Brad DeLong has written a primer on Modern Monetary Theory (MMT), and just gave an important lesson about MMT: if you want to understand MMT, you need to read a primer written by a MMTer. I am not going to hold myself out as an expert on DeLong's thinking, but I would argue that a fear of bond market disruptions is a constant theme in his writings.Bond Economics
The very sharp Ken Rogoff predicts a boom over the next four years: "The biggest missing piece... is business investment, and if it starts kicking in... output and productivity could begin to rise very sharply.... You don’t have to be a nice guy to get the economy going.... It is far more likely that after years of slow recovery, the US economy might at last be ready to move significantly faster..."
I really can't see it as likely.Grasping Reality
Soon after I read Brad DeLong’s post on “The Economist as…?: The Public Square and Economists,” I contacted my long-time friend and collaborator Antonio Callari, who is the Sigmund M. and Mary B. Hyman Professor of Economics at Franklin and Marshall College and an authority on the history of economics. I am pleased to publish his guest post here.Must must-read!
5. DeLong’s “history of economics” is long on the idea of markets but short on the idea of power. It’s true he mentions power abundantly: he mentions monopoly power, and he even discusses the way in which power subverts neo-institutionalist utopias of complete markets. These are, no doubt, important elements in framing the limits of the parameters of market-economics. Insofar, however, as they work against the background of an analytical system that imagines and formalizes a market system capable, under ideal conditions, to define efficient (i.e., “power-free”) outcomes, these elements relegate questions of power to the periphery of the analytical core of his economics.…
6. But there is another analytical tradition in economics in which questions of power and class are central and not peripheral, a tradition that makes it clear that there is no such thing as a “power-free” market system even at the most abstract level of analysis. This tradition is entirely absent in DeLong’s reflections. It is the tradition that not only Marx but also Veblen created (with their verbal and/or analytical demonstration that “capital” is itself “power”, not a “market-regulated” factor of production), which finds its roots in the analytical core of Adam Smith and David Ricardo, and which more recently found its uncontroverted analytical vindication in the work of Piero Sraffa. In an allusion to its disciplinary longevity, I’ll refer to this tradition as the Smith-Sraffa tradition. It is both an insight and an analytical conclusion of this tradition that a capitalist economy “can” in principle (purely according to market forces) come to find its central tendency at any level of output, and that the particular outcome is fundamentally determined by an exogenous (and primarily politically determined) distributional datum (a position on the wage-profit frontier), with prices (market forces) essentially bending to fit (enable, but not determine) the outcome. This tradition enlarges the set of direct, analytical, concern to economics to include questions of distribution, and of policies directly (administratively and/or politically) effecting distribution (e.g., minimum wage laws, capital controls, accounting and taxing rules for profits and management income, the structure of financial instruments and markets, and so on). In the work of some French economists, the framework for the arrangement of institutional and power levers effecting a particular central tendency or another has been suggestively called an “accumulation regime.…
11. Of course, this brings us directly to DeLong’s downplaying of the public intellectual potential of economists (the second point of #7 above). Had DeLong broadened the content of economics to include the Smith-Sraffa school, he might indeed have found it possible for economists to function as public intellectuals (this, in addition to, and alongside, and not in opposition to, their function in the more limited disciplinary area he addresses). Public intellectuals are people who find ways of making the public an active and knowledgeable participant in understanding key (not necessarily all) parameters of public policy and in the deliberation about and the forging of public policy. In DeLong’s world, the public cannot really participate (and the people are, in fact, in an existential state of epistemic anxiety) because they are confronted with economic and methodological questions (e.g., a threshold level of the rate of interest) they can’t adjudicate, or even grasp. But this is true only if the questions they are confronted with are of such a nature that they haven’t been trained to tackle. The nature of the Smith-Sraffa tradition, however, is such that at least some of its analytical parameters (e.g., again, minimum-wage laws, capital controls, accounting and taxing rules for profits and management income, the structure of financial instruments and markets, and so on) are quite open to intelligent public discussion: their resolution requires not specialized expertise but ideological and moral compasses. Broadening the map of economics to include the Smith-Sraffa tradition might thus have allowed DeLong to create the space for knowledgeable public participation and, hence, for a role for economists as public intellectuals to make it clear in the public square that the people are to be called upon to give the “experts” their marching orders. With public conversations properly framed by the broader analytical perspective the inclusion of the Smith-Sraffa tradition would produce, we would be neither be in the “sewer” of popular passions and ignorance nor in the hands of any philosopher king.…
14. There are ways of thinking economics and writing historiographies in ways that are different from DeLong’s reflections on the role of economists as public intellectuals. I think Bernie Sanders was tapping into (some of) the practitioners of these other ways. In these other traditions, the public can be in a space not just of anxiety, but of real choices.
Brad DeLong wrote recently concerning the Uncertainty at the Fed…“The heart of the trouble consists in the fact that neither financial-market participants nor, it seems, the Fed itself know the true state of the economy or how best to model it – especially in the wake of the 2008 financial crisis” (link)It is a fact he says. The Fed and others do not know how best to model the state of the economy.
I stand alone with a new model for an Effective Demand limit as Keynes envisioned it
There’s certainly something wrong with heterodox economics these days if a leading mainstream economist such as DeLong, whose views on the current economic crises are by his own admission closely aligned with those of Larry Summers, finds that both the mainstream and URPE views “are in the same box.”
It’s a case, it seems to me, of damning with fervent praise.…I don't see them as being in the same box. However, to the degree that heterodox economist frame their arguments as being the same box to be in the game, then they are likely to be viewed as being in that box.
Economist Joe Stiglitz warned back in 2010 that the world risked sliding into a "Great Malaise." This week, he followed up on that grim prediction, saying, "We didn't do what was needed, and we have ended up precisely where I feared we would."
The problems we face now, Stiglitz points out, include "a deficiency of aggregate demand, brought on by a combination of growing inequality and a mindless wave of fiscal austerity."
He says the only cure is an increase in aggregate demand, far-reaching redistribution of income and deep reform of our financial system. The obstacles to this cure, he writes, "are not rooted in economics, but in politics and ideology."
Indeed. Joe Stiglitz is right.…World Post
Now to the additional point I really wanted to make. When people invoke the idea of confidence, other people (particularly economists) should be automatically suspicious. The reason is that it frequently allows those who represent the group whose confidence is being invoked to further their own self interest. The financial markets are represented by City or Wall Street economists, and you invariably see market confidence being invoked to support a policy position they have some economic or political interest in.
Bond market economists never saw a fiscal consolidation they did not like, so the saying goes, so of course market confidence is used to argue against fiscal expansion. Employers drum up the importance of maintaining their confidence whenever taxes on profits (or high incomes) are involved. As I argue in this paper, there is a generic reason why financial market economists play up the importance of market confidence, so they can act as high priests. (Did these same economists go on about the dangers of rising leverage when confidence really mattered, before the global financial crisis?)
The general lesson I would draw is this. If the economics point towards a conclusion, and people argue against it based on ‘confidence’, you should be very, very suspicious. You should ask where is the model (or at least a mutually consistent set of arguments), and where is the evidence that this model or set of arguments is applicable to this case? Policy makers who go with confidence based arguments that fail these tests because it accords with their instincts are, perhaps knowingly, following the political agenda of someone else.I generally agree with this based on facts on the ground. At the same time, Keynes emphasized the role of business confidence. Keynes held that business confidence was a function of effective demand and that a government's fiscal policy could address that potential loss of confidence by supplementing demand should effective demand contract owing to demand leakage resulting from increased liquidity preference.
An interview I did last fall with Jan Hatzius.WCEG — The Equitablog
Larry Summers, Brad DeLong, and Paul Kugman are having an extended discussion on the role of models in economics on their blogs this week.
That’s good. Since the model is the message in economics today, that is actually the most important discussion possible to have in economics.…Lars P. Syll’s Blog
The trio of Paul Krugman, Larry Summers, and Brad DeLong once again are arguing about policy. And once again, they are showing the limitations of the blinkers that mainstream economics imposes upon its true believers. Larry Summers in this article defends the Fed Reserve rate hike on the grounds of the need of monetary policymakers to preserve "confidence" in the currency, which generated this response by Brad DeLong. Throughout the debate, the factoid that rate hikes improve investor confidence is assumed, without any reflection whether this is actually the case.…Bond Economics
From, naturally, Robert Waldmann, chez DeLong, pointing out that the Emperor not only has no clothes, but has been deliberately strutting his lack of stuff since the late 1970s….Angry Bear
