This is an excellent review and critique of Stephanie Kelton's The Deficit Myth. Michael Edesess lowers the boom in the first paragraph and then proceeds to explain it. Short and to the point, with quotes from many prominent MMT critics.
The debate over the much-touted and much-criticized modern monetary theory (MMT) is the murkiest I have ever been involved with, short of secondary school debates about the existence of God. But I finally see it clearly. Incredible as it may sound to nearly all observers - once they learn what MMT says - its basic economic tenets are agreed to by most knowledgeable economists. The dispute is not really over its core economic model; it is over fears of its perceived political implications.Exactly, and this generates the perceived need for a "noble lie."
It's basically a distrust of democracy that has nothing to do with money & banking, finance or economics.
econointersect
Modern Monetary Muddle
Modern Monetary Muddle
Michael Edesess, AdvisorPerspectives.com
See also
The criticism that David Glasner makes applies to a popularized version of MMT such as is presented in The Deficit Myth. Spending and taxation are not a binary as seem to be claimed, nor are inflation rate and employment rate. He is right that it is more complicated than this.
See also
The criticism that David Glasner makes applies to a popularized version of MMT such as is presented in The Deficit Myth. Spending and taxation are not a binary as seem to be claimed, nor are inflation rate and employment rate. He is right that it is more complicated than this.
However, his critique betrays ignorance of the body of MMT literature where the issues he raised are addressed in detail.
I don't see this as a weakness in The Deficit Myth as a popular introduction to MMT. It does not pretend to be a sequel The General Theory of Employment, Interest and Money. And even the later has been criticized for being too informal and "popular."
But some MMT economist(s) should address this in terms of translating theory into fiscal policy as a guideline for government spending relative to balancing available real resource, and employment in particular, with price stability.
This could be done in an academic paper or popular book based on simply providing documentation to existing literature that has addressed it, pulling it all together for reference.
How should the US Congress conduct fiscal policy to optimize the trifecta of growth, employment and price stability using tools available to it? What would the role of the central bank and monetary policy be? Many such questions suggest themselves. They are also implicit in the post by Michael Edesess linked to above.
There is legitimate concern on over how to handle the purse strings once the deficit myth is debunked. One answer would be in terms of fiscal rules, which MMT economists eshew. Another is a "theory of inflation" complete with model. One doesn't exist yet, not for lack of trying.
The MMT answer is heavily dependent on automatic stabilization such as is already in place. The MMT JG would need to be added to this.
But inflation results from many different factors, both from the demand and supply sides. MMT economists have examined these factors, too.
There is legitimate concern on over how to handle the purse strings once the deficit myth is debunked. One answer would be in terms of fiscal rules, which MMT economists eshew. Another is a "theory of inflation" complete with model. One doesn't exist yet, not for lack of trying.
The MMT answer is heavily dependent on automatic stabilization such as is already in place. The MMT JG would need to be added to this.
But inflation results from many different factors, both from the demand and supply sides. MMT economists have examined these factors, too.
Uneasy Money
What’s Right and not so Right with Modern Monetary Theory
David Glasner | Economist at the Federal Trade Commission
Also
Weak.
The Sydney Morning Herald
What is Modern Monetary Theory and is it THE answer?
What’s Right and not so Right with Modern Monetary Theory
David Glasner | Economist at the Federal Trade Commission
Also
Weak.
The Sydney Morning Herald
What is Modern Monetary Theory and is it THE answer?
Jessica Irvine
The value of money and the worthlessness of economics
ReplyDeleteComment on David Glasner on ‘What’s Right and not so Right with Modern Monetary Theory’
David Glasner sets the frame: “In writing the paper, it occurred to me that it might be worthwhile to include a comment on Modern Monetary Theory inasmuch as the proposition that the value of fiat money is derived from the acceptability of fiat money for discharging the tax liabilities imposed by the governments issuing those fiat moneys, which is a proposition that Modern Monetary Theorists have adopted from the chartalist school of thought associated with the work of G. F. Knapp.”
Of course, other economists have said other things and in the end, nobody has any idea what the value of money is. Economic reality is complex, you know, and economics ends always in the swamp where “nothing is clear and everything is possible.” (Keynes)
Walrasian microfoundations and Keynesian macrofoundations are provably false. Because economics is a failed science it has to be reconstructed from scratch. This has already been done elsewhere#1, #2, #3, so here is the bare-bones version.
The elementary production-consumption economy is defined with this set of macroeconomic axioms: (A0) The objectively given and most elementary configuration of the economy consists of the household sector and the business sector which in turn consists initially of one giant fully integrated firm. (A1) Yw=WL wage income Yw is equal to wage rate W times working hours. L, (A2) O=RL output O is equal to productivity R times working hours L, (A3) C=PX consumption expenditure C is equal to price P times quantity bought/sold X.
Under the conditions of market clearing X=O and budget balancing C=Yw in each period, the price is given by P=W/R (1), i.e. the market clearing price is equal to unit wage costs. This is the most elementary form of the macroeconomic Law of Supply and Demand. For the graphical representation see Wikimedia.#4
The price is determined by the wage rate, which takes the role of the nominal numéraire, and the productivity. The quantity of money is NOT among the price determinants. This puts the commonplace quantity theory to rest.
The real value of money is ultimately given by the productivity. From (1) follows W/P=R, i.e. real wage = productivity. The value of money has nothing at all to do with the taxing power of the state.
See part 2
Part 2
ReplyDeleteTransaction money is zero at the beginning and the end of the period under consideration.#5 All transactions are handled by the central bank which continuously creates and destroys fiat money (= deposits and overdrafts) on its balance sheet. There is NO such thing as a fixed quantity of money. The central bank plays an ACCOMMODATIVE role and simply supports the AUTONOMOUS market transactions between the household and the business sector. The economy never runs out of money. Money comes into the economy at the supply side.
Monetary profit for the economy as a whole is defined as Qm≡C−Yw and monetary saving as Sm≡Yw−C. It always holds Qm≡−Sm, in other words, the business sector’s surplus = profit (deficit = loss) equals the household sector’s deficit = dissaving (surplus = saving). This is the most elementary form of the macroeconomic Profit Law.
The problem with MMT is that it is bad theory#6 and bad policy#7, more specifically: MMT is plain political fraud.#8
The Profit Law for the three-sector case (household, business, state sector) reads Qm≡(G−T)−Sm which says that the business sector's profit/loss is given by the state sector's budget deficit/surplus and the household sector's dissaving/saving. For Sm=0 this boils down to (G−T)=Qm, i.e. public deficit equals private profit. The profit of the monetary economy is in this analytical limiting case produced entirely by the state sector. In other words, deficit spending/money creation is a free lunch for the Oligarchy. Financial wealth grows in lockstep with public debt.
MMT is not a scientifically valid monetary theory but brain-dead propaganda for the benefit of Wall Street. The question is whether David Glasner does not understand how the monetary economy works or whether he is complicit in the fraud.
Egmont Kakarot-Handtke
References
#1 The creation and value of money and near-monies
https://axecorg.blogspot.com/2017/12/the-creation-and-value-of-money-and.html
#2 The objective value of money
https://axecorg.blogspot.com/2018/03/the-objective-value-of-money.html
#3 Sovereign economics, Sec. 1.3, 4.6
https://axecorg.blogspot.com/2020/06/sovereign-economics-international.html
#4 Wikimedia, Elementary production-consumption economy
https://commons.wikimedia.org/wiki/File:AXEC31a.png
#5 Wikimedia, Idealized transaction pattern, household sector, balanced budget
https://commons.wikimedia.org/wiki/File:AXEC98.png
#6 Wikipedia, economics, scientific knowledge, or political agenda pushing?
https://axecorg.blogspot.com/2020/06/wikipedia-economics-scientific.html
#7 MMT, money printing, stealth taxation, and redistribution
https://axecorg.blogspot.de/2017/11/mmt-money-printing-stealth-taxation-and.html
#8 MMT is ALWAYS a bad deal for the 99-percenters
https://axecorg.blogspot.de/2017/12/mmt-is-always-bad-deal-for-ninety-nine.html
“ How should the US Congress conduct fiscal policy to optimize the trifecta of growth, employment and price stability using tools available to it? ”
ReplyDeleteCongress doesn’t do that Congress just sets the authorization and appropriation USD amounts and the Executive Branch then develop and implement the schedule for programs.... negotiates contracts with vendors on price and schedule which is what could cause prices to go up...
The executive branch decides what prices to pay and how many real resources to use... not Congress...
“ The quantity of money is NOT among the price determinants. This puts the commonplace quantity theory to rest.”
ReplyDeleteLOL! not for the Monetarists it’s not...
Just had Bill Dudley in Bloomberg op-ed saying “banks will lend out the Reserves!” last week...
QT is certainly not put to rest... it’s being used right now by policy people.,,
Matt Franko
ReplyDeleteI said “The quantity of money is NOT among the price determinants. This puts the commonplace quantity theory to rest.”
You say: “LOL! not for the Monetarists it’s not... Just had Bill Dudley in Bloomberg op-ed saying “banks will lend out the Reserves!” last week... QT is certainly not put to rest... it’s being used right now by policy people.,,”
Right, but this proves only what everybody knows by now, i.e. that policy people are IQ-wise well below the cockroach. The fact that there are still flat-earthers around does not prove anything against heliocentrism. Get it, the quantity theory and monetarism are scientifically dead.
What Bill Dudley or Bloomberg or any other clown in the political Circus Maximus says is just irrelevant.
If you still take these folks seriously, better loosen the straps on your facemask. Your last brain cell is dying for lack of oxygen.
Egmont Kakarot-Handtke
“ Right, but this proves only what everybody knows by now”
ReplyDeleteI submit that there are max 1,000 of us on planet earth that understand this.,. Out of 7.5 billion people
And this is what makes the MMT people being pos political hacks so pathetic...
ReplyDeleteThere is maybe 1000 of us that have an inkling of an idea of what is really going on and the MMT morons just take that valuable knowledge and throw it on the dumpster fire that is aka the Democrat/Labor party.,,
Completely unprofessional unscientific political hacks ...
Matt should not talk about being a political hack as he’s one of the worst in that field but on the right wing nut case side.
ReplyDeleteMatt Franko
ReplyDeleteYou say “I submit that there are max 1,000 of us on planet earth that understand this.,. Out of 7.5 billion people.”
You are in the wrong reference frame. In science, the opinions and votes and clicks and likes of 7.5 billion people count exactly for zero.
MMT is provably false, that is what counts in science.
Egmont Kakarot-Handtke