Dan Kervick — Emergency: The World Needs Much Better Piketty Reviews!

The most widely bought book that is seldom read through.

Reviews of Thomas Piketty’s Capital in the Twenty-First Century continue to roll out, many by professional economists. Yet I continue to be frustrated by the fact that almost none of the economists’ reactions to Piketty that I have read display any close familiarity with chapters 7 through 12 of the book, where all of the actual analysis of the structure of inequality is contained. Most of these reviews seem to go no further than Chapter 6, with Piketty’s now-famous inequality r > g then tossed into the salad for good measure, on the basis of which the reviewer then attributes to Piketty large claims about the dynamics of inequality based entirely on r > g and the contents of those introductory chapters. But everything in Chapters 1 through 6 is prefatory to the analysis of the structure and dynamics of inequality that follows.

Rugged Egalitarianism
Emergency: The World Needs Much Better Piketty Reviews!
Dan Kervick

Randy Wray — Yes, Virginia, Taxes Do Drive Money: Confirmation from a Money Manager

I wonder why this is relatively easy for those who work in financial markets, but almost impossible for economists of any stripe to “get it”? Some might say that financial markets people are just smarter—but I doubt that explains it. A lot of economists are fairly bright. But they are not used to thinking about “money” as anything but what Friedman’s helicopters drop into an otherwise well-functioning economy, screwing things up and causing inflation. In any case, read this excerpt and judge for yourself. I think Jon Shayne has provided a pretty good summary of the “TDM” (taxes drive money) view. Note he cites Jamie Galbraith (no surprise) but also one of my favorite economists, Zvi Bodie who knows of our work but is outside the loop.

Economonitor — Great Leap Forward
Yes, Virginia, Taxes Do Drive Money: Confirmation from a Money Manager
L. Randall Wray | Professor of Economics, University of Missouri at Kansas City

JKH — Treasury and the Central Bank – A Contingent Institutional Approach

Fiscal and monetary systems do not exist without specific institutional design. In this regard, there is a difference between the facts of actual institutional design, and conceptual distillations that infer hypothetical design. Any overall view of actual treasury and central banking operations should be portrayed accurately in this respect. For example, there is a difference between the consolidated view of separate Treasury and central bank institutions as they actually operate, versus the view of an implied but unstated counterfactual in the sense of a unified institution. The actual operation of separate institutions is not at all the same as that implied by a unified counterfactual institution.

Read it at Modern Monetary Realism
Treasury and the Central Bank – A Contingent Institutional Approach

by JKH

Note: JKH cites Marc Lavoie's The monetary and fiscal nexus of neo-chartalism: A friendly critical look (2011), which brings up a criticism of MMT's consolidation of the Treasury and central bank functions (begins at p. 10). This is the point that JKH is attempting to clarify through an analysis of actual operations.

John Carney — How the New Economics Explains Everything!

My title is a bit of an exaggeration, of course. But it’s intended to inspire you to head on over to the opinion pages of the Financial Times and read Cullen Roche’s excellent article on the contributions of the modern monetary approach to our understanding of economics in the 21st century. 

Roche, a ridiculously prolific guy who runs two must-read websites (Pragmatic Capitalism and Monetary Realism), while also trading for himself and his clients, provides a very concise summary of the practical consequences of the theoretical insights of modern monetary economics. 

I’ll sum them up quickly but I encourage you to read Roche’s FT article.

Read it at CNBC NetNet

How the New Economics Explains Everything!

by John Carney | Senior Editor

Look like Cullen was right. The financial world will listen to  the advances made in the understanding contemporary monetary economics — as long as it is minus the "socialism" that it enables.

I am not sure that this is necessarily going to result the advance that most of us expect once this understanding becomes widespread. I suspect that the understanding is already implicit, in that everyone in finance knows that by definition a fiat currency is operationally unconstrained in the amount of fiat that can be generated through "printing." 

What they assume, however, is that adequate limits have been imposed legally to establish political restrains requiring taxing and borrowing for instead of unlimited issuance. To the degree it is discovered that this may not be the case, then there will be a strong political push tighten the political restraints. This is what Ron Paul's monetary and financial reform is all about, although his concern is more specifically about the Fed providing unlimited liquidity to the financial sector.

That is to say, a correct understanding of monetary economics under the present system reveals that it creates much more policy space than a convertible fixed rate system, for example. Politicians will naturally use this space on policies that push their favorite programs. The right, to expand the military and provide subsidies to "job creators." The left, to the garner the votes of the "great unwashed" by extending popular social programs.

The masters of finance do not like extra policy space, however, so count on a push from their side to tighten the reins, should a push in the other direction come from greater understanding of how the present system actually works.

Cullen Roche — A New Way of Thinking About the Global Machine

The team at the Financial Times was very gracious in asking me to write a recent op-ed on heterodox economics and the financial crisis.  I riff off Ray Dalio’s idea of the global “machine” and how an understanding of heterodox schools can lead to a better understanding of the machine and hopefully better outcomes for policy and economic prosperity in the future….

Read it at Modern Monetary Realism
A New Way of Thinking About the Global Machine

by Cullen Roche

Congratulations on making FT, Cullen. That puts MMR on the global map. Interesting, too, that you were invited to comment on heterodox economics although you are not an academic economists with a background in heterodox economics.

Garth Brazelton — Let's All Talk Past Each Other

Garth comments on Roche v. Wray.

Read it at Reviving Economics
Let's All Talk Past Each Other

by Garth Brazelton

Cullen Roche — MMR and the Diagonalist View of Money

Could someone please explain this to me. I seem to be too dense to get it.

Read it at Modern Monetary Realism
MMR and the Diagonalist View of Money
by Cullen Roche

Cullen Roche — Does Anyone Actually Know What MMT is?

 At the risk of stirring up a hornet's net. :)

Yes, it's the JG again and apparently contradictory asserts about its status in MMT. It's short.

Read it at Modern Monetary Realism
Does Anyone Actually Know What MMT is?
by Cullen Roche

While the post is short, the comments bring out the understanding, or misunderstanding as the case may be, about the MMT and MMT in general upon which the MMR position is built as a counter to MMT that retains the monetary description (and claims to improve upon it) while abandoning much of MMT macro theory and policy formulations that follow from it. Cullen mounts arguments that attack not only the MMT JG, but also key MMT fundamentals such as a currency sovereign as monopolist.

Responses from both sides, and other sides, too, welcome here. "Let  hundred flowers bloom."

Steve Roth adds his take on JKH's post

JKH has magisterial post up on the recent dust-up over Saving as perceived in various sectoral models — one-sector (global, for instance, or government- and trade-balanced domestic private sector); two-sector (government and private including international); the most common MMT construct, the three-sector model (government, domestic private, and international); the rather uncommon four-sector model (government, international, domestic household, and domestic business); or even a seven-billion-plus-sector model, in which each individual (and business, and government) is represented as a sector.

His key point, I think — one I agree with profoundly — is that people need to be very clear on which model they’re assuming when they use the word Saving, or the construct “S.” (People sometimes use those two differently, with different implied sectoral models, sometimes within a single discussion or even a single sentence.) In most cases the different constructs of saving and S that people throw around are absolutely valid within their (implicit) sectoral models. The problem arises when people are talking about different sectoral consolidations within the same discussion, without themselves and/or their interlocutors being (fully) aware of it.

I’ve left a few glancing comments over there, but it’s prompted me to write up some thinking here that’s conceptually related.

Read it at Asymptosis

Thinking About the Fed

by Steve Roth

Crossposted at Angry Bear

Steve reflects cursorily about the nature of the Fed and its relation ship to the federal government, the Treasury specifically, and the private banking system, proposing four different ways of thinking about this, and invites others to specify this more rigorously in terms of current institutional arrangements and operations.

I my view this kind of articulation is needed, since all these views, and probably some more are currently being either advanced or presumed. This is an area of significant contention, and it comes up as soon as I start discussing MMT with many people who are a particular conception of this, usually different from the way MMT frames it. As usual, the framing of the matter is crucial to discussion of related issues.

JKH on the Recent MMR/MMT Debates

Read it at Modern Monetary Realism
JKH on the Recent MMR/MMT Debates
by JKH

Important. This is actually a paper rather than a blog post and can be downloaded in PDF.

JKH's contribution here constitutes a landmark iteration for MMR as a serous attempt to engage MMT and other interested economists and financial professionals in professional debate rather than more cursorily and informally in blog posts and comment repartee.

To my knowledge, this is the first time that JKH has posted anywhere instead of commenting, even though much of his commenting would have been a series of worthy posts if he had a blog.

JKH elucidates the debate to date by quoting from previous posts and comments and moves the ball significantly forward by expressing his ideas, which he has thought out carefully and worked up as a paper. Well played.

MMR announces introductory video series

MMR leaps ahead of MMT on the marketing front and web presence with a professionally designed site and now video up in record time.

No documentation of sources or original professional publications though. MMT way out ahead on that front, as is to be expected given the developmental time frame.

MMR gets good marks on professional presentation, meeting production value standard, and speed of ramp up, but needs to introduce greater professionalism wrt content.

MMT is way out front on content, and it has much wider and deeper web presence just beginning to be concerned with professional production. There is quite a bit of MMT video available, too, but much of it is not up to standard wrt production value.

Read it at Modern Monetary Realism
Understanding The Modern Monetary System – Video Series For Beginners

by Cullen Roche

Cullen Roche — On Playing Politics…

Cullen Roche has a post up explaining how MMR is apolitical and simply an operational description that makes a variety of policy options possible.

I am posting it here, since it addresses relevant issues, and several regular commenters here who are no longer welcome over there may have something to add to the discussion.

Read it at Modern Monetary Theory
On Playing Politics…
by Cullen Roche

Michael Sankowski — Banking Tension: Why Do We Keep Creating Banks?

Interesting take. Mike's argument seem to be that the rational course is to maintain the financial sector even though it blows up periodically and produces a net loss over the long run for banks, i.e., banking is not a profitable use of capital, it contributes to economic growth and productivity as a whole through credit expansion, so the country is better off for it.

I'll have to think about that a bit more, but it sounds sophistical to me on the first reading. At the very least, it gives new meaning to "capitalism."

Read it at MMR
Banking Tension: Why Do We Keep Creating Banks?

by Michael Sankowski

Mike writes:

So even though banks aren’t net profitable over time, they perform a massive service. Banks and bank credit allow for real living standards to grow while they expand credit. When the bubble collapses due to the lack of trust of the private credit, people are still better off than they were before the bubble.This is something to keep in mind as we talk more about the sector balances, and horizontal money, and credit. The expansion of credit raises real living standards. It raises standards enough during the good times we end up ahead in the long run in real standards of living.

This is something I think the Austrians miss – credit does get the economy moving much, much faster. We should be asking what we can do to keep the economy moving this fast.

It’s also points out the MMT approach to banks is a bit stunted. Simply issuing more NFA won’t cause banks to go away, and it won’t necessarily make bank lending more stable.

This should provoke some interesting discussion. See as through Mike is saying that economic efficiency is not a reasonable criterion in comparison with effectiveness, with which I would generally agree. Then the claim seems to be that the criterion of effectiveness is growth of production and productivity.

I find that assumption questionable. It is a political choice that is opposed by those who propose other criteria, like distributed prosperity, sustainability, and maintaining full employment and price stability (financial crises are deflationary and result in massive unemployment).

Whether capitalism with all its imperfections is the best alternative is an ongoing debate. It's certainly the view of people like Jamie Dimon, whose attitude is, "Get over it." See Robert Vienneau, How to Defend Capitalism at Thoughts on Economics.

Vienneau quotes Joan Robinson as a starter:

"It is possible to defend our economic system on the ground that, patched up with Keynesian correctives, it is, as he put it, the 'best in sight'. Or at any rate that it is not too bad, and change is painful. In short, that our system is the best system that we have got.

Or it is possible to take the tough-minded line that Schumpeter derived from Marx. The system is cruel, unjust, turbulent, but it does deliver the goods, and, damn it all, it's the goods that you want.

Or, conceding its defects, to defend it on political grounds - that democracy as we know it could not have grown up under any other system and cannot survive without it.

What is not possible, at this time of day, is to defend it, in the neo-classical style, as a delicate self-regulating mechanism, that has only to be left to itself to produce the greatest satisfaction for all.

But none of the alternative defences really sounds very well. Nowadays, to support the status quo, the best course is just to leave all these awkward questions alone." -- Joan Robinson, Economic Philosophy: An Essay on the Progress of Economic Thought (1962): p. 140.

I agree that this is a good starting point for discussion. However, I would add that an overriding factor has cropped up since then, which completely changes the nature of the discussion — sustainability. Is the unlimited growth based on infinite resources model still viable?

The other factor, as Schumpeter pointed out in Capitalism, Socialism and Democracy, is capitalism itself politically sustainable in democratic society, taking a position similar to the Marxian position in outcome but tracing a different path to it.

BTW, Mike, if you think that MMT just proposes sectoral balances and functional finance, you need to go over and read Warren's proposals on banking reform and financial reform in general. Other MMTers have said a great deal about this, too, and UMKC professors, Bill Black, Michael Hudson, and Randy Wray have been out in front on it.

Edward Harrison on private saving

Read it at Credit Writedowns
Private savings in a post-bubble world
by Edward Harrison

Edward Harrison link to Neil Wilson's 3spoken in this post and also in News Links 03/05/2012

Cullen Roche responds to MMT economists — Things We Never Said…

Read it at Modern Monetary Realism
Things We Never Said…

by Cullen Roche

Randy Wray responds to John Carney — MMT FOR AUSTRIANS PART TWO: Disagreements Among Reasonable People

Read it at New Economic Perspectives
MMT FOR AUSTRIANS PART TWO: Disagreements Among Reasonable People
By L. Randall Wray

Alert — Warren Mosler joins discussion in comment on S=I+(S-I) at Winterspeak's

Lots of good comments.

Warren: Comes down to further purpose.



If the purpose is simply to show that one sector's increase in net financial assets have to come from another's decrease, 2 sectors are fine, and maybe 3 to further make the point and show the possibilities. 



If you are trying to determine if the household sector is getting over leveraged, or is under leveraged and might be ready for a credit boom, you want to further subdivide the domestic sector into households and businesses, etc.



So subdividing sectors can be a tool of discovery. 



And when looking at the euro, turns out the high deficit member nations have high household savings of net financial assets with a very low leveraged consumer, whatever that might mean. Again, it's all about your further purpose of analysis. 



So I'd ask JHK, why do you care about 'savings per se' whatever that is? and 'what do you mean by 'the underlying savings dynamic' and why do you care about it?' 

and yes, corp savings can be 'condensed' to households, which is the argument for many things (including eliminating all corporate taxes) but what specifically are you trying to get at here? that is, what's the further purpose of you're inquiry? And high corporate liquidity probably isn't going to help someone make his mtg payment even though he is a shareholder via his pension plan, etc. 



that is, JHK is stating a few things, obvious to some of us, not so obvious to others, but without some further purpose expressed it's not all that interesting and I don't see much to comment on?12:19 PM

Winterspeak.com
Confused about MMR
by Winterspeak

John Carney — More on Saving (Note: This Gets Wonkish)

Read it at CNBC NetNet
More on Saving (Note: This Gets Wonkish)

by John Carney | Senior Editor

Winterspeak — Confused about MMR

Read it at Winterspeak.com
Confused about MMR

by Winterspeak

MMR — JKH On Saving And Sector Balances (WONKISH)

Read it at Modern Monetary Realism
JKH On Saving And Sector Balances (WONKISH)
by Cullen Roche