Eric Lonergan has recently written a post about the fiscal rules debate that has cropped up around the U.K. Labour Party's adoption of such a rule. As usual, his post covers a lot of territory -- if I were to attempt to cover all the points he raised when following my preferred writing style, it would be a 10 part article. Meanwhile, I am supposed to be working on finishing off my breakeven inflation book, as well as dealing with other projects. As a result, I just want to respond to a couple big picture points....
In order to advance, MMT needs to debate these issues with the mainstream. The issue is that debates keep being framed in a way that assumes that the underlying axioms of mainstream economics are correct. In this case, the whole debate rests upon the assumption that the nominal fiscal deficit is a meaningful economic variable, without any reference to the real economic transactions behind the nominal deficit figure. Once we question those axioms, we see that we are debating the wrong topic. The fact that we keep having to debate axioms is why I am not incredibly optimistic about the state of knowledge actually progressing....The outcome of arguments is not the "facts" but rather the framing, which involves assuming stylized facts and fixing methodological assumptions. The mainstream is the party to the debate that controls the framing. That's what "mainstream" means. So I am not sanguine about the state of knowledge progressing. So, other means — chiefly, persuasion of the public and policymakers — are required instead of pointless arguments with an opposition that is in control of the framing and is dug in ideologically.
The reality is that the key issues can be resolved under capitalism, when "capitalism" implies favoring capital over other factors because growth and trickle down, capital formation being assumed to control growth. Capitalism cannot be reformed sufficiently in a way that is both effective and permanent, since capitalism results in asymmetric power based on class structure and class power where ownership is the decisive factor. Democracy is actually oligarchy, specifically plutonomy, under capitalism, so that even when reforms are imposed, they are eventually since favoring capital results in asymmetrical power.
Any adequate solution must be approached from the point of view of integrating all factors, especially capital (means of production), land (environment) and labor (people). This basically a world systems approach based on ecology. It necessarily involves examination of foundational assumptions, hidden assumptions, presumptions, and tacit knowledge. It also involves acknowledgement of evolutionary theory, historicity, cultural relativity, and social embeddedness. For starters.
Otherwise, hot air that will not resolve the key issues since the method doesn't identify them either at all or correctly. The ancient Greeks divided such debates into telos, meaning end or purpose — what we now call objectives, and techné, signifying means — that is, strategy and tactics involving the formulation and implementation of plans to achieve objectives, such as those involved in public purpose, using available resources efficiently and effectively.
The bottom line issue is that the social behavior is a function of the level of collective consciousness, which is manifested in the culture and institutional arrangements of a society. Thus, key issues cannot be resolved without raising the level of collective consciousness in a society, and with respect to the world system, that project is global.
Bond Economics
Comments On Eric Lonergan's Fiscal Rules Post
Brian Romanchuk
See also
Although there are more ‘progressive’, Sanders-type Democrats elected to Congress, the Democrat party remains a stalwart supporter of (and funded by) Wall Street and big business. As Democrat House leader Nancy Pelosi has made clear, “I have to say, we’re capitalist ― and that’s just the way it is”. She added that “However, we do think that capitalism is not necessarily meeting the needs with the income inequality that we have in our country.” But she says nothing about how to reverse this income inequality (let alone wealth inequality). Even the ‘left wing’ of the Democrats as led by Senator Elizabeth Warren, stay firmly in the capitalist camp – merely looking for ways to make it “accountable”....Michael Roberts Blog
America’s halfway houseMichael Roberts
Eric Lonergan gets bogged down in a huge amount of unnecessary complexity in trying to marry the fact that money should be created and spent in a recession with the need to keep politicians away from the printing press.
ReplyDeleteA very simple and neat solution to that problem was set out a few years ago by Positive Money and co-authors (see link below). The solution is to have some sort of independent committee of economists decide periodically how much money to create and spend (i.e. decide the size of the deficit), while obviously political decisions like what proportion of GDP is devoted to public spending says with politicians. Re the latter independent committee, the existing Bank of England Monetary Policy Committee would be suitable.
This is actually an area where MMTers are not up to speed. That is, they realize it's a good idea to create and spend fiat in a recession (which is actually no more than what Keynes suggested). But MMTers are not up to speed on exactly who decides what: e.g. who decides how much new base money to create. (And apart from Keynes, Bernanke gave the idea his blessing).
Lonergan however does not appear to have heard of the idea.
http://b.3cdn.net/nefoundation/3a4f0c195967cb202b_p2m6beqpy.pdf
“The issue is that debates keep being framed in a way that assumes that the underlying axioms of mainstream economics are correct. ”
ReplyDeleteIt’s not ‘framing’ it’s how the dialectic method operates... opposing theses are argued...
Brian is talking about absence of a (empirical) scienfic method here: “without any reference to the real economic transactions behind the nominal deficit figure.”
Which he is trained in...
“exactly who decides what: e.g. who decides how much new base money to create. ”
ReplyDeleteRalph this is Monetarist thinking...
“having to debate axioms is why I am not incredibly optimistic about the state of knowledge actually progressing....“
ReplyDeleteThat is probably why the Science Degree was established in the first place ... somebody or somebodies in the academe just founded their own methodology based on empirics as the foundation of any discipline they taught... completely left the traditional dialectical method previously exclusively used ....
That old method still survives though in some disciplines... especially Economics...
Roberts: “China is slowing, Europe is slowing, only the US has been holding up.“
ReplyDeleteNot for long.... US has had slow reduction in reserve assets at the depositories and strong fiscal policy so things have been picking up here for a while now....
Looks like EZ is going to stop adding Reserves next month and China has (for now) stopped the reserve adds and recommitted to fiscal ...
Global growth should start to pick up in 60 days or so when ECB stops putting the reserve assets onto the depositories...