The Cambridge Controversy – a fundamental refutation of orthodox economic theory – Part 2

This is Part 2 in a two part series that deals with the importance of the = Cambridge capital controversy – which saw economists associated with Cambridge University in England and MIT in Cambridge, Massachusetts argue about the validity of neoclassical distribution theory. Most recently, in response to a New York Times article about Joan Robinson, one of the key protagonists in that controversy, Paul Krugman declared the Controversy “a huge intellectual muddle” which was really unimportant in the scheme of things. That just revealed his ignorance and/or his part in an on-going denial that the basis of the framework he operates in is deeply flawed and has no scientific legitimacy. In this Part, we get down to the complexity (as best I can without becoming too technical) of the debates. The import though is clear – orthodox economics, which is still taught on a daily basis in our universities and which people like Krugman use to make money by writing textbooks about is based on a series of myths that cannot be sustained, both logically, in terms of their own internal consistency, and, in relation to saying anything about the real world we live in.

Read more

The Cambridge Controversy – a fundamental refutation of orthodox economic theory – Part 1

Some years ago, I promised to write about the – Cambridge capital controversy – which saw economists associated with Cambridge University in England and MIT in Cambridge, Massachusetts argue about the validity of neoclassical distribution theory. I never wrote the blog posts because I considered the material was a little difficult for a blog audience. Also, while of great interest to me, the topic was not necessarily compulsory reading for those trying to come to terms with Modern Monetary Theory (MMT). But today, I relent. For two reasons. First, I think my readership has reached much higher levels of economic literacy over the last 15 years and can handle a challenge. But, more importantly, there are times when the mainstream characters, who have been claiming that there is nothing new in MMT and that they knew it all along and all the important results can be explained within an orthodox New Keynesian approach, reveal their true colours. Their hubris sees them get ahead of themselves and they show they never really understood the basics that undermine their own approach. Such was the case this week when Paul Krugman declared the Controversy “a huge intellectual muddle” and “a tortured debate that illuminated nothing much”. Well, that just goes to show how the mainstream denial functions. A body of work comes along and blows the dominant paradigm out of the water, and the response is to ignore it as a meaningless muddle. Their current attacks on MMT are just another application of that approach, which I first encountered as a student while studying the capital debates. Given the complexity of this issue and the amount of material, this will be a two-part series. Today, we learn the historical context, which will convince you that this was not idle or arcane discussion. This was a debate that went to the heart of the existence of capitalism and the defenders of that system – the mainstream economists did everything they could to defend the myths that they had erected to make the system look fair. They failed but went on anyway. Here is Part 1.

Read more

The cat is progressively getting out of the bag – Part 1

Remember on February 3, 2021, when the RBA governor Philip Lowe spoke at the National Press Club in Australia and told the audience that the Reserve Bank of Australia is not funding the federal government deficit, either in part, or, in full. This was in response to being asked whether the current situation that sees the RBA buying large swathes of government bonds are in any way consistent with Modern Monetary Theory (MMT). Well, since he gave that speech and answered questions from Australia’s journalists, a very interesting session was held by the – Economic Affairs Committee (House of Lords) – in London as part of the Committee’s investigation into the ins-and-outs of Quantitative Easing (QE). And some very revealing statements were made in those hearings which the RBA governor might reflect on. They rather directly challenge the veracity of his public statements about MMT in recent years. They also expose the way in which public officials tell the public they are not doing A but B, while doing exactly A. The cat is progressively getting out of the bag.! This is Part 1 of a two-part series explaining how the cat is escaping.

Read more

Why economists kept getting the policies right!

It is Wednesday and I am travelling most of the day. We are now entering Week 3 of the edX MOOC and I outline what students can expect this week. And some ideas about why it is wrong to think mainstream economists have got it wrong. Plus a reflection on one of Australia’s great musicians who died this week.

Read more

Week 2 of the MOOC Modern Monetary Theory: Economics for the 21st Century starts today

Its Wednesday and only a short blog post day – well a collection of items I accumulate during the week. Week 2 of our MOOC – Modern Monetary Theory: Economics for the 21st Century – begins today and you can find enrolment details below. We also have some culture today – a beautiful poem which inspires optimism and some music that inspires past memories.

Read more

The Weekend Quiz – March 6-7, 2021

Welcome to The Weekend Quiz. The quiz tests whether you have been paying attention or not to the blog posts that I post. See how you go with the following questions. Your results are only known to you and no records are retained.

Read more

Have mainstream economists really embraced large deficits and central bank bond purchases?

When John Maynard Keynes wrote his essay – Economic Possibilities for Our Grandchildren – which was published in 1930 he considered that workers would be able to work just 15 hours a week because of the likely technological shifts over the 100 years from the date of his publication. He was right about the productivity gains that have been created but wrong about the benefits workers would gain from them. He thought the productivity would be more evenly shared out. He underestimated the capacity of capital to extract the gains for profits and capture the state to ensure it used its legislative and regulative capacity to suppress wages growth. Mainstream economists have aided and abetted the rising inequality and the reconfiguration of the state as a agent for capital. This bears on how we understand some of the apparent shifts in views by mainstream economists about fiscal deficits and central bank debt purchases. Yesterday, it was all bad. Today, all good. History warns us to be cautious in how we appraise these shifts. There is something to be said for consistency.

Read more

Britain banking regulation to tighten as a consequence of leaving the neoliberal EU

It is Wednesday and so just a short blog day. I note that the British Remainer Left fall over themselves to signal whenever there is any bad news about Britain that it must be because of Brexit – “see, we told you so sort of stuff”. And with the pandemic and government incompetence there have been lots of opportunities for this lot to do that. I guess it makes them feel better as the Labour Party designs its comeback based on the ‘flag’ and ‘patriotism’ and expunging any relics of Jeremy Corbyn. Good luck with that, it is bound to work! But the future of Britain will actually be determined by a range of factors now in the control of the authorities and how they handle the transition away from EU law will be a significant element in that ensuring that future works for the people rather than just isolates Britain as a neoliberal hell-hole. We received our first sign of how things might work out last week when the Bank of England’s Prudential Regulation Authority released their latest Consultation Paper (CP5/21, (February 12, 2021) – Implementation of Basel standards – which marked a sharp shift away from the lax EU banking standards. The Remainers were silent on this.

Read more

Using a regional lens reveals the uneven impact of the COVID employment crash

Today, we have a guest blogger in the guise of Professor Scott Baum from Griffith University who has been one of my regular research colleagues over a long period of time. Today he is writing about the uneven impact of the COVID employment crash. This theme – the spatial unevenness of fluctuations in aggregate economic activity – is one we often explore (in our past research together) because understanding these patterns is essential for designing appropriate policy interventions. It is one of the reasons we both favour employment creation programs that respond to local conditions, like the Job Guarantee. It is also the topic a new large grant application that we are currently putting in (as part of the annual funding circus in Australia). Anyway, while I am tied up today it is over to Scott …

Read more

Comical claims by mainstream economists that the facts have changed

Last week, I wrote this blog post – OECD is apparently now anti austerity – warning, the leopard hasn’t changed its spots (January 12, 2021) – which warned against accepting the idea the growing number of mainstream economists, who were now advocating fiscal dominance, was evidence of a fundamental shift in New Keynesian thinking about macroeconomics. The reality is that they haven’t really shifted much at all and Max Planck’s postulate that paradigms shift one funeral at a time remains true. There are very few cases where the senior members of a dominant paradigm, voluntarily abandon their views when the evidence becomes overwhelmingly against them. They iterate, they declare ad hoc anomalies, they try to voice ideas that a new rival paradigm is articulating which resonate better with the data. This sort of strategy is common across academic disciplines which are under assault from a combination of poor predictive performance (data incongruity) and the arrival of a more convincing alternative paradigm. It is in full swing in macroeconomics now. But don’t believe these characters are suddenly accepting Modern Monetary Theory (MMT) and realising their previous belief system was never a sound way of characterising our fiat monetary systems. If you dig you discover these characters remain charlatans and will do almost anything to maintain their status as the dominant economists.

Read more
Back To Top