I have two days of teaching left in Helsinki and my next stop on Friday is Dublin where I will be discussing unification and exit. Should be a fun topic. Its Wednesday back home already and today I consider a matter that came up in one of my classes that I am taking in macroeconomics at the moment at the University of Helsinki. Students really struggle when first introduced to the idea of a stock and a flow. They can easily be led into defining a flow as a stock. Getting this absolutely right is one of the key building blocks in understanding basic macroeconomics and the links between the expenditure system and financial accumulation. Modern Monetary Theory (MMT) builds heavily on the difference between stocks and flows and is also what we call stock-flow consistent. So all flows that inform stocks are accounted for in a consistent way. So, for example, we know that when households save, which is the residual of disposable income that is not consumed and a flow, this accumulates into a stock of financial wealth. Today, I am seeking to clarify the issue in my class that we did not have sufficient time to deal with in detail last week. And after that, some music to restore sanity.
Today, I am in the mountains north of Melbourne (Healesville) talking to the – Chair Forum – which is a gathering of all the Superannuation Fund Board chairs. I am presenting the argument that the reliance on monetary policy and the pursuit of fiscal austerity in this neoliberal era, which has been pushed to ridiculous extremes around the globe, has culminated in the socio-economic and ecological crisis that besets the world and is pushing more and more policy makers to express their doubts about the previous policy consensus. I will obviously frame this in the context of Modern Monetary Theory (MMT), given that our work has been the only consistent voice in this debate over a quarter of the century. What economists are suddenly coming to realise has been core MMT knowledge from the outset.
It is Wednesday and I have a long trip by plane and road to Victoria where I am speaking at a major business conference in the mountains outside of Melbourne tomorrow morning. So only a few things today that I have been thinking about. Remember the 2010 film – Inside Job – which documented how my profession had become corrupted by the financial services sector into producing, allegedly, independent research reports extolling the virtues of deregulation etc and not admitting they were being paid for by the beneficiaries of the propaganda masquerading as research. It shows how corruption runs deep in the economics profession to accompany the incompetence that mainstream macroeconomists display. Well, I have been following an unfolding story about how Uber has decided to draw on that corrupt tendency for their own gains. It is not a pretty story. And then we have the so-called social media trend of cancel culture which is meant to be about matters of principles but leave the proponents caught up in a rather dirty pool of hypocrisy.
Regular readers will know that I have been following the path of the British economy post-Referendum in 2016 to see whether the doomsday that the Remainers predicted was likely. It became colloquially known as ‘Project Fear’ as mainstream economists, so-called progressive economists who had their snout in the Labour Party as advisors (and we know where that took the Party), institutions like the Treasury and the Bank of England, all pumped out a sequence of terrible predictions about what would happen to the British economy should the Leave vote succeed. The predictions started in the lead up to the June vote. Immediate recession was forecast. That didn’t happen. Then new forecasts came out – with longer term disasters predicted. As each prediction horizon passed without disaster, the predictions morphed, new horizons were introduced, more nuanced analysis was presented. And, as nothing much has happened to ratify their fears (and lies), the Project has abated somewhat. The latest data shows that the Project is as moribund as it ever was.
Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.
Just a short blog post today (short in research) as I devote Wednesday’s to other writing and I have to travel a lot today. More a collection of snippets that I come across over the course of a day’s work. Today, we think about Bolivia and the right-wing thugs that have overthrown a legitimate government advancing the well-being of its people. We also see senior progressive politicians falling into a myriad of lies and misconceptions about the monetary system and handing political initiative to the right wing as a consequence, even though they think they are being clever in their framing. And we think of Japan a little. And then some music offerings or two.
One of the stark facts about the academic economics discipline is its insularity and capacity to deliver influential prognoses on issues that affect the well-being of millions with scant regard to the actual consequences of their opinions and with little attention to what other social scientists have to say. The mainstream economists continually get things wrong but take no responsibility for the damage they cause to the well-being of the people. A 2015 paper – The Superiority of Economists – published in the Journal of Economic Perspectives (Vol 29, No. 1) by Marion Fourcade, Etienne Ollion and Yann Algan is scathing in its assessment of the economics discipline. They say that mainstream economists largely ignore contributions by other social scientists and consider them inferior in technological sophistication, have a “predilection for methodological and theoretical precision over real-world accuracy”, largely ignore”the basic premise of much of the human sciences, namely that social processes shape individual preferences”, and parade an arrogance and superiority that masks the sterility of their analysis. In this context, I thought the 2015 Report from the Joseph Rowntree Foundation – Sociological perspectives poverty – was a breath of fresh air in its approach to understanding poverty. The empirical base it presents refutes most of the major assumptions and conclusions of economists who work in the field of poverty. A mainstream professor who was supervising my economics graduate program once said to me: “Bill you are a bright boy but you should be doing sociology”, which was an example of the negative control mechanism designed to weed out dissidents (like me). It didn’t work. But I always considered the disciplines of sociology and anthropology (not to mention psychology, political science, social welfare etc) to be important in my journey to become ‘well read’. Most economists, however, do not think that. Perhaps that is why I was able to be part of the development of Modern Monetary Theory (MMT).
It’s Wednesday and only a collection of snippets today. Today we saw some self-aggrandising hypocrisy with a short memory come out of the sewers, and a statement by a government denying that they are a “successful case of MMT”, an advertisement (call for help) and some music linked to a recent, rather significant death, when considered in the history of contemporary music. Pretty full day really.
I am travelling most of today and so no standard blog post. For a fair part of the day I also will not be able to moderate comments so there might be some delay. But thanks to the great work by Christian Reilly and Patricia Pino at the – MMT Podcast – my talk at the Brighton Labour Party Fringe Event with British Labour MP, Chris Williamson, was captured for all to hear. It means the event will survive the moment. To give context to the audio that the MMT Podcast has made available, I offer some commentary in this blog post. The comments and the audio should keep people busy until I am able to get back to normal writing. Now in New York City and looking forward to meeting the gang at the – MMT Conference – which runs this week.
It is now clear that to most observers that the use of monetary policy to stimulate major changes in economic activity in either direction is fraught. Central bankers in many nations have been pulling all sorts of policy ‘rabbits’ out of the hat over the last decade or more and their targets have not moved as much or in many cases in the direction they had hoped. Not only has this shown up the lack of credibility of mainstream macroeconomics but it is now leading to a major shift in policy thinking, which will tear down the neoliberal shibboleths that the use of fiscal policy as a counter-stabilisation tool is undesirable and ineffective. In effect, there is a realignment going on between policy responsibility and democratic accountability, something that the neoliberal forces worked hard to breach by placing primary responsibility onto the decisions of unelected and unaccountable monetary policy committees. And this shift is bringing new players to the fore who are intent on denying that even fiscal policy can stave off major downturns in non-government spending. These sort of attacks from a mainstream are unsurprising given its credibility is in tatters. But they are also coming from the self-proclaimed Left, who seem opposed to a reliance on nation states, and in the British context, this debate is caught up in the Brexit matter, where the Europhile Left are pulling any argument they can write down quickly enough to try to prevent Britain leaving the EU, as it appears it now will (and that couldn’t come quickly enough).