Brian Romanchuk — Minsky Versus Steindl Debt Dynamics?

In Marc Lavoie's Post-Keynesian Economics: New Foundations, he has an interesting discussion in Section 6.10.4, which is labelled "Minsky or Steindl Debt Dynamics?" The Minsky dynamics are the well-known Financial Instability Hypothesis (link to primer), while the Steindl dynamics refers to the discussion in Maturity and Stagnation in American Capitalism by Josef Steindl. Lavoie's discussion raises some issues with the limitations of aggregated analysis in this context. This is a brief comment on this topic.…

In summary, we need to be cautious about putting too much emphasis on aggregate debt ratios as a shorthand for riskiness of borrowing.

Important for the topic itself but also as a demo of how care must be taken to include all the factors that are relevant to analysis. 

What appears to be a simple issue may be complicated by additional factors, or it may even be complex and therefore affected by emergence that can't be foreseen from the data. In a word, uncertainty rather than risk that can be projected by probability and statistics. 

This pertains to non-ergodic systems like social systems, and to a lesser degree biological systems, as evolutionary theory shows. The more psychology enters into the picture, the less ergodic the system.

Rules of thumb are just that and no more — heuristic rather than analytic.

Bond Economics
Minsky Versus Steindl Debt Dynamics?
Brian Romanchuk

Brian Romanchuk — Productivity And The Cycle

I am resuming work on pondering the business cycle, and just wanted to give some initial comments about the notion of productivity. This article just describes some basic concepts taken from a generic post-Keynesian perspective (plus some of my own views, which may or may not be eccentric). As work progresses on my book, I should address the neo-classical approach, as well as empirical results.

Bond Economics
Productivity And The Cycle
Brian Romanchuk

Brian Romanchuk — Primer: Post-Keynesian Inflation Theory Basics

This article is an introduction to the post-Keynesian approach to inflation. It is largely based on Section 8.1.1 of Professor Marc Lavoie's Post-Keynesian Economics: New Foundations (link to my review). Similar to the work on stock-flow consistent models, we start out with what is essentially an accounting identity: a statement that is true by definition. We need to understand the implications of the accounting identity before we worry about the behavioural aspects (which are not pinned down with accounting).

(The approach here is quite distinct from conventional approaches; I discussed why post-Keynesians reject conventional inflation theory in an earlier article.)…

The public conversation is moving away from so-called sound finance toward functional finance, the debate is shifting to actual financial and macroeconomic constraints rather than non-existent funding constraints like the "budget constraint." So it is becoming important to understand the details of the actual constraints — real resources and price stability. As a consequence, it is also necessary to understand the issues involving prices stability, like "inflation."

In my view, it would be better to just drop the term "inflation" as too charged with pejorative connotation in ordinary language to serve as a technical term in macroeconomics. "Price level" and "price stability" are more accurate, since policy must be concerned with both continuous increase and also decrease in the price level in a monetary production economy, e.g., owing to prior commitments involving debt, for example. Debt deflation is as poisonous as inflation of the of the price level. Price stability is also needed for planning, since it involves forward legal commitments, e.g., contracts.

Bond Economics
Primer: Post-Keynesian Inflation Theory Basics
Brian Romanchuk

Brian Romanchuk — Primer: Understanding the Post-Keynesian Rejection of Mainstream Inflation Theory

From the Perspective of Conventional Economic Analysis, the Post-Keynesian Approach to Inflation Is Mystifying. If We Focus on the Modern Monetary Theory (MMT) School of Thought in Particular, It Is Very Easy to Either Find Claims That "MMT Has No Theory of Inflation," or Non-MMTers "Explain" the MMT Inflation Theory Is Some Random Trivial Relationship That They Just Made Up. The Key to Understanding Post-Keynesian Approaches Is That It Takes a Completely Different Approach to Understanding Inflation, and Outcomes Are Seen as Very Difficult to Forecast.

This Article Is Based on Section 8.1.1 ("the Rejection of the Acceleratoinist Thesis") of Professor Marc Lavoie's Excellent Post-Keynesian Economics: New Foundations (Link to My Review). From the Perspective of a Non-Academic, a Significant Portion of the Book Would Likely Be Found as Arcane, and Could Easily Be Confusing to a Non-Specialist. However, Section 8.1.1 Is Extremely Straightforward, and the Most Difficult Part of My Writing Task Here Is Staying Within "Fair Use" Copyright Limitations When Describing It. 

(Since I Raised the Issue of MMT Earlier, I Cannot Say Whether There Are Any Major Disagreements Between MMTers and Lavoie's Description of Post-Keynesian Thinking on Inflation. My Feeling Is That There Is Nothing That a Non-Academic Would Get Too Excited About, Other Than the Importance That MMT Ascribes to the Job Guarantee Wage in Stabilising Inflation. For the Analysis of a Country Without a Job Guarantee -- Currently, All of Them -- This Distinction Has No Practical Import.)… 

Important Now That MMT and PKE Are Gaining Recognition.
Bond Economics
Primer: Understanding the Post-Keynesian Rejection of Mainstream Inflation Theory
Brian Romanchuk

Brian Romanchuk — The Relationship Between sfc_models And Godley And Lavoie

The text Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth, by Wynne Godley and Marc Lavoie is cited heavily within the sfc_models framework. This text is a standard text for SFC modelling, and has already been the object of extensive modelling. The fact that the models are well known is extremely useful from the point of view of development. These existing models were used to calibrate the sfc_models code.

(This article is an unedited draft of a section from my upcoming book "Introduction to SFC Models with Python.")

Bond Economics
The Relationship Between sfc_models And Godley And Lavoie
Brian Romanchuk

Ramanan — Francis Cripps And Marc Lavoie’s Biography Of Wynne Godley

There’s a new book, The Palgrave Companion To Cambridge Economics which features among other things biographies of Wynne Godley, Joan Robinson and Nicholas Kaldor and other notable Cambridge economists. Wynne Godley’s biography—Wynne Godley (1926-2010)—is by his closest collaborators – Francis Cripps and Marc Lavoie (pp. 929-953)….

The Case for Concerted Action
Francis Cripps And Marc Lavoie’s Biography Of Wynne Godley
V. Ramanan

Jo Michell — Thoughts on the NAIRU

If you are following this.

Critical Macro Finance

Thoughts on the NAIRU
Jo Michell

Jo Mitchell — Consistent Modelling And Inconsistent Terminology

Detailed comment on the points raised by Simon Wren-Lewis on SFC modeling versus DSGE modeling. Lots of history.

Critical Macro Finance

Consistent Modelling And Inconsistent Terminology

Jo Mitchell | Senior Lecturer, University of the West of England, Bristol

ht Ramanan at The Case for Concerted Action

Ramanan — Sergio Cesaratto On TARGET2 Balances [v. Marc Lavoie]

Ramanan agrees with Cesaratto over Lavoie on the Eurocrisis being a balance of payments crisis.

The ECB alone cannot resolve the crisis. Attempts to boost domestic demand with fiscal policy will bring higher imbalances within the Euro Area. The Euro Area needs a central government with high powers to tax and spend. Regional imbalances will be kept in check via fiscal transfers and regional policies of the government. And the powers of the government won’t be limited with this. There are many other things such as wages which need to be coordinated at the federal level, for example. Euro Area balance-of-payments cannot be neglected.

The Case of Concerted Action
Sergio Cesaratto On TARGET2 Balances
Ramanan

Ramanan — Ben Bernanke Embracing Heterodox Ideas

Comparison of Ben Bernanke 2015 quote and Godley and Lavoie 2007 quote. Bernanke finally wising up?

The Case of Concerted Action
Ben Bernanke Embracing Heterodox Ideas
Ramanan

Matias Vernengo — Greece on the verge

I discussed to a great extent the debate between Sergio Cesaratto and Marc Lavoie on the nature of the European crisis, that is, whether it is a balance of payments crisis or a monetary sovereignty one.

Cesaratto argues that a balance-of-payment crisis is possible in a currency union, and that the financial crisis of the Eurozone is indeed such a balance-of-payment crisis....

Yet, as noted by Lavoie, the Eurozone crisis seems to have been caused instead mainly as the result of an initial banking problem, which transformed itself into a public debt problem. In other words, the currency issue, and the functioning of the monetary union seem to be at the core of the crisis, not a balance of payments one....

My argument, discussed briefly here before, is that the Cesaratto and Lavoie hypotheses are one and the same. The balance of payments and the monetary sovereignty views of the European crisis are two sides of the same coin.....

Naked Keynesianism
Greece on the verge
Matias Vernengo | Associate Professor of Economics, Bucknell University

Book Review: Post-Keynesian Economics (Lavoie)

Like it says, book review.

Bond Economics
Book Review: Post-Keynesian Economics (Lavoie)
Brian Romanchuk

Brian Romanchuk — Primer: Understanding Stock – Flow Norms

The models I present here are based on those within the text Monetary Economics by Godley and Lavoie, from Chapter 2. I have simplified the notation. It should be noted that these concepts are similar to those found within earlier Keynesian models. Since I want to focus on how stock-flow norms work within these models, I do not want to get distracted with the history of the concept. The text discusses the history as well as giving further references.

Bond Economics
Primer: Understanding Stock – Flow Norms
Brian Romanchuk

Lord Keynes — James Galbraith on the Essence of Keynes’ View of Labour Demand

In the view of J. M. Keynes, there is no labor market.

Social Democracy For The 21St Century: A Post Keynesian Perspective
James Galbraith on the Essence of Keynes’ View of Labour Demand
Lord Keynes

Progressive Economics Forum — What Have we Learned From the Financial Crisis?

Progressive Economics Forum by Nick Falvo

What follows are comments from a roundtable discussion held at the University of Ottawa on January 28, organized by Mario Seccareccia, and which featured participation from Marc Lavoie, Louis-Philippe Rochon, Mario Seccareccia, Slim Thabet and Bernard Vallageas.

What Have we Learned From the Financial Crisis? Part 1: Marc LavoieThe 

What Have we Learned From the Financial Crisis? Part 2: Louis-Philippe Rochon

What Have we Learned From the Financial Crisis? Part 3: Mario Seccareccia

Ramanan — Good Reference On Wage-Led Growth

An excellent discussion on wage-led economic growth is a paper by Marc Lavoie and Engelbert Stockhammer titled Wage-led Growth: Concept, Theories And Policies which appears in the recently released book Wage-Led Growth: An Equitable Strategy For Economic Recovery (Palgrave Macmillan)...

As Dray and Thirlwall (2011, p. 466) recall, ‘it makes little economic sense to think of growth as supply constrained if, within limits, demand can create its own supply’. This explains why we shall focus on the income distribution determinants of aggregate demand, paying less attention to the supply-side factors… 

The Case For Concerted Action

Good Reference On Wage-Led Growth
Ramanan

Lord Keynes — Lavoie on Mark-up Pricing in Neoclassical Theory

The lesson is to beware of neoclassical re-interpretations of administered pricing.

One must not confuse the neoclassical concept of marginal costs with average costs of production per unit. The two are not the same thing.

And, above all, the administered pricing behaviour of many firms is inconsistent with the idea of profit-maximisation in neoclassical theory.

Social Democracy For The 21St Century: A Post Keynesian Perspective
Lavoie on Mark-up Pricing in Neoclassical Theory
Lord Keynes

Joe Firestone — Lavoie's Critical Look at Modern Money Theory: A Reply

In October 2011 Marc Lavoie, a post-keynesian economist, very friendly to Modern Money Theory (MMT) wrote a paper presenting a friendly critical look at MMT. In his conclusion, Lavoie states that “. . . the neo-chartalist analysis is essentially correct . . . “ affirming his substantial agreement with MMT's analysis of banking operations and fiscal realities in nations with non-convertible fiat currencies, with floating exchange rates and no debts in currencies they do not issue, as well as MMT's analysis of Eurozone viability. But he goes on to say (p. 25):

“There is nothing or very little to be gained in arguing that government can spend by simply crediting a bank account; That government expenditures must precede tax collection; that the creation of high powered money requires government deficits in the long run; that central bank advances can be assimilated to a government expenditure; or that taxes and issues of securities do not finance government expenditures.”

So, Lavoie questions the wisdom of MMT economists and writers making certain counter-intuitive statements he perceives as certainly questionable, perhaps untrue, and also confusing to people, economists and decision makers trying to understand MMT writings. He considers these statements an important barrier to understanding, and he wants this 'baggage' to be discarded because he thinks it hurts MMT and post-keynesian efforts to get important new approaches to economics accepted.

Recently, Lavoie's work was used in a very vigorous and important discussion at Rodger Malcolm Mitchell's Monetary Sovereignty web site by a commenter named “Tom,” questioning some of Rodger's formulations and the statements of other commenters who defended theMMT and MS positions. I participated in the discussion, but also concluded that it would be more useful to write a more formal reply to answer Lavoie's question of what is gained by taking some of the positions MMT and MS writers often take. This is my reply.

Corrente
Lavoie's Critical Look at Modern Money Theory: A Reply
Joe Firestone

Cross-posted at New Economic Perspectives here.

JKH — The Accounting Quest of Steve Keen

Steve has written a post on quantitative easing, with an admirable bent towards the importance of accounting in that context:

Steve Keen: Is QE Quantitatively Irrelevant?

He says, “I’m open to correction that I’ve wrongly characterised what banks do or how QE works here.”

I think there is definitely a range of mischaracterizations in Keen’s post about how the banking system responds to QE in both operations and accounting. So I’m going to offer some comments, as invited. While his construction departs from the actual case, I do have respect for the general direction of his pursuit.

Monetary Realism
The Accounting Quest of Steve Keen
JKH

Chris Dillow — On Wage-Led Growth

Interesting argument implying a need for either a job guarantee or basic income guarantee owing to the chronic inability of modern capitalism to provide full employment.

Perhaps the ability of capitalism to provide full employment requires freakish historical circumstances of a sort we saw only in the 50s and 60s. And perhaps it is only wishful thinking by both rightists and social democrats that stops them seeing this.

Stumbling and Mumbling
On Wage-Led Growth
Chris Dillow | Investors Chronicle (UK)