Oh Me Oh My! MMT Is About!

L. Randall Wray | January 12, 2015

Here’s an unintentionally hilarious piece by Tim Worstall at Forbes. Watch out, he warns, MMT has come to Washington! Our nation’s capital! No doubt ruin and wastage will follow.

Why? Well. Nothing wrong with the theory of Modern Money Theory, he admits.

“It’s not actually that I disagree very much with the economics that is being laid out in MMT: indeed, I’m terribly tempted to agree that they’re actually correct in much of what they say.”

He admits that MMT is right on budgets:

“It’s most certainly not obvious that MMT proponents are all barking mad or anything. Jamie Galbraith (who I’ve had one or two very limited interactions with) is certainly a reasonable guy. And his insistence that a budget surplus, despite the ribbing he gets about it, is in fact economically contractionary doesn’t seem to have anything wrong with it. Budget deficits are fiscally expansive, a surplus is fiscally contractionary, if there’s any one statement at the heart of Keynesianism that’s it.”

And it is right on money:

“And their basic outline about money creation is true as far as I can see. If you’re a country with your own central bank you can print as much money as you like.”

And really nothing wrong with the policy, either. No, it is all politics.

What he’s afraid of is that if politicians understood that they cannot run out of money, they’d spend like they cannot run out of money. And off we’d go to Weimar and Zimbabwe land.

It is the same line that Paul Samuelson took, when he argued that the job of an economist is to lie. Or, better, to preach the old time religion and superstition. Put real fear into the politicians and the voters they represent.

Government is just like a household, you know. Careful, Gov, you’ll run out of money. You’ll have to go hat-in-hand to Bond Vigilantes when you run out. Uncle Sam will have to go to the Salvation Army for a cup of soup.

It is the same old fear mongering by someone who does not trust the democratic process and does not understand budgeting.

The way we ensure that policymakers don’t run up the spending to create hyperinflation is by subjecting them to the budgeting process, and then holding the administrative branch to approved budgets. It isn’t religion, superstition, or fear mongering that forestalls accelerating inflation. It is accountability.

And where-O-where do our blogging pundits get the idea that all politicians always and everywhere are pushing for hyperinflation? I see exactly the opposite.

(cross-posted from EconoMonitor)

Comments


Auf Wiedersehen to Austerity?

Michael Stephens | January 11, 2015

With the January 25th elections in Greece approaching, Dimitri Papadimitriou writes about the future of Greek policy and the discussions that took place at a recent Levy Institute conference in Athens:

At the Athens economics conference, Europe At The Crossroads, the participants were a diverse collection of policymakers, overflowing with disagreements on the very best route to growth. Nonetheless, with one notable exception (the leader of Ireland’s central bank, endorsing European Central Bank policy), the overwhelming majority united on a single principle:

The bailout and its related austerity programs have failed miserably. […]

The home base of some of the conference’s strongest austerity critics may come as a surprise. Peter Bofinger of Germany, the only Keynesian in Chancellor Angela Merkel’s council of economic advisers, described the risks the current approach poses for Greece, France, and Italy, and outlined why a continuation also threatens to destroy the rest of Europe.

That includes Germany. Pointing to serious weaknesses in its economic foundations, Bofinger particularly singled out the FRG’s problematic physical infrastructure, an issue echoed by Elga Bartsch, Chief European economist at Morgan Stanley. And Bofinger raised the widely ignored fact that — despite endless German bellyaching about the so-called EU drain on its wealth — Germany’s contribution to other members of the European Union has been exactly zero euros.

Read the rest: “Hello 2015. Goodbye Austerity?

You can listen to the Bofinger presentation here.

The rest of the presentations from the Athens conference, including that of Syriza MP Yannis Dragasakis, can be found here; slides are posted here. Video of the presentations will be posted shortly on the Institute’s YouTube page.

Comments


Deflation in the Air

Greg Hannsgen | December 22, 2014

A New York Times article over the weekend delves into the history and rationale of the 2 percent inflation target, beloved of central bankers everywhere and a fairly recent innovation. Of course, the US Federal Reserve has a dual mandate, which includes both inflation and employment goals. The Fed said last week that it was most likely to start raising interest rates around the summer of 2015, but many countries’ central banks are moving in the opposite direction, solely because inflation is falling short of their targets.

Private borrowers—who usually have higher propensities to spend than lenders—benefit from an easing of the burden of debt when wages and prices move broadly upward. Also, for governments with debts that they cannot service with their own currency, inflation eases the burden of making payments, as tax revenues tend to rise in step with nominal wages and prices. Of course, falling prices have the opposite effect. The resulting changes in spending reverberate through the rest of the economy. Recent data show that there exists a strong threat of deflation around the world in economies such as Japan and the Eurozone, where core inflation has recently turned negative.

The effect of deflation on spending by indebted households was noted by Keynes in Chapter 19 of the General Theory (pp. 268-269). Michal Kalecki also argued to this effect in a critique of the so-called Pigou effect (falling prices would supposedly restore full employment by raising the inflation-adjusted wealth of households). The New York Times emphasizes instead the point that lower inflation makes it easier for some inflation-adjusted wages to fall, given that wages do not move downward as easily as upward. It also mentions that modest inflation permits central banks to lower real short-term interest rates below zero. Thoughts that deflation might be coming in much of the world are very sobering.

Comments


Boom Bust Boom: Minsky at the Movies

L. Randall Wray |

I highly recommend a movie to be released next year (that is, the year that begins next week). Terry Jones, of Monty Python fame, is one of the key developers of the film. It is on the Global Financial Crisis, but also provides a quick history of bubbles and crashes. It is highly entertaining and as good as any that I’ve seen on the crisis.

The movie features Hyman P. Minsky as well as J. K. Galbraith, who appear as life-sized puppets. One of Terry’s crew told me they brought Minsky over from England on a plane as a fare-paying customer. I would have loved to have seen the look on the faces of the flight attendants. I hope they bought him a beer.

Originally they were to film Minsky in his office at the Levy Institute, but when they saw pictures of it they said that there’s no way such a big and important economist could have had such an inauspicious office (albeit in beautiful Blithewood overlooking the Hudson). So they used a nice library down in Manhattan.

As Terry puts it, ”I wanted to be part of this project as soon as I discovered economics students are taught crashes just don’t happen.”

Here’s the blurb on the purpose of the project:

In revealing the truth about our unstable economic system, the film acts as the starting point for global project BoomBustClick.com – to get the world talking about change through education. A central hub for information, news and ideas, BoomBustClick is an online resource for everyone – can we change an unstable economic system? Can we adapt economics to human nature?

Terry interviewed me for the film. He’s as funny as you’d expect, but also deeply engaged and knowledgeable. Most of my interview ended up on the cutting room floor, but some bits survived.

You’ll also enjoy interviews with Steve Keen and Jamie Galbraith. Minsky’s son, Alan, is a natural before the camera. The actor John Cusack makes some memorable comments. Steve Kinsella and John Cassidy are good. My friend Zvi Bodie (best name in economics) is featured, as is Paul Krugman. The UK’s Andy Haldane–one of the regulators–does a bit of mea culpa for the profession’s failure to “see it coming.”

As an added bonus, the film has some catchy tunes that you won’t be able to get out of your head

Go to the project’s website for more info; I presume they’ll be posting up the film’s release date soon. There are some clips on the making of the film that you can enjoy now.

(cross-posted from EconoMonitor)

Comments


Contributions to Economic Theory, Policy, Development and Finance: Essays in Honor of Jan Kregel

Michael Stephens | December 18, 2014

Kregel Festschrift

“This collection brings together distinguished scholars who have been influenced by Jan Kregel‘s prodigious contributions to the fields of economic theory and policy. The chapters cover and extend many topics analyzed in Kregel’s published work, including monetary economic theory and policy; aspects of the Cambridge (UK and US) controversies; Sraffa’s critique on neoclassical value and distribution theory; Post-Keynesianism; employment policy; obstacles in financing development; trade and development theories; causes and lessons from the financial crises in East Asia, Latin America, and Europe; Minskyan-Kregel theories of financial instability; and global governance. Combining rigorous scholarly assessment of the issues, the contributors seek to offer solutions to the debates on economic theory and the problem of continuing high unemployment, to identify the factors that determine economic expansion, and to analyze the impact of financial crises on systemic stability, markets, institutions, and international regulations on domestic and global economic performance.

The scope and comprehensive analyses found in this volume will be of interest to economists and scholars of economics, finance, and development.”

From the table of contents:

1. Jan Kregel’s Economics; Dimitri B. Papadimitriou
2. The Reconstruction of Political Economy: Alternative, Parallel Paths to Rediscovering the Distinctively Classical Surplus Approach; Mathew Forstater
3. Post-Keynesian, Post-Sraffian Economics: An Outline; Alessandro Roncaglia and Mario Tonveronachi
4. Money in The General Theory: The Contributions of Jan Kregel; L. Randall Wray
5. A Financial Analysis of Monetary Systems; Eric Tymoigne
6. Full Employment, Inflation and Income Distribution: Evaluating the Impact of Alternative Fiscal Policies; Pavlina R. Tcherneva
7. Can Employment Schemes Work? The Case of the Rural Employment Guarantee in India; Jayati Ghosh
8. Development Theory: Convergence, Catch-up or Leapfrogging? A Schumpeter-Minsky-Kregel Approach; Leonardo Burlamaqui and Rainer Kattel
9. The Access to Demand; Luiz Carlos Bresser-Pereira
10. Development Finance in the Era of Financial Liberalization; C.P. Chandrasekhar
11. From Miracle to Stagnation: The Last Two Stages of Mexico’s Economic Development; Julio López-Gallardo
12. The New Millennium Argentine Saga: From Crisis to Success and from Success to Failure; Mario Damill, Roberto Frenkel and Martín Rapetti
13. Global Governance for Financial Stability; Stephany Griffith-Jones and José Antonio Ocampo
14. What Did We Learn from the 1997-98 East Asian Crises?; Jomo Kwame Sundaram
15. Financial Crises and Countermovements: Comparing the Times and Attitudes of Marriner Eccles (1930s) and Mario Draghi (2010s); Erik S. Reinert
16. Can Basel III Work When Basel II Didn’t?; Fernando J. Cardim de Carvalho

You can download a sample chapter (pdf) from Palgrave.

Comments


Working Paper Roundup 12/15/2014

Michael Stephens | December 15, 2014

Outside Money: The Advantages of Owning the Magic Porridge Pot
L. Randall Wray
“Money is always introduced into economic models through very simple ways—whether by ‘helicopter drops,’ ‘inheritance from the past,’ or ‘deposit multipliers.’ Once introduced, money is largely irrelevant—neutral in the long run and non-neutral in the short run only because of ad hoc assumptions. This casual and misleading treatment of money contributed to the two greatest economic disasters since the Great Depression: the Global Financial Crisis and the Euro Crisis. In both cases, economists ‘could not see it coming’ because their understanding of money was deeply flawed. In the first instance, they misunderstood ‘inside’ money and led the rush toward the financial excesses that inevitably led to the 2008 crash. In the second, they designed a currency system based on a fundamentally flawed understanding of sovereign currency, creating a union that would inevitably fail. The alternative framework offered by the state money tradition—broadly defined—provides the understanding that would have prevented both disasters.”

Minsky, Monetary Policy, and Mint Street: Challenges for the Art of Monetary Policymaking in Emerging Economies
Srinivas Yanamandra
“This paper examines the emerging challenges to the art of monetary policymaking using the case study of the Reserve Bank of India (RBI) in light of developments in the Indian economy during the last decade (2003–04 to 2013–14). The paper uses Hyman P. Minsky’s financial instability hypothesis as the conceptual framework for evaluating the endogenous nature of financial instability and its potential impact on monetary policymaking, and addresses the need to pursue regulatory policy as a tool that is complementary to monetary policy in light of the agenda of reforms put forward by Minsky.”

An Outline of a Progressive Resolution to the Euro-area Sovereign Debt Overhang: How a Five-year Suspension of the Debt Burden Could Overthrow Austerity
Dimitris P. Sotiropoulos, John Milios, and Spyros Lapatsioras
“This paper sketches a political proposal to the problem at the level of the euro area (EA) from a progressive viewpoint. Dealing with the debt overhang in an increasing number of EA economies is primarily a political issue. The related technical details are not politically neutral: they are integral parts of political strategies attempting to influence the outcome of the ongoing social and political struggles all over Europe.”

“Our main strategy is for the European Central Bank (ECB) to acquire a significant part of the outstanding sovereign debt (at market prices) of the countries in the EA and convert it to zero-coupon bonds. No transfers will take place between individual states; taxpayers in any EA country will not be involved in the debt restructuring of any foreign eurozone country. Debt will not be forgiven: individual states will agree to buy it back from the ECB in the future when the ratio of sovereign debt to GDP has fallen to 20 percent. The sterilization costs for the ECB are manageable. This model of an unconventional monetary intervention would give progressive governments in the EA the necessary basis for developing social and welfare policies to the benefit of the working classes. It would reverse present-day policy priorities and replace the neoliberal agenda with a program of social and economic reconstruction, with the elites paying for the crisis.”

The Determinants of Long-Term Japanese Government Bonds’ Low Nominal Yields
Tanweer Akram and Anupam Das
“Japanese government bonds’ (JGBs) nominal yields have stayed exceptionally low since the mid 1990s, even though the country experienced chronic fiscal deficits, the government’s net and gross debt ratios rose sharply and remained elevated, and international credit rating agencies have downgraded its yen-denominated sovereign debt several times. This is contrary to the conventional wisdom, which holds that higher government deficits and indebtedness lead to upward pressures on government bonds’ nominal yield.”

“The theoretical reasons for long-term JGBs’ low nominal yields are simple: (1) The government of Japan exercises monetary sovereignty and Japan’s government debt is issued in its own currency, (2) the BOJ largely controls short-term interest rates by setting the policy rate, and it also influences JGBs’ nominal yields though asset purchases, forward guidance, and communication tools, (3) low inflation and deflationary pressures have also contributed to keeping JGBs’ nominal yields low in Japan, and (4) the demand for government debt remains strong, as the country’s domestic financial institutions hold the bulk of it.”

Comments


“Interesting Times” Ahead for Euroland

C. J. Polychroniou | December 8, 2014

The Levy Economics Institute of Bard College co-organized an international conference on November 21-22 in Athens, Greece, on the continuing crisis in the eurozone.

Among the speakers were:

• Elga Bartsch, Morgan Stanley’s chief European economist;

• Peter Bofinger, a German academic economist and a member of the German Chancellor’s Council of Economic Advisers;

• Marek Belka, governor of Poland’s central bank;

• Giannis Dragasakis, a Greek politician and member of the Greek parliament for the Coalition of the Radical Left (SYRIZA);

• Heiner Flassbeck, a former director of the Division on Globalization and Development Strategies of the United Nations Conference on Trade and Development (UNCTAD) and former vice minister of the German Federal Ministry of Finance;

• Patrick Honohan, governor of Ireland’s central bank;

• Stuart Holland, a British academic economist teaching in Portugal and a former member of the British parliament;

• Stephen Kinsella, an Irish academic economist;

• numerous Greek economists, including Panagiotis Liargovas, the head of Parliamentary Budget Office at Greek Parliament; and, last but not least,

• scholars from the Levy Institute, including its president (Dimitri B. Papadimitriou), who heads the Institute’s macro-modeling team projects.

Adding to this rather illustrious list of speakers were panel moderators from The New York Times, Wall Street Journal, Bloomberg News, National Public Radio (USA), and various daily newspapers in Greece.

While there were some disagreements on policy matters among the panelists, it seems that most speakers reached the following conclusions: continue reading…

Comments


Levy Institute Master’s Program Webinars

Michael Stephens | December 4, 2014

Print

The Levy Economics Institute Master of Science in Economic Theory and Policy is an innovative degree program focusing on empirical and policy analysis, with extensive research opportunities. To learn more about the program and receive an application fee waiver, attend one of our upcoming webinars:

Saturday, December 6, at noon (EST): Co-hosted by Program Director Jan Kregel. Research focus: Monetary Policy and Financial Structure

Wednesday, January 7, at 5pm (EST): Co-hosted by Research Scholar Michalis Nikiforos. Research focus: Macroeconomic Theory and Modeling

To join a webinar, simply click here at the time listed above.

Please visit our website for more information about the program: www.bard.edu/levyms/

Regular Decision deadline: January 15. Scholarships available.

Comments


The Answer to the Unemployment Problem Is More Jobs

L. Randall Wray | December 3, 2014

Dean Baker, everyone’s favorite progressive economist (mine, too), has an interesting take on our unemployment problem: Give more paid vacations.

The idea is that if all the employed work less, employers will need to hire the unemployed to produce what the already employed won’t be producing while sunning themselves on Florida’s beaches.

Look, I’m all for shorter workweeks. It is ridiculous that labor’s push somehow got stuck a century ago at the 40-hour workweek in the USA. Employed Americans work more hours per year than just about any other workforce on the planet.

Avg Annual Hours Worked_FRED

But, as Joan Robinson once declared, the only thing worse than working as a wage slave is to be unemployed. Just ask the Italians, who now have the highest unemployment rate since they started keeping records. Thanks to the EMU and German fiscal rectitude!

I see shorter work days and more paid vacations as a progressive goal to humanize the work place. More time to enjoy one’s family, recreation, and the arts. More time for self-improvement and community involvement. More time for our wage slaves to enjoy the life of leisure long pursued by the leisure classes.

However, last on my list of arguments for a shorter workweek would be the claim that it will create more jobs for the unemployed. continue reading…

Comments


Galbraith and Skidelsky: The End of Normal and the Future of Work (Video)

Michael Stephens | November 13, 2014

Here are the keynote addresses delivered by James Galbraith (“The End of Normal”) and Robert Skidelsky (“The Future of Work”) at the 12th International Post Keynesian Conference (more videos from the conference can be found here):

 

Comments