Lars P. Syll — On the non-neutrality of money

One of Keynes’s central tenets — in clear contradistinction to the beliefs of mainstream economists — is that there is no strong automatic tendency for economies to move toward full employment levels in monetary economies.

Money doesn’t matter in mainstream macroeconomic models. That’s true. But in the real world in which we happen to live, money does certainly matter. Money is not neutral and money matters in both the short run and the long run....

"New Keynesianism" isn't Keynesian. It is bastard Keynesianism if it is Keynesian at all. Paul Krugman self-identifies as "neoclassical," in accepting neutrality of money, banks as only intermediaries, equilibrium, and rational maximization. So do many if not most other Democratic Party economics heavyweights and advisors. Time for them to step aside and make room for the new wave. We don't have time to wait for funerals.

Lars P. Syll’s Blog
On the non-neutrality of money
Lars P. Syll | Professor, Malmo University

Kalecki, Minsky, and “Old Keynesianism” Vs. “New Keynesianism” on the Effect of Monetary Policy — Tracy Mott

A version of what Lawrence Summers and Anna Stansbury (2019) recently pointed to as “original” Keynesianism can be found in the work of Michał Kalecki and Hyman Minsky, Their work offers analysis of the determination of investment spending and effective demand which avoids the deficiencies found in the New Keynesian economics in which Summers and Stansbury find shortcomings. In the paragraphs below, I describe how their insights and those of other economists sharing their approach provide an answer to the questions with which Summers and Stansbury are grappling, and more....

Larry Summers awakens from his "dogmatic slumbers" (ht Emmanuel Kant on reading himself after reading David Hume).

Well, better late than never, but unfortunately not soon enough to avoid doing extensive damage.

Also, it doesn't seem that Professor Summers has gotten around to attribution yet. Or does he not even know of this previous work?

INET

Kalecki, Minsky, and “Old Keynesianism” Vs. “New Keynesianism” on the Effect of Monetary Policy

Tracy Mott, Professor of Ecnomics (retired), University of Denver

So Are We All MMTists Now? — Brian Romanchuk

Larry Summers attracted a great deal of attention with arguments that post-Keynesian theories ought to be taken into account, and the ability of central banks to stimulate the economy are limited. One could argue that the zeitgeist is shifting in the direction of Modern Monetary Theory (MMT): the role of fiscal policy may be increasingly important. However, I am unsure how far actual economics debates will shift.

One may note that Summers dodged discussing MMT in his initial tweets; in fact, he referred to Thomas Palley, whose main contributions in recent years has been his sectarian attacks on MMT. My guess is that this will be a fairly standard approach...,

I have said previous, this is about control of the Democratic Party going forward — the Democratic Establishment (the Clinton-Obama camp) versus the progressives (the Bernie-Squad camp). Stephanie Kelton has put MMT at the center of it owning to her association with Bernie and AOC's endorsement of MMT.

The former is backing way from New Keynesian but is not willing to throw in the towel and support MMT. Now the battle is engaged. So far the victories are going in the right direction if one is an MMT supporter. Monetarism is effectively dead and New Keynesian is becoming untenable as a policy position.

There has been an ongoing battle between one faction of Post Keynesians and others that support MMT. Larry Summers just cast his hat with the former.

Bond Economics
So Are We All MMTists Now?
Brian Romanchuk

Bill Mitchell — Reliance on monetary policy is mindless, ideological nonsense

It is Wednesday and so a less intensive blog post. Note how I no longer claim it will be shorter. The less intensive claim refers to how much research I have to put in to write the post. Apart from some beautiful music, the topic for today is yesterday’s RBA decision to cut interest rates to record low levels. The decision won’t save the economy from recession and highlights the sort of desperation that central bankers now face as governments shunt the responsibility of counterstabilisation onto them while claiming that achieving fiscal surpluses is the brief of the treasuries. This self-defeating strategy – failing to use the most effective policy tool in favour of an ineffective tool is the neoliberal way. It is the recipe that New Keynesian macroeconomics offers. It is mindless, ideological nonsense and the problem is that it is not the top-end-of-town that suffers from the negative outcomes that follow. Quite the opposite in fact....

One would be tempted to think that the policy is designed for a purpose rather than in ignorance. But the policy designers probably aren't that smart.

Bill Mitchell – billy blog
Reliance on monetary policy is mindless, ideological nonsense
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Jason Smith — What do equations mean?

Jason Smith comments on J. W. Mason and Arun Jayadev on MMT and conventional economics from the point of view of scientific modeling in macro.

Information Transfer Economics
What do equations mean?
Jason Smith

Bill Mitchell — The divide between mainstream macro and MMT is irreconcilable – Part 1

My office was subject to a random power failure for most of today because some greedy developer broke power lines in our area. So I am way behind and what was to be a two-part blog series will now have to extend into Wednesday (as a three-part series). That allows me more time today to catch up on other writing commitments. The three-part series will consider a recent intervention that was posted on the iNET site (September 6, 2018) – Mainstream Macroeconomics and Modern Monetary Theory: What Really Divides Them?. 

At the outset, the iNET project has been very disappointing. Very little ‘new’ economic thinking comes from it – its offerings are virtually indistinguishable from the New Keynesian consensus that dominates my profession. The GFC revealed how impoverished that consensus is. It has also given space for Modern Monetary Theory (MMT) to establish itself as a credible alternative body of theory (and practice). The problem is that the iNET initiative has been captured by the mainstream. And so the Groupthink continues.

The article I refer to above is very disappointing. It claims to offer a synthesis between Modern Monetary Theory (MMT) and mainstream macroeconomics by way of highlighting “what really divides” the two schools of thought. You might be surprised to know that according to these authors there is not much difference – only that mainstream economists think that monetary policy should be privileged to look after full employment and price stability and MMT economists (apparently) think fiscal policy should have that role. The authors claim that for the on-looker these minor differences are opaque in terms of outcomes (if the policies are applied properly) and suggest that there is really no reason for any debate at all. Accordingly, the New Keynesian consensus is just fine and the mainstream economists knew all the MMT stuff all along.

It is an extraordinary exercise in sleight of hand engineered by constructing the comparison in terms of two ‘approaches’ that cull the main aspects of each. The real issue is why would they waste their time. Degenerative paradigms (or research programs in Imre Lakatos’ terminology) typically try to absorb challenging paradigms that, increasingly have more credibility and appeal, back into the mainstream through various dodges – ‘special case’, ‘we knew it all before’, ‘really nothing new’, etc.

This is Part 1 of my response. It won’t be an easy three-part series but stick with it and I hope it gives you a lot of insights into the abysmal state of the mainstream macroeconomics profession.

I wasn’t surprised by the discussion. Resistance from the dominant paradigm is part of the evolution of a new idea....

I figured that Bill would be all over this.

BTW, I introduced some paragraphing into the above for easier online reading.

Bill Mitchell – billy blog
The divide between mainstream macro and MMT is irreconcilable – 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 — The Easy Way To Deal With Factionalism In Economics

Must-read. This should suffice as the last word on Simon Wren-Lewis's recent post. But it probably won't be.

Bond Economics
The Easy Way To Deal With Factionalism In Economics

Brian Romanchuk

Also

My comment was finally approved and posted along with many others in the moderation queue:

Tom Hickey2 March 2018 at 07:38

Who is being intransigent? As a non-economist MMT advocate (my PhD is in philosophy), it looks to me like the mainstream is the intransigent party. "The methodological debate is over."

JKH, not an MMT advocate, also makes a key point above that the mainstream largely fails to take accounting into consideration when accounting is the language of business and finance and is dismissive of its importance in comparison to mathematics.

MMT is hardly original emphasizing accounting, finance, institutional arrangements, the difference between risk and uncertainty, etc. These were pointed out by Keynes, Lerner, Tobin, Godley, Minsky, etc., before the MMT economists came on the scene.

I would argue that what seems to be needed from an outsider's point of view is a renewed debate on methodology that questions key assumptions like methodological individualism, maximization, equilibrium, etc. that the mainstream considers settled issues.

I agree that the present form of "debate" such as it is tends to get overheated. But this appear to result from the perception on the MMT side that the mainstream is being intransigent about what is settled, on one hand, and the dire results in terms of policy and its effects on real people, on the other.

It would be nice to have a calmly reasoned debate in an open forum but the parties have to be willing to join it. I don't see many mainstream economists willing to debate openly with so-called heterodox economists, not limited to MMT. Where are the Post Keynesians, the Paleo Keynesians, the Institutionalists, the Marxians, etc.

The issue usually boils down to "Where is your model?," meaning a model in the form that the mainstream stipulates, or "The methodological debate is already settled."

I get that the mainstream considers that its "orthodox" (that word should scare you) approach is the paradigm for doing normal science in economics in the Kuhnian sense, and that if the normal paradigm is to be challenged it must be approached in terms of failures and the resort to ad hoc fixes that basically negate falsifiability. I would say that this has been done adequately and most of the mainstream refuses to recognize it.

These issues are going to be settled one way or the other because they affect policy and policy is, well, political. The present system in not working for a lot people and they are not going to be convinced by the mainstream arguments much longer. The mainstream has to deliver or they will be replaced and there are various options available along a range from extreme right to extreme left. This is not just an academic debate, as the macroeconomists offering policy advice are well aware. Lives are at stake as well as political regimes.

Bill Mitchell — The New Keynesian fiscal rules that mislead British Labour – Part 1, 2 & 3

The British Labour Party is currently leading the Tories in the latest YouGov opinion polls (February 19-20, Tories 40 per cent (and declining), Labour 42 per cent (and rising). They should be further in front, given the disarray of the Conservatives as they try to negotiate within their own party something remotely acceptable about Brexit. When there is this degree of political capital available, in this case for the Labour Party, a party should use it to redefine policy agendas that have gone awry. To build a narrative that will advance their cause for the future decades. British Labour has a chance to break out of its recent Blairite neoliberal past and present a truly progressive manifesto to the British people that will force the Tories to move closer to the centre and squeeze the extreme right-wing elements. In part, under Jeremy Corbyn and John McDonnell, Labour is making progressive noises on a number of fronts. But ultimately, where it really matters – the macroeconomic narrative – they are remaining firmly neoliberal and this will blight their chances of pursuing a truly progressive agenda. One of the glaring mistakes the Labour Party has made is to accept advice from neoliberal economists (so-called New Keynesians) who have instilled in them a need for fiscal rules. This is a three-part analysis of the sort of advice that Jeremy Corbyn and John McDonnell are getting and why they should ignore it....

Bill Mitchell – billy blog
The New Keynesian fiscal rules that mislead British Labour – Part 1

The New Keynesian fiscal rules that mislead British Labour – Part 2

The New Keynesian fiscal rules that mislead British Labour – Part 3Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Michael Roberts — The monetary dilemma

According to the minutes of the last meeting of the monetary policy committee of the US Federal Reserve Bank, the most powerful monetary authority in the world, the committee members are split and unclear on what to do. “Some participants who counselled patience expressed “concern about the recent decline in inflation” and said the Fed “could afford to be patient under current circumstances.” They “argued against additional adjustments” until the central bank was sure that inflation was on track. On the other side, more hawkish members “worried about risks arising from a labour market that had already reached full employment and was projected to tighten further…..backing off from a steady diet of rate hikes could cause the Fed to overshoot its employment target and cause financial instability”, they said.

The problem is that the Fed’s economic models were failing to provide guidance on what to do. The current mainstream model has two strands. The first is the Wicksellian idea that there is a ‘natural rate of interest’ that brings a capitalist economy into harmonious equilibrium where economic growth and full employment and stable and low inflation are combined. The Fed calls this R*. The second is the Keynesian view that there is a trade-off between unemployment and inflation, so that as an economy heads towards ‘full employment’, this drives up ‘effective demand’ beyond any ‘slack’ in supply in the economy and so wages and price inflation ensues. This is enshrined empirically in the so-called Phillips curve, named after a British economist of the 1960s.

The trouble with this mish-mash of a central bank model is that it is not working....

The Fed’s dilemma reveals that monetary policy has failed. It failed to save the world economy from the Great Recession and it failed to get it out of the ensuing Long Depression. Central bank models of the economy, based on a combination of monetarist neo-classical and Keynesian economics, appear to offer no guidance on what stage the major economies are now in and therefore what to do. Should central banks hold back on hiking rates and reversing QE in case economies are still too weak; or should they act now to avoid a huge debt crisis down the road? They don’t know. 

Michael Roberts Blog

The monetary dilemma
Michael Roberts

Lars Syll — More NAIRU bashing

Roger Farmer takes down NAIRU.

As Lars points out this would be inconsequential now and merely of historical interest if assumptions about NAIRU and the Phillips curve were not integral in building New Keynesian models that are still influential in policy.

Lars P. Syll’s Blog
More NAIRU bashing
Lars P. Syll | Professor, Malmo University

Jo Michell — Thoughts on the NAIRU

If you are following this.

Critical Macro Finance

Thoughts on the NAIRU
Jo Michell

Bill Mitchell — Paul Krugman’s ideas are part of the problem

It was always going to happen. Several prominent New Keynesians both in the US and the UK have been hiding behind a smokescreen they erected during the Global Financial Crisis to allow their readers to form the view that they were not part of the problem. That they were different from the more rabid anti-deficit economists and that they had a deep understanding of why the crisis occurred and what the solutions were. For a while they masqueraded under the aegis of promoting the discretionary use of fiscal deficits (increasing them nonetheless) to stimulate growth in output and employment. They were seen by many who have a lesser understanding of economics as being progressive economists. The British Labour leader even had some of them on his inner advisory team. But the masks can only stay on so long. Yesterday, one of the most prominent of these characters, Paul Krugman came out! He is not progressive at all. He is a New Keynesian with all the IS-LM baggage that they cannot let go of. In his New York Times article (January 9, 2016) – Deficits Matter Again – he well and truly shows his colours. And they (to speak American) ain’t pretty!

Bill Mitchell – billy blog
Paul Krugman’s ideas are part of the problem
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Bill Mitchell — Mainstream macroeconomics in a state of ‘intellectual regress’

At the heart of economic policy making, particularly central bank forecasting are so-called Dynamic Stochastic General Equilibrium (DSGE) models of the economy, which are a blight on the world and are the most evolved form of the nonsense that economics students are exposed to in their undergraduate studies. Paul Romer recently published an article on his blog (September 14, 2016) – The Trouble With Macroeconomics – which received a fair amount of attention in the media, given that it represented a rather scathing, and at times, personalised (he ‘names names’) attack on the mainstream of my profession. Paul Romer describes mainstream macroeconomics as being in a state of “intellectual regress” for “three decades” culminating in the latest fad of New Keynesian models where the DSGE framework present a chimera of authority. His attack on mainstream macroeconomics is worth considering and linking with other evidence that the dominant approach in macroeconomics is essentially a fraud.…

Bill Mitchell – billy blog
Mainstream macroeconomics in a state of ‘intellectual regress’
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Diane Coyle — Rescuing macroeconomics?

Short review of Roger Farmer's Prosperity for All: How To Prevent Financial Crises. 

Useful for those interested in DSGE.

The Enlightened Economist
Rescuing macroeconomics?
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Simon Wren-Lewis — Macroeconomics and Ideology

Simon Wren-Lewis responds to Jo Michell.

Mainly Macro
Macroeconomics and Ideology
Simon Wren-Lewis | Professor of Economics, Oxford University

Simon Wren-Lewis — Do New Keynesians assume full employment?

Simon Wren-Lewis doesn't ask the fundamental question, Where does the money come from; hence he does not understand monetary economics and sectoral balance, or the difference in policy space between sound finance and functional finance. 

So this is not in the model and therefore the model can't explain actual events other than by assuming that the labor market is based on the ratio between preference for work (income) and leisure (reduced income).

I guess this is what happens when one spends one's life on campus rather than in the actual world. It's also pretty astounding since this is a principal issue that Keynes addressed.

Mainly Macro
Do New Keynesians assume full employment?
Simon Wren-Lewis | Professor of Economics, Oxford University

Brian Romanchuk — If The Mathematics Of New Keynesian Economics Were Solid...

Brian comments on Alex Douglas, linked to this AM, if you are following.

Bond Economics
If The Mathematics Of New Keynesian Economics Were Solid...
Brian Romanchuk

Alexander Douglas and Neil Wilson At Medium on MMT and New Keynesianism

Alexander Douglas At Medium
More on Keynesianism, MMT and interest rates

Neil Wilson comments

Neil Wilson at Medium

My sense is that this has not been the New Keynesian position until very recently, if most New Keynesians even hold it now. Ii is basically saying the MMT is correct with respect to its analysis of monetary economics and functional finance, and that central bank monetary policy is designed to increase fiscal space to make room for public spending by controlling incipient inflation that fiscal injection might cause as the economy approaches capacity.

Lars P. Syll — Wren-Lewis on the New Classical Counter Revolution

Lars Syll marshals support in disagreeing with Simon Wren-Lewis.

Lars P. Syll’s Blog
Wren-Lewis on the New Classical Counter RevolutionLars P. Syll | Professor, Malmo University

Jason Smith — Does market monetarism exist in reaction to fiscal stimulus?

Wherein Jason Smith figures out what Scott Sumner is up to.

Information Transfer Economics
Does market monetarism exist in reaction to fiscal stimulus?
Jason Smith