Tuesday, September 21, 2021

Bill Mitchell — ECB researchers find fiscal policy is very effective and more so if central banks buy up the debt

The ECB published a Working Paper recently (September 2021) – Monetary and fiscal complementarity in the Covid-19 pandemic – which represents progress in the narrative. While the technical model that the ECB uses is just an ad hoc attempt to reverse engineer the reality so they can claim they can explain it, what is useful from the exercise is that the old mainstream narratives that fiscal policy is ineffective in providing permanent boosts to real output (or that austerity does not permanently damage the growth trajectory) can no longer be sustained. The taboo surrounding central bank purchases of government debt because they cause accelerating inflation can no longer be sustained. The claims that fiscal deficits drive up interest rates can no longer be sustained. Now the public debate just has to reflect that reality and we will have made progress. Of course, this is all core MMT – we knew it all along!...
Sadly, MMT economists will likely never get credit for it. It is extremely unprofessional to publish without acknowledging previously published material. Their excuse will likely be that the material was not published in peer-reviewed journal that they control and which exclude heterodox work, so it was not unprofessional not to refer to it. Catch-22a.

Bill Mitchell – billy blog
ECB researchers find fiscal policy is very effective and more so if central banks buy up the debt
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia


Jerry Brown said...

There was an interesting podcast on 'The Ezra Klein Show' in the NY Times very recently. Ezra interviews Adam Tooze, the economic historian. MMT gets quite a few mentions and credit there. Tooze also recommends Stephanie Kelton's book at the usual end segment of 3 books to read.
I guess I am more optimistic that MMT will get at least public credit than you or Bill Mitchell are. If you like podcasts I recommend that one.

AXEC / E.K-H said...

MMT vs Mainstream ― a proto-scientific shitshow
Comment on Bill Mitchell on ‘ECB researchers find fiscal policy is very effective and more so if central banks buy up the debt’ and ‘They never wrote about it, talked about it, and, did quite the opposite ― yet they knew it all along!’*

In these two pieces, Bill Mitchell argues in great detail that mainstream economics is proto-scientific garbage. And he correctly identifies the foundational methodological blunder: “Consequently, treating macro as if it is micro means there is a tendency to conclude that what applies at the individual level also applies at the aggregate level, which is demonstrably false.” Indeed, this is the well-known Fallacy of Composition.#1

As far a the critique of mainstream economics goes, Bill Mitchell is on firm ground. However, the death and burial of mainstream economics at the Flat-Earth Cemetery is NOT news, and repeating the non-news is not exactly a contribution to scientific progress. Also, the suggestion that the provable falsity of mainstream economics somehow implies the correctness of MMT is misleading.#2-#4

While MMT's policy intuition is superior to that of the Sargent/Wallace crowd.#5, the underlying theoretical foundations are also provably false. so, that is the current state of economics: the Walrasian microfoundations of the mainstream are false and the Keynesian macrofoundations of MMT are false.#6-#10

Bill Mitchell concludes:

(i) “So far in more than 25 years of doing this stuff, I have not been systematical wrong about my predictions, which are quite converse relative to the mainstream predictions.”

(ii) “So it matters how you come to a conclusion, which might be similar to a conclusion that the rival paradigm reaches. The surrounding body of knowledge is what matters.”

It turns out that (i) is true with regard to fiscal and monetary policy. It is NOT true with regard to macroeconomic profit, distribution, the advantages for the Oligarchy, and the disadvantages for WeThePeople. The problem-solving capacity of MMTers is basically that of counterfeiters.#11

Yes, from the standpoint of science “it matters how you come to a conclusion” and the “body of knowledge is what matters”. The fact is that both mainstream and MMT are based on provably false axiomatic foundations and because of this, all policy advice lacks sound scientific foundations. Actually, mainstream policy guidance is plucked from the vacuum of five behavioral axioms.#12

Economics has to advance beyond the mainstream and MMT.

Egmont Kakarot-Handtke


Matt Franko said...

“ The hard-core NK framework predicts rising interest rates, accelerating inflation, and, only short-term real output gains followed by falls in household consumption expenditure (rising saving to pay for the implied higher taxes to pay back the public debt increase) and business investment (as the rising interest rates crowd out non-government borrowing), which, ultimately, undermine any temporary output gains.

The reality that the ECB authors want to try to understand is why the NK predictions systematically failed.”

It’s too soon to say whether these NK predictions failed…