Jared Bernstein, total idiot. You have to see this to believe it.

You know that scene in The Big Short, when after the collapse there's a distinct vibe of "man that was so obvious, how were people so impossibly stupid?"

If you are loaning money to the Federal Government (ie if you own government bonds), the *only* reason you should feel… https://t.co/KgutE7xeIv

— Erik Voorhees (@ErikVoorhees) May 3, 2024

Bill Mitchell — An MMT response to Jared Bernstein – Part 3

This is the third and final part of my response to an article posted by American political analyst Jared Berstein (January 7, 2018) – Questions for the MMTers. In this blog I deal with the last question that he poses to Modern Monetary Theory (MMT) economists, which relates to whether currency issuing governments have to raise revenue in order to “pay for public goods” and whether prudent policy requires the cyclically-adjusted fiscal balance to be zero at full employment to ensure “social insurance programs” are protected. The answer to both queries is a firm No! But there are nuances that need to be explained in some detail.…

I hope this three-part series has been of use both to Jared Bernstein (given he asked the questions in the first place) and the broader MMT audience who would like to deepen their knowledge of our approach.

And remember, just as Jared Bernstein noted in his blog – this three-part series is a ‘peaceful’ offering.

There was no martial intent in my three-part response....

Bill Mitchell – billy blog
An MMT response to Jared Bernstein – 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 — An MMT response to Jared Bernstein – Part 2

This is the second part of my response to an article posted by American political analyst Jared Berstein (January 7, 2018) – Questions for the MMTers. Part 1 considered the thorny issue of the capacity of fiscal policy to be an effective counter-stabilising force over the economic cycle, in particular to be able to prevent an economy from ‘overheating’ (whatever that is in fact). Jared Berstein prescribes some sort of Monetarist solution where all the counter-stabilising functions are embedded in the central bank which he erroneously thinks can “take money out of the economy” at will. It cannot and its main policy tool – interest rate setting – is a very ineffective tool for influencing the state of nominal demand. In Part 2, I consider his other claims which draw on draw on the flawed analysis of Paul Krugman about bond issuance. An understanding of MMT shows that none of these claims carry weight. It is likely that continuous deficits will be required even at full employment given the leakages from the income-spending cycle in the non-government sector. Jared Bernstein represents a typical ‘progressive’ view of macroeconomics but the gap between that (neoliberal oriented) view and Modern Monetary Theory (MMT) is wide. For space reasons, I have decided to make this a three-part response. I will post Part 3 tomorrow or Thursday. I hope this three-part series might help the (neoliberal) progressives to abandon some of these erroneous macroeconomic notions and move towards the MMT position, which will give them much more latitude to actually implement their progressive policy agenda....

Bill Mitchell – billy blog
An MMT response to Jared Bernstein – Part 2
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — An MMT response to Jared Bernstein – Part 1

This will be a keeper series!

There was an article posted by American political analyst Jared Berstein yesterday (January 7, 2018) – Questions for the MMTers – which I thought was a very civilised exercise in engagement from someone who is clearly representative of the more standard Democratic Party view, that the US government has to move towards balancing its fiscal position and reducing government debt in order to meet the social security challenges posed by an ageing population and the accompanying increase in dependency ratios.

He is sympathetic to Modern Monetary Theory (MMT), given that he wrote “there’s no distance between my views and a core principal of MMT: the need for deficit spending when the economy is below full employment”. In other words, he notes that “MMT or whomever else argues on behalf of expansionary fiscal policy is correct”. 

But that is a fairly standard ‘progressive’ position when the economic cycle is below full capacity. This position typically alters quite dramatically when so-called longer terms considerations are brought into the picture. Jared Bernstein worries about the inflationary consequences of fiscal policy (so do MMT economists by the way) and thinks central banks should be the primary macroeconomic policy makers (MMT economists reject this).

He also thinks that if the government doesn’t sell bonds to match its deficits then there will be “currency debasing”. MMT economists have pointed out the fallacies of that proposition but he is still in the dark about it.

And he also thin[k]s that fiscal position should be balanced at full employment. MMT economists do not agree with that proposition pointing out that it all depends on the state of saving and spending decisions in the non-government sector. It is likely that continuous deficits will be required even at full employment given the leakages from the income-spending cycle in the non-government sector.

So while his queries are conciliatory and written in an inquiring fashion, the gulf between this typical ‘progressive’ view of macroeconomics and MMT is rather wide. This is Part 1 of a two-part series that responds to the questions that Jared Bernstein raises and hopefully puts the record a bit straighter....

[Paragraphing introduced for online readability. This is one paragraph in the original. tjh]

Bill Mitchell – billy blog
An MMT response to Jared Bernstein – Part 1
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Brian Romanchuk — ZLB, R.I.P.

Even if one is not a fan of President-elect Trump, one must be impressed how he managed to shift expectations to end secular stagnation. With the Zero Lower Bound (ZLB) now dead as a door-nail, it is going to be difficult for mainstream economists to make it look like Dynamic Stochastic General Equilibrium (DSGE) models have something useful to tell us about the real world.

This article first discusses some of the academic theoretical issues around the ZLB, and then jumps to the latest economic squabbling based on Paul Krugman's recent comments.

Bond Economics
ZLB, R.I.P.
Brian Romanchuk

Gerald Friedman — Why Liberal Economists Dish Out Despair

The angry reaction to my report [about Bernie Sander's economic program] revealed that by some combination of rationalization and the dominance of neoclassical microeconomics since the 1970s, liberal economists have virtually abandoned Keynesian economics, which supported the notion that governments can and must intervene in the economy to ensure the best results for society. These economists went back to pre-Keynesian thinking, where price fluctuations are supposed to equilibrate supply and demand at full employment with an optimal distribution of good and services. The very suggestion that government action can result in increases in growth rates or wages is now taken to be obviously wrong. Adopting the language of neoclassical micro welfare economics, everything is already as good as can be — all that government can do is to make it worse. Criticisms of the orthodox model and its policies are deemed worthy of scorn, to be dismissed tout court because they are obviously at variance not only with textbook economics, but with what we need to believe to rationalize failure.

The reaction to my paper — the casual and precipitous conclusion that it must be wrong because it projects a sharply higher rate of GDP growth — comes from the assumption that the economy is already at full employment and capacity output. It is assumed that were output significantly below full employment, then prices would fall to equilibrate the two. This is the political counsel of despair. It is based on classical economic theory and the underlying acceptance of Say’s Law of Markets (named for the great Classical economist Jean-Baptiste Say), which says that total supply of goods and services and the total demand for goods and services will always be equal. The shoe market creates the right amount of demand for shoes — it works out so neatly that the true measure of the supply of shoes, of potential output, can be taken by measuring actual output. This concept is used as a justification for laissez-faire economics, and the view that the market mechanism finds a harmonious equilibrium. It explains why even in the depths of the economic crisis, Christina Romer, former Chair of the Council of Economic Advisers in the Obama administration, who was always skeptical of fiscal policy and Keynesian economics, and why Jared Bernstein, former Chief Economist and Economic Adviser to Vice President Joseph Biden under Obama, who should have known better, wrote that the economy would return on its own to full employment. They predicted, quite wrongly, that the proposed Obama stimulus would accelerate this recovery by 6 months.

The return of Say’s Law has distorted the way liberal policy elites view the economy.… This reevaluation says to policy elites, “Hey, we are doing as well as can be expected.” To the general public it says, “Sorry, nothing more can be done for you.” TINA.…

Controversy reflects the disagreements and uncertainty that alone can lead to intellectual progress. It is time to inject some of these into orthodox macroeconomics. We have been ill-served by a smugly sure macroeconomics both in imagination and policy. Amazingly, the crisis of 2007-9 has left intact the dominant pseudo-Keynesian orthodoxy; maybe the kerfuffle around my report will help to open some space for constructive dialog in a profession that has clearly grown too complacent. 

INET
Why Liberal Economists Dish Out Despair 

Gerald Friedman | Professor of Economics, UMass, Amherst

See also at INET

​The Road not Taken (about Axel Leijonhufvud)
Arjun Jayadev

Warren Mosler — Comments on Baker/Bernstein book

Warren is pissed.

The Center of the Universe
Comments on Baker/Bernstein book

Warren Mosler

Bill Mitchell — When you’ve got friends like this [Jared Bernstein]

In wishing us all happy new year, Jared Bernstein also pounded his readers with a confused macroeconomic logic, that if applied, would in all likelihood make their new year (collectively) worse. His article (December 29, 2012) – My Views on Spending Cuts and Entitlements – is another one of those cases when friendly fire shoots the progressive movement in the foot.

Bill Mitchell — billy blog
When you’ve got friends like this – Part 10
Bill Mitchell

Jared Bernstein on Full Employment

Out of paradigm in that Bernstein finds NAIRU useful even if problematic.

One useful was to assess labor market tightness is to compare the unemployment rate to a construct called the non-accelerating inflationary rate of unemployment, or the NAIRU.  The idea behind the NAIRU is that a) there’s a tradeoff between low unemployment and inflation, and b) there’s a rate of unemployment that’s consistent with stable inflation.  The implication is that if unemployment falls below the NAIRU, inflation will keep accelerating.

In fact, it’s a slippery concept, this NAIRU idea, and the historical evidence for its existence is mixed at best.  Back in the mid-90s, economists though it was 6%, and when the jobless rate fell below that, they badgered the Fed to raise interest rates so as to forestall the inflationary spiral they were sure was forthcoming.

 But it turned out that the spiral was a phantom menace—price growth actually decelerated in these years and the jobless rate fell below 4% for a few months in 2000.  Most importantly, from my perspective, very low jobless rates in the latter 1990s shows up quite clearly in Figure 1 as helping to generate uniquely favorable income trends for middle and low-income families.But I still think the concept is useful, and that the estimated NAIRU provides a rough benchmark against which to compare the actual unemployment rate.  For example, analysts like those at the Congressional Budget Office, who estimate the NAIRU, make adjustments for demographics that are useful in figuring out the full-employment unemployment rate.  As our labor force ages, we’d expect the NAIRU to fall, because older workers tend to have lower unemployment rates.

But even using NAIRU as a standard, Bernstein argues that full employment deficiency (FED) exacerbates inequality.

The coefficient on FED tell you the percent change in real income at each level that you’d expect to see for each point you’re above the NAIRU.  So, for low-incomes (20th percentile), that elasticity is -1.3% and statistically significant.  For middle incomes, it’s about -0.8% and again, significant.  For high incomes, it’s -0.3 and insignificant, meaning that deviation from full employment doesn’t much hurt high income families.  R-squared, a measure between 0 and 1 of how well the regression explains changes in real incomes, is around 0.33 for middle and low-income families and only about one-third that amount for high-income families.

Read it at On the Economy
Full Employment: A Force Against Rising Inequality and Stagnant Incomes

by Jared Bernstein

Joe Firestone on Jared Bernstein on Dylan Matthews on MMT

After stating his general approval for Dylan Matthews's, MMT post on Ezra Klein's blog, and his agreement with MMT on the issue of solvency, a big point that MMT's been trying to get across to the mainstream for years, Jared brought forth a number of points of disagreement, which I'll reply to based on my interpretation of the MMT perspective.

Read it at Daily Kos | Money and Public Purpose
The WaPo MMT Post Explosion: Jared Bernstein's Cool Up To a Point

by Joe (Letsgetitdone) Firestone

Jared Bernstein on Larry Summers

Jared Bernstein sets the record straight on Larry Summers as chief economic advisor.

Read it at On The Economy
The Wrong Narrative on Larry Summers

by Jared Bernstein

Probably not anything new to see here, but it a report is by one of the participants that confirms a particular version.

Jared Bernstein puts his toes in the MMT water

I know some visitors here will be happy to see this piece on “modern monetary theory” in today’s WaPo today, as was I.  It’s particularly gratifying to see my friend Jamie Galbraith featured, a rare economist who’s ability to see outside the box has enabled him to be consistently right about a lot of things that others have missed.

 For me, I’m down with MMTs up to a point.  I very much agree that deficit reduction has been deeply miscast as pure virtue, with little regard for its economic impact.  As I’ve written many times here, the first question re fiscal policy, at least until we’re reliably headed toward full employment is not “how quickly does your deficit come down?”  It’s: “is your deficit large enough to replace lost private sector demand?”

Read it at Jared Bernstein | On the Economy
MMT in the Headlines

by Jared Bernstein

(h/t Clonal in the comments)

Bernstein: "For me, I’m down with MMTs up to a point." Translation: I'll adopt the save parts until enough other names come aboard to make it respectable.

This illustrates the huge risk that Jamie Galbraith took and how the entire country is indebted to him for doing so. MMT is only getting mainstream traction because of his bold adoption of it. He is going to be one of the heroes in this, along with the economists that developed MMT and staked their careers and reputations on it.

John Carney's giving MMT exposure is extremely significant, too, even though he is guarded about it. But just bringing it up on CNBC, populated by people like Rick Santelli, is telling. If John were not the guy in charge over there, it would not happen. So props to John, too.

This article also shows that a lot more people know about MMT than are letting on. It's happening. So don't be concerned that people are not jumping in with both feet yet. They are just testing the water.

Jared Bernstein on debt — the good and the bad

Prof. Bernstein gets several things right in this article. First, that debt is not necessarily bad and can be used appropriately for growth. Secondly, that in downturns government must step and stimulate the economy with increased deficits. Thirdly, that Minsky's financial instability hypothesis must be taken into account in considering debt.

All good. But this he goes on to repeat the common shibboleths. First, he fails to distinguish between the currency issuer and currency user and falls into the government is the same a households and firms, only bigger. Secondly, while he rejects crowding out in recent circumstances (but not outright), he is a deficit dove and accepts the intertemporal budget constraint, believing that government budgets should be balanced over the cycle. Worse, he gives credence to the belief that surpluses are superior to deficits even in the short run.

Bernstein was one of President Obama's more economically enlightened advisors, and he is considered a leading progressive economist. Yikes!

 It’s always important to remember that one person’s debt is another person’s asset. When it comes to the budget deficit, while we owe about half of it to foreign holders of Treasuries (China and Japan being the most prominent lenders), we owe the other half to ourselves. That doesn’t mean we can afford to ignore unsustainable borrowing. But from a macroeconomic perspective, it doesn’t necessarily hurt the economy to borrow from ourselves to invest in productivity-enhancing initiatives that increase the future wealth of our progeny.....
••••••••
What impact do federal budget deficits have on the economy? Was Dick Cheney right to argue that “Reagan proved deficits don’t matter”?

For economists, the issue comes down to “crowding out.” Under certain conditions, by running large deficits, the government can be in competition with private firms for capital, and the extra demand for loans pushes up interest rates. Higher interest rates mean less investment and slower private-sector growth than would otherwise occur. Crowding out makes sense in theory, and research has found some evidence of it. But the whole story is not so simple. In fact, neither interest rates nor investment have responded during this crisis the way the crude view predicts (interest rates haven’t risen with deficits, and neither investment nor capital stock consistently fell). The reason is that there is no competition for scarce funds right now—to the contrary, firms are sitting on trillions in cash reserves, and capital is flowing freely to the United States as a safe haven in uncertain times.

Economists’ focus on crowding out, given the lack of compelling evidence, is doing more harm than good. None of this is meant to signal indifference to budget deficits. I was as elated by the surpluses of the latter 1990s as I was discouraged by the growing deficits of the 2000s....

Read the whole article at Democracy — A Journal of Ideas
Rethinking Debt
by Jared Bernstein

(h/t Mark Thoma)