Monday, March 4, 2019

Kenneth Rogoff: Modern Monetary Theory is nonsense, just more voodoo economics

Sounds like Rogoff hasn't changed from his glory days:
The original feud was most famously between Stiglitz and Rogoff. Stiglitz, who led the movement at the World Bank to throw off its support for austerity, memorably claimed that IMF was staffed with “third rate” economists.
Carmen Reinhart and Kenneth Rogoff published a 2010 paper, Growth in the Time of Debt, which based on data from 44 countries that growth levels went negative once government debt to GDP ratios rose over 90%. This article was taken up eagerly by the pro-austerity crowd as definitive proof of the dangers of too much borrowing. 
Yet a number of economists tried replicating the Reinhart-Rogoff results for years, with no success. Reinhart and Rogoff refused to share their underlying computations. Five years later, now that the Reinhart/Rogoff work is widely accepted as true, they finally sent their “working spreadsheet” to a graduate student at the UMass Amherst, Thomas Herndon. He found data omissions, Excel errors, and questionable data weightings.
Even without the Excel errors and data fudging, the book was absurd as documented first by MMT economists and later by most others. Even Paul Krugman, who had been striving hard to give Reinhart and Rogoff the benefit of the doubt, called it “really, really bad“.


Konrad said...

Larry Summers, as US Treasury Secretary for the last four years of Bill Clinton’s presidency, oversaw four years of federal budget surpluses, which caused four years of recession.

Summers was influential in the decriminalization of the U.S financial system, including the repeal of the Glass-Steagall Act.

Summers is now worried that more and more Americans are waking up to MMT. He says this awakening to the truth will lead to “disaster.” He says MMT is the “voodoo economics of our time.” He calls MMT proponents “fringe economists” who offer “the proverbial free lunch: the ability of the government to spend more without imposing any burden on anyone.”

He says the US government “pays interest on any new money it creates.” (He does not say who this interest is paid to.)

He says MMT=Zimbabwe!

All the usual lies.

Ralph Musgrave said...

There's an article just out on Project Syndicate where Rogoff has a go at MMT. I left a comment saying Rogoff was "one of the biggest incompetents in the economics profession" and they deleted my comment. Bast*rds....:-)

Strikes me that every profession, by definition, must have some "most incompetent" members as well as some "most incompetent" members. Ergo my comment was legitimate. Anyway I left another, and slightly less abusive comment.

Project Syndicate's motives are plain as a pike staff: PS only publishes articles by established members of the economics profession, thus PS obviously has an interest in makeing those people look competent.

Mike Norman said...

Rogoff is the poster boy for the economics' profession's arrogance. Thanks, Dan, for posting that fact about the totally debunked (and fraudulent) Reinhart/Rogoff book.

AXEC / E.K-H said...

Too much ado about deficit spending
Comment on Kenneth Rogoff on ‘Modern Monetary Nonsense’*

For some time now, MMTers are shouting from the rooftops that deficit-spending/money-creation is the solution to almost all economic/social/environmental problems or, in the words of Kenneth Rogoff, to use “the Fed’s balance sheet as a cash cow to fund expansive new social programs, especially in view of current low inflation and interest rates.”

This is indeed stupid for several reasons:

• The government, needless to emphasize, is well aware of the advantages of deficit-spending/money-creation but plans to exploit them for other purposes. What naive MMTers do not know is that the free fiscal space is not free at all but has already been allocated “to fight a financial crisis, respond to a large-scale natural disaster or pandemic, or mobilize for a physical conflict or cyberwar.”

• “The US is lucky that it can issue debt in dollars, …” There is no use to awaken foreign suckers to the fact that they are taken for a ride. “If investors become more reluctant to hold a country’s debt, they probably will not be too thrilled about holding its currency, either.”

• Don’t rock the Fake-America-Great-Again boat: “For the moment, the world is quite content to absorb more dollar debt at remarkably low interest rates. How to exploit this increased US borrowing capacity is ultimately a political decision.” Not waiting for MMT-twits, this decision has already been taken for the benefit of the one-percenters.

• In addition: “The right approach … is for the government to extend the maturity structure of its debt, borrowing long-term instead of short-term.” Because the longer the maturity, the higher the interest rate for the bondholders, i.e. the one-percenters.

• In addition: “And if things get really difficult, it is far easier to inflate down the value of captive long-term debt … than it is to inflate away short-term debt, …” No need for MMTers to shout around that it is NOT the government that goes broke and that public debt will never be repaid.#1

• Finally: “Misguided ideas may yet drag the issue of US central-bank independence to center stage, …” Even naive MMTers must understand that the last thing anyone wants is a discussion about who runs and should run the central bank.

So, MMTers get it, although your ideas “have a grain of truth” it is “just nuts” to make so much fuss about it.#2 A public debt of $22 trillion should tell you that FED/TREASURY know already for a long time how to max out the no-limit public credit card without domestic/foreign bondholders and the general public getting too nervous.#3 After all, because of Public Deficit = Private Profit, the so-called free market economy hangs on the life-support of the State, i.e. on a smoothly growing public debt.

MMTers stand for aggressive deficit-spending, Rogoff stands for moderate deficit-spending. In the final analysis, all are in the same camp.

Egmont Kakarot-Handtke

* Project Syndicate

#1 Some nasty MMT surprises behind the time horizon

#2 MMT: The art of shooting oneself in the head

#3 MMT, money printing, stealth taxation, and redistribution

Noah Way said...

Right on cue: Voodoo economics, and up pops Egmont.