Bill Mitchell — The divide between mainstream macro and MMT is irreconcilable – Part 3

This is Part 3 (and final) of my series responding to an iNET claim that Modern Monetary Theory (MMT) and mainstream macroeconomics were essentially at one in the way they understand the economy but differ on matters of which policy instrument (fiscal or monetary) to assign to counter stabilisation duties. In Part 1, I demonstrated how the core mainstream macroeconomic concepts bear no correspondence with the core MMT concepts, so it was surprising that someone would try to run an argument that the practical differences were really about policy assignment. In Part 2, we saw how the iNET authors created a stylised version of mainstream macroeconomics that ignored the fundamental building blocks (how they reach their conclusions about the real world), which means that they ignore important differences in the way MMT economists and mainstream macroeconomists interpret a given economic state. I will elaborate on that in this final part. Further, by reducing the body of work now known as MMT to be just ‘functional finance’, the iNET authors also, effectively, abandon any valid comparison between MMT and the mainstream, although they do not acknowledge that sleight of hand....

Bill Mitchell – billy blog
The divide between mainstream macro and MMT is irreconcilable – Part 3
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — The divide between mainstream macro and MMT is irreconcilable – Part 2

This is Part 2 of a three-part response to an iNET article (September 6, 2018) – Mainstream Macroeconomics and Modern Monetary Theory: What Really Divides Them?. In Part 1, I considered what we might take to the core body of mainstream macroeconomics and used the best-selling textbook from Gregory Mankiw as the representation. The material in that textbook is presented to students around the world as the current state of mainstream economic theory. While professional papers and policy papers might express the concepts more technically (formally), it is hard to claim that Mankiw’s representation is not representative of what current mainstream macroeconomics is about. Part 1 showed that there is little correspondence between the core propositions represented by Modern Monetary Theory (MMT) and the mainstream. Yet, the iNET authors want to claim that the differences between the two approaches to macroeconomics only really come down to a difference in “assignment of policy instruments” – jargon for MMT prefers fiscal policy while the mainstream prefers monetary policy as the primary counter-stabilising tool. Given the lack of conceptual and theoretical correspondence demonstrated in Part 1, it would seem surprising that there is really only just this difference in policy preference dividing MMT from the mainstream. If that was the case, then what is all the fuss about? Clearly, I consider the iNET article presents a sleight of hand and that the differences are, in fact, significant. So, in Part 2, I am tracing how the iNET authors came to their conclusion and what I think is problematic about it. This discussion will spill over into Part 3....

Bill Mitchell – billy blog

The divide between mainstream macro and MMT is irreconcilable – Part 2
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Ramanan — What Is “Crowding Out”?

J.W. Mason has a nice article What Does Crowding Out Even Mean? on his site The Slackwire. I agree with some aspects of it not all.

Let me offer a slightly different (but similar) perspective. First the definition. When an economist—typically a new consensus economist—uses the phrase “crowding out”, he/she means that if government expenditure rises, private expenditure falls without output rising.

That’s it: rising government expenditure will lead to a fall in private expenditure with no positive effect on output according to this. And since new consensus economists also talk of government expenditures as less efficient, it also means that they are saying that real output will fall – a proposition that follows.

But this is a highly unlikely scenario.…

The Case for Concerted Action
What Is “Crowding Out”?
V. Ramanan

Ramanan — J. W. Mason And Alan Greenspan On Monetary Policy

Links.

The Case of Concerted Action
J. W. Mason And Alan Greenspan On Monetary Policy

V. Ramanan