Randy Wray comments at Bill's on the recent MMT kerfuffle.

Randy Wray comments at Bill's on the recent MMT kerfuffle.

Bill Mitchell comments on the current MMT kerfuffle.

Bill Mitchell comments on the current kerfuffle raised by Simon Wren-Lewis, referring to Palley's critique of MMT.

Alexander Douglas — Me and MMT

Alex Douglas provides an algebraically detailed critique of Thomas Pally's critique of MMT, along with a deft dismissal of Krugman's critique of MMT as based on a straw man. Stuff that that makes one wonder whether Krugman is an economist or a polemicist?

Origin of Specious
Me and MMT
Alexander Douglas | Lecturer in Philosophy at Heythrop College, London

Andrew Black — Exchange Rate Regimes & Modern Monetary Theory

There have been heated discussions concerning the advantages and disadvantages of what is known as “Modern Monetary Theory”. This theory makes a number of claims, some of which appear unreasonable and impractical to Keynesian economists and others with an economic policy focus. The aim of this discussion paper is to throw more light on the nature of exchange rate relationships internationally. The reason for doing this is that MMT protagonists claim that many economic ills would be resolved if a country has its own currency, which can move freely against other currencies. To take a somewhat extreme proposition, MMT protagonists have argued that in the interests of securing full employment, deficit funding can be safely embarked upon through the government simply printing more money.[i] While this may be technically true for domestic savers and consumers, it overlooks the importance of foreign holders of domestic assets and bonds. If a high government deficit then causes difficulties for foreign owners of national assets, this is entirely manageable, they say, through a devaluation of the currency. As Palley put it, 

“All countries face inflation and financial sector stability constraints, but the US is essentially free of a foreign exchange market constraint. However, that constraint is very visible in many other countries, which explains their greater intuitive scepticism about MMT.” (Palley, 2015, p. 20.) 

The main aim of this short discussion paper is to clarify just what the predominate forms of exchange rate regimes are across the world. If the advantages claimed by proponents of MMT are/were so manifest, then it would be reasonable to expect that a free floating exchange rate regime would be the preferred option internationally. As shall be seen, this turns out not to be the case, and the number of countries with their own free floating currencies is a minority, and one that appears to be shrinking....

London Metropolitan Institute — Global Policy Institute
Exchange Rate Regimes & Modern Monetary Theory
Dr Andrew Black, GPI Opinion

ht Kristjan in the comments

David Fields — New Working Paper by John Smithin on Endogenous Money, Fiscal Policy, Interest & Exchange Rates

Link to a working paper discussing the debate between Thomas Palley, and 

Eric Tymoigne & Randy Wray.

Naked Keynesianism
New Working Paper by John Smithin on Endogenous Money, Fiscal Policy, Interest & Exchange Rates

David Fields

Steven Pressman — Live-Blogging Piketty: Review of Reviews, Pt. 3

My last post summarized the positive reviews of Piketty and focused on some of the best of these. This post looks at the negative reviews. The silly ones tend to come from the far right and were discussed in my first review of reviews of Capital in the Twenty-First Century. The more serious critiques come from the left of Piketty and make three points. First, following Solow (see my previous post), a number of reviewers take Piketty to task for expecting that the rate of return to capital will always exceed the economic growth rate based on the fact that it has done so in the past. Second, many reviewers criticize the policy proposals put forth at the end of the book. They claim either that the main proposal– a universal wealth tax– is politically unrealistic and that there are other policies, ignored by Piketty, that can help reduce inequality. Finally, several critics on the left express unhappiness with the fact that Piketty relies on a neoclassical economic model when doing his analysis and drawing out his policy conclusions. This is problematic both because of the so-called Cambridge Controversy (more on this below) and because the neoclassical model (which favors the free market) was at least partially responsible for the Great Recession.

One of the best critical reviews of Capital comes from Tom Palley. As far as I know it has not been published in print; however, this does not matter, since it appears on his blog. Some of Palley’s points seem to me on the mark and some seem off the mark. But it is a thoughtful and scholarly reflection on Piketty, and the issues raised are worth thinking about seriously.

Dollars & Sense
Live-Blogging Piketty: Review of Reviews, Pt. 3
Steven Pressman | Professor of Economics and Finance at Monmouth University in West Long Branch, NJ

Matias Vernengo — Krugman on Palley's Gattopardo Economics

Matias Vernengo contra Krugman.

Naked Keynesianism
Krugman on Palley's Gattopardo Economics
Matias Vernengo | Associate Professor of Economics, University of Utah

Brian Romanchuk — Why Rich Countries Should Float Their Currencies

This article provides more depth to some comments I made in"MMT and Constraints". I explain why developed countries should allow their currencies to float, which is the policy stance advocated by Modern Monetary Theory (MMT). It is probably a good idea for developing countries to float their currencies as well, but they face inherently difficult policy problems that I do not know enough about to comment on. The implication of advocating a free-floating currency is that I do not see the "external constraint" as being a serious issue, or at least an issue that policy makers can hope to do anything useful about.

In that previous article, I made some quick comments in response to an assertion by Thomas Palley that the "foreign exchange market constraint" is very important for countries other than the United States. Since he did not explain that assertion, I was unable to offer a very detailed criticism. My response was too short, and drew some comments. I expand my explanation here.

I will first explain why I do not think that there is a significant external behavioural constraint on policy makers; but an accounting constraint obviously exists.

I will also note that what I am writing is my opinion, and does not necessarily reflect the views of the economists who developed MMT. I think that poorer countries face some difficulties with free-floating currencies, a view with which they may not agree.

Bond Economics
Why Rich Countries Should Float Their Currencies
Brian Romanchuk

Winterspeak — Palley on MMT

Now Winterspeak speaks.

One matter that needs clarification is this.

Like Palley, I am stunned by the claim that MMT rejects counter-cyclical fiscal policy. Certainly contrary to what I've heard, and if Wray really does take this position then we'd have to disagree.

The notion that MMT rejects counter-cyclical policy misses the point of MMT, where the fiscal balance expands and contracts with the cycle through automatic stabilization, changes in tax receipts, and the ELR as an employment buffer and price stabilizer. MMT also distinguishes between "good" and "bad" deficits based on whether they are incurred as a result of government adjusting the fiscal balance through proactive fiscal policy to accommodate increasing saving desire or address inflation rather than pursuing a policy like austerity in a contraction, which will only result in growing the deficit through automatic stabilization and reduced tax receipts.

Palley may be thinking of traditional counter-cyclical policy. That's true. They think there is a better way. MMT economists are skeptical of "Keynesian pump-priming," which they view as usually too late to the table and too fraught with political wrangling to be an effective policy tool. However, when the financial crisis hit and caught policymakers unawares, Warren Mosler was in the forefront, recommending providing unlimited liquidity to solvent banks, a suspension of FICA, and per-capita block grants to states. This could have been accomplished overnight whereas the stimulus package that was finally passed took months, was watered down below what models indicated was needed, and then took time to deploy, prolonging the response and watering it down.

Palley on MMT
Winterspeak

Dirk Ehnts — A not-so-friendly critical look at MMT?

Dirk Ehnts jumps into the Palley-MMT fray.

econoblog 101
A not-so-friendly critical look at MMT?
Dirk Ehnts | Berlin School for Economics and Law

Brian Romanchuk — MMT And Constraints

Brian Romanchuk comments on Tom Palley's recent criticism of MMT and discusses the budget and external constraints.

Bond Economics
MMT And Constraints
Brian Romanchuk

 

Philip Pilkington — Palley’s Critique of MMT: Post Keynesian or neo-Keynesian?

So, Tom Palley has a new criticism out of MMT. Frankly, I’m not hugely concerned with the critique itself. The criticisms are old and I don’t think that Palley will convince anyone of the ills of MMT that are not already convinced (it’s that type of paper…).

What I have been wondering, however, is what to make of the substance of the paper itself. What I mean is: is this a Post-Keynesian critique of MMT? Or is it something else? I’m not sure that I want to answer that question just yet. For now I’m content to raise it.

Fixing the Economists
Palley’s Critique of MMT: Post Keynesian or neo-Keynesian?
Philip Pilkington

Bill Mitchell eviscerates critics of MMT who don't bother to acquaint themselves with the literature

Bill is clearly annoyed, as he should be, that people like Thomas Palley criticize "MMT" without being aware of what MMT economists have published.

Paul Krugman did the same thing on UP with Chris Hayes with respect to the MMT assertion that deficits are sustainable. He interpreted it as "deficits never matter," which MMT economists have never claimed. MMT economists have carefully explained exactly what they means, asserted that inflation is a constraint, and that the size of the deficit at full employment should not exceed demand leakage to saving at that point. Indeed, the point of the deficit from the perspective of a full employment budget according to the sectoral balance approach is to offset demand leakage to saving without resulting in price instability and that fiscal policy is better fitted to this task in that it can be tightly targeted, whereas monetary policy is blunt instrument.

This kind of behavior is more than tacky and annoying. It is unprofessional.

Bill Mitchell — billy blog
I wonder what the hell I have been writing all these years
Bill Mitchell

Randy Wray — Nostradamus And The Euro

This should be the last word, but I suspect it won't be.

Read it at New Economic Perspectives
Nostradamus And The Euro
L. Randall Wray

Randy Wray — On The Supposed Weaknesses Of MMT: Response To Palley

Randy (whose Native American name is "Big Knife" — just kidding) cites references.

Read it at Economonitor | Great Leap Forward
On The Supposed Weaknesses Of MMT: Response To Palley
L. Randall Wray
(h/t Scott Fullwiler via email)

This is what Randy is referring to about ELR and inflation in his post. First, Thomas Palley introduces an objection to ELR and then Warren replies.

Warren Mosler speaks at PK conference, Part IV

Thomas Palley's Book On The Little Depression: review

I have been reading Thomas Palley's new book, From Financial Crisis to Stagnation: The Destruction of Shared Prosperity and the Role of Economics. He argues that the ongoing crisis is not just a downturn in the business cycle, but the manifestation of the exhaustion of the neoliberal paradigm for economic growth¹. Palley points to underlying structural contradictions, such as the role of consumer debt in the United States of providing the mass-based aggregate demand for consumption no longer sustainable when the overwhelming majority of workers do not participate in income gains from improving productivity. The expanded power of the less-regulated financial sector fits nicely into this thesis. Palley also discusses flaws in how the United States has come to fit into the global economy.

Read it at Thoughts on Economics
Thomas Palley's Book On The Little Depression
by Rober Vienneau