With the Rethinking Economics student movement in full swing the topic of economics curriculum reform is once again on the table. For those of you who read this blog and are uncomfortable with this: sorry, you’ve already lost that debate, you just haven’t realised it yet. The question is now which direction this curriculum reform will take.
Read more...Yves here. I must confess that I am at a loss to understand the deep emotional reactions some readers have to MMT. It’s like raging at a thermometer because it shows you your body temperature. Virtually all of the complaints about MMT are based on a failure to understand what it says about how money works. MMT is descriptive of our current system, and it also has a message that progressives (the real kind, not the Democratic fauxgressive kind) ought to welcome, that the Federal government as a sovereign does not need to run a balance budget, and that a balanced budget is in fact destructive when the economy is as slack as it is now. That means the government not only can but should spend more, which is in contrast to all those barmy arguments about how we can’t spend to [fill in your priorities, have national health care, improve our infrastructure, feed low income kids in school, etc.]. If you don’t like the Federal government directing that much spending, there’s a remedy for that too: revenue sharing, which was instituted under that great liberal Richard Nixon, who though the Federal government raised revenues more efficiently than state and local governments, but state and local government were better at setting spending priorities.
MMT provides a basis for rejecting neoliberalism and austerity, and people who ought to embrace it are instead being told falsehoods about it and are becoming skeptical. That assures that the current crop of looters can continue their work unperturbed.
However, MMT does require that you turn the conventional stories about money inside-out. It takes some mental rewiring to understand it, and that degree of reorientation seems to be a big reason for the heated reactions.
Read more...Yves here. This article pokes at a topic near and dear to my heart, which is the generally reverential treatment of Thomas Piketty’s Capital in the 21st Century. It appears to be a classic example of the cognitive bias called halo effect, in which people have a tendency to see things as all good or all bad. Because there is a lot to recommend Piketty’s work, for instance, the fact that it is exceptionally written, that it has made inequality into one of the hottest topics in economics, and that Piketty has done an admirable and exhaustive job of finding and analyzing the returns on certain types of income producing assets are all highly commendable.
But as readers may know, one of my pet peeves is that Piketty has made a very strong claim, in the form of his formula r>g, or the rate of return on capital (which he also calls “profit”) exceeds the growth rate of the economy, when his data falls short of what would be necessary to prove that assertion.
Read more...The financial media is all atwitter (no pun intended) over the Bank of International Settlement’s just released annual report, since it shook a stern finger at central banks for keeping super low interest rates and warned them about the difficulty of renormalizing without kicking up a lot of upheaval.
Read more...In the aftermath of the Great Recession, we all wax “desperate with imagination”, looking for explanation. For solution. For retribution!
The financial system is rotten. Our banking regulators and supervisors failed us in the run-up to the crisis, they failed us in the response to the crisis, and they are failing us in the reform that we expected in the aftermath of the crisis.
Read more...Robert Pollin, professor of economics at the University of Massachusetts Amherst, gives a good high-level discussion of why the GDP results for last quarter were such a train wreck. Remember that analysts and economists were blindsided; no one expected to see GDP fall at that rate. As we wrote, the tendency among pundits has been to treat the results as of not much concern, since that period is past and some of plunge can be attributed to one-off factors, most importantly, abnormally cold weather. Pollin explains why this explanation is insufficient.
Read more...This is a short talk by venture capitalist Nick Hanauer, who among other things, was the first non-family investor in Amazon. Hanauer in very simple and effective terms debunks the “rich are job creators” myth. Even though the video is going viral (now at over 1 million views on YouTube, it is important enough that I wanted to make sure NC readers saw it and circulated it.
Hanauer’s remarks illustrates the degree to which propaganda has overcome commercial common sense.
Read more...How economists that are otherwise sympathetic to modern monetary theory nevertheless misconstrue some of its fundamental observations. For instance, those like Paul Krugman who are generally of the Keynesian persuasion like MMT’s “deficit owl” approach. Krugman acts as if he would really like to stop worrying about the deficit so that he could advocate an “as much as it takes” approach to government spending. The problem is that he just cannot quite get a handle on the monetary operations that are required. Won’t government run out? What, is government going to create money “out of thin air”? Where will all the money come from?
Read more...Ann Pettifor has penned an effective rebuttal of the Chicago Plan, which has been taken up in the UK as “Positive Money”. Its advocates call for private banks to have their ability to create money taken from them, and put in the hands of a committee, independent of the state, that would decide on the level of money creation. Banks would be restricted to lending money that they already have on deposit.
Pettifor explains how the enthusiasm for the Chicago Plan rests on a fundamental misunderstanding of the nature of money and confusion about its relationship to credit. While readers may not like the notion that credit, and therefore money creation, is best left in the hands of banks, the problem is much like the one that Churchill articulated about democracy: it looks like the worst possible system until you consider the alternatives.
Read more...Yves here. This post might seem a smidge technical for generalist readers, but have faith. Pilkington uses DSGE models, a widely used type of macroeconomic forecasting model, to demonstrate the prevalence of intellectual bankruptcy in economics. As he writes,
The level of scholarship in contemporary economics is absolutely shocking. Contemporary theorists just pick up on buzzwords that they hear in the media and then assume that they have understood them. Then they scramble to build some arcane model or other in which they assure others that they have captured the meaning of the buzzword in question. The mathematics then becomes a cloak hiding the fact that they have never bothered to actually think through the concepts they are using.
This is frighteningly similar to something I wrote:
Read more...That was one of the scary things I finally figured out during my last visit to DC. I thought people constructed policy first and then reduced it to soundbites to sell it. I came to realize that most people in DC reason from soundbites (as in their analysis and policy design is constructed from soundbites from the get-go).
Laissez faire, at least according to Adam Smith’s The Wealth of Nations, doesn’t mean more freedom for workers.
Read more...Contrary to conventional wisdom in economics, a bigger role for finance, also known as “financial deepening,” has gone well beyond the point of maximum return. It is promoting more crises rather than more growth.
Read more...The role of lax antitrust enforcement and the resulting rise in oligopolies is sorely neglected in most analyses of the rise of inequality and America’s flagging competitiveness.
Read more...Not only do the long-term unemployed suffer the loss of income, but they often are in worse health. They show markedly higher rates of obesity, elevated cholesterol levels, and high blood pressure.
Read more...Under a fiat currency regime, policymakers need to rethink what they tax and why.
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