An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Friday, October 23, 2020
Do The Neochartalists Advocate “Printing Money”? — V. Ramanan
Short answer, no. Ramanan shows why and on the way explains how he thinks that sometimes MMT economists' expressions are either confusing or give opponents an opening to criticize them.
Hmm. So Abba Lerner was a lowbrow? I think not. Lerner was right, and the MMTers and Ramanan are wrong to eschew the phrase. It is perfectly accurate. Ramanan provides no argument against it. MMTers eschew the phrase "borrowing" for what is called "government borrowing" - because it is NOT borrowing in any other sense of the word, but an asset swap.
More than that, the story falls short because in the case of open economy, the government has constraints, brought because of historic reasons causing large differences in competitiveness between nations. Trade imbalances can cause fiscal policy to be constrained and the international investment position to be unsustainable.
Nonsense. Closed economies are special cases of open economies, of course. But open economies are special cases of closed economies, as Lerner explained. This mystical constraint stuff has destroyed many minds and even countries. The famous international constraints that prevent blindingly obvious advantageous undertakings - but nobody to know what this constraint is.
Following advice to fix exchange rates - "concerted action" - believing in the imaginary constraints is just "Trotskyism for the rich", worshipping a "Fetish of So-Called International Bankers".
Hard to argue against something so vaporous. Hard to not laugh at it either.
And in all this they also end up claiming horribly wrong things that taxes needn’t be increased.
It depends on the spending. They aren't "horribly wrong" in the basic claim. A Job Guarantee, ordinary levels of increased spending needs zero new taxes imposed. Of course revenue will rise because of the increased spending. That's the tax increase, coming from the correct spending ---> taxation sequence, that Ramanan has irrational disputed elsewhere. Tax rates need not be raised, nor novel taxes imposed.
Was recently reading James Crotty's Keynes Against Capitalism_ His Economic Case for Liberal Socialism- Routledge (2019) p 353, where he notes "The longest section of Keynes’s note [On Postwar Economic Planning] is devoted to exposing the fallacy embodied in the report that full-employment planning entails substantial budget deficits."
and cites Keynes reply to that criticism of the economic proposals:
"But the latter part of the argument, which seems to suggest that the tendency of the proposals is to unstabilise the national budget, is surely topsy-turvy. It would be a failure to adopt a remedy for severe cyclical unemployment which might have that effect. There appears to be no glimmer of a recognition that measures to stabilise the national income are ipso facto measures to stabilise the national budget. The additional charges falling on the budget in years of bad employment as a result of the Committee's proposals are, in fact, almost negligible_ whilst the effect on the revenue of maintaining the national income should be obvious"
Keynes Collected Works volume 27, p. 366
Functional finance is sounder than sound finance. Keynes understood that. Pointlessly overcomplicated and unfamiliar language, dismissing simple speech as "lowbrow" - has no other effect than hiding the obvious.
The private sector would decide how much of its wealth it wants to allocate in banknotes and how much in government bonds and other financial assets. If the private sector wants more banknotes, they’ll ask their banks which in turn would obtain from the Bank of Canada Ramanan [bold added]
Seriously? Paper banknotes and coins are a serious part of macro-economics?
Then there's a problem since the non-bank private sector should be able to use fiat in inherently risk-free, convenient account form at the Central Bank or Treasury itself and not have to deal with grubby, unsafe PHYSICAL fiat like this was the Dark Ages or worse.
Do you have any insight into why Lerner moved from FF to MAP in his later years? Result of 70's inflation and the political response? Some take that as a repudiation of his previous view regarding FF. It doesn't appear that way to me, but I don't have a quick answer for it.
From the very beginning in the 1990s, MMT has NEVER argued that 'printing money' was necessary. Anyone saying MMT = "print money," even if they (correctly) incorporate an inflation constraint, is getting MMT dead wrong."
Hmm. So Abba Lerner was a lowbrow? I think not. Lerner was right, and the MMTers and Ramanan are wrong to eschew the phrase. It is perfectly accurate. Ramanan provides no argument against it. MMTers eschew the phrase "borrowing" for what is called "government borrowing" - because it is NOT borrowing in any other sense of the word, but an asset swap.
ReplyDeleteMore than that, the story falls short because in the case of open economy, the government has constraints, brought because of historic reasons causing large differences in competitiveness between nations. Trade imbalances can cause fiscal policy to be constrained and the international investment position to be unsustainable.
Nonsense. Closed economies are special cases of open economies, of course. But open economies are special cases of closed economies, as Lerner explained. This mystical constraint stuff has destroyed many minds and even countries. The famous international constraints that prevent blindingly obvious advantageous undertakings - but nobody to know what this constraint is.
Following advice to fix exchange rates - "concerted action" - believing in the imaginary constraints is just "Trotskyism for the rich", worshipping a "Fetish of So-Called International Bankers".
Hard to argue against something so vaporous. Hard to not laugh at it either.
And in all this they also end up claiming horribly wrong things that taxes needn’t be increased.
It depends on the spending. They aren't "horribly wrong" in the basic claim. A Job Guarantee, ordinary levels of increased spending needs zero new taxes imposed. Of course revenue will rise because of the increased spending. That's the tax increase, coming from the correct spending ---> taxation sequence, that Ramanan has irrational disputed elsewhere. Tax rates need not be raised, nor novel taxes imposed.
Was recently reading James Crotty's Keynes Against Capitalism_ His Economic Case for Liberal Socialism- Routledge (2019) p 353, where he notes
"The longest section of Keynes’s note [On Postwar Economic Planning] is devoted to exposing the fallacy embodied in the report that full-employment planning entails substantial budget deficits."
and cites Keynes reply to that criticism of the economic proposals:
"But the latter part of the argument, which seems to suggest that the tendency of the proposals is to unstabilise the national budget, is surely topsy-turvy. It would be a failure to adopt a remedy for severe cyclical unemployment which might have that effect. There appears to be no glimmer of a recognition that measures to stabilise the national income are ipso facto measures to stabilise the national budget. The additional charges falling on the budget in years of bad employment as a result of the Committee's proposals are, in fact, almost negligible_ whilst the effect on the revenue of maintaining the national income should be obvious"
Keynes Collected Works volume 27, p. 366
Functional finance is sounder than sound finance. Keynes understood that. Pointlessly overcomplicated and unfamiliar language, dismissing simple speech as "lowbrow" - has no other effect than hiding the obvious.
The private sector would decide how much of its wealth it wants to allocate in banknotes and how much in government bonds and other financial assets. If the private sector wants more banknotes, they’ll ask their banks which in turn would obtain from the Bank of Canada Ramanan [bold added]
ReplyDeleteSeriously? Paper banknotes and coins are a serious part of macro-economics?
Then there's a problem since the non-bank private sector should be able to use fiat in inherently risk-free, convenient account form at the Central Bank or Treasury itself and not have to deal with grubby, unsafe PHYSICAL fiat like this was the Dark Ages or worse.
@ Calgacus
ReplyDeleteDo you have any insight into why Lerner moved from FF to MAP in his later years? Result of 70's inflation and the political response? Some take that as a repudiation of his previous view regarding FF. It doesn't appear that way to me, but I don't have a quick answer for it.
Macroeconomic Market Incentive Plans-History and Theoretical Rationale-Kenneth J. Koford and Jeffrey B. Miller
Calgacus,
ReplyDeleteI don't advocate fixing exchange rates.
Also if you like it this way:
https://twitter.com/stf18/status/1133586537512341504
"1. Quick(?) MMT 101 lesson:
From the very beginning in the 1990s, MMT has NEVER argued that 'printing money' was necessary. Anyone saying MMT = "print money," even if they (correctly) incorporate an inflation constraint, is getting MMT dead wrong."
“low brow” = figure of speech
ReplyDelete“ MMTers and Ramanan are wrong to eschew the phrase. It is perfectly accurate.”
ReplyDeleteIt’s figurative... figurative language is never accurate...
Calg,
ReplyDeleteSo when Ralph or Neil here say you’re “taking the piss”... do you think they are accusing you of urinating?
https://en.m.wikipedia.org/wiki/Taking_the_piss
ReplyDeleteNeanderthal uni-brow is a staple of B-movies.
ReplyDeleteMoney should be mimeographed. Nothing like the smell of freshly mimeographed cash :)
ReplyDelete