of the economists from Adam Smith onwards, not in a learned manner, tracing the development of thought, nor historically, to show how ideas arose out of the problems of each age, but rather an attempt to puzzle out the mysterious way that metaphysical propositions, without any logical content, can yet be a powerful influence on thought and action." Robinson is responsible for some of the most austerely professional contributions to economic theory, but here in effect she takes the reader behind the scenes and cheerfully exposes the dogmatic content of economic orthodoxy. In its place, she offers the possibility that with obsolete metaphysics cleared out of the way economics can make a substantial advance toward science.
Notice the term "iconoclastic." That's heterodoxy in any field and it is marginalized by orthodoxy precisely because it is iconoclastic. The only what the door is opened is if the heterodox accept the orthodox frame, which makes it impossible to win in the debate. This is all about the framing.
"Better read a finance or business books. At least they are don't try to perpetuate some sort of propaganda.
I see you've never met the CAPM. Finance is absolutely loaded with unsubstantiated notions, untestable hypotheses and all around propaganda."
Sorry, I expressed myself wrongly, you are completely correct, off course there is plenty of propaganda in finance and business textbooks.
But at least finance it's what it is, it does not pretend to be a science which represents objectively the world (although there are some attempts at matematization and support imported from economic science).
The problem with economic theory is that it does pretend to present a balanced world view based on solid empiric foundations, which it doesn't.
Not saying that if you use MPT (personally I'm all against it and never have used it in my professional or personal portfolio management) you are not falling into a trap lied by wrong understanding of probabilities and uncertainty, but you are only hurting yourself (or your clients) with stupidity, not the the whole humanity. Neither you are brainwashing the whole population pretending you know what you are talking about.
"Notice the term "iconoclastic." That's heterodoxy in any field and it is marginalized by orthodoxy precisely because it is iconoclastic. The only what the door is opened is if the heterodox accept the orthodox frame, which makes it impossible to win in the debate. This is all about the framing."
Exactly!
The only worthy economic books are the ones which discuss the foundational axioms and principles that direct each school of throught. So either you read the general theory of Keynes or the critiques by Hayek, or Das Kapital of Marx, or Kalecki or Minsky or other more 'obscure' authors which present and try to explain their foundational axioms and worldview or it's a waste of time.
Of what use is to 'digest' a textbook which only gived you their mainstream unfalsifiable foundations as fact without further discussion? Only to create 'morons' who can't question things (or who just can pass some test so they get a title so they can join the 'structure'?).
That's why reading 'history of economics' is much superior to reading an itnroductory textbook to econ101.
Question. MMT and Steve Keen insist a loan results in an endogenous expansion of purchasing power, and not a shift from savers to borrows. The empirical data supports this by showing credit money leads base money by up to a year. So where did the myth of the loanable funds model come from? It seems pretty shocking a nobel laureate, Krugman, could consistently make such a basic error.
"So where did the myth of the loanable funds model come from?"
gold standard
Doesn't the idea of the money multiplier (which I know is wrong) imply that a bank is not simply lending a savers money to a borrow? (since the money multiplier model results in a sort of creation of money) I think the ideas of the money multiplier pre-date the end of the gold standard. It doesn't really seem plausible that one day in 1971 banks changed how they operate and suddenly had the ability to lend without actually having the money first and no one noticed.
Tom: OK, I did actually start reading that Michael Hudson post. Then I started skimming it, then I stopped. Because I really got nothing out of it. So much of it was just plain wrong. I could spend a week fisking it. But I'm not going to.
To take one tiny example: your own takeaway from his post: "Equating price with value, there is no theory of economic rent"
Yes there is. It's right there in first year textbooks.
On the other hand, I did get something out of reading your comment. I see your point on scholasticism, on the "first perspective" idea, and on the benefits of a history of thought approach.
But Hudson's piece...nada. (And I have actually read some Veblen, years ago).
Maybe I should spend more time reading Steve Williamson, who I also usually disagree with. There are only so many hours in the day. I can't read everything.
What's going on?
Let us make a list of mainstream macroeconomics textbooks to see how many texts do not use the money multiplier:
1. Baumol/Blinder
2.????
Even John Taylor's book has the money multiplier story.
Nick I am unable to assess the merits of Rowe vs. Hudson, even if you had time to critique it. But this is exactly the debate I think is needed, since it strikes me that Hudson as it right and he is an economic historian as well as a former Wall Street economist.
And of course, there is a widespread acknowledgement of a difference between price and value, e.g., market price, book value, replacement value. That that is not the issue that Hudson is taking about.
As someone who understands RE since some of my friends make a lot money from dealing it it, I can say that there is a huge difference between what one can build a house for and what one can sell it for, and that difference is what the bank is willing to finance the property for.
Remember that the same banks finance the contractor as the buyers, so they know the spread and have to be aware that they are enabling it. The rent extracted by both the contractor and the bank is huge. That is now bringing the states of California, Florida, Nevada, and Arizona in particular to their knees.
Even worse, a lot of fraud, predatory lending and general impropriety was involved, which the FBI reported on in 2005. Crime and fast dealing is pure rent.
Ramanan "1. Baumol/Blinder 2. ??"
Yes, I was told to get that, maybe by you. Marc Lavoie edited the first Canadian edition (2009) and that's the one I picked up.
"Doesn't the idea of the money multiplier (which I know is wrong) imply that a bank is not simply lending a savers money to a borrow?"
The way It explains It, student understands It as if bank needs deposit prior to making a loan. This is the way I first unerstood It taking an econ class. People think of money as things made out of paper. No one in the group I was in university with understood how this process works. If someone would have told them that bank is just adding numbers to your account and the numbers don't come frome anywhere, they wouldn't have believed It. If this is so obvious like Nick says then why don't most people understand It? For if they did, this would make the debate a whole lot easier. For example "printing money" wouldn't sound as bad, because private banks do It every time they give a loan.
It is precisely the monetarist paradigm and quantity theory of money that is the problem.
"It doesn't really seem plausible that one day in 1971 banks changed how they operate and suddenly had the ability to lend without actually having the money first and no one noticed."
They didn't have the gold standard prior to that, It was Bretton Woods.
i know Nick's argument is against "banks are not reserve constrained" that in long run when CB is targeting inflation, It comes to the same thing. It doesn't.
"It doesn't really seem plausible that one day in 1971 banks changed how they operate and suddenly had the ability to lend without actually having the money first and no one noticed."
Yes, you're right. "loans make deposits" was still true pre-1971.
Why does Friedman say: It doesn't happen here inside the bank, It happens as a result of transactions in between the banks?
http://www.youtube.com/watch?feature=player_detailpage&v=Iv6RFubNxXo
Leverage: "The only worthy economic books are the ones which discuss the foundational axioms and principles that direct each school of throught. So either you read the general theory of Keynes or the critiques by Hayek, or Das Kapital of Marx, or Kalecki or Minsky or other more 'obscure' authors which present and try to explain their foundational axioms and worldview or it's a waste of time."
This is exactly right. How does a system work in terms of parameters, assumptions, methods, key terminology, and conclusions.
This is precisely what one learns in the studying the history of philosophy, since every philosopher provides a systematic articulation of a a worldview.
Criteria are context-dependent, and there is no overarching context, hence, no absolute criteria. No worldview can justify itself and all justification takes place within the context of a worldview as a frame of reference that provides criteria, norms and values, as well as a lens for constructing facts, which result from "seeing-as," as Wittgenstein put it.
Thus, the question becomes, first, how does the system hang together (consistency), how well does it fit experience (correspondence), how useful is it in terms of consequences (pragmatism), and how simply is it expressed (elegance).
The arts, sciences and humanities are subsets of a worldview in which context is interpreted in terms of the frame. Different approaches to economics are different cognitive frames. To step into that frame is to acquiesce in the rules that determine it.
This is why the mainstream wants to proclaim that a Kuhnian normal paradigm has been achieved in economics and anyone not operating it terms of it is marginalized by the rules of the game.
Heterodox economists are smart enough not to fall for that, unlike Democrats that can't resist jumping into the opponents' frame, where they are at a disadvantage from the get-go.
The way forward is through laying out the different presumptions clearly and critiquing them through debate in which in there is no received frame. Let each side make its case based on consistency, correspondence, pragmatism, and elegance. At least some Austrians have accepted the endogenous view of money for example, whereas many mainstreamers still hold to the discredited exogenous view. How would think that the Austrians would be more open when they are a pretty dogmatic bunch.
It's curious how the mainstream wants to just ignore the Cambridge capital controversy as if it never happened, for instance. And ignore Minsky. And Godley. The list goes on. As Paul Krugman has pointed out several times in my memory, some things that were settled decades ago, now are being ignored as if they never took place at all. Is this ignorance of history, or is it psychological denial? Or is there an agenda? One wonders.
Tom,
I think Keith Newman.
Wasn't Bretton Woods a gold standard? After WII gold was pegged to $35 an ounce. It seems to me like we never truly had a gold standard, gold was just kinda tacked onto the ass of our currency, and people believed it was "backing the currency".
There's gotta be more to the origin of the loanable funds model, I mean, does the accounting of it somehow imply(albeit wrongly) a transfer from saver to borrower? Would a banker say he creates money through lending? I'm thinking of this in a sort of parallel fashion to how everyone thinks taxes and bonds "fund" the government when really they don't, the self-imposed constraints just make it appear so. Almost all of congress and even the president get that wrong.
There's gotta be more to the origin of the loanable funds model, I mean, does the accounting of it somehow imply(albeit wrongly) a transfer from saver to borrower?
The basic idea is that there is a pool of savings that savers loan to banks as deposits, which the banks then in turn loan at a higher rate of interest to borrows. This is basically short term borrowing by banks that funds long term borrowing chiefly for investment, including residential housing as investment.
The pool of savings is the amount of funds loanable in the system for which banks and firms seeking investment compete with government tys issues. Taxation also supposedly draws from this pool of funds that is not consumed.
No gold standard necessary to explain it although under a gold standard (convertible fixed rate system) the cb has to regulate the money supply to prevent excessive conversion due to price instability. It does this by managing the interest rate, so that savers would rather hold money than gold.
Paul Krugman appears to think that this is what is happening operationally. Austrians criticize "fractional reserve" bank lending as maturity mismatching.
Joe: Forget the gold standard.
It's all in e.g. Mankiw's first year textbook (though many are not as good on this topic, and Mankiw isn't perfect either).
There are 2 theories of the rate of interest (in a closed economy):
Loanable Funds is the long run theory.
Liquidity Preference (e.g. the central bank sets the rate of interest) is the short run theory.
How do we reconcile the two?
Answer: in the long run, if the central bank wants to prevent the price level exploding up or down, it needs to set the rate of interest equal to the rate that the LF theory predicts. Otherwise Aggregate demand will be permanently too high (inflation) or permanently too low (deflation).
Tom, thanks for the reply, I think I understand the loanable funds model. It's the reason some people think that govt deficit spending crowds out the private sector investment because savings are having to go to the govt instead of private investment, leading to an increase in the price of money. Which seems logical if there were a fixed pool of savings to lend from, but as we know banks don't function that way.
I guess what I want to know is why doesn't some banker just say "Yeah, we don't lend out other people's deposits. Krugman and the rest are unequivocally wrong." I would think that should settle it. It should just be a matter of seeing the bank's accounting operations. See what I'm driving at? Krugman's had to have met at least one banker in his life. Did banks at one time actually lend out deposits? What about credit unions?
There is a rationale for it, Joe. Banks do liability management and risk management. That is to say, the asset side has to balance with the liability side of the balance sheet and maturity mismatched needs to be hedged.
Deposits are the least expensive short term funding available for banks, so even though banks don't actually lend out savings and therefore compete for saving to lend, they do compete for deposits in order to maintain profitability in a competitive environment. Hey, they don't give away those toasters for nothing.
Stocks, Flows and Loanable Funds by RSJ
Another macroeconomist who is blind by Bill Mitchell (Mitchell contra Blinder)
Studying macroeconomics – an exercise in deception
http://bilbo.economicoutlook.net/blog/?p=5419 (Mitchell contra Mankiw)
The IMF fall into a loanable funds black hole … again (Mitchell contra IMF)
The austerity mania is just blind dogma (Mitchell contra austerians and deficit hawks)
Joe,
I think Warren Mosler, bank owner, has done just that wrt Krugman ..... Imo Krugman lacks a certain mathematical aptitude (Krugman works via semantics not math) to be able to 'see' what you are saying.
He read something different a long time ago and has been given to believe it against any alternatives..... his mind has been closed and without the math aptitude looks like still he cannot 'see'his way out of it..... rsp
Yes, you're right. "loans make deposits" was still true pre-1971..
Ramadan is right I think. Theories of endogenous money - though not called by that name - have been around for centuries.
It seems to me that a substantial portion of mainstream economics is pure ideology: a priori, armchair theorizing based on groundless principles concocted to justify the existence and flatter the prejudices of the rulers of the prevailing social order.
It plays a role similar to theology: it indoctrinates the student with a system of intellectual defense mechanisms they can use to resist critical thinking and fend of intuitions of moral disgust over the failures of the existing system.
Social change isn't going to come from the economists, who as a profession seem to have very little to offer. I've been reading the economics blogs for four years now, and it is astonishing how many electrons are spilled in extended debates over what are fundamentally small difference.
Dan K., getting the economics right comes after the victory. But it's also useful for debunking the BS.
A lot of people now get intuitively that we are in the midst of the Big Rip-off, but they don't know the details of how the three card mont-shell game works. So they consistently get taken, yet come back for more of the same, expecting a different result.
Hello Ramanan and Tom,
With respect to the recommendation of the Baumol-Blinder Canadian version of the macro-economics book it probably was me as in early 2010 I had just audited two courses with Marc Lavoie, one on Post-Keynesian(PK)economics, the other on monetary economics. At the time I wrote glowingly of Marc's abilities as a teacher as well as how good the book was. I did look through a number of others and on monetary issues found them very disappointing. As a person with a Masters of economics from McGill University (1986) I found I had to unlearn many things despite some of my profs having been PKers.
With respect to the usefulness of MMT-type economics to countering BS propaganda regarding fiscal deficits and monetary issues I think it has a little use in convincing some "thought leaders" on our "side" that household finance thinking is misguided. Household finance is a very intuitively appealing, powerful and disabling concept.
Nonetheless, in my opinion the overwhleming challenge remains political. Why do we tolerate that millions of people are un and under-employed when there is so much to do? So many services lacking and so much infrastructure needing improvement and expansion. It's Keynes' 1929 pamphlet for the UK Liberal Party all over again.
"the long run, if the central bank wants to prevent the price level exploding up or down, it needs to set the rate of interest equal to the rate that the LF theory predicts. Otherwise Aggregate demand will be permanently too high (inflation) or permanently too low (deflation)."
The hidden assumption being that inflation control is the job of monetary policy and not fiscal policy.
Yes, monetary policy can control inflation by crashing the economy, increasing unemployment, ramping up government subsidies to the rentier class, and rendering govt deficits unsustainable in the long term.
MMT argues that you can control inflation without having to do any of the above, whilst maintaining full employment through an ELR program.
Which is better?
Unlearning Econ chimes in…
http://unlearningeconomics.wordpress.com/2012/08/01/read-a-textbook/
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