Dirk Ehnts — The Economist misrepresents MMT

I have read the articles that The Economist published on Modern Monetary Theory (MMT) in the current edition of the liberal-leaning magazine (hereand there). I am not happy with the reporting, which includes false statements in general and also misrepresentations of what MMT is....

The Economist just put the UK debate on progressive economic policy on a slippery slope, claiming that a particular school of economics science constitutes “doctrine” and then misrepresenting that school’s views. They should know better than this...

Dirk Ehnts points out that the problem lies with the framing The Economist uses. The frame is based on assumptions that MMT argues are wrong based on the evidence. It is therefore a bogus argument against a straw man set up by the frame. 

This is at heart a political (ideological) issue being framed as an economic one, from a bias that doesn't hold up to scrutiny when compared with reality. The Economist tries to frame MMT as lef-wing ideology and conventional economics as science. NOT!

Neoclassical economics ignores the accounting and the institutions that lie at the foundation of the issues and determine the correct frame. MMT explains this, both explicating the correct frame and showing why the neoclassical framing is wrong because it either ignores it or makes mistakes about it.

econoblog 101
The Economist misrepresents MMT
Dirk Ehnts | Lecturer at Bard College Berlin

Paul Robinson — A normal week in the British press

Propaganda watch.

Irrussianality
A normal week in the British press
Paul Robinson | Professor, Graduate School of Public and International Affairs at the University of Ottawa

ZH — "Trump Must Be Stopped" Plead 'The Economist' And CFR As Financial Establishment Panics

…when such stalwart titans of financial establishmentarianism as the Council of Foreign Relations and "The Economist", who until now had been largely ignoring Trump's ascent in the political hierarchy finally unleash an all out assault and go after Trump on the very same day, you know that the flamboyant, hyperbolic billionaire has finally gotten on the nerves of some very high net worth individuals.…

Zero Hedge
"Trump Must Be Stopped" Plead 'The Economist' And CFR As Financial Establishment Panics

Tyler Durden

Bill Mitchell — Long-term unemployment behaviour reflects austerity bias in Eurozone

The Economist is in for it today.

The Economist magazine, never one to resist the urge to promote flawed ‘free market’ analysis, does not seem to have learned any lessons from its erroneous coverage of the GFC. It the latest version of what has to be one of the worst-named columns ‘The Economist explains’ (given explanation usually requires knowledge to be imparted) – Why long-term unemployment in the euro area is so high (August 2, 2015), all the usual myths about the labour market are propagated and the obvious ignored because it doesn’t fit the ideological position of the magazine.…

Enjoy the smackdown.

Bill Mitchell – billy blog
Long-term unemployment behaviour reflects austerity bias in Eurozone
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

The Economist on MMT

The crisis and the blogosphere have opened mainstream economics up to new attack

Read it at The Economist
Heterodox economics - Marginal revolutionaries

MMT goes mainstream.

UPDATE: Here is my comment at The Economist:

MMT proponents argue is that there is a difference between money created by fiscal deficits and money created by bank lending. When the government issues currency into non-government it does so through the Treasury directing its bank, the Fed, to credit non-government deposit accounts, e. g., to pay for fighter planes or to pay grannie's social security. The transmission from reserves to bank deposits is direct and does not depend on bank lending. Moreover, since there is no liability corresponding to the assets created in non-government in crediting these bank accounts, deficit disbursements inject net financial assets into non-government. Conversely, bank lending nets to zero since each asset has a corresponding liability, so non-government net financial assets remain unchanged no matter how much banks lend.

The reason that NGDP targeting will not work is the flawed notion of the transmission mechanism from reserves to spendable bank deposits. When the Fed buys financial assets of whatever type, it simply increases bank reserves. The erroneous presumption about transmission is that that banks lend against reserves or lend out reserves. Neither is the case, as MMT points out. Rather, bank lend against capital based on demand from creditworthy borrowers willing to pay a rate that is profitable enough for the bank to risk it's capital against. Increasing bank reserves does not spur banking lending and it does not affect the factors banks take into consideration in lending.

From this is simple to see why NDGP through increasing bank reserves, e.g., via QE, will not increase effective demand and spur increased investment to meet it. The transmission mechanism is bank lending, which is in abeyance, and increasing reserves will not increase it as the failure of QE has shown. Unless the Fed would buy real assets like houses instead of financial assets like MBS, it cannot not inject net financial assets into non-government, and there is no reason to expect an increase in effective demand due to increased bank reserves.The US is already at ZIRP and has been for some time. That has done nothing either. MMT predicted the failure of monetary policy — QE1 and QE2, as well as ZIRP, and QE3 will also fail unless the Fed would purchase real assets, which it is not permitted to do under current statute even under emergency powers, at least as I understand it. Time for fiscal policy to step up to the plate. [link]