The Federal Reserve Bank of Kansas City has just hosted its annual Economic Policy Symposium at Jackson Hole in Wyoming where central banks, treasury officials, financial market types and (mainstream) economists from the academy and business gather to discuss economic policy. As you might expect, the agenda is set by the mainstream view of the world and there is little diversity in the discussion. A Groupthink reinforcing session. One paper that was interesting was from two US Berkeley academics – Fiscal Stimulus and Fiscal Sustainability – which the news reports claimed suggested that governments should be increasing fiscal expansion even though they may be carrying high levels of public debt. The conclusion reached by the paper is correct but the methodology is mainstream and so progressives should not get carried away with the idea that there is signs that some give is emerging, which will lead to more progressive outcomes. A progressive solution will only come when the neo-liberal dominance of my profession is terminated and an entirely new macroeconomics paradigm based on Modern Monetary Theory (MMT) is established. There is still a long way to go though....This is a must-read for those interested in MMT. Bill also provides links to previous blog posts that are key to understanding the MMT position on fiscal space (policy space) and fiscal sustainability.
The actual constraint is availability of real resources and policy needs to be addressed to effective and efficient use of those limited resources. Financial resources are unlimited for a soveriegn currency so issuer, so policy is never constrained by "affordability."
Policy is too tight if real resources that are available are be idled, which is wasteful and foregoes opportunity. Policy is too loose if effective demand is stimulated in excess of the capacity of the economy to provide goods to meet it, so inflation may result. The goal is run a policy that optimizes use of available resources in the present, while also generating the economic capability to increase real resources for future use.
The purpose of MMT as a "policy science" is showing how this is possible based on the actual operations of a modern monetary production economy. This involves debunking the myths that rest on a failure to correctly understand money monetary operations in the context of the presently existing monetary system, which results in the inability to appreciate the theoretical implications of this for policy.
Bill Mitchell – billy blog
Fiscal policy is effective, safe to use, and markets know it
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
I don't see any technical value in his anthropomorphism "the markets know it"...
ReplyDeleteActually, this may be falling into the neoclassical and Hayekian trap of markets assuming that markets are "intelligent" as autonomous information systems yielding "rational" results based on "rational" inputs involving "utility-maximizing" agents "revealing their preferences," The whole point of the market-based system is that markets are more "intelligent" processors of information that therefore deliver superior efficacy and efficiency in distribution while also sending "correct" signals (low signal to noise ratio) to producers and investors.
ReplyDeleteIn other words, market as super-mind.
iow textbook Darwin 101...
ReplyDeleteBroad acceptance of the power of MMT thinking will never be politically viable as long as there is a deep mistrust of government. Deep state paranoids with MMT desires suffer cognitive dissonance.
ReplyDeleteAs we seen with Texas GOP deficit hawks, it takes a hurricane in their own backyard to short out those tin foil hats.
ReplyDeleteYeah and once the storm blows thru it's right back to drunken quaffing of the Darwin-Ayn Rand cocktails...
ReplyDeleteMMT: another case of inverted economics
ReplyDeleteComment on Bill Mitchell on ‘Fiscal policy is effective, safe to use, and markets know it’
Tom Hickey sums up: “The goal is run a policy that optimizes use of available resources in the present, while also generating the economic capability to increase real resources for future use. The purpose of MMT as a ‘policy science’ is showing how this is possible based on the actual operations of a modern monetary production economy.”
This is the wrong priority. In order to see this, one has to get out of the forever inconclusive discussion about monetary and fiscal policy and to look at the panorama of the failed science called economics.
There is political economics and theoretical economics. The main differences are: (i) The goal of political economics is to successfully push an agenda, the goal of theoretical economics is to successfully explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics, the scientific standards of material and formal consistency are observed.
Economic policy presupposes knowledge of how the actual economy works. This knowledge is embodied in the true theory: “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum)
Because of the lack of the true theory the policy guidance of economists ― Walrasians, Keynesians/MMTers, Marxians, Austrians, and Pluralists ― has NO sound scientific foundations.
Economics had the bad luck to start as Political Economy. This means that the political agenda had been given and the argumentation had to support the agenda. This is the wrong sequence.
This is the difference between theoretical economics (= science) and political economics (= agenda pushing): “A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. ... A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent.” (Haack)
Theoretical economics had been hijacked from the very beginning by political economists. Political economics has produced NOTHING of scientific value in the last 200+ years.
There is absolutely no use to follow the discussion between what Bill Mitchell calls mainstream and progressives. Both sides lack sound scientific foundations, that is, the true theory. MMTers have until this day not realized that their foundational premise and their elementary accounting identities are false.#1
The general public is confronted with conflicting economic policy messages and cannot see that they have no sound scientific foundations. The economist distinguishes himself from the soap box propagandist and the snake oil seller by claiming that his policy proposals are based on the true theory. This is NOT the case.
From the standpoint of science, the economist is worse than the snake oil seller and fraudster because by posing as a scientist he, in addition to causing severe economic damages,#2 corrupts the integrity of science as an even worse collateral damage.#3
Egmont Kakarot-Handtke
#1 For the point-by-point refutation of MMT see cross-references
http://axecorg.blogspot.de/2017/07/mmt-cross-references.html
#2 Mass unemployment: The joint failure of orthodox and heterodox economics
http://axecorg.blogspot.de/2017/01/mass-unemployment-joint-failure-of.html
#3 Scientists and science actors
https://axecorg.blogspot.de/2016/09/scientists-and-science-actors.html
Tom Hickey
ReplyDeleteHayek was a political agenda pusher and his position was anti-state. His information theory of market interaction is not more than an interesting story. Hayek never produced a scientifically valid proof that the market system is in a very general sense self-stabilizing. Hayekian “economics” is proto-scientific crap.#1
Mitchell is a political agenda pusher and his position is pro-state. His monetary theory of market interaction is not more than an interesting story. Mitchell never produced a scientifically valid theory of how the modern monetary economy works and no proof that it is inherently unstable. MMT “economics” is proto-scientific crap.#2
As a result, we have neither the scientifically valid proof that the monetary economy works fine in principle and needs no state intervention nor the scientifically valid proof that the monetary economy is inherently unstable and continuously needs compensating state intervention.
So, both the anti-state and the pro-state position lacks sound scientific foundations simply because economics as a whole is a failed science. Both Hayek and Mitchell are political agenda pushers who abuse economics, which claims since 200+ years to be a science, in a low-level academic sitcom. Both Hayek and Mitchell have to be expelled from the sciences.
The alternative is that economics gives up the pretensions to science and first of all abolishes the “Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel”.#3
Egmont Kakarot-Handtke
#1 Hayek and other informationally retarded proto-economists
https://axecorg.blogspot.de/2017/04/hayek-and-other-informationally.html
#2 For a full-spectrum refutation of MMT see cross-references
http://axecorg.blogspot.de/2017/07/mmt-cross-references.html
#3 The real problem with the economics Nobel
http://axecorg.blogspot.de/2016/09/the-real-problem-with-economics-nobel.html