I often read that Modern Monetary Theory (MMT) is defective because it has no theory of power relations. Some critics link this in their narrative to their claim that MMT also has no theory of inflation. They then proceed to attack concepts such as employment buffers, on the grounds, that MMT cannot propose a solution to inflation if it has no understanding of how power relations cause inflation. These criticisms don’t come from the conservative side of the policy debate but rather from the so-called Left, although I wonder just how ‘left’ some of the commentators who cast these aspersions actually are. The problem with these criticisms is that they have clearly adopted a partial approach to their understanding of what MMT is, presumably through not reading the literature widely enough, but also because of the way, some MMT proponents choose to represent our work. In this two part series, I propose to interrogate this issue and demonstrate that power and class is central to any contribution I have made to the development of the MMT literature. Part 1 sets the context and illustrates why some people might be confused.
Its Wednesday and just a few items today. I have a fair number of commitments today and some writing deadlines. But I thought a brief comment on a Financial Times article last week (April 30, 2021) highlights how paradigm shift creates wedges in those devoted to the degenerative paradigm. Some embrace change more than others. Some hang on to any thread to maintain their credibility. We might write something about Modern Monetary Theory (MMT) and power tomorrow. That should appeal, eh!
I think the general population are starting to get the message that my profession and the political class that uses it as an authority has been leading them down the garden path for decades now to cover up policies that have deliberately undermined our socio-economic prospects and allows a massive transfer of national income to the top-end-of-town. I am also watching, on a daily basis, the almost ludicrous way the mainstream economists and the politicians weave and duck as they change their story about fiscal deficits, public debt and unemployment. The paradigm shift that has been in play for a while now has accelerated in recent weeks, from a ‘6 in front of it’, to a ‘5 in front of it’, then last week a ‘4’ with some players urging a 3. That fancy talk the policy class use to talk about when the fiscal stimulus that has had capitalism on life support will start to be withdrawn and the numbers refer to the official unemployment rate that will tell the politicians the economy has recovered. Yes, I jest. And I shouldn’t because human tragedy is involved. But after years of being told I was crazy, it makes me laugh to watch the machinations unfold as the uncomfortable truth sets in that this lot had no authoritative model – it was hocus pocus all along designed to make us think they were on top of it and that TINA (prevails).
Last week (April 29, 2021), the US Bureau of Economic Analysis published the latest national accounts data – Gross Domestic Product, First Quarter 2021 (Advance Estimate) – which showed that the US economy grew by 1. The following day (April 30, 2021), saw Eurostat announce that the Eurozone contracted by 0.6 per cent in the first-quarter 2021, which means it is now enduring a double-dip recession. The European Union, now without Britain as a member, contracted by 0.4 per cent. In contrast, with Britain now out of that mess and determining its own future, we saw the British economy return a positive GDP growth rate in February as exports rose and government stimulus sustained domestic activity. Why should we be surprised about this. In this post, I examine the US situation in more detail and reflect on some interesting trends in the UK. The Eurozone situation is too depressing to write about on a sunny day!
Here are the answers with discussion for this special May Day Weekend 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.
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.
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.
I have been seeing a lot of crazy predictions that inflation is about to accelerate because of the elevated levels of government spending, record low interest rates and substantial government bond purchases by the Reserve Bank of Australia. It is almost as if the conservative, deficit-haters want that to happen so they can say “We told you so” as they cling on to their flawed macroeconomic theories. Well sorry to disappoint. Today (April 27, 2021), the Australian Bureau of Statistics released the latest – Consumer Price Index, Australia – for the March-quarter 2020, which hoses down the inflation fears. The Consumer Price Index rose by just 0.6 per cent in the quarter (mostly petrol prices) and over the 12-months to March 2021 it rose 1.1 per cent. The less volatile series, Trimmed Mean rose just 0.3 per cent and the Weighted Median rose 0.4 per cent. So nothing to see here. The RBA keeps buying government debt and effectively funding substantial proportions of the fiscal interventions since the pandemic, interest rates remain low and yet inflation is still well below the lower bound of the RBA’s inflation targetting range. The most reliable measure of inflationary expectations are flat and below the RBA’s target policy range.
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.
Last week, I wrote about how the IMF is presenting a somewhat nuanced view these days. See – IMF now claiming continued inequality risks opening a “social and political seismic crack” (April 21, 2021). But, there was a warning for those who might think this suggests the institution is leaving its mainstream macroeconomics past behind them though. Rather, I think what is going on is a series of ad hoc responses to the growing anomalies that the institution faces between the observed reality and the sort of predictions it has been making based on its core paradigmatic approach. We are observing a specific form of dissonance in many of the current contributions coming out of mainstream economics. This takes two forms: (a) an incomplete response to the current situation (pandemic, GFC aftermath, climate change) where there are conflicting signals being sent; and (b) a tortured attempt to absorb pragmatic narratives within a theoretical structure that cannot consistently accept that absorption. The IMF’s latest blog post (April 20, 2021) – A Future with High Public Debt: Low-for-Long Is Not Low Forever – is a good example of both forms of this dissonance.