Tuesday, April 9, 2019

Lars P. Syl — Sweden as a case of MMT

Lars Syll schools Douglas Carr (The Hill op-ed) on austerity and the Swedish economy.

Lars P. Syll’s Blog
Sweden as a case of MMT
Lars P. Syll | Professor, Malmo University


AXEC / E.K-H said...

How a Swedish professor cares about the Oligarchy’s financial well-being
Comment on Lars Syll on ‘Sweden as a case of MMT’

Lars Syll argues: “What the Swedish experience shows is that a government’s ability to conduct an ‘optimal’ public debt policy may be negatively affected if public debt becomes too small. To guarantee a well-functioning secondary market in bonds it is essential that the government has access to a functioning market. If turnover and liquidity in the secondary market become too small, increased volatility and uncertainty will, in the long run, lead to an increase in borrowing costs. Ultimately there’s even a risk that market makers would disappear, leaving bond market trading to be operated solely through brokered deals. As a kind of precautionary measure against this eventuality, it may be argued – especially in times of financial turmoil and crises ― that it is necessary to increase government borrowing and debt to ensure ― in a longer run ― good borrowing preparedness and a sustained (government) bond market.”

This is one of the lousiest pieces of economics ever produced in Sweden. In order to see this, one has to do some elementary macroeconomics.

The MMT cure-all is deficit-spending/money-creation. The process goes schematically as follows:#1, #2

(i) The initial economic configuration is the elementary production-consumption economy. The initial state is characterized by budget-balancing of the household sector C=Yw, i.e. consumption expenditures C are equal to wage income Yw, and zero profit of the business sector Q=C−Yw=0.

(ii) The government deficit-spends. Deficit D is defined as public spending G minus taxes T, i.e. D=(G−T). Deficit spending on current production causes a one-off price hike (NO inflation) and the business sector ends up with macroeconomic profit Q=(G−T). The government creates a free lunch for the Oligarchy.

(iii) The business sector fully distributes profit. The distributed profit Yd goes to the Oligarchy and takes initially the form of deposits at the central bank. The CB’s balance sheet shows government overdrafts on the asset side and the Oligarchy’s deposits on the liability side. Both sides are equal to the penny.

(iv) The interest rates on both sides of the CB’s balance sheet are for a starter set to zero.

(v) If government deficit spending continues deposits grow. Since deposits bear no interest the Oligarchy’s desire for a safe investment opportunity becomes more urgent.

(vi) Now, the government consolidates its overdrafts by selling interest-bearing bonds. The bonds are bought by the Oligarchy and paid for with the deposits. The CB’s balance sheet shrinks again. The Oligarchy’s portfolio consists of bonds and money = deposits at the CB. After issuance, the bonds are traded on the secondary market which grows continuously.

(vii) In order to pay the interest on bonds, the government taxes the household sector and hands the money over to the bondholders, i.e. the Oligarchy. The disposable income of the taxpayers decreases and that of the bondholders increases.

(viii) This income redistribution from WeThePeople to the Oligarchy goes on as long as the debt is rolled over.

So, Lars Syll’s MMT policy of permanent deficit-spending/money-creation entails some real benefits for the Oligarchy, i.e. (i) a free lunch because of Public Deficit = Private Profit, (ii) permanent ultra-safe interest income on a growing public debt, (iii) a liquid secondary bond market.

It is really astonishing how an academic who calls himself a Progressive and pretends to be committed to the public interest pushes the agenda of the Oligarchy and deceives the Swedish people.#3

Egmont Kakarot-Handtke

#1 The new macroeconomic paradigm

#2 From MMT misunderstandings to the true Theory of Money

#3 MMT is ALWAYS a bad deal for the 99-percenters

Kaivey said...

Are for advocating a type of free market communism, Egmont. If there are no profits then services are provided at cost. That doesn't sound so bad. But what is a living wage (where goods were provided at cost) and what is profit? Doctors earn more than nurses, and people who manage businesses get higher pay than the workers.

Shareholders make profits without working, but they need incentives to lend their money. If I run a business I would hope to make a profit, or is that my wage?

"So, Lars Syll’s MMT policy of permanent deficit-spending/money-creation entails some real benefits for the Oligarchy, i.e. (i) a free lunch because of Public Deficit = Private Profit, (ii) permanent ultra-safe interest income on a growing public debt, (iii) a liquid secondary bond market."

That is a free lunch and Bill Mitchell agrees with you about this. He says we could change this system, which is achaic. I hope so. But government bonds are a safe investment for people's pensions.

AXEC / E.K-H said...


You say: “Are for advocating a type of free market communism, Egmont.”

Fine, but first get out of economics. Economics is a science and there is NO place for political agenda pushers. The mission of economics is to figure out how the monetary economy works and nothing else.

And this brings us back to the point at issue.

You have NO idea how the economy works. Neither has Lars Syll and neither has the rest of MMTers. But all are advocating deficit-spending/money-creation. Because the macroeconomic Profit Law implies Public Deficit = Private Profit, Lars Syll and the rest of MMT academics are actually pushing the agenda of the Oligarchy. Worse, they are telling people that MMT policy is for the benefit of the ninety-nine-percenters.

This is a political fraud.

Clearly, what I am advocating is NOT free market communism but to expel Lars Syll and all the other political agenda pushers and fraudsters from the scientific community.

Egmont Kakarot-Handtke