The State Of MMT? — Brian Romanchuk

I have been catching up after travelling to the Modern Monetary Theory (MMT) Conference in Stony Brook, and see that there was a full issue on MMT in the Real-World Economic Review. Since I referred to the relationship between MMT and Post-Keynesian Economics in my talk, I might as well update my comments based on that RWER issue....

I agree with Brian. Tempest in a teapot with the world falling apart around us.  People taking themselves too seriously, but that is the story in most of academia. MMT is "winning" because it cuts to the chase instead of wandering in the weeds. People wanting change are provided with direct answers in terms they can understand and relate too. Nor do MMT economists shy from debate about the weeds if it is seriously informed.

And as Scott Fullwiler observed recently on Twitter, the critics still have not deal with the fundamental issue regarding a universal job guarantee, for example. That is, the choice is between a universal job guarantee and some involuntary unemployment being created regardless of what other welfare programs are instituted if a universal job guarantee is not provided, too.  There is no alternative short of abolishing wage labor, that is, abolishing capitalism for some form of socialism without wage labor.

Bond Economics
The State Of MMT?
Brian Romanchuk

Lars P. Syll — Kalecki and Keynes on the loanable funds fallacy

Banks are not intermediaries between savers and borrowers, and finance is not allocating existing savings to future investment.

The opposite is true. Bank credit is self-funding; in credit extension, loans (assets) create deposits (liabilities). In finance as allocation of capital, investment creates saving.

Lars P. Syll’s Blog
Kalecki and Keynes on the loanable funds fallacy
Lars P. Syll | Professor, Malmo University

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 — Inflation And Income Shares

This article is a small interlude in my my discussion of post-Keynesian inflation theories. The first article was unfortunately theoretically negative - it discussed the reasoning behind the post-Keynesian rejection of mainstream inflation theories. 

Bond Economics
Inflation And Income Shares

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

Lord Keynes — Bibliography on Post Keynesian Economics (Updated)

Update.

Social Democracy For The 21St Century
Bibliography on Post Keynesian Economics (Updated)
Lord Keynes

Edward Harrison — Where Post-Keynesians and Austrians meet on economics

Credit.

Credit Writedowns
Where Post-Keynesians and Austrians meet on economics
Edward Harrison

See also

Can Macron reform Europe?: A mental model for thinking about the economics

Lord Keynes — Bibliography on Post Keynesian Economics (Updated)

For your file.

Social Democracy For The 21St Century: A Post Keynesian Perspective
Bibliography on Post Keynesian Economics (Updated)
Lord Keynes

Lord Keyens — Bibliography on Post Keynesian Economics (Updated)

For the record.

Social Democracy For The 21St Century: A Post Keynesian Perspective
Bibliography on Post Keynesian Economics (Updated)
Lord Keynes

Edward Lambert — Yellen wants to understand effective demand

Janet Yellen is really asking for research into effective demand. She sees a weakness in aggregate demand affecting aggregate supply… or potential output. That is effective demand, but she cannot even use the term effective demand because economists do not understand it.

I have been researching effective demand for 4 years. I have seen really a complete lack of understanding of what effective demand is among economists. It surprises me that Janet Yellen would be calling for research on its dynamics....

Janet Yellen just might understand more about Keynes and Post Keynesianism that she wants to let on publicly. She was excoriated as a "Keynesian" by economists on the right at the time of her appointment to the Fed chair. Maybe she is nudging without rocking the boat too much.

Has anyone read Yellen, Janet L, 1980. "On Keynesian Economics and the Economics of the Post-Keynesians," American Economic Review, American Economic Association, vol. 70(2), pages 15-25, May. (Link is to JSTOR. Registration required.)

She may be considered a New Keynesian, but this paper shows that she is at least familiar with some Post Keynesian thinking.

Angry Bear
Yellen wants to understand effective demand
Edward Lambert

Also

So whilst Janet gets empirically what is wrong with modern macro research she misses the fundamental reasons this matters.

1. Economics must be rebuilt around balance sheets and fundamental accounting identities
2. Hence state – balance sheets- must be the basis of all models. If the model is not a state machine it cannot describe the state of anything economic.
3. Hence credit and debt, and money matters
4. As debt issues are fundamentally non linear and complex models which require linearisation, such as DGSE, must be discarded, they are too broken to be fixed.

Decisions, Decisions, Decisions
Yellen Almost, but not Quite, Gets Whats wrong with Modern MacroAndrew Lainton

Lord Keynes — A Post Keynesian Bibliography on Wicksellian Loanable Funds Theory

For the file.

Social Democracy For The 21St Century: A Post Keynesian Perspective
A Post Keynesian Bibliography on Wicksellian Loanable Funds Theory
Lord Keynes

Lord Keynes — Kaldor’s Growth Laws and Verdoorn’s Law: An Overview and Bibliography

More for your reference file.

Social Democracy For The 21St Century: A Post Keynesian Perspective

Kaldor’s Growth Laws and Verdoorn’s Law: An Overview and Bibliography
Lord Keynes

Lord Keynes — Thirlwall’s Law: An Overview and Bibliography

Backgrounder and reference. 

Social Democracy For The 21St Century: A Post Keynesian Perspective
Thirlwall’s Law: An Overview and Bibliography
Lord Keynes

Brian Romanchuk — Whither Mainstream Economics?

The inertia in academic institutions provides a very good reason to expect very little progress within mainstream business cycle macroeconomics. Nevertheless, that segment of the profession could be dragged kicking and screaming back to reality by central banks, and so there is no reason for total pessimism on that score. This article is written from the perspective of an outsider analysing the field from the perspective of the history of ideas, and not arguing about the validity of any school of thought.

This article bookends my earlier article "Whither Post-Keynesian Economics?" It is no secret that I believe that post-Keynesian economics is the best way to approach economics. I discuss how post-Keynesian economics fits into my discussion here in an appendix.…

My interpretation of post-Keynesian economics leads to a somewhat pessimistic conclusion: we cannot hope to assign a single probability distribution to the future value of macroeconomic variables using a single model. (The existence of such a model would allow for a "scientific" determination of the validity of the model using statistical tests.)….

If we assume that my assertion is correct, the implication is that we cannot blindly hope to apply the lessons of science (particularly Physics) to economics. Any theory that offers quantitative predictions can be shot down for one reason or another -- either problematic observed data, or theoretical incoherence. This means that there can be no "final answer" for macro theory, which is why we are stuck with battling tribes with different interpretations.

It should be noted that this theoretical ambivalence is not novel; it is effectively how market economists operate.

The side effect is that this puts academic post-Keynesians in a bind. Since they cannot produce a model that is "scientifically true," there is no reason that their theories must be adopted on "scientific" grounds. All that can be done is package their theories in a way that makes them more attractive than their competitors. As time passes, they will be absorbed into the "mainstream." Although this process seems inevitable, the question remains whether mainstream authors will properly cite the post-Keynesian authors, or else pretend that they came from within the New Consensus tradition.…

Bond Economics
Whither Mainstream Economics?

Brian Romanchuk

Lord Keynes — A Proposal for an Alt Left Political Program

Incorporates PKE and MMT.

Social Democracy For The 21St Century: A Post Keynesian Perspective
A Proposal for an Alt Left Political Program
Lord Keynes

Brian Romanchuk — Macro Wars: Lavoie Article

Marc Lavoie has an excellent contribution to the recent reappearance of the "macro wars": "Rethinking Macroeconomic Theory Before the Next Crisis." I just want to note that he is possibly too academically reserved with regards to some of the claims justifying DSGE macro.…

Bond Economics
Macro Wars: Lavoie Article
Brian Romanchuk

Marc Lavoie — Rethinking Macroeconomic Theory Before the Next Crisis

In this essay I discuss how the end of the Great Moderation – this 15-year period of low inflation and low variance in real growth rates in the Western world — has been interpreted by the advocates of mainstream economics and what changes the subprime financial crisis has or may have entailed with respect to macroeconomic theory. I review of a number of key issues in macroeconomic theory, examining what seems to have been changed or been questioned as a consequence of what has happened during and after the financial crisis. The third section is devoted to the concept of hysteresis, which seems to have been resurrected by mainstream economists. The fourth section deals with a number of miscellaneous issues, in particular the shape of the aggregate demand curve and the lack of a relationship between interest rates and public debt or deficit ratios. I conclude with broad brushes about what ought to disappear and what might disappear from macroeconomic theory. Many others, such as Stiglitz (2014) and Mendoza (2013) have done an excellent job in pursuing this kind of exercise. Here I offer my idiosyncratic thoughts, starting with the reaction of economists to the crisis.…

INET
Rethinking Macroeconomic Theory Before the Next Crisis
Marc Lavoie | Professor of Economics, University of Ottawa

Brian Romanchuk — Whither Post-Keynesian Economics?

I returned from the University of Missouri Kansas City Post-Keynesian Conference, and I have been reflecting on the state of the field. From my external vantage point, it has the defects that are inherent in the institutions in modern academia, but it does have the advantages over the mainstream. The trick is being able to get an understanding of the theory from outside. Modern Monetary Theory (MMT) remains attractive as the project was structured in a fashion to be useful for non-academics.…

Bond Economics
Whither Post-Keynesian Economics?
Brian Romanchuk

Lord Keynes — Bibliography on Post Keynesian Economics

The bibliography below is assembled from my various posts, and provides a list of the most important books and articles on various topics within Post Keynesian economics. 

It is divided into the following sections:(1) Introductory Studies(2) Advanced Overviews and Specialised Studies(3) History of Post Keynesian Economics(4) Methodology(5) Uncertainty(6) Endogenous Money(7) Price Theory(8) Trade Theory(9) On the Work of George L. S. Shackle.This is a work in progress. I am not claiming it is exhaustive by any means. There are plenty of additional categories that could be included.

Social Democracy For The 21St Century: A Post Keynesian Perspective
Bibliography on Post Keynesian Economics
Lord Keynes

Lord Keynes — A Wikipedia Entry for the “Realist Left”

In particular, the Realist Left rejects neoclassical theory and maintains that a serious science of capitalism has been created by Post Keynesian economics and Modern Monetary Theory (MMT), which should displace neoclassical theory.…

Realist Left ideas are promoted on the internet on social media and blogs (see external links). The economic ideas of the Realist Left can be found on Post Keynesian and Modern Monetary Theory (MMT) blogs, though these economists do not necessarily identify with the Realist Left and would take different political positions.

Social Democracy For The 21St Century: A Post Keynesian Perspective
A Wikipedia Entry for the “Realist Left”
Lord Keynes