There is clearly confusion among mainstream economists as the fractures in their paradigm are being revealed on an almost daily basis. And the more venal ideological motivations are also becoming clearer, that is, if they weren’t already completely transparent. On January 21, 2021, the World Bank published a Policy Research Working Paper – Does Central Bank Independence Increase Inequality? – which demonstrated that the way central banking has been conducted in this neoliberal era has been instrumental in the increasing income inequality that has manifested. A month earlier (December 21, 2020), we read that the IMF is waging a campaign against the democratically elected Ecuadorian government to further restrict its fiscal discretion as it struggles with a terrible pandemic situation, and set in place rules that will allow further resource plunder by foreign corporations. The latter really tells you that despite claims by mainstream economists that they have shifted away from the mainstream austerity bias, the truth is different. A quite remarkable juxtaposition that just demonstrates how confused this lot must be at present. Their attempts to cover their motivations in technical authority are clearly failing.
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.
Why does the Shadow Chancellor of Britain have a WWW page entry at the Institute for Fiscal Studies? HERE. Perhaps when you read this you will have the answer. What follows is bad. It won’t make anyone happy – my critics or those who agree with the analysis. But that is what has happened in the progressive world as lots of ‘progressives’ added the neoliberal qualifier to their progressiveness and paraded around claiming technical superiority and insights on economic policy that the old progressives just could not grasp. They have become so enthralled by their own cute logic that they cannot see they are handing the opposite side of politics electoral victory on a consistent basis. After you read this you might understand why I say that the British Labour may as well just not turn up at the next election.
In the last week, we have heard from the Chief Economist at the OECD (Laurence Boone), who has been touted on social media as offering a fundamental shift in economic thinking at the institution towards fiscal dominance. This is an example of a series of public statements by various New Keynesian (that is, mainstream macroeconomists) who are apparently defining the new macroeconomics of fiscal dominance. The point is this. Within the mainstream macroeconomics there was always scope for discretionary fiscal intervention under certain conditions. The conditionality is what separates their version of the possibilities from those identified and explained by Modern Monetary Theory (MMT). Just because these characters are coming out of their austerity bunkers to scramble to what they think is the right side of history doesn’t mean their underlying economics has changed. If you dig, you will find the same framework in place, just nuanced a little to suit the times. But the leopard hasn’t changed its spots. The underlying train wreck is still there and will be rehearsed again at some future date unless we push forward in abandoning the whole New Keynesian approach.
It’s Wednesday and I usually try to write less blog material. But given the holiday on Monday and a couple of interesting developments, I thought I would write a bit more today. And after that, you still get some great piano playing to make wading through central bank discussions worth while. The Financial Times article (January 4, 2021) – Investors believe BoE’s QE programme is designed to finance UK deficit – is interesting because it provides one more piece of evidence that exposes the claims of mainstream macroeconomists operating in the dominant New Keynesian tradition. The facts that emerge are that the major bond market players do not believe the Bank of England statements about its bond-buying program which have tried to deny the reality that the central bank is essentially buying up all the debt issued by the Treasury as it expands its fiscal deficits. This disbelief undermines many key propositions that students get rammed down their throats in macroeconomics courses. It also provides further credence to the approach taken by Modern Monetary Theory (MMT).
It’s Wednesday and my blog-light day. Today, I provide the English-text for an article that came out in the leading Japanese business daily, The Nikkei yesterday on Modern Monetary Theory (MMT) and its application to the pandemic. Relevant links are provided in the body of the post. The interesting point I think is that ‘The Nikkei’ is the “the world’s largest business daily in terms of circulation” and has clear centre-right leanings. The fact that they are interested in disseminating ideas that run counter to the mainstream narrative that the centre-right politicians have relied on indicates both a curiosity that is missing in the conservative media elsewhere, and, the extent to which MMT ideas is becoming more open to serious thinkers. I have respect for media outlets that come to the source when they want to motivate a discussion on MMT rather than hire some hack to write a critique, which really gets no further than accusing MMT of being just about money printing.
It is Wednesday and so just a few snippets before we get funky. Yes, jazz-funky. That should do it. In the last week, a credit ratings agency downgraded the rating of the state of Victoria to AA from AAA claiming that the the state was in fiscal trouble. They also downgraded the credit rating for the NSW government credit from AAA to AA+. You might wonder how the hell these corrupt and irrelevant organisations managed to survive the GFC, given the sectors complicity with the financial frauds and overreach that drove the world to near financial ruin? Well they survive because people still believe in the fictions that lie behind the whole concept of government debt ratings. Should anyone be worried about these changes in Victoria and NSW? Not at all. The announcements were just noise and tell us, in part, how far we have to go in expunging these fictions from our understandings.
I guess if mainstream economists use Milton Friedmanesque smears they think that will be sufficent to discredit Modern Monetary Theory (MMT). There have been a few critiques in the financial media recently along those lines. The authors tell their readers that they get the impression that MMT is just about a free lunch. Throw in Zimbabwe or Weimar are few times during the article and there you have it – rather tawdry attempts at maintaining mainstream thinking when the world has entered a new era of fiscal dominance as policy makers discard their reliance on monetary policy to stabilise economies. This policy shift is diametric to what mainstream macroeconomists have been advocating for decades as they repeatedly warned that high deficits and public debt levels and large-scale central bank bond purchases would lead to disaster. However, their predictions have been dramatically wrong and provide no meaningful guidance to available fiscal space nor the consequences of these policy extremes for interest rates and inflation. The world is leaving them behind and it is interesting to see how they are trying to reposition themselves.
I read a very interesting study by two Dutch academics last week – The ECB, the courts and the issue of democratic legitimacy after Weiss – which will be published in the Common Market Law Review (Vol 57, No 6, 2020). It examines the way in which the ECB operations and policy interventions have gone way beyond their original conception in the Maastricht Treaty and now conflict with democratic accountability. While the authors propose ways to address the democratic deficit, I am sceptical. Essentially, there needs to be a fundamental change in the Treaty and the establishment of a federal fiscal capacity embedded into a genuine European government. But then pigs might fly!
Today the UK Guardian editorial – The Guardian view on Rishi Sunak: time to create jobs, not anxiety – endorsed the introduction of a Job Guarantee to alleviate the terrible unemployment situation that Britain will create in the coming 12 months. Existing programs from the British government are “too small and too reliant on private companies to help much”. Even after the pandemic is solved (hopefully via vaccine) “the unemployment crisis will remain”. That is a positive step from the Guardian. And, it runs counter to the way many progressives are viewing the solution box, with UBI still figuring among their main options. The problem is that the UBI cannot deliver on its promises to everyone. But this blog post is not about UBI. As the Job Guarantee gains more profile in the public debate, several mainstream economists are now taking aim at it. The latest attempt, which I choose not to link to because it is not worth reading in full, invokes one of the arguments that mainstream economists developed in the late 1970s and early 1980s to justify their attacks on discretionary fiscal policy and elevate rules-based monetary policy to become the primary, counter-stabilisation tool. It was, of course part of the neoliberal putsch that has seen sub-optimal outcomes ever since for most of us and superlative outcomes for the top ends of the income distribution. The reason I note this argument is because it is general in nature and should be understood. In other words, I do not have to talk about the paper that introduces this attack on the Job Guarantee, because it just mimics the standard criticisms of government policy making that have been around for ages. So any time some new government policy approach is proposed, these characters just whip out this tired old defense. But it is useful for my readers to be on the lookout for it.