Category Archives: Macroeconomic policy

Announcing (Actually, Confirming) Our Focus on the CBO’s Dubious Models and Political Bias

We’ve been writing about abuses of power and process at the Congressional Budget Office and will be ramping up our coverage further now that ranking member Bernie Sanders has a new team at the Budget Committee, which among other things supervises the CBO. And the CBO is going to be the subject of a major political fight over how it prepares its estimates of the economic and fiscal impact of pending legislation. As we’ll discuss below, Republicans plan to mandate that the CBO use something called dynamic scoring, which has the effect of making tax cuts look far more beneficial to the economy than they are, by effectively claiming that tax cuts boost growth, which then boosts tax receipts. It would effectively institutionalize the Laffer curve, which has been widely and repeatedly debunked. As troubling as this development is, there’s already a lot not to like in how the CBO operates.

Read more...

MMT Versus the CBO: Replacing the Budget Constraint with an Inflation Constraint

Yves here. MMT, or Modern Monetary Theory, is in the process of becoming vastly more visible by virtue of leading MMT advocate, Stephanie Kelton, becoming Chief Economist on the Senate Budget Committee on behalf of ranking member Bernie Sanders. And that means, as this post demonstrates, that MMT has gone through the “first they ignore you, then they ridicule you” stages and is now in the “then then fight you” phase. And one of the chief strategies of MMT opponents is to misrepresent it.

Read more...

Bill Mitchell: Demystifying Modern Monetary Theory

Yves here. This is a useful and accessible talk by one of the leading Modern Monetary Theory developers, Bill Mitchell of the University of Newcastle, interviewed here by Marshall Auerback of INET.

This talk is wide-ranging, and starts by pointing out that in key ways, Modern Monetary Theory incorporates basic concepts that have perversely omitted from mainstream macroeconomics, largely for ideological reasons. This conversation does not get much into central bank operations, which is the basis for MMT’s claim that it is a much more accurate representation of how monetary operations work for a fait currency issuer like the US than textbook or popular press accounts that are based on outdated “gold standard” notions.

In typical Australian fashion, Mitchell is blunt, so I suspect readers will find this talk to be more lively and accessible than typical economists’ fare.

Read more...

Peter Temin: Lessons From the Great Depression

In this video, Peter Temin, a highly respected expert on the Great Depression*, discusses some of the revealing parallels between that era and our current financial and economic plight with Marshall Auerback. Don’t be deceived by the leisurely pacing of this conversation and Temin’s soft-spoken manner. Temin in his measured way sets the stage for discussing how the trajectory we are on, which is undoing more and more social safety nets and job security, which are fundamental to trust, does not merely lead to lower productivity and hence hurts everyone, including the wealthy, but also puts us on a trajectory towards a dystopian future.

Read more...

Yanis Varoufakis: Was Maastricht Another Versailles for the German Nation? A Reply to Klaus Kastner

Lambert here: This post gives some insight into how hard the hardball that led to the Euro really was. Makes “the mess in Washington” look like pattycake (though not, admittedly, the run-up to the Civil War). By Yanis Varoufakis, a professor of economics at the University of Athens. Cross posted from his website. Klaus Kastner […]

Read more...

Germany and the European Commission’s €315 Billion Infrastructure “New Deal” is Yet More Smoke and Mirrors

I have to confess I had not taken the announcement of a €315 billion infrastructure spending program by the European Commission all that seriously, despite the fact that this on the surface represented a very serious departure from the Troika’s antipathy for anything resembling fiscal spending. It was so out of character that something had to be wrong with the picture, particularly given the absence of any evidence of Pauline conversions from the Germans. And that’s before you get to the fact that while €315 billion sounds impressive, given that the spending is likely to be spread out over time, the size of the shot, even if it worked as advertised, is less impressive than it might seem.

In fact, the history of post-crisis interventions in the Eurozone has been that of sleight-of-hand over substance, except as far as austerity program are concerned. Ambrose Evans-Pritchard peels away the dissimulation in the latest effort at confidence building, with emphasis on the con.

Read more...

High Marginal Tax Rates on the Top 1%

Optimal tax rates for the rich are a perennial source of controversy. This column argues that high marginal tax rates on the top 1% of earners can make society as a whole better off. Not knowing whether they would ever make it into the top 1%, but understanding it is very unlikely, households especially at younger ages would happily accept a life that is somewhat better most of the time and significantly worse in the rare event they rise to the top 1%.

Read more...

Why is Anyone Surprised that Abenomics Failed?

In case you managed to miss it, there’s been a fair bit of hand-wringing over the fact that Japan has fallen back into a recession despite the supposedly heroic intervention called Abenomics, whose central feature was QE on steroids.

But Japan of all places should know that relying on the wealth effect to spur growth has always bombed in the long term.

Read more...

Joe Firestone: Elizabeth Warren – Better, But Not There Yet

Yves here. As Elizabeth Warren inches to the left on overall economic policy, one wonders if she’s actually shifting her views or responding to Hillary Clinton trying to rebrand herself as a populist. In fairness to Warren, it’s difficult not to be deeply inculcated in flawed economic thinking and thus hostage to false ideas like “We depend on China and Japan to finance our federal spending.” I look at my pre-crisis coverage and am embarrassed to see that sort of idea treated as obviously true. But if nothing else, the shift in Warren’s stance may be a sign that the Overton window is moving a smidge away from the right. After all, a big reason the Republicans so badly trounced the Dems in the midterms wasn’t just Democratic party fecklessness, but also that the Republicans kept their Tea Party extremists well out of the limelight and toned down the anti-women, anti-gay (and outside the border states) the anti-immigrant rhetoric. That actually amounts to a shift to the center, even if more for show than for real.

Read more...