Monday, January 21, 2019

Brad DeLong — By Popular Demand: What Is “Modern Monetary Theory”?

In most ways, Modern Monetary Theory—Functional Finance—is just macroeconomic common sense:
  • We do not like high unemployment.
  • We do not like excessive inflation.
  • Thus the government should make it its first priority to use its tools of economic management so that we do not experience either.
  • And maybe the government needs to be a little bit clever in how it uses fiscal and when and how it uses monetary policy to keep the task of financing the national debt from becoming an undue or even an unsustainable burden.
So what can go wrong with MMT?
Three things can go wrong;
  1. MMT implicitly assumes that the debt market is efficient—that if the government debt gets on an unduly burdensome and unsustainable path, we will see that immediately in high interest rates. If that is not true, the government and the economy can face one hell of a mess should a bubble in government bond prices develop and then collapse. Cf. Greece.
  2. MMT implicitly assumes that wealth-owners react rapidly when they see trouble ahead—that when investors conclude that the government cannot or will not balance its books without ultimate high inflation, inflation will jump immediately.
  3. MMT implicitly assumes that extra financial leverage generated by the high values of collateral assets does not serve as a significant source of risk—that it is only on a small scale that investors will borrow foolishly just because they can....
"Implicitly assumes"? I'll be interest to see what MMT economists think of this.

Grasping Reality
By Popular Demand: What Is “Modern Monetary Theory”?
Brad DeLong | Professor of Economics, UCAL Berkeley


Noah Way said...

Implicit assumption: DeLong is a clueless buffoon.

Ralph Musgrave said...

I agree with Noah: claiming someone “implicitly” assumes something is a weak argument unless you PROVE the claim. I can claim Brad assumes two plus two makes five, but my claim would fall to pieces once I tried to prove my claim.

Anyway, re Brad’s first “implicit assumption” allegedly made by MMT, namely that interest on government debt rises if the debt itself rises too far, that’s hardly controversial is it? I.e. that point is widely accepted.

I.e. if government and central bank spew out more base money and government debt than the private sector is willing to hold at say a 1% rate of interest, the private sector will demand MORE THAN 1% else it will try to spend away the excess.

Brad’s second “implicit” claim is that MMTers assume “wealth owners” are very much into Ricardian equivalence, i.e. that MMTers think wealth owners assume inflation will take off QUICKLY if there’s excessive stimulus, rather than SLOWLY. Darned if I know why that “quick / slow” point affects any of the BASIC ideas behind MMT.

Personally I go along with Stiglitz who said RE is “sheer nonsense”. Given that MMTers tend to question economics orthodoxy, and given that RE is part of the orthodoxy, I image most MMTers go along with Stiglitz.

Brad’s third “implicit” point is that MMTers allegedly assume gyrations in demand will not stem from asset price bubbles. I think MMTers are actually aware (surprise surprise) that there are unwanted fluctuations in demand. MMT is all about what to do about gyrations in demand, a point which Keynes, Lerner and others also address.

S400 said...

Brad DeLong is another of those Lazy brains. Make up stuff and argue against it is the easiest thing you can do.

AXEC / E.K-H said...

What is wrong with MMT? and What is wrong with Brad DeLong?
Comment on Brad DeLong on ‘By Popular Demand: What Is “Modern Monetary Theory”?’

Brad DeLong defines macroeconomic common sense: “We do not like high unemployment. We do not like excessive inflation. Thus the government should make it its first priority to use its tools of economic management so that we do not experience either.” and asks “So what can go wrong with MMT?”

Like all economic common non-sensers, Brad DeLong forgets to mention distribution. What is missing in his list is: We do not like an extremely skewed distribution of income and financial wealth.

In his post, the word profit does not appear once. MMTers, too, desperately avoid mentioning profit. Mere coincidence?

In a nutshell, the lethal defect of MMT policy guidance is that according to the macroeconomic Profit Law it holds Public Deficit = Private Profit or in common sense terms: permanent MMT deficit-spending/money-creation is a permanent free lunch for the one-percenters.#1

Keynes got macroeconomic profit wrong 80+ years ago,#2 but neither Post-Keynesians, nor Anti-Keynesians, nor MMTers, nor Brad DeLong spotted the blunder to this day.

There is NO such thing as scientifically valid economics. It holds: false economic theory makes bad economic policy. Scientifically incompetent economists are the ultimate cause of unemployment, distributional implosion, financial collapse, and disaster. MMT is only the latest example of a 200+ years old fatal tradition.

Egmont Kakarot-Handtke

#1 Keynes, Lerner, MMT, Trump and exploding profit

#2 How Keynes got macro wrong and Allais got it right

Noah Way said...

Don't feed the troll.

André said...

"MMT implicitly assumes that the debt market is efficient—that if the government debt gets on an unduly burdensome and unsustainable path, we will see that immediately in high interest rates"

Of course MMT does not assume that.

Brian Romanchuk said...

Wow, that critique whiffed...

Joe said...

Anyone have an idea how he came up with any of those so-called implicit assumptions?

I had a hard time making much sense of any of them.

AXEC / E.K-H said...


Yous say: “I’m not ready to ditch Keynes based on this effort.”

You are simply one of the many retarded economists who has not realized that Keynes messed up macro.

Keynes’ scientific incompetence can be exactly located in the GT: “Income = value of output = consumption + investment. Saving = income − consumption. Therefore saving = investment.” (p. 63)

“His Collected Writings show that he wrestled to solve the Profit Puzzle up till the semi-final versions of his GT but in the end he gave up and discarded the draft chapter dealing with it.” (Tómasson et al.)

So, the economist Keynes NEVER understood profit. Because of this, all I=S/IS-LM models and the rest of Keynesianism and Post-Keynesianism including MMT are false.#1

Keynes’ premise income = value of output is false. From the correct macroeconomic axioms follows:
(1) Q=−S in the elementary production-consumption economy,
(2) Q=I−S in the elementary investment economy,
(3) Q=Yd+I−S in the investment economy with profit distribution,
(4) Q=Yd+I−S+(G−T)+(X−M) in the general case with government in an open economy.

From (3) follows Allais’ correct equation Qre=I−S.

From (4) follows the correct sectoral balances equation (I−S)+(G−T)+(X−M)−(Q−Yd)=0 which contrasts with the false MMT equation (I−S)+(G−T)+(X−M)=0.#2, #3

From (4) follows Public Deficit = Private Profit. And this tells one that MMT is a program for the permanent self-alimentation of the Oligarchy.

Macroeconomics is provably false from Keynes onward to MMT. The representative economist has not realized anything to this day because he is too stupid for the elementary mathematics that underlies macroeconomics.

Scientific incompetence is the reason why economics is after 200+ years still at the proto-scientific level.

Egmont Kakarot-Handtke

#1 For more details see cross-references Refutation of I=S

#2 Rectification of MMT macro accounting

#3 Wikipedia and the promotion of economists’ idiotism

Noah Way said...

Nobody here named Alan.

Don't feed the troll.

Detroit Dan said...

One of the most prominent MMT talking points is that the U.S. and Greece are not comparable, because the U.S. issues its own currency. It's hard to believe DeLong doesn't know this.

AXEC / E.K-H said...



You say: “This is the real threat that MMT represents to the oligarchy.”

MMT represents NO threat to the oligarchy because MMTers are the agents of the Oligarchy. This follows from the fact that MMT policy guidance boils down to deficit-spending/money-creation. Now, the macroeconomic Profit Law tells everyone that Public Deficit = Private Profit and from this follows as a rule of thumb that the financial wealth of the Oligarchy grows in lockstep with the public debt. In other words, fabulous wealth of the Oligarchy is the counterpart of fabulous public debt ($21.5 trillion). To remove all obstacles to the further growth of public debt is the mission of MMTers.#1, #2, #3, #4

Now, everybody is entitled to use any medium between the soapbox and the blogosphere and to communicate any imaginable BS. In the political sphere, anything goes. However, this does not apply to the scientific sphere. While the currency in the political sphere is opinion, the currency in the scientific sphere is knowledge and both cannot coexist. This is known for 2000+ years: “There cannot be both opinion and knowledge of the same thing at the same time.” (Aristotle)

The political sphere and the scientific sphere have to be kept apart because politics always and everywhere corrupts science. This happened to economics. According to the scientific criteria of material and formal consistency, MMT is refuted on all counts.#5 However, MMT is not thrown out of science but allowed to use academia as a forum for pushing their political agenda.

The problem with Brad DeLong is that he is either too stupid to realize that MMT is proto-scientific garbage or he is part of the general political corruption of economics.

To say of MMT, or, for that matter, of Walrasianism, Keynesianism, Marxianism, Austrianism that it poses a threat to the oligarchy is a blatant misinterpretation of the history of economic thought since Adam Smith.

Egmont Kakarot-Handtke

#1 Stephanie Kelton on how to become fabulously wealthy

#2 MMT: The fusion of Wall Street and Academia

#3 Very busy these days: Wall Street’s agents

#4 MMT and the promotion of Wall Street socialism

#5 For the full-spectrum refutation of MMT see cross-references MMT