Monday, January 21, 2019

Brian Romanchuk — MMT In The Newsflow Again

Modern Monetary Theory (MMT) has been in the news again (and filled up my Twitter feed...). There have been a number of attempts to "explain" MMT by various American conservatives. As one might expect, those attempts have been pathetic; it is generally a good idea to have at least a reasonable grasp of a topic before attempting to explain it. Critics of MMT generally do not bother with that step. Since I am trying to work on other projects, I will only give a quick response to what I have seen, in case some of my readers are not familiar with MMT. (My working assumption is that most of my readers are, hence the brevity of this article.)...
Bond Economics
MMT In The Newsflow Again
Brian Romanchuk


Ralph Musgrave said...

A point often not made about MMT is that it is actually a COLLECTION of ideas which are not necessarily logically connected to each other.

E.g. one of the better MMT claims is that the "fiscal space" idea (much favoured in IMF circles) is BS. Bill Mitchell has written on that, as have I. E.g. see respectively:

Andrew Anderson said...

For a normal human being, locking interest rates at zero is not a particularly radical policy -- Brian Romanchuk

It depends on how they are produced. Here's an alternative that cheats no one in the process:

1) Allow all citizens, their State and local governments, businesses, organizations, etc. to have debit/checking accounts at the Central Bank itself - and not just banks and other depository institutions.

2) Abolish all other privileges for the banks such as deposit insurance in a responsible manner. By itself, this would send interest rates sky high as banks scrambled to get the reserves needed for the transfer of soon-to-be-uninsured and other deposits at the banks, credit unions, etc. to inherently risk-free accounts at the Central Bank itself.

3) Lower interest rates as desired with equal fiat distributions to all citizens.

4) Finance 3) with negative interest rates on large accounts at the CB. This too would tend to lower interest rates since fiat hoarding would be penalized.

Ralph Musgrave said...

I agree with Andrew's No.1. Re 2, I agree with abolishing deposit insurance, plus I agree that interest rates would rise but I'm not sure about the result being "sky high" interest rates and for the following reasons.

The only reason for creditor / savers to charge more given the abolition of deposit insurance is that the RISK is transferred from the insurer to the creditor. But assuming both the insurer and creditor gauge the risk correctly, then they'll both charge the same for the risk. Ergo, on that basis, abolishing deposit insurance would have no effect on interest rates (assuming the cost of deposit insurance is charged to banks, which it certainly should be).

Another point is that those who lend money via mutual funds or who buy corporate bonds are not insured (at least they are not insured by governments) and interest rates there are not excessive.

Next, I agree that any interest rate increasing or deflationary effect of abolishing deposit insurance can easily be countered via a "fiat distribution". But I don't see that it matters whether the effect of that is to bring interest rates down again or not. In fact my hunch is that to a the effect would be to PERMANENTLY raise interest rates (and thus cut total debts), while the average household had a bigger stock of money. I.e. the plus would be "everyone has more money", while the negative is "those who still insist on borrowing despite their increased stock of money would pay more interest".

AXEC / E.K-H said...

MMT: How to get out of the infinite meta-communications loop
Comment on Brian Romanchuk on ‘MMT In The Newsflow Again’

Brian Romanchuk observes some communicative delirium: “There have been a number of attempts to ‘explain’ MMT by various American conservatives. As one might expect, those attempts have been pathetic; …” and then heads towards a solution “There are two angles of attack to this debate.
1. Are MMT policy proposals radical?
2. Is it a radical approach to economic theory?”

This, though, means nothing else than a continuation of the communicative delirium. The point is to get out of meta-communication about MMT and to ask the scientifically relevant question: Is MMT true or false? with truth well-defined as material and formal consistency.

The scientist’s goal is to definitively settle a given question: “That the settlement of opinion is the sole end of inquiry is a very important proposition.” (Peirce) The blatherer’s goal, on the other hand, is simply to blather on in all eternity. After all, professional windbags, journalists, propagandists, soapbox economists, and trolls seek, like anybody else, long-term employment in a decently paid job.

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.

Theoretical economics (= science) had been hijacked from the very beginning by political economists (= agenda pushers). Political economics has produced NOTHING of scientific value in the last 200+ years. This holds also for MMT. MMT is refuted on all counts.#1 Scientifically, MMT is dead and buried, however, it still has substantial talk-show qualities.#2

Brian Romanchuk brushes off the shallow pseudo-explanations provided by “various American conservatives”: “Modern Monetary Theory is part of a long line of post-Keynesian economics; if you want to understand the theory, there’s a lot of reading to do.”

True. Indeed, there is not only a lot of reading to do for MMTers but ― even more important ― of thinking. What MMTers do not understand to this day is that post-Keynesian economics is scientifically dead since Keynes. Keynes got macroeconomics wrong and post-Keynesians, including MMTers, have not spotted the blunder.#3

The blunder is baked into the MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0. This equation proves that MMTers are too stupid for the elementary mathematics that underlies macroeconomic accounting.#4

Brian Romanchuk eventually stumbles upon the crucial point: “… my Twitter feed has been filled with condescending comments from mainstream economists who state that MMT has no empirical aspects to it. Firstly, if one does not read the literature, one will not find empirical work. Secondly, how much empirical work can we expect from theory in the first place?”

Good question. What first of all has to be done empirically is to decide between the false MMT sectoral balances equation (I−S)+(G−T)+(X−M)=0 and the axiomatically correct equation (I−S)+(G−T)+(X−M)−(Q−Yd)=0. And this will settle the matter once and for all. The MMT equation will be falsified and with it the whole verbal superstructure of MMT blather/fraud.

Egmont Kakarot-Handtke

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

#2 The economist as standup comedian

#3 Why Post Keynesianism Is Not Yet a Science

#4 Wikipedia and the promotion of economists’ idiotism (II)

Noah Way said...

Don't feed the troll.

Konrad said...

Q. Are MMT policy proposals radical?

A. Yes, because facts are always “radical” to people ensnared by lies. Suppose you believed that points on a sports scoreboard must be borrowed from other scoreboards, or must be paid for with a “points tax.” If I told you that points are created and destroyed by simply changing the scoreboard numbers, this would seem “radical” to you. It would seem to you like a utopian “policy proposal.”

Some MMT proponents do have policy proposals (e.g. the “job guarantee”) but I personally ignore these. I say they are unworkable, unnecessary, and counter-productive.

“If the reader is willing to let me dig deeper into politics, we can see why free market conservatives are unhappy with it.”

There is no such thing as a “free market conservative.” The only genuinely “free market” people were classical liberals who wanted no oligarch control, and wanted only enough government regulation to ensure freedom and fairness.

Meanwhile neoliberals are anti-free market. They want to own and control markets. (Today’s liberal-conservative dichotomy is irrelevant to this.)


By the way, I see that our resident troll has been befouling Brian Romanchuk's blog.

“Post-Keynesian economics is scientifically dead because (I−S)+(G−T)+(X−M)=0. I am a moron because (I−S)+(G−T)+(X−M)=0 and the axiomatically correct equation (I−S)+(G−T)+(X−M)−(Q−Yd)=0.”

Andrew Anderson said...

Ergo, on that basis, abolishing deposit insurance would have no effect on interest rates Ralph Musgrave

Not just the abolition of deposit insurance but also the abolition of:
1) Lender of last resort.
2) Asset buyer of last resort.
3) the discount window.
4) non-negative yields on any other sovereign debt with an individual citizen exemption up to, say, $250,000 on their CB debit/checking account.
5) any other means whereby fiat is created EXCEPT for the monetary sovereign or via equal distributions to all citizens.

In addition, all private assets held by the Central Bank should be sold and this will increase the amount of fiat that can be equally distributed to all citizens without inflation risk.

Another point is that those who lend money via mutual funds or who buy corporate bonds are not insured (at least they are not insured by governments) and interest rates there are not excessive. Ralph Musgrave

Completely de-privileging commercial banks, etc. would increase risks and costs for the shadow banks too, one might think.