Brad DeLong — Comment of the Day: Charles Steindel: "That's Kocherlakota's point: through 2020.

I didn't put up Narayan Kocherlakota's view since it is behind the WSJ paywall. Here is some discussion of it.

It really comes down to assumptions since these are estimates and also involve expectations. The uncertainty is pretty think and the best that can probably be done is estimate floor and ceiling. This makes Gerald Friedman's view more plausible than the nay-sayers are willing to admit and it satisfies the skeptics, too, in that significant growth resulting from fiscal stimulus is possible under this.

Grasping Reality
Comment of the Day: Charles Steindel: "That's Kocherlakota's point: through 2020.
Brad DeLong | Professor of Economics, UCAL Berkeley

Branko Milanovic — On Mark Thoma: marginalism, Marx etc

Mark Thoma has written a very nice blog on how Piketty’s work is transforming economics by bringing it closer too it political economy roots. I found the post excellent, and wanted just to point out one thing which I think is very pertinently argued by Thoma and another where he somewhat simplifies the matter.

Global Inequality
On Mark Thoma: marginalism, Marx etc
Branko Milanovic

Bill Mitchell — In a few minutes you do not learn much

Bill responds to the quote attributed to Mark Thoma in the NYT article on MMT, "They're just nuts," by taking Professor Thoma apart.

As I recall, Greg attempted to set up a debate between Bill and Mark Thoma some time ago, to which Bill agreed. Mark Thomas refused to debate, as I remember saying that he would not debate with someone that rejected the money multiplier, i.e., the basis of monetary policy in the minds of monetarists. Looks like subsequent events have settled that, with the Fed having exploded HPM only to see itself still fighting disinflation that threatens to be slip into deflation.

BTW, I learned in the comments at Bill's that Annie Lowrey is the wife of Ezra Klein, for what it's worth — he a political and economic columnist with the Washington Post and she with the New York Times. Talk about a bully pulpit.

Bill Mitchell – billy blog
In a few minutes you do not learn much
Bill Mitchell

My comment at Bill's:

The NYT coverage was a huge coup for MMT, even through it was “fair and balanced” in the sense of Faux News. Regardless, its millions of $ worth of free PR.

Of course, those who objected legitimately were right to do so. That provides the opportunity to set the record straight and garner even more free PR. 

So huge net positive for MMT and more evidence that the last mile is closing. Keep up the good work and don’t relax the pressure.

Bill Black — Revealed Biases: Why MMT Critics Continue to Rely on Strawman Arguments

Economists of nearly every flavor believe in the concept of “revealed preferences.” What matters is not what people say they will do in a hypothetical situation, but what they actually do. Their actions speak more credibly than their words. In this column I announce a related concept: “revealed biases.”

Guess what's coming. Ouch. Bill has mastered the art of the smack down.

New Economic Perspectives
Revealed Biases: Why MMT Critics Continue to Rely on Strawman Arguments
William K Black | Associate Professor of Economics and Law at the University of Missouri – Kansas City

See also Randy Wray, Bill Black Blasts Lazy Critics of MMT at Economonitor

Randy quotes the best of Bill's smack downs and comments himself.

Dean Baker — Reconciling Modern Monetary Theory with the Wisdom of Mark Thoma

The NYT had a brief discussion of Modern Monetary Theory (MMT) today in the context of a profile of Warren Mosler, one of its major proponents. The profile includes a dismissive comment from Mark Thoma, a professor at the University of Oregon and the creator of the blog, The Economist's View....

CEPR
Reconciling Modern Monetary Theory with the Wisdom of Mark Thoma
Dean Baker
(h/t Andy Blatchford on FB)

Stephanie Kelton comments:

Thanks, Dean. It is possible that Mark was taken out of context. The quote attributed to me wasn't remotely close to anything I actually said. The notion that MMT has no academic footprint is laughable. There are literally hundreds of articles in peer-reviewed journals, books, chapters in edited volumes, etc. This was a(nother) deliberate attempt to cast MMT as a kooky Internet phenomenon. Anyone else wonder why the NYT would send a reporter and a photographer all the way to St. Croix (yes, they physically went there) for a story about a silly little Internet theory? I suspect they know it's much more than that.
On a different point: MMT supports tax increases and/or spending cuts to address demand-pull inflation. No different from, say, Abba Lerner or Marriner Eccles.
The real point of departure for MMTers and textbook Keynesians is, I think, very much bound up in the loanable funds theory of the interest rate (the former rejecting and the latter accepting it). From that follow all sorts of differences re: fiscal sustainability. Scott Fullwiler has written brilliantly on this.

In other words, they just made shit up.

"First they ignore you, then they attack you, then you win." — paraphrase of M. K. Gandhi. Gandhi actually said, "First they ignore you. Then they ridicule you. And then they attack you and want to burn you. And then they build monuments to you." Wikiquote

Andrew Lainton — No, the Negro DGSE model does not Predict the Great Recession

A great deal of chatter on the blogosphere on a paper by Negro, Giannoni and Schorfheide of the NY Fed that DGSE can predict the great recession. Noahopinion discusses it the day after he musedabout what use was DGSE.

What they do is take the most well known New Keynsian model Smets-Wouters (2007) New Keynesian model and add on the the “financial accelerator” model of Bernanke, Gertler, and Gilchrist (1999). In the Financial Accelerator model credit shocks transmit through the real economy through amongst other reasons undermining the value of collatoral.

Both Noah and Mark Thoma’s reaction is ‘pah’ we could have predicted the Great Recession all along, we knew how we just didnt put two and two together’. But the Negro et al. is not a ‘forecast’ had they had the model in 2007 they would not have predicted the Great Recession. This quite apart from the criticism made by some commentators that they have engaged in post-hoc calibration of parameters to fit the result. I don’t make that accusation simply that the result forecasts nothing because their baseline data....

Decisions, Decisions, Decisions,
No, the Negro DGSE model does not Predict the Great Recession
Andrew Lainton

Mark Thoma — Just Sayin': It May Already Be Too Late

Economist's View
Just Sayin': It May Already Be Too Late

Mark Thoma

Mark Thoma gets drawn in

Read it at Economist's View
Classes of Macro Models: What Counts as a DSGE Model?

by Mark Thoma

Mark Thoma on the hidden agenda behind "expansionary fiscal austerity"

Mark Thoma doesn't buy that the people running things are so dim that they don't see that "expansionary fiscal austerity" is an oxymoron. Their agenda is the same old conservative agenda of shrinking government.

There clearly is a class of people willing to sacrifice the livelihood and well-being of others in pursuit of their ideological goal of a smaller government (so long as their own future remains secure). The notion of "expansionary austerity" was the cover, but so long as government shrinks as a result of the policy, the expansionary part is secondary. If reducing the size of government slows the recovery, that's a small price to pay for such a worthy goal -- for them anyway, the power behind this is in no danger of becoming unemployed. The main thing is to impose the small government ideology whenever there is a chance, and to use whatever argument is needed to serve that purpose, austerity is expansionary, tax cuts pay for themselves -- whatever works -- the ideologues will even embrace Keynesian economics if it allows them to argue for tax cuts that might further "starve the beast" (e.g. see Bush's argument for the first round of his tax cuts). But in the end the goal is a simple one, reduce the size and influence of government, and everything else is just a means of getting there.

Read it at Economist's View
The Purpose of Macroeconomic Policy?
by Mark Thoma

Morons or evil geniuses? Or may a combination of both?

Mark Thoma — GDP Report: Austerity is Holding Back the Recovery

Read it at Economist's View
GDP Report: Austerity is Holding Back the Recovery

by Mark Thoma

Karl Smith muses on economics

Mark Thoma asks for thoughts on the following point:

"Psychologists mock what economists call the micro­foundations of consumer behavior…. That this framework is suitable for aggregate systems in a globalized economy simply because the tribe called economics has agreed to adhere to these ad hoc assumptions makes no sense. Increased interactions with disciplines that economists have often mocked as unscientific would greatly improve economists’ understanding of the real world and would be more truly scientific. …"

Read the rest at Modeled Behavior

Musing on Economics

by Karl Smith

(h/t Mark Thoma)

Answer: A model is just a model. Don't try to get it to say what it doesn't, about the implications of max u, for instance.

Mark Thoma Almost Gets It

Confusing the Size of the Deficit with the Size of Government

"But what Republicans have realized is that most people assess whether government is too big or too small using the deficit. If the government is running a deficit year after year, then it must be purchasing more than it can afford.

"The problem, I think, is a false analogy with a household. When a household is in deficit month after month after month, it is a sign that the household is overspending relative to its income. And, since in most cases income cannot be changed in the short-run, or even in the long-run, a household in budget trouble has little choice but to work on the spending side of the equation.

"However, the government's income is different from a households. The government has powers that households do not have, the power to change taxes. An increase in taxes will raise the government's income and help to solve the problem. The right has tried to convince us with Laffer curve nonsense that this margin cannot be adjusted, i.e. the false claim that tax increases will not increase revenues, and they have also made arguments about employment and economic growth. Or they have simply proclaimed, without justification, that tax increases are off the table.

"None of those argument withstand closer scrutiny, but they are an easy sell due to the willingness of households to project their own troubles with balancing their budgets onto the government...."

Congratulations to Prof. Thoma for pointing out that government budgets are not the same as household budgets. But he mistakes the difference as the power to tax in order to fund instead the power to issue currency to fund. Close but no cigar — yet. There's always hope.

A monetarily sovereign government that is the monopoly provider of a nonconvertible floating rate currency funds itself through currency issuance and neither taxing nor borrowing are required for funding. In a fiat system, taxes do not fund government. Issuance does. That's what "fiat" means.

Taxes serve two purposes. First, taxation gives the currency value because nongovernment needs the state's currency to meet its obligations to the state in the form of taxes, fees an fines. Secondly, taxes withdraw net financial assets from nongovernment, reversing the flow of net financial assets into nongovernment resulting from government expenditure.

Government expenditure (fiscal injection) is used to increase nongovernment net financial assets in order to offset demand leakage to saving and net imports, which would otherwise result in economic contraction, while taxation (fiscal withdrawal) is used to decrease nongovernment net financial assets to control inflationary pressure.

Moreover, Prof. Thoma does not seem to understand the rationale of the Laffer curve. Art Laffer understands monetary economics, and he correctly noted that lowering taxes will increase nongovernment net financial assets. But he was mistaken is in thinking that this increase in nongovernment NFA would automatically translate into effective demand, which would send a signal to invest in order to increase production.

Tax cuts go primarily to the wealthy, and they have a high propensity to save. Therefore, the multiplier from broad tax cuts to growth is small, since most of the cut is saved instead of being spent on either consumer goods or capital goods. The Laffer curve did not work then, and there is no reason think it will work now to stimulate demand and increase investment.