Category Archives: Macroeconomic policy

Servaas Storm: Secular Stagnation, Green Shoots or What?

The Obama administration and the mainstream media are now talking up an imminent recovery, perhaps even a modest boom. There is no reason why we should be optimistic now.

Chris Mayer: How Fiat Money Works

Warren Mosler tells a good story that shows how our economy works at its most basic level.

Imagine parents create coupons they use to pay their kids for doing chores around the house. They “tax” the kids 10 coupons per week. If the kids don’t have 10 coupons, the parents punish them. “This closely replicates taxation in the real economy, where we have to pay our taxes or face penalties,” Mosler writes.

So now our household has its own currency. This is much like the U.S. government, which issues dollars, a fiat currency. (Meaning Uncle Sam doesn’t have to give you something else for it. Say, like a certain weight in gold.) If you think through this simple analogy, all kinds of interesting insights emerge.

Diagrams and Dollars: Modern Money Illustrated (Part 1)

Yves here. I continue to get requests to explain Modern Monetary Theory. It isn’t easily done in a few words, but fortunately, the academics and writers associated with the New Economics Perspectives blog keep publishing primers of various sorts. This one takes a different approach in using visuals to help illustrate the difference between how most people believe the money system operates versus how it really works.

Yanis Varoufakis: Why Reinhart and Rogoff are Wrong About the Eurozone’s Debt Structure and the Costs of Debt Mutualisation

Yves here. I don’t know whether to be relieved or annoyed to see Carmen Reinhart and Ken Rogoff retreat from their pro-austerity stance and endorse debt restructuring, since their prior view (that budget-cutting was necessary and productive) served to justify considerable and unnecessary pain being inflicted on periphery Eurozone countries to preserve the illusion of health of French and German banks.

But as Yanis Varoufakis points out, although Reinhart and Rogoff are retreating from much of their erroneous thinking, they haven’t renounced all of it.

The Fed’s Taper and Market Fealty

The Fed’s announcing the taper was supposed to be an earth-shaking event. But that actually sorta happened last summer when Bernanke first used the “t” word and interest and mortgage rates made an impressive upward march in a short period of time.

From my considerable remove, what was noteworthy about the Fed’s announcement yesterday is how terrified it seems to be of creating an upset.

Steve Keen: Oh My, Paul Krugman Edition

Yves here. In some ways, I hate to be having such a run of Paul Krugman posts, but his stand on the TransPacific Partnership and his continued defense of dubious economic ideas that were long ago disproven, like loanable funds, in combination with his prominence, means the attention is well warranted.

How the Budget Deal Perpetuates Austerity Policies

Yves here. This Real News Network segment provides an overview of the budget deal, cutting through the hype to lay bare its impact on ordinary Americans. It’s not a pretty picture.

The Eurozone: If Only It Were the 1930s

Yves here. This post looks at the strictures of the Eurozone (debt to GDP and deficit limits) and not surprisingly concludes that the supposedly independent ECB is making matters worse that a more “political,” as in growth oriented one, would. But depicting central bank independence as detrimental is a novel and important argument.

Philip Pilkington: Hjalmar Schacht, Mefo Bills and the Restoration of the German Economy 1933-1939

Yves here. I’m a big fan of economic history (and mystified that contemporary economists so rarely take interest in it). Pilkington describes an illuminating and oft-neglected chapter.

Rob Parenteau: How to Exit Austerity, Without Exiting the Euro

Yves here. This is an important post by Rob Parenteau which outlines a viable plan for subject nations austerity-afflicted Eurozone countries with reasonably-well-functioning tax bureaucracies to escape their downspiral.

Yanis Varoufakis: What Europeans Should Know About the Current Situation in Greece

Yves here. In an interview with Edward Geelhoed, Varoufakis gives an urgent, sobering picture of the conditions in Greece, which contrasts dramatically with the claims made by Eurozone politicians.

The European Balanced Budget Disaster

In the immediate aftermath of the financial crisis, most European governments allowed the automatic stabilisers to kick in and implemented some mild discretionary measures, despite the strictures of the Stability and Growth Pact (SGP). But it was not long before the siren calls for “fiscal consolidation” arose…

Olivier Blanchard: Monetary Policy Will Never Be the Same

The global crisis changed the face of monetary policy. This column, written by the IMF’s chief economist, reviews the main changes. It draws on contributions to a recent IMF conference on the topic.