Lars P. Syll — MMT– the key insights

Lars quotes Knut Wicksell and William ("Bill") Vickery.

Lars P. Syll’s Blog
MMT — the key insights
Lars P. Syll | Professor, Malmo University

Bill Mitchell — Paying interest on excess reserves is not constrained by scarcity

This morning, a former deputy governor of Australia’s central bank (RBA) published a short Op Ed in the Australian Financial Review (July 16, 2019) – Why there are no free lunches from the RBA – which served as a veiled critique of Modern Monetary Theory (MMT). The problem is that the substantive analysis supported the core of the MMT literature that we have developed over 25 years, refuted the standard macroeconomics textbook treatment of the link between the government and non-government sectors, and, incorrectly depicted what MMT is about – all in one short article. Not a bad effort I thought. But disappointing that a person with such experience and knowledge resorts to perpetuating such crude representations of ‘cost’ and myths about government finances....

Bill hits another one out of the park. This post is a concise summary of key MMT principles.

Bill doesn't mention two important factors relating to interest rate setting (policy rate) and excess reserves. 

The first point is that the government paying more interest  to the private sector leads to an increase in the spendable money supply as the rate increase is reflected along the yield curve. This is an expansionary influence which offsets the increase in the cost of borrowing as interest rates in general rise to reflect the increase in the policy rate.

The second point is that reserves are affect banks' leverage ratio, so that a consequence of an increase in reserves is decreased lending to stay within the bounds of the ratio, as Mike Norman and Matt Franko have observed. In fact, Mike uses the affect of changes in the level of reserves leverage ratio heavily in the analysis in his newsletter. This effect is opposite to that most people in finance and economics assume. The futility of Japan's increasing payment system balances in stimulating the economy shows this. It has the opposite effect.

Perhaps this level of detail exceeds the scope of the Bill's post, but both are important from an MMT perspective.

Bill Mitchell – billy blog
Paying interest on excess reserves is not constrained by scarcity
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Lars P. Syll — Why so-called​ deficits​ are economic necessities

Vintage Bill Vickrey quote.

Lars P. Syll’s Blog
Why so-called​ deficits​ are economic necessities
Lars P. Syll | Professor, Malmo University

Lars P. Syll — Rethinking public budget

The balanced budget paradox is probably one of the most devastating phenomena haunting our economies. The harder politicians — usually on the advice of establishment economists — try to achieve balanced budgets for the public sector, the less likely they are to succeed in their endeavour. And the more the citizens have to pay for the concomitant austerity policies these wrong-headed politicians and economists recommend as “the sole solution.”

There are three budget views.

1. Balanced budget in every fiscal year. (Sound finance, debt phobes and deficit hawks)

2. Budget balanced over the cycle. (John Maynard Keynes, many Keynesians, deficit doves)

3. Budget determined dynamically by economic need and opportunity rather than financial rules. (Abba Lerner, functional finance, MMT, deficit owls)

Lars P. Syll’s Blog
Rethinking public budget
Lars P. Syll | Professor, Malmo University

Glen Weyl: “The Very Structure of Capitalism Is Inherently Monopolistic” — Asher Schechter interviews Glen Weyl

In an interview with ProMarket, Glen Weyl, co-author of the wildly ambitious (and wildly controversial) new book Radical Markets: Uprooting Capitalism and Democracy for a Just Society, talks about antitrust, data as labor, and why he thinks the free market system is not actually free. “The entire business community has been speaking with one voice in the common interest of capital as a class,” he says....

A different take on "socialism" and how to implement it using markets in addition to government.

Good read. It's the basis of a proposal that is set forth in Radical Markets: Uprooting Capitalism and Democracy for a Just Society.

Q: You criticize the left and the right for drawing ideas from old modes of political and economic thinking. What should both do different?

I think the problem with the right is that it believes in the free market, which we absolutely believe in, but it doesn’t know what the market really is or what it requires to have a free market. It assumes that by going backwards to a totally monopolized and retrograde form of markets we’re going to get the dynamic free market of the future, which I think is deeply naïve and mistaken. I think they have a good goal in mind, having a truly free and competitive system, but they created systems that ignored the ways in which what they called markets actually led to concentrated forms of power, very similar to the forms of state power that they decried.

The left, on the other hand, also has good aims. It believes in greater equality and believes in breaking up concentrated corporate power, but it thinks it can trust in benevolent state actors to impartially execute this, which to me is just as naïve as trusting corporate actors or the owners of private property to somehow benevolently have the public interest in mind. Like the left, we want to reduce inequality, diffuse power more broadly, and have a more profound democracy, but we think that standard discretionary state power is a perfect way to reestablish the tyranny of the elite, precisely the same sort of oppression that they’re trying to alleviate....

The proposal is a form of public choice but differs from what now goes by the name of public choice theory.

ProMarket — The blog of the Stigler Center at the University of Chicago Booth School of Business

Glen Weyl: “The Very Structure of Capitalism Is Inherently Monopolistic”

Asher Schechter interviews Glen Weyl

Lars P. Syll— Public debt — an economic necessity

Superb Bill Vickrey quote.

Lars P. Syll’s Blog
Public debt — an economic necessity
Lars P. Syll | Professor, Malmo University

Also

Neoliberal ‘ethics’

Lars P. Syll — Krugman and Mankiw on loanable funds — so wrong, so wrong

Nice quote from Bill Vickrey's  Fifteen Fatal Fallacies of Financial Fundamentalism. I hope Paul Krugman will read the whole thing. Then we might get some forward motion from him. Greg Mankiew on the other hand?

Lars P. Syll’s Blog
Krugman and Mankiw on loanable funds — so wrong, so wrong
Lars P. Syll | Professor, Malmo University

Lars Syll — Krugman and Mankiw on “loanable funds” — so wrong, so wrong

Lars Syll jumps in on Dirk Ehnts post on Krugman and loanable funds, and adds Gred Mankiw to the mix. Quotes Randy Wray and Bill Vickrey.

Krugman and Mankiw on “loanable funds” — so wrong, so wrong

Lars P. Syll | Professor, Malmo University

circuit — Old Keynesian themes in Modern Monetary Theory

circuit weighs in on MMT and Paul Krugman's post today, and he finds that the ideas that this is based on were articulated by the "Old Keynesians" decades ago.

Some good quotes to save for future use, too.

Fictional Reserve Barking
Old Keynesian themes in Modern Monetary Theory
circuit

circuit — Bill Vickrey and Alan Blinder on the burden of the national debt

Alan Blinder on the blindingly obvious. "...the bonds that will be issued to cover deficits will almost always mature in less than 10 years, a time frame within which most of today's taxpayers will still be around to pay the bills. So intergenerational aspects of present-value budget constraints are mostly irrelevant."

But the post is mostly about Vickrey.

Fictional Reserve Banking
Bill Vickrey and Alan Blinder on the burden of the national debt
by circuit