It is Wednesday and I am catching up on other things. But In a rather extraordinary article (May 16, 2021) – Nobel prize-winning economist Paul Krugman explains why he’s more left-wing than the Modern Monetary Theory crowd – we learn about hubris. I provide some brief commentary on that claim before chilling out to some great post minimalist music.
Paul Krugman, the arch-type New Keynesian, seems to continually be seeking attention as someone that is ahead of the curve.
His record of analysis and prediction drawing on that analysis is pretty poor and I started becoming aware of that in the 1990s when he embarassed himself with his recommendations to the Japanese government as they struggled with their commercial property collapse.
Please read my blog post – Balance sheet recessions and democracy (July 3, 2009) – for more discussion on this point.
Since then I have read Krugman try to lead the “deficits are bad” chorus, then claim “deficits are good” to suit a different time, but with both calls being inappropriate at the specific times they were made.
Now he is joining up with another serial offender Larry Summers to ramp up the inflation mania and the overheating hysteria.
One has to be amazed at how these characters continue to make bad calls on economic events and their consequences but still manage to retain their very high platforms (voices) in the public debate.
The article cited above is an example of not only this phenomenon but also the massive disinformation campaign that the mainstream press is running about our work.
It claims that:
Modern Monetary Theory economists are the trailblazing left-wingers in the field.
I am a left-wing economist but MMT evades this type of categorisation or taxonomy.
To confuse the principles with the values is a basic error that those who haven’t done their research properly make.
Nobel laureate Paul Krugman says he’s farther left than them.
Okay, I suppose it means he must be further Left than me, given the article talks in aggregate group classifications (MMT economists).
So that must include me.
The article commits a further error claiming that “Both schools” (MMT and New Keynesian):
… are inspired by the great 20th-century English economist John Maynard Keynes, whose theory of fiscal stimulus influenced not only FDR’s response to the Great Depression of the 1930s, but $5 trillion of federal spending amid the coronavirus recession.
First, MMT is not inspired by Keynes.
Keynes provided me, for example, with zero inspiration. He had more influence on Randy Wray I suspect but not much on Warren Mosler.
His major work is poorly written, opaque at critical junctures, and allowed the Neoclassical synthesis to gain ascendancy, which essentially avoided any of the major insights of Keynes’ work.
The MMT body of work clearly draws on elements that appear in the work of Keynes. But for me the stuff on effective demand was well laid out decades early by Karl Marx in Theories of Surplus Value and later by – Michał Kalecki.
Keynes didn’t come into it.
Second, New Keynesian economics is the antithesis of Keynes. It neuters Keynes and builds its theoretical structure on a denial of the essential insights that were defining features of Keynes (and useful).
By marrying together the classical, long-run neutrality with short-run price inflexibility, the New Keynesians created a fictional world where fiscal policy could not have long-term effects other than to create inflation and the economy would equilibrate around a natural rate of unemployment.
This is the theoretical world that Krugman operates within and is not remotely akin to MMT nor Keynes.
Please read my blog post – Mainstream macroeconomic fads – just a waste of time (September 18, 2009) – for more discussion on this point.
So to even consider that MMT and New Keynesians are comparable with similar roots to Keynes is astoundingly ignorant.
The article reaches the depths of idiocy when we learn that being more Left than not requires one to advocate that a reliance on US central bank, :
… the Fed to handle inflation …[is] … actually a more progressive economic policy.
Apparently, it is more Left to believe that monetary policy is useful and the preferred aggregate policy tool over fiscal policy.
This is because, the reliance on monetary policy to discipline inflation provides the government greater fiscal space to pursue or “go wholeheartedly into progressive policies”.
Now think a bit about that.
First, the inflation risk is in the spending that is required to pursue full employment and particular industry policies.
At some point in the resource usage cycle, spending offsets (taxes, regulations, cuts in subsidies, spending redirection, administrative decisions, etc) will have to be made to maintain the nominal side of the economy (the spending) in tandem with the real side (the productive capacity).
If the nominal growth outstrips the real capacity then inflationary pressures can build.
Second, leaving aside the questions about the effectiveness and clarity of outcome of monetary policy shifts via interest rate adjustments for a moment, a reliance on monetary policy to discipline inflation in an environment where the government was “wholeheartedly into progressive policies” (by which I guess we are meaning expansionary spending initiatives in green transition, public health, public education, public transport, water, energy nationalisation, increased public employment, Job Guarantee, etc) would undoubtedly see the central bank continually hiking interest rates.
That would be the logic of the New Keynesian approach that married the central bank inflation priority with a large spending program on the fiscal side.
In other words, the two arms of policy would be working against each other.
Which means that if the monetary policy was effective the outcomes then we would see it pushing against fiscal policy and thwarting the expansionary impact of the policy, thus reducing its scope.
Further debtors would be screwed, home mortgage holders would be screwed, etc.
Third, but then we think that monetary policy actually operates in the opposite way to the New Keynesian conception. By pushing up business costs, it is highly likely that interest rate rises that are designed to be anti-inflationary actually add to inflationary pressures.
However, the idea that you vest the significant counter-stabilising policies responsibilities in a cabal of unelected and unaccountable central bank officials is the anathema of Left thinking.
It undermines democratic accountability by depoliticising essential macroeconomic decision-making.
I will write more about this another day.
Vaccination in Australia
Australia essentially eliminated COVID-19 from the community through restrictions and closing our external border (since March 2020).
The Government is projecting the external border will remain closed until sufficient Australians have been vaccinated, and they project that will be around mid-2022.
For me, personally, the external border closure is a real hassle, given many commitments I have abroad, which are either being put on hold, or being honoured via the Internet, in a less than satisfactory way.
The vaccination process has been a total shambles and despite the Government promising everyone will be done by October 2021, the prospects are that the process will go well into 2022.
There is a clamouring to open the external border from various capitalists who even claim we will just have to get used to people dying.
The vaccination shambles is being driven by a lack of supply (federal government fault), poor organisation (federal government largely to blame), official complacency (feds again), the AZ blood clot issue, and the government’s failure to invest in new manufacturing capacity despite being exhorted last March (2020) by experts to do so.
If the Government has have invested last year in a new plant to produce Pfizer/Moderna type vaccines the AZ reliance would have been overcome.
Their lack of vision and foresight is now the main reason we are in the predicament of having to keep our border shut while everyone else is sensing they can move to more freedom.
There was a survey published today though that suggests that 30 per cent of adults not yet vaccinated are reluctant to do so.
Only 4 per cent of the adult population are anti-vaxxers – so for them it is an absolute.
The report – Almost one-third of adult Australians say they’re unlikely to get COVID vaccination: survey (May 19, 2021).
The projections are that Australia might only reach 60 per cent coverage, which the experts claim is too low to be societally effective.
Only 14 per cent of adults in Australia said they were “extremely likely” to be covered. A further 8 per cent “very likely” and another 13 per cent “fairly likely”.
One of the problems is that Government has relied almost exclusively on the AZ vaccine and were lazy about procuring some of the other more effective and seemingly less problematic options.
Now with the health authorities determining that the risk of AZ for under 50s is too high, the Government has been caught short and is scrambling to get Pfizer for this group.
But in doing so they are now forcing the 50-70 group (me) to have the AZ vaccine, despite the blood clot risk being only a bit lower than it is for the under 50s.
50 per cent of adults said the main reason for hesitancy is the risk of side-effects and a further 38 per cent said the information provided by the Government has been inadequate.
Another 32 per cent are in the “wait until more pople have been vaccinated” category.
There is presumably a lot of overlap here in reasoning.
Further, the Government has become a systematic lying machine about almost everything (with many scandals relating to sexual abuse, monetary issues etc), so people are reluctant to believe them when they say everything is fine and AZ is safe.
On a personal note, I am in the hesitancy group and despite the Government announcing last week that 50-70s could now get vaccinated, I am many people in my category (50-70, healthy) are holding out because we refuse to be forced to take the AZ option when it appears the Pfizer option is more effective and has less known side-effects.
I would take the Pfizer option immediately as would many others. But I will not be forced to take the AZ option unless the odds change and that would only be if there was an ‘Indian’ type outbreak here.
The Government could solve most of the hesitancy immediately if it made both options available to anyone and stopped trying to force people to take an option that is less effective and higher (albeit low) risk.
But then it would have to admit it completely stuffed up the procurement process in an attempt to save outlays.
And so we are back to the “pay for it” malaise once again.
Music – to make you think about things
This is what I have been listening to while working today.
The German (now living in Britain) pianist/composer Max Richter – is one of my favourite composer/musicians.
Here is an interesting bio about him – Ed’s Notebook: The magic of Max Richter (July 31, 2020).
Max Richter told an audience once that he writes his music to help him think about issues, such as the illegal invasion of Iraq (hence his Blue Notebooks – album, released in 2004), the disaster of Kosovo and the London terrorist attacks in 2005.
This track – Mercy – comes of his new album released in 2020 – Voices – and Max Richter wants us to think about “events around Guantanamo Prison”.
This album is designed to make us think about the UN Declaration of Human Rights.
All his albums are excellent and if you like or want to understand post minimalism in music, you could do no better that starting with his Memoryhouse album.
That is enough for today!
(c) Copyright 2021 William Mitchell. All Rights Reserved.