The resurgence of economic orthodoxy is a great example of how declining schools of thought can maintain dominance in the narrative for extended periods of time if the vested interests are powerful enough. In the case of the economics profession, mainstream New Keynesian theory persists because it serves the interests of capital. Recently, the IMF urged the Australian government to engage in ‘fiscal consolidation’ in order to support further interest rate hikes by the RBA aimed at reducing inflation quickly. In general, the IMF is urging nations to engage in fiscal austerity in order to bring their public debt ratios down. The problem is that even their own research shows that these fiscal adjustments on average do not succeed. And, usually, they leave a damaged society where the lower income and disadvantaged cohorts are forced to endure the bulk of the negative effects....William Mitchell — Modern Monetary Theory
Fiscal austerity does not on average reduce public debt ratios
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
“ 2. Bank lending is not constrained by reserves – they will extend loans to any credit worthy customer who seeks credit.”
ReplyDeleteYes it is…
“ However, this is merely an accounting statement. It has to be true if things have been added and subtracted properly in accounting for the dealings between the government and non-government sectors.”
ReplyDeleteThere is a lot more to it than “adding and subtracting”… Accounting principles have to be applied depending on what Basis of Accounting the institution is using….
So you have to study/train in Accounting Science to know what is involved and then what the balances are that then have to be “added or subtracted”….
Oversimplification …
Accounting allegedly = “adding and subtracting”…
Same with bank regulation… “banks don’t lend out the reserves!” = “banks are not constrained by reserves” when reserves are a regulated asset same as loans…
Oversimplification…
Then ofc when failure of academic practice:
ReplyDelete“ New Keynesian theory persists because it serves the interests of capital ”
create a conspiracy theory to blame…
This is straight up Alex Jones stuff …
"Yes it is…"
ReplyDeleteNot it isn't.
"when reserves are a regulated asset same as loans"
ReplyDeleteThat problem can be passed off onto a weaker competitor in a system with multiple banks in it. Then it is the regulator that will have to back down, not the bank.
Which we see time and again.
“ That problem can be passed off ”
ReplyDeleteBut it isn’t… so why say it is?
“No it isn’t”
ReplyDeleteThe largest national economy on planet earth whose currency is widely used globally as a reserve currency (US) does it that way….
And 2bd and 3rd (China and Japan) do it that way…
EZ does it that way…
Small minority of nations (maybe Commonwealth nations?) don’t do this….
MMT thinks the Accounting discipline is merely “adding and subtracting!” …
ReplyDeleteCanada doesn't do it that way.
ReplyDelete