Stephanie Kelton in Bloomberg responds to Krugman in the NY Times.
One final point. Krugman says there is an inherent tradeoff between fiscal and monetary policy. I agree, but not with the tradeoff he describes. Deficits don’t automatically drive interest rates higher, and higher interest rates don’t automatically translate into lower private spending.
That tradeoff is disputed, and not just by MMTers. The tradeoff that matters is the one that Hyman Minsky and James K. Galbraith have highlighted. Monetary policy “works” by driving people into debt. Fiscal policy works by driving income into people’s pockets.
39 comments:
Links on Stephanie Kelton’s ‘Paul Krugman Asked Me About Modern Monetary Theory. Here Are 4 Answers.’
First answer: “Fiscal policy works by driving income into people’s pockets.”
False. Instead: “MMT deficit-spending/money-creation works by driving profit into rich people’s pockets.”
Stephanie Kelton is a scientifically incompetent agenda pusher for the Oligarchy.
Stephanie Kelton’s legendary Plain-Sight-Ink-Trick
https://axecorg.blogspot.com/2019/01/stephanie-keltons-legendary-plain-sight.html
The Kelton-Fraud
https://axecorg.blogspot.com/2018/07/the-kelton-fraud.html
Down with idiocy!
https://axecorg.blogspot.com/2017/12/down-with-idiocy.html
Economists: Either stupid or corrupt or both
https://axecorg.blogspot.com/2019/03/economists-either-stupid-or-corrupt-or.html
How counterfeiters save America with an extra profit and make WeThePeople pay for it
https://axecorg.blogspot.com/2019/02/how-counterfeiters-save-america-with.html
MMT for beginners
https://axecorg.blogspot.com/2019/02/mmt-for-beginners.html
Egmont Kakarot-Handtke
Stupidity for beginners:
https://axecorg.blogspot.com
Don't feed the troll.
MMT is totally wrong because Q=Yd+(I−S)+(G−T)+(X−M) and reduces to Q=(G−T) if Yd, I, S, X, M (-b±√(b^2-4ac))/2aQ+S=0 or Q=−S (I−S)+f(x)=a_0+∑_(n=1)^∞(a_n cos>nπx/L+b_n sin ) (G−T)+(X−M)=0
Konrad-- I spotted an error in your work -- you forgot to divide by beta and reduce by the hypotenuse of the golden triangle. When you do that, the AXEC drops out and your left with the Mosler coefficient which makes everything add up.
Detroit Dan,
EK-H will be scratching his head over that point for weeks....:-)
EKH wears a helmet.
Noah Way, Konrad, Detroit Dan, Ralph Musgrave, S400
The notation of the sectoral balances equations is as follows
MMT (I−S)+(G−T)+(X−M)=0
AXEC (I−S)+(G−T)+(X−M)−(Q−Yd)=0.
Because the MMT equation is provably false (it describes a zero-profit economy), the whole of MMT is false. As a consequence, MMT and its proponents are flushed down the scientific toilet. This is how mental hygiene works. And this is how science works for 2500+ years.
Genuine scientists settle matters by material/formal refutation and then move on to a superior approach. To this day, economists are unable to get out of their proto-scientific delirium.#1 Paul Krugman, Stephanie Kelton and you are the living proof.
Egmont Kakarot-Handtke
#1 Economists: Either stupid or corrupt or both
https://axecorg.blogspot.com/2019/03/economists-either-stupid-or-corrupt-or.html
Egmont, people are trying to make a point I have made in vain to you. These equations are meaningless if you don't define your terms. You follow a very bad practice in economics to not define your terms and have the reader try to work out what you are saying like solving a crossword puzzle. Often enough, the meaning of terms is changed midstream, (ref. - J. Fagg Foster notes these things. One reason he is invaluable.) You aren't working in a scientific way if you don't do this, which is far more important and mathematical than some equation.
On the other hand, MMT works really, really hard to define what it is saying.
Raising rates seems to reduce consumption of interest rate sensitive products like housing and autos. Kelton glosses over consumer consumption and compares it to weak tea and then redirects attention to business investment type consumption which she asserts is driven by customers and sales instead of the price of credit, fair enough. Still leaves weak tea figuratively to suss out.
If only MMT would talk about how fiscal policy changes the external sector and how that impacts the domestic sector. Typically MMT thought leaders invoke figurative language and diversions to avoid the discussion. It's really, really important to MMT though. That whole assumption about floating non convertible Currency that is stated in the fist five minutes of any MMT is vitally important. Yet when talking about fiscal space and a JG MMT REFUSES to talk about the mechanism of how the external sector capital and current accounts and real resources provide this buffer of fiscal space and how that changes the components of the domestic sector. Is the external sector a function of fiscal policy, is it static? How does montary and fiscal policy play into the savings desires of the external sector? It's amazing to me how MMT skillfully avoids the discussion and tap dances around with the same old tired "weak tea."
Wray touches on the issues in his writing, but only topically and without any second order effects and even realistic first order.
I think MMT view of monetary policy mechanism goes like this (not 100% sure):
Central bank signals and or/hikes rates. Currency initially rises. consumers continue to spend as normal for most consumer goods but tend to substitute more foreign goods which have become cheaper. This slows domestic demand. Financed expensive goods that low net worth/high propensity consumers tend to buy as much as they can afford, like housing and autos undergo foreign substitution from currency effects (Walmart-Hyundai vs Sears-Chevy) via a simple labor market arbitrage condition and also reduced affordability due to interest expense. Low propensity spenders, high net worth individuals get more interest income and save more but also buy more domestic and foreign goods. Domestic producers would tend to invest less due to flagging demand and what they'd see as foreign competition and weak consumers. Ultimately people shift to JG employment as domestic producers reduce investment and cut employees, foreign investment increases as a result of additional sales, mostly their USD get reinvested to government bonds. JG increases fiscal spending, govt issues more bonds, soaks up foreign investment and spends it back into economy stabilizes the system, increases the size of government sector to offset the shrink in private sector, currency falls and reduces the arbitrage for consumers between their own and foreign labor markets and a new stable equilibrium is found. The process tends to repeat until foreign appetite for saving in USD diminishes?
Calgacus
People who invoke Jesus in an economic argument have disqualified themselves and are NOT allowed to utter any methodological pronouncements.#1
Obviously, you cannot stop making a fool of yourself: “Egmont, people are trying to make a point I have made in vain to you. These equations are meaningless if you don’t define your terms.”
Guess what, Calgacus and other people who invoke Jesus and cannot put 2 and 2 together: the variables in the AXEC sectoral balances equations are axiomatically well-defined, identical with the subset of the MMT equation, and measurable with the precision of two decimal places.#2, #3, #4, #5
So, if the subset of variables in the MMT equation is correctly defined then the same set of variables in the AXEC equation is also correctly defined. The AXEC set contains, in addition, the well-defined variables profit Q and distributed profit Yd which are missing in the MMT equation.
The problem of MMTers is that they do not even understand what their own balances equation actually says. It actually says that macroeconomic profit is zero.#6 Note that a zero-profit economy is a NONENTITY like the Easter Bunny or Spiderman or the Tooth Fairy or an intelligent MMTer.
Egmont Kakarot-Handtke
#1 How counterfeiters save America with an extra profit and make WeThePeople pay for it, post of Feb 27
https://axecorg.blogspot.com/2019/02/how-counterfeiters-save-america-with.html
#2 From false micro to true macro: the new economic paradigm
http://axecorg.blogspot.com/2016/11/from-false-micro-to-true-macro-new.html
#3 A crash course in macro accounting
https://axecorg.blogspot.com/2017/07/a-crash-course-in-macro-accounting.html
#4 Wikipedia and the promotion of economists’ idiotism (II)
https://axecorg.blogspot.com/2018/07/wikipedia-and-promotion-of-economists.html
#5 The final implosion of MMT
https://axecorg.blogspot.com/2016/10/the-final-implosion-of-mmt.html
#6 Dear idiots, time to get saving and investment straight (II)
https://axecorg.blogspot.com/2019/03/dear-idiots-time-to-get-saving-and.html
1. There is no "law of profit".
2. But but but....new fiat funny money tends to go first to the well-connected and wealthy, thereby shifting wealth from average and poor people to them. THAT'S IT'S MAIN PURPOSE. It's intentional. Ask someone who tried to get out of the system. Call up Mr. Gadaffi.
3. Paying for stuff with unlimited keystroke fiat funny money is not a cure for unemployment which is CAUSED by the fiat system in the first place.
4. I love seeing debates between Keynesians over which aspect of destructive Keynesian policy is better at fixing the problems caused by prior Keynesian policy, fiscal or monetary.
5. It seems clear to me that just spending new funny money into society is more like shooting the heroin into a vein. Monetary policy is more like swallowing a weak pill. Shooting is stronger and works faster.
"It seems clear to me that just spending new funny money into society is more like shooting the heroin into a vein. Monetary policy is more like swallowing a weak pill. Shooting is stronger and works faster."
Of course, but how do you prevent people from mining gold -- gold fever strikes and 1/2 the nation sets off to become millionaire gold miners, What can you do. It's get-rich-quick allure sounds great until the reality sets in. No system, anywhere, gold or funny-money fiat benefits anyone but 1% of lucky bastards which none of you will ever be. Sorry not sorry.
Why is there unemployment? To create downward wage competition for labor, raising profits for "management". Another effect is an all-volunteer military staffed by people who don't have any other choices.
If RODDIS was really anti-war he would be in favor of JG, living minimum wage, and BIG because that would eliminate voluntary canon fodder and force a return to conscription with the inevitable result of widespread public action against war (a la Vietnam). But Roddis is an idiot, so ...
@Ryan, don't confuse the structure with policy. The structure can be used or abused. MMT dispels the austerity / "we can't afford it" illusion used to reward specific interests at the detriment of others. Use MMT to demonstrate (as if it hasn't been repeatedly proven) that current policy is based on false assumptions and argue for rational, constructive policy based on the real structure.
Of course, but how do you prevent people from mining gold -- gold fever strikes and 1/2 the nation sets off to become millionaire gold miners, What can you do. It's get-rich-quick allure sounds great until the reality sets in. No system, anywhere, gold or funny-money fiat benefits anyone but 1% of lucky bastards which none of you will ever be. Sorry not sorry.
1. The alleged problems described above have not, would not and do not exist.
2. In a free market voluntary system where the initiation of violence is strictly prohibited, there is no initiation of violence.
3. The problem facing human beings is now and has always has been VIOLENCE.
4. Government policies that limit property ownership and grab one person's property to give to others by definition require the use of violence by SWAT teams, soldiers and cops which, throughout history, is invariably and horribly abused.
5. The free market does not at all tend towards monopoly or mass unemployment.
6. Keynesisns propose using problematic and ubiquitous state violence to solve problems all of which were caused by pre-existing violence-based government policies. The problems as described by Keynesians and "progressives" do not exist but for their prior attempts at "solutions" to those non-existent problems.
I highly recommend An MMT response on what causes inflation by Scott Fullwiler, Rohan Grey, and Nathan Tankus
excerpt from above:
Second, we do not believe that any and all inflation that does result from excessive demand can and should be addressed by higher taxes. This is a distortion of our view, as years of publications can attest. When MMT says that a major role of taxes is to help offset demand rather than generate revenue, we are recognising that taxes are a critical part of a whole suite of potential demand offsets, which also includes things like tightening financial and credit regulations to reduce bank lending, market finance, speculation and fraud. [bold added]
Of course banks don't truly lend; they create new deposits and, due to government privilege, in amounts which rival deficit spending.
But even if bank deposit creation did not create price inflation but "only" lowered prices by financing automation that eliminated jobs but without compensation to those who've lost their jobs, government privileges for the banks should still be condemned as violating equal protection under the law.
@ Detroit Dan: Your response gave me a chuckle. You hit the bullseye.
@ Noah Way:
This is off topic, but Warren Buffest’s latest Letter to Shareholders has inflamed the gold hucksters.
Buffet…
“Those who regularly preach doom because of government budget deficits (as I regularly did myself for many years) might note that our country’s national debt has increased roughly 400 fold during the last 77 years. That’s 40,000%!
Suppose you had foreseen this increase, and you had panicked at the prospect of runaway deficits and a worthless currency.
To “protect” yourself, you might have eschewed stocks and opted instead to spend $114.75 buying 3¼ ounces of gold.
What would that supposed protection have delivered? You would now have an asset worth about $4,200, which is less than 1% of what you would have gained from a simple, unmanaged investment in American business. The magical metal was no match for the American mettle.”
(.pdf format, Page 14)
http://www.berkshirehathaway.com/letters/2018ltr.pdf
Gold hucksters are screaming that Buffet is wrong because the USA will eventually disappear, at which point gold will be the only negotiable currency.
First of all, gold is not a currency. It is a commodity that is valued in dollars, pounds, and so forth.
Second, the US dollar is only one currency among many. If the dollar disappeared, we would use some other currency.
Third, these clowns want you to spend your dollars buying shares in their “gold exchanges,” which do not involve physical gold. Such shares will supposedly be “insurance” for when the USA disappears tomorrow. Or next week. Or next...whatever.
Other clowns are attacking Warren Buffet because they think that all money is created by banks as loans. Hence they think that all the U.S. government's spending money is borrowed from banks. Hence they think the fake “national debt crisis” is real. Hence they think that Buffet is wrong.
Buffet has been smart enough about money and business to make billions in profits, but he’s an idiot because Zimbabwe!
Or…something.
Still other clowns admit that Buffet is correct, and MMT is correct, but we should pretend that they are incorrect, in order to prevent the US government from becoming too “activist,” and providing “socialist” things like Universal Medicare.
There is a problem with Fullwiler, Grey, & Tankus's point in the Financial Times about tighter bank regulation (and various other items like control of cartels) being able to counter inflation. The problem is that those are items which ought to be attended to ANYWAY, i.e. even if we do not implement MMT. Indeed they are ALREADY being attended to in that most countries have anti-cartel legislation.
Ergo those items are irrelevant to the arguments for and against MMT!!!!!!!
This is off topic.
I want to quote Mosler, Kelton or some other prominent MMTer as saying that if government debt exceeds private sector savings desires, government will have to raise interest rates so as to dissuade the private sector from trying to spend away what it sees as its excess stock of liquid paper assets. Can anyone remember where Mosler, Mitchell etc said that, if they did actually say it?
"The problem facing human beings is now and has always has been VIOLENCE."
Actually the problem is GREED, which is the result of STUPIDITY (a condition that Roddis personifies).
I don't remember any MMT person saying the government ever needs to raise interest rates, Ralph.
I agree with Ralph that a lot of the discussion here is only tangential to MMT.
I think Ryan had a mix of interesting points (interest rate effects on housing and autos, external sector) mixed in with some other stuff that seems to have been deleted.
Detroit Dan,
Thanks for your response. Reason I asked was that MMT has been criticised in the UK broadsheet newspaper the “Telegraph” for failing to appreciate that if government debt rises too far, so too will interest on the debt. That strikes me as a valid criticism of MMT. To be more exact, if the debt exceeds private sector savings desires, interest on the debt will have to be raised in order to stop the private sector trying to spend away what it sees as an excess stock of savings, unless some other deflationary measure is imposed. See link (unfortunately behind a paywall I think).
https://www.telegraph.co.uk/business/2019/02/28/drink-deep-fountain-debt-peril-american-friends/
MMTers constantly point to the need to satisfy savings desires, but they never admit that that “satisfying process” can go too far.
Actually the problem is GREED, which is the result of STUPIDITY (a condition that Roddis personifies).
No, cementhead. A person can sit there seething while stupidly plotting to obtain something and be full of greed. Everyone else is perfectly safe until that person initiates violence to obtain the things that are the object of his/her greed.
Normal people can understand the difference between a peaceful and voluntary exchange (which occurs at stores all of the time) vs. street criminals and/or government actors showing up with guns and taking property by force under threat of violence. I love how you people MUST distort the meaning of well known and simple words. Go show up at a public debate and try to weasel out of the meaning of the word "violence" as opposed to a peaceful voluntary exchange. You wouldn't find it necessary to ALWAYS do that if you had any confidence in your position.
https://tinyurl.com/y3yxg3bf
@Andrew Anderson-- THANKS for recommending An MMT response on what causes inflation by Scott Fullwiler, Rohan Grey, and Nathan Tankus! I'll put up a separate post on that since Tom is on hiatus.
"A person can sit there seething while stupidly plotting to obtain something and be full of greed. Everyone else is perfectly safe until that person initiates violence to obtain the things that are the object of his/her greed."
Like I said, the problem is greed. No greed, no violence. Cause and effect are clearly beyond the ability of bonehead RODDIS to grasp (not exactly a shocking revelation).
Roddis should do stand-up comedy. He could get a laugh by simply accusing someone of being a “cement head,” as he does above.
Yes indeed the problem is human greed and selfishness, which are ultimately products of fear and ignorance.
Jeff Bezos is the richest person in history, yet he fears that he may die before he owns the entire planet. I know that Bezos is fearful because he is greedy. Greed and fear always occur together. They create and sustain each other.
I personally believe that there are only two fundamental emotions
[1] Fear, which includes greed, selfishness, insularity, and megalomania
[2] Love, which includes unity, generosity, humility, wisdom, and compassion.
"Greed" is an emotion, a feeling, a desire. If someone lusts after a woman while hiding in their own basement, big deal. If someone uses violence to rape the woman, it's a major felony.
There will always be greed. Most civilized communities do not have much violence. You guys know that you cannot make a case against a strict prohibition on violence so you obfuscate. It is so easy to induce you to obfuscate. That does not hurt my feelings.
Leave it to a libertarian to defend greed and by direct association the violence it creates. Like the violence of denying health care and social services to those in need.
Greedy libertarians don't want to pay for anything. They think that taxes are an act violence against them, especially when those taxes are used to provide social services such as public roads, schools, police and fire services, parks, municipal garbage removal, health clinics, infrastructure, and so on. Taxes are theft!
Yet another in a long list of ironic contradictions inherent in libertarian philosophy er, ... fantasy ... er, disease. In a humane society libertarians would be euthanized immediately after neocons.
Where is Franko? I miss Franko!
He morphed into Roddis.
Every blog has at least Roddis. When one disappears, another one sprouts like fungus to replace him, but with a different name.
I lived in Mexico for 2½ years, and every single village I visited, without exception, had at least one Roddis. The Mexican word for such a person is chapucero. When you arrived for the first time at any village, and you sought to orient yourself, one of the standard questions you asked the locals was, “Who’s your chapucero?” Or sometimes chapusa. You wanted to avoid this person at all costs.
“Where can I buy purified water? Who runs the tortilleria? Who’s your Roddis?”
Incidentally Noah Way is clearly referring to greed and selfishness in action, not to a guy who sexually lusts after some distant woman while he sits alone in a basement.
Roddis essentially equates a lone guy in a basement with, say, NATO’s destruction of Libya to steal the oil.
Chapucero. Society produces them as the human body produces waste products.
Bob Roddis, Andrew Anderson, Konrad, Noah Way
Your talk about greed and violence is folk psychology/sociology, or PsySoc for short. It may surprise you to learn that economics is NOT AT ALL about Human Nature/motives/behavior/action.#1, #2
Economics is about how the economic system works. More precisely, economics deals with the objective systemic laws that govern the behavior of the monetary economy.
Economists, in an analogy, are like scientists/engineers who figure out the laws of aerodynamics, thermodynamics etcetera and manage in the end to get something heavier than air off the ground and safely to some distant destination. Except that economists have NOT figured out anything about how the economy works. Instead, they have for 200+ years now a brain dead palaver about utility maximization, rational expectations, animal spirits, supply-demand-equilibrium, greed, and other PsySoc BS.
To this day, neither MMTers nor Austrians nor Walrasians nor Keynesians nor Marxians get the interaction of the macroeconomic balances right.#3 So, economics is at a level analogous to physics before Archimedes had figured out the Law of the Lever about 2300 years ago.
Society is cursed with the fact that economic policy has to this day NO sound scientific foundations. What society got instead is incessant PsySoc blather at the intellectual zero lower bound.
Egmont Kakarot-Handtke
#1 Economics is NOT about Human Nature but the economic system
https://axecorg.blogspot.com/2017/05/economics-is-not-about-human-nature-but.html
#2 PsySoc — the scourge of economics
http://axecorg.blogspot.com/2015/09/psysoc-scourge-of-economics.html
#3 MMT-Refutation for Dummies
https://axecorg.blogspot.com/2019/03/mmt-refutation-for-dummies.html
Ralph, you wrote, "if government debt rises too far, so too will interest on the debt".
Stephanie Kelton observed in a recent interview that if that were true, interest rates in the US would have been rising throughout the neoliberal period rather than falling. In reality, we should expect to see low interest rates on a currency issuer's debt when there are large deficits, and that is what we do see.
According to MMT: (i) interest rates on public debt are subject to policy; (ii) left unchecked, government deficits would reduce interest rates (because they add reserves into the system that the central bank -- if not paying interest on reserves -- needs to drain through bond sales in the event that it wants to maintain a positive interest rate).
The influx of reserves, which pay little or no interest, creates a ready market for government bonds. In any case, the central bank can always create the conditions for low interest rates on public debt by signaling an intention to buy government bonds of varying duration at prices of its choosing, and to do so without limit.
Peterc,
Yes: I rather go my knickers in a twist there. What I was trying to get at was that if there's a deficit which is enough to bring full employment, but government then goes an increases the deficit still further (i.e. for no good reason) then the private sector will try to spend away what it sees as its excess stock of government debt, which will be inflationary. Ergo government / central bank would have to raise interest rates to counter that inflation (or impose some other deflationary measure).
But of course that's not a good criticism of MMT because MMT aims to implement just enough deficit to bring full employment, and no more than that.
I'll try to keep my knickers better organised in future.
“If government debt rises too far, so too will interest on the debt.”
Gentlemen this statement is illogical. The US government’s “debt” is the amount of money that various parties (including US government agencies) have deposited in Fed savings accounts via purchasing T-securities.
The US government’s “debt” is not the amount of money the U.S. government has borrowed for government operations, since the US government does not borrow any money at all for its operations.
The Fed decides what interest it will pay on T-securities, and the decision is based on Fed inflation targets, not on the amount of money on deposit (i.e. not on the size of the so-called “national debt”).
If the Fed wants to reduce inflation by reducing the amount of money in circulation, the Fed can increase the yield (i.e. increase the interest rate) that the Fed pays on T-securities, thereby making T-securities more attractive to buyers.
Look again at that statement...
“If government debt rises too far, so too will interest on the debt.”
How far is “too far”?
For the US government, this question is as meaningless as the debt-to-GDP ratio.
Ralph, no worries. Actually, I just realized I erred as well, because I incorrectly read the statement as referring to interest rates, not interest. Macro is a minefield. So easy to put our feet in the wrong place. :-)
Konrad, I think from the MMT perspective, the only sense that can be made of the statement is that spending out of interest income might become so significant as to be inflationary. My understanding is that this is why MMT suggests to set rates with regard to keeping r < g and use other methods to constrain inflation -- in contrast to the current policy approach to monetary policy, which you rightly characterize as inflation targeting.
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