There are three important lessons from the Great Depression to which our political leaders seem to be oblivious because of what seems to be a collective amnesia. First of all, to kick start an economy stuck in a state of secular stagnation (that is, a situation in which private businesses are unwilling to undertake significant spending), it is up to the state to do so.…
This brings us to a second lesson. In an advanced monetary economy as ours, at the macroeconomic level there must be at least one sector of the economy that spends more than it receives. …
As a corollary, there is a third simple lesson. Let us imagine the economy as being regrouped into two very large sectors, namely the private sector (households and firms representing , say, 3/4 of the economy) and the public sector (all levels of governments representing the remaining 1/4), while abstracting for now the net spending behaviour of foreigners. In this economy, if, say, the consolidated public sector spends more than it receives (that is, a situation in which the government sector runs a deficit), then the private sector will find itself receiving more than it is spending, that is to say, that it will be building up savings that would permit private agents to deleverage if they are in debt. Needless to say, if we also add foreigners who are willing to buy more of our wares than we buy of theirs, then the positive net exports would further compound this deleveraging of the private sector domestically. If, on the other hand, the government sector begins to run surpluses, this would be destroying private saving and increasing household debt.…
The Progressive Economics Forum
Missing in (debate) action: macroeconomic lessons from the Great Depression
Mario Seccareccia, Professor of Economics, University of Ottawa
Another great post by Prof. Seccareccia. Louis-Philippe Rochon, Marshall Auerback, Marc Lavoie, and other neo-chartalists have written with great effect to counter the balanced-budget madness of Canada's once progressive "social democratic" party. Thankfully, at least one leader, Justin Trudeau, is promising deficit spending.
ReplyDeleteRochon and Lavoie are circuits rather than neo-chartalists.
ReplyDeleteI was at the Canadian Association of Business Economists meeting about two weeks ago, and Lavoie referred to himself, and John Smithin and the like, as neo-Chartalists, although his preferred term was heterodox economist. He does indeed come out of the circuitist tradition leading from Parguez, but I don't think he rejects the notion of being neo-Chartalist at all.
ReplyDeleteHere is Lavoie's well-known "filiations" graphic:
ReplyDeletehttp://aix1.uottawa.ca/~robinson/Lavoie/Courses/2006_ECO1702/Filiations-simplifies2.doc
Is there any great distinction anymore between circuitists, MMTers, neo-Chartalists, functional finance proponents and institutionalists? Hell even guys like Stiglitz and Krugman tend [at long and uadmitted last) to hold a quasi-MMT line these days.
ReplyDeleteThat is interesting and good to hear, Pearce. Lavoie and the MMT economists have had their differences. Steve Keen was the same way but came aboard, too, as I recall owing to the good work of Scott Fullwiler. I suppose a history will be written someday that documents all this.
ReplyDeleteA big shift is underway in economics and political economy. The question is mostly how rough the transition is going to be and whether it will involve war.
The power elite sort of had an open door as long as the developed countries' people were doing well, Now that the great leveling is proceeding apace in a race to the bottom that is over. Neoliberal globalization is no longer a slam dunk. Now people are looking for answers and there's a loose cohort ready to supply them. There isn't compete agreement but there is enough to make it work and further debate will clear up the rough edges and elicit new understanding.