An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
Paul Krugman just cannot resist that good ol' fashioned monetarism as he clings to ISLM even though his Krugman cross shows that he could know better if he were thinking clearly about his own work.
Yes, I've been waiting for an MMT perspective on the latest on Argentina. Good to see the discussion beginning.
I don't think I'll bother reading Krugman or Yglesias. The Krugman diagnosis, based upon the excerpts posted by Mosler, seems to be rather cursory and shallow.
That said, Mosler doesn't really get into what's happening, other than to point out that he thinks Krugman is off base.
Again, this is what you would expect for round one -- it will take time for people to research and analyze the events in more detail and depth...
J.W. Mason, at his slackwire blog references a couple articles about problems in Turkey and Argentina.
Neither seems to quite capture the MMT perspective. I think the MMT take would be more straightforward than the conventional wisdom. i.e. If you have a current account deficits, then you are vulnerable to currency depreciation. The answer is to take steps to eliminate the current account deficit -- i.e. to decrease imports and increase exports. Government deficits can be used to achieve this aim...
MMT recognizes that fluctuations in exchange rates are normal with fiat regimes and they're neither good nor bad. Markets set rates with indifference, working off monetary and fiscal policy shifts that are undertaken with domestic considerations in mind. (Or at least that's what should happen.)
Most of the world broke from gold standards, fixed exchange and other regimes of convertibility because they didn't work and/or they constrained monetary and fiscal policy to such a degree that it limited economic sovereignty.
People like Krugman, Yglesias and others (like the head of the Indian central bank), still live in the world of fixed exchange in their minds (like Greenspan once said, we don't need a gold standard, but we still behave as if we have one) and they freak out every time currencies fluctuate, even though that's what they were intended to do.
Their calls for debt reduction and austerity and higher interest rates are absurd. They might as well just tell these countries to go back to fixed exchange regimes, then when that blows up they'll say that they never should have done that.
Warren called Krugman the "Unconscious Liberal." Funny line, but he's absolutely right.
Krugman talks about the Zimbabwe money supply yet fails to mention that IMF research has identified that the Zimbabwe government was effectively running budget deficits equal to about 78% of GDP, via the central bank.
78% of GDP is a ridiculous number. I haven't read the link y but lets do some math and see what conclusions we come up with.
GDP = $10T G = $7T C + I + NX = 3$
WTF!!!! happened to the $4T????? Did the Z people stuff $4T under their mattresses and never spend any of it? What am I missing here? Who is receiving that $7T in income from G and then only spending $3T? Is there a huge negative multiplier somehow?
In the US, almost all G has a positive multiplier (even taking into account NX) if I'm not mistaken. Unless I'm too stoned to think clearly....always a possibility
"To contain money growth, the RBZ sterilized the impact of the direct injection of liquidity into the economy that the QFAs represented. In January 2004 the RBZ started to issue its own bills at effective intere st rates of over 900 percent per annum."
Warren Mosler’s standard MMT solution to excess unemployment, namely print money and spend it would work in the US and Eurozone, but Argentina is different. Inflation in Argentina has averaged about 10% over the last four years. In that scenario, printing and spending might simply exacerbate inflation.
There’s something else wrong with Argentina. And I don’t know what it is. Put another way, if Warren is so sure that more demand in Argentina won’t exacerbate inflation he needs to tell us why.
Ralph, I read this article a years ago about Argentina. It was close to the time that the MMT folks were doing their victory dance and was horrified that they didn't at least provide a caveat to their success story. Because of savings and real estate pegged in dollars, along with their banking system and central bank which provide fixed exchange swaps, Argentina has a bastardized mix of fixed and freely floating currency. It's a disaster because people get paid in Pesos but pay their mortgages in dollars. So they save in dollars during the bad times and pesos during the good times. Messy, Messy. For better or worse the Jefes program is associated with MMT and with a country that has a financial system designed to collapse with every economic cycle.
Thanks for all the commentary and references on this subject.
MMTer Pavlina Tcherneva studied the Jefes program and concluded that it was an overwhelming success until "Paternalistic visions of who should and should not work led to the gradual reform and eventual closure of the Jefes program." See http://pavlina-tcherneva.net/TchernevaBIGvsJG.pdf
I think Argentina's interest rates are probably a clue. I saw that they're at like "60%" now. That's insane. The USA also had bad inflation/stagflation when our interest rates were super high too. High interest rates limit economic growth. Also it seems like inflation and interest rates follow one another. Lastly, they keep borrowing from the imf instead of doing like the USA does with federal reserve savings accounts. I bet if they changed those things they'd see different results. That's a hard train to get though.
13 comments:
Yes, I've been waiting for an MMT perspective on the latest on Argentina. Good to see the discussion beginning.
I don't think I'll bother reading Krugman or Yglesias. The Krugman diagnosis, based upon the excerpts posted by Mosler, seems to be rather cursory and shallow.
That said, Mosler doesn't really get into what's happening, other than to point out that he thinks Krugman is off base.
Again, this is what you would expect for round one -- it will take time for people to research and analyze the events in more detail and depth...
J.W. Mason, at his slackwire blog references a couple articles about problems in Turkey and Argentina.
Neither seems to quite capture the MMT perspective. I think the MMT take would be more straightforward than the conventional wisdom. i.e. If you have a current account deficits, then you are vulnerable to currency depreciation. The answer is to take steps to eliminate the current account deficit -- i.e. to decrease imports and increase exports. Government deficits can be used to achieve this aim...
Dan,
MMT recognizes that fluctuations in exchange rates are normal with fiat regimes and they're neither good nor bad. Markets set rates with indifference, working off monetary and fiscal policy shifts that are undertaken with domestic considerations in mind. (Or at least that's what should happen.)
Most of the world broke from gold standards, fixed exchange and other regimes of convertibility because they didn't work and/or they constrained monetary and fiscal policy to such a degree that it limited economic sovereignty.
People like Krugman, Yglesias and others (like the head of the Indian central bank), still live in the world of fixed exchange in their minds (like Greenspan once said, we don't need a gold standard, but we still behave as if we have one) and they freak out every time currencies fluctuate, even though that's what they were intended to do.
Their calls for debt reduction and austerity and higher interest rates are absurd. They might as well just tell these countries to go back to fixed exchange regimes, then when that blows up they'll say that they never should have done that.
Warren called Krugman the "Unconscious Liberal." Funny line, but he's absolutely right.
Krugman talks about the Zimbabwe money supply yet fails to mention that IMF research has identified that the Zimbabwe government was effectively running budget deficits equal to about 78% of GDP, via the central bank.
http://www.imf.org/external/pubs/ft/wp/2007/wp0798.pdf
if the US govt ran a deficit equal to 78% of GDP it would be spending about $12.5 trillion dollars in deficit every year.
y,
Imagine the unit prices the US govt would be paying for current provision if they were spending that much $$$ cumulative!
Yes I'd bet they would be paying MUCH higher prices and their fiscal agents would be making loans based on MUCH higher collateral prices...
rsp,
78% of GDP is a ridiculous number. I haven't read the link y but lets do some math and see what conclusions we come up with.
GDP = $10T
G = $7T
C + I + NX = 3$
WTF!!!! happened to the $4T?????
Did the Z people stuff $4T under their mattresses and never spend any of it? What am I missing here? Who is receiving that $7T in income from G and then only spending $3T?
Is there a huge negative multiplier somehow?
In the US, almost all G has a positive multiplier (even taking into account NX) if I'm not mistaken. Unless I'm too stoned to think clearly....always a possibility
From the IMF paper on Zimbabwe:
"To contain money growth, the RBZ
sterilized the impact of the direct injection of liquidity
into the economy that the QFAs represented.
In January 2004 the RBZ started to issue its
own bills at effective intere
st rates of over 900 percent per annum."
LOL
Warren Mosler’s standard MMT solution to excess unemployment, namely print money and spend it would work in the US and Eurozone, but Argentina is different. Inflation in Argentina has averaged about 10% over the last four years. In that scenario, printing and spending might simply exacerbate inflation.
There’s something else wrong with Argentina. And I don’t know what it is. Put another way, if Warren is so sure that more demand in Argentina won’t exacerbate inflation he needs to tell us why.
Ralph, I read this article a years ago about Argentina. It was close to the time that the MMT folks were doing their victory dance and was horrified that they didn't at least provide a caveat to their success story. Because of savings and real estate pegged in dollars, along with their banking system and central bank which provide fixed exchange swaps, Argentina has a bastardized mix of fixed and freely floating currency. It's a disaster because people get paid in Pesos but pay their mortgages in dollars. So they save in dollars during the bad times and pesos during the good times. Messy, Messy.
For better or worse the Jefes program is associated with MMT and with a country that has a financial system designed to collapse with every economic cycle.
Thanks for all the commentary and references on this subject.
MMTer Pavlina Tcherneva studied the Jefes program and concluded that it was an overwhelming success until "Paternalistic visions of who should and should not work led to the gradual reform and eventual closure of the Jefes program." See http://pavlina-tcherneva.net/TchernevaBIGvsJG.pdf
Time to re-read Wray's eulogy of Marco del Pont, the former president of the Central Bank of Argentina, as the best central banker in the world.
She was so good she got fired by people more clueless than her.
I think Argentina's interest rates are probably a clue. I saw that they're at like "60%" now. That's insane. The USA also had bad inflation/stagflation when our interest rates were super high too. High interest rates limit economic growth. Also it seems like inflation and interest rates follow one another. Lastly, they keep borrowing from the imf instead of doing like the USA does with federal reserve savings accounts. I bet if they changed those things they'd see different results. That's a hard train to get though.
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