Is an Anti-Austerity Alliance of Left Neo-classicals and Post-Keynesians Possible? Is it Desirable? (Part 2)

By Michael Hoexter. Cross posted from New Economic Perspectives. Part 1 of this post is available here

United as they are in their critique of neoclassical economics, it would be a mistake to portray post-Keynesians as united among themselves, a further complication for the emergence of any unified message from anti-austerity economists. Post-Keynesian Thomas Palley has recently likened MMTers proposal that government institute a WPA-style “job guarantee” program to the policies of the Tory Cameron government that unemployment benefit recipients work for free. Palley’s concern is that the MMT job guarantee will undermine public sector unions but MMTers dispute that Cameron’s policy is a job guarantee program. Palley’s objections to the job guarantee and MMT were also the subject of a caustic review by Randy Wray, a prominent MMT economist. Steve Keen, who calls himself as “Monetary Circuit Theorist”, has shown an interest in finding points of commonality with MMTers while maintaining at other times a distance from it. MMT, perhaps because it has a popular following and momentum, seems to be a particular target of criticism and self-differentiation by non-MMT post-Keynesians. Perhaps this criticism is meant to be constructive but at times the disputes are often conducted in relatively heated exchanges in blogs and on Twitter, where ultimately outsiders to these disputes will remain confused and will perhaps throw up their hands.

The question then remains whether these two groups of economists can work together and fight against austerity as a loosely coordinated group, even if they themselves are not even in agreement among themselves. From the perspective of those outside of the economics profession, the prime consumers of the output of economists, a cogent and unified message against austerity would be a great help. Political movements and political actors require a unified message to achieve power. As well, to be ultimately a success if they ever achieve power, they need to have a realistic policy alternative to offer. As it stands, the voices of the Left Neoclassicals are heard much more widely, yet their vision ultimately does not offer political leaders and political activists on the ground a portable vision and argument to reshape overall policy and popular views. Post-Keynesians, in particular MMT, are working on a more realistic vision of how the economy and government work and work together that potentially is comprehensible by a wider group of people. Yet this vision, though now gaining a wider audience, has not yet achieved critical mass in the public discussion.

Political and Epistemological Choices

Ultimately it may be possible in certain circumstances for anti-austerity economists to unite against foolish government policies and the quasi-“Austrian”, quasi-neoclassical austerity impulse that is coursing through policy circles around the world. These would be largely political efforts by post-Keynesians and MMTers as well as Left Neo-Classicals to press on against the pro-austerity forces as at least a part-time commitment on the part of both camps. By “political” I mean that there is a recognition by the actors involved of relationships of power and belonging to one or a number of social groups, while ignoring or holding in abeyance intellectual differences. Some of the groundwork for this inward- and outward-looking political unity would be public conversations on blogs and via Twitter where some degree of respect for each other would be expressed. Post-Keynesian Steve Keen has for instance developed a respectful dialogue via Twitter with New Keynesian Mark Thoma, though Keen seems to reserve the right to criticize whatever he would want to criticize.

Still Keen’s, MMTers and Post-Keynesians goals are most often to uproot the illogic and falsities contained within neo-classical economics, proposing a variety of approaches that have their roots in a long historical chain of economists before, after and including Keynes. Most satisfying, from an epistemological view, would be the production of a new economic framework that is much more realistic and predictive of what actually happens in the economy, but is also amenable to the impulse to make the world a better place.

As they are not mired in the unrealistic and inconsistent assumptions of neoclassical economics, Post-Keynesians, MMTers or those strongly influenced by them, have the best shot at creating this epistemological break which would enable a new economic understanding to be elaborated. Often, left neoclassicals are rightly the targets of the scorn and critiques of MMTers and Post-Keynesians, because they pretend to represent the single anti-austerity alternative when they, in some respects, strengthen the neoclassical, “hard-money”, loanable funds framework upon which austerity is based. The non-economist progressive public sphere, such as it is, is in awe of Paul Krugman but Post-Keynesians and MMTers continue to find critical flaws in his reasoning and model of how the economy works.

An example of reality vs. unreality and stakes involved revolves around widely divergent theories of banking, debt and loaning money. Critically important in this era of politically overpowerful, mega-banks devoted to casino-like speculation on asset prices, is an understanding of what banks actually are and how they might be regulated or transformed to serve the greater good. The largely Post-Keynesian theory of endogenous money supported by a set of empirical observations of how banks and credit-creation works, suggests that banks create money by lending it and that lending occurs independent of reserves in the bank. Banks have social “license” to lend and use it when they see the potential for profit and loan amounts are not drawn on money in their accounts but the loans create money. This license is a source of political and economic power, enabling banks to drive and shape the economy and the amount of money in circulation by lending or not lending as the case may be. Neoclassicals of the Left and Right deny that this license exists and instead see lending as driven by reserves, a crude “piggybank” model of bank lending with bankers as transparent intermediaries. Krugman and other have started to equivocate on this matter but still do not accept that changes in credit/debt add to or subtract from aggregate demand overall.

The choice before post-Keynesian and MMT economists is stark and not easy to enact: on the one hand make common cause with those who would just as soon forget about post-Keynesians’ intellectual contributions and on the other hand continue to issue searing critiques of their misguided thinking about the basic building blocks of the economy.

The Stakes for Left Neoclassicals

For Left Neoclassicals there are also tough choices involved as in some sense they have based their life’s work on fallacious assumptions, even as they attempt via personal effort and some form of compassion for others, to help spread prosperity to a wider circle. Their membership in the neoclassical economic club has meant more prestigious appointments in academia and more favorable consideration by media outlets for their views. These, in turn, have led for some to lucrative consulting jobs with business and government, especially when the nominally more “Left” party is in power. They can easily perform the role of “economist” because they speak a language that is familiar to academically-educated consumers of economic analyses in both the public and private sectors. That the content of these analyses is being viewed by the public with increasing skepticism, is for the economist ensconced within the economic establishment, of secondary importance: their primary clientele, the political elite, remains captive to neoclassical and neoliberal assumptions. What has been most important to date, is the maintenance of a common paradigm shared by tens of thousands of economists worldwide as well as the tens of millions of people who have taken a neoclassically-based economics course without developing critical insights into its devastating flaws.

For epistemological reasons, i.e. ethical commitment to truth-telling as nominal “scientists”, to now dispense with familiar neoclassical assumptions about money and the economy involves great personal as well as academic risk. The economic establishment, almost more than that of any other social science, via a system of academic appointments and journal editorship, enforces fealty to central, often unrealistic concepts which provide the supports for orthodox economists’ worldview. Left neoclassicals may currently be relatively disadvantaged as compared to apolitical and right-wing fellow neoclassicals regarding these benefits but they still can claim membership in a “club” that gives them access to a portion thereof.

On the other hand, left neoclassicals, as the face of a supposedly “Left” economics in the public sphere, are subject to the constant taunts of the ignorant right-wing political operatives and Internet “trolls” who subscribe most often to laughably unrealistic “Austrian” economic philosophy. Left neoclassicals may feel reinforced in the correctness of their own belief system by this type of opposition, they might think: “surely I am right as my opponents are so wrong”. As, in some cases, left neoclassicals’ economic frameworks are inconsistent and shared with their sometimes deranged critics, they must at times draw their sense of rightness from a perception of their own “muscular” virtue for having wrestled with unwieldy economic models for the common good. It is my belief as it is with many post-Keynesians and MMTers that the muscularity of this particular type of virtue is unnecessary and overblown, if more realistic models of the economy were embraced.

Speaking and writing from a position of relative social power in relationship to heterodox economists, left neoclassicals have at times attempted to use their informal power to denigrate or distort rather than engage in dialogue with heterodox economists. For instance, Brad Delong, professor in the prestigious UC Berkeley economics department, is a prominent left-of-center neoclassical/New Keynesian economist who also served as deputy assistant secretary of the Treasury in the Clinton Administration. Delong often expresses sentiments regarding the right-wing of neoclassical economists and their political clientele with which many post-Keynesians would agree, especially as regards the foolishness of austerity.

One sees abuses of this fairly substantial academic power difference in defense of the underlying economic orthodoxy shared between Right and Left neoclassicals. Delong apparently felt free to commit an act of intellectual fraud against post-Keynesians and the reading public, when he attempted to edit the history of “economists who got it right” by falsifying who is a Minskyian and who saw the financial crisis coming in a recent article. Ludicrously, Delong includes Larry Summers, one of the architects of financial deregulation as an economist who saw the crash coming. Delong’s list bears almost no resemblance to Dirk Bezemer’s better substantiated characterization of economists who predicted the financial crisis as well as James K Galbraith’s list from 2009. Delong’s characterizations of the categories of “economists who got it right” as well as who were Minskyians were acts of intellectual fantasy. To indulge publicly in these fantasies indicates an intellectual sloppiness and suggests a casual arrogance bred within a discipline where the relationship between truth or effectiveness and academic status has been lost.

While Delong is only one left New Keynesian, another aspect of this same incident is also troubling as an example of standards of intellectual engagement and hints of a shaky intellectual edifice defended only by efforts at bullying the less well-connected and less orthodox. In the piece referenced above, notably missing on Delong’s abovementioned list of who is a Minskyan were Randall Wray who was a Ph.D. student of Minsky and Steve Keen (awarded the “Paul Revere Award” by the World Economics Association for warning of the coming financial crash) who has spent 15 years of his academic life building a mathematical model based on Minsky, for which he received a research grant from the Institute for New Economic Thinking. These were some of the glaring omissions that caused Steve Keen to write a scathing criticism of DeLong on his blog and also on Twitter which Delong also regularly uses. DeLong attempted to make these criticisms all about Keen’s ego and not about his own wild distortion of fact.

At one point in this exchange Delong attacked in a blog post Keen’s approach to an exercise called “The Crisis in 1000 words”. This was a dispute with some content and Keen wrote a response starting with “Brad, you’re showing your usual powers of comprehension (followed by Keen’s argument)” and sent a link via Twitter to the not-yet-approved comment on Delong’s blog. I read the comment (no longer accessible because Delong deleted it) via the link and it seemed to-the-point and other than the innocuous comment at the beginning not ad hominem. Delong never approved the comment, in some sense presiding over a “kangaroo court” where he chose to engineer an outcome that was favorable to him by simply excluding from responding the man whom he criticized in that post.

As I sometimes agree with Delong’s views on other issues and he has some understanding of Keynes, I am alarmed and dismayed by what might be called his narcissistic fragility (in which he is not alone) and intellectual dishonesty. In the same vein, the blog post mentioned earlier which was essentially an ad hominem attack on Keen, suggesting that Keen was criticizing Delong’s Minsky distortions purely out of ego, did not allow any comments.

Given the willful distortions and gamesmanship involved in this misuse of what remains of the public trust in the profession of economics, the tactics on display by the Left neoclassical establishment such as it is do not give a great deal of reason to hope for better. The recalcitrance and childishness on display is disheartening given the stakes involved for the future of society if we remain mired in our current debt-deflation. Without better economic tools, the public and political leaders are trying to row a boat without a paddle.

Anti-Austerity Action Plan

As you can gather from this account of the exchanges between Keen and Delong, it may be impossible to bring together economists who are at war with each other over fundamental issues. The battle for the future of economics will continue whether or not political activists, political leaders, and the public need clear direction as to how the economy should be shaped in the coming years. One would hope that a unifying message and better yet a unified workable theory would emerge but it appears we are headed into a time of conflict among those who are opposed to austerity.

If some prominent economists from orthodox and heterodox tendencies could agree that it would be possible to come up with a list of three to five anti-austerity principles which do not offend any “side” to this debate, this might be a way forward. These principles could then become “talking points” for economists to campaign in the media and in meetings with the powerful for an anti-austerity solution. Creating an anti-austerity “echo-chamber” would be a step in the right direction. As an independent commentator on economics not currently affiliated with an academic institution, I do not have the status to get the ball rolling on this process.

If economists, like cats, cannot be “herded” into producing a workable statement of anti-austerity principles, then the diffuse strategy of producing articles, blog posts, testimony, and media appearances becomes second best but offers a glimmer of hope that the perversity of austerity will be communicated to the broader public.

This effort, however, should not compromise or derail the long-term epistemological project to build a better social science and a better economics that can help prevent concurrent disasters like the present ones. Temporary political victories can only buy time but ultimately cannot solve the problems of governing and managing mixed economies, the type of economy in which we live and that has sorely challenged conventional wisdom.

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  1. Susan the other

    Thank you Prof. Hoexter. These 2 summaries of the state of current thinking were so cogent I felt like I was reading a new language. In response to your plea for universal principles of anti-austerity I will tell you my thinking. I still do not understand what money is besides cooperation, often corrupted cooperation. But I do understand how it can be used by our government as the sovereign purveyor of cooperation, as opposed to austerity. We can use a very reliable model: the salt marsh. What we need to do is put money to use where it is used like a nutrient and is slowly absorbed throughout the system. We need “lots of low-productivity jobs of high social value.” And I keep thinking there is a new mandate here for the military – the war on pollution. Literal pollution. Clean up the planet. Use science. Use technology. Use power. The military has always been a hub of agreement even though it has been historically misused. But it has never exposed to austerity.

    1. Carla

      Susan the other: I like your description of money as cooperation, and hope that we can make it true. Right now it feels as if money is nothing but power.

  2. Bev

    The present form of the Federal Reserve System must be ended – it must become a part of our government – what people mistakenly think it is now! In the Treasury Department is best.

    The accounting privilege that banks now have to create what we use for money out of debt, must stop once and for all. What’s called fractional reserve banking must be decisively ended.

    The Congress must understand and be empowered to create new money and spend it into circulation as money, not debt. For example the $2.2 trillion dollars the Engineers tell us is needed for infrastructure over the next 5 years. As the system progresses, health care and education, and grants to the states are made.


    Announcing the 8th Annual AMI Monetary Reform Conference
    at University Center in downtown Chicago, Sept. 20-23, 2012

    Register by phone at (224) 805-2200

    The American Monetary Institute proudly announces its 8th annual Monetary Reform Conference in Chicago. Our conferences launched the modern grass roots movement for U.S. monetary reform and thereby World reform. You are invited to attend this important meeting in beautiful downtown Chicago. Our money system clearly needs a serious overhaul to secure economic justice, peace and prosperity as we enter the 3rd Millennium. True reform, not mere regulation, is necessary to move humanity away from a World dominated by fraud, warfare and ugliness and toward a World of justice and beauty. You can avoid discouragement and join with us in this adventure to achieve positive money results for America and the world.

    Don’t be discouraged because the villians who created the present crisis, have manipulated governments to bail them out. The media, which has made such “errors” possible, and the economic theories behind banker activities already stand accused in the public mind.

    Main Themes of the Conference: Implementing Monetary Reform now!

    The Conference examines the essential elements of monetary reform needed to place time on the side of justice. We focus on Congressman Dennis Kucinich’s National Emergency Employment Defense Act (NEED, HR 2990), introduced into Congress on September 21, 2011, which contains the necessary provisions to achieve real and lasting monetary reform.

    We continue examining the problem of usury. Is it a necessary part of “free market economics?” Is it a destroyer of nations? Or is it both? The deeper concept of usury is an anti-social misuse of the money mechanism for private gain. This classical definition of usury is how our present privatized monetary system malfunctions.

    A Different Kind of Monetary Conference

    The situation in which real monetary reformers find ourselves is that after years of study, we already know most of the broad shapes that monetary reform must take. These views have stood the test of time, and challenges from those with less experience or operating under misconceptions or pursuing non-reform agendas. It is time to implement the elements that must be part of good reform.

    What are these broad national parameters supported by over 3000 years of history? That the control of the money system must shift away from private control toward governmental control. Away from commodity money notions; away from fractional reserve banking – using debt for money. Towards money issued interest free by government and spent into circulation for the common good. All serious reformers understand that we must replace our private credit system with a government money system, ending what is known as fractional reserve banking. Anything less should be viewed as a diversion, at this critical time.

    We’ll continue educating and explaining why proposals are necessary, beneficial and moral, and continue to present the historical evidence which demonstrates that. We’ll answer any serious challenges, and those arising from plain misunderstanding. We may invite selected spokesmen for differing reforms to succinctly present their case. But we’ll do it within a context of advancing the reform agenda. The direction of world events requires that we advance monetary reform now.


    People from Naked Capitalism should go this year.

    1. JEHR

      As I read your description of the Conference on Monetary Reform, I was nodding in agreement until you mentioned a strongly political element. Somehow, it seems to be necessary to not include the political until the monetary is understood.

      1. Bev

        is 100% non-partisan.

        They intend to help everyone regardless of political views.

        Their only (well placed) bias is against banks creating our only money that is debt to government, business and people. You can never get out of debt when your money is debt.

  3. JurisV

    Wonderful description of the fault lines in the economics world’s discussion of it’s theories. I followed the arguments between Keen and DeLong, as well as the clash between Keen and Krugman in real-time. They were both incredibly exciting, informative and ultimately depressing because I lost so much respect for both Krugman and DeLong — but I learned so much about the culture of economics in the process. Thankfully, Michael Hoexter has more fully described the problems with the state of economic theory — and my education in economics makes a large leap.

    It’s unfortunate that Prof’s Krugman and DeLong have such a thin skin that they couldn’t respond to Prof Keen’s invitation to hold a joint seminar for Post-Keynesians, other-Keynesians, and Neo-Classicals to discuss the important issues in economic theory like real Mensch. A rhetorical question — Whatever happened to “the search for truth” that used to be touted as the prime directive for academics?

    1. sparks

      I am not the least surprised with DeLong. He’s running to form, and this behavior is classic Brad.

    2. Carla

      “Whatever happened to “the search for truth” that used to be touted as the prime directive for academics?”

      Methinks it was sold.

      1. F. Beard

        Who funds economists if not the banks? Why else the huge blind spot that “loans create deposits”; a fact that would outrage the general public if they only knew?

    3. andrew hartman

      i agree that krugman and delong are thin skinned. but aren’t many of the
      writers and commentators here pretty thin skinned as well? i mean even the
      mildest objection to the general mindset here brings rants and profanity
      within minutes.

  4. Brian

    Mr. Hoexter, thanks for this brilliant articulation of how money and power has corrupted the supposedly scientific field of economics. Economics has become more of a battlefield for policy wars than a search for the truth.

    I used to think that the problem was an issue of a Kuhnian paradigm distorting economists’ mental framework but I now see economics as primarily a Machivelian endeavor. No matter how wrong or corrupted an economists is revealed to be he (or she) is not displaced from their position of authority. Your great example of Keen vs DeLong is but one instance.

    Another example is thoroughly discredited Glenn Hubbard’s position as a ‘top economic advisor’ to Mitt Romney.

  5. Brad DeLong

    Did it ever occur to you that if you read us Kindleberger types out that you are nothing but a Monty Python movie extra, frantically arguing that the People’s Liberation Front of Judea is good and the Judean People’s Liberation Front is bad?

    And if you cannot make an alliance with somebody who says that there is a lot about the financial crisis of 2008-9 in Bagehot, still more in Minsky, and still more in Kindleberger–well then you truly are a sad, strange little man, and you have my pity…

    1. John Hubbard

      Brad, if you could clarify:

      1) In your dialog with Steve Keen, which of you provided an organized rebuttal of the other’s theoretical arguments? Which of you refused entirely to engage the other’s theoretical arguments?

      2) Is it more important to learn concepts (i.e. Minsky), or derive predictions from them? (i.e. predict financial crises using the financial instability hypothesis) What is the practical value of an unapplied concept? What grade would you give me in your class if I said I read the textbook but refused to apply the concepts to the questions on the tests you administered?

      3) Did you delete/withhold Steve’s comment providing a sourced rebuttal of your argument, as suggested above? (this is a trick question, of course, as multiple of us saw the comment when he originally posted it)

    2. john c. halasz

      Umm… Brad DeLong, how well did you do in anticipating the coming global financial crisis and can you cite any prior predictions or prognostications to that effect,- (since you occupy an entitled position and so many of us “bystanders” roughly understood the debacle that was coming well beforehand, which, er, might be why “we” cottoned on to Yves’ blog, as a kindred spirit)?

    3. Michael Hoexter

      I went back and re-read the piece and I think I was rather generous in my description of what you face from the Right as well as truthful about what I think are rather important issues regarding standards of argument and engagement. You are responding here by applying epithets to me and to the people I discuss here that would perhaps better apply to you. Kindleberger is a sui generis figure in economics and you here are declaring yourself a Kindlebergerian and saying that everybody who doesn’t mention Kindleberger or Bagehot is to be dismissed. This is exactly the behavior of the Monty Python characters that you bring up in your comment and might be considered a form of projection.

      I have come to expect the right-wing to use projection to defend its often indefensible ethical and economic positions but it is a little shocking to me to see an economist with whom I have many sympathies when it comes to anti-austerity, to so distort and dismiss the actual content of this discussion.

  6. donna

    hmmmm ..i am not encyclopedy..i have respect for both you DELONG AND PK NOT ONLY M.TH. NR AND OTHERS

  7. Brad DeLong

    All right: one last time: differences between Lernerians, Minskyites, and Kindlebergers are small compared to differences between them and those approving of current do-nothing policies or demanding immediate austerity. People interested in changing the world are combiners. People interested in hiding in their basement are spllitters.


    1. Ms G

      “Combiners.” Those are the heirs of the “Triangulators” right? I’m not sure any of that worked out so well (or perhaps that was the intent all along). Combining-Triangulating has spawned Obomney aka Robama, e.g., soi disant opposing candidates who, in fact, are carbon copies of each other, and identical in viewing non-lobby-paying citizens with utter contempt.

      I’d argue that the Combiners are the ones who chucked the last shreds of our republic into the basement.

      Prattle on, Mr. DeLong. We know your mortgage payments depend upon it.

    2. Steve Keen

      I agree with you on that point Brad. I am glad to be arguing against austerity, and having you and Krugman doing the same. I’ll try to write any future posts critical of your approaches to economics with that as a header in future.

      However as well as the immediate policy issue of opposing austerity, there is the developmental issue of what changes are needed to economic theory to ensure that we don’t once more find economics unable to anticipate the biggest economic event before it happens–another Depression. That is something I would like to have a debate with you and Krugman and other New Keynesians on.

      Now for that to happen, you have to read–really read–what I and other Post Keynesians actually write. Our complaints about you and Krugman have occurred because you have not done so to date. So prove us wrong and join in a genuine discussion.

      1. Ms G

        Going out on a limb here, but maybe it’s time to put on the back burner any burning debates about economic theories and modelings, in order to tend to the real world, which is in fact burning, with very concrete tragedies like structural unemployment, gross inequality or resources and wealth, in short, the final stage of Kleptocracy.

        Maybe modeling and an “economic theory” are just not what’s most urgently required to address — pragmatically and effectively — the massive disaster that is our post-2008 world, be it in peripheral European countries, Northern Euro countries, the UK, Ireland, USA, India etc. etc.

        If you economic theory people are really interested in addressing the fact that through the finance system the 0.01% control pretty much all access to jobs, housing, money, health, water, electricity, food, assets — in short, the elements of basic dignity — then maybe the only “theory” you need to get started is to acknowledge that this state of affairs is a Kleptocracy and the order of the day is to start dismantling it and reshaping our social arrangements for the benefit of the 99%.

        I know, it may sound banal, but many of us have lost patience with what appear to be self-indulgent petty disputes amongst “economic theorists” who claim to be actively engaged in understanding and/or proposing solutions to the diaster that is our society.

    3. Michael Hoexter

      People should be secure enough in their own thinking to be able to hold one thought in their head and engage with other people who have different ideas in their head. This is not necessarily “combining” but being able to create a compromise between two different groups.

      My impression is that you want post-Keynesians to “go away” or “merge” into your thinking without recognizing where they have been right (and you have been wrong).

      That being said, I think the political and epistemological can run on different tracks, if we understand how important it is to oppose austerity while continuing to develop a better economics.

    4. andrew lainton

      It would be much better Brad if you got involved in theoretical discussions on the PK/NK front rather than getting involved in a Norwegian Blue type exportation to breath life into the neoclassical corpse.

      The two-parter is useful in that it elaborates on the theoretical trajectory we are currently on – a much more fruitful exercise at the moment that the dead end of horizontalosm/structuralism of 20 years ago.

      The cutting edge at the moment is 1) how we model bank credit creation and 2) how we model government ‘inside money’ 3) how we model the relationship between the two. There have been enormous strides in terms of understanding between MMTrs and circuitists in recent months – so why not get stuck in.

      From my own work in recent weeks through extending these stock flow consistent double entry models to include bank equity and multiple banks there are interesting results

      1) Reserves matter – they can expand the ‘licence’ (lending power) of banks to lend through increasing the turnover of working capital, but expanding them through ‘excess reserves’ is pushing on string if banks do not perceive a profitable opportunity to lend. That should be a finding that should make Krugman’s eyes prick up

      2)Though investment creates its own savings there is a short term funding gap. As Keynes perceived if lending remains static then the ‘revolving circuit of finance’ funds itself, but expansion of lending (the credit accelerator) requires funding (such as from equity when a bank starts) which requires ex ante savings.

      3) Hence if there is savings to restore investment during a deflationary period it will depress the economy still further meaning the realised value of the capital formation created by the investment will be less than planned ex-ante. Hence government deficits are needed to bridge the savings gap.

      4) the difference between savings and investment ex-ante and ex-poste can be explained by changes to turnover in the circuit – this gives a common basis for keynsian and monetary multipliers each of which are just different ways of viewing flows between bank reserves of different parties. This resolves Basil Moore’s multiplier puzzle.

      You can see the recent models on my website though 3)& 4) is not written up yet it is implicit from the models.

      All of this math drops straight out of the SFC qudruple entry models.

  8. craazyman

    How Can the Math Be Wrong when It Seems So Right?

    I don’t know about this stuff, every time I read an article about economics it gets me more confused. Then to hear about all the different schools of confusion, it just makes it even more confusing.

    Where is Mr. Dittmer? If he can take a shot at this and explain it so it doesn’t get more confusing, it might be a public service.

    There were two very hot women on the bus today, but after I got bored scoping them out there was stil time for thinking, so I thought how surprising it was to hear yestrday that there are people who get paid to be philsoophers of economics. That got me thinking there must be a supply curve and a demand curve for philsophers of econoimcs.

    The demand curve must cross the y axis at about $300,000/year, which is too much to pay anybodyy to be a philosopher of economics, but somebody might. And then it probably hits the x axis at about 40, which probly is all the jobs worldwide.

    The supply curve must cross the x-axis at about 100, meaning 100 people would do it for free. I’d do it for $250,000 a year and I’m sure a few people would do it for $500,000 or $1 million. So the supply curve starts at 100 and goes up and to the right, up to at least $1 million per year, where probably 149 people would do it.

    The funny thing — and I’m sure this must be a mistake of some kind — is tht the supply and demand curves don’t cross at all at a positive number. You have to extend them down into negative numbers before you can get them to cross.

    That means that the market for phisoophers of economics clears at something like -$35,000 per year. So if you want to get in the game and get hired, you have to be willing to pay somebody $35,000 a year to let you philosophize about economics for them.

    Actually, that seems about right, because god knows what kind of nonsense you’d come up with. And the folks out ther willing to do it for free, well, you get what you pay for. hahahahhahh.

  9. abelenkpe

    Anti-Austerians should remain divided and piss away any chance of stopping austerity from going forward. At least they’ll have their integrity as the world dissolves into a desperate suffering chaotic mess.

    Sorry, meant to say:

    Join Forces or Perish Fools

  10. skippy

    Money is energy with in a closed system ( the planet )… see thermodynamics.

    Skippy… the Universe will not be mocked…

  11. Paul Tioxon

    The sooner that academic and personal fine points of difference can be put aside for larger, political gains, the better. I would assume the general rubric of being an anti-austerian and a pro government stimulus policy position should be good start. Back rooms are where these guys can argue the finer points, but a broad policy recommendation coming from a united front would be a good start. Speaking for myself and those around me, we need all the friends we can get. If I may, let me draw your attention to some unfinished business. Intellectuals are ahead of the rest of the culture of the larger society they profess within. So, while I will grant the intellectual differences are real and important to each and everyone of the different schools of economists, for a greater good, it maybe necessary to not lie or misrepresent or dumb down or what ever transgressive action you think may be the consequence of not sticking to your well thought out and valid positions, but to get behind a policy recommendation that is stimulus based on the broad Keynesian principle of putting more cash back into circulation by giving people jobs with paychecks that will spend the money into the economy to create demand. I don’t think anyone of these economists will burn in hell if they all say that in just so many words and support a broad policy initiative.

    For example, the uncompleted New Deal, health insurance for all, in our mixed economy, has finally been achieved. Of course, it is over a 1/4 century since the battle began, but here we are. FDR had other uncompleted ideas that the American unions are trying to bring back to the foreground of political debate and they could use the respected intellectual fire power of the economist who have an over all anti-austerian view.

    A major political rally in Philadelphia organized by the AFL is demanding a 2nd bill of rights for workers. First and foremost, full employment. This a major function of government, but has been paid lip service since The Employment Act was passed in 1946 and even less attention despite that mission of statement of the Federal Reserve is also supposed to provide keeping unemployment low.

    America’s Second Bill of Rights

    “We the People want to strengthen our nation, as a beacon of equality, economic opportunity and freedom for all. We hold these rights to be essential to our vision of America and believe that the principles contained therein should guide our government, business leaders, organizations and individuals in our common goal of a just and fair society.

    The Right to Full Employment and a Living Wage:

    All Americans willing and able to work have the right to safe, gainful employment at a fair and livable wage. We call on the public and private sectors to invest in America’s infrastructure and promote industrial development, maintaining job creation as a top policy priority.”

    While the intellectuals can go out on a journey that transforms them, such as the hero, they should, if they want political relevance, much less power, come back to the society they left. Transformed by their journey, their new selves, their advanced ideas may not be ready for wholesale acceptance, but what is acceptable to most of the people right now, in terms they trust and will believe is in their best interests, is something that this anti-austerian unified front can do. The ideas of full employment, a living wage, and freedom from want are not radical new ideas, but clearly understood and desired by workers, blue and white collar alike. I would urge some the AUF (anti austerian united front)find some common ground with linkage with this common sense proposal. High minded scholarship can and should go on, but making some alliances with people who have a pre-existing network of power, like the trade unions, can be approached with these ideas and broadcast them widely.

    1. JTFaraday

      “The ideas of full employment, a living wage, and freedom from want are not radical new ideas, but clearly understood and desired by workers, blue and white collar alike.”

      Oh, I don’t know. All I wanted on my last job was to get my citizenship back.

      1. Paul Tioxon

        Well, maybe you don’t deserve citizenship. Maybe, I don’t know, maybe you are not patriotic enough. Maybe, no birth certificate. And I don’t mean the official one, but the legitimate long form one that I just made up.

        1. JTFaraday

          Well, then you’ve already figured out that your little “arbeit macht frei” rule of thumb is going to get that switch jammed right up your ass.

          Redefine me as “a worker” again and I’ll do it myself.

  12. Hugh

    The poster continues to ignore the three political and economic issues of our times: kleptocracy, wealth inequality, and class war.

    Modern economics is a charlatan science. In its neoclassical and libertarian guises, it is nothing more than the propaganda arm of the kleptocrats and the elites they own and who serve them. Even the post-Keynesians and MMTers remain imbued with neoliberal thinking.

    Look at the Jobs Guarantee, for example. As it was originally promulgated workers were commoditized into a labor stock. They were to be poorly paid at minimum wage levels and given temporary deadend employment. This was meant to force them into private employment but with skills that were just current or acceptable enough for private employers, i.e. corporations, to hire them. The whole idea was screwy and more than a little repugnant because the Jobs Guarantee was being sold as people centered when it was, in fact, a means of supplying cheap, semi-trained labor to business.

    Some MMTers, like Joe Firestone, recast the Jobs Guarantee to include a living wage and meaningful work. But the debate showed a real problem with MMT. It would like to move beyond its original monetary foundations to address the issue of the social good but it is a difficult and not particularly natural process for it.

    I have proposed a resource based economics because it puts the social good, the kind of society we, as a society, want front and center. A resource approach is easy for the public to understand and comes without the baggage and the prejudices which come with money/monetary theories like MMT. A resource approach can convey the important, but at first glance deeply counterintuitive, insights of MMT theory far more effectively than MMT can do itself.

    Also as I said rather than MMT casting about awkwardly for some way to get to a social good and a rationalization for it, in a resource approach, this flows naturally from first principles. And doing things this way makes it much more difficult to sneak back in the neoliberal traits which so afflict MMT.

    My resource approach and my views on kleptocracy, wealth inequality, and class war are already out there. And others have other ideas as well. But I get the impression from Hoexter, from the whole way he casts his discussion, that he thinks that any new economics can only come from our elites, more precisely the economic elites, be they left leaning neoclassicals, post-Keynesians, and MMTers. This is equally seen in his call for them to form, despite their differences, an anti-austerity alliance.

    What I hear Hoexter saying is that we need more and better elites. I disagree. We have all heard this before. Back in 2006 and 2008, progressives were urged to ally with Democrats in order to elect more and better Democrats. Look what that got us. Not only do such alliances gain us nothing, worse the compromises they entail destroy our credibility.

    Put simply, we cannot look to our elites for solutions when they are an integral part of the problem. Economics as practised by our elites is just another cog in the machinery of kleptocracy. Left-leaning neoliberal hacks, like DeLong and Krugman, owe their positions, privilege, and notoriety to the looters. We really need to understand this once and for all. They may throw a little rhetoric our way once in a while but they work for looters and that is where there true allegiance lies and will always remain.

    1. skippy

      Well said, Hugh.

      Economists are like candy’s to the elitists. Their only function is providing the color and form, they present, as a selection to the elitists, too shower down upon the rubes, preserving the illusion to those living in the – feed lots – of capitalism.

      Skippy… If the system worked so great, why the hell did it blow up like fookmeshima!? Why so many wars, so much hellishness, out side the confines of the betters.

    2. Michael Hoexter

      I have some sympathies for your views but I think you should take the time to develop your ideas into a blog post of your own. I really don’t feel you are accurately portraying my position or the intent of this post because you are wanting it to address or speak your own mind exactly. Also your portrayal of MMT is inaccurate, as most MMT economists are focused EXACTLY on the real economy (i.e. resources) and distinguishing it from the monetary system.

      If everyday, non-elite people have the time or opportunity to research and write about society in a way that is more truthful and more useful than that produced by academics, that would be good. But like it or not, it is often elites of various kinds, intellectuals, that produce the ideas and analyses that in turn become very influential throughout society, often not by imposition but by indoctrination and even preference. Adam Smith was a professor and he had the time and leisure to write the impressive tomes of “Wealth of Nations” which along with the catchy phrase “invisible hand” have saddled economic thinking into a paradigm that has shaped the economic thinking of elites and non-elites. Your ideas have some similarities to those of Karl Marx, who was similarly privileged to be able to sit in the British Library and write tomes about society and economics. His ideas in turn had great influence and, in some areas, popular appeal.

      Furthermore, a framework of elites vs. the rest of us overlooks the differences that different leaders (who are also elites) have on the outcome of history. Roosevelt was a leader who influenced the course of history and was, among other things, responsive to public sentiment and pressure to “do the right thing”. Obama has turned out, because of his personality and the influence of bad ideas (including the popular AND elite reading of Smith’s ideas), to be a leader who will mire us in the status quo.

      So if you’re going to go after any and all elites, you’re going to have to figure out how better, hopefully more truthful ideas will be produced, disseminated, and put into action. You’re also going to have to figure out the tricky problem of how people will coordinate with each other without some form of leaders or elites, who act more often than not under the influence of some ideology (produced by an intellectual or academic)…. It’s a tough problem that many have wrestled with.

      1. Hugh

        Thank you for such a wonderful illustration of the intellectual and self-serving blindness I was referring to. Reinhold Niebuhr expressed it best:

        “The moral attitudes of dominant and privileged groups are characterised by universal self-deception and hypocrisy. The unconscious and conscious identification of their special interests with general interests and universal values, which we have noted in analysing national attitudes, is equally obvious in the attitude of classes. The reason why privileged classes are more hypocritical than underprivileged ones is that special privilege can be defended in terms of the rational ideal of equal justice only, by proving that it contributes something to the good of the whole. Since inequalities of privilege are greater than could possibly be defended rationally, the intelligence of privileged groups is usually applied to the task of inventing specious proofs for the theory that universal values spring from, and that general interests are served by, the special privileges which they hold. The most common form of hypocrisy among the privileged classes is to assume that their privileges are the just payments with which society rewards specially useful or meritorious functions.”

        Like others of your class, you cannot imagine a world where you and yours do not hold the reins of power, with all their associated privileges. I must be Marxist because I mention class. How utterly pedestrian. Yes, our elites have failed us across the board. That’s what happens when they became the primary agents of our looting. Looting rather precludes sound governance. Unlike you, I do not run away from a word like “class” if it fits the situation.

        Also I must be anti-intellectual because I am anti-elitist. Reread the Niebuhr quote above.

        Do you even know how old and lame that argument is that if I only understood MMT better I would agree with it? That’s the kind of thinking one expects from a cult. I have often said that there are many things I like about MMT, but its practitioners consistently go ballistic when I point out its limitations or just how poorly they express their ideas. For them, it must be all or nothing. Well sorry, I’m not a joiner.

        Speaking of lame, Obama turned out the way he did because his personality and the influence of bad ideas??? I am surprised you didn’t bring up 11-dimensional chess. Many of us have spent the last 4 years debunking those and similar excuses.

        And that really is the crux of the matter. You, and those you call left-leaning somethings and I call Establishment liberals set yourselves up as experts and confer upon yourselves the well earned (at least in your eyes) benefits of the elite. But you are dealing with issues, ideas, frameworks, that many here have already dealt with and moved on from. If you are going to condescend to us, or to me, you really need better material.

      2. JTFaraday

        “Your ideas have some similarities to those of Karl Marx”

        Oh, look. Yet another condescending MMT fanboy engaging in gratuitous red baiting.

        You’re becoming a type.

    3. JTFaraday

      “Look at the Jobs Guarantee, for example. As it was originally promulgated workers were commoditized into a labor stock…”

      Exactly. It was vile and reactionary** and–worst of all– few recognized it as such and even fewer were willing to SAY SO to our latest self regarding neoliberal cult and its many internet fanboyz.

      **Which means we probably haven’t seen the last of it.

  13. skippy

    In the post and the comments below, the two words, that most accurately describes the events both pre and post meltdown was not said once…. CRIMINAL FRAUD….

    Skippy… Mewonders why?

  14. AmirS

    Surely all that’s needed is for Left Neo-Classicals / New Keynesians to drop their ‘sop to “conventional wisdom”’, that ‘there must of course be a medium-term plan for reducing the government deficit.’

    Not only is this entirely at odds with post-Keynesian / heterodox thought, it also reinforces the right-wing, austerian agenda by agreeing with the principle of austerity every time it is repeated (which is way too often). The public therefore hears two similar arguments, i.e:

    “deficits are bad, so we must cut spending”
    “deficits are bad, so we must cut spending, but not just yet, we must spend some money first and cut in the medium term future”

    Is it any surprise that given these choices the simpler, clearer right wing message gets more traction? I cringe every time I hear a well reasoned argument, by someone who knows their specific field, for increased investment in infrastructure, or against cutting public services, education, libraries, healthcare etc. which is then finished off with “but of course we must reduce the deficit in the long run”. Talk about shooting yourself in the foot.

    Are there any other major bones of contention between Left Neo-Classicals and New-Keynesians that can’t be omitted from a shared anti-austerity message?

    1. F. Beard

      Spot on!

      One can make the case that a monetary sovereign should ALWAYS deficit spend as much as the market will bear. Some years that might be little and others it might be much.

      1. Susan the other

        Japan. They spent directly into their economy and could do so easily – without jeopardizing the value of the yen – because they had good exports. And high savings rates. And they had good exports and high savings rates because they invested directly into their economy. Besides producing for export, they invested in lots of infrastructure. But now on MHz I hear that Japan is seriously considering austerity. No kidding. Supposedly because unless they get their deficit under control (it is 3 times ours) “no one will invest in Japan.” So this craze has even infected Japan. The threat is investors withdrawing their money from Japan if Japan continues to accumulate debt. This is a direct reflection of their slump in exports. So this is disconcerting because Keen and Hudson say MMT works because your country has sufficient exports and here we are in almost a no-export world. A world that was recently saturated in exports because the US and the EZ bought up everything. I’d like to hear an explanation of how this is going to be worked out. I just don’t think we should live in an export-growth based world. I prefer something else which is sustainable.

        1. F. Beard

          MMT works because it allows debt to the counterfeiting cartel to be paid off. Ideally, it could convert all credit debt to genuine equity if it was used to fund a universal bailout (similar to Steve Keen’s but taken to its logical conclusion).

          I don’t see that exports are needed or that Keen or Hudson ever said they were. Exports, when you think about it, are a wealth DRAIN!

          1. skippy

            “MMT works because it allows debt to the counterfeiting cartel to be paid off.” – beardo

            Skip… So the plan is to give the psychopathic criminals, what – they – want, and everyone else sails off in the sunset… eh…

            Skippy… Of coerce (snicker) they will cease and desist all social malfeasance, turn over a new leaf and become guardians of this one and only worlds ability to support life, promote social wellbeing…. RIGHT… Great plan!

          2. F. Beard

            So the plan is to give the psychopathic criminals, what – they – want, and everyone else sails off in the sunset… eh… skippy

            I was just explaining why deficit spending works; it allows debtors to payoff their debt without shrinking the money supply.

            And don’t forget that the banks hide behind widows, orphans and pensioners. Debt forgiveness would stiff them too while a universal bailout would not.

        2. skippy

          No, you said…

          “Ideally, it could convert all credit debt to genuine equity if it was used to fund a universal bailout” – beardo

          Skip… This amounts to nothing more than another coat of varnish as it does nothing to the inherit criminality existing within the system. The complete utter lack of regard to the – living system – which allows the formation of capital in the first place.

          Seriously, the system has gone virtual, hence most of its problems. More virtual gimmicks will not alleviate the stresses that manifest them selves physically, in the search for electron price, which in turn is converted to capital value (power).

          Skippy… genuine equity (ahahahaha), is that like *real person*, jargon….

          PS… Plunder[!!!!!] is an apt term.

          Rather than being afraid of the damage it will cause, the Australian Fisheries Management Authority has doubled the quota of mackerel, its intended catch – a fish already in a precarious state in the South Pacific. This ship is bad news – and it is not the first time we have said so.
          Who is the Margiris?

          When it comes to the fishing vessel Margiris there is only one word for it: PLUNDER. It was this word that Greenpeace activists painted on the side of the vessel when it was caught pillaging from the waters of Mauritania earlier this year and the word remains just as applicable as the ship makes its way around the globe with the intention of fishing off Tasmania, Australia.

          So who is she, this fishing vessel Margiris? She is an industrial super-trawler, and part of the fishing behemoth the European Association of pelagic freezer trawlers (PFA). This Association is responsible for some of the worst fishing excesses on the planet: giant factory trawlers vacuuming up fish from around the world, the largest of them a staggering 144 meters in length and with huge nets up to 600 metres long with openings reaching 200 by 100 metres in size.

          1. F. Beard

            This amounts to nothing more than another coat of varnish as it does nothing to the inherit criminality existing within the system. The complete utter lack of regard to the – living system – which allows the formation of capital in the first place. skippy

            You ignore that I would abolish credit creation too. So what I advocate is:

            1) Ban further credit creation.
            2) Bailout the entire population equally, including non-debtors, till all existing credit debt is paid off. Meter the bailout to keep the total money supply constant or to maintain a price inflation target.

            Basically, the plan is to move to 100% reserve lending without price deflation or price inflation.

            It’s not just a coat of varnish; it’s the abolition of the counterfeiting cartel without damaging the economy.

          2. skippy

            No, its rewarding the criminals and giving citizens chump change.

            Skippy… they will still have all the capital and regardless of the money system, will dominate the social playing field, new boss same as the old boss thingy. You’ll still end up with people like this…


            This coming from a bloke that just said this:

            Billionaire mining magnate Clive Palmer has added “slightly unhinged” to the list of descriptives typically association with his name.

            His accusation that the CIA, as well as a “foreign power,” are funding the Australian Greens party to cripple the mining industry in his home state of Queensland and undermine the Australian economy.

            His statements quickly superseded the news that the Australian Parliament had passed a law imposing 30 percent tax on iron ore and coal miners’ profits.


            Skip here… the surreal-ness is not just confined to a few… it abounds… the higher you go up the stranger it gets IMO.

  15. Jim

    It can be argued historically that the creation of our first fiat currency (the Greenback back in 1861-1862) culminated in a social partnership between finance capital and the state.

    A similar social partnership has also historically evolved between intellectuals and the state.

    The gradual creation of more powerful federal authority through the development of federal debt, a large national and then International market, as well as a single national currency solidified the foundations of a powerful nation-state as a potential pathway to national power for intellectuals.

    In my opinion, Big Capital, Big State, and Big Knowledge form key ingredients of our modern structure of power and to call on any one sphere or a combination of these spheres to solve our present crisis is mistaken.

     For any anti-austerity coalition to simply call for Big State to better manage Big Capital is to reinforce the status quo rather than confront it.

    1. Chris Rogers

      I’m pleased to admit I do – regretfully, one does not get paid too much for his efforts, but its better than being a corporate slave – God I used to hate that collar and leash being pulled!!!!

  16. Chris Rogers

    It makes a change to see academics posting on these boards, instead of the old hands – further, its pleasant to see people utilising their real names in this dialogue, instead of hiding behind pseudonyms.

    If we actually honour democratic principles and uphold freed of speech, none of us should hide behind made up names, particularly given the dire economic straits we find ourselves in.

    Whilst ones fully aware of identity theft and other perils of the Internet, we should be proud to be associated with our views and opinions – even if many of our peers believe we are somehow ‘enemies of the state’ for highlighting the obvious.

    Hence, its great to see Steve, Brad and Michael engage with us on these boards – the problem with left-of-centre political types is we spend more time arguing amongst ourselves, than focusing on those that cause such misery with an socioeconomic system that presently is not fit for purpose – unless self enrichment, greed and power are ones primary drivers.

    Hence, I welcome this dialogue, the majority of posts and new knowledge we have received as a result of this engagement.

  17. JEHR

    I feel bad that the writer, who was trying to create an atmosphere that would accomodate more than one point of view, was given short shrift with a lot of back-biting and recriminations to boot. It makes me believe that the reform will not come from the economists no matter how united they may become.

    I have been trying to understand MMT and took the Primer and it makes a lot of sense. But what we are dealing with is the distortion of politics by moneyed interests. First the excess money (Citizens United) must dry up; then politicians that actually represent the people (not elites picked by the two parties) must be elected. I surely do not know how that will happen!

    There is so much wrong in so many spheres that one wonders from which area change will come.

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