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

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

Roger Farmer — A Bridge Too Far?

Closing in. Roger Farmer weighs the options and their consequences.

Roger Farmer's Economic Window
A Bridge Too Far?
Roger Farmer | Distinguished Professor of Economics at UCLA

Salon — Paul Krugman takes the gloves off: Radical ideologues tanked economies, ignored reality

Paul Krugman takes the gloves off in Friday’s New York Times, bashing economists who insist on believing in phony austerity models and offering a full-throated defense of old-fashioned Keynesian economics, even if it’s not a fashionable or trendy “new idea.”

“It’s hard to argue against new ideas in general,” Krugman writes. “In recent years, however, innovative economic ideas, far from helping to provide a solution, have been part of the problem. We would have been far better off if we had stuck to that old-time macroeconomics, which is looking better than ever.” 

Krugman writes that right-wing European politicians especially buried their heads in the sand, seeking justification from economics for the horrible political and ideological agendas they wished to impose. The exciting new research all proved grounded in phony assumptions. The old-school Keynesians were right. The ideologues refused to listen.

He singles out one in particular, Wolfgang Schäuble, the German finance minister….

Salon
Paul Krugman takes the gloves off: Radical ideologues tanked economies, ignored reality

Matias Vernengo — On being a 'real Keynesian'

Has "Keynesian" become a relatively meaningless cliche? Yes.

When even Keynes was not a "Keynesian," it's time to move on.

Must-read.

Naked Keynesianism
On being a 'real Keynesian'
Matias Vernengo | Associate Professor of Economics, Bucknell University

Simon Wren-Lewis — Why do central banks use New Keynesian models?

Advanced macro for non-economists (no math). Simple explanation of how and why central banks use New Keynesian (DSGE) models and how they differ from RBC models.

Mainly Macro
Why do central banks use New Keynesian models?
Simon Wren-Lewis | Professor of Economics, Oxford University

Why is this significant. Because modern monetarism, based on central banks setting a policy rate, depends on some tool or tools for determining the correct rate to set. According to John Taylor, some rule is required. Therefore, a model in which a key methodological assumption is the real interest rate is needed, and since the policy rate is an adjustment for expected inflation, some tool for determining change in price level is also required.

In the simplest case, this involves setting a nominal rate that achieves, or moves towards, the level of real interest rates that is assumed to occur in the inner RBC model: the natural real rate. 

So even though New Keynesianism is called "Keynesian," it is a form of monetarism since it is chiefly concerned with interest rates and price level rather than effective demand and employment, which are functions of a full employment budget rather than than the a natural rate of interest and natural rate of employment.

In the view of fiscalism, monetary is the wrong approach for several reasons, for example, monetary policy that it is less effective as a policy tool than fiscal policy, and monetarism is ineffective because of it's assumptions. Rather, a policywise government must adjust fiscal policy to accommodate variable non-government saving desire in order to keep the production-distribution-consumption cycle virtuous instead of allowing it to turn vicious.

For example, this is at the heart of Robert Skidelsky's recent post a Project Syndicate on the divergence of economic thought and its effect on policy, to which a link was posted here at MNE yesterday.

There are basically two approaches, monetarist and fiscalist, and two major schools in each. Monetarism is divided into the New Classical and New Keynesian schools, and fiscalism into the Old Keynesian and Post Keynesian schools.

So it's important to understand the basic issues from a policy standpoint to engage in political debate intelligently. Fortunately, it is not necessary to understand the advanced macro background in econometrics since economists have framed the basic issues quite simply.

See

NBER Working Paper Series
Keynesian, New Keynesian, And New Classical Economics
Bruce Grenwald Joseph E. Stiglitz

Also

This paper examines in how far the DSGE model which is often dubbed the New Keynesian Consensus is compatible with a Post- Keynesian or traditional Keynesian understanding of the economy. It is argued that while at first sight DSGE models seem to include a lot of traditional Keynesian or even Post-Keynesian elements such as endogeneous money or the need for an active central bank, the mechanisms at work are completely incompatible with a traditional or Post-Keynesian understanding of the working of the macroeconomy.

IMK
The New Consensus from a Traditional Keynesian and Post-Keynesian Perspective: A worthwhile foundation for research or just a waste of time?
Sebastian Dullien

JW Mason — A Response to Tom Palley

There is one thing that Palley is right about, which is that substantially all of MMT can be found in the old Keynesian literature. This isn't news -- in the same Stephanie Kelton slideshow linked above, she goes out of her way to say that there is nothing "modern" about MMT. And so what? There's nothing wrong with updating insights from the past. In my opinion, most useful work in economics is about pouring old wine in new bottles.

I don't write this from a position within MMT. I tend to feel that the genuine insights of Lernerian functional finance are obscured rather than strengthened by basing them in a chartalist theory of money. It's fine if Tom Palley disagrees with our friends at UMKC and the Levy Institute. But he needs to put down the blunderbuss.

The Slack Wire
A Response to Tom Palley
JW Mason

MMT economists have consistently said that the original aspect of MMT is to put together important work of the past that has been either ignored or contested by conventional economics to the detriment not only of macroeconomics but also policy formulation.

Warren Mosler maintains the what is original is his insight that really launched MMT when he started collaborating with Randy Wray and Bill Mitchell, with assistance from Pavlena Tcherneva when she was a grad student at UMKC. 

That insight is a currency sovereign is the monopoly provider of the currency of issue and enjoys the advantages of a monopolist regardless of whether the government realizes this or chooses to use it. Most government do not.

The basis of MMT's policy formulation is using the monopoly power of a currency sovereign in shaping and executing policy.

This is almost never mentioned in discussions of MMT by economists, or else it is attacked as untrue.